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

                                   FORM 10-KSB

                                 (Mark one) v b
               /X/ Annual report under section 13 or 15(d) of the
                         Securities Exchange Act of 1934

                    For the fiscal year ended April 30, 2005
                                       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)

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                DELAWARE                                   3826                                 91-2022980

(State or other jurisdiction of            (Primary Standard Industrial Code)    (I.R.S. Employer Identification Number)
incorporation or organization
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                    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 $0.001 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: $0

As of July 31, 2005, representing the last business day of the registrant's most
recently completed fiscal quarter, the registrant had 50,171,581 shares of
common stock outstanding, and the aggregate market value of the voting common
stock held by non-affiliates of the registrant was approximately $29.6 million
(based on the closing price of $0.70 on that day). For purposes of this
calculation, voting stock held by directors and executive officers of the
registrant and stockholders holding 5% or more of the registrant's outstanding
common stock has been excluded. Such exclusion is not intended, and shall not be
deemed, to be an admission that such directors, executive officers and
stockholders are affiliates of the registrant.

On August 15, 2005, there were 50,171,581 shares of the registrant's common
stock outstanding.

Documents incorporated by reference: None.

          TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT: YES / / NO /X/

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                           HIENERGY TECHNOLOGIES, INC.

                                    INDEX TO
                          ANNUAL REPORT ON FORM 10-KSB
                    FOR THE FISCAL YEAR ENDED APRIL 30, 2005

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                                                                                                                        PAGE
PART I

<S>                                                                                                                 <C>
Item 1              Description of Business                                                                           2
Item 2              Description of Property                                                                          32
Item 3              Legal Proceedings                                                                                33
Item 4              Submission of Matters to a Vote of Security Holders                                              36

PART II

Item 5              Market for Common Equity and Related Stockholder Matters                                         59
Item 6              Management's Discussion and Analysis and Plan of Operation                                       72
Item 7              Financial Statements                                                                             88
Item 8              Changes in and Disagreements With Accountants on Accounting and Financial Disclosure            135
Item 8a             Controls and Procedures                                                                         135

PART III

Item 9              Directors, Executive Officers, Promoters and Control Persons; Compliance With
                    Section 16(a) of the Exchange Act                                                               136
Item 10             Executive Compensation                                                                          143
Item 11             Security Ownership of Certain Beneficial Owners and Management and Related
                    Stockholder Matters                                                                             146
Item 12             Certain Relationships and Related Transactions                                                  150
Item 13             Exhibits and Reports of Form 8-K                                                                152
Item 14             Principal Accountant Fees and Services                                                          153

                    SIGNATURES                                                                                      154
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PART I

Any reference to "we," "us" and "our" herein shall mean HiEnergy Technologies,
Inc., together with its consolidated subsidiaries, comprised of HiEnergy
Defense, Inc., HiEnergy Europe, Ltd, HiEnergy Mfg Company, and HiEnergy
International, Inc.

FORWARD LOOKING STATEMENTS

This annual report on Form 10-KSB (the "Report"), the other reports, statements,
and information that we have previously filed or that we may subsequently file
with the Securities and Exchange Commission and public announcements that we
have previously made or may subsequently make include, may include, incorporate
by reference or may incorporate by reference certain statements that may be
deemed to be "forward-looking statements". These forward-looking statements
relate to such matters as, among other things, our anticipated financial
performance, business prospects, technological developments, new products,
future distribution or license rights, international expansion, possible
strategic alternatives, new business concepts, capital expenditures, consumer
trends and similar matters.

Forward looking statements necessarily involve known and unknown risks,
uncertainties and other factors that may cause our actual results, levels of
activity, performance, or achievements to be materially different from any
future results, levels of activity, performance, or achievement expressed or
implied by such forward-looking statements. Readers are cautioned to review
carefully the discussion concerning these and other risks which can materially
affect our business, operations, financial condition and future prospects, which
is found under the heading Risk Factors later in this Report.

In some cases, you can identify forward-looking statements by terminology such
as "may," "will," "should," "could," "intend," "expect," "anticipate," "assume",
"hope", "plan," "believe," "seek," "estimate," "predict," "approximate,"
"potential," "continue", or the negative of such terms. Statements including
these words and variations of such words, and other similar expressions, are
forward-looking statements. Although we believe that the expectations reflected
in the forward-looking statements are reasonable based upon our knowledge of our
business, we cannot absolutely predict or guarantee our future results, levels
of activity, performance, or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of such
statements.

We note that a variety of factors could cause our actual results and experience
to differ materially from the anticipated results or other expectations
expressed in our forward-looking statements. The risks and uncertainties that
may affect the operations, performance, development and results of our business
include, but are not limited to, the following: changes in consumer spending
patterns; changes in consumer preferences and overall economic conditions; the
impact of competition and pricing; the financial condition of the suppliers and
manufacturers from whom we source our merchandise; economic and political
instability in foreign countries or restrictive actions by the governments of
foreign countries in which suppliers and manufacturers from whom we source
products are located or in which we may actually conduct or intend to expand our
business; changes in tax laws, or the laws and regulations governing direct or
network marketing organizations; our ability to hire, train and retain a
consistent supply of reliable and effective participants in our direct or
network marketing operation; general economic, business and social conditions in
the United States and in countries from which we may source products, supplies
or customers; the costs of complying with changes in applicable labor laws or
requirements, including without limitation with respect to health care; changes
in the costs of interest rates, insurance, shipping and postage, energy, fuel
and other business utilities; the reliability, longevity and performance of our
licensors and others from whom we derive intellectual property or distribution
rights in our business; the risk of non-payment by, and/or insolvency or
bankruptcy of, customers and others owing indebtedness to us; threats or acts of
terrorism or war; and strikes, work stoppages or slowdowns by unions affecting
businesses which have an impact our ability to conduct our own business
operations.


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Forward-looking statements that we make, or that are made by others on our
behalf with our knowledge and express permission, are based on a knowledge of
our business and the environment in which we operate, but because of the factors
listed above, actual results may differ from those in the forward-looking
statements. Consequently, these cautionary statements qualify all of the
forward-looking statements we make herein. We cannot assure the reader that the
results or developments anticipated by us will be realized or, even if
substantially realized, that those results or developments will result in the
expected consequences for us or affect us, our business or our operations in the
way we expect. We caution readers not to place undue reliance on these
forward-looking statements, which speak only as of their dates, or on any
subsequent written and oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by these
cautionary statements. We do not undertake any obligation to release publicly
any revisions to such forward-looking statements to reflect events or
circumstances after the date hereof or thereof or to reflect the occurrence of
unanticipated events.

Readers should also note that the safe harbor for forward-looking statements
provided by, among other federal regulations, Section 21E of the Exchange Act
are unavailable to issuers of penny stocks. As we have issued securities at a
price below $5.00 per share, our shares are considered penny stocks and such
safe harbors are therefore unavailable to us.

ITEM 1. BUSINESS

A Glossary of Scientific Terms has been included for the convenience of our
readers, in order to help provide a better understanding of our business, and
begins on page 57 of this Report.

OVERVIEW

HiEnergy Technologies, Inc. ("HiEnergy", together with its subsidiaries, the
"Company") is a nuclear technologies-based company focused on the
commercialization of its initial proprietary, neutron-based, "stoichiometric"
sensor devices, including (i) the CarBomb Finder(TM) 3C4, a vehicle-borne
system, for the detection and identification of car bombs, and (ii) the
SIEGMA(TM) 3E3, a portable suitcase-borne system for the detection and
identification of home-made bombs, also known as Improvised Explosive Devices or
IEDs. We are marketing our devices to governmental and private entities and are
negotiating licenses for distribution of our devices with various industry
partners. To date, we have devoted the bulk of our efforts and resources to the
research, design, testing and development of proprietary "stoichiometric" sensor
devices and underlying technologies, and have yet to generate meaningful
revenues from the sale of any products using our technologies.

Our "stoichiometric" technology, or "Stoitech(TM)" has been incorporated into
additional prototype applications which, if we are able to raise the funds
necessary to commercialize them, will be the next products we attempt to launch:
(i) an in-ground explosive screening system, the CarBomb Finder(TM) 3C5, (ii) a
landmine detector, the Anti-Tank Landmine Detector 7AT7; (iii) an unexploded
ordnance detector, the Unexploded Ordnance Sensor 3UXO3, which is also useful to
detect IEDs; and (iv) a device we call a "Refractorymeter", which can detect
fissures or erosions in the ceramic lining of oil cracking tanks.

We also continue to focus on the research and development of additional
applications of our technologies and their further exploitation, both internally
and through collaboration with third parties. We are currently developing
prototypes in programs with the U.S. Department of Defense and the Department of
Homeland Security for other related uses of our core technology. Recently, we
entered into a funded cooperative development agreement with the U.S.
Transportation Security Administration (TSA) to produce a proof of concept which
incorporates our SuperSenzor(TM) technology into a baggage screening system.

Our mailing address and executive offices are located at 1601-B Alton Parkway,
Irvine, California 92606. Our telephone number is (949) 757-0855. Our corporate
website is www.hienergyinc.com. Information contained on our website is not a
part of this Annual Report on Form 10-KSB.


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BACKGROUND

HiEnergy Technologies, Inc. was originally incorporated under the laws of the
State of Washington on March 22, 2000, under the name SLW Enterprises Inc. ("SLW
Enterprises" or "SLW"). SLW's initial efforts focused on establishing a
web-based nutritional supplement sales business under a different trade name.
The former operations and business of SLW became inactive in 2001.

On April 25, 2002, SLW Enterprises, Inc., which was then a "public shell
company", was taken over by the stockholders of HiEnergy Microdevices, Inc.
("Microdevices"), in a transaction commonly referred to as a "reverse takeover".
Under this transaction, which was structured as a voluntary exchange of shares,
the stockholders of Microdevices, including our present Chairman of the Board,
Chief Executive Officer, President, Treasurer and Chief Scientist, Dr. Bogdan
Maglich, obtained the right to receive up to 64% of SLW Enterprises, Inc. The
reverse takeover was accounted for as a re-capitalization of Microdevices for
accounting purposes, and Microdevices became our majority-owned subsidiary.
Following the reverse-takeover, Microdevices assigned its right, title and
interest in and to our two principal patents to us, which assignment was
recorded at the U.S. Patent and Trademark Office on November 24, 2003. Effective
April 26, 2002, the existing members of the Microdevices' board of directors
became members of our Board of Directors, and the executive officers of SLW were
replaced by executive officers of Microdevices, other than Barry Alter, who
remained our President and CEO until September 25, 2002, and a director through
March 7, 2003. On October 22, 2002, HiEnergy Technologies was redomiciled as a
Delaware corporation.

On January 25, 2005, we completed a short form merger to acquire the remaining
outstanding stock of Microdevices and issued 452,059 shares of common stock to
Microdevices stockholders on the basis of 22.3524 HiEnergy shares for 1 share of
Microdevices (the same ratio that was used in the original voluntary share
exchange), and all the assets and liabilities of Microdevices became assets and
liabilities of HiEnergy. Additionally, we may be required to issue up to 704,190
shares of our common stock to former holders of options and warrants of
Microdevices who hold rights to purchase HiEnergy shares at $0.156 per share.
These rights survived the merger and may be exercised any time before April 25,
2007, subject to the payment of promissory notes representing the purchase
price.

HiEnergy Microdevices, Inc. was originally formed in Delaware in 1995, and was
the vehicle through which our "stoichiometric" technology, or Stoitech(TM), was
initially developed by Dr. Maglich. We use the term "stoichiometric" to refer to
the ability of our technology to accurately decode and decipher the chemical
formula and weight of selected substances. For example, a stoichiometric sensor
device can non-invasively detect and confirm the presence of a "plastic"
explosive (such as RDX) contained in an object through metal or other barriers
without the need for sampling and conducting analytic chemistry tests.
Historically, the practical determination of the chemical formula for a
substance could only be accomplished invasively, through analytic chemistry,
where the substance must be physically subjected to a series of complex tests
involving chemicals, test tubes and a multitude of instruments.

To our knowledge, our products, prototypes, and other proprietary technologies
in development are the only devices with "stoichiometric" capability, "false
positive" and "false negative" rates of 2.25%, and a probability of detection of
97.75%. While there are several products on the market with underlying
technologies that "infer" the presence of explosives, biological agents or
illicit drugs based upon the presence or density of individual chemical elements
or utilize pattern recognition techniques, we believe there is no other viable
product that has the capability to accurately, quickly and definitively identify
the chemical formula and estimated weight of selected substances. Existing
products require the employment of secondary "confirmation" sensors and
secondary examinations to determine the chemical formula, and are not only prone
to high "false positive" readings which can result in false alarms (which
trigger inappropriate and/or wasteful mobilizations of resources), but also high
"false negatives" which are more dangerous, because they create a false sense of
security and can lead to disastrous consequences. In the area of bomb detection,
"false negatives" signify that true bombs are missed and mislabeled as
non-explosives. Also known as the "missing fraction", it is the most dangerous
imperfection of an explosive detector, for it leads to handling true explosives
as though they were innocuous objects which, in many cases, can lead to death
and destruction.


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Since our technology is more aptly used to decode and identify the actual
chemical formula of a substance, once selected for further inspection following
initial examination, we anticipate that it will be used in combination with
current screening, scanning and detection products on the market. We also
believe that our technology will be utilized in tandem with existing secondary
confirmatory examinations, including manual inspection by humans and canine
units, in order to provide more reliable confirmation and substantially
eliminate the occurrence of false alarms.

RECENT EVENTS

SEC INVESTIGATION

On March 30, 2004, Dr. Bogdan Maglich, our Chairman, Chief Executive Officer,
Treasurer, President and Chief Scientist, gave an oral and written presentation
at the Investment Opportunities in Homeland Security and Defense Conference in
Washington, D.C. regarding HiEnergy's key markets, business strategy and
financial projections. Copies of the presentation were distributed at the
conference. We subsequently posted the presentation on our website from April 7,
2004 to April 13, 2004. Approximately 2,731 computer users visited our website
and had access to the presentation. The total number of hits was 96,937, or a
daily average of approximately 13,848. The presentation contained statements of
management's beliefs concerning our key markets, business strategy,
opportunities and financial projections which were not disclosed in a concurrent
registration statement we had filed with the SEC on Form SB-2. In order to
reduce the risk of an investor relying on the presentation, we removed the
presentation from our website on April 13, 2004, in part to allow for a "cooling
off" period so that any possible effect of the presentation would dissipate, and
we subsequently withdrew the registration statement on April 16, 2004.

The conference and website information stated that we had projected sales of 265
units at an average price of $223,396 per unit, including maintenance fees.
These projections assumed that we would raise the money we needed to fund our
conversion from a prototype development company to one which could manufacture
the CarBomb Finder(TM) and Antitank Landmine Detector 7AT7(TM) at commercial
levels. Since the date that the projections were made, we have been unable to
raise the capital necessary to achieve that objective. In addition, the
availability of greater resources and interest to develop a line of products in
response to the startling increase in the use by terrorists of home-made
Improvised Explosive Devices, or IEDs, in Iraq and elsewhere, led to a
determination by us to focus more on deploying a product which is designed to
thwart this particular type of threat. The confluence of our inability to raise
the funds necessary to scale up to commercial production at the levels
previously assumed, together with our shift in commercial priorities in order to
respond to emerging risks, caused us to fail to meet our 2004 projections.
Accordingly, investors should not rely on these projections in making any
determination whether or not to invest in, or maintain, an investment in, our
company.

As more fully described below in the section entitled Legal Proceedings, on
April 12, 2004, we received a subpoena requesting documentary evidence
corroborating our statements in the presentation described above. On May 24,
2004, we received a letter from the SEC requesting us to voluntarily provide
information regarding the nature and chronology of events leading up to our
announcement of a "non-exclusive oral understanding with a consortium which was
assembled by the Dallas-Fort Worth Homeland Security Alliance", as reported in
our Current Report on Form 8-K filed with the SEC on April 8, 2004. We
voluntarily responded through counsel by letter dated June 7, 2004. On June 24,
2004, we received a further letter from the Central Regional Office of the SEC,
in Denver, Colorado, indicating its intention to recommend that the Commission
charge us with violations of several sections of the Securities Exchange Act,
and the rules promulgated under that act, involving the making of false and
misleading statements in our public documents. The false and misleading
statements which the SEC believes were made seem to focus primarily on, among
other things, the undisclosed ownership of our securities by, and actions with


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respect to our stock taken by, Barry Alter, Philip Gurian and other of their
affiliates who controlled SLW Exterprises Inc. at and prior to the time of our
reverse-takeover; the undisclosed identity of, and the origin of funds used to
purchase our stock by, certain of our stockholders; the nature of, and reasons
for, a "dividend" provided to our stockholders; and the terms of other offerings
occurring at the same time as one of our private placements of stock. In
addition, the antifraud violations appear to be based upon private transactions
made by Mr. Alter (formerly a director and executive officer of HiEnergy
Technologies, Inc.) with respect to sales of our stock made by him without
disclosing material facts about us, or our contemporaneous offering of
securities at different prices, to his purchasers. We are currently working with
special securities litigation counsel to assess our legal position and determine
how best to respond to this most recent correspondence from the SEC.

On June 30, 2004, the SEC sent us a Subpoena in which it required us to provide
to it copies of all documents concerning the restatement of our financial
statements, which we reported on June 9, 2004. The subpoena requested
documentary evidence concerning the restatement including, without limitation,
all of our electronic and written correspondence, notes, journal entries,
records, working papers and other documents that pertain to the restatement, and
specifically all communications between us and our auditors, Singer, Lewak,
Greenbaum & Goldstein, LLP ("SLGG"). SLGG also received a similar subpoena from
the SEC. Our restatement was based primarily on changes in certain assumptions
we had used to determine the fair value of the common stock of HiEnergy
Microdevices which we received in the voluntary share exchange between us and
HiEnergy Microdevices in April 2002, and more specifically as discussed in Note
2 of the accompanying Notes to the audited Consolidated Financial Statements.
The effect of the restatement on our financial statements was to cause us to
record additional expense of $1,009,531 and $514,415 during the fiscal years
ended April 30, 2002 and April, 30, 2003, respectively, and to increase the
amount of our accumulated deficit and additional paid in capital brought forward
at May 1, 2001 by $3,126,684 and $3,341,019, respectively.

CLASS ACTION LITIGATION

In January 2005, we were served with a Summons and Class Action Complaint for
Violations of Federal Securities Laws, which was filed on October 18, 2004, in
the Federal District Court for the Southern District of California under case
number SACV04-1226 GLT. The Complaint filed named HiEnergy and our Chairman,
among other named defendants, on behalf of a class of persons who acquired our
stock during the period from February 22, 2002 through July 8, 2004. In February
2005, plaintiff's counsel filed a First Amended Complaint entitled and styled,
"In re: HiEnergy Technologies, Inc. Securities Litigation," Master File No.
8:04-CV-01226-DOC (JTLx), alleging various violations of the federal securities
laws, generally asserting the same claims involving Philip Gurian, Barry Alter,
and failure to disclose their various securities violations including, without
limitation, allegations of fraud. The First Amended Complaint seeks, among other
things, monetary damages, attorney's fees, costs, and declaratory relief. We
have engaged two legal firms to vigorously defend us in this matter and assess
the impact of the pending lawsuit. On Friday, March 25, 2005, we timely filed
responsive pleadings as well as Motions to Dismiss the Plaintiffs' First Amended
Complaint arguing that the Complaint failed to state a claim upon which relief
can be granted. On June 17, 2005, the Court issued an Order Granting the Motions
to Dismiss (the "Order"), finding that the Plaintiffs failed in the First
Amended Complaint (1) to allege causation of loss resulting from any alleged
omissions and/or misrepresentations of HiEnergy or Dr. Maglich, and (2) to
sustain a cause of action for securities fraud under ss.10(b) of the Exchange
Act and Rule 10b-5 of the SEC, as well as that the Plaintiffs failed (3) to
plead actual reliance on any allegedly false or misleading filings of HiEnergy
to sustain a claim under ss.18 of the Exchange Act, and (4) to allege a primary
violation of any securities laws to sustain a claim for a violation of ss.20(a)
of the Exchange Act. On July 5, 2005, the Plaintiffs filed a Second Amended
Complaint in compliance with the Court's Order, as anticipated. Our counsel will
respond to the allegations in any further pleading with appropriate challenges
to its legal sufficiency to state a claim upon which relief may be granted. The
costs of defending against the Complaint could be substantial; however we are
unable to predict an exact amount, or even a meaningful estimate, at this time.


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CHEMICAL DETECTION METHODOLOGY--PRIMARY AND SECONDARY DETECTION

The art and science of chemical detection can be broadly divided into (i)
primary or "anomaly" detectors and (ii) secondary or "confirmation" sensors.
Anomaly detectors, such as x-ray or MRI devices, metal detectors, radar
detectors and infrared detectors, can infer that an object or a contained
substance might be an explosive, illicit substance or biological agent based
upon content, density, shape or heat. However, while anomaly detectors are
useful for flagging "suspicious" items, they cannot determine whether the object
or contents in question actually are explosives, illicit substances or
biological agents, or merely some harmless substance. The only way to make this
determination is to subject the object or its contents to supplemental
inspections, or secondary "confirmation" detection methodologies, such as
chemical analysis.

By way of example, the x-ray explosive detection systems currently used for
airport security are anomaly detectors. For each piece of luggage, the operator
must decide whether the image provided by the x-ray detector indicates a
suspicious object. Then the operator must use a secondary means, such as
physical inspection, to determine whether the selected suspicious object is
actually an explosive. X-ray explosive detection systems currently in use have
shown a very high rate of false positives (where innocuous substances are
identified as dangerous), and a lesser, but more troubling, rate of false
negatives (where test explosive simulants are able to avoid detection). Although
some newer x-ray machines are able automatically to determine whether an image
indicates a suspicious object instead of relying on human inference, they cannot
conclusively identify the contents, so the luggage still must be opened and
manually inspected.

Similarly, the metal detectors, radar detectors, and infrared detectors
currently used to detect landmines are also anomaly detectors that can only
detect suspicious objects. The objects are identified based on their metal
content, density, shape or heat. Suspicious objects still have to be excavated
and analyzed by human workers in order to determine whether they contain
dangerous explosives. In a typical minefield, for example, independent analysts
have advised us that for each real landmine found the average rate of false
positive identification can range from 33% to 50%, and has been noted as high as
1,000 false alarms to 1 real landmine. In the context of landmines, high numbers
of false alarms can be generally explained as a result of the presence of
numerous metallic objects in the field, such as shrapnel, nails, wire and other
anomalies which are the residue of war.

Since Stoitech(TM)-enabled systems can decipher the exact chemical formula of
substances, they are characterized as secondary or "confirmation" detectors.

OUR STOICHIOMETRIC TECHNOLOGY; CHEMICALS AND SUBSTANCES IDENTIFIED TO DATE

Our stoichiometric technology identifies and confirms the chemical composition
of objects by irradiating them with fast neutrons, which stimulate the atomic
structure of the object and cause it to emit gamma rays which can then be
analyzed by our sensors. The gamma rays emitted by each substance have a unique
chemical `signature' from which we are able to decipher the exact quantitative
empirical chemical formulation of the substance. For instance, in the area of
explosive identification, our stoichiometric technology identifies and
distinguishes a variety of nitrogen-based explosives known to be used by
terrorists, such as TNT, Semtex, RDX and those made with nitrates (fertilizers).
Our technology also identifies chlorine and potassium-based explosives, which to
our knowledge are the only non-nitrogen based explosives. We can also identify
and differentiate other combustibles, such as carbon-based fuels including
gasoline and diesel fuel. Our stoichiometric technology has also successfully
been used to identify, and decipher the chemical formula of illicit narcotics
(cocaine) and biological agents (such as an anthrax simulant made from dead
spores). A significant portion of our research is currently dedicated to
identifying the chemical signatures of additional substances, including more
"exotic" explosives, such as triacetonetriperoxide (TATP), a highly volatile,
highly explosive compound made from widely available chemicals, including
acetone, hydrogen peroxide and a mineral acid.


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POTENTIAL PRIMARY MARKETS

We believe that Stoitech(TM) and the other stoichiometric technologies we are
developing have broad applications. However, due to our limited size and
availability of resources, we have limited our prototype and development and
product commercialization efforts to two primary potential markets: (i) the
security and counter-terrorism market, and (ii) the chemical and petrochemical
industry control market.

Within the security and anti-terrorism market, we have focused our development
efforts principally in the field of explosive detection. This market can be
broken-down into further identifiable sub-segments both by application and user.
Explosive detection is generally governmental in nature, and includes car bomb
detection; bomb squad, airport and customs screening; government facility
protection; and military applications. However, the commercial courier and
public and private transportation service sectors also have a need for our
technology, particularly in mass-transit and break-bulk cargo screening.
Applications in the chemical and petrochemical industry control market would
include detection of fissures and erosion in the ceramic liners of oil cracking
tanks, as well as industrial contamination identification and control,
industrial quality control (i.e., detecting impurities in oil, gas or gemstones)
and food and beverage product control. Our initial marketing activities and
anticipated product sales will be in these sectors.

Currently, we are focusing the majority of our sales and marketing efforts on
the promotion of our SIEGMA(TM) 3E3, a Stoitech(TM)-enabled suitcase-borne
system, which was designed primarily for the detection of terrorist homemade
bombs, or Improvised Explosive Devices (IEDs). Notably, IEDs are unconventional
in delivery, often inaccessible by vehicle-borne systems, and contain
non-standard mixtures that generally require chemical formula identification not
obtainable with other detectors currently in the marketplace. To date, we have
received strong interest for the SIEGMA(TM) 3E3 from the transportation
industry, specifically mass-transit authorities and airport operators, due to
its mobility and ability to quickly and safely interrogate unattended packages,
while eliminating or substantially reducing false alarms that otherwise paralyze
subway systems, train stations, airports and buildings, and are responsible for
huge financial losses. We are also continuing the marketing of our CarBomb
Finder(TM) systems for car bomb detection. With the advent of the increasing
requirement for perimeter defense for military and high security installations,
buildings and high traffic public areas, and other critical infrastructure, such
as bridges, tunnels and major chokepoints, we are accelerating commercialization
of our newest prototype, the CarBomb Finder(TM) 3C5, an in-ground system that
inspects at a high throughput the compartments of a car and other vehicles from
a stationary position below the level of the vehicles. If we are successful in
launching these as commercial products, then our next areas of prototype and
product development will most likely be in the area of advanced screening
activities aimed at illicit drug and biological agent detection, as well as in
medical diagnostics.

PROPRIETARY DEVICES

CURRENT PROTOTYPES; PRODUCT DEVELOPMENT EFFORTS

Our initial prototype developments include the creation of a device that uses
our stoichiometric technology to detect bombs in vehicles, the CarBomb
Finder(TM). The device was developed specifically to identify vehicles packed
with nitrogen-based and chlorine-potassium-based concealed explosives with the
intent of using the vehicle itself as a bomb. With many advancements made to
this prototype as well as our core technologies, we are now on the fourth
generation of this device and have completed three prototypes which we intend to
commercialize, the CarBomb Finder(TM) 3C3, the CarBomb Finder(TM) 3C4, and
CarBomb Finder(TM) 3C5.

The CarBomb Finder(TM) 3C3 is essentially the same as the CarBomb Finder(TM)
3C4, except that the CarBomb Finder(TM) 3C3 is a stand alone device which scans
compartments of a car from above at the end of a boom and the CarBomb Finder(TM)
3C4 is a van-borne system, which deploys the same sensor vertex, or head unit,
as that of the CarBomb Finder(TM) 3C3 at the end of a robotic arm from the van.
The increasing focus on the CarBomb Finder(TM) 3C4 over the CarBomb Finder(TM)
3C3 has been the result of increasing demand for a more mobile, van-borne
configuration of the CarBomb Finder(TM) system.


                                       7
<PAGE>

The CarBomb Finder(TM) 3C5 is our latest prototype incorporating the same core
technologies as the CarBomb Finders(TM) 3C3 and CarBomb Finders(TM) 3C4. The
CarBomb Finder(TM) 3C5 is an in-ground system that inspects the compartments of
a car and other vehicles from a stationary position below the level of the
vehicles. The design of the CarBomb Finder(TM) 3C5 has greater range as to the
type of vehicles it can scan and has a higher throughput than either the CarBomb
Finder(TM) 3C3 or CarBomb Finder(TM) 3C4. It is not mobile and is designed for
static operation at checkpoints and chokepoints to provide infrastructure
protection and installation security.

We believe the CarBomb Finder(TM) devices will prove to be of particular
interest in regions that experience a higher than normal incidence of car
bombings. This would include many countries in the Middle East and the Indian
subcontinent, Spain, Columbia and Indonesia, as well as U.S military
installations located in these and other regions. To date, we have not
manufactured any CarBomb Finder(TM) devices for sale and, accordingly, there are
no CarBomb Finders ready for commercial sale. On August 5, 2004, we received an
order for one demonstration model of our 3C4 CarBomb Finder from our Middle
Eastern distributor, Electronic Equipment Marketing Company ("EEMCO"), which is
purchasing the model at a price which may fall at or below cost. Our
relationship with EEMCO, which is owned by one of our directors, Harb Al-Zuhair,
is described in detail later in this Report in the section entitled Marketing
and Distribution Strategy.

Also on July 15, 2005, we executed a Time and Material Subcontract in the amount
of $333,688 with Integrated Concepts & Research Corporation (ICRC), a subsidiary
of Koniag, Inc., an Alaskan Native Corporation, located in Alexandria, VA. The
Subcontract was awarded as part of ICRC's Prime Contract Number DAAE07-02-C-L062
with the United States Army Tank - Automotive and Armaments Command, Warren
Michigan (TACOM). Under the Subcontract, we will deliver one CarBomb Finder(TM)
head unit and provide the engineering and technical support necessary for its
integration with the SmarTruck II Multi-Mission Vehicle. The finished prototype
is expected to be field tested by the U.S. Army and D.C. Capitol Hill Police.
Funding of the program was provided through a supplemental authorization of the
Defense Appropriations Act for Fiscal Year 2005.

In October 2004, we announced the development of a new prototype, the SIEGMA(TM)
3E3, a Stoitech(TM)-enabled, suitcase-borne system designed primarily for the
detection of terrorist homemade bombs, or Improvised Explosive Devices (IEDs).
The entire SIEGMA(TM) 3E3 system, including power supply, weighs about 110 lbs
and is contained within an unmarked aluminum suitcase with wheels. It uses a
fiber optics connection to a remote notebook computer, and employs our
proprietary analytics and an intuitive graphical user interface (GUI), which is
designed to be user-friendly and allow for operation without extensive training.
The SIEGMA(TM) 3E3, when placed beside a suspicious object by hand or by robot,
can identify whether or not an object contains explosive in a time ranging from
15 seconds to 5 minutes (depending on the quantity of explosive and the distance
from target), with "false positive" and "false negative" rates of 2.25% and a
probability of detection of 97.75%. Following its successful demonstration at
the NATO Symposium on Improvised Explosive Detection, held in Madrid, Spain, on
October 18-19, 2004, we immediately commenced with the commercialization of the
SIEGMA(TM) 3E3, which is slated to be the focus of our first product launch.

On September 29, 2004, we entered into a Cooperative Agreement with the U.S.
Transportation Security Administration (TSA) upon our selection as one of only
ten companies in the government's Manhattan-II Project, which was established by
the TSA to identify "emerging and revolutionary new technologies" that can
significantly improve aviation security and reduce operational costs. Our
proposal was for a new stoichiometric explosive detector design for aviation
security applications, specifically for the detection and confirmatory screening
of checked baggage. Under the agreement, we are to provide proof-of-concept for
our "NextGen Checked Baggage Program (STOXOR)" over a nine month period, which
may be extended at the option of the TSA. The agreement provides funding in the
amount of $367,141 for Stage 1, and an additional $145,381 for Stage 2, if, at
the conclusion of Stage 1, the TSA elects to continue working with us. As of
June 30, 2005, we earned $367,141 and completed Stage 1. The TSA will continue
to pay our research and development costs on a periodic basis during the term of
the Cooperative Agreement, for which we are required to submit monthly written
reports detailing our progress under the contract. When the written report is
accepted by the TSA, we receive payment in about 30 to 45 days. A decision by
the TSA as to our participation in Stage 2 of the program is expected before
October 2005. There is no obligation for the TSA to fund our development efforts
under this agreement beyond the Stage 2 funded amount and there can be no
assurance that we will be extended another contract to continue under the
Manhattan-II Project after the completion of Stage 2.


                                       8
<PAGE>

Any of the technology developments or inventions we create using some or all of
the funding through the Cooperative Agreement is subject to federal regulations
governing the ownership and use of federally-funded technologies. Accordingly,
the federal government may retain certain non-exclusive or exclusive rights to
use the technology for various purposes, and may obtain, or assign to a third
party, ownership of the technology if we do not timely prosecute our rights in
such technology. (See: Risk Factors - Intellectual Property Risks).

RESEARCH AND DEVELOPMENT ACTIVITIES

Due to our lack of capital and other resources, we have prioritized our research
and development activities in order to concentrate our focus on bringing our
CarBomb Finder(TM) and SIEGMA(TM) systems to market, as described above. Our
next priority is to develop additional products based upon the same core
technologies. To date, these activities have included development of an
anti-tank landmine detection device, the Anti-Tank Landmine Detector 7AT7 and a
device to detect unexploded ordnance above the ground, the Unexploded Ordnance
Sensor 3UXO3. Finally, we have deployed resources to work on developing a
solution to the inability of oil and gas producers to adequately detect and
prevent cracks and fissures appearing in the industrial holding tanks used in
oil cracking operations. We have been working closely with the research center
of Exxon-Mobil, which has provided us with samples of materials for us to use in
testing our fissure detection system, called a "Refractorymeter." The
relationship we have begun with Exxon-Mobil does not involve the payment to us
of any cash, nor the receipt of any property other than certain materials we
have used for testing purposes. Although management is hopeful that the results
of work in this area will result in our being able to sell Refractorymeter
devices to Exxon-Mobil once development efforts are completed, there can be no
assurance that we will ever be requested to sell any product or technology to
Exxon-Mobil, or to any other entity, if and when our development of the
Refractorymeter is completed, or that we will derive any benefit whatsoever as a
result of the informal relationship which now exists with the research center of
Exxon-Mobil.

During the fiscal year ended April 30, 2005, we spent $785,260 in research and
development costs for our existing prototypes and emerging products including
the CarBomb Finder(TM) and SIEGMA(TM) product lines, the Anti-Tank landmine
prototype, the unexploded ordnance/IED prototype and the Refractorymeter
prototype.

Several of our early stage prototypes, the Unexploded Ordnance Sensor 3UXO3, and
the CarBomb Finder(TM) 3C5, an in-ground explosive screening system, also use
the same core technology as the CarBomb Finder(TM) 3C4. We refer to this as our
"MiniSenzor" technology. With the advent of the SIEGMA(TM) system, we have
halted development work on the BombSquad Detector 3B3. We are currently
field-testing a prototype of 3UXO3, which uses a different configuration of our
MiniSenzor technology and is smaller and more portable than our CarBomb
Finder(TM) devices. While the 3UXO3 is in the later stages of prototype
development, there remain some engineering issues which we must address relating
to its smaller size and different configuration and electronics before we can
bring this or other devices to market. As a result of anticipated delays in
fully addressing these engineering issues, in view of our current focus on
commercializing the CarBomb Finder(TM) 3C4 and SIEGMA(TM) 3E3, and our priority
development of the CarBomb Finder(TM) 3C5, dates for introducing
commercially-viable versions of the Unexploded Ordnance Sensor 3UXO3 or the
halted BombSquad Detector 3B3 to market cannot be determined at this time.

We are also conducting research and development work on a later-stage
development product, the Anti-Tank Landmine Detector 7AT7, using our
"SuperSenzor" technology, which is also the basis of our STOXOR prototype with
the Manhattan-II Project. The SuperSenzor technology is a more sophisticated,
advanced version of Stoitech(TM), by employing more sophisticated directional
and spatial accuracy features allowing the interrogation device to image the
location and shape of the substances being analyzed in three dimensions.
Prospective benefits of our SuperSenzor technology include the ability to focus
upon extremely small, three-dimensional objects and locations, substantially
increased inspection speeds and penetration depths, and the ability to conduct
inspections at a greater distance from an object. The Anti-Tank Landmine
Detector 7AT7 currently is in the late-development stage, however, we continue
to work on its more sophisticated component and electronic requirements. Subject
to our receipt of additional funding, we intend to conduct pre-commercial tests
of the Anti-Tank Landmine Detector 7AT7 device for the U.S. Army pursuant to a
research and development grant we received from the Army. See Description of
Business - Government Research and Development Grants and Contracts. The
anticipated date of introducing commercial versions of these devices to market
is indefinite, and there can be no assurance that any of our development stage
devices will ever become commercially viable.


                                       9
<PAGE>

Since our SuperSenzor technology employs more sophisticated components and
electronics than our MiniSenzor technology, SuperSenzor-based products will be
approximately double the cost of MiniSenzor-based products. Once we have
completed development work on these future devices, our ability to make
commercial sales will depend, in part, on negotiating contracts with customers
which can afford them, and modifying our stoichiometric technologies to meet the
unique specifications of those customers. Because our targeted customers are
primarily governmental agencies, we cannot predict if, or the time frame during
which, they may obtain approval to enter into contracts to adopt a new
generation of security technology such as ours. We also cannot predict the
extent to which U.S. and/or foreign governmental agencies may require a
commercial prototype of any given device specific to their desired application
to be developed in advance of entering into a contract to purchase products
incorporating our technology, or our ability to secure sufficient funding to
finance the cost of building such prototypes in advance of sales commitments.

We expect also to constantly direct research and development toward the
improvement of our core technologies, such as Stoitech(TM), and the increase of
its efficacy and flexibility. In May 2005, our scientific team was successful in
more than doubling the safety factor of the SIEGMA(TM) 3E3 by effectively
cutting, by more than one-half, the detector's risks of making "false negative"
and "false positive" identifications from a level of 5% to 2.25%. Notably, this
significant improvement in the system's performance was achieved with no
material increase to the interrogation time. Our scientific team also continues
to work on expanding the number of explosive substances that can be identified
by the CarBomb Finder(TM) and SIEGMA(TM) systems, so as to provide first
responders with the most effective, reliable and adaptable tool possible.

Lastly, we are seeking to package with the assistance of consultants a core
system comprising our Stoitech(TM) and other proprietary technologies within a
common engineering platform, for which future products can be based. The core
system as contemplated is one that can be utilized for whichever product or
application is specified and then configured with the needs of the customer in
mind. The strategic business objective is to achieve efficiencies throughout the
commercialization process from prototype development to commercial production,
as well as to better position our technology for strategic partnerships and
cooperative developments for other industry applications.

EXPLOSIVE DETECTION SYSTEMS: COMPETING TECHNOLOGIES

DIRECT COMPETITION--SECONDARY OR "CONFIRMATION" SENSOR PRODUCTS

CAR BOMB DETECTORS

To our knowledge, there is only one other car bomb secondary or "confirmation"
detection system on the market, the Vehicle Explosive and Drug Sensor ("V-EDS"),
manufactured by Ancore Corporation, a division of OSI Systems. The CarBomb
Finder(TM) 3C4 is distinguishable from the V-EDS product, in that our device can
stoichiometrically determine whether a vehicle contains large enough quantities
of nitrogen to be a car bomb while, based upon the information we have seen, the
V-EDS system can only make a qualitative assessment that nitrogen is present in
the vehicle, and its ability to determine that sufficient quantitative amounts
to be a car bomb are present appears to be marginal. Since the V-EDS Thermal
Neutron Analysis technology uses neutrons that are approximately ten times less
penetrating than the fast neutrons employed by the CarBomb Finder(TM) 3C4, we
believe that its penetration range should be significantly less than that of our
device.


                                       10
<PAGE>

IED DETECTORS

To our knowledge, there are no other viable secondary or "confirmation"
Improvised Explosive Device (IED) detection technology available as this time.
One system in development, the neu-Vision by Applied Signal Technology (formerly
Dynamics Technology Inc.), incorporates neutron activation and 3-D imaging
closely resembling certain of our proprietary techniques. No data is publicly
available as to the commercial viability or status of production of the
neu-Vision system. According to materials published by Applied Signal
Technology, it appears that the neu-Vision system cannot determine the
quantitative amount of detected substances. Further, based on our experience, it
appears that the neu-Vision system would demand long interrogation times which
questions its utility.

OTHER NEUTRON-BASED SECONDARY EXPLOSIVE DETECTION SYSTEMS

The primary use of neutron-based secondary detection systems is in screening for
explosives, contraband and other items. The foundation of all of these systems
is that explosives, contraband and other items contain chemical elements (for
example, nitrogen, oxygen, hydrogen and carbon) in differing quantities and
ratios which can be analyzed to distinguish one from the other, and from other
non-harmful items. These technologies use neutrons and gamma rays to create
radioactive waves which, depending upon the elements present in the object being
analyzed, will provide a unique "fingerprint" for identification of the elements
contained in that object. These detection systems, of which our
Stoitech(TM)-enabled systems are examples, all detect the presence of chemical
compounds, however, we believe our Stoitech(TM)-enabled systems to be superior
to the others in that it can detect the amount and weight of these chemical
compounds as a mathematical ratio, rather than simply detecting the presence of
such compounds, and can provide the formula of the substance being studied by
analyzing the relative ratios of each chemical element to the others.
Technologies which compete with our Stoitech(TM) include thermal neutron
analysis ("TNA"), pulsed fast neutron analysis ("PFNA"), and Pulsed Elemental
Analysis with Neutrons ("PELAN").

TNA systems, such as the SP-EDS system marketed by Ancore Corporation
(previously acquired by OSI Systems, Inc.), which uses the same technology as
the V-EDS detector, utilize thermal neutrons to identify explosives in
hand-carried items such as purses, briefcases, portable electronics, letters and
small packages. Thermal neutrons possess less energy, and are therefore slower
than fast neutrons, which makes them more susceptible to "false positive"
detections. As a consequence, further secondary or "confirmatory" investigation
may be necessary. (See: Explosives Detection Systems (EDS) for Aviation
Security, Singh and Singh, rev. June 3, 2002, available at
www.computerscienceweb.com (copyright Elsevier Science B.V., 2002), at page 43).
Ancore Corporation has used this same technology.

The PFNA detector is used to inspect very large objects such as full-size
shipping containers, air-cargo and other cargo in containers, and
tractor-trailers, with the results displayed in three-dimensional format. Based
upon available information, we believe that the PFNA detector is element
specific only and not stoichiometric. As a consequence, further secondary or
"confirmatory" investigation may be necessary. Since the PFNA detector uses
neutrons that are approximately one-half as energetic as our MiniSenzor
technology, its penetration range should be significantly less than that of our
devices. The PFNA detector is extremely expensive (approximately $10 million)
and massive in size (twenty tons in weight with a footprint of over 300 sq.
ft.).


                                       11
<PAGE>

The PELAN detector is generally targeted at identifying explosives, although no
product literature or information relating to commercial applications is
currently available. Based upon available information, we believe that the PELAN
system is element specific only and not stoichiometric. As a consequence,
further secondary or "confirmatory" investigation may be necessary.

OTHER NON-NEUTRON-BASED SECONDARY DETECTORS

To our knowledge, there are two non-neutron-based secondary or confirmation
detection systems for applications other than car bombs. These include a
quadrupole resonance technology ("QR") developed by Quantum Magnetics with
applications ranging from scanning shoes for explosives to landmine detection,
and x-ray diffraction used in airport scanning products recently introduced by
Yxlon. Each of these companies has been acquired by InVision Technologies. Both
technologies employ pattern recognition techniques to identify certain
crystalline molecules. As such, they are chemical specific as opposed to element
specific; however, they are not stoichiometric insofar as we believe they cannot
empirically determine the exact chemical formula of objects under analysis.
These technologies have limited application insofar as there are only certain
solid substances that respond to their techniques. Further, quadrupole resonance
which uses radio frequency energy cannot penetrate certain barriers and may be
subject to "clutter", and x-ray diffraction has a limited penetration range.

INDIRECT COMPETITION--PRIMARY OR "ANOMALY" DETECTION PRODUCTS

Primary or "anomaly" detection products on the market include x-ray anomaly
detection systems marketed by GE/InVision Technologies; computed tomography
explosive detectors marketed by L-3 Communications and Reveal Imaging
Technologies, Inc.; x-ray security cargo screening devices marketed by OSI
Systems, Inc.; backscatter x-ray systems marketed by American Science and
Engineering; gamma ray-based radiographic imaging systems marketed by Science
Applications International Corporation; millimeter and terahertz wave imaging by
Brijot Imaging Systems, Inc. and TeraView. These products all differ from our
stoichiometric technology insofar as they reveal the three-dimensional shape and
density of the object being investigated, but cannot identify, and at most
infer, the chemical formula of that object. As a consequence, further secondary
or "confirmatory" investigation is necessary. Although our Stoitech(TM)-enabled
systems will be used in the same markets as these products, we believe that they
will, for the most part, be complementary rather than competitive insofar as we
anticipate that potential users will generally continue to use these products
for their primary identification functions and use secondary or "confirmation"
detection systems, such as our Stoitech(TM)-enabled systems, to handle the
inspection of suspicious items flagged by anomaly detection products.

MARKETING AND DISTRIBUTION STRATEGY

Given what our management views to be a broad range of potential applications
and markets for our Stoitech(TM)-enabled systems and stoichiometric
technologies, we are defining and addressing our primary markets through a
number of different strategies and approaches. In order to build market
penetration and share, and achieve product branding and acceptance, we have
formulated and are now executing a strategic sales and marketing plan. This plan
includes directly selling our products through our own sales and marketing team,
as well as indirectly selling our products through independent sales
representatives or through licensing arrangements and joint ventures. We are
also actively seeking strategic partners in our industry that have established
product lines and distribution channels, allowing for more efficient access to
our targeted markets and leveraged sales efforts. We have further incorporated
various sales subsidiaries, HiEnergy Defense, Inc., HiEnergy Europe, Ltd., and
HiEnergy International, Inc., some of which are currently active in regional and
industry specific sales programs, such as HiEnergy Defense, Inc., which is
charged with the sales and marketing of our products and technologies to the
U.S. Department of Defense, the U.S military and affiliated agencies, and the
securing of defense related appropriations and funding initiatives.


                                       12
<PAGE>

On May 15, 2004, we hired a full time Director of Sales & Marketing to work with
management to develop and implement a sales strategy to target and exploit the
most lucrative markets, build and administrate a multi-level sales organization,
and advance and extend our overall position within the commercial security and
defense marketplace as an industry innovator. Over the course of the fiscal
year, the Director of Sales & Marketing has been working closely with the
scientific and engineering staff to better define system applications and
configurations that would best serve the first responders and security and
defense professionals, which have been identified as our first adopters. The
sales staff has also been actively and aggressively demonstrating our various
prototypes and system configurations domestically and abroad, in order to
effectively gain a clear understanding of the trends and needs of the law
enforcement, security, and counter-terrorism industries, and acquire valuable
feedback to the technology applications which we are commercializing and
bringing to market.

In line with the sales strategy, and desire to build a multi-channel sales
organization, we also have established numerous outside sales and marketing
alliances, with outside sales representatives, industry partners, and potential
system integrators including, among others, Tyler, Segal & Associates, SecureCom
Security, Inc., Xtreme Defence Inc., Life Safety Systems, Mattman Specialty
Vehicles, Integrated Concepts & Research Corporation, ORTEC/Ametek, Celoxica,
and Siemens Maintenance Services. Additionally, we have established affiliations
with the following professional associations whose membership and audience
comprise the core clientele to whom we are marketing:

      o     NDIA - National Defense Industrial Association

      o     ASIS - American Society of Industrial Security

      o     IABTI - International Association of Bomb Technicians &
            Investigators

      o     IACSP - International Association for Counterterrorism & Security
            Professionals

      o     APTA - American Public Transportation Association

      o     FLEOA - Federal Law Enforcement Officers Association

      o     LEAA - Law Enforcement Alliance of America

Through the above-mentioned organizations and relationships, we aim to promote
our systems and technologies across a broad range of sales channels at the most
optimal level and margin, without being hindered by the limits of our own
manpower and resources. We believe that establishing and maintaining an external
sales organization comprised of select value-added dealers and distributors,
system integrators, and operators will enable us to exploit target markets
customers in a competitive manner.

In February 2005, we commenced an aggressive sales and marketing campaign with
the assistance of outside sales representatives for the domestic marketing of
our SIEGMA(TM) 3E3. Accordingly, the SIEGMA(TM) 3E3 has been showcased for a
variety of government, military and state & local law enforcement personnel at
our test facility located at our corporate offices in Irvine, California, and at
numerous industry/trade security and defense exhibitions sponsored and held at
various locations around the United States, Europe and the Middle East. In order
to be able to complete the commercialization cycle, we determined it necessary
to field test the first class of our products in the second half of calendar
2005. Accordingly, we have developed a strategic customization and integration
program which will be first implemented with an initial limited introduction of
5 to 10 units of the SIEGMA(TM) 3E3 system. The cooperative initiative is
intended to accelerate our in-field assessment of the SIEGMA(TM) 3E3 system and
software architecture for user operability and stability, as well as provide us
with critical feedback and suggested design improvements based on each program
participant's specific operational needs. The program is expected also to
stimulate sales by allowing us to bring our first commercial product to market
more effectively and efficiently and will provide us with an opportunity to test
our aftermarket service capabilities. During the fiscal year 2006, this program
will be offered to early adopters in the first responder community, including
emergency response teams, bomb squads and explosive ordnance disposal units from
a wide array of federal state, municipal and local agencies, including airports
and transit authorities, around the United States.

Since February 2005, we have held numerous exhibitions and demonstrations in
line with our established sales and marketing strategy including:


                                       13
<PAGE>

      o     the 7th International Defense Exhibition & Conference (IDEX) held
            February 12-17, 2005 in Abu Dhabi, United Arab Emirates (live blind
            tests);

      o     an exclusive showcase for more than 32 federal, state, and local
            homeland security professionals on March 30, 2005 at the U.S. Marine
            Corps Base at Quantico, Virginia, hosted by the FBI and the
            Washington, D.C. Metropolitan Police Bomb Squad (live blind tests);

      o     the Force Protection Equipment Demonstration V (FPED V), held from
            April 26-28, 2005 at the Quantico Marine Corp Base, Virginia;

      o     an exclusive showcase for more than 25 counter-terrorism
            professionals on May 17, 2005 at the Tactical Training Facilities of
            the New York Police Department Bomb Squad in Rodman's Neck, New York
            (live blind tests);

      o     an exclusive showcase for more than 30 counter-terrorism and
            homeland security professionals from Southern California on June 8,
            2005 at the Orange County Sheriffs Office, in Santa Ana, California
            (live blind tests);

      o     an exclusive showcase for more than 30 counter-terrorism and
            homeland security professionals from the greater San Francisco Bay
            Area on June 13, 2005 at the Alameda County Sheriffs Office - Office
            of Emergency Services in Dublin, California (live blind tests);

      o     the 33rd Annual International Association of Bomb Technicians and
            Investigators (IABTI), International In-Service Training Conference,
            "Countering Terrorism: Civilian & Military Members in Unison," from
            June 19-23, 2005 in Palm Desert, California (live tests); and

      o     an exclusive showcase for more than 15 counter-terrorism and
            homeland security professionals from the San Diego, California area
            on July 13, 2005 at the San Diego County Regional Airport (live
            blind tests).

Our ability to participate at other similar demonstrations in the future will be
dependent upon our ability to obtain the capital and other resources to support
these efforts, which entail the transport of specialized equipment and a team of
approximately 6 technical and business members to the test location.

In May 2005, we entered into an Equipment Sales Agreement (No. 19107-1) with
Southeastern Pennsylvania Transportation Authority (SEPTA) for the purchase of
two SIEGMA(TM) 3E3 systems for an aggregate sum of $603,104. Accordingly, on
June 10, 2005, we received Purchase Order No. 4500233769 from the Commonwealth
of Pennsylvania in the amount of $603,104, payment of which is due within 30
days of shipment. We have contractually agreed to make reasonable best efforts
to make delivery of the ordered units within 120 days of the purchase order
date.

On July 15, 2005, we executed a Time and Material Subcontract in the amount of
$333,688 with Integrated Concepts & Research Corporation (ICRC), a subsidiary of
Koniag, Inc., an Alaskan Native Corporation, located in Alexandria, VA. The
Subcontract was awarded as part of ICRC's Prime Contract Number DAAE07-02-C-L062
with the United States Army Tank - Automotive and Armaments Command, Warren
Michigan (TACOM). Under the Subcontract, we will deliver one CarBomb Finder(TM)
head unit and provide the engineering and technical support necessary for its
integration with the SmarTruck II Multi-Mission Vehicle. The finished prototype
is expected to be field tested by the U.S. Army and D.C. Capitol Hill Police.
Funding of the program was provided through a supplemental authorization of the
Defense Appropriations Act for Fiscal Year 2005.


                                       14
<PAGE>

We have also identified and established ongoing partnerships and joint ventures
at the international level on a regional basis in light of our current market
demand and global needs. These partnerships and joint ventures have been
carefully selected based on a number of critical factors as they relate to the
representative organizations. These factors include: the length of time in
business in the respective region, reputation and standing, and the overall
business and support infrastructure available through the representative company
to support the sales, service, and maintenance of our products in the respective
region.

Pursuant to an International Distribution Agreement with EEMCO, entered into
July 25, 2003 and subsequently amended as of August 27, 2003, EEMCO was granted
the exclusive right to sell our CarBomb Finder (TM) to certain enumerated
military forces and governmental agencies in the Kingdom of Saudi Arabia, in the
Middle-Eastern countries of Kuwait, Qatar, Bahrain, Oman, United Arab Emirates,
Iraq, Yemen, and Jordan, and in the North African countries of Egypt, Morocco,
Tunisia, Algeria, and Mauritania. EEMCO is based in Saudi Arabia and is
majority-owned by Harb Al-Zuhair, a member of our Board of Directors. Pursuant
to the terms of the agreement, EEMCO agrees to promote the sale of prototype
models of our CarBomb Finder (TM), maintain a sales organization and provide
HiEnergy with the resale prices for the territory. In certain instances,
HiEnergy may share costs related to the release of bonds, bank letters or
customer holdbacks in connection with orders placed by EEMCO or customers, as
well as costs for technical, marketing or other support in connection with
EEMCO's marketing and distribution activities. We have not yet provided EEMCO
with a full price list for its available prototypes and products, nor do we have
an estimate of time for providing a price list to EEMCO. In the event EEMCO
makes or facilitates any sales, payments are due to us within 60 days from the
date of shipment. We agreed to remit any amounts due to EEMCO; however, we may
withhold payments due to EEMCO to offset our exposure for bonds, guarantees and
outstanding customer payment retention. EEMCO has agreed to reimburse us for
fees and expenses incurred by us in connection with the filing and maintenance
of bonds, letters of credit and letters of guarantee within the countries
subject to the agreement. We agreed to provide a twelve-month limited warranty
for pre-existing defects in the devices which are the subject of the Agreement.

The term of the EEMCO agreement is one year, with automatic one-year renewals
unless either party terminates the contract. The parties may terminate the
agreement at any time upon 60 days prior written notice, or immediately in the
event of a material breach by the other party or the other party becomes
insolvent. We may immediately terminate the agreement if EEMCO's authorized
representative identified to us ceases to represent EEMCO. The exclusive right
terminates for any of the countries within the territory if there are no sales
during the original term of the agreement, no potential buyers within the first
six months or no sales contact within the first two months. In the event the
agreement continues for a second year, the exclusive right terminates if there
are less than three sales during such year. The staging, operator training and
technical support bases for our marketing and sales efforts in the Middle East,
led by EEMCO under our International Distribution Agreement with EEMCO, are
planned to be in Istanbul, Turkey and/or Dubai, and we are seeking to structure
a collaboration arrangement with local technology companies to assist us there.

On August 5, 2004, our Board of Directors approved the sale of our first model
to EEMCO under this Agreement, for a price of $250,000 (representing our
estimated costs to manufacture the model), with ten percent (or $25,000) paid in
advance. In June 2005, we shipped a unit to EEMCO for demonstration for the
Saudi Ministry of Interior and representatives of the Saudi military forces.
Based on those tests, it was determined that certain modifications are required
for our systems to operate in the extreme heat of the Middle East and expect to
finish these modifications at our laboratory in the Irvine facility. We expect
to ship a unit against the order approximately in October 2005 for another
demonstration to potential Saudi customers.

On January 28, 2005, we entered into a non-binding MOU to form a joint venture
company to be located in Tenerife, Canary Islands, Spain, which is intended to
serve as a complementary platform for sales and distribution into the European
and other markets. We expect to finalize the negotiation and execution of the
joint venture agreement in our next fiscal quarter, which requires the payment
of up to $3 million in paid-in capital to the joint venture by the investors.
Although the memorandum of understanding with the Directorate of Spanish
Airports and Navigation ("AENA"), entered into in October 2003, did not lead to


                                       15
<PAGE>

formal collaboration and the related investment contemplated did not transpire,
much of our collective efforts and relationships in Spain will beneficially
serve the development, funding and growth of the joint venture. We intend to
explore and pursue other joint ventures such as that of Spain, which provide for
the contribution of capital and resources from a strategic partner to develop an
assigned territory and accomplish the certification, importing, licensing,
permitting, maintenance and service of our products overseas, in exchange for a
regional license from us for the assembly, sale, and marketing of our products
in certain markets, as well as reduce the capital requirements necessary for us
to build and maintain the infrastructure necessary to manufacture and support
our products outside North America.

In January 2005, we received an order in the amount of $297,550 for one
SIEGMA(TM) 3E3 unit, along with a down payment in the amount of $75,000, and a
guarantee of the balance upon delivery, from Compania de Aprovisionamiento
Especifico S.L., located in Tenerife, Canary Islands, Spain. Payment of the
remaining balance in the amount of $227,000 is due upon testing of the unit,
which has been postponed until at least September 2005 due to delays in the
purchaser's securing the appropriate licenses and end-user permits from the
local regulatory bodies.

The primary objective of our global marketing strategy is to create an efficient
and cost-effective way of providing products, services and solutions overseas
and to secure continuity in our branding and customer relations without building
an overwhelming and costly sales infrastructure. Where appropriate, sales and
marketing programs are being tailored with regard to the needs and practices of
local markets and may require us to establish regional offices in select
markets.

We have not consummated any commercial product sales and have no significant
sales revenue to date. Although we have assembled approximately three units
necessary to meet demonstration or similar requirements, assembled and delivered
one unit to Spain, and have the ability to assemble and delivery the initial
orders from SEPTA and the subcontract deliverables to ICRC, we still have a very
limited manufacturing capability within our company at this time. We have not
arranged for any third-party to manufacture our devices to date.

MAINTENANCE AND AFTERMARKET SERVICES

Effective August 4, 2004, we entered into a Teaming Agreement with Siemens
Maintenance Services, LLC ("SMS"), a subsidiary of Siemens A.G., for maintenance
of our detection devices worldwide. Under the terms of this Agreement, SMS
agrees to cooperate with us in making proposals where the maintenance of our
equipment is a factor, and shall be our primary sub-contractor for the provision
of the services and supplies which SMS offers and that are relevant to the given
project. Further, on April 15, 2005, we executed a subcontract with SMS, making
it our Exclusive Service Provider for aftermarket servicing, including the
installation, repair and preventative maintenance for all current and future
products to be sold and deployed by us in the United States. Pursuant to the
subcontract, we will pay SMS in the fulfillment of its services on an hourly
basis for labor, plus travel and expenses, and are obligated to supply all
necessary parts and technical support to allow SMS to perform its duties.

We are also exploring the contracting of added-value services from SMS,
including procurement services, supply chain and logistics, and customer service
solutions include call center and helpdesk functions, including incident
control, business process support and performance measurement systems.
Ultimately, it is our objective to develop with SMS a maintenance and service
platform with a full range of information management capabilities which can be
integrated with our accounting, purchasing, engineering, manufacturing, and
quality control systems.


                                       16
<PAGE>

SMS was established in October 2002 as the business unit of Siemens A.G. focused
on the TSA's airport security program and it currently provides complete
maintenance service management for over 445 airports across the U.S. and its
territories. SMS has developed and maintains strong relationships with the TSA,
the U.S. Department of Homeland Security ("DHS"), Boeing and, most notably,
regional airport and airline supervisors and managers, as well as security
equipment manufacturers and OEMs. Currently, SMS has a nationwide presence with
a field service organization of more than 300 technicians that can respond to
maintenance requests within four hours or less to any location. SMS is also the
only company to have received the designation and certification of its equipment
maintenance and services as an "Approved Product List for Homeland Security"
under the Support Anti-terrorism by Fostering Effective Technologies Act of
2002, or "SAFETY Act." This Designation and Certification expires on February
14, 2010. Notably, our relationship with SMS is expected to allow us to better
satisfy certain certification criteria required by local, state and federal
agencies, such as the DHS and the TSA, as it relates to aftermarket maintenance
and support (i.e. equipment calibration, quality control, etc.) and product
liability.

While the Teaming Agreement evidences the willingness and desire of SMS to work
collaboratively with us on project creation and implementation generally,
readers are cautioned that the agreement does not obligate SMS or any other
party to any specific obligations or performance requirements, nor does it
represent a formal joint venture. There can be no assurance that our entry into
a Teaming Agreement with SMS will result in any business, revenues or other
tangible benefits for us at any time.

PRODUCTION STATUS

As to the status of the initial phases of production, and as previously
disclosed, we have pre-production prototypes of our CarBomb Finder(TM) 3C4 and
the SIEGMA(TM) 3E3 products, and we have already acquired, or have on order, the
primary components necessary to complete 10 units of either of these products
(the neutron generators from both vendors are interchangeable in the CarBomb
Finder(TM) 3C4 and the SIEGMA(TM) 3E3, as well as in our newer prototype CarBomb
Finder(TM) 3C5). Further, we have built, and hold title to, four prototype
SIEGMA(TM) 3E3 systems, one of which has been delivered for sale and transfer to
Spain in connection with an order we announced in January 2005. The sale is set
to close upon a successful testing of the system, expected to occur in our next
fiscal quarter. As with these first 3 units, assembly in the first phase of
production will be undertaken in-house. In June 2005, we received an order for
two SIEGMA(TM) 3E3 systems from the Southeastern Pennsylvania Transportation
Authority (SEPTA), which is being produced with current inventory.

As previously discussed, we issued purchase orders to two vendors in April and
May 2004, totaling $2.4 million dollars for the purchase of primary components
for our explosive substances detectors. This included the purchase of neutron
generators for approximately $1,033,000 in the aggregate and gamma radiation
detectors for approximately $1,368,000 in the aggregate. The delivery schedule
for the above-mentioned neutron generator order was delayed by the manufacturer.
As of April 30, 2005, we had received only four of the neutron generators on
order. To lessen the cost of acquisition and better manage capital requirements
while sales are sought, we financed the ten generators through a lease purchase
contract with the vendor. Under the terms of the lease, we are required to pay
approximately $12,500 per generator prior to or upon receipt, with the remaining
balance payable over twelve monthly lease payments of approximately $5,800 each.
Anytime during the lease term, or at the end of the lease, we have the option to
convert the lease to a purchase and apply 80% of the monthly payments towards
the purchase price of approximately $95,000 per unit. Depending on our cash
position, we may continue with this leasing arrangement or convert to outright
purchase. In light of the delivery delays with this vendor, and in order to
better manage lead times ahead of anticipated orders, in January 2005, we issued
a supplemental purchase order with another vendor for four neutron generators,
which are virtually inter-changeable with the generators we leased for our
systems, but cost approximately 30% less. As of April 30, 2005, we had received
two of these generators, and now have a total of ten neutron generators in
inventory for use in production of any of the CarBomb Finder(TM) 3C4, the
SIEGMA(TM) 3E3, or our newer prototype CarBomb Finder(TM) 3C5.


                                       17
<PAGE>

As of April 30, 2005, we received twenty-seven of the gamma radiation detectors
ordered. Due to our decision to better balance inventory, we had delivery halted
for the remaining gamma radiation detectors until such time as we receive sales
sufficient to justify adding to our inventory of detectors. Further, we opted to
shift resources to other business activities such as product demonstrations as
well as sales and marketing efforts. At the same time, we are currently working
with this vendor to better synchronize future detector deliveries with current
and adjusted sales estimates, with the goal of funding costs of goods sold with
related deposits and sales proceeds. Besides having delays with the delivery of
neutron generators to be paired with detectors in each system, the inventory
imbalance is also due to a shift in our commercialization focus and product
launch from the CarBomb Finder(TM) 3C4 to the SIEGMA(TM) 3E3. Insofar as the
design and configuration of the SIEGMA(TM) 3E3 requires only one detector (as
opposed to two for the CarBomb Finder(TM) 3C4), we currently possess enough
detectors to be used in the production of 27 SIEGMA(TM) 3E3s or 13 CarBomb
Finder(TM) 3C4s, which, in either case, is sufficient to produce the first 10
complete units designated for our first phase of production.

In February 2005 and in March 2005, we issued purchase orders in the amount of
$304,000 of $611,000, respectively, for Andros Robotic Vehicles from Remotec
(Northrop-Grumman) which are to be used to facilitate remote deployment of our
explosive detection devices. The orders were issued based on indications from
potential buyers in the U.S. Military, and in the Middle East, that they would
require a remote robotic deployment capability if they were to purchase our
devices. Under the terms of the purchase orders, we are to be notified 30 days
prior to shipping with payment due 30 days following receipt. As of July 31,
2005, we have received all of the robotic vehicles ordered and in order to carry
the cost of these items, we are arranging for refinancing, including a sales
lease back of these and other inventory components.

At present, we have completed beta testing of our Interrogator(TM) software
suite, including the software architecture (device drivers and system
diagnostics), decoding programs and operating interface for field testing and
our early adopter program. Software development is an ongoing development effort
for us, and any system fielded will be able to receive upgrades as they are
developed. For example, in May 2005, we announced a substantial improvement to
the safety factor and performance of our SIEGMA(TM) system, effectively
decreasing the amount of "false negatives" and "false positives" from 5% to
2.25%, and correspondingly increasing the probability of detection to 97.75%. In
July 2005, we engaged a veteran software and electronics engineer to provide
full-time software development and support and commence next generation
improvements to the system and software architecture.

Initial production will be handled from our research and assembly facility in
Irvine, California. Production at this facility will be limited and will require
outsourcing some final assembly functions. We are currently seeking a location
to serve as our manufacturing facility. See the section entitled "Manufacturing
Capacity". Presently we do, and we anticipate doing so for the foreseeable
future, subcontract for specialized services in the assembly of our prototype
devices, and management's philosophy is to outsource our manufacturing
operations as much as possible to minimize our overhead expenses associated with
this work, until such time as we can achieve meaningful levels of production.
Our management is cognizant of the fact that the manufacture of devices on a
one-off basis until achieving a level of maturity in our manufacturing process
is an inefficient process, and for that reason we have been searching for
various opportunities to create strategic alliances with other technology
companies that can help us in this regard.

With regard to the CarBomb Finder(TM) 3C5, Unexploded Ordnance Sensor 3UXO3,
Anti-Tank Landmine Detector 7AT7 and Refractorymeter prototype designs, which
are the next products that we intend to bring to market if the launches of our
CarBomb Finder(TM) 3C4 and the SIEGMA(TM) 3E3 systems are successfully
accomplished and we can substantiate a market for these prototypes, we are
unable to provide any meaningful estimate at this time as to what the cost to
bring these devices into commercial production might be. Moreover, there can be
no assurance that we will be able to transform any of our individual prototype
designs into commercially-saleable products.


                                       18
<PAGE>

MANUFACTURING

We currently manufacture our stoichiometric devices on a one-by-one basis, at
our facilities in Irvine, California using components acquired from suppliers.
The principal components in our stoichiometric devices, the neutron generators
and gamma ray detectors, are advanced devices manufactured by suppliers to our
specifications. Certain of the components that we use in our devices, such as
the neutron generator and the germanium detector, are manufactured by only a
limited number of companies worldwide. We order these products on a purchase
order basis, as needed, and our management believes that if we were to
experience an interruption or delay in delivery we could find alternative
sources of supply without material hardship. However, there can be no assurance
that if the current global supply situation for these components were to change,
or if we were to adopt a more customized version of a neutron generator or other
components we use, that we would be able to find suitable sources of supply
quickly enough, and under terms we would consider acceptable, or at all (See:
"Risk Factors-Manufacturing Risks"). The other components of our products are
standard parts which will be available from multiple supply sources at
competitive prices.

We currently do not have the capacity to manufacture the CarBomb Finder(TM) 3C4
and the SIEGMA(TM) 3E3, or any of our prototype devices, at commercial levels.
In order to begin to achieve some sales of our device until we can afford to
ramp up to commercial production, we intend to commence manufacturing of the
first 10 CarBomb Finder(TM) 3C4 or SIEGMA(TM) 3E3 units at our Irvine
facilities, commencing with the model necessary to fulfill our initial orders
from SEPTA. This initial production may also require the outsourcing of some of
the final assembly functions. We currently have only 14 full-time employees, so
it is anticipated that we will need to hire additional personnel who are capable
of manufacturing these initial units. While we do maintain a network of
available technicians who are able to fill certain of our manpower requirements,
there can be no guarantee that we will be able to access the help we need to
fulfill any manufacturing requirement in the future as and when it may arise.

Manufacturing on a limited basis at our Irvine facilities is expected to be both
costly and inefficient, as we cannot take advantage of any of the economies of
scale which generally occur when multiple units can be produced on a
standardized basis by a manufacturer following ramp-up of a particular product
line. As a result, we may be required to hire additional personnel, buy
components and raw materials at a premium to the prices we might otherwise be
able to obtain if we could purchase in larger quantities, and we may not be able
to implement the most efficient manufacturing methodologies given the size and
nature of the laboratory environment in which we will manufacture the initial
units. It is possible that we may not be able to sell our products at a price
exceeding our cost to manufacture them, and therefore we may not generate any
profit from such sales. It is also possible we may incur losses if our costs to
manufacture exceed the purchase price at which we will have to sell the first
few commercial models, until such time as the product is firmly established in
the market. Our management has determined that these costs represent an
investment in the market introduction of our first product, and the results to
our business and operations, if we can launch the product and gain initial
market acceptance in this manner, outweigh the costs of doing so. Of course,
there can be no assurance that we will be able to successfully launch our
CarBomb Finder(TM) 3C4 and the SIEGMA(TM) 3E3 or any other of our prototype
devices to market as planned and, as discussed in the Risk Factors section of
this Report, our inability to do so would have a materially adverse impact upon
our business and financial condition.

In order to address these manufacturing challenges, in August 2004, we engaged
Lockwood-Greene Engineering and Construction, to provide, among other things,
design and construction management services to us in connection with a proposed
construction of a manufacturing plant capable of producing commercial quantities
of our products at a volume capacity of 1,000 units per year. Although
Lockwood-Greene provided a detailed conceptual plan for a manufacturing facility
and made recommendations as to optimal flow processes and other manufacturing
efficiencies, we did not proceed with implementation of the plan. Instead, we
opted to pursue a smaller pilot plant with a production capacity of 100 units
per year in order to evaluate the manufacturability of our products and validate
systems that would ensure a more quick and efficient transition toward
manufacturing, as well as a lower total program/life cycle,


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<PAGE>

In March 2005, we formed a wholly-owned subsidiary, HiEnergy Mfg Company in
order to create a semi-autonomous division to develop and manage the
infrastructure, policies and controls for the manufacture and assembly of the
SIEGMA(TM) 3E3 and CarBomb Finder(TM) 3C4. In June 2005, we hired a consultant
experienced in strategic planning and financial and operational management in
high technology manufacturing companies, in order to establish and refine a
production system which includes supplier relations, material handling,
manufacturing processes, labor force capabilities, and distribution systems.
Currently, we are focused on incorporating the business practices, management
philosophies and technology tools necessary to optimize product design and
engineering and allow for the easiest production, fastest assembly, best
quality, highest reliability, and the shortest time to market of our systems.
With the implementation of proven Design for Manufacturability and Integrated
Product Development principles, we believe that we will be able to develop,
build, and deliver products at half the total cost by reducing parts and labor
cost and systematically reducing all overhead and distribution costs. Currently,
it is too early for us to define whether we are to pursue standardization or
mass customization in our manufacturing process. Although standardization would
increase our purchasing leverage, simplify supply chain management, and reduce
part and overhead cost, we anticipate the need to build products on-demand that
are efficiently customized for niche markets, various countries, or individual
customers.

Further, we are seeking to package with the assistance of consultants a core
system comprising our Stoitech(TM) and other proprietary technologies within a
common engineering platform, for which future products can be based. The core
system as contemplated is one that can be utilized for whichever product or
application is specified and then configured with the needs of the customer in
mind. The strategic business objective is to achieve efficiencies throughout the
commercialization process from prototype development to commercial production,
as well as to better position our technology for strategic partnerships and
joint development in other industry applications.

Even if we are successful in arranging for manufacturing facilities which will
meet our physical production needs, transforming our technology into commercial
production will involve refinement of our prototypes, including the CarBomb
Finder(TM) 3C4 and the SIEGMA(TM) 3E3, into finished vendible units. Final
production models 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. Some of our components
are the first of their kind, and we expect that they will naturally encounter
initial design, performance, reliability and maintenance problems. We intend to
conduct this work both internally and with the assistance of outside strategic
partners, consultants, or through collaborative associations such as that
entered into with Siemens Maintenance Services, LLC. At present, it is still
premature for us to fix suggested manufacturer's pricing on the CarBomb
Finder(TM) 3C4 and the SIEGMA(TM) 3E3. However, based on early cost analysis and
pricing guidance from our component suppliers, we expect that as we shift
manufacturing from one-off production to volume commercial production, and fully
expense certain non-recurring engineering and design costs, we should see a
significant decrease in our cost of goods sold. These estimates are subject to
significant change depending upon a number of factors including, but not limited
to: general economic considerations, the price of our component materials, the
type of manufacturing terms we can negotiate with any third-party manufacturers,
changes in the labor market, and our ability to finance our own in-house
manufacturing capability.

Of course, there can be no assurance that we will be able to raise the capital
necessary to launch our product successfully, or that we will achieve the
minimum number of orders we would need to produce our products at any given
profit margin. These, and other risks, are discussed in more detail under the
heading Risk Factors in this Report.

DEVELOPMENT OF STOICHIOMETRY

The concept upon which our stoichiometric technology is based, associated
particle imaging or "API", was first conceived in 1982. A U.S. Department of
Energy committee reported in 1989 that the concept was scientifically valid, but
impractical within the capabilities of the equipment then available, which


                                       20
<PAGE>

failed to return stoichiometric results that identified the chemical formula of
the target compound. Based upon his belief in the potential of the technology,
our CEO, Chairman and Chief Scientist, Dr. Bogdan C. Maglich, formed HiEnergy
Microdevices, Inc. in 1995 to pursue the development and ultimate
commercialization of the API technology. With the assistance and cooperation of
an industry-university-governmental lab cooperative effort that included the
U.S. Army's Night Vision and Electronic Sensors Directorate, the Department of
Energy's Special Technologies Laboratory, the Lawrence Berkeley National
Laboratory, the University of California, the Massachusetts Institute of
Technology, and EG&G ORTEC (now a division of American Measurement Technology,
Inc.), HiEnergy succeeded in 1997 in reviving associated particle imaging by
incorporating recent developments in microchip electronics, and called the
technology "atometry." Stoichiometry was first scientifically validated in tests
conducted at the U.S. Department of Energy's Special Technologies Laboratory in
Santa Barbara in 1998, and the results of these tests were publicly presented
for the first time at the White House International Symposium on Drug Control
Policy in 1999 and published in the symposium's proceedings: [Proc. of 1999
ONDCP Intern. Technology Symposium, the White House Executive Office of the
President, p. 9-37; Gov. Dvc: NCJ-176972]. The Office of National Drug Control
Policy at this time was one of the primary proponents of the use of pulsed fast
neutron interrogation technology to detect illicit drugs through the
non-invasive identification of chemical formulae. The various military branches
of the United States soon began to explore the efficacy of fast neutron-based
technologies to detect explosives; however, it is only within the last few years
that technological advances have made this technology sufficiently accurate and
mobile to be truly practicable in the field.

THE ADVENT OF THE "MINISENZOR"

In the course of research on the stoichiometric API (imaging) detector, Dr.
Maglich realized from the results collected by our research team in 2002 and
2003 that a stoichiometric explosive detector could be made without imaging,
that is, without the use of the elaborate API technique. He has named this
invention "MiniSenzor", in order to distinguish it from the API detector which
had previously been named "SuperSenzor". Our use of the letter "z" in these
names was for trademark purposes; however we have not yet filed any applications
to register such names with the U.S. Patent and Trademark Office or with any
state.

The stoichiometric detector without API is slower, its range much shorter and it
has no imaging ability, but it would cost approximately 30% to 50% less, would
be much more portable (smaller and lighter) and could be used for some important
applications by bomb squads such as the detection of car bombs, unexploded
ammunition, improvised (terrorist) bombs on the road, in airports, and so forth.
Moreover, its lead time from the lab to product is much shorter and it is
covered by our previously-filed patent application. An early-stage prototype of
the CarBomb Finder was first built in August 2003, and in September, 2003, this
device was successfully tested by the Spanish AENA inspectors. Its further
development has occurred as described elsewhere in this Report.

