<PAGE>

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

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

                                  FORM 10-KSB/A
                                 AMENDMENT NO. 1

                                   (Mark one)
               /X/ Annual report under section 13 or 15(d) of the
                        Securities Exchange Act of 1934
                    For the fiscal year ended April 30, 2003
                                       OR
             / / Transition report under section 13 or 15(d) of the
                        Securities Exchange Act of 1934
              For the transition Period from ________ to __________

                        Commission file number: 0 - 32093

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


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


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


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

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

              Securities registered under Section 12(g) of the Act:
                    Common Stock, par value $0.001 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 December 17, 2003 the  aggregate  market value of the voting common equity
held by non-affiliates of the registrant was $19,305,000 based on $0.86/share as
the closing price reported on the OTC BB operated by the NASD.  Shares of common
stock held by each officer and director and by each person who owns five percent
or more of the outstanding common stock have been excluded from this calculation
as such persons may be considered to be affiliated with the registrant.

On December 18, 2003, the registrant had 31,279,853 shares of common stock, par
value $0.001 per share, issued and outstanding.

                   Documents incorporated by reference: None.

          TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT: Yes / / No /X/

<PAGE>


                           HIENERGY TECHNOLOGIES, INC.

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

<TABLE>
<CAPTION>

PART I                                                                                                PAGE
<S>        <C>                                                                                        <C>
Item 1     Description of Business......................................................................3

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

Item 3     Legal Proceedings............................................................................18

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

PART II

Item 5     Market for Common Equity and Related Shareholder Matters.....................................18

Item 6     Management's Discussion and Analysis or Plan of Operation....................................21

Item 7     Financial Statements.........................................................................34

Item 8     Changes In and Disagreements With Accountants on Accounting and
           Financial Disclosure.........................................................................66

Item 8a    Controls and Procedures......................................................................66

PART III

Item 9     Directors, Executive Officers, Promoters and Control Persons; Compliance
           With Section 16(a) of the Exchange Act.......................................................66

Item 10    Executive Compensation.......................................................................68

Item 11    Security Ownership of Certain Beneficial Owners and Management and
           Related Shareholder Matters..................................................................71

Item 12    Certain Relationships and Related Transactions...............................................73

Item 13    Exhibits and Reports on Form 8-K.............................................................74

Item 14    Principal Accountant Fees and Services.......................................................75

SIGNATURES..............................................................................................76
</TABLE>

                                       2

<PAGE>

                                     PART I

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

FORWARD-LOOKING STATEMENTS

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

ITEM 1.  DESCRIPTION OF BUSINESS

                             DESCRIPTION OF BUSINESS

OVERVIEW

We have developed a "Stoichiometer,"  which is a chemical sensor technology.  It
is capable of remotely  determining  the  chemical  composition  of  substances,
including  explosives,   biological  agents  and  drugs.  We  have  products  in
development  that can display an image of the substance  indicating its location
and shape.

"Stoichiometry"  is the  scientific  term for the art and science of determining
the chemical composition of unknown substances.  Historically  stoichiometry has
involved a multitude of instruments,  a complex chemical process and destructive
tests. Our Stoichiometer,  however,  is a sensor that can determine the chemical
composition of a substance while neither using nor "sniffing" a physical sample.
We are unaware of any other stoichiometric detector on the market.

We plan to  continue  to  develop,  commercialize  and market our  Stoichiometer
technology to government agencies,  organizations and industrial users that need
to improve the speed,  accuracy,  and  efficiency  of their  security  screening
procedures and industrial quality control processes.

EXISTING TECHNOLOGY

"ANOMALY" DETECTORS VS. "CONFIRMATION" SENSORS

Existing  detection  technologies  can  be  broadly  divided  into  the  primary
"anomaly"  detectors and secondary  "confirmation"  sensors.  Anomaly detectors,
such as the x-ray scanners  currently  used for airport  security or the various
detectors  currently used in minefields,  are  chemically  blind.  They identify
suspicious objects based on the density and shape of the object, but they cannot
distinguish  between  explosives and harmless  objects with similar  density and
shape. This results in the identification of some suspicious objects that are in
fact harmless.  Secondary sensors that would conclusively identify the chemistry
of the target being scanned are referred to as  "confirmation"  sensors  because
they  would  distinguish  between  harmless  anomalies  and  actual  explosives,
biological agents or other harmful objects.

ANOMALY DETECTORS - X-RAY DETECTORS, METAL DETECTORS, RADAR DETECTORS, AND
INFRARED DETECTORS

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 to determine  whether the suspicious  object
is actually an explosive, such as physical inspection. X-ray explosive detection
systems  currently  in use have  shown a very  high rate of false  positives  of
between  20%  and  40%.   Although  some  newer  x-ray   machines  are  able  to
automatically  determine  whether an image  indicates a suspicious  object,  the
decision to open the luggage and the ability to correctly  identify an explosive
upon  physical  inspection  greatly  depend  upon the skill and  judgment of the
screeners.


                                       3
<PAGE>

Similarly,  the  metal  detectors,   radar  detectors,  and  infrared  detectors
currently used to detect  landmines can only detect buried  suspicious  objects.
The objects are identified based on their metal content, density, shape or heat.
Suspicious  objects  still  have to be dug out by human  de-miners.  There is no
other way like ours to determine if a suspicious object is indeed a landmine. In
a typical  minefield,  there are between 400 and 800 false  alarms for each real
landmine found.

Our  Stoichiometer   technology  is  dramatically  different  because  it  is  a
confirmation  sensor that  determines  the  chemical  composition  of the target
object. It can be used to lower the rate of false positives, improving speed and
efficiency  and reducing air travel  delays.  Our  Stoichiometer  should improve
safety by automatically  displaying the exact chemical composition of the target
substance  through up to 3/4 inch  thick  steel.  The system  does not rely upon
operator interpretation because it makes a determination using computer software
that automatically  interprets the data obtained from the sensors.  The operator
of the system  simply  pushes a button and the  system  automatically  indicates
whether an explosive (or other substance of concern) is present or not.

CONFIRMATION SENSORS - MAGNETIC RESONANCE SENSORS AND X-RAY DIFFRACTION SENSORS

In addition to our Stoichiometer technology, we are aware of two other detection
technologies  that are not  stoichiometric  but claim the  ability  to  identify
chemical  compounds:  magnetic resonance sensors and x-ray diffraction  sensors.
Magnetic  resonance  has a major  drawback--it  is blinded  by metal  because of
magnetism. Absent metal barriers, X-ray diffraction sensors measure the patterns
of x-rays that have bounced off the  investigated  substance  and changed  their
direction.

Magnetic  resonance  sensors use high-powered  magnets and radio frequency coils
that emit pulsed radio  frequencies  and detect the nuclear  magnetic  resonance
signal of a single  specified  element  present  in an  object.  The  nucleus of
different elements have a unique nuclear magnetic signal, and magnetic resonance
sensors emits a pulse at the  frequency  needed to detect the unique signal of a
specific element. For example,  medical magnetic resonance sensors generally are
designed to emit at a radio  frequency to detect the  hydrogen  contained in the
water and fat present in the human body.

X-ray  diffraction  sensors  are used to detect  substances  that  have  crystal
structures in which atoms are arranged in regular patterns.  The regular pattern
of the atoms in such  substances will reflect x-rays in unique patterns as well.
X-ray  diffraction  sensors  operate by emitting x-rays and detecting the unique
patterns  of the x-rays  which are  deflected  by the crystal  structure  of the
target substance.  X-ray diffraction  sensors are therefore limited to detecting
substances with a crystal structure.

Both  magnetic   resonance  and  x-ray   diffraction  are  pattern   recognition
technologies.  They cannot identify the exact chemical  composition of different
substances.  Instead,  they provide  confirmation  of the presence or absence of
specific  targeted compound by recognizing  pre-programmed  patterns produced by
particular targeted compounds.

Our  Stoichiometer  is superior to magnetic  resonance  sensors on the following
grounds:

          o Magnetic fields cannot penetrate metals, while neutrons pass through
          them without  resistance.  Magnetic resonance detectors cannot operate
          through even the thinnest metallic foil.  Magnetic resonance detectors
          cannot  operate  in  mineral  soil  because  the soil is  electrically
          conductive.   The   Stoichiometer   is  insensitive  to  the  electric
          properties of soil.  The  Stoichiometer  has  determined  the chemical
          composition of explosives through 0.75 inches of steel.

          o Our  Stoichiometer  technology  produces  an  identification  of the
          chemical  composition of a vast number of different  substances and is
          not limited to finding targeted substances. It does not have to seek a
          match to a pre-programmed pattern.

          o Magnetic  resonance  detectors  operate at the  frequencies of radio
          stations, which precludes their use in open areas.

          o A magnetic resonance detector's range in non-metallic materials is 2
          inches for a portable  device and up to 10 inches for a vehicle  borne
          system.  The  Stoichiometer's  range is being  estimated as at least 4
          feet with a portable system.

The above  disadvantages  have led to the U.S.  Army's  abandonment  of magnetic
resonance technology after millions of dollars in governmental funding.

Our  Stoichiometer  technology is superior to x-ray  diffraction  sensors on the
following grounds:

          o X-ray diffraction works only when the target substance is accessible
          from two sides. This excludes its use in detecting landmines.

          o An x-ray  diffraction  detector  is a  large,  heavy  and  expensive
          machine.

          o X-ray diffraction has proven reliable only for detecting stand-alone
          substances. When a substance is inserted into clutter, the results are
          not certain enough.

                                 OUR TECHNOLOGY

Our  "Stoichiometer"  detector  technology  is capable of  remotely  and quickly
determining  the  chemical  composition  of  substances,  including  explosives,
biological  agents and drugs,  and at the same time  displaying  an image of the
substance  indicating  its  location and shape.  All three  versions of our core
technology determine the chemical composition of target substances with a single
device  in a single  shot.  We are  unaware  of any  other  such  stoichiometric
detector on the market.


                                       4
<PAGE>

HOW IT WORKS

Our  Stoichiometer  technology  operates by measuring the exact ratios of atomic
elements present in a substance, and measuring these ratios in three dimensions.
Our  device  sends  neutrons  and other  subatomic  particles  toward the target
substance  using a miniature  particle  accelerator  or other  source.  Particle
accelerators  are  scientific  instruments  that increase the kinetic  energy of
charged particles,  such as ions or neutrons.  These neutrons can travel through
metal, soil and other barriers.  The neutrons cause the target substance to emit
gamma rays and other  subatomic  particles back toward the  Stoichiometer,  also
through barriers,  and the Stoichiometer  detects them. The gamma rays and other
emissions  emitted  by  each  element  (carbon,   nitrogen,  oxygen,  etc.)  are
different, and our Stoichiometer identifies the type of element and the relative
quantity of each element in the target  substance based on the emissions that it
measures.  The device then automatically  compares these measurements  against a
computer  library of chemical  data and  displays to the  operator of the device
whether a particular chemical compound is present.  The use of directed neutrons
in the SuperSenzor version of the Stoichiometer also permits it to determine the
three dimensional location of target substances.

Unlike  many  other  detection  systems  in  use  today,  the  precision  of the
Stoichiometer's atomic measurements combined with the computerized comparison of
these  measurements  against a library of  chemical  data  virtually  eliminates
reliance upon  interpretation  by the person operating the sensor.  This greatly
reduces the possibility  that an explosive,  biological  agent or other compound
would go undetected due to operator error.

The  Stoichiometer  measures  the  ratio of all  atomic  elements  present  in a
substance other than hydrogen,  which does not provide a sufficient  response to
the fast  neutrons  used by the  Stoichiometer.  By measuring  the ratios of all
elements other than hydrogen, the Stoichiometer can automatically  differentiate
between chemical  compounds with different atomic ratios with a very high degree
of accuracy.  However,  substances  that have  identical  ratios of all elements
other than hydrogen will appear the same to the Stoichiometer.  For example, the
Stoichiometer can  differentiate  between cocaine and sugar and between gasoline
and diesel fuel, but it cannot  differentiate  between sucrose and glucose,  two
types of sugar, or between two pure hydrocarbons such as methane and propane.

Three-dimensional detection and locating is best accomplished by a Stoichiometer
system with two SuperSenzors. A single SuperSenzor provides good two-dimensional
resolution  and  coarse  depth  perception,  while  two  SuperSenzors  used in a
stereoscopic system would provide good resolution in all three dimensions.

The three  dimensional  measuring  capability of the SuperSenzor  version of the
Stoichiometer  allows it to detect  the  atomic  ratios  in each  portion  of an
object.  This allows the  Stoichiometer to identify the chemical  composition of
many separate items within an object and to determine the location of each item.
However,  because the  three-dimensional  resolution of the  SuperSenzor  is not
fine, it might not  accurately  identify the separate  chemical  components in a
uniform mixture of two or more compounds.  For example, the Stoichiometer should
identify a bag of cocaine  surrounded  by sugar and display the  location of the
bag within the sugar,  but the  Stoichiometer  might not  accurately  identify a
uniform mixture of cocaine and sugar.

ADVANTAGES

Our technology is unique in that it has the ability to:

          o Obtain the 3D location and image of a substance;

          o Identify the chemical composition of a substance;

          o Operate at a distance from the substance without touching or
          sampling it;

          o Operate through barriers such as solid steel casing or soil; and

          o Operate in real-time in a matter of seconds or minutes.

We are  unaware  of  any  prior  demonstrations  in the  history  of  analytical
chemistry  where  the  exact  chemical  composition  of  a  substance  has  been
stoichiometrically  deciphered  (a) online,  (b) without  sampling,  (c) through
barriers,  and (d) producing an image.  Each of these four features is unique to
our technology.

THERMAL NEUTRONS, FAST NEUTRONS AND DIRECTED NEUTRONS

A neutron has a natural state of being  attached to the nucleus of an atom,  and
an  energetic  state in which it travels  alone.  Energetic  neutrons are called
either "thermal" or "fast," depending on the speed at which they travel. Thermal
neutrons travel relatively  slowly,  and fast neutrons travel close to the speed
of  light.  Our  SuperSenzor   emits  fast  neutrons  that  have  an  energy  of
14,000,000eV,  which is 560,000,000  (five hundred and sixty million) times more
energetic than thermal neutrons, the energy of which is 0.025eV.

Regular  neutron  generators  emit neutrons in all  directions and are therefore
described as non-directed. Our MiniSenzor uses a non-directed neutron generator.
In  contrast,  the  neutron  generator  used in our  SuperSenzor  electronically
selects only neutrons  emitted in one narrow beam so that they can be aimed at a
particular  spot similar to a  flashlight  beam,  and is therefore  described as
directed.

                             OUR THREE CORE SYSTEMS

A detector system generally consists of the core and the secondary systems.  The
core is the system that is common to all applications. The secondary systems are
the  infrastructure  that is  different  for  each  application.  We  have  been
developing three core Stoichiometer systems:

(1) SuperSenzor is a top of the line system using directed  neutrons.  It is the
fastest (6-15 seconds),  longest range (4 ft.) and includes an imaging facility.
The  projected  selling  price  of the  core  SuperSenzor  unit is  $300,000  to
$600,000.


                                       5
<PAGE>


(2) MiniSenzor is an  intermediate  system using  non-directed  neutrons.  It is
slower  (30-300  seconds),  shorter  range  (1 ft.),  and  includes  no  imaging
facility.  It is portable (80 lbs.).  The  projected  selling  price of the core
MiniSenzor unit is $200,000 to $400,000.


(3)  MicroSenzor  is  an  inexpensive  system  using  a  radioactive  source  of
non-directed neutrons. It is slowest (5-30 minutes) and also does not include an
imaging facility. It is very light weight (18 lbs.). The projected selling price
of the core MicroSenzor unit is $75,000 to $100,000.


Each of our three core systems has 3 key components:

     1.   The "emitter" is a miniature particle accelerator or other source that
          produces neutrons.

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

     3.   The  "gammalyzer"  is an electronic  system that analyzes the detected
          gamma rays to separate the "signal" (i.e. the target  substance,  such
          as an explosive) from "noise" (i.e. clutter). In the SuperSenzor,  the
          gammalyzer  also  determines  the  target   substance's   location  by
          detecting the alpha particles.

Our systems also contain  software to interpret the results from the  gammalyzer
and display these results in a format that it understandable to the operator.

             VALIDATION AND TESTING OF OUR STOICHIOMETER TECHNOLOGY

An  industry-university-governmental  lab consortium developed the Stoichiometer
(originally called atometer) over the period from 1997-2002, financed by private
funds and five  government  contracts.  Stoichiometer  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 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,  p.  9-37;  [Gov.  Dvc:
NCJ-176972].

During  the  period  1998-2002,  our  laboratory  prototype  of the  SuperSenzor
demonstrated,  in blind tests  conducted for the  Department of Defense and U.S.
Customs  Office,  the ability to retrieve from 3 feet away the chemical  formula
and three-dimensional  location of (1) explosive simulant through steel or soil;
(2) cocaine  simulant  through  rice;  and (3) anthrax  simulant  (dead  spores)
through a paper.  These tests were  conducted in the presence of  Department  of
Defense and U.S.  Customs Office officials using unknown samples selected by the
officials.

On May 8, 2002, our prototype MicroSenzor demonstrated, in blind tests conducted
for the Office of Inspector  General of the  Department of  Transportation,  the
ability to semi-automatically identify one kilogram of TNT explosive simulant in
a metal container from a distance of one foot in 20 minutes, and to discriminate
it from  common  non-explosive  substances.  These tests were  conducted  in the
presence  of  Department  of  Transportation  officials  using  unknown  samples
selected by the officials.

On June 3, 2002 our  prototype  MiniSenzor  demonstrated  in internal  tests its
ability to identify,  through a metal container, one pound of explosive simulant
in 30 seconds,  automatically  and  without  human  intervention,  as well as to
reject common non-explosive substances like sugar and chocolate.

On  January 9, 2003,  our  MiniSenzor  demonstrated  high  reliability  in blind
open-air field tests  conducted by the U.S. Navy at the Indian Point,  Maryland,
U.S.  Navy base.  The primary goal of the tests was to determine  the ability of
our  MiniSenzor to chemically  determine,  from the outside,  whether or not the
filler of an artillery  shell or other  containers,  is an explosive or an inert
substance.   MiniSenzor   automatically   and   correctly,   without  any  human
intervention, differentiated every explosive from every non-explosive -- a score
of 100%. The secondary goal was to differentiate between the specific explosives
or specific inert substances.  MiniSenzor got the exact chemical  composition of
all the inert  substances and could not  differentiate  two explosives that were
too similar to be  distinguished  exactly,  which made our score come to 80%. In
easier  cases,  it  differentiated  TNT from  the  plastic  explosive  "Semtex";
gasoline from diesel fuel;  and  fertilizer  from the military  grade  explosive
"RDX."

On September  24, 2003, we were  competitively  selected in the first round of a
nationwide  competition  to submit a second round proposal on our CarBomb Finder
to the Combating  Terrorism  Technology Support Office Technical Support Working
Group.  The  Group  is  seeking  several  threat  countermeasure   technologies,
including  those to be used for  explosive  detection in  vehicles.  Our CarBomb
Finder is a remote,  clandestine detector of bombs in trunks, seats, and engines
of parked or moving vehicles.

In September 2003 at our test site in Irvine,  California, we performed two days
of on-site demonstrations and blind tests of our explosives detection technology
for the  Security  Manager and Director of Equipment  and  Installations  of the
Directorate of Spanish Airports and Navigation.  The Spanish officials performed
dozens  of  blind  tests  with  both  the  CarBomb  Finder(TM)  and  False-Alarm
Eliminator(TM)  for suitcases  using the  MiniSenzor.  Both  nitrogen-based  and
chlorine-based explosives were tested and detected.

On October 9, 2003 a technical inspector from the Transportation Security Agency
conducted blind tests at our test site in Irvine,  California and concluded that
the MiniSenzor  version of our  Stoichiometer  can easily  differentiate  peanut
butter from explosives, which no other system can.

We intend to  conduct  further  tests and  demonstrations  of our  products.  We
believe that we will be ready to field test our  anti-tank  landmine  sensor for
the U.S.  Army by March  2004,  given the  current  rate of  development  of our
technology and our internal testing and our dependence upon one outside supplier
for the SuperSenzor  neutron generator.  Our potential  customers may not accept
the  results of these  tests  until they  independently  repeat  these tests and
verify the results.


                                       6
<PAGE>

                               ENGINEERING ISSUES

DIRECTED NEUTRON GENERATOR

We are continuing to perfect our directed neutron generator, which is one of the
three  components  of our  SuperSenzor  core system.  This is a very special and
unique particle  accelerator.  The first directed neutron generator was utilized
by HiEnergy  physicists in the Department of Energy's Special Tech Laboratory at
Santa Barbara.  It was a large system of immobile laboratory  equipment,  taking
one half of the room. Our main  engineering  task has been to  miniaturize  this
neutron generator into a portable system.  Its development took one year under a
contract with Thermo MF Physics in Colorado Springs.  We placed orders for three
of these miniature directed neutron generators.

The first of these portable directed neutron generators, weighing 25 pounds, was
delivered  to us in September  2003.  We quickly  concluded  that it required an
improvement  in its neutron  intensity.  We have  devised and built the means of
improvement, which is currently being tested at our test-site. At the same time,
we have ordered certain changes for the second model,  now in production,  which
has been assembled and is currently being tested by our supplier.

PHYSICAL SHIELDING

We  anticipate  the need for physical  shielding  of our  products  according to
varied public health and safety laws. The type and thickness of shielding of our
products will vary according to each  application of our technology and may vary
depending  upon the  applicable  regulations  of the  jurisdiction  in which the
system is installed.

In other  situations  where the  device  could be  operated  robotically  from a
distance, the shielding can be cut dramatically or even removed. For example, no
shielding is required if the device is operated  more than 30 feet from a worker
or  about  200  feet  from  public  permanent  occupancy  zones  such as  office
buildings,  provided that the device is operated 2000 hours/per year. The public
may be much  closer  if they are in a limited  occupancy  zone such as a parking
lot, street, or walkway.  Shielding will also vary  geographically  according to
the dose limits set forth by a particular  region's  nuclear  material  exposure
regulations.

In a typical setting,  one where a worker is operating the device for up to 4000
hours/year in very close  proximity to it, the shielding would need to be either
16 inches of concrete or 10 inches of borated polyethylene. Concrete costs about
$10 per cubic foot while borated  polyethylene  costs about $300 per cubic foot.
The advantage of using  borated  polyethylene  is weight  reduction for enhanced
portability.

The  standards  of the  State  of  California,  which  we are  observing  in our
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 thickness of both  polyethylene and concrete  shielding  required
for operators and for public safety. Our test site has been designed accordingly
and the design was approved by the Radiation Safety Officer on July 16, 2003.

Without shielding,  we believe that our equipment's anticipated level of neutron
radiation dose would result in 10 to 100 times less tissue damage than the level
of x-ray radiation dose required accomplish baggage security screening.  While a
single neutron emitted by our  Stoichiometer  causes 10 times more tissue damage
than a single X-ray, the cumulative number of X-rays needed for an X-ray scanner
to scan an entire  container  is 100 times  greater  than the number of neutrons
needed for the Stoichiometer to obtain the chemical  identification of an object
in the container.

FIELD TESTING AND MASS PRODUCTION

Design  modifications  may be required to coordinate  the components of our core
systems  into a fixed unit  capable of being built on an  integrated  production
line.  We must  also  assess  the  durability  of  these  key  components  in an
environment where they must function accurately day-in and day-out,  rather than
occasionally in a lab experiment.

Our prototype  SuperSenzor device is now being tested in the field.  Significant
uncertainties that need to be addressed and resolved prior to  commercialization
include field testing of the SuperSenzor and its directed  neutron  generator to
determine  its range,  accuracy,  time and false alarm  rates,  and  potentially
improve these characteristics. These have been determined in laboratory testing,
but remain to be determined in field tests.


                               CORPORATE HISTORY

We  are  an  operating   parent   company  with   subsidiaries   named  HiEnergy
Microdevices,  Inc. and HiEnergy Defense,  Inc. We were  incorporated  under the
laws of the  State  of  Washington  on  March  22,  2000,  under  the  name  SLW
Enterprises   Inc.  On  April  30,  2002,   we  changed  our  name  to  HiEnergy
Technologies,  Inc. following our reverse takeover of HiEnergy Microdevices Inc.
in a transaction treated as a recapitalization of HiEnergy  Technologies,  Inc.,
with HiEnergy Microdevices,  Inc. as the accounting acquirer (reverse takeover).
As a result of this transaction,  former  stockholders of HiEnergy  Microdevices
came to own approximately 65% of our outstanding  equity. The composition of our
board of directors currently consists of five directors.


                                       7
<PAGE>


SLW  Enterprises,  Inc. was a "public shell  company" on the date of the reverse
take-over of HiEnergy Microdevices, Inc. The costs of the reverse take-over were
approximately $451,000 and were expensed as a general and administration expense
in the period incurred.

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

HiEnergy Defense,  Inc. was incorporated under the laws of the state of Delaware
on July 28, 2003 as an eighty-five percent owned subsidiary of the Company.
HiEnergy Defense, Inc. focuses on developing and marketing applications of our
technology. It operates in the Washinton D.C. area from Arlington, Virginia.

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

                               INDUSTRY OVERVIEW

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

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

<TABLE>
<CAPTION>
MARKET AREA                                  POTENTIAL CUSTOMERS
<S>                                          <C>
Car Bomb Detection                           Airport security and other security agencies
Landmine detection                           Department of Defense
Airport security screening                   Transportation Security Administration
Customs contraband detection                 U.S. Customs Service
Biological weapons detection                 Department of Defense, Postal Service, FBI
Industrial quality control processing        Crude oil refiners, bulk food processors, steel manufacturers
Explosive detection                          Police and ATF Bomb Squads
</TABLE>


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

                              MARKETS AND PRODUCTS

Our first three products are the CarBomb Finder, the Anti-Tank Landmine Detector
and the False-Alarm  Eliminator for checked baggage.  We also intend to focus on
customs  screening with the U.S.  Customs Service and  international  equivalent
agencies,  explosives  detection for police and ATF bomb squads, and bio-defense
for  the  Department  of  Defense,   the  Postal  Service,   Federal  Bureau  of
Investigation,  the National Institutes of Health and their foreign equivalents.
This initial list of customers may be refined or altered as conditions  dictate.
A separate but  potentially  large segment  includes  industrial  users. We will
pursue each market using the same core Stoichiometer technology.

