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 July 31, 2005

   |_| 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 September __, 2005, the issuer
had 50,171,581 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 Period Ended July 31, 2005

                         PART I - FINANCIAL INFORMATION

                                                                            Page

PART I - FINANCIAL INFORMATION

Item 1   Financial Statements

         Consolidated Balance Sheets as of April 30, 2005 and July 31, 2005
         (unaudited)                                                           3

         Consolidated Statements of Operations for the three months ended
         July 31, 2005 and 2004 (unaudited) and for the Period from
         August 21, 1995 (Inception) to July 31, 2005 (unaudited)              4

         Consolidated Statements of Cash Flows for the three months
         ended July 31, 2005 and 2004 (unaudited) and for the Period
         from August 21, 1995 (Inception) to July 31, 2005 (unaudited)         5

         Notes to the Consolidated Financial Statements (unaudited)            7

Item 2   Management's Discussion and Analysis and Plan of Operation           33

Item 3   Controls and Procedures                                              63

PART II - OTHER INFORMATION                                                   64

Item 1   Legal Proceedings                                                    64

Item 2   Changes in Securities                                                66

Item 6   Exhibits and Reports on Form 8-K                                     69

SIGNATURES                                                                    77


                                       2
<PAGE>

                                    HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                                      CONSOLIDATED BALANCE SHEET
                          FOR THE PERIODS ENDED JULY 31, 2005 AND APRIL 30, 2005
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                        July 31,            April 30,
                                                                                          2005                2005
                                                                                      ------------        ------------
                                                                                       (unaudited)
<S>                                                                                   <C>                 <C>
CURRENT ASSETS
          Cash and cash equivalents                                                   $    170,932        $     18,452
          Accounts receivable                                                                   --             275,957
          Inventory                                                                      1,041,319             808,650
          Other current assets                                                             458,492             381,829
                                                                                      ------------        ------------

                  Total current assets                                                   1,670,743           1,484,888
                                                                                      ------------        ------------

PROPERTY AND EQUIPMENT, net                                                              1,616,909             542,080
                                                                                      ------------        ------------

TOTAL ASSETS                                                                          $  3,287,652        $  2,026,968
                                                                                      ============        ============

CURRENT LIABILITIES
          Accounts payable                                                            $  2,591,020        $  1,287,543
          Accrued expenses                                                                 205,977              74,205
          Accrued payroll and payroll taxes                                                511,131             436,865
          Accrued interest                                                                 177,856             166,591
          Notes payable                                                                      9,253              39,164
          Notes payable - related parties                                                   85,000              99,000
          Convertible notes payable - related parties                                      673,083             673,083
          Convertible notes payable                                                        278,400             532,800
          Common stock subject to rescission rights,  68,546 and 312,012 shares             50,000             199,560
          Other current liabilities                                                        208,524             200,000
                                                                                      ------------        ------------

                  Total current liabilities                                              4,790,244           3,708,811

LONG-TERM NOTES PAYABLE                                                                      2,989               3,556
                  Total liabilities                                                      4,793,233           3,712,367
                                                                                      ------------        ------------


SHAREHOLDERS' DEFICIT
          Preferred stock,  $0.001 par value  20,000,000 shares
           authorized no shares outstanding                                           $         --        $         --
          Common stock.  $0.001 par value  100,000,000 shares
            authorized 50,103,035 and 45,817,315 shares issued and outstanding              50,103              45,817
          Additional paid-in capital                                                    31,729,112          29,521,570
          Committed common stock,  1,698,374 and 1,378,604 shares, respectively            888,670             547,375
          Subscription receivable                                                         (320,000)                 --
          Deficit accumulated during the development stage                             (33,853,466)        (31,800,161)
                                                                                      ------------        ------------

                  Total shareholders' deficit                                           (1,505,581)         (1,685,399)
                                                                                      ------------        ------------

TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT                                           $  3,287,652        $  2,026,968
                                                                                      ============        ============
</TABLE>

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

                                       3
<PAGE>

                                    HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                           CONSOLIDATED STATEMENTS OF OPERATIONS
                           FOR THE THREE MONTHS ENDED JULY 31, 2005 AND 2004 AND
                FOR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO JULY 31, 2005
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                     For the
                                                                                                    Period from
                                                                                                     August 21,
                                                                                                       1995
                                                             For the Three Months Ended             (Inception)
                                                           -------------------------------              to
                                                            July 31,              July 31,           July 31,
                                                              2005                 2004                2005
                                                           (unaudited)          (unaudited)         (unaudited)
                                                           ------------        ------------        ------------
OPERATING EXPENSES
<S>                                                        <C>                 <C>                 <C>
          General and administrative                       $  1,095,739        $  1,684,873        $ 21,690,629
          Research and development                              418,016             220,002           3,615,385
                                                           ------------        ------------        ------------

TOTAL OPERATING EXPENSES                                      1,513,755           1,904,875          25,306,014

LOSS FROM OPERATIONS                                         (1,513,755)         (1,904,875)        (25,306,014)
                                                           ------------        ------------        ------------

OTHER INCOME (EXPENSE)
          Interest income                                            19                 136               9,582
          Other income                                              480                  --               2,623
          Interest expense                                      (29,848)           (755,677)         (1,505,527)
          Financing expense                                          --                  --            (223,710)
          Loss on disposal of property and equipment            (26,093)                 --             (26,093)
          Penalty expense on issuance of
           convertible promissory notes
           as a penalty for late registration                   (12,000)             (3,000)            (63,000)
          Penalty expense on issuance of
           common stock and warrants
           as a penalty for late registration                  (472,108)         (1,465,073)         (5,298,110)
                                                           ------------        ------------        ------------

Total other expense, net                                       (539,550)         (2,223,614)         (7,104,235)
                                                           ------------        ------------        ------------

LOSS BEFORE PROVISION FOR INCOME TAXES                       (2,053,305)         (4,128,489)        (32,410,249)

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

NET LOSS                                                   $ (2,053,305)       $ (4,128,489)       $(32,424,432)

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

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

NET LOSS AVAILABLE TO COMMON SHAREHOLDERS                  $ (2,053,305)       $ (4,128,489)       $(33,853,466)
                                                           ============        ============        ============


Net loss per share                                         $      (0.04)       $      (0.13)
                                                           ============        ============

BASIC AND DILUTED LOSS AVAILABLE TO
          COMMON SHAREHOLDERS PER SHARE                    $      (0.04)       $      (0.13)
                                                           ============        ============

BASIC AND DILUTED WEIGHTED AVERAGE
          COMMON SHARES OUTSTANDING                          50,052,579          31,261,473
                                                           ============        ============
</TABLE>

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

                                       4
<PAGE>


                                    HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                         CONSOLIDATED  STATEMENTS  OF CASH FLOWS
                           FOR THE THREE MONTHS ENDED JULY 31, 2005 AND 2004 AND
                FOR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO JULY 31, 2005
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                                       For the
                                                                                                                     Period from
                                                                                                                      August 21,
                                                                                                                         1995
                                                                                    For the Three Months Ended       (Inception)
                                                                                   -----------------------------          to
                                                                                     July 31,         July 31,         July 31,
                                                                                       2005             2004             2005
                                                                                    (unaudited)      (unaudited)      (unaudited)
                                                                                   ------------     ------------     ------------
<S>                                                                                <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
          Net loss                                                                 $ (2,053,305)    $ (4,128,489)    $(32,424,432)
          Adjustments to reconcile net loss to net cash provided by
           (used in) operating activities
                  Depreciation                                                           66,574           52,338          523,491
                  Loss on inventory impairment                                           37,000               --           37,000
                  Loss on disposal of property and equipment                             26,093               --           26,093
                  Issuance or committed issuance of common stock
                    for services rendered                                               165,011          423,951        5,428,335
                  Common stock issued for legal settlement                                   --               --           13,440
                  Issuance of common stock as compensation expense
                    for services rendered from minority shareholders                         --           18,923
                  Warrants issued or committed for services rendered                     25,373           38,573        1,001,408
                  Financing expense in connection with the
                    issuance of warrants                                                     --               --          223,710
                  Expensing of stock options for services rendered                       32,000               --        2,379,640
                  Additional compensation to officer in the form of
                    convertible note payable - related party                                 --               --           42,171
                  Amortization of deferred compensation                                      --          278,551        1,646,192
                  Amortization of debt discount on convertible
                    notes payable                                                            --          730,164        1,278,714
                  Issuance of convertible notes payable as a penalty for the
                   delayed registration of the underlying common stock                   12,000            3,000           63,000
                  Issuance or committed issuance of common stock as a penalty
                    for the delayed registration of shares of common stock              166,652          884,064        3,473,140
                  Issuance or commitment to issue warrants as a penalty for the
                    delayed registration of the underlying common stock                 305,455          581,008        1,824,483
                  (Increase) decrease in
                          Accounts receivable                                           275,957          (30,412)              (2)
                          Inventory                                                    (293,668)              --       (1,102,318)
                          Other current assets                                          (12,757)          52,906         (424,546)
                  Increase (decrease) in
                          Accounts payable                                            1,303,476           86,630        3,490,112
                          Accrued expenses                                              131,773            4,126          205,978
                          Accrued payroll and payroll taxes                              44,266          (27,478)         902,884
                          Accrued interest                                               28,030           24,491          202,030
                          Other current liabilities                                       8,524           67,183          208,524
                                                                                   ------------     ------------     ------------

Net cash provided by (used in) operating activities                                $    268,454     $   (959,394)    $(10,962,030)
                                                                                   ------------     ------------     ------------

CASH FLOWS FROM INVESTING ACTIVITIES
          Purchase of property and equipment                                       $ (1,164,746)    $   (200,534)    $ (2,152,801)
          Sales of property and equipment                                                21,250               --           21,250
                                                                                   ------------     ------------     ------------

Net cash used in investing activities                                                (1,143,496)        (200,534)      (2,131,551)
                                                                                   ------------     ------------     ------------

CASH FLOWS FROM FINANCING ACTIVITIES
          Proceeds from issuance of common stock in
           private placement                                                       $         --     $         --     $  3,547,406
          Offering costs on issuance of common stock in
                   private placement                                                         --               --         (196,793)
          Proceeds from issuance or committed issuance of common stock                1,040,000          475,000        5,735,424
          Offering costs on issuance of common stock                                    (12,000)         (31,750)        (151,768)
          Proceeds from the issuance of preferred stock                                      --               --          979,301
          Offering costs on issuance of preferred stock                                      --               --         (178,902)
          Proceeds from issuance of common stock subject
            to rescission rights                                                             --               --        1,355,000
          Proceeds from issuance of common stock subject to buy-back                         --               --          250,518
          Proceeds from collection of subscription receivable for net
            sales of common stock subject to buy-back                                        --               --          443,482
          Recapitalization of reverse merger                                                 --               --               14
          Proceeds from exercise of stock options in subsidiary                              --               --            7,164
          Proceeds from issuance of common stock upon exercise
            of warrants                                                                      --               --           54,004
          Proceeds from notes payable                                                        --               --           59,000
          Payment on notes payable                                                         (478)            (557)          (9,925)
          Proceeds from issuance of notes payable - related parties                          --               --          947,853
          Payments on notes payable - related parties                                        --          (42,934)        (807,265)
          Proceeds from convertible notes payable                                            --               --          100,000
          Proceeds from convertible notes payable - related parties                          --               --           55,400
          Payments on convertible notes payable - related parties                            --               --          (35,400)
          Proceeds from convertible notes payable
            subject to rescission rights                                                     --          300,000          685,000
          Proceeds from collection of subscription receivable for
            sale of convertible note payable sold subject to rescission rights               --          425,000          425,000
                                                                                   ------------     ------------     ------------

Net cash provided by financing activities                                             1,027,522        1,124,759       13,264,513
                                                                                   ------------     ------------     ------------

Net increase (decrease) in cash and cash equivalents                                    152,480          (35,169)         170,932

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                           18,452           42,857               --
                                                                                   ------------     ------------     ------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                           $    170,932     $      7,688     $    170,932
                                                                                   ============     ============     ============

 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

           Interest paid                                                           $      1,516     $        176     $     19,480
                                                                                   ============     ============     ============

           Income taxes paid                                                       $         --     $         --     $     14,983
                                                                                   ============     ============     ============
</TABLE>

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

                                       5
<PAGE>

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

During the three months ended July 31, 2005 and 2004 and the period from August
21, 1995 (inception) to July 31, 2005, the Company issued or committed to issue
313,359, 306,455, and 14,072,341 shares of common stock, respectively, for
services rendered or to be rendered. The shares of common stock were valued at
$220,391, $423,951, and $5,483,715, respectively.