PRODUCT VALIDATION AND TESTING

The following testing activities have been conducted to date to validate our
proprietary stoichiometric technology:

      o     As noted above, our stoichiometric technology was initially
            developed over the period 1997 to 2002 by an
            industry-university-governmental lab consortium financed by private
            funds and government contracts. The technology was first
            scientifically validated in tests conducted at the U.S. Department
            of Energy's Special Technologies Laboratory in Santa Barbara. The
            results of these tests were publicly presented for the first time,
            in co-authorship with the United States Customs Service, at the
            White House International Symposium on Drug Control Policy in 1999
            and published in the symposium's proceedings: [Proc. of 1999 ONDCP
            Intern. Technology Symposium, the White House Executive Office of
            the President, p. 9-37; Gov. Dvc: NCJ-176972]. The results were
            subsequently removed from the website maintained by the White House
            Executive Office for security reasons at the request of the United
            States military.


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<PAGE>

      o     During the period 1998-2002, in live blind tests conducted for the
            U.S. Customs Office, our stoichiometric technology demonstrated the
            ability to identify, from three feet away, (1) explosive simulant
            through steel or soil; and (2) cocaine simulant through rice. These
            tests were conducted in the presence of U.S. Customs Office
            officials using unknown samples selected by the officials.

      o     During the period 1998-2002, in live blind tests conducted for the
            Department of Defense at the Special Technologies Laboratory of the
            U.S. Department of Energy in Santa Barbara, California, our
            stoichiometric technology demonstrated the ability to identify, from
            three feet away, anthrax simulant (dead spores) through paper. These
            tests were conducted in the presence of Department of Defense
            officials using unknown samples selected by the officials.

      o     On January 9, 2003, in open-air field live blind tests conducted by
            the U.S. Navy at its Naval base in Indian Head, Maryland, our
            stoichiometric technology demonstrated the ability to determine
            chemically, from the outside, whether or not the enclosed contents
            of an artillery shell and other containers was an explosive or an
            inert substance. In these tests, our stoichiometric technology was
            able to differentiate TNT explosive from the plastic explosive
            "Semtex"; gasoline from diesel fuel; and fertilizer from the
            military grade explosive "RDX."

      o     In September 2003, at our laboratory facility in Irvine, California,
            we performed two days of on-site demonstrations of our explosives
            detection technology on unmarked samples for the Security Manager
            and Director of Equipment and Installations of the Directorate of
            Spanish Airports and Navigation (AENA). The Spanish officials
            performed dozens of live blind tests with our stoichiometric
            technology, and successfully detected both nitrogen-based and
            potassium chlorine-based explosives.

      o     On October 9, 2003, a technical inspector from the Transportation
            Security Agency conducted live tests at our laboratory facility in
            Irvine, California, and concluded that our stoichiometric technology
            easily differentiated peanut butter from explosives.

      o     In March 2004, we conducted a series of in-field tests of its
            Anti-Tank Landmine Detector for the United States Army's Night
            Vision and Electronic Sensors Directorate in Fort Belvoir, Virginia,
            our stoichiometric technology was able to decipher chemical formulas
            of explosives within buried landmines.

      o     In October 19, 2004, we successfully conducted live blind tests of
            our SIEGMA(TM) 3E3 at the NATO International Symposium on Countering
            Improvised Explosive Detection (IED), on the grounds of Army
            Engineer Academy at Hoyo de Manzanares, near Madrid, Spain. During
            the demonstration, which occurred in front of approximately 300
            military and civilian law and security enforcement officers from 23
            NATO members and candidate states, the SIEGMA(TM) 3E3 was able to
            determine whether or not the contents of various closed containers
            were explosives or inert substances.

      o     On February 15, 2005, we successfully conducted live blind tests of
            our SIEGMA(TM) 3E3 at the 7th International Defense Exhibition &
            Conference (IDEX) held in Abu Dhabi, United Arab Emirates in front
            of approximately 350 of the conference participants, which include
            more than 800 government officials and military representatives from
            over 45 countries, including the US, Canada, China, and Great
            Britain, and more than 920 journalists. In the blind tests, the
            SIEGMA(TM) 3E3 system was able to correctly discriminate explosive
            from non-explosive compounds, remotely and through steel, in a
            matter of 1 to 5 minutes, depending on the mass of explosive.


                                       22
<PAGE>

      o     On March 30, 2004, we successfully conducted live blind tests of our
            SIEGMA(TM) 3E3 at the U.S. Marine Corps Base at Quantico, Virginia,
            hosted by the FBI and the Washington, D.C. Metropolitan Police Bomb
            Squad for an audience of 32 federal, state, and local homeland
            security professionals from police departments, port authorities,
            bomb squads and special operations divisions from across the
            country, as well as representatives from Turkey and the U.S. Army
            and Marine Corps. In the live blind-tests, we were able to correctly
            discriminate in each of the tests explosives from non-explosives in
            a matter of 35 seconds to 5 minutes, depending on the mass of
            explosive.

      o     On May 17, 2005, we successfully conducted live blind tests of our
            SIEGMA(TM) 3E3 at the Tactical Training Facilities of the New York
            Police Department Bomb Squad in Rodman's Neck, New York for an
            audience of more than 25 counter-terrorism professionals. In each
            case, we were able to correctly discriminate and confirm explosives
            from non-explosives in a matter of 25 seconds to 5 minutes,
            depending on the mass of explosive, with no "false positives" or
            "false negatives".

      o     On June 13, 2005, we successfully conducted live blind tests of our
            SIEGMA(TM) 3E3 at the Alameda County Sheriffs Office - Office of
            Emergency Services in Dublin, California to an audience of more than
            30 counter-terrorism and homeland security professionals from the
            greater San Francisco Bay Area. During the tests, we were able to
            correctly discriminate and confirm explosives from non-explosives in
            a matter of 25 seconds to 5 minutes, depending on the mass of
            explosive.

      o     On July 13, 2005, we successfully conducted live blind tests of our
            SIEGMA(TM) 3E3 at the San Diego County Regional Airport to an
            audience of more than 15 counter-terrorism and homeland security
            professionals from the greater San Diego Area. In each case, we were
            able to correctly discriminate and confirm explosives from
            non-explosives in a matter of 25 seconds to 5 minutes, depending on
            the mass of explosive.

While each of these tests has forwarded the validation of our stoichiometric
technology as an accurate means for detecting explosives and contraband, we
cannot provide any assurance that the agencies or organizations involved will
purchase any products from us in the future other than those orders discussed
previously in this Report..

PRODUCT LIABILITY

Inherent in the manufacturing, sale and maintenance of explosive detection
products are potential product liability risks. At present, we do not maintain
product liability insurance, but we anticipate obtaining product liability
insurance in order to contain potential liabilities associated with our devices.
As referenced under the heading Government Regulation, we also intend to address
product liability issues by pursuing the designation and certification of our
products by the U.S. Department of Homeland Security ("DHS") as Qualified
Anti-Terrorism Technologies ("QATTs"), and relying upon certain protections
provided for under the Support Anti-Terrorism by Fostering Effective
Technologies Act of 2002, Public Law 107-296 (the "SAFETY Act").

We cannot be certain that we will be able to obtain on acceptable terms, if at
all, sufficient insurance coverage to contain liabilities, or if we will be able
successfully to qualify our products and services as QATTs under the SAFETY Act.

In the event that we are held liable for any claim as to which we do not have
insurance, or resulting in damages exceeding our levels of insurance coverage,
we may be required to make substantial payments. In addition, the failure of any
product to detect explosives, even if due to operator error and not to the
mechanical failure of a product, could result in public and customer perception
that our products are ineffective or defective, any of which circumstances could
have a material adverse effect on our business, operations and financial
condition.


                                       23
<PAGE>

GOVERNMENT RESEARCH AND DEVELOPMENT GRANTS AND CONTRACTS

The development of our stoichiometric technology had been partially funded to
date by government grants and research and development contracts, and we will
continue aggressively to pursue these government grants and contracts to assist
us in financing the further development of our technology.

Since inception, we have been awarded government grants and contracts, including
a grant for $97,750 from the U.S. Army Night Vision and Electronic Sensors
Directorate in 1996; a $25,000 grant from the U.S. Department of Energy in 1996;
a $40,000 grant from the U.S. Customs Service in 1998; an $80,000 grant from the
Defense Advanced Research Projects Agency/Special Operations Command in 2000;
and a $117,000 grant from the U.S. Defense Advanced Research Projects
Agency/Special Operations Command in 2001.

We are currently in Phase II of a Small Business Innovation Research ("SBIR")
contract awarded to us in August 2002 by the U.S. Army Night Vision and
Electronic Sensor Directorate (NVESD). Under the contract, we are to develop and
test our Anti-Tank Landmine Detector 7AT7 over a two year period, which may be
extended at the option of the U.S. Army, and the U.S. Army will pay a portion of
our research and development costs on a periodic basis during the term of the
contract. Our estimated cost to complete Anti-Tank Landmine Detector 7AT7 was
$1,400,000. We received $70,000 in SBIR proceeds to complete Phase I and, on
January 15, 2003, we executed a contract with the U.S. Army for Phase II valued
at $415,000. Work commenced in January 2003 under Phase II of the contract. In
January 2004, the U.S. Army exercised its option for the second year of Phase
II, valued at approximately $364,000. Work commenced on the second year of Phase
II on March 1, 2004, which ended in March 2005. During the second year of Phase
II, the NVESD requested Congress to provide the $1 million needed to complete
the financial requirements based on our estimates to complete development work
under the program. This request was included and authorized in the Defense
Authorization Bill signed into law by President Bush on October 28, 2004. As of
this date, no award out of the $1 million authorized has been made and we have
not received a definitive answer as to when, or whether, such funds will be
awarded to us. The U.S. Army is under no obligation to continue to assist in
funding our research and development costs beyond Phase II or any subsequent
extension, or to purchase the Anti-Tank Landmine Detector 7AT7 once we have
completed development activities. In June 2005 we requested a supplemental
authorization in the amount of $2 million for stoichiometric detection of
landmines and improvised explosive devices in connection with the NVESD program,
which request has been included in the Defense Bill FY2006 to be voted upon by
the Congress.

During the week of March 15, 2004, we conducted a series of in-field tests of
our Anti-Tank Landmine Detector for the NVESD at their compound in Fort Belvoir,
Virginia as part of the Phase II of SBIR Contract No. DAAB07-03-C-P002. In
accordance with the terms of the contract, the results of the tests and other
all work performed under the contract with them must remain confidential.

On September 29, 2004, we entered into a Cooperative Agreement with the U.S.
Transportation Security Administration (TSA) upon our selection as one of only
ten companies in the government's Manhattan-II Project, which was established by
the TSA to identify "emerging and revolutionary new technologies" that could
significantly improve aviation security and reduce operational costs. Our
proposal was for a new stoichiometric explosive detector design for aviation
security applications, specifically for the detection and confirmatory screening
of checked baggage. Under the agreement, we are to provide proof-of-concept for
our "NextGen Checked Baggage Program (STOXOR)" over a nine month period, which
may be extended at the option of the TSA. The agreement provides funding in the
amount of $367,141 for Stage 1, and an additional $145,381 for Stage 2, if, at
the conclusion of Stage 1, the TSA elects to continue working with us. As of
June 30, 2005, we earned $367,141 and completed Stage 1. The TSA will continue
to pay our research and development costs on a periodic basis during the term of
the Cooperative Agreement, for which we are required to submit monthly written
reports detailing our progress under the contract. When the written report is
accepted by the TSA, we receive payment in about 30 to 45 days. A decision by
the TSA as to our participation in Stage 2 of the program is expected before
October 2005. There is no obligation for the TSA to fund our development efforts
under this agreement beyond the Stage 2 funded amount and there can be no
assurance that we will be extended another contract to continue under the
Manhattan-II Project after the completion of Stage 2.


                                       24
<PAGE>

On July 15, 2005, we executed a Time and Material Subcontract in the amount of
$333,688 with Integrated Concepts & Research Corporation (ICRC), a subsidiary of
Koniag, Inc., an Alaskan Native Corporation, located in Alexandria, VA. The
Subcontract was awarded as part of ICRC's Prime Contract Number DAAE07-02-C-L062
with the United States Army Tank - Automotive and Armaments Command, Warren
Michigan (TACOM). Under the Subcontract, we will deliver one CarBomb Finder(TM)
head unit and provide the engineering and technical support necessary for its
integration with the SmarTruck II Multi-Mission Vehicle. The finished prototype
is expected to be field tested by the U.S. Army and D.C. Capitol Hill Police.
Funding of the program was provided through a supplemental authorization of the
Defense Appropriations Act for Fiscal Year 2005.

In January 2003, we competed in a research and development grant program focused
on the detection of anthrax and other biological chemical agents sponsored by
the U.S. Naval Surface Warfare Center. Our demonstration received a score of
"good", meaning that our then-current prototype was able to perform as claimed
for 50% or more of the performance characteristics claimed by us. We were unable
to obtain this grant, however, because one of the requirements we had to fulfill
was to obtain a Certificate of Competency from the U.S. Small Business
Administration certifying our financial condition as being adequate to
responsibly complete the grant work if it were awarded to us. Due to our
financial condition, we were not awarded the requisite Certificate of
Competency, nor was the Small Business Administration's determination reversed
in June, 2003 when we requested reconsideration of this decision. Management
believes that the requirement to obtain Certificates of Competency will continue
to be a bar to our ability to win certain government grants in the future, and
is seeking the additional capital necessary to meet the minimum competency
requirements for the projects it desires to participate in. It is impossible to
state how much money is necessary to obtain a Certificate of Competency, because
it varies from grant to grant and we have never received a specific dollar
amount that would need to be obtained in order to qualify. However, management
will seek to raise two to four million dollars in additional equity
capitalization, following the filing of this Report, and believes that with that
additional capitalization it should be able to meet its operating plans,
including seeking additional research and development grants requiring a
Certificate of Competency. There can be no assurance that we will ever obtain
the additional equity capitalization that we need to obtain Certificates of
Competency in respect of any given grant opportunity or, even if we do, that we
will be awarded any research and development grants. (See: "Risk Factors-General
Business Risks".)

PATENTS

To date, the following eight patent applications and one provisional patent
application have been filed and are pending with the U.S. Patent and Trademark
Office. Certain of the patent applications have also been filed under the Patent
Cooperation Treaty and/or with the World Intellectual Property Organization, and
certain foreign jurisdictions, as indicated.

      o     On February 17, 1999, we filed a patent applications captioned
            "Method and Apparatus for Detecting, Locating and Analyzing Chemical
            Compounds Using Subatomic Particle Activation" under the Patent
            Cooperation Treaty (PCT). The patent was published in September 1999
            and entered the national phase in Japan, Canada and the European
            Union. Accordingly, we filed patent applications with patent
            agencies in Canada, Japan and the European Union on August 14, 2000,
            August 18, 2000 and September 14, 2000, respectively.


                                       25
<PAGE>

      o     On February 20, 2001, we filed an application captioned "Method and
            Apparatus for Detecting, Locating and Analyzing Chemical Compounds
            Using Subatomic Particle Activation" with the U.S. Patent and
            Trademark Office. The patent was published in September 2003. The
            U.S. Patent and Trademark Office has since split this application
            into four distinct inventions and requested that we write four
            separate patent applications, following the most recent meetings
            with experts and the patent examiner at the U.S. Patent and
            Trademark Office in February 2005. On April 6, 2005, we resubmitted
            the application with petition that the U.S. Patent and Trademark
            Office accord it "special" status. The process of examination had
            been halted during the period of October 2002 to April 2003 as the
            result of a Secrecy Order placed on the application by the U.S.
            Army. This order was removed in March 2003 on the grounds that the
            same disclosure has been published in Europe in our other patent
            applications. We consider that, with exception to these delays, the
            patent approval process is proceeding as should be expected.

      o     On June 18, 2001, we filed a patent application captioned "Method
            and Apparatus for Neutron Microscopy with Stoichiometric Imaging"
            with the U.S. Patent and Trademark Office. The patent was published
            in September 2003. Following the most recent meetings with experts
            and the patent examiner at the U.S. Patent and Trademark Office in
            February 2005, we resubmitted the application on April 6, 2005 with
            petition that the U.S. Patent and Trademark Office accord it
            "special" status.

      o     On June 18, 2002, we filed an application captioned "Method and
            Apparatus for Neutron Microscopy with Stoichiometric Imaging" under
            the Patent Cooperation Treaty (PCT). The patent was published in
            March 2004 and entered the national phase in Canada and the European
            Union. Accordingly, we filed patent applications with patent
            agencies in Canada and the European Union on September 9, 2003,
            respectively.

      o     On June 18, 2002, we filed an application with the International
            Bureau of the World Intellectual Property Organization (WIPO)
            captioned "Method and Apparatus for Neutron Microscopy with
            Stoichiometric Imaging".

      o     On March 11, 2004, we filed a U.S. Provisional Patent application
            captioned "Method and Apparatus for Measuring Wall Thickness in a
            Conduit" with the U.S. Patent and Trademark Office. On March 11,
            2005, we filed a patent application with the U.S. Patent and
            Trademark Office with petition that the U.S. Patent and Trademark
            Office accord it "special" status.

      o     On March 11, 2005, we filed a patent application captioned Method
            and Apparatus for Measuring Wall Thickness in a Conduit" under the
            Patent Cooperation Treaty (PCT).

      o     On March 21, 2005, we filed an application captioned "Binocular
            Method and Apparatus for Stoichiometric Analysis and Imaging Using
            Subatomic Particle Activation" with the U.S. Patent and Trademark
            Office with petition that the U.S. Patent and Trademark Office
            accord it "special" status.

      o     On March 23, 2005, we filed an application captioned "Method and
            Apparatus for Analyzing Chemical Compounds Using Subatomic Particle
            Activation" with the U.S. Patent and Trademark Office with petition
            that the U.S. Patent and Trademark Office accord it "special"
            status.

Patent applications filed under the Patent Cooperation Treaty (PCT), by
designating any or all of the 128 Contracting States (as listed at the PCT
website [http://www.uspto.gov/web/offices/pac/dapp/pctstate.pdf]), allow for
simultaneous patent protection. The World Intellectual Property Organization
(WIPO) is a specialized agency of the United Nations which administers 23
international treaties dealing with different aspects of intellectual property
protection and includes the participation of 182 nations, as listed at the WIPO
website [http://www.wipo.int/directory/en/].


                                       26
<PAGE>

The original inventor on all of our patent applications, except for the one
filed in March 2005, was Dr. Bogdan Maglich, who serves as, among other
executive positions, our Chief Scientific Officer. Our March 2005 patent names
Dr. Kevin McKinny, our Senior Scientist and Project Team Leader, as the original
inventor. In accordance with our Company policy, both individuals have fully
assigned their rights in and to the technology, including any corresponding
patents awarded through the U.S. Patent and Trademark Office, to HiEnergy
Technologies. All of our scientific personnel have executed non-disclosure
agreements that reserve ownership of intellectual property solely with us.

In the development of our stoichiometric technology, we have not used any
third-party intellectual property or other rights, and we have no licensing or
use arrangements of any kind with respect to any aspect of our technology. We
presently do not anticipate the need to do so in the future, although this may
be subject to change.

As noted in the Section entitled Risk Factors: Intellectual Property Risks, our
ability to obtain patent protection with respect to any future inventions we may
create or develop could be jeopardized to the extent that some or all of the
funding we used in creating or developing such invention came by way of an SBIR
grant, or from other governmental sources of research and development funding,
which require that certain royalty-free rights be granted to the federal or
other government providing the funds. Furthermore, the federal government does
not agree to protect proprietary rights developed under SBIR grants for more
than four years, and other granting agencies may have similar or better terms
which could result in the public release of proprietary information
significantly earlier than would be the case in a purely private funding
relationship. To date, none of our technologies has been impacted by this risk,
but there can be no assurance that we will not rely on SBIR grants or other
similar funding, if available, to develop additional technology and, if we do,
our rights to exploit the intellectual property we develop could be impacted as
described above and in the Risk Factors section of this Report.

NON-PATENTED PROPRIETARY TECHNOLOGY

To prevent our proprietary stoichiometric software and associated algorithms
from potentially falling into the hands of terrorists or other unauthorized
users, we converted our proprietary software into firmware. This consists of a
Field-Programmable Gate Array (FPGA) chip and board, containing the software and
associated algorithms, which is automatically erased if invaded. Additionally,
the FPGA hardware solution, aside from providing for security protections,
augments processor performance, reduces power consumption and maximizes
algorithm performance. With the aid of Celoxica Ltd., a leading C-base design
and synthesis tools consultant, we have completed the firmware development and
successfully integrated the customized FPGA hardware in our product designs. The
implementation of the FPGA hardware eliminates the need to host our proprietary
software and associated algorithms for an external host computer device, and
renders it possible to have the entire complex program handled by a palm
computer or tablet P.C. We are currently working on making this item a
serially-produced component for volume production and estimate significant cost
savings as we achieve certain economies of scale.

GOVERNMENT REGULATION

RADIATION SAFETY

The devices which incorporate our stoichiometric technology utilize a process
that involves the neutron radiating of items selected during the course of the
inspection. The issue of radiation safety of the operator of our devices, as
well as bystanders, is properly addressed by optimizing the distance from the
neutron source and/or shielding thickness (if any) and operating procedures we
have employed, consistent with the standards adopted by the U.S. Nuclear
Regulatory Commission ("NRC"). These standards have been subsequently recognized
by 33 U.S. states, and many national bodies within the European Union.


                                       27
<PAGE>

Our technology has several advantages from the perspective of radiation safety,
which are:

      o     The CarBomb Finder(TM) 3C4 and the SIEGMA(TM) 3E3 do not require a
            customized neutron source or emission methodology to work with our
            application. Our devices use a standard neutron source, known as the
            `sealed tube neutron generator', the properties of which have been
            well established for decades. This type of neutron generator is
            routinely used in hospitals, general industry, oil prospecting,
            controlling the quality of coal, cement and mineral ores, and for
            medical and general academic research, among other uses.

      o     Between 500 and 1,000 sealed tube neutron generators are
            manufactured annually by over ten established companies both in the
            U.S. and in Europe. The primary manufacturers of these standard
            sealed tube generators are: ThermoMF Physics, Halliburton,
            Schlumberger, Baker-Hughes, EADS-SODERN and High Voltage Engineering
            Europa B.V.

      o     A manufacturer of products incorporating sealed tube neutron
            generators does not require any special license to sell such
            products. Rather, each end user organization which employs such
            devices must, normally within three to six weeks after its purchase
            of the device, select one member of its staff to serve as the end
            user's "radiation officer". Such individual must have a technical
            background in radiation activities, and pass an examination (usually
            administered by the state in which the radiation officer will
            perform his or her activities) in order to obtain a license to use
            the device containing the sealed tube neutron generator. Other than
            end user licensing requirements, no radiation license or permit is
            required by us, so long as we do continue to use the standard sealed
            tube neutron generator in our products. If we were to begin using
            another, customized neutron source at any time in the future, we
            would most likely be required to obtain additional licensing from
            the NRC at that time, and there is no guarantee that such license
            would be available in a reasonable period of time, or at all. At
            present, we have no plans to deviate from our usage of sealed tube
            neutron generators in our devices in the foreseeable future.

      o     The CarBomb Finder(TM) 3C4 and the SIEGMA(TM) 3E3 are typically
            turned on for a period of only 10 to 30 seconds, with a maximum of 2
            minutes in difficult to decipher cases. Once the inspection is over,
            the residual radiation from the metal components of the neutron
            generator is insignificant (measured in mini-Sieverts), has a range
            of about one foot to three feet in the air and ordinarily lasts only
            about 30 minutes. Accordingly, there is no known danger to persons
            who later handle the objects that have been exposed to neutrons
            through examination by our devices.

As the manufacturer of a device involving a fast neutron generator, as stated
above, we must comply with NRC regulations governing radiation exposure in the
design and manufacturing of our products, including those relating to the
shielding of workers in our facilities. The type and thickness of the material
used to shield our personnel and the nature of the procedures (including how
close an operator of our devices may be to the source of radiation) are defined
by the NRC and other regulatory authorities. Radiation workers, who have been
trained to work with radiation as part of their job functions, can be subjected
to radiation levels that are 50 times greater than the exposure levels permitted
for members of the general public. Accordingly, depending on the configuration
and application of our devices, or whether or not trained radiation workers are
only present, the shielding and operating procedures will vary based on the
duration and level of radiation emissions and possible exposure to both the
operator and the general public. For example, our CarBomb Finder(TM) 3C4 in its
vehicle or van configuration, which may require the operator to remain in the
driver's compartment during use for lengths of time, would require extraordinary
shielding between the compartment and the radiation zone, which, in this case,
includes a metal barrier and other insulation. In wireless configurations, in
which the operator can execute all procedures remotely, and the public is not
exposed directly or residually, shielding and operating procedures would be less
stringent. Although the radiation exposure to the public from use of our devices
is negligible, our policy is to avoid its use in public places as much as
possible (although we have no control over what customers will do with the
devices in the future once they pass out of our possession). Bomb Squad police
have informed us during past demonstrations that in any event they routinely
first clear the affected area of public bystanders to within 100 feet before
turning on a radiation device.


                                       28
<PAGE>

Currently, 33 U.S. states, including California where we have our principal
place of business, adhere to the NRC's licensing and regulatory standards. Other
U.S. states where we will market our devices may have licensing and/or other
regulatory standards which are more or less stringent than those adopted by the
NRC. As far as management can see, no current state requirements in the U.S. are
so materially different from those of the NRC as to preclude an end user from
using our devices in that state. The laws of foreign countries or jurisdictions
also may vary significantly from those in use within the United States,
including in areas where we will want to market and sell our devices in the
future, although numerous jurisdictions (such as within the European Union, for
example) have recognized the regulatory standards and requirements of the NRC.

Management believes that all of our radiation safety policies and procedures,
both relating to the design and operation of our products as well as the
construction and operation of our facilities, are in conformity with current,
applicable U.S. federal and state law regulations. Although fast neutron
radiation demonstrates some properties different than other forms of radiation,
management does not believe that fast neutron radiation presents any
difficulties or creates any risks beyond those ordinarily encountered in
connection with the fabrication and operation of other forms of radiation
emitting devices commonly used in the general population, such as x-ray
machines. For example, measurements we have taken with radiation survey
instruments show that a three-minute, direct, unshielded exposure to our
MiniSenzor technology at a distance of one meter would deliver a dose of 0.1
milli-Sieverts (mSv), which is significantly lower than that of a medical CT
x-ray scan. Further, the design and incorporation of appropriate shielding in
our products, and the development of appropriate operating procedures in view of
their intended use, will not be difficult in management's opinion. Nevertheless,
compliance with these rules, regulations and licensing requirements does entail
additional cost, effort and time in bringing our products to market, and there
can be no guarantee that we will be able to comply with future U.S. federal,
state and international radiation safety requirements within our existing
policies and procedures, nor that we will be able to implement compliant
policies and procedures in a commercially viable manner or within our resource
capabilities, as further described under the heading Risk Factors later in this
Report.

EXPORT CONTROLS

Management has determined that its current devices, incorporating the standard
neutron generator described above, is not within the scope of the United States
Munitions List, maintained by the U.S. Department of State under the
International Trafficking in Arms Act, and therefore no license is required to
market and sell our current devices. Future products we may develop, or future
changes in the existing U.S. federal regulations governing the classification of
items defined as "munitions", may require us to obtain U.S. federal licensing,
and there can be no guarantee that we will be able to obtain such licenses at
that time.

Management believes that the sale of the CarBomb Finder(TM) 3C4 and the
SIEGMA(TM) 3E3, and any future explosive detection equipment (incorporating a
neutron generator) developed by us to be used by civil authorities to fight
criminal and terrorist activities outside of the United States, would be subject
to export control regulations administered by the U.S. Department of Commerce,
Bureau of Industry and Security (BIS). The licensing program affected under the
Bureau of Export Administration is designed to monitor exports of items which
could adversely affect regional stability or the military balance within a given
region, and to protect the national security and foreign policy interests of the
United States. These regulations have been expanded to include controls on
explosive detection equipment technology, and classified such equipment,
including related software and technology, under Export Commodity Control Number
(ECCN) 2A983 in April 2003. Although we have not submitted a formal commodity
classification request to the BIS, we believe that the CarBomb Finder would most
likely be classified under ECCN 2A983. The effect of this classification would
be to impose a license requirement for Regional Stability reasons for the export
of explosive detection equipment, software and technology to all destinations
except members of the North Atlantic Treaty Organization (NATO), Australia,
Japan, and New Zealand.


                                       29
<PAGE>

According to the BIS' own website [www.bxa.doc.gov/PoliciesAndRegulations/
04ForPolControls/Chap3_ RegStability.htm], "the U.S. Government will generally
consider applications for such licenses favorably, on a case-by-case basis,
unless the export would significantly affect regional stability." Accordingly,
if sales of our currently-anticipated products are made to countries which are
not restricted pursuant to the Commerce Department's listings for "Region
Stability (RS-2)", "Anti-Terrorism (AT-1)", and/or "Non-Proliferation (NP-1)",
no special licensing will be required. Sales to restricted countries will
require licenses to be obtained for export, but we expect that we would fall
into the category of items receiving "favorable consideration" due to the
non-aggressive nature of our planned products. However, future sales to
countries of concern, future products we may develop, or future changes in the
existing federal regulations governing the administration of export controls by
the Department of Commerce, may require us to obtain federal licensing, and
there can be no guarantee that we will be able to obtain such licenses at that
time. Some of our products in development may be deemed regulated military
devices subject to special export restrictions under the U.S. Department of
State regulations and/or subject to the U.S. International Trafficking in Arms
Act. However, in the event that any of our future products are conferred "dual
use" status (meaning that they can be utilized for both commercial and
governmental/defense applications), such as our landmine detection equipment
currently in development, their export could instead be subject to the control
regulations administered by the BIS, which generally are less stringent.

THE SAFETY ACT

On October 10, 2003, in response to the tragedy of the attacks on September 11,
2001 and the alarming rise of terrorism generally since that date, Tom Ridge,
the U.S. Secretary for Homeland Defense, signed the first regulations
implementing the Support Anti-Terrorism by Fostering Effective Technologies Act
of 2002, Public Law 107-296 (the "SAFETY Act"). The SAFETY Act was enacted to
encourage the rapid development and deployment of anti-terrorism technologies by
ensuring that the threat of liabilities and extensive litigation associated with
the manufacture and sale of products used in inherently dangerous circumstances
does not deter businesses from developing and commercializing these
technologies. Specifically, the SAFETY Act creates certain liability limitations
for "claims arising out of, relating to, or resulting from an act of terrorism",
if a technology which has been designated as a qualified anti-terrorism
technology ("QATT") has been used. All forms of technology, including products,
software, services, and various forms of intellectual property, may qualify for
Safety Act protection. Two separate protections are available to applicants
depending on the results of a classification and designation process.

In order to be designated as a QATT by the US Department of Homeland Security
("DHS"), a company must file an application with that agency showing that the
technology "will prevent, detect, identify or deter acts of terrorism or
mitigate the harm that such acts might otherwise cause". Companies can also
apply to be certified as an "Approved Product (or Service) for Homeland
Security." There are substantial benefits to any company which does receive such
designation or certification, including that such company, if sued as a result
of any claim arising out of a terrorist act:

      o     can invoke the exclusive jurisdiction of the federal courts of the
            United States, for suits against the Sellers of "qualified
            anti-terrorism technologies", thereby eliminating concerns about
            defending against litigation in multiple jurisdictions;

      o     a cap on the amount of liability which can be assessed against the
            seller of a QATT to a minimum, insurable amount for premiums which
            are not commercially unreasonable or burdensome such that they will
            distort the sales price of the designated product;

      o     a prohibition on joint and several liabilities for non-economic
            damages, so that sellers of certified anti-terrorism technologies
            can only be held responsible for their actual, proportionate share
            of any liability;


                                       30
<PAGE>

      o     an absolute bar against punitive damages and prejudgment interest;

      o     a requirement that plaintiffs reduce the amount of any damages they
            awarded from seller's of certified products by any amounts such
            plaintiffs receive from "collateral sources", such as insurance
            benefits or other government benefits; and

      o     an initial presumption, albeit rebuttable, that the seller of
            certified products is entitled to use the so-called "government
            contractor defense" (which provides certain limitations on the
            ability of plaintiffs to recover damages from manufacturers who
            provide products that meet government specifications, if they have a
            faulty design), on sales made to both government and private sector
            purchasers.

As part of our risk management and litigation management strategies, we intend
to apply for designation and certification from the DHS for our stoichiometric
devices. If the DHS approves our products for certification and/or designation
as QATTs, we would enjoy some or all of the benefits described above. There can
be no assurance that any application we submit for either certification or
designation by the DHS will be approved or, even if it is, that we will be able
to afford even the minimum amounts of liability insurance which the sellers of
designated QATTs and certified Approved Products and Services generally must
maintain. Furthermore, it should be noted that the SAFETY Act affords no
protection against any claims or liabilities arising out of circumstances other
than acts of terrorism, and that the designation or certification by DHS of any
product should not be expected to assist in any way with respect to either
purchases by, or the receipt of grants from, governmental agencies or other
organizations with respect to such product or its manufacturer.

GOVERNMENT CONTRACTING AND GRANTS

During our early stages of commercial sale, we anticipate that government
agencies will be the principal customers for the products we develop. We will be
required to comply with the Federal Acquisition Regulations, a comprehensive set
of regulations governing how vendors do business with the U.S. federal
government, to the extent we contract with departments or agencies of the U.S.
government, as well as similar regulations to the extent we contract with state
or local governments. We will also continue applying for grants from
governmental agencies, which will be subject to regulation by the granting
agencies. Sales to or grants from foreign governments or organizations will have
their own regulatory framework, which may or may not be similar to present U.S.
standards or requirements. As a hedge against our reliance on government grants
and sales, we have been looking at purely industrial applications of our
technology. The first such application we have been working on is our
Refractorymeter, which uses our stoichiometric technology to examine the ceramic
linings of oil cracking cylinders in order to detect fissures or erosions which
could cause significant losses if left undetected. Although this project has
been undertaken with input from the research department of Exxon-Mobil, there
can be no assurance that this oil company or any other commercial entity, will
buy our Refractorymeter technology. (See the further description of our informal
relationship with the research center of Exxon-Mobil, in the Section
"Proprietary Devices: Research and Development Activities").

SUBSIDIARIES

We have four subsidiaries, HiEnergy Defense, Inc., HiEnergy Mfg Company,
HiEnergy International, Inc, and HiEnergy Europe, Ltd. HiEnergy Defense, Inc.
was incorporated under the laws of the State of Delaware in July 2003, and is a
wholly-owned subsidiary. HiEnergy Defense focuses on marketing military and
defense applications of our technology within the Washington D.C. area from its
office in Alexandria, Virginia. HiEnergy Mfg Company was incorporated under the
laws of the State of Delaware in March 2005, and is a wholly-owned subsidiary.
HiEnergy Mfg Company, Inc. was formed for the purpose of creating a separate
entity for the manufacturing and assembly of our products. We expect to have a
pilot manufacturing program in place and fully operational following the
completed launch of our sales program. HiEnergy International, Inc. was
incorporated under the laws of the State of Delaware in July 2005, and is a


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<PAGE>

wholly-owned subsidiary. HiEnergy International, Inc. was formed for the purpose
of creating a separate entity for the sales and servicing of our products
overseas, excluding Europe, and primarily the Middle East and Africa. HiEnergy
Europe Ltd. was incorporated under the laws of the State of Delaware in March
2004, and is a wholly-owned subsidiary. HiEnergy Europe is presently not
operating, but will focus on marketing our technology throughout the European
Union (EU).

On January 25, 2005, we completed a short form merger to acquire the remaining
outstanding stock of our former subsidiary, HiEnergy Microdevices, Inc., and
issued 452,059 shares of common stock to HiEnergy Microdevices stockholders on
the basis of 22.3524 HiEnergy Technologies shares for 1 share of HiEnergy
Microdevices (the same ratio that was used in the original voluntary share
exchange), and all the assets and liabilities of HiEnergy Microdevices became
assets and liabilities of HiEnergy Technologies. Additionally, we may be
required to issue up to 704,190 shares of our common stock to former holders of
options and warrants of Microdevices who hold rights to purchase HiEnergy shares
at $0.156 per share. These rights survived the merger and may be exercised any
time before April 25, 2007, subject to the payment of promissory notes
representing the purchase price.

EMPLOYEES

We have 14 full-time employees as of the date of this Report, comprised of 2
executive officers; a controller; a director of sales and marketing; 4 full-time
research and development employees; 2 engineering technicians; 3 administrative
employees; and 1 executive officer of our wholly owned subsidiary, HiEnergy
Defense. Inc. We also have 1 part-time research scientist and 3 independent
consultants as of the date of this Report, comprised of 1 engineering
consultant, 1 paralegal consultant and 1 production and manufacturing
consultant. We believe that our employee relations are favorable. None of our
employees are represented by a collective bargaining unit. To the extent we may
need additional manpower support especially as our one-off manufacturing efforts
commerce in earnest, we have been granted access to a fully-equipped machine
shop by Del Mar Avionics, which maintains its principal place of business in our
same building, and we are able to use its staff of machinists on an hourly-rate
basis.

ITEM 2. DESCRIPTION OF PROPERTY

On September 30, 2002, we relocated our offices to 1601-B Alton Parkway, Irvine,
California 92606. Our offices consist of approximately 6,600 square feet. We
entered into a three-year operating lease agreement with Del Mar Avionics, an
affiliate of Bruce Del Mar, one of our former directors, for its offices in
Irvine, California. The lease provides for monthly rent of $8,000, for months 1
through 18, and $8,320 per month for months 19 through 36. In January 2004, we
executed an addendum to the lease agreement to lease an additional 4,470 square
feet of space within the same building in which our offices are located. The
addendum begins on February 1, 2004. The additional monthly rent will be $4,373
per month for months 17 and 18, and $4,545 per month for the remainder of the
lease term. The general lease expires in September 2005. As of the date of this
Report, we are negotiating a renewal to the lease and addendum lease for up to
an additional three years.

In the new space we have built one open-air testing facility and two enclosed
testing facilities, which are equipped with two test/demonstration vehicles for
car bomb detection, an airport luggage testing setup, and an open pit for
landmine tests. A temporary wall provides more than adequate radiation shielding
to the scientists and other observers, who analyze results and demonstrate the
technology from within an on-site portable building. The new test site consists
of approximately 2,400 square feet. The term of the lease was originally from
July 1, 2003 to December 1, 2003, but was changed to an ongoing month-to-month
lease, with payments due at a monthly rate of $1,200 under an agreement with the
same landlord. The standards adopted by the State of California, which we are
observing in our laboratory shielding designs, are the strictest in the United
States. The University of California Radiation Safety Officer, licensed by the
State of California, has determined the degree of thickness for both borated
polyethylene and concrete shielding required for operators and for public
safety. Our test site has been designed in compliance with these requirements
and our design was approved by the Radiation Safety Officer on July 16, 2003.


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ITEM 3. LEGAL PROCEEDINGS

PHILIP GURIAN AND BARRY ALTER: OUR REVERSE TAKEOVER

After reading news reports that connected our reverse takeover of HiEnergy
Microdevices with known stock manipulators, our Board of Directors directed our
then President to hire a team of independent investigators to investigate
whether we or any of our officers and directors had engaged in any wrongdoing.
The core team of independent investigators consisted of two former U.S. federal
prosecutors, a former Assistant U.S. 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. In their review, the independent
investigators obtained evidence that some of our stockholders who purchased
significant amounts of HiEnergy shares prior to the reverse takeover knew, or
had business dealings with, Phil Gurian, a person who we later learned 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 as one of our directors
and, for a short time, as our interim President, was found to have been aware of
these purchases of HiEnergy shares. The independent investigators believe the
evidence is inconclusive whether Phil Gurian had control over these HiEnergy
shares and, if so, whether our former president and director had any knowledge
of that control.

On June 24, 2004, we received a letter from the Central Regional Office of the
SEC, in Denver, Colorado, indicating its intention to recommend that we be
charged with violations of several sections of the Securities Exchange Act, and
the rules promulgated under that Act, involving the making of false and
misleading statements in our public documents. The false and misleading
statements which the SEC believes were made seem to focus primarily on, among
other things, the undisclosed ownership of our securities by, and actions with
respect to our stock taken by, Philip Gurian, Barry Alter and certain of their
affiliates who controlled SLW Enterprises, Inc. at the time of our reverse
takeover transaction; the undisclosed identity of, and the origin of funds used
to purchase our stock by, certain of our stockholders; the nature of, and
reasons for, a "dividend" provided to our stockholders; and the terms of other
offerings occurring at the same time as one of our private placements of stock.
In addition, the antifraud violations would be based upon private transactions
made by Mr. Alter (formerly a director and executive officer of HiEnergy
Technologies, Inc.) with respect to sales of our stock made by him without
disclosing material facts about us, or our contemporaneous offering of
securities at different prices, to his purchasers. We are currently working with
special securities litigation counsel to assess our legal position and determine
how best to respond to the SEC.

BARRY ALTER

On May 27, 2003, Mr. Alter brought a lawsuit against us in the New Castle County
Court of Chancery in Delaware to recover the advancement of expenses in the
amount of $20,000 he allegedly incurred and future expenses he would incur in
response to an SEC investigation which mirrored our investigation by the SEC,
and for which Mr. Alter obtained separate legal counsel to represent him. 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.
However, to the date of this Report there has been no settlement of our dispute
with Mr. Alter, and there can be no assurance that the claims he asserted
against us will not be resuscitated at some time in the future.

YEFFET SECURITY CONSULTANTS, INC.

HiEnergy is currently arbitrating a dispute with a former consultant, Yeffet
Security Consultants, Inc. ("YSCI"). We entered into a consulting agreement with
YSCI in July 2002. Under the terms of this agreement, YSCI was to provide
consulting services to us to further our marketing and business objectives. On
October 29, 2003, we notified Yeffet Security Consultants that we were
terminating its contract on the grounds of inadequate performance. YSCI alleged
that we breached the consulting agreement and is seeking to recover $449,540.91.
We deny this allegation and intend to defend it vigorously in arbitration.
Depositions in this matter began for us in New Jersey on December 15, 2004 and
for YSCI in January 2005. As of this date, we and our legal counsel have made no
other determination as to the merits of, or possible defenses to, the
arbitration.


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<PAGE>

SECURITIES AND EXCHANGE COMMISSION INVESTIGATION

As described earlier in this report, we have received two Subpoenas for
information from the Securities and Exchange Commission ("SEC"). One, dated
April 12, 2004, required us to supply them with documents pertaining to a
presentation which Dr. Bogdan Maglich, our Chief Executive Officer, Chief
Scientific Officer, Treasurer, President and Chairman, gave at the Investment
Opportunities in Homeland Security and Defense Conference in Washington, D.C. in
March 2004, regarding HiEnergy's key markets, business strategy and financial
projections, and which included information that was not disclosed in a
concurrent registration statement we filed with the SEC on Form SB-2. A
subsequent letter, dated May 24, 2004, requested documents substantiating
statements we had previously released in a press release regarding our
discussions with a consortium calling itself the Dallas-Fort Worth Homeland
Security Alliance. We voluntarily responded to both requests for documents, as
well as to a second Subpoena, dated June 30, 2004 received from the SEC which
pertained to all documents and information we have with respect to the
restatement of our 2002 and 2003 financial statements, which we had announced on
June 9, 2004. Our auditors, Singer, Lewak, Greenbaum & Goldstein, LLP also
received a similar Subpoena from the SEC. As of the date of this Report, these
Subpoenas had both been responded to, and we have received no further word from
the SEC on the progress of this aspect of its investigation.

On June 24, 2004, despite the responses which we provided to the SEC, we
received a further letter from the Central Regional Office of the SEC, in
Denver, Colorado, indicating its intention to recommend that the Commission
charge us with violations of several sections of the Securities Exchange Act,
and the rules promulgated under that act, involving the making of false and
misleading statements in our public documents. The false and misleading
statements which the SEC believes were made seem to focus primarily on, among
other things, the undisclosed ownership of our securities by, and actions with
respect to our stock taken by, Barry Alter, Philip Gurian and other of their
affiliates who controlled SLW Inc. at and prior to the time of our
reverse-takeover; the undisclosed identity of, and the origin of funds used to
purchase our stock by, certain of our stockholders; the nature of, and reasons
for, a "dividend" provided to our stockholders; and the terms of other offerings
occurring at the same time as one of our private placements of stock. In
addition, the antifraud violations appear to be based upon private transactions
made by Mr. Alter (formerly a director and executive officer of HiEnergy
Technologies, Inc.) with respect to sales of our stock made by him without
disclosing material facts about us, or our contemporaneous offering of
securities at different prices, to his purchasers. We are currently working with
special securities litigation counsel to assess our legal position and determine
how best to respond to the SEC.

From time to time, we may be subject to other routine litigation incidental to
the ordinary course of business, for actual or perceived violations of our
agreements, or for other civil matters.


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<PAGE>

FILED COMPLAINTS

In January 2005, we were served with a Summons and Class Action Complaint for
Violations of Federal Securities Laws, which was filed on October 18, 2004, in
the Federal District Court for the Southern District of California under case
number SACV04-1226 GLT. The Complaint filed named HiEnergy, its Chairman, among
other named defendants on behalf of a class of persons who acquired our stock
during the period from February 22, 2002 through July 8, 2004. In February 2005,
plaintiff's counsel filed a First Amended Complaint entitled and styled, "In re:
HiEnergy Technologies, Inc. Securities Litigation," Master File No.
8:04-CV-01226-DOC (JTLx), alleging various violations of the federal securities
laws, generally asserting the same claims involving Philip Gurian, Barry Alter,
and our purported failure to disclose their various securities violations
including, without limitation, allegations of fraud. The First Amended Complaint
seeks, among other things, monetary damages, attorney's fees, costs, and
declaratory relief. We engaged two legal firms to vigorously defend us in this
matter and assess the impact of the pending lawsuit. On Friday, March 25, 2005,
we timely filed responsive pleadings as well as Motions to Dismiss the
Plaintiffs' First Amended Complaint arguing that the Complaint failed to state a
claim upon which relief can be granted. On June 17, 2005, the Court issued an
Order Granting the Motions to Dismiss (the "Order"), finding that the Plaintiffs
failed in the First Amended Complaint to allege causation of loss resulting from
any alleged omissions and/or misrepresentations of HiEnergy or Dr. Maglich, to
sustain a cause of action for securities fraud under ss.10(b) of the Exchange
Act and Rule 10b-5 of the SEC, that the Plaintiffs had failed to plead actual
reliance on any allegedly false or misleading filings of HiEnergy to sustain a
claim under ss.18 of the Exchange Act, and that the Plaintiffs had failed to
allege a primary violation of any securities laws to sustain a claim for a
violation of ss.20(a) of the Exchange Act. On July 5, 2005, the Plaintiffs filed
a Second Amended Complaint in compliance with the Court's Order, as anticipated.
Our counsel will respond to the allegations in any further pleading with
appropriate challenges to its legal sufficiency to state a claim upon which
relief may be granted. The costs of defending against the Complaint could be
substantial; however we are unable to predict an exact amount, or even a
meaningful estimate, at this time.

In March 2005, we were served with regard to a Complaint filed against us by a
former consultant with the California Labor Commissioner regarding purported
unpaid wages in the amount of $10,640. A hearing before the California Labor
Commissioner was held on April 21, 2005 in which the plaintiff failed to appear
before the Court. We received a Notice of Dismissal of the case on April 25,
2005.

In April 2005, a claim was filed against us with the 101st Judicial District
Court, Dallas County, Texas by Data Discovery Inc. ("DDI") (Civil Action No.
3-05-CV-0949-M). DDI, representing one party of a dissolved partnership, is
seeking the collection of $107,300 allegedly owed to the partnership for
services purported to have been fully-provided to us. We engaged local counsel
and filed on May 10, 2005, a Notice of Removal to move the case to federal
court, and a Motion for Dismissal. In July 2005, the District Court delivered a
Memorandum Opinion and Order granting our Motion for Dismissal and ordered that
within twenty days DDI amend its suit to the satisfaction of the District Court,
or the order will become a dismissal with prejudice, which would bar DDI from
filing any other suit against us related to the matters within its claim. Our
counsel will respond to the allegations in any further pleading with appropriate
challenges to its legal sufficiency to state a claim upon which relief may be
granted. The costs of defending against the Complaint could be substantial;
however we are unable to predict an exact amount, or even a meaningful estimate,
at this time.


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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.

RISK FACTORS

RISKS RELATED TO OUR BUSINESS

RISK FACTORS

We are a development stage company, and an investment, or maintaining an
ownership position, in our common stock is inherently risky. Some of these risks
pertain to our business in general, and others are risks which would only affect
our common stock. The price of our common stock could decline and/or remain
adversely affected due to any of these risks, and investors could lose all or
part of an investment in our company as a result of any of these risks coming to
pass. Readers of this Report should, in addition to considering these risks
carefully, refer to the other information contained in this Report, including
disclosures in our financial statements and all related notes, before making any
determination with respect to our stock. If any of the events described below
were to occur, our business, prospects, financial condition, or results of
operations or cash flow could be materially adversely affected. When we say that
something could or will have a material adverse effect on it, we mean that it
could or will have one or more of these effects. We also refer readers to the
information at the front of this Report, discussing the impact of
Forward-Looking Statements on the descriptions contained in this Report and
included in the Risk Factors discussed below.

Risks Related To Our Business

General Business Risks

We have a history of losses and an accumulated shareholders' deficit of
$31,800,161 as of April 30, 2005, and we may never achieve profitability.

We have not generated any significant revenue from operations during the past
two fiscal years, and we have incurred net losses available to common
shareholders every year since our inception, including $9,984,565 for the year
ended April 30, 2005, as compared to $8,183,346 for the prior year period. We
expect that our operating expenses will increase in the near term, due in part
to investments that we intend to make in connection with our plans to
commercialize, manufacture and market our initial prototype devices: the CarBomb
Finder(TM) and SIEGMA(TM). To achieve profitability, we will need to generate
significant revenue, while achieving reasonable costs and expense levels. We may
not be able to generate enough revenue to achieve profitability. If we cannot
achieve or sustain profitability, we may not be able to fund our expected cash
needs or continue our operations.

We will need additional capital to meet our operating needs, and additional
capital may not be available on favorable terms or at all.

For the last two fiscal years, we have experienced average monthly operating
expenses of approximately $340,000, and no revenues from operations to offset
that amount. As such, we must continually raise capital from the sale of equity
or the placement of debt to private investors, or from government grants or
development contracts, in order to fund our operations at current levels or at
all. Our ability to raise additional funds in the public and private markets
will be adversely affected if the results of our business operation are not
favorable, or if the commercialization of the CarBomb Finder(TM) and SIEGMA(TM)
is poorly received or fails altogether.


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<PAGE>

Although we intend to seek additional funding through corporate collaborations
or from loans or investments from new or existing stockholders, additional
capital may not be available to us and, even if available, it may not be on
terms which our Board of Directors would be willing to accept. If we cannot
obtain the capital we need to fund our operations on terms which we can accept,
we may be required to curtail our operations significantly, or cease our
operations altogether, which would have a material adverse effect on our
business, our operations and our financial condition.

As a development stage company with an unproven business strategy, we may not be
able to achieve positive cash flows and our limited history of operations makes
evaluation of our business and prospects difficult.

While we have developed prototypes of our CarBomb Finder(TM) and SIEGMA(TM)
systems, and are introducing our first commercial products, which include the
CarBomb Finder(TM) 3C4 and the SIEGMA(TM) 3E3, except for the orders placed by
our exclusive distributor in the Middle East, EEMCO, which is owned by one of
our Directors, Compania de Aprovisionamiento Especifico S.L. of Spain, and
Southeastern Pennsylvania Transportation Authority (SEPTA), we have made few
sales. Because of the few orders and the fact that the markets of the CarBomb
Finder(TM) and SIEGMA(TM) remain largely untested and undefined in general, we
are still classified as a development stage company with a limited operating
history.

Since April 25, 2002, we have focused our resources on the development of
products using our proprietary stoichiometric technology. We believe that we are
the only company working on a commercial product using stoichiometric
technology, and so there is no proven market for our products once development
is complete. To date, we have no commercialization experience with our
technology, and it is difficult to evaluate our prospects for sustained growth
and profitability. Our future success is more uncertain than if we had a more
established and proven history of operations and greater experience in executing
similar business strategies. Furthermore, it is expected that our current
business and marketing approach will be modified from time to time, as we
continue to assess the markets and applications for our technology as well as
evaluate prospective customer interest. No assurance can be made that the
current strategies or any future changes in our business model, and the
marketing of products, will be met with success. For the last two fiscal years
we have not generated any significant revenues and, as a result, we have limited
resources and our potential ability to generate and maintain income also remains
unproven.

The commercial viability of the CarBomb Finder(TM) and SIEGMA(TM) is unproven,
and may never be realized.

To the best of our knowledge, as of the date of this Report, no customer,
industry partner or governmental entity has used a CarBomb Finder(TM) device to
detect explosives, other than in demonstrations. We have not had independent
testing of the CarBomb Finder(TM) device to rate or certify its functionality in
explosive detection, nor have we commissioned an independent market or research
study to determine its market potential. Consequently, the commercial viability
of the CarBomb Finder(TM) and SIEGMA(TM) is unproven at this time. We also are
unable at this time to qualify the amount and frequency of maintenance to be
required by the CarBomb Finder(TM) and SIEGMA(TM), as we have no reference data
regarding real world use of the devices and we have limited experience in
causing, or simulating, extensive usage. A significant increase in the amount of
maintenance required to keep the devices operating may result in unforeseen
problems or customer dissatisfaction. If this were to occur, prospective
customers could very well perceive that there are reliability problems with our
products, which could reduce the demand for our products. If commercial
opportunities are not realized from the use of the CarBomb Finder(TM) and
SIEGMA(TM) systems and we have difficulty attracting and maintaining customers,
our ability to generate revenues will be adversely affected. We also have not
had the ability to undertake extensive testing in real-world situations, and
cannot with certainty explain how the device would be impacted by severe
weather, burning or excessive heat, a wartime environment, various topographies
or other circumstances which maybe of particular importance to certain
prospective customers or in certain regions. Without internal data in respect of
these kinds of testing, customers may be reluctant to spend the funds necessary
to purchase our CarBomb Finder(TM), SIEGMA(TM), or any of our other prototype
developments, and the sales cycle may be longer than we have anticipated or may
not materialize at all, either of which events would have a materially adverse
effect on our business, operations and financial condition.


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<PAGE>

From time to time we demonstrate our products to potential customers and/or
sources of funding, and any failures in these demonstrations could have a
materially adverse impact upon our ability to sell our products, and on our
business and financial condition generally.

As a defense products company, we are sometimes requested or required to
demonstrate our technologies and our products at varying stages in our
development. Such demonstrations may be in front of potential purchasers of the
products, and/or sources of grant or private equity funding. To the extent that
any product or technology may not work in the manner in which it is intended,
such prospective purchasers and/or funding sources may lose confidence in our
products and technology, and may determine not to purchase any products or fund
any developments. If a demonstration should not work successfully at any time
when large numbers of people are present, the news could spread within the
homeland defense industry we are working in, especially among the relatively
small universe of large potential governmental agencies and other organizations
who are likely purchasers of our products. If that were to happen, it could have
a materially adverse effect upon our ability to make sales of our products, as
well as on our overall business operations and financial condition.

We have limited resources to devote to product development and
commercialization. If the commercialization of the CarBomb Finder(TM) and
SIEGMA(TM) systems proves unsuccessful, any reallocation of resources could
substantially harm our business.

Our business strategy is to develop, manufacture and market products
incorporating our stoichiometric technology to address initially the security
and counter-terrorism market and the chemical and petrochemical industry control
market. Our current and primary objective is to commercialize our proprietary
CarBomb Finder(TM) and SIEGMA(TM) systems. We believe that in the near term our
revenue growth and profitability, if any, will substantially depend upon several
factors, including the following:

      o     our ability to raise additional capital to manufacture and market
            our current prototype devices, the CarBomb Finder(TM) and
            SIEGMA(TM);

      o     our ability to raise additional capital for general and
            administrative costs relating to our operations;

      o     our ability to manufacture the CarBomb Finder(TM) and SIEGMA(TM)
            systems in commercial quantities, at a reasonable profit margin;

      o     receipt of any requisite approvals from the Nuclear Regulatory
            Commission (NRC), the Department of State, the Department of
            Commerce, the Department of Defense, and similar state or foreign
            authorities, as applicable;

      o     market acceptance of the CarBomb Finder(TM) and SIEGMA(TM) and
            after-market satisfaction related to performance and maintenance
            issues;

      o     legislative or other government actions driven, in part, by the
            public's perception of the threats facing the population and
            unrelated political circumstances, which may leading to significant
            fluctuations in demand for our products and services;

      o     the availability and cost of key components for the CarBomb
            Finder(TM) and SIEGMA(TM);

      o     the timing of completion of acceptance testing for the CarBomb
            Finder(TM) and SIEGMA(TM); and

      o     changes in pricing policies by us, our competitors or our suppliers,
            including possible decreases in average selling prices of the
            CarBomb Finder(TM) and SIEGMA(TM), caused by promotional offerings,
            customer volume orders, or competitive pricing pressures.

We have introduced our systems, the CarBomb Finder(TM) 3C4 and SIEGMA(TM) 3E3
only recently, and all other applications of our technology are still in the
early stages of development. These include, at present, our CarBomb Finder(TM)
3C5, Anti-Tank Landmine Detector 7AT7, Unexploded Ordnance Sensor 3UXO3, Bomb
BombSquad Detector, and our Refractorymeter. For the fiscal year ended April 30,
2005, we spent $785,260 or 14% of total operating expenses on research and
development. For the fiscal year ended April 30, 2005, we spent $4,947,315 or
86% of total operating expenses on general and administrative expenses. We
anticipate an increase in general and administrative expenses due to additional


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<PAGE>

operating expenses demanded for commercialization of the CarBomb Finder(TM) and
SIEGMA(TM) systems. We anticipate research and development costs to stay
approximately at the same level, to the extent that independent testing of the
CarBomb Finder(TM) and SIEGMA(TM) systems will be required in order to obtain
approvals from regulatory authorities or gain better market acceptance by
industry partners or governmental officials.

If we fail to commercialize the CarBomb Finder(TM) 3C4 and SIEGMA(TM) 3E3, we
will have no other products to sell until we complete their development and
commercialization, which will require additional capital and time. As a result,
our ability to generate revenues will decrease, which could substantially harm
our business. Because we have limited resources to devote to product development
and commercialization, any reallocation of resources to the commercialization of
the CarBomb Finder(TM) 3C4 and SIEGMA(TM) 3E3 that proves unsuccessful may delay
or jeopardize the development of other products. The development of new products
may require time and financial resources much greater than what we currently
anticipate and, despite significant investments in research and development, may
not yield commercially successful products. The development of our products for
the detection of explosives, illicit drugs, biological agents and other
contraband is highly complex.

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 qualified their opinion contained
in our consolidated financial statements as of and for the years ended April 30,
2005, 2004, 2003 and 2002 to include an explanatory paragraph related to our
ability to continue as a going concern, stating that "during the year ended
April 30, 2005, we incurred a net loss available to common shareholders of
$9,984,565, and had negative cash flows from operations of $4,526,411. As of
April 30, 2005, we had an accumulated deficit of $31,800,161 and were in the
development stage. These factors, among others, as discussed in "Note 3- Going
Concern" to our consolidated financial statements, raise substantial doubt about
our ability to continue as a going concern." The auditors recognize that the
cash flow uncertainty makes their basic assumptions about value uncertain. When
it seems uncertain whether an asset will be used in a "going concern" or sold at
auction, the auditors assume that the business is a "going concern" for purposes
of all their work, and then they disclose that there is material uncertainty
about that assumption. It is definitely a consequence of our negative cash flows
from operations that we continually need additional cash. At any time, a serious
deficiency in cash flows could occur and it is not always possible or convenient
to raise additional capital. A problem in raising capital could result in
temporary or permanent insolvency and consequently potential lawsuits by unpaid
creditors and perhaps closure of the business. All of these things are
possibilities. It is certain, in any case, that analysts and investors view
unfavorably any report of independent auditors expressing substantial doubt
about a company's ability to continue as a going concern. Consequently, 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 us, and not to invest in our common stock unless they can afford
the potential loss of their entire investment.

Companies which possess much greater financial and other resources and have more
manufacturing, marketing, sales and distribution experience than we have, may
develop a technology which competes effectively with our stoichiometric
technology, and we may be unable to capture or maintain market share.

Based upon our review of the industry, we believe that no other company today
markets a technology which is similar to or competitive with our stoichiometric
technology used in our CarBomb Finder(TM) and SIEGMA(TM) systems, and the other
prototype devices referenced in this Report. The market for explosives and
contraband detection equipment generally is dominated by a few very large
corporations (or their subsidiaries), which have greater access to capital,
manpower, technical expertise, distribution channels and other elements which
would give them a huge competitive advantage over us were they to begin to
compete in our market. Our ability to market our technology as "unique" is
dependent upon the fact that these larger, better-established companies do not
have the ability to determine the exact identity, amount and weight of each
element their equipment detects. If one of these competitors was to throw


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sufficient capital and other resources at developing a competitive technology,
notwithstanding our efforts to secure protection of our core intellectual
property rights, they might be able to do so, in which case it would be very
difficult for us to compete and we might not be able to maintain our existing
market share as of that point, or capture any additional market share, with our
products. Furthermore, if one of these competitors were to develop a technology
which was viewed as an improvement over our existing technology, our ability to
maintain any segment of the neutron-based detection market might disappear
altogether, which would have a materially adverse effect upon our business,
operations and financial condition.

It is possible that competitors may introduce new technologies before we do,
allowing them to offer similar or more effective products at more competitive
prices. Any number of future technological developments could:

      o     adversely impact our competitive position;

      o     require write-downs of obsolete technology;

      o     require us to discontinue production of obsolete products before we
            can recover any or all of our related research, development and
            commercialization expenses; or

      o     require significant capital expenditures beyond those currently
            contemplated.

We cannot assure investors that we will be able to achieve the technological
advances to remain competitive and profitable, that new products and services
will be developed and manufactured on schedule or on a cost-effective basis,
that anticipated markets will exist or develop for new products or services, or
that any marketed product will not become technologically obsolete.

We depend on key management and personnel and may not be able to hire or retain
additional key managers, employees and technical and scientific personnel when
needed.

Our future success will be due, in part, to the continued services of our senior
management team. The loss of services by one or more members of our management
and scientific teams could negatively affect our business and development
strategies. During the fiscal year, we lost several members of its executive and
scientific team and we could be seriously harmed by the loss of any of our
executive officers, including Dr. Maglich. In order to meet our objectives, we
will need to recruit additional members for our senior management team. We also
anticipate hiring additional skilled personnel, such as advanced engineering
professionals, as part of a product development team that could be self
sufficient and operate with minimal supervision. As a result, our future growth
and success will depend in large part upon our need and ability to attract and
retain qualified personnel.

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 the
government sales portion of our business plan.

The terrorist attacks in the U.S. and other countries have brought devastation
to many people, shaken consumer confidence and disrupted commerce throughout the
world. The continuing threat of terrorism and heightened security measures, as
well as current and any future military and civil 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 sufficient capital due to economic conditions, we may
be unable to finalize development of our detection systems under government
contracts and to bring them to military, civil or commercial markets as planned.


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Our business may be subject to international risks that could materially harm
our business.

We are pursuing various international business opportunities, including
opportunities in Turkey, Spain and the Middle East. We anticipate a number of
additional risks associated with our international activities, which could
adversely affect our business including, among others, the following:

      o     changes in domestic and foreign regulatory requirements;

      o     political instability in the countries where we sell products;

      o     differences in technology standards;

      o     foreign currency controls;

      o     longer payment cycles and inadequate collection system;

      o     fluctuations in currency exchange rates;

      o     inconsistent intellectual property protections in foreign
            jurisdictions;

      o     export restrictions, tariffs, embargoes or other barriers;

      o     prejudicial employment laws and business practices;

      o     difficulties in obtaining and managing distributors; and

      o     potentially negative tax consequences.

Manufacturing Risks

We have no manufacturing experience and our ability to be able to successfully
execute a manufacturing plan is untested.

In order to be successful, we must be able to manufacture, or contract for the
manufacture of CarBomb Finder(TM) and SIEGMA(TM) systems in a scalable and cost
effective manner, producing sufficient quantities on a timely basis, under
strict quality guidelines and in compliance with regulatory requirements. To
date, we have not manufactured any CarBomb Finders(TM) or SIEGMAs(TM) for
commercial sale, nor have we contracted with any third parties to manufacture
the product for us. In order to move toward commercial production, in August
2004, we retained Lockwood-Greene Engineering and Construction to develop a
detailed conceptual plan for a manufacturing facility, and in March 2005, we
formed HiEnergy Mfg Company in order to create a semi-autonomous division to
develop and manage the infrastructure, policies and controls for the manufacture
and assembly of CarBomb Finder(TM) and SIEGMA(TM) systems. We anticipate that we
will need to make a substantial capital investment and recruit qualified
personnel in order to build, equip and/or operate any manufacturing facility.
Although we have not yet determined the timing as to the construction or
build-out of a manufacturing facility, we intend to begin the initial phases of
production of the first 10 CarBomb Finders(TM) and/or SIEGMAs(TM) at our
facilities in Irvine and to continue this effort during fiscal year 2006, or
until either a manufacturing facility is constructed and/or equipped or an
outsourced manufacturing contract is secured.

Our manufacturing strategy, as contemplated, depends on the following:

      o     the ability to raise additional capital to cover the costs of
            constructing and equipping a facility and for the manufacturing of
            the CarBomb Finder(TM) and SIEGMA(TM) systems in quantities
            necessary to meet anticipated demand should approval by regulatory
            authorities be obtained;

      o     the ability to manufacture products that have minimal and acceptable
            defects;

      o     the ability to obtain product liability insurance;

      o     the ability to obtain approvals from any applicable state or federal
            regulatory agencies;

      o     unexpected changes in regulatory requirements;

      o     inadequate protection of intellectual property; and

      o     risks of fire, earthquake, or other man-made or natural acts
            affecting manufacturing facilities.

Any of these factors, or the failure to execute them, could delay the
manufacturing and commercialization of the CarBomb Finder(TM) and SIEGMA(TM)
systems, lead to higher costs, irreparably damage our reputation with future
customers due to factors such as quality control or delays in order fulfillment,
and result in our being unable to effectively sell the CarBomb Finder(TM) and
SIEGMA(TM) systems and substantially harm our business.


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<PAGE>

Before we can afford to have our own manufacturing facility, or engage a
third-party to manufacture units for us on an OEM basis, we must manufacture the
initial units we sell in our laboratory facility with limited staff on a one-off
basis, which renders us unable to create any manufacturing efficiencies or to
realize a profit from the resulting sales. If we are not able successfully to
transition our manufacturing to full-scale commercial production, it will have a
materially adverse effect on our business and financial condition.

We anticipate that at least the first 10 units of our CarBomb Finders(TM) and/or
SIEGMA(TM) systems which we may be able to sell will have to be manufactured
in-house, one at a time, with limited staff and resources, and without the
ability to take advantage of the economic efficiencies which we would expect if
our product is successfully launched and can be manufactured at higher numbers
in full production. We may never reach that level of production and, if we
don't, then our manufacturing efforts will not produce any profit for us or our
stockholders, and we may potentially have to sell units at a loss (if our cost
of goods, including manufacturing of each unit, exceeds the purchase price we
are able to charge our customers for these initial units). If we cannot convert
our commercial manufacturing operation into a profit center for our company, it
will have a materially adverse impact on our business and operations, and our
overall financial condition.

We rely substantially on third-party suppliers and depend upon a limited number
of suppliers of one of our components for our CarBomb Finder(TM) and SIEGMA(TM)
systems (the gamma ray detector). The inability to obtain parts from these
suppliers on a timely basis and the loss of product or delays in product
availability from one or more third-party suppliers could substantially harm our
business.

We currently rely on third-party suppliers for various parts of the CarBomb
Finder(TM) and SIEGMA(TM) devices, including neutron generators with custom
modifications and certain sub-assemblies. We have placed orders for these key
components for the first 10 CarBomb Finders(TM) and/or SIEGMAs(TM) from a small
number of sources. For example, we obtain the standard sealed tube neutron
generators we use from a single source, EADS-Sodern, on a purchase order basis,
and the sub-assemblies from a single source, PMB 322, on a purchase order basis.

We believe that alternative sources for these components in the event of a delay
or interruption in supply would be readily available on a timely basis, however,
any inability by us to find alternative sources of key components, alternative
third party manufacturers or sub-assemblers, or sufficient quantities of these
key components, would impair our ability to manufacture and sell the CarBomb
Finder(TM) and SIEGMA(TM) and result in delays or interruptions in shipments,
which could cause current or potential customers to seek out competitors. In
addition, if we are unable to pay for these components on a timely basis, or
cannot arrange sufficient available credit, our third-party suppliers may delay
or cease shipments, which would also impair our ability to manufacture and sell
the CarBomb Finder(TM) and SIEGMA(TM). We currently do not have long-term
agreements with any of these suppliers. Furthermore, in view of the high cost of
many key components, we would strive to avoid excess supplies. If our suppliers
experience financial, operational, production or quality assurance difficulties,
or our sole source suppliers are acquired or otherwise influenced by our
competitors, the supply of components to us would be reduced or interrupted. In
the event that a supplier ceases operations, discontinues a product or withholds
or interrupts supply for any reason, we may be unable to acquire the product
from alternative sources within a reasonable period of time, which would impair
our ability to manufacture and sell the CarBomb Finder(TM) and SIEGMA(TM) and
cause substantial harm to our business.

Interruptions, delays or cost increases affecting our materials, parts,
equipment or suppliers may adversely affect our manufacturing operations.

Our manufacturing operations depend upon obtaining adequate supplies of
materials, parts and equipment on a timely basis from third parties. In
particular, there are few manufacturers worldwide of particle accelerators and
gamma ray detectors; sophisticated and expensive equipment which are the key
components of our products. 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


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<PAGE>

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.

Our competitors could purchase the same components from our suppliers and
attempt to copy our products to the extent not covered by patents or other
intellectual property rights.

We, like most companies, purchase components for our products from third party
suppliers. We have patent applications pending that are directed to various
combinations of some of these components, but do not cover any of these
components separately. Competitors could purchase the same components from the
same suppliers and assemble similar products to the extent not protected by our
patent or other intellectual property rights. We cannot assure you that our
competitors will not independently develop comparable or superior technologies
using similar or identical components or that our competitors will not obtain
unauthorized access to our proprietary technology and utilize it where we have
no patents or where our patents do not cover the competitor's technology. Areas
of the world where we do not have patent applications include, for instance, the
Middle East, Russia, Africa, and South America. We believe that we have applied
for patents in countries, which constitute the largest markets for our products,
and we intend to expand our patent portfolio. We have applied for patents in the
United States, the European Union, Canada, and Japan and as improvements are
made we intend to file also elsewhere for any potential patent protection. See
the discussion under the heading Intellectual Property Risks.

We may be unable to secure anticipated governmental funding for future products;
we are currently unable to obtain an SBA Certificate of Competency.

We plan to apply for several government contracts for the development of future
projects in the future; however, such contracts may not be obtained. We have
successfully obtained a total of seven government development contracts to date
from the U.S. Department of Defense, U.S. Department of Energy and U.S. Customs
Service to finance our research and development. These contracts may be denied
for reasons that include funding of the program, our financial position and
abilities, or for other reasons. We cannot assure investors that additional
government research and development contracts or funding will become available
in the future or that we will receive any additional funds due under previously
secured contracts. If the government discontinues its sponsorship for our
technology, we would have to raise or divert additional capital for product
development, which could adversely affect our business. Furthermore, we are
aware that competitors and potential competitors in the explosive detection
market have also received development grants. Any future grants to competitors
or potential competitors may improve their ability to develop and market
advanced detection products that could compete with our technologies.

In the past, we failed to receive a research grant from the U.S. Navy as a
result of our inability to obtain a Certificate of Competency from the U.S.
Small Business Administration certifying our financial condition as being
adequate to responsibly complete the grant work if it were awarded to us. Due to
our financial condition, we were not awarded the requisite Certificate of
Competency, nor was the Small Business Administration's determination reversed
in June, 2003 when we requested reconsideration of this decision. Management
believes that, in our present condition, the requirement to obtain Certificates
of Competency will continue to be a bar to our ability to win certain government
grants in the future, and is seeking the additional capital necessary to meet
the minimum competency requirements for the projects in which it desires to
participate. It is impossible to state how much money is necessary to obtain a
Certificate of Competency, because it varies from grant to grant and we have
never received a specific dollar amount that would need to be obtained in order
to qualify. However, management intends to raise two to three million dollars in
additional equity capitalization, following the filing of this Report, and
believes that with that additional capitalization it should be able to meet its
operating plans, including seeking additional research and development grants
requiring a Certificate of Competency. There can be no assurance that we will
ever obtain the additional equity capitalization that we need to obtain
Certificates of Competency in respect of any given grant opportunity or, even if
we do, that we will be awarded any research and development grants.


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<PAGE>

Governmental agencies have special contracting requirements, which create
additional risks.

In contracting with governmental agencies, we are subject to public agency
contract requirements that vary from jurisdiction to jurisdiction. Any potential
sales to public agencies will depend, in part, on our ability to satisfy their
contract requirements, which may be difficult or impossible in certain cases.
Moreover, government contracts typically contain unilateral termination
provisions unfavorable to us and are subject to discretionary auditing and
modification by the government, which subject us to additional risks. The U.S.
government may terminate any of its contracts with us either for its convenience
or if we default by failing to perform in accordance with the contract schedule
and terms. Nonetheless, termination for convenience provisions generally enable
us to recover only our costs incurred or committed, and settlement expenses and
profit on the work completed prior to termination. Termination for default
provisions do not permit such recoveries and make us liable for excess costs
incurred by the U.S. government in procuring undelivered items from another
source. Any potential contracts with foreign governmental agencies or bodies may
contain similar provisions.

Consequently, our backlog on government contracts cannot be deemed a true
indicator of our future revenues. The government's termination of one or more of
the contracts for products under development would harm our business. In
addition, U.S. government contracts are conditioned upon the continuing
availability of Congressional appropriations, which are readdressed on an annual
basis. Consequently, our contracts with certain government agencies generally
are only funded in part at the outset and commit additional monies only as
Congress makes appropriations for future periods. The inability or failure by
the government in funding one or more of the contracts for our products under
development would harm our business.

In addition, contracts with governmental agencies are frequently awarded through
a formal bidding processes, which can be often protracted and contain
cancellation provisions in the event said public agency loses its funding. There
can be no assurance that we will be awarded any of the contracts for which our
products will be bid and even if we are awarded contracts, substantial delays or
cancellations of purchases could result from complaints filed by competing
bidders.

If our losses continue into the future, our business and our stockholders will
be adversely affected. We are therefore reducing our dependence on governmental
customers, which can require longer than average lead times before sales are
made.

We have incurred net losses since our inception. For the fiscal year ended April
30, 2005, we reported net losses available to common shareholders of $9,984,565,
as compared to a net loss available to common shareholders of approximately
$8,183,346 for the fiscal year ended April 30, 2004. Our accumulated deficit
through April 30, 2005 is $31,800,161. We expect that our losses will continue
into fiscal year 2006. We estimate that our aggregate financial requirements
will be between $8,000,000 and $10,000,000, until we can generate sufficient
revenues from sales to cover our operating costs. One of the factors for the
continuation of such anticipated losses is that we are highly dependent on
governmental customers, which typically require long lead times before sales are
made.

Marketing Risks

A failure to establish and maintain relationships with industry partners may
harm our business.

Our success will depend in part on establishing and maintaining relationships
with industry partners. Our ability to produce and market the CarBomb Finder(TM)
and SIEGMA(TM) devices is dependent upon our ability to establish and maintain
satisfactory relationships with other companies and individuals. We may not be
able to enter into relationships with these companies on commercially reasonable
terms or at all. Even if we establish such relationships, not all may result in
benefits for our company.


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<PAGE>

We have granted a third party substantial marketing rights to the CarBomb
Finder(TM) and SIEGMA(TM) devices in an important market. If the third party is
unsuccessful in marketing the CarBomb Finder(TM) and SIEGMA(TM), our marketing
plan in the relevant territory could be jeopardized or interrupted.

We have entered into an exclusive distribution agreement for the initial model
of our CarBomb Finder(TM) with an equipment marketing company, EEMCO, for our
marketing and sales efforts in 11 countries in the Middle East and North Africa.
EEMCO is owned by a director of our company, Harb Al-Zuhair. This agreement
covers one of our primary anticipated regional markets, and so our success in
penetrating this marketplace will depend, in large part, on EEMCO's ability to
make sales within its territory. Provided that it has met its minimum sales
requirement to maintain exclusivity for any country within its territory (which
is a minimum of four sales in each country within the territory by August 2005),
we will not be able to offer marketing rights to our prototype CarBomb
Finder(TM) to any other entity to make sales within that specific territory. If
EEMCO meets its minimum sales requirement by August 2005, it will not be
required to do anything further to retain its exclusivity for that product.
Although we have the right to terminate the agreement upon 60 days notice for
any reason, or immediately if there is a material breach, there may be
significant costs associated with extricating ourselves from the agreement and
market share could be compromised if a smooth transition to another distributor
is not made.