The status of our announced products and proposed pricing are as follows:

<TABLE>
<CAPTION>
          PRODUCT NAME                                  PROTOTYPE PRICE           STATUS
<S>                                                     <C>                       <C>
          Carbomb Finder CF 303                         $500,000 (w/out van)      In development
          Carbomb Finder CF 201                         $250,000 (w/out van)      Prototype available
          Anti-Tank Landmine Sensor                     $400,000                  In development
          Unexploded Ordnance Sensor                    Not yet priced            In development
          Luggage Confirmation System                   Not yet priced            In development
          Cargo Confirmation Sensor                     $500,000                  In development
          Biological Agent Confirmation                 Not yet priced            In development
          Industrial Quality Control Sensor             Not yet priced            In development
          Microsenzor                                   $90,000                   Prototype available
</TABLE>


                                       8
<PAGE>

                            OUR FIRST THREE PRODUCTS

Our  first  three  products  are the  CarBomb  Finder,  the  anti-tank  landmine
detector,  and the checked  luggage "False Alarm  Eliminator"  for airports.  We
currently have available for sale beta models of our MiniSenzor  based products,
including the CarBomb  Finder.  We can produce beta models of our CarBomb Finder
and  other  products  at our  facilities,  and we are  also in  discussion  with
companies that have significant manufacturing facilities.

Our choice of the first  products  to be put onto the market has been  guided by
the policy of selecting the simplest and cheapest  system for customers with the
easiest  requirements.  The larger the mass to be detected,  the easier it is to
identify,  and thus  customers  desiring to detect large masses have the easiest
requirements.

CARBOMB FINDER

Car bombs are  relatively  easy to detect with our technology due to the size of
the  explosive.  Our CarBomb  Finder has generated  interest in the European and
Middle  East  markets  possibly  due to recent  terrorist  car bomb  attacks  in
Istanbul, Riyadh, Casablanca, and Spain as well as Israel, Iraq, Afghanistan and
Kashmir.  We believe we can  potentially  capture a  substantial  portion of the
European and Middle East markets for car bomb detection.  Our ability to capture
a substantial part of these markets will depend upon such factors as our ability
to develop  relationships with effective marketing partners and distributorships
in these regions.

The  CarBomb  Finder is  designed  as a  police-vehicle-borne  sensor  that will
decipher  the  chemical  composition  of the  contents of other cars through the
metallic  walls of the target  vehicle.  The CarBomb Finder will detect bombs in
trunks,  seats and engines of parked or moving cars. It can provide clandestine,
non-obtrusive  and effective  mechanisms for searching  inside cars. This is our
only current  product  that serves in the dual role of the anomaly  detector and
confirmation sensor.

CarBomb Finder will be offered in two models, a SuperSenzor based Model 303, and
a MiniSenzor  based Model 201. The CarBomb  Finder Model 201 should be priced at
$250,000,  and the CarBomb Finder Model 303 should be priced at $500,000. We may
adjust  these  prices  based on costs of  production,  market  response or other
factors.  The simplest and  cheapest  model of the CarBomb  Finder is Model 201,
which has a MiniSenzor core system.  Field tests of the CarBomb Finder Model 201
are  planned  in the  parking  lot of the  airport  in  Madrid,  Spain  under an
arrangement with the Spanish  government.  We are ready to conduct the tests and
have obtained a U.S.  export permit.  We anticipate  conducting the tests in the
very near  future  subject to getting  the  necessary  permits  from the Spanish
government, which are now in process.

On October 13,  2003,  a  technical  directorate  of Aeroport de Paris,  France,
solicited a proposal  from  HiEnergy for use of the CarBomb  Finder at two Paris
airports,  Charles de Gaulle and Orly.  The CarBomb Finder is our first product,
and is currently available as a beta unit.

ANTI-TANK LANDMINE CONFIRMATION SENSOR

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

The United  Nations has  estimated  that it would cost $30 billion and take more
than  150  years to clear  all  landmines  using  existing  technology.  We have
identified  governments  and  organizations  dedicated to  destroying  landmines
throughout the world as candidates for purchasing landmine detection systems.

The    Anti-Tank    Landmine    Confirmation    Sensor   is    designed   as   a
military-vehicle-borne  sensor that will determine whether a buried object is an
anti-tank  landmine.  We have been  developing our Anti-Tank  Landmine  Detector
under a Small  Business  Innovation  Research  Phase II  contract  with the U.S.
Army's Night Vision and  Electronic  Sensors  directorate.  Our tests have shown
that anti-tank landmines can be  stoichiometrically  identified through 2 inches
of soil  using a  MiniSenzor  based  system.  For  deeper  mines,  however,  the
SuperSenzor's directed neutron generator is required.

The  SuperSenzor  for  Anti-Tank  Landmine  should be  priced  at  approximately
$400,000.  We may  adjust  these  prices  based on costs of  production,  market
response or other  factors.  Our Model 301 system,  with a SuperSenzor  core and
mounted on an all terrain vehicle,  is scheduled to undertake field tests at the
Army's landmine test grounds at Ft. Belvoir,  Maryland,  in February 2004. It is
waiting for the final version of the directed neutron generator to read its full
neutron intensity. See "Engineering Issues" above.


                                       9
<PAGE>

FALSE-ALARM ELIMINATOR

Congress passed  legislation  requiring that 100% of checked baggage be screened
for explosives by December 31, 2002,  and authorized  extensions to the December
31,  2002  deadline  for fully  deployed  electronic  detection  systems  in the
legislation  which  created  the  new  Department  of  Homeland  Security.   The
Transportation  Security  Administration  began  screening  100% of all  checked
baggage by the December 31, 2002 deadline,  but is using temporary  measures and
equipment in many airports.  Existing  technology used in airports is chemically
blind and results in a very high rate of false  positives,  depends  solely upon
the alertness and training of the operator, cannot see through metal containers,
and cannot confirm the existence of explosives.

Our  False-Alarm  Eliminator  for  checked  baggage  will  be  a  MiniSenzor  or
SuperSenzor  based  system  used  as  a  confirmation  sensor  to  scan  baggage
identified as suspect by primary x-ray or other anomaly  detectors.  The purpose
of the  False-Alarm  Eliminator is to improve  safety,  speed and  efficiency of
luggage   screening   and  reduce  air  travel  delays  by   unambiguously   and
automatically determining the presence of explosives or other substances. It can
be integrated into luggage  screening systems at passenger  airports  throughout
the world to  significantly  reduce  false  alarm  rates and to identify a wider
variety of substances than current anomaly detection scanning systems.

Our products also could be used to screen an entire  luggage cart at a time on a
confirmation detection basis, as opposed to the current systems that screen only
one bag at a time on an anomaly detection basis. Although such a system would be
more expensive than a single-piece  luggage  screening  system,  we believe that
government  agencies may be willing to pay a higher  price  because of increased
volume and time efficiency.

                           OTHER MARKETS AND PRODUCTS

CUSTOMS AND CARGO SCREENING

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

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

We have designed two versions of our Cargo Confirmation  Sensor.  Both should be
priced at $500,000.  We may adjust  these  prices based on costs of  production,
market response or other factors.  The Confirmation Senzor for Sealed Containers
will inspect the  container  interior from the top, side and bottom using a "car
wash"  configuration  to move around the perimeter of a cargo container and scan
its contents.  The Border  Crossing  Confirmation  Senzor is designed to work in
tandem  with  anomaly  detectors  similar to the  airport  security  False-Alarm
Eliminator.

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

CONTAMINATION CONTROL

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

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

BIO-DEFENSE

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

BOMB SQUAD

Because police departments and the Bureau of Alcohol,  Tobacco and Firearms have
no certain method for determining if a suspicious object contains explosives, we
have identified these agencies as our market for our  Stoichiometer  technology.
We intend to  conduct  demonstration  tests in 2004 for  police  bomb  squads in
southern California.


                                       10
<PAGE>

INDUSTRIAL QUALITY CONTROL

We have identified a wide variety of potential  industrial  applications for our
Stoichiometer  products,   including  detecting  impurities  in  oil,  gas,  and
gemstones, and providing qualitative elemental information for food products.

                                MARKETING PLANS

The market niche that we occupy,  within the broad  security and  anti-terrorism
industry,  is that of advanced detector technology.  This niche is characterized
by expensive,  technologically  advanced systems such as computed  tomograhy and
quantum magnetic resonance systems for airline and customs screening, and ground
penetrating radar systems for landmine detection.

Within this market niche,  we believe our  Stoichiometer  technology has several
competitive  advantages,  including its ability to determine the exact  chemical
formula of a substance  through metal  barriers  from a short  distance away and
without any physical  contact with the substance or its vapors,  and not to rely
on user interpretation.

INCREASE CUSTOMER AWARENESS

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

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

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

DEVELOP STRATEGIC RELATIONSHIPS

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

GENERATE PUBLIC DEMAND

We  hope  to  combine  the  effects  of  technical  presentations  to  potential
customers,  news media  demonstrations  and public relations to create a "public
demand" for our technology.  Publishing articles in technical journals, speaking
at technical conferences and creating opportunities to give interviews will be a
longer-term  strategy to maintain  the public  demand for and  awareness  of our
technology.  We have recently  demonstrated  our products for FOX News,  and our
technology is featured in the most recent edition of the Massachusetts Institute
of Technology's Technology Review.

In September  2003,  Dr.  Maglich,  together with two of our senior  scientists,
presented two  scientific  papers on the  capabilities  of the  SuperSenzor  and
MiniSenzor in landmine and explosives detection at the International  Conference
on Requirements and Technologies for the Detection,  Removal and  Neutralization
of Landmines and Unexploded Ordnance in Brussels, Belgium.

For the time being,  we will try to segregate the  deployment of our  technology
from the general public. We anticipate a possible adverse public reaction to the
associated level of neutron radiation  exposure that may accompany  operation of
our  technology.  We  anticipate  the  need for  neutron  shielding  in  certain
applications,  such as airports, to shield personnel from our anticipated levels
of radiation.  We have not determined the levels of shielding that are required,
which may vary depending on the regulations of the states in which the system is
installed. See "Risk Factors" beginning on page 3.


                                       11
<PAGE>


Our Chief Scientific Officer,  Dr. Maglich,  believes that our anticipated level
of neutron  radiation  will be approved for human scans when it is realized that
the dose will result in 10 times less tissue damage than the acceptable level of
x-ray  radiation dose needed to accomplish  security  screening.  Fast neutrons,
which  are  used  in  our  technology,  do  not  produce  the  same  radioactive
environment as thermal neutrons.  Despite the relative safety of our technology,
we propose to use our technology  initially only for screening  procedures  that
are remote  from the  general  public  (such as checked  baggage)  to avoid this
adverse  public  reaction,  instead  of using our  technology  for high  profile
procedures  (such as  carry-on  baggage  screening).  As  public  knowledge  and
awareness increase, we believe that the broader array of uses for our technology
will become available. See "Risk Factors" beginning on page 3.

USE INTERNATIONAL REPRESENTATIVES

To  facilitate  international  sales,  we  expect  to  work  with a  network  of
representatives located in countries with identified  opportunities.  We plan to
select  these  representatives  based on their  track  record in  selling to the
target  customers  and to  compensate  them on a  commission  basis  tied to the
contract sales price. We have identified  prospective  representatives  we would
like to retain.

We have entered  into an exclusive  International  Distribution  Agreement  with
Electronic  Equipment Marketing Co., known as EEMCO. Under the agreement,  EEMCO
has exclusive rights to sell our CarBomb Finder in the Middle-East  countries of
Saudi Arabia, Kuwait, Qatar, Bahrain,  Oman, United Arab Emirates,  Iraq, Yemen,
and Jordan and in the North African countries of Egypt, Morocco, Tunis, Algeria,
and Mauritania.  EEMCO also has the exclusive  rights to sell our CarBomb Finder
to the Kingdom of Saudi Arabia Land Forces,  the Saudi Arabian Signal Corps, the
Republic of Singapore Air Force,  and the Saudi Arabian Ministry of Interior and
Navy.  EEMCO is to receive a dealer's  discount of 30% of the sales price of the
CarBomb Finder.  The agreement began on July 25, 2003 and terminates on July 25,
2005.

EEMCO is based in Saudi Arabia and is majority-owned by Harb Al Zuhair, a member
of our board of directors.  Contract  negotiations were conducted between Meqbil
Al Tamimi,  EEMCO's  General  Manager,  and  Bogdan  Maglich,  our CEO,  and the
agreement  has been  approved  by our board of  directors.  EEMCO has  conducted
business   since   1964,    marketing   and    distributing    electronics   and
telecommunications  equipment  for a wide  range  of  international  clients  to
military, governmental and private sector customers.

Developing  a  strategic  relationship  with a  current  supplier  of  screening
products could also help us to penetrate the market more quickly.

                         GOVERNMENT GRANTS AND CONTRACTS

We are currently  developing our Anti-Tank  Landmine  Confirmation  Sensor under
Phase II of our Small  Business  Innovation  Research  grant with the U.S.  Army
Night Vision Electrical Sensors  Directorate.  As of April 30, 2003, the Company
earned $103,749 under this contract and we will receive $780,000 through the end
of the  contract  if we  continue to perform  under this  contract  and the Army
exercises its option to continue the contract past January 2004.

We have contracted  with the  Directorate of Spanish  Airports and Navigation to
conduct  in-field tests of our CarBomb Finder and potentially of our False-Alarm
Eliminator at the Madrid airport.

We are in the process of making and pursuing proposals for obtaining development
contracts from the following governmental agencies:

1.   Intergovernmental  Counter Terrorist Working Group:  Application submitted,
     expect decision on our Phase II submission in December 2003.

2.   Transportation  Security  Administration:  TSA is  drafting  a  Cooperative
     Research and Development Agreement.

3.   U.S. Customs Service:  We intend to arrange a demonstration our products in
     2004 for the U.S. Customs Service.

4.   U.S. Naval Surface Warfare Center:  Application submitted,  expect decision
     on our financial capability in early 2004.

Development  of our  technology  has  been  previously  financed  in part by the
following government grants that have been completed:

1.   U.S. Army Night Vision and Electrical Sensors Directorate (1996),  $100,000

2.   U.S. Department of Energy (1998), $25,000

3.   U.S. Customs Service (1998), $40,000

4.   Defense  Advanced  Research  Projects Agency / Special  Operations  Command
     (2000), $80,000

5.   Defense  Advanced  Research  Projects Agency / Special  Operations  Command
     (2001), $117,000

6.   U.S.  Army  Night  Vision  Electrical  Sensors  Directorate,  Phase I Small
     Business Innovation Research project (2002), $70,000


U.S. ARMY NIGHT VISION ELECTRICAL SENSORS DIRECTORATE

In August 2002, our project to develop a SuperSenzor  based  anti-tank  landmine
detection system was  competitively  selected by the Department of Defense Small
Business  Innovation  Research program to receive up to $780,000 in funding over
two years for Phase II testing and development of the system.  The total cost of
the project is $1,400,000, which includes private matching funds of $550,000 and
$70,000  granted by the Department of Defense for Phase I testing of the system.
The private contribution for Phase I testing consisted of approximately $200,000
in matching funds from a HiEnergy investor and  approximately  $350,000 worth of
our equipment which is being used to complete the project.


                                       12
<PAGE>


On January 15, 2003, we executed the contract with the Department of Defense for
Phase II testing. We have commenced work under year one of the contract,  valued
at $415,000.  The contract is a firm fixed price effort with payments to be made
each month based on monthly  reports  concerning the  performance,  progress and
status of the system.  The second year of the contract,  valued at approximately
$364,000,  is under an option that can be exercised by the Department of Defense
at the end of the first year.  The funding will be used for the production of an
anti-tank landmine detection system for the United States Army.

DIRECTORATE OF SPANISH AIRPORTS AND NAVIGATION

We submitted a solicited bid for our new CarBomb  Finder to the  Directorate  of
Spanish Airports and Navigation,  known as AENA, in mid-2003. On September 9 and
10, 2003, we conducted  blind tests of both the CarBomb  Finder and our suitcase
explosive  confirmation  sensor for the Director and Deputy Director of Aviation
Security  for the  AENA,  who  came to the  United  States  for the  purpose  of
conducting these blind tests. Our  Stoichiometer  sensor performed well in these
blind tests and  correctly  identified  the  contents of several  containers  of
materials  supplied by the Spanish  officials.  In October  2003,  we executed a
Memorandum of Understanding  with the Spanish government to form a collaborative
effort to use our  Stoichiometer  sensors to  improve  the  security  of Spain's
airports, and to conduct in-field tests of our CarBomb Finder and potentially of
our suitcase explosive  confirmation sensor at the Madrid airport. We anticipate
conducting  the tests in the very near future subject to obtaining the necessary
permits from the Spanish government, which are now in process.

U.S. INTERGOVERNMENTAL COUNTER TERRORISM TECHNOLOGY SUPPORT OFFICE

On August 1, 2003,  our CarBomb  Finder was  selected  by the Counter  Terrorism
Technology  Support  Office - Technical  Support  Working  Group in Phase I of a
nationwide  competition for new counter  terrorism  technologies.  On August 30,
2003, we submitted a white paper  technical  description  of our CarBomb  Finder
project to the Technical  Support  Working Group for a $950,000  CarBomb  Finder
feasibility study and development  project.  We await notification of acceptance
or denial of the Phase II  proposal,  which  should be within  60-90 days of the
submission date. If accepted, HiEnergy will submit a final Phase III proposal.

U.S. TRANSPORTATION SECURITY ADMINISTRATION

In  November  2002,  we  submitted  a  funding  application  to the TSA for $3.2
million,  which would be  supplemented  by a contribution  of  approximately  $1
million from us, for a total of $4.2 million.  Under this application,  we would
develop a prototype  system which would be used to evaluate our  technology  for
airport security uses. In response to our application, the TSA acknowledged that
the project had significant  value,  but decided not to fund the project at that
time.  In addition,  the TSA  responded  with several  questions  regarding  the
technology,  which we answered in an  additional  letter.  In October,  2003,  a
representative  of the TSA visited our  offices to view a  demonstration  of the
technology and conduct discussions  regarding a potential  cooperative  research
and  development  agreement.  The TSA has since agreed to enter into an unfunded
cooperative  research  and  development  agreement,  which  is  currently  being
drafted.

U.S. NAVAL SURFACE WARFARE CENTER

In  February  of 2003,  the U.S.  Naval  Surface  Warfare  Center  approved  the
technical  merits of our  proposal  entitled  "Remote  Stoichiometric  screening
system to detect anthrax and other biological and chemical agents" and commenced
contract  negotiations.  The  proposal  was  broken  down into two  segments  as
follows:  Phase I for  approximately  $200,000  over 6 months,  and Phase II for
approximately  $1.4 million (plus $236,000  contribution  from HiEnergy) over 12
months.

In May of 2003,  the Navy  declined to award a contract to us,  citing a concern
regarding our ability to remain cash flow  positive  during the 18 month term of
the entire contract.  In June of 2003, we protested this decision to the General
Accounting Office,  claiming, among other things, that it was not appropriate to
require us to have cash on hand at the  beginning  of the  contract  which would
keep us cash flow  positive for the entire 18 month  period.  After  discussions
with the Navy,  we agreed to  voluntarily  withdraw  our  protest,  and the Navy
agreed to  re-review  our  financial  condition.  Even if we  obtain a  positive
financial review by the Defense Contract Audit Agency, and the Navy concurs with
its findings,  we may be unable to be awarded  funds under the contract  because
the funds  which were  allocated  by the Navy to this  contract  have since been
allocated by the Navy to other contracts.

CALIFORNIA TECHNOLOGY INVESTMENT PARTNERSHIP

We had  submitted  a  proposal  for up to  $250,000  in  matching  funds  to the
California  Technology Investment  Partnership  (CalTIP),  which would have been
designated  for marketing  costs  associated  with  developing  the  SuperSenzor
technology.  We were placed on a waiting list for  possible  award of the CalTIP
grant,  however no award was made due to extreme budget  shortfalls in the State
of California.

                                   PRODUCTION

We intend to begin assembling and selling beta prototype units of our systems in
2004.  Our first product will be our CarBomb  Finder,  followed by our Anti-Tank
Landmine  Confirmation  Sensor.  These prototypes will be usable in the field by
technical  personnel,  and are  intended to be  continuously  improved  while in
operation.  Some of the  components  in these  prototype  units  will not be the
components which will be used in our final production  systems.  For example, we
will use a simpler and less efficient  method for cooling our detectors in these
beta prototype models.

We intend to assemble these units at our facilities in Irvine,  California.  Our
landlord has indicated the  availability  of an additional  8,000 square feet of
manufacturing space that is adjacent to our offices. We may choose to lease this
space to support  our  growth,  which  would  require  that we  install  testing
facilities, shielding, and work areas.


                                       13
<PAGE>

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

                                     SALES

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

                                  COMPETITION

Competition  in our  market is based on many  factors,  including  the nature of
detection  capability,  accuracy or false alarm rate,  cost,  range,  speed, and
portability.

There are several other detection  technologies  being offered within our market
niche. The following is a partial list of our major competitors known to us that
market high-end explosive detection and cargo screening systems, principally for
airport security screening.

<TABLE>
<CAPTION>
         COMPANY NAME                                PRODUCTS/TECHNOLOGY
         ------------                                -------------------
<S>                                                  <C>
         InVision Technologies                       x-ray anomaly detection systems
                                                     x-ray diffraction confirmation sensor

         L-3 Communications                          computed tomography explosive detection

         OSI Systems, Inc.                           x-ray security and cargo screening, and
                                                     pulsed fast neutron analysis

         American Science and Engineering            backscatter x-ray systems

         Thermo Gammametrics                         gamma ray detection systems

         Science Applications Int'l Corp.            gamma ray detection systems
</TABLE>

InVision's  x-ray based computed  tomography  scanning devices are certified for
use in United States  airports by the  Transportation  Security  Administration.
InVision  has sold  over 100 of its  devices  worldwide  and  supplies  scanning
devices to  approximately  75% of U.S.  airports  as well as airports in France,
Italy, Greece, Japan and other nations.  InVision markets its scanning device as
an "explosive  detection device" and claims that their device produces a "slice"
image of an object,  compares this image to the properties of known  explosives,
then displays the image to an operator who can then  determine  whether a threat
exists.  InVision also recently  acquired Yxlon, a German company that claims to
have developed x-ray defraction  technology for explosives  detection to be used
to resolve  false  alarms  generated  by other  x-ray  based  automated  baggage
explosives  detection  systems.  InVision  has  sold  one of  these  devices  to
Stuttgart  airport in Germany with  projected  full  operation in 2004.  Quantum
Magnetics, recently acquired by InVision, has a pattern recognition confirmation
detector for explosives  based on magnetic pattern  recognition,  which is being
tested for deployment in airport security screening.

Quantum Magnetics,  the research arm of InVision  Technologies,  Inc., won a $13
million Transportation  Security  Administration contract for the development of
next generation  explosives detection systems and land-mine detection.  InVision
received Transportation Security Administration grants for $3.5 million in x-ray
diffraction  technology  enhancements  and $2 million  for  explosive  detection
systems improvements.

OSI Systems' security and inspection products combine dual or multi-energy x-ray
technology  with computer  enhanced  imaging  technology.  They claim that their
dual-energy x-ray systems produce a two-dimensional image of the contents of the
inspected  material  and also  measure  the x-ray  absorption  of the  inspected
materials'  contents at two x-ray energies to determine the atomic number,  mass
and other characteristics of the object's contents.  Their systems range in size
from compact tabletop systems to large cargo, port and border inspection systems
comprising  entire  buildings   through  which  the  subject  trucks,   shipping
containers or pallets are  transported.  OSI Systems recently sold its automated
vehicle inspection system, which uses thermal neutron analysis,  to the U.S. Air
Force for  screening to  automatically  identify car or truck bombs.  They claim
that their devices can  automatically  identify all types of known  military and
commercial  explosives,  as well as drugs, many hazardous  chemicals and agents,
and can be extended to detect nuclear and radiological materials.

Thermo  GammaMetric's  security  products use gamma ray analysis  techniques and
include a range of fixed and portable instruments used for chemical,  radiation,
and explosives-detection.


                                       14
<PAGE>

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

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

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

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

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

                             INTELLECTUAL PROPERTY

We have  filed  patent  applications  that  are  currently  pending  in  various
jurisdictions.  We have  filed a total of six  patent  applications  in  various
jurisdictions:

          o United States  Patent Office - "Method and Apparatus for  Detecting,
          Locating and Analyzing  Chemical  Compounds Using  Subatomic  Particle
          Activation"  (filed on February 20, 2001).  The U.S. Patent office has
          split this application into 4 inventions and requested that we write 4
          separate patent applications, which we did. The process of examination
          was stopped in the period of October 2002 to March 2003 because of the
          Secrecy Order that the U.S. Army put on our  application.  The secrecy
          order was removed in March on the grounds that the same disclosure has
          been published in Europe in our other patent application.

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

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

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

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

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

No additional  patents are pending.  The limits on our patent  coverage in other
countries  may be  attractive  to  potential  competitors  of ours.  Our  patent
coverage is not worldwide.  Some of our competitors or potential  competitors do
have worldwide footprints.

Our United  States  patents were subject to a U.S. Army secrecy order imposed in
October 2002 and lifted in April 2003.  The secrecy  order has caused some delay
in the consideration of our patent applications.

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


                                       15
<PAGE>


Certain of our patent  applications  were  originally  submitted  by Dr.  Bogdan
Maglich  individually.  Dr.  Maglich  has  assigned to the Company all rights to
patent  applications  initially  submitted by him pursuant to patent  assignment
agreements.  All  of  our  scientific  personnel  have  executed  non-disclosure
agreements that reserve ownership of intellectual property with the Company.

There is a risk that in obtaining Small Business  Innovation Research grants the
value of our  intellectual  property  will  diminish  as time goes by. See "Risk
Factors" beginning on page 3.

                             GOVERNMENT REGULATION

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

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

                                   EMPLOYEES

As of December 17, 2003, we had 12 full-time  employees as follows:  2 full-time
executive officers;  1 full-time  managerial  personnel;  1 full-time accounting
manager;  6  full-time  research  &  development  personnel;   and  2  full-time
administrative  personnel.  We  also  had 5  consultants  as  follows:  1 of the
consultants  assists  with  sales  and  marketing;  1 assists  with  information
systems; 1 assists with the accounting and finance of the Company;  and 2 assist
the research and development staff.