During the three months ended July 31, 2005 and 2004 and the period from August
21, 1995 (inception) to July 31, 2005, the Company issued or committed to issue
warrants to purchase 127,179, 100,000, and 1,405,408 shares of common stock,
respectively, for services rendered or to be rendered. The warrants were valued
at $33,900, $38,573, and $1,069,479, respectively.

Of the, 313,359 shares and warrants for 127,179 shares, either issued or
committed during the current period, 154,359 shares and warrants for 77,179
shares related to prior period services off-setting accounts payable in the
amount of $70,820.

Of the $220,391 for shares issued or committed for services during the current
period, $55,380 remained capitalized as prepaid filing fees as of July 31, 2005.
Of the $33,900 for warrants issued for services during the current period,
$8,527 remained capitalized as prepaid filing fees as of July 31, 2005.

During the three months ended July 31, 2005 and 2004 and the period from August
21, 1995 (inception) to July 31, 2005, the Company issued unsecured convertible
notes payable-related party, in exchange for accounts payable due to the legal
counsel of the Company of $0, $25,648, and $773,083, respectively.

During the three months ended July 31, 2005 and 2004 and the period from August
21, 1995 (inception) to July 31, 2005, the Company expensed $166,652, $884,064,
and $3,473,139 for the issuance or committed issuance of 236,946, 661,640,
3,134,703 shares of common stock, respectively, as a penalty for the late
registration of common stock.

During the three months ended July 31, 2005 and 2004 and the period from August
21, 1995 (inception) to July 31, the Company issued convertible notes payable of
$12,000, $3,000, and $63,00 as a penalty for the late registration of common
stock to be issued upon conversion of convertible notes payable.

During the three months ended July 31, 2005 and 2004 and the period from August
21, 1995 (inception) to July 31, 2005, the Company expensed $305,455, $581,008,
and $1,824,483 for the issuance or committed issuance of warrants to purchase
1,067,838, 499,602 and 3,723,916 shares of common stock, respectively, as a
penalty for the late registration of the common shares underlying investor
warrants.

During the three months ended July 31, 2005, the Company issued 22,463 shares of
common stock on the cashless exercise of warrants to purchase 64,583 shares of
common stock.

During the three months ended July 31, 2005, the Company issued 627,544 shares
of common stock to investors, upon the conversion of $282,395 of convertible
notes payable plus accrued interest.

During the three months ended July 31, 2005, the Company issued 32,820 shares of
common stock to an investor, upon the conversion of a $14,769 promissory note
payable plus accrued interest.

During the three months ended July 31, 2005, the Company removed $149,560 of
current liabilities recorded from the sale of 243,466 common shares sold deemed
subject to rescission rights. The $149,560 of current liabilities was
reclassified to common stock and paid-in-capital.

During the three months ended July 31, 2005, the Company reclassified $278,400
of convertible notes payable deemed subject to rescission rights to convertible
notes payable.

During the three months ended July 31, 2005, the Company issued or committed to
issue 106,667 shares of common stock and warrants to purchase 324,444 additional
shares as offering costs.

During the three months ended July 31, 2005, the Company issued 452,029 shares
of common stock, committed in the prior period, to acquire the remaining
outstanding stock of Microdevices.

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

                                       6
<PAGE>

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1 - ORGANIZATION AND LINE OF BUSINESS

General

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

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

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

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

RECAPITALIZATION BETWEEN HIENERGY AND SHAREHOLDERS OF MICRODEVICES

On April 25, 2002, SLW, which was then a "public shell company", was taken over
by the stockholders of Microdevices in a transaction commonly referred to as a
"reverse takeover". Under this transaction, which was structured as a voluntary
exchange of shares, the stockholders of Microdevices, including the Company's
present Chairman of the Board, Chief Executive Officer, President, Treasurer and
Chief Scientific Officer, Dr. Bogdan Maglich, obtained the right to receive up
to 64% percent of the outstanding shares of SLW. The stockholders of SLW prior
to the voluntary share exchange retained, collectively, 36% of SLW. The reverse
takeover was accounted for as a re-capitalization of Microdevices for accounting

                                       7
<PAGE>

purposes, in a manner similar to a pooling of interests, with Microdevices as
the accounting acquirer (reverse acquisition). Since the Company (formerly SLW)
was a "public shell company", with limited assets and liabilities at the date of
the acquisition and no significant operations prior to the acquisition, no pro
forma information has been presented. As a result of the reverse takeover,
Microdevices became the Company's majority-owned subsidiary, and was later
merged with the Company in January 2005 in a short-form merger through which the
Company committed to issue 452,029 shares of common stock to the remaining
stockholders of HiEnergy Microdevices on the basis of 22.3524 HiEnergy shares
for 1 share of Microdevices (the same ratio that was used in the original
voluntary share exchange). Additionally, we may be required to issue up to
704,190 shares of our common stock to former holders of options and warrants of
Microdevices who hold rights to purchase HiEnergy shares at $0.156 per share.
These rights survived the merger and may be exercised any time before April 25,
2007, subject to the payment of promissory notes representing the purchase
price.


NOTE 2 - GOING CONCERN

The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America, which contemplate continuation of the Company as a going concern.
During the three months ended July 31, 2005 and 2004 and the period from August
21, 1995 (inception) to July 31, 2005, the Company incurred net losses available
to common shareholders of approximately $2,053,305, $4,128,489, and $33,853,466,
respectively, and has had negative cash flows from operations of approximately
$10,962,030 for the period from August 21, 1995 (inception) to July 31, 2005. In
addition, the Company had an accumulated deficit of $33,853,466 and was in the
development stage as of July 31, 2005. These factors raise substantial doubt
about the Company's ability to continue as a going concern.

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

In addition to the capital raised as of July 31, 2005 through private
placements, the Company is currently negotiating with certain investors to raise
additional capital through private placement offerings. Unless the Company
raises additional funds, either by debt or equity issuances, management believes
that its current cash on hand will be insufficient to cover its working capital
needs unless and until the Company's sales volume reaches a sufficient level to
cover operating expenses. Furthermore, the Company is involved in various
litigation matters. The effect of such litigation on the Company's financial
statements is indeterminable at this time.


NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

                             Basis of Representation

The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for The United
States of America for interim financial information and with instructions for
Form 10-QSB and Item 310 of Regulation S-B. Accordingly, they do not include all
the information and footnotes required by generally accepted accounting
principles for a complete set of annual financial statements. The Company
believes its disclosures are adequate so that the information presented is not
misleading. These consolidated financial statements should be read with the
annual audited financial statements and the notes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended April 30, 2005, and
other reports filed with the SEC. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation of results of the financial position and operations of the Company
have been included in the accompanying consolidated financial statements.

The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period, and actual results could
differ from those estimates. Results of operations for the three months ended
July 31, 2005 are not necessarily indicative of the results that may be expected
for the fiscal year ended April 30, 2006, or for any other period.

                                       8
<PAGE>

                           Principles of Consolidation

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

                          Development Stage Enterprise

The Company is a development stage company as defined in Statement of Financial
Accounting Standards ("SFAS") No. 7, "Accounting and Reporting by Development
Stage Enterprises." All losses accumulated since inception have been considered
as part of the Company's development stage activities.

                              Comprehensive Income

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

                            Cash and Cash Equivalents

Cash and cash equivalents consist of unrestricted balances only. The Company
considers all highly liquid investments with original maturities of three months
or less to be cash equivalents.

The Company maintains its cash deposits at a bank located in California.
Deposits at the bank are insured by the Federal Deposit Insurance Corporation
("FDIC") up to $100,000. From time to time, deposits at the bank exceed the
$100,000 FDIC insurance limit. The Company has not experienced any losses in
such accounts and believes it is not exposed to any significant risk on cash and
cash equivalents.

                               Accounts Receivable

Accounts receivable consists of amounts due under a governmental grant. Contract
amounts are billed as monthly reports and are submitted detailing work performed
under the contract and are generally due in 30 to 60 days.

                              Other Current Assets

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

                             Property and Equipment

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

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


                                       9
<PAGE>

                                Long-Lived Assets

The carrying value of long-lived assets is reviewed for impairment whenever
events or changes in circumstances indicate the carrying value of such assets
may not be recoverable. Measurement of the impairment loss is based on the fair
value of the asset. Generally, fair value will be determined using valuation
techniques such as the present value of expected future cash flows. For the
three months ended July 31, 2005, the Company recorded no impairment charges.


                                     Patents

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

                            Valuation of Inventories

During the three months ended July 31, 2005, the Company acquired components in
anticipation of future assembly and sale. The components have been recorded at
cost. The Company values its inventory at the lower of cost (first-in, first-out
method) or market. Total inventory as of July 31, 2005 was $1,041,319. The
Company performs quality control reviews of inventory components and records
inventory reserves based on specific identification of potentially defective
units.


                       Fair Value of Financial Instruments

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

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

          Convertible Notes Payable with Beneficial Conversion Features

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

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

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

           Penalties Associated with Late Registration of Common Stock

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


                                       10
<PAGE>

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

                          Cashless Exercise of Warrants

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

                         Research and Development Costs

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

                            Stock-Based Compensation

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

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

The weighted average fair value of stock options granted during the three months
ended July 31, 2005 was $0.47 Fair value was determined using the Black-Scholes
option-pricing model. For stock options granted during the three months ended
July 31, 2005, the weighted average assumptions for grants were a risk free
interest rate of 3.65% an expected life of 2 years, an expected volatility of
140% and an expected dividend yield of 0%.

The following table compares net loss attributable to common stockholders and
loss per share for the three month periods ended July 31, 2005 and July 31,
2004, as reported, to the pro forma amounts that would be recorded had
compensation expense for stock-based compensation been determined based on the
fair value on the grant dates consistent with the method of SFAS No. 123:

                                       11
<PAGE>

<TABLE>
<CAPTION>
                                                               Three months ended     Three months ended
                                                                 July 31, 2005           July 31, 2004
                                                             ----------------------- ----------------------
<S>                                                          <C>                     <C>
     Net loss attributable to common stockholders                       (2,053,305)            (4,128,489)
     Stock-based employee compensation included in
              reported net income, net of related tax effects               32,000                 39,573
        Total stock-based employee compensation expense
              determined under fair value based methods
              for all awards, net of related tax effects                  (465,313)              (156,115)
                                                             ----------------------- ----------------------
     Pro forma net loss attributable to common stockholders             (2,486,618)            (4,245,031)

     Basic loss per share:
              As reported                                                    (0.04)                 (0.13)
                    Pro forma                                                (0.05)                 (0.14)
     Diluted loss per share:
              As reported                                                    (0.04)                 (0.13)
                    Pro forma                                                (0.05)                 (0.14)
</TABLE>

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

                 Warrants Issued As Financing and Offering Costs

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

                                  Income Taxes

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

                               Net Loss per Share

The Company calculates net loss per share in accordance with SFAS No. 128,
"Earnings per Share." Basic loss per share is computed by dividing the net loss
available to common shareholders by the weighted-average common shares
outstanding. Diluted loss per share is computed similar to basic loss per share
except that the denominator is increased to include the number of additional
common shares that would have been outstanding if the potential common shares
had been issued and if the additional common shares were dilutive. In the
calculation of basic net loss per share, the common stock deemed subject to
buy-back and the common stock deemed subject to rescission rights are not
considered to be equivalent to common stock and are excluded. Because the
Company has incurred net losses, basic and diluted loss per share is the same.

                                       12
<PAGE>

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

<TABLE>
<CAPTION>
                                                                        As of July 31, 2005    As of July 31, 2004
                                                                      -----------------------------------------------
        <S>                                                              <C>                    <C>
        Stock Options                                                               8,600,655              6,768,675
        Warrants                                                                   28,557,982             11,200,829
        Convertible notes payable and accrued interest - related
           parties                                                                    802,060                728,862
        Convertible notes payable and accrued interest                                649,512                      -
        Convertible notes payable and accrued interest - deemed
          subject to rescission rights                                                      -              1,213,981
        Shares of common stock deemed subject to rescission rights                     68,546              2,066,320
        Shares of common stock deemed subject to buy-back rights                            -              2,000,000
        Microdevices minority shareholders                                                  -                452,029
        Shares held by Company to be issued upon
           payment of outstanding promissory notes                                    704,190                704,190
                                                                      -----------------------------------------------
                                                                                   39,382,945             25,134,886
                                                                      -----------------------------------------------
</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 May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections" ("SFAS 154") which replaces Accounting Principles Board Opinions
No. 20 "Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in
Interim Financial Statements-An Amendment of APB Opinion No. 28." SFAS 154
provides guidance on the accounting for and reporting of accounting changes and
error corrections. It establishes retrospective application as the required
method for reporting a change in accounting principle and the reporting of a
correction of an error. SFAS 154 is effective for accounting changes and
corrections of errors made in fiscal years which begin after December 15, 2005
and is required to be adopted by the Company in the first quarter of fiscal
2007. The Company is currently evaluating the effect that the adoption of SFAS
154 will have on its consolidated results of operations and financial condition
but does not expect it to have a material impact.