Intellectual Property Risks

We may not be able to protect our intellectual property and may infringe on the
intellectual property rights of others.

The protection of our intellectual property and the establishment of patents and
other proprietary rights are important to our success and our competitive
position. Accordingly, we devote substantial resources to the establishment and
protection of intellectual property through various methods such as patents and
patent applications, trademarks, copyrights, confidentiality and non-disclosure
agreements. We also rely on trade secrets, proprietary methodologies and
continuing technological innovation to remain competitive. We have taken
measures to protect our trade secrets and know-how, including the use of
confidentiality agreements with our employees. However, it is possible that
these agreements may be breached and that the available remedies for any breach
will not be sufficient to compensate us for damages incurred.

We currently have pending patent and provisional patent applications in the
United States and various foreign countries. There can be no assurance that our
patent applications will result in the issuance of any patents, or that the
claims allowed under any patents held by us will be sufficiently broad to
protect our technology against competition from third parties with similar
technologies or products. Moreover, we can give no assurance that others will
not assert rights in, or ownership of, patents and other proprietary rights we
may establish, or acquire or that we will be able to successfully resolve such
conflicts. In addition, we cannot assure investors that any patents issued to us
will not be challenged, invalidated or circumvented or that the rights granted
under these patents will provide a competitive advantage to us. Moreover, the
laws of some foreign countries do not protect intellectual property rights to
the same extent as the laws of the United States, and therefore we could
experience various obstacles and significant costs in protecting our
intellectual property rights in foreign countries. If we are unable to obtain or
maintain these protections, we may be unable to prevent third parties from using
our intellectual property.

In the operation of our business, it is inevitable that certain employees,
consultants, vendors, current or prospective customers, distributors, government
officials, investors and other persons having a business relationship with us
will come in contact from time to time with certain of our trade secrets and
other proprietary information. Although we use reasonable efforts to ensure that


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such persons sign confidentiality agreements with us, or otherwise respect the
proprietary and confidential nature of this information, our ability to protect
our rights depends upon us being aware that proprietary information has been or
may be misused and, even if we are aware of such fact, our ability further
depends upon having the resources necessary to compel such person not to misuse
such information, which may require costly legal proceedings which we may not be
able to afford at the time. If that were to be the case, our inability to
protect our proprietary and confidential trade secrets and information could
impair or destroy our ability to continue to claim proprietary rights in such
information, and/or could allow our competitors to access such information to
their competitive advantage and at our expense, either of which results could
have a materially adverse effect upon our business, operations and financial
condition, as well as the value of some or all of our intellectual property
rights in general.

Information relating to any invention that is invented under a Small Business
Innovation Research contract may become public at some future time.

A portion of our research and development costs relating to the development of
our advanced SuperSenzor technology for anti-tank landmine identification
purposes is being funded under a Small Business Innovation Research ("SBIR")
contract. This development work essentially involves the incorporation of
sophisticated directional features into our core MiniSenzor technology. To date,
none of the funding we have received from SBIR grants has been utilized for the
development of technology which was incorporated in any patent we have filed
for, or otherwise comprises a portion of our proprietary rights in our
technology. However, in the future it is conceivable that we could undertake a
material technology development utilizing funding from an SBIR grant, in whole
or in part. If that were to occur, there is a risk that the concerns addressed
below could become applicable.

If an invention is developed under an SBIR contract, it must be reported to the
granting agency. The U.S. federal government has royalty-free rights when
purchasing the products from our federal government SBIR contracts. We
nevertheless own the data and title to the products resulting from those
contracts and are permitted to obtain patent protection. The U.S. federal
government does not contractually undertake to protect data or inventions from
public disclosure beyond four years after the term of an SBIR contract.
Therefore, our competitors possibly could gain access to certain information
relating to our SuperSenzor advancements or any other technologies we develop
under SBIR contracts. The U.S. government however, has no rights over our
patents because the inventions were developed prior to the SBIR contracts. Also,
the U.S. federal government might create competition by utilizing its own right
and license to any technology developed under the SBIR contract if it is not
being developed by the inventor. The U.S. government in exercising these rights
to produce or have produced for the U.S. government competing products using the
technology developed under the SBIR, could limit the marketability of our
products. Furthermore, if we were to participate in research and development
projects jointly with one of the U.S. or foreign military branches, where the
relevant government is deemed to be the owner of the resulting technology, we
may be foreclosed from using, or protecting as our own, technology which we
helped to develop and which could otherwise be eligible for patent protection if
we had developed it independently. Accordingly, technology which we develop
could end up becoming used by our competitors and against us. If either of these
events were to occur, it might lessen the value of that technology, or of our
company, to prospective future investors or candidates for our acquisition,
which could have a material effect upon the market for our shares.

Litigation as to enforcement or defense against claims of intellectual property
infringement could be expensive, and any judgment against us may prevent us from
selling our products.

We may be called upon to enforce our protections against intellectual property
and trade secrets, or to determine the validity and scope of the proprietary
rights of others. Any subsequent litigation, regardless of the outcome, could be
costly and divert the efforts of key management and technical and scientific
personnel. Both domestic and international competitors may have pre-existing
claims and patents against intellectual property that may prevent, limit or
interfere with our ability to manufacture and sell our products. As of this
date, we have not conducted an independent review of patents issued to third
parties. Because of the market opportunity we perceive, companies possessing


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technology rights, which they believe we may be infringing upon, will be
motivated to assert claims of infringement against us. Any adverse outcome in
the defense of an infringement matter could subject us to significant
liabilities to third parties, require disputed rights to be licensed from third
parties, or prohibit us from selling our products.

Regulatory and Legal Risks

The CarBomb Finder(TM), SIEGMA(TM), and any future products in development
utilizing our technology would be subject to radiation safety regulations and
licensing requirements. Complying with these requirements may result in delays
in the deployment and customer utilization of the CarBomb Finder(TM),
SIEGMA(TM), and future products.

Our CarBomb Finder(TM), SIEGMA(TM), and any future products in development
utilize a process that results in neutron radiation. As a potential manufacturer
of a fast neutron emitting device, we and our customers must comply with
applicable governmental laws and regulations and licensing requirements, which
may include those promulgated by the U.S. Nuclear Regulatory Commission ("NRC")
and the U.S. Food and Drug Administration ("FDA"), governing the design and
operation of our products, including appropriate radiation shielding. Although
fast neutron radiation demonstrates some properties different than other forms
of radiation, we do not believe that fast neutron radiation presents any
difficulties or creates any risks beyond those ordinarily encountered in
connection with the fabrication and operation of other forms of radiation
emitting devices commonly used in the general population, such as x-ray
equipment. Further, we believe that the design and incorporation of appropriate
shielding in our products and the development of appropriate operating
procedures in view of their intended use are, as an engineering and public
safety matter, relatively straight-forward matters. Nevertheless, compliance
with these rules and regulations and licensing requirements entails additional
expense, effort and time in bringing our products to market.

The manufacture and sale of devices which emit radiation are subject to the
regulatory controls and standards of various domestic and foreign jurisdictions.
These regulations may become more restrictive as policies, guidelines and
standards change, and our activities as to current and future products may be
curtailed or interrupted.

Currently, our prototype CarBomb Finder(TM), SIEGMA(TM) and other devices
incorporating our stoichiometric technology for detection purposes utilize a
sealed tube neutron generator to create the stream of fast neutrons which is
emitted from the device. These generators are off-the-shelf neutron generators
which do not require licensing by the NRC or other regulatory body to
manufacture. However, if we were to customize our own proprietary neutron
generator for use with our products, such new generator would be subject to
review and licensing by the NRC, and potentially by any other jurisdiction in
which we may manufacture or sell our products in the future. Currently, the end
users of our devices may be required to obtain NRC and other permits in order to
operate them. There can be no assurance that the need to obtain end-user
permits, and/or to comply with any future regulations which may be adopted by
the NRC or other U.S. or foreign regulatory bodies will not limit, or be a bar,
to our potential customers purchasing our products. Furthermore, the imposition
of stricter permitting regulations on the manufacturing of devices that utilize
the sealed tube neutron generator, or the increase in regulatory requirements if
we were to develop our own customized neutron source, could be prohibitively
expensive or adversely affect our ability to manufacture our devices as
currently contemplated, which could have a materially adverse effect upon our
future sales and financial condition.

If current Export Administration Act regulations were to change, or if our
devices are purchased in countries which are viewed as a threat to regional
stability, we could become subjected to the more stringent rules of the U.S.
Department of State, and certain currently permissible sales activities could be
limited or prohibited altogether.


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<PAGE>

Although we have not submitted a formal commodity classification request to the
BIS, we believe the CarBomb Finder(TM) and SIEGMA(TM) would most likely be
classified under ECCN 2A983, and subject to export control regulations
administered by the U.S. Department of Commerce, Bureau of Industry and Security
("BIS"). Accordingly, sales of our currently anticipated products to countries
which are not restricted pursuant to the BIS' listings for "Region Stability
(RS-2)", "Anti-Terrorism (AT-1)", and/or "Non-Proliferation (NP-1)", require no
special licensing. Sales to other countries will require licenses to be obtained
for export, but we expect that we would fall into the category of items
receiving "favorable consideration" due to the non-aggressive nature of our
planned products. However, future sales to countries of concern, future products
we may develop, or future changes in the existing federal regulations governing
the administration of export controls by the U.S. Department of Commerce, may
require us to obtain federal licensing, or become subject to more stringent
rules of the U.S. Department of State. There can be no guarantee that we will be
able to obtain such licenses at that time, or if we can that costs of doing so
will not be prohibitive or significantly our poll of available customers.

If future products, such as the CarBomb Finder(TM) and SIEGMA(TM), fail to
detect or confirm explosives, we could be exposed to product liability and
related claims and may fail to achieve market acceptance.

Inherent in the manufacturing, sale and maintenance of explosive detection
products are potential product liability risks. If our products malfunction, it
is possible that explosive material could pass undetected through our products,
which could lead to product liability claims. There are also many other factors
beyond our control that could lead to liability claims, such as the reliability
and competence of the customer's operators and the training of the operators.
The cost of defending product liability claims brought against us could be
significant and any adverse determination may result in liabilities in excess of
insurance coverage. We do not currently maintain product liability insurance,
but we anticipate obtaining product liability insurance as soon as it is
necessary. We also intend to address product liability issues by pursuing the
designation and certification of our products by the U.S. Department of Homeland
Security (" DHS") as Qualified Anti-Terrorism Technologies ("QATTs") and relying
upon certain protections provided for under The Support Anti-terrorism by
Fostering Effective Technologies Act of 2002, Public Law 107-296 (the "Safety
Act"). We cannot be certain that we will be able to attain on acceptable terms,
if at all, insurance coverage sufficient to contain liabilities in a meaningful
way, or qualify our products and services as QATTs under the Safety Act. In
addition, the failure of any product to detect explosives, even if due to
operator error and not to the mechanical failure of a product, could result in
public and customer perception that our products are ineffective. In the event
we are held liable for a claim against which we do not have insurance or for
damages exceeding our levels of insurance coverage, or which even if insured
results in significant adverse publicity against us or our products, we may be
required to make substantial payments and lose or fail to achieve market
acceptance.

We have received a Wells Notice and requests for information from the SEC. We
could be required to pay civil penalties and be subject to a permanent
injunction.

On April 12, 2004, we received a subpoena issued by the SEC requesting
documentary evidence corroborating our statements in a presentation made on
March 30, 2004 by Dr. Bogdan Maglich, our Chief Executive Officer, Chief
Scientific Officer, Treasurer, President and Chairman, at the Investment
Opportunities in Homeland Security and Defense Conference in Washington, D.C.
Our presentation, which was made in both oral and written form, and subsequently
posted for a short period on our website, provided information regarding our key
markets, our business strategy and financial projections. On May 24, 2004, we
received another letter from the SEC requesting us to voluntarily provide
information regarding the nature and chronology of events leading up to our
announcement of a "non-exclusive oral understanding with a consortium which was
assembled by the Dallas-Fort Worth Homeland Security Alliance", as reported in
our Current Report on Form 8-K filed with the SEC on April 8, 2004. We
voluntarily responded through counsel by letter dated June 7, 2004.

On June 24, 2004, despite the responses which we provided to the SEC in response
to their prior inquiries, we received a further letter, commonly referred to as
a Wells Notice, from the Central Regional Office of the SEC, in Denver,
Colorado, indicating its intention to recommend that the Commission charge us


                                       48
<PAGE>

with violations of several sections of the Securities Exchange Act, and the
rules promulgated under that act, involving the making of false and misleading
statements in our public documents. The false and misleading statements which
the SEC believes were made seem to focus primarily on, among other things, the
previously undisclosed ownership of our securities, and actions with respect to
our stock taken, by Barry Alter, Philip Gurian and certain of their affiliates
who controlled SLW, Inc. at the time of our reverse transaction; the undisclosed
identity of, and the origin of funds used to purchase our stock by, certain of
our stockholders; the nature of, and reasons for, a "dividend" provided to our
stockholders; and the terms of other offerings occurring at the same time as one
of our private placements of stock. In addition, the antifraud violations would
be based upon private transactions made by Mr. Alter (formerly a director and
executive officer of HiEnergy Technologies, Inc.) with respect to sales of our
stock made by him without disclosing material facts about us, or our
contemporaneous offering of securities at different prices, to his purchasers.
We are currently working with special securities litigation counsel to assess
our legal position and determine how best to respond to the SEC.

The price of our stock declined sharply in connection with our announcements
concerning our SEC investigation. Our stockholders could suffer a continued loss
in value of their shares based upon the circumstances alleged in the Wells
Notice. For instance, if Mr. Alter committed any wrongful act while serving as
our agent, we could have liability for any resulting damages. Also, our
stockholders, customers and others could lose confidence in us if they believe
this incident is a result of unresolved problems or intentional misconduct.
There may be material additional costs and expenses, including legal expenses
that could be involved in resolving out these issues and assisting the SEC with
such work. Furthermore, this incident could materially damage the public's
perception of us, and any adverse public sentiment may have a materially adverse
effect on the market price of our common stock and our financial results. One of
the possible effects on us could be a depressed stock price, which may hinder
our ability to raise capital on favorable terms. Current management may also
consider pursuing legal action or litigation against the individuals who may
have perpetrated the actions being questioned by the SEC, based on the
conclusions of the SEC inquiry. 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. Finally, if the SEC does seek permanent injunctive action
against us, and if it is successful in that objective, we will have a record
that may hinder, or make unavailable, certain types of investment in the future.

If investors rely on projections or estimates we may make, including the
projections which were the subject of the April 2004 subpoena from the SEC
described above, they could assert in a legal proceeding that we issued false or
misleading statements about our company. If they were able to prevail
successfully in any such proceeding, it could have a materially adverse impact
on our business, operations, and financial condition, as well as the market for
our public securities.

The conference and website information referenced in the preceding Risk Factor
stated that we had projected sales of 265 units at an average price of $223,396
per unit, including maintenance fees. These projections assumed that we would
raise the money it needed to fund its conversion from a prototype development
company to one which could manufacture its CarBomb Finder(TM) 3C3/3C4 and the
Antitank Landmine Detector 7AT7 at commercial levels. Since the date that the
projections were made, we have been unable to raise the capital necessary to
achieve that objective. In addition, the availability of greater resources and
interest to develop a line of products in response to the startling increase in
the use by terrorists of home-made Improvised Explosive Devices, or IEDs, in
Iraq and elsewhere, have led to a determination by us to focus more on deploying
its SIEGMA(TM) 3E3, suitcase-borne, product which is designed to thwart this
particular type of threat. The confluence of our inability to raise the funds
necessary to scale up to commercial production at the levels previously assumed,
together with the shift in its commercial priorities in order to respond to
emerging risks, caused us to fail to meet our 2004 and 2005 projections.
Accordingly, investors should not rely on these projections in making any
determination whether or not to invest in, or maintain an investment in our
stock. To the extent that any investor has so relied, and if the investor can
prove that any misstatements we have made were intentional or reckless, that
such investor's reliance on these misstatements was reasonable, and that the
investor has suffered actual damages as a result of such reliance, than such
investor may have a cause of action against us. If any investor were to prevail
in making such assertions in any legal proceeding, it could have a materially
adverse impact on our business, operations, and financial condition, as well as
the market for our public securities.


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<PAGE>

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. 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 SEC such indemnification is against
public policy as expressed in the Securities Act, and is therefore
unenforceable. In May 2003, former director Barry Alter engaged his own separate
legal counsel with respect to the SEC investigation regarding SLW Enterprises,
and demanded that we advance him in excess of $24,000 in connection with the
investigation that the SEC has conducted. We did not advance him these expenses,
and he 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 past, present, and future
expenses from us. See section entitled "Legal Proceedings" for more information.
A stockholder's investment in our company may be adversely affected to the
extent that we pay costs of settlement and damage awards against directors or
officers 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. Claims for
indemnification under our certificate of incorporation or bylaws may also
dissuade us from bringing lawsuits against current or former directors or
officers.

Current and prior stockholders who purchased our shares could attempt to assert
claims against us if our disclosures they relied upon in making such purchases
are deemed inadequate.

Facts related to Mr. Gregory Gilbert and a separate investigation by the SEC
involving persons suspected of stock manipulation, which are described elsewhere
in this Report, were not known to us and were not disclosed in sales materials
or filings with the SEC until February 2003. We do not believe that the
information was material to the value of our company, and we believe that we
have valid defenses against liability under the Securities Act of 1933, the
Securities Exchange Act of 1934 and other state and federal securities laws.
However, if a court decides to the contrary, we could be subject to liability
under the Securities Act and/or under the Securities Exchange Act. Additionally,
we may have liability under certain U.S. state securities laws, which laws may
apply similar or different standards as the federal laws. 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 have disclosed these
matters to our stockholders and the public and, therefore, purchasers of shares
of our common stock subsequent to our making such disclosure in February 2003
would have no cause of action for our previously having failed to ascertain and
disclose such facts.

Our former director's outside legal proceedings were not promptly disclosed to
the public.

Mr. Gregory F. Gilbert, a former director of the Company, was involved in
several legal proceedings that were not disclosed by us in various reports with
the SEC until we became aware of them in February 2003. Details of these legal
proceedings are available in filings subsequent to that date. Stockholders could
potentially assert that we acted negligently in failing to uncover a personal
involvement of a director in such legal proceedings. Any related litigation
could result in significant financial penalties and could have a negative effect
on our financial condition.


                                       50
<PAGE>

Corporate Risks

ONE OF OUR STOCKHOLDERS, WHOSE INTERESTS MAY DIFFER FROM OTHER OF OUR
STOCKHOLDERS, HAS SUBSTANTIAL INFLUENCE OVER THE DIRECTION OF THE COMPANY.

As of July 31, 2005, Dr. Bogdan C. Maglich , our Chief Executive Officer,
Chairman, Chief Scientific Officer, Treasurer and President, would own
approximately 22% of our outstanding shares upon exercise of all warrants and
options held by him. Accordingly, he has a substantial influence in determining
the outcome of certain corporate transactions or other matters submitted to
stockholders for approval, including mergers, consolidations and the sale of all
or substantially all of our assets, the election of directors, and other
significant corporate actions. He also has the power to prevent or cause a
change in control. It is assumed that in certain instances the interests of Dr.
Maglich may differ from the interests of the other stockholders, and may limit
the ability of other stockholders to affect our management and affairs.

We have identified areas of weaknesses in our internal controls which existed at
the end of our fiscal year ended April 30, 2005. Although we have taken steps to
remedy these weaknesses, our ability to implement and maintain a full system of
internal controls and proper corporate governance will depend upon our ability
to attract both capital and human resources, and if we are unsuccessful we risk
being in violation of our public company reporting obligations in the future,
which could give rise to potential regulatory and/or shareholder actions that
could have a material adverse effect upon our business and financial condition,
and the market value of our stock.

For the year ended April 30, 2005, our management identified material weakness
in our internal controls and a lack of segregation of duties which resulted
from, among other things, a lack of capital and human resources, a lack of a
systematic and formal system of checks and balances in our corporate governance,
the departure of key personnel and the resignation of various of our directors.
We previously experienced a general weakness in recording equity transactions
involving the grant of options and warrants which caused us to record these
transactions at a later date than they occurred although, to our knowledge, this
weakness did not result in any improper reporting on our financial statements.
We also have a very small finance and accounting staff and, due to our limited
resources, it is not always possible to have optimum segregation of accounting
and finance duties. We believe that our current system of internal controls, in
light of the changes we have made since the end of fiscal year 2005, are
generally adequate. However, if we are unsuccessful in attracting the capital
and human resources necessary to implement and maintain an effective system of
internal controls, and if as a result we were to fail to disclose timely
material items as required under the Securities Exchange Act, it could give rise
to potential regulatory and/or shareholder actions, which could have a material
adverse effect on our business and financial condition, and on the market value
of our shares.

WE MAY HAVE INCREASING DIFFICULTY TO ATTRACT AND RETAIN 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 and liability with regard
to lawsuits and stockholder 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 also becoming increasingly
concerned with the availability of directors and officers' liability insurance
and a carrier's ability to pay on a timely basis the costs incurred in defending
stockholder claims. Director's and officer's liability insurance has recently
become much more expensive and difficult to obtain than it had been. If we are
unable to continue obtaining directors and officer's liability insurance at
affordable rates, it may become increasingly more difficult to attract and
retain qualified outside directors to serve on our Board. It is anticipated that
the fees of directors will rise in response to increased exposure to such risks.

WE MAY HAVE INSUFFICIENT AMOUNTS OF, OR MAY BE OTHERWISE UNABLE TO DRAW FROM,
DIRECTORS' AND OFFICERS' LIABILITY INSURANCE.


                                       51
<PAGE>

Although we have obtained, and paid premiums for, levels of directors' and
officers' liability insurance to cover legal challenges where we may have
indemnification obligations to persons serving in such capacities on behalf of
our company, our insurance carrier may not pay all claims which we tender to it
under our policy. Even if they do honor claims which we may make at the maximum
levels required under our policy, the amounts of insurance which we can afford
to maintain at any given time may be insufficient to cover the amount of any
claims for indemnification made against us by our current or former officers or
directors. Furthermore, the policies of insurance which we currently or may in
future maintain normally do not fund amounts which we may pay out in defense
costs or indemnification directly, but rather will reimburse us for amounts
which we must pay up front, and normally only after significant deductible
amounts are paid for which we would not be reimbursed. Accordingly, if we were
to be required to fund expensive litigation involving our present or former
officers or directors, and/or to pay them amounts as indemnification which we
may owe to them, and to the extent that such amounts exceed the amount of
reimbursement we are able successfully to obtain from our relevant carriers, it
could have a materially adverse effect upon our business, operations and
financial condition.

Elimination of monetary liability of our current and former directors may
discourage lawsuits against directors.

Our certificate of incorporation and bylaws contain provisions that eliminate or
limit the liability of our corporate 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.

RISKS RELATED TO OUR STOCK

We will pay accruing penalties to certain holders of our securities based on our
failure to register their securities.

After August 2003, we entered into certain agreements for the purchase of
certain shares of stock, convertible notes and warrants in private transactions.
The terms of these securities purchase agreements require us to register the
shares of common stock, and the underlying shares of common stock issuable upon
exercise of the warrants and/or conversion of the convertible notes, with the
SEC for public trading as of certain dates which are specified in each purchase
agreement. If the subject securities are not registered within the dates
specified in the applicable agreement, we must pay (or accrue, as the case may
be) a penalty through the issuance of like securities. In accordance with the
relevant provisions in these securities purchase agreements, we have paid or
accrued penalties due purchasers in these offerings because we failed to meet
the specified deadlines for having a Registration Statement on Form SB-2
declared and maintained effective. Some of these penalties began to accrue as of
October 15, 2003, and we are obligated to continue to issue and pay these
securities as penalties until all of our obligations under the applicable
registration rights provisions in our agreements are satisfied in full, or the
penalties become impermissible or unenforceable as a matter of law.

The amount of the penalties paid or accrued as a result of the defaults
described above through April 30, 2005 is 1,966,055 shares of common stock,
$44,000 in aggregate face amount of additional convertible notes, and warrants
to purchase an additional 2,454,334 shares of common stock. Our existing
stockholders have suffered, and will continue to suffer, substantial dilution as
a result of the issuance and payment of these securities as penalties. Such
dilution can have a material and adverse impact upon the actual and perceived
value of our shares, which can be a depressive force upon the price of our stock
at market and cause losses for our existing stockholders, as well as render it
much more difficult for us to raise additional equity capital in the future.

Our common stock price is subject to significant volatility, which could result
in substantial losses for investors and litigation against us.


                                       52
<PAGE>

From February 27, 2002, when trading in our shares commenced, through the date
of this Report, the high and low closing bid prices of our common stock were
$3.10 and $0.30, respectively. The market price of our common stock may exhibit
significant fluctuations in the future in response to various factors, many of
which are beyond our control and include:

      o     variations in our quarterly financial results, which variations
            could result from, among other things, the availability of funding;

      o     changes in market valuations of similar companies and stock market
            price and volume fluctuations generally;

      o     economic conditions specific to the industries in which we operate;

      o     legislative and regulatory developments related to homeland security
            and industry controls;

      o     announcements by us or our competitors of new or enhanced products,
            technologies or services, and the formation or cancellation of
            significant contracts, acquisition, strategic relationships, joint
            ventures or capital commitments;

      o     changes in key customer and supplier relationships;

      o     recommendations of research analysts and guidance;

      o     additions or departures of key management or scientific personnel;
            and

      o     future sales of our common stock or other debt or equity securities.

If our operating results in future quarters fall below the expectations of
market makers, securities analysts and investors, the price of our common stock
will likely decline, perhaps substantially. In the past, plaintiffs have often
initiated securities class action suits against a company following periods of
volatility in the market price of its securities. We may, in the future, be the
target of similar litigation. Securities litigation could result in substantial
costs and liabilities, and could divert management's attention and resources.
Additionally, the stock market has periodically experienced significant price
and volume fluctuations that have particularly affected the market prices of
common stock of technology companies. These changes have been generally
unrelated to the operating performance or fundamentals of particular companies.
These broad market fluctuations may also negatively affect the market price of
our common stock and the notes.

We may not be able to pay an accrued payroll tax liability.

As of April 30, 2005, we have accrued and recorded a payroll tax liability of
$424,597 for stock compensation given during the period from June 1997 through
February 2002. The stock given during this period was HiEnergy Microdevices
stock, which in April 2002 was exchanged, in a transaction treated as a reverse
takeover. Because, at the time, HiEnergy Microdevices was a closely-held
corporation with negative net worth, no marketable product, no meaningful
revenue potential and no dividend paying capacity, the value originally assigned
to the stock was nil.

We identified a public sale of the closely-held HiEnergy Microdevices stock
where a HiEnergy Microdevices shareholder filed for chapter 7 bankruptcy
protection and his stock was sold by the bankruptcy trustee in February 2002. We
have calculated the $424,597 payroll tax liability by treating this sale as an
arms length transaction and recognizing employment taxes, withholding
requirements, penalties and interest. We engaged tax advisors regarding the
nature of our obligations, and we plan to settle this liability as soon as we
have the resources to do so.

If we are unable to obtain the capital resources necessary to resolve this
liability quickly, the penalties and interest associated with it will continue
to accrue. Furthermore, many of our research and development funds are the
result of federal grants, and to the extent we are delinquent in the payment of
accrued federal taxes, we may be precluded from receiving such grants in the
future. Either of these results could have a materially adverse effect upon our
business, operations and financial condition.


                                       53
<PAGE>

There is a risk of dilution resulting from continued issuances of securities to
management, employees, consultants, and related parties which may reduce the
market price of our common stock, and may also lead to difficulty in obtaining
additional equity capital.

We issued options to purchase 313,221 shares of our common stock to Dr. Bogdan
Maglich in fiscal year 2004 and options to purchase 421,980 shares in fiscal
year 2005 for services rendered as our Chief Executive Officer, President,
Treasurer, Chief Scientific Officer and Chairman, pursuant to his employment
contract. We also issued or committed to issue options to purchase 2,535,000
shares and options to purchase 1,425,000 in fiscal years 2005 and 2004,
respectively, to employees and directors. As to consultants, we issued or
committed to issue 402,455 shares and a warrant to purchase 100,000 shares to
our former controller in fiscal year 2005, as compared to 558,500 shares,
options to purchase 649,000 shares, and warrants to purchase 380,000 shares
issued to consultants in fiscal year 2004. Likewise, we issued notes payable to
our former legal counsel during fiscal years 2003 and 2004 that are convertible
into 781,713 shares of common stock as of April 30, 2005. Under the terms of Dr.
Maglich's employment agreement, we are obligated to issue options to Dr. Maglich
annually for the term of the agreement. Continued issuances of securities of
this magnitude may have a dilutive effect on the market price for our common
stock and of the percentages of ownership of stockholders, if the options and
warrants are exercised, or the notes are converted. The terms upon which we will
be able to obtain additional equity capital could also be adversely affected.

We plan to issue a significant number of additional equity securities in the
future and that will dilute the percentage ownership of the present holders or
purchasers of our common stock.

There are 46,129,327 shares of our common stock outstanding as of April 30, 2005
(including 312,012 shares deemed subject to rescission rights), which does not
include 30,038,949 new shares we have committed to issue upon exercise of
options and warrants and convertible notes. We also may be required to issue up
to 704,190 shares of our common stock to former holders of options and warrants
of HiEnergy Microdevices who hold rights to purchase our shares of common stock
at $0.156 per share. These rights survived the short-form merger completed in
January 2005, and may be exercised any time before April 25, 2007, subject to
the payment of promissory notes representing the purchase price. If we issue all
of the shares underlying currently outstanding warrants and options currently
in-the money and convertible notes, this will result in approximately 13%
dilution of the ownership interest of holders of our common stock. If all
currently outstanding warrants, options and convertible notes were immediately
exercised and converted, we would receive approximately $22,116,597 in cash and
approximately $1,332,773 in forgiveness of indebtedness. While this amount
exceeds the current market value of the stock that would be issued, exercise and
conversion might take place when the total value received by us is much less
than the market value of the stock that would be issued. Under our current
business plan, we must also raise funds in part by issuing new equity
securities, which would have a dilutive effect on the percentage ownership of
stockholders. The shares issued in such transactions could be very large and may
even exceed the number of shares issued and outstanding today, which would
significantly decrease the percentage ownership of current stockholders. Our
requirement for new equity capital for the financing of operating deficits will
continue until we successfully commercialize a product and achieve a sufficient
level of positive operating cash flow. Possible costs that would require funding
include investments in capital equipment, technology and research and
development, marketing initiatives, inventory, accounts receivable and human
resources, as well as financial contributions toward potential joint ventures,
acquisitions, collaborative projects and other general corporate purposes.

We may be required to sell restricted equity securities at prices less than the
market price for unrestricted shares. We have thus far sold restricted equity
securities at prices less than prevailing market prices of our stock and have
issued convertible debt. When the shares that are issuable in connection with
those securities become available for public sale, the additional supply of
shares may adversely affect the market price of our common stock. Also, our
anticipated private financings and the exercise or conversion of securities
outstanding may dilute the voting or other rights of other holders at the time,
or be prior and senior or receive rights that the holders of common stock do not


                                       54
<PAGE>

have, which could reduce the economic value of our common stock. Further, we
have sold through private placements, warrants that have cashless exercise
provisions, in which the holder shall receive a net number of shares based upon
the share price on the trading day preceding the exercise date of the warrant if
the underlying shares of warrants with cashless exercise provisions are not
registered under an effective registration statement by a certain date.
Accordingly, in the event there is a large spread between the exercise price and
the share price on the trading day of our common stock, a cashless exercise of
warrants could result in a significant amount of additional shares.

Because our stock is not listed on a national securities exchange, you may find
it difficult to dispose of or obtain quotations for our common stock.

Our common stock has been traded under the symbol "HIET" on the OTC Bulletin
Board(R) since May 3, 2002 and previously under the symbol "SLWE" from February
22, 2002 through May 3, 2002. Because our stock trades on the OTC Bulletin
Board(R) rather than on a national securities exchange or NASDAQ, you may find
it difficult to either dispose of, or to obtain quotations as to the price of,
our common stock. Once we meet applicable listing requirements and
qualifications, we intend to apply for listing of our stock on a national
securities exchange.

Because we are subject to the "penny stock" rules, the level of trading activity
in our stock may be reduced.

Broker-dealer practices in connection with transactions in "penny stocks" are
regulated by penny stock rules adopted by the Securities and Exchange
Commission. Penny stocks, like shares of our common stock, generally are equity
securities with a price of less than $5.00, other than securities registered on
some national securities exchanges or quoted on NASDAQ. The penny stock rules
require a broker-dealer, prior to a transaction in a penny stock not otherwise
exempt from the rules, to deliver a standardized risk disclosure document that
provides information about penny stocks and the nature and level of risks in the
penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction, and, if the broker-dealer
is the sole market maker, the broker-dealer must disclose this fact and the
broker-dealer's presumed control over the market, and monthly account statements
showing the market value of each penny stock held in the customer's account. In
addition, broker-dealers who sell these securities to persons other than
established customers and "accredited investors" must make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. Consequently,
these requirements may have the effect of reducing the level of trading
activity, if any, in the secondary market for a security subject to the penny
stock rules, and investors in our common stock may find it difficult to sell
their shares. We would like to raise financing in an amount that might qualify
us for a time for an AMEX listing and a NASDAQ small cap listing. However, doing
so would be very dilutive of existing stockholders.

Should persons engage in short sales of our common stock, including sales of
shares to be issued upon exercise of warrants and options, the price of our
common stock may decline.

Selling short is a technique used by a stockholder to take advantage of an
anticipated decline in the price of a security. A significant number of short
sales or a large volume of other sales within a relatively short period of time
can create downward pressure on the market price of a security. Further sales of
common stock issued upon exercise of our warrants and options could cause even
greater declines in the price of our common stock due to the number of
additional shares available in the market, which could encourage short sales
that could further undermine the value of our common stock. You could,
therefore, experience a decline in the value of your investment as a result of
short sales of our common stock. As of January 2005, our shares have appeared on
the "Threshold Security List" published in connection with Regulation SHO, which
may indicate questionable shorting activity involving our securities. We have
also learned that our listing on the Berlin-Bremen Stock Exchange ("BBSE") by a
third-party poses a risk to our stock and provides an avenue for such short
trading activity by providing a loophole in the short sales regulations adopted
by the National Association of Securities Dealers. The loophole is applicable to


                                       55
<PAGE>

those shares traded in the U.S. stock market and listed for trading on a foreign
stock market, such as the BBSE, and purportedly held in foreign brokerage
accounts. While we have taken steps to effectuate the delisting of our stock
from the BBSE, under the rules of that exchange an issuer does not necessarily
have the right to compel such delisting and, accordingly, there can be no
assurance if or when our stock might be delisted from the BBSE. If our stock
were not promptly delisted from the BBSE, it could have a materially adverse
effect upon the price of our shares in the market and increase price volatility,
which could in turn affect our ability to raise needed capital, which could have
a materially adverse effect upon our business, operations and financial
condition.

Delaware law and our charter documents contain provisions that could discourage
or prevent a potential takeover of our company that might otherwise result in
our stockholders receiving a premium over the market price for their shares.

Provisions of Delaware law and our certificate of incorporation and bylaws could
make an acquisition of us by means of a tender offer, a proxy contest, or
otherwise, and the removal of incumbent officers and directors, more difficult.
These provisions include:

      o     Section 203 of the Delaware General Corporation Law, which prohibits
            a merger with a 15%-or-greater stockholder, including a party that
            has completed a successful tender offer, until three years after
            that party became a 15%-or-greater stockholder; and

      o     the authorization in our certificate of incorporation of
            undesignated preferred stock, which could be issued without any
            further vote or action by our stockholders, in a manner designed to
            prevent or discourage a takeover or provide preferences for the
            investor ahead of holders of common stock.

Furthermore, preferred stock may have other rights, including economic rights
senior to the common stock, and, as a result, the issuance of preferred stock
could adversely affect the market value of our common stock.


                                       56
<PAGE>

GLOSSARY OF SCIENTIFIC TERMS

The following terms, where used in this Report, have the meanings given below:

ASSOCIATED                 A process using a combined action of neutrons, alpha
PARTICLE IMAGING           particles and gamma rays, which is, in principle,
                           capable of providing three-dimensional images of
                           objects hidden behind a barrier, as well as the
                           presence of some chemical elements but not the
                           stoichiometry (chemical formula) of the object. API
                           is the concept upon which stoichiometric technology
                           was founded.

ATOMETRY                   Non-invasive stoichiometry by means of fast neutrons
                           and gamma rays, as opposed to the historically
                           standard invasive technique accomplished with test
                           tubes. The term `atometry' was first coined in 1998,
                           when the process was first performed, and it has not
                           yet become an industry standard term.

CONFIRMATION               Also known as a secondary detection system. Detection
SENSORS                    sensors which either by intrusive or non-intrusive
                           chemical analysis and/or human involvement determine
                           whether or not an identified anomaly contains
                           explosive materials or bio agents.

FAST NEUTRON               a neutron produced by a nuclear reaction (such as
                           fusion or fission), and which has a kinetic energy
                           level of more than one million electronvolts (MeV).

GAMMA RAYS                 electromagnetic rays emitted during radioactive decay
                           which have a much shorter wavelength, and penetrate
                           materials deeper, than x-rays.

MINISENZOR                 A prototype product developed by HiEnergy
                           Technologies, Inc. which accomplishes the detection
                           of explosive materials through stoichiometry without
                           the need for associated particle imaging, making it
                           less expensive to use and more portable, though
                           slower and without the same range of detection than
                           the SuperSenzor (see below).

MILLI-SIEVERT              A metric measurement of radiation dosage equivalent
                           to a thousandth of a Sievert, as defined below.

NEUTRON                    A sub-atomic particle having no net electric charge
                           and which, together with protons, make up the nucleus
                           of an atom. Neutrons are unstable, and have a
                           half-life of approximately 15 minutes. Neutrons can
                           be either "fast" or "thermal".

RDX                        Also known as cyclonite or hexogen. A military
                           explosive, about twice as strong as TNT, used in
                           making bonded "plastic" explosive devices, known as
                           C-3 and C-4, which can be stored for long periods of
                           time without losing its strength.

SEMTEX                     A highly-explosive, plastic material which has
                           historically been very difficult to detect and
                           requires only very small quantities to cause large
                           amounts of damage.


                                       57
<PAGE>

SIEVERT                    A metric measurement (i.e. 1 sievert is equivalent to
                           100 mrem or 0.1 rem) of "rem", or "radiation
                           equivalent for mammals", which is a unit of doses of
                           ionizing radiation absorbed by the body and deposited
                           in body tissue that includes an adjustment for the
                           intensity of the damage to one or more cells
                           equivalent. For example, an average person is exposed
                           to an aggregate of 300 mrem per year or 3 Sieverts.

STOICHIOMETRY              The art and science of deciphering the chemical
                           formula of a given compound, generally expressed as a
                           numerical ratio, enabling one to determine the
                           accurate atomic proportions of oxygen, nitrogen and
                           carbon. Prior to the advent of atometry,
                           stoichiometry was possible only via the invasive
                           method of chemical analysis using test tubes.

SUPERSENZOR                A prototype product developed by HiEnergy
                           Technologies, Inc., which accomplishes the detection
                           of explosive materials through stoichiometry
                           utilizing associated particle imaging.

THERMAL NEUTRON            A neutron which has a kinetic energy level of less
                           than .025 electronvolts (eV), which is similar to the
                           energy level of a gas at room-temperature.

TNT                        An explosive substance, in use since the Second World
                           War, which consists of a flammable yellow compound
                           derived from the chemical toluene (methylbenzene).

X-RAYS                     Electromagnetic rays, also known as roentgen rays,
                           which are emitted when high-speed electrons strike a
                           solid object. X-ray images give sharp contours and
                           the mass of objects, but are chemically blind (that
                           is, they cannot determine the chemical formula of the
                           object irradiated).


                                       58
<PAGE>

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER 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 quotations' media and
from other public sources. The quotations listed below reflect interdealer
prices, without retail mark-up, markdown 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"
effective as of May 3, 2002.

<TABLE>
<CAPTION>
                                                                                    ----------              -----------
                                                                                       High                      Low
                                                                                    ----------              -----------
<S>                                                                                   <C>                      <C>
    Fiscal Year 2004-2005

    Fourth Quarter (February 1, 2005 to April 30, 2005) (interim)                     $0.99                    $0.70

    Third Quarter (November 1, 2004 to January 31, 2005)                              $1.15                    $0.67

    Second Quarter (August 1, 2004 to October 31, 2004)                               $1.85                    $0.61

    First Quarter (May 1, 2004 to July 31, 2004)                                      $2.34                    $0.80

    Fiscal Year 2003-2004

    Fourth Quarter (February 1, 2004 to April 30, 2004) (interim)                     $3.05                    $1.11

    Third Quarter (November 1, 2003 to January 31, 2004)                              $1.29                    $0.77

    Second Quarter (August 1, 2003 to October 31, 2003)                               $1.86                    $0.61

    First Quarter (May 1, 2003 to July 31, 2003)                                      $0.62                    $0.40

    Fiscal Year 2002-2003

    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
</TABLE>

As of July 31, 2005, representing the last business day of our most recently
completed fiscal quarter, we had 50,171,581 shares of common stock issued and
outstanding, held by approximately 250 stockholders 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 a multitude of additional beneficial owners. Accordingly, it is
impossible for us to determine exactly how many beneficial stockholders we
actually have.

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


                                       59
<PAGE>

the basis of anticipated capital gains. The board of directors has sole
authority to declare dividends payable to our stockholders. However, common
stock dividends are prohibited if, at the time they are declared or paid, we are
in default under certain of our promissory notes. Also dividends will and could
from time to time be prohibited further by credit agreements, terms of series of
certificates of determination or preferred stock adopted by the Board in the
future, other senior debts or securities, or otherwise.

RECENT SALES OF UNREGISTERED SECURITIES

Set forth below is information regarding the issuance and sale of our securities
without registration from April 30, 2004 to the date of this Report:

      o     In August 2005, we issued 196,576 shares of our common stock, par
            value $0.001 ("Shares"), previously committed in the prior year
            period, to various holders of securities with registration rights as
            a penalty, due to our inability to file and maintain effective a
            registration statement within certain specified deadlines. We
            believe the issuances of these securities are exempt under Section
            Regulation D and/or Section 4(2) of the Securities Act.

      o     In July 2005, we committed to issue 1,200,001 Shares and warrants to
            purchase 1,200,001 Shares at $0.45 to various investors in a private
            placement in exchange for $540,000 in subscription receivable. We
            believe the issuances of these securities are exempt under
            Regulation D and/or Section 4(2) of the Securities Act.

      o     In July 2005, we issued 78,982 Shares and committed to issue
            warrants to purchase 358,792 Shares at various exercise prices
            between $0.45 and $1.75, to various holders of securities with
            registration rights as a penalty, due to our inability to file and
            maintain effective a registration statement within certain specified
            deadlines. We believe the issuances of these securities are exempt
            under Regulation D and/or Section 4(2) of the Securities Act.

      o     In July 2005, we issued 189,197 Shares to Sherbrooke Partners LLC,
            which converted convertible notes payable for $81,400, deemed
            subject to rescission rights, plus accrued interest of $3,739 with a
            conversion price of $0.45 per Share. We believe the issuances of
            these securities were exempt under Section 3(a)(9) and/or Section
            4(2) of the Securities Act.

      o     In July 2005, we issued 62,222 Shares and warrants to purchase
            217,777 Shares at various exercise prices between $0.45 and $1.50 to
            Brian C. Corday, in exchange for the cash equivalent of $28,000 in
            finders' fees due him. We believe the issuances of these securities
            are exempt under Regulation D and/or Section 4(2) of the Securities
            Act.

      o     In July 2005, we issued 17,778 Shares and warrants to purchase
            80,000 Shares with an exercise price of $0.45 to Brian C. Corday as
            a finder's fee. We believe the issuances of these securities are
            exempt under Regulation D and/or Section 4(2) of the Securities Act.

      o     In July 2005, we issued 22,463 Shares to Matthew Balk and Jason
            Adelman pursuant to the cashless exercise of warrants. The warrants
            were exercisable for a total of 64,583 Shares at an exercise price
            of $0.45 per share. In connection with the cashless exercise, 42,120
            Shares issuable pursuant to the warrant were tendered for conversion
            to pay the exercise price. We believe the issuances of these
            securities were exempt under Section 3(a)(9) of the Securities Act.

      o     In July 2005, we issued or committed to issue 129,174 and warrants
            to purchase 64,586 Shares at $0.65 per Share to David R. Baker, a
            member of our Board, in connection with the conversion of accounts
            payable for legal services rendered prior to his directorship in the
            amount of $59,420 at a price of $0.46 per Share. We believe the
            issuances of these securities were exempt under Section 4(2) of the
            Securities Act.


                                       60
<PAGE>

      o     In July 2005, we issued 25,185 Shares and warrants to purchase
            12,593 Shares at $0.65 to Baker, Johnston & Wilson, a law firm, in
            connection with the conversion of accounts payable for legal
            services rendered in the amount of $11,586 at a price of $0.46 per
            Share. We believe the issuances of these securities were exempt
            under Section 4(2) of the Securities Act.

      o     In July 2005, we issued 30,000 Shares to Don Abbe, an engineer
            consultant engaged by us for services rendered. We believe the
            issuances of these securities are exempt under Section 4(2) of the
            Securities Act.

      o     In July 2005, we issued 15,000 Shares previously committed during
            the prior year period to the members of our Board of Directors, as
            compensation for meeting attendance, each board member receiving
            3,000 shares per meeting. We believe the issuances of these
            securities were exempt under Section 4(2) of the Securities Act.

      o     In July 2005, we issued 25,000 Shares to the members of our Board of
            Directors, as compensation for meeting attendance, each board member
            receiving 5,000 shares per meeting. We believe the issuances of
            these securities were exempt under Section 4(2) of the Securities
            Act.

      o     In June 2005, we issued 677,778 Shares and warrants to purchase
            2,372,232 Shares at various exercise prices between $0.45 and $1.50
            to various investors in a private placement in exchange for $305,000
            in cash. We believe the issuances of these securities are exempt
            under Regulation D and/or Section 4(2) of the Securities Act.

      o     In June 2005, we issued 437,627 Shares to Nicholas J. Yocca upon
            conversion of $185,000 of convertible notes, originally purchased in
            January 2004, plus $11,932 of accrued interest. We believe the
            issuances of these securities were exempt under Section 3(a)(9)
            and/or Section 4(2) of the Securities Act.

      o     In June 2005, we issued 32,820 Shares to Nicholas J. Yocca upon the
            conversion of a promissory note evidencing loans made to us in the
            aggregate amount of $14,000, plus $769 of accrued interest. We
            believe the issuances of these securities were exempt under Section
            4(2) of the Securities Act.

      o     In June 2005, we issued 78,982 Shares and committed to issue
            warrants to purchase 353,101 Shares at various exercise prices
            between $0.45 and $1.75, to various holders of securities with
            registration rights as a penalty, due to our inability to file and
            maintain effective a registration statement within certain specified
            deadlines. We believe the issuances of these securities are exempt
            under Regulation D and/or Section 4(2) of the Securities Act.

      o     In June 2005, we committed to issue $6,000 in convertible notes as
            penalties to certain note holders with registration rights as a
            result of our inability to file and maintain effective a
            registration statement within specified deadlines. We believe the
            issuances of these securities are exempt under Regulation D and/or
            Section 4(2) of the Securities Act.

      o     In May 2005, we issued 300,000 Shares and warrants to purchase
            150,000 Shares at an exercise price of $0.65, which were previously
            committed in the prior year period, to Jackson Asset Management in
            exchange for $150,000 in cash. We believe the issuances of these
            securities are exempt under Regulation D and/or Section 4(2) of the
            Securities Act.


                                       61
<PAGE>

      o     In May 2005, we issued 400,000 Shares and warrants to purchase
            600,000 Shares various exercise prices between $0.75 and $1.25,
            which were previously committed in the prior year period, to Robert
            J. Neborsky, M.D. Inc., Combination Retirement Trust and Robert &
            Sandra Neborsky JTWROS in exchange for $200,000 in cash. We believe
            the issuances of these securities are exempt under Regulation D
            and/or Section 4(2) of the Securities Act.

      o     In May 2005, we issued 452,029 Shares previously committed to the
            remaining stockholders of HiEnergy Microdevices, Inc. in connection
            with a short form merger on the basis of 22.3524 HiEnergy shares for
            1 share of HiEnergy Microdevices (the same ratio that was used in
            the original voluntary share exchange). We believe the issuances of
            these securities were exempt under Regulation D and/or Section 4(2)
            of the Securities Act.

      o     In May 2005, we issued 78,982 Shares and committed to issue warrants
            to purchase 298,680 Shares at various exercise prices between $0.45
            and $1.75, to various holders of securities with registration rights
            as a penalty, due to our inability to file and maintain effective a
            registration statement within certain specified deadlines. We
            believe the issuances of these securities are exempt under
            Regulation D and/or Section 4(2) of the Securities Act.

      o     In May 2005, we issued 1,144,446 Shares and warrants to purchase
            4,005,564 Shares various exercise prices between $0.45 and $1.25 to
            various investors in a private placement in exchange in exchange for
            $515,000 in cash. Said warrants are to expire three and one half
            years following the date of effectiveness of our next filed
            registration statement. We believe the issuances of these securities
            are exempt under Regulation D and/or Section 4(2) of the Securities
            Act.

      o     In May 2005, we committed to issue $6,000 in convertible notes as
            penalties to certain note holders with registration rights as a
            result of our inability to file and maintain effective a
            registration statement within specified deadlines. We believe the
            issuances of these securities are exempt under Regulation D and/or
            Section 4(2) of the Securities Act.

      o     In May 2005, we issued 2,000 Shares, which were previously committed
            in the prior year period, to William Lacey, a member of the board of
            directors of HiEnergy Defense, Inc. as compensation for prior
            meeting attendance. We believe the issuance of these securities was
            exempt under Section 4(2) of the Securities Act.

      o     In April 2005, we committed to issue 15,000 Shares to the members of
            our Board of Directors as compensation for meeting attendance. We
            believe the issuances of these securities are exempt under Section
            4(2) of the Securities Act.

      o     In April 2005, we issued 3,000 Shares, which were previously
            committed in the prior year period, to William Nitze, a member of
            the board of directors of HiEnergy Defense, Inc. as compensation for
            prior meeting attendance. We believe the issuance of these
            securities was exempt under Section 4(2) of the Securities Act.

      o     In April 2005, we committed to issue 300,000 Shares and warrants to
            purchase 150,000 Shares at an exercise price of $0.65 to Jackson
            Asset Management in exchange for $150,000 in cash. We believe the
            issuances of these securities are exempt under Regulation D and/or
            Section 4(2) of the Securities Act.

      o     In April 2005, we expensed $48,000 upon partial vesting of an
            employee's option to purchase 500,000 Shares with an exercise price
            of $0.72, pursuant to his employment agreement. We believe the
            issuance of these securities was exempt under Section 4(2) of the
            Securities Act.


                                       62
<PAGE>

      o     In April 2005, we committed to issue 98,375 Shares and warrants to
            purchase 429,376 Shares at various exercise prices between $0.45 and
            $1.75, to various holders of securities with registration rights as
            a penalty, due to our inability to file and maintain effective a
            registration statement within certain specified deadlines. We
            believe the issuances of these securities are exempt under Section
            Regulation D and/or Section 4(2) of the Securities Act.

      o     In April 2005, we committed to issue $6,000 in convertible notes as
            penalties to certain note holders with registration rights as a
            result of our inability to file and maintain effective a
            registration statement within specified deadlines. We believe the
            issuances of these securities are exempt under Regulation D and/or
            Section 4(2) of the Securities Act.

      o     In March 2005, we issued 112,332 Shares to an investor pursuant to
            the cashless exercise of warrants. The warrants were exercisable for
            a total of 222,222 Shares at an exercise price of $0.45 per Share.
            In connection with the cashless exercise, 109,890 Shares issuable
            upon exercise of the warrants were tendered as consideration for the
            exercise price. We believe the issuances of these securities were
            exempt under Section 3(a)(9) of the Securities Act.

      o     In March 2005, we committed to issue 67,628 Shares and committed to
            issue warrants to purchase 246,289 Shares at various exercise prices
            between $0.45 and $1.75, to various holders of securities with
            registration rights as a penalty, due to our inability to file and
            maintain effective a registration statement within certain specified
            deadlines. We believe the issuances of these securities are exempt
            under Regulation D and/or Section 4(2) of the Securities Act.

      o     In March 2005, we committed to issue 400,000 Shares and warrants to
            purchase 600,000 Shares various exercise prices between $0.75 and
            $1.25 to Robert J. Neborsky, M.D. Inc., Combination Retirement Trust
            and Robert & Sandra Neborsky JTWROS in exchange for $200,000 in
            cash. We believe the issuances of these securities are exempt under
            Regulation D and/or Section 4(2) of the Securities Act.

      o     In March 2005, we committed to issue $6,000 in convertible notes as
            penalties to certain note holders with registration rights as a
            result of our inability to file and maintain effective a
            registration statement within specified deadlines. We believe the
            issuances of these securities are exempt under Regulation D and/or
            Section 4(2) of the Securities Act.

      o     In February 2005, we issued 36,535 Shares and committed to issue
            31,887 Shares and issued or committed to issue warrants to purchase
            184,415 Shares at various exercise prices between $0.45 and $1.75,
            to various holders of securities with registration rights as a
            penalty, due to our inability to file and maintain effective a
            registration statement within certain specified deadlines. We
            believe the issuances of these securities are exempt under
            Regulation D and/or Section 4(2) of the Securities Act.

      o     In February 2005, we issued 182,787 Shares to Sherbrooke Partners
            LLC, upon cashless exercise of warrants. The warrants were
            exercisable for a total of 335,110 Shares at an exercise price of
            $0.45 per Share, and included 32,889 Shares accrued as penalties due
            to our inability to file and maintain effective a registration
            statement within specified deadlines. In connection with the
            cashless exercise, 152,323 Shares issuable upon exercise of the
            warrant were tendered as consideration for the exercise price. We
            believe the issuances of these securities were exempt under Section
            3(a)(9) of the Securities Act.

      o     In February 2005, we committed to issue $6,000 in convertible notes
            to certain note holders with registration rights as a penalty, due
            to our inability to file and maintain effective a registration
            statement within specified deadlines. We believe the issuances of
            these securities are exempt under Regulation D and/or Section 4(2)
            of the Securities Act.


                                       63
<PAGE>

      o     In January 2005, we issued 689,783 Shares and issued or committed to
            issue warrants to purchase 344,892 Shares at an exercise price of
            $0.82 per Share to various investors in exchange for cash in the
            aggregate amount of $317,300. We believe the issuances of these
            securities are exempt under Section Regulation D and/or 4(2) of the
            Securities Act.

      o     In January 2005, we issued 128,260 Shares and warrants to purchase
            64,130 Shares at an exercise price of $0.82 per Share to Natasha
            Tiragic, upon the conversion of promissory notes evidencing loans
            made to us in the aggregate amount of $59,000. We believe the
            issuances of these securities were exempt under Regulation D and/or
            Section 4(2) of the Securities Act.

      o     In January 2005, we issued 15,000 Shares to the members of our Board
            of Directors, as compensation for meeting attendance. We believe the
            issuances of these securities were exempt under Section 4(2) of the
            Securities Act.

      o     In January 2005, we issued 78,432 Shares and issued or committed to
            issue warrants to purchase 271,585 Shares at various exercise
            prices, to various holders of securities with registration rights as
            a penalty due to our inability to file and maintain effective a
            registration statement within certain specified deadlines. We
            believe the issuances of these securities are exempt under
            Regulation D and/or Section 4(2) of the Securities Act.

      o     In January 2005, we committed 452,029 Shares to shareholders of
            HiEnergy Microdevices, Inc. in connection with a short form merger
            on the basis of 22.3524 HiEnergy shares for 1 share of HiEnergy
            Microdevices (the same ratio that was used in the original voluntary
            share exchange). We believe the issuances of these securities are
            exempt under Regulation D and/or Section 4(2) of the Securities Act.

      o     In January 2005, we issued 110,133 Shares to Richard Melnick upon
            conversion of $40,000 of convertible notes, originally purchased in
            January 2004 and $7,200 worth of convertible notes accrued as
            penalties due to our inability to file and maintain effective a
            registration statement, plus $2,360 of accrued interest. We believe
            the issuances of these securities were exempt under Section 3(a)(9)
            and/or Section 4(2) of the Securities Act.

      o     In January 2005, we issued 1,955,555 Shares to various investors in
            a private placement in exchange for cash in the aggregate amount of
            $880,000. As additional consideration for this amount, we issued to
            the investors warrants to purchase common stock as follows:
            3,911,110 at $0.45 per Share; 1,173,332 at $0.75 per Share; and
            704,000 at $1.25 per Share. Said warrants are to expire three and
            one half years following the date of effectiveness of our next filed
            registration statement. We believe the issuances of these securities
            were exempt under Regulation D and/or Section 4(2) of the Securities
            Act.

      o     In January 2005, we committed to issue $6,000 in convertible notes
            as penalties to certain note holders with registration rights as a
            result of our inability to file and maintain effective a
            registration statement within specified deadlines. We believe the
            issuances of these securities are exempt under Regulation D and/or
            Section 4(2) of the Securities Act.

      o     In December 2004, we issued 111,850 Shares and issued or committed
            to issue warrants to purchase 213,699 Shares at various exercise
            prices, to various holders of securities with registration rights as
            a penalty, due to our inability to file and maintain effective a
            registration statement within certain specified deadlines. We
            believe the issuances of these securities are exempt under
            Regulation D and/or Section 4(2) of the Securities Act.


                                       64
<PAGE>

      o     In December 2004, we issued 108,696 Shares and issued warrants to
            purchase 54,348 Shares at an exercise price of $0.82 per Share to
            David Penney in exchange for cash in the amount of $50,000. We
            believe the issuances of these securities were exempt under
            Regulation D and/or 4(2) of the Securities Act.

      o     In December 2004, we committed to issue $7,000 in convertible notes
            to certain note holders with registration rights as a penalty, due
            to our inability to file and maintain effective a registration
            statement within specified deadlines. We believe the issuances of
            these securities are exempt under Regulation D and/or Section 4(2)
            of the Securities Act.

      o     In November 2004, we issued 1,752,395 Shares and warrants to
            purchase 876,198 Shares at an exercise price of $0.82 per Share to
            various investors in a private placement in exchange for cash in the
            aggregate amount of $806,100. We believe the issuances of these
            securities were exempt under Regulation D and/or Section 4(2) of the
            Securities Act.

      o     In November 2004, we issued 15,000 Shares to members of our Board of
            Directors, as compensation for meeting attendance. We believe the
            issuances of these securities were exempt under Section 4(2) of the
            Securities Act.

      o     In November 2004, we issued 120,093 Shares and issued or committed
            to issue warrants to purchase 165,256 Shares at various exercise
            prices, to various holders of securities with registration rights as
            a penalty, due to our inability to file and maintain effective a
            registration statement within certain specified deadlines. We
            believe the issuances of these securities were exempt under
            Regulation D and/or Section 4(2) of the Securities Act.

      o     In November 2004, we committed to issue $7,000 in convertible notes
            to certain note holders with registration rights as a penalty, due
            to our inability to file and maintain effective a registration
            statement within specified deadlines. We believe the issuances of
            these securities are exempt under Regulation D and/or Section 4(2)
            of the Securities Act.

      o     In November 2004, we issued 1,010,870 Shares and warrants to
            purchase 505,435 Shares at an exercise price of $0.82 per Share to
            Maglich Family Holdings, Inc., upon the conversion of promissory
            notes evidencing loans made to us in the aggregate amount of
            $465,000. Upon conversion, the note holder waived all accrued but
            unpaid interest. We believe the issuances of these securities were
            exempt under Regulation D and/or Section 4(2) of the Securities Act.

      o     In November 2004, we issued 1,046,687 Shares to Richard Melnick in
            connection with a cashless exercise of warrants. The warrants were
            exercisable for a total of 1,384,444 Shares at an exercise price of
            $0.45 per Share. In connection with the cashless exercise, 337,757
            Shares issuable upon exercise of the warrant were tendered as
            consideration for the exercise price. We believe the issuances of
            these securities are exempt under Section 3(a)(9) and/or Section
            4(2) of the Securities Act.

      o     In October 2004, we issued 326,585 Shares, and issued or committed
            to issue warrants to purchase 225,132 Shares at various exercise
            prices, to various holders of securities with registration rights as
            penalties, due to our inability to file and maintain effective a
            registration statement within certain specified deadlines. We
            believe the issuances of these securities were exempt under
            Regulation D and/or Section 4(2) of the Securities Act.

      o     In October 2004, we committed to issue $1,000 in convertible notes
            to certain note holders with registration rights as a penalty, due
            to our inability to file and maintain effective a registration
            statement within specified deadlines. We believe the issuances of
            these securities are exempt under Regulation D and/or Section 4(2)
            of the Securities Act.


                                       65
<PAGE>

      o     In October 2004, we issued 1,436,427 Shares and warrants to purchase
            718,214 Shares at an exercise price of $0.82 per Share to various
            investors in a private placement in exchange for cash in the
            aggregate amount of $660,756. We believe the issuances of these
            securities were exempt under Regulation D and/or Section 4(2) of the
            Securities Act.

      o     In October 2004, we issued 21,277 Shares and warrants to purchase
            7,092 Shares with an exercise price of $1.00 to Jose Venero in
            exchange for $10,000 in cash. We believe the issuances of these
            securities were exempt under Regulation S and/or Section 4(2) of the
            Securities Act.

      o     In October 2004, we issued 15,000 Shares to members of our Board of
            Directors as compensation for meeting attendance. We believe the
            issuances of these securities were exempt under Section 4(2) of the
            Securities Act.

      o     In September 2004, we issued a convertible note payable for
            $100,000, which was subsequently converted in September into 192,308
            Shares, to Maria Pilar Galera Escobedo in exchange for $100,000 in
            cash. We recorded a debt discount of $55,769 upon issuance of the
            convertible note. We believe the issuances of these securities were
            exempt under Regulation S and/or Section 4(2) of the Securities Act.

      o     In September 2004, we issued 71,739 Shares and warrants to purchase
            23,913 Shares with an exercise price of $1.00 in a related party
            transaction to Mr. William Nitze in exchange for $33,000 in cash. We
            believe the issuances of these securities were exempt under
            Regulation D and/or Section 4(2) of the Securities Act.

      o     In September 2004, we issued 286,573 Shares and issued or committed
            to issue warrants to purchase 182,468 Shares at various exercise
            prices, to various holders of securities with registration rights as
            penalties, due to our inability to file and maintain effective a
            registration statement within certain specified deadlines. We
            believe the issuances of these securities are exempt under
            Regulation D and/or Section 4(2) of the Securities Act.

      o     In September 2004, we committed to issue $1,000 in convertible notes
            to certain note holders with registration rights as a penalty, due
            to our inability to file and maintain effective a registration
            statement within specified deadlines. We believe the issuances of
            these securities are exempt under Regulation D and/or Section 4(2)
            of the Securities Act.

      o     In September 2004, we issued 15,000 Shares to members of our Board
            of Directors as compensation for meeting attendance. We believe the
            issuances of these securities were exempt under Section 4(2) of the
            Securities Act.

      o     In August 2004, we committed to issue $1,000 in convertible notes to
            certain note holders with registration rights as a penalty, due to
            our inability to file and maintain effective a registration
            statement within specified deadlines. We believe the issuances of
            these securities are exempt under Regulation D and/or Section 4(2)
            of the Securities Act.

      o     In August 2004, we issued 21,000 Shares to members of our Board of
            Directors as compensation for meeting attendance. We believe the
            issuances of these securities were exempt under Section 4(2) of the
            Securities Act.


                                       66
<PAGE>

      o     In August 2004, we issued 148,227 shares of our common stock and
            warrants to purchase 143,462 shares at various exercise prices, to
            various holders of securities with registration rights as penalties,
            due to our inability to file and maintain effective a registration
            statement within certain specified deadlines. We believe the
            issuances of these securities were exempt under Regulation D and/or
            Section 4(2) of the Securities Act.

      o     August 2004, we committed to issue warrants to purchase 6,933 Shares
            with an exercise price of $1.51 to Julian Echeverria as a finder's
            fee. We believe the issuances of these securities are exempt under
            Regulation S and/or Section 4(2) of the Securities Act.

      o     In August 2004, we issued a warrant to purchase 1,656 Shares at an
            exercise price of $2.75 and a warrant to purchase 653 Shares with an
            exercise price of $2.50 to Julian Echeverria as a finder's fee. We
            believe the issuances of these securities were exempt under
            Regulation S and/or Section 4(2) of the Securities Act.

      o     In July 2004, we issued 357,444 Shares and issued or committed to
            issue warrants to purchase 202,595 Shares at various exercise prices
            to various holders of securities with registration rights as
            penalties, due to our inability to file and maintain effective a
            registration statement within certain specified deadlines. We
            believe the issuances of these securities are exempt under
            Regulation D and/or Section 4(2) of the Securities Act.

      o     In July 2004, we committed to issue $1,000 in convertible notes to
            certain note holders with registration rights as a penalty, due to
            our inability to file and maintain effective a registration
            statement within specified deadlines. We believe the issuances of
            these securities are exempt under Regulation D and/or Section 4(2)
            of the Securities Act.

      o     In July 2004, we issued 6,000 Shares and committed to issue an
            additional 3,000 Shares to members of our Board of Directors as
            compensation for meeting attendance. We believe the issuances of
            these securities are exempt under Section 4(2) of the Securities
            Act.

      o     In July 2004, we issued a warrant to purchase 100,000 Shares with an
            exercise price of $0.99, as a bonus, to Jim Hertzog pursuant to his
            employment agreement. We believe the issuance of these securities
            was exempt under Section 4(2) of the Securities Act.

      o     In July 2004, we issued 182,955 Shares to Richardson & Patel, LLP
            for legal and consulting services. We believe the issuance of these
            securities was exempt under Section 4(2) of the Securities Act.

      o     In June 2004, we issued 219,251 Shares and warrants to purchase
            163,491 Shares at various exercise prices to various holders of
            securities with registration rights as penalties, due to our
            inability to file and maintain effective a registration statement
            within certain specified deadlines. We believe the issuances of
            these securities were exempt under Regulation D and/or Section 4(2)
            of the Securities Act.

      o     In June 2004, we committed to issue $1,000 in convertible notes to
            certain note holders with registration rights as a penalty, due to
            our inability to file and maintain effective a registration
            statement within specified deadlines. We believe the issuances of
            these securities are exempt under Regulation D and/or Section 4(2)
            of the Securities Act.

      o     In June 2004, we issued 13,245 Shares and warrants to purchase 4,415
            Shares with an exercise price of $2.75 to Alicia Vicens Hernandez in
            exchange for $20,000 in cash. We believe the issuances of these
            securities were exempt under Regulation S and/or Section 4(2) of the
            Securities Act.


                                       67
<PAGE>

      o     In June 2004, we issued 19,868 Shares and warrants to purchase 6,623
            Shares with an exercise price of $2.75 to Miguel Gay Rogel in
            exchange for $30,000 in cash. We believe the issuances of these
            securities were exempt under Regulation S and/or Section 4(2) of the
            Securities Act.

      o     In June 2004, we issued 66,225 Shares and warrants to purchase
            22,075 Shares with an exercise price of $2.75 to Orovales
            Investment, Inc. in exchange for $100,000 in cash. We believe the
            issuances of these securities were exempt under Regulation S and/or
            Section 4(2) of the Securities Act.

      o     In June 2004, we issued 33,113 Shares and warrants to purchase
            11,038 Shares with an exercise price of $2.75 to Jose M. Sanclimens
            Genesca in exchange for $50,000 in cash. We believe the issuances of
            these securities were exempt under Regulation S and/or Section 4(2)
            of the Securities Act.

      o     In June 2004, we issued 19,868 Shares and warrants to purchase 6,623
            Shares with an exercise price of $2.75 to Benicio Alonso Perez in
            exchange for $30,000 in cash. We believe the issuances of these
            securities were exempt under Regulation S and/or Section 4(2) of the
            Securities Act.

      o     In June 2004, we issued 66,225 Shares and warrants to purchase
            22,075 Shares with an exercise price of $2.75 to Las Chafiras S.A.
            in exchange for $100,000 in cash. We believe the issuances of these
            securities were exempt under Regulation S and/or Section 4(2) of the
            Securities Act.

      o     In June 2004, we issued 3,000 shares and committed to issue an
            additional 6,000 Shares to members of our Board of Directors as
            compensation for meeting attendance. We believe the issuances of
            these securities are exempt under Section 4(2) of the Securities
            Act.

      o     In June 2004, we issued convertible promissory notes for $11,866 and
            $13,782 which are convertible into Shares at $1.00 per Share to
            Yocca, Patch & Yocca, LLP for legal services. We believe the
            issuances of these securities were exempt under Regulation D and/or
            Section 4(2) of the Securities Act.

      o     In June 2004, we issued 99,010 Shares and warrants to purchase
            32,673 Shares with an exercise price of $2.75 to Josefa Nazabal
            Aguirre in exchange for $100,000 in cash. We believe the issuances
            of these securities were exempt under Regulation S and/or Section
            4(2) of the Securities Act.

      o     In June 2004, we amended a convertible promissory note, previously
            issued in January 2004, in the amount of $50,000. Under the
            amendment, in lieu of the prior note, we issued separate convertible
            promissory notes of $40,000 and $10,000 to Richard Melnick and
            Sherbrooke Partners, LLC, respectively. In conjunction with this
            amendment, both Richard Melnick and Sherbrooke Partners, LLC,
            exercised their option and purchased an additional $300,000 of
            convertible promissory notes, a $240,000 note for Richard Melnick
            and a $60,000 note for Sherbrooke Partners, LLC. Both notes are
            convertible into Shares at $0.45 per Share. Richard Melnick also
            received warrants to purchase 1,578,666 Shares and Sherbrooke
            Partners, LLC also received warrants to purchase 394,666 Shares, all
            at various exercise prices between $0.45 and $1.25. In addition,
            warrants issued with the original $50,000 convertible promissory
            note were amended by i) lower exercise prices, between $0.45 and
            $1.25, ii) increase the number of underlying shares from 362,222 to
            439,999, and iii) re-issued 65,777 of the 439,999 warrants to
            Sherbrooke Partners, LLC. We believe the issuances of these
            securities were exempt under Regulation D and/or Section 4(2) of the
            Securities Act.

      o     In June 2004, we issued 10,500 Shares, previously committed in the
            prior year period, to Richard Eckhouse to settle a lawsuit. We
            believe the issuances of these securities were exempt under
            Regulation D and/or Section 4(2) of the Securities Act.


                                       68
<PAGE>

      o     In May 2004, Platinum Partners Arbitrage Value Fund LP exercised its
            option, obtained in January 2004, and purchased an additional
            $425,000 convertible promissory note with warrants to purchase
            3,891,110 Shares at exercise prices between $0.45 and $1.25. They
            immediately converted the note along with the note purchased in
            January which included accrued interest, into 1,295,896 Shares. We
            believe the issuances of these securities were exempt under
            Regulation D and/or Section 4(2) of the Securities Act. The Shares
            were recorded as a current liability due to the notes being sold
            deemed subject to rescission rights.

      o     In May 2004, we issued 168,976 Shares, of which 84,486 were
            previously committed, to various holders of securities with
            registration rights as penalties, due to our inability to file and
            maintain effective a registration statement within certain specified
            deadlines. We believe the issuances of these securities were exempt
            under Regulation D and/or Section 4(2) of the Securities Act.

      o     In May 2004, we committed to issue $1,000 in convertible notes to
            certain note holders with registration rights as a penalty, due to
            our inability to file and maintain effective a registration
            statement within specified deadlines. We believe the issuances of
            these securities are exempt under Regulation D and/or Section 4(2)
            of the Securities Act.

      o     In May 2004, we issued warrants to purchase 156,277 Shares, of which
            a warrant for 22,761 was previously committed. The warrants have
            various exercise prices and were issued to various holders of
            securities with registration rights as penalties, due to our
            inability to file and maintain effective a registration statement
            within certain specified deadlines. We believe the issuances of
            these securities were exempt under Regulation D and/or Section 4(2)
            of the Securities Act.

      o     In May 2004, we issued 95,000 Shares to Stern Consulting for
            consulting services. We believe the issuance of these securities was
            exempt under Section 4(2) of the Securities Act.

      o     In May 2004, we issued 3,500 Shares to Publex Ventures LLC as
            compensation for consulting services. We believe the issuance of
            these securities was exempt under Regulation S and/or Section 4(2)
            of the Securities Act.

      o     In May 2004, we issued 5,000 Shares and committed to issue an
            additional 2,000 Shares to members of our Board of Directors as
            compensation for meeting attendance. We believe the issuances of
            these securities are exempt under Section 4(2) of the Securities
            Act.

      o     In May 2004, we issued 29,801 Shares and warrants to purchase 9,934
            Shares with an exercise price of $2.75 to Luis Lopez Echeto in
            exchange for $45,000 in cash. We believe the issuances of these
            securities were exempt under Regulation S and/or Section 4(2) of the
            Securities Act.

      o     In April 2004, we issued a total of 26,849 Shares to Craig Pierson
            upon cashless exercises of his warrants. We believe the issuance of
            these securities was exempt under Section 3(a)(9) and/or Section
            4(2) of the Securities Act.

      o     In April 2004, we issued warrants to purchase a total of 50,165
            Shares with various exercise prices to various investors as a
            penalty, due to our inability to file and maintain effective a
            registration statement within certain specified deadlines. We
            believe the issuances of these securities were exempt under
            Regulation D and/or Section 4(2) of the Securities Act.


                                       69
<PAGE>

      o     In April 2004, we issued warrants to purchase 50,000 Shares at an
            exercise price of $2.06 and warrants to purchase 50,000 Shares at an
            exercise price of $2.95 to C3P, Inc. for marketing and consulting
            services. We believe the issuances of these securities were exempt
            under Section 4(2) of the Securities Act.

      o     In April 2004, we issued 12,000 Shares to members of our Board of
            Directors as compensation for meeting attendance. We believe the
            issuances of these securities were exempt under Section 4(2) of the
            Securities Act.

      o     In April 2004, we issued 302,638 Shares to various investors in
            cashless exercises of warrants. We believe the issuance of these
            securities was exempt under Section 3(a)(9) of the Securities Act.

      o     In April 2004, we issued a total of 100,000 Shares, to four
            consultants Matthew Balk, Jason Adelman, Hilary Bergman & Brad
            Reifler for services rendered. We believe the issuances of these
            securities were exempt under Section 4(2) of the Securities Act.

      o     In April 2004, we issued 18,235 Shares to Michael Gottlieb upon a
            cashless exercise of a warrant. We believe the issuance of these
            securities was exempt under Section 3(a)(9) of the Securities Act.

      o     In April 2004, we issued 141,383 Shares to various holders of
            securities with registration rights as penalties, due to our
            inability to file and maintain effective a registration statement
            within certain specified deadlines. We believe the issuances of
            these securities were exempt under Regulation D and/or Section 4(2)
            of the Securities Act.

      o     In April 2004, we issued 27,520 Shares to Nathan Freund upon
            exercise of a warrant. We believe the issuance of these securities
            was exempt under Section 3(a)(9) of the Securities Act.

      o     In April 2004, we issued 8,256 Shares to Ioannis Korolgos upon
            exercise of a warrant. We believe the issuance of these securities
            was exempt under Section 3(a)(9) of the Securities Act

      o     In April 2004, we issued warrants to purchase 50,000 Shares at an
            exercise price of $2.85 to Vintage Filings, LLC for EDGAR services.
            We believe the issuance of these securities was exempt under Section
            4(2) of the Securities Act.

      o     In April 2004, we issued 75,000 Shares to Shai Stern and Seth
            Farbman for Edgar filing services. We believe the issuance of these
            securities was exempt under Section 4(2) of the Securities Act.

      o     In April 2004, we issued a convertible promissory note for $38,061,
            which is convertible into Shares at $1.00 per Share to Yocca, Patch
            & Yocca, LLP for legal services. We believe the issuances of these
            securities were exempt under Regulation D and/or Section 4(2) of the
            Securities Act.

      o     In April 2004, we issued 30,303 Shares and warrants to purchase
            10,101 Shares with an exercise price of $1.75 to Jose Manuel Cabrera
            Venero in exchange for $30,000 in cash. We believe the issuances of
            these securities were exempt under Regulation S and/or Section 4(2)
            of the Securities Act.

      o     In April 2004, we issued 2,000 Shares to Kenneth Cerruto upon a
            cashless exercise of a warrant. We believe the issuance of these
            securities was exempt under Section 3(a)(9) of the Securities Act.

      o     In April 2004, we committed to issue 10,500 shares to Richard
            Eckhouse to settle a lawsuit. We believe the issuances of these
            securities are exempt under Regulation D and/or Section 4(2) of the
            Securities Act.