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

                           SCIENTIFIC ADVISORY BOARD

Our  Scientific   Advisory   Board  consists  of  the  following   distinguished
scientists:

          Dr. Melvin Schwartz
          Professor of Physics Emeritus at Columbia University

          Dr. Giovanni G. Fazio
          Senior Physicist at the Harvard Smithsonian Center for Astrophysics

          Dr. Robert J. Macek
          Project Leader, Proton Storage Ring Development & Upgrades, Los Alamos
          Neutron Science Center

          Dr. Andrew J. Lankford
          Professor  of  Physics  &  Chair  of the  Department  of  Physics  and
          Astronomy, University of California, Irvine


                                       16
<PAGE>

RESEARCH AND DEVELOPMENT

Our future  success  will  depend on our  research  and  development  efforts to
enhance our existing  technologies  and on development of  applications  for our
detection  technology.  For the fiscal years ended April 30, 2003 and 2002,  our
research and development costs were $695,042 and $410,018 respectively.

HISTORY OF OUR RESEARCH AND DEVELOPMENT PRIOR TO 2002

Our CEO,  Chairman and Chief Scientist,  Dr. Bogdan C. Maglich,  formed HiEnergy
Microdevices,   Inc.  in  1995  to  pursue  technology  for   stoichiometrically
determining the atomic composition of target substances.  HiEnergy  Microdevices
obtained grants from the U.S. Army, the U.S.  Special  Operations  Command,  the
U.S. Department of Energy and other government agencies to fund its research and
development,  and obtained  research and development  assistance and cooperation
from 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, EG&G ORTEC, and Hamilton Industries.

The concept upon which our technology is based,  "associated  particle imaging,"
was first  explored in 1982,  but was  reported by a U.S.  Department  of Energy
committee in 1989 as  scientifically  valid but impractical  within the realm of
the equipment then available, because it failed to return stoichiometric results
that identified the chemical formula of the target compound.

In 1997,  HiEnergy and its consortium  succeeded in reviving associated particle
imaging by  incorporating  recent  developments  in microchip  electronics,  and
called the technology "atometry." The first stoichiometric results were obtained
in 1998,  and the success of atometry was reported at the White House  Symposium
on Drug Detection in March 1999.

ITEM 2.  DESCRIPTION OF PROPERTY

On September 30, 2002, we relocated our offices to 1601B Alton Parkway,  Irvine,
California  92606. Our new offices consist of  approximately  6,600 square feet.
The  Company  entered  into a  three-year  operating  lease  agreement  with  an
affiliate  of Bruce Del Mar,  one of its  former  directors,  for its  corporate
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.

Adjoining our offices in Irvine,  California,  we have added an open-air testing
facility  which is 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 is from July 1, 2003
to December 31, 2003,  but was changed to a month to month basis,  with payments
due at a monthly rate of $1,200 under an agreement with the same landlord. We do
not  anticipate  that  while we are in the  development  stage  we will  require
significant  facilities  over and  above  those  that are  currently  leased  or
available.  When we  successfully  move beyond the  development  phase, we could
require  an  entire  manufacturing  facility  or  two,  although  that  is  very
speculative.

ITEM 3.  LEGAL PROCEEDINGS

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

We  received a letter  dated  December 5, 2002,  from an  attorney  representing
Richard T. Eckhouse,  a consultant,  demanding  payment for accounting  services
allegedly  performed  by Mr.  Eckhouse  pursuant  to a  Letter  Agreement  dated
November 7, 2001,  between Mr.  Eckhouse  and  HiEnergy  Microdevices,  Inc. The
Letter Agreement  provides that Mr. Eckhouse was to be paid $350 per hour, which
was to be paid as follows: (i) one-third or $117 in cash; (ii) one-third or $117
paid by a  Promissory  Note  at 10%  annual  interest,  maturing  when  HiEnergy
Technologies  receives  government funding of $900,000 or an investment totaling
$300,000 or more;  and (iii)  one-third  or $117 paid by Class A common stock of
Microdevices  at $5.00 per share.  On May 2, 2003, Mr.  Eckhouse filed a lawsuit
against  the  Company,  HiEnergy  Microdevices  and Dr.  Bogdan  Maglich  in the
Superior Court of the State of  California,  County of Orange,  Central  Justice
Center,  and an amended  complaint on June 20, 2003,  alleging that Microdevices
owes Mr.  Eckhouse a total of $313,580 for  services  rendered,  plus  interest,
attorney's fees and costs.  The Company and Dr. Maglich were successful on their
demurrer and motion to strike. As such, Dr. Maglich  individually is no longer a
party to this  action.  The  Company  will be filing a  cross-complaint  against
Richard  Eckhouse  and  discovery.  Trial is set for May 3,  2004.  The  Company
intends to vigorously  defend itself in this matter.  We deny these  allegations
and are vigorously defending this lawsuit.


                                       17
<PAGE>


After  reading  news  reports that  connected  our reverse  takeover of HiEnergy
Microdevices with known stock manipulators,  our Board of Directors directed our
President to hire a team of independent investigators to investigate whether the
company or any of its officers and directors had engaged in any wrongdoing.  The
core  team  of  independent   investigators  consisted  of  two  former  federal
prosecutors, a former Assistant United States Attorney in the civil division who
has been in private practice since 1981 with experience in securities litigation
and regulatory and  investigative  proceedings,  and a former  supervisory agent
from the Federal Bureau of Investigation. The independent investigators reviewed
disclosures we have made,  reviewed other publicly  available  information,  and
conducted a number of  interviews,  including  interviews  with a person who had
previously been involved in stock manipulation  schemes and two of our directors
who know him. The independent  investigators have completed their investigation.
Except as discussed in the next paragraph,  the independent  investigators  have
concluded the following:

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

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

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

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

         As mentioned in Item 3, above,  the independent  investigators  believe
         there is  insufficient  evidence  to fully  conclude  that there was no
         wrongdoing by HiEnergy  prior to the April 2002 reverse  takeover.  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 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 a director  of the Company and for a short time as
         our interim President, was 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 whether,
         if so, our former  President  and  director  had any  knowledge of such
         control.

On May 27, 2003, Mr. Barry Alter brought a lawsuit  against us in the New Castle
County Court of Chancery in Delaware to recover the  advancement  of expenses he
allegedly incurred in response to an SEC investigation that was exactly the same
investigation  that the Company  answered,  but Mr.  Barry  Alter  reacted to by
obtaining 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.

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

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

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

PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Below  are the high and low  closing  bid  prices  of our  common  stock for the
periods  shown,  as  obtained  from Pink  Sheets  LLC, a research  service  that
compiles quote  information  reported on the National  Association of Securities
Dealers'  composite feed or other qualified  inter-dealer  quotations' media and
from other public  sources.  The  quotations  listed below reflect  inter-dealer
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" on
May 3, 2002.


                                       18
<PAGE>

<TABLE>
<CAPTION>
FISCAL YEAR - 2003:
<S>                                                             <C>        <C>
Fourth Quarter (February 1, 2003 to April 30, 2003)             $   2.35   $   0.30
Third Quarter (November 1, 2002 to January 31, 2003)            $   3.10   $   2.11
Second Quarter (August 1, 2002 to October 31, 2002)             $   2.60   $   1.41
First Quarter (May 1, 2002 to July 31, 2002)                    $   2.09   $   0.20

FISCAL YEAR - 2002:
Fourth Quarter (February 27, 2002 to April 30, 2002)            $   2.68   $   1.42
</TABLE>


As of the date of this annual report,  we had 31,279,853  shares of common stock
outstanding held by approximately 200 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 one or more beneficial owners.

DIVIDENDS

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

                       CONVERTIBLE SECURITIES OUTSTANDING

As of December 17, 2003, we had 2,441,843 warrants convertible into common stock
outstanding with a  weighted-average  exercise price of $1.21. At the same date,
we had  6,356,454  stock  options to purchase  common stock  outstanding  with a
weighted-average   exercise  price  of  $0.84  and  we  had  convertible   notes
outstanding  that are  convertible  into 521,710 shares of our common stock at a
weighted average conversion price of $0.98 per share.

RECENT SALES OF UNREGISTERED SECURITIES

Set forth below is information regarding the issuance and sale of our securities
without registration from April 2002 to April 2003.

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

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

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

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

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

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


                                       19
<PAGE>


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

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

o    In October 2002, we issued  approximately 98 shares of Series A Convertible
     Preferred  Stock,   approximately   68,000  shares  of  common  stock,  and
     approximately  256,000 warrants in connection with the closing of a private
     placement  offering of our Series A Convertible  Preferred  Stock at a face
     value of $10,000 per share for aggregate  gross  proceeds of  approximately
     $930,000.  The shares of Series A Preferred  were  convertible  into common
     stock at an exchange  rate based on $1.15 per share.  The warrants  have an
     exercise  price of $1.50 per share and a term of two years.  On December 9,
     2002, an additional 110,620 warrants were issued to Richard Melnick, one of
     the Series A Preferred  investors,  in connection with consulting  services
     provided to HiEnergy  Technologies by Mr. Melnick.  Those warrants have the
     same terms as the  warrants  previously  issued to the  Series A  Preferred
     investors.  Fees  consisting  of  approximately  $74,000  and  warrants  to
     purchase  approximately  118,000  shares of common stock,  with an exercise
     price  of $1.15  per  share  and a term of five  years,  were  paid to H.C.
     Wainwright & Co., Inc., our placement  agent,  in connection with a private
     offering.  All of the investors who purchased Series A Preferred shares and
     warrants  through the  private  placement  were  accredited  investors.  We
     believe  that the  offer and sale of the  securities  through  the  private
     placement  offering  were  exempt  from  registration  under  Rule  506  of
     Regulation D and/or Section 4(2) under the Securities Act. In addition, for
     those  investors  who reside  outside the United  States and are not United
     States' citizens,  comprising $190,000 of the offering, we believe that the
     offer and sale of securities were exempt pursuant to Regulation S under the
     Securities Act.

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

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

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

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

o    In August 2002, we issued a stock option to Primoris Group Inc. to purchase
     400,000 shares of common stock at $2.00 per share with a term of 5 years in
     connection  with a  consulting  agreement.  Primoris  Group  Inc.  provided
     investor  relations services to us. Since Primoris Group Inc. is an Ontario
     corporation and has its  headquarters in Toronto,  Ontario,  we believe the
     issuance of  securities  was exempt from  registration  under  Regulation S
     under the Securities Act. o In July 2002, we issued 11,678 shares of common
     stock, par value $0.001 per share, to Richard Alden, a director of HiEnergy
     Technologies,  valued  at $1.00  per  share to  retire  the  principal  and
     interest owing to Mr. Alden on a note payable totaling $11,678. The note is
     considered  paid in full.  In July 2002,  we also issued  15,000  shares of
     common stock,  par value $0.001 per share,  to Rimar  Investments,  Inc., a
     California  corporation,  valued at $1.00 per share to retire the principal
     and interest owing to Rimar  Investments,  Inc. on a note payable  totaling
     $15,000.  The note is  considered  paid in full.  Mr. Alden is one of three
     stockholders  and  directors  of Rimar  Investments,  Inc.  We believe  the
     issuances of stock to Mr. Alden and to Rimar Investments,  Inc. were exempt
     from registration  pursuant to Rule 506 of Regulation D and/or Section 4(2)
     under  the  Securities  Act.  Mr.  Alden and Rimar  Investments,  Inc.  are
     accredited investors.


                                       20
<PAGE>

o    In July 2002, we issued and granted a  non-qualified  stock option to Isaac
     Yeffet to  purchase  up to  1,000,000  shares of our  common  stock with an
     exercise  price  of $1.00  per  share.  The  stock  option  was  issued  in
     connection with a consulting  agreement between Yeffet Security Consultant,
     Inc., of which Mr. Yeffet is the sole principal, and HiEnergy Technologies.
     One half of the shares 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 the consulting  agreement
     in October 2003, at which time the option had not become  exercisable  with
     respect to the second 500,000 shares.  We believe the issuance of the stock
     option to Mr. Yeffet was exempt from  registration  pursuant to Rule 506 of
     Regulation D and/or Section 4(2) under the Securities Act. Mr. Yeffet is an
     accredited investor.

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

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

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

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

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



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

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

OVERVIEW

We are a development stage company  commercializing a proprietary technology for
assembling  sensor systems that utilize a neutron  emitter to send  neutrons,  a
gamma-ray  spectrometer  to read  reflected  gamma ray photons  and  proprietary
technology  that  derives an  empirical  molecular  formula  from the  gamma-ray
spectrograph.


                                       21
<PAGE>

Our technology identifies the chemical formula (e.g., CO2; C6H2O6) of a chemical
element  or  compound,  as  does  a  spectroscope.   However,   testing  with  a
spectroscope  requires  handling and burning the chemical.  Our  technology  has
applications in detecting  almost every chemical  element and compound,  such as
plastic  explosive,  Anthrax and cocaine.  Our  beta-models  can, within a short
distance, but without touching, sampling or oxidizing, and through solid matter,
determine  the  quantitative  chemical  formula of a  concealed  substance.  Our
prototype sensors have successfully  identified  explosives,  biological weapons
and illegal drugs in previous government-supervised trials.

We were  originally  incorporated  under the laws of the State of  Washington on
March 22,  2000,  under the name SLW  Enterprises  Inc.  On April 30,  2002,  we
changed our name to HiEnergy  Technologies,  Inc. following our reverse takeover
with HiEnergy Microdevices,  Inc. in a transaction treated as a recapitalization
of HiEnergy, with Microdevices as the accounting acquirer (reverse takeover). We
reincorporated in Delaware on October 22, 2002. HiEnergy Microdevices,  Inc., is
a Delaware  corporation formed in 1995. Dr. Bogdan Castle Maglich,  our Chairman
of the Board, Chief Executive Officer, President, Treasurer and Chief Scientific
Officer,  founded HiEnergy  Microdevices in 1995 to commercialize the technology
he   developed   to   determine   the   chemical   composition   of   substances
non-intrusively, from a modest distance, even through solid matter and despite a
hermetically sealed container. HiEnergy Defense, Inc., is a Delaware corporation
formed in July 2003.

The reverse  takeover of  Microdevices  by SLW occurred on April 25,  2002.  SLW
merged with Microdevices  pursuant to a Voluntary Share Exchange  Agreement that
provided the framework for the exchange of outstanding  common stock of HiEnergy
Microdevices for shares of common stock of SLW.  Pursuant to the voluntary share
exchange,  SLW offered to exchange  22.3524  shares of its common stock for each
outstanding share of HiEnergy Microdevices' common stock. On the closing date of
the offering,  14,380,200  shares of common stock of SLW were issued in exchange
for approximately  92% of HiEnergy  Microdevices'  outstanding  shares of common
stock in a reverse take-over transaction.  As a result of this transaction,  SLW
changed its name to HiEnergy  Technologies,  Inc.,  the former  stockholders  of
HiEnergy Microdevices came to own approximately 65% of the outstanding equity of
the parent  public  company  and the five  directors  of  HiEnergy  Microdevices
comprised  five  of  the  six  directors  of  the  parent  public  company.  The
composition  of  our  board  of  directors  has  subsequently   evolved  due  to
resignations and appointments and currently consists of five directors.

Dr.  Bogdan  Maglich,  Harb Al Zuhair,  and two  former  directors  of  HiEnergy
Microdevices, including their respective affiliates, were issued an aggregate of
11,049,310  shares of our common stock pursuant to the voluntary share exchange.
In connection with the voluntary  share exchange,  Dr. Bogdan Maglich was issued
options  to  acquire  2,482,011  shares  of our  common  stock in  exchange  for
cancellation of his options to acquire  111,040 shares of HiEnergy  Microdevices
common  stock,  and Mr. David Baker was issued 44,705 shares of our common stock
in exchange for  cancellation  of his options to acquire  HiEnergy  Microdevices
common stock.

After the reverse  take-over  transaction was completed,  we changed our name to
HiEnergy  Technologies,  Inc. and had an approximately 92% ownership interest in
HiEnergy Microdevices.  SLW Enterprises was a "public shell company" on the date
of  the  reverse   take-over.   The   transaction   was   accounted   for  as  a
re-capitalization  of HiEnergy  Microdevices.  The costs of the reverse takeover
were  approximately  $451,000  and were  expensed as general and  administration
expenses in the periods incurred.

Our common  shares  continue  to trade on the NASD's  Over-the-Counter  Bulletin
Board(R) under the symbol "HIET".

BASIS OF PRESENTATION

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

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The discussion and analysis of our financial condition and results of operations
are based on our Consolidated Financial Statements,  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,
revenues  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.


                                       22
<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 the Company's  employee
stock options equals or exceeds the market price of the underlying  stock on the
date  of  grant,  no  compensation   expense  is  recognized  in  the  Company's
Consolidated Statements of Operations. Where the exercise price of the Company's
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 the
Company's  Consolidated  Statement of Operations.  The application of APB No. 25
requires judgment, including the fair value of underlying stock. During the year
ended April 30, 2002  Microdevices  granted  123,909  stock options to employees
with exercise  prices of between $3.00 and $5.00. We estimated the fair value of
the underlying stock of Microdevices, a private company, to be $0.97. Changes in
the estimated fair value of the underlying  Microdevices  stock could materially
impact  the  amount  of  stock-based  compensation  expense  recognized  in  the
consolidated  statement of operation,  if the change in the estimated fair value
of the  underlying  Microdevices  stock  resulted  in stock  options  that  were
in-the-money.

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.  In accordance with SFAS
No.  123  Stock  options  and  warrants  issued to  non-employees  for goods and
services  received  can be  valued at the fair  value of the goods and  services
received or the fair value of the equity instruments,  whichever is more readily
determinable. Historically we have found the fair value of the equity instrument
granted has been more  readily  determinable,  and expect this to be true in the
future.

The  application  of SFAS No.  123 in  determining  the fair value of the equity
instruments granted requires judgment,  including 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. Furthermore, if the fair value of the goods and services received
had been more readily determinable than the fair value of the equity instruments
granted then the amount of expense  recognized  in the  statement of  operations
could also be materially different.

Furthermore,  if the company adopted the recognition  provisions of SFAS No. 123
for stock-based  employee  compensation then the amount of compensation  expense
recognized in the statement of operations could also be materially different.

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 the Company's development contracts with the
Department of Defense have been offset against  research and development  costs,
in accordance with the provisions of that section, in all periods presented.

OPERATING RESULTS

For the year ended April 30, 2003 ("fiscal  year 2003"),  we incurred a net loss
available  to  common  shareholders  of  $6,257,000  as  compared  to a net loss
available to common shareholders of $1,390,000 for the year ended April 30, 2002
("fiscal year 2002").  We had negative cash flows from  operations of $2,967,000
in fiscal year 2003 compared to negative cash flows from  operations of $653,000
in fiscal year 2002. In addition,  we had an  accumulated  deficit of $8,982,000
and were in the  development  stage as of April 30, 2003.  These factors,  among
others,  raise  substantial  doubt  about our  ability  to  continue  as a going
concern.

OPERATING EXPENSES

GENERAL AND ADMINISTRATION

Our  general and  administration  expenses  consist  primarily  of salaries  and
benefits for functions,  including finance, accounting,  facilities,  insurance,
travel, professional services such as consultants,  legal, accounting,  investor
and public relations.

Our general and  administration  expenses were  $4,488,000 for fiscal year 2003,
versus  $967,000  for the same period in 2002 or an increase  of  $3,521,000.  A
comparison of the major components of the increase in general and administration
expenses follows:


                                       23
<PAGE>

<TABLE>
<CAPTION>
                                                            Year ended
                                            ----------------------------------------------
                                            April 30, 2003    April 30, 2002     Increase
                                            ----------------------------------------------
<S>                                            <C>                <C>            <C>
          Stock-based compensation             2,146,000          232,000        1,914,000
          Legal fees                             705,000          247,000          458,000
          Accounting fees                        163,000           80,000           83,000
          Public relations                       219,000            2,000          217,000
          Investor relations                     311,000               --          311,000
          Consultants                            364,000          124,000          240,000
          Facilities                             116,000           36,000           80,000
          Directors liability insurance           90,000               --           90,000
          Salaries and benefits                  257,000          213,000           44,000
          Travel                                 107,000           24,000           83,000
          All other                               10,000            9,000            1,000
                                               -------------------------------------------
                                Total          4,488,000          967,000        3,521,000
                                               -------------------------------------------
</TABLE>


Warrant and stock option compensation expense relates to warrant or stock option
grants to non-employee consultants of the Company. Non-employee consultants that
received  warrants or stock options for services include  business  development,
investor relations and capital placement services.

Legal and accounting  fess increased due to increased SEC filing activity in the
current  fiscal year compared to the previous  fiscal year. The Company became a
public  company in April 2003 and  incurred  most of the fiscal  year 2002 legal
expenses in connection with that effort.

Public and  investor  relations  expenses  increased  because  the Company was a
public  company  for all of  fiscal  year  2003  and the  Company  entered  into
relationships  with various public and investor  relations firms to help elevate
awareness in the investment community regarding the Company's technologies.

As detailed in Note-10 Commitment and Contingencies,  the Company entered into a
three-year business  development  consulting agreement in July 2002. The monthly
cost is $20,000  per month plus  expenses.  For fiscal year 2003,  the  expenses
under the agreement were  $200,000.  No costs were incurred under this agreement
during fiscal year 2002. The company also incurred  other  business  development
and general consulting expenses in both fiscal year 2003 and fiscal year 2002.

The Company moved into new office space in November 2002. Under the terms of the
three-year  lease  agreement,  the Company  pays  $8,000 per month in rent.  The
Company's prior facilities  contained  substantially less square footage and the
cost was $1,200 per month.

The Company maintains  $2,000,000 of Directors and Officers liability insurance.
The policy for fiscal year 2003 had an annual  premium of  $78,000.  The Company
did not maintain a similar policy when it was privately held.

The Company's salaries and benefits were higher in fiscal year 2003. Included in
the fiscal year 2002 salaries and benefits  amount was an accrual of $150,000 to
settle  litigation  with the  Company's  former CEO.  During most of fiscal year
2002, the Company used  consultants for some of it's general and  administration
work.  During fiscal year 2003, some of the consultants  became  employees.  The
Company also had  additional  personnel  during  fiscal year 2003 than in fiscal
year 2002.

During  fiscal year 2003,  the Company  incurred  more  travel  expenses  mostly
related to public and investor relations matters.

RESEARCH AND DEVELOPMENT

Our  research  and  development  expenses  consist  primarily  of  salaries  and
benefits, facilities, depreciation, consulting services, supplies, travel offset
by grant income earned under grants with the Department of Defense.

Our research and development  expenses were $695,000 for fiscal year 2003 versus
$410,000 for the same period in 2002 or an increase of $285,000. A comparison of
the major  components  of the  increase in  research  and  development  expenses
follows:

<TABLE>
<CAPTION>
                                                      Year ended
                                            --------------------------------   Increase
                                            April 30, 2003    April 30, 2002  (Decrease)
                                            --------------------------------------------
<S>                                           <C>              <C>              <C>
          Salaries and benefits               446,000          339,000          107,000
          Travel                               65,000           38,000           27,000
          Consultants                          85,000          125,000          (40,000)
          Depreciation                         90,000            6,000           84,000
          Supplies                             63,000           21,000           42,000
          Insurance                            21,000            4,000           17,000
          Other                                70,000           25,000           45,000
          Grant income earned                (145,000)        (148,000)           3,000
                                            --------------------------------------------
                                Total         695,000          410,000          285,000
                                            --------------------------------------------
</TABLE>


                                       24
<PAGE>

Salaries and benefits  increased in the fiscal year 2003 compared to fiscal year
2002 because the Company added  additional  scientific  personnel to advance the
development of it's detection systems.  The use of consultants  decreased during
the same  period  because  the work  formerly  done by  consultants  was done by
company personnel.

During fiscal year 2003 the Company incurred  increased travel expenses relating
to research and development personnel travel for meetings,  seminars and product
demonstrations.

The Company added  $482,000 of equipment  during  fiscal year 2003.  Most of the
equipment  purchased  was for research and  development  purposes.  Depreciation
expenses  increased  in fiscal  year 2003  compared to the prior year due to the
increased purchases of research and development equipment.

Because of increased research and development activity,  supplies, insurance and
other expenses increased in fiscal year 2003 versus amounts spent in fiscal year
2002.

In August 2002, our project to develop and test an anti-tank  landmine detection
system was  competitively  selected by the  Department of Defense Small Business
Innovation Research (SBIR) program to receive up to $780,000 in funding over two
years for Phase II testing and  development of the system.  On January 15, 2003,
we executed the  development  contract with the  Department of Defense.  We have
commenced  work under the first year of the  contract  valued at  $415,000.  The
second  year of the  contract,  valued at  approximately  $364,000,  is under an
option  that can be  exercised  by the  Department  of Defense at the end of the
first year.  Prior to August 2002, we completed Phase I of the SBIR contract for
$70,000 for testing out MiniSenzor technology for landmine detection.

Under the terms of the  contract,  we are  required  to submit  monthly  written
reports  detailing our progress under the contract.  We accompany  those written
reports with an invoice for  one-twelfth  of the first-year  contract  amount or
$34,583.  When the written report is accepted by the  Department of Defense,  we
receive  payment  in about 30 to 45 days  after  invoice.  The first year of the
contract  will  expire in January  2004,  and the  Department  of Defense has an
option to continue the contract for a second year.

We had grant income of $145,000  during the fiscal year 2003 and $148,000 during
the same  period  in 2002.  Grant  income  for  fiscal  year  2002  were for the
completion of work on a separate  development  contract  with the  Department of
Defense. Our only grant income have been derived from development contracts from
the Department of Defense for  development  and testing of our remote  detection
technology.  We have not  commenced  selling  our  products.  Until we  complete
development  of one of our detector  systems,  our revenues  will most likely be
limited  to  government  grants.  We expect to  complete  development  and begin
production of  Beta-models  of some of our products in the current  fiscal year,
which ends on April 30, 2004.


Depreciation

Accumulated  depreciation  for  property  and  equipment  at April 30,  2003 was
$99,000.  Depreciation expense fiscal year 2003 and 2002 was $92,000 and $5,000,
respectively. The increase in depreciation expense reflects additional equipment
put into service during fiscal year 2003 over fiscal year 2002.

