<PAGE>


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

/X/    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
       OF 1934

                 For the quarterly period ended October 31, 2003
                                                ----------------


//     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.
                     -------------------------------------
        (Exact name of small business issuer as specified in its charter)


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


                  1601B Alton Parkway, Irvine, California 92606
                  ---------------------------------------------
                    (Address of principal executive offices)


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


              ----------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report.)


Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes /X/ No


                      APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of December 12, 2003, the issuer
had 31,218,611 shares of Common Stock, par value $0.001 per share, issued and
outstanding.

Transitional Small Business Disclosure Format (Check one):  Yes   No /X/


<PAGE>

                           HIENERGY TECHNOLOGIES, INC.

                                    INDEX TO
                         QUARTERLY REPORT ON FORM 10-QSB
                     FOR THE QUARTER ENDED OCTOBER 31, 2003

<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION                                                                         PAGE
<S>        <C>
Item 1     Financial Statements..........................................................................1

           Consolidated Balance Sheets as of April 30, 2003 and October 31, 2003 (unaudited)

           Consolidated Statements of Operations for the three months and six
           months ended October 31, 2003 and 2002 (unaudited) and for the Period
           from August 21, 1995 (Inception) to October 31, 2003 (unaudited)

           Consolidated Statements of Shareholders' Equity for the Period from
           August 21, 1995 (Inception) to October 31, 2003 (unaudited)

           Consolidated Statements of Cash Flows for the six months ended
           October 31, 2003 and 2002 (unaudited) and for the Period from August
           21, 1995 (Inception) to October 31, 2003 (unaudited)

           Notes to the Consolidated Financial Statements (unaudited)

Item 2     Management's Discussion and Analysis or Plan of Operation....................................28

Item 3     Controls and Procedures......................................................................48

PART II - OTHER INFORMATION

Item 1     Legal Proceedings............................................................................47

Item 2     Changes in Securities........................................................................48

Item 3     Default Upon Senior Securities...............................................................49

Item 4     Submission of Matters to a Vote to Security Holders..........................................49

Item 5     Other Information............................................................................50

Item 6     Exhibits and Reports on Form 8-K.............................................................50

SIGNATURES .............................................................................................52
</TABLE>


<PAGE>


                                    HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                                     CONSOLIDATED BALANCE SHEETS
                                 OCTOBER 31, 2003 (UNAUDITED) AND APRIL 30, 2003
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                      ASSETS
                                                                                          October 31,      April 30,
                                                                                            2003             2003
                                                                                        ------------      ------------
CURRENT ASSETS                                                                          (unaudited)
<S>                                                                                     <C>               <C>
    Cash and cash equivalents                                                           $    259,746      $     35,774
    Restricted cash                                                                               --            71,234
    Subscription receivable                                                                       --           443,482
    Accounts receivable                                                                       34,583            34,583
    Other current assets                                                                     202,246           427,650
                                                                                        ------------      ------------

       Total current assets                                                                  496,575         1,012,723

PROPERTY AND EQUIPMENT, net                                                                  561,496           504,424
OTHER ASSETS                                                                                      --           295,948
                                                                                        ------------      ------------

TOTAL ASSETS                                                                            $  1,058,071      $  1,813,095
                                                                                        ============      ============

                     LIABILITIES AND SHAREHOLDERS' EQUITY

                                                                                          October 31,      April 30,
                                                                                            2003             2003
                                                                                        ------------      ------------
CURRENT LIABILITIES
    Accounts payable                                                                    $    448,183      $    670,895
    Accrued expenses                                                                          65,961             1,600
    Accrued payroll and payroll taxes                                                         68,757            28,525
    Accrued interest                                                                          46,000            35,288
    Notes payable - related parties                                                           85,000            85,000
    Convertible notes payable - related parties                                              449,746            57,117
                                                                                        ------------      ------------

       Total current liabilities                                                           1,163,647           878,425
                                                                                        ------------      ------------

MINORITY INTEREST IN SUBSIDIARY                                                               18,923            18,923
                                                                                        ------------      ------------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY (DEFICIT)
    Series A convertible, redeemable preferred stock 8% dividends, voting
       rights, liquidation preference $10,000 per share, 345 shares authorized
       0 (unaudited) and 95.82 shares issued and outstanding                                      --                 1
    Common stock, $0.001 par value
       100,000,000 shares authorized
       30,868,666 (unaudited) and 25,525,882 shares
          issued and outstanding                                                              30,868            25,525
    Additional paid-in capital                                                            12,194,682         9,837,437
    Committed common stock, 0 (unaudited) and
       76,937 outstanding                                                                         --            34,404
    Deficit accumulated during the development stage                                     (12,350,049)       (8,981,620)
                                                                                        ------------      ------------

             Total shareholders' equity (deficit)                                           (124,499)          915,747
                                                                                        ------------      ------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                              $  1,058,071      $  1,813,095
                                                                                        ============      ============
</TABLE>

   The accompanying notes are an integral part of these financial statements

                                       1
<PAGE>

                                                     HIENERGY TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                           CONSOLIDATED STATEMENTS OF OPERATIONS
               FOR THE THREE MONTHS ENDED OCTOBER 31, 2003 AND 2002 (UNAUDITED),
             FOR THE SIX MONTHS ENDED OCTOBER 31, 2003 AND 2002 (UNAUDITED), AND
 FOR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO OCTOBER 31, 2003 (UNAUDITED)
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                               For the
                                                                                                             Period from
                                                                                                             August 21,
                                          Three Months Ended                   Six Months Ended                 1995
                                    -------------------------------     -----------------------------      (Inception) to
                                     October 31,       October 31,       October 31,      October 31,        October 31,
                                       2003               2002              2003              2002              2003
                                    ------------      ------------      ------------      ------------      ------------
                                     (unaudited)       (unaudited)       (unaudited)       (unaudited)       (unaudited)
<S>                                 <C>               <C>               <C>               <C>               <C>
OPERATING EXPENSES
     General and administration        1,378,873           867,170         2,407,113         1,386,315         8,316,177
     Research and development            238,755           134,558           337,077           301,153         2,294,756
                                    ------------      ------------      ------------      ------------      ------------

TOTAL OPERATING EXPENSES               1,617,628         1,001,728         2,744,190         1,687,468        10,610,933

LOSS FROM OPERATIONS                  (1,617,628)       (1,001,728)       (2,744,190)       (1,687,468)      (10,610,933)
                                    ------------      ------------      ------------      ------------      ------------

OTHER INCOME (EXPENSE)
     Interest income                         519             1,200               883             3,358             8,769
     Interest expense                     (7,701)           (2,385)          (12,926)           (5,405)          (53,836)
     Financing expense                        --                --                --          (223,710)         (223,710)
     Other income                             --                --                --                --               231
                                    ------------      ------------      ------------      ------------      ------------

Total other income
     (expense)                            (7,182)           (1,185)          (12,043)         (225,757)         (268,546)
                                    ------------      ------------      ------------      ------------      ------------

LOSS BEFORE PROVISION
     FOR INCOME TAXES                 (1,624,810)       (1,002,913)       (2,756,233)       (1,913,225)      (10,879,479)

PROVISION FOR INCOME
     TAXES                                    --                --               800                --            13,383
                                    ------------      ------------      ------------      ------------      ------------

NET LOSS                            $ (1,624,810)     $ (1,002,913)     $ (2,757,033)     $ (1,913,225)     $(10,892,862)

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

PREFERRED STOCK
     DIVIDENDS                                --           (78,360)         (611,396)          (78,360)         (689,756)
                                    ------------      ------------      ------------      ------------      ------------

NET LOSS AVAILABLE TO
     COMMON
     SHAREHOLDERS                   $ (1,624,810)     $ (1,848,704)     $ (3,368,429)     $ (2,759,016)     $(12,350,049)
                                    ============      ============      ============      ============      ============

NET LOSS PER SHARE                  $      (0.05)     $      (0.04)     $      (0.10)     $      (0.08)
                                    ============      ============      ============      ============

BENEFICIAL CONVERSION
     FEATURE GRANTED ON
     PREFERRED STOCK
     PER SHARE                      $         --      $      (0.03)     $         --      $      (0.03)
                                    ============      ============      ============      ============

PREFERRED STOCK
     DIVIDENDS PER SHARE            $         --      $      (0.01)     $      (0.02)     $      (0.01)
                                    ============      ============      ============      ============

BASIC AND DILUTED LOSS
     AVAILABLE TO COMMON
     SHAREHOLDERS PER
     SHARE                          $      (0.05)     $      (0.08)     $      (0.12)     $      (0.12)
                                    ============      ============      ============      ============

BASIC AND DILUTED
     WEIGHTED-AVERAGE
     COMMON SHARES
     OUTSTANDING                      30,199,605        22,973,597        29,028,467        22,783,343
                                    ============      ============      ============      ============
</TABLE>

   The accompanying notes are an integral part of these financial statements

                                       2

<PAGE>

                                    HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
 FOR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO OCTOBER 31, 2003 (UNAUDITED)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                  Price per            Series A Convertible,
                                                                   Equity           Redeemable Preferred Stock
                                                     Date           Unit              Shares            Amount
                                                   --------     -------------      ------------      ------------
<S>                                                <C>          <C>                <C>               <C>
BALANCE, AUGUST 21, 1995 (INCEPTION)                                                         --      $         --

RECAPITALIZATION UPON REVERSE MERGER
ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED          (1)     $       0.01
NET LOSS
                                                                -------------      ------------      ------------

BALANCE, APRIL 30, 1996                                                                      --                --

ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED          (2)     $       0.01
NET LOSS
                                                                -------------      ------------      ------------

BALANCE, APRIL 30, 1997                                                                      --                --

ISSUANCE OF COMMON STOCK FOR CASH                  03/23/98     $        0.05
ISSUANCE OF COMMON STOCK FOR CASH                  03/25/98     $        0.11
ISSUANCE OF COMMON STOCK FOR CASH                       (3)     $        0.14
ISSUANCE OF COMMON STOCK FOR CASH                  10/14/97     $        0.22
ISSUANCE OF COMMON STOCK FOR CASH                       (3)     $        0.28
ISSUANCE OF COMMON STOCK FOR CASH                  09/04/97     $        0.35
ISSUANCE OF COMMON STOCK FOR CASH                  12/17/97     $        0.49
ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED          (3)     $        0.01
NET LOSS
                                                                -------------      ------------      ------------

BALANCE, APRIL 30, 1998                                                                      --                --

ISSUANCE OF COMMON STOCK FOR CASH                       (4)     $        0.28
ISSUANCE OF COMMON STOCK FOR CASH                  10/01/98     $        0.36
ISSUANCE OF COMMON STOCK FOR CASH                  01/15/99     $        0.38
ISSUANCE OF COMMON STOCK FOR CASH                  10/30/98     $        0.56
ISSUANCE OF COMMON STOCK FOR CASH                  03/17/99     $        0.57
ISSUANCE OF COMMON STOCK FOR CASH                  01/08/99     $        0.72
ISSUANCE OF COMMON STOCK FOR CASH                  12/02/98     $        0.75
ISSUANCE OF COMMON STOCK FOR CASH                  12/02/98     $        0.78
ISSUANCE OF COMMON STOCK FOR CASH                  11/24/98     $        0.89
ISSUANCE OF COMMON STOCK FOR CASH                  12/02/98     $        0.93
ISSUANCE OF COMMON STOCK FOR CASH                  01/15/99     $        1.41
ISSUANCE OF COMMON STOCK FOR CASH                  05/05/98     $        1.64
ISSUANCE OF COMMON STOCK FOR CASH                  12/02/98     $        2.80
ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED          (4)     $        0.02
NET LOSS
                                                                -------------      ------------      ------------
BALANCE, APRIL 30, 1999                                                                      --                --

ISSUANCE OF COMMON STOCK FOR CASH                  06/28/99     $        0.02
ISSUANCE OF COMMON STOCK FOR CASH                  05/03/99     $        0.10
ISSUANCE OF COMMON STOCK FOR CASH                  07/14/99     $        0.28
ISSUANCE OF COMMON STOCK FOR CASH                  11/30/99     $        0.39
ISSUANCE OF COMMON STOCK FOR CASH                  07/12/99     $        0.52
ISSUANCE OF COMMON STOCK FOR CASH                       (5)     $        0.56
ISSUANCE OF COMMON STOCK FOR CASH                  04/03/00     $        0.72
ISSUANCE OF COMMON STOCK FOR CASH                  04/03/00     $        0.89
ISSUANCE OF COMMON STOCK FOR CASH                       (5)     $        0.46
ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED          (5)     $        0.04
NET LOSS
                                                                -------------      ------------      ------------

BALANCE, APRIL 30, 2000                                                                      --                --

ISSUANCE OF COMMON STOCK FOR CASH                  09/28/00     $        0.24
ISSUANCE OF COMMON STOCK FOR CASH                       (6)     $        0.24
ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED          (6)     $        0.10
NET LOSS
                                                                -------------      ------------      ------------