                                       70
<PAGE>

      o     In April 2004, we committed to issue 84,486 Shares to various
            holders of securities with registration rights as penalties, due to
            our inability to file and maintain effective a registration
            statement within certain specified deadlines. We believe the
            issuances of these securities are exempt under Regulation D and/or
            Section 4(2) of the Securities Act.

      o     In April 2004, we committed to issue warrants to purchase 22,761
            Shares, at various exercise prices, to various holders of securities
            with registration rights as penalties, due to our inability to file
            and maintain effective a registration statement within certain
            specified deadlines. We believe the issuances of these securities
            are exempt under Regulation D and/or Section 4(2) of the Securities
            Act.

      o     In April 2004, we issued $7,000 in convertible notes as penalties to
            certain note holders with registration rights as a result of our
            inability to file and maintain effective a registration statement
            within specified deadlines. We believe the issuances of these
            securities were exempt under Regulation D and/or Section 4(2) of the
            Securities Act.


                                       71
<PAGE>

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

GENERAL

The following discussion should be read in conjunction with our audited
Consolidated Financial Statements and accompanying Notes, 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 these
statements as a result of a variety of factors, including those discussed in our
filings with the Securities and Exchange Commission and as discussed in the
sections under the heading "Risk Factors" in this Report and in "Note 5 - Risks
and Uncertainties to the Consolidated Financial Statements".

Any reference to "we," "us" and "our" herein shall mean HiEnergy Technologies,
Inc., together with its consolidated subsidiaries, HiEnergy Defense, Inc.,
HiEnergy Mfg Company, HiEnergy International, Inc., and HiEnergy Europe, Ltd,
and its former majority-owned subsidiary, HiEnergy Microdevices, Inc.

OVERVIEW OF COMPANY

HiEnergy Technologies, Inc. ("HiEnergy", together with its subsidiaries, the
"Company") is a nuclear technologies-based company focused on the
commercialization of its initial proprietary, neutron-based, "stoichiometric"
sensor devices, including (i) the CarBomb Finder(TM) 3C4, a vehicle-borne
system, for the detection and identification of car bombs, and (ii) the
SIEGMA(TM) 3E3, a portable suitcase-borne system for the detection and
identification of home-made bombs, also known as Improvised Explosive Devices or
IEDs. We are marketing our devices to governmental and private entities and are
negotiating licenses for distribution of our devices with various industry
partners. To date, we have devoted the bulk of our efforts and resources to the
research, design, testing and development of proprietary "stoichiometric" sensor
devices and underlying technologies, and have yet to generate meaningful
revenues from the sale of any products using its technologies.

We also continue to focus on the research and development of additional
applications of our technologies and their further exploitation, both internally
and through collaboration with third parties. We are currently developing
prototypes in programs with the U.S. Department of Defense and the Department of
Homeland Security for other related uses of our core technology. Recently, we
entered into a funded cooperative development agreement with the U.S.
Transportation Security Administration (TSA) to produce a proof of concept which
incorporates our SuperSenzor (TM) technology into a baggage screening system.
Our "stoichiometric" technology, or "Stoitech(TM)" has been incorporated into
additional prototype applications which, if we are able to raise the funds
necessary to commercialize them, will be the next products we attempt to launch:
(i) an in-ground explosive screening system, the CarBomb Finder(TM) 3C5, (ii) a
landmine detector, the Anti-Tank Landmine Detector 7AT7; (iii) an unexploded
ordnance detector, Unexploded Ordnance Sensor 3UXO3, which is also useful to
detect IEDs; and (iv) a device we call a "Refractorymeter", which can detect
fissures or erosions in the ceramic lining of oil cracking tanks.

HiEnergy was originally incorporated under the laws of the State of Washington
on March 22, 2000 under the name SLW Enterprises Inc. ("SLW") and was
redomiciled on October 22, 2002 as a Delaware corporation. At present, we have
four wholly-owned subsidiaries, HiEnergy Defense, Inc., HiEnergy Mfg Company,
HiEnergy International, Inc, and HiEnergy Europe, Ltd. HiEnergy Defense, Inc.
was incorporated under the laws of the State of Delaware in July 2003 to focus
on marketing military and defense applications of our technology within the
Washington D.C. area from its office in Alexandria, Virginia. HiEnergy Europe
Ltd. was incorporated under the laws of the State of Delaware in March 2004 and
is presently not operating, but will focus on marketing our technology
throughout the European Union. HiEnergy Mfg Company was incorporated under the
laws of the State of Delaware in March 2005 and formed for the purpose of
creating a separate entity for the manufacturing and assembly of our products.
Lastly, HiEnergy International, Inc. was incorporated under the laws of the
State of Delaware in July 2005 and was formed for the purpose of creating a
separate entity for the sales and servicing of our products overseas, excluding
Europe, and primarily the Middle East and Africa.


                                       72
<PAGE>

Prior to January 2005, we also had one majority-owned subsidiary, HiEnergy
Microdevices, Inc., which was incorporated in Delaware on August 21, 1995 and
was the vehicle through which Stoitech(TM) was initially developed by our
Chairman and CEO, Dr. Bogdan Maglich ("Microdevices", and together with HiEnergy
Europe, Ltd., HiEnergy Defense, HiEnergy Mfg Company, and HiEnergy
International, Inc., the "Subsidiaries"). As a result of a short-form merger,
which became effective on January 25, 2005, we assumed all of Microdevices'
assets and liabilities and Microdevices ceased to exist as a separate entity as
of that date.

On April 25, 2002, SLW Enterprises, Inc., which was then a "public shell
company", was taken over by the shareholders of Microdevices, including our
Chairman and CEO, Dr. Bogdan Maglich, pursuant to a voluntary share exchange
whereby the shareholders of Microdevices exchanged 92% of the outstanding shares
of Microdevices for approximately 64% of the outstanding shares of SLW. The
costs of this "reverse takeover" transaction were approximately $451,000, and
were expensed as a general and administration expense in the periods incurred.

Our common shares currently trade on the National Association of Securities
Dealers ("NASD") Over-the-Counter Bulletin Board ("OTCBB") under the symbol
"HIET".

BASIS OF PRESENTATION

For accounting purposes, the reverse takeover by Microdevices of HiEnergy was
accounted for as a re-capitalization of Microdevices in a manner similar to a
pooling of interests, with Microdevices as the accounting acquirer (reverse
acquisition). Since HiEnergy (formerly SLW) was a "public shell company", with
no material assets and liabilities at the date of the acquisition and no
significant operations prior to the acquisition, no pro forma information has
been presented.

We have prepared our audited 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 in Risk Factors: Risks Related to Our
Business earlier in this Report, 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 POLICIES AND ESTIMATES

The discussion and analysis of our financial condition and results of operations
are based on our Consolidated Financial Statements and accompanying Notes and
the other financial information appearing elsewhere in this Report, which have
been prepared in accordance with accounting principles generally 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 and expenses, and related disclosure of contingent assets and
liabilities. On an ongoing basis, we evaluate our estimates. We base our
estimates on assumptions that we believe 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.


                                       73
<PAGE>

Long-lived Assets

Property and equipment are recorded at cost and depreciated using the
straight-line method over an estimated life of five years. Determining the
estimated life of our property and equipment requires judgment and changes to
the estimated life could materially impact the amount of depreciation expense
recognized in the statement of operations and the amount recognized as property
and equipment in the consolidated balance sheet.

Stock-based Compensation

We account for stock-based awards to employees and directors using the intrinsic
value method of accounting in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"). Under
the intrinsic value method, where the exercise price of our employee stock
options equals or exceeds the market price of the underlying stock on the date
of grant, no compensation expense is recognized in our Consolidated Statements
of Operations.

Where the exercise price of our employee stock options is less than the market
price of the underlying stock on the date of grant ("in-the-money"),
compensation expense is recorded in our Consolidated Statement of Operations.
From August 21, 1995 (inception) until April 25, 2002 (date of reverse
takeover), the fair value of the common stock was determined by calculating the
weighted average price at which we sold the stock in the month or nearest the
month the stock option was issued. For subsequent periods, the fair value of our
common stock was the quoted market price of the common stock at closing on the
date an instrument was granted.

We account for stock options and warrants issued to non-employees in accordance
with SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"),
EITF Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services" ("EITF 96-18"), and related interpretations.

The application of SFAS No. 123 in determining the fair value of the equity
instruments granted requires judgment, including as to the expected life, stock
price volatility for stock options and warrants, and expected dividends. Changes
in any of these factors could materially impact the amount of expense recognized
in the consolidated statement of operations for goods and services received from
non-employees.

Research and Development Costs

We account for research and development costs in accordance with SFAS No. 2,
"Accounting for Research and Development Costs". Research and development costs
are charged to operations as incurred. As described in section 3.50 of the
Government Contract Audit Guide for Fixed-Price Best-Efforts Cost Sharing
Arrangements, amounts earned under our development contracts with the U.S.
Department of Defense have been offset against research and development costs,
in accordance with the provisions of that section, in all periods presented.

YEAR ENDED APRIL 30, 2005 COMPARED TO YEAR ENDED APRIL 30, 2004

For the fiscal year ended April 30, 2005, we incurred a net loss of $9,985,000,
as compared to a net loss of $7,600,000 for the fiscal year ended April 30,
2004. Included in the losses are equity-based expenses of $5,381,000 and
$3,793,000, respectively.

Operating Expenses

GENERAL AND ADMINISTRATION

General and administration expenses were $4,947,000 for fiscal year ended April
30, 2005, an increase of $151,000 from the prior year. In lieu of cash, we have
often engaged service providers by offering common stock, warrants, options and
convertible notes payable (CNP) as compensation. Through various arrangements,


                                       74
<PAGE>

these providers have provided services such as business development, business
and financial consulting, Edgar services, legal and other professional services,
and directorship. Some warrants and options have been issued and expensed, but
then subsequently forfeited causing no dilution to us. The major components of
general and administration expenses, both cash and equity, are as follows:

<TABLE>
<CAPTION>
                               Year Ended April 30, 2005                   Year Ended April 30, 2004
                     -----------------------------------------------------------------------------------------
                         Cash &         Equity                        Cash &         Equity
                         Accrued         Based                        Accrued         Based                       Increase/
                        Expenses     Compensation            Total   Expenses     Compensation         Total     (Decrease)
                     ----------------------------------------------------------------------------------------- ---------------
<S>                        <C>            <C>            <C>            <C>             <C>          <C>             <C>
Salaries and               $ 767,000      $ 87,000       $ 854,000      $ 554,000       $     -      $554,000        $300,000
benefits
Consulting                   340,000       566,000         906,000        327,000     1,650,000     1,977,000     (1,071,000)

Legal fees                   752,000       390,000       1,142,000        772,000       127,000       899,000         243,000

Accounting fees              464,000             -         464,000        233,000             -       233,000         231,000
Investor  & public
relations                    244,000             -         244,000        420,000        47,000       467,000       (223,000)

Insurance                    169,000             -         169,000        147,000             -       147,000          22,000

Travel                       391,000             -         391,000        194,000             -       194,000         197,000

Other                        536,000       241,000         777,000        325,000             -       325,000         452,000
                     ----------------------------------------------------------------------------------------- ---------------
               Total     $ 3,663,000   $ 1,284,000      $4,947,000    $ 2,972,000   $ 1,824,000    $4,796,000       $ 151,000
                     ----------------------------------------------------------------------------------------- ---------------
</TABLE>

For the fiscal year ended April 30, 2005, as compared to the prior fiscal year,
salary and benefits expense increased $300,000. This increase was primarily due
to the hiring of three additional personnel, replacing former personnel who had
been employed at comparable lower wages, and normal pay increases and
incentives. The hiring activity was associated with re-staffing certain
vacancies which resulted from cash saving measures implemented in March 2003
that aimed to reduce operational expenses with a reduction of employee head
count. The current year period included $87,000 of equity-based compensation in
the form of a warrant issued to our previous controller and an in the money
option to our current controller. We expect hiring activity as well as salary
and benefits expense to increase throughout fiscal year 2006, as we move forward
with the execution of our operating plan.

Consulting expenses for the fiscal year ended April 30, 2005 decreased
$1,071,000 from the prior fiscal year. This decrease was attributable to a
decrease in equity-based compensation of $1,084,000. Equity-based compensation
for the current period of $566,000 consisted of $215,000 for common stock issued
for strategic business consulting and $118,000 for common stock issued or
committed to our board of directors for their services, and $233,000 for an
in-the-money option given to a Director for his service. The prior fiscal year
period charge of $1,650,000 was due to the issuance of common stock, options and
warrants valued in aggregate at $722,000 for consulting services; common stock
and options valued in the aggregate at $364,000 for director fees; commitment of
common stock for a legal settlement valued at $14,000; and the expensing of an
option in the amount of $550,000 upon the termination of a consultant's
agreement in October 2003, pursuant to which an option was issued to the
consultant in July 2002. No options or warrants were issued to consultants in
the current year period. Our reliance on paying for services with equity
instruments in lieu of cash has created greater charges to our results of
operations due to the significant discounts required as a result of the
restricted nature of the equity instruments, which reliance persists due to our
failure to file and maintain an effective registration statement. For fiscal
year 2006, we expect consulting expenses to decrease due to the increased hiring
of employees and a lower reliance on consultants, as well as the corresponding
decrease in the use of costly equity compensation.


                                       75
<PAGE>

Although we anticipate that going forward we will be less reliant on offering
equity for services and/or in a better position from which to offer cash
remuneration for services, in the event we must offer, or elect to offer in
order to conserve cash, equity for services, we expect that equity for services
would be issued at lesser discounts, pursuant to more favorable terms than in
prior periods.

Legal fees increased $243,000 for the fiscal year ended April 30, 2005 as
compared to the prior fiscal year. Again, this increase was due to our having to
issue discounted equity for services in lieu of cash, as discussed above.
Equity-based compensation expense for legal services was $390,000 for the fiscal
year ended April 30, 2005, all issued in the first quarter, compared to $127,000
of equity-based compensation for the prior fiscal year period. Year over year,
legal fees for patent applications increased $32,000, which was due to our
decision to resubmit certain patent applications with petition for special
treatment and the division of our primary patent applications into separate
applications at the request of the patent examiner. Excluding the increases for
equity-based compensation and patent work, legal fees decreased $52,000 for the
fiscal year ended April 30, 2005 as compared to the prior fiscal year, most
notably decreasing in the second half of fiscal year 2005, as a result of our
being able to internalize many legal and regulatory functions in connection with
our effort to improve internal controls and reduce our reliance on outside legal
services. We expect overall legal expense to remain comparatively high through
the first half of fiscal year 2006, as we attempt to settle the current SEC
issues, a class action law suit, and other pending legal matters disclosed in
this Report, as well as file registration statements on behalf of employees and
selling shareholders, and the Company.

Accounting fees increased $231,000 for the fiscal year ended April 30, 2005
compared to the prior fiscal year. This increase was due to significant
accounting activity related to the restatement of our financial results for
fiscal years 2002 and 2003 in conjunction with our audit for fiscal year 2004.
As with legal fees, accounting fees decreased significantly in the second half
of fiscal year 2005, most notably decreasing in excess of 50% in the second half
of fiscal year 2005 as compared to the second half of fiscal 2004, as a result
of normalized accounting activity and improvements to, and efficiencies
achieved, in our financial controls. We expect accounting fees to decrease in
fiscal year 2006, but remain higher than the norm as we complete the filing of
our restated annual and quarterly financial results as well as file registration
statements on behalf of employees and selling shareholders, and the Company. We
expect to continue to make improvements to and generate efficiencies in our
financial controls and plan to increase accounting staff, which should reduce
external accounting costs.

Investor and public relations expense decreased $223,000 for the fiscal year
ended April 30, 2005 as compared to the prior fiscal year. Of the $223,000
decrease, $47,000 was attributable to expensing of an option in the prior fiscal
year which was issued to a public relations firm in fiscal year 2003. The
decrease in investor and public relations expense was the result of our
cost-cutting measures which included the elimination of one investor relations
firm, as well as the redirection of resources toward more immediate concerns
such as product development, the funding of internal operations, and
expenditures related to legal and regulatory matters. We are striving to
internalize many investor relations and shareholder services, but expect as
increase in public relations and marketing activities. In June 2005, we entered
into a cost-effective contract with a consultant to provide public media
relations on a success fee basis. Accordingly, we anticipate a moderate increase
in investor and public relations fees throughout fiscal year 2006.

Insurance expense increased $22,000 in fiscal year 2005 over the prior fiscal
year. This increase was primarily attributable to an increase for health
insurance. In May 2005, we renewed our Directors and Officers liability policy
for an additional year. Without a substantial cost increase, we were able to
increase our coverage from $2,000,000 to $3,000,000. We expect insurance expense
to increase throughout fiscal year 2006 as a result of increasing health
insurance coverage as we expand operations.

Travel expenses increased $197,000 for the fiscal year ended April 30, 2005 over
the prior fiscal year. The increase was attributed primarily to increased
demonstrations throughout the year. During the fiscal year, we demonstrated our
CarBomb Finder(TM) prototype in Istanbul, Turkey and our SIEGMA(TM) system at
the NATO Symposium held in Madrid, Spain, at the IDEX exhibition in Abu Dhabi,
and twice at the U.S. Marines Corps Base at Quantico, Virginia, including an


                                       76
<PAGE>

exhibition at the Force Protection Equipment Demonstration (FPED). We expect
that travel expenses for fiscal year 2006 will remain high as our sales and
marketing personnel continue to attend numerous key industry conferences and
trade shows, management continues to meet with investors, consultants and
potential strategic partners, such as in Spain, and general business activity
increases in connection with our commercialization objectives.

Other expenses for the fiscal year ended April 30, 2005 increased to $777,000
from $325,000 for the prior fiscal year, an increase of $452,000. Of the
$452,000 increase, $241,000 was due to amortization expense for common stock and
a warrant issued in April 2004 for prepaid Edgar filing services. The issuance
of equity for services has been costly to us for the reasons discussed above.
The prior fiscal year other expenses included $33,000 for Edgar filing fees.
Excluding the increase in Edgar filing fees, principally due to the utilization
of equity-based compensation, other expenses increased $244,000. Equipment
transportation expense increased from only $2,000 in the prior fiscal year to
$101,000 for fiscal year 2005. The large increase in equipment transportation
expense was due to the shipment of our prototypes, equipment and supplies to
international and domestic locations in connection with the various
demonstrations discussed under travel expenses. Also, in fiscal year 2005, we
incurred $63,000 of business development expense either in conjunction with our
various demonstrations, or the promotion of various strategies to bring our
product to market, which includes $39,000 of sponsor/participant fees and
contributions to industry symposiums and related events. Prior fiscal year
expense for business development was only $3,000, while prior fiscal year
contribution expense was only $4,000. The remaining $50,000 increase includes a
$21,000 write-off of impaired assets and increases in fees associated with stock
transfer agent services, telecommunications, office equipment and supplies, and
licenses and permits, due to our expanding operations.

RESEARCH AND DEVELOPMENT

Net research and development expenses decreased $19,000 from the prior fiscal
year. Excluding grant income, which increased $238,000 from the prior fiscal
year, research and development expenses increased $219,000. No equity-based
expenses were recorded for research and development. The major components of
research and development expenses are as follows:

<TABLE>
<CAPTION>
                                          Years Ended
                                ---------------------------------       Increase/
                                April 30, 2005     April 30, 2004       (Decrease)
                                ---------------------------------       ----------
<S>                                 <C>               <C>               <C>
       Salaries and benefits        $ 727,000         $ 677,000         $  50,000
       Consultants                    169,000            65,000           104,000
       Supplies                        86,000           151,000           (65,000)
       Travel                          17,000            17,000                --
       Depreciation                   187,000           128,000            59,000
       Other                          209,000           138,000            71,000
       Grant income                  (610,000)         (372,000)         (238,000)
                                    ---------         ---------         ---------
      Net                           $ 785,000         $ 804,000         $ (19,000)
                                    =========         =========         =========
      </TABLE>

Salaries and benefits related to research and development activities increased
$50,000 for the fiscal year ended April 30, 2005 as compared to the prior fiscal
year. This increase was due to normal increases and increased bonuses. In
February 2005, we filled one scientific position vacated in July 2004 with the
hiring of an additional research scientist, and we are attempting to fill
another. Consulting expenses for fiscal year 2005 increased $104,000 over the
prior fiscal year with $60,000 of the increase due to the engagement of a
construction and engineering firm to design a manufacturing plan and facility,
and assist in its location. The remaining $44,000 increase was due to
contracting consultants for product engineering, facilitation of production, and
development of software solutions. We expect salaries and benefits to increase
throughout fiscal year 2006 with the addition of certain new scientific
personnel to advance the development of our technology and devices, and to
administer current and future grants.


                                       77
<PAGE>

Supplies expense decreased $65,000 for the fiscal year ended April 30, 2005 as
compared to the prior fiscal year. Prior fiscal year expenses were excessively
high due to the need to test various configurations of our prototypes, while
fiscal year 2005 efforts were more directed at refining and established
prototypes. We expect supply expenses to increase throughout fiscal year 2006
over fiscal year 2005, but remain below the fiscal year 2004 amount.

Travel expenses for our Scientists remained constant in fiscal year 2005 as
compared to the prior fiscal year at $17,000 per year.

During fiscal year 2005, we added additional equipment costing $166,000 as
compared to the prior fiscal year, during which we added additional equipment
costing $258,000. Cumulatively, these additions have increased depreciation
expense by $59,000 year over year. We expect equipment depreciation expense to
remain relatively flat as we have reduced our capital expenditures year over
year.

Other expenses for the fiscal year ended April 30, 2005 increased $71,000
compared to the prior fiscal year. The primary increase was due to increased
rent and an equipment operating lease. Our building lease expense increased due
to increases in both our per-foot-rate and total space. In fiscal year 2005, we
began acquiring, under an operating lease, neutron generators which are one of
our key components. Total lease payments and amortization of prepaid expenses
was $32,000. Other expenses, including, telephone, furniture and fixture rentals
increased consistent with our expanded business development efforts during the
current period.

For the fiscal year ended April 30, 2005, we earned grant money of $610,000
compared to $372,000 for the prior fiscal year period. We completed the second
year of a Phase II program under a SBIR contract awarded to us in August 2002 by
the U.S. Army - NVESD. As of April 30, 2005, we have earned $780,000 against the
contract. If further research and development work is required upon the
expiration of Phase II, we have the ability to submit a request for additional
Phase II and/or Phase III funding, which the government would consider based
upon our progress to date and the merits of the project. The U.S. Army is under
no obligation to continue to assist in funding these research and development
costs beyond Phase II or any subsequent extension, or to purchase any of our
products once we have completed development activities. As of this date, we have
submitted a request for additional Phase II and/or Phase III funding but have
not received any indication that additional funding will be made available to us
under the program.

Under a cooperative research and development agreement entered into with the TSA
in September 2004, the TSA is to provide funding in the amount of $367,141 for
Stage 1, and an additional $145,381 for Stage 2, if, at the conclusion of Stage
1, the TSA elects to continue with us. As of April 30, 2005, we have earned
$306,000 in cooperative financing from the TSA to complete Stage 1, and are
entitled to earn an additional $61,000 in contract proceeds to complete Stage 1.
There is no obligation for the TSA to fund our development efforts under this
agreement beyond the Stage 1 funded amount or to purchase any of our products
once we have completed development activities. The TSA will pay our research and
development costs on a periodic basis during the term of the contract, for which
we are required to submit monthly written reports detailing our progress under
the contract. We recognize the proceeds from the contract as an offset against
research and development expenses following the submission of the monthly
written reports. When the written report is accepted by the TSA, we receive
payment in about 30 to 45 days.

Further, on July 15, 2005, we executed a Time and Material Subcontract in the
amount of $333,688 with Integrated Concepts & Research Corporation (ICRC), a
subsidiary of Koniag, Inc., an Alaskan Native Corporation, located in
Alexandria, VA. The Subcontract was awarded as part of ICRC's Prime Contract
Number DAAE07-02-C-L062 with the United States Army Tank - Automotive and
Armaments Command, Warren Michigan (TACOM). Under the Subcontract, we will
deliver one CarBomb Finder(TM) head unit and provide the engineering and
technical support necessary for its integration with the SmarTruck II
Multi-Mission Vehicle. The finished prototype is expected to be field tested by
the U.S. Army


                                       78
<PAGE>

and D.C. Capitol Hill Police. Funding of the program was provided through a
supplemental authorization of the Defense Appropriations Act for Fiscal Year
2005. ICRC will pay our research and development costs on a periodic basis
during the term of the contract, for which we are required to submit monthly
written reports detailing our progress under the subcontract. We recognize the
proceeds from the subcontract as an offset against research and development
expenses following the submission of the monthly written reports. When the
written report is accepted by ICRC, we will receive payment in about 30 to 45
days, or no later than 5 days after payment by the U.S. Army Contracting Officer
to ICRC.

DEPRECIATION

Total depreciation expense for the fiscal year ended April 30, 2005 and 2004 was
$213,000 and $144,000, respectively. The increase in the amount of $69,000 in
depreciation expense reflects $59,000 attributed to research and development
equipment and $10,000 for general office equipment put into service during the
proceeding and intervening period.

Interest Expense and Income

Interest expense for the fiscal year ended April 30, 2005 increased to $897,000
from $538,000 for the prior fiscal year. The increase was primarily due to
$786,000 of non-cash charges, $781,000 upon issuance of Convertible Notes
Payable ("CNP") with detachable warrants to investors and $5,000 for the
issuance of CNP to our former legal counsel during the current year period. This
compares to $493,000 of non-cash charges, $385,000 upon issuance of CNP with
detachable warrants to investors and $108,000 for the issuance of CNP to our
former legal counsel for the prior fiscal year period.

During the fiscal year ended April 30, 2005, we expensed as interest the total
proceeds of $781,000 received from the sale of CNP to investors compared to the
expensing of the total proceeds of $385,000 received from the sale of CNP to
investors in the prior year period. Some of the CNP included detachable warrants
and under GAAP accounting rules the combined value of the beneficial conversion
feature and the fair value of the detachable warrants, to the extent of the
proceeds received, is amortized over the terms of the notes. Since the notes in
both periods were sold deemed subject to rescission rights (as discussed
elsewhere in this Report), the full amounts were immediately expensed. The fair
value of the beneficial conversion feature was determined by taking the spread
between the market price of the common stock at the date of issuance and the
conversion price, multiplied by the number of shares underlying the CNP. The
value of the warrants was determined using the Black-Scholes model.

During the fiscal year ended April 30, 2005, we expensed as interest a
beneficial conversion feature of $5,000 against $26,000 in CNP issued to our
former legal counsel for services rendered during the prior year. This compares
to the expensing of $108,000 against $701,000 in CNP issued to our former legal
counsel for services rendered in fiscal year 2004. The CNP were convertible
immediately, therefore, the fair value of beneficial conversion feature was
determined by taking the difference between the market price of the common stock
at the date of issuance and the conversion price, multiplied by the number of
shares underlying the CNP.

The CNP to the investors carry a 5% interest rate and the CNP to our former
legal counsel carry a 10% interest rate. These notes and other notes payable of
lesser amount, generated aggregate interest expense of $111,000 for the fiscal
year ended April 30, 2005, compared to $43,000 for the prior year.

Interest income for the fiscal years ended April 30, 2005 and 2004 was minimal.


                                       79
<PAGE>

Penalties on Debt and Equity Issuances

We have issued as penalties, CNP, common stock, and warrants to certain holders
of CNP, common stock and warrants with registration rights, as a result of our
inability to file and maintain an effective registration statement within
certain specified deadlines. The penalties will stop accruing on all of the
instruments once a registration statement covering the instruments is filed and
maintained effective, or when the penalties become impermissible as a matter of
law as prescribed in the instrument or can be sold without registration under
Rule 144.

For the fiscal year ended April 30, 2005, we recorded a $44,000 expense upon
issuance of CNP with a face value of $44,000 as penalties for our delayed
registration statement. Certain holders of previously issued CNP will continue
to receive each month additional CNP equal to 2% of the original face amount of
the notes or principal balance.

For the fiscal year ended April 30, 2005, we recorded $2,024,000 as a penalty
expense upon the issuance or the committed issuance of 1,966,055 shares of
common stock. Certain holders of unregistered common stock received and will
continue to receive each month, as applicable, additional shares calculated as a
percentage of the original number of shares they purchased.

The purchasers of the CNP and shares of common stock discussed above also
received detachable warrants with their purchases. These investors received and
will continue to receive each month, amendments to their warrants to increase
the number of shares underlying each original warrant. For the purchasers of the
CNP, the increase is 2% of the number of shares underlying the original
warrants. For the purchasers of common stock, the increase is a percentage of
the number of shares underlying the original warrants.

For the fiscal year ended April 30, 2005, we recorded a $1,288,000 expense upon
amending purchase warrants to provide for the issuance of up to 2,454,334
additional common shares as penalties to these investors. The fair value of
these warrants was determined using the Black-Scholes model.

LIQUIDITY AND CAPITAL RESOURCES

As of April 30, 2005, we had cash and cash equivalents of $18,000 and $275,000
in grant money receivable for progress completed and collected in the first
quarter of fiscal year 2006.

Other current assets, as of April 30, 2005 increased to $382,000 from $225,000
for the prior year end. Included in other current assets was a deposit of
$208,000 towards the purchase of neutron generators with one vendor, a deposit
of $42,000 towards the lease of neutron generators with a different vendor and
deposits totaling $42,000 for other components. Other deposits consisted
primarily of $10,000 for prepaid insurance, $44,000 for prepaid legal services
and $36,000 of miscellaneous.

During the fiscal year ended April 30, 2005, our sources of cash were as
follows:

<TABLE>
<CAPTION>
                                                                                      Amount
                                                                                    ----------
<S>                                                                                 <C>
      Sales or commitments of common stock                                          $2,671,000
      Sales of common stock deemed subject to rescission rights                        880,000
      Sales of convertible notes payable                                               100,000
      Sales of convertible notes payable deemed subject to rescission rights           300,000
      Proceeds from notes payable                                                       50,000
      Proceeds from notes payable- related parties                                     215,000
      Collection of CNP subscriptions receivable                                       425,000
                                                                                    ----------
                                                                                    $4,641,000
                                                                                    ----------
</TABLE>


                                       80
<PAGE>

As of April 30, 2005, accounts payable increased to $1,288,000, an increase of
$709,000 over the prior year end amount. A great part of this increase was due
to our receipt of inventory components which are pursuant to a payment plan. We
have continued to operate under a tightened cash position, requiring us to delay
payments to some service providers and vendors. We foresee continued need for
cash conservation measures as we strive to introduce our technology into the
marketplace. Included in the total balance of accounts payable are significantly
aged amounts that are being evaluated for legitimacy. Accrued expenses of
$74,000 as of April 30, 2005 consisted primarily of a fee payable to an
investment bank.

For the fiscal year ended April 30, 2005, we have accrued $32,000 of interest on
an estimated payroll tax liability for stock compensation (in the form of
Microdevices shares) given for services rendered by officers, employees,
directors, legal advisors and consultants during the period from June 1997
through February 2002. Accrued interest on the estimated balance of $393,000
through the previous year end brings the total estimated liability to $425,000.
See Note 8 to our Consolidated Financial Statements. As of April 30, 2005 we
have accrued a payroll and payroll tax liability for the most recent period of
$12,000.

As of April 30, 2005, we were delinquent on a note payable totaling $40,000 with
a shareholder and related party. The note payable has been due on demand since
November 1997, however, no demand has been received.

As of April 30, 2005, we have outstanding unsecured convertible promissory notes
totaling $673,000 to our former legal counsel. The legal fees were expensed as a
general and administration expense in the periods incurred. The notes bear 10%
interest. $635,000 of the note became due on demand in April 2005, and the
remaining $38,000 became due on demand in May 2005.

In June 2004, we sold $300,000 of CNP to Richard Melnick and Sherbrooke Partners
LLC in connection with the exercise of an option to a second closing obtained in
January 2004. We agreed to issue additional warrants and to reduce the exercise
prices of some of the warrants previously issued in exchange for the investors
exercising their option to purchase an additional $300,000 of CNP. The CNP have
a two year term and bear interest at 5%, and when coupled with the proceeds
allocated to the detachable warrants have an estimated effective annual interest
rate of 49%. They are convertible into common stock at $0.45 per share. The
additional CNP also contain warrants to purchase common stock with a three and
one-half year term as follows: 1,333,332 at $0.45 per share; 400,000 at $0.75
per share; and 240,000 at $1.25 per share. A summary of the amended warrants and
exercise prices follows:

          Original Agreement                 Amended Agreement
     ----------------------------     ----------------------------
        Exercise       No. of            Exercise         No. of
         Price        Warrants             Price         Warrants
     ----------------------------     ----------------------------
          $  0.75         66,667          $  0.45         111,111
          $  1.25         40,000          $  0.75          66,666
          $  1.50         33,333          $  1.25          40,000
          $  0.45        222,222          $  0.45         222,222
                     ------------                    -------------
                         362,222                          439,000
                     ============                    =============

Both investors also have registration rights on the underlying shares and since
the securities were not registered by us before October 30, 2004, the investors
received as penalties, additional detachable warrants to purchase 2% of the
amount of shares exercisable under the original warrants and CNP equal to 2% of
the principal balance of the original CNP, for each subsequent month until the
securities could be sold pursuant to Rule 144, or the registration statement is
filed and maintained effective by us, or the penalties become impermissible as a


                                       81
<PAGE>

matter of law as prescribed in the instrument. Additionally, the CNP and
warrants provide the investor with ratchet rights, whereby the conversion price
of the CNP and the exercise price of the warrants will be reduced to equal the
price of any new shares sold below $0.45 in unrelated transactions at a price
per share below $0.45. If CNP are offered for sale at a price per share under
$0.45, the investor also has a first right of refusal to purchase the CNP
offered as well. See "Note 12 - Convertible Notes Payable Deemed subject to
rescission Rights."

In January 2005, Richard Melnick elected to convert $40,000 of CNP originally
purchased in January 2004 and $7,200 of CNP accrued as penalties for our failure
to timely file a registration statement, plus $2,360 of accrued interest, into
100,133 shares of our common stock. In June 2005, Sherbrooke Partners elected to
convert $70,000 of CNP originally acquired in January 2004 and June 2004, and
$11,400 worth of CNP accrued as penalties for our failure to timely file a
registration statement, plus accrued interest of $4,063, into 189,917 shares of
our common stock. In January 2005, the 100,133 shares issued to Richard Melnick
upon conversion were classified as shares deemed subject to rescission rights
from the note transferred to the conversion shares.

In January 2005, Bullbear Capital Partners, LLC exercised its option to purchase
an additional 1,955,555 shares of common stock for $880,000 in cash at $0.45 per
share. The additional purchase also provided for the issuance of warrants to
purchase up to 5,788,442 additional shares at varying terms. The exercise prices
of these warrants range between $0.45 and $1.25, and the warrants expire three
and one-half years after issuance. In addition, warrants previously held by the
investor were amended to purchase up to 300,216 additional shares at reduced
prices. The original exercise prices of the warrants ranging between $0.49 and
$1.65 were reduced to prices ranging between $0.45 and $1.25. The
above-mentioned 1,955,555 shares were also deemed to be deemed subject to
rescission rights, bringing the total number of shares deemed subject to
rescission rights to 4,021,875.

Pursuant to the terms of a note purchase agreement as described in Note 12 to
our Consolidated Financial Statement, Nicholas J. Yocca has the option to
purchase an additional $400,000 worth of CNP, which have detachable warrants to
purchase a number of shares of common stock as follows: (i) a warrant to
purchase common stock at $0.45 per share, for the number of shares of common
stock that could be purchased at that price with an amount in cash equal to the
face amount or principal balance of the CNP; (ii) a warrant to purchase common
stock at $0.75 per share, for the number of shares of common stock that could be
purchased at that price with an amount in cash equal to the face amount or
principal balance of the CNP; (iii) a warrant to purchase common stock at $1.25
per share, for the number of shares of common stock that could be purchased at
that price with an amount in cash equal to the face amount or principal balance
of the CNP; and (iv) a warrant to purchase common stock at $1.50 per share, for
the number of shares of common stock that could be purchased at that price with
an amount in cash equal to the face amount or principal balance of the CNP. The
warrants expire between 120 days and three and one-half years after issuance.
The holder also has registration rights on the underlying shares but receives no
penalties for delays or failure to register underlying shares. In order to
preserve said registration rights, the additional purchases must be made before
the filing of the registration statement incorporating the underlying shares. In
June 2005, Mr. Yocca elected to convert $185,000 of CNP originally purchased in
January 2004, plus $11,932 of accrued interest, into 437,627 shares of our
common stock. As of April 30, 2005, the detachable warrants issued in the first
closing to Mr. Yocca have expired but he still maintains rights to a second
closing.

In April 2004, Platinum Partners Arbitrage Value Fund LP exercised its option
for a second closing, obtained in January 2004, and purchased an additional
$425,000 of CNP with warrants to purchase 3,891,110 shares at exercise prices
between $0.45 and $1.25. They immediately converted the note along with the note
purchased in January which included accrued interest, into 1,295,896 shares of
common stock.

During the fiscal year ended April 30, 2005, we issued to investors $44,000 of
CNP as a penalty for the delay of an effective registration statement for their
underlying stock. The CNP have a two-year term, bear interest at 5% per annum
and convert into stock at $0.45 per share. See "Note 12 -Convertible Notes
Payable Deemed subject to rescission Rights". The above-mentioned sale to
Richard Melnick and Sherbrooke Partners of $300,000 CNP and the issuance of
$44,000 CNP as a penalty brings the total balance of our CNP deemed subject to


                                       82
<PAGE>

rescission rights to $533,000 as of April 30, 2005. Without giving effect to
accrued interest, the notes would be convertible into approximately 1,184,444
shares of our common stock. We have completed an independent investigation as to
whether or not the rescission rights continue to exist and, based upon legal
advice we have received as to the appropriate state and federal limitations
periods pertaining to the rescission obligations assumed, we subsequently
reclassified all convertible notes payable deemed subject to rescission rights
to convertible notes payable as of July 31, 2005.

During the period from April 2003 through June 2003, we sold common stock at
prices between $0.33 and $0.35 per share, which were deemed subject to buy-back.
In April 2005, the 2,000,000 shares issued for $694,000 were reclassified from a
current liability to common stock and additional paid in capital, as the
buy-back right was determined to no longer exist. See "Note 13 - Sales of Common
Stock Deemed subject to buy-back by the Company". We have completed an
independent investigation as to whether or not the deemed buy-back rights
continue to exist and, based upon legal advice we have received as to the
appropriate state and federal limitations periods pertaining to the buy-back
obligations assumed, we reclassified 2,000,000 shares of common stock deemed
subject to buy-back to common stock and additional paid in capital for the
fiscal year ended April 30, 2005, and eliminated the related current liability.

As of April 30, 2004, we had recorded 2,066,320 shares of common stock that was
deemed to be subject to rescission rights. The above-mentioned sales to Bullbear
Capital Partners of 1,955,555 shares for $880,000 in January, 2005 was also
deemed to be subject to rescission rights, bringing the total number of shares
classified as deemed subject to rescission rights to 4,021,875. The Company has
completed an independent investigation as to whether or not the rescission
rights continue to exist and, based upon legal advice we have received as to the
appropriate state and federal limitations periods pertaining to the rescission
obligations assumed, we have, as of April 30, 2005, reclassified 3,819,996 of
4,132,008 shares of common stock deemed subject to rescission rights to common
stock and additional paid in capital, and eliminated the related current
liability. As of April 30, 2005, the current liability for shares deemed subject
to rescission was reduced from $1,938,153 to $199,560, and a total of 312,012
shares remained deemed subject to rescission rights, representing 201,879 shares
sold deemed subject to rescission rights and 110,133 shares issued upon
conversion of convertible notes payable deemed subject to rescission rights in
January 2005. As of July 31, 2005, we have reclassified 243,466 of the remaining
312,012 shares deemed subject to rescission rights to common stock and
additional paid in capital, further reducing the recorded current liability for
shares deemed subject to rescission rights from $199,560 to $50,000. Based upon
legal advice received, we anticipate reclassifying the remaining 68,546 shares
deemed subject to rescission rights and eliminating the remaining current
liability of $50,000 in the current fiscal year.

As of April 30, 2005, we had total current liabilities of approximately $3.7
million. Although this includes current liabilities of $266,400 of CNP since
converted to common shares and $199,560 for shares deemed subject to rescission
rights from since reduced to $50,000, as of the date of this Report, the amount
of our liabilities continues to significantly exceed our cash on hand. While we
anticipate cash inflows from purchases from SEPTA, ICRC and Spain, we currently
do not have any significant revenue. Unless and until revenues reach a
sufficient level to cover operating expenses and our liabilities, we are
required to continue to sell equity or debt instruments in order to pay present
liabilities and fund on-going operations. If we cannot attract investment or
generate revenues, our ability to grow may be severely hindered and we may not
be able to continue as a going concern.

In April and May 2004, we issued purchase orders for $2.4 million to two vendors
for the purchase of components for our bomb detection units. In April 2004, we
ordered neutron generators at a cost of approximately $1,033,000 through vendor
financing. We received our first unit from this order in October 2004. We may
lease these units from the vendor for up to 12 months, with a buy-out option at
the termination of the lease, for estimated monthly payments of $5,800, and with
80% of the lease payments allocated toward the purchase price. In May 2004, we
ordered gamma ray detectors for $1,368,000. We have received 27 of the 60 gamma
radiation directors and included these as inventory to be assembled for sale as
of April 30, 2005. Payment terms for these detectors require 50% down payment
upon order with the balance due following our receipt and acceptance of the
goods.


                                       83
<PAGE>

In February 2005 and in March 2005, we issued purchase orders in the amount of
$304,000 and $611,000, respectively, for the purchase of remotely controlled
robotic vehicles to be used to facilitate the transportation of our explosive
detecting technology to suspicious targets. The orders were issued based on
indications from potential buyers in the U.S. Military and Middle East that they
would require a remote robotic deployment capability if they were to purchase
our devices. Under the terms of the purchase orders, we are to be notified 30
days prior to shipping with payment due 30 days following receipt. As of July
31, 2005, we have received all of the robotic vehicles ordered and in order to
carry the cost of these items, we are arranging for refinancing, including a
sales lease back of these and other inventory components. In order to meet our
payment requirements under these purchase orders, we have been, and must
continue, raising capital through the sale of securities. Our reliance on new
equity capital for the financing of these component purchases, as with the
funding of our operating deficit, will continue until we successfully
commercialize a product, generate sales revenues, and achieve a sufficient level
of positive operating cash flow or qualify to borrow funds against purchase
orders to acquire components for fulfillment.

In April 2005, we revised our financial requirements for calendar 2005 from a
range of $5 to $10 million to a range of $8 to $10 million. The need to revise
our estimates was prompted by delays in our product launch of the CarBomb
Finder(TM) system, a shift in our priorities and resources toward accelerating
the commercialization of the SIEGMA(TM) 3E3, and the inability to eliminate the
high costs associated with regulatory and legal issues facing us. Aside from
diverting a tremendous amount of resources that otherwise would have gone toward
product development and other working capital purposes, the regulatory and legal
issues disclosed in our filings have been a major barrier to our raising more
substantial cost-effective capital. Until such time as we can (i) generate
sufficient sales revenues to fund operations and research and development costs;
and/or (ii) leverage our financial and developmental capabilities through
strategic partnerships which provide financial support; and/or (iii) receive
significant governmental grants, cooperative funding or purchase contracts, we
will be required to raise an additional $2 million to $4 million through the
sale of securities to cover estimated expenditures for the remainder of calendar
2005.

As to the status of efforts to raise $8 to $10 million, representing our revised
financial requirements, we have raised through private placements to accredited
investors and institutional investors a total of $6 million in net proceeds from
financing activities from May 2004 to present. Additionally, we have earned
$610,000 from grants and other governmental funding for the fiscal year ended
April 2005, with additional grant proceeds in the amount of $334,000 anticipated
from August 2005 to the expected delivery date of one CarBomb Finder system in
connection with the U.S. Army SmarTruck program with ICRC. Further, we
anticipate generating revenues of $603,000 upon delivery of two SIEGMA(TM) 3E3
systems ordered by Southeastern Pennsylvania Transportation Authority (SEPTA)
and collect $227,000 representing the balance due upon delivery of one
SIEGMA(TM) 3E3 ordered by Compania de Aprovisionamiento Especifico S.L. of
Tenerife, Spain. Although we have been able to raise capital through
self-managed private placements of our equity, we currently do not have an
institutional commitment for the additional capital necessary as of the date of
this Report.

As to strategic partnerships, we entered into a non-binding Memorandum of
Understanding on January 28, 2005 to form a joint venture company to be located
in Tenerife, Spain, which is intended to serve as a complementary platform for
sales and distribution into the European and other markets. We expect to
finalize the negotiation and execution of the joint venture agreement before
September 2005, which provides up to $3 million in paid-in capital to the joint
venture by the investors. Although the transaction described in the press
release dated December 9, 2003 did not transpire as contemplated at that time,
our efforts and relationships made in Spain are expected beneficially to serve
the development, funding and growth of the joint venture. We intend to explore
and pursue other joint ventures such as the one in Spain, which provide for the
contribution of capital and resources from a strategic partner to develop an
assigned territory and accomplish the certification, importing, licensing,
permitting, maintenance and service of our products overseas, in exchange for a
regional license from us for the assembly, sale, and marketing of our products
in certain markets. Such arrangements can also reduce the capital requirements
necessary for us to build and maintain the infrastructure necessary to
manufacture and support our products outside North America.


                                       84
<PAGE>

PLAN OF OPERATION

Our continuing corporate objective for the first half of fiscal year 2006 is to
commercialize and bring to market the CarBomb Finder(TM) 3C4 and SIEGMA(TM)
system, as well as new prototypes incorporating our proprietary "stoichiometric"
technologies, including our in-ground explosives detection and identification
device, CarBomb Finder(TM) 3C5. Additionally, we expect to continue with
research and development activities focused on the design, testing and
development of sensor systems incorporating our core technologies for other
governmental and commercial applications and markets.

During fiscal year 2005, we have seen an increase in significant positive
feedback as to the potential demand for our explosives identification and
detection products and have correspondingly increased, and directed greater
resources toward, the direct and indirect sales and marketing of our products
both domestically and overseas. As of the date of this Report, we have developed
a strategic sales and marketing plan and have expanded our relationship with
distributors and resellers specializing in the security and anti-terrorism
industry, defense industry consultants, as well as potential strategic partners
in developing some key geographic markets and verticals.

We have also entered into a memorandum of understanding to form a joint venture
which is intended to serve as a complementary platform for sales and
distribution into the European and other markets, as well as reduce the capital
requirements necessary for us to build and maintain the infrastructure necessary
to manufacture and support our products outside North America. The joint
venture, as contemplated, provides for the contribution of capital and resources
from a strategic partner to develop an assigned territory and accomplish the
certification, importing, licensing, permitting, maintenance and service of our
products overseas, in exchange for a regional license from HiEnergy for the
assembly, sale, and marketing of our products in certain markets.

For the first half of fiscal year 2006, we intend to accelerate and seek
enhancements to our pre-market and aftermarket efforts, which address the
warranty, service, maintenance, certification, licensing, export policy, product
liability and customer service elements of our commercialization strategy. Most
recently, we have entered into a teaming agreement with a global maintenance
company, submitted our technology for coverage under the Safety Act to address
product liability issues, and have engaged outside specialists involved in
certification, inspection, and risk management. We intend to negotiate and enter
into a number of other outsourcing servicing arrangements treating these
elements.

In order to be able to complete the commercialization cycle, we have determined
it necessary to field test the first class of our products in the second half of
calendar 2005. Accordingly, we have developed a strategic customization and
integration program which will be first implemented with an initial limited
introduction of 5 to 10 units of the SIEGMA(TM) system. The cooperative
initiative is intended to accelerate our in-field assessment of the SIEGMA(TM)
system and software architecture for user operability and stability, as well as
provide us with critical feedback and suggested design improvements based on
each program participant's specific operational needs. The program is expected
also to stimulate sales by allowing us to bring our first commercial product to
market more effectively and efficiently and will provide us with an opportunity
to test our aftermarket service capabilities. During the remainder of the first
half of fiscal year 2006, this program will be offered to early adopters in the
first responder community, including emergency response teams, bomb squads and
explosive ordnance disposal units from a wide array of federal, state, municipal
and local agencies around the United States.


                                       85
<PAGE>

During fiscal year 2006, we will continue to direct a greater portion of our
production budget to our SIEGMA(TM) system, which management has prioritized in
response to the positive reception from the industry, specifically airport and
transit system operators. In January 2005, we received our first order for one
SIEGMA(TM) 3E3, followed by a purchase order for two additional units from a
major U.S. multi-modal transit authority. The system deliverables against these
orders are being assembled in our Irvine, CA facility and is expected to be
delivered during our next fiscal quarter. As for our vehicle-borne CarBomb
Finder(TM) 3C4, we have upgraded the delivery platform design and are making
enhancements to the vehicle assembly with the assistance of integration
partners. Following delays in the release of appropriated funds, our
commercialization activities for CarBomb Finder(TM) 3C4 continue and we expect a
launch of CarBomb Finder(TM) 3C4 by end of fiscal year 2006. On July 15, 2005,
we executed a subcontract with a defense contractor to deliver one CarBomb
Finder(TM) to the U.S. Army.

Initial assembly of any orders will be performed at our research and development
facility located in Irvine, California. Assembly at this facility will be
limited, and we may be required to outsource certain functions and/or hire
additional technicians as needed. Based on preliminary marketing data suggesting
a strong demand for commercial versions of our explosion detection prototypes,
we anticipate the need to scale production to meet that demand. In August 2004,
we contracted an engineering and construction consultant to help facilitate the
location and design of a larger, dedicated manufacturing facility and completed
a detailed manufacturing plan, which we plan to implement, unless we decide to
outsource to a manufacturing partner. During fiscal year 2005, we studied
locations to serve as our principal assembly facility in various states and have
met with both local and state officials as part of this assessment. We have
estimated that the construction and/or build-out costs related to a
manufacturing facility fall between $1 million and $2.5 million, which costs are
expected to be supplemented by local municipalities and state agencies in the
form of monetary incentives offered to locate a facility to their respective
areas. As of the date of this report, we have not selected a site to locate a
facility and are unsure whether or not we will be able to meet the criteria
necessary to attract local municipalities and state suitors.

In March 2005, we formed a wholly-owned subsidiary, HiEnergy Mfg Company, in
order to create a semi-autonomous division to develop and manage the
infrastructure, policies and controls for the manufacture and assembly of the
SIEGMA(TM) 3E3 and CarBomb Finder(TM) 3C4. In June 2005, we also hired a
consultant experienced in strategic planning and financial and operational
management to help us establish and refine a production system which includes
supplier relations, material handling, manufacturing processes, labor force
capabilities, and distribution systems. During fiscal year 2006, we aim to
incorporate the business practices, management philosophies and technology tools
necessary to optimize product design and engineering and allow for the easiest
production, fastest assembly, best quality, highest reliability, and the
shortest time to market of our systems.

In line with our commercialization activities, we will continue to increase
inventory during fiscal year 2006 of those core components and parts that have
greater delivery lead-times from vendors to prevent potentially harmful delays
in our product delivery cycle. Although we remain adverse to building
inventories, in light of the lead-times and the perceived demand for our
products, we have estimated that in order to meet, and properly manage the sales
cycle of, anticipated orders, we will require at any one time sufficient
components to deliver at least 5 to 10 units of our explosive detection systems
to buyers. In order to control inventory risk, we will continue to identify and
seek to engage additional sources of components in order to reduce, limit or
eliminate our exposure to single-source suppliers and protracted delivery
schedules.

In light of an increase in our grant application activity and current and
anticipated cooperative and research development agreements, including a funded
program with the TSA, we plan to continue to focus on the research and
development of additional applications of our technologies and the further
exploitation of our technology assets both internally and through collaboration
with third parties. We also intend to build upon our investments in the base
units and core technologies upon which our explosives identification and
detection prototypes are based, as well as introduce more sophisticated
applications and configurations. We will use the proceeds of existing government
grants, new grants and/or research and development contracts, together with
other available funds, to accomplish these objectives. Further, we intend to
continue to work on expanding the number of explosive substances that can be
detected and identified by our systems, so as to provide the customer with the
most effective, reliable and adaptable tools possible.


                                       86
<PAGE>

We believe that general and administrative costs will show improvement in fiscal
year 2006, as we reduce legal and accounting expenses associated with the
restatement of our financial statements, certain pending litigation, and certain
regulatory matters related to the SEC investigation. While there can be no
assurance, we are hopeful that many of the open legal and regulatory matters
will be resolved during this period. Materials and production costs for our
explosive identification units will be significant in fiscal year 2006. Working
capital requirements and inventories are also expected to grow for fiscal year
2006, as necessary components are purchased. Initial sales are projected to be
at or near cost with margins expected to improve significantly with the
elimination of non-recurring engineering costs, the realization of economies of
scale attendant to the opening of our production facility or the outlay of the
assembly function to a manufacturing partner, and the increased demand
anticipated with the introduction of our products into the marketplace.

We anticipate significant increases in personnel requirements throughout our
organization. An off-site production facility, when operational, will require
the hiring or contracting of approximately 20 new personnel. As we begin the
commercialization phase of our products and expand our operating structures,
significant enhancements to corporate management will also be necessary. We
anticipate the need to hire individuals to manage the product engineering,
manufacturing and distribution functions, and to fill and upgrade key executive
positions in fiscal year 2006, including, among others, a Chief Financial
Officer. Other areas that may require additional personnel include sales and
marketing, customer service and human resources. As funds are available, we also
anticipate hiring additional skilled personnel, such as advanced engineering
professionals, as part of a product development team that can operate and manage
projects with minimal supervision, additional scientists, and experienced
technicians. Our current facilities will be adequate to conduct our
administrative, research and development activities as well as initial assembly
and distribution.

Historically, we have financed operations with periodic cash infusions through
various financing vehicles. The uncertainties of securing financing has limited
our capacity to make greater investments in research and development, inventory
and component procurement, and human resources, as well as the commercialization
of our products. The estimated total costs to commercialize our current product
line, excluding contributions received through research and development grants,
is approximately $2 million. This amount includes personnel and consultant
expenses, property and materials, and ancillary costs related to concept
development, market assessment and verification, prototype development and
production of field testing units. We are currently seeking a larger capital
infusion in the range of $2 to $4million, and we estimate that our total
financial requirements for calendar year 2005 will be between $8 and $10
million. The total requirement includes commercialization costs, manufacturing
facility build out, inventory procurement, as well as general administrative and
operational costs. In an attempt to control dilution, we intend to secure
financing on a quarterly or rolling basis to take advantage of any favorable
pricing that our stock may experience as we progress through the implementation
of our business plan. We also seek to limit our dependency on the sale of our
securities in funding working capital through proceeds from other sources, such
as pre-sales, sales, additional development grants, government contracts, as
well as the formation of joint ventures. Although we have been able to raise
capital through self-managed private placements of our equity, we currently do
not have a firm institutional commitment to raise the additional capital
necessary as of the date of this Report.


                                       87
<PAGE>

ITEM 7. FINANCIAL STATEMENTS

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                      Page
                                                                                      ----
<S>                                                                                     <C>
INDEPENDENT AUDITOR'S REPORT                                                            89

CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED APRIL 30, 2005 AND 2004

Consolidated Balance Sheet As of April 30, 2005 and 2004                                90

Consolidated Statements of Operations For the Years Ended April 30, 2005
   and 2004,and the period from August 21, 1995 (inception) to April 30, 2005           91

Consolidated Statements of Stockholders' Equity (Deficit)for the period from
   August 21, 1995 (inception) to April 30, 2005                                        92

Consolidated Statements of Cash Flows For the Years Ended April 30, 2005 and
   2004, and the period from August 21, 1995 (inception) to April 30, 2005              95

Notes to Consolidated Financial Statements                                              98
</TABLE>


                                       88
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
HiEnergy Technologies, Inc.
Irvine, California

We have audited the accompanying consolidated balance sheet of HiEnergy
Technologies, Inc. and subsidiaries (collectively, the "Company") as of April
30, 2005, and the related consolidated statements of operations, shareholders'
deficit and cash flows for the two years then ended and the period from August
21, 1995 (inception) to April 30, 2005. 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the 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, 2005 and the results of its
operations and its cash flows for the two years then ended, and the period from
August 21, 1995 (inception) to April 30, 2005, in conformity with accounting
principles generally accepted in the United States of America.

As described in Note 2 to the financial statements, the April 30, 2003 and 2002,
financial statements have been restated.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has suffered recurring losses from operations
and its total liabilities exceed its total assets. In addition, the Company has
an accumulated deficit of $31,800,161 and a shareholders' deficit of $1,685,399.
This raises 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 3. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

As discussed in Note 16 to the financial statements, the Company is involved in
various litigation matters. The effect of such litigation on the Company's
financial statements is indeterminable at this time.


/s/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP

Los Angeles, California
July 13, 2005


                                       89
<PAGE>

<TABLE>
<CAPTION>
                                                                             HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                                                            (DEVELOPMENT STAGE COMPANIES)
                                                                                               CONSOLIDATED BALANCE SHEET
                                                                    FOR THE YEARS ENDED APRIL 30, 2005 AND APRIL 30, 2004
-------------------------------------------------------------------------------------------------------------------------

                                                                                             April 30,        April 30,
                                                                                                2005            2004
                                                                                           ------------      ------------
<S>                                                                                        <C>               <C>
CURRENT ASSETS
      Cash and cash equivalents                                                            $     18,452      $     42,857
      Accounts receivable                                                                       275,957            30,412
      Inventory                                                                                 808,650                --
      Other current assets                                                                      381,829           224,817
                                                                                           ------------      ------------

           Total current assets                                                               1,484,888           298,086
                                                                                           ------------      ------------

PROPERTY AND EQUIPMENT, net                                                                     542,080           610,468
                                                                                           ------------      ------------

TOTAL ASSETS                                                                               $  2,026,968      $    908,554
                                                                                           ============      ============

CURRENT LIABILITIES
      Accounts payable                                                                     $  1,287,543      $    578,283
      Accrued expenses                                                                           74,205            88,291
      Accrued payroll and payroll taxes                                                         436,865           458,204
      Accrued interest                                                                          166,591            74,173
      Notes payable                                                                              39,164            12,368
      Notes payable - related parties                                                            99,000           348,934
      Convertible notes payable - related parties                                               673,083           609,374
      Convertible notes payable subject to rescission rights                                    532,800           236,000
      Common stock subject to buy-back,  0 shares and 2,000,000 shares                               --           694,000
      Common stock subject to rescission rights,  312,012 shares and (2,066,320 shares
       less 1,295,896 shares committed for $425,000 subscription receivable)                    199,560           633,153
      Other current liabilities                                                                 200,000                --
                                                                                           ------------      ------------

           Total current liabilities                                                          3,708,811         3,732,780

LONG-TERM LIABILITIES
      Notes payable                                                                               3,556             1,942
      Convertible note payable - related party                                                       --            38,061
                                                                                           ------------      ------------

           Total liabilities                                                                  3,712,367         3,772,783
                                                                                           ------------      ------------

MINORITY INTEREST IN SUBSIDIARY,  AS OF APRIL 30, 2004; 20,540 MICRODEVICES
  SHARES ISSUED AND OUTSTANDING                                                                      --            18,923
                                                                                           ------------      ------------

COMMI(TM)ENTS AND CONTINGENCIES

SHAREHOLDERS' DEFICIT
      Preferred stock,  $0.001 par value  20,000,000 shares
       authorized no shares outstanding                                                    $         --      $         --
      Common stock.  $0.001 par value  100,000,000 shares
        authorized 45,817,315 and 30,652,482 shares issued and outstanding                       45,817            30,652
      Additional paid-in capital                                                             29,521,570        19,181,421
      Deferred compensation                                                                          --          (459,308)
      Committed common stock,  1,378,604 and 101,986 shares, respectively                       547,375           179,679
      Deficit accumulated during the development stage                                      (31,800,161)      (21,815,596)
                                                                                           ------------      ------------

           Total shareholders' deficit                                                       (1,685,399)       (2,883,152)
                                                                                           ------------      ------------

TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT                                                $  2,026,968      $    908,554
                                                                                           ============      ============
</TABLE>

   The accompanying notes are an integral part of these financial statements


                                       90
<PAGE>

<TABLE>
<CAPTION>
                                                  HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                                 (DEVELOPMENT STAGE COMPANIES)
                                                         CONSOLIDATED STATEMENTS OF OPERATIONS
                                               FOR THE YEARS ENDED APRIL 30, 2005 AND 2004 AND
                             FOR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO APRIL 30, 2005
----------------------------------------------------------------------------------------------

                                                                                    For the
                                                                                  Period from
                                                                                  August 21,
                                                    For the Years Ended              1995
                                              ------------------------------     (Inception) to
                                                 April 30,        April 30,        April 30,
                                                   2005             2004             2005
                                              ------------      ------------      ------------
<S>                                           <C>               <C>               <C>
 OPERATING EXPENSES
      General and administrative              $  4,947,315      $  4,795,541      $ 20,594,890
      Research and development                     785,260           804,431         3,197,369
                                              ------------      ------------      ------------

TOTAL OPERATING EXPENSES                         5,732,575         5,599,972        23,792,259

LOSS FROM OPERATIONS                            (5,732,575)       (5,599,972)      (23,792,259)
                                              ------------      ------------      ------------

OTHER INCOME (EXPENSE)
      Interest income                                  666             1,011             9,563
      Other income                                     720             1,192             2,143
      Interest expense                            (896,706)         (538,063)       (1,475,679)
      Financing expense                                 --                --          (223,710)
      Penalty expense on issuance of
       convertible promissory notes
       as a penalty for late registration          (44,000)          (47,748)          (91,748)
      Penalty expense on issuance of
       common stock and warrants
       as a penalty for late registration       (3,311,870)       (1,415,723)       (4,785,254)
                                              ------------      ------------      ------------

Total other expense, net                        (4,251,190)       (1,999,331)       (6,564,685)
                                              ------------      ------------      ------------

LOSS BEFORE PROVISION FOR INCOME TAXES          (9,983,765)       (7,599,303)      (30,356,944)

PROVISION FOR INCOME TAXES                             800               800            14,183
                                              ------------      ------------      ------------

NET LOSS                                      $ (9,984,565)     $ (7,600,103)     $(30,371,127)

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

PREFERRED STOCK DIVIDEND                                --          (583,243)         (661,603)
                                              ------------      ------------      ------------

NET LOSS AVAILABLE TO COMMON SHAREHOLDERS     $ (9,984,565)     $ (8,183,346)     $(31,800,161)
                                              ============      ============      ============

Net loss per share                            $      (0.28)     $      (0.27)
                                              ============      ============

PREFERRED STOCK DIVIDENDS PER SHARE           $         --      $      (0.02)
                                              ============      ============

BASIC AND DILUTED LOSS AVAILABLE TO
      COMMON SHAREHOLDERS PER SHARE           $      (0.28)     $      (0.29)
                                              ============      ============

BASIC AND DILUTED WEIGHTED AVERAGE
      COMMON SHARES OUTSTANDING                 36,101,484        28,294,578
                                              ============      ============
</TABLE>

   The accompanying notes are an integral part of these financial statements


                                       91
<PAGE>

<TABLE>
<CAPTION>

                                                                               HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                                                              (DEVELOPMENT STAGE COMPANIES)
                                                                  CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
                                                          FOR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO APRIL 30, 2005
---------------------------------------------------------------------------------------------------------------------------

                                                                                 Price per           Series A Convertible,
                                                                                  Equity                Preferred Stock
                                                               Date                Unit              Shares        Amount
                                                          -------------        -------------       ---------   ------------
<S>                                                            <C>             <C>                    <C>          <C>
Balance, August 21, 1995 (inception)                                                                      --   $         --
Recapitalization upon reverse merger
Issuance of common stock for services rendered                 08/31/95        $        0.01              --             --
Issuance of common stock for services rendered                 09/05/95        $        0.01              --             --
Issuance of common stock for services rendered                 02/13/96        $        0.01              --             --
Net loss
                                                                               -------------       ---------   ------------
Balance, April 30, 1996  (Restated)                                                                       --             --

Issuance of common stock for services rendered                 12/02/96        $        0.01              --             --
Issuance of common stock for services rendered                 12/16/96        $        0.01              --             --
Issuance of common stock for services rendered                 12/20/96        $        0.01              --             --
Net Loss
                                                                               -------------       ---------   ------------

Balance, April 30, 1997 (Restated)                                                                        --             --

Issuance of common stock for services rendered                 05/20/97        $        0.28              --             --
Issuance of common stock for services rendered                 06/02/97        $        0.28              --             --
Issuance of common stock for services rendered                 06/03/97        $        0.28              --             --
Issuance of common stock for services rendered                 06/08/97        $        0.28              --             --
Issuance of common stock for cash                              06/14/97        $        0.28              --             --
Issuance of common stock for services rendered                 06/16/97        $        0.28              --             --
Issuance of common stock for services rendered                 06/18/97        $        0.28              --             --
Issuance of common stock for services rendered                 06/23/97        $        0.28              --             --
Issuance of common stock for services rendered                 07/28/97        $        0.28              --             --
Issuance of common stock for cash                              08/11/97        $        0.14              --             --
Issuance of common stock for cash                              08/19/97        $        0.14              --             --
Issuance of common stock for cash                              09/04/97        $        0.28              --             --
Issuance of common stock for cash                              09/04/97        $        0.35              --             --
Issuance of common stock for cash                              09/12/97        $        0.28              --             --
Issuance of common stock for cash                              10/14/97        $        0.22              --             --
Issuance of common stock for cash                              12/17/97        $        0.14              --             --
Issuance of common stock for cash                              12/17/97        $        0.28              --             --
Issuance of common stock for cash                              12/17/97        $        0.49              --             --
Issuance of common stock for services rendered                 12/31/97        $        0.29              --             --
Issuance of common stock for services rendered                 01/29/98        $        0.28              --             --
Issuance of common stock for cash                              01/30/98        $        0.28              --             --
Issuance of common stock for cash                              03/23/98        $        0.05              --             --
Issuance of common stock for cash                              03/23/98        $        0.28              --             --
Issuance of common stock for cash                              03/25/98        $        0.11              --             --
Issuance of common stock for services rendered                 03/25/98        $        0.22              --             --
Issuance of common stock for cash                              03/25/98        $        0.28              --             --
Issuance of common stock for services rendered                 04/04/98        $        0.22              --             --
Issuance of common stock for services rendered                 04/14/98        $        0.22              --             --
Issuance of common stock for services rendered                 04/28/98        $        0.22              --             --
                                                                               -------------       ---------   ------------
Net Loss

Balance, April 30, 1998 (Restated)                                                                        --             --

Issuance of common stock for services rendered                 05/05/98        $        1.64              --             --


Issuance of common stock for cash                              05/05/98        $        1.64              --             --
Issuance of common stock for services rendered                 06/01/98        $        0.28              --             --
Issuance of common stock for cash                              06/01/98        $        0.28              --             --
Issuance of common stock for cash                              08/03/98        $        0.28              --             --
Issuance of common stock for cash                              08/10/98        $        0.28              --             --
Issuance of common stock for services rendered                 09/16/98        $        0.28              --             --
Issuance of common stock for services rendered                 10/01/98        $        0.46              --             --
Issuance of common stock for cash                              10/01/98        $        0.36              --             --
Issuance of common stock for cash                              10/01/98        $        0.56              --             --
Issuance of common stock for cash                              10/30/98        $        0.56              --             --
Issuance of common stock for services rendered                 11/02/98        $        0.40              --             --
Issuance of common stock for cash                              11/02/98        $        0.28              --             --
Issuance of common stock for services rendered                 11/12/98        $        0.40              --             --
Issuance of common stock for services rendered                 11/14/98        $        0.40              --             --
Issuance of common stock for services rendered                 11/18/98        $        0.40              --             --
Issuance of common stock for services rendered                 11/19/98        $        0.40              --             --
Issuance of common stock for cash                              11/24/98        $        0.89              --             --
Issuance of common stock for services rendered                 11/28/98        $        0.40              --             --
Stock options issued for services rendered                     11/30/98        $        0.27              --             --
Issuance of common stock for services rendered                 12/02/98        $        0.91              --             --
Issuance of common stock for cash                              12/02/98        $        0.75              --             --
Issuance of common stock for cash                              12/02/98        $        0.78              --             --
Issuance of common stock for cash                              12/02/98        $        0.93              --             --
Issuance of common stock for cash                              12/02/98        $        2.80              --             --
Issuance of common stock for services rendered                 12/17/98        $        0.91              --             --
Issuance of common stock for services rendered                 12/31/98        $        0.91              --             --
Issuance of common stock for cash                              01/08/99        $        0.72              --             --
Issuance of common stock for cash                              01/15/99        $        0.38              --             --
Issuance of common stock for cash                              01/15/99        $        1.41              --             --
Issuance of common stock for services rendered                 03/01/99        $        0.57              --             --
Issuance of common stock for services rendered                 03/16/99        $        0.57              --             --
Issuance of common stock for services rendered                 03/17/99        $        0.57              --             --
Issuance of common stock for cash                              03/17/99        $        0.57              --             --
Issuance of common stock for services rendered                 04/28/99        $        0.57              --             --
Issuance of common stock for services rendered                 04/30/99        $        0.57              --             --
Net Loss
                                                                               -------------       ---------   ------------

Balance, April 30, 1999 (Restated)                                                                        --             --

Issuance of common stock for cash                              05/03/99        $        0.10              --             --
Issuance of common stock for services rendered                 05/05/99        $        0.10              --             --
Issuance of common stock for cash                              06/05/99        $        0.56              --             --
Issuance of common stock for services rendered                 06/09/99        $        0.45              --             --
Issuance of common stock for services rendered                 06/28/99        $        0.45              --             --
Issuance of common stock for cash                              06/28/99        $        0.02              --             --
Issuance of common stock for cash                              07/12/99        $        0.52              --             --
Issuance of common stock for cash                              07/14/99        $        0.28              --             --
Issuance of common stock for cash                              07/14/99        $        0.56              --             --
Issuance of common stock for services rendered                 07/22/99        $        0.37              --             --
Issuance of common stock for services rendered                 11/30/99        $        0.42              --             --
Issuance of common stock for cash                              11/30/99        $        0.39              --             --
Issuance of common stock for cash                              11/30/99        $        0.56              --             --
Issuance of common stock for cash                              12/29/99        $        0.56              --             --
Issuance of common stock for services rendered                 03/20/00        $        0.59              --             --
Issuance of common stock for cash                              04/03/00        $        0.56              --             --
Issuance of common stock for services rendered                 04/03/00        $        0.59              --             --
Issuance of common stock for cash                              04/03/00        $        0.72              --             --
Issuance of common stock for cash                              04/03/00        $        0.89              --             --
Issuance of common stock for services rendered                 04/10/00        $        0.59              --             --
Issuance of common stock for services rendered                 04/24/00        $        0.59              --             --
Issuance of common stock for services rendered                 04/26/00        $        0.59              --             --
Net loss
                                                                               -------------       ---------   ------------

Balance, April 30, 2000 (Restated)                                                                        --             --

Issuance of common stock for services rendered                 07/28/00        $        0.59              --             --
Issuance of common stock for services rendered                 08/10/00        $        0.59              --             --
Issuance of common stock for services rendered                 08/22/00        $        0.59              --             --
Issuance of common stock for services rendered                 09/28/00        $        0.24              --             --
Issuance of common stock for cash                              09/28/00        $        0.24              --             --
Issuance of common stock for services rendered                 10/09/00        $        0.24              --             --
Issuance of common stock for services rendered                 11/30/00        $        0.24              --             --
Issuance of common stock for services rendered                 12/31/00        $        0.24              --             --
Net loss
                                                                               -------------       ---------   ------------

Balance, April 30, 2001 (Restated)                                                                        --             --

Issuance of common stock for services rendered                 05/10/01        $        0.24              --             --
Issuance of common stock for services rendered                 06/18/01        $        0.45              --             --
Issuance of common stock for cash                              06/18/01        $        0.45              --             --
Issuance of common stock for cash                              07/31/01        $        0.45              --             --
Issuance of common stock for services rendered                 07/31/01        $        0.64              --             --
Issuance of common stock for cash                              07/31/01        $        1.12              --             --
Issuance of common stock for cash                              09/07/01        $        0.22              --             --
Issuance of common stock for services rendered                 09/23/01        $        0.22              --             --
Issuance of common stock for cash                              09/23/01        $        0.22              --             --
Warrants issued for services rendered                          09/23/01        $        0.09              --             --
Issuance of common stock for services rendered                 10/31/01        $        0.22              --             --
Issuance of common stock for services rendered                 11/02/01        $        0.22              --             --
Issuance of common stock for services rendered                 12/07/01        $        0.22              --             --
Issuance of common stock for services rendered                 12/10/01        $        0.22              --             --
Issuance of common stock for services rendered                 12/13/01        $        0.22              --             --
Issuance of common stock for cash                              12/13/01        $        0.22              --             --
Issuance of common stock for cash                              12/20/01        $        0.22              --             --
Issuance of common stock for services rendered                 12/20/01        $        0.22              --             --
Issuance of common stock for services rendered                 12/21/01        $        0.22              --             --
Issuance of common stock for services rendered                 12/30/01        $        0.22              --             --
Stock options issued for services rendered                     01/08/02        $        0.11              --             --
Issuance of common stock for services rendered                 01/14/02        $        0.22              --             --
Stock options issued for services rendered                     01/31/02        $        0.11              --             --
Stock options issued for services rendered                     02/08/02        $        0.09              --             --
Issuance of common stock for services rendered                 02/14/02        $        0.22              --             --
Issuance of common stock for cash                              03/13/02        $        0.24              --             --
Issuance of common stock in private
 placement for cash                                            04/30/02        $        1.00              --             --
Net loss
                                                                               -------------       ---------   ------------

Balance, April 30, 2002 (Restated)                                                                        --             --

Common stock committed on exercise of stock
options in subsidiary                                          05/23/02        $        0.16              --             --
Issuance of common stock for services rendered                 05/24/02        $        2.15              --             --
Financing expense in connection with
issuance of warrants                                           05/31/02        $        1.49              --             --
Conversion of convertible notes payable - related
parties and accrued interest into common stock                 06/04/02        $        1.00              --             --
Conversion of convertible notes payable - related
 parties and accrued interest into common stock                06/20/02        $        1.00              --             --
Issuance of common stock in private placement for
 'cash                                                         06/25/02        $        1.00              --             --
Stock options issued for services rendered                     07/12/02        $        1.52              --             --
Conversion of notes payable - related
 parties into common stock                                     07/16/02        $        1.00              --             --
Conversion of convertible notes payable - related
 parties and accrued interest into common stock                07/22/02        $        1.00              --             --
Stock options issued for services rendered                     08/01/02        $        0.47              --             --
Issuance of common stock for services rendered                 08/24/02        $        1.67              --             --
Stock options issued for services rendered                     09/25/02        $        1.10              --             --
Stock options issued in exchange for settlement
 of accounts payable                                           09/25/02        $        1.10              --             --
Issuance of Series A convertible preferred stock
 in private placement for cash                                 10/07/02        $   10,000.00           97.93              1
Offering costs on issuance of Series A convertible
 preferred stock in private placement for cash                 10/07/02                                   --             --
Dividends on Series A preferred stock                          10/07/02                                   --             --
Beneficial conversion feature on issuance of
Series A preferred stock                                       10/07/02                                   --             --
Issuance of common stock in private placement for
 cash                                                          10/29/02        $        1.35              --             --
Offering costs on issuance of common stock in
 private placement for cash                                    10/29/02                                   --             --
Common stock committed for services rendered                   11/24/02        $        2.35                             --
Warrants issued for services rendered                          12/09/02        $        2.60              --             --
Warrants issued for services rendered                          12/09/02        $        0.65              --             --
Stock options issued in exchange for settlement
 of accounts payable                                           12/19/02        $        0.55              --             --
Stock options issued for services rendered                     12/31/02        $        0.13              --             --
Issuance of common stock on cashless exercise of
 warrants                                                      01/02/03                                   --             --
Issuance of common stock on cashless conversion
 of the Series A convertible preferred stock                   01/24/03                                (1.05)
Issuance of common stock on cashless conversion
 of the Series A convertible preferred stock                   01/27/03                                (1.06)
Amortization of deferred compensation                          01/31/03
Warrants issued for services rendered                          02/17/03        $        1.63              --             --
Common stock committed for services rendered                   02/24/03        $        0.79                             --
Reversal of deferred compensation                              02/25/03
Issuance of common stock for services rendered                 04/21/03        $        0.48              --             --
Common stock committed for services rendered                   04/21/03        $        0.48                             --
Warrants issued for services rendered                          04/28/03        $        0.37              --             --
Offering costs on issuance of common stock subject
  to buyback for cash                                          04/23/03                                   --             --
Offering costs on issuance of common stock subject
 to buyback for cash                                           04/28/03                                   --             --
Issuance of common stock for subscription receivable           04/30/03        $        0.40              --             --
Common stock committed to investors as a penalty
 for delayed registration of common stock                      04/30/03        $        0.45              --             --
Net loss
                                                                               -------------       ---------   ------------

Balance, April 30, 2003 (Restated)                                                                     95.82   $          1