OTHER INCOME AND EXPENSE

Interest  expense  for the fiscal  year 2003 and 2002 was  $11,000 in each year.
Interest  expense  remained  about the same in both  fiscal  years  because  the
average  amount  outstanding  in both  fiscal  years were about the same and the
interest rates on notes were similar.

Interest income during fiscal year 2003 was $8,000 compared to $0 in fiscal year
2002.  During  fiscal year 2003,  the  Company  had an average  balance of about
$350,000 in it's cash investment  account.  During fiscal year 2002, the Company
did not maintain a cash investment account as we had limited resources.

During fiscal year 2003, the Company  recorded a charge of $223,710 as financing
expense because it issued 150,000 warrants  exercisable for three years at $1.00
as  compensation to a former officer and director for late payment of a $150,000
note  payable.  The fair value of the warrants were  determined  using the Black
Scholes model. The assumptions used to determine the valuation are as follows:

<TABLE>
<CAPTION>
<S>                                                           <C>
          Value of warrants per share                         $  1.49
          Stock price on grant date                           $  2.09
          Exercise price                                      $  1.00
          Expected life                                     2.0 years
          Risk-free rate of return                               3.72%
          Expected annual volatility                              105%
          Annual rate of dividends                                  0%
</TABLE>


                                       25
<PAGE>

BENEFICIAL CONVERSION FEATURE GRANTED ON PREFERRED STOCK

In October  2002,  the Company  sold 97.93  shares of the Series A  Convertible,
Redeemable Preferred Stock (Series A) for net cash proceeds of $800,400.  At the
time of issuance, the conversion price of the preferred stock was $1.15 which is
less than the fair market value of the common  stock which was $2.05.  Since the
Series  A  was  convertible  immediately,  the  Company  recorded  a  beneficial
conversion  feature  upon  issuance  by taking the number of shares to be issued
upon  conversion of 851,755  multiplied by the conversion  feature benefit price
per share of $0.90 or $767,431.

LIQUIDITY AND CAPITAL RESOURCES

As of April 30,  2003,  we had cash and cash  equivalents  of  $36,000.  We used
$2,967,000 for operating  activities and used approximately  $482,000 to acquire
equipment  in fiscal  year 2003.  Of the  $5,411,000  net loss,  the we recorded
approximately  $2,529,000 in non-cash expenses related to the issuance of common
stock and stock based  securities as  compensation  for services.  During fiscal
year 2003 we raised  approximately  $3,302,000  from  sales of common  stock and
convertible,  redeemable  preferred  stock. As of April 30, 2003, we had current
liabilities  of  approximately  $878,000  which  exceeded our cash on hand.  The
Company has to continue to sell equity in order to pay for  on-going  operations
and pay its present liabilities.

In  May  2003,  the  seventeen  holders  of all of  the  Series  A  Convertible,
Redeemable Preferred Stock surrendered and exchanged their Series A Convertible,
Redeemable  Preferred Stock for 2,191,878  shares of the Company's common stock,
including  62,562 shares issued as a penalty for late  registration.  Based on a
value of $10,000 for each share of Series A  Preferred  Stock  surrendered,  the
stockholders received 22,222 shares of our common stock for each share of Series
A Preferred Stock surrendered, which valued the common stock at $0.45 per share.
The reported  closing price of our common stock on the date of completion of the
exchange, May 16, 2003, was $0.45 per share. The exchange transaction was exempt
from the registration  requirements of the Securities Act under Section 3(a)(9),
which  exempts  exchange  transactions  by an issuer with its existing  security
holders  exclusively where no commission or other  compensation is paid or given
for  soliciting  such  exchange  and the  holders  surrender  only shares of the
exchanging issuer and pay no other consideration for the shares they receive.

The exchange  offer was initiated to resolve  differing  interpretations  of the
existing  exchange  privileges  of the  Series A  Preferred  Stock.  Under  some
circumstances,  the holders of the Series A Preferred  Stock could have  various
exchange rights. Contrary to our interpretation of the relevant provisions under
the Series A Preferred  Stock  Purchase  Agreement,  certain  Series A Preferred
Stock holders asserted that our sale of common stock in two separate  financings
at a price  lower  than the  conversion  price of the Series A  Preferred  Stock
triggered a right of the holders of Series A Preferred  Stock to exchange  those
shares  for  shares  of  common  stock  at the same  price  as  these  completed
financings.  Pursuant  to the  terms of the  exchange,  all  rights  and  claims
associated with the Series A Preferred  Stock,  including any accrued  dividends
and unpaid dividends and all exchange,  conversion,  redemption or other rights,
were  surrendered  and  cancelled  together  with the Series A Preferred  Stock.
However,  under  the  terms  of the  exchange,  they  did  also  receive  62,562
additional shares of common stock as compensation for late registration of their
stock.  All  $958,000  in face  amount  of  Preferred  Stock was  exchanged  and
cancelled.  The retirement of the Series A Preferred  Stock was beneficial to us
in that it eliminated  the potential risk that holders would demand payment from
us of $958,000 under mandatory redemption provisions.

In the period from April 30, 2003 to October 31,  2003,  we have sold  3,866,000
shares of common stock and raised  $1,790,000  net of  commissions.  Those funds
were used to fund, in substantial part, company operations for approximately six
months.

As of April 30,  2003,  the  Company was in default of a note  payable  totaling
$40,000 with a  shareholder  and related  party.  The notes payable have been in
default since November  1997.  Also, the Company was in default of a convertible
notes  payable as of April 30, 2003 and July 31,  2003 of $10,400  with a former
director and related  party.  The  convertible  note payable was paid in full in
August 2003.

As of April 30,  2003,  we had  unsecured  convertible  promissory  notes at 10%
interest outstanding of $47,000 and $450,000, respectively, to our legal counsel
for legal  services  provided to the Company.  The legal fees were expensed as a
general and administration expense in the periods incurred.

The  Company  instituted  cost-cutting  measures  in March 2003 that  included a
reduction in head count and  replacement of an investor  relations  firm.  These
cost  cutting  measures  would have  resulted  in an annual  savings of $400,000
through  October 31,  2003.  These  savings  have been more than offset by other
increased costs of operations summarized above.

Below is a summary of our  commitments  presently in effect  showing the monthly
and annual minimum cost:

<TABLE>
<CAPTION>
                                                           Minimum      Minimum
                           Beginning         Ending        Monthly      Annual
   Services Provided         Date             Date          Cost         Cost                Status
------------------------------------------------------------------------------------------------------------------
<S>                      <C>              <C>               <C>          <C>          <C>
Employment agreement
 with Chairman and CEO   January 2002     December 2006      $18,800      $225,600    In effect

Building lease
 agreement               September 2002   September 2005     $ 8,000      $ 96,000    In effect

Test site lease
 agreement               July 2003        December 2003      $1,200       $  7,200    In effect

Business development
 services                July 2002        October 2003       $20,000      $240,000    Terminated in October 2003

Public relations
 services                November 2002    February 2003      $12,500      $150,000    Currently month to month

Investor relations
 services                April 2003       December 2003      $6,500       $ 78,000    Terminated in December 2003
</TABLE>


                                       26
<PAGE>

PLAN OF OPERATION

GENERAL

Our  strategic  goal is to  capture  a third of the  market  for  secondary,  or
confirmation,  detectors. In order to achieve this goal quickly, we are pursuing
partnerships with security equipment manufacturers,  with whom we are interested
in pursuing strategic alliances,  joint ventures,  or partnerships.  The goal of
these  industrial  partnerships  is to  establish  the  Company as an  equipment
supplier to an existing  manufacturer of primary  scanning  systems,  such as an
X-ray  manufacturer.  This would allow the X-ray  manufacturer,  for example, to
supply an  integrated,  improved  product to their  customer,  and allow  faster
access to the market. We would supply an original  equipment  manufacturer (OEM)
version  of its  technology  to the  industrial  partner.  In other  words,  the
industrial  partner  incorporates  in  its  final  unit  an OEM  version  of our
technology. We intend to begin assembling and selling beta models of our systems
in calendar year 2004. We intend to begin with the MiniSenzor.

PRODUCTION AND SALES

The CarBomb Finder is currently  available as a commercial  beta model using the
MiniSenzor.  We hope to begin selling  systems to customers in Europe as soon as
our field tests by the Spanish Aviation Security Agency have been completed.  In
addition,  we have  signed an  agreement  with  Electronic  Equipment  Marketing
Company,  an ISO 9001 certified  electronic company in Saudi Arabia, to sell the
product to companies in the Middle East and Africa.

The Anti-Tank  Landmine  Confirmation  Sensor uses the  SuperSenzor  and will be
available in a beta model in 2004.  We hope to begin  selling beta models to the
U.S.  Army in 2004.  We also hope to enter  into a joint  venture  with  another
company to use our detection  products as part of an integrated system to screen
cargo  containers  at ports of entry.  If we were to enter into an  agreement in
calendar year 2004, a beta model system could be available in late calendar year
2004.

We intend to sell our False Alarm  Eliminator as a false alarm reduction  system
to accompany a primary scanning system such as an X-ray machine. In addition, we
also intend to establish a joint venture with an existing  manufacturer of X-ray
systems for development of an integrated system.

Facilities and Personnel

We intend to assemble these units at our facilities in Irvine,  California.  Our
landlord has indicated the  availability  of an additional  8,000 square feet of
manufacturing space that is adjacent to our offices. We may choose to lease this
space to support  our  growth,  which  would  require  that we  install  testing
facilities,  shielding,  and work  areas.  We will also need to hire  additional
people to  assemble  and test our  products.  We will need to  develop  customer
installation  and training systems to include  additional  personnel and written
manuals about our products.

Government Contracts

We intend to pursue  government  contracts  which are  outlined  in the  section
entitled  "Government  Grants and  Contracts"  under  "Description  of Business"
below. We are presently working on the completion of the first year of the Small
Business  Innovation Research Phase II contract for $415,000 in contract income.
We  anticipate  the U.S.  Army will  exercise its option in January 2004 for the
second  year  for  $364,000  in  contract  income.  We have  applied  for  other
government contracts and expect we will be awarded one or more in 2004 or 2005.

Additional Capital Requirements

We intend  to sell  common or  preferred  stock in order to fund our  operations
until we become cash flow positive. We have included $10 to $15 million in sales
of equity in our plans.  If we are  unsuccessful in obtaining  government  grant
revenue or our product  sale plans are  delayed,  we will have to  increase  the
amount of equity raised in the public  markets.  During the remaining  period of
our current fiscal year ending April 30, 2004, we intend to spend  approximately
$2.1 million on operating  expenses  and  approximately  $2.4 million on capital
expenditures for equipment needed to continue our development of the technology.

RISK FACTORS

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


                                       27
<PAGE>

RISKS RELATED TO OUR BUSINESS

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

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

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

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

Our independent  certified public accountants  qualified their opinion contained
in our consolidated financial statements as of and for the years ended April 30,
2003, 2002 and 2001 to include an explanatory  paragraph  related to our ability
to continue as a going  concern,  stating  that "during the year ended April 30,
2003, the Company  incurred a net loss of  $5,411,265,  and it had negative cash
flows from operations of $2,966,997. In addition, the Company had an accumulated
deficit of  $8,981,620  and was in the  development  stage as of April 30, 2003.
These factors, among others, as discussed in Note 3 to the financial statements,
raise  substantial  doubt  about the  Company's  ability to  continue as a going
concern." Analysts and investors generally view reports of independent  auditors
that mention  substantial doubt about a company's ability to continue as a going
concern  unfavorably.  This qualified audit report, and the facts underlying the
qualification,  may make it challenging and difficult for us to raise additional
debt or equity  financing to the extent needed for our  continued  operations or
for  planned  increases,  particularly  if we are unable to attain and  maintain
profitable  operations  in the future.  Consequently,  future  losses may have a
material adverse effect on our business, prospects, financial condition, results
of operations and cash flows.  We urge potential  investors to review the report
of our independent  certified public accountants and our consolidated  financial
statements before making a decision to invest in HiEnergy Technologies,  and not
to invest in our common stock unless they can afford the potential loss of their
investment.

IF OUR LOSSES CONTINUE INTO THE FUTURE,  OUR BUSINESS AND OUR STOCKHOLDERS  WILL
BE ADVERSELY  AFFECTED  AND OUR  DEPENDENCE  ON  GOVERNMENTAL  CUSTOMERS,  AS WE
ANTICIPATE, 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,  2003,  we  reported  a  net  loss  available  to  common   shareholders  of
approximately  $6,257,000,  as  compared  to a  net  loss  available  to  common
shareholders  of  approximately  $1,390,000  for the fiscal year ended April 30,
2002.  Our  accumulated   deficit  through  April  30,  2003  was  approximately
$8,982,000.  We have  financed  operations  through  April  30,  2003  through a
combination of government funding and equity financing. As of April 30, 2003, we
had received an aggregate of approximately  $471,000 in government grant funding
as from the U.S.  Department  of  Defense,  U.S.  Department  of Energy and U.S.
Customs Service. We expect that our losses will continue in fiscal year 2004 and
further  into the future.  We cannot  assure you that we will attain  profitable
operations  in the future.  Through  April 30,  2003,  the cash  available  from
financial  sources has funded operations with aggregate losses of $8,982,000 and
has left a small  equity at April 30,  2003 of  $916,000.  It  appears  that our
financial  requirements  until we can become breakeven are at least $15,000,000.
One of the reasons for the  continuation of such  anticipated  losses is that we
are highly  dependent on governmental  customers,  which typically  require long
lead times.


                                       28
<PAGE>

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

Our former  director Barry Alter has engaged his own separate legal counsel with
respect to the SEC investigation regarding SLW Enterprises and is a recipient of
what we  understand  to be an  informal  request  from the SEC as to a desire to
obtain  documents  from him in its  investigation.  Mr. Alter  demanded  that we
advance him in excess of $24,000 in connection  with the informal  investigation
that the SEC has  conducted.  Mr. Alter brought an action against us in Delaware
seeking  payment of his costs and expenses,  and 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. We will, if  financially
able,  vigorously  contest  any such  action by Mr.  Alter and could  also bring
action  against Mr. Alter for  indemnity,  breach of fiduciary  duty,  fraud and
other  relief.  If it  is  determined  that  Mr.  Alter's  claim  satisfies  the
conditions for advancement of expenses incurred in the SEC investigation, we may
be obligated to advance any expenses,  liabilities or losses  incurred by him in
connection with the  investigation  prior to a final  determination  whether Mr.
Alter has satisfied the standard of conduct to justify indemnification. We could
be  subject  to  indemnification  demands by Mr.  Alter  until  there is a final
judgment,   which  could  be  years  away.  See  "Legal  Proceedings"  for  more
information.

FORMER DIRECTOR FAILED TO DISCLOSE OUTSIDE LEGAL PROCEEDINGS.

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

Certain kinds of legal proceedings perhaps may be considered especially relevant
to a  person's  suitability  to  serve  as a  director  of any  public  company.
Shareholders  could  potentially  assert that we acted negligently in failing to
uncover an involvement of a director  personally in such legal  proceedings.  We
did  unwittingly  fail to apprise  ourselves  of the  existence  of these  legal
proceedings,  but we feel we acted with a reasonable amount of caution,  in that
we circulated a standard  questionnaire  to directors and nominees and exercised
due  care.  These  matters  never  came  to  our  attention.   Nonetheless,  our
shareholders could lose confidence in our corporate governance practices if they
believe  this  incident  is a result  of an  unresolved  problem  of  inadequate
screening of potential nominees for the Board of Directors. Much worse yet, this
incident  could  materially  damage the public's  perception  of us, and adverse
public sentiment can materially  adversely affect the market price of our common
stock and our financial results.  Finally,  the purchasers of common stock prior
to our disclosure of the legal  proceedings  could claim that we are responsible
for alleged  monetary  damages  related to a decline in the market  price of our
stock.

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

Facts  related  to  Gregory  Gilbert  and a  separate  investigation  by the SEC
involving  persons  suspected of stock  manipulation,  which are described under
"Former director failed to disclose outside legal  proceedings,"  "We understand
there is  presently  a formal  SEC  inquiry  that  relates to  investors  in our
predecessor  company about the time of the reverse takeover  transaction between
SLW Enterprises Inc. and HiEnergy  Microdevices,  Inc." and "Legal Proceedings,"
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, 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, that could
result in liability  under the Securities  Act or under the Securities  Exchange
Act, or under state  securities laws. State securities 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.  Obviously,  we have  disclosed  these
matters  to the  stockholders  and the  public.  Therefore,  purchasers  in this
offering,  and any other  purchasers of shares of our common stock subsequent to
our making such  disclosure  in  February  2003 would have no basis to bring any
cause of action for our previously  having failed to ascertain and disclose such
facts.  In  April,  June and  October  2002,  we sold  5,204,248  shares  of our
presently   outstanding   common  stock  for  gross  proceeds  of  approximately
$4,455,000  in  private  equity  offerings  and  these  persons  and some  other
stockholders of ours during calendar year 2002 could make such allegations.


                                       29
<PAGE>

WE MAY BE ADVERSELY  AFFECTED BY PRIOR  WEAKNESSES IN OUR INTERNAL  CONTROLS AND
LACK OF SEGREGATION OF DUTIES THAT IS IN THE PROCESS OF IMPROVEMENT.

Notwithstanding  generally  adequate present  internal  controls and procedures,
previously  we had a general  weakness  in our  segregation  of duties and other
internal controls over equity  transactions.  We have now addressed the weakness
in our internal  controls over equity  transactions  and continue to improve our
segregation  of  duties.  These  improvements  will  occur over time as and when
additional personnel are identified, authorized, hired and trained.

WE HAVE A SINGLE INDIVIDUAL  SERVING AS OUR CHAIRMAN,  CHIEF EXECUTIVE  OFFICER,
PRESIDENT AND TREASURER.

The  potential  success  of  our  business  depends  to a  great  extent  on the
capability  and  capacity of Dr.  Bogdan  Maglich,  the Chairman of our Board of
Directors, Chief Executive Officer,  President,  Treasurer, and Chief Scientific
Officer. In such capacities,  Dr. Maglich is not only responsible for monitoring
the research and  development of our technology,  but also actively  involved in
negotiating  transactions  on behalf of the Company and  marketing the Company's
technology through various  presentations to the scientific  community.  We have
not sought key man insurance with respect to Dr. Maglich or any of our executive
officers.  We  also  do not  have  succession  plans.  We do  anticipate  hiring
additional  senior  personnel.  As a result,  our future growth and success will
depend in large part upon our need and ability to attract  additional  qualified
management, scientific and professional personnel. The competition for qualified
personnel in the technological industry is intense, and our inability to attract
and retain  additional  key personnel  could  adversely  affect our business and
financial operations.

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

For the  time  being,  we will try to  maintain  a  strategy  to  segregate  the
deployment of our technology from the general  public.  We anticipate a possible
adverse public reaction to the associated  level of neutron  radiation  exposure
that may  accompany  operation of our  technology.  We  anticipate  the need for
neutron  shielding to make our equipment  satisfactory as a matter of health and
safety in certain  applications,  such as  airports,  to shield  personnel  from
anticipated levels of radiation  exposure.  We have not determined the levels of
shielding  that are  required,  which  may vary  tremendously  depending  on the
applicable regulations of the jurisdiction in which the system is installed.  We
believe that any public objections can ultimately be overcome through education.
Our  Chief  Scientific  Officer,  Dr.  Maglich,  believes  that our  equipment's
anticipated  level of neutron radiation dose will result in 10 times less tissue
damage  than the level of x-ray  radiation  dose  needed to  accomplish  baggage
security  screening.  Fast neutrons,  which are used in our  technology,  do not
produce  the same  radioactive  environment  as thermal  neutrons.  Despite  the
relative  safety of our  technology,  we  propose to use it  initially  only for
screening  procedures that are remote from the general public, such as screening
checked baggage, to avoid this adverse public reaction,  instead of for check-in
procedures,  such  as  carry-on  baggage  screening.  As  public  knowledge  and
awareness increase, we believe that the broader array of uses for our technology
will  become  available.  Concerns  about  safety may  challenge  our ability to
generate  revenues and adversely affect our financial  position,  cash flows and
results of operations.

WE ARE A DEVELOPMENT STAGE COMPANY THAT HAS NOT COMMENCED COMMERCIAL OPERATIONS;
WE ALSO EXPECT TO HAVE  COMPETITION IN OUR FIELD;  WE EXPECT OUR  COMPETITORS TO
HAVE MORE THOROUGHLY DEVELOPED FINANCIAL, SALES AND MARKETING PLANS THAN US; AND
WE MAY NOT BE ABLE TO ACHIEVE POSITIVE CASH FLOWS.

We are a development  stage  company.  As a result,  we have limited  resources.
Also,  our  business  model  is still in an  evolving  stage.  Since we have not
commenced commercial operations, we do not have the benefit of the many years of
experience  that some other  companies  have.  We  anticipate  responding to the
markets that present  themselves  at the time our products are ready to be sold,
and as such,  our business and marketing  approach may change from time to time.
No assurances can be made that the changes in the marketing of our products will
meet with  success.  Our  business  plan might  benefit  from  modification  and
optimization  if  we  had  more  past  experience  executing  our  own  business
strategies.   Our  potential  ability  to  generate  income  is  unproven.   Our
competitors are established  companies with operating  histories and substantial
existing  contracts  and  relationships  with the  potential  customers  for our
products.

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

Our  competitors and potential  competitors  have greater  financial  resources.
Other enterprises are seeking to develop products with similar capabilities.  If
we are  unable to  complete  the  development  of our  technology  and  commence
manufacturing  at  least  one  of our  models  of  detection  systems  within  a
reasonable  period  of  time  and  if  other  stoichiometric   technologies  are
developed, we may miss the opportunity to capitalize on our lead-time to market.
A delay in  development  or testing  of our  prototypes  may result in  foregone
potential  sources  of  investment  or  revenue.   Laboratory  experiments  have
demonstrated  the basic  capability of our  stoichiometric  technology,  and our
technology has been converted into prototype  products.  Our technology must now
be converted  into  additional  saleable  products.  Experiments to increase the
effectiveness  of our technology are ongoing.  The development of products based
on our technology may take longer, cost more or be more difficult than expected.
We believe  that our  competition  had been  discouraged  form  duplicating  our
research  because  of  general   skepticism  that  such  an  instrument  can  be
successfully made into an industrial product. The concept upon which our product
is based was previously  considered  impractical by scientists.  However, as our
competitors learn that we have successfully  demonstrated our product,  they may
be further encouraged to pursue similar devices. Please see the separate section
entitled "Competition" under the major heading "Description of Business."


                                       30
<PAGE>

OUR  COMPETITORS MAY HAVE ACCESS TO INFORMATION  RELATING TO OUR TECHNOLOGY,  OR
MAY OBTAIN LICENSES TO OUR TECHNOLOGY FROM THE GOVERNMENT, BECAUSE WE HAVE SMALL
BUSINESS INNOVATION RESEARCH GRANTS.

Also we anticipate that our competitors will have access to information relating
to our  technology  because we have Small  Business  Innovation  Research  grant
contracts.  The  federal  government  does  not  undertake  to  protect  data or
inventions from public  disclosure beyond four years after the term of our Small
Business Innovation  Research grant contract.  The federal government might also
create  competition  by  utilizing  its own right and license to our  technology
developed  under the  Small  Business  Innovation  Research  contract.  The U.S.
federal  government has  royalty-free  rights in the products and data resulting
from our federal  government  Small  Business  Innovation  Research  grants.  We
nevertheless  own the data and title to the  products  resulting  from our Small
Business   Innovation  Research  grants  and  are  permitted  to  obtain  patent
protection.  SBIR grants  previously  obtained by  HiEnergy  Microdevices,  Inc.
expired as early as 1997, and HiEnergy  Microdevices filed for patent protection
of methods and systems related to such SBIR grants  consistent with the terms of
these  grants.  The SBIR grant  obtained  by HiEnergy  Technologies  in 2002 for
anti-tank landmine detection has not expired.

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

We have successfully obtained a total of seven government  development contracts
from the U.S.  Department of Defense,  U.S. Energy  Department and U.S.  Customs
Service to finance our research and development.  We have failed to obtain three
government  contracts for which we had made proposals,  although one of these is
currently  under a second  review  by the U.S.  Navy,  and we have  applied  for
additional  government  grants that are pending a decision.  These grants may de
denied for reasons that include  funding of the program  (presently  at issue in
our Navy proposal), our financial position and abilities (which has twice before
been the basis for declining our  proposals),  or other reasons.  Our government
grants and equity  financings  have been  sufficient to finance our research and
development and operating  activities to date; however, at certain times we have
been compelled to slow research and development to conserve our cash.

There is no  assurance  that  funds  will be  available  from any  source or, if
available,  that they can be obtained on terms acceptable to us. If unavailable,
our operations  could be severely  limited,  and we may not be able to implement
our business plan in a timely manner or at all.

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

We are dependent on the talent and resources of our key managers and  employees.
In  particular,  the success of our  business  depends to a great  extent on the
capability and the capacity of Dr. Bogdan Maglich,  the Chairman of our Board of
Directors,  Chief Executive Officer and Chief Scientific Officer. Dr. Maglich is
the inventor of the  stoichiometric  technology and the three  detection  system
prototypes that we are developing, and his services are critical to our success.
We have not sought key man insurance  with respect to Dr.  Maglich.  The loss of
Dr. Maglich may prevent us from  implementing our business plan, which may limit
our  profitability and decrease the value of your stock. Dr. Maglich is 75 years
of age. We do not have a succession plan or a policy for  succession;  the Board
of Directors of the Company  would meet and name a successor  or  successors  to
offices held now by Dr.  Maglich.  We do  anticipate  hiring  additional  senior
personnel.  As a result, our future growth and success will depend in large part
upon our need and ability to attract additional qualified management, scientific
and  professional  personnel.  The  competition  for qualified  personnel in the
technological  industry  is  intense,  and our  ability  to  attract  and retain
additional  key  personnel  could  adversely  affect our business and  financial
operation.

WE MAY HAVE INCREASING  DIFFICULTY IN ATTRACTING AND INTERESTING OUTSIDE MEMBERS
OF OUR BOARD OF DIRECTORS.