BALANCE, APRIL 30, 2001                                                                      --                --

ISSUANCE OF COMMON STOCK FOR CASH                       (7)     $        0.22
ISSUANCE OF COMMON STOCK FOR CASH                  03/13/02     $        0.24
ISSUANCE OF COMMON STOCK FOR CASH                       (7)     $        0.45
ISSUANCE OF COMMON STOCK FOR CASH                  07/31/01     $        1.12
ISSUANCE OF COMMON STOCK FOR CASH                       (7)     $        0.26
ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED          (7)     $        0.05
ISSUANCE OF COMMON STOCK IN PRIVATE
     PLACEMENT FOR CASH                            04/30/02     $        1.00
NET LOSS
                                                                -------------      ------------      ------------

BALANCE, APRIL 30, 2002                                                                      --                --

ISSUANCE OF PREFERRED STOCK
     IN PRIVATE PLACEMENT FOR CASH                 10/31/03     $    8,173.18             97.93      $          1
ISSUANCE OF COMMON STOCK
     FOR SUBSCRIPTIONS RECEIVABLE                  04/30/03     $        0.32
ISSUANCE OF COMMON STOCK
     FOR SUBSCRIPTIONS RECEIVABLE                  04/30/03     $        0.33
ISSUANCE OF COMMON STOCK
     FOR SUBSCRIPTIONS RECEIVABLE                  04/30/03     $        0.40
ISSUANCE OF COMMON STOCK
     IN PRIVATE PLACEMENT FOR CASH                 10/07/03     $        1.26
OFFERING COSTS
ISSUANCE OF COMMON STOCK
     ON CASHLESS CONVERSION
     OF THE SERIES A PREFERRED
     STOCK                                         01/27/03                              (2.11)
ISSUANCE OF COMMON STOCK
     IN CASHLESS EXERCISE OF
     WARRANTS                                      01/02/03
ISSUANCE OF COMMON STOCK
     AND COMMON STOCK
     COMMITTED AS A BONUS                               (8)     $        1.35
ISSUANCE OF COMMON STOCK
     AND COMMON STOCK
     COMMITTED FOR SERVICES
     RENDERED                                      04/21/03     $        0.65
DIVIDENDS ON PREFERRED STOCK                       10/31/03
BENEFICIAL CONVERSION FEATURE
     GRANTED IN CONNECTION WITH
     ISSUANCE OF PREFERRED
     STOCK                                         10/31/03
CONVERSION OF CONVERTIBLE
     NOTES PAYABLE - RELATED
     PARTIES INTO COMMON
     STOCK                                         07/18/03     $        1.00
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               02/11/08     $        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              12/09/02     $        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
                                                                                   ============      ============

Issuance of common stock for cash                  06/24/03     $        0.33
ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED     06/24/03     $        0.33
ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED     05/13/03     $        0.48
ISSUANCE OF COMMON STOCK ON CASHLESS CONVERSION
     OF SERIES A PREFERRED STOCK                   05/16/03                              (95.82)     $         (1)
DIVIDENDS ON PREFERRED STOCK                       05/16/03
ISSUANCE OF COMMON STOCK AS PENALTY SHARES         05/16/03
ISSUANCE OF COMMITTED COMMON STOCK                 05/21/03
ISSUANCE OF COMMITTED COMMON STOCK                 06/19/03
ISSUANCE OF COMMON STOCK ON EXERCISE OF
     WARRANTS                                      05/27/03
WARRANTS ISSUED FOR SERVICES RENDERED              05/16/03     $        0.40
WARRANTS ISSUED FOR SERVICES RENDERED              05/01/03     $        0.32
STOCK OPTIONS ISSUED FOR SERVICES RENDERED         07/16/03     $        0.45
STOCK OPTIONS ISSUED FOR SERVICES RENDERED         05/16/03     $        0.38
ISSUANCE OF COMMITTED COMMON STOCK                 08/14/03
ISSUANCE OF COMMON STOCK FOR CASH                  08/15/03     $        0.45
ISSUANCE OF COMMON STOCK FOR CASH                  08/20/03     $        0.52
ISSUANCE OF COMMON STOCK FOR CASH                  08/25/03     $        0.69
STOCK OPTIONS ISSUED FOR SERVICES RENDERED         08/27/03     $        1.03
ISSUANCE OF COMMON STOCK FOR CASH                  08/28/03     $        0.69
ISSUANCE OF COMMON STOCK FOR CASH                  08/29/03     $        0.69
ISSUANCE OF COMMON STOCK FOR CASH, NET OF
     COMMISSION OF $40,000                         08/29/03     $        0.69
ISSUANCE OF COMMON STOCK AS PENALTY SHARES         10/15/03
ISSUANCE OF COMMON STOCK FOR CASH                  10/27/02     $        0.95
NET LOSS
                                                                -------------      ------------      ------------

BALANCE, OCTOBER 31, 2003 (UNAUDITED)                                                        --      $         --
                                                                -------------      ------------      ------------
</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

                                       3
<PAGE>

                                    HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
 FOR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO OCTOBER 31, 2003 (UNAUDITED)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                 Additional        Committed
                                                                     Common Stock                  Paid-in          Common
                                                     Date       Shares            Amount           Capital           Stock
                                                   --------  ------------      ------------      ------------      ------------
<S>                                                <C>       <C>               <C>               <C>               <C>
BALANCE, AUGUST 21, 1995 (INCEPTION)                                   --      $         --      $         --      $         --

RECAPITALIZATION UPON REVERSE MERGER                            6,470,000             6,470            (6,456)
ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED          (1)       734,771               735             7,495
NET LOSS
                                                             ------------      ------------      ------------      ------------

BALANCE, APRIL 30, 1996                                         7,204,771             7,205             1,039                --

ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED          (2)         3,219                 3                33
NET LOSS
                                                             ------------      ------------      ------------      ------------

BALANCE, APRIL 30, 1997                                         7,207,990             7,208             1,072                --

ISSUANCE OF COMMON STOCK FOR CASH                  03/23/98        45,603                46             2,206
ISSUANCE OF COMMON STOCK FOR CASH                  03/25/98         4,470                 4               496
ISSUANCE OF COMMON STOCK FOR CASH                       (3)       111,771               112            15,513
ISSUANCE OF COMMON STOCK FOR CASH                  10/14/97        89,417                89            19,911
ISSUANCE OF COMMON STOCK FOR CASH                       (3)       293,466               293            81,757
ISSUANCE OF COMMON STOCK FOR CASH                  09/04/97         8,942                 9             3,115
ISSUANCE OF COMMON STOCK FOR CASH                  12/17/97        42,920                43            20,957
                                                        (3)     1,451,928             1,452            15,598
NET LOSS
                                                             ------------      ------------      ------------      ------------

BALANCE, APRIL 30, 1998                                         9,256,507             9,257           160,625                --

ISSUANCE OF COMMON STOCK FOR CASH                       (4)       116,241               116            32,364
ISSUANCE OF COMMON STOCK FOR CASH                  10/01/98        13,815                14             4,986
ISSUANCE OF COMMON STOCK FOR CASH                  01/15/99         9,389                 9             3,591
ISSUANCE OF COMMON STOCK FOR CASH                  10/30/98        13,413                13             7,487
ISSUANCE OF COMMON STOCK FOR CASH                  03/17/99        17,883                18            10,182
ISSUANCE OF COMMON STOCK FOR CASH                  01/08/99        44,708                45            32,355
ISSUANCE OF COMMON STOCK FOR CASH                  12/02/98         3,353                 3             2,497
ISSUANCE OF COMMON STOCK FOR CASH                  12/02/98         8,942                 9             6,991
ISSUANCE OF COMMON STOCK FOR CASH                  11/24/98        11,177                11             9,989
ISSUANCE OF COMMON STOCK FOR CASH                  12/02/98         2,683                 3             2,497
ISSUANCE OF COMMON STOCK FOR CASH                  01/15/99         4,471                 4             6,296
ISSUANCE OF COMMON STOCK FOR CASH                  05/05/98        17,883                18            29,232
ISSUANCE OF COMMON STOCK FOR CASH                  12/02/98           894                 1             2,499
ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED          (4)     2,167,620             2,167            47,592
NET LOSS
                                                             ------------      ------------      ------------      ------------

BALANCE, APRIL 30, 1999                                        11,688,979            11,688           359,182                --

ISSUANCE OF COMMON STOCK FOR CASH                  06/28/99         4,471      $          4      $         96
ISSUANCE OF COMMON STOCK FOR CASH                  05/03/99        35,767                36             3,631
ISSUANCE OF COMMON STOCK FOR CASH                  07/14/99        44,708                45            12,455
ISSUANCE OF COMMON STOCK FOR CASH                  11/30/99        53,650                54            20,946
ISSUANCE OF COMMON STOCK FOR CASH                  07/12/99         2,861                 3             1,497
ISSUANCE OF COMMON STOCK FOR CASH                       (5)       232,484               232           129,768
ISSUANCE OF COMMON STOCK FOR CASH                  04/03/00         2,794                 3             1,997
ISSUANCE OF COMMON STOCK FOR CASH                  04/03/00         8,383                 8             7,492
ISSUANCE OF COMMON STOCK FOR CASH                       (5)       253,430               253           117,126
ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED          (5)     1,914,570             1,915            83,322
NET LOSS
                                                             ------------      ------------      ------------      ------------

BALANCE, APRIL 30, 2000                                        14,242,097            14,242           737,512                --

ISSUANCE OF COMMON STOCK FOR CASH                  09/28/00        21,214                21             4,979
ISSUANCE OF COMMON STOCK FOR CASH                       (6)       444,223               444           104,286
ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED          (6)       371,035               371            36,097
NET LOSS
                                                             ------------      ------------      ------------      ------------

BALANCE, APRIL 30, 2001                                        15,078,569            15,078           882,874                --

ISSUANCE OF COMMON STOCK FOR CASH                       (7)       517,723               518           115,282
ISSUANCE OF COMMON STOCK FOR CASH                  03/13/02        10,283                10             2,410
ISSUANCE OF COMMON STOCK FOR CASH                       (7)        44,708                45            19,955
ISSUANCE OF COMMON STOCK FOR CASH                  07/31/01         8,942                 9             9,991
ISSUANCE OF COMMON STOCK FOR CASH                       (7)       130,415               130            33,219
ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED          (7)     5,059,560             5,060           227,110
ISSUANCE OF COMMON STOCK IN PRIVATE
     PLACEMENT FOR CASH                            04/30/02     1,225,000             1,225         1,223,775
NET LOSS
                                                             ------------      ------------      ------------      ------------

BALANCE, APRIL 30, 2002                                        22,075,200            22,075         2,514,616                --

ISSUANCE OF PREFERRED STOCK
     IN PRIVATE PLACEMENT FOR CASH                 10/31/03                                      $    800,399
ISSUANCE OF COMMON STOCK
     FOR SUBSCRIPTIONS RECEIVABLE                  04/30/03       700,000      $        700           219,800
ISSUANCE OF COMMON STOCK
     FOR SUBSCRIPTIONS RECEIVABLE                  04/30/03       700,000               700           228,300
ISSUANCE OF COMMON STOCK
     FOR SUBSCRIPTIONS RECEIVABLE                  04/30/03        10,000                10             3,972
ISSUANCE OF COMMON STOCK
     IN PRIVATE PLACEMENT FOR CASH                 10/07/03     1,849,934             1,850         2,320,556
OFFERING COSTS                                                                                       (196,793)
ISSUANCE OF COMMON STOCK
     ON CASHLESS CONVERSION
     OF THE SERIES A PREFERRED
     STOCK                                         01/27/03        18,336                18               (18)
ISSUANCE OF COMMON STOCK
     IN CASHLESS EXERCISE OF
     WARRANTS                                      01/02/03        33,909                34               (34)
ISSUANCE OF COMMON STOCK
     AND COMMON STOCK
     COMMITTED AS A BONUS                               (8)        11,178                11            21,339      $     17,549
ISSUANCE OF COMMON STOCK
     AND COMMON STOCK
     COMMITTED FOR SERVICES
     RENDERED                                      04/21/03        21,277                21            10,288             9,691
DIVIDENDS ON PREFERRED STOCK                       10/31/03        68,150                68            78,292
BENEFICIAL CONVERSION FEATURE
     GRANTED IN CONNECTION WITH
     ISSUANCE OF PREFERRED
     STOCK                                         10/31/03                                           767,431
CONVERSION OF CONVERTIBLE
     NOTES PAYABLE - RELATED
     PARTIES INTO COMMON
     STOCK                                         07/18/03        37,898                38            37,858
FINANCING EXPENSE IN CONNECTION WITH
     ISSUANCE OF WARRANTS                          05/31/02                                           223,710
STOCK OPTIONS ISSUED FOR SERVICES RENDERED         07/12/02                                           761,007
STOCK OPTIONS ISSUED FOR SERVICES RENDERED         08/01/02                                           187,163
STOCK OPTIONS ISSUED AS COMPENSATION               02/11/08                                            59,373
STOCK OPTIONS ISSUED AS COMPENSATION               09/25/02                                         3,305,542
STOCK OPTIONS ISSUED IN EXCHANGE FOR
     SETTLEMENT OF ACCOUNTS PAYABLE                09/25/02                                            50,000
STOCK OPTIONS ISSUED IN EXCHANGE FOR
     SETTLEMENT OF ACCOUNTS PAYABLE                12/19/02                                            15,000
WARRANTS ISSUED FOR SERVICES RENDERED              12/09/02                                           162,792
WARRANTS ISSUED FOR SERVICES RENDERED              02/17/03                                      $    130,712
WARRANTS ISSUED FOR SERVICES RENDERED              04/28/03                                            18,284
WARRANTS ISSUED FOR TERMINATION OF CONTRACT        12/09/02                                           390,409
AMORTIZATION OF DEFERRED COMPENSATION
REVERSAL OF DEFERRED COMPENSATION                                                                  (2,272,561)
EXERCISE OF STOCK OPTIONS IN SUBSIDIARY                                                                            $      7,164
NET LOSS
                                                             ------------      ------------      ------------      ------------