Warrants issued for services rendered                          05/01/03        $        0.16              --             --
Issuance of common stock for services rendered                 05/13/03        $        0.48              --             --
Warrants issued for services rendered                          05/16/03        $        0.24              --             --
Stock options issued for services rendered                     05/16/03        $        0.18              --             --
Issuance of common stock on cashless conversion
 of Series A preferred stock                                   05/16/03                               (95.82)            (1)
Dividend on induced conversion of Series A
 preferred stock                                               05/16/03                                   --             --
Issuance of committed common stock                             05/16/03                                   --             --
Issuance of common stock to investors as a
 penalty for delayed registration of common stock              05/16/03        $        0.45              --             --
Issuance of committed common stock                             05/21/03                                                  --
Issuance of common stock on exercise of
 warrants                                                      05/27/03        $        0.01              --             --
Issuance of committed common stock                             06/19/03
Issuance of common stock on conversion of
 convertible notes payable - related parties                   06/24/03        $        0.33              --             --
Stock options issued for services rendered                     07/16/03        $        0.26              --             --
Issuance of common stock for services rendered                 07/16/03        $        0.50              --             --
Issuance of committed common stock                             08/14/03
Issuance of common stock for cash                              08/15/03        $        0.45              --             --
Issuance of common stock for cash                              08/20/03        $        0.52              --             --
Issuance of common stock for cash                              08/25/03        $        0.69              --             --
Issuance of common stock for services rendered                 08/27/03        $        1.06              --             --
Stock options issued for services rendered                     08/27/03        $        0.79              --             --
Beneficial conversion feature on convertible
 notes payable - related parties                               08/28/03
Issuance of common stock for cash                              08/28/03        $        0.69              --             --
Issuance of common stock for cash                              08/29/03        $        0.69              --             --
Issuance of common stock for cash                              08/29/03        $        0.75              --             --
Offering costs on issuance of common stock
 for cash                                                      08/29/03                                   --             --
Issuance of common stock to investors as a
penalty for delayed registration of common stock               10/15/03        $        1.29              --             --
Issuance of warrants to investors as a
 penalty for delayed registration of the underlying
 common stock                                                  10/15/03        $        0.73              --             --
Issuance of common stock for cash                              10/27/03        $        0.95              --             --
Stock options issued for services rendered                     11/07/03        $        0.90              --             --
Issuance of common stock for services rendered                 11/07/03        $        1.25              --             --
Issuance of common stock to investors as a
 penalty for delayed registration of common stock              11/15/03        $        1.04              --             --
Issuance of warrants to investors as a
 penalty for delayed registration of the underlying
 common stock                                                  11/15/03        $        0.52              --             --
Offering costs on issuance of common stock subject
 to rescission rights for cash                                 11/21/03                                   --             --
Issuance of common stock for services rendered                 11/21/03        $        0.75              --             --
Stock options issued for services rendered                     12/05/03        $        0.60              --             --
Issuance of common stock to investors as a
 penalty for delayed registration of common stock              12/15/03        $        0.90              --             --
Issuance of warrants to investors as a
 penalty for delayed registration of the underlying
 common stock                                                  12/15/03        $        0.41
Issuance of common stock for cash                              12/22/03        $        0.71              --             --
Issuance of common stock for services rendered                 01/06/04        $        0.89              --             --
Warrants issued for services rendered                          01/06/04        $        0.59              --             --
Issuance of common stock to investors as a
 penalty for delayed registration of common stock              01/15/04        $        0.88              --             --
Issuance of warrants to investors as a
 penalty for delayed registration of the underlying
 common stock                                                  01/15/04        $        0.39              --             --
Issuance of common stock on cashless
 exercise of warrants                                          01/15/04                                   --             --
Issuance of common stock for services rendered                 01/15/04        $        0.88              --             --
Issuance of common stock to investors as a
 penalty for delayed registration of common stock              01/16/04        $        0.89              --             --
Beneficial conversion feature on convertible
 notes payable - related parties                               01/16/04                                   --             --
Issuance of warrants in conjunction with
 convertible notes payable - related parties                   01/16/04        $        0.18              --             --
Issuance of common stock for services rendered                 01/23/04        $        1.18              --             --
Beneficial conversion feature on convertible
 notes payable - related parties                               01/26/04                                   --             --
Beneficial conversion feature on convertible
 notes payable - related parties                               01/28/04                                   --             --
Issuance of warrants in conjunction with
 convertible notes payable - related parties                   01/28/04        $        0.15              --             --
Issuance of common stock on cashless
 exercise of warrants                                          01/30/04                                   --             --
Beneficial conversion feature on convertible
 notes payable - related parties                               01/31/04                                   --             --
Issuance of warrants in conjunction with
 convertible notes payable - related parties                   01/31/04        $        0.12              --             --
Beneficial conversion feature on convertible
 notes payable - related parties                               01/31/04                                   --             --
Issuance of common stock on cashless
 exercise of warrants                                          02/04/04                                   --             --
Offering costs on issuance of common stock subject
 to rescission rights for cash                                 02/06/04                                   --             --
Issuance of common stock for services rendered                 02/06/04        $        1.23              --             --
Issuance of common stock to investors as a
 penalty for delayed registration of common stock              02/15/04        $        1.25              --             --
Issuance of warrants to investors as a
 penalty for delayed registration of the underlying
 common stock                                                  02/15/04        $        0.69              --             --
Issuance of common stock for services rendered                 02/25/04        $        1.26              --             --
Offering costs on issuance of common stock subject
 to rescission rights for cash                                 02/25/04                                   --             --
Common stock committed for services rendered                   03/10/04        $        1.42                             --
Stock options issued for services rendered                     03/10/04        $        0.55              --             --
Issuance of common stock to investors as a
 penalty for delayed registration of common stock              03/15/04        $        1.75              --             --
Issuance of warrants to investors as a
 penalty for delayed registration of the underlying
 common stock                                                  03/15/04        $        1.13              --             --
Issuance of common stock on cashless
 exercise of warrants                                          03/15/04                                   --             --
Beneficial conversion feature on convertible
 notes payable - related parties                               03/16/04                                   --             --
Issuance of common stock for cash                              03/19/04        $        0.75              --             --
Issuance of common stock on cashless
 exercise of warrants                                          03/23/04                                   --             --
Issuance of common stock for cash                              03/25/04        $        0.75              --             --
Issuance of common stock for services rendered and
 to be rendered                                                03/25/04        $          --              --             --
Issuance of common stock for cash                              03/26/04        $        0.75              --             --
Issuance of common stock on cashless
 exercise of warrants                                          04/01/04                                   --             --
Issuance of warrants to investors as a
 penalty for delayed registration of the underlying
 common stock                                                  04/01/04        $        1.03              --             --
Warrants issued for services rendered                          04/07/04        $        1.57              --             --
Issuance of common stock for services rendered                 04/07/04        $        2.95              --             --
Issuance of common stock on cashless
 exercise of warrants                                          04/12/04                                   --             --
Issuance of common stock for services rendered                 04/12/04        $        2.78              --             --
Issuance of common stock on cashless
 exercise of warrants                                          04/14/04                                   --             --
Issuance of common stock on cashless
 exercise of warrants                                          04/15/04                                   --             --
Issuance of common stock to investors as a
 penalty for delayed registration of common stock              04/15/04        $        2.55              --             --
Issuance of warrants to investors as a
 penalty for delayed registration of the underlying
 common stock                                                  04/15/04        $        1.88              --             --
Issuance of common stock on exercise of warrants               04/16/04        $        1.50              --             --
Warrants issued for services rendered
 and to be rendered                                            04/16/04        $          --              --             --
Issuance of common stock for services rendered
 and to be rendered                                            04/16/04        $          --              --             --
Beneficial conversion feature on convertible
 notes payable - related parties                               04/19/04                                   --             --
Issuance of common stock for cash                              04/20/04        $        0.99              --             --
Issuance of common stock on cashless
 exercise of warrants                                          04/23/04                                   --             --
Issuance of common stock on cashless
 exercise of warrants                                          04/28/04                                   --             --
Warrants issued for services rendered                          04/29/04        $        1.09              --             --
Common stock committed for legal settlement                    04/30/04        $        1.28              --             --
Issuance of warrants to investors as a
 penalty for delayed registration of the underlying
 common stock                                                  04/30/04        $        1.62              --             --
Issuance of warrants to investors as a
 penalty for delayed registration of the underlying
 common stock                                                  04/30/04        $        1.71              --             --
Common stock committed to investors as a penalty
 for delayed registration of common stock                      04/30/04        $        1.85              --             --
Warrants accrued but not issued to investors as a
 penalty for delayed registration of the underlying
 common stock                                                  04/30/04        $        1.22              --             --
Amortization of deferred compensation
Net Loss
                                                                               -------------       ---------   ------------
Balance, April 30, 2004                                                                                   --   $         --

Beneficial conversion feature on convertible
 notes payable                                                 05/01/04                                   --             --
 Issuance of warrants in conjunction with
  convertible notes payable                                    05/01/04        $        0.10              --             --
Issuance of common stock to investors as a
 penalty for delayed registration of common stock
Issuance of warrants to investors as a penalty for
 delayed registration of the underlying common stock           05/01/04        $        1.69              --             --
Issuance of common stock for services rendered                 05/05/04        $        2.19              --             --
Issuance of common stock for services rendered                 05/07/04        $        1.97              --             --
Offering costs on issuance of common stock                     05/10/04
Common stock committed for services rendered                   05/12/04        $        1.87              --             --
Issuance of committed common stock to investors as
  a penalty for delayed registration of common stock           05/15/04        $        1.85              --             --
Issuance of common stock to investors as a
 penalty for delayed registration of common stock              05/15/04        $        1.85              --             --
Issuance of warrants to investors as a penalty for
 delayed registration of the underlying common stock           05/15/04        $        1.22              --             --
Issuance of common stock for cash                              05/21/04        $        1.51              --             --
Offering costs on issuance of common stock                     05/25/04                                   --             --
Offering costs on issuance of common stock                     05/26/04                                   --             --
Amortization of deferred compensation                          05/31/04                                   --             --
Issuance of common stock to investors as a
 penalty for delayed registration of common stock              06/01/04        $        1.90              --             --
Issuance of warrants to investors as a penalty for
 delayed registration of the underlying common stock           06/01/04        $        1.27              --             --
Issuance of common stock for cash                              06/01/04        $        1.51              --             --
Issuance of common stock for cash                              06/01/04        $        1.51              --             --
Issuance of common stock for cash                              06/04/04        $        1.51              --             --
Issuance of common stock for cash                              06/07/04        $        1.51              --             --
Issuance of common stock for cash                              06/07/04        $        1.51              --             --
Issuance of common stock for cash                              06/07/04        $        1.51              --             --
Offering costs on issuance of common stock                     06/10/04
Issuance of common stock to investors as a
 penalty for delayed registration of common stock              06/15/04        $        1.26              --             --
Issuance of warrants to investors as a penalty for
 delayed registration of the underlying common stock           06/15/04        $        0.69              --             --
Common stock committed for services rendered                   06/16/04        $        1.11              --             --
Beneficial conversion feature on convertible
 notes payable - related parties                               06/16/04                                   --             --
Beneficial conversion feature on convertible
 notes payable - related parties                               06/17/04                                   --             --
Issuance of common stock for cash                              06/18/04        $        1.01              --             --
Beneficial conversion feature on convertible
 notes payable                                                 06/23/04                                   --             --
Issuance of warrants in conjunction with
 convertible notes payable                                     06/23/04        $        0.15              --             --
Beneficial conversion feature on convertible
 notes payable                                                 06/23/04                                   --             --
Issuance of warrants in conjunction with
 convertible notes payable                                     06/23/04        $        0.15              --             --
Issuance of committed common stock for legal settlement        06/24/04        $        1.28              --             --
Amortization of deferred compensation                          06/30/04                                   --             --
Issuance of common stock to investors as a
 penalty for delayed registration of common stock              07/01/04        $        1.86              --             --
Issuance of warrants to investors as a penalty for
 delayed registration of the underlying common stock           07/01/04        $        1.23              --             --
Issuance of common stock to investors as a
 penalty for delayed registration of common stock              07/15/04        $        1.20              --             --
Common stock committed to investors as a
 penalty for delayed registration of common stock              07/15/04        $        1.20              --             --
Issuance of warrants to investors as a penalty for
 delayed registration of the underlying common stock           07/15/04        $        0.64              --             --
Common stock committed for services rendered                   07/21/04        $        0.94                             --
Warrants issued for services rendered                          07/26/04        $        0.39              --             --
Issuance of common stock for services rendered                 07/28/04        $        0.97              --             --
Common stock committed to investors as a
 penalty for delayed registration of common stock              07/31/04        $        1.00              --             --
Warrants committed to investors as a penalty
 for delayed registration of common stock                      07/31/04        $        0.47              --             --
Amortization of deferred compensation                          07/31/04                                   --             --
Common stock committed for services rendered                   08/05/04        $        1.14              --             --
Common stock committed for services rendered                   08/11/04        $        1.02              --             --
Common stock committed to investors as a
 penalty for delayed registration of common stock              08/15/04        $        1.00              --             --
Warrants committed to investors as a penalty
 for delayed registration of common stock                      08/15/04        $        0.47              --             --
Common stock committed to investors as a
 penalty for delayed registration of common stock              08/31/04        $        0.85              --             --
Warrants committed to investors as a penalty
 for delayed registration of common stock                      08/31/04        $        0.37              --             --
Amortization of deferred compensation                          08/31/04                                                  --
Beneficial conversion feature on convertible
 notes payable                                                 09/01/04                                   --             --
Commitment to Issue common stock for subscription
 receivable                                                    09/07/04        $        0.46              --             --
Common stock committed to investors as a
 penalty for delayed registration of common stock              09/15/04        $        0.82              --             --
Warrants committed to investors as a penalty
 for delayed registration of common stock                      09/15/04        $        0.34              --             --
Issuance of common stock upon conversion of
Convertible Note payable                                       09/20/04                                   --             --
Common stock committed for services rendered                   09/21/04        $        0.78              --             --
Common stock committed to investors as a
 penalty for delayed registration of common stock              09/30/04        $        0.82              --             --
Warrants committed to investors as a penalty
 for delayed registration of common stock                      09/30/04        $        0.44              --             --
Expensing of deferred compensation                             09/30/04                                   --             --
Common stock committed to investors as a
 penalty for delayed registration of common stock              10/15/04        $        1.28              --             --
Warrants committed to investors as a penalty
 for delayed registration of common stock                      10/15/04        $        0.51              --             --
Common stock committed for cash                                10/18/04        $        0.58              --             --
Common stock committed for cash                                10/19/04        $        0.49              --             --
Common stock committed for cash                                10/21/04        $        0.46              --             --
Common stock committed for cash                                10/22/04        $        0.46              --             --
Common stock committed for services rendered                   10/25/04        $        0.97              --             --
Common stock committed to investors as a
 penalty for delayed registration of common stock              10/31/04        $        0.99              --             --
Warrants committed to investors as a penalty
 for delayed registration of common stock                      10/31/04        $        0.61              --             --
Amortization of deferred compensation                          10/31/04                                   --             --
Common stock committed upon receipt of cash                    11/01/04                                   --             --
Issuance of common stock committed in October
 upon receipt of cash                                          11/05/04                                   --             --
Issuance of common stock previously committed as a
 penalty for the delayed registration of common stock          11/05/04                                   --             --
Common stock committed for services rendered                   11/05/04        $        1.04              --             --
Common stock committed to investors as a
 penalty for delayed registration of common stock              11/15/04        $        1.02              --             --
Warrants committed to investors as a penalty
 for delayed registration of common stock                      11/15/04        $        0.49              --             --
Issuance of common stock committed in September
 upon receipt of cash                                          11/16/04        $        0.46              --             --
Issuance of common stock in settlement of
promissory notes payable - related parties                     11/19/04        $        0.46              --             --
Issuance of committed common stock from
 the cashless exercise of warrants                             11/24/04        $        0.00              --             --
Issuance of common stock for cash                              11/30/04        $        0.46              --             --
Warrants committed to investors as a penalty
 for delayed registration of common stock                      11/30/04        $        0.68              --             --
Amortization of deferred compensation                          11/30/04                                   --             --
Warrants committed to investors as a penalty
 for delayed registration of common stock                      12/15/04        $        0.41              --             --
Common stock committed for cash                                12/23/04        $        0.46              --             --
Warrants committed to investors as a penalty
 for delayed registration of common stock                      12/31/04        $        0.50              --             --
Amortization of deferred compensation                          12/31/04
Issuance of common stock for cash                              01/07/05        $        0.46              --             --
Issuance of common stock in settlement of
 promissory notes payable - related parties                    01/07/05        $        0.46              --             --
Common stock committed for services rendered                   01/12/05        $        0.70              --             --
Common stock committed to investors as a
 penalty for delayed registration of common stock              01/15/05        $        0.75              --             --
Warrants committed to investors as a penalty
 for delayed registration of common stock                      01/15/05        $        0.29              --             --
Issuance of common stock committed to investors as
 a penalty for delayed registration of common stock            01/18/05        $        0.96              --             --
Issuance of common stock for cash                              01/18/05        $        0.46              --             --
Issuance of common stock to investors as a
 penalty for delayed registration of common stock              01/18/05        $        0.94              --             --
Common stock committed to former shareholders
 of Microdevices                                               01/25/05        $        0.04              --             --
Common stock committed to investors as a
 penalty for delayed registration of common stock              01/31/05        $        0.85              --             --
Warrants committed to investors as a penalty
 for delayed registration of common stock                      01/31/05        $        0.49              --             --
Amortization of deferred compensation                          01/31/05                                   --             --
Issuance of common stock to investors as a
 penalty for delayed registration of common stock              02/15/05        $        0.87              --             --
Warrants committed to investors as a penalty
 for delayed registration of common stock                      02/15/05        $        0.19              --             --
Issuance of common stock upon cashless
 exercise of warrants                                          02/17/05        $          --              --             --
Issuance of common stock to investors as a
 penalty for delayed registration of common stock              02/28/05        $        0.85              --             --
Common stock committed to investors as a
 penalty for delayed registration of common stock              02/28/05        $        0.85              --             --
Warrants committed to investors as a penalty
 for delayed registration of common stock                      02/28/05        $        0.18              --             --
Amortization of deferred compensation                          02/28/05        $          --              --             --
Issuance of common stock upon cashless
 exercise of warrants                                          03/04/05        $          --              --             --
Common stock committed to investors as a
 penalty for delayed registration of common stock              03/15/05        $        0.84              --             --
Warrants committed to investors as a penalty
 for delayed registration of common stock                      03/15/05        $        0.18              --             --
Common stock committed upon receipt of cash                    03/22/05        $        0.50              --             --
Common stock committed to investors as a
                                                               03/31/05        $        0.73              --             --
Warrants committed to investors as a penalty
 for delayed registration of common stock                      03/31/05        $        0.14              --             --
Amortization of deferred compensation                          03/31/05        $          --              --             --
Common stock committed for services rendered                   04/01/05        $        0.75              --             --
Stock option issued for services rendered                      04/01/05        $        0.74              --             --
Common stock committed upon receipt of cash                    04/04/05        $        0.50              --             --
Stock option issued for services rendered                      04/06/05        $        0.16              --             --
Common stock committed to investors as a
 penalty for delayed registration of common stock              04/15/05        $        0.73              --             --
Warrants committed to investors as a penalty
 for delayed registration of common stock                      04/15/05        $        0.14              --             --
Issuance of common stock committed in prior year
 for services rendered                                         04/29/05        $          --              --             --
Reclassify from common stock subject to Buy-Back               04/30/05        $        0.35              --             --
Common stock committed to investors as a
 penalty for delayed registration of common stock              04/30/05        $        0.73              --             --
Warrants committed to investors as a penalty
 for delayed registration of common stock                      04/30/05        $        0.15              --             --
Reclassify from common stock subject to rescission             04/30/05
Amortization of deferred compensation                          04/30/05        $          --              --             --
Net loss                                                                                                  --             --
                                                                               -------------       ---------   ------------
Balance at April 30, 2005                                                                                 --             --
                                                                               -------------       ---------   ------------

</TABLE>

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

                                       92
<PAGE>

<TABLE>
<CAPTION>
                                                                                      HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                                                                     (DEVELOPMENT STAGE COMPANIES)
                                                                         CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
                                                                 FOR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO APRIL 30, 2005
----------------------------------------------------------------------------------------------------------------------------------

                                                                                                         Additional    Committed
                                                                                 Common Stock             Paid-in       Common
                                                            Date             Shares         Amount        Capital        Stock
                                                       -------------     ------------   ------------   ------------   ------------
<S>                                                         <C>               <C>         <C>           <C>          <C>
Balance, August 21, 1995 (inception)                                               --   $         --   $         --   $         --
Recapitalization upon reverse merger                                        6,470,000          6,470         (6,456)            --
Issuance of common stock for services rendered              08/31/95          715,277            715          7,297             --
Issuance of common stock for services rendered              09/05/95           11,623             12            118             --
Issuance of common stock for services rendered              02/13/96            7,871              8             80             --
Net loss
                                                                         ------------   ------------   ------------   ------------
Balance, April 30, 1996  (Restated)                                         7,204,771          7,205          1,039             --

Issuance of common stock for services rendered              12/02/96            1,162              1             11             --
Issuance of common stock for services rendered              12/16/96            1,788              2             19             --
Issuance of common stock for services rendered              12/20/96              269             --              3             --
Net Loss
                                                                         ------------   ------------   ------------   ------------

Balance, April 30, 1997 (Restated)                                          7,207,990          7,208          1,072             --

Issuance of common stock for services rendered              05/20/97           13,411             13          3,737             --
Issuance of common stock for services rendered              06/02/97          135,903            136         37,861             --
Issuance of common stock for services rendered              06/03/97          588,762            589        164,023             --
Issuance of common stock for services rendered              06/08/97            5,901              6          1,644             --
Issuance of common stock for cash                           06/14/97           35,766             36          9,964             --
Issuance of common stock for services rendered              06/16/97          290,331            290         80,884             --
Issuance of common stock for services rendered              06/18/97            4,918              5          1,370             --
Issuance of common stock for services rendered              06/23/97          206,167            206         57,436             --
Issuance of common stock for services rendered              07/28/97            8,941              9          2,491             --
Issuance of common stock for cash                           08/11/97           40,237             40          5,585             --
Issuance of common stock for cash                           08/19/97           17,883             18          2,482             --
Issuance of common stock for cash                           09/04/97            8,942              9          2,491             --
Issuance of common stock for cash                           09/04/97            8,942              9          3,116             --
Issuance of common stock for cash                           09/12/97            8,942              9          2,491             --
Issuance of common stock for cash                           10/14/97           89,417             89         19,911             --
Issuance of common stock for cash                           12/17/97           53,650             54          7,446             --
Issuance of common stock for cash                           12/17/97           42,920             43         11,957             --
Issuance of common stock for cash                           12/17/97           42,920             43         20,957             --
Issuance of common stock for services rendered              12/31/97           49,175             49         14,229             --
Issuance of common stock for services rendered              01/29/98           53,646             54         14,945             --
Issuance of common stock for cash                           01/30/98           44,708             45         12,455             --
Issuance of common stock for cash                           03/23/98           45,603             46          2,204             --
Issuance of common stock for cash                           03/23/98           62,771             63         17,489             --
Issuance of common stock for cash                           03/25/98            4,471              4            496             --
Issuance of common stock for services rendered              03/25/98            1,788              2            398             --
Issuance of common stock for cash                           03/25/98           89,417             89         24,911             --
Issuance of common stock for services rendered              04/04/98           89,410             89         19,936             --
Issuance of common stock for services rendered              04/14/98            2,682              3            598             --
Issuance of common stock for services rendered              04/28/98              893              1            197             --
                                                                         ------------   ------------   ------------   ------------
Net Loss

Balance, April 30, 1998 (Restated)                                          9,256,507          9,257        544,776             --

Issuance of common stock for services rendered              05/05/98            4,470              4          7,307             --
Issuance of common stock for cash                           05/05/98           17,883             18         29,232             --
Issuance of common stock for services rendered              06/01/98           28,879             29          8,045             --
Issuance of common stock for cash                           06/01/98           53,649             54         14,946             --
Issuance of common stock for cash                           08/03/98            8,942              9          2,491             --
Issuance of common stock for cash                           08/10/98            8,942              9          2,491             --
Issuance of common stock for services rendered              09/16/98           74,501             75         20,755             --
Issuance of common stock for services rendered              10/01/98           29,818             30         13,686             --
Issuance of common stock for cash                           10/01/98           13,815             14          4,986             --
Issuance of common stock for cash                           10/01/98            8,942              9          4,991             --
Issuance of common stock for cash                           10/30/98            4,471              4          2,496             --
Issuance of common stock for services rendered              11/02/98            4,470              4          1,794             --
Issuance of common stock for cash                           11/02/98           44,708             45         12,435             --
Issuance of common stock for services rendered              11/12/98            8,941              9          3,588             --
Issuance of common stock for services rendered              11/14/98           89,410             89         35,876             --
Issuance of common stock for services rendered              11/18/98           15,647             16          6,278             --
Issuance of common stock for services rendered              11/19/98           75,998             76         30,494             --
Issuance of common stock for cash                           11/24/98           11,177             11          9,989             --
Issuance of common stock for services rendered              11/28/98          447,048            447        179,379             --
Stock options issued for services rendered                  11/30/98               --             --        659,684             --
Issuance of common stock for services rendered              12/02/98            4,470              4          4,080             --
Issuance of common stock for cash                           12/02/98            3,353              3          2,497             --
Issuance of common stock for cash                           12/02/98            8,942              9          6,991             --
Issuance of common stock for cash                           12/02/98            2,683              3          2,497             --
Issuance of common stock for cash                           12/02/98              894              1          2,499             --
Issuance of common stock for services rendered              12/17/98            5,208              5          4,753             --
Issuance of common stock for services rendered              12/31/98            2,012              2          1,836             --
Issuance of common stock for cash                           01/08/99           44,708             45         32,355             --
Issuance of common stock for cash                           01/15/99            9,389              9          3,591             --
Issuance of common stock for cash                           01/15/99            4,471              4          6,296             --
Issuance of common stock for services rendered              03/01/99          223,524            224        127,266             --
Issuance of common stock for services rendered              03/16/99           22,352             22         12,727             --
Issuance of common stock for services rendered              03/17/99        1,034,979          1,035        589,278             --
Issuance of common stock for cash                           03/17/99           17,883             18         10,182             --
Issuance of common stock for services rendered              04/28/99           84,716             85         48,203             --
Issuance of common stock for services rendered              04/30/99           11,177             11          6,360             --
Net Loss
                                                                         ------------   ------------   ------------   ------------

Balance, April 30, 1999 (Restated)                                         11,688,979         11,689      2,457,130             --

Issuance of common stock for cash                           05/03/99           35,767             36          3,629             --
Issuance of common stock for services rendered              05/05/99          117,216            117         11,894             --
Issuance of common stock for cash                           06/05/99           17,883             18          9,982             --
Issuance of common stock for services rendered              06/09/99           89,410             90         40,307             --
Issuance of common stock for services rendered              06/28/99          277,170            277        124,953             --
Issuance of common stock for cash                           06/28/99            4,471              4             96             --
Issuance of common stock for cash                           07/12/99            2,861              3          1,497             --
Issuance of common stock for cash                           07/14/99           44,708             45         12,455             --
Issuance of common stock for cash                           07/14/99           17,883             18          9,982             --
Issuance of common stock for services rendered              07/22/99          247,218            247         90,402             --
Issuance of common stock for services rendered              11/30/99           52,305             52         21,675             --
Issuance of common stock for cash                           11/30/99           53,650             54         20,946             --
Issuance of common stock for cash                           11/30/99            8,942              9          4,991             --
Issuance of common stock for cash                           12/29/99           80,475             81         44,919             --
Issuance of common stock for services rendered              03/20/00            2,235              2          1,309             --
Issuance of common stock for cash                           04/03/00          107,301            107         59,893             --
Issuance of common stock for services rendered              04/03/00        1,307,700          1,308        765,802             --
Issuance of common stock for cash                           04/03/00            2,794              3          1,997             --
Issuance of common stock for cash                           04/03/00            8,383              8          7,492             --
Issuance of common stock for services rendered              04/10/00           50,159             50         29,374             --
Issuance of common stock for services rendered              04/24/00           22,352             22         13,090             --
Issuance of common stock for services rendered              04/26/00            2,235              2          1,309             --
Net loss
                                                                         ------------   ------------   ------------   ------------

Balance, April 30, 2000 (Restated)                                         14,242,097         14,242      3,735,124             --

Issuance of common stock for services rendered              07/28/00           11,177             11          6,546             --
Issuance of common stock for services rendered              08/10/00          223,542            224        130,908             --
Issuance of common stock for services rendered              08/22/00           22,354             22         13,091             --
Issuance of common stock for services rendered              09/28/00           11,177             11          2,623             --
Issuance of common stock for cash                           09/28/00           21,214             21          4,979             --
Issuance of common stock for services rendered              10/09/00           35,767             36          8,394             --
Issuance of common stock for services rendered              11/30/00              448              1            105             --
Issuance of common stock for services rendered              12/31/00          510,793            511        119,878             --
Net loss
                                                                         ------------   ------------   ------------   ------------

Balance, April 30, 2001 (Restated)                                         15,078,569         15,079      4,021,648             --

Issuance of common stock for services rendered              05/10/01          116,903            117         27,940             --
Issuance of common stock for services rendered              06/18/01           67,057             67         29,930             --
Issuance of common stock for cash                           06/18/01           22,354             22          9,978             --
Issuance of common stock for cash                           07/31/01           22,354             22          9,978             --
Issuance of common stock for services rendered              07/31/01          350,933            351        223,917             --
Issuance of common stock for cash                           07/31/01            8,942              9          9,991             --
Issuance of common stock for cash                           09/07/01          223,542            224         49,776             --
Issuance of common stock for services rendered              09/23/01          525,281            525        116,965             --
Issuance of common stock for cash                           09/23/01           67,062             67         14,933             --
Warrants issued for services rendered                       09/23/01               --             --         24,924             --
Issuance of common stock for services rendered              10/31/01           13,411             14          2,986             --
Issuance of common stock for services rendered              11/02/01           67,057             67         14,932             --
Issuance of common stock for services rendered              12/07/01           11,176             11          2,489             --
Issuance of common stock for services rendered              12/10/01          217,176            217         48,359             --
Issuance of common stock for services rendered              12/13/01           87,235             87         19,425             --
Issuance of common stock for cash                           12/13/01          223,542            224         49,776             --
Issuance of common stock for cash                           12/20/01            3,577              4            796             --
Issuance of common stock for services rendered              12/20/01        1,230,276          1,230        273,948             --
Issuance of common stock for services rendered              12/21/01           22,352             22          4,978             --
Issuance of common stock for services rendered              12/30/01          212,348            212         47,284             --
Stock options issued for services rendered                  01/08/02               --             --          1,402             --
Issuance of common stock for services rendered              01/14/02           33,529             34          7,465             --
Stock options issued for services rendered                  01/31/02               --             --          2,142             --
Stock options issued for services rendered                  02/08/02               --             --          3,809             --
Issuance of common stock for services rendered              02/14/02        2,235,241          2,235        497,725             --
Issuance of common stock for cash                           03/13/02           10,283             10          2,410             --
Issuance of common stock in private
 placement for cash                                         04/30/02        1,225,000          1,225      1,223,775             --
Net loss
                                                                         ------------   ------------   ------------   ------------

Balance, April 30, 2002 (Restated)                                         22,075,200         22,075      6,743,681             --

Common stock committed on exercise of stock
options in subsidiary                                       05/23/02               --             --                         7,164
Issuance of common stock for services rendered              05/24/02            5,589              6         12,010             --
Financing expense in connection with
issuance of warrants                                        05/31/02               --             --        223,710             --
Conversion of convertible notes payable - related
parties and accrued interest into common stock              06/04/02            5,780              6          5,774             --
Conversion of convertible notes payable - related
 parties and accrued interest into common stock             06/20/02            5,438              5          5,435             --
Issuance of common stock in private placement for
 'cash                                                      06/25/02          500,000            500        499,500             --
Stock options issued for services rendered                  07/12/02               --             --        761,007             --
Conversion of notes payable - related
 parties into common stock                                  07/16/02           15,000             15         14,985             --
Conversion of convertible notes payable - related
 parties and accrued interest into common stock             07/22/02           11,680             12         11,664             --
Stock options issued for services rendered                  08/01/02               --             --        187,163             --
Issuance of common stock for services rendered              08/24/02            5,589              6          9,328             --
Stock options issued for services rendered                  09/25/02               --             --      3,305,542             --
Stock options issued in exchange for settlement
 of accounts payable                                        09/25/02               --             --         50,000             --
Issuance of Series A convertible preferred stock
 in private placement for cash                              10/07/02               --             --        979,300             --
Offering costs on issuance of Series A convertible
 preferred stock in private placement for cash              10/07/02               --             --       (178,902)            --
Dividends on Series A preferred stock                       10/07/02           68,150             68         78,292             --
Beneficial conversion feature on issuance of
Series A preferred stock                                    10/07/02               --             --        767,431             --
Issuance of common stock in private placement for
 cash                                                       10/29/02        1,349,934          1,350      1,821,056             --
Offering costs on issuance of common stock in
 private placement for cash                                 10/29/02               --             --       (196,793)            --
Common stock committed for services rendered                11/24/02               --             --             --         13,134
Warrants issued for services rendered                       12/09/02               --             --        390,409             --
Warrants issued for services rendered                       12/09/02               --             --        162,792             --
Stock options issued in exchange for settlement
 of accounts payable                                        12/19/02               --             --         15,000             --
Stock options issued for services rendered                  12/31/02               --             --         59,373             --
Issuance of common stock on cashless exercise of
 warrants                                                   01/02/03           33,909             34            (34)            --
Issuance of common stock on cashless conversion
 of the Series A convertible preferred stock                01/24/03            9,162              9             (9)            --
Issuance of common stock on cashless conversion
 of the Series A convertible preferred stock                01/27/03            9,174              9             (9)            --
Amortization of deferred compensation                       01/31/03               --             --             --             --
Warrants issued for services rendered                       02/17/03               --             --        130,712             --
Common stock committed for services rendered                02/24/03               --             --             --          4,415
Reversal of deferred compensation                           02/25/03               --             --     (2,272,561)            --
Issuance of common stock for services rendered              04/21/03           21,277             21         10,288             --
Common stock committed for services rendered                04/21/03               --             --             --          9,691
Warrants issued for services rendered                       04/28/03               --             --         18,284             --
Offering costs on issuance of common stock subject
  to buyback for cash                                       04/23/03               --             --        (20,000)            --
Offering costs on issuance of common stock subject
 to buyback for cash                                        04/28/03               --             --        (24,500)            --
Issuance of common stock for subscription receivable        04/30/03           10,000             10          3,972             --
Common stock committed to investors as a penalty
 for delayed registration of common stock                   04/30/03               --             --                        57,661
Net loss
                                                                         ------------   ------------   ------------   ------------

Balance, April 30, 2003 (Restated)                                         24,125,882   $     24,126   $ 13,573,900   $     92,065

Warrants issued for services rendered                       05/01/03               --             --          8,079             --
Issuance of common stock for services rendered              05/13/03           45,000             45         21,555             --
Warrants issued for services rendered                       05/16/03               --             --         35,598             --
Stock options issued for services rendered                  05/16/03               --             --          5,458             --
Issuance of common stock on cashless conversion
 of Series A preferred stock                                05/16/03        2,129,316          2,129         (2,128)            --
Dividend on induced conversion of Series A
 preferred stock                                            05/16/03               --             --        583,243             --
Issuance of committed common stock                          05/16/03          128,136            128         57,533        (57,661)
Issuance of common stock to investors as a
 penalty for delayed registration of common stock           05/16/03           25,952             26         11,653             --
Issuance of committed common stock                          05/21/03           20,000             20          9,671         (9,691)
Issuance of common stock on exercise of
 warrants                                                   05/27/03           34,000             34            306             --
Issuance of committed common stock                          06/19/03           11,178             11         17,538        (17,549)
Issuance of common stock on conversion of
 convertible notes payable - related parties                06/24/03          300,000            300         99,700             --
Stock options issued for services rendered                  07/16/03               --             --         52,742             --
Issuance of common stock for services rendered              07/16/03            6,000              6          2,994             --
Issuance of committed common stock                          08/14/03           44,705             45          7,119         (7,164)
Issuance of common stock for cash                           08/15/03          222,222            222         99,778             --
Issuance of common stock for cash                           08/20/03          400,000            400        207,600             --
Issuance of common stock for cash                           08/25/03          272,464            272        187,728             --
Issuance of common stock for services rendered              08/27/03            6,000              6          6,354             --
Stock options issued for services rendered                  08/27/03               --             --         31,514             --
Beneficial conversion feature on convertible
 notes payable - related parties                            08/28/03                                            341             --
Issuance of common stock for cash                           08/28/03           86,957             87         59,913             --
Issuance of common stock for cash                           08/29/03          144,928            145         99,855             --
Issuance of common stock for cash                           08/29/03          666,666            667        499,333             --
Offering costs on issuance of common stock
 for cash                                                   08/29/03               --             --        (40,000)            --
Issuance of common stock to investors as a
penalty for delayed registration of common stock            10/15/03          148,260            148        191,107             --
Issuance of warrants to investors as a
 penalty for delayed registration of the underlying
 common stock                                               10/15/03               --             --          6,009             --
Issuance of common stock for cash                           10/27/03           63,000             63         59,938             --
Stock options issued for services rendered                  11/07/03               --             --        278,142             --
Issuance of common stock for services rendered              11/07/03           12,000             12         14,988             --
Issuance of common stock to investors as a
 penalty for delayed registration of common stock           11/15/03           44,187             44         45,910             --
Issuance of warrants to investors as a
 penalty for delayed registration of the underlying
 common stock                                               11/15/03               --             --          7,143             --
Offering costs on issuance of common stock subject
 to rescission rights for cash                              11/21/03               --             --         (5,250)            --
Issuance of common stock for services rendered              11/21/03            2,000              2          1,498             --
Stock options issued for services rendered                  12/05/03               --             --         24,104             --
Issuance of common stock to investors as a
 penalty for delayed registration of common stock           12/15/03           61,242             61         55,057             --
Issuance of warrants to investors as a
 penalty for delayed registration of the underlying
 common stock                                               12/15/03               --             --          7,937             --
Issuance of common stock for cash                           12/22/03           42,254             42         29,958             --
Issuance of common stock for services rendered              01/06/04           27,500             28         24,447             --
Warrants issued for services rendered                       01/06/04               --             --         17,775             --
Issuance of common stock to investors as a
 penalty for delayed registration of common stock           01/15/04           75,739             76         66,574             --
Issuance of warrants to investors as a
 penalty for delayed registration of the underlying
 common stock                                               01/15/04               --             --          9,837             --
Issuance of common stock on cashless
 exercise of warrants                                       01/15/04           54,053             54            (54)            --
Issuance of common stock for services rendered              01/15/04           12,000             12         10,548             --
Issuance of common stock to investors as a
 penalty for delayed registration of common stock           01/16/04            2,520              3          2,240             --
Beneficial conversion feature on convertible
 notes payable - related parties                            01/16/04               --             --         58,245             --
Issuance of warrants in conjunction with
 convertible notes payable - related parties                01/16/04               --             --         91,755             --
Issuance of common stock for services rendered              01/23/04           55,000             55         64,845             --
Beneficial conversion feature on convertible
 notes payable - related parties                            01/26/04               --             --          4,026             --
Beneficial conversion feature on convertible
 notes payable - related parties                            01/28/04               --             --         41,196             --
Issuance of warrants in conjunction with
 convertible notes payable - related parties                01/28/04               --             --        143,804             --
Issuance of common stock on cashless
 exercise of warrants                                       01/30/04           48,000             48            (48)            --
Beneficial conversion feature on convertible
 notes payable - related parties                            01/31/04               --             --          6,046             --
Issuance of warrants in conjunction with
 convertible notes payable - related parties                01/31/04               --             --         43,954             --
Beneficial conversion feature on convertible
 notes payable - related parties                            01/31/04               --             --          9,558             --
Issuance of common stock on cashless
 exercise of warrants                                       02/04/04           25,049             25            (25)            --
Offering costs on issuance of common stock subject
 to rescission rights for cash                              02/06/04               --             --         (5,250)            --
Issuance of common stock for services rendered              02/06/04            3,333              3          4,097             --
Issuance of common stock to investors as a
 penalty for delayed registration of common stock           02/15/04           99,332             99        124,066             --
Issuance of warrants to investors as a
 penalty for delayed registration of the underlying
 common stock                                               02/15/04               --             --         19,415             --
Issuance of common stock for services rendered              02/25/04            2,667              3          3,357             --
Offering costs on issuance of common stock subject
 to rescission rights for cash                              02/25/04               --             --         (7,000)            --
Common stock committed for services rendered                03/10/04               --             --             --          9,940
Stock options issued for services rendered                  03/10/04               --             --         15,917             --
Issuance of common stock to investors as a
 penalty for delayed registration of common stock           03/15/04          120,464            121        210,691             --
Issuance of warrants to investors as a
 penalty for delayed registration of the underlying
 common stock                                               03/15/04               --             --         38,323             --
Issuance of common stock on cashless
 exercise of warrants                                       03/15/04            2,958              3             (3)            --
Beneficial conversion feature on convertible
 notes payable - related parties                            03/16/04               --             --         15,831             --
Issuance of common stock for cash                           03/19/04           40,000             40         29,960             --
Issuance of common stock on cashless
 exercise of warrants                                       03/23/04           17,334             17            (17)            --
Issuance of common stock for cash                           03/25/04           40,000             40         29,960             --
Issuance of common stock for services rendered and
 to be rendered                                             03/25/04          200,000            200        323,800             --
Issuance of common stock for cash                           03/26/04           40,000             40         29,960             --
Issuance of common stock on cashless
 exercise of warrants                                       04/01/04            7,879              8             (8)            --
Issuance of warrants to investors as a
 penalty for delayed registration of the underlying
 common stock                                               04/01/04               --             --         10,735             --
Warrants issued for services rendered                       04/07/04               --             --         78,297             --
Issuance of common stock for services rendered              04/07/04           12,000             12         35,388             --
Issuance of common stock on cashless
 exercise of warrants                                       04/12/04          302,638            303           (303)            --
Issuance of common stock for services rendered              04/12/04          100,000            100        277,900             --
Issuance of common stock on cashless
 exercise of warrants                                       04/14/04           12,701             13            (13)            --
Issuance of common stock on cashless
 exercise of warrants                                       04/15/04           18,235             18            (18)            --
Issuance of common stock to investors as a
 penalty for delayed registration of common stock           04/15/04          141,383            141        360,386             --
Issuance of warrants to investors as a
 penalty for delayed registration of the underlying
 common stock                                               04/15/04               --             --         74,639             --
Issuance of common stock on exercise of warrants            04/16/04           35,776             36         53,628             --
Warrants issued for services rendered
 and to be rendered                                         04/16/04               --             --         75,461             --
Issuance of common stock for services rendered
 and to be rendered                                         04/16/04           75,000             75        213,675             --
Beneficial conversion feature on convertible
 notes payable - related parties                            04/19/04               --             --         78,024             --
Issuance of common stock for cash                           04/20/04           30,303             30         29,970             --
Issuance of common stock on cashless
 exercise of warrants                                       04/23/04            6,269              6             (6)            --
Issuance of common stock on cashless
 exercise of warrants                                       04/28/04            2,000              2             (2)            --
Warrants issued for services rendered                       04/29/04               --             --         54,675             --
Common stock committed for legal settlement                 04/30/04               --             --                        13,440
Issuance of warrants to investors as a
 penalty for delayed registration of the underlying
 common stock                                               04/30/04               --             --         11,738             --
Issuance of warrants to investors as a
 penalty for delayed registration of the underlying
 common stock                                               04/30/04               --             --         17,790             --
Common stock committed to investors as a penalty
 for delayed registration of common stock                   04/30/04               --             --                         156,2
Warrants accrued but not issued to investors as a
 penalty for delayed registration of the underlying
 common stock                                               04/30/04               --             --         27,717             --
Amortization of deferred compensation
Net Loss
                                                                         ------------   ------------   ------------   ------------
Balance, April 30, 2004                                                    30,652,482   $     30,652   $ 19,181,421   $    179,679

Beneficial conversion feature on convertible
 notes payable                                              05/01/04               --             --         25,262             --
 Issuance of warrants in conjunction with
  convertible notes payable                                 05/01/04               --             --        399,739             --
Issuance of common stock to investors as a
 penalty for delayed registration of common stock                               6,667              7         15,661             --
Issuance of warrants to investors as a penalty for
 delayed registration of the underlying common stock        05/01/04               --             --        186,733             --
Issuance of common stock for services rendered              05/05/04           95,000             95        207,955             --
Issuance of common stock for services rendered              05/07/04            3,500              4          6,891             --
Offering costs on issuance of common stock                  05/10/04                                        (13,000)            --
Common stock committed for services rendered                05/12/04               --             --             --         13,090
Issuance of committed common stock to investors as
  a penalty for delayed registration of common stock        05/15/04           84,486             84        156,215       (156,299
Issuance of common stock to investors as a
 penalty for delayed registration of common stock           05/15/04           77,823             78        143,894             --
Issuance of warrants to investors as a penalty for
 delayed registration of the underlying common stock        05/15/04               --             --         27,732             --
Issuance of common stock for cash                           05/21/04           29,801             30         44,970             --
Offering costs on issuance of common stock                  05/25/04               --             --         (5,000)            --
Offering costs on issuance of common stock                  05/26/04               --             --         (2,250)            --
Amortization of deferred compensation                       05/31/04               --             --             --             --
Issuance of common stock to investors as a
 penalty for delayed registration of common stock           06/01/04           32,223             32         61,192             --
Issuance of warrants to investors as a penalty for
 delayed registration of the underlying common stock        06/01/04               --             --        140,443             --
Issuance of common stock for cash                           06/01/04           13,245             13         19,987             --
Issuance of common stock for cash                           06/01/04           19,868             20         29,980             --
Issuance of common stock for cash                           06/04/04           66,225             66         99,934             --
Issuance of common stock for cash                           06/07/04           33,113             33         49,967             --
Issuance of common stock for cash                           06/07/04           19,868             20         29,980             --
Issuance of common stock for cash                           06/07/04           66,225             66         99,934             --
Offering costs on issuance of common stock                  06/10/04               --             --        (11,500)            --
Issuance of common stock to investors as a
 penalty for delayed registration of common stock           06/15/04          187,028            187        235,468             --
Issuance of warrants to investors as a penalty for
 delayed registration of the underlying common stock        06/15/04               --             --         36,412             --
Common stock committed for services rendered                06/16/04               --             --             --          9,990
Beneficial conversion feature on convertible
 notes payable - related parties                            06/16/04               --             --          1,305             --
Beneficial conversion feature on convertible
 notes payable - related parties                            06/17/04               --             --          3,859             --
Issuance of common stock for cash                           06/18/04           99,010             99         99,901             --
Beneficial conversion feature on convertible
 notes payable                                              06/23/04               --             --         30,044             --
Issuance of warrants in conjunction with
 convertible notes payable                                  06/23/04               --             --        209,956             --
Beneficial conversion feature on convertible
 notes payable                                              06/23/04               --             --          7,511             --
Issuance of warrants in conjunction with
 convertible notes payable                                  06/23/04               --             --         52,489             --
Issuance of committed common stock for legal settlemen      06/24/04           10,500             11         13,429        (13,440
Amortization of deferred compensation                       06/30/04               --             --             --             --
Issuance of common stock to investors as a
 penalty for delayed registration of common stock           07/01/04           32,223             32         59,903             --
Issuance of warrants to investors as a penalty for
 delayed registration of the underlying common stock        07/01/04               --             --        136,473             --
Issuance of common stock to investors as a
 penalty for delayed registration of common stock           07/15/04          209,217            209        250,851             --
Common stock committed to investors as a
 penalty for delayed registration of common stock           07/15/04               --             --             --            546
Issuance of warrants to investors as a penalty for
 delayed registration of the underlying common stock        07/15/04               --             --         37,715             --
Common stock committed for services rendered                07/21/04               --             --             --          8,460
Warrants issued for services rendered                       07/26/04               --             --         38,573             --
Issuance of common stock for services rendered              07/28/04          182,955            183        177,283             --
Common stock committed to investors as a
 penalty for delayed registration of common stock           07/31/04               --             --             --        116,004
Warrants committed to investors as a penalty
 for delayed registration of common stock                   07/31/04               --             --         15,500             --
Amortization of deferred compensation                       07/31/04               --             --             --             --
Common stock committed for services rendered                08/05/04               --             --             --         10,260
Common stock committed for services rendered                08/11/04               --             --             --         12,240
Common stock committed to investors as a
 penalty for delayed registration of common stock           08/15/04               --             --             --        116,004
Warrants committed to investors as a penalty
 for delayed registration of common stock                   08/15/04               --             --         15,500             --
Common stock committed to investors as a
 penalty for delayed registration of common stock           08/31/04               --             --             --         27,390
Warrants committed to investors as a penalty
 for delayed registration of common stock                   08/31/04               --             --         41,405             --
Amortization of deferred compensation                       08/31/04               --             --             --             --
Beneficial conversion feature on convertible
 notes payable                                              09/01/04               --             --         55,769             --
Commitment to Issue common stock for subscription
 receivable                                                 09/07/04               --             --             --         33,000
Common stock committed to investors as a
 penalty for delayed registration of common stock           09/15/04               --             --             --        208,567
Warrants committed to investors as a penalty
 for delayed registration of common stock                   09/15/04               --             --         24,260             --
Issuance of common stock upon conversion of
Convertible Note payable                                    09/20/04          192,308            192         99,808             --
Common stock committed for services rendered                09/21/04               --             --             --         11,700
Common stock committed to investors as a
 penalty for delayed registration of common stock           09/30/04               --             --             --         26,423
Warrants committed to investors as a penalty
 for delayed registration of common stock                   09/30/04               --             --         49,026             --
Expensing of deferred compensation                          09/30/04               --             --             --             --
Common stock committed to investors as a
 penalty for delayed registration of common stock           10/15/04               --             --             --        207,383
Warrants committed to investors as a penalty
 for delayed registration of common stock                   10/15/04               --             --         39,793             --
Common stock committed for cash                             10/18/04               --             --             --        241,956
Common stock committed for cash                             10/19/04               --             --             --        370,500
Common stock committed for cash                             10/21/04               --             --             --         25,300
Common stock committed for cash                             10/22/04               --             --             --         33,000
Common stock committed for services rendered                10/25/04               --             --             --         14,550
Common stock committed to investors as a
 penalty for delayed registration of common stock           10/31/04               --             --             --         90,014
Warrants committed to investors as a penalty
 for delayed registration of common stock                   10/31/04               --             --         90,390             --
Amortization of deferred compensation                       10/31/04               --             --             --             --
Common stock committed upon receipt of cash                 11/01/04               --             --             --         20,700
Issuance of common stock committed in October
 upon receipt of cash                                       11/05/04        1,436,427          1,436        659,320       (660,756
Issuance of common stock previously committed as a
 penalty for the delayed registration of common stock       11/05/04          744,799            745        667,903       (668,648
Common stock committed for services rendered                11/05/04               --             --             --         15,600
Common stock committed to investors as a
 penalty for delayed registration of common stock           11/15/04               --             --             --         29,208
Warrants committed to investors as a penalty
 for delayed registration of common stock                   11/15/04               --             --         20,645             --
Issuance of common stock committed in September
 upon receipt of cash                                       11/16/04           71,739             72         32,928        (33,000
Issuance of common stock in settlement of
promissory notes payable - related parties                  11/19/04        1,010,870          1,011        463,989             --
Issuance of committed common stock from
 the cashless exercise of warrants                          11/24/04        1,046,687          1,047         (1,047)            --
Issuance of common stock for cash                           11/30/04        1,707,395          1,707        783,693             --
Warrants committed to investors as a penalty
 for delayed registration of common stock                   11/30/04               --             --         84,276             --
Amortization of deferred compensation                       11/30/04               --             --             --             --
Warrants committed to investors as a penalty
 for delayed registration of common stock                   12/15/04               --             --         37,352             --
Common stock committed for cash                             12/23/04               --             --             --         50,000
Warrants committed to investors as a penalty
 for delayed registration of common stock                   12/31/04               --             --         60,990             --
Amortization of deferred compensation                       12/31/04               --             --             --             --
Issuance of common stock for cash                           01/07/05          489,783            490        224,810             --
Issuance of common stock in settlement of
 promissory notes payable - related parties                 01/07/05          128,260            128         58,872             --
Common stock committed for services rendered                01/12/05               --             --             --         10,500
Common stock committed to investors as a
 penalty for delayed registration of common stock           01/15/05               --             --             --         28,864
Warrants committed to investors as a penalty
 for delayed registration of common stock                   01/15/05               --             --         28,014             --
Issuance of common stock committed to investors as
 a penalty for delayed registration of common stock         01/18/05           85,700             86         81,787        (81,87
Issuance of common stock for cash                           01/18/05          200,000            200         91,800             --
Issuance of common stock to investors as a
 penalty for delayed registration of common stock           01/18/05          234,995            235        219,897             --
Common stock committed to former shareholders
 of Microdevices                                            01/25/05               --             --             --         18,923
Common stock committed to investors as a
 penalty for delayed registration of common stock           01/31/05               --             --             --          6,565
Warrants committed to investors as a penalty
 for delayed registration of common stock                   01/31/05               --             --         86,030             --
Amortization of deferred compensation                       01/31/05               --             --             --             --
Issuance of common stock to investors as a
 penalty for delayed registration of common stock           02/15/05            7,724              8          6,712             --
Warrants committed to investors as a penalty
 for delayed registration of common stock                   02/15/05               --             --          7,805             --
Issuance of common stock upon cashless
 exercise of warrants                                       02/17/05          182,787            183           (183)            --
Issuance of common stock to investors as a
 penalty for delayed registration of common stock           02/28/05           28,811             29         24,461             --
Common stock committed to investors as a
 penalty for delayed registration of common stock           02/28/05               --             --             --         27,104
Warrants committed to investors as a penalty
 for delayed registration of common stock                   02/28/05               --             --         24,338             --
Amortization of deferred compensation                       02/28/05               --             --             --             --
Issuance of common stock upon cashless
 exercise of warrants                                       03/04/05          112,332            112           (112)            --
Common stock committed to investors as a
 penalty for delayed registration of common stock           03/15/05               --             --             --          7,448
Warrants committed to investors as a penalty
 for delayed registration of common stock                   03/15/05               --             --         17,407             --
Common stock committed upon receipt of cash                 03/22/05               --             --             --        200,000
Common stock committed to investors as a
                                                            03/31/05               --             --             --         41,936
Warrants committed to investors as a penalty
 for delayed registration of common stock                   03/31/05               --             --         19,241             --
Amortization of deferred compensation                       03/31/05               --             --             --             --
Common stock committed for services rendered                04/01/05               --             --             --         11,250
Stock option issued for services rendered                   04/01/05               --             --        233,100             --
Common stock committed upon receipt of cash                 04/04/05               --             --             --        150,000
Stock option issued for services rendered                   04/06/05               --             --         48,000             --
Common stock committed to investors as a
 penalty for delayed registration of common stock           04/15/05               --             --             --          1,327
Warrants committed to investors as a penalty
 for delayed registration of common stock                   04/15/05               --             --         14,361             --
Issuance of common stock committed in prior year
 for services rendered                                      04/29/05            3,000              3          4,257         (4,260
Reclassify from common stock subject to Buy-Back            04/30/05        2,000,000          2,000        692,000             --
Common stock committed to investors as a
 penalty for delayed registration of common stock           04/30/05               --             --             --         70,487
Warrants committed to investors as a penalty
 for delayed registration of common stock                   04/30/05               --             --         45,904             --
Reclassify from common stock subject to rescission          04/30/05        3,819,996          3,820      1,784,333             --
Amortization of deferred compensation                       04/30/05               --             --             --             --
Net loss                                                                           --             --             --             --
                                                                         ------------   ------------   ------------   ------------
Balance at April 30, 2005                                                  45,817,315         45,817     29,521,570        547,375
                                                                         ------------   ------------   ------------   ------------
</TABLE>

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


                                       93
<PAGE>


<TABLE>
<CAPTION>
                                                                                 HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                                                                (DEVELOPMENT STAGE COMPANIES)
                                                                    CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
                                                             OR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO APRIL 30, 2005
-----------------------------------------------------------------------------------------------------------------------------
                                                                                                  Deficit
                                                                                                Accumulated
                                                                                                 during the
                                                                                 Deferred       Development
                                                               Date            Compensation        Stage             Total
                                                          -------------        ------------     ------------     ------------
<S>                                                        <C>                  <C>             <C>                <C>
Balance, August 21, 1995 (inception)                                           $         --     $         --     $         --
Recapitalization upon reverse merger                                                     --               --               14
Issuance of common stock for services rendered                 08/31/95                  --               --            8,012
Issuance of common stock for services rendered                 09/05/95                  --               --              130
Issuance of common stock for services rendered                 02/13/96                  --               --               88
Net loss                                                                                             (39,387)         (39,387)
                                                                               ------------     ------------     ------------
Balance, April 30, 1996  (Restated)                                                      --          (39,387)         (31,143)

Issuance of common stock for services rendered                 12/02/96                  --               --               12
Issuance of common stock for services rendered                 12/16/96                  --               --               21
Issuance of common stock for services rendered                 12/20/96                  --               --                3
Net Loss                                                                                            (110,004)        (110,004)
                                                                               ------------     ------------     ------------

Balance, April 30, 1997 (Restated)                                                       --         (149,391)        (141,111)

Issuance of common stock for services rendered                 05/20/97                  --               --            3,750
Issuance of common stock for services rendered                 06/02/97                  --               --           37,997
Issuance of common stock for services rendered                 06/03/97                  --               --          164,612
Issuance of common stock for services rendered                 06/08/97                  --               --            1,650
Issuance of common stock for cash                              06/14/97                  --               --           10,000
Issuance of common stock for services rendered                 06/16/97                  --               --           81,174
Issuance of common stock for services rendered                 06/18/97                  --               --            1,375
Issuance of common stock for services rendered                 06/23/97                  --               --           57,642
Issuance of common stock for services rendered                 07/28/97                  --               --            2,500
Issuance of common stock for cash                              08/11/97                  --               --            5,625
Issuance of common stock for cash                              08/19/97                  --               --            2,500
Issuance of common stock for cash                              09/04/97                  --               --            2,500
Issuance of common stock for cash                              09/04/97                  --               --            3,125
Issuance of common stock for cash                              09/12/97                  --               --            2,500
Issuance of common stock for cash                              10/14/97                  --               --           20,000
Issuance of common stock for cash                              12/17/97                  --               --            7,500
Issuance of common stock for cash                              12/17/97                  --               --           12,000
Issuance of common stock for cash                              12/17/97                  --               --           21,000
Issuance of common stock for services rendered                 12/31/97                  --               --           14,278
Issuance of common stock for services rendered                 01/29/98                  --               --           14,999
Issuance of common stock for cash                              01/30/98                  --               --           12,500
Issuance of common stock for cash                              03/23/98                  --               --            2,250
Issuance of common stock for cash                              03/23/98                  --               --           17,552
Issuance of common stock for cash                              03/25/98                  --               --              500
Issuance of common stock for services rendered                 03/25/98                  --               --              400
Issuance of common stock for cash                              03/25/98                  --               --           25,000
Issuance of common stock for services rendered                 04/04/98                  --               --           20,025
Issuance of common stock for services rendered                 04/14/98                  --               --              601
Issuance of common stock for services rendered                 04/28/98                  --               --              198
Net Loss                                                                                            (655,432)        (655,432)
                                                                               ------------     ------------     ------------

Balance, April 30, 1998 (Restated)                                                       --         (804,823)        (250,790)

Issuance of common stock for services rendered                 05/05/98                  --               --            7,311
Issuance of common stock for cash                              05/05/98                  --               --           29,250
Issuance of common stock for services rendered                 06/01/98                  --               --            8,074
Issuance of common stock for cash                              06/01/98                  --               --           15,000
Issuance of common stock for cash                              08/03/98                  --               --            2,500
Issuance of common stock for cash                              08/10/98                  --               --            2,500
Issuance of common stock for services rendered                 09/16/98                  --               --           20,830
Issuance of common stock for services rendered                 10/01/98                  --               --           13,716
Issuance of common stock for cash                              10/01/98                  --               --            5,000
Issuance of common stock for cash                              10/01/98                  --               --            5,000
Issuance of common stock for cash                              10/30/98                  --               --            2,500
Issuance of common stock for services rendered                 11/02/98                  --               --            1,798
Issuance of common stock for cash                              11/02/98                  --               --           12,480
Issuance of common stock for services rendered                 11/12/98                  --               --            3,597
Issuance of common stock for services rendered                 11/14/98                  --               --           35,965
Issuance of common stock for services rendered                 11/18/98                  --               --            6,294
Issuance of common stock for services rendered                 11/19/98                  --               --           30,570
Issuance of common stock for cash                              11/24/98                  --               --           10,000
Issuance of common stock for services rendered                 11/28/98                  --               --          179,826
Stock options issued for services rendered                     11/30/98                  --               --          659,684
Issuance of common stock for services rendered                 12/02/98                  --               --            4,084
Issuance of common stock for cash                              12/02/98                  --               --            2,500
Issuance of common stock for cash                              12/02/98                  --               --            7,000
Issuance of common stock for cash                              12/02/98                  --               --            2,500
Issuance of common stock for cash                              12/02/98                  --               --            2,500
Issuance of common stock for services rendered                 12/17/98                  --               --            4,758
Issuance of common stock for services rendered                 12/31/98                  --               --            1,838
Issuance of common stock for cash                              01/08/99                  --               --           32,400
Issuance of common stock for cash                              01/15/99                  --               --            3,600
Issuance of common stock for cash                              01/15/99                  --               --            6,300
Issuance of common stock for services rendered                 03/01/99                  --               --          127,490
Issuance of common stock for services rendered                 03/16/99                  --               --           12,749
Issuance of common stock for services rendered                 03/17/99                  --               --          590,313
Issuance of common stock for cash                              03/17/99                  --               --           10,200
Issuance of common stock for services rendered                 04/28/99                  --               --           48,288
Issuance of common stock for services rendered                 04/30/99                  --               --            6,371
Net Loss                                                                                          (1,956,565)      (1,956,565)
                                                                               ------------     ------------     ------------

Balance, April 30, 1999 (Restated)                                                       --       (2,761,388)        (292,569)

Issuance of common stock for cash                              05/03/99                  --               --            3,665
Issuance of common stock for services rendered                 05/05/99                  --               --           12,011
Issuance of common stock for cash                              06/05/99                  --               --           10,000
Issuance of common stock for services rendered                 06/09/99                  --               --           40,397
Issuance of common stock for services rendered                 06/28/99                  --               --          125,230
Issuance of common stock for cash                              06/28/99                  --               --              100
Issuance of common stock for cash                              07/12/99                  --               --            1,500
Issuance of common stock for cash                              07/14/99                  --               --           12,500
Issuance of common stock for cash                              07/14/99                  --               --           10,000
Issuance of common stock for services rendered                 07/22/99                  --               --           90,649
Issuance of common stock for services rendered                 11/30/99                  --               --           21,727
Issuance of common stock for cash                              11/30/99                  --               --           21,000
Issuance of common stock for cash                              11/30/99                  --               --            5,000
Issuance of common stock for cash                              12/29/99                  --               --           45,000
Issuance of common stock for services rendered                 03/20/00                  --               --            1,311
Issuance of common stock for cash                              04/03/00                  --               --           60,000
Issuance of common stock for services rendered                 04/03/00                  --               --          767,110
Issuance of common stock for cash                              04/03/00                  --               --            2,000
Issuance of common stock for cash                              04/03/00                  --               --            7,500
Issuance of common stock for services rendered                 04/10/00                  --               --           29,424
Issuance of common stock for services rendered                 04/24/00                  --               --           13,112
Issuance of common stock for services rendered                 04/26/00                  --               --            1,311
Net loss                                                                                          (1,247,576)      (1,247,576)
                                                                               ------------     ------------     ------------

Balance, April 30, 2000 (Restated)                                                       --       (4,008,964)        (259,598)

Issuance of common stock for services rendered                 07/28/00                  --               --            6,557
Issuance of common stock for services rendered                 08/10/00                  --               --          131,132
Issuance of common stock for services rendered                 08/22/00                  --               --           13,113
Issuance of common stock for services rendered                 09/28/00                  --               --            2,634
Issuance of common stock for cash                              09/28/00                  --               --            5,000
Issuance of common stock for services rendered                 10/09/00                  --               --            8,430
Issuance of common stock for services rendered                 11/30/00                  --               --              106
Issuance of common stock for services rendered                 12/31/00                  --               --          120,389
Net loss                                                                                            (452,754)        (452,754)
                                                                               ------------     ------------     ------------

Balance, April 30, 2001 (Restated)                                                       --       (4,461,718)        (424,991)

Issuance of common stock for services rendered                 05/10/01                  --               --           28,057
Issuance of common stock for services rendered                 06/18/01                  --               --           29,997
Issuance of common stock for cash                              06/18/01                  --               --           10,000
Issuance of common stock for cash                              07/31/01                  --               --           10,000
Issuance of common stock for services rendered                 07/31/01                  --               --          224,268
Issuance of common stock for cash                              07/31/01                  --               --           10,000
Issuance of common stock for cash                              09/07/01                  --               --           50,000
Issuance of common stock for services rendered                 09/23/01                  --               --          117,490
Issuance of common stock for cash                              09/23/01                  --               --           15,000
Warrants issued for services rendered                          09/23/01                  --               --           24,924
Issuance of common stock for services rendered                 10/31/01                  --               --            3,000
Issuance of common stock for services rendered                 11/02/01                  --               --           14,999
Issuance of common stock for services rendered                 12/07/01                  --               --            2,500
Issuance of common stock for services rendered                 12/10/01                  --               --           48,576
Issuance of common stock for services rendered                 12/13/01                  --               --           19,512
Issuance of common stock for cash                              12/13/01                  --               --           50,000
Issuance of common stock for cash                              12/20/01                  --               --              800
Issuance of common stock for services rendered                 12/20/01                  --               --          275,178
Issuance of common stock for services rendered                 12/21/01                  --               --            5,000
Issuance of common stock for services rendered                 12/30/01                  --               --           47,496
Stock options issued for services rendered                     01/08/02                  --               --            1,402
Issuance of common stock for services rendered                 01/14/02                  --               --            7,499
Stock options issued for services rendered                     01/31/02                  --               --            2,142
Stock options issued for services rendered                     02/08/02                  --               --            3,809
Issuance of common stock for services rendered                 02/14/02                  --               --          499,960
Issuance of common stock for cash                              03/13/02                  --               --            2,420
Issuance of common stock in private                                                                                        --
 placement for cash                                            04/30/02                  --               --        1,225,000
Net loss                                                                                          (2,399,061)      (2,399,061)
                                                                               ------------     ------------     ------------

Balance, April 30, 2002 (Restated)                                                       --       (6,860,779)         (95,023)

Common stock committed on exercise of stock
options in subsidiary                                          05/23/02                  --               --            7,164
Issuance of common stock for services rendered                 05/24/02                  --               --           12,016
Financing expense in connection with
issuance of warrants                                           05/31/02                  --               --          223,710
Conversion of convertible notes payable - related
parties and accrued interest into common stock                 06/04/02                  --               --            5,780
Conversion of convertible notes payable - related
 parties and accrued interest into common stock                06/20/02                  --               --            5,440
Issuance of common stock in private placement for
 'cash                                                         06/25/02                  --               --          500,000
Stock options issued for services rendered                     07/12/02                  --               --          761,007
Conversion of notes payable - related
 parties into common stock                                     07/16/02                  --               --           15,000
Conversion of convertible notes payable - related
 parties and accrued interest into common stock                07/22/02                  --               --           11,676
Stock options issued for services rendered                     08/01/02                  --               --          187,163
Issuance of common stock for services rendered                 08/24/02                  --               --            9,334
Stock options issued for services rendered                     09/25/02          (3,305,542)              --               --
Stock options issued in exchange for settlement
 of accounts payable                                           09/25/02                  --               --           50,000
Issuance of Series A convertible preferred stock
 in private placement for cash                                 10/07/02                  --               --          979,301
Offering costs on issuance of Series A convertible
 preferred stock in private placement for cash                 10/07/02                  --               --         (178,902)
Dividends on Series A preferred stock                          10/07/02                  --          (78,360)              --
Beneficial conversion feature on issuance of
Series A preferred stock                                       10/07/02                  --         (767,431)              --
Issuance of common stock in private placement for
 cash                                                          10/29/02                  --               --        1,822,406
Offering costs on issuance of common stock in
 private placement for cash                                    10/29/02                  --               --         (196,793)
Common stock committed for services rendered                   11/24/02                  --               --           13,134
Warrants issued for services rendered                          12/09/02                  --               --          390,409
Warrants issued for services rendered                          12/09/02                  --               --          162,792
Stock options issued in exchange for settlement
 of accounts payable                                           12/19/02                  --               --           15,000
Stock options issued for services rendered                     12/31/02                  --               --           59,373
Issuance of common stock on cashless exercise of
 warrants                                                      01/02/03                  --               --               --
Issuance of common stock on cashless conversion
 of the Series A convertible preferred stock                   01/24/03                  --               --               --
Issuance of common stock on cashless conversion
 of the Series A convertible preferred stock                   01/27/03                  --               --               --
Amortization of deferred compensation                          01/31/03           1,032,981               --        1,032,981
Warrants issued for services rendered                          02/17/03                  --               --          130,712
Common stock committed for services rendered                   02/24/03                  --               --            4,415
Reversal of deferred compensation                              02/25/03           2,272,561               --               --
Issuance of common stock for services rendered                 04/21/03                  --               --           10,309
Common stock committed for services rendered                   04/21/03                  --               --            9,691
Warrants issued for services rendered                          04/28/03                  --               --           18,284
Offering costs on issuance of common stock subject
  to buyback for cash                                          04/23/03                  --               --          (20,000)
Offering costs on issuance of common stock subject
 to buyback for cash                                           04/28/03                  --               --          (24,500)
Issuance of common stock for subscription receivable           04/30/03                  --               --            3,982
Common stock committed to investors as a penalty
 for delayed registration of common stock                      04/30/03                  --               --           57,661
Net loss                                                                                          (5,925,680)      (5,925,680)
                                                                               ------------     ------------     ------------

Balance, April 30, 2003 (Restated)                                             $         --     $(13,632,250)    $     57,842

Warrants issued for services rendered                          05/01/03                  --               --            8,079
Issuance of common stock for services rendered                 05/13/03                  --               --           21,600
Warrants issued for services rendered                          05/16/03                  --               --           35,598
Stock options issued for services rendered                     05/16/03                  --               --            5,458
Issuance of common stock on cashless conversion
 of Series A preferred stock                                   05/16/03                  --               --               --
Dividend on induced conversion of Series A
 preferred stock                                               05/16/03                  --         (583,243)              --
Issuance of committed common stock                             05/16/03                                                    --
Issuance of common stock to investors as a
 penalty for delayed registration of common stock              05/16/03                  --               --           11,679
Issuance of committed common stock                             05/21/03                                                    --
Issuance of common stock on exercise of                                                                                    --
 warrants                                                      05/27/03                  --               --              340
Issuance of committed common stock                             06/19/03             (17,549)              --               --
Issuance of common stock on conversion of
 convertible notes payable - related parties                   06/24/03                  --               --          100,000
Stock options issued for services rendered                     07/16/03                  --               --           52,742
Issuance of common stock for services rendered                 07/16/03                  --               --            3,000
Issuance of committed common stock                             08/14/03              (7,164)              --               --
Issuance of common stock for cash                              08/15/03                  --               --          100,000
Issuance of common stock for cash                              08/20/03                  --               --          208,000
Issuance of common stock for cash                              08/25/03                  --               --          188,000
Issuance of common stock for services rendered                 08/27/03                  --               --            6,360
Stock options issued for services rendered                     08/27/03                  --               --           31,514
Beneficial conversion feature on convertible
 notes payable - related parties                               08/28/03                  --               --              341
Issuance of common stock for cash                              08/28/03                  --               --           60,000
Issuance of common stock for cash                              08/29/03                  --               --          100,000
Issuance of common stock for cash                              08/29/03                  --               --          500,000
Offering costs on issuance of common stock
 for cash                                                      08/29/03                  --               --          (40,000)
Issuance of common stock to investors as a
penalty for delayed registration of common stock               10/15/03                  --               --          191,255
Issuance of warrants to investors as a
 penalty for delayed registration of the underlying
 common stock                                                  10/15/03                  --               --            6,009
Issuance of common stock for cash                              10/27/03                  --               --           60,001
Stock options issued for services rendered                     11/07/03                  --               --          278,142
Issuance of common stock for services rendered                 11/07/03                  --               --           15,000
Issuance of common stock to investors as a
 penalty for delayed registration of common stock              11/15/03                  --               --           45,954
Issuance of warrants to investors as a
 penalty for delayed registration of the underlying
 common stock                                                  11/15/03                  --               --            7,143
Offering costs on issuance of common stock subject
 to rescission rights for cash                                 11/21/03                  --               --           (5,250)
Issuance of common stock for services rendered                 11/21/03                  --               --            1,500
Stock options issued for services rendered                     12/05/03                  --               --           24,104
Issuance of common stock to investors as a
 penalty for delayed registration of common stock              12/15/03                  --               --           55,118
Issuance of warrants to investors as a
 penalty for delayed registration of the underlying
 common stock                                                  12/15/03                  --               --            7,937
Issuance of common stock for cash                              12/22/03                  --               --           30,000
Issuance of common stock for services rendered                 01/06/04                  --               --           24,475
Warrants issued for services rendered                          01/06/04                  --               --           17,775
Issuance of common stock to investors as a
 penalty for delayed registration of common stock              01/15/04                  --               --           66,650
Issuance of warrants to investors as a
 penalty for delayed registration of the underlying
 common stock                                                  01/15/04                  --               --            9,837
Issuance of common stock on cashless
 exercise of warrants                                          01/15/04                  --               --               --
Issuance of common stock for services rendered                 01/15/04                  --               --           10,560
Issuance of common stock to investors as a
 penalty for delayed registration of common stock              01/16/04                  --               --            2,243
Beneficial conversion feature on convertible
 notes payable - related parties                               01/16/04                  --               --           58,245
Issuance of warrants in conjunction with
 convertible notes payable - related parties                   01/16/04                  --               --           91,755
Issuance of common stock for services rendered                 01/23/04                  --               --           64,900
Beneficial conversion feature on convertible
 notes payable - related parties                               01/26/04                  --               --            4,026
Beneficial conversion feature on convertible
 notes payable - related parties                               01/28/04                  --               --           41,196
Issuance of warrants in conjunction with
 convertible notes payable - related parties                   01/28/04                  --               --          143,804
Issuance of common stock on cashless
 exercise of warrants                                          01/30/04                  --               --               --
Beneficial conversion feature on convertible
 notes payable - related parties                               01/31/04                  --               --            6,046
Issuance of warrants in conjunction with
 convertible notes payable - related parties                   01/31/04                  --               --           43,954
Beneficial conversion feature on convertible
 notes payable - related parties                               01/31/04                  --               --            9,558
Issuance of common stock on cashless
 exercise of warrants                                          02/04/04                  --               --               --
Offering costs on issuance of common stock subject
 to rescission rights for cash                                 02/06/04                  --               --           (5,250)
Issuance of common stock for services rendered                 02/06/04                  --               --            4,100
Issuance of common stock to investors as a
 penalty for delayed registration of common stock              02/15/04                  --               --          124,165
Issuance of warrants to investors as a
 penalty for delayed registration of the underlying
 common stock                                                  02/15/04                  --               --           19,415
Issuance of common stock for services rendered                 02/25/04                  --               --            3,360
Offering costs on issuance of common stock subject
 to rescission rights for cash                                 02/25/04                  --               --           (7,000)
Common stock committed for services rendered                   03/10/04                  --               --            9,940
Stock options issued for services rendered                     03/10/04                  --               --           15,917
Issuance of common stock to investors as a
 penalty for delayed registration of common stock              03/15/04                  --               --          210,812
Issuance of warrants to investors as a
 penalty for delayed registration of the underlying
 common stock                                                  03/15/04                  --               --           38,323
Issuance of common stock on cashless
 exercise of warrants                                          03/15/04                  --               --               --
Beneficial conversion feature on convertible
 notes payable - related parties                               03/16/04                  --               --           15,831
Issuance of common stock for cash                              03/19/04                  --               --           30,000
Issuance of common stock on cashless
 exercise of warrants                                          03/23/04                  --               --               --
Issuance of common stock for cash                              03/25/04                  --               --           30,000
Issuance of common stock for services rendered and
 to be rendered                                                03/25/04            (324,000)              --               --
Issuance of common stock for cash                              03/26/04                  --               --           30,000
Issuance of common stock on cashless
 exercise of warrants                                          04/01/04                  --               --               --
Issuance of warrants to investors as a
 penalty for delayed registration of the underlying
 common stock                                                  04/01/04                  --               --           10,735
Warrants issued for services rendered                          04/07/04                  --               --           78,297
Issuance of common stock for services rendered                 04/07/04                  --               --           35,400
Issuance of common stock on cashless
 exercise of warrants                                          04/12/04                  --               --               --
Issuance of common stock for services rendered                 04/12/04                  --               --          278,000
Issuance of common stock on cashless
 exercise of warrants                                          04/14/04                  --               --               --
Issuance of common stock on cashless
 exercise of warrants                                          04/15/04                  --               --               --
Issuance of common stock to investors as a
 penalty for delayed registration of common stock              04/15/04                  --               --          360,527
Issuance of warrants to investors as a
 penalty for delayed registration of the underlying
 common stock                                                  04/15/04                  --               --           74,639
Issuance of common stock on exercise of warrants               04/16/04                  --               --           53,664
Warrants issued for services rendered
 and to be rendered                                            04/16/04             (75,461)              --               --
Issuance of common stock for services rendered
 and to be rendered                                            04/16/04            (213,750)              --               --
Beneficial conversion feature on convertible
 notes payable - related parties                               04/19/04                  --               --           78,024
Issuance of common stock for cash                              04/20/04                  --               --           30,000
Issuance of common stock on cashless
 exercise of warrants                                          04/23/04                  --               --               --
Issuance of common stock on cashless
 exercise of warrants                                          04/28/04                  --               --               --
Warrants issued for services rendered                          04/29/04                  --               --           54,675
Common stock committed for legal settlement                    04/30/04                  --               --           13,440
Issuance of warrants to investors as a
 penalty for delayed registration of the underlying
 common stock                                                  04/30/04                  --               --           11,738
Issuance of warrants to investors as a
 penalty for delayed registration of the underlying
 common stock                                                  04/30/04                  --               --           17,790
Common stock committed to investors as a penalty
 for delayed registration of common stock                      04/30/04                  --               --          156,299
Warrants accrued but not issued to investors as a
 penalty for delayed registration of the underlying
 common stock                                                  04/30/04                  --               --           27,717
Amortization of deferred compensation                                               153,903               --          153,903
Net Loss                                                                                          (7,600,103)      (7,600,103)
                                                                               ------------     ------------     ------------
Balance, April 30, 2004                                                        $   (459,308)    $(21,815,596)    $ (2,883,152)