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

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

We do not solely rely on contractual rights, patents,  copyrights or other legal
protection of intellectual  property for any aspect of our  technology.  Because
the combination of contractual  rights,  patents and copyrights may only provide
narrow  protection of our  proprietary  rights,  we also rely on the  protection
afforded by our trade secrets,  rapid  innovation and  advancement of technology
and scientific  expertise.  However, we believe that our products in development
could benefit from patent  protection.  As a result,  we have six pending patent
applications:  two pending with the United States  Patent and Trademark  Office;
one  pending  under the Patent  Cooperation  Treaty;  and one pending in each of
Canada,  Japan,  and Europe,  only.  Although we rely to a great extent on trade
secret  protection  for much of our technology and plan to rely in the future on
patents to protect a portion of our  technology,  we cannot  assure you that our
means  of  protecting  our  proprietary  rights  will be  adequate  or that  our
competitors will not independently  develop comparable or superior  technologies
or obtain unauthorized access to our proprietary technology and utilize it where
we have no patents.  The failure or  inability  to protect  these  rights and to
fully  exploit  these  rights  could  have  a  material  adverse  effect  on our
operations   due  to  increased   competition  or  the  expense  of  prosecuting
infringements  of our  intellectual  property.  Any  litigation  could result in
substantial  costs and  diversion  of  management  and other  resources  with no
assurance  of  success  and could  seriously  harm our  business  and  operating
results. Investors could lose their entire investment.


                                       31
<PAGE>

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

IF WE FAIL TO MANAGE  EFFECTIVELY,  IT COULD  IMPAIR  OUR  HOPEFULLY  SUCCESSFUL
PROSPECTS IN BUSINESS OR OF A FINANCIAL NATURE.

Our strategy  envisions a period of increasing  operations that may put a strain
on our  administrative  and operational  resources.  To effectively  manage this
process  will  require  us  to  continue  to  expand  the  capabilities  of  our
operational  and  management  systems and to attract,  train,  manage and retain
qualified management, engineers,  technicians,  salespeople and other personnel.
We  cannot  assure  you that we will be able to do so. If we do not  succeed  in
this, our business,  prospects,  financial condition,  results of operations and
cash flows could be adversely affected.

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

The  terrorist  attacks in the United  States and other  countries  have brought
devastation to many people,  shaken consumer  confidence and disrupted  commerce
throughout the world.  The  continuing  threat of terrorism in the United States
and other countries and heightened security measures, as well as current and any
future  military  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 a sufficient amount of capital due to economic conditions,  we will not
be able to  finalize  development  of our  detection  systems  under  government
contracts and to bring them to military, civil or commercial markets as planned.

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

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

Particle  accelerators  are  a  central  component  of  our  sensors.   Particle
accelerators  are  scientific  instrument  that  increase the kinetic  energy of
charged particles.  There are many suppliers of the particle accelerator used in
our MiniSenzor.  There are only three suppliers of the particle accelerator used
in our SuperSenzor,  and we are currently using only one supplier. This supplier
has limited production capacity,  also supplies one of our competitors,  and has
delayed delivery of components on three occasions.  The supplier re-designed the
unit we are  using  per our  request,  and this has led to  delays  recently  in
delivery.   While  we  believe  that  alternate   suppliers  for  this  particle
accelerator are available,  further  interruption  could  materially  impair our
operations.

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

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

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


                                       32
<PAGE>


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

Our management is  inexperienced  in doing business in many overseas  markets in
which we plan to sell our products. We may experience unexpected difficulties in
our  overseas  marketing  and sales  efforts,  and such  efforts may depend upon
leveraging the skills of strategic partners with experience in these markets. We
have entered  into an Exclusive  International  Distribution  Agreement  for our
beta-model CarBomb Finder with the Electronic Equipment Marketing Company, based
in London and Riyadh, for our marketing and sales efforts in the Middle East and
certain European Union nations. Presently, we have not pursued any relationships
with other strategic partners.

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

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

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 prevented 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  where we expect 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.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

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

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

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

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

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


                                       33
<PAGE>


ITEM 7.  FINANCIAL STATEMENTS

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
<S>                                                                        <C>
INDEPENDENT AUDITOR'S REPORT                                                35

     CONSOLIDATED FINANCIAL STATEMENTS
     Consolidated Balance Sheet                                             36
     Consolidated Statements of Operations                                  37
     Consolidated Statements of Shareholders' Equity (Deficit)             38-39
     Consolidated Statements of Cash Flows                                 40-41
     Notes to Consolidated Financial Statements                            42-65
</TABLE>


                                       34
<PAGE>



                         INDEPENDENT AUDITOR'S REPORT

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

We  have  audited  the  accompanying  consolidated  balance  sheet  of  HiEnergy
Technologies,  Inc. and subsidiaries  (development  stage companies) as of April
30, 2003, and the related consolidated  statements of operations,  shareholders'
equity  (deficit),  and cash flows for each of the two years in the period ended
April 30,  2003,  and the period from August 21, 1995  (inception)  to April 30,
2003.  These  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in  all  material   respects,   the  financial   position  of  HiEnergy
Technologies,  Inc. and  subsidiaries  as of April 30, 2003,  and the results of
their  operations  and their  cash flows for each of the two years in the period
ended April 30, 2003,  and the period from August 21, 1995  (inception) to April
30, 2003 in conformity  with  accounting  principles  generally  accepted in the
United States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 3 to the
financial statements, during the year ended April 30, 2003, the Company incurred
a net loss of  $5,411,265,  and it had negative  cash flows from  operations  of
$2,966,997.  In addition,  the Company had an accumulated  deficit of $8,981,620
and was in the  development  stage as of April 30, 2003.  These  factors,  among
others,  as discussed in Note 3 to the financial  statements,  raise substantial
doubt about the Company's  ability to continue as a going concern.  Management's
plans in regard to these  matters are also  described  in Note 3. The  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.

As discussed in Note 10 to the consolidated  financial statements the Company is
subject to significant  unresolved  contingencies.  In addition, as discussed in
Notes 7 to the consolidated financial statements, the Company is in default on a
$40,000 note payable - related party due November 1997.



SINGER LEWAK GREENBAUM & GOLDSTEIN LLP

Los Angeles, California
July 8, 2003 (except for Note 2
as to which the date is December 19, 2003)


                                       35

<PAGE>

<TABLE>
<CAPTION>

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

                                     ASSETS
<S>                                                                                    <C>
CURRENT ASSETS
     Cash and cash equivalents                                                         $    35,774
     Restricted cash                                                                        71,234
     Accounts receivable                                                                    34,583
     Subscriptions receivable                                                              443,482
     Other current assets                                                                  427,650
                                                                                       -----------

         Total current assets                                                            1,012,723

PROPERTY AND EQUIPMENT, net                                                                504,424
OTHER ASSETS                                                                               295,948
                                                                                       -----------

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

                    LIABILITIES AND SHAREHOLDERS' EQUITY

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

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

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

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY
     Series A convertible, redeemable preferred stock 8% dividends, voting
         rights, liquidation preference $10,000 per share, 345 shares authorized
         95.82 shares issued and outstanding                                                     1
     Common stock, $0.001 par value
         100,000,000 shares authorized
         25,525,882 shares issued and outstanding                                           25,525
     Additional paid-in capital                                                          9,837,436
     Committed common stock, 76,937 outstanding                                             34,404
     Deficit accumulated during the development stage                                   (8,981,620)
                                                                                       -----------

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

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

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

                                       36

<PAGE>

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



                                                                                           For the
                                                                                          Period from
                                                                                           August 21,
                                                        For the Year Ended                   1995
                                                             April 30,                  (Inception) to
                                                 --------------------------------          April 30,
                                                     2003               2002                 2003
                                                 ------------        ------------        ------------
<S>                                              <C>                 <C>                 <C>
OPERATING EXPENSES
     General and administration                  $  4,488,175        $    967,092        $  5,909,064
     Research and development                         695,042             410,018           1,957,679
                                                 ------------        ------------        ------------

         Total operating expenses                   5,183,217           1,377,110           7,866,743

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

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

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

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

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

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

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

PREFERRED STOCK DIVIDENDS                             (78,360)                 --             (78,360)
                                                 ------------        ------------        ------------
NET LOSS AVAILABLE TO COMMON
     SHAREHOLDERS                                $ (6,257,056)       $ (1,389,530)       $ (8,981,620)
                                                 ============        ============        ============

BASIC AND DILUTED LOSS PER SHARE
     Net loss per share                          $      (0.23)       $      (0.08)
     Beneficial conversion feature granted
         on preferred stock per share                   (0.03)                 --
     Preferred stock dividends per share                (0.01)                 --
                                                 ------------        ------------

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

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

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

                                       37
<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, 2003
------------------------------------------------------------------------------------------------------------------------------------

                                                                              Series A Convertible,
                                                                 Price per  Redeemable Preferred Stock          Common Stock
                                                                  Equity    --------------------------   ---------------------------
                                                     Date          Unit         Shares       Amount         Shares         Amount
                                                  ----------   -----------    ----------   -----------   -----------     -----------
<S>                                               <C>           <C>           <C>          <C>           <C>             <C>
BALANCE, AUGUST 21, 1995 (INCEPTION)                                                  --   $        --            --     $        --
RECAPITALIZATION UPON REVERSE TAKEOVER                                                                     6,470,000           6,470
ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED        (1)       $      0.01                                  734,771             735
NET LOSS
                                                                              ----------   -----------   -----------     -----------

BALANCE, APRIL 30, 1996                                                               --            --     7,204,771           7,205
ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED        (2)       $      0.01                                    3,219               3
NET LOSS
                                                                              ----------   -----------   -----------     -----------

BALANCE, APRIL 30, 1997                                                               --            --     7,207,990           7,208

ISSUANCE OF COMMON STOCK FOR CASH                  03/23/98     $      0.05                                   45,603              46
ISSUANCE OF COMMON STOCK FOR CASH                  03/25/98     $      0.11                                    4,470               4
ISSUANCE OF COMMON STOCK FOR CASH                     (3)       $      0.14                                  111,771             112
ISSUANCE OF COMMON STOCK FOR CASH                  10/14/97     $      0.22                                   89,417              89
ISSUANCE OF COMMON STOCK FOR CASH                     (3)       $      0.28                                  293,466             293
ISSUANCE OF COMMON STOCK FOR CASH                  09/04/97     $      0.35                                    8,942               9
ISSUANCE OF COMMON STOCK FOR CASH                  12/17/97     $      0.49                                   42,920              43
ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED        (3)       $      0.01                                1,451,928           1,452
NET LOSS
                                                                              ----------   -----------   -----------     -----------

BALANCE, APRIL 30, 1998                                                               --            --     9,256,507           9,257

ISSUANCE OF COMMON STOCK FOR CASH                     (4)       $      0.28                                  116,241             116
ISSUANCE OF COMMON STOCK FOR CASH                  10/01/98     $      0.36                                   13,815              14
ISSUANCE OF COMMON STOCK FOR CASH                  01/15/99     $      0.38                                    9,389               9
ISSUANCE OF COMMON STOCK FOR CASH                  10/30/98     $      0.56                                   13,413              13
ISSUANCE OF COMMON STOCK FOR CASH                  03/17/99     $      0.57                                   17,883              18
ISSUANCE OF COMMON STOCK FOR CASH                  01/08/99     $      0.72                                   44,708              45
ISSUANCE OF COMMON STOCK FOR CASH                  12/02/98     $      0.75                                    3,353               3
ISSUANCE OF COMMON STOCK FOR CASH                  12/02/98     $      0.78                                    8,942               9
ISSUANCE OF COMMON STOCK FOR CASH                  11/24/98     $      0.89                                   11,177              11
ISSUANCE OF COMMON STOCK FOR CASH                  12/02/98     $      0.93                                    2,683               3
ISSUANCE OF COMMON STOCK FOR CASH                  01/15/99     $      1.41                                    4,471               4
ISSUANCE OF COMMON STOCK FOR CASH                  05/05/98     $      1.64                                   17,883              18
ISSUANCE OF COMMON STOCK FOR CASH                  12/02/98     $      2.80                                      894               1
ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED        (4)       $      0.02                                2,167,620           2,168
NET LOSS
                                                                              ----------   -----------   -----------     -----------

BALANCE, APRIL 30, 1999                                                               --            --    11,688,979          11,689

ISSUANCE OF COMMON STOCK FOR CASH                  06/28/99     $      0.02                                    4,471               4
ISSUANCE OF COMMON STOCK FOR CASH                  05/03/99     $      0.10                                   35,767              36
ISSUANCE OF COMMON STOCK FOR CASH                  07/14/99     $      0.28                                   44,708              45
ISSUANCE OF COMMON STOCK FOR CASH                  11/30/99     $      0.39                                   53,650              54
ISSUANCE OF COMMON STOCK FOR CASH                  07/12/99     $      0.52                                    2,861               3
ISSUANCE OF COMMON STOCK FOR CASH                     (5)       $      0.56                                  232,484             232
ISSUANCE OF COMMON STOCK FOR CASH                  04/03/00     $      0.72                                    2,794               3
ISSUANCE OF COMMON STOCK FOR CASH                  04/03/00     $      0.89                                    8,383               8
ISSUANCE OF COMMON STOCK FOR CASH                     (5)       $      0.46                                  253,430             253
ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED        (5)       $      0.04                                1,914,570           1,915
NET LOSS
                                                                              ----------   -----------   -----------     -----------

BALANCE, APRIL 30, 2000                                                               --            --    14,242,097          14,242

ISSUANCE OF COMMON STOCK FOR CASH                  09/28/00     $      0.24                                   21,214              21
ISSUANCE OF COMMON STOCK FOR CASH                     (6)       $      0.24                                  444,223             444
ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED        (6)       $      0.10                                  371,035             371
NET LOSS
                                                                              ----------   -----------   -----------     -----------

BALANCE, APRIL 30, 2001                                                               --            --    15,078,569          15,078

ISSUANCE OF COMMON STOCK FOR CASH                     (7)       $      0.22                                  517,723             518
ISSUANCE OF COMMON STOCK FOR CASH                  03/13/02     $      0.24                                   10,283              10
ISSUANCE OF COMMON STOCK FOR CASH                     (7)       $      0.45                                   44,708              45
ISSUANCE OF COMMON STOCK FOR CASH                  07/31/01     $      1.12                                    8,942               9
ISSUANCE OF COMMON STOCK FOR CASH                     (7)       $      0.26                                  130,415             130
ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED        (7)       $      0.05                                5,059,560           5,060
ISSUANCE OF COMMON STOCK IN PRIVATE
    PLACEMENT FOR CASH                             04/30/02     $      1.00                                1,225,000           1,225
NET LOSS
                                                                              ----------   -----------   -----------     -----------

BALANCE, APRIL 30, 2002                                                               --            --    22,075,200          22,075
ISSUANCE OF PREFERRED STOCK
    IN PRIVATE PLACEMENT FOR CASH                  10/31/02     $  8,173.18        97.93             1
ISSUANCE OF COMMON STOCK
    FOR SUBSCRIPTIONS RECEIVABLE                   04/30/03     $      0.32                                  700,000             700
ISSUANCE OF COMMON STOCK
    FOR SUBSCRIPTIONS RECEIVABLE                   04/30/03     $      0.33                                  700,000             700
ISSUANCE OF COMMON STOCK
    FOR SUBSCRIPTIONS RECEIVABLE                   04/30/03     $      0.40                                   10,000              10
ISSUANCE OF COMMON STOCK
    IN PRIVATE PLACEMENT FOR CASH                  10/07/02     $      1.26                                1,849,934           1,850
OFFERING COSTS
ISSUANCE OF COMMON STOCK
    ON CASHLESS CONVERSION
    OF THE SERIES A PREFERRED
    STOCK                                          01/27/03                        (2.11)                     18,336     $        18
ISSUANCE OF COMMON STOCK
    IN CASHLESS EXERCISE OF
    WARRANTS                                       01/02/03                                                   33,909              34
ISSUANCE OF COMMON STOCK
    AND COMMON STOCK
    COMMITTED AS A BONUS                              (8)       $      1.35                                   11,178              11
ISSUANCE OF COMMON STOCK
    AND COMMON STOCK
    COMMITTED FOR SERVICES
    RENDERED                                       04/21/03     $      0.65                                   21,277              21
DIVIDENDS ON PREFERRED STOCK                       10/31/02                                                   68,150              68
BENEFICIAL CONVERSION FEATURE
    GRANTED IN CONNECTION WITH
    ISSUANCE OF PREFERRED
    STOCK                                          10/31/02
CONVERSION OF CONVERTIBLE
    NOTES PAYABLE - RELATED
    PARTIES INTO COMMON STOCK                      07/18/02     $      1.00                                   37,898              38
FINANCING EXPENSE IN CONNECTION WITH
    ISSUANCE OF WARRANTS                           05/31/02     $      1.49
STOCK OPTIONS ISSUED FOR SERVICES RENDERED         07/12/02     $      1.52
STOCK OPTIONS ISSUED FOR SERVICES RENDERED         08/01/02     $      0.47
STOCK OPTIONS ISSUED AS COMPENSATION               02/11/03     $      0.13
STOCK OPTIONS ISSUED AS COMPENSATION               09/25/02     $      1.10
STOCK OPTIONS ISSUED IN EXCHANGE FOR
    SETTLEMENT OF ACCOUNTS PAYABLE                 09/25/02     $      1.10
STOCK OPTIONS ISSUED IN EXCHANGE FOR
    SETTLEMENT OF ACCOUNTS PAYABLE                 12/19/02     $      0.55
WARRANTS ISSUED FOR SERVICES RENDERED              05/01/02     $      0.65
WARRANTS ISSUED FOR SERVICES RENDERED              02/17/03     $      1.63
WARRANTS ISSUED FOR SERVICES RENDERED              04/28/03     $      0.37
WARRANTS ISSUED FOR TERMINATION OF CONTRACT        12/09/02     $      1.56
AMORTIZATION OF DEFERRED COMPENSATION
REVERSAL OF DEFERRED COMPENSATION
EXERCISE OF STOCK OPTIONS IN SUBSIDIARY
NET LOSS
                                                                              ----------   -----------   -----------     -----------

BALANCE, APRIL 30, 2003                                                            95.82   $         1    25,525,882     $    25,525
                                                                              ==========   ===========   ===========     ===========
</TABLE>

(1)     Multiple  transactions  valued at the per share  price in the year ended
        April 30, 1996

(2)     Multiple  transactions  valued at the per share  price in the year ended
        April 30, 1997

(3)     Multiple  transactions  valued at the per share  price in the year ended
        April 30, 1998

(4)     Multiple  transactions  valued at the per share  price in the year ended
        April 30, 1999

(5)     Multiple  transactions  valued at the per share  price in the year ended
        April 30, 2000

(6)     Multiple  transactions  valued at the per share  price in the year ended
        April 30, 2001

(7)     Multiple  transactions  valued at the per share  price in the year ended
        April 30, 2002

(8)     Multiple  transactions  valued at the per share  price in the year ended
        April 30, 2003


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

                                       38

<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, 2003
------------------------------------------------------------------------------------------------------------------------------------

                                                                                                            Deficit
                                                                                                          Accumulated
                                                              Additional      Committed                    during the
                                                               Paid-in        Common        Deferred      Development
                                                   Date        Capital         Stock      Compensation       Stage          Total
                                                ----------   -----------    -----------    -----------    -----------    ----------
<S>                                             <C>          <C>            <C>           <C>             <C>            <C>
BALANCE, AUGUST 21, 1995 (INCEPTION)                         $        --    $        --    $        --    $        --    $       --
RECAPITALIZATION UPON REVERSE TAKEOVER                            (6,456)                                                        14
ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED      (1)            7,495                                                      8,230
NET LOSS                                                                                                      (39,387)      (39,387)
                                                             -----------    -----------    -----------    -----------    ----------

BALANCE, APRIL 30, 1996                                            1,039             --             --        (39,387)      (31,143)
ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED      (2)               33                                                         36
NET LOSS                                                                                                     (110,004)     (110,004)
                                                             -----------    -----------    -----------    -----------    ----------

BALANCE, APRIL 30, 1997                                            1,072             --             --       (149,391)     (141,111)

ISSUANCE OF COMMON STOCK FOR CASH                03/23/98          2,206                                                      2,252
ISSUANCE OF COMMON STOCK FOR CASH                03/25/98            496                                                        500
ISSUANCE OF COMMON STOCK FOR CASH                   (3)           15,513                                                     15,625
ISSUANCE OF COMMON STOCK FOR CASH                10/14/97         19,911                                                     20,000
ISSUANCE OF COMMON STOCK FOR CASH                   (3)           81,757                                                     82,050
ISSUANCE OF COMMON STOCK FOR CASH                09/04/97          3,115                                                      3,124
ISSUANCE OF COMMON STOCK FOR CASH                12/17/97         20,957                                                     21,000
ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED      (3)           15,598                                                     17,050
NET LOSS                                                                                                     (293,019)     (293,019)
                                                             -----------    -----------    -----------    -----------    ----------

BALANCE, APRIL 30, 1998                                          160,625             --             --       (442,410)     (272,528)

ISSUANCE OF COMMON STOCK FOR CASH                   (4)           32,364                                                     32,480
ISSUANCE OF COMMON STOCK FOR CASH                10/01/98          4,986                                                      5,000
ISSUANCE OF COMMON STOCK FOR CASH                01/15/99          3,591                                                      3,600
ISSUANCE OF COMMON STOCK FOR CASH                10/30/98          7,487                                                      7,500
ISSUANCE OF COMMON STOCK FOR CASH                03/17/99         10,182                                                     10,200
ISSUANCE OF COMMON STOCK FOR CASH                01/08/99         32,355                                                     32,400
ISSUANCE OF COMMON STOCK FOR CASH                12/02/98          2,497                                                      2,500
ISSUANCE OF COMMON STOCK FOR CASH                12/02/98          6,991                                                      7,000
ISSUANCE OF COMMON STOCK FOR CASH                11/24/98          9,989                                                     10,000
ISSUANCE OF COMMON STOCK FOR CASH                12/02/98          2,497                                                      2,500
ISSUANCE OF COMMON STOCK FOR CASH                01/15/99          6,296                                                      6,300
ISSUANCE OF COMMON STOCK FOR CASH                05/05/98         29,232                                                     29,250
ISSUANCE OF COMMON STOCK FOR CASH                12/02/98          2,499                                                      2,500
ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED      (4)           47,591                                                     49,759
NET LOSS                                                                                                     (272,426)     (272,426)
                                                             -----------    -----------    -----------    -----------    ----------

BALANCE, APRIL 30, 1999                                          359,182             --             --       (714,836)     (343,965)

ISSUANCE OF COMMON STOCK FOR CASH                06/28/99             96                                                        100
ISSUANCE OF COMMON STOCK FOR CASH                05/03/99          3,631                                                      3,667
ISSUANCE OF COMMON STOCK FOR CASH                07/14/99         12,455                                                     12,500
ISSUANCE OF COMMON STOCK FOR CASH                11/30/99         20,946                                                     21,000
ISSUANCE OF COMMON STOCK FOR CASH                07/12/99          1,497                                                      1,500
ISSUANCE OF COMMON STOCK FOR CASH                   (5)          129,768                                                    130,000
ISSUANCE OF COMMON STOCK FOR CASH                04/03/00          1,997                                                      2,000
ISSUANCE OF COMMON STOCK FOR CASH                04/03/00          7,492                                                      7,500
ISSUANCE OF COMMON STOCK FOR CASH                   (5)          117,126                                                    117,379
ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED      (5)           83,322                                                     85,237
NET LOSS                                                                                                     (332,131)     (332,131)
                                                             -----------    -----------    -----------    -----------    ----------

BALANCE, APRIL 30, 2000                                          737,512             --             --     (1,046,967)     (295,213)

ISSUANCE OF COMMON STOCK FOR CASH                09/28/00          4,979                                                      5,000
ISSUANCE OF COMMON STOCK FOR CASH                   (6)          104,286                                                    104,730
ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED      (6)           36,097                                                     36,468
NET LOSS                                                                                                     (288,067)     (288,067)
                                                             -----------    -----------    -----------    -----------    ----------

BALANCE, APRIL 30, 2001                                          882,874             --             --     (1,335,034)     (437,082)

ISSUANCE OF COMMON STOCK FOR CASH                   (7)          115,282                                                    115,800
ISSUANCE OF COMMON STOCK FOR CASH                03/13/02          2,410                                                      2,420
ISSUANCE OF COMMON STOCK FOR CASH                   (7)           19,955                                                     20,000
ISSUANCE OF COMMON STOCK FOR CASH                07/31/01          9,991                                                     10,000
ISSUANCE OF COMMON STOCK FOR CASH                   (7)           33,219                                                     33,349
ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED      (7)          227,110                                                    232,170
ISSUANCE OF COMMON STOCK IN PRIVATE
    PLACEMENT FOR CASH                           04/30/02      1,223,775                                                  1,225,000
NET LOSS                                                                                                   (1,389,530)   (1,389,530)
                                                             -----------    -----------    -----------    -----------    ----------