BALANCE, APRIL 30, 2003                                        25,525,882            25,525         9,837,437            34,404
                                                             ============      ============      ============      ============

Issuance of common stock for cash                  06/24/03       600,000      $        600      $    199,400
ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED     06/24/03       300,000               300            99,700
ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED     05/13/03        45,000                45            21,555
ISSUANCE OF COMMON STOCK CASHLESS CONVERSION
     OF SERIES A PREFERRED STOCK                   05/16/03     2,191,878             2,192            (2,192)
DIVIDENDS ON PREFERRED STOCK                       05/16/03                                           611,396
ISSUANCE OF COMMON STOCK AS PENALTY SHARES         05/16/03        91,526                92               (92)
ISSUANCE OF COMMITTED COMMON STOCK                 05/21/03        20,000                20             9,671      $     (9,691)
ISSUANCE OF COMMITTED COMMON STOCK                 06/19/03        11,178                11            17,538           (17,549)
ISSUANCE OF COMMON STOCK ON EXERCISE OF
     WARRANTS                                      05/27/03        34,000                34               306
WARRANTS ISSUED FOR SERVICES RENDERED              05/16/03                                            60,518
WARRANTS ISSUED FOR SERVICES RENDERED              05/01/03                                            15,864
STOCK OPTIONS ISSUED FOR SERVICES RENDERED         07/16/03                                            89,760
STOCK OPTIONS ISSUED FOR SERVICES RENDERED         05/16/03                                            11,348
ISSUANCE OF COMMITTED COMMON STOCK                 08/14/03        44,705                45             7,119            (7,164)
ISSUANCE OF COMMON STOCK FOR CASH                  08/15/03       222,222               222            99,778
ISSUANCE OF COMMON STOCK FOR CASH                  08/20/03       400,000               400           207,600
ISSUANCE OF COMMON STOCK FOR CASH                  08/25/03       272,464               272           187,728
STOCK OPTIONS ISSUED FOR SERVICES RENDERED         08/27/03                                            41,356
ISSUANCE OF COMMON STOCK FOR CASH                  08/28/03        86,957                87            59,913
ISSUANCE OF COMMON STOCK FOR CASH                  08/29/03       144,928               145            99,855
ISSUANCE OF COMMON STOCK FOR CASH, NET OF
     COMMISSION OF $40,000                         08/29/03       666,666               667           459,333
ISSUANCE OF COMMON STOCK AS PENALTY SHARES         10/15/03       148,260               148              (148)
ISSUANCE OF COMMON STOCK FOR CASH                  10/27/02        63,000                63            59,939
NET LOSS
                                                             ------------      ------------      ------------      ------------

BALANCE, OCTOBER 31, 2003 (UNAUDITED)                          30,868,666      $     30,868      $ 12,194,682      $         --
                                                             ------------      ------------      ------------      ------------
</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

                                       4
<PAGE>

                                    HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
 FOR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO OCTOBER 31, 2003 (UNAUDITED)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                 Accumulated
                                                                                  during the
                                                                 Deferred        Development
                                                     Date      Compensation         Stage             Total
                                                   --------    ------------      ------------      ------------
<S>                                                <C>         <C>               <C>               <C>
BALANCE, AUGUST 21, 1995 (INCEPTION)                           $         --                --      $         --

RECAPITALIZATION UPON REVERSE MERGER                                                                         14
ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED          (1)                                               8,230
NET LOSS                                                                         $    (39,387)          (39,387)
                                                               ------------      ------------      ------------

BALANCE, APRIL 30, 1996                                                  --           (39,387)          (31,143)

ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED          (2)                                                  36
NET LOSS                                                                             (110,004)         (110,004)
                                                               ------------      ------------      ------------

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

ISSUANCE OF COMMON STOCK FOR CASH                  03/23/98                                               2,252
ISSUANCE OF COMMON STOCK FOR CASH                  03/25/98                                                 500
ISSUANCE OF COMMON STOCK FOR CASH                       (3)                                              15,625
ISSUANCE OF COMMON STOCK FOR CASH                  10/14/97                                              20,000
ISSUANCE OF COMMON STOCK FOR CASH                       (3)                                              82,050
ISSUANCE OF COMMON STOCK FOR CASH                  09/04/97                                               3,124
ISSUANCE OF COMMON STOCK FOR CASH                  12/17/97                                              21,000
                                                        (3)                                              17,050
NET LOSS                                                                             (293,019)         (293,019)
                                                               ------------      ------------      ------------

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

ISSUANCE OF COMMON STOCK FOR CASH                       (4)                                              32,480
ISSUANCE OF COMMON STOCK FOR CASH                  10/01/98                                               5,000
ISSUANCE OF COMMON STOCK FOR CASH                  01/15/99                                               3,600
ISSUANCE OF COMMON STOCK FOR CASH                  10/30/98                                               7,500
ISSUANCE OF COMMON STOCK FOR CASH                  03/17/99                                              10,200
ISSUANCE OF COMMON STOCK FOR CASH                  01/08/99                                              32,400
ISSUANCE OF COMMON STOCK FOR CASH                  12/02/98                                               2,500
ISSUANCE OF COMMON STOCK FOR CASH                  12/02/98                                               7,000
ISSUANCE OF COMMON STOCK FOR CASH                  11/24/98                                              10,000
ISSUANCE OF COMMON STOCK FOR CASH                  12/02/98                                               2,500
ISSUANCE OF COMMON STOCK FOR CASH                  01/15/99                                               6,300
ISSUANCE OF COMMON STOCK FOR CASH                  05/05/98                                              29,250
ISSUANCE OF COMMON STOCK FOR CASH                  12/02/98                                               2,500
ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED          (4)                                              49,759
NET LOSS                                                                             (272,426)         (272,426)
                                                               ------------      ------------      ------------

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

ISSUANCE OF COMMON STOCK FOR CASH                  06/28/99                                        $        100
ISSUANCE OF COMMON STOCK FOR CASH                  05/03/99                                               3,667
ISSUANCE OF COMMON STOCK FOR CASH                  07/14/99                                              12,500
ISSUANCE OF COMMON STOCK FOR CASH                  11/30/99                                              21,000
ISSUANCE OF COMMON STOCK FOR CASH                  07/12/99                                               1,500
ISSUANCE OF COMMON STOCK FOR CASH                       (5)                                             130,000
ISSUANCE OF COMMON STOCK FOR CASH                  04/03/00                                               2,000
ISSUANCE OF COMMON STOCK FOR CASH                  04/03/00                                               7,500
ISSUANCE OF COMMON STOCK FOR CASH                       (5)                                             117,379
ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED          (5)                                              85,237
NET LOSS                                                                         $   (332,131)         (332,131)
                                                               ------------      ------------      ------------

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

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

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

ISSUANCE OF COMMON STOCK FOR CASH                       (7)                                             115,800
ISSUANCE OF COMMON STOCK FOR CASH                  03/13/02                                               2,420
ISSUANCE OF COMMON STOCK FOR CASH                       (7)                                              20,000
ISSUANCE OF COMMON STOCK FOR CASH                  07/31/01                                              10,000
ISSUANCE OF COMMON STOCK FOR CASH                       (7)                                              33,349
ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED          (7)                                             232,170
ISSUANCE OF COMMON STOCK IN PRIVATE
     PLACEMENT FOR CASH                            04/30/02                                           1,225,000
NET LOSS                                                                           (1,389,530)       (1,389,530)
                                                               ------------      ------------      ------------

BALANCE, APRIL 30, 2002                                                  --        (2,724,564)         (187,873)

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

BALANCE, APRIL 30, 2003                                                  --        (8,981,620)          915,746
                                                               ============      ============      ============

Issuance of common stock for cash                  06/24/03                                        $    200,000
ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED     06/24/03                                             100,000
ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED     05/13/03                                              21,600
ISSUANCE OF COMMON STOCK CASHLESS CONVERSION                                                                 --
     OF SERIES A PREFERRED STOCK                   05/16/03                                                  --
DIVIDENDS ON PREFERRED STOCK                       05/16/03                      $   (611,396)               --
ISSUANCE OF COMMON STOCK AS PENALTY SHARES         05/16/03                                                  --
ISSUANCE OF COMMITTED COMMON STOCK                 05/21/03                                                  --
ISSUANCE OF COMMITTED COMMON STOCK                 06/19/03                                                  --
ISSUANCE OF COMMON STOCK ON EXERCISE OF
     WARRANTS                                      05/27/03                                                 340
WARRANTS ISSUED FOR SERVICES RENDERED              05/16/03                                              60,518
WARRANTS ISSUED FOR SERVICES RENDERED              05/01/03                                              15,864
STOCK OPTIONS ISSUED FOR SERVICES RENDERED         07/16/03                                              89,760
STOCK OPTIONS ISSUED FOR SERVICES RENDERED         05/16/03                                              11,348
ISSUANCE OF COMMITTED COMMON STOCK                 08/14/03                                                  --
ISSUANCE OF COMMON STOCK FOR CASH                  08/15/03                                             100,000
ISSUANCE OF COMMON STOCK FOR CASH                  08/20/03                                             208,000
ISSUANCE OF COMMON STOCK FOR CASH                  08/25/03                                             188,000
STOCK OPTIONS ISSUED FOR SERVICES RENDERED         08/27/03                                              41,356
ISSUANCE OF COMMON STOCK FOR CASH                  08/28/03                                              60,000
ISSUANCE OF COMMON STOCK FOR CASH                  08/29/03                                             100,000
ISSUANCE OF COMMON STOCK FOR CASH, NET OF
     COMMISSION OF $40,000                         08/29/03                                             460,000
ISSUANCE OF COMMON STOCK AS PENALTY SHARES         10/15/03                                                  --
ISSUANCE OF COMMON STOCK FOR CASH                  10/27/02                                              60,002
NET LOSS                                                                           (2,757,033)       (2,757,033)
                                                               ------------      ------------      ------------

BALANCE, OCTOBER 31, 2003 (UNAUDITED)                          $         --      $(12,350,049)     $   (124,499)
                                                               ------------      ------------      ------------
</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

                                       5
<PAGE>

                                    HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
             FOR THE SIX MONTHS ENDED OCTOBER 31, 2003 AND 2002 (UNAUDITED), AND
 FOR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO OCTOBER 31, 2003 (UNAUDITED)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                               For the
                                                                                                              Period from
                                                                                                              August 21,
                                                                                 Six Months Ended                1995
                                                                                    October 31,             (Inception) to
                                                                         ------------------------------        October 31,
                                                                             2003              2002               2003
                                                                         ------------      ------------       -----------
                                                                         (unaudited)        (unaudited)       (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                      <C>               <C>                <C>
    Net loss                                                             $ (2,757,033)     $ (1,913,225)      (10,892,862)
    Adjustments to reconcile net loss to net cash
       used in operating activities
          Depreciation                                                         64,492            40,262           163,917
          Compensation expense relating to issuance of
             common stock in exchange for services
             rendered                                                              --                --           428,950
          Compensation expense relating to issuance of
             common stock in exchange for services
             rendered to minority shareholders                                     --                --            18,923
          Warrants issued for services rendered
             or to be rendered                                                 76,382           349,955           388,170
          Warrants issued for termination of contract                              --                --           390,409
          Issuance of common stock for services
             rendered                                                         121,600                --           200,973
          Stock options issued for services
             rendered                                                         142,465                --           494,227
          Issuance of common stock to an employee
             for a bonus                                                           --            21,350            38,899
          Additional compensation to officer                                       --                --            42,171
          Amortization of deferred compensation                                    --            84,556         1,032,981
          Financing expense                                                        --           223,710           223,710
          (Increase) decrease in
             Restricted cash                                                   71,234                --                --
             Accounts receivable                                                   --           (40,834)          (34,583)
             Subscription receivable                                          443,481          (213,221)          443,481
             Other current assets                                             225,404                --           404,162
             Other assets                                                     295,948                --                --
          Increase (decrease) in
             Accounts payable                                                 180,317           365,641           962,931
             Accrued expenses                                                  64,361           (78,682)           65,977
             Accrued payroll and payroll taxes                                 40,232                --            68,757
             Accrued interest                                                  10,712             3,790            48,898
                                                                         ------------      ------------      ------------