Beneficial conversion feature on convertible
 notes payable                                                 05/01/04                  --               --           25,262
 Issuance of warrants in conjunction with
  convertible notes payable                                    05/01/04                  --               --          399,739
Issuance of common stock to investors as a
 penalty for delayed registration of common stock                                        --               --           15,668
Issuance of warrants to investors as a penalty for
 delayed registration of the underlying common stock           05/01/04                  --               --          186,733
Issuance of common stock for services rendered                 05/05/04                  --               --          208,050
Issuance of common stock for services rendered                 05/07/04                  --               --            6,895
Offering costs on issuance of common stock                     05/10/04                  --               --          (13,000)
Common stock committed for services rendered                   05/12/04                  --               --           13,090
Issuance of committed common stock to investors as
  a penalty for delayed registration of common stock           05/15/04                  --               --               --
Issuance of common stock to investors as a
 penalty for delayed registration of common stock              05/15/04                  --               --          143,972
Issuance of warrants to investors as a penalty for
 delayed registration of the underlying common stock           05/15/04                  --               --           27,732
Issuance of common stock for cash                              05/21/04                  --               --           45,000
Offering costs on issuance of common stock                     05/25/04                  --               --           (5,000)
Offering costs on issuance of common stock                     05/26/04                  --               --           (2,250)
Amortization of deferred compensation                          05/31/04              92,202               --           92,202
Issuance of common stock to investors as a
 penalty for delayed registration of common stock              06/01/04                  --               --           61,224
Issuance of warrants to investors as a penalty for
 delayed registration of the underlying common stock           06/01/04                  --               --          140,443
Issuance of common stock for cash                              06/01/04                  --               --           20,000
Issuance of common stock for cash                              06/01/04                  --               --           30,000
Issuance of common stock for cash                              06/04/04                  --               --          100,000
Issuance of common stock for cash                              06/07/04                  --               --           50,000
Issuance of common stock for cash                              06/07/04                  --               --           30,000
Issuance of common stock for cash                              06/07/04                  --               --          100,000
Offering costs on issuance of common stock                     06/10/04                  --               --          (11,500)
Issuance of common stock to investors as a
 penalty for delayed registration of common stock              06/15/04                  --               --          235,655
Issuance of warrants to investors as a penalty for
 delayed registration of the underlying common stock           06/15/04                  --               --           36,412
Common stock committed for services rendered                   06/16/04                  --               --            9,990
Beneficial conversion feature on convertible
 notes payable - related parties                               06/16/04                  --               --            1,305
Beneficial conversion feature on convertible
 notes payable - related parties                               06/17/04                  --               --            3,859
Issuance of common stock for cash                              06/18/04                  --               --          100,000
Beneficial conversion feature on convertible
 notes payable                                                 06/23/04                  --               --           30,044
Issuance of warrants in conjunction with
 convertible notes payable                                     06/23/04                  --               --          209,956
Beneficial conversion feature on convertible
 notes payable                                                 06/23/04                  --               --            7,511
Issuance of warrants in conjunction with
 convertible notes payable                                     06/23/04                  --               --           52,489
Issuance of committed common stock for legal settlement        06/24/04                  --               --               --
Amortization of deferred compensation                          06/30/04             114,150               --          114,150
Issuance of common stock to investors as a
 penalty for delayed registration of common stock              07/01/04                  --               --           59,935
Issuance of warrants to investors as a penalty for
 delayed registration of the underlying common stock           07/01/04                  --               --          136,473
Issuance of common stock to investors as a
 penalty for delayed registration of common stock              07/15/04                  --               --          251,060
Common stock committed to investors as a
 penalty for delayed registration of common stock              07/15/04                  --               --              546
Issuance of warrants to investors as a penalty for
 delayed registration of the underlying common stock           07/15/04                  --               --           37,715
Common stock committed for services rendered                   07/21/04                  --               --            8,460
Warrants issued for services rendered                          07/26/04                  --               --           38,573
Issuance of common stock for services rendered                 07/28/04                  --               --          177,466
Common stock committed to investors as a
 penalty for delayed registration of common stock              07/31/04                  --               --          116,004
Warrants committed to investors as a penalty
 for delayed registration of common stock                      07/31/04                  --               --           15,500
Amortization of deferred compensation                          07/31/04              72,199               --           72,199
Common stock committed for services rendered                   08/05/04                  --               --           10,260
Common stock committed for services rendered                   08/11/04                  --               --           12,240
Common stock committed to investors as a                                                                  --               --
 penalty for delayed registration of common stock              08/15/04                  --               --          116,004
Warrants committed to investors as a penalty
 for delayed registration of common stock                      08/15/04                  --               --           15,500
Common stock committed to investors as a
 penalty for delayed registration of common stock              08/31/04                  --               --           27,390
Warrants committed to investors as a penalty
 for delayed registration of common stock                      08/31/04                  --               --           41,405
Amortization of deferred compensation                          08/31/04              20,084               --           20,084
Beneficial conversion feature on convertible
 notes payable                                                 09/01/04                  --               --           55,769
Commitment to Issue common stock for subscription
 receivable                                                    09/07/04                  --               --           33,000
Common stock committed to investors as a
 penalty for delayed registration of common stock              09/15/04                  --               --          208,567
Warrants committed to investors as a penalty
 for delayed registration of common stock                      09/15/04                  --               --           24,260
Issuance of common stock upon conversion of
Convertible Note payable                                       09/20/04                  --               --          100,000
Common stock committed for services rendered                   09/21/04                  --               --           11,700
Common stock committed to investors as a
 penalty for delayed registration of common stock              09/30/04                  --               --           26,423
Warrants committed to investors as a penalty
 for delayed registration of common stock                      09/30/04                  --               --           49,026
Expensing of deferred compensation                             09/30/04              20,084               --           20,084
Common stock committed to investors as a
 penalty for delayed registration of common stock              10/15/04                  --               --          207,383
Warrants committed to investors as a penalty
 for delayed registration of common stock                      10/15/04                  --               --           39,793
Common stock committed for cash                                10/18/04                  --               --          241,956
Common stock committed for cash                                10/19/04                  --               --          370,500
Common stock committed for cash                                10/21/04                  --               --           25,300
Common stock committed for cash                                10/22/04                  --               --           33,000
Common stock committed for services rendered                   10/25/04                  --               --           14,550
Common stock committed to investors as a
 penalty for delayed registration of common stock              10/31/04                  --               --           90,014
Warrants committed to investors as a penalty
 for delayed registration of common stock                      10/31/04                  --               --           90,390
Amortization of deferred compensation                          10/31/04              20,084               --           20,084
Common stock committed upon receipt of cash                    11/01/04                  --               --           20,700
Issuance of common stock committed in October
 upon receipt of cash                                          11/05/04                  --               --               --
Issuance of common stock previously committed as a
 penalty for the delayed registration of common stock          11/05/04                  --               --                0
Common stock committed for services rendered                   11/05/04                  --               --           15,600
Common stock committed to investors as a
 penalty for delayed registration of common stock              11/15/04                  --               --           29,208
Warrants committed to investors as a penalty
 for delayed registration of common stock                      11/15/04                  --               --           20,645
Issuance of common stock committed in September
 upon receipt of cash                                          11/16/04                  --               --               --
Issuance of common stock in settlement of
promissory notes payable - related parties                     11/19/04                  --               --          465,000
Issuance of committed common stock from
 the cashless exercise of warrants                             11/24/04                  --               --               --
Issuance of common stock for cash                              11/30/04                  --               --          785,400
Warrants committed to investors as a penalty
 for delayed registration of common stock                      11/30/04                  --               --           84,276
Amortization of deferred compensation                          11/30/04              20,084               --           20,084
Warrants committed to investors as a penalty
 for delayed registration of common stock                      12/15/04                  --               --           37,352
Common stock committed for cash                                12/23/04                  --               --           50,000
Warrants committed to investors as a penalty
 for delayed registration of common stock                      12/31/04                  --               --           60,990
Amortization of deferred compensation                          12/31/04              20,084               --           20,084
Issuance of common stock for cash                              01/07/05                  --               --          225,300
Issuance of common stock in settlement of
 promissory notes payable - related parties                    01/07/05                  --               --           59,000
Common stock committed for services rendered                   01/12/05                  --               --           10,500
Common stock committed to investors as a
 penalty for delayed registration of common stock              01/15/05                  --               --           28,864
Warrants committed to investors as a penalty
 for delayed registration of common stock                      01/15/05                  --               --           28,014
Issuance of common stock committed to investors as
 a penalty for delayed registration of common stock             01/18/05                 --               --               --
Issuance of common stock for cash                              01/18/05                  --               --           92,000
Issuance of common stock to investors as a
 penalty for delayed registration of common stock              01/18/05                  --               --          220,132
Common stock committed to former shareholders
 of Microdevices                                               01/25/05                  --               --           18,923
Common stock committed to investors as a
 penalty for delayed registration of common stock              01/31/05                  --               --            6,565
Warrants committed to investors as a penalty
 for delayed registration of common stock                      01/31/05                  --               --           86,030
Amortization of deferred compensation                          01/31/05              20,085               --           20,085
Issuance of common stock to investors as a
 penalty for delayed registration of common stock              02/15/05                  --               --            6,720
Warrants committed to investors as a penalty
 for delayed registration of common stock                      02/15/05                  --               --            7,805
Issuance of common stock upon cashless
 exercise of warrants                                          02/17/05                  --               --               --
Issuance of common stock to investors as a
 penalty for delayed registration of common stock              02/28/05                  --               --           24,490
Common stock committed to investors as a
 penalty for delayed registration of common stock              02/28/05                  --               --           27,104
Warrants committed to investors as a penalty
 for delayed registration of common stock                      02/28/05                  --               --           24,338
Amortization of deferred compensation                          02/28/05              20,084               --           20,084
Issuance of common stock upon cashless
 exercise of warrants                                          03/04/05                  --               --               --
Common stock committed to investors as a
 penalty for delayed registration of common stock              03/15/05                  --               --            7,448
Warrants committed to investors as a penalty
 for delayed registration of common stock                      03/15/05                  --               --           17,407
Common stock committed upon receipt of cash                    03/22/05                  --               --          200,000
Common stock committed to investors as a
                                                               03/31/05                  --               --           41,936
Warrants committed to investors as a penalty
 for delayed registration of common stock                      03/31/05                  --               --           19,241
Amortization of deferred compensation                          03/31/05              20,084               --           20,084
Common stock committed for services rendered                   04/01/05                  --               --           11,250
Stock option issued for services rendered                      04/01/05                  --               --          233,100
Common stock committed upon receipt of cash                    04/04/05                  --               --          150,000
Stock option issued for services rendered                      04/06/05                  --               --           48,000
Common stock committed to investors as a
 penalty for delayed registration of common stock              04/15/05                  --               --            1,327
Warrants committed to investors as a penalty
 for delayed registration of common stock                      04/15/05                  --               --           14,361
Issuance of common stock committed in prior year
 for services rendered                                         04/29/05                  --               --               --
Reclassify from common stock subject to Buy-Back               04/30/05                  --               --          694,000
Common stock committed to investors as a
 penalty for delayed registration of common stock              04/30/05                  --               --           70,487
Warrants committed to investors as a penalty
 for delayed registration of common stock                      04/30/05                  --               --           45,904
Reclassify from common stock subject to rescission             04/30/05                  --               --        1,788,153
Amortization of deferred compensation                          04/30/05              20,084               --           20,084
Net loss                                                                                 --       (9,984,565)      (9,984,565)
                                                                               ------------     ------------     ------------
Balance at April 30, 2005                                                                --      (31,800,161)      (1,685,399)
                                                                               ------------     ------------     ------------

</TABLE>

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


                                       94
<PAGE>

<TABLE>
<CAPTION>
                                                                                HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                                                               (DEVELOPMENT STAGE COMPANIES)
                                                                                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                             FOR THE YEARS ENDED APRIL 30, 2005 AND 2004 AND
                                                           FOR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO APRIL 30, 2005
----------------------------------------------------------------------------------------------------------------------------

                                                                                                                   For the
                                                                                                                 Period from
                                                                                                                 August 21,
                                                                                  For the Years Ended               1995
                                                                             ------------------------------     (Inception) to
                                                                               April 30,        April 30,          April 30,
                                                                                 2005              2004             2005
                                                                             ------------      ------------      ------------
<S>                                                                          <C>               <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
      Net loss                                                               $ (9,984,565)     $ (7,600,103)     $(30,371,127)
      Adjustments to reconcile net loss to net cash
       used in operating activities
           Depreciation                                                           213,379           144,113           456,917
           Issuance of common stock for services rendered                         480,245           478,196         5,238,854
           Common stock committed for services rendered                            24,470                --            24,470
           Common stock issued for legal settlement                                    --            13,440            13,440
           Issuance of common stock as compensation expense
             for services rendered from minority shareholders                          --                --            18,923
           Warrants issued or committed for services rendered                      38,573           210,341           976,035
           Financing expense in connection with the
             issuance of warrants                                                      --                --           223,710
           Stock options issued for services rendered                             281,100           391,960         2,347,640
           Additional compensation to officer in the form of
             convertible note payable - related party                                  --                --            42,171
           Amortization of deferred compensation                                  459,308           153,903         1,646,192
           Amortization of debt discount on convertible
             notes payable                                                        785,934           492,780         1,278,714
           Issuance of convertible notes payable as a penalty for the
            delayed registration of the underlying common stock                    44,000             7,000            51,000
           Issuance of common stock as a penalty for the delayed
             registration of shares of common stock                             1,875,823         1,224,702         3,158,186
           Issuance or commitment to issue warrants as a penalty for the
             delayed registration of the underlying common stock                1,287,746           231,282         1,519,028
           Common stock committed as a penalty for the delayed
             registration of shares of common stock                               148,302                --           148,302
           (Increase) decrease in
                Restricted cash                                                                      71,234
                Accounts receivable                                              (245,547)            4,171          (275,959)
                Inventory                                                        (808,650)               --          (808,650)
                Other current assets                                             (196,972)          202,833          (411,789)
                Other assets                                                           --           295,948                --
           Increase (decrease) in
                Accounts payable                                                  780,205           623,818         2,186,636
                Accrued expenses                                                  (14,086)           86,691            74,205
                Accrued payroll and payroll taxes                                   9,546            80,496           858,618
                Accrued interest                                                   94,778            41,038           174,000
                Other current liabilities                                         200,000                --           200,000
                                                                             ------------      ------------      ------------

Net cash used in operating activities                                        $ (4,526,411)     $ (2,846,157)     $(11,230,484)
                                                                             ------------      ------------      ------------
</TABLE>

   The accompanying notes are an integral part of these financial statements


                                       95
<PAGE>

<TABLE>
<CAPTION>
                                                                                   HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                                                                  (DEVELOPMENT STAGE COMPANIES)
                                                                                          CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                                FOR THE YEARS ENDED APRIL 30, 2005 AND 2004 AND
                                                              FOR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO APRIL 30, 2005
-------------------------------------------------------------------------------------------------------------------------------

                                                                                                                     For the
                                                                                                                   Period from
                                                                                                                    August 21,
                                                                                    For the Years Ended                1995
                                                                               ------------------------------     (Inception) to
                                                                                 April 30,        April 30,          April 30,
                                                                                   2005              2004              2005
                                                                               ------------      ------------      ------------
<S>                                                                            <C>               <C>               <C>
CASH FLOWS FROM INVESTING ACTIVITIES
      Purchase of property and equipment                                       $   (138,526)     $   (245,680)     $   (988,055)
                                                                               ------------      ------------      ------------

Net cash used in investing activities                                              (138,526)         (245,680)         (988,055)
                                                                               ------------      ------------      ------------

CASH FLOWS FROM FINANCING ACTIVITIES
      Proceeds from issuance of common stock in
       private placement                                                       $         --      $         --      $  3,547,406
      Offering costs on issuance of common stock in
            private placement                                                            --                --          (196,793)
      Proceeds from issuance of common stock                                      2,352,156         1,366,001         4,345,424
      Offering costs on issuance of common stock                                    (31,750)          (57,500)         (139,768)
      Proceeds from commitment to issue common stock                                350,000                --           350,000
      Proceeds from the issuance of preferred stock                                      --                --           979,301
      Offering costs on issuance of preferred stock                                      --                --          (178,902)
      Proceeds from issuance of common stock subject
        to rescission rights                                                        880,000           475,000         1,355,000
      Proceeds from issuance of common stock subject
        to buy-back for two year period                                                  --           200,000           250,518
      Proceeds from collection of subscription receivable for net
        sales of common stock subject to buy-back for two year period                    --           443,482           443,482
      Recapitalization of reverse merger                                                 --                --                14
      Proceeds from exercise of stock options in subsidiary                              --                --             7,164
      Proceeds from issuance of common stock upon exercise
        of warrants                                                                      --            54,004            54,004
      Proceeds from notes payable                                                    59,000                --            59,000
      Payment on notes payable                                                       (8,940)             (507)           (9,447)
      Proceeds from issuance of notes payable - related parties                     476,000           243,840           947,853
      Payments on notes payable - related parties                                  (260,934)               --          (807,265)
      Proceeds from convertible notes payable                                       100,000                --           100,000
      Proceeds from convertible notes payable - related parties                          --                --            55,400
      Payments on convertible notes payable - related parties                            --           (10,400)          (35,400)
      Proceeds from convertible notes payable
        subject to rescission rights                                                300,000           385,000           685,000
      Proceeds from collection of subscription receivable for
        sale of convertible note payable sold subject to rescission rights          425,000                --           425,000
                                                                               ------------      ------------      ------------

Net cash provided by financing activities                                         4,640,532         3,098,920        12,236,991
                                                                               ------------      ------------      ------------

Net increase (decrease) in cash and cash equivalents                                (24,405)            7,083            18,452

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                       42,857            35,774                --
                                                                               ------------      ------------      ------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                       $     18,452      $     42,857      $     18,452
                                                                               ============      ============      ============

 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

       Interest paid                                                           $     15,076      $         --      $     17,964
                                                                               ============      ============      ============

       Income taxes paid                                                       $        800      $      2,400      $     14,983
                                                                               ============      ============      ============
</TABLE>

The accompanying notes are an integral part of these financial statements


                                       96
<PAGE>

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

During the years ended April 30, 2005 and 2004 and the period from August 21,
1995 (inception) to April 30, 2005, HiEnergy Technologies, Inc. (the "Company")
issued unsecured convertible notes payable-related party, in exchange for
accounts payable due to former legal counsel for the Company of $25,648,
$700,718 and $773,083, respectively.

During the years ended April 30, 2005 and 2004 and the period from August 21,
1995 (inception) to April 30, 2005, the Company issued 0, 300,000 and 322,898
shares of common stock, respectively, for the outstanding principle and interest
on convertible notes payable-related parties of $0, $100,000 and $122,896,
respectively.

During the year ended April 30, 2005, the Company issued 192,308 shares of
common stock for the outstanding principal on a convertible note payable balance
of $100,000. The Company expensed a beneficial conversion feature upon
conversion in the amount of $55,769.

During the year ended April 30, 2005, the Company issued 110,133 shares of
common stock deemed subject to rescission rights in settlement of $49,560 worth
of convertible notes payable and accrued interest deemed subject to rescission
rights.

During the year ended April 30, 2005, the Company applied $39,959 deposited with
its former legal counsel to outstanding accounts payable.

During the year ended April 30, 2005, the Company entered into a three-year
capital lease for office equipment valued at $6,633. Total payments during the
lease term are $8,538.

During the year ended April 30, 2005, the Company issued 1,341,806 shares of
common stock on the cashless exercise of warrants to purchase 1,941,777 shares
of common stock.

During the year ended April 30, 2005, the Company issued 128,260 shares of
common stock to an investor, upon the conversion of notes payable of $59,000.

During the year ended April 30, 2005, the Company issued 1,010,870 shares of
common stock to the chairman of the Company and an affiliate, upon the
conversion of notes payable-related parties of $465,000.

During the years ended April 30, 2005, 2004 and the period from August 21, 1995
(inception) to April 30, 2005, the Company issued or committed to issue
unsecured notes payable to various employees in exchange of deferred salaries of
$48,827, $10,240 and $59,067, respectively.

During the year ended April 30, 2005, the Company removed $694,000 of current
liabilities recorded from the sale of 2,000,000 common shares sold deemed
subject to buy-back rights. The $694,000 of current liabilities was reclassified
to common stock and paid-in-capital.

During the year ended April 30, 2005, the Company removed $425,000 of current
liabilities recorded from the issuance of 944,444 common shares deemed
subjective to rescission upon the conversion of $425,000 of convertible notes
payable deemed subject to rescission. The 944,444 common shares deemed subject
to rescission were committed as of prior year end and issued at the beginning of
fiscal year 2005. The $425,000 of current liability was reclassified to common
stock and paid-in-capital.

During the year ended April 30, 2005, the Company removed $158,153 of current
liabilities recorded from the issuance of 351,452 common shares deemed
subjective to rescission upon the conversion of $150,000 of convertible notes
payable deemed subject to rescission plus accrued interest of $8,153. The
351,452 common shares deemed subject to rescission were committed as of prior
year end and issued at the beginning of fiscal year 2005. The $158,153 of
current liability was reclassified to common stock and paid-in-capital.

In April 2005, the Company reclassified $880,000 of current liabilities recorded
in January 2005 upon the sale of 1,955,555 shares of common stock sold deemed
subject to rescission rights. In April 2005, upon termination of the rescission
rights, the $880,000 current liability was reclassified to common stock and
paid-in-capital.

During the year ended April 30, 2005, the Company committed to issue 452,029
shares of common stock to acquire the remaining outstanding stock of
Microdevices removing the Minority Interest in the subsidiary.

During the year ended April 30, 2005, the Company issued 97,986 shares of common
stock which were committed to be issued as of the year ended April 30, 2004.

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


                                       97
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND LINE OF BUSINESS

General

HiEnergy Technologies, Inc. ("HiEnergy", together with its subsidiaries, the
"Company") is a nuclear technologies-based company focused on the
commercialization of its initial proprietary, neutron-based, "stoichiometric"
sensor devices, including (i) the CarBomb Finder(TM) 3C4, a vehicle-borne
system, for the detection and identification of car bombs, and (ii) the
SIEGMA(TM) 3E3 a portable suitcase-borne system for the detection and
identification of home-made bombs, also known as Improvised Explosive Devices or
IEDs. The Company is marketing its devices to governmental and private entities
and is negotiating licenses for distribution of its devices with various
industry partners. To date, the Company has devoted the bulk of our efforts and
resources to the research, design, testing and development of proprietary
"stoichiometric" sensor devices and underlying technologies, and has yet to
generate meaningful revenues from the sale of any products using its
technologies.

The Company continues to focus on the research and development of additional
applications of its technologies and their further exploitation, both internally
and through collaboration with third parties. The Company is currently
developing prototypes in programs with the U.S. Department of Defense and the
Department of Homeland Security for other related uses of its core technology.
Recently, the Company entered into a funded cooperative development agreement
with the U.S. Transportation Security Administration (TSA) to produce a proof of
concept which incorporates its SuperSenzor (TM) technology into a baggage
screening system. The Company's "stoichiometric" technology, or "Stoitech (TM)"
has been incorporated into additional prototype applications which, if it is
able to raise the funds necessary to commercialize them, will be the next
products the Company attempts to launch: (i) an in-ground explosive screening
system, the CarBomb Finder(TM) 3C5, (ii) a landmine detector, the Anti-Tank
Landmine Detector 7AT7; (iii) an unexploded ordnance detector, Unexploded
Ordnance Sensor 3UXO3, which is also useful to detect IEDs; and (iv) a device we
call a "Refractorymeter", which can detect fissures or erosions in the ceramic
lining of oil cracking tanks.

HiEnergy was originally incorporated under the laws of the State of Washington
on March 22, 2000 under the name SLW Enterprises Inc. ("SLW") and was
redomiciled on October 22, 2002 as a Delaware corporation. At present, HiEnergy
has four wholly-owned subsidiaries, HiEnergy Defense, Inc., HiEnergy Mfg
Company, HiEnergy International, Inc, and HiEnergy Europe, Ltd. HiEnergy
Defense, Inc. was incorporated under the laws of the State of Delaware in July
2003 to focus on marketing military and defense applications of the Company's
technology within the Washington D.C. area from its office in Alexandria,
Virginia. HiEnergy Europe Ltd. was incorporated under the laws of the State of
Delaware in March 2004 and is presently not operating, but will focus on
marketing the Company's technology throughout the European Union. HiEnergy Mfg
Company was incorporated under the laws of the State of Delaware in March 2005
and formed for the purpose of creating a separate entity for the manufacturing
and assembly of the Company's products. Lastly, HiEnergy International, Inc. was
incorporated under the laws of the State of Delaware in July 2005, and was
formed for the purpose of creating a separate entity for the sales and servicing
of its products overseas, excluding Europe, and primarily the Middle East and
Africa.

Prior to January 2005, HiEnergy also had one majority owned subsidiary, HiEnergy
Microdevices, Inc., which was incorporated in Delaware on August 21, 1995 and
was the vehicle through which Stoitech (TM) was initially developed by its
Chairman and CEO, Dr. Bogdan Maglich ("Microdevices", and together with HiEnergy
Europe, Ltd., HiEnergy Defense, HiEnergy Mfg Company, and HiEnergy
International, Inc., the "Subsidiaries"). As a result of a short-form merger,
which became effective on January 25, 2005, the Company assumed all of
Microdevices' assets and liabilities and Microdevices ceased to exist as a
separate entity as of that date.

       RECAPITALIZATION BETWEEN HIENERGY AND SHAREHOLDERS OF MICRODEVICES

On April 25, 2002, SLW, which was then a "public shell company", was taken over
by the stockholders of Microdevices in a transaction commonly referred to as a
"reverse takeover". Under this transaction, which was structured as a voluntary
exchange of shares, the stockholders of Microdevices, including the Company's
present Chairman of the Board, Chief Executive Officer, President, Treasurer and
Chief Scientific Officer, Dr. Bogdan Maglich, obtained the right to receive up
to 64% percent of the outstanding shares of SLW. The stockholders of SLW prior
to the voluntary share exchange retained, collectively, 36% of SLW. The reverse
takeover was accounted for as a re-capitalization of Microdevices for accounting
purposes, in a manner similar to a pooling of interests, with Microdevices as
the accounting acquirer (reverse acquisition). Since the Company (formerly SLW)
was a "public shell company", with limited assets and liabilities at the date of
the acquisition and no significant operations prior to the acquisition, no pro
forma information has been presented. As a result of the reverse takeover,
Microdevices became the Company's majority-owned subsidiary, and was later
merged with the Company in January 2005 in a short-form merger through which the
Company committed to issue 452,029 shares of common stock to the remaining
stockholders of HiEnergy Microdevices on the basis of 22.3524 HiEnergy shares
for 1 share of Microdevices (the same ratio that was used in the original
voluntary share exchange). Additionally, we may be required to issue up to
704,190 shares of our common stock to former holders of options and warrants of
Microdevices who hold rights to purchase HiEnergy shares at $0.156 per share.
These rights survived the merger and may be exercised any time before April 25,
2007, subject to the payment of promissory notes representing the purchase
price.


                                       98
<PAGE>

NOTE 2 - RESTATEMENT AND RECLASSIFICATIONS

In June 2004, the Company announced that it had revised its assumptions used to
determine the fair value of the common stock of Microdevices. Furthermore, a
change in the fair value of Microdevices common stock resulted in changes to the
Company's financial statements, as the fair value was used as a basis to
determine the value of:

      o     Stock Options and warrants granted to employees and non-employees
            during fiscal years 1996 through 2002. Stock options granted to
            employees and directors were valued using the intrinsic value method
            as prescribed in APB No. 25, "Accounting for Stock Issued to
            Employees," and related interpretations while stock options and
            warrants issued to non-employees were valued using the Black-Scholes
            valuation model, in accordance with SFAS No. 123, "Accounting for
            Stock-Based Compensation" and related interpretations.

      o     Shares of common stock issued for services rendered during fiscal
            years 1996 through 2002, which were recorded as compensation
            expense.

As a result of this revision and the change in how the Company determines the
fair value of Microdevices common stock, the Company's financial results for the
fiscal years ended April 30, 2002 and 2003 have been restated to correct certain
accounting errors made in preparing those financial statements as well as other
reclassifications and adjustments. The Company has also made additional
corrections to previously unrecognized accounting discrepancies discovered
during the restatement process, including adjustments for estimated payroll tax
liability as discussed in items 8 and 9 below.


                                       99
<PAGE>

Below is the reclassification effect as of and for the year ended April 30,
2002:

<TABLE>
<CAPTION>
                                       As Originally        Restatement                    As
                                          Reported           Adjustment                 Restated
                                    ------------------- -----------------        -------------------
<S>                                       <C>                <C>                       <C>
BALANCE SHEET
Current assets                            $  1,114,802       $        --               $  1,114,802
                                    ------------------- -----------------        -------------------
    Total assets                             1,229,370                --                  1,229,370
                                    =================== =================        ===================

Accrued payroll and payroll taxes              350,000          (350,000)   8
                                                                 257,150    8               257,150
                                    ------------------- -----------------        -------------------

Total current liabilities                    1,398,320          (350,000)   8
                                                                 257,150    8             1,305,470
                                    ------------------- -----------------        -------------------

Minority interest                               18,923                --                     18,923
                                    ------------------- -----------------        -------------------

SHAREHOLDERS' DEFICIT

Common stock                                     2,208            19,867   11                22,075
                                    ------------------- -----------------        -------------------

Additional paid-in capital                   2,534,483         3,792,564    1
                                                                 667,037    2
                                                                (255,460)   3
                                                                  24,924   10
                                                                 (19,867)  11             6,743,681
                                    ------------------- -----------------        -------------------
Deficit accumulated during the
  development stage                         (2,724,564)          350,000    8
                                                              (3,792,564)   1
                                                                (667,037)   2
                                                                 255,460    3
                                                                 (24,924)  10
                                                                (257,150)   8            (6,860,779)
                                    ------------------- -----------------        -------------------

Total stockholders' equity                    (187,873)          350,000    8
                                                                (257,150)   8               (95,023)
                                    =================== =================        ===================
</TABLE>


                                       100
<PAGE>

<TABLE>
<CAPTION>
                                       As Originally        Restatement                    As
                                          Reported           Adjustment                 Restated
                                    ------------------- -----------------        -------------------
<S>                                       <C>                <C>                       <C>
STATEMENT OF OPERATIONS
Contract revenues                          $   148,166      $   (148,166)   4           $        --

General & Administration                     1,525,276          (558,184)   5
                                                               1,091,362    6
                                                                 (33,349)   7
                                                                  94,241    8
                                                                   7,353    2
                                                                  24,924   10             2,151,623
                                    -------------------- ----------------        -------------------

Research & development                               -          (148,166)   4
                                                                 558,184    5
                                                                (175,000)   8               235,018
                                    -------------------- ----------------        -------------------

Total operating expenses                     1,525,276          (148,166)   4
                                                               1,091,362    6
                                                                 (33,349)   7
                                                                  94,241    8
                                                                (175,000)   8
                                                                   7,353    2
                                                                  24,924   10             2,386,641
                                    -------------------- ----------------        -------------------

Loss from operations                        (1,377,110)       (1,091,362)   6
                                                                  33,349    7
                                                                 (94,241)   8
                                                                 175,000    8
                                                                  (7,353)   2
                                                                 (24,924)   10           (2,386,641)
                                    -------------------- ----------------        -------------------

Loss before tax provision                   (1,387,596)       (1,091,362)   6
                                                                  33,349    7
                                                                 (94,241)   8
                                                                 175,000    8
                                                                  (7,353)   2
                                                                 (24,924)  10            (2,397,127)
                                    -------------------- ----------------        -------------------

Net loss                                    (1,389,530)       (1,091,362)   6
                                                                  33,349    7
                                                                 (94,241)   8
                                                                 175,000    8
                                                                  (7,353)   2
                                                                 (24,924)  10            (2,399,061)
                                    ==================== ================        ===================
</TABLE>


                                      101
<PAGE>

Below is the reclassification effect as of and for the year ended April 30,
2003:

<TABLE>
<CAPTION>
                                       As Originally        Restatement                    As
                                          Reported           Adjustment                 Restated
                                    ------------------- -----------------        -------------------
<S>                                       <C>                <C>                       <C>
BALANCE SHEET

Current assets                            $  1,012,723        $       --               $  1,012,723
                                    -------------------- -----------------       ------------------
  Total assets                               1,813,095                --                  1,813,095
                                    ==================== =================       ==================

Accounts payable                               670,895                 1                    670,896
Accrued payroll and payroll taxes               28,525           363,904    9               392,429
Common stock deemed subject to buy-back             --           494,000   13
Total current liabilities                      878,425           363,904    9
                                                                 494,000   13
                                                                       1                  1,736,330
                                    -------------------- -----------------       ------------------

Minority interest                               18,923                --                     18,923
                                    -------------------- -----------------       ------------------

SHAREHOLDERS' DEFICIT

Common stock                                    25,526            (1,400)  13                24,126
                                    -------------------- -----------------       ------------------

Additional paid-in capital                   9,837,436         3,792,564    1
                                                                 667,037    2
                                                                (255,460)   3
                                                                  24,924   10
                                                                (492,600)  13
                                                                      (1)                13,573,900
                                    -------------------- -----------------       ------------------

Committed common stock                          34,404            57,661   12                92,065
                                    -------------------- -----------------       ------------------
Deficit accumulated during the
  development stage                         (8,981,620)       (3,792,564)   1
                                                                (667,037)   2
                                                                 255,460    3
                                                                 (24,924)  10
                                                                 (57,661)  12
                                                                (363,904)   9           (13,632,250)
                                    -------------------- -----------------       ------------------

Total stockholders' equity                     915,746          (363,904)   9
                                                                (494,000)  13                57,842
                                    -------------------- -----------------       ------------------
Total liabilities & shareholders'
  equity                                     1,813,094                 1                  1,813,095
                                    ==================== =================       ==================
</TABLE>



                                      102
<PAGE>

<TABLE>
<CAPTION>
                                       As Originally        Restatement                    As
                                          Reported           Adjustment                 Restated
                                    ------------------- -----------------        -------------------
<S>                                       <C>                <C>                       <C>
STATEMENT OF OPERATIONS

General & Administration                  $  4,488,175       $   350,000    9
                                                                 106,754    9          $  4,944,929
                                    -------------------- -----------------       ------------------

Research & development                         695,042                --                    695,042
Total operating expenses                     5,183,217           350,000    9
                                                                 106,754    9             5,639,971
                                    -------------------- -----------------       ------------------

Loss from operations                        (5,183,217)         (350,000)   9
                                                                (106,754)   9            (5,639,971)
                                    -------------------- -----------------       ------------------

Penalties on equity                                 --           (57,661)  12               (57,661)
Total other expense                           (226,448)          (57,661)  12              (284,109)
Loss before provision for income
  taxes                                     (5,409,665)         (350,000)   9
                                                                (106,754)   9
                                                                 (57,661)  12            (5,924,080)
                                    -------------------- -----------------       ------------------

Net loss                                    (5,411,265)         (350,000)   9
                                                                (106,754)   9
                                                                 (57,661)  12            (5,925,680)
                                    -------------------- -----------------       ------------------
Net loss available to
  shareholders                              (6,257,056)         (350,000)   9
                                                                (106,754)   9
                                                                 (57,661)  12            (6,771,471)
                                    ==================== =================       ==================
</TABLE>




                                      103
<PAGE>

Below is the reclassification effect for the period from August 21, 1995
(inception) to April 30, 2003:

<TABLE>
<CAPTION>
                                       As Originally        Restatement                    As
                                          Reported           Adjustment                 Restated
                                    ------------------- -----------------        -------------------
<S>                                       <C>                <C>                       <C>
STATEMENT OF OPERATIONS

General & Administration                  $  5,909,064      $  3,792,564    1
                                                                 667,037    2
                                                                 350,000    9
                                                                (255,460)   3
                                                                 363,904    9
                                                                  24,924   10
                                                                       1              $  10,852,034
                                      -------------------- -----------------       ------------------

Research & development                       1,957,679          (350,000)   8
                                                                      (1)                 1,607,678
                                      -------------------- -----------------       ------------------

Total operating expenses                     7,866,743         3,792,564    1
                                                                 667,037    2
                                                                (255,460)   3
                                                                 363,904    9
                                                                  24,924   10            12,459,712
                                      -------------------- -----------------       ------------------

Loss from operations                        (7,866,743)       (3,792,564)   1
                                                                (667,037)   2
                                                                 255,460    3
                                                                (363,904)   9
                                                                 (24,924)  10           (12,459,712)
                                      -------------------- -----------------       ------------------
Penalties on equity & debt
  issuances                                         --           (57,661)  12               (57,661)
Total other expense                           (256,503)          (57,661)  12              (314,164)
Loss before provision for income
  taxes                                     (8,123,246)       (3,792,564)   1
                                                                (667,037)   2
                                                                 255,460    3
                                                                (363,904)   9
                                                                 (24,924)  10
                                                                 (57,661)  12           (12,773,876)
                                      -------------------- -----------------       ------------------

Net loss                                    (8,135,829)       (3,792,564)   1
                                                                (667,037)   2
                                                                 255,460    3
                                                                (363,904)   9
                                                                 (24,924)  10
                                                                 (57,661)  12           (12,786,459)
                                      -------------------- -----------------       ------------------

Net loss available to shareholders          (8,981,620)       (3,792,564)   1
                                                                (667,037)   2
                                                                 255,460    3
                                                                (363,904)   9
                                                                 (24,924)  10
                                                                 (57,661)  12           (13,632,250)
                                      ==================== =================       ==================
</TABLE>




                                      104
<PAGE>

1) For the period from August 21, 1995 (inception) to April 30, 2002, the
Company issued common stock, options and warrants to its founder, company
directors and other service providers as compensation for services rendered in
lieu of cash. The Company determined the fair value of the stock issued for this
purpose as the value of the service provided by the service provider. The
Company later determined that a more appropriate fair value for the common stock
was the weighted average per share value of cash received upon the sale of
common stock during the same period. Accordingly, the Company increased
compensation expense during the period by $3,792,564 as well as additional paid
in capital and accumulated deficit.

2) For the period from August 21, 1995 (inception) to April 30, 2002, the
Company issued stock options and initially valued the options using the
"services provided" method described above in item 1 as the fair value of the
Company's common stock. The Company later determined, using the "stock sold for
cash" method to determine the fair value of the underlying stock, that the
options were of greater value adding additional compensation expense of $667,037
for the period from August 21, 1995 (inception) to April 30, 2002. In fiscal
1999, the Company granted an option to purchase 2,482,011 shares of common stock
to its founder with an exercise price of $0.13 per share. Using the "stock sold
for cash" method to determine that the fair value of the underlying stock was
$0.40 per share, the stock option was in-the-money by $0.27. The Company
determined that the compensation expense associated with this stock option grant
was $659,684. For the year ended April 30, 2002, both additional paid in capital
and accumulated deficit increased by $667,037.

3) During the period from inception through fiscal-year ended April 30, 2002,
the Company erroneously recorded the issuance of common stock upon the receipt
of cash as both stock sold for cash and stock issued for services. Accordingly,
the Company reversed $255,460 of expense during the period from inception
through fiscal-year ended April 30, 2002 and additional paid in capital which
was also overstated by the same amount due to the double recording. As of April
30, 2002, both accumulated deficit and additional paid in capital were both
reduced by the amount of $255,460. For periods subsequent to fiscal-year ended
April 30, 2002, we have adopted an accounting platform with more efficient
controls designed to prevent double posting, as we constantly strive to improve
our internal control over financial reporting.

4) For the year ended April 30, 2002 the Company reclassified $148,166 of grant
income as an offset against research and development costs in accordance with
section 3.50 of the Government Contract Audit Guide for Fixed-Price Best-Efforts
Cost Sharing Arrangements.

5) For the year ended April 30, 2002 the Company reclassified $558,184 from
general and administrative expenses to research and development expenses as
prescribed by SFAS 2, which defines research as a planned search or critical
investigation of new knowledge and development as the translation of findings
into a plan or design for a new product. We had originally erroneously recorded
all expenses as general and administrative.

6) For the period from August 21, 1995 (inception) to April 30, 2002 the Company
issued common stock to its founder, company directors and other service
providers as compensation for services rendered in lieu of cash. The Company
determined the fair value of the stock issued for this purpose as the value of
the service provided by the service provider. The Company later determined that
a more appropriate fair value for the common stock was the weighted average per
share value of cash received upon the sale of common stock during the same
period. The Company has determined that the difference in the valuation method
increased compensation expense $1,091,362 for the year ended April 30, 2002. The
increase to additional paid in capital and accumulated deficit is included in
the $3,792,564 adjustment mentioned in item 1 above.

7) For the year ended April 30, 2002 the Company erroneously recorded the
issuance of common stock upon the receipt of cash as both stock sold for cash
and stock issued for services. Accordingly, the Company reversed $33,349 of
expense during the fiscal-year ended April 30, 2002 and additional paid in
capital which was also overstated by the same amount due to the double
recording. This amount is a component of the $255,460 total reversal of expense
for the period from inception through April 30, 2002 as described in item 3
above. For periods subsequent to fiscal-year ended April 30, 2002, we have
adopted an accounting platform with more efficient controls designed to prevent
double posting, as we constantly strive to improve our internal control over
financial reporting.

8) For the year ended April 30, 2002 and the period from August 21, 1995
(inception) to April 30, 2002, the Company reversed $175,000 and $350,000 from
research and development for an estimated and accrued payroll tax liability.
Accordingly current liabilities and accumulated deficit decreased by $350,000
for the period ended April 30, 2002. The Company then recorded a new estimated
payroll tax liability of $94,241 for the year ended April 30, 2002 and $$257,150
for the period from August 21, 1995 (inception) through April 30, 2002.
Accordingly, current liabilities and accumulated deficit increased by $257,150
for the period ended April 30, 2002. The company has accrued the liability for
its failure to timely file payroll tax returns, W-2s and Forms 1099.

9) For the year ended April 30, 2003, the company increased general and
administrative expense by $350,000 to offset a credit for this amount in general
and administrative expenses originally reported. This increased current
liabilities and accumulated deficit but was netted against the reversal of this
amount in item 8 above. For the year ended April 30, 2003, the company then
recorded a new estimated payroll tax liability of $106,754 for the year ended
April 30, 2003 and $$363,904 for the period from August 21, 1995 (inception)
through April 30, 2003. Accordingly, current liabilities and accumulated deficit
increased by $363,904 for the period ended April 30, 2003. The company has
accrued the liability for its failure to timely file payroll tax returns, W-2s
and Forms 1099.



                                      105
<PAGE>

10) For the year ended April 30, 2002 the Company issued warrants and initially
undervalued the warrants using the "services provided" method described above in
item 1 as the fair value of the Company's common stock. The Company later
determined that using the "stock sold for cash" method to determine fair value
of the underlying stock that the fair value of the warrants added additional
compensation expense of $24,924 for the year ended April 30, 2002. Additional
paid in capital and accumulated deficit were increased by the same amount.

11) As of April 30, 2002, common stock was increased $19,867 as a result of
previously using the incorrect par value, additional paid in capital was reduced
accordingly.

12) For the year ended April 30, 2003, the Company recorded an expense of
$57,661 for the issuance of common stock as a penalty for delayed registration.
The issuance was originally recorded as a cost of capital. Accumulated deficit
and committed common stock were increased accordingly.

13) For the year ended April 30, 2003, the Company reclassified $494,000 from
stockholders' deficit to current liabilities. For the nine months ended January
31, 2004, the Company reclassified $200,000 from stockholder's deficit to
current liabilities. In April and June 2003, the Company engaged in a public
offering of its shares to purchasers who bought 1,400,000 and 900,000 shares of
common stock in reliance upon a prospectus that did not, at the time the sales
were made, contain a fixed price for the shares. These sales were made through
private negotiation of the prices to be paid by each investor, and the prices
were not consistent during the offering. The rules and regulations governing the
sale of securities through a prospectus under the Securities Act of 1933 do not
permit companies of our size to conduct a continuous public offering at prices
which are negotiated, and vary by investor. As a result of this violation, the
people who purchased the Company's common stock in the public primary offering
would have the right, which may but does not have to be waived by them, to
require the Company to buy back their shares at the price they paid for them.
This right continues until two years from the date of the last sale made in
violation of the fixed price rules. The Company has received waivers with
respect to 300,000 of the shares sold in the public offering.

NOTE 3 - GOING CONCERN

The accompanying consolidated 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.
During the years ended April 30, 2005 and 2004 and the period from August 21,
1995 (inception) to April 30, 2005, the Company incurred net losses available to
common shareholders of approximately $9,984,565, $8,183,346, and $31,800,161,
respectively, and it had negative cash flows from operations of approximately
$4,526,411, $2,846,157, and $11,230,484, respectively. In addition, the Company
had an accumulated deficit of $31,800,161 and was in the development stage as of
April 30, 2005. 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 its
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 accompanying consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or of 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, 2005 through private
placements, the Company is currently negotiating with certain investors to raise
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 unless and until the Company's sales volume reaches a sufficient level to
cover operating expenses. Furthermore, the Company is involved in various
litigation matters. The effect of such litigation on the Company's financial
statements is indeterminable at this time.

NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

                             Basis of Representation

The accompanying audited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles with instructions for
Form 10-KSB. The Company believes its disclosures are adequate so that the
information presented is not misleading. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation of results of the financial position and operations of
the Company have been included in the accompanying consolidated financial
statements.



                                      106
<PAGE>

The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period, and actual results could
differ from those estimates.

                           Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
HiEnergy and its wholly-owned subsidiaries, HiEnergy Defense, HiEnergy Europe
and HiEnergy Mfg, and its former majority-owned subsidiary, Microdevices. All
significant inter-company accounts and transactions have been eliminated.

                          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." All losses accumulated since inception have been considered
as part of the Company's development stage activities.

                              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 consolidated financial statements since it did not have any of the
components of comprehensive income in any period presented.

                            Cash and Cash Equivalents

Cash and cash equivalents consist of unrestricted balances only. The Company
considers all highly liquid investments with original maturities of three months
or less to be 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
("FDIC") up to $100,000. From time to time, deposits at the bank exceed the
$100,000 FDIC insurance limit. 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.

                               Accounts Receivable

Accounts receivable consists of amounts due under a governmental grant. Contract
amounts are billed as monthly reports and are submitted detailing work performed
under the contract and are generally due in 30 days.

                              Other Current Assets

Other current assets consist primarily of prepaid insurance, prepaid consulting
and services, and equipment deposits. Prepaid insurance and prepaid consulting
and services are capitalized and amortized over the estimated period for which
such services are provided.

                             Property and Equipment

Property and equipment are stated at cost, less depreciation and amortization.
Expenditures for additions and major improvements are capitalized. Repair and
maintenance costs are expensed as incurred. When property and equipment are
retired or otherwise disposed of, the related cost and accumulated depreciation
are removed from the accounts. Gains or losses from retirements and disposals
are credited or charged to income. Depreciation and amortization are computed
using the straight-line method over the shorter of the estimated useful life of
the respective assets or terms of the related leases. The useful lives and lease
terms for depreciable assets are as follows:

                           Prototype Equipment                5 years
                           Laboratory Equipment               5 years
                           Furniture and Fixtures             5 years
                           Website Development                5 years
                           Leasehold Improvements             20 months


                                      107
<PAGE>

                                Long-Lived Assets

The carrying value of long-lived assets is reviewed for impairment whenever
events or changes in circumstances indicate the carrying value of such assets
may not be recoverable. Measurement of the impairment loss is based on the fair
value of the asset. Generally, fair value will be determined using valuation
techniques such as the present value of expected future cash flows.

                                     Patents

The Company has filed several patent applications within and outside the United
States. The outcome is indeterminable. Patent costs consisting mainly of legal
expenses are expensed as incurred.

                            Valuation of Inventories

During the year ended April 30, 2005, the Company acquired components in
anticipation of future assembly and sale. The components have been recorded at
cost. The Company plans to adopt a first-in, first-out historic cost basis for
inventory valuation. Total inventory as of April 30, 2005 was $808,650.

                       Fair Value of Financial Instruments

The carrying value of cash and cash equivalents, accounts receivable and
accounts payable approximate their fair values because of the short term
maturity of these instruments.

The fair value of the Company's debt, which consists of notes payable, notes
payable - related parties, convertible notes payable - related parties and
convertible notes payable deemed subject to rescission rights, is estimated on
the quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities. Such fair
value approximates the respective carrying values of its debt.

          Convertible Notes Payable with Beneficial Conversion Features

The Company accounts for convertible notes payable ("CNP") with non-detachable
conversion options that are in-the-money ("beneficial conversion features"), at
the commitment date, in accordance with EITF Issue No. 98-5, "Accounting for
Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios" and EITF Issue No. 00-27, "Application of Issue
No. 98-5 to Certain Convertible Instruments".

The Company has issued convertible notes payable with beneficial conversion
features, with and without detachable warrants. Where the Company has issued
convertible notes payable with beneficial conversion features without detachable
warrants the difference between the conversion price and the fair value of the
common stock, at the commitment date, is recorded as a debt discount and is
amortized to interest expense over the redemption period of the convertible note
payable, in accordance with EITF No.'s 98-5 and 00-27. The redemption period is
the shorter of the period to maturity, conversion, or other event which requires
the Company to rescind the convertible note payable.

Where the Company has issued convertible notes payable with beneficial
conversion features with detachable warrants, the Company allocates the proceeds
between the convertible note payable and the warrants using the relative fair
value of the individual elements at the time of issuance. The difference between
the conversion price, adjusted for the relative fair value of the convertible
notes payable, and the fair value of the common stock, which is limited to the
relative fair value of the convertible note payable, is recorded as a debt
discount. The relative fair value of the warrants is also recorded as a debt
discount. The total debt discount is amortized to interest expense over the
redemption period of the convertible note payable.

           Penalties Associated with Late Registration of Common Stock

The Company has entered into Stock Purchase Agreements ("SPA") and Convertible
Note Purchase Agreements ("CNPA") that include provisions that require the
Company to register, as freely trading, the shares of common stock and the
shares of common stock issuable upon exercise of warrants or conversion of
convertible notes payable within certain deadlines, in a Registration Statement
on Form SB-2. Furthermore, if such shares of common stock are not registered
within certain deadlines, a penalty becomes payable or accruable in like
securities. The common stock, warrants and convertible notes payable (the
"penalty securities") issued for late registration are described in Notes 12,
16, 17 and 18, and the commitment to issue such penalty securities is described
in Note 16 to this Report.

The Company accounts for penalty securities issued as a penalty for late
registration as a penalty expense, which is recognized in the period the penalty
securities are earned. The fair value of the penalty securities is determined as
follows: common stock is valued at the fair value of the common stock on the
date earned; warrants have been valued using the Black-Scholes option-pricing
valuation model on the date earned; and convertible notes payable are valued at
the face value of the note on the date earned.



                                      108
<PAGE>

                          Cashless Exercise of Warrants

The Company has issued warrants to purchase common stock where the holder is
entitled to exercise the warrant via a cashless exercise, when the exercise
price is less than the fair value of the common stock. The Company accounts for
the issuance of common stock on the cashless exercise of warrants as a cost of
capital.

                         Research and Development Costs

The Company accounts for research and development costs in accordance with SFAS
No. 2, "Accounting for Research and Development Costs". Research and development
costs are charged to operations as incurred. As described in section 3.50 of the
Government Contract Audit Guide for Fixed-Price Best-Efforts Cost Sharing
Arrangements, amounts earned under the Company's grants with the U.S. Department
of Defense have been offset against research and development costs, in
accordance with the provisions of that section.

                            Stock-Based Compensation

The Company has adopted the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation". In accordance with SFAS No. 123, the Company has
elected the disclosure-only provisions related to employee stock options and
follows the Accounting Principles Board Opinion (APB) No. 25 in accounting for
stock options issued to employees. Under APB No. 25, compensation expense, if
any, is recognized as the difference between the exercise price and the fair
value of the common stock on the measurement date, which is typically the date
of grant, and is recognized over the vesting period.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure". SFAS No. 148 amends SFAS No. 123 and
provides alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. SFAS No.
148 also amends the disclosure requirements of SFAS No. 123 to require more
prominent and frequent disclosures in financial statements about the effects of
stock-based compensation. The Company adopted the disclosure requirements in the
third quarter of 2003.

The weighted average fair value of stock options granted during the fiscal-year
ended April 30, 2005 was $0.62. Fair value was determined using the
Black-Scholes option-pricing model. For stock options granted during the
fiscal-year ended April 30, 2005, the weighted average assumptions for grants
were a risk free interest rate of 3.09%, an expected life of 2 years, an
expected volatility of 140% and an expected dividend yield of 0%.

The following table compares net loss attributable to common stockholders and
loss per share for the fiscal-years ended April 30, 2005 and 2004, as reported,
to the pro forma amounts that would be recorded had compensation expense for
stock-based compensation been determined based on the fair value on the grant
dates consistent with the method of SFAS No. 123:

<TABLE>
<CAPTION>
                                                                          Year ended           Year ended
                                                                        April 30, 2005       April 30, 2004
                                                                        --------------       --------------
<S>                                                                       <C>                   <C>
      Net loss attributable to common stockholders                         (9,984,565)          (8,183,346)
      Stock-based employee compensation included in
        reported net income, net of related tax effects                       319,673                   --
      Total stock-based employee compensation expense
                   determined under fair value based methods for
                   all awards, net of related tax effects                  (1,430,197)          (1,269,333)
                                                                        -------------         ------------
      Pro forma net loss attributable to common stockholders              (11,095,089)          (9,432,679)

      Basic loss per share:
                  As reported                                                   (0.28)               (0.29)
                  Pro forma                                                     (0.31)               (0.33)
      Diluted loss per share:
                  As reported                                                   (0.28)               (0.29)
                  Pro forma                                                     (0.31)               (0.33)
</TABLE>

Stock options and warrants issued to non-employees are accounted for in
accordance with SFAS No. 123, EITF Issue No. 96-18, "Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services", and related interpretations.




                                      109
<PAGE>

                 Warrants Issued As Financing and Offering Costs

The Company accounts for warrants issued to investors who purchased common stock
and to finders who arranged with third parties to invest in the Company's common
stock as offering costs. Such warrants are therefore accounted for as a cost of
capital.

                                  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. In the
calculation of basic net loss per share, the common stock deemed subject to
buy-back and the common stock deemed subject to rescission rights are not
considered to be equivalent to common stock and are excluded. Because the
Company has incurred net losses, basic and diluted loss per share is the same.

The following potential shares of common stock have been excluded from the
computation of diluted net loss per share for the periods presented because the
effect would have been anti-dilutive:

<TABLE>
<CAPTION>
                                                                         As of April 30, 2005    As of April 30, 2004
                                                                      -----------------------------------------------
<S>                                                                                <C>                    <C>
        Stock Options                                                               8,415,655              6,768,675
        Warrants                                                                   19,600,262              8,544,614
        Convertible notes payable and accrued interest - related
        parties                                                                       781,713
                                                                                                             688,820
        Convertible notes payable and accrued interest - deemed
        subject to rescission rights                                                1,241,319
                                                                                                             530,883
         Shares of common stock deemed subject to rescission rights                   312,012                770,424
        Shares of common stock deemed subject to buy-back rights                           --              2,000,000
        Microdevices minority shareholders                                                 --                452,029
        Shares held by Company to be issued upon
            payment of outstanding promissory notes                                   704,190                704,190
                                                                      -----------------------------------------------
                                                                                   31,055,151             20,459,635
                                                                      -----------------------------------------------
</TABLE>

                                    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 December 2004, the FASB issued SFAS No. 123R, Share-Based Payment ("SFAS
123R"). SFAS 123R requires companies to expense the value of employee stock
options and similar awards. SFAS 123R is effective for interim and annual
financial statements beginning after June 15, 2005 and will apply to all
outstanding and unvested share-based payments at the time of adoption. The
Company is currently evaluating the impact SFAS 123R will have on its
consolidated financial statements and will adopt such standard as required.

In November 2004, the FASB issued SFAS No. 151, Inventory Costs - An Amendment
of ARB No. 43, Chapter 4 ("SFAS 151"). SFAS 151 amends the guidance in ARB No.
43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts
of idle facility expense, freight, handling costs, and wasted material
(spoilage). Among other provisions, the new rule requires that items such as
idle facility expense, excessive spoilage, double freight, and rehandling costs
be recognized as current-period charges regardless of whether they meet the
criterion of "so abnormal" as stated in ARB No. 43. Additionally, SFAS 151
requires that the allocation of fixed production overhead to the costs of



                                      110
<PAGE>

conversion be based on the normal capacity of the production facilities. SFAS
151 is effective for fiscal years beginning after June 15, 2005 and is required
to be adopted beginning on January 1, 2006. The Company has recently began to
acquire inventory and has no sales or cost of goods and is currently evaluating
the effect that the adoption of SFAS 151 will have on its consolidated results
of operations and financial condition but does not expect it to have a material
impact.

In December 2004, the FASB issued SFAS No. 152 "Accounting for Real Estate
Time-Sharing Transactions - An Amendment of FASB statements No. 66 and 67"
("SFAS 152"). SFAS 152 amends SFAS 66 and 67 to reference the financial
accounting and reporting guidance for real estate time-sharing transactions that
is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real
Estate Time-Sharing Transactions. SFAS 152 is effective for financial statement
for fiscal years beginning after June 15, 2005. The Company is currently
evaluating the effect that the adoption of SFAS 152 will have on its
consolidated results of operations and financial condition but does not expect
it to have a material impact.

In December 2004, the FASB issued SFAS No. 153 "Exchanges of Non-monetary Assets
- An Amendment of APB opinion No. 29" ("SFAS 153"). SFAS 153 clarifies that
exchanges of non-monetary assets should be measured based on the fair value of
the assets exchanged, with a general exception for exchanges that have no
commercial substance. SFAS 153 is effective for non-monetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005. The Company is
currently evaluating the effect that the adoption of SFAS 153 will have on its
consolidated results of operations and financial condition but does not expect
it to have a material impact.

In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections" ("SFAS 154") which replaces Accounting Principles Board Opinions
No. 20 "Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in
Interim Financial Statements-An Amendment of APB Opinion No. 28." SFAS 154
provides guidance on the accounting for and reporting of accounting changes and
error corrections. It establishes retrospective application as the required
method for reporting a change in accounting principle and the reporting of a
correction of an error. SFAS 154 is effective for accounting changes and
corrections of errors made in fiscal years which begin after December 15, 2005
and is required to be adopted by the Company in the first quarter of fiscal
2007. The Company is currently evaluating the effect that the adoption of SFAS
154 will have on its consolidated results of operations and financial condition
but does not expect it to have a material impact.

In July 2005, the Standards Board issued Statement of FASB Staff Position No.
150-5, which clarifies that warrants on shares that are redeemable or puttable
immediately upon exercise and warrants on shares that are redeemable or puttable
in the future qualify as liabilities under Financial Accounting Standards No.
150, Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity ("FSP FAS 150-5"). The Company is currently evaluating
the effect that the adoption of FSP FAS 150-5 will have on its consolidated
results of operations and financial condition but does not expect it to have a
material impact.

NOTE 5 - RISKS AND UNCERTAINTIES

In addition to considering these risks and uncertainties, before making any
determination with respect to the Company, readers should refer to the other
information contained in this annual report for the year ended April 30, 2005 on
Form 10-KSB (the "Report") including the information under the heading entitled
"Risk Factors", as well as review the disclosures related to Forward-Looking
Statements at the front of this Report.

The Company is a development stage company, and an investment, or maintaining an
ownership position, in its common stock is inherently risky. The Company
operates in a dynamic and highly competitive industry and, accordingly, can be
affected by a variety of factors. The most critical risks and uncertainties
relate to its ability to obtain financing to continue operations and fund
anticipated losses, as well as the timing and success of product introductions.
Some of these risks pertain to its business in general, and others are risks
which may only affect its common stock.

If any of the events described below were to occur, the Company's business,
prospects, sales efforts, financial condition, results of operations and/or cash
flow could be materially adversely affected:

      o     an inability to raise capital from the sale of equity or debt to
            private investors or from government grants or development
            contracts, in order to fund the Company's operations at current
            levels;

      o     an inability to obtain, as and when needed, additional financing on
            commercially reasonable terms;

      o     an inability to achieve profitability or positive cash flows;

      o     an inability to shift resources toward the implementation of the
            Company's plan to commercialize, manufacture and market the
            Company's initial prototype devices;

      o     an inability to transition the Company's prototypes into commercial
            products meeting certain specifications which satisfy the demands of
            prospective customers;

      o     an inability to develop and market viable products;

      o     an inability to control the damage done to the ability to sell
            products and/or raise funds if product demonstrations conducted by
            the Company are unsuccessful;



                                      111
<PAGE>

      o     an inability to reallocate resources successfully if initial product
            lines prove unsuccessful;

      o     an inability to predict and control international risk that could
            materially harm our business, including the threat of terrorism;

      o     an inability to continue as a going concern as previously noted by
            the Company's independent auditors;

      o     an inability to manufacture, or contract for the manufacture of, the
            Company's products in a scalable and cost-effective manner,
            producing sufficient quantities on a timely basis under strict
            quality guidelines and in compliance with regulatory requirements;

      o     an inability to defend against and resolve pending or future
            litigation including the current investigative matters currently
            being investigated by the U.S. Securities and Exchange Commission
            ("SEC"), any civil lawsuits arising out of those matters, and
            certain disputes involving former consultants and employees;

      o     an inability to reconcile any potential payroll tax liabilities;

      o     an inability to maintain directors and officers insurance coverage
            and other protections against legal claims;

      o     an inability to properly record and protect the Company's
            intellectual property rights, and the inability to bring or defend
            against claims of intellectual property infringement;

      o     an inability to recruit and maintain quality management, improve
            internal controls of operations and attain optimal distribution of
            executive powers within the Company;

      o     an inability to obtain approvals from the U.S. Nuclear Regulatory
            Commission, U.S. Department of Commerce, U.S. Department of the
            State, and any other state or federal regulatory agency if and as
            applicable;

      o     changes in the regulatory and legislative environment affecting
            governmental laws and licensing requirements, including without
            limitation export restrictions and controls, which may affect the
            ability of the Company to sell and support its products;

      o     risks associated with the budget processes of governmental agencies
            and departments affecting the availability of future government
            funding for future product development and procurement;

      o     risks associated with international sales including, but not limited
            to, changes in domestic and foreign regulatory requirements,
            political instability in targeted foreign markets, differences in
            technology standards, possible foreign currency controls, longer
            payment cycles and inadequate collection systems, fluctuations in
            currency exchange rates, inconsistent intellectual property
            protections among foreign jurisdictions, export restrictions,
            tariffs, embargoes or other sales barriers, prejudicial employment
            laws and business practices, difficulties in obtaining and managing
            distributors, and potentially negative tax consequences;

      o     changes in pricing policies by the Company, its competitors or
            suppliers, including possible decreases in the average selling
            prices of the CarBomb Finder(TM) and SIEGMA(TM), caused by
            promotional offerings, contracted discounts, customer volume orders,
            and competitive pricing pressures;

      o     an inability to adapt to rapid technological change or shifts in
            market needs;

      o     current or future dependence upon a limited number of suppliers for
            certain component parts;

      o     an inability to anticipate and resolve problems with, or customer
            service issues related to, unqualified variables in product
            performance, dependability and usage, as well as maintenance
            requirements that could affect market acceptance and perceptions
            about the Company's products and after market service capabilities;

      o     product liability and related claims if products were to malfunction
            or fail to detect substances such as explosives accurately, or at
            all;

      o     a limited number of customers and an inability to identify and
            address additional markets or applications for the Company's
            technologies;

      o     sales cycle duration, which if protracted could result in not being
            able to obtain sales orders;

      o     risks associated with special contracting requirements by
            governmental agencies and the Company's ability to meet agency
            certifications, such as those required by the TSA, regarding its
            current or future products;

      o     the public's perception of the threats facing the population and
            unrelated political circumstances, which may lead to significant
            fluctuations in demand for the Company's products and services; and

      o     the economic and social impact of natural and manmade disasters
            generally, as well as the impact of such circumstances on the
            ability of the Company to maintain its business and operations in
            the event it or its customers suffer irreparable harm or injury.

NOTE 6 - OTHER CURRENT ASSETS

Other current assets consisted of the following as of the periods ended:

                                        April 30, 2005       April 30, 2004
                                     -------------------------------------------

           Prepaid professional
             services                          $    44,553          $    52,021

           Prepaid insurance                        10,060                9,634

           Equipment deposit                       311,042              150,000

           Other                                    16,174               13,162
                                     -------------------------------------------

          Total                               $    381,829          $   224,817
                                     ===========================================


                                      112
<PAGE>

NOTE 7 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following as of the periods ended:

<TABLE>
<CAPTION>
                                             April 30, 2005           April 30, 2004
                                         ------------------------   --------------------
<S>                                                 <C>                     <C>
 Prototype equipment                                $    327,747            $   228,399

 Laboratory equipment                                    535,110                501,445

 Furniture and fixtures                                   70,587                 58,610

 Leasehold improvements                                   51,150                 51,150

 Web site development                                     14,400                 14,400
                                         ------------------------   --------------------
                                                         998,994                854,004

 Less accumulated depreciation                           456,914                243,536
                                         ------------------------   --------------------

                  Total                             $    542,080            $   610,468
                                         ========================   ====================
</TABLE>

Depreciation and amortization expense for the years ended April 30, 2005 and
2004 and the period from August 21, 1995 (inception) to April 30, 2005, was
$213,379, $144,113 and $456,917, respectively.

NOTE 8 - ACCRUED PAYROLL AND PAYROLL TAXES

The Company's former majority-owned subsidiary, Microdevices, which as of
January 25, 2005 was merged with the Company, is in the process of filing or
amending certain of its IRS Forms W-2 and 1099, and certain payroll tax returns
for the tax years ended December 31, 1997 through 2002, with respect to the
issuance of shares of Microdevices common stock for services rendered to
officers, employees, directors, legal advisors and consultants. As of April 30,
2005, the Company has accrued $424,597 for payroll taxes, penalties and
interest. The Company intends to complete the filing or amending as necessary,
of its IRS Forms W-2 and 1099, and certain payroll tax returns, and make
arrangements to pay therewith any amounts due within the near future.

Excluding the payroll tax liability mentioned above, the Company had salaries
and wages payable of $12,268 as of April 30, 2005.

NOTE 9 - NOTES PAYABLE

Notes payable consisted of the following as of the periods ended:

<TABLE>
<CAPTION>
                                                                                April 30, 2005     April 30, 2004
                                                                              ------------------------------------
<S>                                                                              <C>                  <C>
Note payable to an equipment supplier, secured by equipment,
 bearing interest at 18% per annum due in January 2007, and payable
 in monthly installments of $169.                                                $          --        $     3,970

Note payable to an equipment supplier, secured by equipment,
 bearing interest at 17.205% per annum due in October 2007, and
 payable in monthly installments of $237.                                                5,595                 --

Note payable to employee for salary deferral, unsecured, non-interest
 bearing, due in May 2004.                                                                  --              2,500

Notes payable to employees for deferred compensation,  unsecured
 bearing interest at 5% per annum, one due April  6, 2005 and the
 other due April 30, 2005. The notes have subsequently been paid.                       37,125              7,840
                                                                              ------------------------------------
                                                                                        42,720             14,310

Less current portion                                                                    39,164             12,368
                                                                              ------------------------------------

 Long-term portion                                                                $      3,556        $     1,942
                                                                              ====================================
</TABLE>




                                      113
<PAGE>

NOTE 10 - NOTES PAYABLE - RELATED PARTIES

Notes payable - related parties consisted of the following as of the periods
ended:

<TABLE>
<CAPTION>
                                                                                April 30, 2005     April 30, 2004
                                                                              ------------------------------------
<S>                                                                              <C>                 <C>
Note payable to a shareholder of the Company, unsecured, bearing
  interest at 10.5% per annum, or 15% per annum upon default,
  and due on demand.                                                             $      40,000       $     40,000

Note payable to a shareholder of the Company, unsecured, bearing
  interest at 10.5% per annum, and due on demand.                                       45,000             45,000

Note payable to former legal counsel of the Company, unsecured,
  bearing interest at 5% per annum and due on demand. The note was                      14,000             14,000
  subsequently converted into equity in June 2005.

Notes payable to the Chairman of the Company and an affiliate,
  bearing interest at 5% per annum, and due on demand.                                      --            249,934
                                                                              ------------------------------------
                                                                                        99,000            348,934

Less current portion                                                                    99,000            348,934
                                                                              ------------------------------------

 Long-term portion                                                               $          --       $         --
                                                                              ====================================
</TABLE>

NOTE 11 - CONVERTIBLE NOTES PAYABLE - RELATED PARTIES

Convertible notes payable - related parties consisted of the following as of the
periods ended:

<TABLE>
<CAPTION>
                                                                                April 30, 2005     April 30, 2004
                                                                              ------------------------------------
<S>                                                                                   <C>           <C>
Convertible notes payable to former legal counsel of the Company, unsecured,
   bearing interest at 10% per annum and due on demand. The holder of the notes
   has the option to convert the principal and interest into shares of common
   stock of the Company at $1.00 per
   share at any time.                                                                 $596,790      $     571,142

Convertible note payable to former legal counsel of the Company, unsecured,
   bearing interest at 10% per annum and due on demand. The holder of the note
   has the option to convert the principal and interest into shares of common
   stock of the Company at $0.85 per share at any time.                                 38,232             38,232

Convertible note payable to former legal counsel of the Company, unsecured,
   bearing interest at 10% per annum becoming due on demand in May 2005. The
   holder of the note has the option to convert the principal and interest into
   shares of common stock of the company at $1.00 per share at any time.                38,061             38,061
                                                                              ------------------------------------
                                                                                       673,083            647,435

Less current portion                                                                   673,083            609,374
                                                                              ------------------------------------

 Long-term portion                                                                    $     --      $      38,061
                                                                              ====================================
</TABLE>



                                      114
<PAGE>

In accordance with EITF No.98-5, "Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios" and
EITF No. 00-27, "Application of Issue No. 98-5 to Certain Convertible
Instruments", the Company has evaluated its issuance of $673,083 of convertible
notes payable for the beneficial conversion feature. This resulted in beneficial
conversion expense of $5,164 in fiscal year ended April 30, 2005 and $107,781 in
fiscal year ended April 30, 2004. Since the convertible notes payable had been
deemed subject to rescission rights, the beneficial conversion features was
immediately expensed.

NOTE 12 - CONVERTIBLE NOTES PAYABLE DEEMED SUBJECT TO RESCISSION RIGHTS

Convertible notes payable deemed subject to rescission rights consisted of the
following as of the periods ended:

<TABLE>
<CAPTION>
                                                                                  April 30, 2005       April 30, 2004
                                                                                  --------------       --------------
<S>                                                                                  <C>                  <C>
Convertible notes payable ("CNP"), unsecured, bearing interest at 5% per annum
 and coupled with the proceeds allocated to the detachable warrants, an
 estimated effective annual interest rate of 49%, due in June 2006 (excluding
 $10,000 due in January 2006). The holders have the option to convert the
 principal and accrued interest into shares of common stock at $0.45 per share
 at any time until the later of the prepayment date or the maturity date. The
 CNP have detachable warrants to purchase shares of common stock with a three
 and one-half year term as follows: 1,333,332 at $0.45 per share; 400,000 at
 $0.75 per share; and 240,000 shares at $1.25 per share. The holders also have
 registration rights on the underlying shares, and have received as penalties
 for the failure to register them: (i) additional detachable warrants to
 purchase up to 2% of the amount of shares exercisable under the original
 warrants; and (ii) additional CNP equal to 2% of the original face amount, or
 principal balance, for each subsequent month until a registration statement is
 filed and maintained effective by the Company, or until such penalties become
 impermissible as a matter of law as prescribed in the instrument, or the
 relevant securities can be sold without registration under Rule 144.
 Additionally, the CNP provide the holders with ratchet rights, whereby the
 conversion price of the CNP will be reduced to equal the price of any new
 shares sold in unrelated transactions at a price per share below $0.45. If
 shares are offered for sale at a price per share under $0.45, the holders also
 have a first right of refusal to purchase the shares offered. In June 2004, the
 holders exercised their rights to a second closing, purchasing $300,000 of CNP,
 and then converted $40,000 and $70,000 of the CNP into shares of
 common stock in January 2005 and June 2005, respectively.                           $    310,000         $     50,000

Convertible note payable unsecured, bearing interest at 5% per annum, and due in
 May 2006, issued as a penalty to holders as a result of the Company's inability
 to file a registration statement within certain specified deadlines, covering
 and reflecting the same terms as, the convertible notes payable referenced
 above, with the exception of
 penalties.                                                                                37,800                1,000

Convertible note payable ("CNP"), unsecured, bearing interest at 5% per annum,
 and coupled with the proceeds allocated to the detachable warrants, an
 estimated effective annual interest rate of 44%. The CNP may be converted at
 $0.45 per share at any time and include detachable warrants with a three and
 one-half year term to purchase shares of common stock as follows: 411,111 at
 $0.45 per share; 246,667 at $0.75 per share; 148,000 shares at $1.25 per share
 and 123,333 shares at $1.50 per share. The holder has registration rights on
 the underlying shares, as well as rights to a second closing for up to $400,000
 of CNP with similar terms. The CNP was due in January 2006, however, the holder
 converted all principle and accrued interest into common shares in June 2005.
 The detachable warrants issued in the first closing have since expired and the
 holder maintains rights to a second closing..                                            185,000              185,000
                                                                                     ------------         ------------
                                                                                          532,800              236,000

Less current portion                                                                 $    532,800         $    236,000
                                                                                     ------------         ------------

 Long-term portion                                                                   $         --         $         --
                                                                                     ============         ============
</TABLE>



                                      115
<PAGE>

In accordance with EITF No.98-5, "Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios" and
EITF No. 00-27, "Application of Issue No. 98-5 to Certain Convertible
Instruments", the Company has evaluated its sale of a $425,000 convertible note
payable with detachable warrants for the beneficial conversion feature. The
Company has allocated the proceeds from the placement of the debt to the
warrants and the debt based on their relative pro-rated values. This resulted in
$399,738 being allocated to warrants and $25,262 to debt. Since the convertible
note payable was determined to be subject to possible rescission rights, both
the value attributed to the warrants and the debt were immediately expensed,
resulting in a combined expense of $425,000.

In accordance with EITF No. 98-5, "Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios" and
EITF No. 00-27, "Application of Issue No. 98-5 to Certain Convertible
Instruments", the Company has evaluated its sale of a $240,000 convertible note
payable with detachable warrants for the beneficial conversion feature. The
Company has allocated the proceeds from the placement of the debt to the
warrants and the debt based on their relative pro-rated values. This resulted in
$209,956 being allocated to warrants and $30,044 to debt. Since the convertible
note payable was determined to be subject to possible rescission rights, both
the value attributed to the warrants and the debt were immediately expensed,
resulting in a combined expense of $240,000.

In accordance with EITF No.98-5, "Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios" and
EITF No. 00-27, "Application of Issue No. 98-5 to Certain Convertible
Instruments", the Company has evaluated its sale of a $60,000 convertible note
payable with detachable warrants for the beneficial conversion feature. The
Company has allocated the proceeds from the placement of the debt to the
warrants and the debt based on their relative pro-rated values. This resulted in
$52,489 being allocated to warrants and $7,511 to debt. Since the convertible
note payable was determined to be subject to possible rescission rights, both
the value attributed to the warrants and the debt were immediately expensed,
resulting in a combined expense of $60,000.