BALANCE, APRIL 30, 2002                                        2,514,615             --             --     (2,724,564)     (187,873)
ISSUANCE OF PREFERRED STOCK
    IN PRIVATE PLACEMENT FOR CASH                10/31/02        800,399                                                    800,400
ISSUANCE OF COMMON STOCK
    FOR SUBSCRIPTIONS RECEIVABLE                 04/30/03        219,800                                                    220,500
ISSUANCE OF COMMON STOCK
    FOR SUBSCRIPTIONS RECEIVABLE                 04/30/03        228,300                                                    229,000
ISSUANCE OF COMMON STOCK
    FOR SUBSCRIPTIONS RECEIVABLE                 04/30/03          3,972                                                      3,982
ISSUANCE OF COMMON STOCK
    IN PRIVATE PLACEMENT FOR CASH                10/07/02      2,320,556                                                  2,322,406
OFFERING COSTS                                                  (196,793)                                                  (196,793)
ISSUANCE OF COMMON STOCK
    ON CASHLESS CONVERSION
    OF THE SERIES A PREFERRED
    STOCK                                        01/27/03            (18)                                                        --
ISSUANCE OF COMMON STOCK
    IN CASHLESS EXERCISE OF
    WARRANTS                                     01/02/03            (34)                                                        --
ISSUANCE OF COMMON STOCK
    AND COMMON STOCK
    COMMITTED AS A BONUS                            (8)           21,339         17,549                                      38,899
ISSUANCE OF COMMON STOCK
    AND COMMON STOCK
    COMMITTED FOR SERVICES
    RENDERED                                     04/21/03         10,288          9,691                                      20,000
DIVIDENDS ON PREFERRED STOCK                     10/31/02         78,292                                      (78,360)           --
BENEFICIAL CONVERSION FEATURE
    GRANTED IN CONNECTION WITH
    ISSUANCE OF PREFERRED
    STOCK                                        10/31/02        767,431                                     (767,431)           --
CONVERSION OF CONVERTIBLE
    NOTES PAYABLE - RELATED
    PARTIES INTO COMMON
    STOCK                                        07/18/02         37,858                                                     37,896
FINANCING EXPENSE IN CONNECTION WITH
    ISSUANCE OF WARRANTS                         05/31/02        223,710                                                    223,710
STOCK OPTIONS ISSUED FOR SERVICES RENDERED       07/12/02        761,007                                                    761,007
STOCK OPTIONS ISSUED FOR SERVICES RENDERED       08/01/02        187,163                                                    187,163
STOCK OPTIONS ISSUED AS COMPENSATION             02/11/03         59,373                                                     59,373
STOCK OPTIONS ISSUED AS COMPENSATION             09/25/02      3,305,542                    (3,305,542)                          --
STOCK OPTIONS ISSUED IN EXCHANGE FOR
    SETTLEMENT OF ACCOUNTS PAYABLE               09/25/02         50,000                                                     50,000
STOCK OPTIONS ISSUED IN EXCHANGE FOR
    SETTLEMENT OF ACCOUNTS PAYABLE               12/19/02         15,000                                                     15,000
WARRANTS ISSUED FOR SERVICES RENDERED            05/01/02        162,792                                                    162,792
WARRANTS ISSUED FOR SERVICES RENDERED            02/17/03        130,712                                                    130,712
WARRANTS ISSUED FOR SERVICES RENDERED            04/28/03         18,284                                                     18,284
WARRANTS ISSUED FOR TERMINATION OF CONTRACT      12/09/02        390,409                                                    390,409
AMORTIZATION OF DEFERRED COMPENSATION                                                        1,032,981                    1,032,981
REVERSAL OF DEFERRED COMPENSATION                             (2,272,561)                    2,272,561                           --
EXERCISE OF STOCK OPTIONS IN SUBSIDIARY                                           7,164                                       7,164
NET LOSS                                                                                                   (5,411,265)   (5,411,265)
                                                             -----------    -----------    -----------    -----------    ----------

BALANCE, APRIL 30, 2003                                      $ 9,837,436    $    34,404    $        --    $(8,981,620)   $  915,747
                                                             ===========    ===========    ===========    ===========    ==========
</TABLE>

(1)     Multiple  transactions  valued at the per share  price in the year ended
        April 30, 1996

(2)     Multiple  transactions  valued at the per share  price in the year ended
        April 30, 1997

(3)     Multiple  transactions  valued at the per share  price in the year ended
        April 30, 1998

(4)     Multiple  transactions  valued at the per share  price in the year ended
        April 30, 1999

(5)     Multiple  transactions  valued at the per share  price in the year ended
        April 30, 2000

(6)     Multiple  transactions  valued at the per share  price in the year ended
        April 30, 2001

(7)     Multiple  transactions  valued at the per share  price in the year ended
        April 30, 2002

(8)     Multiple  transactions  valued at the per share  price in the year ended
        April 30, 2003


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

                                       39

<PAGE>

<TABLE>
<CAPTION>

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

                                                                                           For the
                                                                                         Period from
                                                                                          August 21,
                                                          For the Year Ended                 1995
                                                              April 30,                 (Inception) to
                                                   -----------------------------           April 30,
                                                      2003                2002               2003
                                                   -----------        -----------        -----------
<S>                                                <C>                <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES
    Net loss                                       $(5,411,265)       $(1,389,530)       $(8,135,829)
    Adjustments to reconcile net loss to
      net cash used in operating activities
        Depreciation                                    91,993              5,469             99,425
        Issuance of common stock as
           compensation expense                             --            232,170            428,950
        Issuance of common stock as
           compensation expense for
           services rendered from minority
           shareholders                                     --              4,000             18,923
        Warrants issued for services
           rendered or to be rendered                  311,788                 --            311,788
        Warrants issued for termination
           of contract                                 390,409                 --            390,409
        Common stock issued and common
           stock committed to an
           employee for a bonus                         38,899                 --             38,899
        Common stock issued and common
           stock committed for services
           rendered                                     20,000                 --             20,000
        Stock options issued for services
           rendered                                    351,762                 --            351,762
        Stock options issued as
           compensation                                 59,373                 --             59,373
        Additional compensation of officer                  --             42,171             42,171
        Amortization of deferred
           compensation                              1,032,981                 --          1,032,981
        Financing expense                              223,710                 --            223,710
        (Increase) decrease in
           Restricted cash                             (71,234)                --            (71,234)
           Accounts receivable                          (5,417)           (29,166)           (34,583)
           Other current assets                        186,258             (7,500)           178,758
           Other assets                               (295,948)                --           (295,948)
        Increase (decrease) in
           Accounts payable                            572,717            185,027            782,614
           Accrued expenses                           (149,967)           119,579              1,616
           Accrued payroll and payroll taxes          (321,475)           175,000             28,525
           Accrued interest                              8,419             10,195             38,186
                                                   -----------        -----------        -----------

Net cash used in operating activities               (2,966,997)          (652,585)        (4,489,504)
                                                   -----------        -----------        -----------

CASH FLOWS FROM INVESTING ACTIVITIES
    Purchase of property and equipment                (481,850)          (118,510)          (603,850)
                                                   -----------        -----------        -----------

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

CASH FLOWS FROM FINANCING ACTIVITIES
    Proceeds from issuance of common
      stock in  private placement                    2,322,406          1,225,000          3,547,406
    Offering costs on common stock                    (196,793)                --           (196,793)
    Proceeds from issuance of common
      stock                                                 --            181,569            882,723
    Proceeds from issuance of preferred
      stock                                            979,301                 --            979,301
    Offering costs on preferred stock                 (178,902)                --           (178,902)
    Recapitalization of reverse takeover                    --                 --                 14
    Exercise of stock options in subsidiary              7,164                 --              7,164
    Proceeds from notes payable - related
      parties                                           24,640            443,021            604,146
    Payments on notes payable - related
      parties                                         (546,331)                --           (546,331)
    Proceeds from convertible notes
      payable - related parties                             --              5,400             55,400
    Payments on convertible notes
      payable - related parties                         (5,000)            (9,280)           (25,000)
                                                   -----------        -----------        -----------

Net cash provided by financing activities            2,406,485          1,845,710          5,129,128
                                                   -----------        -----------        -----------

Net increase (decrease) in cash and
    cash equivalents                                (1,042,362)         1,074,615             35,774

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

CASH AND CASH EQUIVALENTS,
    END OF PERIOD                                  $    35,774        $ 1,078,136        $    35,774
                                                   ===========        ===========        ===========

SUPPLEMENTAL DISCLOSURES OF CASH
    FLOW INFORMATION

      INTEREST PAID                                $     2,888        $        --        $     2,888
                                                   ===========        ===========        ===========

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

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

                                       40
<PAGE>


SUPPLEMENT SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

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

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

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

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

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

During  the year  ended  April 30,  2002,  the  Company  recorded  a  beneficial
conversion  feature  granted in  connection  with the  issuance  of the Series A
convertible, redeemable preferred stock totaling $767,431.

During the years  ended  April 30,  2003 and 2002 and the period from August 21,
1995 (inception) to April 30, 2003, the Company  converted  accounts payable due
to the Company's legal counsel of $46,717, $0 and $46,717, respectively, into an
unsecured convertible  promissory note bearing interest at 10%, convertible into
common stock at the market price on the date of conversion.


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

                                       41
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND LINE OF BUSINESS

         General

         HiEnergy Technologies,  Inc. ("HiEnergy") was incorporated on March 22,
         2000  under  the laws of the  state of  Washington.  In  October  2002,
         HiEnergy  reincorporated  under  the  laws of the  state  of  Delaware.
         HiEnergy Microdevices, Inc. ("Microdevices"), a subsidiary of HiEnergy,
         was incorporated on August 21, 1995 in the state of Delaware.

         HiEnergy  and  its  subsidiaries  (collectively,   the  "Company")  are
         development stage companies  commercializing  a proprietary  technology
         for assembling sensor systems for numerous  governmental and commercial
         applications and markets.  The Company's technology has applications in
         detecting almost every chemical  element and compound,  such as plastic
         explosives, Anthrax and cocaine.

         Recapitalization between HiEnergy and Shareholders of Microdevices

         On April 25, 2002,  HiEnergy  entered into a voluntary  share  exchange
         agreement  whereby it would exchange 92% of the  outstanding  shares of
         common  stock of  Microdevices  for  14,380,200  shares of newly issued
         common stock. For accounting purposes, the transaction has been treated
         as a recapitalization of HiEnergy,  with Microdevices as the accounting
         acquirer  (reverse  takeover),  and has been  accounted for in a manner
         similar to a pooling of  interests.  HiEnergy  had  minimal  assets and
         liabilities  at the  date of the  reverse  takeover  and  did not  have
         significant  operations prior to the reverse  takeover.  Since HiEnergy
         was a "public shell" pro forma information is not presented.

NOTE 2 - RECLASSIFICATIONS

         The Company  reclassified $71,234 included in cash and cash equivalants
         to restricted cash as of April 30, 2003. The company also  reclassified
         $295,948  included in  short-term  prepaid  consulting  fees which were
         included  in other  current  assets as of April 30,  2003 to  long-term
         other  assets as of the same date to match the  contract  term to which
         the consulting fees apply.

         During the years  ended  April 30,  2003 and 2002 and the  period  from
         August 21, 1995 (inception) to April 30, 2003, the Company reclassified
         $144,587,  $148,166 and  $470,503,  respectively  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.

         The Company also made appropriate  reclassifications  to the Statements
         of Cash Flows for the year  ended  April 30,  2003 and the period  from
         August 21,  1995  (inception)  to April 30,  2003 to reflect  the items
         mentioned  above.  The Company also  reclassified  a  convertible  note
         payable-related  party  from the  financing  activities  section of the
         statement of cash flows to the operating activities section as the note
         payable was a non-cash transaction.


                                       42
<PAGE>

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

<TABLE>
<CAPTION>
                                                           As Originally    Reclassification          As
                                                             Reported          Adjustment         Reclassified
                                                            -----------        -----------        -----------
<S>                                                         <C>                <C>                <C>
           BALANCE SHEET
           Cash and cash equivalents                        $   107,008        $   (71,234)       $    35,774
           Restricted cash                                           --             71,234             71,234
           Total current assets                               1,308,671           (295,948)         1,012,723
           Other assets                                              --           (295,948)          (295,948)
           Total assets                                       1,813,095                 --          1,813,095
           Total current liabilities                            878,425                 --            878,425
           Total liabilities and shareholders' equity       $ 1,813,095        $        --        $ 1,813,095

           STATEMENT OF OPERATIONS
           Contract revenues                                $   144,587        $  (144,587)       $        --
           Research and development                             839,629           (144,587)           695,042
           Total operating expenses                           5,327,804           (144,587)         5,183,217
           Loss from operations                              (5,183,217)                --         (5,183,217)
           Net loss                                          (5,411,265)                --         (5,411,265)

           Net loss available to common shareholders        $(6,257,056)       $        --        $(6,257,056)
           Loss per common  share:
                  Basic and diluted loss per share          $     (0.23)       $        --        $     (0.23)
                  Basic and diluted loss available to
                    common shareholders per share           $     (0.27)       $        --        $     (0.27)

          STATEMENT OF CASH FLOWS
          Restricted cash                                   $        --            (71,234)       $   (71,234)
          Other current assets                                 (109,690)           295,948            186,258
          Other assets                                               --           (295,948)          (295,948)
          Accounts payable                                      526,000             46,717            572,717
          Net cash used in operating activities              (2,942,480)           (24,517)        (2,966,997)
          Proceeds from convertible notes
                 payable - related parties                       51,717            (51,717)                --
          Payments on convertible notes
                 payable - related parties                      (10,000)             5,000             (5,000)
          Net cash provided by financing activities           2,453,202            (46,717)         2,406,485
          Net increase (decrease) in cash
                 and cash equivalents                          (971,128)           (71,234)        (1,042,362)
          Cash and cash equivalents, end of period          $   107,008        $   (71,234)       $    35,774

</TABLE>


                                       43
<PAGE>

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

<TABLE>
<CAPTION>
                                                          As Originally     Reclassification         As
                                                             Reported          Adjustment        Reclassified
                                                           ------------       ------------       ------------
<S>                                                        <C>                <C>                <C>
          STATEMENT OF OPERATIONS
          Contract revenues                                $   148,166        $  (148,166)       $        --
          Research and development                             558,184           (148,166)           410,018
          Total operating expenses                           1,525,276           (148,166)         1,377,110
          Loss from operations                              (1,377,110)                --         (1,377,110)
          Net loss                                          (1,389,530)                --         (1,389,530)
          Net loss available to common shareholders        $(1,389,530)       $        --        $(1,389,530)
          Loss per common  share:
                 Basic and diluted loss per share          $     (0.08)       $        --        $     (0.08)
                 Basic and diluted loss available to
                   common shareholders per share           $     (0.08)       $        --        $     (0.08)
</TABLE>

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

<TABLE>
<CAPTION>
                                                          As Originally     Reclassification         As
                                                             Reported          Adjustment        Reclassified
                                                           ------------       ------------       ------------
<S>                                                        <C>                <C>                <C>
           STATEMENT OF OPERATIONS
           Contract revenues                               $   470,503        $  (470,503)       $        --
           Research and development                          2,428,182           (470,503)         1,957,679
           Total operating expenses                          8,337,246           (470,503)         7,866,743
           Loss from operations                             (7,866,743)                --         (7,866,743)
           Net loss                                         (8,135,829)                --         (8,135,829)
           Net loss available to common shareholders       $(8,981,620)       $        --        $(8,981,620)

          STATEMENT OF CASH FLOWS
          Restricted cash                                  $        --        $   (71,234)       $   (71,234)
          Other current assets                                (117,190)           295,948            178,758
          Other assets                                              --           (295,948)          (295,948)
          Accounts payable                                     735,897             46,717            782,614
          Net cash used in operating activities             (4,464,987)           (24,517)        (4,489,504)
          Proceeds from convertible notes
                 payable - related parties                     107,117            (51,717)            55,400
          Payments on convertible notes
                 payable - related parties                     (30,000)             5,000            (25,000)
          Net cash provided by financing activities          5,175,845            (46,717)         5,129,128
          Net increase (decrease) in cash and
                 cash equivalents                              107,008            (71,234)            35,774
          Cash and cash equivalents, end of period         $   107,008        $   (71,234)       $    35,774
</TABLE>


                                       44
<PAGE>


         The Company has also amended the  Statements  of  Shareholders'  Equity
         (Deficit) for the period from August 21, 1995  (inception) to April 30,
         2003 to disclose  the date,  price per equity unit and number of equity
         instrument for each issuance since  inception.  Transactions  with same
         price per equity unit in the same fiscal year have been aggregated.

         The Company has also improved  disclosures  in a number of areas in the
         notes to the consolidated financial statements.

NOTE 3 - GOING CONCERN

         The accompanying  financial statements have been prepared in conformity
         with accounting  principles  generally accepted in the United States of
         America  which  contemplate  continuation  of the  Company  as a  going
         concern.  However,  during the years  ended April 30, 2003 and 2002 and
         the period from  August 21, 1995  (inception)  to April 30,  2003,  the
         Company  incurred  net  losses  available  to  common  shareholders  of
         $6,257,056,  $1,389,530,  and  $8,981,620,  respectively,  and  it  had
         negative  cash flows  from  operations  of  $2,966,997,  $652,585,  and
         $4,489,504,  respectively.  In addition, the Company had an accumulated
         deficit of $8,981,620 and was in the development  stage as of April 30,
         2003. These factors raise substantial doubt about the Company's ability
         to continue as a going concern.

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

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


                                       45
<PAGE>


NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Principles of Consolidation

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

         Development Stage Enterprise

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

         Comprehensive Income

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

         Cash and Cash Equivalents

         The  Company   maintains  its  cash  deposits  at  a  bank  located  in
         California.  Deposits at the bank are  insured by the  Federal  Deposit
         Insurance  Corporation  ("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.

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

         Restricted Cash

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

         Accounts Receivable

         Accounts  receivable at April 30, 2003 consisted of an amount due under
         a governmental  grant.  Contract  amounts are billed as monthly reports
         are  submitted  detailing  work  performed  under the  contract and are
         generally due in 30 days.

         Subscriptions Receivable

         Subscriptions  receivable  at April 30, 2003  consisted  of amounts due
         from the sale of 1,410,000 shares of the Company's common stock.  These
         amounts were subsequently received in May 2003 (see Note 15).

         Property and Equipment

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

         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.

         Fair Value of Financial Instruments

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


                                       46
<PAGE>


         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  Department  of Defense have been
         offset against  research and development  costs, in accordance with the
         provisions of that section.

         Stock-Based Compensation

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

         The Company  accounts for common stock issued for services  rendered at
         the fair value of the common stock issued on the date of issuance.

         The  following  table  illustrates  the effect on net loss and loss per
         share if the Company had applied the fair value-recognition  provisions
         of SFAS No. 123, to the stock-based employee compensation:

<TABLE>
<CAPTION>
                                                                 Year Ended April 30,
                                                               2003                  2002
                                                           -------------        -------------
<S>                                                        <C>                  <C>
          Net loss, as reported                            $  (5,411,265)       $  (1,389,530)
          Add: Stock-based employee compensation
          expense included in reported net loss
          determined under APB No. 25, net of
          related tax effects                                  1,087,154                   --

          Deduct: Total stock-based employee
          compensation expense determined under
          fair-value-based method for all awards,
          net of related tax effects                          (2,278,508)                  --
                                                           -------------        -------------
          Pro forma net loss                               $  (6,602,619)       $  (1,389,530)

          Loss per share:
          Basic and diluted - as reported                  $       (0.23)       $       (0.08)
          Basic and diluted - pro forma                    $       (0.28)       $       (0.08)
</TABLE>


         Stock options or 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.

         All warrants and options issued to non-employees for financing expenses
         and  services  rendered  have been  valued  using the fair value of the
         equity instrument issued, as this was readily  determinable.  All stock
         options issued in exchange for accounts  payable have been valued using
         the fair value of the goods or services  provided,  as this had already
         been determined.

         Warrants issued to investors in Private Placements,  as offering costs,
         have been valued using the fair value of the equity instrument  issued,
         as this was more readily determinable. As these warrants were issued as
         a cost associated with raising capital through the private  placements,
         no entry was recorded to additional paid-in 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.  Because  the  Company  has
         incurred net losses, basic and diluted loss per share are the same.


                                       47
<PAGE>


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

<TABLE>
<CAPTION>
                                                                    2003              2002
                                                                 ----------        ---------
<S>                                                             <C>               <C>
          Stock options                                           5,399,937               --
          Warrants                                                1,648,686               --
          Series A convertible, redeemable preferred stock        2,191,874               --
          Microdevices minority shareholders                        459,222          459,222
          Microdevices option and warrant holders                   368,725          798,942
                                                                 ----------        ---------
                                     TOTAL                       10,068,444        1,258,164
                                                                 ----------        ---------
</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 June 2002, the Financial  Accounting Standards Board ("FASB") issued
         SFAS No. 146,  "Accounting  for Costs  Associated with Exit or Disposal
         Activities."  This  statement   addresses   financial   accounting  and
         reporting for costs  associated  with exit or disposal  activities  and
         nullifies   Emerging   Issues  Task  Force  ("EITF")  Issue  No.  94-3,
         "Liability  Recognition for Certain Employee  Termination  Benefits and
         Other Costs to Exit an Activity  (including Certain Costs Incurred in a
         Restructuring)."  This  statement  requires that a liability for a cost
         associated  with an exit or disposal  activity be  recognized  when the
         liability is incurred.  Under EITF Issue 94-3, a liability  for an exit
         cost, as defined,  was recognized at the date of an entity's commitment
         to an exit plan.  The  provisions  of this  statement are effective for
         exit or disposal  activities that are initiated after December 31, 2002
         with earlier application  encouraged.  This statement is not applicable
         to the Company.

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

         In November 2002, the FASB issued  Interpretation No. 45,  "Guarantor's
         Accounting  and  disclosure  Requirements  for  Guarantees,   Including
         Indirect  Guarantees  of  Indebtedness  of  Others"  (FIN  45).  FIN 45
         elaborates  on  the  disclosures  to be  made  by a  guarantor  in  its
         financial  statements  about its obligations  under certain  guarantees
         that it has issued.  It also  clarifies that a guarantor is required to
         recognize,  at the inception of the guarantee, a liability for the fair
         value of the  obligation  undertaken  in  issuing  the  guarantee.  The
         disclosure  provisions  of FIN 45 are  effective  in the first  interim
         period or fiscal year ending after December 15, 2002.  The  recognition
         and measurement  requirements are to be applied on a prospective  basis
         to guarantees  issued or modified after  December 31, 2002.  Management
         does not expect the adoption of FIN 45 to have a material impact on the
         Company's financial statements.

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

         In January 2003, the FASB issued  Interpretation No. 46, "Consolidation
         of  Variable  Interest  Entities"  (FIN  46).  FIN 46  amended  ARB 51,
         "Consolidated  Financial  Statements,"  and  established  standards for
         determining  under what  circumstances a variable interest entity (VIE)
         should  be  consolidated  with  its  primary  beneficiary.  FIN 46 also
         requires  disclosures  about VIEs that the  company is not  required to
         consolidate but in which it has a significant  variable  interest.  The
         consolidation  requirements of FIN 46 apply immediately to VIEs created
         after January 31, 2003. The consolidation  requirements  apply to older
         entities in the first  fiscal year or interim  period  beginning  after
         June 15,  2003.  Certain of the  disclosure  requirements  apply in all
         financial statements issued after January 31, 2003,  regardless of when
         the VIE was  established.  Management  does not expect that adoption of
         FIN 46 will have a  significant  impact on the  results of  operations,
         financial position or liquidity.


                                       48
<PAGE>

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

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

NOTE 5 - OTHER CURRENT ASSETS

         Other current assets at April 30, 2003 consisted of the following:


<TABLE>
<CAPTION>
<S>                                                           <C>
          Prepaid consulting                                  $313,250
          Deposits on equipment                                100,000
          Other                                                 14,400
                                                              --------

                TOTAL                                         $427,650
                                                              ========
</TABLE>


NOTE 6 - PROPERTY AND EQUIPMENT

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

<TABLE>
<CAPTION>
<S>                                                           <C>
          Prototype equipment                                 $111,114
          Laboratory equipment                                 436,340
          Web site development                                  14,400
          Furniture and equipment                               41,995
                                                              --------

                                                               603,849

          Less accumulated depreciation                         99,425
                                                              --------

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


         Property and equipment is recorded at cost and is depreciated using the
         straight-line  method  over an  estimated  useful  life of five  years.
         Depreciation  expense  for the years  ended April 30, 2003 and 2002 and
         the period  from  August 21,  1995  (inception)  to April 30,  2003 was
         $91,993, $5,469 and $99,425, respectively.


                                       49
<PAGE>

NOTE 7 - NOTES PAYABLE - RELATED PARTIES

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

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

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

                                                                                 85,000

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

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


                                       50
<PAGE>


NOTE 8 - CONVERTIBLE NOTES PAYABLE - RELATED PARTIES

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

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

         Unsecured  note payable to the legal  counsel of the Company,  interest
         payable at 10% per annum and due in September 2003.  The holder of the
         note payable has the option to convert the  principal and interest into
         shares of common  stock at the  market  price of the  Company's  common
         stock at the conversion date                                                    46,717
                                                                                        -------
                                                                                         57,117

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

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


NOTE 9 -RESEARCH AND DEVELOPMENT COSTS

         The  Company  has  been  engaged  in   commercializing   a  proprietary
         technology for assembling sensor systems for numerous  governmental and
         commercial  applications  and markets.  The  Company's  technology  has
         applications in detecting  almost every chemical  element and compound,
         such as plastic explosives, Anthrax and cocaine.

         The Company's  research and development  expenses consist  primarily of
         salaries and benefits, facilities,  depreciation,  consulting services,
         supplies  and travel.  Research  and  development  costs are charged to
         operations as incurred.  Amounts earned under the Company's development
         contracts  with the  Department  of Defense  have been  offset  against
         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  Department  of Defense have been
         offset against  research and development  costs, in accordance with the
         provisions of that section.

         Since inception, the Company has been able to obtain various Department
         of Defense grants. These grants are generally fixed-price, best efforts
         research and development grants.  During the years ended April 30, 2003
         and 2002, the Company worked on different phases of two separate grants
         with the  Department  of Defense.  During the year ended April 30, 2002
         the Company  completed  work on a fixed-price  government  grant.  Also
         during the same year, the Company started work on Department of Defense
         Small Business  Innovation  Research  (SBIR) Phase I grant for $70,000.
         Work on the SBIR Phase I grant was  completed  in the year ended  April
         30, 2003.

         In August 2002, the Company was selected to an SBIR Phase II to receive
         up to  $780,000  in  funding  over two years for Phase II  testing  and
         development of an anti-tank  landmine  detection system. On January 15,
         2003, the Company executed the contract with the Department of Defense.
         Work commenced in January 2003 under year one of the contract valued at
         $415,000.  We estimate our costs of the first year of the SBIR Phase II
         grant to be  $1,100,000.  The second  year of the  contract,  valued at
         approximately  $364,000 is under a option that can be  exercised by the
         Department of Defense at the end of the first year.  Under the terms of
         the  contract,  we are  required  to  submit  monthly  written  reports
         detailing  our  progress  under the  contract.  The company  recognizes
         one-twelfth  of the  first-year  contract  amount as an offset  against
         research and development expenses each month.