In July 2005, the Standards Board issued Statement of FASB Staff Position No.
150-5, which clarifies that warrants on shares that are redeemable or puttable
immediately upon exercise and warrants on shares that are redeemable or puttable
in the future qualify as liabilities under Financial Accounting Standards No.
150, Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity ("FSP FAS 150-5"). The Company is currently evaluating
the effect that the adoption of FSP FAS 150-5 will have on its consolidated
results of operations and financial condition but does not expect it to have a
material impact.

NOTE 4 - RISKS AND UNCERTAINTIES

In addition to considering these risks and uncertainties, before making any
determination with respect to the Company, readers should refer to the other
information contained in this quarterly report for the period ended July 31,
2005 as filed on Form 10-QSB (the "Report"), and the Company's Annual Report
filed on Form 10-KSB for the year ended April 30, 2005, including the
information under the heading entitled "Risk Factors", as well as review the
disclosures contained in the Forward-Looking Statements at the front of this
Report.

The Company is a development stage company, and an investment, or maintaining an
ownership position, in its common stock is inherently risky. The Company
operates in a dynamic and highly competitive industry and, accordingly, can be
affected by a variety of factors. The most critical risks and uncertainties
relate to its ability to obtain financing to continue operations and fund
anticipated losses, as well as the timing and success of product introductions.
Some of these risks pertain to its business in general, and others are risks
which may only affect its common stock.

                                       13
<PAGE>

If any of the events described below were to occur, the Company's business,
prospects, sales efforts, financial condition, results of operations and/or cash
flow could be materially adversely affected:

      o     an inability to raise capital from the sale of equity or debt to
            private investors or from government grants or development
            contracts, in order to fund the Company's operations at current
            levels;

      o     an inability to obtain, as and when needed, additional financing on
            commercially reasonable terms;

      o     an inability to achieve profitability or positive cash flows;

      o     an inability to shift resources toward the implementation of the
            Company's plan to commercialize, manufacture and market the
            Company's initial prototype devices;

      o     an inability to transition the Company's prototypes into commercial
            products meeting certain specifications which satisfy the demands of
            prospective customers;

      o     an inability to develop and market viable products;

      o     an inability to control the damage done to the ability to sell
            products and/or raise funds if product demonstrations conducted by
            the Company are unsuccessful;

      o     an inability to reallocate resources successfully if initial product
            lines prove unsuccessful;

      o     an inability to predict and control international risk that could
            materially harm our business, including the threat of terrorism;

      o     an inability to continue as a going concern as previously noted by
            the Company's independent auditors;

      o     an inability to manufacture, or contract for the manufacture of, the
            Company's products in a scalable and cost-effective manner,
            producing sufficient quantities on a timely basis under strict
            quality guidelines and in compliance with regulatory requirements;

      o     an inability to defend against and resolve pending or future
            litigation including any civil lawsuits, including the class action
            suits, and certain disputes involving former consultants and
            employees;

      o     an inability to reconcile any potential payroll tax liabilities;

      o     an inability to maintain directors and officers insurance coverage
            and other protections against legal claims;

      o     an inability to properly record and protect the Company's
            intellectual property rights, and the inability to bring or defend
            against claims of intellectual property infringement;

      o     an inability to recruit and maintain quality management, improve
            internal controls of operations and attain optimal distribution of
            executive powers within the Company;

      o     an inability to obtain approvals from the U.S. Nuclear Regulatory
            Commission, U.S. Department of Commerce, U.S. Department of the
            State, and any other state or federal regulatory agency if and as
            applicable;

      o     changes in the regulatory and legislative environment affecting
            governmental laws and licensing requirements, including without
            limitation export restrictions and controls, which may affect the
            ability of the Company to sell and support its products;

      o     risks associated with the budget processes of governmental agencies
            and departments affecting the availability of future government
            funding for future product development and procurement;

                                       14
<PAGE>

      o     risks associated with international sales including, but not limited
            to, changes in domestic and foreign regulatory requirements,
            political instability in targeted foreign markets, differences in
            technology standards, possible foreign currency controls, longer
            payment cycles and inadequate collection systems, fluctuations in
            currency exchange rates, inconsistent intellectual property
            protections among foreign jurisdictions, export restrictions,
            tariffs, embargoes or other sales barriers, prejudicial employment
            laws and business practices, difficulties in obtaining and managing
            distributors, and potentially negative tax consequences;

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

      o     an inability to adapt to rapid technological change or shifts in
            market needs;

      o     current or future dependence upon a limited number of suppliers for
            certain component parts;

      o     an inability to anticipate and resolve problems with, or customer
            service issues related to, unqualified variables in product
            performance, dependability and usage, as well as maintenance
            requirements that could affect market acceptance and perceptions
            about the Company's products and after market service capabilities;

      o     product liability and related claims if products were to malfunction
            or fail to detect substances such as explosives accurately, or at
            all;

      o     a limited number of customers and an inability to identify and
            address additional markets or applications for the Company's
            technologies;

      o     sales cycle duration, which if protracted could result in not being
            able to obtain sales orders;

      o     risks associated with special contracting requirements by
            governmental agencies and the Company's ability to meet agency
            certifications, such as those required by the TSA, regarding its
            current or future products;

                                       15
<PAGE>

      o     the public's perception of the threats facing the population and
            unrelated political circumstances, which may lead to significant
            fluctuations in demand for the Company's products and services; and

      o     the economic and social impact of natural and manmade disasters
            generally, as well as the impact of such circumstances on the
            ability of the Company to maintain its business and operations in
            the event it or its customers suffer irreparable harm or injury.

NOTE 5 - OTHER CURRENT ASSETS

Other current assets consisted of the following as of the periods ended:

                                   July 31, 2005       April 30, 2005
                               -----------------------------------------

           Prepaid professional
            services                    $    102,070       $     44,553

           Prepaid insurance                 161,690             10,060

           Equipment deposits                178,558            311,042

           Other                              16,174             16,174
                               -----------------------------------------

              Total                     $    458,492       $    381,829
                               =========================================

NOTE 6 - INVENTORY

During the three months ended July 31, 2005, the Company continued to acquire
components in anticipation of future assembly and sale. Total net inventory as
of July 31, 2005 was $1,041,319. The Company values its inventory at the lower
of cost or market. We perform quality control reviews of our components. The
Company records inventory reserves based upon specific identification of
potentially defective units. The Company generally does not maintain inventory
reserves based on obsolescence or risk of competition because the shelf life of
its products is long. However, if The Company's current assumptions about demand
or obsolescence were to change, The Company's additional inventory reserves may
be needed, which could negatively impact its product gross margins. The
Company's inventory reserves were $37,000 and $0 as of the three month periods
ended July 31, 2005 and 2004, respectively.

SFAS 2, Accounting for Research and Development Costs, allows an enterprise to
draw from its normal inventory and convert the inventory for research and
development purposes. During the three months ended July 31, 2005, the Company
converted $24,000 of normal inventory to research and development equipment.

NOTE 7 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following as of the periods ended:

                                  July 31, 2005     April 30, 2005
                                ----------------   ----------------
Prototype equipment            $         848,074   $        327,747
Laboratory equipment                     422,718            535,110
Furniture and fixtures                   731,903             70,587
Leasehold improvements                    51,150             51,150
Web site development                      14,400             14,400
                                ----------------   ----------------
                                       2,068,245            998,994


Less accumulated depreciation            451,336            456,914
                                ----------------   ----------------

                 Total          $      1,616,909   $        542,080
                                ================   ================


Depreciation and amortization expense for the three months ended July 31, 2005
and 2004 and the period from August 21, 1995 (inception) to July 31, 2005, was
$66,574, $52,338, and $523,491, respectively.

                                       16
<PAGE>

NOTE 8 - ACCRUED PAYROLL AND PAYROLL TAXES

The Company's former majority-owned subsidiary, Microdevices, which as of
January 25, 2005 was merged with the Company, is in the process of filing or
amending certain of its IRS Forms W-2 and 1099, and certain payroll tax returns
for the tax years ended December 31, 1997 through 2002, with respect to the
issuance of shares of Microdevices common stock for services rendered to
officers, employees, directors, legal advisors and consultants. As of July 31,
2005, the Company has accrued $439,385 for payroll tax liability, penalties and
interest related to these returns. The Company intends to have filed, or amended
as necessary, all outstanding 1099's, W-2's and payroll tax returns and pay any
amounts due as soon as possible.

Excluding the payroll tax liability mentioned above, the Company has accrued
payroll and payroll tax of $71,746 as of July 31, 2005, which includes deferred
salaries for certain employees.

NOTE 9 - NOTES PAYABLE

Notes payable consisted of the following as of the periods ended:

<TABLE>
<CAPTION>
                                                                                     July 31, 2005      April 30, 2005
                                                                                    ----------------   ----------------
<S>                                                                                 <C>                <C>
Note payable to an equipment supplier, secured by equipment, bearing interest at
 17.205% per annum due in October 2007, and payable in monthly installments of
 $237                                                                               $          5,117   $          5,595

Notes payable to employees for deferred compensation,  unsecured
 bearing interest at 5% per annum                                                              7,125             37,125
                                                                                    ----------------   ----------------
                                                                                              12,242             42,720

Less current portion                                                                $          9,253   $         39,164
                                                                                    ----------------   ----------------
Long-term portion                                                                   $          2,989   $          3,556
                                                                                    ================   ================
</TABLE>


NOTE 10 - NOTES PAYABLE - RELATED PARTIES

Notes payable - related parties consisted of the following as of the periods
ended:

<TABLE>
<CAPTION>
                                                                                    July 31, 2005      April 30, 2005
                                                                                   ----------------   ----------------
<S>                                                                                <C>                <C>
Notes payable to a shareholder of the Company, unsecured,
  bearing interest at 10.5% per annum, or 15% per annum
  upon default, and due on demand                                                  $         40,000   $         40,000

Note payable to a shareholder of the Company, unsecured,
  bearing interest at 10.5% per annum, and due on demand                                     45,000             45,000

 Note payable to legal counsel of the Company, unsecured, bearing interest at 5%
  per annum and due on demand
  The note was subsequently converted into equity in June 2005
                                                                                                 --             14,000
                                                                                   ----------------   ----------------
                                                                                             85,000             99,000


Less current portion                                                                         85,000             99,000
                                                                                   ----------------   ----------------

 Long-term portion                                                                 $             --   $             --
                                                                                   ================   ================
</TABLE>

                                       17
<PAGE>

NOTE 11 - CONVERTIBLE NOTES PAYABLE - RELATED PARTIES

Convertible notes payable - related parties consisted of the following as of the
periods ended:

<TABLE>
<CAPTION>
                                                                                    July 31, 2005      April 30, 2005
                                                                                   ----------------   ----------------
<S>                                                                               <C>                <C>
 Convertible notes payable to legal counsel of the Company, unsecured, bearing
   interest at 10% per annum and due on demand. The holder of the notes has the
   option to convert the principal and interest into shares of common stock of
   the company at $1.00 per
   share at any time                                                              $        596,790   $        596,790


 Convertible note payable to legal counsel of the Company, unsecured, bearing
   interest at 10% per annum and due on demand. The holder of the note has the
   option to convert the principal and interest into shares of common stock of
   the company at $0.85 per share at any time                                               38,232             38,232

 Convertible note payable to former legal counsel of the Company, unsecured,
   bearing interest at 10% per annum and due on demand The holder of the note
   has the option to convert the principal and interest into shares of common
   stock of the company at $1.00 per
   share at any time                                                                        38,061             38,061
                                                                                  ----------------   ----------------
                                                                                           673,083            673,083

Less current portion                                                                       673,083            673,083
                                                                                  ----------------   ----------------

 Long-term portion                                                                $             --   $             --
                                                                                  ================   ================
</TABLE>


NOTE 12 - CONVERTIBLE NOTES PAYABLE

Convertible notes payable consisted of the following as of the periods ended:


<TABLE>
<CAPTION>
                                                                                    July 31, 2005      April 30, 2005
                                                                                   ----------------   ----------------
<S>                                                                                <C>                <C>
Convertible notes payable ("CNP"), unsecured, bearing interest at 5% per annum
 and coupled with the proceeds allocated to the detachable warrants, an
 estimated effective annual interest rate of 49%, due in June 2006. The holder
 has the option to convert the principal and accrued interest into shares of
 common stock at $0.45 per share at any time until the later of the prepayment
 date or the maturity date. The CNP have detachable warrants to purchase shares
 of common stock with a three and one-half year term as follows: 1,066,666 at
 $0.45 per share; 320,000 at $0.75 per share; and 192,000 shares at $1.25 per
 share. The holder also has registration rights on the underlying shares, and
 has received as penalties for the failure to register them: (i) additional
 detachable warrants to purchase up to 2% of the amount of shares exercisable
 under the original warrants; and (ii) additional CNP equal to 2% of the
 original face amount, or principal balance, for each subsequent month until a
 registration statement is filed and maintained effective by the Company, or
 until such penalties become impermissible as a matter of law as prescribed in
 the instrument, or the relevant securities can be sold without registration
 under Rule 144. Additionally, the CNP provide the holder with ratchet rights,
 whereby the conversion price of the CNP will be reduced to equal the price of
 any new shares sold in unrelated transactions at a price per share below $0.45
 If shares are offered for sale at a price per share under $0.45, the holder
 also has a first right of refusal to purchase the shares offered                  $        240,000   $             --

Convertible note payable, unsecured, bearing interest at 5% per annum due in
 June 2006, issued as a penalty to holders as a result of the Company's
 inability to file a registration statement within certain specified deadlines,
 covering and reflecting the same terms as, the convertible notes payable
 referenced above, with the exception of
 penalties                                                                                   38,400                 --
                                                                                   ----------------   ----------------
                                                                                            278,400                 --

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

Less current portion                                                               $        278,400   $             --
                                                                                   ----------------   ----------------

 Long-term portion                                                                 $             --   $             --
                                                                                   ================   ================
</TABLE>

In accordance with EITF No. 98-5, "Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios" and
EITF No. 00-27, "Application of Issue No. 98-5 to Certain Convertible
Instruments", the Company has evaluated its sale of the $240,000 convertible
note payable with detachable warrants for the beneficial conversion feature. The
Company has allocated the proceeds from the placement of the debt to the
warrants and the debt based on their relative pro-rated values. This resulted in
$209,956 being allocated to warrants and $30,044 to debt. Since the convertible
note payable were deemed subject to possible rescission rights, both the value
attributed to the warrants and the debt were immediately expensed, resulting in
a combined expense of $240,000 in June 2004.


                                       18
<PAGE>

NOTE 13 - CONVERTIBLE NOTES PAYABLE DEEMED SUBJECT TO RESCISSION RIGHTS

Convertible notes payable deemed subject to rescission rights consisted of the
following as of the periods ended:


<TABLE>
<CAPTION>
                                                                                    July 31, 2005      April 30, 2005
                                                                                   ----------------   ----------------
<S>                                                                                <C>                <C>
Convertible notes payable ("CNP"), unsecured, bearing interest at 5% per annum
 and coupled with the proceeds allocated to the detachable
 warrants, an estimated effective annual interest rate of 49%, due in
 June 2006 (excluding $10,000 due in January 2006).  In June 2005, the
 holders converted $70,000 of the CNP into shares of common stock. As of
 July 31, 2005, the remaining $240,000 of CNP was reclassified as
 convertible notes payable. The outstanding CNP is more fully described
 in Note 12                                                                        $             --   $        310,000

Convertible note payable, unsecured, bearing interest at 5% per annum due in
 June 2006, issued as a penalty to holders as a result of the Company's
 inability to file a registration statement within certain specified deadlines
 As of July 31, 2005, the CNP was reclassified as
 convertible notes payable and is more fully described in Note 12                                --             37,800

Convertible note payable ("CNP"), unsecured, bearing interest at 5% per annum,
 and, coupled with the proceeds allocated to the detachable warrants, an
 estimated effective annual interest rate of 44%. The CNP are due January 2006
 and may be converted at $0.45 per share at any time before maturity. The CNP
 included detachable warrants with a three and one-half year term to purchase
 shares of common stock as follows: 411,111 at $0.45 per share; 246,667 at $0.75
 per share; 148,000 shares at $1.25 per share and 123,333 shares at $1.50 per
 share. Said detachable warrants issued in the first closing have since expired
 In June 2005, the holder converted all principle and accrued interest into
 common shares. The holder has registration rights on the shares issued upon
 conversion, as well as rights to a second closing for up to $400,000 of CNP
 prior to filing a registration statement with similar terms. The shares issued
 upon conversion have been deemed no longer
 subject to rescission                                                                           --            185,000
                                                                                   ----------------   ----------------
                                                                                                 --            532,800

                                                                                   ----------------   ----------------
Less current portion                                                               $             --   $        532,800
                                                                                   ----------------   ----------------

 Long-term portion                                                                 $             --   $             --
                                                                                   ================   ================
</TABLE>

Some of the above convertible notes payable effected during the period when the
referenced registration statement was on file may be subject to integration with
previous sales of convertible notes payable to some holders. Earlier, the
Company sold securities to the investors in a private offering, at the same time
the Company had on file a registration statement with the SEC. Such a
contemporaneous, private offering may have resulted in a violation of certain
federal securities laws concerning the contemporaneous sale of securities by the
Company at different terms, where the effect of integration can be to destroy an
exemption upon which a company has relied in issuing its securities privately,
which renders the transaction an illegal unregistered public offering. If this
is the case, the purchasers of convertible notes payable may have similar
rescission rights available to certain of the shareholders as described in Note
14. (See Note 14 for a full description of the circumstances surrounding the
rescission rights of the shareholders). Accordingly, the Company may be required
to pay each rescinding holder of convertible notes payable the amount it
received as consideration, plus any interest with respect to such amount at the
applicable rate, and the securities would be cancelled.

The Company has completed an independent investigation as to whether or not the
rescission rights continue to exist and, based upon legal advice it has received
as to the appropriate state and federal limitations periods pertaining to the
rescission obligations assumed, the Company has reclassified all convertible
notes payable deemed subject to rescission rights to convertible notes payable
as of July 31, 2005.



                                       19
<PAGE>

NOTE 14 - SALES OF COMMON STOCK DEEMED SUBJECT TO RESCISSION RIGHTS

During the period from September 3, 2003 through April 16, 2004, the Company had
on file with the SEC registration statements on Form SB-2 seeking to register
for public sale shares of its common stock. Of the shares to be registered, 5
million were shares to be newly issued for sale by the Company, and the
remainder was shares to be registered for resale for the account of selling
stockholders who purchased the Company's shares in private placements conducted
previously. On September 19, 2003, the Company withdrew the registration
statement containing the shares to be registered for the benefit of the Company,
and re-filed a registration statement solely seeking to register the shares of
the selling stockholders. On April 16 2004, this registration statement was also
withdrawn.

While the Company's registration statements were on file with the SEC, the
Company also raised capital through the sale of its securities in a private
placement to certain accredited investors. While it is true that rules and
regulations under the Securities Act of 1933 do not permit issuers such as the
Company to conduct a contemporaneous public offering on a continuous basis at
varying prices or a negotiable price, the only overlap occurred with respect to
shares to be registered for resale for the account of selling stockholders.
Although the Company, as an issuer, was not selling stock both publicly and
privately at the same time, the Company has been advised that it is possible
that the contemporaneous, private offering of the Company's securities by the
Company while the selling stockholders' shares were in registration with the SEC
may be deemed to be "integrated" under the federal securities laws of the United
States. Integration occurs where two offerings that are close in time are deemed
to constitute one, single offering, and the effect of integration can be to
destroy an exemption upon which a company has relied in issuing its securities
privately, which renders the transaction an illegal unregistered public
offering. In such event, the persons who purchased securities in such an
offering may be entitled to, in addition to any other penalties or fines which
may be assessed against the issuing company, the right to demand rescission of
the offering. In that case, the Company would be required to pay each rescinding
investor the amount it received as consideration for the illegal securities,
plus any interest accrued with respect to such amount at the applicable rate,
and the securities would be cancelled.

The Company has completed an independent investigation as to whether or not the
rescission rights continue to exist and, based upon legal advice we have
received as to the appropriate state and federal limitations periods pertaining
to the rescission obligations assumed, the Company has reclassified 4,063,462 of
4,132,008 shares of common stock deemed subject to rescission rights to common
stock and additional paid in capital, and eliminated the related current
liability. For the three month period ended July 31, 2005, the Company
reclassified 243,466 of the 312,012 shares deemed subject to rescission rights,
reported at fiscal year ended April 30, 2005, to common stock and additional
paid in capital, further reducing the recorded current liability for shares
deemed subject to rescission rights from $199,560 to $50,000. Based upon the
advice received, the Company anticipates reclassifying the remaining 68,546
shares deemed subject to rescission rights and eliminating the remaining current
liability of $50,000 in the current fiscal year.

                                       20
<PAGE>

NOTE 15 -RESEARCH AND DEVELOPMENT COSTS

To date, the Company has devoted the bulk of its efforts and resources to the
research, design, testing and development of sensor systems incorporating its
proprietary "stoichiometric" technologies for numerous governmental and
commercial applications and markets. The Company's technologies have the ability
to determine automatically, in a matter of tens of seconds and with a high
degree of accuracy, whether an object or container carries dangerous substances,
such as explosives, illicit drugs or biological agents, by deciphering the
chemical formula of selected substances. Aside from its current applications,
management believes that its technologies have numerous other applications.

The Company's research and development expenses consist primarily of salaries
and benefits, facilities, depreciation, consulting services, supplies and
travel. The Company accounts for research and development costs in accordance
with SFAS No. 2, "Accounting for Research and Development Costs". Research and
development costs are charged to operations as incurred. As described in section
3.50 of the Government Contract Audit Guide for Fixed-Price Best-Efforts Cost
Sharing Arrangements, amounts earned under the Company's grants with the U.S.
Department of Defense ("DoD") have been offset against research and development
costs, in accordance with the provisions of that section, in all periods
presented.

Since inception, the Company has been able to obtain various governmental grants
and development contracts. During the years ended April 30, 2005 and 2004, the
Company worked on different phases of two separate development contracts with
the DoD.

The Company completed the second year of Phase II of a Small Business Innovation
Research ("SBIR") contract awarded to it in August 2002 by the U.S. Army Night
Vision and Electronic Sensor Directorate ("NVESD"). Under the terms of the
contract, the Company is to develop and test its Anti-Tank Landmine Detector
7AT7(TM) over a two-year period, which was extended for one additional year at
the option of the U.S. Army. As of July 31, 2005, the Company earned $779,944
against the contract. If further research and development work is required upon
the expiration of Phase II, the Company has the ability to submit a request for
additional Phase II and/or Phase III funding, which the government would
consider based upon the Company's progress to date and the merits of the
project. The U.S. Army is under no obligation to continue to assist in funding
these research and development costs beyond Phase II or any subsequent
extension, or to purchase any of the Company's products, including the Anti-Tank
Landmine Detector 7AT7(TM), once the Company has completed development
activities. Under the terms of the contract, the U.S. Army pays a portion of the
Company's research and development costs on a periodic basis during the term of
the contract, for which the Company is required to submit monthly written
reports detailing its progress. The Company recognizes the proceeds from the
contract as an offset against research and development expenses following the
submission of the monthly written reports. When the written report is accepted
by the U.S. Army, the Company usually receives payment in about 30 to 45 days.
As of July 31, 2005, the Company had collected all receivables due it in
completion of Phase II.

In September 2004, the Company entered into a Cooperative Agreement with the
U.S. Transportation Security Administration (TSA). Under the agreement, the
Company is to provide proof-of-concept for the Company's "NextGen Checked
Baggage Program (STOXOR)" over a nine month period, which may be extended at the
option of the TSA. The agreement provides funding in the amount of $367,141 for
Stage 1, and an additional $145,381 for Stage 2, if, at the conclusion of Stage
1, the TSA elects to continue with the Company. As of July 31, 2005, the Company
earned $367,141 in cooperative financing from the TSA to complete Stage 1. There
is no obligation for the TSA to fund the Company's development efforts under
this agreement beyond the Stage 1 funded amount or to purchase any of the
Company's products once it has completed development activities. The TSA will
pay the Company's research and development costs on a periodic basis during the
term of the contract, for which the Company is required to submit monthly
written reports detailing its progress under the contract. When the written
report is accepted by the TSA, the Company receives payment in about 30 to 45
days. Payments commenced in November 2004 and the Company recognizes the Stage 1
funding amount as an offset against research and development expenses upon
submission of the monthly written reports. As of July 31, 2005, the Company had
collected all receivables due it in completion of Stage 1.