Some of the above convertible notes payable effected during the period when the
referenced registration statement was on file may be subject to integration with
previous sales of convertible notes payable to some holders. Earlier, the
Company sold securities to the investors in a private offering, at the same time
the Company had on file a registration statement with the SEC. Such a
contemporaneous, private offering may have resulted in a violation of certain
federal securities laws concerning the contemporaneous sale of securities by the
Company at different terms, where the effect of integration can be to destroy an
exemption upon which a company has relied in issuing its securities privately,
which renders the transaction an illegal unregistered public offering. If this
is the case, the purchasers of convertible notes payable may have similar
rescission rights available to certain of the shareholders as described in Note
14. (See Note 14 for a full description of the circumstances surrounding the
rescission rights of the shareholders). Accordingly, the Company may be required
to pay each rescinding holder of convertible notes payable the amount it
received as consideration, plus any interest with respect to such amount at the
applicable rate, and the securities would be cancelled.

The Company has completed an independent investigation as to whether or not the
rescission rights continue to exist and, based upon legal advice it has received
as to the appropriate state and federal limitations periods pertaining to the
rescission obligations assumed, the Company had $532,800 of convertible notes
payable deemed subject to rescission remaining as of April 30, 2005. Based on
the same advice, the Company subsequently has reclassified all convertible notes
payable deemed subject to rescission rights to convertible notes payable as of
July 31, 2005.

NOTE 13 - SALES OF COMMON STOCK DEEMED SUBJECT TO BUY-BACK BY THE COMPANY

During April and June 2003, the Company engaged in a public offering of its
shares of common stock to purchasers who bought in reliance upon a prospectus
that did not, at the time the sales were made, contain a fixed price for the
Company's shares. These sales were made through private negotiation of the
prices to be paid by each investor, and the prices were not consistent during
this offering. The rules and regulations governing the sale of securities
through a prospectus under the Securities Act of 1933 do not permit issuers of
the Company's size to conduct a continuous public offering at prices which are
negotiated, and vary by investor. As a result of this violation, the people who
purchased the Company's common stock in the public primary offering could have
the right, which may but does not have to be waived by them, to require the
Company to buy back their shares at the price they paid for them

During the years ended April 30, 2004 and 2003, the Company sold 900,000 and
1,400,000 shares of common stock, respectively, using the prospectus that did
not include the fixed pricing information required by the Securities Act. The
purchase prices were between $0.33 and $0.35 per share. Prior to April 30, 2004,
the Company directly notified and requested waivers from all purchasers with
buy-back rights, and of the 2,300,000 shares of Common stock that were sold to
investors deemed subject to buy-back as described above, the Company obtained
signed waivers from investors representing 300,000 shares of the purchased
common stock.



                                      116
<PAGE>

The Company has completed an independent investigation as to whether or not the
buy-back rights continue to exist and, based upon legal advice we have received
as to the appropriate state and federal limitations periods pertaining to the
buy-back obligations assumed, the Company reclassified 2,000,000 shares of
common stock deemed subject to buy-back to common stock and additional paid in
capital for the fiscal year ended April 30, 2005, and eliminated the related
current liability.

NOTE 14 - SALES OF COMMON STOCK DEEMED SUBJECT TO RESCISSION RIGHTS

During the period from September 3, 2003 through April 16, 2004, the Company had
on file with the SEC registration statements on Form SB-2 seeking to register
for public sale shares of its common stock. Of the shares to be registered, 5
million were shares to be newly issued for sale by the Company, and the
remainder was shares to be registered for resale for the account of selling
stockholders who purchased the Company's shares in private placements conducted
previously. On September 19, 2003, the Company withdrew the registration
statement containing the shares to be registered for the benefit of the Company,
and re-filed a registration statement solely seeking to register the shares of
the selling stockholders. On April 16 2004, this registration statement was also
withdrawn.

While the Company's registration statements were on file with the SEC, the
Company also raised capital through the sale of its securities in a private
placement to certain accredited investors. While it is true that rules and
regulations under the Securities Act of 1933 do not permit issuers such as the
Company to conduct a contemporaneous public offering on a continuous basis at
varying prices or a negotiable price, the only overlap occurred with respect to
shares to be registered for resale for the account of selling stockholders.
Although the Company, as an issuer, was not selling stock both publicly and
privately at the same time, the Company has been advised that it is possible
that the contemporaneous, private offering of the Company's securities by the
Company while the selling stockholders' shares were in registration with the SEC
may be deemed to be "integrated" under the federal securities laws of the United
States. Integration occurs where two offerings that are close in time are deemed
to constitute one, single offering, and the effect of integration can be to
destroy an exemption upon which a company has relied in issuing its securities
privately, which renders the transaction an illegal unregistered public
offering. In such event, the persons who purchased securities in such an
offering may be entitled to, in addition to any other penalties or fines which
may be assessed against the issuing company, the right to demand rescission of
the offering. In that case, the Company would be required to pay each rescinding
investor the amount it received as consideration for the illegal securities,
plus any interest accrued with respect to such amount at the applicable rate,
and the securities would be cancelled.

The Company has completed an independent investigation as to whether or not the
rescission rights continue to exist and, based upon legal advice we have
received as to the appropriate state and federal limitations periods pertaining
to the rescission obligations assumed, the Company reclassified 3,819,996 of
4,132,008 shares of common stock deemed subject to rescission rights to common
stock and additional paid in capital, and eliminated the related current
liability. As of April 30, 2005, the current liability for shares deemed subject
to rescission was reduced from $1,938,153 to $199,560 and a total of 312,012
shares remained deemed subject to rescission rights, representing 201,879 shares
sold deemed subject to rescission rights and 110,133 shares issued upon
conversion of convertible notes payable deemed subject to rescission rights in
January 2005. As of July 31, 2005, the Company has reclassified 243,466 of the
remaining 312,012 shares deemed subject to rescission rights to common stock and
additional paid in capital, further reducing the recorded current liability for
shares deemed subject to rescission rights from $199,560 to $50,000. Based upon
the advice received, the Company anticipates reclassifying the remaining 68,546
shares deemed subject to rescission rights and eliminating the remaining current
liability of $50,000 in the current fiscal year.

NOTE 15 -RESEARCH AND DEVELOPMENT COSTS

To date, the Company has devoted the bulk of its efforts and resources to the
research, design, testing and development of sensor systems incorporating its
proprietary "stoichiometric" technologies for numerous governmental and
commercial applications and markets. The Company's technologies have the ability
to determine automatically, in a matter of tens of seconds and with a high
degree of accuracy, whether an object or container carries dangerous substances,
such as explosives, illicit drugs or biological agents, by deciphering the
chemical formula of selected substances. Aside from its current applications,
management believes that its technologies have numerous other applications.

The Company's research and development expenses consist primarily of salaries
and benefits, facilities, depreciation, consulting services, supplies and
travel. The Company accounts for research and development costs in accordance
with SFAS No. 2, "Accounting for Research and Development Costs". Research and
development costs are charged to operations as incurred. As described in section
3.50 of the Government Contract Audit Guide for Fixed-Price Best-Efforts Cost
Sharing Arrangements, amounts earned under the Company's grants with the U.S.
Department of Defense ("DoD") have been offset against research and development
costs, in accordance with the provisions of that section, in all periods
presented.



                                      117
<PAGE>

The Company completed the second year of Phase II of a Small Business Innovation
Research ("SBIR") contract awarded to it in August 2002 by the U.S. Army Night
Vision and Electronic Sensor Directorate ("NVESD"). Under the terms of the
contract, the Company is to develop and test its Anti-Tank Landmine Detector
7AT7(TM) over a two-year period, which was extended for one additional year at
the option of the U.S. Army. As of April 30, 2005, the Company has earned
$779,944 against the contract. If further research and development work is
required upon the expiration of Phase II, the Company has the ability to submit
a request for additional Phase II and/or Phase III funding, which the government
would consider based upon the Company's progress to date and the merits of the
project. The U.S. Army is under no obligation to continue to assist in funding
these research and development costs beyond Phase II or any subsequent
extension, or to purchase any of the Company's products, including the Anti-Tank
Landmine Detector 7AT7(TM), once the Company has completed development
activities. Under the terms of the contract, the U.S. Army pays a portion of the
Company's research and development costs on a periodic basis during the term of
the contract, for which the Company is required to submit monthly written
reports detailing its progress. The Company recognizes the proceeds from the
contract as an offset against research and development expenses following the
submission of the monthly written reports. When the written report is accepted
by the U.S. Army, the Company usually receives payment in about 30 to 45 days.
As of April 30, 2005, the Company had a receivable of $30,412 which was
collected in July.

In September 2004, the Company entered into a Cooperative Agreement with the
U.S. Transportation Security Administration (TSA). Under the agreement, the
Company is to provide proof-of-concept for the Company's "NextGen Checked
Baggage Program (STOXOR)" over a nine month period, which may be extended at the
option of the TSA. The agreement provides funding in the amount of $367,141 for
Stage 1, and an additional $145,381 for Stage 2, if, at the conclusion of Stage
1, the TSA elects to continue with the Company. As of April 30, 2005, the
Company has earned $305,951 in cooperative financing from the TSA to complete
Stage 1, and was entitled to earn an additional $61,190 in contract proceeds to
complete Stage 1. There is no obligation for the TSA to fund the Company's
development efforts under this agreement beyond the Stage 1 funded amount or to
purchase any of the Company's products once it has completed development
activities. The TSA will pay the Company's research and development costs on a
periodic basis during the term of the contract, for which the Company is
required to submit monthly written reports detailing its progress under the
contract. When the written report is accepted by the TSA, the Company receives
payment in about 30 to 45 days. Payments commenced in November 2004 and the
Company recognizes the Stage 1 funding amount as an offset against research and
development expenses upon submission of the monthly written reports. As of April
30, 2005, the Company had a receivable in the amount of $244,825, and as of July
31, 2005 it had collected all receivables due it in completion of Stage 1.

Below is a summary of research and development costs for the following periods:

<TABLE>
<CAPTION>
                                                                                  For the Period from
                                                                                    August 21, 1995
                                                 Years Ended April 30,              (Inception) to
                                          ---------------------------------------------------------------
                                                 2005               2004            April 30, 2005
                                          ---------------------------------------------------------------
<S>                                           <C>                 <C>                 <C>
Research and development costs                $ 1,395,460         $ 1,176,502         $ 4,650,143
Grant proceeds                                   (610,200)           (372,071)         (1,452,774)
                                              -----------         -----------         -----------

Net research and development costs            $   785,260         $   804,431         $ 3,197,369
                                              ===========         ===========         ===========
</TABLE>

NOTE 16 - COMMITMENTS AND CONTINGENCIES

                      Consultancy Agreements and Contracts

In May 2004, the Company entered into a non-exclusive 180 day strategic
consulting and financial advisory agreement with a consulting firm. The
consulting firm would assist the Company with strategic planning issues. The
agreement was terminated by the Company in June 2004 and the Company paid the
consulting firm $27,000 in cash and 3,500 shares of common stock valued at
$6,895 for services performed.

In July 2004, the Company entered into an exclusive agreement with a placement
agent to arrange for the sale of debt or equity securities. As of the date of
this Report, the agent is no longer providing services under the agreement.
Major terms of the agreement are as follows:

      o     The term of the agreement will be until the proposed financing is
            completed or at such time either the Company or the placement agent
            gives 10 days' written notice of termination.

      o     The Company will pay a success fee equal to 8% of any of the gross
            proceeds received by the Company derived from the efforts of the
            placement agent, plus $5,000 in anticipated legal expenses at
            closing, to be paid from the proceeds of such closing.

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



                                      118
<PAGE>

In August 2004, the Company entered into an agreement with an engineering and
construction firm, which has agreed to provide design and construction
management services to the Company in connection with a proposed manufacturing
plant capable of producing commercial quantities of the CarBomb Finder. Under
the terms of the proposal, the engineering and management firm is responsible
for designing and implementing a facility which is suitable for its intended
purposes, including creating a flow process recommendation, designing the
optimum configuration for the facility, providing construction management,
assisting with supplier relationships, and reviewing transportation, laboratory
testing and other logistical issues. Under the agreement, the Company is
obligated to pay the firm in consideration for its services the amount of
$82,875, plus actual expenses anticipated not to exceed $4,000.

In August 2004, the Company entered into a Teaming Agreement with a global
maintenance services firm which would allow for the Company to sub-contract
maintenance services and under which both parties would jointly bid on business.

In August 2004, the Company entered into a Retention Agreement with the
Company's current securities counsel, for legal services which include the
preparation and review of the Company's annual and quarterly reports, regulatory
filings and other assistance with corporate and contract needs as the Company
may request from time to time.

In November 2004, as amended in July 2005, the Company entered into a
consultancy agreement with an independent contractor to provide product
engineering management, which provides for services to be rendered for a period
of one year, subject to a review on June 1, 2005. Under the agreement, the
Company is obligated to pay the contractor $1,924 per week, which may be paid in
a combination of cash, stock and/or options.

In November 2004, the Company entered into a retention agreement with an
attorney to act as special counsel to the Company on discovery and litigation
matters related to the arbitration between Isaac Yeffet of Yeffet Security
Consultants and the Company. Pursuant to the agreement, the Company paid the
attorney a retainer of $10,000 against which legal fees and costs associated
with the matter would be offset.

In January 2005, the Company entered into a retention agreement with an attorney
to act as special co-Counsel to the Company on discovery and litigation matters
related to the class action law suit filed against the Company. Pursuant to the
agreement, the Company paid the attorney a retainer of $5,000 with a commitment
to pay legal fees with cash, registered shares of common stock, or a combination
of both.

In February 2005, the Company engaged a consultant to provide advisory services
related to the marketing of its devices to civil and military organizations
within the U.S. government and foreign entities participating in U.S. federal or
military sales and advocacy programs. Pursuant to the letter agreement, the
Company will pay the consultant a monthly retainer of $10,000, subject to
performance and reported activity, and either party may terminate the agreement
upon sixty days notice to the other.

In April 2005, the Company entered into a retention agreement with an attorney
to act as special counsel to the Company on discovery and litigation matters
related to the arbitration between Isaac Yeffet of Yeffet Security Consultants
and the Company. Pursuant to the agreement, the Company paid the attorney a
retainer of $20,000 against which legal fees and costs associated with the
matter would be offset.

In April 2005, the Company entered into a subcontract with a global maintenance
and services company, in which the subcontractor as Exclusive Service Provider
will provide the Company with product support and aftermarket servicing,
including the installation, repair and preventative maintenance for all products
to be sold and deployed by the Company in the United States. Pursuant to the
subcontract, the Company will pay the contractor on an hourly basis for labor,
plus travel and expenses, and supply all necessary parts and technical support
to allow contractor to fulfill its obligations.

                              Employment Agreements

In July 2004, HiEnergy entered into an employment agreement with its former
Controller. Major terms of the agreement are as follows:

      o     The Company will pay its Controller $60 per hour for work performed
            beginning July 26, 2004.

      o     The Company will grant its Controller a warrant to purchase 100,000
            shares of HiEnergy common stock with a five year term with an
            exercise price of $0.99, which is the closing price of the Company's
            traded shares on July 26, 2004. The warrant vests immediately and
            includes registration rights.

      o     The Company will reimburse the Controller, on a monthly basis, for
            the medical and dental insurance plan in which he participates.

      o     The Company will pay for any legal costs that the Controller may
            incur in connection with any work that he has undertaken on behalf
            of the Company and indemnify him against any judgments not covered
            under the Company's D&O insurance policy.

      o     The Company will keep its D&O insurance coverage in effect at all
            times under the present policy limits and for a period of three
            years following the termination of the Controller's employment, if
            commercially viable.



                                      119
<PAGE>

      o     The Company will reimburse the Controller for reasonable
            out-of-pocket expenses for a remote office.

      o     The Controller would continue working in the same capacity with the
            Company as before and will take direction from its CEO, CFO and/or
            financial consultants.

In July 2004, the Company issued warrants to purchase 100,000 shares of common
stock, vesting immediately with an exercise price of $0.99 for accounting and
consulting services, pursuant to an employment agreement.

In January 2005, the Company entered into an employment agreement for the
employment of its current Vice President. Major commitments in the agreement are
as follows:

      o     The Company must pay its Vice President an annual base salary of
            $200,000, of which $140,000 will be payable in cash in cash, and the
            remainder in deferred compensation in the form of three notes,
            bearing interest at 5% per annum, one due April 30, 2005, one due
            August 31, 2005, and one due November 30, 2005

      o     The Company must pay the fee required under the Vice President's
            contract with his then current employer for his conversion from
            consultant employee, which should not exceed $12,000.

      o     The Company granted its Vice President a stock option to purchase
            500,000 shares of common stock which shall be exercisable at a price
            no greater than the average trading price for the last thirty (30)
            day. The option shall be 33% vested on May 1, 2005, 66% vested on
            September 1, 2005, and 100% vested on December 31, 2005.

      o     If the employment agreement is terminated by the Company without
            cause, the Company must pay its Vice President on the termination
            date, severance pay in an amount equal to six (6) months of the
            minimum annual base salary.

      o     The Company will provide its Vice President with comprehensive
            family medical and dental healthcare benefits.

Effective February 2005, the Company entered into an employment agreement with a
research scientist in which the Company committed to pay the research scientist
an annual base salary of $85,000 and employee stock options to purchase 35,000
shares of common stock on an annual basis, with equal vesting on a bi-annual
basis. Pursuant to the employment agreement, the Company committed to reimburse
the employee for relocation expenses up to $5,000 and provide standard medical
and dental healthcare benefits.

In March 2005, the Company entered into an employment agreement with its
Controller. Major commitments included in the agreement are as follows:

      o     The Company must pay its Controller an annual base salary of
            $200,000, of which $125,000 will be payable in cash in cash and/or
            stock, and the remainder in deferred compensation in the form of
            three notes, bearing interest at 5% per annum, one due April 6,
            2005, one due August 6, 2005 and one due January 6, 2006.

      o     The Company has the option to prepay services of its Controller with
            S-8 stock having a value equivalent to six (6) months of the above
            stated salary.

      o     The Company granted its Controller a stock option to purchase
            500,000 shares of common stock with an exercise price of $0.72 per
            share. The option will vest 60% on April 6, 2005 and fully vest on
            July 6, 2005.

      o     If the employment agreement is terminated by the Company without
            cause, the Company must pay its Controller on the termination date,
            severance pay in an amount equal to six (6) months of the minimum
            annual base salary.

      o     The Company will provide its Controller with comprehensive family
            medical and dental healthcare benefits.

                          Purchase and Sales Agreements

In April and May 2004, the Company issued a purchase order for neutron
generators at a total cost of approximately (euro) 867,000, or an estimated
$1,049,070. The generators are scheduled to be delivered approximately one per
month, which started in August 2004. The delivery schedule for the
above-mentioned neutron generator order was protracted due to delays by the
manufacturer. As of April 30, 2005, the Company has received only three neutron
generators on order with this vendor. The Company has the option to lease these
units from the vendor for up to 12 months. Under the terms of the lease, the
Company is required to pay approximately $12,500 per generator prior to or upon
receipt, with the remaining balance due in twelve monthly lease payments of
approximately $5,800 each. Anytime during the lease term, or at the end of the
lease, the Company has the option to convert the lease to a purchase and apply
80% of the monthly payments towards the purchase price of approximately $95,000
per unit.

In May 2004, the Company ordered gamma radiation detectors for a total cost of
$1,368,000. The Company began receiving the detectors in May and will continue
to receive these units at varying intervals. Payment terms for the detectors are
50% due upon order and the balance due 30 days following receipt and acceptance
by the Company. As of April 30, 2005, the Company received gamma radiation
detectors in the aggregate sum of $590,000. Due to its decision to better
balance inventory, the Company had delivery halted for the remaining gamma
radiation detectors until such time it receives sales sufficient to justify
adding to the inventory of the detectors.

In January 2005, the Company received an order for one SIEGMA(TM) system, along
with a down payment in the amount of $75,000, and a guarantee of the balance
upon delivery, from a company located in Tenerife, Canary Islands, Spain.
Payment of the balance in the amount of $227,000 is due upon testing of the
unit, which has been postponed due to delays in the securing of the purchaser of
the appropriate licenses and end-used permits for local regulatory bodies.



                                      120
<PAGE>

In February 2005 and in March 2005, the Company issued purchase orders in the
amount of $304,000 and $611,000, respectively, for robotic vehicles to be used
to facilitate remote deployment of its explosive detection devices. Under the
terms of the purchase orders, the Company is to be notified thirty-days prior to
shipping with payment due thirty-days following receipt. As of July 31, 2005,
the Company received all of the robotic vehicles ordered.

                               Material Agreements

On January 28, 2005, the Company entered into a non-binding Memorandum of
Understanding ("MOU") to form a joint venture company which will establish and
maintain an assembly, testing, sales and service center in Tenerife, Spain. The
parties intend that the joint venture company will provide for the construction
and/or build-out of an assembly, testing, and service center the Company's
Stoitech(TM) explosive detection products, including the CarBomb Finder(TM) and
SIEGMA systems, as well as sell and market these products to private,
governmental and military clients, including NATO, throughout Spain and the
European Union on an exclusive basis, and throughout South America and Africa on
a non-exclusive basis, subject to certain conditions and exclusions.

                                 Lease Agreement

In October 2002, the Company entered into a three-year operating lease agreement
with one of its directors at that time for its corporate offices in Irvine,
California. The lease provides for monthly rent of $9,200 for the first 18
months and $13,893 for months 19 through 36. In January 2004, the Company
executed an addendum to the lease agreement to lease an additional 4,570 square
feet of space within the same building in which the Company's offices are
located. The new space is being used for production and testing of the Company's
products. The addendum began in February 2004 and expires in September 2005 with
the master lease. The additional monthly rent is $4,493.

Rent expense for the years ended April 30, 2005 and 2004 was $166,716 and
$122,639, respectively. The lease expires in September 2005 and future minimum
payments under these lease agreements are $69,465.

                               SEC Investigations

After reading news reports that connected the Company's reverse takeover of
Microdevices with known stock manipulators, its Board of Directors directed the
Company's President to hire a team of independent investigators to investigate
whether any of the Company's officers and directors had engaged in any
wrongdoing. The core team of independent investigators consisted of two former
U.S. federal prosecutors, a former Assistant U.S. 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. In their review, the
independent investigators obtained evidence that some of the Company's
stockholders who purchased significant amounts of HiEnergy shares prior to the
reverse takeover knew, or had business dealings with, Phil Gurian, a person who
the Company later learned 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
as one of the Company's directors and, for a short time, as HiEnergy's interim
President, was found to have been aware of these purchases of HiEnergy shares.
The independent investigators believed the evidence was inconclusive whether
Phil Gurian had control over these HiEnergy shares and, if so, whether the
Company's former president and director, Barry Alter, had any knowledge of such
control.

In April 2003, the Enforcement Division of the SEC commenced a formal
investigation as to the undisclosed ownership of the Company's securities, and
actions with respect to its stock taken, by Philip Gurian, Barry Alter and other
of their affiliates who controlled SLW at the time of the Company's reverse
takeover, and the undisclosed identity of, and the origin of funds used to
purchase the Company's stock by, certain of the Company's shareholders. The
Company voluntarily has supplied the Enforcement Division of the SEC attorneys
with reports developed by the independent investigators and the Company has
cooperated in a transparent and timely manner, and intends to continue to
cooperate with the investigation. The Company also agreed voluntarily to provide
the Enforcement Division of the SEC with other documents they have requested in
its informal investigation.

On March 30, 2004, Dr. Bogdan Maglich, the Company's Chief Executive Officer,
Chief Scientific Officer, Treasurer, President and Chairman, gave an oral and
written presentation at the Investment Opportunities in Homeland Security and
Defense Conference in Washington, D.C. regarding HiEnergy's key markets,
business strategy and financial projections. Copies of the presentation were
distributed at the conference. The Company subsequently posted the presentation
on the Company's website from April 7, 2004 to April 13, 2004. Approximately
2,731 computer users visited the website and had access to the presentation. The
total number of hits was 96,937, or a daily average of approximately 13,848. The
presentation contained statements of management's beliefs concerning the
Company's key markets, business strategy, opportunities and financial
projections which were not disclosed in a concurrent registration statement the
Company had filed with the SEC on Form SB-2. In order to reduce the risk of an
investor relying on the presentation, the Company removed the presentation from
the Company's website on April 13, 2004, in part to allow for a "cooling off"
period so that any possible effect of the presentation would dissipate, and the
Company subsequently withdrew the registration statement on April 16, 2004. The
Company's projections made in that presentation have not come to pass and may
never be fully achieved.



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<PAGE>

The conference and website information stated that we had projected sales of 265
units at an average price of $223,396 per unit, including maintenance fees.
These projections assumed that the Company would raise the money it needed to
fund its conversion from a prototype development company to one which could
manufacture its CarBomb Finder(TM) and Antitank Landmine Detector 7AT7(TM) at
commercial levels. Since the date that the projections were made, the Company
has been unable to raise the capital necessary to achieve that objective. In
addition, the availability of greater resources and interest to develop a line
of products in response to the startling increase in the use by terrorists of
home-made Improvised Explosive Devices, or IEDs, in Iraq and elsewhere, have led
to a determination by the Company to focus more on deploying its SIEGMA(TM),
suitcase-borne, product which is designed to thwart this particular type of
threat. The confluence of the Company's inability to raise the funds necessary
to scale up to commercial production at the levels previously assumed, together
with the shift in its commercial priorities in order to respond to emerging
risks, caused the Company to fail to meet its 2004 projections. Accordingly,
investors should not rely on these projections in making any determination
whether or not to invest in, or maintain an investment in, the Company.

On April 12, 2004, the Company received a Subpoena for information from the SEC,
which required the Company to supply them with documents pertaining to the
presentation given by Dr. Bogdan Maglich at the Investment Opportunities in
Homeland Security and Defense Conference in Washington, D.C. in March 2004. A
subsequent letter, dated May 24, 2004, requested documents substantiating
statements the Company had previously reported in a press release regarding the
Company's discussions with a consortium calling itself the Dallas-Fort Worth
Homeland Security Alliance. The Company voluntarily responded to both requests
for documents.

On June 24, 2004, the Company received a further letter from the Central
Regional Office of the SEC, in Denver, Colorado, indicating its intention to
recommend that the SEC charge the Company with violations of several sections of
the Securities Exchange Act, and the rules promulgated under that act, involving
the making of false and misleading statements in its public documents. The false
and misleading statements which the SEC believes were made seem to focus
primarily on, among other things, the undisclosed ownership of the Company's
securities by, and actions with respect to its stock taken by, Barry Alter,
Philip Gurian and other of their affiliates who controlled SLW at and prior to
the time of the Company's reverse takeover; the undisclosed identity of, and the
origin of funds used to purchase the Company's stock by, certain of the
Company's stockholders; the nature of, and reasons for, a "dividend" provided to
its stockholders; and the terms of other offerings occurring at the same time as
one of the Company's private placements of stock. In addition, the antifraud
violations appear to be based upon private transactions made by Mr. Alter
(formerly a director and executive officer of HiEnergy) with respect to sales of
the Company's stock made by him without disclosing material facts about the
Company, or its contemporaneous offering of securities at different prices, to
his purchasers. The Company is currently working with special securities
litigation counsel to assess the Company legal position and determine how best
to respond to this most recent correspondence from the SEC.

On June 30, 2004, the SEC sent the Company a Subpoena in which it required the
Company to provide it with copies of all documents concerning the restatement of
the Company's financial statements for the years ended April 30, 2002 and 2003,
as announced on June 9, 2004. The Subpoena requested documentary evidence about
the restatement, including, without limitation, all of the Company's electronic
and written correspondence, notes, journal entries, records, working papers and
other documents that pertain to the restatement, and specifically all
communications between the Company and its auditors. The Company's auditors also
received a similar subpoena from the SEC. The effect of the restatement of the
Company's financial statements was to cause the Company to record additional
expense to the Company of $1,009,531 and $514,415 during the fiscal years ended
April 30, 2002 and April, 30, 2003, respectively, and to increase the amount of
the Company's accumulated deficit and additional paid-in capital brought forward
at May 1, 2001 by $3,126,684 and $3,123,749, respectively.

                                   Litigation

In May 2003, Mr. Alter brought a lawsuit against the Company in the New Castle
County Court of Chancery in Delaware to recover the advancement of expenses in
the amount of $24,000 he allegedly incurred in response to an SEC investigation
which mirrored the Company's investigation by the SEC, and for which Mr. Alter
obtained separate legal counsel to represent him. That action was identified as
Civil Action No. 20320NC. On June 17, 2003, Mr. Alter notified the Company that
this action had been voluntarily dismissed without prejudice. However, to date,
there has been no settlement with Mr. Alter, and there can be no assurance that
the claims he asserted against the Company will not be resuscitated at some time
in the future.

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 provided that Mr. Eckhouse was to be paid $350 per hour, as
follows: (i) one-third (or $117 per hour) in cash; (ii) one-third (or $117 per
hour) evidenced by a Promissory Note at 10% annual interest, maturing when
HiEnergy Technologies received government funding equaling $900,000 or an
investment totaling at least $300,000, and (iii) one-third (or $117 per hour)
paid in shares of Class A common stock of HiEnergy Microdevices at a valuation



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<PAGE>

of $5.00 per share. On May 2, 2003, Mr. Eckhouse filed a lawsuit alleging a
breach of contract against us, HiEnergy Microdevices and Dr. Bogdan Maglich,
individually (who was subsequently dismissed by the Court). We subsequently
filed a cross-complaint in the action, alleging various common law and contract
claims against Mr. Eckhouse. The Complaint alleged that HiEnergy Microdevices
owed Mr. Eckhouse a total of $313,580 for services rendered, plus interest,
attorney's fees and costs. In June 2004, we settled this dispute by entry into a
settlement agreement and mutual release with Mr. Eckhouse pursuant to which he
received a cash payment of $10,000 and 10,500 shares of stock.

The Company is currently arbitrating a dispute with its former consultant,
Yeffet Security Consultants, Inc. ("YSCI") and Isaac Yeffet, President of YSCI.
The Company entered into a three-year consulting agreement with YSCI in July
2002 whereby YSCI was to assist the Company with business development, product
and corporate image advertising, and access to government grants and purchases.
For its consulting service, the agreement provided that YSCI would be paid
$20,000 per month, plus 5% of any gross revenues collected in cash from
government grants or business and other third-party business that YSCI produced
for the Company.

In October 2003, the Company notified YSCI that it was terminating its contract.
In February 2004, YSCI filed a Demand for Arbitration, alleging that the Company
breached the consulting agreement and seeking to recover $450,000 in unpaid
consulting fees. In April 2004, YSCI amended its Demand for Arbitration to
include a claim for commissions that YSCI claims it is owed in connection with
investments made by individuals who purchased shares of the Company's stock. The
Amended Demand for Arbitration also seeks a determination as to whether Mr.
Yeffet is entitled to exercise options to purchase 500,000 shares of common
stock issued to him under the Company's Stock Option Agreement. In June 2004,
the Company filed an answer generally denying YSCI's allegations set forth in
the original and amended Demands for Arbitration. The Company also filed a cross
Demand for Arbitration seeking disgorgement of all monies paid to YCSI and
rescission of the consulting agreement and stock option agreement. The parties
are in the process of exchanging discovery. The Company intends to defend itself
vigorously in the arbitration. Depositions in this matter began in New Jersey on
December 15, 2004 for the Company and in January 2005 for YSCI. As of this date,
the Company and its legal counsel have made no other determination as to the
merits of, or possible defenses to, the arbitration.

Prior to its termination, YSCI was granted options to purchase 1,000,000 shares
of common stock with an exercise price of $1 per share and exercisable for six
years from the date of grant. Of these options, 500,000 vested immediately, and
the remaining 500,000 were to vest one year after the achievement of certain
milestones. The vested 500,000 stock options were valued at $761,000.

In January 2005, the Company was served with a Summons and Class Action
Complaint For Violations of Federal Securities Laws, which was filed on October
18, 2004, in the Federal District Court for the Southern District of California
under case number SACV04-1226 GLT. The Complaint filed named the Company, its
Chairman, among other named defendants on behalf of a class of persons who
acquired the stock of the Company during the period from February 22, 2002
through July 8, 2004. In February 2005, plaintiff's counsel filed a First
Amended Complaint entitled and styled, "In re: HiEnergy Technologies, Inc.
Securities Litigation," Master File No. 8:04-CV-01226-DOC (JTLx), alleging
various violations of the federal securities laws, generally asserting the same
claims involving Philip Gurian, Barry Alter, and the Company's failure to
disclose their various securities violations including, without limitation,
allegations of fraud. The First Amended Complaint seeks, among other things,
monetary damages, attorney's fees, costs, and declaratory relief. The Company
engaged two legal firms to vigorously defending itself in this matter and assess
the impact of the pending lawsuit. On Friday, March 25, 2005, the Company timely
filed responsive pleadings as well as Motions to Dismiss the Plaintiffs' First
Amended Complaint arguing that the Complaint failed to state a claim upon which
relief can be granted. On June 17, 2005, the Court issued an Order Granting the
Motions to Dismiss (the "Order"), finding that the Plaintiffs failed in the
First Amended Complaint to allege causation of loss resulting from any alleged
omissions and/or misrepresentations of the Company or Dr. Maglich, to sustain a
cause of action for securities fraud under ss.10(b) of the Exchange Act and Rule
10b-5 of the SEC, that the Plaintiffs had failed to plead actual reliance on any
allegedly false or misleading filings of the Company to sustain a claim under
ss.18 of the Exchange Act, and that the Plaintiffs had failed to allege a
primary violation of any securities laws to sustain a claim for a violation of
ss.20(a) of the Exchange Act. On July 5, 2005, the Plaintiffs filed a Second
Amended Complaint in compliance with the Court's Order, as anticipated. Company
counsel will respond to the allegations in any further pleading with appropriate
challenges to its legal sufficiency to state a claim upon which relief may be
granted. The costs of defending against the Complaint could be substantial;
however the Company is unable to predict an exact amount, or even a meaningful
estimate, at this time.

In March 2005, the Company was served with regard to a Complaint filed against
it by a former consultant with the California Labor Commissioner regarding
purported unpaid wages in the amount of $10,640. A hearing before the California
Labor Commissioner was held on April 21, 2005 in which the plaintiff failed to
appear before the Court. The Company received a Notice of Dismissal of the case
on April 25, 2005.

In April 2005, a claim was filed against the Company with the 101st Judicial
District Court, Dallas County, Texas by Data Discovery Inc., ("DDI") (Civil
Action No. 3-05-CV-0949-M). DDI, representing one party of a dissolved
partnership, is seeking the collection on behalf of the partnership of $107,300
allegedly owed to it for services purported to have been fully-provided to the
Company. The Company engaged local counsel and filed, on May 10, 2005, a Notice
of Removal to move the case to federal court, and a Motion for Dismissal. In
July 2005, the District Court delivered a Memorandum Opinion and Order granting
the Company's Motion for Dismissal and ordered that within twenty days DDI amend
its suit to the satisfaction of the District Court, or the order will become a
dismissal with prejudice, which would bar DDI from filing any other suit against
the Company related to the subject matter of its current claim.



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<PAGE>

                              Minority Shareholders

As of April 30, 2005, Microdevices has been effectively merged into the Company.
On January 25, 2005, the merger of Microdevices was certified by the Secretary
of the State of Delaware and the Company has assumed all assets and liabilities
of Microdevices. Under the terms of the merger, the Company issued 452,029
shares of common stock to the remaining stockholders of HiEnergy Microdevices on
the basis of 22.3524 HiEnergy shares for 1 share of HiEnergy Microdevices (the
same ratio that was used in the original voluntary share exchange).
Additionally,, we may be required to issue up to 704,190 shares of our common
stock to former holders of options and warrants of Microdevices who hold rights
to purchase HiEnergy shares at $0.156 per share. These rights survived the
merger and may be exercised any time before April 25, 2007, subject to the
payment of promissory notes representing the purchase price.

                            Convertible Notes Payable

During the year ended April 30, 2005, the Company issued $300,000 of convertible
notes payable ("CNP") to investors, which are convertible into 666,667 shares of
common stock, all of which were in-the-money as of April 30, 2005. The
convertible notes have two-year maturities in which the holders of the notes
have the option to convert the principal and accrued interest into shares of
common stock at a conversion price of $0.45 per share at any time until the
later of the prepayment date or the maturity date. The conversion price is
subject to adjustment for stock splits, stock dividends, combinations, and other
similar structural events and the CNP provide for full-ratchet anti-dilution
protection, subject to standard exceptions. Most of the CNP also have detachable
warrants to purchase shares of common stock with a three and one-half year term
following the registration date for prices between $0.45 and $1.25. All CNP and
detachable warrants have registration rights on the underlying shares, and in
certain cases, if the shares of common stock issuable upon conversion of the CNP
or exercise of the detachable warrants are not registered within certain
specified deadlines, the holders are due penalties in the form of (i) additional
convertible notes payable equal to 2% of the original face amount, or principal
balance, and/or (ii) additional detachable warrants to purchase 2% of the amount
of shares exercisable under the original warrants, for each subsequent month
until a registration statement is filed and maintained effective by the Company,
or when the penalties become impermissible as a matter of law as prescribed in
the instrument, or can be sold without registration under Rule 144.
Additionally, the CNP provide the holders with rights of first refusal if shares
are sold at a price per share less than $0.45. In January 2005, a note holder
converted $40,000 of convertible notes, originally purchased in January 2004 and
$7,200 worth of convertible notes accrued as penalties for the Company's failure
to timely file a registration statement, plus $2,360 of accrued interest, into
110,133 shares.

During the year ended April 30, 2005, the Company issued an additional $100,000
of CNP to an investor, which was subsequently converted into 192,308 shares of
common stock for the outstanding principal. The CNP had no detachable warrants
but provided for registration rights for the underlying shares. The Company
expensed a beneficial conversion feature upon conversion in the amount of
$55,769.

                   Convertible Notes Payable - Related Parties

During the year ended April 30, 2005, the Company issued $25,648 of convertible
notes payable - related parties to its former legal counsel for conversion of
accounts payable, which are unsecured, bearing interest at 10% per annum and
became due on demand in April 2005. The holder of the notes have the option to
convert the principal and accrued interest into shares of common stock at a
conversion price of $1.00 per share at any time. The conversion price is subject
to adjustment for stock splits, stock dividends, combinations, and other similar
structural events and the convertible notes provide for full-ratchet
anti-dilution protection, subject to standard exceptions, with respect to the
issuance of the Company's common stock.

                               Penalty Securities

After August 2003, the Company entered into certain stock and convertible note
purchase agreements which contain a provision that requires the Company to (i)
register, as freely trading, the shares of common stock and the shares of common
stock issuable upon exercise of warrants or conversion of the convertible notes
payable within certain deadlines, in a Registration Statement on Form SB-2; and
(ii) pay or accrue a penalty in like securities if such shares of common stock
are not registered within the specified deadlines. In accordance with the
relevant registration rights provisions in these agreements, the Company has
paid or accrued penalties due purchasers in these offerings, because the Company
failed to meet the specified deadlines for having a Registration Statement on
Form SB-2 declared and maintained effective.

As of April 30, 2005, the Company remains obligated to honor these registration
rights and to issue additional securities as a result of the related penalties,
and it will incur additional financial costs or penalties until such time as all
registrable shares under the agreements have in fact been registered or when the
penalties become impermissible as a matter of law as prescribed in the
instrument or can be sold without registration under Rule 144. The Company and
its stockholders are subject to substantial dilution as a result of the
Company's inability to register shares as required by the Company's agreements.
The warrants issued as penalties whose underlying shares are estimated below are
exercisable at prices ranging from $0.45 to $1.75.




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<PAGE>

For illustration purposes only, the table below estimates the approximate
amounts of penalty securities to be issued by the Company through April 30,
2006, on a monthly basis, in accordance with current agreements under which the
Company is, or may be, delinquent in satisfying its registration requirements:

                    Shares of     Number of Shares    Convertible
                      Common        Underlying          Notes
                      Stock          Warrants          Payable
                    ---------        ---------        ---------
      May-05           78,982          347,407            6,000
      Jun-05           78,982          353,101            6,000
      Jul-05           78,982          358,792               --
      Aug-05           78,982          364,483               --
      Sep-05          130,667          502,085               --
      Oct-05          116,303          507,777               --
      Nov-05           98,780          510,620               --
      Dec-05           90,795          514,227               --
      Jan-06           75,684          543,920               --
      Feb-06           75,684          510,501               --
      Mar-06           67,684          516,193               --
      Apr-06           61,684          518,885               --
                    ---------        ---------        ---------
      Total         1,033,209        5,547,991        $  12,000
                    =========        =========        =========

The above estimates reflect monthly amounts to be issued or committed and may
not correspond to amounts appearing elsewhere in this report due to accruals for
expense purposes.

                         Government Contract Commitments

The Company completed the second year of Phase II of a Small Business Innovation
Research ("SBIR") contract awarded to it in August 2002 by the U.S. Army Night
Vision and Electronic Sensor Directorate ("NVESD"). Under the terms of the
contract, the Company is to develop and test its Anti-Tank Landmine Detector
7AT7(TM) over a two-year period, which was extended for one additional year at
the option of the U.S. Army. As of April 30, 2005, the Company has earned
$779,944 against the contract. If further research and development work is
required upon the expiration of Phase II, the Company has the ability to submit
a request for additional Phase II and/or Phase III funding, which the government
would consider based upon the Company's progress to date and the merits of the
project. The U.S. Army is under no obligation to continue to assist in funding
these research and development costs beyond Phase II or any subsequent
extension, or to purchase any of the Company's products, including the Anti-Tank
Landmine Detector 7AT7(TM), once the Company has completed development
activities. Under the terms of the contract, the U.S. Army pays a portion of the
Company's research and development costs on a periodic basis during the term of
the contract, for which the Company is required to submit monthly written
reports detailing its progress. The Company recognizes the proceeds from the
contract as an offset against research and development expenses following the
submission of the monthly written reports. When the written report is accepted
by the U.S. Army, the Company usually receives payment in about 30 to 45 days.
As of April 30, 2005, the Company had a receivable of $30,412 which was
collected in July 2005.

In September 2004, the Company entered into a Cooperative Agreement with the
U.S. Transportation Security Administration (TSA). Under the agreement, the
Company is to provide proof-of-concept for the Company's "NextGen Checked
Baggage Program (STOXOR)" over a nine month period, which may be extended at the
option of the TSA. The agreement provides funding in the amount of $367,141 for
Stage 1, and an additional $145,381 for Stage 2, if, at the conclusion of Stage
1, the TSA elects to continue with the Company. As of April 30, 2005, the
Company has earned $305,951 in cooperative financing from the TSA to complete
Stage 1, and was entitled to earn an additional $61,190 in contract proceeds to
complete Stage 1. There is no obligation for the TSA to fund the Company's
development efforts under this agreement beyond the Stage 1 funded amount or to
purchase any of the Company's products once it has completed development
activities. The TSA will pay the Company's research and development costs on a
periodic basis during the term of the contract, for which the Company is
required to submit monthly written reports detailing its progress under the
contract. When the written report is accepted by the TSA, the Company receives
payment in about 30 to 45 days. Payments commenced in November 2004 and the
Company recognizes the Stage 1 funding amount as an offset against research and
development expenses upon submission of the monthly written reports. As of April
30, 2005, the Company had a receivable in the amount of $244,825, and as of July
2005 it had collected all receivables due it in completion of Stage 1.

The Company's entitlement to the above-mentioned funding is conditioned upon its
compliance with the terms and conditions of the respective SBIR contract and
cooperative agreement, as well as applicable federal regulations, including
auditing of the expenditure of the resources for allowable purposes by grantor
agencies of the federal government or their designees. As of April 30, 2005, the
Company believes that any commitments or obligations that may arise from cost
disallowance or sanctions as a result of those audits are not expected to be
material to its financial statements.




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<PAGE>

                                  Subsidiaries

In March 2005, the Company formed a wholly-owned subsidiary, HiEnergy Mfg
Company, Inc., for the purpose of creating a separate entity for the
manufacturing and assembly of its products. The Company expects to have a pilot
manufacturing program in place and fully operational following the completed
launch of its sales program.

NOTE 17 - COMMON STOCK

                    Common Stock Issued or Committed for Cash

During the years ended April 30, 2005 and 2004, and the period from August 21,
1995 (inception) to April 30, 2005, the Company issued or committed to issue
7,083,227, 3,419,218, and 13,751,874 shares of common stock, respectively, for
cash proceeds of $3,582,156, $2,041,001, and $6,744,424, respectively. Included
in both the prior period amount and the inception-to-date amount are 201,879
shares sold deemed subject to rescission rights for $150,000. Of the 7,083,227
shares sold during the fiscal year ended April 30, 2005; 700,000 shares remained
committed as of April 30, 2005 and were subsequently issued in May 2005.

               Offering Costs on Issuance of Common Stock for Cash

During the years ended April 30, 2005 and 2004, and the period from August 21,
1995 (inception) to April 30, 2005, the Company paid offering costs of $31,750,
$57,500, and $139,768, respectively.

               Common Stock Issued in Private Placements for Cash

During the years ended April 30, 2005 and 2004 and the period from August 21,
1995 (inception) to April 30, 2005, the Company issued 0, 0 , and 3,074,934,
shares of common stock, respectively, in exchange for cash proceeds of $0, $0,
and $3,547,406, respectively, raised by the Company in private placements.

    Offering Costs of Issuance of Common Stock in Private Placements for Cash

During the years ended April 30, 2005 and 2004 and the period from August 21,
1995 (inception) to April 30, 2005, the Company paid offering costs of $0, $0
and $196,793, respectively.

    Common Stock Issued or Committed for Services Rendered or to be Rendered

During the years ended April 30, 2005 and 2004, and the period from August 21,
1995 (inception) to April 30, 2005, the Company issued or committed to issue
402,455, 558,500, and 13,758,982 shares of common stock, respectively, in
exchange for services rendered valued at $504,715, $468,256, and $5,263,324,
respectively, based upon the fair market of the common stock as of the dates the
services were rendered.

Details of the services performed, in consideration for the common stock during
the years ended April 30, 2005, are as follows:

      o     During the year ended April 30, 2005, 182,955 shares of common stock
            valued at $177,466 were issued for legal counsel and advisory
            services received by HiEnergy on general corporate legal matters,
            including transactional oversight and the preparation of
            transactional and regulatory documentation. Of the $177,466 amount
            $5,336 related to services rendered and expensed during the year
            ended April 30, 2004.

      o     During the year ended April 30, 2005, HiEnergy issued 95,000 shares
            of common stock valued at $208,050 to a contracted consultant for
            services which included strategic planning, development and
            assisting in the implementation of short- and long-term strategic
            planning initiatives to enhance and accelerate the commercialization
            of the Company's business objectives.

      o     During the year ended April 30, 2005, the Company issued 3,500
            shares of common stock valued at $6,895, to a strategic marketing
            and planning consultancy as compensation for services.

      o     During the year ended April 30, 2005, the Company issued 95,000
            shares and committed to issue 26,000 shares of common stock with a
            combined value of $117,640 for services rendered to members of the
            Board of Directors of the Company and that of its subsidiaries for
            their attendance at scheduled meetings. Each member of the
            HiEnergy's board received 3,000 restricted shares of common stock
            for each meeting attended and each member of the board of HiEnergy
            Defense receives 2,000 restricted shares of common stock for each
            meeting attended, with the exception of the Chairman of HiEnergy
            Defense who receives 3,000 restricted shares for each such meeting
            attended. Also issued during the year ended April 30, 2005 were
            3,000 shares of common stock valued at $4,260 and still remaining
            committed as of April 30, 2005 were 4,000 shares valued at $5,680
            for services rendered in March 2004 by HiEnergy Defense's Board of
            Directors. In July 2005, the Board of Directors of the Company
            increased the per meeting compensation to 5,000 restricted shares.




                                      126
<PAGE>

       Common Stock Issued on the Conversion of Convertible Notes Payable

During the year ended April 30, 2005 and 2004 and the period from August 21,
1995 (inception) to April 30, 2005, the Company issued 302,441, 1,595,896,
1,898,337 shares of common stock for the outstanding principal on convertible
notes payable balances of $149,560, $683,153, $832,713. Included in the current
year and inception-to-date amount are 110,133 shares issued upon conversion of a
note payable that was sold deemed subject to rescission rights. Therefore, the
110,133 shares have been recorded as a current liability as shares deemed
subject to rescission rights in the amount of $49,560.

            Common Stock Issued on the Conversion of Promissory Notes

During the years ended April 30, 2005, the Company issued 1,139,130 shares of
common stock for settlement of outstanding promissory notes evidencing loans
made to the Company in the aggregate amount of $524,000. As additional
consideration for the conversion, the Company issued to the note holders
warrants to purchase an additional 569,565 shares of common stock issued upon
conversion at an exercise price of $0.82 per share. Said warrants are to expire
three and one half years following the date of effectiveness of the Company's
next filed registration statement. Upon conversion, the note holder waived all
accrued but unpaid interest.

                 Common Stock Issued on the Exercise of Warrants

During the years ended April 30, 2005 and 2004 and the period from August 21,
1995 (inception) to April 30, 2005, the Company issued 0, 69,776 and 69,776
shares of common stock, respectively, for the exercise of warrants for cash
proceeds of $0, $54,004 and $54,004, respectively.

            Common Stock Issued on the Cashless Exercise of Warrants

During the years ended April 30, 2005 and 2004 and the period from August 21,
1995 (inception) to April 30, 2005, the Company issued 1,341,806, 497,116 and
1,872,831 shares, respectively, of common stock following the cashless exercise
of warrants. See Note 16 - Commitments and Contingencies, Cashless Exercise of
Warrants.

       Common Stock Issued or Committed as a Penalty for Late Registration

During the years ended April 30, 2005 and 2004, and the period from August 21,
1995 (inception) to April 30, 2005, the Company issued or committed to issue
1,966,055, 803,565, and 2,897,756 shares of common stock as penalty expenses in
the amount of $2,024,125, $1,224,702, and $3,306,487, respectively, for the late
registration of common stock. See "Note 16 - Commitments and Contingencies,
Penalties Associated with the Late Registration of Common Stock.". Of the
1,966,055 shares expensed during the year ended April 30, 2005; 196,576 shares
remained committed as of April 30, 2005.

NOTE 18 - STOCK OPTIONS AND WARRANTS

            Stock Options Issued to Consultants for Services Rendered

During the years ended April 30, 2005 and 2004 and the period from August 21,
1995 (inception) to April 30, 2005, the Company issued stock options to
consultants to purchase 0, 649,000 and 2,127,144 shares of common stock to
consultants for services valued at $0, $407,877 and $1,363,400. The fair values
of the stock options grants were determined using the Black-Scholes model. The
assumptions used to determine the valuations of the 2004 grants, excluding
options to purchase 29,000 shares of common stock issued to directors of
HiEnergy Defense, are as follows:

<TABLE>
<CAPTION>
No. of Options        30,000        200,000       40,000       210,000        100,000         40,000
                  --------------  ------------ ------------ -------------- --------------  ------------
<S>                  <C>           <C>          <C>           <C>            <C>            <C>
Grant date           May 2003      July 2003    August         November      November      December
                                                  2003          2003           2003           2003
Term                 6 Years        6 Years      6 Years       6 Years        6 Years        6 Years
Compensation
expense              $ 5,458       $ 52,742     $ 31,514      $ 188,142      $ 90,000       $ 24,104
Value of options
per share            $ 0.18         $ 0.26       $ 0.79        $ 0.90         $ 0.90         $ 0.61
Stock price on
grant date           $ 0.45         $ 0.50       $ 1.02        $ 1.25         $ 1.25         $ 0.90
Exercise price       $ 0.75         $ 0.50       $ 1.02        $ 1.25         $ 0.35         $ 0.90
Expected life       2.0 years      2.0 years    2.5 years     2.0 years      2.0 years      2.0 years
Risk-free rate of
return                1.44%          1.45%        1.98%         1.95%          2.04%          1.88%
Expected annual
volatility            100%           100%         140%          150%           150%           140%
Annual rate of
dividends              0%             0%           0%            0%             0%             0%
Services provided   Business       Business    Scientific     Business       Business       Financial
                   development    development   advisors     development    development        and
                                                                                            business
</TABLE>




                                      127
<PAGE>

                             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
parties.

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. 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.

The following summarizes the stock option and warrant transactions:

<TABLE>
<CAPTION>
                                                      Stock
                                        Weighted      Options         Weighted                     Weighted
                                        Average         and           Average        Total         Average
                        Stock           Exercise     Warrants         Exercise      Options        Exercise
                       Options           Price         Non-            Price          And           Price
                      Employee         per Share     Employee        per Share      Warrants      per Share
                      --------         ---------     --------        ---------      --------      ---------
<S>                    <C>              <C>              <C>          <C>          <C>              <C>
Outstanding,
August 21, 1995
(inception) to
April 30, 2001         2,482,011        $   0.13         1,051        $   0.28     2,483,062        $   0.13

 Granted                 287,653        $   0.20       346,373        $   0.28       634,026        $   0.24
                       ---------        --------     ---------        --------     ---------        --------
Outstanding,
April 30, 2002         2,769,664        $   0.14       347,424        $   0.28     3,117,088        $   0.16
                       ---------        --------     ---------        --------     ---------        --------

 Granted               3,461,755        $   1.24     2,002,726        $   2.02     5,464,481        $   1.43

 Canceled             (2,264,208)       $   1.33        (1,051)       $   0.28    (2,265,259)       $   1.33

Outstanding,
April 30, 2003         3,967,211        $   0.42     2,349,099        $   1.76     6,316,310        $   0.84
                       ---------        --------     ---------        --------     ---------        --------

Granted                1,738,221        $   1.03     1,029,000        $   1.11     2,767,221        $   1.01

Canceled              (1,058,483)       $   1.42      (119,705)       $   0.36    (1,178,188)       $   1.31

Outstanding
April 30, 2004         4,646,949        $   0.42     3,258,394        $   1.61     7,905,343        $   0.83
                       ---------        --------     ---------        --------     ---------        --------

                       2,956,980        $   0.76       100,000        $   0.99     3,056,980        $   0.77
Granted

Canceled                (910,000)       $   1.08      (876,668)       $   2.79    (1,786,668)       $   1.92
                       ---------        --------     ---------        --------     ---------        --------

Outstanding
April 30, 2005         6,693,929        $   0.70     2,481,726        $   1.17     9,175,655        $   0.82

Exercisable
April 30, 2005         5,306,429        $   0.66     1,971,726        $   1.20     7,278,155        $   0.81
                       ---------        --------     ---------        --------     ---------        --------
</TABLE>


                                      128
<PAGE>

The weighted-average remaining contractual life of the options and warrants
outstanding at April 30, 2005 was 4.20 years. The exercise prices of the options
and warrants outstanding at April 30, 2005 ranged from $0.01 to $2.95, and
information relating to these options and warrants is as follows:

<TABLE>
<CAPTION>
                                                                    Weighted-      Weighted-
                                                        Weighted-    Average        Average
                                                         Average    Exercise        Exercise
                       Stock             Stock          Remaining   Price of        Price of
 Range of            Options &         Options &       Contractual  Options &      Options &
 Exercise            Warrants          Warrants            Life     Warrants        Warrants
  Prices            Outstanding       Exercisable        (years)   Outstanding    Exercisable
  ------            -----------       -----------        -------   -----------    -----------
<C>                  <C>              <C>                 <C>       <C>            <C>
$0.01 - $0.99        6,057,212        4,962,212           4.52      $   0.46       $   0.40
$1.00 - $1.99        2,184,454        1,391,954           3.95      $   1.09       $   1.13
$2.00 - $2.99          933,989          923,989           2.73      $   2.54       $   2.54
                     ---------        ---------
                     9,175,655        7,278,155
                     =========        =========
</TABLE>

     Warrants Issued to Investors and Placement Agents In Private Placements

During the years ended April 30, 2005 and 2004 and the period from August 21,
1995 (inception) to April 30, 2005, the Company issued warrants to purchase
11,032,189, 7,210,190 and 19,358,065 shares of common stock to investors and
placement agents in private placements.

                      Warrants Issued for Services Rendered

During the years ended April 30, 2005 and 2004 and the period from August 21,
1995 (inception) to April 30, 2005, the Company issued or committed to issue
warrants to purchase 100,000, 380,000 and 1,278,229 shares of common stock,
respectively, for services rendered valued at $38,573, $269,885, and $976,035,
respectively, which is the fair value as determined by the Black-Scholes option
pricing model. Details of the services performed during the year ended April 30,
2004 are as follows:

<TABLE>
<CAPTION>
No. of Warrants       50,000        150,000        30,000          50,000         50,000           50,000
                    ----------     ----------    ------------   -----------     ------------     -----------
<S>                  <C>            <C>            <C>             <C>            <C>              <C>
Grant                May 2003       May 2003     January 2004     April 2004      April 2004       April 2004
Term                Two years      Two years      Three Years     Three Years    Three Years      Three Years
Compensation
   expense           $ 8,079        $35,598        $17,775         $78,297        $ 54,675         $ 75,461
Stock price on
   grant date        $ 0.40         $ 0.45         $ 0.89          $ 2.95         $ 2.06           $ 2.85
Exercise price       $ 0.50         $ 0.45         $ 1.25          $ 2.95         $ 2.06           $ 2.85
Expected life       2.0 years      2.0 years      2.0 years       2.0 years      2.0 years        2.0 years
Risk-free rate
  of return           1.21%          1.38%          1.84%           1.87%           2.34%            2.03%
Expected annual
  volatility          100%           100%           150%            100%            100%             100%
Annual rate of
  dividends             0%            0%            0%              0%              0%               0%
Services provided   Placement     Placement      SEC filing     Business         Business        SEC filing
                    services      services        services      development      development     services
</TABLE>

           Warrants Repriced in Conjunction with Additional Financing

In June 2004, the Company amended a previously issued convertible note payable
in the amount of $50,000, which was convertible into shares of common stock at
$0.45 per share, and warrants to purchase 312,222 shares of common stock at
various exercise prices between $0.45 and $1.50. Pursuant to an amended
Convertible Note Purchase Agreement ("CNPA"), the Company issued separate
convertible notes payable of $40,000 and $10,000, respectively, in lieu of the
prior note, to two investors based on an allowable assignment, and certain
warrants were re-priced such that the Company issued additional warrants to


                                      129
<PAGE>

purchase 77,777 shares of common stock at various exercise prices between $0.45
and $1.25. In connection with the amended CNPA, the Company agreed to issue
additional warrants and to reduce the exercise prices of some of the warrants
previously issued in exchange for the two investors' exercising their option to
purchase an additional $300,000 of CNP. The CNP have a two-year term, bear
interest at 5% and are convertible into common stock at $0.45 per share. The
additional CNP also contain warrants to purchase common stock with a three and
one-half year term as follows: 1,333,332 at $0.45 per share; 400,000 at $0.75
per share; and 240,000 at $1.25 per share.

A summary of the amended warrants and exercise prices follows:

               Original CNPA                        Amended CNPA
       ------------------------------   ----------------------------------------
          Exercise       No. of             Exercise              No. of
           Price        Warrants              Price              Warrants
       ------------------------------   ----------------------------------------
              $  0.75         66,667                $  0.45             111,111
              $  1.25         40,000                $  0.75              66,666
              $  1.50         33,333                $  1.25              40,000
              $  0.45        222,222                $  0.45             222,222
                             -------                                    -------
                             362,222                                    439,999
                             =======                                    =======

In January 2005, the Company amended and restated a previously executed Stock
Purchase Agreement ("SPA") in which an investor purchased 333,333 shares of
common stock at $0.45 per share for cash proceeds of $150,000, and warrants to
purchase 686,450 shares of common stock at various exercise prices between $0.49
and $1.65, and was granted an option to purchase additional shares at $0.45 in a
second closing at a later date. In connection with the amended and restated SPA,
the Company agreed to reduce the exercise prices of some of the warrants
previously issued in exchange for the investor's exercising the option to
purchase an additional $880,000 of shares of common stock at $0.45 in a second
closing, such that additional warrants to purchase 300,216 shares of common
stock were issued at various exercise prices between $0.45 and $1.25. In
connection with the second closing, the Company issued warrants to purchase
common stock with a three and one-half year term as follows: 3,911,110 at $0.45
per share; 1,173,333 at $0.75 per share; and 704,000 at $1.25 per share.

A summary of the amended warrants and exercise prices follows:

               Original SPA                   Amended and Restated SPA
       ------------------------------   ----------------------------------------
          Exercise       No. of             Exercise              No. of
           Price        Warrants              Price              Warrants
       ------------------------------   ----------------------------------------
              $  0.83        180,723                $  0.45             333,333
              $  1.38        108,696                $  0.75             200,000
              $  1.65         90,909                $  1.25             120,000
              $  0.49        306,122                $  0.45             333,333
                             -------                                    -------
                             686,450                                    986,666
                             =======                                    =======

          Warrants Issued or Committed as Penalty for Late Registration

During the years ended April 30, 2005 and 2004 and the period from August 21,
1995 (inception) to April 30, 2005, the Company issued or committed to issue
warrants to purchase 2,454,334, 201,744 and 2,656,078 common shares,
respectively, as a penalty with a fair value of $1,287,746, $231,282, and
$1,519,028, respectively, related to the delayed registration of the Company's
common stock. The fair values of the warrants were determined using the
Black-Scholes model.

NOTE 19 - INCOME TAXES

The components of the deferred income tax assets (liabilities) at April 30, 2005
were as follows:

      Deferred tax assets
        Equity compensation                      $   686,000
        Payroll tax expense                           93,000
        Net operating loss carry forwards          5,894,000
                                                 -----------

          Total deferred tax assets                6,673,000

      Deferred tax liability
        Depreciation                                (104,000)
                                                 -----------

                                                   6,569,000
      Less valuation allowance                    (6,569,000)

          Net deferred tax asset                 $        --
                                                 ===========


                                      130
<PAGE>

The following table presents the current and deferred income tax provision for
federal and state income taxes for the years ended April 30, 2005 and 2004:

                                                        2005        2004
                                                        ----        ----
      Current
                Federal                                 $ --        $ --
                State                                    800         800
                                                        ----        ----
                                                         800         800
                                                        ----        ----

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

                        Provision for income tax        $800        $800
                                                        ====        ====

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,
2005 and 2004 as follows:

                                                           2005           2004
                                                       --------        -------
      Statutory regular federal income benefit rate       34.00%         34.00%
      State taxes                                          8.84           8.84
      Change in valuation allowance                      (42.85)        (42.85)
                                                       --------        -------

                Total                                     (0.01)%        (0.01)%
                                                       ========        =======

As of April 30, 2005, the Company had net operating loss carry forwards for
federal and state income tax purposes of approximately $13,757,000, which starts
expiring in 2010 through 2024. The utilization of net operating loss carry
forwards may be limited due to the ownership change under the provisions of
Internal Revenue Code Section 382 and similar state provisions.

NOTE 20 - RELATED PARTY TRANSACTIONS

During the years ended April 30, 2005 and 2004 and the period from August 21,
1995 (inception) to April 30, 2005, the Company purchased $0, $4,767, and
$4,767, respectively, of property and equipment from a Board member. See Notes
10, 11, 16 and 20 for additional related party transactions.

NOTE 21 - SUBSEQUENT EVENTS

                    RECENT SALES AND ISSUANCES OF SECURITIES

In May 2005, the Company issued 1,144,446 shares of its common stock, par value
$0.001 ("Shares") and warrants to purchase 4,005,564 Shares various exercise
prices between $0.45 and $1.25 to various investors in exchange for $515,000 in
cash. Said warrants are to expire three and one half years following the date of
effectiveness of the Company's next filed registration statement.

In May 2005, the Company issued 452,029 Shares previously committed to the
remaining stockholders of HiEnergy Microdevices, Inc. in connection with a short
form merger on the basis of 22.3524 HiEnergy shares for 1 share of HiEnergy
Microdevices (the same ratio that was used in the original voluntary share
exchange).




                                      131
<PAGE>

In May 2005, the Company issued 400,000 Shares and warrants to purchase 600,000
Shares at various exercise prices between $0.75 and $1.25 previously committed
to an investor in exchange for $200,000 in cash. Said warrants are to expire
three and one half years following the date of effectiveness of the Company's
next filed registration statement.

In May 2005, the Company issued 300,000 Shares and warrants to purchase 150,000
Shares at an exercise price of $0.65 previously committed to an investor in
exchange for $150,000 in cash. Said warrants are to expire three and one half
years following the date of effectiveness of the Company's next filed
registration statement.

In May 2005, the Company issued 2,000 Shares previously committed to a board
member of HiEnergy Defense Inc. as compensation for prior meeting attendance.

In May 2005, the Company reclassified $81,400 in convertible notes payable
deemed subject to rescission rights to convertible notes payable.

In June 2005, the Company issued 437,627 Shares to Nicholas J. Yocca upon
conversion of $185,000 of convertible notes, originally purchased in January
2004, plus $11,932 of accrued interest.

In June 2005, the Company to issued 32,820 Shares to an investor upon the
conversion of promissory notes evidencing loans made to the Company in the
aggregate amount of $14,000, plus $769 of accrued interest.

In June 2005, the Company issued 677,778 Shares and committed to issue warrants
to purchase 2,372,232 Shares at various exercise prices between $0.45 and $1.50
in exchange for $305,000 in cash.

In June 2005, the Company reclassified $268,800 in convertible notes payable
deemed subject to rescission rights to convertible notes payable.

In June 2005, the Company reclassified 110,133 Shares, which became deemed
subject to rescission rights upon conversion of a convertible note deemed
subject to rescission rights in January 2005, to common stock and additional
paid-in capital.

In July 2005, the Company reclassified $185,000 in convertible notes payable
deemed subject to rescission rights to convertible notes payable.

In July 2005, the Company issued 62,222 Shares and issued warrants to purchase
217,777 Shares at various exercise prices between $0.45 and $1.50 in exchange
for the cash equivalent of $28,000 in finders' fees.

In July 2005, the Company issued 17,778 Shares and warrants to purchase 80,000
Shares with an exercise price of $0.45 to a consultant as a finder's fee.

In July 2005, the Company issued 189,917 Shares to an investor who converted his
convertible notes payable for $81,400, deemed subject to rescission rights, plus
accrued interest of $4,063 with a conversion price of $0.45 per Share.

In July 2005, the Company issued 22,463 Shares to two investors pursuant to the
cashless exercise of warrants. The warrants were exercisable for a total of
64,583 Shares at an exercise price of $0.45 per share. In connection with the
cashless exercise, 42,120 Shares issuable pursuant to the warrant were tendered
for conversion to pay the exercise price.

In July 2005, the Company issued or committed to issue 129,174 and warrants to
purchase 64,586 Shares at $0.65 per Share to a board member of the Company in
connection with the conversion of accounts payable for legal services rendered
prior to his directorship in the amount of $59,420 at a price of $0.45 per
Share.

In July 2005, the Company issued 25,185 Shares and warrants to purchase 12,593
Shares at $0.65 per Share to a law firm affiliated with a board member of the
Company in connection with the conversion of accounts payable for legal services
rendered in the amount of $11,586 at a price of $0.45 per Share.

In July 2005, the Company issued 30,000 Shares to an engineering consultant for
services rendered.

In July 2005, the Company issued 25,000 Shares to the board members of the
Company as compensation for meeting attendance, each board member receiving
5,000 shares per meeting.

In July 2005, the Company issued 15,000 Shares previously committed during the
prior year period to the board members of the Company as compensation for
meeting attendance, each board member receiving 3,000 shares per meeting.




                                      132
<PAGE>

In July 2005, the Company issued or committed to issue 1,200,001 Shares and
warrants to purchase 1,200,001 Shares at $0.45 for $540,000 in subscription
receivable.

                               PENALTY SECURITIES

In May 2005, the Company issued or committed to issue 78,982 Shares and warrants
to purchase 292,530 Shares at various exercise prices between $0.45 and $1.75,
to various holders of securities with registration rights as a penalty, due to
our inability to file and maintain effective a registration statement within
certain specified deadlines.

In May 2005, the Company issued or committed to issue $6,000 in convertible
notes to certain note holders with registration rights as a penalty, due to the
Company's inability to file and maintain effective a registration statement
within specified deadlines.

In June 2005, the Company issued or committed to issue 78,892 Shares and
warrants to purchase 353,101 Shares at various exercise prices between $0.45 and
$1.75, to various holders of securities with registration rights as a penalty,
due to our inability to file and maintain effective a registration statement
within certain specified deadlines.

In June 2005, the Company issued or committed to issue $6,000 in convertible
notes to certain note holders with registration rights as a penalty, due to the
Company's inability to file and maintain effective a registration statement
within specified deadlines.

In July 2005, the Company issued or committed to issue 78,892 Shares and
warrants to purchase 358,792 Shares at various exercise prices between $0.45 and
$1.75, to various holders of securities with registration rights as a penalty,
due to our inability to file and maintain effective a registration statement
within certain specified deadlines.

In August 2005, the Company issued 196,576 Shares, previously committed in the
prior year period, to various holders of securities with registration rights as
a penalty, due to our inability to file and maintain effective a registration
statement within certain specified deadlines.

                      CONSULTANCY AGREEMENTS AND CONTRACTS

In May 2005, the Company entered into a contract with a consultant for Edgar
filing services in which it prepays one year of services with 104,000 restricted
shares of its common stock of the Company. Pursuant to the agreement, the
Company will issue the service provider a three year warrant to purchase 50,000
shares of its common stock with an exercise price of $0.75 per share, in the
event the shares are not filed for registration on or before June 30, 2005.

In June 2005, the Company executed an engagement letter with an independent
contractor to provide production and manufacturing consulting for the Company
for a three-month period. Major terms of the agreement are as follows:

      o     The Company will pay the consultant cash remuneration of $4,667
            bi-weekly for the duration of the engagement, or $28,000.

      o     The Company will issue the consultant as deferred compensation,
            three promissory notes bearing 5% interest in the amount of $4,000,
            one on July 20, 2005, one on August 20, 2005 and one on September
            20, 2005, and due 90 days from issuance, provided the consultant is
            still engaged on said dates.

      o     The Company will grant the consultant a warrant to purchase 30,000
            shares of HiEnergy common stock with a five year term and
            exercisable at a price no greater than the average trading price for
            the thirty-days prior to the engagement. The option shall vest,
            provided the consultant is then still a service provider on
            September 20, 2005.

      o     The Company will reimburse consultant for any pre-approved expenses,
            not to exceed $10,500 during the engagement.

      o     In the event the Company files a registration statement on S-8, the
            Company has the option to prepay the consultant's services, or
            settle any outstanding promissory notes, with S-8 stock with value
            equivalent to two (2) months of the above stated salary.

In June 2005, the Company entered into a contract with a consultant to provide
public media relations on a success fee basis. Under the contract, the Company
agrees to pay the consultant pursuant to a fixed fee schedule for successful
placements and media coverage incorporating the Company's products and
technologies.

                          PURCHASE AND SALES AGREEMENTS

In May 2005, the Company entered into an Equipment Sales Agreement with a major
transit authority in connection with the purchase of two SIEGMA(TM) systems for
an aggregate sum of $603,104. Accordingly, on June 10, 2005, the Company
received Purchase Order No. 4500233769 from the Commonwealth of Pennsylvania in
the amount of $603,104, payment of which is due within 30 days following
delivery of the units. The Company has contractually agreed to make reasonable
best efforts to make delivery of the ordered units within 120 days of the
purchase order date.




                                      133
<PAGE>

                         GOVERNMENT CONTRACT COMMI(TM)ENTS

On July 18, 2005, the Company executed a Time and Material Subcontract in the
amount of $333,688 with Integrated Concepts & Research Corporation (ICRC), which
was awarded as part of ICRC's Prime Contract Number DAAE07-02-C-L062 with the
United States Army Tank - Automotive and Armaments Command, Warren Michigan
(TACOM). Under the Subcontract, the Company will deliver one CarBomb Finder(TM)
head unit and provide the engineering and technical support necessary for its
integration in the SmarTruck II Multi-Mission Vehicle and delivered for field
testing by the U.S. Army and D.C. Capitol Hill Police.

                                  SUBSIDIARIES

In July 2005, the Company formed a wholly-owned subsidiary, HiEnergy
International, Inc., for the purpose of creating a separate entity for the sales
and servicing of its products overseas.




                                      134
<PAGE>

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

None.

ITEM 8a. CONTROLS AND PROCEDURES

Within the 90 days prior to the date of the filing of this Form 10-KSB, Dr.
Bogdan C. Maglich, serving in his capacity as our CEO and Treasurer, carried out
an evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14(c) and 5d-14(c).
Based upon his review, Dr. Maglich concluded that our disclosure controls and
procedures during our fiscal quarter ended April 30, 2005 were effective in
alerting us on a timely basis to material information relating to the Company
which is required to be included in our reports filed under the Securities
Exchange Act. His conclusion was based in part, on the improvements which we
have made in filling needed positions at the Company which have previously not
been filled (thereby placing all of the responsibility on Dr. Maglich),
including the addition of a full-time Controller in March 2005, and creating
more effective lines of reporting and communication among our Company and the
legal, accounting and other professionals with whom we work. Notwithstanding
these improvements, we are cognizant that certain deficiencies still remain to
be addressed, most notably, our recruitment of a full-time Chief Financial
Officer and President/COO. We intend to work on resolving these deficiencies
during fiscal year 2006, as well as to review the areas where we may determine
that deficiencies exist.

With these changes, Dr. Maglich has concluded as of the time of the filing of
this Report that our company does have in place an effective system for timely
meeting our Securities Exchange Act requirements, although further refinements
are contemplated as indicated above. Of necessity, the design of any system of
controls is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any system will succeed in
adhering to its stated goals under all potential future conditions. These
include an assumption that we will be able to raise, through equity investment,
grants, or otherwise, the funding necessary to implement and maintain our
internal control system. There can be no assurance that we will be able to
implement or maintain an effective system of internal controls, and if we are
not able to do so, we risk being in violation of our obligations as a public
company in the future. See: Risk Factors: Corporate Risks.

              CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

Other than as described above, there were no further significant changes in our
internal controls that in Management's estimates have materially affected, or
are likely to materially affect, our disclosure controls and procedures
subsequent to the date of the evaluation, including any corrective actions with
regards to significant deficiencies and material weaknesses.




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<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 April 30, 2004 are as
follows:

<TABLE>
<CAPTION>
              NAME                   AGE                         POSITION
--------------------------------  -----------  --------------------------------------------------
<S>                                   <C>      <C>
 Dr. Bogdan C. Maglich                76       Chairman of the Board, Chief Executive Officer,
                                               President, Treasurer and Chief Scientific Officer
 Roger W.A. Spillmann                 34       Vice President & Corporate Secretary
 Colonel William J. Lacey, Jr.        66       Director
 David R. Baker                       73       Director
 William A. Nitze                     62       Director
 Harb S. Al-Zuhair                    67       Director
 Peter J. LeBeau                      58       Director
</TABLE>

Dr. Maglich was appointed Chairman and Chief Scientific Officer of HiEnergy
Technologies on April 25, 2002. He was appointed Chief Executive Officer,
President and Treasurer of HiEnergy Technologies effective as of March 2003. Mr.
Tom Pascoe resigned as Chief Executive Officer and President of our company on
February 25, 2003. Mr. Barry Alter resigned as Chief Executive Officer,
President and Treasurer of our company on September 17, 2002 and resigned from
our board of directors on March 7, 2003. Roger Spillmann was appointed Vice
President and Corporate Secretary of HiEnergy Technologies on January 11, 2005.

Dr. Bogdan Maglich and Mr. Harb Al-Zuhair were appointed to the board of
directors on April 25, 2002. In February 2003, Mr. David R. Baker was appointed
to the board of directors. Mr. Lacey, Mr. Nitze and Mr. LeBeau were appointed to
the Board of Directors in August 2004.

All directors hold office for one year or until their respective successors are
elected, or until their earlier death, resignation or removal. Each of our
officers serves at the discretion of the board of directors. There are no family
relationships between or among any of our directors or executive officers.

BIOGRAPHIES

Each director and executive officer has furnished us the following information
with respect to his or her principal occupation or employment, other
affiliations and business experience during the last five years.

DR. BOGDAN C. MAGLICH

As HiEnergy Technologies' Chairman, Chief Executive Officer, President and
Treasurer since March 2003, Dr. Maglich has primary responsibility for our
business strategy and development. Dr. Maglich served from 1974 to 1977 as
Chairman and CEO of Fusion Energy Corporation, an American subsidiary of Swiss
Aluminum Ltd., ALUSUISSE, a large multi-national corporation based in Zurich,
Switzerland. He also served as a Director of Delta Holding A.G., Zurich,
ALUSUISSE's arm for operating the American high-tech subsidiaries of ALUSUISSE.
Dr. Maglich worked in Zurich with Mr. Nelli Celio, Minister of Finance of the
Swiss Confederation and was close to Mr. Roger Bonvin, President of Switzerland
and Minister of Energy, who declared Dr. Maglich an honorary citizen of
Switzerland in 1975. From 1980 to 1983, Dr. Maglich served as Chairman and CEO
of Science Transfer Associates, Inc., a New York company based in the
Rockefeller Center, and lead member of a British-Swedish-American consortium
that designed the multi-billion dollar King Abdul Aziz's Energy Development
Center in Jeddah, Saudi Arabia. Members of the consortium were: UK Atomic Energy



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<PAGE>

Research Establishment, Harwell; Skanditronics, a large Swedish technology
corporation; General Atomic Corporation, USA; and Booz Allen & Hamilton, a U.S.
management consulting company. In the period 1985 to 1987, Dr. Maglich was CEO
of Aneutronic Energy Labs, Inc., which in partnership with Bechtel Engineering,
carried on a U.S. Air Force contract to design a space power plant for the U.S.
Space Defense Initiative. From 1988 to 1993, Dr. Maglich served as CEO of
Advanced Physics Corporation, which has, among other accomplishments, designed a
miniature nuclear fission reactor for electricity production in collaboration
with the Department of Nuclear Engineering at MIT, Kurchatov Atomic Energy
Institute, Moscow and the Russian Ministry of Atomic Energy. Dr. Maglich founded
HiEnergy Microdevices and has served as its Chief Executive Officer from 1995
until its reverse takeover of HiEnergy Technologies in April 2002.