                                       51
<PAGE>


         Below is a summary of research and development  costs for the following
         periods:

<TABLE>
<CAPTION>
                                                                                           For the
                                                                                         Period from
                                                                                          August 21,
                                                                                            1995
                                                                                       (Inception) to
                                                        Year Ended April 30,               April 30,
                                                   -------------------------------------------------
                                                       2003               2002               2003
                                                   -----------        -----------        -----------
<S>                                                <C>                <C>                <C>
          Research and development costs           $   839,629        $   558,184        $ 2,428,182
          Grant income earned                         (144,587)          (148,166)          (470,503)
                                                   -----------        -----------        -----------
          Net research and development costs       $   695,042        $   410,018        $ 1,957,679
                                                   -----------        -----------        -----------
</TABLE>


NOTE 10 - COMMITMENTS AND CONTINGENCIES

         Employment Agreements

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

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

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

         o        Microdevices  granted  options to purchase  111,040  shares of
                  common stock at an exercise price of $3.00 per share,  vesting
                  immediately,  and  which  are  exercisable  from  time to time
                  within the period ending  November 30,  2008.The stock options
                  were with the  exercise  price  above the market  price of the
                  common  stock  on the  date of the  grant.  At the time of the
                  reverse  takeover of HiEnergy  and  Microdevices,  the Company
                  exchanged the  Microdevices  stock options at an exchange rate
                  of 22.3524 per share or 2,482,011  HiEnergy stock options with
                  an exercise price of $0.134 per share.

         o        The  Company  will grant its Chief  Scientist/Chairman  of the
                  Board  annually  during the term of five years 1% per annum of
                  the Company's  stock issued and  outstanding  with an exercise
                  price of the average  price for the preceding 30 days. He must
                  not  receive  less  than 10% of the total  number  of  options
                  granted by the Company for  services in that year.  During the
                  year ended  April 30,  2003,  the Company  granted  options to
                  purchase  456,717  shares of common stock at an exercise price
                  of $2.81 per share.  During the  fiscal  year ended  April 30,
                  2003, the Company  recorded  $59,373 in  compensation  expense
                  because these stock options were issued with an exercise price
                  below the market  price of the  Company's  common stock on the
                  date of grant.

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

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

                  o     January 1, 2002 to December 31, 2002 $125,000 per year

                  o     January 1, 2003 to December 31, 2003 $175,000 per year

                  o     January 1, 2004 to December 31, 2004 $175,000 per year

                  o     January 1, 2005 to December 31, 2005 $175,000 per year

                  o     January 1, 2006 to December 31, 2006 $283,013 per year


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

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


                                       52
<PAGE>

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

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

         o        $135,000 per year

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

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

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

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

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

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

         During the year ended April 30, 2003,  the Company  settled a breach of
         contract  lawsuit  with a former  officer  of the  Company.  The former
         officer was paid $150,000 as compensation  under the settlement and was
         reimbursed $25,000 in legal and moving expenses.

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

         Consulting Agreements

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

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


                                       53
<PAGE>


         The stock  options  were  valued at  $761,007,  of which  $211,390  was
         expensed and is included in general and administration  expenses on the
         accompanying  statement  of  operations.  As of  April  30,  2003,  the
         remaining  unamortized  balance of $549,617 will be amortized  over the
         remaining term of the consulting  agreement.  As of April 30, 2003, the
         short-term portion of the remaining unamortized balance is $253,669 and
         is  included  in other  current  assets  and the  long-term  balance is
         $295,948 and is included in other assets. The fair value of the options
         were determined  using the Black Scholes model. The assumptions used to
         determine the valuation are as follows:

<TABLE>
<CAPTION>
<S>                                                           <C>
          Value of warrants per share                         $1.52
          Stock price on grant date                           $2.13
          Exercise price                                      $1.00
          Expected life of option                              2 years
          Risk-free rate of return                             3.02%
          Expected annual volatility                            105%
          Annual rate of dividends                                0%
</TABLE>

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

<TABLE>
<CAPTION>
<S>                                                            <C>
          Value of warrants per share                          $0.47
          Stock price on grant date                            $1.76
          Exercise price                                       $2.00
          Expected life of option                              1.0 years
          Risk-free rate of return                              1.75%
          Expected annual volatility                              78%
          Annual rate of dividends                                 0%
</TABLE>


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

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

         Lease Agreement

         In September  2002,  the Company  entered  into a three-year  operating
         lease agreement with one of its directors for its corporate  offices in
         Irvine,  California.  The lease provides for monthly rent of $8,000 for
         the first 18 months  and $8,320  for the  remaining  term of the lease,
         expiring  in October  2005.  During the years  ended April 30, 2003 and
         2002, the Company also leased a research and development test site on a
         month-to-month  basis for $1,200 per month.  Future minimum payments at
         April 30, 2003 under this lease agreement were as follows:

<TABLE>
<CAPTION>
            Year Ending
             April 30,
             ---------
<S>                                                    <C>
              2004                                     $ 96,160
              2005                                       99,840
              2006                                       45,760
                                                       --------
                         TOTAL                         $241,760
                                                       ========
</TABLE>

         Rent expense for all the Company's facilities for the years ended April
         30, 2003 and 2002 was $75,200 and $31,785, respectively.


                                       54
<PAGE>


         Placement Agent Agreements

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

         o        Upon execution of the agreement,  the Company issued  warrants
                  to purchase  100,000  shares of common stock,  exercisable  at
                  $0.01 per share. The warrants vest immediately and expire five
                  years from date of grant.  The fair value of the  warrants was
                  determined  to be  $145,017  were  determined  using the Black
                  Scholes model.  The warrants were issued in  conjunction  with
                  the sale of securities and are a cost of raising capital. The
                  assumptions used to determine the valuation are as follows:

<TABLE>
<CAPTION>
<S>                                                            <C>
          Value of warrants per share                          $1.45
          Stock price on grant date                            $1.46
          Exercise price                                       $0.01
          Expected life                                        1.0 years
          Risk-free rate of return                             1.75 %
          Expected annual volatility                           78%
          Annual rate of dividends                             0%
</TABLE>

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

         o        The Company issued  warrants to purchase 10% of the amounts of
                  securities  issued to  investors.  The  exercise  price of the
                  warrants  will be equal to the price at which the security was
                  issued.  The warrants vest  immediately  and expire five years
                  from the date of  grant.  Upon the  closing  of the  preferred
                  stock  private  placement  and  closing  of the  common  stock
                  private  placement,  the Company  issued  warrants to purchase
                  117,546 and 161,994 shares of common stock,  respectively,  at
                  an  exercise  price of $1.15 per  share  and $1.35 per  share,
                  respectively. The fair value of the warrants was determined to
                  be $125,206 and $173,352,  respectively,  and were  determined
                  using the Black  Scholes  model.  The warrants  were issued in
                  conjunction  with  the  sale of  securities  and are a cost of
                  raising  capital.   The  assumptions  used  to  determine  the
                  valuation are as follows:

<TABLE>
<CAPTION>
                                            117,546 Warrants   161,994 Warrants
                                            ----------------   ----------------

<S>                                              <C>              <C>
          Value of warrants per share            $ 1.07           $ 1.07
          Stock price on grant date              $ 2.05           $ 2.20
          Exercise price                         $ 1.15           $ 1.35
          Expected life                          1.0 years        1.0 years
          Risk-free rate of return                 1.59%            1.59%
          Expected annual volatility                 78%              78%
          Annual rate of dividends                    0%               0%
</TABLE>


         o        In November  2002, to terminate  this  agreement,  the Company
                  issued  warrants to purchase  150,000  shares of common stock.
                  The warrants vest immediately, with an exercise price of $2.48
                  per share,  and expire five years from the date of grant.  The
                  Company  determined  the  fair  value  of the  warrants  to be
                  $390,409 and recorded the fair value as  compensation  expense
                  in the year  ended  April  30,  2003.  The  fair  value of the
                  warrants were  determined  using the Black Scholes model.  The
                  assumptions used to determine the valuation are as follows:

<TABLE>
<CAPTION>
<S>                                                           <C>
          Value of warrants per share                         $  2.60
          Stock price on grant date                           $  2.77
          Exercise price                                      $  2.48
          Expected life                                       2.0 years
          Risk-free rate of return                            1.88 %
          Expected annual volatility                          100%
          Annual rate of dividends                            0%
</TABLE>

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

         o        Upon execution of the  agreement,  the Company paid a retainer
                  fee of $25,000 and was to pay an  additional  $25,000 on March
                  1,  2003.  As of April 30,  2003,  the  additional  $25,000 is
                  included in accrued expenses.

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


                                       55
<PAGE>

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

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

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

         SEC Investigation

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

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

         Litigation

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

         We  received  a  letter  dated  December  5,  2002,  from  an  attorney
         representing Richard T. Eckhouse,  a consultant,  demanding payment for
         accounting  services allegedly  performed by Mr. Eckhouse pursuant to a
         Letter  Agreement  dated  November 7, 2001,  between Mr.  Eckhouse  and
         HiEnergy  Microdevices,  Inc. The Letter  Agreement  provides  that Mr.
         Eckhouse was to be paid $350 per hour, which was to be paid as follows:
         (i)  one-third  or $117  in  cash;  (ii)  one-third  or $117  paid by a
         Promissory  Note  at  10%  annual  interest,   maturing  when  HiEnergy
         Technologies  receives  government funding of $900,000 or an investment
         totaling  $300,000 or more; and (iii) one-third or $117 paid by Class A
         common stock of  Microdevices  at $5.00 per share.  On May 2, 2003, Mr.
         Eckhouse filed a lawsuit against the Company, HiEnergy Microdevices and
         Dr. Bogdan  Maglich in the Superior  Court of the State of  California,
         County of Orange,  Central Justice Center,  and an amended complaint on
         June 20, 2003,  alleging that Microdevices owes Mr. Eckhouse a total of
         $313,580 for services  rendered,  plus  interest,  attorney's  fees and
         costs.  The Company and Dr.  Maglich were  successful on their demurrer
         and motion to strike. As such, Dr. Maglich  individually is no longer a
         party to this  action.  The  Company  will be filing a  cross-complaint
         against Richard  Eckhouse and discovery.  Trial is set for May 3, 2004.
         The Company intends to vigorously defend itself in this matter. We deny
         these allegations and are vigorously defending this lawsuit.

         After  reading  news  reports that  connected  our reverse  takeover of
         HiEnergy  Microdevices  with  known  stock  manipulators,  our Board of
         Directors  directed  our  President  to  hire  a  team  of  independent
         investigators to investigate whether the company or any of its officers
         and  directors  had  engaged  in  any  wrongdoing.  The  core  team  of
         independent  investigators consisted of two former federal prosecutors,
         a former Assistant United States Attorney in the civil division who has
         been in private  practice  since  1981 with  experience  in  securities
         litigation and regulatory and investigative  proceedings,  and a former
         supervisory  agent  from  the  Federal  Bureau  of  Investigation.  The
         independent  investigators  reviewed disclosures we have made, reviewed
         other  publicly  available  information,  and  conducted  a  number  of
         interviews,  including interviews with a person who had previously been
         involved in stock  manipulation  schemes and two of our  directors  who
         know  him.  The   independent   investigators   have  completed   their
         investigation.   Except  as  discussed  in  the  next  paragraph,   the
         independent investigators have concluded the following:

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

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

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

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

         As mentioned in Item 3, above,  the independent  investigators  believe
         there is  insufficient  evidence  to fully  conclude  that there was no
         wrongdoing by HiEnergy  prior to the April 2002 reverse  takeover.  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 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 a director  of the Company and for a short time as
         our interim President, was 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 whether,
         if so, our former  President  and  director  had any  knowledge of such
         control.

         On May 27, 2003,  Mr. Barry Alter  brought a lawsuit  against us in the
         New  Castle  County  Court of  Chancery  in  Delaware  to  recover  the
         advancement  of  expenses he  allegedly  incurred in response to an SEC
         investigation  that was exactly the same investigation that the Company
         answered,  but Mr. Barry Alter reacted to by obtaining  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.

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


         Minority Shareholders

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

         Warrant and Option Holders

         During the years  ended  April 30,  2003 and 2002 and the  period  from
         August 21, 1995 (inception) through April 30, 2003 Microdevices granted
         to  non-employees  stock options and warrants to purchase 0, 18,496 and
         35,743 shares,  respectively,  of common stock. The Company  determined
         using the Black-Scholes option pricing model that the fair value of the
         options and warrants issued to non-employees  for services rendered was
         immaterial.

         During the years ended April 30, 2003,  2002 and the period from August
         21, 1995  (inception)  through April 30, 2003  Microdevices  granted to
         employees  stock  options to  purchase 0,  123,909 and 123,909  shares,
         respectively,  of common stock. The Company accounted for these options
         in accordance with APB Opinion No. 25 and related  interpretations.  As
         such, no compensation  expense was recorded at the date of grant as the
         market price of the underlying  stock exceeded the exercise price.  The
         disclosure  requirements  of SFAS No.  123 have not been made for these
         options and warrants as part of Note 11 to the financial statements, as
         these options and warrants are considered immaterial.

         As of April 30,  2003  Microdevices  has  stock  options  and  warrants
         outstanding to non-employees to purchase 16,496 shares of common stock,
         and no stock options outstanding to employees.  If the stock option and
         warrant holders exercise their stock options and warrants,  the Company
         may  agree,  to allow  these  stock  option  and  warrant  holders,  to
         voluntarily  exchange  their  shares  in  Microdevices  for  shares  in
         HiEnergy at an exchange rate of 22.3524 per share,  or a range of $0.22
         to $0.32 per share,  resulting  in the  issuance of 368,725  additional
         shares of common  stock.  The table  below  summarizes  the warrant and
         stock option activity for Microdevices:

<TABLE>
<CAPTION>
                                       NON-EMPLOYEES
                                  ----------------------                   EXERCISE       EMPLOYEES        EXERCISE
                                                  STOCK                     PRICE           STOCK           PRICE
                                  WARRANTS       OPTIONS       TOTAL        RANGE          OPTIONS          RANGE         TOTAL
                                  --------       -------     --------     ----------     -----------     -----------     ----------
<S>                               <C>            <C>         <C>          <C>            <C>             <C>             <C>
Outstanding, August 21, 1995
 (inception) to April 30, 1999          --            --           --                             --                             --
Granted                             17,247            --       17,247     $ 6.25                  --                         17,247
                                  --------       -------     --------     ----------     -----------     -----------     ----------
Outstanding as of
 April 30, 2000 and 2001            17,247            --       17,247     $ 6.25                                  --         17,247
                                  --------       -------     --------     ----------     -----------     -----------     ----------
                                                                          $ 5.00 to                      $   3.00 to
Granted                             15,000         3,496       18,496     $ 7.10             123,909     $      5.00        142,405
Exchanged for
 HiEnergy option                        --            --           --                       (111,040)    $      3.00       (111,040)
                                  --------       -------     --------     ----------     -----------     -----------     ----------
Outstanding, as of                                                        $ 5.00 to                      $   3.48 to
 April 30, 2002                     32,247         3,496       35,743     $ 7.10              12,869     $      5.00         48,612
                                  --------       -------     --------     ----------     -----------     -----------     ----------

Exchanged for
 HiEnergy option                        --            --           --                         (4,000)    $      3.48         (4,000)
Expired / Forfeited                (17,200)           --      (17,200)    $ 6.25              (8,869)    $      5.00        (26,069)
Exercised                           (2,047)           --       (2,047)    $ 6.25                  --                         (2,047)
                                  --------       -------     --------     ----------     -----------     -----------     ----------
Outstanding as of                                                         $ 5.00 to
 April 30, 2003                     13,000         3,496       16,496       7.10                  --                         16,496
                                  --------       -------     --------     ----------     -----------     -----------     ----------
If options and warrants are
 exercised and voluntarily
 exchanged for shares in                                                  $ 0.22 to
 HiEnergy                          290,581        78,144      368,725     $ 0.32                                            368,725
</TABLE>

                                       56
<PAGE>


         During  the  year  ended  April  30,  2003,  stock  options  issued  to
         non-employees  were  exercised  for the  purchase  of 2,047  shares  of
         Microdevices'  common stock via a cash payment of $7,164,  or $3.50 per
         share.  Variable  plan  accounting  has not been applied to these stock
         options  as the  difference  was  immaterial.  The  Company  agreed  to
         exchange  these  shares in  Microdevices  for shares in  HiEnergy at an
         exchange rate of 22.3524 per share, or 45,759 shares of common stock.

         In April and May 2002, in conjunction  with the reverse  take-over (see
         Note 1) of Microdevices and HiEnergy, stock options issued to employees
         to purchase 111,040 and 4,000 shares of Microdevices' common stock were
         exchanged by the Company for HiEnergy stock options at an exchange rate
         of 22.3524 per share. Therefore, the Company issued options to purchase
         2,482,011 and 89,410 shares of its common stock at an exercise price of
         $0.134  and $0.156 per share,  respectively.  In  accordance  with EITF
         Issue No. 00-23,  "Accounting for Stock  Compensation under APB Opinion
         No. 25 and FASB  Interpretation  No.  44" as the  reverse  takeover  of
         HiEnergy and Microdevices was accounted for like a pooling of interest,
         no modification to the original  accounting for these stock options was
         recorded.



                                       57
<PAGE>


NOTE 11 - SHAREHOLDERS' EQUITY

         Series A Convertible, Redeemable Preferred Stock

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

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

         In October 2002,  the Company sold 97.93 shares of the Series A for net
         cash  proceeds of  $800,400.  At the time of issuance,  the  conversion
         price of the  preferred  stock  was  $1.15  which is less than the fair
         market  value of the common  stock which was $2.05.  Since the Series A
         was  convertible   immediately,   the  Company  recorded  a  beneficial
         conversion  feature upon issuance of $767,431 using the intrinsic value
         method.  The  number  of  shares  issued  upon  conversion  of  851,755
         multiplied  by the  beneficial  conversion  feature  price per share of
         $0.90 or $767,431.

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

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

         Common Stock Issued for Cash

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

         Common Stock Issued for Subscriptions Receivable

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

         Common Stock Issued for Services Rendered

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

         During the year ended April 30, 2003,  the Company issued 21,277 shares
         of common stock valued at $10,309 and  committed to issue an additional
         20,000  shares of  common  stock in  exchange  for  investor  relations
         services rendered which were valued at $9,691,  for a total of $20,000.
         The committed shares were issued subsequent to April 30, 2003.

         Convertible Notes Payable - Related Parties Converted into Common Stock

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

         Common Stock Issued in Private Placements for Cash

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

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

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

         Common Stock Issued as Dividends

         Series A holders are entitled to an 8% dividend or $78,360.  In October
         2002,  the Company  issued  68,150  shares of common stock or $1.15 per
         common share of dividends accrued on the Series A.

         Common Stock Issued as Employee Bonus

         During the year ended April 30, 2003,  the Company issued 11,178 shares
         of common stock and committed to issue 11,178 shares of common stock to
         an  employee  of the  Company in lieu of a cash  quarterly  bonus.  The
         quarterly  bonus of 5,589  shares of common  stock was valued using the
         Company's stock price on the date the bonus was earned.  The fair value
         of the quarterly bonuses totaled $38,899.


                                       58
<PAGE>


         Common Stock Issued in Cashless Exercise of Warrants

         In December  2002,  warrants to purchase  47,000 shares of common stock
         which had an  exercise  price of $0.01 per share were  exercised  via a
         cashless  exercise,  whereby the Company issued 33,909 shares of common
         stock.

         Stock Splits

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

         Warrants Issued as Financing Expense

         In May 2002, the Company issued warrants to purchase  150,000 shares of
         common stock to a  shareholder/former  officer/director as compensation
         for a default on a note  payable  (see Note 13).  The Company  recorded
         $223,710  in the year ended April 30, 2003 as  financing  expense.  The
         fair value of the  warrants  were  determined  using the Black  Scholes
         model. The assumptions used to determine the valuation are as follows:

<TABLE>
<CAPTION>
<S>                                                           <C>
          Value of warrants per share                         $1.49
          Stock price on grant date                           $2.09
          Exercise price                                      $1.00
          Expected life                                       2.0 years
          Risk-free rate of return                            3.72 %
          Expected annual volatility                          105%
          Annual rate of dividends                            0%
</TABLE>


         Warrants Issued to Investors in Private Placements and Placement Agents

         In October 2002, the Company issued warrants to purchase 255,536 shares
         of common stock to the investors in the Series A private placement. The
         warrants vest  immediately,  have an exercise price of $1.50 per share,
         and expire in October  2004.  The  Company  allocated  $221,427  to the
         warrants issued in the private  placement as a cost of raising capital.
         The fair value of the warrants were determined  using the Black Scholes
         model. The assumptions used to determine the valuation are as follows:

<TABLE>
<CAPTION>
<S>                                                            <C>
          Value of warrants per share                          $0.87
          Stock price on grant date                            $2.05
          Exercise price                                       $1.50
          Expected life                                        1.0 years
          Risk-free rate of return                             1.59 %
          Expected annual volatility                           78%
          Annual rate of dividends                             0%
</TABLE>

         In October 2002, the Company issued warrants to purchase 269,990 shares
         of  common  stock to the  investors  in a private  placement  of common
         stock. The warrants vest  immediately,  have an exercise price of $2.50
         per share, and expire in October 2005. The Company  allocated  $157,346
         to the  warrants  issued in the private  placement as a cost of raising
         capital. The fair value of the warrants were determined using the Black
         Scholes model.  The assumptions  used to determine the valuation are as
         follows:

<TABLE>
<CAPTION>
<S>                                                            <C>
          Value of warrants per share                          $0.58
          Stock price on grant date                            $2.20
          Exercise price                                       $2.50
          Expected life                                        1.0 years
          Risk-free rate of return                             1.46 %
          Expected annual volatility                           78%
          Annual rate of dividends                             0%
</TABLE>

         In August 2002, the Company issued warrants to purchase  100,000 shares
         of common stock to the  Company's  placement  agent as a retainer.  The
         warrants vest immediately,  have an exercise price of $0.01, and expire
         in August 2007. In December 2002, warrants to purchase 16,000 shares of
         common  stock were  exercised  via a  cashless  exercise.  The  Company
         allocated  $145,017 to the warrants issued in the private placements as
         a cost  of  raising  capital.  The  fair  value  of the  warrants  were
         determined  using the Black  Scholes  model.  The  assumptions  used to
         determine the valuation are as follows:


                                       59
<PAGE>

<TABLE>
<CAPTION>
<S>                                                            <C>
          Value of warrants per share                          $1.45
          Stock price on grant date                            $1.46
          Exercise price                                       $0.01
          Expected life                                        1.0 years
          Risk-free rate of return                             1.75 %
          Expected annual volatility                           78%
          Annual rate of dividends                             0%
</TABLE>

         In October 2002, the Company issued warrants to purchase 117,546 shares
         of common stock as offering costs to the Company's  placement agent who
         brought in the  investors in the Series A offering.  The warrants  vest
         immediately,  have an exercise price of $1.15 per share,  and expire in
         October 2007. In December 2002,  warrants to purchase  15,000 shares of
         common  stock were  exercised  via a  cashless  exercise.  The  Company
         allocated  $125,206 to the warrants issued in the private placements as
         a cost  of  raising  capital.  The  fair  value  of the  warrants  were
         determined  using the Black  Scholes  model.  The  assumptions  used to
         determine the valuation are as follows:

<TABLE>
<CAPTION>
<S>                                                            <C>
          Value of warrants per share                          $1.07
          Stock price on grant date                            $2.05
          Exercise price                                       $1.15
          Expected life                                        1.0 years
          Risk-free rate of return                             1.59 %
          Expected annual volatility                           78%
          Annual rate of dividends                             0%
</TABLE>


         In October 2002, the Company issued warrants to purchase 161,994 shares
         of common stock as offering costs to the Company's  placement agent who
         brought in the  investors in the common stock  private  placement.  The
         warrants vest  immediately,  have an exercise price of $1.35 per share,
         and expire in October  2007.  In  December  2002,  warrants to purchase
         16,000 shares of common stock were  exercised via a cashless  exercise.
         The Company  allocated  $125,206 to the warrants  issued in the private
         placements as a cost of raising capital. The fair value of the warrants
         were determined  using the Black Scholes model. The assumptions used to
         determine the valuation are as follows:

<TABLE>
<CAPTION>
<S>                                                            <C>
          Value of warrants per share                          $1.07
          Stock price on grant date                            $2.20
          Exercise price                                       $1.35
          Expected life                                        1.0 years
          Risk-free rate of return                             1.46 %
          Expected annual volatility                           78%
          Annual rate of dividends                             0%
</TABLE>


         In December  2002,  the  Company  issued  warrants to purchase  110,620
         shares of common  stock as offering  costs to the  Company's  placement
         agent who  brought in  investors  to the  Company.  The  warrants  vest
         immediately,  have an exercise price of $1.50 per share,  and expire in
         December 2004. The Company allocated $294,950 to the warrants issued in
         the private placements as a cost of raising capital.  The fair value of
         the  warrants  were  determined  using the  Black  Scholes  model.  The
         assumptions used to determine the valuation are as follows:

<TABLE>
<CAPTION>
<S>                                                            <C>
          Value of warrants per share                          $2.67
          Stock price on grant date                            $2.77
          Exercise price                                       $1.50
          Expected life                                        1.0 years
          Risk-free rate of return                             1.88 %
          Expected annual volatility                           78%
          Annual rate of dividends                             0%
</TABLE>

         Warrants Issued for Services Rendered

         In December 2002, the Company entered into a termination agreement with
         one of its placement  agents,  whereby the Company  issued  warrants to
         purchase 150,000 shares of common stock. The warrants vest immediately,
         are  exercisable  at $2.48 per share,  and expire on November 26, 2007.
         Any  liabilities  arising under the original  placement agent agreement
         have been  released.  The Company  recorded  $390,409 in the year ended
         April 30, 2003 as compensation  expense. The fair value of the warrants
         were determined  using the Black Scholes model. The assumptions used to
         determine the valuation are as follows:

<TABLE>
<CAPTION>
<S>                                                           <C>
          Value of warrants per share                         $2.60
          Stock price on grant date                           $2.77
          Exercise price                                      $2.48
          Expected life                                       2.0 years
          Risk-free rate of return                            1.88 %
          Expected annual volatility                          100%
          Annual rate of dividends                            0%
</TABLE>


                                       60
<PAGE>

         In February 2003, the Company issued warrants to purchase 80,000 shares
         of common stock to a placement  agent.  The warrants vest  immediately,
         have an exercise price of $1.50 per share, and expire in February 2006.
         The  Company  recorded  $130,712  in the year ended  April 30,  2003 as
         compensation  expense.  The fair value of the warrants were  determined
         using the Black Scholes model.  The  assumptions  used to determine the
         valuation are as follows:

<TABLE>
<CAPTION>
<S>                                                           <C>
          Value of warrants per share                         $1.63
          Stock price on grant date                           $1.76
          Exercise price                                      $1.50
          Expected life                                       2.0 years
          Risk-free rate of return                            1.66 %
          Expected annual volatility                          100%
          Annual rate of dividends                            0%
</TABLE>

         In April 2003, the Company issued warrants to purchase 50,000 shares of
         common stock for placement agent services  rendered.  The warrants vest
         immediately,  have an exercise price of $0.50 per share,  and expire in
         April 2006.  The Company  recorded  $18,284 in the year ended April 30,
         2003 as  compensation  expense.  The fair  value of the  warrants  were
         determined  using the Black  Scholes  model.  The  assumptions  used to
         determine the valuation are as follows:

<TABLE>
<CAPTION>
<S>                                                           <C>
          Value of warrants per share                         $0.37
          Stock price on grant date                           $0.41
          Exercise price                                      $0.50
          Expected life                                       2.0 years
          Risk-free rate of return                            1.57 %
          Expected annual volatility                          100%
          Annual rate of dividends                            0%
</TABLE>

         In May 2002, the Company issued warrants to purchase  250,000 shares of
         common stock for placement agent services  rendered.  The warrants vest
         immediately,  have an exercise price of $2.12 per share,  and expire in
         December  2007. The Company  recorded  $162,792 in the year ended April
         30, 2003 as compensation  expense.  The fair value of the warrants were
         determined  using the Black  Scholes  model.  The  assumptions  used to
         determine the valuation are as follows:

<TABLE>
<CAPTION>
<S>                                                            <C>
          Value of warrants per share                          $0.65
          Stock price on grant date                            $2.09
          Exercise price                                       $2.09
          Expected life                                        1.0 years
          Risk-free rate of return                             2.33%
          Expected annual volatility                           78%
          Annual rate of dividends                             0%
</TABLE>

         Stock Options Issued in Exchange for Accounts Payable

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

         Stock Options Issued for Services Rendered

         In July 2002, the Company issued options to purchase  1,000,000  shares
         of common stock for business development services rendered. As of April
         30,  2003,  options to  purchase  500,000  shares of common  stock were
         vested.  The options have an exercise  price of $1 per share and expire
         in July 2008. The fair value of the vested portion of the stock options
         were  determined to be $761,007 and the Company  recorded  compensation
         expense totaling $211,390 and prepaid  consulting  totaling $549,617 as
         of April 30, 2003. The compensation  expense is being expensed over the
         three year life of the agreement with the consultant. The fair value of
         the stock options were  determined  using the Black Scholes model.  The
         assumptions used to determine the valuation are as follows:


                                       61
<PAGE>

<TABLE>
<CAPTION>
<S>                                                           <C>
          Value of stock options per share                    $1.52
          Stock price on grant date                           $2.13
          Exercise price                                      $1.00
          Expected life                                       2.0 years
          Risk-free rate of return                            3.02%
          Expected annual volatility                          105%
          Annual rate of dividends                            0%
</TABLE>

         In August 2002, the Company  issued options to purchase  400,000 shares
         of common stock for investor and public  relations  services  rendered.
         The options vest  immediately,  have an exercise price of $2 per share,
         and  expire in August  2004.  The fair value of the stock  options  was
         determined to be $187,163 and the Company recorded compensation expense
         totaling $140,372 and prepaid  consulting  totaling $46,791 as of April
         30, 2003.  The  compensation  expense is being spread over the one-year
         life of the  agreement.  The  fair  value  of the  stock  options  were
         determined  using the Black  Scholes  model.  The  assumptions  used to
         determine the valuation are as follows:

<TABLE>
<CAPTION>
<S>                                                            <C>
          Value of stock options per share                     $0.47
          Stock price on grant date                            $1.76
          Exercise price                                       $2.00
          Expected life                                        1.0 years
          Risk-free rate of return                             1.75%
          Expected annual volatility                           78%
          Annual rate of dividends                             0%
</TABLE>

         Stock Options Issued as Compensation Expense

         In September  2002, the Company  issued  options to purchase  3,005,038
         shares   of   common   stock   to   the    President/Chief    Executive
         Officer/Treasurer/Director  in accordance with an employment  agreement
         (see Note 10).