Net cash used in operating activities                                      (1,020,405)       (1,156,698)       (5,509,909)
                                                                         ------------      ------------      ------------

CASH FLOWS FROM INVESTING ACTIVITIES
    Purchase of property and equipment                                       (121,564)         (422,121)         (725,414)
                                                                         ------------      ------------      ------------

Net cash used in investing activities                                        (121,564)         (422,121)         (725,414)
                                                                         ------------      ------------      ------------

CASH FLOWS FROM FINANCING ACTIVITIES
    Proceeds from notes payable - related parties                                  --                --           604,160
    Payments on notes payable - related parties                                    --          (279,803)         (546,331)
    Proceeds from convertible notes payable - related
       parties                                                                     --                --            60,400
    Payments on convertible notes payable - related
       parties                                                                (10,400)          (19,280)          (40,400)
    Proceeds from issuance of common stock in
       private placement                                                           --         2,122,407         3,547,406
    Proceeds from issuance of preferred stock                                      --           979,300           979,301
    Offering costs on preferred stock                                              --          (178,904)         (178,902)
    Proceeds from issuance of common stock                                  1,376,001                --         2,258,724
    Offering costs on common stock                                                 --          (180,793)         (196,793)
    Exercise of stock options in subsidiary                                        --             7,164             7,164
    Proceeds from exercise of warrants                                            340                --               340
                                                                         ------------      ------------      ------------

Net cash provided by financing activities                                   1,365,941         2,450,091         6,495,069
                                                                         ------------      ------------      ------------

Net increase in cash and cash
    equivalents                                                               223,972           871,272           259,746

CASH AND CASH EQUIVALENTS, BEGINNING OF
    PERIOD                                                                     35,774         1,078,136                --
                                                                         ------------      ------------      ------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                 $    259,746      $  1,949,408      $    259,746
                                                                         ============      ============      ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
    Interest paid                                                        $         --      $         --             2,888
                                                                         ============      ============      ------------
    Income taxes paid                                                    $      2,400      $         --            14,183
                                                                         ============      ============      ------------

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
    Common stock issued for convertible notes
       payable-related parties and accrued interest                      $     37,896      $         --      $     37,896
                                                                         ============      ============      ------------

    Preferred stock dividends                                            $    611,396      $         --      $    689,756
                                                                         ============      ============      ------------

    Issue convertible notes payable to legal counsel
       for legal services                                                $    403,029      $         --      $    449,746
                                                                         ============      ============      ------------
</TABLE>

   The accompanying notes are an integral part of these financial statements


                                       6
<PAGE>


SUPPLEMENT SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES (continued)

During the six months October 31, 2003 and 2002 and the period from August 21,
1995 (inception) to October 31, 2003, the holders of 95.82, 0, and 97.93 shares,
respectively, of the Series A convertible, redeemable preferred stock converted
their shares into 2,191,878, 0, and 2,210,214 shares, respectively, which also
included 62,562 penalty shares as a result of the late registration of their
common stock.

During the six months ended October 31, 2003 and 2002 and the period from August
21, 1995 (inception) to October 31, 2003, the Company issued 239,786, 0, and
239,786 shares of common stock to certain shareholders who invested in a private
placement, dated October 29, 2002, and to certain other investors in the
Company's common stock, to compensate them for the late registration of the
common stock.

During the six months ended October 31, 2003 and 2002 and the period from August
21, 1995 (inception) to October 31, 2003, the Company issued 76,937, 0, and
76,937 shares, respectively, of committed common stock valued at $34,404; 0; and
$34,404, respectively.


                                       7
<PAGE>

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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. In August
         2003, HiEnergy Defense, Inc. ("Defense") was incorporated under the
         laws of the state of Delaware. HiEnergy owns 85% of the outstanding
         common stock of Defense.

         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.

         As contemplated by the Securities and Exchange Commission under Item
         310(b) of Regulation S-B, the accompanying financial statements and
         footnotes have been condensed and therefore do not contain all
         disclosures required by accounting principles generally accepted in the
         United States of America. The interim financial data is unaudited;
         however, in the opinion of HiEnergy's management, the interim data
         includes all adjustments, consisting only of normal recurring
         adjustments, necessary for a fair statement of the results for the
         interim periods. Results for the six months ended October 31, 2003 are
         not necessarily indicative of those to be expected for the year ended
         April 30, 2004.

         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 acquisition), 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 acquisition and did not have significant
         operations prior to the acquisition. Since HiEnergy was a "public
         shell" pro forma information is not presented.


                                       8
<PAGE>


NOTE 2 - GOING CONCERN

         The accompanying financial statements have been prepared in conformity
         with accounting principles generally accepted in the United States of
         America, which contemplate continuation of the Company as a going
         concern. However, during the six months ended October 31, 2003 and 2002
         and the period from August 21, 1995 (inception) to October 31, 2003,
         the Company incurred net losses available to common shareholders of
         $3,368,000, $2,759,000, and $12,350,000, respectively, and it had
         negative cash flows from operations of $1,020,000, $1,156,000, and
         $5,510,000, respectively. In addition, the Company had an accumulated
         deficit of $12,338,000 and was in the development stage as of October
         31, 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 October 31, 2003 through the
         sales of equity, the Company intends to raise additional capital
         through the sale of equity securities. 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.

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Principles of Consolidation

         The consolidated financial statements include the accounts of
         HiEnergy, its 92% owned subsidiary, HiEnergy Microdevices, Inc. and
         its 85% owned subsidiary, Defense. 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.

         Reclassifications

         Certain amounts included in the prior period financial statements have
         been reclassified to conform with the current period presentation. Such
         reclassifications did not have any effect on the reported net loss.

         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.


                                       9
<PAGE>


NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         Cash and Cash Equivalents

         The Company maintains its cash deposits at a bank located in
         California. Deposits at the bank are insured by the Federal Deposit
         Insurance Corporation up to $100,000. 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.

         Accounts Receivable

         Accounts receivable at October 31, 2003 and 2002 consisted of amounts
         due from separate governmental development contracts. Contract amounts
         are billed as monthly reports are submitted detailing work performed
         under the contract and are generally due in 30 days.

         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,
         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.

         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 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.

         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.


                                       10
<PAGE>


NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         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 income and earnings
         per share if the Company had applied the fair value-recognition
         provisions of SFAS No. 123, to the stock-based employee compensation:

<TABLE>
<CAPTION>
                                                              SIX MONTHS ENDED OCTOBER 31,
                                                                2003              2002
                                                             -----------      -------------
<S>                                                          <C>              <C>
        Net loss, as reported                                $(2,757,033)     $  (1,913,225)
        Add: Stock-based employee compensation expense
        included in reported net income determined under
        APB No. 25, net of related tax effects                        --                 --

        Deduct: Total stock-based employee compensation
        expense determined under fair-value-based method
        for all awards, net of related tax effects                    --            (85,952)
                                                             -----------      -------------
        Pro forma net loss                                   $(2,757,033)     $  (1,999,177)

        Loss per share:
        Basic and diluted - as reported                      $     (0.10)     $       (0.08)
        Basic and diluted - pro forma                        $     (0.10)     $       (0.09)
</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. 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.


                                       11
<PAGE>

         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.


                                       12
<PAGE>

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         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 six months
         ended October 31, 2003 and 2002:

<TABLE>
<CAPTION>
                                                     October 31,
                                                 2003           2002
                                              ------------------------
<S>                                           <C>           <C>
        Stock Options                          5,206,454            --
        Warrants                               2,365,903            --
        Microdevices minority shareholders       459,222       459,222
        Microdevices options and warrants        368,755       636,954
                                              ------------------------
                    Total                      8,400,334     1,096,176
                                              ------------------------
</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 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.


                                       13
<PAGE>


NOTE 4 - OTHER CURRENT ASSETS

         Other current assets consisted of the following at:

<TABLE>
<CAPTION>
                                           October 31, 2003   April 30, 2003
                                           ----------------   --------------
<S>                                             <C>              <C>
        Prepaid consulting                      $ 40,657         313,250
        Prepaid insurance                         64,160           6,400
        Deposits on equipment                     87,500         100,000
        Other                                      9,929           8,000
                                                --------        --------
                                                $202,246         427,650
                                                ========        ========
</TABLE>


NOTE 5 - PROPERTY AND EQUIPMENT

         Property and equipment consisted of the following at:

<TABLE>
<CAPTION>
                                            October 31, 2003  April 30, 2003
                                            ----------------  --------------
<S>                                              <C>            <C>
        Prototype equipment                      $111,114       $111,114
        Laboratory equipment                      556,507        436,340
        Furniture and fixtures                     43,392         41,995
        Web site development                       14,400         14,400
                                                 --------       --------

                                                  725,413        603,849
        Less accumulated depreciation             163,917         99,425
                                                 --------       --------
                                                 $561,496       $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 six months ended October 31, 2003 and 2002
         and the period from August 21, 1995 (inception) to October 31, 2003 was
         $64,492, $40,262, and $163,917, respectively.


                                       14
<PAGE>


NOTE 6 - NOTES PAYABLE - RELATED PARTIES

         Notes payable - related parties consisted of the following at:

<TABLE>
<CAPTION>
                                                                              October 31, 2003     April 30, 2003
                                                                              ----------------     --------------
<S>                                                                           <C>                  <C>
         Unsecured notes payable to a shareholder of the Company, interest
               payable at 10.5% per annum, or 15% per annum if in default,
               and due in November 1997. As of October 31, 2003 and April
               30, 2003, the notes were in default                                  $40,000          $40,000

         Unsecured notes payable to a shareholder of the
               Company, non-interest bearing, and payable
               on demand                                                             45,000           45,000
                                                                                    -------          -------

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

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


NOTE 7 - CONVERTIBLE NOTES PAYABLE - RELATED PARTIES

         Convertible notes payable - related parties consisted of the following
at:

<TABLE>
<CAPTION>
                                                                                  October 31, 2003   April 30, 2003
                                                                                  ----------------   --------------
<S>                                                                               <C>                <C>
         Unsecured notes payable to a shareholder 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
               applications 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 notes payable to legal counsel of the Company, interest
               payable at 10% per annum and due in January 2004. The holder
               of the note has the option to convert the principal and
               interest into shares of common stock of the company at the
               market price of the Company's common stock at the conversion
               date                                                                    449,746            46,717
                                                                                      --------          --------

                                                                                       449,746            57,117
         Less current
        portion                                                                        449,746            57,117
                                                                                      --------          --------

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


                                       15
<PAGE>


NOTE 8 -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
         governmental grants and development contracts. During the six months
         ended October 31, 2003 and 2002, the Company worked on different phases
         of two separate development contracts with the Department of Defense.
         During the six months ended October 31, 2002 the Company completed work
         on a different government development contract.

         In August 2002, the Company was awarded an SBIR Phase II development
         contract for 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, we executed the contract with the Department of
         Defense. Work commenced in January 2003 under the first year of the
         contract valued at $415,000. We estimate our costs of the first year of
         the SBIR Phase II development contract to be $1,100,000. 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. 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.

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


<TABLE>
<CAPTION>
                                                                                                                   For the
                                                                                                                  Period from
                                                                                                                  August 21,
                                                                                                                    1995
                                                                                                                 (Inception)
                                                                                                                     to
                                              Three Months Ended October        Six Months Ended October           October
                                                     October 31,                       October 31,                   31,
                                            ----------------------------      ----------------------------      -----------
                                                2003             2002             2003             2002             2003
                                            -----------      -----------      -----------      -----------      -----------
<S>                                         <C>              <C>              <C>              <C>              <C>
         Research and development costs     $   342,504      $   175,392      $   544,575      $   341,987      $ 2,972,757
         Grant income earned                   (103,749)         (40,834)        (207,498)         (40,834)        (678,001)
                                            -----------      -----------      -----------      -----------      -----------
         Net research and development
         costs                              $   238,755      $   134,558      $   337,077      $   301,153      $ 2,294,756
                                            -----------      -----------      -----------      -----------      -----------
</TABLE>


                                       16
<PAGE>


NOTE 9 - 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 issued with the exercise price above the market price of
                  the common stock on the date of the grant. At the time of the
                  reverse take-over of HiEnergy by Microdevices, the Company
                  exchanged the Microdevices stock options at an exchange rate
                  of 22.3542 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. As of April
                  30, 2003, the Company is required to grant options to purchase
                  456,717 shares of common stock at an exercise price of $2.81
                  per share. In 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:

<TABLE>
<CAPTION>
<S>                                                                   <C>
                  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
</TABLE>

         o        In December 2002, the Company increased its Chief
                  Scientist/Chairman of the Board's base salary to $175,000 per
                  year plus an expense allowance of $17,200 per year effective
                  November 2002.