On July 18, 2005, the Company executed a Time and Material Subcontract in the
amount of $333,688 with Integrated Concepts & Research Corporation (ICRC), which
was awarded as part of ICRC's Prime Contract Number DAAE07-02-C-L062 with the
United States Army Tank - Automotive and Armaments Command, Warren Michigan
(TACOM). Under the Subcontract, the Company will deliver one CarBomb Finder(TM)
head unit and provide the engineering and technical support necessary for its
integration in the SmarTruck II Multi-Mission Vehicle and delivered for field
testing by the U.S. Army and D.C. Capitol Hill Police.

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

<TABLE>
<CAPTION>
                                                                                 Period from
                                                                                 August 21,
                                                                                    1995
                                                                               (Inception) to
                                               Three Months ended July 31,         July 31,
                                           --------------------------------    --------------
                                                2005              2004              2005
                                           --------------    --------------    --------------
      <S>                                  <C>               <C>               <C>
      Research and development costs       $      479,122    $      311,238    $    5,129,265
                                           --------------    --------------    --------------
      Grant proceeds earned                       (61,106)          (91,236)       (1,513,880)
                                           --------------    --------------    --------------

      Net research and development costs   $      418,016    $      220,002    $    3,615,385
                                           ==============    ==============    ==============
</TABLE>


                                       21
<PAGE>

NOTE 16 - COMMITMENTS AND CONTINGENCIES

                      Consultancy Agreements and Contracts

In August 2004, the Company entered into an agreement with an engineering and
construction firm, which has agreed to provide design and construction
management services to the Company in connection with a proposed manufacturing
plant capable of producing commercial quantities of the CarBomb Finder. Under
the terms of the proposal, the engineering and management firm is responsible
for designing and implementing a facility which is suitable for its intended
purposes, including creating a flow process recommendation, designing the
optimum configuration for the facility, providing construction management,
assisting with supplier relationships, and reviewing transportation, laboratory
testing and other logistical issues. Under the agreement, the Company is
obligated to pay the firm in consideration for its services the amount of
$82,875, plus actual expenses anticipated not to exceed $4,000.

In August 2004, the Company entered into a Teaming Agreement with a global
maintenance services firm which would allow for the Company to sub-contract
maintenance services and under which both parties would jointly bid on business.

In August 2004, the Company entered into a Retention Agreement with the
Company's current securities counsel, for legal services which include the
preparation and review of the Company's annual and quarterly reports, regulatory
filings and other assistance with corporate and contract needs as the Company
may request from time to time.

In November 2004, as amended in July 2005, the Company entered into a
consultancy agreement with an independent contractor to provide product
engineering management, which provides for services to be rendered for a period
of one year, subject to a review on June 1, 2005. Under the agreement, the
Company is obligated to pay the contractor $1,924 per week, which may be paid in
a combination of cash, stock and/or options.

In January 2005, the Company entered into a retention agreement with an attorney
to act as special co-Counsel to the Company on discovery and litigation matters
related to the class action law suit filed against the Company. Pursuant to the
agreement, the Company paid the attorney a retainer of $5,000 with a commitment
to pay legal fees with cash, registered shares of common stock, or a combination
of both.

In February 2005, the Company engaged a consultant to provide advisory services
related to the marketing of its devices to civil and military organizations
within the U.S. government and foreign entities participating in U.S. federal or
military sales and advocacy programs. Pursuant to the letter agreement, the
Company will pay the consultant a monthly retainer of $10,000, subject to
performance and reported activity, and either party may terminate the agreement
upon sixty days notice to the other.

In April 2005, the Company entered into a retention agreement with an attorney
to act as special counsel to the Company on discovery and litigation matters
related to the arbitration between Isaac Yeffet of Yeffet Security Consultants
and the Company. Pursuant to the agreement, the Company paid the attorney a
retainer of $20,000 against which legal fees and costs associated with the
matter would be offset.

In April 2005, the Company entered into a subcontract with a global maintenance
and services company, in which the subcontractor as Exclusive Service Provider
will provide the Company with product support and aftermarket servicing,
including the installation, repair and preventative maintenance for all products
to be sold and deployed by the Company in the United States. Pursuant to the
subcontract, the Company will pay the contractor on an hourly basis for labor,
plus travel and expenses, and supply all necessary parts and technical support
to allow contractor to fulfill its obligations.

In May 2005, the Company entered into a contract with a consultant for Edgar
filing services in which it prepays one year of services with 104,000 restricted
shares of its common stock of the Company. Pursuant to the agreement, the
Company issued the service provider a three year warrant to purchase 50,000
shares of its common stock with an exercise price of $0.75 per share, as the
shares had not been filed for registration on or before June 30, 2005.


                                       22
<PAGE>

In June 2005, the Company executed an engagement letter with an independent
contractor to provide production and manufacturing consulting for the Company
for a three-month period. Major terms of the agreement are as follows:

      o     The Company will pay the consultant cash remuneration of $4,667
            bi-weekly for the duration of the engagement, or $28,000.

      o     The Company will issue the consultant as deferred compensation,
            three promissory notes bearing 5% interest in the amount of $4,000,
            one on July 20, 2005, one on August 20, 2005 and one on September
            20, 2005, and due 90 days from issuance, provided the consultant is
            still engaged on said dates.

      o     The Company will grant the consultant a warrant to purchase 30,000
            shares of HiEnergy common stock with a five year term and
            exercisable at a price no greater than the average trading price for
            the thirty-days prior to the engagement. The warrant shall vest,
            provided the consultant is then still a service provider on
            September 20, 2005.

      o     The Company will reimburse consultant for any pre-approved expenses,
            not to exceed $10,500 during the engagement.

      o     In the event the Company files a registration statement on S-8, the
            Company has the option to prepay the consultant's services, or
            settle any outstanding promissory notes, with S-8 stock with value
            equivalent to two (2) months of the above stated salary.

In June 2005, the Company entered into a contract with a consultant to provide
public media relations on a success fee basis. Under the contract, the Company
agrees to pay the consultant pursuant to a fixed fee schedule for successful
placements and media coverage incorporating the Company's products and
technologies.

                              Employment Agreements

In January 2005, the Company entered into an employment agreement for the
employment of its current Vice President. Major commitments in the agreement are
as follows:

      o     The Company must pay its Vice President an annual base salary of
            $200,000, of which $140,000 will be payable in cash, and the
            remainder in deferred compensation in the form of three notes,
            bearing interest at 5% per annum, one due April 30, 2005, one due
            August 31, 2005, and one due November 30, 2005

      o     The Company must pay the fee required under the Vice President's
            contract with his then current employer for his conversion from
            consultant employee, which should not exceed $12,000.

      o     The Company granted its Vice President a stock option to purchase
            500,000 shares of common stock which shall be exercisable at a price
            no greater than the average trading price for the last thirty (30)
            day. The option shall be 33% vested on May 1, 2005, 66% vested on
            September 1, 2005, and 100% vested on December 31, 2005.


                                       23
<PAGE>

      o     If the employment agreement is terminated by the Company without
            cause, the Company must pay its Vice President on the termination
            date, severance pay in an amount equal to six (6) months of the
            minimum annual base salary.

      o     The Company will provide its Vice President with comprehensive
            family medical and dental healthcare benefits.

Effective February 2005, the Company entered into an employment agreement with a
research scientist in which the Company committed to pay the research scientist
an annual base salary of $85,000 and employee stock options to purchase 35,000
shares of common stock on an annual basis, with equal vesting on a bi-annual
basis. Pursuant to the employment agreement, the Company committed to reimburse
the employee for relocation expenses up to $5,000 and provide standard medical
and dental healthcare benefits.

In March 2005, the Company entered into an employment agreement with its
Controller. Major commitments included in the agreement are as follows:

      o     The Company must pay its Controller an annual base salary of
            $200,000, of which $125,000 will be payable in cash and/or stock,
            and the remainder in deferred compensation in the form of three
            notes, bearing interest at 5% per annum, one due April 6, 2005, one
            due August 6, 2005 and one due January 6, 2006.

      o     The Company has the option to prepay services of its Controller with
            S-8 stock having a value equivalent to six (6) months of the above
            stated salary.

      o     The Company granted its Controller a stock option to purchase
            500,000 shares of common stock with an exercise price of $0.72 per
            share. The option vested 60% on April 6, 2005 and fully vest on July
            6, 2005.

      o     If the employment agreement is terminated by the Company without
            cause, the Company must pay its Controller on the termination date,
            severance pay in an amount equal to six (6) months of the minimum
            annual base salary.

      o     The Company will provide its Controller with comprehensive family
            medical and dental healthcare benefits.

                          Purchase and Sales Agreements

In April and May 2004, the Company executed a lease agreement for neutron
generators at a total cost of approximately (euro) 867,000, or an estimated
$1,049,070. The generators are scheduled to be delivered approximately one per
month, which started in August 2004. The delivery schedule for the
above-mentioned neutron generator order was protracted due to delays by the
manufacturer. As of July 31, 2005, the Company has received only 4 neutron
generators on order with this vendor. The Company has the option to lease these
units from the vendor for up to 12 months. Under the terms of the lease, the
Company is required to pay approximately $12,500 per generator prior to or upon
receipt, with the remaining balance due in twelve monthly lease payments of
approximately $5,800 each. Anytime during the lease term, or at the end of the
lease, the Company has the option to convert the lease to a purchase and apply
80% of the monthly payments towards the purchase price of approximately $95,000
per unit.

In May 2004, the Company ordered gamma radiation detectors for a total cost of
$1,368,000. The Company began receiving the detectors in May and will continue
to receive these units at varying intervals. Payment terms for the detectors are
50% due upon order and the balance due 30 days following receipt and acceptance
by the Company. As of July 31, 2005, the Company received gamma radiation
detectors in the aggregate sum of $590,000. Due to its decision to better
balance inventory, the Company had delivery halted for the remaining gamma
radiation detectors until such time it receives orders sufficient to justify
adding to the inventory of the detectors.

In January 2005, the Company received an order for one SIEGMA(TM) system, along
with a down payment in the amount of $75,000, and a guarantee of the balance
upon delivery, from a company located in Tenerife, Canary Islands, Spain.
Payment of the balance in the amount of $227,000 is due upon testing of the
unit, which has been postponed due to delays in the securing of the purchaser of
the appropriate licenses and end-used permits for local regulatory bodies.

In May 2005, the Company entered into an Equipment Sales Agreement with a major
transit authority in connection with the purchase of two SIEGMA(TM) systems for
an aggregate sum of $603,104. Accordingly, on June 10, 2005, the Company
received Purchase Order No. 4500233769 from the Commonwealth of Pennsylvania in
the amount of $603,104, payment of which is due within 30 days following
delivery of the units. The Company has contractually agreed to make reasonable
best efforts to make delivery of the ordered units within 120 days of the
purchase order date.

                                       24
<PAGE>
                               Material Agreements

On January 28, 2005, the Company entered into a non-binding Memorandum of
Understanding ("MOU") to form a joint venture company which will establish and
maintain an assembly, testing, sales and service center in Tenerife, Spain. The
parties intend that the joint venture company will provide for the construction
and/or build-out of an assembly, testing, and service center the Company's
Stoitech(TM) explosive detection products, including the CarBomb Finder(TM) and
SIEGMA systems, as well as sell and market these products to private,
governmental and military clients, including NATO, throughout Spain and the
European Union on an exclusive basis, and throughout South America and Africa on
a non-exclusive basis, subject to certain conditions and exclusions.

                                 Lease Agreement

In October 2002, the Company entered into a three-year operating lease agreement
with one of its directors at that time for its corporate offices in Irvine,
California. The lease provides for monthly rent of $9,200 for the first 18
months and $13,893 for months 19 through 36. In January 2004, the Company
executed an addendum to the lease agreement to lease an additional 4,570 square
feet of space within the same building in which the Company's offices are
located. The new space is being used for production and testing of the Company's
products. The addendum began in February 2004 and expires in September 2005 with
the master lease. The additional monthly rent is $4,493. Rent expense for the
three months ended July 31 was $41,679. The lease expires October 2005 and
future minimum payments under these lease agreements are $27,786. As of the date
of this Report, the Company is negotiating a renewal to the lease and addendum
lease for up to an additional three years.

                                   Litigation

In May 2003, Mr. Alter brought a lawsuit against the Company in the New Castle
County Court of Chancery in Delaware to recover the advancement of expenses in
the amount of $24,000 he allegedly incurred in response to an SEC investigation
which mirrored the Company's investigation by the SEC, and for which Mr. Alter
obtained separate legal counsel to represent him. That action was identified as
Civil Action No. 20320NC. On June 17, 2003, Mr. Alter notified the Company that
this action had been voluntarily dismissed without prejudice. However, to date,
there has been no settlement with Mr. Alter, and there can be no assurance that
the claims he asserted against the Company will not be resuscitated at some time
in the future.