         In February 2003, the Company issued options to purchase 416,717 shares
         of common stock and was committed to issue  options to purchase  40,000
         shares of common stock to the Chief  Scientist/Chairman of the Board in
         accordance  with an employment  agreement (see Note 10). In relation to
         this transaction,  the Company recorded  compensation  expense totaling
         $59,373 or $0.13 per share as of April 30, 2003  because  the  exercise
         price of the stock  option of $2.81 was less than the  market  price of
         the stock ($2.94) on the date of the grant.

         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
         with the  following  weighted-average  assumptions  for the year  ended
         April 30, 2003.  The Company did not grant any options  during the year
         ended April 30, 2002:  dividend  yield of 0%,  expected  volatility  of
         125%,  risk-free interest rate of 2.2%, and expected life of two years.
         All options  granted to employees  during the year ended April 30, 2003
         had an exercise  price less than the stock price on the grant date. The
         weighted-average  fair  value  of  these  options  was  $1.63,  and the
         weighted-average exercise price was $1.19.

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


                                       62
<PAGE>


         The following summarizes the stock option and warrant transactions:

<TABLE>
<CAPTION>
                                                                                      Stock
                                                    Weighted        Options           Weighted         Weighted
                                                    Average         and               Average          Total             Average
                                  Stock             Grant           Warrants          Grant            Options           Grant
                                  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                --        $       --              --        $       --               --        $       --
           Granted                 2,482,011        $     0.13              --                --        2,482,011        $     0.13
                                  ----------        ----------      ----------        ----------       ----------        ----------

           Outstanding,                                                                                                           $
          April 30, 2002           2,482,011        $     0.13              --                --        2,482,011        $     0.13
                                  ----------        ----------      ----------        ----------       ----------        ----------

           Granted                 3,421,755        $     1.22       3,168,412        $     1.36        6,590,167        $     1.36
          Exchanged for
           HiEnergy options           89,410        $     0.16              --        $       --           89,410        $     0.16
           Canceled               (2,065,965)       $     1.00              --        $       --       (2,065,965)       $     1.00
           Exercised                      --        $       --         (47,000)       $     0.83          (47,000)       $     0.83
                                  ----------        ----------      ----------        ----------       ----------        ----------

           Outstanding,
          April 30, 2003           3,927,211        $     0.63       3,121,412        $     1.51        7,048,623        $     1.02
                                  ----------        ----------      ----------        ----------       ----------        ----------

           Exercisable,
          April 30, 2003           3,927,211        $     0.63       4,150,069        $     1.61        6,505,443        $     1.02
                                  ----------        ----------      ----------        ----------       ----------        ----------
</TABLE>


      The  weighted-average  remaining  contractual  life  of  the  options  and
      warrants outstanding at April 30, 2003 was 5.31 years. The exercise prices
      of the  options  and  warrants  outstanding  at April 30, 2003 ranged from
      $0.01 to $2.81, 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
--------------------  --------------------  ------------------  ---------------------  --------------------- ---------------------
<S>                         <C>                <C>                      <C>            <C>                    <C>
  $0.01 - $0.99               2,855,421          2,855,421                5.26           $       0.18           $      0.18

  $1.00 - $2.81               4,193,202          3,650,022                5.34           $       1.57           $      1.65

                       --------------------  ------------------
                              7,048,623          6,505,443
                       ====================  ==================
</TABLE>


                                       63
<PAGE>

NOTE 12 - INCOME TAXES

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

<TABLE>
<CAPTION>
          Deferred tax assets
<S>                                                    <C>
                Compensation                           $ 1,018,665
                Net operating loss carryforwards         2,440,171
                Interest                                    15,117
                Other                                          195
                                                       -----------
                                                         3,474,148

          Deferred tax liability
                State taxes                               (243,160)
                                                       -----------

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

                      TOTAL                            $        --
                                                       ===========
</TABLE>

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

<TABLE>
<CAPTION>
                                                 2003            2002
                                                ------          ------
<S>                                              <C>             <C>
          Current
                Federal                         $   --          $   --
                State                            1,600           1,934
                                                ------          ------

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

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

                      TOTAL                     $1,600          $1,934
                                                ======          ======
</TABLE>


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

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

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

         As of April 30, 2003, the Company had net operating loss  carryforwards
         for federal and state income tax purposes of approximately  $4,661,000,
         which start  expiring in 2010  through  2023.  The  utilization  of net
         operating loss carryforwards may be limited due to the ownership change
         under the  provisions of Internal  Revenue Code Section 382 and similar
         state provisions.


                                       64
<PAGE>


NOTE 13 - FINANCING EXPENSE - RELATED PARTY

         In May 2002, the Company issued warrants to purchase  150,000 shares of
         common stock to a  shareholder/former  officer/director of the Company.
         The warrants vest  immediately,  are  exercisable at $1 per share,  and
         expire on May 31,  2005.  Since the  Company was in default on the note
         payable for $150,000 to this shareholder/former officer/director of the
         Company, the Company granted these warrants.  Accordingly,  the Company
         recorded  financing expense of $223,710 during the year ended April 30,
         2003.  The fair value of the warrants were  determined  using the Black
         Scholes model.  The assumptions  used to determine the valuation are as
         follows:

<TABLE>
<CAPTION>
<S>                                                           <C>
          Value of warrants per share                         $  1.49
          Stock price on grant date                           $  2.09
          Exercise price                                      $  1.00
          Expected life                                       2.0 years
          Risk-free rate of return                            3.72 %
          Expected annual volatility                          105%
          Annual rate of dividends                            0%
</TABLE>


NOTE 14 - RELATED PARTY TRANSACTIONS

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

         See  Notes  7,  8,  10,  13  and  15  for   additional   related  party
         transactions.

NOTE 15 - SUBSEQUENT EVENTS

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

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

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

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

         In May 2003, the Company issued warrants to purchase  150,000 shares of
         common stock at $0.45 per share to business development consultants for
         services rendered. The expense was $60,518 related to this transaction.

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

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

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

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


                                       65
<PAGE>


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

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

ITEM 8a.  CONTROLS AND PROCEDURES

(A)  EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Our Chief  Executive  Officer and  Treasurer,  Dr. Bogdan C.  Maglich,  with the
assistance of other management  personnel,  have evaluated the  effectiveness of
the design and operation of our  disclosure  controls and procedures (as defined
in Rules  13a-15(e)and  15d-15(e) under the Securities  Exchange Act of 1934, as
amended  (the  "Exchange  Act"))  as of the end of the  period  covered  by this
report. Based on such evaluation,  he has concluded that our disclosure controls
and  procedures  are effective to ensure that he is alerted on a timely basis to
material   information   relating  to  HiEnergy   Technologies   (including  its
consolidated  subsidiaries)  required to be  included  in our  reports  filed or
submitted  under  the  Exchange  Act and  that  such  information  is  recorded,
processed and reported as and when required.

(B)  CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

During the period covered by this report, there have been no significant changes
in our internal control over financial reporting that have materially  affected,
or are  reasonably  likely to  materially  affect,  our  internal  control  over
financial reporting.


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,  2003 are as
follows:

<TABLE>
<CAPTION>
       NAME                      AGE                     POSITION
<S>                              <C>    <C>
Dr. Bogdan C. Maglich            75     Chairman of the Board, Chief Executive Officer,
                                        President, Treasurer and Chief Scientific Officer
David R. Baker                   71     Director
Robert H. Drysdale               58     Director
Harb S. Al Zuhair                65     Director
Bruce Del Mar                    90     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 the Company on
February  25,  2003.  Mr.  Barry  Alter  resigned  as Chief  Executive  Officer,
President  and  Treasurer of the Company on September 17, 2002 and resigned from
our board of directors on March 7, 2003.

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.  In March 2003, Mr. Robert  Drysdale was appointed to
the board of directors.  All  directors  hold office for one year or until their
respective  successors are elected or until their earlier death,  resignation or
removal.  Each officer of the Company  serves at the  discretion of the board of
directors.  There  are no  family  relationships  between  or  among  any of our
directors or executive officers.

Each director and executive  officer has furnished us the following  information
with respect to his 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 business strategy and development of the Company. 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. Celio, Minister
of Finance of The Swiss Confederation and was close to Mr. 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,  Lead  Member  of an  international  consortium  that had a
contract to design a multi-billion  dollar King Abdul Aziz's Energy  Development
Center in Jeddah, Saudi Arabia. Members of the consortium were: UK Atomic Energy
Research  Establishment,  Harwell;  Skanditronics,  a large  Swedish  technology
corporation;  General Atomic Corporation,  USA; and Booz Allen & Hamilton,  a US
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 US 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  others,  designed a  miniature
nuclear  fission  reactor  for  electricity  production  in  collaboration  with
Department of Nuclear  Engineering at MIT,  Kurchatov  Atomic Energy  Institute,
Moscow and the Russian  Ministry of Atomic Energy.  Dr. Maglich founded HiEnergy
Microdevices  and  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  working on safety  measures  for Soviet  reactors in
Europe.  Currently,  Dr. Maglich is involved in the  development  and testing of
three detectors based on his stoichiometric  technology.  Dr. Maglich has served
as a professor of physics at University of  Pennsylvania  and has also worked at
Rutgers and at the Joint Faculty,  Princeton-Penn  Accelerator  Laboratory.  Dr.
Maglich also worked in various  leadership  capacities on a variety of projects,
including the  following:  the CERN European  Center for High Energy  Physics in
Geneva,  Switzerland;  the U.S.  National  Laboratories,  the Air Force Phillips
Laboratory;  and the  British-Swedish-American  Consortium for the design of the
King Abdulaziz  Energy Research Center in Saudi Arabia.  Dr. Maglich  received a
Ph.D. in  high-energy  physics and nuclear  engineering  from the  Massachusetts
Institute  of  Technology,  a Master of Science  from  Britain's  University  of
Liverpool, and a Bachelor of Science from the University of Belgrade.


                                       66
<PAGE>


DAVID R.  BAKER.  Mr.  Baker  has  been an  attorney  for  over 45 years  and is
currently  Of Counsel to the firm  Haskell  Slaughter  Young & Rediker,  LLC, of
Birmingham,  Alabama and New York City, and from October, 1993 a Retired Partner
of Jones Day from its New York City office.  Prior to joining Haskell  Slaughter
Young & Rediker,  LLC Mr.  Baker was a partner in Baker,  Johnston & Wilson LLP,
Birmingham and New York City, from October 1998 and had been a sole practitioner
in New York from February  through  September  1998.  Mr. Baker is a graduate of
Harvard  Law  School.  He is a member  of the  Alabama  and New York  State  Bar
Associations, and the American and Alabama Law Institutes, serves on the Liaison
Committee of the American Bar Association to the Financial  Accounting Standards
Board and is the International Bar Association's principal representative in New
York to the United Nations.  In addition,  he serves as Chairman of the New York
Legislative Service, and is a Life Trustee of Birmingham-Southern College.

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

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

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

The following person was a key administrative employee of ours during the fiscal
year ended April 30, 2003:

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

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

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


                                       67
<PAGE>


ITEM 10.  EXECUTIVE COMPENSATION

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

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                      SUMMARY COMPENSATION TABLE
------------------------------------------------------------------------------------------------------------------------------------

                                       Annual Compensation                        Long-Term Compensation
                                       -------------------------------------      --------------------------------------------------

                                                                     Other                     Securities                   All
                                                                     Annual       Restricted   Under-                       Other
Name and                      Fiscal                                 Compen-      Stock        lying            LTIP       Compen-
Principal                      Year    Salary           Bonus        sation       Award(s)     Options/        Payouts     sation
Position                      Ended      ($)             ($)          ($)           ($)        SARs (#)          ($)        ($)
------------------------------------------------------------------------------------------------------------------------------------
<S>                           <C>      <C>           <C>           <C>           <C>         <C>             <C>         <C>
BOGDAN                        2003     $ 157,713     $  50,000     $  47,401           -0-       456,717           -0-     -0-
MAGLICH                       2002     $  80,734     $  50,000     $  24,952     $ 196,149     2,482,011           -0-     -0-
Chairman, Chief               2001     $  20,140           -0-     $  26,666     $  25,000           -0-           -0-     -0-
Executive Officer,
President, Treasurer
and Chief Scientific
Officer (1)

THOMAS                        2003     $  79,350           -0-           -0-           -0-     939,073
PASCOE                        2002           -0-           -0-           -0-           -0-           -0-           -0-     -0-
Former CEO
and President

BARRY                         2003           -0-           -0-     $  25,000           -0-           -0-           -0-     -0-
ALTER                         2002           -0-           -0-           -0-           -0-           -0-           -0-     -0-
Former CEO
and President
</TABLE>


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

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

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


                                       68
<PAGE>


                                  OPTION GRANTS

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


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

THOMAS
PASCOE
Former CEO
and President                          939,073(2)                   63%                $    1.00          June 6, 2003
</TABLE>

(1) Option was granted on February 11, 2003 and was fully-vested and exercisable
on the date of grant.  (2) All of these options have expired  unexercised  as of
the date of this annual report.

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

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

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

THOMAS
PASCOE
Former CEO
and President                               -0-                -0-          939,073/0                  $       0

BARRY ALTER
Former CEO
and President                               -0-                -0-                0/0                  $       0
</TABLE>


                                       69
<PAGE>

(1) The  value  of Dr.  Maglich's  options  has  been  calculated  based  on the
difference  between the closing price of our stock on the OTC Bulletin  Board(R)
on April 30, 2003 ($0.30 per share) and the exercise prices of his stock options
at $0.134  per  share.  No effect  is given to shares  exercisable  at $2.81 per
share.

COMPENSATION OF DIRECTORS

The Board recently approved a plan to grant each Director 2,000 shares of common
stock or stock  options for each meeting  attended and the  Directors  were each
granted  stock  options in varying  amounts for their  services.  On November 7,
2003, the Board approved an increase in the compensation of directors from 2,000
to 3,000 shares of common stock or stock options for each meeting attended.  All
directors are reimbursed for any reasonable  expenses  incurred in the course of
fulfilling their duties as a director of HiEnergy Technologies.

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

EMPLOYMENT CONTRACTS

In March 2002, HiEnergy  Microdevices  entered into an employment agreement with
Dr.  Maglich,  its Chairman and Chief  Scientist.  On July 16, 2002, the Company
assumed the  employment  agreement  pursuant  to an  Assignment  and  Assumption
Agreement  with HiEnergy  Microdevices.  The major terms of the agreement are as
follows:

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

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

o        Microdevices granted options to purchase 111,040 shares of common stock
         at an exercise price of $3.00 per share, vesting immediately, and which
         are exercisable from time to time within the period ending November 30,
         2008.  The stock options were with the exercise  price above the market
         price of the common stock on the date of the grant.  At the time of the
         reverse takeover of HiEnergy and  Microdevices,  the Company  exchanged
         the Microdevices stock options at an exchange rate of 22.3524 per share
         or 2,482,011  HiEnergy  stock options with an exercise  price of $0.134
         per share.

o        The  Company  will grant its Chief  Scientist  / Chairman  of the Board
         annually  during the term of five  years 1% per annum of the  Company's
         stock  issued and  outstanding  with an  exercise  price of the average
         price for the  preceding 30 days.  He must not receive less than 10% of
         the total number of options granted by the Company for services in that
         year.

o        The Company will provide its Chief  Scientist / Chairman of the Board a
         car,  pay his and his  family's  health  insurance,  provide  life  and
         disability  insurance and reimburse  him for  reasonable  out-of-pocket
         expenses,  not to exceed $20,000 in any one year, and reimburse him for
         any personal income tax liabilities arising up to $75,000.


                                       70
<PAGE>


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

SECURITY OWNERSHIP LISTED BELOW AS OF APRIL 30, 2003

<TABLE>
<CAPTION>

                                                                                                       PERCENT OF
NAME OF BENEFICIAL OWNER                                                         NUMBER OF SHARES      OUTSTANDING
---------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                   <C>
Dr. Bogdan C. Maglich, Chairman of the Board, Chief Executive                      11,216,772(1)           35.4%
Officer, President, Treasurer and Chief Scientific Officer

---------------------------------------------------------------------------------------------------------------------
Harb S. Al Zuhair, Director                                                           930,422(2)            3.2%

---------------------------------------------------------------------------------------------------------------------
Robert H. Drysdale, Director                                                           32,000(4)               *

---------------------------------------------------------------------------------------------------------------------
David R. Baker, Director                                                              514,967(3)            1.8%

---------------------------------------------------------------------------------------------------------------------
Bruce E. Del Mar, Director                                                             32,000(5)              *

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

ALL EXECUTIVE OFFICERS & DIRECTORS AS A GROUP
(5 Persons)                                                                        12,726,161(6)           39.8%

---------------------------------------------------------------------------------------------------------------------
</TABLE>


* Less than 1%.

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

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

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

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

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

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


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


                                       71
<PAGE>


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

Unless otherwise  indicated,  the address for those listed above is c/o HiEnergy
Technologies,  Inc., 1601B 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

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

EQUITY COMPENSATION PLAN INFORMATION

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

        o       all compensation plans previously  approved by security holders;
                and

        o       all  compensation  plans not  previously  approved  by  security
                holders.

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

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

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


                                       72
<PAGE>


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

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

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

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

(7) The preceding footnotes all affect this total.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

As of April 30,  2003,  we had  convertible  notes  payable to  related  parties
outstanding of $10,400 to Edward Finch, a shareholder and former director, which
was due in July 2003 and paid in August of 2003.

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

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


                                       73
<PAGE>


In March 2002, HiEnergy  Microdevices  entered into an employment agreement with
Dr.  Maglich,  its Chairman and Chief  Scientist.  On July 16, 2002, the Company
assumed the  employment  agreement  pursuant  to an  Assignment  and  Assumption
Agreement  with HiEnergy  Microdevices.  The major terms of the agreement are as
described  under  "Employment  Contracts"  under  the major  heading  "Executive
Compensation."

LOANS FROM EXECUTIVE OFFICERS AND DIRECTORS

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

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

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

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

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

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, 2003, an executive officer
or  beneficial  owner of more than 10% of any other entity that has engaged in a
transaction with the Company in excess of 5% of either of the company's revenues
or assets.

INDEBTEDNESS OF MANAGEMENT

There are no persons  who are  directors,  executive  officers  of the  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 the  Company in an amount in excess of
$60,000.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

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

REPORTS ON FORM 8-K

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

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

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


                                       74
<PAGE>


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


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

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



                                       75
<PAGE>



SIGNATURES

In  accordance  with  Section 13 or 15(d) of the Exchange  Act,  the  registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                    HIENERGY TECHNOLOGIES, INC.


                                    By:         /s/  Bogdan C. Maglich
                                        ----------------------------------------
                                           Dr. Bogdan C. Maglich
                                           CEO, President and Director

                                    Date:        December 22, 2003

In  accordance  with the Exchange  Act, this report has been signed below by the
following  persons on behalf of the  registrant and in the capacities and on the
dates indicated.

<TABLE>
<CAPTION>
<S>                                                                     <C>
By:         /s/  Bogdan C. Maglich                                      Date:       12/22/03
    --------------------------------------------                             -------------------
       Dr. Bogdan C. Maglich
       Chairman of the Board, CEO, President,
       Treasurer and Chief Scientific  Officer


By:         /s/  David R. Baker                                         Date:       12/22/03
    --------------------------------------------------------                  ------------------
       David R. Baker
       Director


By:         /s/  Harb S. Al Zuhair                                      Date:       12/22/03
    --------------------------------------------                              ------------------
       Harb S. Al Zuhair
       Director


By:         /s/  Robert H. Drysdale                                     Date:       12/22/03
    --------------------------------------------                              ------------------
       Robert Drysdale
       Director


By:         /s/  Whitney E. Stanbury                                    Date:       12/22/03
    --------------------------------                                          ------------------
       Whitney E. Stanbury
       Director
</TABLE>


                                       76
<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(2)              Articles of Incorporation filed on March 20, 2000

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

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

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

3.2(5)              Bylaws adopted on October 18, 2002

3.3(3)              Amended and Restated Bylaws

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

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

4.1(5)              Specimen Common Stock Certificate

4.2(1)              Form of Registration Rights Agreement

4.2(5)              Specimen Series A Convertible Preferred Stock Certificate

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

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

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

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

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

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

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

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

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

10.1(2)             Vitamineralherb.com License Agreement
</TABLE>


                                       77
<PAGE>

<TABLE>
<CAPTION>
<S>                 <C>
10.1(5)             Lease Agreement dated August 15, 2002 between the Registrant
                    and Del Mar Avionics

10.2(2)             Assignment of Vitamineralherb.com License Agreement

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                       78
<PAGE>

<TABLE>
<CAPTION>
<S>                 <C>
10.20(5)            Employment Agreement dated September 25, 2002 between the
                    Registrant and Tom Pascoe


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

10.40.1(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

10.4.3(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
</TABLE>

                                       79
<PAGE>

<TABLE>
<CAPTION>
<S>                 <C>
10.42(9)            Vertical Ventures Investments LLC Stock Purchase Agreement
                    dated April 23, 2003

10.43(9)            Greenwich Growth Fund Limited Stock Purchase Agreement dated
                    April 28, 2003

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 Stock Purchase Agreement dated June 16,
                    2003

10.50(10)           Richard Melnick Stock Purchase Agreement dated June 18, 2003

10.51(10)           Jeffrey Herman Stock Purchase Agreement dated June 23, 2003

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.

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             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

10.55(10)           Form of Subscription Agreement between the Registrant and
                    each April 2002 Private Placement Common Stock investor

10.56(10)           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

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(12)           Letter Agreement between SBI - USA LLC and HiEnergy
                    Technologies, Inc. dated August 1, 2003

14.1(9)             Code of Ethics for Senior Financial Officers of HiEnergy
                    Technologies, Inc.

16.1(9)             Letter of Manning Elliott

21.1(9)             List of Subsidiaries

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

23.2                Consent of Yocca, Patch & Yocca, LLP (contained in Exhibit
                    5.1)

24.1                Power of Attorney (contained on the signature page to this
                    registration statement)
</TABLE>

                                       80

<PAGE>


* Indicates a management compensatory plan or arrangement.

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

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

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

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

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

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

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

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

(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  3,  2003 as an  exhibit  to  HiEnergy  Technologies'
post-effective  amendment no. 1 to its registration statement on Form SB-2 (File
No. 333-101055), and incorporated herein by reference.

(11) Filed on October 7, 2003 as an exhibit to HiEnergy  Technologies'  Form 8-K
dated October 7, 2003.

(12)  Filed  on  December  16,  2003 as an  exhibit  to  HiEnergy  Technologies'
quarterly  report on Form 10-QSB for the fiscal  quarter ended October 31, 2003,
and incorporated herein by reference. (A)


                                       81