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

         In July 2003, the Board of Directors increased the Chief
         Scientist/Chairman of the Board's salary to $208,600 per year.


                                       17
<PAGE>


NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

         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. During the six months ended October 31, 2003,
         11,178 committed shares were issued.

         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 would assist the Company with
         business development, product and corporate image advertising, and
         access to government grants and purchases. The Company has paid 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 were to vest one year after the Company's MiniSenzor product
         was operational and ready to be shown. The stock options have an
         exercise price of $1 per share and are exercisable for six years from
         the date of grant.

         The vested 500,000 stock options were valued at $761,000. 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                               $   0.52
         Stock price on date of grant                              $   2.13
         Exercise price                                            $   1.00
         Expected life of option                                   2.0 years
         Risk-free rate of return                                  3.07%
         Expected annual volatility                                105%
         Annual rate of dividends                                  0%
</TABLE>

         In October 2003, the Company terminated the agreement with the
         consultant and expensed the remaining unamortized portion of the asset
         attributable to the stock options. During the six months ended October
         31, 2003 and 2002, the Company expensed and included in general and
         administration expenses $550,000 and $85,000, respectively.

         On November 24, 2003, Yeffet Security Consultants initiated binding
         arbitration proceedings with the Rhode Island office of the American
         Arbitration Association claiming that $59,541 in expense reimbursements
         and $400,000 in future consulting fees for the period from October 16,
         2003 through June 30, 2005 are owed by the Company to Yeffet Security
         Consultants under a terminated Consulting Agreement with Yeffet
         Security Consultants, Inc. We are in the process of studying the
         matter.


                                       18
<PAGE>


NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

         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 $187,000. During the six months ended
         October 31, 2003 and 2002, the Company expensed and included in general
         and administration expenses $47,000 and $0, respectively. 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 date of grant                             $ 1.76
         Exercise price                                           $ 2.00
         Expected life of option                                  1.0 years
         Risk-free rate of return                                 1.75%
         Expected annual volatility                               105%
         Annual rate of dividends                                 0%
</TABLE>


         In November 2002, the Company entered into a month-to-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 former 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 September 2005. In July 2003, the Company entered
         into a five-month lease for a 2,400 square feet test site ending
         December 1, 2003 with a monthly lease rate of $1,200. The lease
         agreement is with the same Director as the office lease. Rent expense
         for the six months ended October 31, 2003 and 2002 was $54,000 and
         $13,200, respectively. Future minimum payments at October 31, 2003
         under these lease agreements were as follows:

<TABLE>
<CAPTION>
           Year Ending
           October 31,
           -----------
<S>                                                          <C>
             2004                                            $115,920
             2005                                              87,360
             2006                                                  --
                                                             --------

            TOTAL                                            $203,280
                                                             --------
</TABLE>


                                       19
<PAGE>


NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

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

         o        Upon execution of the agreement, the Company paid a retainer
                  fee of $25,000 and was to pay an additional $25,000 on March
                  1, 2003. As of October 31, 2003, the additional $25,000 was
                  not yet paid.

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

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

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

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

         The Company terminated its agreement with the placement agent in July
         2003.

         Investment Banking Relationship

         In August 2003, the Company signed and agreement with an investment
         bank to support its bid to obtain a $1,600,000 grant contract with the
         U.S. Navy to develop a prototype SuperSenzor for detection of
         biological agents in sealed containers. The investment bank has
         confirmed to the Navy that it would provide the necessary funding of a
         minimum of $2,500,000 and a maximum of $4,000,000, by purchasing common
         stock of the Company to guarantee that the Company will have sufficient
         funding through the performance of an 18-month contract. The Company
         estimates that its costs to execute the contract will be in a range
         from $800,000 to $1,200,000.

         In exchange for the guarantee, the Company owes fees to the investment
         bank ranging from $50,000 (if the contract is not awarded to the
         Company) to $150,000 (upon the award of the contract). The Company had
         been approved for a grant of $1,600,000; however, the Contracting
         Office of the Naval Surface Warfare Center denied the contract due to
         the Company's financial condition. As of October 31, 2003 the Company
         recorded a liability as an accrued expense to the investment bank for
         $50,000 because the investment bank provided the guarantee to the U.S.
         Navy on behalf of the Company.

         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.


                                       20
<PAGE>


NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

         Litigation

         The company received a letter dated December 5, 2002, from an attorney
         representing a former consultant, demanding payment for accounting
         services allegedly performed by the consultant pursuant to a Letter
         Agreement dated November 7, 2001, between the consultant and HiEnergy
         Microdevices, Inc. The Letter Agreement provides that the consultant
         was to be paid $350 per hour, which was to be paid as follows: (i)
         one-third or $117 in cash; (ii) one-third or $117 paid by a Promissory
         Note at 10% annual interest, maturing when HiEnergy Technologies
         receives government funding of $900,000 or an investment totaling
         $300,000 or more; and (iii) one-third or $117 paid by Class A common
         stock of HiEnergy Microdevices at $5.00 per share. Mr. Eckhouse filed a
         lawsuit against the Company, Microdevices and the Chairman and CEO of
         the Company on May 2, 2003 in the Superior Court of the State of
         California, County of Orange, Central Justice Center, and an amended
         complaint on June 20, 2003, alleging that Microdevices owes the
         consultant a total of $313,580 for services rendered, plus interest,
         attorney's fees and costs. The company denies these allegations and is
         vigorously defending this lawsuit.

         On or about May 27 , 2003, a former director and officer of the Company
         filed a complaint against the Company for advancement of fees in the
         State Court of Delaware. The plaintiff was seeking the reimbursement of
         his legal fees associated with a pending SEC investigation. Through
         negotiations, the Company was successful in getting the complaint
         dismissed without prejudice on or about June 17, 2003. If and when the
         plaintiff re-files his lawsuit, the Company intends to vigorously
         defend itself in this matter.

         On November 24, 2003, Yeffet Security Consultants initiated binding
         arbitration proceedings with the Rhode Island office of the American
         Arbitration Association claiming that $59,541 in expense reimbursements
         and $400,000 in future consulting fees for the period from October 16,
         2003 through June 30, 2005 are owed by the Company to Yeffet Security
         Consultants under a terminated Consulting Agreement with Yeffet
         Security Consultants, Inc. We are in the process of studying the
         matter.

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

         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 were 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 six months ended October 31, 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, 0
         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 six months ended October 31, 2003, and 2002 and the period
         from August 21, 1995 (inception) through April 30, 2003, Microdevices
         granted to employees stock options to purchase 0, 0 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
         exercise price of the stock options exceeded the market price of the
         underlying common stock . The disclosure requirements of SFAS No. 123
         have not been made for these options and warrants as part of Note 9 to
         the financial statements, as these options and warrants are considered
         immaterial.


                                       21
<PAGE>

NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

         Warrant and Option Holders (Continued)

         As of October 31, 2003, Microdevices has stock options and warrants 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 368,755 additional shares of common
         stock.

         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 has agreed to
         exchange these shares in Microdevices for shares in HiEnergy at an
         exchange rate of 22.3524 per share, or 45,759 shares of common stock.

         In April and May 2002, in conjunction with the reverse take-over (see
         Note 1) by Microdevices of 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 merger of HiEnergy and
         Microdevices was accounted for as a pooling of interest, no
         modification to the original accounting for these stock options was
         recorded.

NOTE 10 - SHAREHOLDERS' EQUITY

COMMON STOCK ISSUED FOR CASH AND SERVICES

<TABLE>
<CAPTION>
                                             Six Months ended October 31, 2003         Six Months ended October 31, 2002
                                            -----------------------------------       -----------------------------------
                                            No. of Shares              Amount         No. of  Shares           Amount
                                            -------------              ------         --------------           ------
<S>                                         <C>                     <C>               <C>                    <C>
        Common stock issued for cash           2,456,237             $1,376,002                  --          $       --
        Common stock issued in
          private placement                           --                     --           1,849,934           2,322,407
        Common stock issued for
          services rendered                      345,000(1)             121,600                  --                  --
        Common stock issued for
          dividends on Series A
          preferred stock                                                                    68,150              78,340
        Common stock issued for
          a bonus to an employee                                                             11,178              21,350
        Common stock issued to
        convert preferred stock                2,191,878                     --                  --                  --
        Common stock issued as
          penalty shares                         239,786                     --                  --                  --
         Common stock issued for
          committed stock                         75,883                 34,404                  --                  --
         Common stock issued for
          exercise of warrants                    34,000                    340                  --                  --
         Common stock issued for
          exchange convertible
          notes payable                               --                     --              37,898              37,896
                                              ----------             ----------          ----------          ----------
                                               5,342,784             $1,532,346           1,967,160          $2,459,993
                                              ----------             ----------          ----------          ----------
</TABLE>

(1) In May 2003, the Company issued 45,000 shares of common stock to its legal
counsel as payment for $15,000 of legal services. In June 2003, the Company
issued 300,000 shares of common stock to its legal counsel as payment for
$100,000 of legal services.


                                       22
<PAGE>


NOTE 10 - SHAREHOLDERS' EQUITY (CONTINUED)

COMMON STOCK ISSUED FOR CASH AND SERVICES (CONTINUED)

<TABLE>
<CAPTION>
                                                  Period from August 21, 1995 to
                                                        October 31, 2003
                                               ------------------------------------
                                                No. of Shares            Amount
                                               ------------------------------------
<S>                                             <C>                   <C>
         Recapitalization upon reverse
                merger                             6,470,000          $        14
        Common stock issued for cash               6,543,734            2,712,210
        Common stock issued in
                private placement                  3,074,934            2,126,838
        Common stock issued for
                services rendered                 12,068,980              560,859
        Common stock issued for
                dividends on Series A
                preferred stock                       68,150               78,340
        Common stock issued for
                a bonus to an employee                11,178               21,350
        Common stock issued to
                convert preferred stock            2,210,217                   --
        Common stock issued as
                penalty shares                       239,786                   --
         Common stock issued for
                committed stock                       75,883               34,404
         Common stock issued for
                exercise of warrants                  67,906                  340
         Common stock issued to
                exchange convertible
                notes payable                         37,898               37,896
                                               ------------------------------------
                                                  30,868,666          $ 5,572,251
                                               ------------------------------------
</TABLE>


                                       23
<PAGE>


NOTE 10 - SHAREHOLDERS' EQUITY (CONTINUED)

COMMON STOCK WARRANTS AND OPTIONS ISSUED

<TABLE>
<CAPTION>
                                                  Six Months ended October 31, 2003        Six Months ended October 31, 2002
                                              ------------------------------------------  ------------------------------------
                                                                       Exercise Price                       Exercise Price
                                                Number                     Range              Number           Range
                                              ----------               --------------       ----------      --------------
<S>                                           <C>                     <C>                  <C>            <C>
 WARRANTS
        Warrants issued as
         financing expense                            --                                      150,000     $ 1.50
        Warrants issued for services
         rendered                              200,000 (2) (3)        $ 0.45 to $ 0.50        530,000     $ 0.60 to $ 2.48
        Warrants issued in sales of
         common stock                            604,217 (4)          $ 0.50 to $ 1.25
        Warrants issued in
         private placements                                                                 1,015,686     $ 0.01 to $ 2.50

        STOCK OPTIONS
        Employee stock options                   315,000              $ 0.75 to $ 1.02      5,576,669     $ 0.13 to $ 1.75
        Non-employee stock options
         issued to outside directors             210,000              $ 0.75                      --
        Non-employee stock options
         issued for services rendered            270,000(5)(6)(7)     $ 0.50 to $ 1.02      1,445,454     $ 1.00 to $ 2.24
                                             --------------------                         -----------
                                               1,599,217                                    8,717,809
                                             --------------------                         -----------
</TABLE>


(2) In May 2003, the Company issued warrants to purchase 150,000 shares of
common stock to a placement agent for placement services. The warrants vest
immediately, have an exercise price of $0.45 per share, and expire in May 2005.
The Company recorded $60,518 in the six months ended October 31, 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          $  0.40
        Stock price on grant date            $  0.45
        Exercise price                       $  0.45
        Expected life                      2.0 years
        Risk-free rate of return                1.44%
        Expected annual volatility               100%
        Annual rate of dividends                   0%
</TABLE>


(3) In May 2003, the Company issued warrants to purchase 50,000 shares of common
stock to a placement agent for placement services. The warrants vest
immediately, have an exercise price of $0.50 per share, and expire in May 2008.
The Company recorded $15,864 in the six months ended October 31, 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          $  0.32
        Stock price on grant date            $  0.36
        Exercise price                       $  0.50
        Expected life                        2.0 years
        Risk-free rate of return              1.59 %
        Expected annual volatility               100%
        Annual rate of dividends                   0%
</TABLE>