The Company is currently arbitrating a dispute with its former consultant,
Yeffet Security Consultants, Inc. ("YSCI") and Isaac Yeffet, President of YSCI.
The Company entered into a three-year consulting agreement with YSCI in July
2002 whereby YSCI was to assist the Company with business development, product
and corporate image advertising, and access to government grants and purchases.
For its consulting service, the agreement provided that YSCI would be paid
$20,000 per month, plus 5% of any gross revenues collected in cash from
government grants or business and other third-party business that YSCI produced
for the Company.

In October 2003, the Company notified YSCI that it was terminating its contract.
In February 2004, YSCI filed a Demand for Arbitration, alleging that the Company
breached the consulting agreement and seeking to recover $450,000 in unpaid
consulting fees. In April 2004, YSCI amended its Demand for Arbitration to
include a claim for commissions that YSCI claims it is owed in connection with
investments made by individuals who purchased shares of the Company's stock. The
Amended Demand for Arbitration also seeks a determination as to whether Mr.
Yeffet is entitled to exercise options to purchase 500,000 shares of common
stock issued to him under the Company's Stock Option Agreement. In June 2004,
the Company filed an answer generally denying YSCI's allegations set forth in
the original and amended Demands for Arbitration. The Company also filed a cross
Demand for Arbitration seeking disgorgement of all monies paid to YCSI and
rescission of the consulting agreement and stock option agreement. The parties
are in the process of exchanging discovery. The Company intends to defend itself
vigorously in the arbitration. Depositions in this matter began in New Jersey on
December 15, 2004 for the Company and in January 2005 for YSCI. As of this date,
the Company and its legal counsel have made no other determination as to the
merits of, or possible defenses to, the arbitration.

Prior to its termination, YSCI was granted options to purchase 1,000,000 shares
of common stock with an exercise price of $1 per share and exercisable for six
years from the date of grant. Of these options, 500,000 vested immediately, and
the remaining 500,000 were to vest one year after the achievement of certain
milestones. The vested 500,000 stock options were valued at $761,000.

                                       25
<PAGE>

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

In April 2005, a claim was filed against the Company with the 101st Judicial
District Court, Dallas County, Texas by Data Discovery Inc., ("DDI") (Civil
Action No. 3-05-CV-0949-M). DDI, representing one party of a dissolved
partnership, is seeking the collection on behalf of the partnership of $107,300
allegedly owed to it for services purported to have been fully-provided to the
Company. The Company engaged local counsel and filed, on May 10, 2005, a Notice
of Removal to move the case to federal court, and a Motion for Dismissal. In
July 2005, the District Court delivered a Memorandum Opinion and Order granting
the Company's Motion for Dismissal and ordered that within twenty days DDI amend
its suit to the satisfaction of the District Court, or the order will become a
dismissal with prejudice, which would bar DDI from filing any other suit against
the Company related to the subject matter of its current claim. In August 2005,
DDI filed a new lawsuit on behalf of the partnership which is expected to go
before the Court following an appropriate period for discovery. The costs of
defending against the Complaint could be substantial; however the Company is
unable to predict an exact amount, or even a meaningful estimate, at this time.

                              Minority Shareholders

On January 25, 2005, Microdevices was effectively merged into the Company
through a short form merger effected by the Company and certified by the
Secretary of the State of Delaware, whereupon the Company assumed all assets and
liabilities of Microdevices. Under the terms of the merger, the Company issued
452,029 shares of common stock to the remaining stockholders of HiEnergy
Microdevices on the basis of 22.3524 HiEnergy shares for 1 share of HiEnergy
Microdevices (the same ratio that was used in the original voluntary share
exchange). Additionally, we may be required to issue up to 704,190 shares of our
common stock to former holders of options and warrants of Microdevices who hold
rights to purchase HiEnergy shares at $0.156 per share. These rights survived
the merger and may be exercised any time before April 25, 2007, subject to the
payment of promissory notes representing the purchase price.

                            Convertible Notes Payable

As of July 31, 2005, the Company has outstanding $278,400 of convertible notes
payable ("CNP") issued to investors, which together with accrued interest of
$13,860 are convertible into 649,512 shares of common stock. As of July 31,
2005, all of the CNP were in-the-money. The CNP have two-year maturities in
which the holders of the notes have the option to convert the principal and
accrued interest into shares of common stock at a conversion price of $0.45 per
share at any time until the later of the prepayment date or the maturity date.
The conversion price is subject to adjustment for stock splits, stock dividends,
combinations, and other similar structural events and the CNP provide for
full-ratchet anti-dilution protection, subject to standard exceptions. Most of
the CNP also have detachable warrants to purchase shares of common stock with a
three and one-half year term following the registration date for prices between
$0.45 and $1.25. All CNP and detachable warrants have registration rights on the
underlying shares, and in certain cases, if the shares of common stock issuable
upon conversion of the CNP or exercise of the detachable warrants are not

                                       26
<PAGE>

registered within certain specified deadlines, the holders are due penalties in
the form of (i) additional CNP equal to 2% of the original face amount, or
principal balance, and/or (ii) additional detachable warrants to purchase 2% of
the amount of shares exercisable under the original warrants, for each
subsequent month until a registration statement is filed and maintained
effective by the Company, or when the penalties become impermissible as a matter
of law as prescribed in the instrument, or can be sold without registration
under Rule 144. Additionally, the CNP provide the holders with rights of first
refusal if shares are sold at a price per share less than $0.45.

In July 2005, a note holder converted $70,000 of convertible notes, originally
purchased in January 2004 and $11,400 worth of convertible notes accrued as
penalties for the Company's failure to timely file a registration statement,
plus $3,739 of accrued interest into 189,917 shares.

                   Convertible Notes Payable - Related Parties

As of July 31, 2005, the Company has outstanding $673,083 of convertible notes
payable - related parties to its former legal counsel for conversion of accounts
payable which are unsecured, bearing interest at 10% per annum and became due on
demand in April 2005. The convertible notes payable - related parties, together
with accrued interest of $121,244, may be converted into 802,060 shares of
common parties at a conversion price of $0.85 and $1.00 per share at any time.
The conversion price is subject to adjustment for stock splits, stock dividends,
combinations, and other similar structural events and the convertible notes
provide for full-ratchet anti-dilution protection, subject to standard
exceptions, with respect to the issuance of the Company's common stock. In June
2005, a related party converted $185,000 of convertible notes related parties
originally purchased in January 2004, plus $11,932 of accrued interest into
437,627 shares. The holder maintains an option to purchase an additional
$400,000 worth of CNP, which have detachable warrants to purchase a number of
shares of common stock.

                               Penalty Securities

After August 2003, the Company entered into certain stock and convertible note
purchase agreements which contain a provision that requires the Company to (i)
register, as freely trading, the shares of common stock and the shares of common
stock issuable upon exercise of warrants or conversion of the convertible notes
payable within certain deadlines, in a Registration Statement on Form SB-2; and
(ii) pay or accrue a penalty in like securities if such shares of common stock
are not registered within the specified deadlines. In accordance with the
relevant registration rights provisions in these agreements, the Company has
paid or accrued penalties due purchasers in these offerings, because the Company
failed to meet the specified deadlines for having a Registration Statement on
Form SB-2 declared and maintained effective.

As of July 31, 2005, the Company remains obligated to honor these registration
rights and to issue additional securities as a result of the related penalties,
and it will incur additional financial costs or penalties until such time as all
registrable shares under the agreements have in fact been registered or when the
penalties become impermissible as a matter of law as prescribed in the
instrument or can be sold without registration under Rule 144. The Company and
its stockholders are subject to substantial dilution as a result of the
Company's inability to register shares as required by the Company's agreements.
The warrants issued as penalties whose underlying shares are estimated below are
exercisable at prices ranging from $0.45 to $1.75.

For illustration purposes only, the table below estimates the approximate
amounts of penalty securities to be issued by the Company through April 30,
2006, on a monthly basis, in accordance with current agreements under which the
Company is, or may be, delinquent in satisfying its registration requirements:

<TABLE>
<CAPTION>
                  Shares of      Number of Shares   Convertible Notes
                    Common            Underlying          Payable
                    Stock             Warrants              CNP
               ----------------   ----------------   ----------------
      <S>      <C>                <C>                <C>
      Aug-05             78,982            364,483                 --
      Sep-05            130,667            502,085                 --
      Oct-05            116,303            507,777                 --
      Nov-05             98,780            510,620                 --
      Dec-05             90,795            514,227                 --
      Jan-06             75,684            543,920                 --
      Feb-06             75,684            510,501                 --
      Mar-06             67,684            516,193                 --
      Apr-06             61,684            518,885                 --
               ----------------   ----------------   ----------------
      Total    $        796,263          4,488,691                 --
               ================   ================   ================
</TABLE>




                                       27
<PAGE>

The above estimates reflect monthly amounts to be issued or committed and may
not correspond to amounts appearing elsewhere in this report due to accruals for
expense purposes.

                         Government Contract Commitments

The Company completed the second year of Phase II of a Small Business Innovation
Research ("SBIR") contract awarded to it in August 2002 by the U.S. Army Night
Vision and Electronic Sensor Directorate ("NVESD"). Under the terms of the
contract, the Company is to develop and test its Anti-Tank Landmine Detector
7AT7(TM) over a two-year period, which was extended for one additional year at
the option of the U.S. Army. As of July 31, 2005, the Company earned $779,944
against the contract. If further research and development work is required upon
the expiration of Phase II, the Company has the ability to submit a request for
additional Phase II and/or Phase III funding, which the government would
consider based upon the Company's progress to date and the merits of the
project. The U.S. Army is under no obligation to continue to assist in funding
these research and development costs beyond Phase II or any subsequent
extension, or to purchase any of the Company's products, including the Anti-Tank
Landmine Detector 7AT7(TM), once the Company has completed development
activities. Under the terms of the contract, the U.S. Army pays a portion of the
Company's research and development costs on a periodic basis during the term of
the contract, for which the Company is required to submit monthly written
reports detailing its progress. The Company recognizes the proceeds from the
contract as an offset against research and development expenses following the
submission of the monthly written reports. When the written report is accepted
by the U.S. Army, the Company usually receives payment in about 30 to 45 days.
As of July 31, 2005, the Company had collected all receivables due it in
completion of Phase II.

In September 2004, the Company entered into a Cooperative Agreement with the
U.S. Transportation Security Administration (TSA). Under the agreement, the
Company is to provide proof-of-concept for the Company's "NextGen Checked
Baggage Program (STOXOR)" over a nine month period, which may be extended at the
option of the TSA. The agreement provides funding in the amount of $367,141 for
Stage 1, and an additional $145,381 for Stage 2, if, at the conclusion of Stage
1, the TSA elects to continue with the Company. As of July 31, 2005, the Company
earned $367,141 in cooperative financing from the TSA to complete Stage 1. There
is no obligation for the TSA to fund the Company's development efforts under
this agreement beyond the Stage 1 funded amount or to purchase any of the
Company's products once it has completed development activities. The TSA will
pay the Company's research and development costs on a periodic basis during the
term of the contract, for which the Company is required to submit monthly
written reports detailing its progress under the contract. When the written
report is accepted by the TSA, the Company receives payment in about 30 to 45
days. Payments commenced in November 2004 and the Company recognizes the Stage 1
funding amount as an offset against research and development expenses upon
submission of the monthly written reports. As of July 31, 2005, the Company had
collected all receivables due it in completion of Stage 1.

On July 18, 2005, the Company executed a Time and Material Subcontract in the
amount of $333,688 with Integrated Concepts & Research Corporation (ICRC), which
was awarded as part of ICRC's Prime Contract Number DAAE07-02-C-L062 with the
United States Army Tank - Automotive and Armaments Command, Warren Michigan
(TACOM). Under the Subcontract, the Company will deliver one CarBomb Finder(TM)
head unit and provide the engineering and technical support necessary for its
integration in the SmarTruck II Multi-Mission Vehicle and delivered for field
testing by the U.S. Army and D.C. Capitol Hill Police. Funding of the program
was provided through a supplemental authorization of the Defense Appropriations
Act for Fiscal Year 2005. ICRC will pay the Company's time and material costs on
a periodic basis during the term of the contract, for which the Company is
required to submit monthly written reports detailing its progress under the
subcontract. The Company intends to recognize the proceeds from the subcontract
as an offset against research and development expenses following the submission
of the monthly written reports. Pursuant to the subcontract, when the written
report is accepted by ICRC, the Company will receive payment in about 30 to 45
days, or no later than 5 days after payment by the U.S. Army Contracting Officer
to ICRC.