As HiEnergy Technologies' Chief Scientific Officer since April 2002, 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 worked on safety measures for Soviet reactors in
Europe. Following the Chernobyl incident, Dr. Maglich as CEO of Advanced Physics
Corporation, initiated and chaired a joint technical conference of the American
and Soviet nuclear reactor designers aimed at adding the American nuclear safety
features to the Soviet-built power reactors in Hungary, Bulgaria,
Czechoslovakia, East Germany, and Finland. The conference was held in Belgrade,
Yugoslavia on October 2-6, 1990. In the period 1992-1993 the late Glenn T.
Seaborg, Nobel Laureate and nuclear energy pioneer, as Chairman, and Dr.
Maglich, as President, of Advanced Physics Corporation, organized a project in
Irvine, California under the U.S. Dept. of State Initiatives, to assist in the
transition of Soviet nuclear physicists from nuclear weapons research to
peaceful nuclear research. The group worked on the design of a miniature joint
peaceful nuclear power reactor named MARR (Mini American Russian Reactor).
Twelve nuclear engineers from the Russian nuclear weapon center "Chelyabinsk
70," and from the Kurchatov Atomic Energy Institute, Moscow, gathered for a
period of 3 months in Irvine in the period between 1992-1993, and were hosted by
Advanced Physics Corporation. 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 the 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 CERN European
Center for High Energy Physics in Geneva, Switzerland; and the U.S. National
Laboratories, the Air Force Phillips Laboratory. Dr. Maglich received a Ph.D. in
high-energy physics and nuclear engineering from the Massachusetts Institute of
Technology, a Master of Science from Britain's University of Liverpool, and a
Bachelor of Science from the University of Belgrade.

ROGER W. A. SPILLMANN

Mr. Spillmann has served as HiEnergy Technologies' Vice President and Corporate
Secretary since January 2005. In this capacity, he focuses on corporate
compliance and governance, contract administration, investor relations, and
capital strategy. Prior to joining HiEnergy, Roger Spillmann provided financial
and legal consulting as an employee of Resources Connection, Inc. from July 2004
until his appointment in January 2005. Prior to Resources Connection, he served
as a business development and financial services specialist with Empire Capital
Leasing, Inc. ("ECL"), where he focused on asset based financing, including
project finance, receivable financing, equipment leasing and related
securitizations (2003-2004). Prior to ECL, Mr. Spillmann was a Managing Director
and Partner of Harris, Hoover & Lewis, Inc. (HHL), a New York based middle
market financial advisory and investment banking boutique, and a member of its
Executive Committee, where he was responsible for strategic planning, affiliate
marketing, product research and outside capital relationships (2001-2003). Prior
to HHL, Mr. Spillmann was First Vice President of Investments, Director -
Special Accounts Group (SAG) with Prudential Securities in New York City,
specializing in advising corporations, institutions and high net-worth clients
on asset allocation, money management, estate and tax planning, equity risk
management and general investment strategies, and a Sales Analyst with the
Private Client Services Group at Banc of America Securities LLC (Montgomery




                                      137
<PAGE>

Securities), where he focused on corporate finance, equity derivatives, asset
management and corporate and venture services directed toward leading and
emerging technology companies (1997-2001). From March 1994 to 1997, Mr.
Spillmann was with the Cross Border Finance Group at Clifford Chance, Rogers &
Wells LLP, where he served as a corporate paralegal and assisted senior partners
and associates with the development and structuring of public and private debt
and equity transactions, project finance and M&A for governments, financial
institutions and corporations. Upon graduation, from 1992 to 1994, Mr. Spillmann
was recruited by Liz Claiborne, Inc, a Fortune 500 textile and clothing
manufacturer, to participate in a rotational program with positions in its
sales, production and manufacturing divisions, as well as serving as Production
Coordinator for the Knitwear Division.

Roger Spillmann received a Bachelor of Arts from Dartmouth University in
Hanover, NH. He also attended the Universidad Federal do Rio de Janeiro, in
Brazil, and is fluent in Spanish and Portuguese. During his career, Mr.
Spillmann has served on the advisory boards of several private technology
companies.

COLONEL WILLIAM J. LACEY, JR. (USA, RET.)

Colonel William J. Lacey, Jr. (USA, Ret.) currently serves as the President and
Chief Executive Officer for our wholly-owned subsidiary, HiEnergy Defense, Inc.,
and was recently appointed as a member of our Board of Directors.

Col. Lacey has more than thirty years of diversified responsibility within
Department of Defense (DoD) management, including senior executive level
positions in congressional relations; program development, management and
administration; test design and analysis; research, development, test, and
evaluation of major weapons systems. His areas of expertise include counter
terrorism, mine detection, border control, military medicine, and weapons of
mass destruction.

Col. Lacey has worked in executive and management positions with several
corporations, including, most recently, Technology Team, Inc., in the role of
Program Manager/Regional Specialist and Senior Policy Analyst, supporting the
DoD Office of Partnership for Peace Information Management System (January
2001-August 2003). Prior to Technology Team, Inc., he held executive positions
with Integrated Concepts & Research Corporation; Militec, Inc.; EWA, Inc; and
LCC, Inc.

He served in combat as an Army Special Forces Officer. During the Vietnam
conflict, he was awarded two Silver Stars for valor, four Bronze Stars for valor
and service, and two Purple Hearts for wounds sustained. He was also awarded the
Legion of Merit.

Col. Lacey is a graduate of the University of Rhode Island (1963) and the
Defense Systems Management College Test and Evaluation Course (1975), and is an
MS Candidate, Business Administration, at the University of Southern Illinois.

DAVID R. BAKER

Mr. Baker has been an attorney for over 50 years and has been Of Counsel to the
firm Haskell Slaughter Young & Rediker, LLC, of Birmingham and Montgomery,
Alabama and New York City, since March 2003. Since October 1993, Mr. Baker has
been a Retired Partner of the law firm of Jones Day in 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
to February 2003. Mr. Baker received his Juris Doctorate from Harvard Law
School. He received dual Bachelor's Degrees in Philosophy from the University of
Chicago and in Arts from Birmingham-Southern College. 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.



                                      138
<PAGE>

WILLIAM A. NITZE

Mr. William Nitze is currently President of Gemstar Group, Inc. (Global
Environmental Market Solutions through Technology And Reform), which was founded
in May 2001 to work with partners around the world in implementing market-based
approaches to global environmental problems. Mr. Nitze is a graduate of Harvard
College and Oxford University (UK) and received a J. D. degree from Harvard Law
School. After a brief practice at the law offices of Sullivan and Cromwell in
New York, he spent 14 years with Mobil Oil as a legal counsel, 4 years of which
were spent in Japan.

He served as an Assistant Administrator of the Environmental Protection Agency
(EPA) for International Activities during the Clinton Administration (1994-2001)
and Deputy Assistant Secretary of State for the Environment in the Reagan and
Bush Administrations (1987-90). Mr. Nitze has written and spoken widely on
environmental issues. In 1993-94 and 2002, he taught a new course on forming an
international regime to address climate change at the Paul H. Nitze School of
Advanced International Studies at The Johns Hopkins University. As President of
the Alliance to Save Energy, Mr. Nitze led a broad coalition of business,
government, labor and consumer interests in supporting and implementing policies
and programs to promote energy efficiency.

Mr. Nitze is also founder of the Alliance's Business Council for Sustainable
Energy. As an Assistant Administrator for International Activities at the EPA
from 1994 to the end of the Clinton Administration, Mr. Nitze strengthened the
EPA's international role by making it a key player in implementing NAFTA,
managing its associated institutions and by making it the lead agency on
environmental issues in several bi-national commissions co-chaired by Vice
President Al Gore. He made environmental security a focus of the EPA's
international work, instituting for the first time a formal working relationship
among the Department of Defense, the Department of Energy and EPA on
environmental security issues.

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. (EEMCO) as a division of SADCO, a company run by his family. Mr.
Al-Zuhair currently serves as President and Chief Executive Officer of Tetrad
Development Co. Ltd., a company established to manage his various investments
and business interests in Saudi Arabia. Mr. Al-Zuhair wholly-owns or has
investments in a variety of other 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.

PETER J. LE BEAU

Mr. Peter Le Beau has extensive experience in commercial finance and investment
banking (including structured finance, private/public asset-based financing,
operating and leveraged leasing, debt and equity placements, mergers and
acquisitions, and research and analysis), with a strong emphasis on the aviation
and aerospace industries. Since 1996 and to the present, he has served as an
Executive Director and Treasurer for the Soldiers', Sailors', Marines and
Airmen's Club in New York City. From 2002 to 2003, he served as Director of
Capital Markets for Residual Based Finance Corporation, a finance company
involved in the acquisition of commercial aircraft and engines, where he was
involved in the structuring and placement of a $400 million private equity fund
focused on the acquisition of commercial aircraft and engines. From 2001 to
2002, he served as Senior Vice President of Finance with ComJet Aviation Leasing
Corp. and from 1998 to 2001, he was Director of Commercial Aviation Finance with
Summit Bank.




                                      139
<PAGE>

Currently, Mr. Le Beau is a member of Vietnam Veterans of America, the American
Legion, Veterans of Foreign Wars, Soldiers', Sailors', Marines and Airmen's
Club, Face the Challenge Foundation, the 82nd Airborne Division Association and
the Squadron A Association. Mr. Le Beau received a Bachelor's degree in the
field of management from St. John's University in 1967.

AUDIT AND FINANCE COMMITTEE

Peter Le Beau serves as the Chairman of the Audit Committee and David Baker is
also a member. Both Mr. Le Beau and Mr. Baker are independent audit committee
members according to the definition used by the NASD for audit committee
independence, and Mr. LeBeau is an audit committee qualified financial expert.

The Audit Committee selects our independent auditors, reviews the results and
scope of the audit and other services provided by our independent auditors and
our financial statements for each quarterly period, and evaluates our internal
control functions.

SCIENTIFIC ADVISORY BOARD

Our Scientific Advisory Board consists of the following distinguished
scientists:

DR. MELVIN SCHWARTZ; PROFESSOR OF PHYSICS EMERITUS AT COLUMBIA UNIVERSITY

Dr. Schwartz taught physics at Columbia University from 1958 to 1966 and then
moved to Stanford, where he was a professor of physics from 1966 to 1983. For a
number of years prior to his return to academia in 1991, Dr. Schwartz founded
and ran a Silicon Valley company, Digital Pathways, Inc., devoted to data
communications security. In 1988, Dr. Schwartz received the Nobel Prize for
Physics, along with two colleagues, for research concerning neutrinos, which are
subatomic particles that have no electric charge and virtually no mass. It is
exceptionally rare for neutrinos to interact with matter and, as a result, it
has been extremely difficult to detect them in laboratory research (e.g.,
estimates say that only one in ten billion neutrinos traveling through the earth
would interact with a particle of matter during the passage). Acting on
Schwartz's suggestion, the group of three scientists devised a way to increase
the statistical probability of neutrino interactions. They did this by producing
a beam consisting of hundreds of billions of neutrinos and then sending the beam
through a detector of solid matter. The researchers achieved success by using a
particle accelerator to generate a stream of high energy protons, which were
then fired at a target made of the metal beryllium. A stream of different
particles, including pi mesons, were produced by this bombardment. As they
traveled, the particles decayed into mu mesons and neutrinos. The stream of
particles exiting from the beryllium target then passed through a 44 feet thick
steel barrier that filtered out all particles except neutrinos. This resulted in
a pure neutrino beam, which subsequently entered a large aluminum detector in
which a few neutrinos interacted with the aluminum atoms. The scientists
analyzed these interactions and discovered a new type of neutrino, which came to
be known as the muon neutrino.

Dr. Schwartz spent his undergraduate and graduate years at Columbia University
in New York and received his Ph. D. in 1958.

DR. GIOVANNI G. FAZIO; SENIOR PHYSICIST AT THE HARVARD SMITHSONIAN CENTER FOR
ASTROPHYSICS

Dr. Fazio is presently Senior Physicist, Harvard-Smithsonian Center for
Astrophysics; Associate, Harvard College Observatory; and a Member of the
Faculty, International Space University, Strasbourg, France.

Dr. Giovanni Fazio received his Ph.D in Physics in 1959 from the Massachusetts
Institute of Technology, Cambridge, MA. His graduate work was in the field of
Elementary Particle Physics. Dr. Fazio spent his undergraduate years at St.
Mary's University, TX and received his Bachelors of Science in Physics and his
Bachelor of Arts in Chemistry.




                                      140
<PAGE>

In 1959 Dr. Fazio joined the University of Rochester, where he pioneered the
development of balloon-borne gamma-ray telescopes and was the Principal
Investigator for the gamma-ray detector experiment on the first Orbiting Solar
Observatory. In 1962 Dr. Fazio joined the Smithsonian Astrophysical Observatory
and the Harvard College Observatory, where he initiated a program in gamma-ray
astronomy using balloon-borne and ground-based detectors. He also initiated the
construction of the 10-meter optical reflector at the F. L. Whipple Observatory,
Arizona, to search for ultrahigh-energy cosmic gamma-rays.

In the early 1970's Dr. Fazio pioneered the development of large balloon-borne
telescopes for far-infrared astronomical observations above the atmosphere, and
in the 1980's flew the first infrared astronomical telescope on the Space
Shuttle. He has been a member of numerous NASA advisory committees and principal
investigator on the following NASA infrared programs: the 1-Meter Balloon-Borne
Far-Infrared Telescope Experiment, the Infrared Telescope Experiment which flew
on the Spacelab 2 flight of the Space Shuttle, and the Infrared Array Camera
experiment on the Spitzer Space Telescope, one of NASA's Great Observatories,
and co-investigator on the Submillimeter Wave Astronomical Satellite (SWAS). His
current research interests also include the development of infrared
instrumentation and the use of infrared array cameras on ground-based telescopes
to observe the early Universe, ultraluminous galaxies, young stellar objects,
planetary nebulae, and star formation regions.

Dr. Fazio is also past President of the International Astronomical Union's
Division XI and Commission 44 (Space and High Energy Astrophysics); past
Chairman, Universities Space Research Association (USRA) Science Council for
Astronomy and Space Physics; and past Vice-Chairman of the COSPAR Commission on
Research in Astrophysics from Space. Dr. Fazio is a Fellow of the American
Physical Society and past chairman of its Astrophysics Division, a Fellow of the
American Association for the Advancement of Science (AAAS), a member of the
American Astronomical Society and past chairman of its High Energy Astrophysics
Division. He is also a member of the International Astronomical Union, the
International Academy of Astronautics, the Optical Society of America, and a
Fellow of the Royal Astronomical Society. He has published more than 240
scientific papers.

DR. ROBERT J. MACEK; GUEST SCIENTIST, LOS ALAMOS NEUTRON SCIENCE CENTER AND
SENIOR SCIENTIST, TECHSOURCE INC., SANTA FE, NM.

Dr. Robert J. Macek retired in July 2003 from the Los Alamos National Laboratory
where he had been a technical staff member for over 30 years. He has held
various management positions at Los Alamos including deputy group leader, group
leader, associate division leader, program manager, accelerator (Proton Storage
Ring, PSR), facility manager and, most recently, project leader for two PSR
upgrade projects. During this time he has been engaged in particle and nuclear
physics research, accelerator R&D as well as accelerator operations and
development.

Dr. Macek's work over the past decade has focused on accelerator physics R&D and
performance improvements for the Los Alamos PSR. His work on beam losses, space
charge effects and electron cloud instabilities for this high intensity machine
has attracted considerable interest and resulted in collaboration with other
laboratories to resolve the electron cloud instability in high intensity proton
rings. Laboratories in the collaboration include Argonne National Lab, Lawrence
Berkeley, FermiLab, Brookhaven National Lab, Princeton Plasma Physics Laboratory
and the SNS project at OakRidge National Laboratory.

Dr. Macek received his Ph.D. in High Energy Physics from the California
Institute of Technology in Pasadena.




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<PAGE>

DR. ANDREW J. LANKFORD; PROFESSOR OF PHYSICS AND CHAIR OF THE DEPAR(TM)ENT OF
PHYSICS AND ASTRONOMY, UNIVERSITY OF CALIFORNIA, IRVINE

Dr. Andrew J. Lankford is a Professor of Physics and Chair of the Department of
Physics and Astronomy at the University of California, Irvine. Prior to joining
the University of California, Dr. Lankford served as a physicist in the Research
Division at the Stanford Linear Accelerator Center and as a scientist and
research physicist in the Physics Research Division at the Lawrence Berkeley
Laboratory. He has also held teaching positions in the Departments of Physics at
Stanford University and Yale University. Dr. Lankford is actively involved in
research in elementary particle physics. He has considerable expertise in
particle and radiation detectors and in signal processing and data acquisition
electronics.

He is currently working on research projects with CERN, the European
Organization for Nuclear Research, which is the world's largest particle physics
laboratory, and with the Stanford Linear Accelerator Center (SLAC). In recent
years, he has played major roles in the management of the principal experiments
at these laboratories, the BABAR Experiment at SLAC and the ATLAS Experiment at
CERN. He serves on advisory panels for the Fermi National Accelerator
Laboratory, Brookhaven National Laboratory, and the Institute of High Energy
Physics, Beijing.

Dr. Lankford received his Ph.D. in Physics and M. Phil in Physics from Yale
University. He also holds a B.S. in Mathematics and Physics, Magna Cum Laude
with Departmental Honors, from Yale. He was the recipient of an Alfred P. Sloan
Fellowship, and he is a Fellow of the American Physical Society. He is the
author of more than 350 publications.

There are no material agreements between us and any of the members of the
Scientific Advisory Board. On August 27, 2003, our Board of Directors approved
the issuance and grant of non-qualified stock options to each of the four
members of the Scientific Advisory Board to purchase 10,000 shares of our common
stock, with an exercise price of $1.02 and a term that ends August 27, 2009.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires all
executive officers, directors and persons who are the beneficial owners of more
than 10% of the common stock of HiEnergy Technologies to file reports of
ownership with the SEC indicating their ownership of our equity securities and
to report any changes in that ownership. Specific due dates for these reports
have been established, and we are required to report in this Annual Report on
Form 10-KSB any failure to comply therewith during the fiscal year ended April
30, 2005. As of the date of this Report, one of our directors, Harb Al-Zuhair,
did not file Forms 4 for common stock and options issued to him by HiEnergy
Technologies and did not file a timely Form 5 to report these; but subsequently
filed a Form 5 that included all transactions he was required to report in
August 2005. One director, David R. Baker, did not file Forms 4 for common stock
and options issued to him by HiEnergy Technologies and did not file a timely
Form 5 to report these; but subsequently filed a Form 5 that included all
transactions he was required to report in July 2005. Our directors, William J.
Lacey, Peter J. Le Beau and William A. Nitze, joined our Board in July and
August 2004 but did not file initial statements of beneficial ownership, Forms 4
for common stock and options issued to them by HiEnergy Technologies for
services to the Board, or a timely Form 5 to report these; but subsequently each
filed a Form 5 that included all transactions each was required to report in
July 2005. Our Vice President, Roger Spillmann did not file an initial statement
of beneficial ownership upon his appointment in January 2005, but subsequently
filed a Form 5 that included all transactions he was required to report in
August 2005. None of the foregoing directors or officers disposed of any shares
or derivatives in the open market during the reporting period. With the above
exceptions, we believe that, as of the date of this Report, all of the filing
requirements are presently satisfied by its executive officers and by the
beneficial owners of more than 10% of our common stock. In making this
statement, we have relied on copies of the reporting forms received by it or on
the written representations from certain reporting persons that no Form 5
(Annual Statement of Changes in Beneficial Ownership) was required to be filed
under applicable rules of the SEC.



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<PAGE>

CODE OF ETHICS: On May 28, 2003, the Board of Directors approved the adoption of
a Code of Ethics applicable to our Chief Executive Officer, Chief Financial
Officer, Controller, Treasurer and other senior-level persons responsible for
financial, control and accounting functions. Our Code of Ethics was filed on
August 8, 2003 as Exhibit 14.1 to our Annual Report on Form 10-KSB for the
fiscal year ended April 30, 2003, and is intended to comply with the
requirements of Item 406 of Regulation S-B. A copy of our Code of Ethics has
been posted on our corporate website
[http://www.hienergyinc.com/company/pdf/HiEnergy_Code_Ethics.pdf].

ITEM 10. EXECUTIVE COMPENSATION

The following table sets forth the compensation that we have paid to our named
executive officers for the fiscal years ended April 30, 2005, 2004, 2003 and
2002. Dr. Maglich served as Chairman, Chief Executive Officer, President,
Treasurer and Chief Scientific Officer of HiEnergy Microdevices during the
fiscal years 2005, 2004 and 2003. 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 10, 2003. Roger Spillmann was appointed Vice President and
Corporate Secretary of HiEnergy Technologies on January 11, 2005.

<TABLE>
<CAPTION>
                                                                                       LONG TERM COMPENSATION
                                                                                -----------------------------------
                                                   ANNUAL COMPENSATION                   AWARDS             PAYOUTS
                                             --------------------------------   -----------------------     -------
                                 FISCAL                               OTHER     RESTRICTED   SECURITIES               ALL OTHER
                                 YEAR                                ANNUAL       STOCK      UNDERLYING      LTIP      COMPEN-
                                 ENDED       SALARY       BONUS      COMPEN-      AWARDS      OPTIONS       PAYOUTS     SATION
NAME AND PRINCIPAL POSITION     APRIL 30       ($)         ($)       SATION         ($)                       ($)        ($)
---------------------------     --------     --------    -------    ---------   ----------   ----------     -------   ---------
<S>                               <C>         <C>        <C>          <C>        <C>          <C>              <C>       <C>
                                  2005       $220,046     $4,381      $13,640                                  -0-       -0-
Dr.Bogdan Maglich                 2004       $220,046        -0-      $25,345                                  -0-       -0-
Chairman, Chief Executive         2003       $157,713    $50,000      $47,401         -0-       456,717        -0-       -0-
Officer, President,               2002        $80,734    $50,000      $24,952    $196,148     2,482,011        -0-       -0-
Treasurer, and Chief
Scientific Officer
</TABLE>

Other Annual Compensation amounts paid to Dr. Maglich consisted of the following
personal expense reimbursements:

<TABLE>
<CAPTION>
   EXPENSE CATEGORY         FISCAL YEAR    FISCAL YEAR ENDED    FISCAL YEAR ENDED    FISCAL YEAR ENDED
                             ENDED 2005           2004                2003                  2002
-------------------------   -----------    -----------------    -----------------    -----------------
<S>                           <C>                <C>                 <C>                    <C>
Auto Lease                     -0-                 -0-               $17,500                $6,705
Auto Insurance                $4,500              $212               $1,144                 $1,438
Auto Expenses (other)         $1,325             $1,046                -0-                   $500
Home Rent                      -0-                 -0-                 -0-                  $13,750
Medical & Dental
  Reimbursements              $7,815             $24,088             $28,757                $2,559
TOTAL                         $13,640            $25,345             $47,401                $24,952
</TABLE>

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, 2005. We have never granted any stock appreciation rights.

<TABLE>
<CAPTION>
                                                                            PERCENT OF TOTAL
                                            NUMBER OF SECURITIES        OPT./WRTS. GRANTED TO      EXERCISE OF BASE
                NAME                         UNDERLYING OPTIONS         EMPLOYEES IN FISCAL YEAR    PRICE ($/SHARE)
----------------------------------     -------------------------------  ------------------------   ----------------
<S>                                              <C>                              <C>                    <C>
Dr.Bogdan Maglich                                421,980(1)                       14%                    $0.98
Chairman, Chief Executive Officer,
President, Treasurer, and Chief
Scientific Officer

Roger Spillmann                                  500,000(2)                       16%                    $0.72
Vice President/Corporate Secretary
</TABLE>



                                      143
<PAGE>

(1)   Option was granted on December 31, 2004, and was fully vested and
      exercisable on the date of grant pursuant to his employment agreement.

(2)   Option was granted on January 12, 2005 and shall be 33% vested on May 1,
      2005, 66% vested on September 1, 2005 and 100% vested on December 31,
      2005, pursuant to employment agreement.

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, 2005 option values. No stock options were exercised by the named
executive officers during the fiscal year ended April 30, 2005.

<TABLE>
<CAPTION>
                                                              NUMBER OF UNEXERCISED          VALUE OF UNEXERCISED
                                SHARES                      OPTIONS/SARs AT THE FISCAL    IN-THE-MONEY OPTIONS/SARs
                              ACQUIRED ON                            YEAR END                 AT FISCAL YEAR-END
                               EXERCISE         VALUE                  (#)                           (#)
           NAME                   (#)         REALIZED      EXERCISABLE/UNEXERCISABLE     EXERCISABLE/UNEXERCISABLE
-------------------------     -----------     --------      --------------------------    -------------------------
<S>                               <C>            <C>            <C>                            <C>
Bogdan Maglich                    --             --             3,673,929 / 3,673,929          $1,479,279 (1)
Chairman, Chief Executive
Officer, President,
Treasurer, and Chief
Scientific Officer
</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, 2005 of $0.73 per share and the exercise prices of
      his stock options at $0.134 per share. No effect is given to the shares
      with exercise prices above $0.73 per share.

COMPENSATION OF DIRECTORS

The Board previously approved a plan to grant each director 3,000 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. On July 15,
2005, the Board approved an increase to the number of shares or stock options
due each director for each meeting attended to 5,000 restricted shares of common
stock or stock options, immediately effective on said date. Additionally, all
directors are reimbursed for any reasonable expenses incurred in the course of
fulfilling their duties as a director of our company.

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 shares
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 our common stock through participation in
the voluntary share exchange transaction with us.

EMPLOYMENT CONTRACTS

In March 2002, Microdevices entered into an employment agreement with its Chief
Scientist/Chairman of the Board. In May 2002, we assumed the employment
agreement, which was subsequently amended in December 2002 and July 2003. Major
commitments included in the agreement, as amended, are as follows:

      o     We must pay an annual bonus, which must not be less than 20% of the
            total amount of bonuses paid to our officers. 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     We will grant our Chief Scientist/Chairman of the Board annually,
            during the term of the employment agreement, stock options to
            exercise a number of shares of common stock equal to the greater of
            (i) 1% per annum of the our common stock issued and outstanding or
            (ii) 10% of the total number of options granted by us for services
            in that year. In either case, the exercise price on the stock
            options is equal to the average price of our traded shares for the
            preceding 30 days prior to the date of the grant.



                                      144
<PAGE>

      o     We will provide our Chief Scientist/Chairman of the Board with a
            car, family health insurance, life and disability insurance, and
            reimbursements for reasonable out-of-pocket expenses, not to exceed
            $39,200 in any one year, and any personal tax liabilities arising up
            to $75,000.

      o     We must pay our Chief Scientist/ Chairman of the Board a base salary
            in cash as follows:

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

      o     We must pay our Chief Scientist/ Chairman of the Board a
            supplemental salary of $2,800 per month for the duration he serves
            as our Chief Executive Officer, pursuant to an authorization from
            the Board of Directors in July 2003.

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

      o     The employment agreement between our Chief Scientist/Chairman of the
            Board and us is effective until December 31, 2006.

In January 2005, we entered into an employment agreement for the employment of
Roger Spillmann to serve as our Vice President and Corporate Secretary. Major
terms of the agreement are as follows:

      o     We will pay him an annual base salary of $200,000, of which $140,000
            will be payable in cash in cash, and the remainder in deferred
            compensation in the form of three notes, bearing interest at 5% per
            annum, one due April 30, 2005, one due August 31, 2005, and one due
            November 30, 2005.

      o     We have the option to prepay services of its Controller with S-8
            stock having with value equivalent to six (6) months of the above
            stated salary.

      o     We will pay the fee required under his contract with his then
            current employer for his conversion from consultant employee, which
            should not exceed $12,000.

      o     We will grant him a stock option to purchase 500,000 shares of
            common stock which shall be exercisable at a price no greater than
            the average trading price for the prior thirty (30) day period. The
            option shall be 33% vested on May 1, 2005, 66% vested on September
            1, 2005, and 100% vested on December 31, 2005.

      o     If the employment agreement is terminated by HiEnergy without cause,
            we must pay him on the termination date, severance pay in an amount
            equal to six (6) months of the minimum annual base salary.

      o     We will provide him with comprehensive family medical and dental
            healthcare benefits.

      o     We will keep our Directors and Officers insurance coverage in effect
            at all times with the present policy limits and for a period of
            three years following the termination of Mr. Spillmann's employment
            with us on a commercially reasonable effort.

      o     We will timely reimburse Mr. Spillmann for approved expenses.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS

The Compensation Committee currently consists of Mr. Harb Al-Zuhair and Mr.
William A. Nitze.

None of our executive officers serves as a director or member of the
compensation committee of any other entity whose executive officers serve as one
of our directors.



                                      145
<PAGE>

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

SECURITY OWNERSHIP LISTED BELOW AS OF JULY 31, 2005

<TABLE>
<CAPTION>
                                                    NUMBER OF SHARES    PERCENT OF
NAME OF BENEFICIAL OWNER                              COMMON STOCK     OUTSTANDING
-------------------------------------------------    --------------    -----------
<S>                                                  <C>                  <C>
Dr. Bogdan C. Maglich,                                9,912,555 (1)       18.41%
Chairman of the Board, Chief Executive Officer,
President, Treasurer and Chief Scientific Officer

Roger W.A. Spillmann,                                   330,000 (2)        0.65%
Vice President / Corporate Secretary

William J. Lacey, Jr.,                                  409,058 (3)        0.83%
Director

Harb S. Al-Zuhair,                                    1,303,422 (4)        2.57%
Director

William A. Nitze,                                       422,914 (5)        0.84%
Director

David R. Baker,                                       1,007,491 (6)         2.0%
Director

Peter J. Le Beau,                                       273,528 (7)        0.54%
Director

All Executive Officers & Directors As A Group        13,666,968 (8)       25.84%
(7 Persons)
</TABLE>

(1) Includes 905,896 shares owned directly by Dr. Maglich, 1,131,735 shares
owned by Advanced Projects Group, Inc., a Delaware corporation, of which Dr.
Maglich is a director, officer and greater than ten percent stockholder,
2,830,995 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 1,370,000 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 3,673,929 shares of common stock issuable
upon the exercise of currently exercisable stock options.

(2) Represents 500,000 shares of common stock issuable upon the exercise of
vested stock options, thirty-three percent (33%) of which vested on May 1, 2005,
sixty-six percent (66%) to vest on September 1, 2005, all remaining to vest on
December 31, 2005.

(3) Includes 52,353 shares of common stock owned directly by William Lacey,
220,000 shares of common stock underlying stock options which were exercisable
as of November 7, 2003, and 100,000 shares of common stock underlying stock
options, of which 50,000 became exercisable on January 21, 2005, and 50,000
shares became exercisable as of July 21, 2005. Also includes 44,705 shares of
common stock underlying HiEnergy Microdevices, Inc. exchange rights exercisable
at any time, subject to payment of a promissory note in the amount of $7,000 and
granted for consultant services rendered to HiEnergy Microdevices, Inc. prior to
merger with SLW Enterprises, Inc.

(4) Includes 855,540 shares of common stock owned directly by Mr. Al-Zuhair,
315,000 shares of common stock issuable upon the exercise of stock options which
were exercisable as of April 1, 2005, and 115,000 shares of common stock
underlying stock options, of which 57,500 shares became exercisable on May 7,
2004, and 57,500 shares become exercisable as of November 7, 2004. Also includes
17,882 shares of common stock underlying HiEnergy Microdevices, Inc. exchange
rights exercisable at any time, subject to payment of a promissory note in the
amount of $2,800 and granted for consultant services rendered to HiEnergy
Microdevices, Inc. prior to merger with SLW Enterprises, Inc.



                                      146
<PAGE>

(5) Includes 209,501 shares of common stock owned directly by Mr. Nitze, 82,000
shares of common stock issuable upon the exercise of stock options which were
exercisable as of March 10, 2005, and 100,000 shares of common stock underlying
stock options, of which 50,000 shares became exercisable on February 5, 2005,
and 50,000 shares become exercisable as of August 5, 2005, and 15,000 shares of
common stock underlying stock options, of which 7,500 shares became exercisable
on May 5, 2005, and 7,500 shares become exercisable as of November 5, 2005. Also
includes 23,913 shares of common stock underlying a warrant, immediately
exercisable, which was acquired in a private placement on September 7, 2004.

(6) Includes 550,360 shares of common stock owned directly by Mr. Baker. Also
includes 152,245 shares owned by Advanced Projects Group, a Delaware
corporation, attributable to Mr. Baker as a stockholder. Mr. Baker disclaims
beneficial ownership of the stock held by Advanced Projects Group beyond his
pecuniary interest. Also includes 165,000 shares of common stock underlying
stock options which were exercisable as of November 7, 2004 and 150,000 shares
of common stock underlying stock options, 75,000 of which became exercisable on
May 5, 2005 and 75,000 shares become exercisable as of November 5, 2005, and,
lastly, 129,174 shares of common stock and 64,886 shares of common stock
underlying a warrant immediately exercisable at $0.65 per share, which was
acquired in connection with the conversion at $0.46 per share of accounts
payable for legal services rendered prior to his directorship in the amount of
$59,420 on July 15, 2005.

(7) Includes 48,528 shares of common stock owned directly by Mr. Le Beau,
100,000 shares of common stock issuable upon the exercise of stock options which
were exercisable as of January 16, 2005, 100,000 shares of common stock
underlying stock options, of which 50,000 shares became exercisable on February
5, 2005 and 50,000 shares become exercisable as of August 5, 2005, and 50,000
shares of common stock underlying stock options, of which 25,000 shares became
exercisable on May 5, 2005 and 25,000 shares become exercisable as of November
5, 2005.

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

The number of shares of common stock outstanding used in calculating the
percentages was 50,171,581, the number of shares of common stock outstanding as
of the date of this Report. The beneficial ownership for each listed person
includes those shares of common stock underlying options held by such persons on
the date of this 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 on Form 5 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.

The address for those listed above is: c/o HiEnergy Technologies, Inc., 1601-B
Alton Parkway, 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

There are no arrangements known to us the operation of which may result in a
change of control of HiEnergy Technologies.



                                      147
<PAGE>

EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth information as of April 30, 2005 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)
                                                                                 NUMBER OF SECURITIES
                               NUMBER OF SECURITIES                             REMAINING AVAILABLE FOR
                                TO BE ISSUED UPON       WEIGHTED-AVERAGE     FUTURE ISSUANCE UNDER EQUITY
                                   EXERCISE OF         EXERCISE PRICE OF    COMPENSATION PLANS (EXCLUDING
                               OUTSTANDING OPTIONS,   OUTSTANDING OPTIONS,     SECURITIES REFLECTED IN
      PLAN CATEGORY            WARRANTS AND RIGHTS    WARRANTS AND RIGHTS            COLUMN (a))
---------------------------   ---------------------   --------------------  -----------------------------
<S>                                 <C>                      <C>                         <C>
Equity compensation
plans approved by
security holders (1),
(2), (3), (4), (5)                  5,663,929                $0.79                       0

Equity compensation
plans not approved by
security holders (6)(7)(8)          2,131,726                $1.64                       0

Total (9)                           7,895,655                $0.84                       0
</TABLE>

(1)  On April 24, 2002, our Board of Directors approved the issuance and grant
     of a non-qualified stock option to Dr. Maglich to purchase 2,482,011 shares
     of our 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 our common stock for each share of
     HiEnergy Microdevices. The stockholders of HiEnergy Technologies ratified
     and approved the grant of the stock option at the Annual Meeting of
     Stockholders that took place on October 10, 2002.

(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. Based on today's capitalization,
     Dr. Maglich would be entitled to receive at the end of the calendar year
     options to purchase approximately 500,000 shares of common stock or perhaps
     more since the number of outstanding shares may increase dramatically year
     over year throughout the contract term. In no case, without permission of
     Dr. Maglich, may the number of options granted him in any given year of his
     contract be less than ten percent of the total number of options granted by
     HiEnergy Technologies for services in that year. For example, in the event
     we grant options to purchase more than 6,000,000 shares of common stock by
     year end, he would receive options to purchase 600,000 shares. Our
     stockholders approved Dr. Maglich's Employment Agreement in October 2002.

(3)  Pursuant to the foregoing (see footnote (2)), on February 11, 2003 our
     Board of Directors approved the issuance and grant of a non-qualified stock
     option to Dr. Maglich to purchase 416,717 shares of our common stock with
     an exercise price of $2.81 and a term that ends on February 11, 2008,
     pursuant to his employment agreement with us. On June 26, 2003 our Board of
     Directors 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 our common stock with an exercise price of
     $2.81 and a term that ends on February 11, 2008. On December 31, 2003, we
     granted Dr. Maglich options to purchase 313,221 shares of common stock with
     an exercise price of $0.87 and on December 31, 2004, we granted him options
     to purchase 421,980 shares with an exercise price of $0.98 for calendar
     years 2003 and 2004, respectively, pursuant to the terms of his employment
     agreement

(4)  On May 5, 2003, our Board of Directors approved the HiEnergy Technologies
     2003 Stock Incentive Plan (the "Plan") to provide equity incentives to our
     employees, officers, directors and service providers. The Board decided to
     reserve 700,000 shares of our authorized and unissued common stock for
     future issuance under the Plan. On May 28, 2003 our Board of Directors
     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.
     Our stockholders approved the Plan on November 7, 2003. Options granted to
     employees who are not officers, directors or Service Providers shall vest
     and become exercisable in installments at a minimum rate of 20% per year
     over a period of five (5) years from the date the Option is granted. No
     Option may be exercisable more than ten (10) years after the date it is



                                      148
<PAGE>

     granted. An Incentive Option granted to a person who is a 10% Shareholder
     on the date of grant shall not be exercisable more than five (5) years
     after the date it is granted. No Incentive Option or Nonqualified Option
     shall be assignable or transferable except by will or the laws of descent
     and distribution, and during the life of the Optionee shall be exercisable
     only by such Optionee.

(5)  On May 16, 2003, our Board of Directors approved the issuance and grant of
     incentive stock options and non-qualified stock options under the Plan to
     purchase 400,000 shares of our common stock with an exercise price of $0.75
     and a term that ends on May 16, 2009 to our employees and consultants. On
     June 26, 2003 our Board of Directors approved the issuance and grant of
     incentive stock options to purchase 90,000 shares of our common stock with
     an exercise price of $0.75 and a term that ends on June 26, 2009 to our
     employees. On July 16, 2003 our Board of Directors approved the issuance
     and grant of non-qualified stock options to purchase 200,000 shares of our
     common stock with an exercise price of $0.50 and a term that ends on July
     16, 2009 to our consultants. On August 27, 2003 our Board of Directors
     approved the issuance and grant of incentive stock options to purchase
     65,000 shares of our common stock to our employees, and nonqualified
     options to purchase 40,000 shares of our common stock with an exercise
     price of $1.02 and a term that ends August 27, 2009 to our consultants. On
     November 7, 2003, our Board of Directors approved the issuance and grant of
     non-qualified options to purchase 100,000 shares of our common stock, with
     an exercise price of $0.35 and a term that ends November 7, 2009, to one of
     our directors. On November 7, 2003, our Board of Directors approved the
     issuance and grant of nonqualified options to purchase 740,000 shares of
     our common stock, with an exercise price of $1.25 and a term that ends
     November 7, 2009, to our directors and consultants. On November 7, 2003,
     our Board of Directors approved the issuance and grant of nonqualified
     options to purchase 100,000 shares of our common stock, with an exercise
     price of $0.35 and a term that ends November 7, 2009 to one of our
     directors, and on December 4, 2003, we granted stock options to purchase
     350,000 shares of our common stock, with an exercise price of $0.90 and a
     term that ends December 4, 2009, to our employees and consultants. On April
     29, 2004, we granted stock options to purchase 100,000 shares of our common
     stock, with an exercise price of $2.06 and a term that ends April 29, 2010,
     to our employees.

(6)  On March 10, 2004, our Board of Directors approved the issuance and grant
     of non-qualified stock options to purchase 29,000 shares of our common
     stock with an exercise price of $1.42 and a term that ends on March 10,
     2010 to board members of HiEnergy Defense. On June 28, 2004, our Board of
     Directors approved the issuance and grant of incentive stock options to
     purchase 25,000 shares of our common stock with an exercise price of $1.78
     and a term that ends on June 28, 2010 to one of our employees. On July 19,
     2004, our Board of Directors approved the issuance and grant of incentive
     stock options to purchase 30,000 shares of our common stock with an
     exercise price of $1.09 and a term that ends on July 19, 2010 to one of our
     employees. On July 21, 2004 our Board of Directors approved the issuance
     and grant of non-qualified stock options to purchase 100,000 shares of our
     common stock with an exercise price of $0.94 and a term that ends on July
     21, 2010 to one of our board members upon his appointment. On August 5,
     2004, our Board of Directors approved the issuance and grant of
     non-qualified stock options to purchase 200,000 shares of our common stock
     with an exercise price of $1.25 and a term that ends on August 5, 2010 to
     two of our board members upon their appointment. On August 18, 2004, our
     Board of Directors approved the issuance and grant of incentive stock
     options to purchase 25,000 shares of our common stock with an exercise
     price of $0.96 and a term that ends August 18, 2010 to one of our
     employees. On August 27, 2004, our Board of Directors approved the issuance
     and grant incentive options to purchase 25,000 shares of our common stock,
     with an exercise price of $0.85 and a term that ends August 27, 2010, to
     one of our employees. On November 5, 2004, our Board of Directors approved
     the issuance and grant of nonqualified options to purchase 330,000 shares
     of our common stock, with an exercise price of $1.04 and a term that ends
     November 5, 2010, to our directors and consultants.

(7)  On January 19, 2005, our Board of Directors approved the issuance and grant
     of incentive options to purchase 390,000 shares of our common stock, with
     an exercise price of $0.72 and a term that ends January 19, 2011 to our
     employees. On January 19, 2005, our Board of Directors approved the
     issuance and grant of incentive options to purchase 500,000 shares of our
     common stock, with an exercise price of $0.72 and a term that ends January
     19, 2011 to our Vice President/Corporate Secretary. On February 1, 2005,
     our Board of Directors approved the issuance and grant of incentive options
     to purchase 35,000 shares of our common stock, with an exercise price of
     $0.86 and a term that ends February 1, 2011, to one of our employees. On
     March 1, 2005, our Board of Directors approved the issuance and grant of
     incentive options to purchase 500,000 shares of our common stock, with an
     exercise price of $0.72 and a term that ends March 1, 2011 to our
     Controller. On April 1, 2005, our Board of Directors approved the issuance
     and grant of nonqualified options to purchase 315,000 shares of our common
     stock, with an exercise price of $0.01 and a term that ends April 1, 2011,
     to one of our directors. On April 29, 2005, our Board of Directors approved
     the issuance and grant of incentive options to purchase 50,000 shares of
     our common stock, with an exercise price of $0.73 and a term that ends
     April 29, 2011, to one of our employees.

(8)  On July 12 2002, we issued and granted a non-qualified stock option to
     purchase up to 1,000,000 shares of our common stock with an exercise price
     of $1.00 per share to Isaac Yeffet. 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 were exercisable immediately and the other half were
     to become 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 terminated our consulting agreement




                                      149
<PAGE>

     with Mr. Yeffet in October 2003, at which time the second 500,000 options
     had not become exercisable. On August 1 2002, we issued a stock option to
     purchase 400,000 shares of common stock at $2.00 per share with a term of 5
     years to Primoris Group Inc. in connection with a consulting agreement,
     under which Primoris provided investor relations services. On September 25,
     2002, as an accommodation to adjust amounts owing to QED Law Group,
     P.L.L.C., we issued stock options to purchase an aggregate of 45,454 shares
     of common stock at $1.00 per share to Shea Wilson and Derek Woolston. On
     December 19 2002, as an accommodation to adjust amount owing to QED Law
     Group, P.L.L.C., we issued additional stock option to purchase an aggregate
     of 27,272 shares of common stock at $2.24 per share to Shea Wilson and
     Derek Woolston. On November 7, 2003, our Board of Directors approved a
     Grant Share Program, which reserves up to 500,000 shares of our authorized
     and unissued common stock, for the future issuance of stock options with an
     exercise price of $1.25 per share and an exercise term of 6 years.

(9)  The preceding footnotes all affect this total.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

TRANSACTIONS WITH EXECUTIVE OFFICERS AND DIRECTORS

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 us
than could be obtained from unaffiliated parties and are reasonably expected to
benefit us.

      o     On July 28, 2003, we entered into an exclusive International
            Distribution Agreement for our CarBomb Finder device with Electronic
            Equipment Marketing Company (EEMCO). EEMCO is majority-owned by Harb
            Al-Zuhair, one of our directors. This agreement is described in more
            detail in the section entitled Marketing and Distribution Strategy,
            in Part I of this Report. On August 5, 2004, we received an order to
            purchase one (1) demonstration model of our CarBomb Finder 3C4 from
            EEMCO along with a deposit of $25,000.

      o     In September 2004, we issued 71,739 Shares and warrants to purchase
            23,913 shares of common stock, par value $0.001 (the "Shares") with
            an exercise price of $1.00 to our director, Mr. William A. Nitze, in
            a private placement transaction in exchange for $33,000 in cash.

      o     In July 2005, we issued 129,174 Shares and warrants to purchase
            64,586 Shares at $0.65 to David R. Baker, a member of our Board in
            connection with the conversion of accounts payable for legal
            services rendered prior to his directorship in the amount of $59,420
            at a price of $0.46 per Share.

LOANS FROM EXECUTIVE OFFICERS AND DIRECTORS

During the fiscal year ended April 30, 2005, and to the date of this Report, we
incurred the following material notes payable to current and former officers and
directors:

      o     In August 2004, we signed promissory notes with Dr. Maglich for
            loans that were made to us totaling $11,000. The notes are
            non-interest bearing and are due on demand by Dr. Maglich. As of
            April 30, 2005, the note had been repaid or converted into Shares.

TRANSACTIONS WITH RELATED PARTIES

During the fiscal year ended April 30, 2005, we had the following transactions
with related parties:

      o     In June 2004, we issued convertible promissory notes for $11,866 and
            $13,782, bearing interest at 10% per annum, which are convertible
            into Shares at $1.00 per share to Yocca, Patch & Yocca, LLP for
            legal services.




                                      150
<PAGE>

      o     In July 2004, we issued 182,955 Shares to Richardson & Patel, LLP
            for legal and consulting services.

      o     In August 2004, we signed promissory notes with Maglich Family
            Holdings, Inc., an investor related with our Chairman, for loans
            that were made to us totaling $300,000. The notes are non-interest
            bearing and are due on demand by Dr. Maglich. As of April 30, 2005,
            the notes have been repaid or converted into Shares.

      o     In September 2004, we signed promissory notes with Maglich Family
            Holdings, Inc., an investor related with our Chairman, for loans
            that were made to us totaling $50,000. The notes are non-interest
            bearing and are due on demand by Dr. Maglich. As of April 30, 2005,
            the notes have been repaid or converted into Shares.

      o     In October 2004, we signed promissory notes with Maglich Family
            Holdings, Inc., an investor related with our Chairman, for loans
            that were made to us totaling $115,000. The notes are non-interest
            bearing and are due on demand by Dr. Maglich. As of April 30, 2005,
            the notes have been repaid or converted into Shares.

      o     In November 2004, we issued 1,010,870 shares of common stock to
            Maglich Family Holdings, Inc., an investor related to our Chairman,
            upon the conversion of promissory notes evidencing loans made to us
            in the aggregate amount of $465,000. As additional consideration for
            the conversion, we issued to the note holder warrants to purchase an
            additional 505,435 shares of common stock issued upon conversion at
            an exercise price of $0.82 per share. Said warrants are to expire
            three and one half years following the date of effectiveness of our
            next filed registration statement. Upon conversion, the note holder
            waived all accrued but unpaid interest.

      o     In June 2005, we issued 437,627 Shares to Nicholas J. Yocca upon
            conversion of $185,000 of convertible notes, originally purchased in
            January 2004, plus $11,932 of accrued interest.

      o     In June 2005, we issued 32,820 Shares to Nicholas J. Yocca upon the
            conversion of a promissory note evidencing loans made to us in the
            aggregate amount of $14,000, plus $769 of accrued interest.

      o     In July 2005, we issued 25,185 Shares and warrants to purchase
            12,593 Shares at $0.65 to Baker, Johnston & Wilson, a law firm, in
            connection with the conversion of accounts payable for legal
            services rendered in the amount of $11,586 at a price of $0.46 per
            Share.

CERTAIN BUSINESS RELATIONSHIPS

Except with respect to our lease with Del Mar Aviation and the reverse take-over
transaction that occurred on April 25, 2002, no director or nominee for director
is or has been during the fiscal year ended April 30, 2005, an executive officer
or beneficial owner of more than 10% of any other entity that has engaged in a
transaction with us in excess of 5% of either companies' revenues or assets.

INDEBTEDNESS OF MANAGEMENT

There are no persons who are directors or executive officers of our company,
nominees for election as a director, immediate family members of the foregoing,
corporations or organizations in which the foregoing are executive officers or
partners, or 10% of the shares of which are directly or beneficially owned by
the foregoing, trusts or estates in which the foregoing have a substantial
beneficial interest or as to which the foregoing serve as a trustee or in a
similar capacity that are indebted to us in an amount in excess of $60,000.




                                      151
<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

o    On June 22, 2005, we filed a report on Form 8-K dated June 21, 2005. The
     report disclosed under Item 8.01 the status of the Class Action Complaint
     filed against us, including a Court Order for Dismissal and basis of our
     defense.

o    On February 8, 2005, we filed a report on Form 8-K dated February 3, 2005.
     The report disclosed under Item 8.01 that we had executed a Memorandum of
     Understanding to form a joint venture company Tecnologia de Alta Energia,
     S.A., which will establish and maintain an assembly, testing, sales and
     service center in Tenerife, Spain.

o    On February 2, 2005, we filed a report on Form 8-K dated January 27, 2005.
     The report disclosed under Item 3.02, a private placement of Common Stock
     and Warrants and under Item 8.01 the announcement of the consummation of
     the short-form merger between us and HiEnergy Microdevices, Inc.

o    On January 11, 2005, we filed a report on Form 8-K dated January 7, 2005.
     The report disclosed under Item 5.02, the appointment of our Vice President
     and Corporate Secretary, effective as of January 1, 2005.

o    On December 30, 2004, we filed a report on Form 8-K dated December 27,
     2004. The report disclosed under Item 8.01, our receipt of a copy of a
     Summons and Class Action Complaint for Violations of Federal Securities
     Laws, that was filed on October 18, 2004, in the Federal District Court for
     the Southern District of California under case number SACV04-1226 GLT.

o    On November 30, 2005, we filed a report on Form 8-K dated November 30,
     2005. The report disclosed under Item 3.02, a private placement of Common
     Stock and Warrants and the issuance of shares of Common Stock on the
     conversion of notes and the cashless exercise of warrants held by certain
     investors.

o    On September 28, 2004, we filed a report on Form 8-K dated September 24,
     2004. The report disclosed under Item 9.01 that we received a letter from
     Integrated Concepts & Research Corporation advising of its intention to
     issue a subcontract to us for assistance in completing the manufacture and
     delivery of a single SmarTruck prototype integrating our CarBomb Finder
     system.

o    On September 27, 2004, we filed a report on Form 8-K dated September 24,
     2004. The report disclosed under Item 9.01 the changing of the designated
     trading symbol for our common shares from "HIET" to "HIETE" as a result of
     our being delinquent in our periodic reporting requirements under the
     Securities Exchange Act.

o    On September 17, 2004, we filed a report on Form 8-K dated September 17,
     2004. The report disclosed under Item 8.01 that the designated trading
     symbol for our common shares was changed from "HIETE" to "HIET" as a result
     of our filing our Annual Report on Form 10-KSB for the fiscal year ended
     April 30, 2004 with the Securities and Exchange Commission. Notification,
     and that our common shares would commence trading under the symbol "HIET"
     on September 17, 2004.

o    On September 14, 2004, we filed a report on Form 8-K dated September 14 ,
     2004. The report disclosed under Item 9.01 that we filed our Annual Report
     on Form 10-KSB for the fiscal year ended April 30, 2004 with the Securities
     and Exchange Commission.



                                      152
<PAGE>

o    On August 25, 2004, we filed a report on Form8-K dated August 24, 2004. The
     report disclosed under Item 5 that we were making all diligent efforts to
     cure its failure to timely file its Annual Report on Form 10-KSB for the
     fiscal year ended April 30, 2004, in response to our having received an
     extraordinary volume of inquiries.

o    On August 20, 2004, we filed a report on Form 8-K dated August 19, 2004.
     The report disclosed under Item 5 the changing of the designated trading
     symbol for our common shares from "HIET" to "HIETE" as a result of our
     being delinquent in our periodic reporting requirements under the
     Securities Exchange Act.

o    On August 9, 2004, we filed a report on Form 8-K dated August 9, 2004. The
     report disclosed under Item 5 that we held a Special Meeting of the Board
     of Directors to increase the number of members comprising the Board of
     Directors, to appoint William A. Nitze and Peter J. Le Beau as members of
     the Board of Directors and to appoint David R. Baker and Peter J. Le Beau
     to serve on our Audit Committee, of which Mr. Le Beau will serve as
     Chairman.

o    On July 8, 2004, we filed a report on Form 8-K dated July 8, 2004. The
     report disclosed under Item 5 that we received a "Wells Notice" and written
     requests for information from the SEC.

o    On June 17, 2004 we filed a report on Form 8-K dated June 17, 2004. The
     report disclosed under Item 5 that our technical team was scheduled to
     demonstrate and test the operation of its CarBomb Finder(TM) in Spain on
     July 8, 2004. The report further disclosed under Item 9 our response to
     news stories concerning the Securities and Exchange Commission's filing of
     an application for order requiring compliance with administrative
     subpoenas.

o    On June 9, 2004 we filed a report on Form 8-K dated June 9, 2004. The
     report disclosed under Item 5 that the House of Representatives had
     approved $1,500,000 for Stoichiometric Explosives Detection Systems in FY
     2005 National Defense Authorization Act. The report further disclosed under
     Item 9 that we would be restating its past financial statements.

o    On May 21, 2004, we filed a report on Form 8-K dated May 21, 2004. The
     report disclosed under Item 5 that we are developing a new product called
     the Refractorymeter and had submitted a patent application with the United
     States Patent Office on March 11, 2004.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

As of the date of this Report, we have incurred audit services of $110,518,
audit related services of $72,670, tax preparation services of $0, and other
services of $17,107. All of the services were provided by Singer Lewak Greenbaum
& Goldstein LLP. Singer Lewak Greenbaum & Goldstein LLP has not performed any
other services for us not expressly mentioned above.



                                      153
<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
                                            -----------------------------
                                        Bogdan C. Maglich,
                                        Chief Executive Officer, President,
                                        Treasurer and Chief Scientific Officer
                                        (Principal Executive Officer and
                                        Principal Financial Officer)

Date: August 15, 2005

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.

<TABLE>
<S>                                 <C>
                                    Chairman of the Board, Chief Executive Officer,
                                    President, Treasurer and Chief Scientific Officer
/s/ Bogdan C. Maglich               (Principal Executive Officer and
---------------------------------   Principal Financial Officer)
Bogdan C. Maglich


/s/ Harb Al-Zuhair
---------------------------------   Director
Harb Al-Zuhair


/s/ David R. Baker
---------------------------------   Director
David R. Baker


/s/ William J. Lacey, Jr.
---------------------------------   Director
William J. Lacey, Jr.


/s/ Peter J. Le Beau
---------------------------------   Director
Peter J. Le Beau


/s/ William A. Nitze
---------------------------------   Director
William A. Nitze
</TABLE>


                                      154
<PAGE>

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
    EXHIBIT
    NUMBER            DESCRIPTION
<S>                   <C>
    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 (5)           Certificate of Incorporation of HiEnergy Technologies, Inc., a Delaware corporation, filed on October 17, 2002

    3.2 (5)           Bylaws of HiEnergy Technologies, Inc., a Delaware corporation, adopted on October 18, 2002

    3.3 (10)          Certificate of Elimination of Series A Convertible Preferred Stock

    4.1.1 (5)         Specimen Common Stock Certificate

    4.2 (1)           Form of Registration Rights Agreement between the Registrant and each April 2002 Private Placement Common
                      Stock Investor. See also Exhibit 10.55 Form of Subscription Agreement between the Registrant and each April
                      2002 Private Placement Common Stock investor.

    4.3 (1)           Form of Amendment No. 1 to Registration Rights Agreement between the Registrant and each April 2002 Private
                      Placement Common Stock Investor

    4.4 (3)           Warrant  Certificate issued to Rheal Cote by HiEnergy  Technologies,  Inc. dated June 3, 2002
                      Form of Registration Rights Agreement between the Registrant and each June 2002 Private Placement Common Stock
    4.4.1 (5)         investor. See also Exhibit 10.24 Form of Subscription 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)           Registration Rights Agreement dated October 7, 2002 between the Registrant and the Series A Convertible
                      Preferred Stock Investors set forth below:

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

    10.1.1 (10)       Addendum to Original Lease  Agreement  dated August 15, 2002,  between the Registrant and Del Mar Avionics
                      dated July 1, 2003

    10.1.2 (16)       Addendum No. 2 to Original Lease Agreement dated August 15, 2002, between the Registrant and Del Mar Avionics
                      dated January 1, 2004.

    10.1.3 (16)       Addendum No. 3 to Original Lease Agreement dated August 15, 2002, between the Registrant and Del Mar Avionics
                      dated January 20, 2004.

    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

    10.4.1 (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*
</TABLE>


                                      155
<PAGE>

<TABLE>
<S>                   <C>
    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*

    10.17.1 (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.

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

    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 (16)        Series A Convertible Preferred Stock Purchase Agreement dated October 7, 2002 between the Registrant and the
                      Series A Convertible Preferred Stock investors.

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

    10.24 (5)         Form of Subscription Agreement between the Registrant and each June 2002 Private Placement Common Stock
                      investor. See also Exhibit 4.4.1 Form of Registration Rights Agreement between the Registrant and each June
                      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.

    10.29 (16)        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 (16)        Placement Agent Agreement dated December 16, 2002 between HiEnergy Technologies, Inc. and Seabury
                      Transportation Advisors LLC.
</TABLE>


                                      156
<PAGE>


<TABLE>
<S>                   <C>
    10.32.1 (10)      Letter dated July 2003 terminating agreement with 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. See also Exhibit 10.37 Form of Warrant Certificate dated February 17,
                      2003 between HiEnergy  Technologies,  Inc. and the principals of Columbus Group/cFour Partners.

    10.37 (7)         Form of Warrant Certificate dated February 17, 2003 between HiEnergy Technologies, Inc. and the principals of
                      Columbus Group/cFour Partners. See also Exhibit 10.36 Settlement Agreement dated February 14, 2003 among
                      HiEnergy Technologies,  Inc., Columbus Group/cFour Partners, Robert W. Bellano and Shaun Corrales.

    10.38 (16)        Award Contract dated January 15, 2003 by the U.S.  Department  of Defense to HiEnergy Technologies, Inc.

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

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

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

    10.40.3 (12)      Amendment of the Promissory Note issued to Yocca, Patch & Yocca, LLP

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

    10.42 (9)         Vertical Ventures Investments LLC Stock Purchase Agreement dated April 23, 2003. See also Exhibit 10.72 Form
                      of Escrow Agreement.

    10.43 (9)         Greenwich Growth Fund Limited Stock Purchase Agreement dated April 28, 2003. See also Exhibit 10.72 Form of
                      Escrow Agreement.

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

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

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

    10.47 (10)        HiEnergy Technologies, Inc. 2003 Stock Option Plan*

    10.48 (10)        HiEnergy  Technologies,  Inc. Form of Stock Option  Agreement*

    10.49 (10)        Yocca, Patch & Yocca, LLP Stock Purchase Agreement dated June 16, 2003

    10.50 (10)        Richard Melnick Stock Purchase Agreement dated June 18, 2003. See also Exhibit 10.72 Form of Escrow Agreement.

    10.51 (10)        Jeffrey Herman Stock Purchase Agreement dated June 23, 2003. See also Exhibit 10.72 Form of Escrow Agreement.

    10.52 (10)        Form of Stock Purchase Agreement dated August 5-29, 2003 between HiEnergy Technologies, Inc. and the
                      purchasers of common stock and warrants. See also Exhibit 10.72 Form of Escrow Agreement.

    10.53 (10)        Form of Warrant Certificate dated August 8-29, 2003 between HiEnergy  Technologies,  Inc. and the purchasers
                      of common stock and warrants

    10.53.1 (13)      Form of Amendment of Warrant dated December 15, 2003 between HiEnergy Technologies,  Inc. and the purchasers
                      of common stock and warrants

    10.54 (10)        International  Distribution  Agreement  between the Registrant  and Electronic  Equipment Marketing Company
                      (EEMCO) dated July 28, 2003
</TABLE>



                                      157
<PAGE>


<TABLE>
<S>                   <C>
    10.55 (10)        Form of Subscription Agreement between the Registrant and each April 2002 Private Placement Common Stock
                      investor. See also Exhibit 4.2 Form of Registration Rights Agreement between the Registrant and each April
                      2002 Private Placement Common Stock investor.

    10.56 (16)        Form of Amendment No. 1 to Subscription  Agreement  between the Registrant and each April 2002 Private
                      Placement Common Stock investor

    10.57 (11)        Memorandum of Understanding between HiEnergy Technologies, Inc. and Aeropuertos Espanoles y Navegacion Aerea,
                      Edificio La Piovera - Peonias dated October 6, 2003

    10.58 (12)        Form of Stock Purchase Agreement dated October 15 - December 2, 2003 between HiEnergy Technologies, Inc. and
                      the purchasers of common stock and warrants. See also Exhibit 10.72 Form of Escrow Agreement.

    10.59 (12)        Form  of  Warrant  Agreement  dated  October  28 -  December  2,  2003  between  HiEnergy Technologies, Inc.
                      and the purchasers of common stock and warrants.

    10.60 (16)        Letter Agreement  between SBI - USA LLC and HiEnergy  Technologies,  Inc. dated August 1, 2003

    10.61 (14)        Promissory Note issued to Bogdan Maglich by HiEnergy Technologies, Inc.

    10.62 (14)        Note Purchase Agreement dated January 16, 2004 between HiEnergy Technologies, Inc. and Platinum Partners Value
                      Fund LP, with attached Form of Convertible Note and Warrant

    10.63 (14)        Note Purchase Agreement dated January 31, 2004 between HiEnergy Technologies, Inc. and Richard Melnick with
                      attached Form of Convertible Note and Warrant

    10.64 (14)        Stock Purchase Agreement dated February 9, 2004 between HiEnergy Technologies, Inc. and Bullbear Capital
                      Partners, LLC with attached Form of Warrant

    10.65 (14)        Letter Agreement between KCSA Public Relations Worldwide and HiEnergy Technologies, Inc. dated January 6, 2003

    10.66 (14)        Assignment of Patent Rights by Dr. Bogdan C. Maglich to HiEnergy Microdevices, Inc. dated March 26, 2002.

    10.66.1 (14)      Assignment of Patent Rights from HiEnergy Microdevices, Inc. to HiEnergy Technologies, Inc. dated November 17,
                      2003.

    10.67 (14)        Assignment of Patent Rights by Dr. Bogdan C. Maglich to HiEnergy Technologies, Inc. dated November 17, 2003

    10.68 (14)        Employment Agreement between HiEnergy Technologies, Inc. and Ioana C. Nicodin dated February 3, 2004

    10.69 (14)        Note Purchase Agreement dated January 28, 2004 between HiEnergy Technologies, Inc. and Nicholas J. Yocca with
                      attached Form of Convertible Note and Warrant

    10.70 (15)        Form of Consent and Waiver from April 2003 purchasers of common stock.

    10.71 (15)        Form of Release from June 2003 purchasers of common stock.

    10.72 (16)        Form of Escrow Agreement utilized in connection with the Stock Purchase Agreements filed as Exhibits 10.50,
                      10.51, 10.52 and 10.58.

    10.73 (19)        Employment Letter dated April 12, 2004 between Sean Moore and HiEnergy Technologies, Inc.

    10.74 (19)        Proposal for Detailed Concept Design Services dated June 7, 2004 between Lockwood Greene Engineering &
                      Construction and HiEnergy Technologies, Inc.

    10.75 (19)        Employment letter dated July 26, 2004 between Jim Hertzog and HiEnergy Technologies, Inc.

    10.76 (19)        Engagement Agreement dated July 27, 2004 between Pacific Summit Securities and HiEnergy Technologies, Inc.

    10.77 (19)        Teaming Agreement dated August 4, 2004 between HiEnergy Technologies, Inc. and Siemens Maintenance
                      Services, LLC

    10.78 (20)        Consulting Agreement dated July 22, 2004 between Greg Henkel and HiEnergy Technologies, Inc.
</TABLE>


                                      158
<PAGE>

<TABLE>
<S>                   <C>
    10.79 (21)        Form of Stock Purchase Agreement and Warrant dated October 18, 2004 - December 15, 2004 issued in connection
                      with the sale of restricted shares to various accredited investors and HiEnergy Technologies, Inc.

    10.80 (21)        Form of Debt Conversion Agreement and Warrant between Maglich Family Holdings and HiEnergy Technologies, dated
                      November 19, 2004

    10.81 (24)        Amendment to Share Purchase Agreement dated January 24, 2005  between HiEnergy Technologies, Inc. and Bull
                      Bear Capital Partners, LLC

    10.82 (23)        Employment letter dated November 22, 2004 between Roger Spillmann and HiEnergy Technologies, Inc.

    10.83 (22)        Consulting Agreement dated November 22, 2004 between Don Abbe and HiEnergy Technologies, Inc.

    10.84 (25)        Proposal for Preliminary Manufacturing Facility Assessment Consulting Services dated April 13, 2004 between
                      HiEnergy Technologies, Inc. and Lockwood Greene Engineering & Construction (filed in its entirety)

    10.85 (25)        Promissory Note dated January 15, 2004 issued to Bogdan Maglich by HiEnergy Technologies, Inc.

    10.86 (25)        Promissory Note dated January 15, 2004 issued to Bogdan Maglich by HiEnergy Technologies, Inc.

    10.87 (25)        Promissory Note dated January 15, 2004 issued to Bogdan Maglich by HiEnergy Technologies, Inc.

    10.88 (25)        Promissory Note dated March 15, 2004 issued to Bogdan Maglich by HiEnergy Technologies, Inc.

    10.89 (25)        Promissory Note dated April 5, 2004 issued to Bogdan Maglich by HiEnergy Technologies, Inc.

    10.90 (25)        Promissory Note dated April 15, 2004 issued to Bogdan Maglich by HiEnergy Technologies, Inc.

    10.91 (25)        Promissory Note dated April 29, 2004 issued to Bogdan Maglich by HiEnergy Technologies, Inc.

    10.92 (25)        Promissory Note dated August 3, 2004 issued to Bogdan Maglich by HiEnergy Technologies, Inc.

    10.93 (25)        Promissory Note dated August 4, 2004 issued to Bogdan Maglich by HiEnergy Technologies, Inc.

    10.94 (25)        Promissory Note dated August 10, 2004 issued to Bogdan Maglich by HiEnergy Technologies, Inc.

    10.95 (25)        Promissory Note dated August 18, 2004 issued to Bogdan Maglich by HiEnergy Technologies, Inc.

    10.96 (25)        Promissory Note dated August 25, 2004 issued to Bogdan Maglich by HiEnergy Technologies, Inc.

    10.97 (25)        Promissory Note dated August 30, 2004 issued to Bogdan Maglich by HiEnergy Technologies, Inc.

    10.98 (25)        Proposal for Detailed Concept Design Services between HiEnergy Technologies, Inc. and Lockwood Greene
                      Engineering & Construction dated June 7, 2004

    10.99 (25)        Consulting Agreement between HiEnergy Technologies, Inc. and Greg Henkel dated July 22, 2004

    10.100 (25)       Consulting Agreement between HiEnergy Technologies, Inc. and Jim Hertzog dated July 26, 2004

    10.101 (25)       Engagement letter between HiEnergy Technologies, Inc. and Pacific Summit Securities dated July 27, 2004

    10.102 (25)       Employment letter dated April 12, 2004 between Sean Moore and HiEnergy Technologies, Inc.

    10.103 (25)       Teaming Agreement between HiEnergy Technologies, Inc. and Siemens Maintenance Services, LLC dated August 4,
                      2004

    10.104 (25)       Retention Agreement between HiEnergy Technologies, Inc. and Pellettieri, Rabstein and Altman dated November
                      11, 2004

    10.105 (25)       Retention Agreement between HiEnergy Technologies, Inc. and Feldhake Roquemore LLP dated January 12, 2005

    10.106 (26)       Form of Stock Purchase Agreement dated March 22, 2005 and issued in connection with the sale of restricted
                      shares to various accredited investors and HiEnergy Technologies, Inc.

    10.107 (26)       Form of Warrant to Purchase Shares of Common Stock of HiEnergy Technologies, Inc. dated March 22, 2005 and
                      issued in connection with the sale of restricted shares to various accredited investors

    10.108 (26)       Form of Stock Purchase Agreement dated April 2005 and issued in connection with the sale of restricted shares
                      to various accredited investors and HiEnergy Technologies, Inc.
</TABLE>



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<PAGE>

<TABLE>
<S>                   <C>
    10.109 (26)       Form of Warrant to Purchase Shares of Common Stock of HiEnergy Technologies, Inc. dated April 2005 and issued
                      in connection with the sale of restricted shares to various accredited investors.

    10.110 (26)       Form of Stock Purchase Agreement for the period from May 16, 2005 through July 12, 2005 and issued in
                      connection with the sale of restricted shares to various accredited investors.

    10.111 (26)       Form of Warrant to Purchase Shares of Common Stock of HiEnergy Technologies, Inc. for the period from May 16,
                      2005 through July 12, 2005 and issued in connection with the sale of restricted shares to various accredited
                      investors.

    10.112 (26)       Form of Debt Conversion Agreement between Nicholas J. Yocca and HiEnergy Technologies, Inc., dated
                      May 13, 2005.

    10.113 (26)       Debt Conversion Agreement between David R. Baker and HiEnergy Technologies, Inc., dated July 15, 2005, and
                      form of detachable warrant.

    10.114 (26)       Debt Conversion Agreement between Baker, Johnston & Wilson LLP and HiEnergy Technologies, Inc., dated July 15,
                      2005, and form of detachable warrant.

    10.115 (26)       Agreement between Mason, Griffin & Pierson and HiEnergy Technologies, Inc., dated April 29, 2005.

    10.116 (26)       Subcontract Agreement between Siemens Maintenance Services LLC and HiEnergy Technologies, Inc., dated April
                      15, 2005

    10.117 (26)       Agreement between Vintage Filings, LLC and HiEnergy Technologies, Inc., dated May 1, 2005.

    10.118 (26)       Engagement Letter between Henry S. Sprintz and HiEnergy Technologies, dated June 20, 2005.

    10.119 (26)       Employment Agreement between Gregory C. Henkel, Controller, and HiEnergy Technologies, Inc., dated
                      March 1, 2005.

    10.120 (26)       Equipment Sales Agreement between Southeastern Pennsylvania Transportation Authority and HiEnergy
                      Technologies, Inc., dated June 6, 2005.

    10.121 (26)       Time and Material Subcontract between Integrated Concepts & Research Corporation and HiEnergy Technologies,
                      dated July 18, 2005.

    10.122 (26)       International Distribution Agreement between Electronic Equipment Marketing Company (EEMCO) and HiEnergy
                      Technologies, dated July 25, 2003

    10.123*           Form of Stock Purchase Agreement dated July 26, 2005 and issued in connection with the sale of restricted
                      shares to various accredited investors.

    10.124*           Form of Warrant to Purchase Shares of Common Stock of HiEnergy Technologies, Inc. dated July 26, 2005 and
                      issued in connection with the sale of restricted shares to various accredited investors.

    10.125 (27)       Cooperative Research and Development Agreement between the U.S. Transportation Security Administration and
                      HiEnergy Technologies dated September 29, 2004.

    14.1 (9)          Code of Ethics for Senior Financial Officers of HiEnergy Technologies, Inc.

    16.1 (1)          Letter of Manning Elliott

    21.1 (9)          List of Subsidiaries

    21.2 (26)         List of Subsidiaries

    31.1*             Certification of Chief Executive Officer and Treasurer Pursuant to Section 302 of the Sarbanes-Oxley Act
                      of 2002.

    32.1*             Certification of Chief Executive Officer and Treasurer Pursuant to Section 906 of the Sarbanes-Oxley Act
                      of 2002.
</TABLE>

*        Filed herewith

(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.



                                      160
<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 October 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.

(9)   Filed on August 8, 2003 as an exhibit to HiEnergy Technologies' annual
      report on Form 10-KSB for the fiscal year ended April 30, 2003, and
      incorporated herein by reference.

(10)  Filed on September 19, 2003 as an exhibit to HiEnergy Technologies'
      registration statement on Form SB-2 (File No. 333-108934) and incorporated
      herein by reference.

(11)  Filed on October 8, 2003 as an exhibit to HiEnergy Technologies' report on
      Form 8-K dated October 7, 2003 and incorporated herein by reference.

(12)  Filed on December 16, 2003 as an exhibit to HiEnergy Technologies'
      quarterly report on Form 10-QSB for the fiscal quarter ended January 31,
      2004, and incorporated herein by reference.

(13)  Filed on December 24, 2003 as an exhibit to Pre-Effective Amendment No. 1
      to HiEnergy Technologies' registration statement on Form SB-2 (File No.
      333-108934) and incorporated herein by reference.

(14)  Filed on February 25, 2004 as a like numbered exhibit to HiEnergy
      Technologies' current report on Form 8-K dated February 24, 2004 and
      incorporated herein by reference.

(15)  Filed on March 25, 2004 as an exhibit to HiEnergy Technologies'
      Pre-Effective Amendment No 2 registration statement on Form SB-2 (File No.
      333-108934) and incorporated herein by reference.

(16)  Filed on April 12, 2004 as a like numbered exhibit to HiEnergy
      Technologies' current report on Form 8-K/A dated April 9, 2004 and
      incorporated herein by reference.

(17)  Filed on May 17, 2004 as a like numbered exhibit to HiEnergy Technologies'
      current report on Form 8-K dated May 17, 2004 and incorporated herein by
      reference.

(19)  Filed on May 21, 2004 as a like numbered exhibit to HiEnergy Technologies'
      current report on Form 8-K dated May 21, 2004 and incorporated herein by
      reference.

(20)  Filed on September 14, 2004 as a like numbered exhibit to HiEnergy
      Technologies' annual report on Form 10-KSB for the fiscal year ended April
      30, 2004 and incorporated herein by reference.

(21)  Filed on October 20, 2004 as an exhibit to HiEnergy Technologies'
      quarterly report on Form 10-QSB for the quarter ended July 31, 2004, and
      incorporated herein by reference.

(22)  Filed on November 30, 2004 as exhibit 99.1 to HiEnergy Technologies'
      current report on Form 8-K dated November 30, 2004 and incorporated herein
      by reference.

(23)  Filed on December 17, 2004 as Exhibit 10.80 to HiEnergy Technologies'
      quarterly report on Form 10-QSB for the quarter ended October 31, 2004 and
      incorporated herein by reference.



                                      161
<PAGE>

(24)  Filed on January 11, 2005 as Exhibit 99.3 to HiEnergy Technologies'
      current report on Form 8-K dated January 7, 2005 and incorporated herein
      by reference.

(25)  Filed on February 2, 2005 as Exhibit 10.81 to HiEnergy Technologies'
      current report on Form 8-K dated January 27, 2005 and incorporated herein
      by reference.

(25)  Filed on March 17, 2005 as a like numbered exhibit to HiEnergy
      Technologies' quarterly report on Form 10-QSB for the quarter ended
      January 31, 2005 and incorporated herein by reference.

(26)  Filed on July 27, 2005 as a like numbered exhibit to HiEnergy
      Technologies' amendment to its annual report on Form 10-KSB for the fiscal
      year ended April 30, 2004 and incorporated herein by reference.

(27)  This agreement contains information which the Transportation Security
      Administration ("TSA") has requested be kept confidential. We are in the
      process of defining with the TSA exactly what portions of the agreement
      they require be kept confidential, and what may be included in our filings
      with the Securities and Exchange Commission. Once we arrive at an
      understanding with the TSA as to what it will require, we will seek
      confidential treatment under appropriate means from the SEC, and will then
      file this Agreement as an exhibit in our next SEC filing subsequent to
      receipt of confidential treatment.


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