                                       24
<PAGE>


NOTE 10 - SHAREHOLDERS' EQUITY (CONTINUED)

Common Stock Warrants and Options Issued (Continued)

(4) In the period of May 2003 to October 2003, the Company issued warrants to
purchase 604,217 shares of common stock to investors in common stock of the
Company during the six months ended October 31, 2003. The Company allocated
$569,121 to the warrants issued 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           $ 0.41 to $1.26
        Stock price on date of grant           $0.50 to $1.30
        Exercise price                         $0.50 to $1.25
        Expected life of option                     2.0 years
        Risk-free rate of return              1.45 % to 1.98%
        Expected annual volatility                        140%
        Annual rate of dividends                            0%
</TABLE>


(5) In July 2003, the Company issued stock options to purchase 200,000 shares of
common stock to two consultants for business development services. The stock
options vest over 18 months, have an exercise price of $0.50 per share, and
expire in July 2009. The Company recorded $89,761 in the six months ended
October 31, 2003 as compensation expense. 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 option per share           $  0.45
        Stock price on grant date           $  0.50
        Exercise price                      $  0.50
        Expected life                       2.0 years
        Risk-free rate of return             1.45 %
        Expected annual volatility              100%
        Annual rate of dividends                  0%
</TABLE>

(6) In May 2003, the Company issued stock options to purchase 30,000 shares of
common stock to consultants for business development services. The stock options
vest over 18 months, have an exercise price of $0.75 per share, and expire in
May 2009. The Company recorded $11,348 in the six months ended October 31, 2003
as compensation expense. 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 options per share          $  0.38
        Stock price on grant date           $  0.45
        Exercise price                      $  0.75
        Expected life                       2.0 years
        Risk-free rate of return             1.44 %
        Expected annual volatility              100%
        Annual rate of dividends                  0%
</TABLE>

(7) In August 2003, the Company issued stock options to purchase 40,000 shares
of common stock to members of the Company's Scientific Advisory Board as
compensation for services. The stock options over 18 months, have an exercise
price of $1.02 per share, and expire in August 2009. The Company recorded
$41,356 in the six months ended October 31, 2003 as compensation expense. 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 warrants per share           $  1.04
        Stock price on date of grant          $  1.02
        Exercise price                        $  1.02
        Expected life of option               2.0 years
        Risk-free rate of return                 2.05%
        Expected annual volatility                140%
        Annual rate of dividends                    0%
</TABLE>


                                       25
<PAGE>


NOTE 10 - SHAREHOLDERS' EQUITY (CONTINUED)

         Stock Incentive Plan

         In May 2003, the Board of Directors approved the establishment of the
         2003 Stock Incentive Plan and reserved 2,000,000 shares of authorized
         and unissued shares of common stock for such plan. As of October 31,
         2003, the Board of Directors also approved the issuance of options to
         purchase 795,000 shares of common stock to various directors, employees
         and non-employee consultants of the Company at various exercise prices.
         The plan was approved by the Company's shareholders at its annual
         meeting held on November 7, 2003.

         Issue Penalty Shares

         During the six months ended October 31, 2003, the Company issued a
         total of 239,786 shares of common stock as penalty shares to certain
         shareholders who invested in a private placement, dated October 29,
         2002, to the Series A holders who converted their shares into common
         stock and to certain other investors in the Company's common stock to
         compensate them for the late registration of the common stock.

NOTE 11 - RELATED PARTY TRANSACTIONS

         During the six months ended July 31, 2003 and 2002 and the period from
         August 21, 1995 (inception) to October 31, 2003, the Company purchased
         $0, $0, and $4,767, respectively, of property and equipment from a
         Board member.

         See Notes 6, 7, 9, 11 and 12 for additional related party
         transactions.

NOTE 12  - SUBSEQUENT EVENTS

         In November and December 2003, the Company sold 303,758 shares of its
         common stock and raised $219,751, net of commissions. In connection
         with these sales, the Company also issued 75,940 warrants to purchase
         its common stock at exercise prices ranging from $0.75 to $1.00.

         In November 2003, the Board of Directors approved the compensation of
         its Directors for their service on the Board of Directors by an annual
         grant of 100,000 stock options each, with the exercise price equal to
         the market price on the date of the grant, in exchange for service on
         the Board for the coming year. The Board also approved the compensation
         of two of its Directors for their service on the Audit & Finance
         Committee by an annual grant of 50,000 shares of common stock of the
         Company with the exercise price equal to the market price on the date
         of the grant, in exchange for service on the committee. The Board also
         approved the compensation of two of its Directors for their service on
         the Compensation Committee by an annual grant of 15,000 shares of
         common stock of the Company with the exercise price equal to the market
         price on the date of the grant, in exchange for service on the
         committee. There were 740,000 stock options granted at an exercise
         price of $1.25 per share in connection with these actions. In addition
         we granted 100,000 stock options at an exercise price of $0.35 per
         share in exchange for termination of previously granted options to
         acquire HiEnergy Microdevices stock.

         In November 2003, the Board of Directors also approved the compensation
         for Directors as follows: Each Director are compensated for each
         directors meeting through the receipt, at the election of each
         attending Director, of either 3,000 shares of common stock of the
         Company fully vested; or the issuance of stock options to purchase
         3,000 shares of common stock exercisable at $1.25 per share for a term
         of five years.


                                       26
<PAGE>

NOTE 12  - SUBSEQUENT EVENTS (CONTINUED)

         In November 2003, the Board of Directors approved a voluntary share
         exchange for the remaining outstanding stock of Microdevices. HiEnergy
         would issue 459,222 share of common stock (exchange rate of 22.3542
         to 1) for the remaining outstanding shares of Microdevices. After the
         exchange has been completed, the Company would transfer the remaining
         assets of Microdevices into HiEnergy and dissolve Microdevices.

         In November 2003, the Company issued 44,187 shares of common stock as
         penalty shares to certain shareholders who invested in a private
         placement, dated October 29, 2002, to the Series A holders who
         converted their shares into common stock and to certain other investors
         in the Company's common stock to compensate them for the late
         registration of the common stock.

         In December 2003, the Company issued 310,000 shares of common stock to
         various employees and consultants with an exercise price equal to the
         market price on the date of the grant of $0.90. The stock options vest
         in 18 months.


                                       27
<PAGE>


ITEM 2.  MANAGEMENT'S  DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Except for the historical information presented in this document, the matters
discussed in this Form 10-QSB, and specifically in "Management's Discussion and
Analysis or Plan of Operation," or otherwise incorporated by reference into this
document, are "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,"
"expects," "may," "will," "intends," "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 HiEnergy Technologies, Inc. (the "Company"). You should not place undue
reliance on forward-looking statements. Forward-looking statements involve risks
and uncertainties. The actual results that we achieve may differ materially from
any forward-looking statements 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 report on Form 10-QSB and in
our other reports filed with the Securities and Exchange Commission ("SEC") that
attempt to advise interested parties of the risks and factors that may affect
our business.

The following discussion and analysis of our financial condition and plan of
operation should be read in conjunction with the unaudited financial statements
and accompanying notes and the other financial information appearing elsewhere
in this report and with the audited financial statements contained in our Form
10-KSB for the year ended April 30, 2003.

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.

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 few inches
of physical proximity, 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 merger with
HiEnergy Microdevices, Inc. in a transaction treated as a recapitalization of
HiEnergy, with Microdevices as the Accounting acquirer (reverse acquisition). 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 2003.

The merger of HiEnergy Microdevices with SLW occurred on April 25, 2002. SLW
merged with HiEnergy Microdevices pursuant to a Voluntary Share Exchange
Agreement that provided the framework for the exchange of outstanding common
stock of HiEnergy Microdevices for shares of common stock of 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.


                                       28
<PAGE>

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 transaction were approximately $451,000 and were
expensed as a general and administration expense 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 SLW
and HiEnergy Microdevices has been treated as a recapitalization of SLW, with
HiEnergy Microdevices as the accounting acquiror (reverse acquisition), and has
been accounted for in a manner similar to a pooling of interests.

We have prepared our unaudited 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.

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.


                                       29
<PAGE>

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.

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

THREE MONTHS ENDED OCTOBER 31, 2003 COMPARED TO THREE MONTHS ENDED OCTOBER 31,
2002

For the three months ended October 31, 2003, we incurred a net loss of
$1,625,000, as compared to a net loss of $1,003,000 for the same period in 2002.

OPERATING EXPENSES

GENERAL AND ADMINISTRATION

Our general and administration expenses consist primarily of salaries and
benefits, costs for general corporate functions, including finance, accounting
and facilities, professional services such as legal, accounting, investor and
public relations and stock based compensation.

Our general and administration expenses were $1,379,000 for the three months
ended October 31, 2003 versus $867,000 for the same period in 2002 or an
increase of $512,000. A comparison of the major components of the increase in
general and administration expenses follows:


                                       30
<PAGE>

<TABLE>
<CAPTION>
                                           Three Months Ended
                                   October 31, 2003   October 31, 2002        Increase
                                   ----------------   ----------------        --------
<S>                                   <C>                <C>                <C>
Stock based compensation                 654,000            273,000            381,000
Legal fees                               194,000            108,000             86,000
Accounting fees                           35,000             25,000             10,000
Public relations                          60,000             53,000              7,000
Investor relations                        65,000             78,000            (13,000)
Consultants                               21,000             83,000            (62,000)
Facilities                                13,000              4,000              9,000
Directors liability insurance             38,000             25,000             13,000
Salaries and benefits                    128,000            131,000             (3,000)
Travel                                    71,000             21,000             50,000
All other                                100,000             66,000             34,000
                                       ---------          ---------          ---------
               Total                   1,379,000            867,000            512,000
                                       ---------          ---------          ---------
</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. The compensation expense
recorded for various option and warrant grants are amortized over the life of
the agreements to which they pertain. During the quarter ended October 31, 2003,
an agreement was terminated between a business development consultant and the
Company. The remaining balance of the option compensation of $423,000 was
expensed during the current quarter.

Legal and accounting fess increased due to increased SEC filing activity in the
current fiscal quarter compared to the previous fiscal years quarter.

Public and investor relations increased because a new public relations firm was
hired and there were several new public relations initiatives executed during
the current quarter compared to the same period of the prior year.

As detailed in Note-9 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 the quarter ended October 31, 2003,
the expenses under the agreement were $40,000 compared to $60,000 for the fiscal
year 2002 quarter. The Company terminated the agreement with the consultant in
October 2003.

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, of which
$4,000 per month is for office space and the remaining $4,000 is allocated to
research and development activities. 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 current policy which began on May 30, 2003 was obtained at a much higher
rate that the policy that expired in May 2003.

Travel expenses for the current period were higher due to a significant increase
in travel related to public and investor relations activity, which did not occur
in the prior period.

RESEARCH AND DEVELOPMENT

Our research and development expenses consist primarily of salaries and
benefits, facilities, consulting services and travel.

Our research and development expenses were $239,000 for the three months ended
October 31, 2003 versus $134,000 for the same period in 2002 or a decrease of
$105,000. A comparison of the major components of the increase in research and
development expenses follows:

<TABLE>
<CAPTION>
                                   Three Months Ended
                            October 31, 2003   October 31, 2002     Increase
                            ----------------   ----------------     --------
<S>                         <C>                <C>                  <C>
Salaries and benefits           184,000            103,000             81,000
Travel                            4,000             21,000            (17,000)
Consultants                      15,000              1,000             14,000
Depreciation                     32,000             26,000              6,000
Facilities                       16,000                 --             16,000
Supplies                         62,000              4,000             58,000
Other                            30,000             20,000             10,000
Grant income                   (104,000)           (41,000)           (63,000)
                               --------            -------            -------
                                239,000            134,000            105,000
                               --------            -------            -------
</TABLE>


                                       31
<PAGE>


Salaries and benefits increased in the current fiscal quarter compared to the
same quarter in the prior fiscal year because the Company added additional
scientific personnel to advance to development of its detection systems. The use
of consultants decreased during the same period because the work formerly done
by consultants was done by Company personnel.

During the first and second quarter in fiscal 2002, the Company demonstrated its
detection system to the Department of Defense on the east coast in the US. The
Company incurred much higher travel expenses during the prior year quarter in
order to ship equipment and personnel to the site for the demonstration.

The Company added $482,000 of equipment during the year ended April 30, 2003 and
$122,000 during the six months ended October 31, 2003. Most of the equipment
purchased was for research and development purposes. Depreciation expenses
increased in the current fiscal quarter compared to the same quarter in the
prior year due to the increased purchases of research and development equipment.

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, of which
$4,000 per month is allocated to research and development activities. The
Company also leases a test site and incurred $4,000 during the current quarter
and did not have a similar facility during prior years quarter.

The Company incurred $62,000 in research and development supplies during the
current quarter to prepare our prototype detector systems to be demonstrated to
various potential customers.

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. We had income attributable
to Phase II of the development contract of $104,000 during the three months
ended October 31, 2003 and $41,000 during the same period in 2002, which was
attributable to Phase I of the development contract.