The Company's entitlement to the above-mentioned funding is conditioned upon its
compliance with the terms and conditions of the respective SBIR contract and
cooperative agreement, as well as applicable federal regulations, including
auditing of the expenditure of the resources for allowable purposes by grantor
agencies of the federal government or their designees. The Company believes that
any commitments or obligations that may arise from cost disallowance or
sanctions as a result of those audits are not expected to be material to its
financial statements.

                                       28
<PAGE>

                                  Subsidiaries

In July 2005, the Company formed a wholly-owned subsidiary, HiEnergy
International, Inc., for the purpose of creating a separate entity for the sales
and servicing of its products overseas.


NOTE 17 - COMMON STOCK

                    Common Stock Issued or Committed for Cash

During the three months ended July 31, 2005 and 2004, and the period from August
21, 1995 (inception) to July 31, 2005, the Company issued or committed to issue
3,022,225, 347,355 and 16,774,099 shares of common stock, respectively, in
exchange for cash of $1,040,000 $475,000, and $7,784,424, respectively. Included
in both the current period amount and the inception-to-date amount are 68,546
shares sold deemed subject to rescission rights for $50,000. Of the 3,022,225
shares sold during the three months ended July 31, 2005, 1,200,001shares
remained committed. Of the 1,200,001 shares still committed as of July 31, 2005,
711,112 were committed towards a $320,000 subscription receivable which was
collected during the first week of August 2005.

               Offering Costs on Issuance of Common Stock for Cash

During the three months ended July 31, 2005 and 2004, and the period from August
21, 1995 (inception) to July 31, 2005, the Company paid offering costs of
$12,000, $31,750 and $151,768, respectively. During the three months ended July
31, 2005 the Company issued 80,000 shares and committed to issue 26,667 shares
of common stock as offering costs.

    Common Stock Issued or Committed for Services Rendered or to be Rendered

During the three months ended July 31, 2005 and 2004, and the period from August
21, 1995 (inception) to July 31, 2005, the Company issued or committed to issue
313,359, 306,455 and 14,072,341 shares of common stock, respectively, in
exchange for services rendered, valued at the fair market of the common stock
issued of $220,391, $423,951, and $5,483,715, respectively.

Details of the services performed, in consideration for the common stock, during
the three months ended July 31, 2005, are as follows:

      o     During the three months ended July 31, 2005, 30,000 restricted
            shares of common stock valued at $21,000 were issued to a
            manufacturing consultant as compensation for services.

      o     During the three months ended July 31, 2005, 104,000 restricted
            shares of common stock valued at $73,840 were issued for prepaid
            EDGAR filing services. $18,460 was expensed in the current period
            with the remaining balance of $55,380 to be applied to future filing
            services.

      o     During the three months ended July 31, 2005, 154,359 restricted
            shares valued at $108,051 were issued or committed to settle
            accounts payable of $70,820 for prior legal services. The difference
            between the GAAP value of the shares and the accounts payable
            balance of $37,231 was expense in the current period.

      o     During the three months ended July 31, 2005, the Company issued a
            total of 25,000 restricted shares of common stock valued at $17,500,
            which was expensed, to members of its Board of Directors for their
            attendance at scheduled meetings. Each member of the Company's board
            received 5,000 restricted shares of common stock for each meeting
            attended.

       Common Stock Issued on the Conversion of Convertible Notes Payable

During the three months ended July 31, 2005 and 2004 and the period from August
21, 1995 (inception) to July 31, 2005, the Company issued or committed to issue,
627,544, 0 and 2,525,881, respectively, of common stock for the outstanding
principal and accrued interest on convertible notes payable balances of
$282,395, 0, and $1,115,108, respectively. The inception-to-date shares include
944,444 shares committed at the end of fiscal-year 2004 for a subscription
receivable collected at the beginning of fiscal-year 2005 in the amount of
$425,000.


                                       29
<PAGE>

            Common Stock Issued on the Conversion of Promissory Notes

During the three months ended July 31, 2005, the Company issued 32,820 shares of
common stock for settlement of outstanding promissory notes and accrued interest
in the aggregate amount of $14,769.

            Common Stock Issued on the Cashless Exercise of Warrants

During the three months ended July 31, 2005 and 2004 and the period from August
21, 1995 (inception) to July 31, 2005, the Company issued 22,463, 0 and
1,895,294 shares, respectively, of common stock following the cashless exercise
of warrants.

       Common Stock Issued or Committed as a Penalty for Late Registration

During the three months ended July 31, 2005 and 2004 and the period from August
21, 1995 (inception) to July 31, 2005, the Company issued or committed to issue
236,946, 661,640, and 3,134,703 shares of common stock as penalty expenses in
the amount of $166,652, $884,064, and $3,473,139, respectively, for the late
registration of common stock. See "Note 16 - Commitments and Contingencies,
Penalty Securities".


NOTE 18 - STOCK OPTIONS AND WARRANTS

                             Stock Options - General

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

For purposes of computing the pro forma disclosures required by SFAS No. 123,
the fair value of each option granted to employees and directors is estimated
using the Black-Scholes option-pricing model. The Black-Scholes option valuation
model was developed for use in estimating the fair value of traded options,
which do not have vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective assumptions,
including the expected stock price volatility. Because the Company's employee
stock options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.

The following summarizes the stock option and warrant transactions:

<TABLE>
<CAPTION>
                                                     Stock
                                    Weighted         Options           Weighted                           Weighted
                                    Average          and               Average          Total             Average
                  Stock             Exercise         Warrants          Exercise         Options           Exercise
                  Options           Price            Non-              Price            And               Price
                  Employee          per Share        Employee          per Share        Warrants          per Share
                  --------------    --------------   --------------    --------------   --------------    --------------
<S>               <C>               <C>              <C>               <C>              <C>               <C>
Outstanding,
August 21, 1995
(inception) to
April 30, 2001         2,482,011    $         0.13            1,051    $         0.28        2,483,062    $         0.13

Granted                  287,653    $         0.20          346,373    $         0.28          634,026    $         0.24
                  --------------    --------------   --------------    --------------   --------------    --------------
Outstanding,
April 30, 2002         2,769,664    $         0.14          347,424    $         0.28        3,117,088    $         0.16
                  --------------    --------------   --------------    --------------   --------------    --------------

 Granted               3,461,755    $         1.24        2,002,726    $         2.02        5,464,481    $         1.43

 Canceled             (2,264,208)   $         1.33           (1,051)   $         0.28       (2,265,259)   $         1.33
</TABLE>


                                       36
<PAGE>

<TABLE>
<S>                    <C>          <C>                   <C>          <C>                   <C>          <C>
Outstanding,
April 30, 2003         3,967,211    $         0.42        2,349,099    $         1.76        6,316,310    $         0.84
                  --------------    --------------   --------------    --------------   --------------    --------------

Granted                1,738,221    $         1.03        1,029,000    $         1.11        2,767,221    $         1.01

Canceled              (1,058,483)   $         1.42         (119,705)   $         0.36       (1,178,188)   $         1.31

Outstanding
April 30, 2004         4,646,949    $         0.42        3,258,394    $         1.61        7,905,343    $         0.83
                  --------------    --------------   --------------    --------------   --------------    --------------
                       2,956,980    $         0.76          100,000    $         0.99        3,056,980    $         0.77
Granted

Canceled                (910,000)   $         1.08         (876,668)   $         2.79       (1,786,668)   $         1.92
                  --------------    --------------   --------------    --------------   --------------    --------------

Outstanding
April 30, 2005         6,693,929    $         0.70        2,481,726    $         1.17        9,175,655    $         0.82

                  --------------    --------------   --------------    --------------   --------------    --------------
                         155,000    $         0.68          157,179    $         0.69          312,179    $         0.68
Granted

Canceled                      --    $           --               --    $           --               --    $           --

Outstanding
July 31, 2005          6,848,929    $         0.70         2,638,905   $         1.14        9,487,834    $         0.82

Exercisable
July 31, 2005          5,858,096    $         0.67         2,108,905   $         1.18        7,967,001    $         0.80
                  --------------    --------------   --------------    --------------   --------------    --------------
</TABLE>

The weighted-average remaining contractual life of the options and warrants
outstanding at July 31, 2005 was 4.00 years. The exercise prices of the options
and warrants outstanding at July 31, 2005 ranged from $0.01 to $2.95, and
information relating to these options and warrants is as follows:

<TABLE>
<CAPTION>
                                                                     Weighted-        Weighted-
                                                     Weighted-        Average         Average
                                                     Average         Exercise         Exercise
                   Stock            Stock           Remaining        Price of         Price of
 Range of         Options &        Options &        Contractual      Options &       Options &
 Exercise          Warrants         Warrants           Life          Warrants         Warrants
  Prices         Outstanding      Exercisable         (years)       Outstanding      Exercisable
-------------   --------------   --------------     ------------   --------------   --------------
<S>             <C>              <C>                <C>            <C>              <C>
$0.01 - $0.99        6,369,391        5,666,058             4.32   $         0.47   $         0.44
$1.00 - $1.99        2,184,454        1,391,954             3.70   $         1.09   $         1.13
$2.00 - $2.99          933,989          908,989             2.48   $         2.54   $         2.55
                --------------   --------------
                     9,487,834        7,967,001
                ==============   ==============
</TABLE>

             Stock Options Issued or Committed for Services Rendered

During the three months ended July 31, 2005, the Company committed to issue an
option to purchase 30,000 shares to a consultant which was not vested as of July
31, 2005.

                                       30
<PAGE>

     Warrants Issued to Investors and Placement Agents in Private Placements

During the three months ended July 31, 2005 and 2004 and the period from August
21, 1995 (inception) to July 31, the Company issued warrants to purchase
7,902,241, 2,088,788 and 27,260,306 shares of common stock to investors and
placement agents in private placements.

               Warrants Issued or Committed for Services Rendered

During the three months ended July 31, 2005 and 2004 and the period from August
21, 1995 (inception) to July 31, 2005, the Company issued or committed to issue
warrants to purchase 127,179, 100,000 and 1,405,408 shares of common stock,
respectively, for services rendered. The warrants were valued at $33,900,
$38,573, and $1,069,479, respectively, which is the fair value as determined by
the Black-Scholes option pricing model. Warrants issued in the current period to
purchased 77,179 common shares were issued in conjunction with common stock to
settle accounts payable for prior legal services. As the GAAP valuation of the
common stock more than offset the accounts payable balance, the $22,531 value of
the warrants was expensed in the current period. The remaining $11,369 of
warrants issued in the current period was for prepaid filing services, of which
$2,842 was expense during the current period and $8,527 remained for future
filing services.

Details of the warrants issued for services performed or to be performed during
the three months ended July 31, 2005 are as follows:

No. of Warrants      50,000           77,179
                    ----------     ----------
Grant Date          June 2005        June 2005
Term                Three Years      Five Years
Compensation
  value              $ 11,369         $ 22,531
Stock price on
 commitment date     $ 0.65           $ 0.70
Exercise price       $ 0.75           $ 0.65
Expected life        1.0 years        1.0 years
Risk-free rate
  of return         3.51%            3.61%
Expected annual
  volatility        100%             100%
Annual rate of
  dividends             0%               0%
Services provided   Edgar Filing    Prior Legal
                    Services           Fees


                Warrants Issued as Penalty for Late Registration

During the three months ended July 31, 2005 and 2004 and the period from August
21, 1995 (inception) to July 31, 2005, the Company issued or committed to issue
1,067,838, 499,602, and 3,723,916 respectively, warrants to purchase common
stock as penalty warrants with a fair value of $305,455, $581,008, and
$1,824,483, respectively, related to the delayed registration of the Company's
common stock. The fair values of the stock options grants were determined using
the Black-Scholes model.


NOTE 19 - SUBSEQUENT EVENTS

                    Recent Sales and Issuances of Securities

In August 2005, the Company issued 111,111 Shares and warrants to purchase
111,111 Shares at an exercise price of $0.45 to an investor in exchange for
$50,000 in cash.

In September 2005, the Company issued 1,200,001 Shares and warrants to purchase
1,200,001 Shares at $0.45 previously committed for $540,000, of which $320,000
was received and $220,000 was a subscription receivable.

In September 2005, the Company issued 190,000 Shares and warrants to purchase
95,000 Shares at an exercise price of $0.75 to investors in exchange for $95,000
in cash.