DEPRECIATION

Accumulated depreciation for property and equipment at October 31, 2003 was
$164,000. Depreciation expense for the three months ended October 31, 2003 and
2002 was $34,000 and $26,000, respectively. The increase in depreciation expense
reflects additional equipment put into service during the intervening period.

OTHER INCOME AND EXPENSE

Interest expense for the current fiscal quarter was $8,000 compared to $2,000 in
the same period in the prior year. Interest expense increased in the current
fiscal quarter because the convertible notes payable with the Company's legal
counsel with an interest rate of 10% was outstanding. No comparable interest
bearing debt was outstanding during same period of the prior year.

Interest income during the current fiscal quarter was $500 compared to $1,200 in
the same period in the prior year. During the current quarter the Company had an
average balance of $200,000 in its cash investment account compared to $400,000
in the same period of the previous year.



                                       32
<PAGE>

SIX MONTHS ENDED OCTOBER 31, 2003 COMPARED TO SIX MONTHS ENDED OCTOBER 31, 2002

For the six months ended October 31, 2003, we incurred a net loss of $2,757,000,
as compared to a net loss of $1,913,000 for the same period in 2002.

OPERATING EXPENSES

GENERAL AND ADMINISTRATION

Our general and administration expenses were $2,407,000 for the six months ended
October 31, 2003 versus $1,386,000 for the same period in 2002 or an increase of
$1,021,000. A comparison of the major components of the increase in general and
administration expenses follows:


<TABLE>
<CAPTION>
                                             Six Months Ended
                                    -------------------------------------
                                    October 31, 2003     October 31, 2002        Increase
                                    ----------------     ----------------        --------
<S>                                 <C>                  <C>                    <C>
Stock based compensation                  815,000             294,000             521,000
Legal fees                                442,000             309,000             133,000
Accounting fees                            89,000              60,000              29,000
Public relations                          105,000              77,000              28,000
Investor relations                        109,000             120,000             (11,000)
Consultants                               247,000             119,000             128,000
Facilities                                 38,000               9,000              29,000
Directors liability insurance              68,000              37,000              31,000
Salaries and benefits                     214,000             165,000              49,000
Travel                                    123,000              61,000              62,000
All other                                 157,000             135,000              22,000
                                        ---------           ---------           ---------
                Total                   2,407,000           1,386,000           1,021,000
                                        ---------           ---------           ---------
</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. The compensation expense
recorded for various option and warrant grants are amortized over the life of
the agreements to which they pertain. During the six months ended October 31,
2003, an agreement was terminated between a business development consultant and
the Company. The remaining balance of the option compensation of $550,000 was
expensed during the period.

Legal and accounting fess increased due to increased SEC filing activity in the
current fiscal period compared to the same period in the previous year.

Public and investor relations increased because a new public relations firm was
hired and a new public relations initiative was launched during the current
period.

As detailed in Note-9 Commitment and Contingencies, the Company entered into a
three-year business development consulting agreement in July 2002. The monthly
cost was $20,000 per month plus expenses. For the six months ended October 31,
2003, the expenses under the agreement were $110,000 compared to $80,000 for the
fiscal year 2002 quarter. The Company terminated the agreement with the
consultant in October 2003. There was also increased use of consultants by the
Company for business development and finance and accounting matters.

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, of which
$4,000 per month is for office space and the remaining $4,000 is allocated to
research and development activities. The Company's prior facilities contained
substantially less square footage and the cost was $1,200 per month.


                                       33
<PAGE>


The Company maintains $2,000,000 of Directors and Officers liability insurance.
The current policy which began on May 30, 2003 was obtained at a much higher
rate that the policy that expired in May 2003.

The Company's salaries and benefits were higher in the current period because
scheduled salary and benefit increases contained in the employment agreement
with the Company's Chairman and CEO. There were also salary increases included
for other general and administration employees.

Travel expenses for the current period were higher due to a significant increase
in travel related to public and investor relations activity, which did not occur
in the prior period.

RESEARCH AND DEVELOPMENT

Our research and development expenses were $337,000 for the six months ended
October 31, 2003 versus $301,000 for the same period in 2002 or an increase of
$36,000. A comparison of the major components of the increase in research and
development expenses follows:

<TABLE>
<CAPTION>
                                    Six Months Ended
                            -----------------------------------       Increase/
                            October 31, 2003   October 31, 2002      (Decrease)
                            ----------------   ----------------      ----------
<S>                         <C>                <C>                  <C>
Salaries and benefits           299,000            153,000            146,000
Travel                            5,000             43,000            (38,000)
Consultants                      33,000             32,000              1,000
Depreciation                     61,000             40,000             21,000
Supplies                         84,000             22,000             62,000
Insurance                            --             18,000            (18,000)
Moving                           40,000                 --             40,000
Other                            22,000             34,000            (12,000)
Grant income                   (207,000)           (41,000)          (166,000)
                               --------            -------           --------
                                337,000            301,000             36,000
                               --------            -------           --------
</TABLE>

Salaries and benefits increased in the current period compared to the same
period in the prior fiscal year because the Company added additional scientific
personnel to advance to development of its detection systems. The use of
consultants was about the same during the same period.

During the period in fiscal 2002, the Company demonstrated its detection system
to the Department of Defense on the east coast in the US. The Company incurred
much higher travel expenses during the prior year quarter in order to ship
equipment and personnel to the site for the demonstration.

The Company added $482,000 of equipment during the year ended April 30, 2003 and
$122,000 during the six months ended October 31, 2003. Most of the equipment
purchased was for research and development purposes. Depreciation expenses
increased in the current period compared to the same quarter in the prior year
due to the increased purchases of research and development equipment.

The Company incurred $84,000 in research and development supplies during the
period to prepare our prototype detector systems to be demonstrated to various
potential customers.

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 a 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 development contract for
$70,000 for testing out MiniSenzor technology for landmine detection.


                                       34
<PAGE>

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.

We had grant income attributable to Phase II of the development contract of
$207,000 during the six months ended October 31, 2003 and $41,000 during the
same period in 2002, which was attributable to Phase I of the development
contract.

DEPRECIATION

Accumulated depreciation for property and equipment at October 31, 2003 was
$164,000. Depreciation expense for the six months ended October 31, 2003 and
2002 was $64,000 and $40,000, respectively. The increase in depreciation expense
reflects additional equipment put into service during the intervening period.

OTHER INCOME AND EXPENSE

Interest expense for the current fiscal quarter was $13,000 compared to $5,000
in the same period in the prior year. Interest expense increased in the current
fiscal period because the convertible notes payable with the Company's legal
counsel with an interest rate of 10% was outstanding. No comparable interest
bearing debt was outstanding during same period of the prior year.

Interest income during the current fiscal quarter was $900 compared to $3,400 in
the same period in the prior year. During the current fiscal period, the Company
had an average balance of $175,000 in its cash investment account compared to
$450,000 in the same period of the previous year.

 During the six months ended October 31, 2003, 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 $1.50 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 three months ended July 31, 2002. The fair value
of the warrants were determined using the Black Scholes model. There was no
comparable expense in the current fiscal quarter.

RECENT ACCOUNTING PRONOUNCEMENTS

The subsection of Note 3 to the unaudited Notes to the Financial Statements
entitled "Recently Issued Accounting Pronouncements" is incorporated herein.

LIQUIDITY AND CAPITAL RESOURCES

As of October 31, 2003, we had unrestricted cash and cash equivalents of
$260,000. We used $1,020,000 for operating activities and approximately $122,000
to acquire equipment in the six months ended October 31, 2003. Of our $2,757,000
net loss, we recorded approximately $636,000 in non-cash expenses related to the
issuance of common stock and stock based securities as compensation for
services. During the six months ended October 31, 2003, we raised approximately
$1,376,000 from sales of common stock. As of October 31, 2003, we had current
liabilities of approximately $1,164,000 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 November and December 2003, the Company sold 303,758 shares of its common
stock and raised $219,751, net of commissions. In connection with these sales,
the Company also issued 75,940 warrants to purchase its common stock at exercise
prices ranging from $0.75 to $1.00.


                                       35
<PAGE>

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

In August 2003, the Company signed and agreement with an investment bank to
support its bid to obtain a $1,600,000 grant contract with the U.S. Navy to
develop a prototype SuperSenzor for detection of biological agents in sealed
containers. The investment bank has confirmed to the Navy that it would provide
the necessary funding of a minimum of $2,500,000 and a maximum of $4,000,000, by
purchasing common stock of the Company to guarantee that the Company will have
sufficient funding through the performance of an 18-month contract. The Company
estimates that its costs to execute the contract will be in a range from
$800,000 to $1,200,000.

In exchange for the guarantee, the Company will owe fees to the investment bank
ranging from $50,000 (if the contract is not awarded to the Company) to $150,000
(upon the award of the contract). The Company had been approved for a grant of
$1,600,000; however, the Contracting Office of the Naval Surface Warfare Center
denied the contract due to the Company's financial condition. During the six
months ended October 31, 2003, the Company recorded a liability for $50,000
under this agreement.

As of October 31, 2003, we issued unsecured convertible promissory notes at 10%
interest totaling $450,000 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 amount of the notes totaled $47,000 and
$450,000 at April 30, 2003 and October 31, 2003, respectively. The notes are due
on January 15, 2004 unless converted into common stock. Also in June 2003, the
Company issued 300,000 shares of common stock to its legal counsel to pay
$100,000 worth of legal fees. The numbers of shares of common stock and the
price per share issued to our legal counsel was negotiated by the parties in
order to offset $100,000 of legal services.

In August 2003, the Company announced the incorporation of HiEnergy Defense,
Inc. an 85% owned subsidiary that will focus on developing and marketing defense
applications of the Company's SuperSenzor technology. During the six months
ended October 31, 2003, we invested $50,000 in HiEnergy Defense, Inc.

Below is a summary of our agreements 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>
Business Development          July 2002         November 2003      $ 20,000      $240,000    Terminated in October 2003
Public Relations              November 2002     February 2003      $ 12,500      $150,000    Currently month to month
Investor Relations            April 2003        March 2004         $  6,500      $ 78,000    Terminated in December 2003
</TABLE>


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.


                                       36
<PAGE>


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.


                                       37
<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 acquisition 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 acquisition knew or had other
business dealings with Mr. Gurian. One of these stockholders was a company
reportedly owned by Mr. Gurian's mother, which disposed of its shares in April
2002 at a substantial profit. We believe that, innocently or intentionally, Mr.
Alter knew of these purchases. Please see the section entitled "Legal
Proceedings." After our independent investigation concluded, the Dow Jones News
Service has developed further its story about various connections that allegedly
may have existed between these and other investors and Mr. Gurian himself and
other connections including some between a former market maker and Mr. Gurian.
We continue the development of our technology and products. Thus far our efforts
are proceeding undisturbed and without interruption. Naturally, we 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 qualify their opinion contained in
our consolidated financial statements as of and for the years ended April 30,
2003, 2002 and 2001 to include an explanatory paragraph related to our ability
to continue as a going concern, stating that "during the year ended April 30,
2003, the Company incurred a net loss of $5,411,265, and it had negative cash
flows from operations of $2,942,480. In addition, the Company had an accumulated
deficit of $8,981,620 and was in the development stage as of April 30, 2003.
These factors, among others, as discussed in Note 2 to the financial statements,
raise substantial doubt about the Company's ability to continue as a going
concern." 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.


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<PAGE>


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 six months ended
October 31, 2003, we reported a net loss available to common shareholders of
approximately $3,368,429, as compared to a net loss available to common
shareholders of approximately $2,759,016 for the six months ended October 31,
2002. Our accumulated deficit through October 31, 2003 was approximately
$12,350,049. We have financed operations to date through a combination of
government funding and equity financing. As of October 31, 2003, we had received
an aggregate of approximately $678,001 in government grant funding as from the
U.S. Department of Defense, U.S. Energy Department 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. In the past, the cash available from financial sources has funded
operations with aggregate losses of $12,350,049 and has left a small deficit of
at October 31, 2003 of $124,499. 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.

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.


                                       39
<PAGE>

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 acquisition transaction
between SLW Enterprises Inc. and HiEnergy Microdevices, Inc." and "Legal
Proceedings," were not known to us and were not disclosed in sales materials or
filings with the SEC 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.

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.


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<PAGE>


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.
Our directed neutron device is complicated, and we have been protected by
skepticism that such an instrument can be successfully made into an industrial
product because the concept upon which our product is based was previously
considered impractical. 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."


                                       41
<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 must secure enough funds to pay our current liabilities and fund the research
and development of our products. We are currently in the process of negotiating
several proposals with various government agencies for the development and use
of our technology, which we believe will provide part of the needed funding for
our operations in 2004. The government review and procurement process can be
slow and unpredictable at times. However, management is highly confident as our
products have performed well in all tests and demonstrations to date and been
well received by these agencies. However, the government contracting process
involves further steps, such as financial capability evaluations, that have
caused the loss of such contracts to second bidders. Raising investment capital
is a near-term necessity in order to pursue any government contracts. If we
finance our needs with debt, the stockholders could receive nothing upon any
foreclosure or material default. If we sell shares of preferred equity, the
rights of the present stockholders would be subject to any senior rights of the
preferred series of shares. The use of common equity financing in order to raise
additional working capital will dilute the ownership interests of our existing
stockholders.

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 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 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.

                                       42
<PAGE>


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.

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.


                                       43
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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.


                                       44
<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.


                                       45
<PAGE>


ITEM 3.  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.


                                       46
<PAGE>

                           PART II - OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

We received a letter dated December 5, 2002, from an attorney representing
Richard T. Eckhouse, a consultant, demanding payment for accounting services
allegedly performed by Mr. Eckhouse pursuant to a Letter Agreement dated
November 7, 2001, between Mr. Eckhouse and HiEnergy Microdevices, Inc. The
Letter Agreement provides that Mr. Eckhouse was to be paid $350 per hour, which
was to be paid as follows: (i) one-third or $117 in cash; (ii) one-third or $117
paid by a Promissory Note at 10% annual interest, maturing when HiEnergy
Technologies receives government funding of $900,000 or an investment totaling
$300,000 or more; and (iii) one-third or $117 paid by Class A (common stock) of
HiEnergy Microdevices at $5.00 per share. Mr. Eckhouse filed a lawsuit against
the Company, Microdevices and Dr. Bogdan Maglich on May 2, 2003 in the Superior
Court of the State of California, County of Orange, Central Justice Center, and
an amended complaint on June 20, 2003, alleging that Microdevices owes Mr.
Eckhouse a total of $313,580 for services rendered, plus interest, attorney's
fees and costs. 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 acquisition of HiEnergy
Microdevices with known stock manipulators, our Board of Directors directed our
President to hire a team of independent investigators to investigate whether the
company or any of its officers and directors had engaged in any wrongdoing. The
core team of independent investigators consisted of two former federal
prosecutors, a former Assistant United States Attorney in the civil division who
has been in private practice since 1981 with experience in securities litigation
and regulatory and investigative proceedings, and a former supervisory agent
from the Federal Bureau of Investigation. The 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 acquisition 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 merger.

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

As mentioned in item 3, above, the independent investigators believe there is
insufficient evidence to fully conclude that there was no wrongdoing by HiEnergy
prior to the April 2002 reverse acquisition. The independent investigators
obtained evidence that some of our stockholders who purchased significant
amounts of HiEnergy shares prior to the reverse acquisition knew or had business
dealings with Phil Gurian, a person who had previously been involved in stock
manipulation, and that one of these stockholders was a company reportedly owned
by Mr. Gurian's mother, which disposed of its shares in April 2002 at a profit
believed to be between $500,000 and $600,000. Mr. Barry Alter, a person who
later served 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.


                                       47
<PAGE>


On May 27, 2003, Mr. Alter brought a lawsuit against us in the New Castle County
Court of Chancery in Delaware to recover the advancement of expenses he
allegedly incurred in response to an SEC investigation that was exactly the same
investigation that the Company answered, but Mr. Alter obtained separate legal
counsel to represent him in connection with the investigation. That action was
identified as Civil Action No. 20320NC. On June 17, 2003, Mr. Alter voluntarily
dismissed his action without prejudice.

On November 24, 2003, Yeffet Security Consultants initiated binding arbitration
proceedings with the Rhode Island office of the American Arbitration Association
claiming that $59,540.91 in expense reimbursements and $390,000 in future
consulting fees for the period from November 16, 2003 through June 30, 2005 are
owed by the Company to Yeffet Security Consultants under a terminated Consulting
Agreement with Yeffet Security Consultants, Inc. We are in the process of
studying the matter.

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

ITEM 2.  CHANGES IN SECURITIES

LIST OF SALES OF UNREGISTERED SECURITIES DURING THE THREE-MONTH PERIOD ENDED
OCTOBER 31, 2003

o      In December 2003, we issued 33,334 shares of our common stock to James
       Herzog and Barbara Tawil in exchange for $25,000 in cash. We believe
       these issuances of securities were exempt under Rule 506 of Regulation D
       and/or Section 4(2) under the Securities Act.

o      In November 2003, we issued 200,000 shares of our common stock to Robert
       J. Neborsky in exchange for $150,000 in cash, and we issued warrants to
       acquire 10,000 shares of our common stock at a price of $0.75 per share
       to Brian Corday as compensation for facilitating the sale. We believe
       these issuances of securities were exempt under Rule 506 of Regulation D
       and/or Section 4(2) under the Securities Act.

o      In November 2003, we issued 35,212 shares of our common stock to each of
       Keith Moore and Ryan Patch in exchange for $25,000.50 in cash from each.
       We believe these issuances of securities were exempt under Rule 506 of
       Regulation D and/or Section 4(2) under the Securities Act.

o      In October 2003, we issued 31,500 shares of our common stock to each of
       Carlos S. De la Cuesta Nazabal and Luis Lopez Echeto in exchange for
       $60,001 in cash, and in October 2003, we issued warrants to acquire
       15,750 shares of our common stock at a price of $1.25 per share to
       Julian Eguizabal Echeverria as compensation for facilitating the sale.
       We believe these issuances of securities were exempt from registration
       under Regulation S of the Securities Act.

o      In September 2003, we agreed to issue 76,923 shares of our common stock,
       and warrants to acquire an additional 25,641 shares of our common stock
       at a price of $1.30 per share to SBI-USA LLC in exchange for $100,000 in
       cash. We believe these issuances of securities is exempt under Rule 506
       of Regulation D and/or Section 4(2) under the Securities Act.

o      In August 2003, we issued 666,666 shares of our common stock, and
       warrants to acquire 220,000 shares of our common stock at a price of
       $0.75 per share, to Platinum Partners Value Arbitrage Fund LP for gross
       proceeds of $500,000, and we issued warrants to acquire 60,000 shares of
       our common stock at a price of $0.8625 per share to Dunwoody Brokerage
       Services as compensation for facilitating the sale. We also issued 86,957
       shares of our common stock, and warrants to acquire 28,697 shares of our
       common stock at a price of $0.75 per share, to Nicholas Yocca, Danny
       Beadle and Patrick Bevilacqua for gross proceeds of $60,000. We believe
       these issuances of securities were exempt under Rule 506 of Regulation D
       and/or Section 4(2) under the Securities Act.

o      In August 2003, we issued 600,000 shares of our common stock, and
       warrants to acquire an additional 100,000 shares of our common stock at a
       price of $0.65 per share and 50,000 shares at $0.69 per share, to
       Bullbear Capital Partners LLP in exchange for $346,000 in cash. We also
       issued 217,392 shares of common stock and warrants to acquire 65,942
       shares to Richard Melnick in exchange for $150,000 in cash. We believe
       these issuances of securities were exempt under Rule 506 of Regulation D
       and/or Section 4(2) under the Securities Act.


                                       48
<PAGE>

o      In August 2003, we issued a total of 222,222 shares of our common stock,
       and warrants to acquire an additional 55,556 shares of our common stock
       at a price of $0.60 per share, to Mark Yocca, Nicholas Yocca, Paul Kim
       and Central Answering Service, Inc. in exchange for $100,000 in cash.
       Mark Yocca, Nicholas Yocca and Paul Kim are each attorneys associated
       with Yocca Patch & Yocca, LLP, counsel to the Company. 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 2003, we issued 44,705 shares of common stock to a Director for
       an exercise of a stock option in HiEnergy Microdevices, Inc. which was
       converted common stock of HiEnergy Technologies, Inc. upon the reverse
       merger, but the common stock was never issued. We believe the issuance of
       securities was exempt under Section 4(2) under the Securities Act.

o      In August 2003, we issued options to purchase an aggregate of 65,000
       shares of common stock to employees and 40,000 to other service
       providers, with an exercise price of $1.02 and a term of six years,
       pursuant to the HiEnergy Technologies 2003 Stock Incentive Plan. We
       believe the issuance of securities was exempt under Section 4(2) under
       the Securities Act.

ITEM 3.     DEFAULT UPON SENIOR SECURITIES

None

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

On November 7, 2002, we held our annual meeting of stockholders in Irvine,
California. At the meeting, our stockholders were asked to vote on the election
of members to the Board of Directors. All of the directors nominated for
election served as directors immediately prior to the annual meeting. The
following directors were elected by our stockholders as a result of the
following votes:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
     NAME                           VOTES "FOR" ELECTION   VOTES "AGAINST" ELECTION       VOTES
                                                                                        "WITHHELD"
-----------------------------------------------------------------------------------------------------------
<S>                                 <C>                    <C>                          <C>
Bogdan C. Maglich                       21,640,207                  73,880
-----------------------------------------------------------------------------------------------------------
David R. Baker                          21,672,887                  41,200
-----------------------------------------------------------------------------------------------------------
Robert H. Drysdale                      21,672,887                  41,200
-----------------------------------------------------------------------------------------------------------
Harb S. Al Zuhair                       21,662,887                  51,200
-----------------------------------------------------------------------------------------------------------
Whitney E. Stanbury                     21,662,587                  51,200                 300
-----------------------------------------------------------------------------------------------------------
</TABLE>

In addition to the election of directors, the following matter was voted upon at
the annual meeting:

o      Approval, ratification, adoption and authorization of the HiEnergy
       Technologies, Inc. 2003 Stock Incentive Plan.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
             FOR                          AGAINST                       ABSTAINED
----------------------------------------------------------------------------------------------------
<S>                                    <C>                             <C>
          15,209,728                      273,855                        98,882
----------------------------------------------------------------------------------------------------
</TABLE>

No other matters were submitted to our stockholders at the annual meeting.

ITEM 5.  OTHER INFORMATION

None


                                       49
<PAGE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(A)            EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                         DESCRIPTION
---------      -----------------------------------------------------------------
<S>            <C>
10.40.3        Amendment of the Promissory Notes issued to
               Yocca Patch & Yocca, LLP

10.52 (10)     Form of Stock Purchase Agreement dated August 2003 between
               HiEnergy Technologies, Inc. and the purchasers of common stock
               and warrants

10.53 (10)     Form of Warrant Certificate dated August 2003 between HiEnergy
               Technologies, Inc. and the purchasers of common stock and
               warrants

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          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          Form of Warrant Agreement dated October 28 - December 2, 2003
               between HiEnergy Technologies, Inc. and the purchasers of common
               stock and warrants.

10.60          Letter Agreement between SBI - USA LLC and HiEnergy Technologies,
               Inc. dated August 1, 2003.

31.1           Certification of Chief Executive Officer and Treasurer pursuant
               to Securities Exchange Act Rule 13a-14(a)/15d-14(a)

32.1           Certification of Chief Executive Officer and Treasurer pursuant
               to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
               the Sarbanes-Oxley Act of 2002
</TABLE>

* Indicates a management compensatory plan or arrangement.

(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 incorporate herein by reference.

(11) Filed on October 7, 2003 as an exhibit to HiEnergy Technologies' Form 8-K
dated October 7, 2003.

                                       50
<PAGE>


(b)        REPORTS ON FORM 8-K

On September 12, 2003, we filed a report on Form 8-K dated September 11, 2003.
The report disclosed under Item 9 pursuant to Regulation FD. The purpose of this
report is to respond to questions from investors and to comment on whether we
are owned or controlled by associates of Philip Gurian.

On September 15, 2003, we filed a report on Form 8-K dated September 16, 2003.
The report disclosed under Item 9 pursuant to Regulation FD. The purpose of this
report is to announce that HiEnergy Technologies, Inc. has been cleared by the
US Army to present two scientific papers at the International Conference on
Requirements and Technologies for the Detection, Removal and Neutralization of
Landmines and UXO, which is taking place in Brussels, Belgium, September 15-18,
2003. HiEnergy's patent application for the SuperSenzor had been under US Army
Secrecy Orders from October 22, 2002 until February 25, 2003.

On October 8, 2003, we filed a report on Form 8-K dated October 7, 2003. The
report disclosed under Item 5 Other Events and Regulation FD that the Company
has executed a Memorandum of Understanding with the Directorate of Spanish
Airports and Navigation known as AENA (Aeropuertos Espanoles y Navegacion
Aerea), to form a collaborative effort with HiEnergy to use HiEnergy's
Stoichiometer technology to improve the security of Spain's airports.
Additionally the Memorandum outlines an in-field demonstration in Spain of
HiEnergy's Stoichiometer technology as used in the CarBomb Finder TM, and
potentially a demonstration of the False Alarm Eliminator(TM) for the Department
of Security of AENA.


                                       51
<PAGE>


                                   SIGNATURES


In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                               HIENERGY TECHNOLOGIES, INC.



Date:  December 16, 2003      By:  /s/ B. C. Maglich
      --------------------         ----------------------------------------
                                   Name:  Bogdan C. Maglich
                                   Title:  Chief Executive Officer and President




                                       52