                                       31
<PAGE>

                               Penalty Securities

In August 2005, the Company committed to issue 78,982 Shares and warrants to
purchase 364,483 Shares, of which 50% was expensed as of July 31, 2005, at
various exercise prices between $0.45 and $1.75, to various holders of
securities with registration rights as a penalty, due to our inability to file
and maintain effective a registration statement within certain specified
deadlines.

In September 2005, the Company issued 196,576 Shares, previously committed in
the prior year period, to various holders of securities with registration rights
as a penalty, due to our inability to file and maintain effective a registration
statement within certain specified deadlines.

In September 2005, the Company committed to issue warrants to purchase 502,085
Shares at various exercise prices between $0.45 and $1.75, to various holders of
securities with registration rights as a penalty, due to our inability to file
and maintain effective a registration statement within certain specified
deadlines.

                      Consultancy Agreements and Contracts

In September 2005, the Company executed an engagement letter with an independent
contractor to provide software development for the Company for a three-month
period. Major terms of the agreement are as follows:

      o     The Company will pay the consultant cash remuneration of $125 for
            each hour invoiced during the engagement.

      o     The Company will grant the consultant warrants to purchase shares of
            HiEnergy common stock with a five year term and exercisable at a
            price no greater than the average trading price for the thirty-days
            prior to the engagement subject to the completion of milestones.

      o     The Company will reimburse consultant for any pre-approved expenses,
            not to exceed $1,500 per week.

      o     In the event the Company files a registration statement on S-8, the
            Company has the option to prepay the consultant's services, or
            settle any outstanding invoices, with S-8 stock.

In September 2005, the Company entered into a contract with a consultant to
provide engineering services and production planning for a three-month period.
Major terms of the agreement are as follows:

      o     The Company will pay the consultant cash remuneration of $3,500 and
            issue him restricted shares in the amount of $15,000 for each month
            of services performed under the engagement.

      o     The Company will reimburse consultant for any pre-approved expenses
            during the engagement.

      o     In the event the Company files a registration statement on S-8, the
            Company will include restricted shares issued to the consultant for
            resale and the Company has the option to prepay the consultant's
            services with S-8 stock.

In September 2005, the Company entered into a contract with a consultant to
provide investor relations. Under the contract, the Company agrees to pay the
consultant $2,000 per month and make timely reimbursements for any approved
expenses incurred.

                                  Subsidiaries

In August 2005, the Company formed a wholly-owned subsidiary, HiEnergy Leasing,
Inc., for the purpose of creating a business entity to establish and
administrate an equipment lease finance and equipment rental operations.

                                SEC Investigation

As reported in our annual report on Form 10-KSB for the fiscal year ended April
30, 2005, we were under SEC investigation for alleged violations of several
sections of the Securities Exchange Act, and the rules promulgated under that
act, involving the making of false and misleading statements in its public
documents. On September 2, 2005, the Company was notified by the staff of the
Securities and Exchange Commission that the formal investigation of HiEnergy has
been terminated with a staff recommendation that no enforcement action be taken
against the Company.

                                       32
<PAGE>

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

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

FORWARD LOOKING STATEMENTS

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

Forward looking statements necessarily involve known and unknown risks,
uncertainties and other factors that may cause our actual results, levels of
activity, performance, or achievements to be materially different from any
future results, levels of activity, performance, or achievement expressed or
implied by such forward-looking statements. Readers are cautioned to review
carefully the discussion concerning these and other risks which can materially
affect our business, operations, financial condition and future prospects, which
is found under the heading Risk Factors at the end of this Item 2 and in "Note 4
- Risks and Uncertainties" to our unaudited Consolidated Financial Statements.

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

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

Forward-looking statements that we make, or that are made by others on our
behalf with our knowledge and express permission, are based on knowledge of our
business and the environment in which we operate, but because of the factors
listed above, actual results may differ from those in the forward-looking
statements. Consequently, these cautionary statements qualify all of the
forward-looking statements we make herein. We cannot assure the reader that the
results or developments anticipated by us will be realized or, even if
substantially realized, that those results or developments will result in the
expected consequences for us or affect us, our business or our operations in the
way we expect. We caution readers not to place undue reliance on these

                                       33
<PAGE>

forward-looking statements, which speak only as of their dates, or on any
subsequent written and oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by these
cautionary statements. We do not undertake any obligation to release publicly
any revisions to such forward-looking statements to reflect events or
circumstances after the date hereof or thereof or to reflect the occurrence of
unanticipated events.

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

GENERAL

The following discussion and analysis of our financial condition and plan of
operation should be read in conjunction with the unaudited Consolidated
Financial Statements and accompanying Notes and the other financial information
appearing elsewhere herein. Certain statements contained herein may constitute
forward-looking statements, as discussed at the beginning of this Item 2. Our
actual results could differ materially from the results anticipated in the
forward-looking statements as a result of a variety of factors, including those
discussed in our filings with the Securities and Exchange Commission and as
discussed in the sections under the heading Risk Factors at the end of this Item
2 and in "Note 4 - Risks and Uncertainties" to our unaudited Consolidated
Financial Statements.

OVERVIEW OF COMPANY

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

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

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

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

                                       34
<PAGE>

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

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

BASIS OF PRESENTATION

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

We have prepared our accompanying 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 in Risk Factors:
Risks Related to Our Business at the end of this Item 2, 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.

The accompanying unaudited Consolidated Financial Statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with instructions for Form 10-QSB and Item 310 of
Regulation S-B. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for a complete
set of annual financial statements. We believe our disclosures are adequate so
that the information presented is not misleading. These accompanying unaudited
Consolidated Financial Statements should be read with our annual audited
financial statements and the notes thereto included in our Annual Report on Form
10-KSB for the year ended April 30, 2005, and other reports filed with the SEC.
In our opinion, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation of results of the financial
position and the operations have been included in the accompanying unaudited
Consolidated Financial Statements. Results of operations for the three months
ended July 31, 2005 are not necessarily indicative of the results that may be
expected for the current fiscal year ending April 30, 2006.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The discussion and analysis of our financial condition and results of operations
are based on our unaudited Consolidated Financial Statements and accompanying
Notes and the other financial information appearing elsewhere in this Report,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities and expenses, and related disclosure of
contingent assets and liabilities. On an ongoing basis, we evaluate our
estimates. We base our estimates on assumptions that we believe to be reasonable
under the circumstances, the results of which form the basis of making judgments
about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions.

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


                                       35
<PAGE>

Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"). Under
the intrinsic value method, where the exercise price of our employee stock
options equals or exceeds the market price of the underlying stock on the date
of grant, no compensation expense is recognized in our Consolidated Statements
of Operations.

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

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

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

Research and Development Costs

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

Three Months ended July 31, 2005 Compared To Three Months Ended July 31, 2004

For the three months ended July 31, 2005, we incurred a net loss of $2,053,000,
as compared to a net loss of $4,128,000 for the three months ended July 31,
2004. Included in the losses are equity based expenses of $624,000 and
$2,931,000, respectively.

Operating Expenses

GENERAL AND ADMINISTRATION

General and administration expenses were $1,096,000 for the three months ended
July 31, 2005, a decrease of $589,000 from the prior year. In lieu of cash, we
have often engaged service providers by offering common stock, warrants, options
and convertible notes payable ("CNP") as compensation. Through various
arrangements, these providers have provided services such as business
development, business and financial consulting, Edgar services, legal and other
professional services, and directorship. Some warrants and options have been
issued and expensed, but then subsequently forfeited causing no dilution to us.
The major components of general and administration expenses, both cash and
equity, are as follows:

<TABLE>
<CAPTION>
                                       Three Months Ended July 31, 2005            Three Months Ended July 31, 2004
                                     -------------------------------------     --------------------------------------
                                      Cash &        Equity                       Cash &        Equity
                                      Accrued       Based                        Accrued       Based                     Increase/
                                     Expenses    Compensation      Total        Expenses    Compensation      Total      (Decrease)
                                     ----------    ----------    ----------    ----------    ----------    ----------    ----------
<S>                                  <C>           <C>           <C>           <C>           <C>           <C>           <C>
Salaries and benefits                $  277,000    $   32,000    $  309,000    $  154,000    $   39,000    $  193,000    $  116,000
Consulting                               35,000        18,000        53,000        85,000       246,000       331,000      (278,000)
Legal fees                              157,000        60,000       217,000       194,000       396,000       590,000      (373,000)
Accounting fees                         121,000            --       121,000       140,000            --       140,000       (19,000)
Investor & public relations              65,000            --        65,000        62,000            --        62,000         3,000
Insurance                                47,000            --        47,000        43,000            --        43,000         4,000
Travel                                   96,000            --        96,000       129,000            --       129,000       (33,000)
Other                                   167,000        21,000       188,000       137,000        60,000       197,000        (9,000)
                                     ----------    ----------    ----------    ----------    ----------    ----------    ----------
                    Total            $  965,000    $  131,000    $1,096,000    $  944,000    $  741,000    $1,685,000    $ (589,000)
                                     ----------    ----------    ----------    ----------    ----------    ----------    ----------
</TABLE>




                                       36
<PAGE>


For the three months ended July 31, 2005, as compared to the prior year period,
salary and benefits expense increased $116,000. This increase was primarily due
to normal pay increases and incentives as well as the hiring over the last year
of two additional personnel, including our vice president in January 2005 and
our controller in March 2005. Both had served as consultants from July 2004
until their conversion to employees, filling vacancies left by employees who
received comparable lower wages. This increase in employee wages for both new
hires has a corresponding decrease in consultancy expense due to their
conversion as related below. We expect salaries and benefits expense to increase
into fiscal 2006 with the hiring of additional production personnel to focus on
product design and manufacturing and administrative personnel to fulfill our
public reporting requirements, internal financial controls, sales and marketing
activities, and other legal and financial matters related to our
commercialization objectives. For the remainder of fiscal 2006, we expect an
increase in equity-based compensation as we attempt to better conserve cash by
issuing registered securities to employees in lieu of cash bonuses and wage
increases, but at lesser or no discount and pursuant to more favorable terms
than in prior periods.

Consulting expenses for the three months ended July 31, 2005 decreased $278,000
from the prior year period. This decrease was primarily attributable to a
decrease of $228,000 in equity-based compensation from $246,000 to $18,000 for
the three months ended July 31, 2005. Also included is a $50,000 decrease in
cash compensation expense resulting from the conversion of two consultants to
employees in January 2005 and March 2005 as related above. Consulting expenses
for the prior year period charge of $331,000 was primarily comprised of
equity-based compensation expense in aggregate at $246,000 related to the
issuance of common stock, options and warrants for consulting services. Since
the prior year period, we have reduced our reliance on paying for services with
restricted equity instruments because of the significant discounting required to
compensate for their illiquidity. For the remainder of fiscal year 2006, we
expect cash compensation consulting expenses to decrease with the hiring of
employees and a lower reliance on consultants, however , we do expect an
increase in equity-based compensation as we attempt to better conserve cash by
issuing registrable securities to consultants and other service providers, but
at lesser or no discount and pursuant to more favorable terms than in prior
periods.

Legal fees decreased $373,000 for the three months ended July 31, 2005 as
compared to the prior year period. The decrease was primarily due to cost
savings accomplished with our internalizing many legal and regulatory functions
in order to improve internal controls and reduce our reliance on outside legal
services. Cash compensation decreased $37,000 for the three months ended July
31, 2005 as compared to the prior year period. Additionally, during the three
months ended July 31, 2005, equity-based compensation expense for legal services
decreased $336,000 as compared to the prior year period. Since the prior year
period, we have reduced our reliance on paying for legal services with
restricted equity instruments because of the significant discounting required to
compensate for their illiquidity. The equity-based compensation expense incurred
for the three months ended July 31, 2005 in the amount of $60,000, represents
the excess cost of having settled certain outstanding accounts payable to a
related party for legal services. We expect overall legal expense to remain
comparatively high through the first half of fiscal year 2006, as we attempt to
settle a class action law suit and other pending legal matters disclosed in this
Report, as well as file registration statements on behalf of employees and
selling shareholders, and the Company. We also expect an increase in
equity-based compensation as we attempt to better conserve cash by issuing
registrable securities to legal advisors, but at lesser or no discount and
pursuant to more favorable terms than in prior periods.

Accounting fees decreased $19,000 for the three months ended July 31, 2005 as
compared to the prior year period. This decrease was due to a reduction in
accounting activity. As with legal fees, accounting fees decreased significantly
in the second half of fiscal year 2005, most notably decreasing in excess of 50%
in the second half of fiscal year 2005 as compared to the second half of fiscal
2004, as a result of normalized accounting activity and improvements to, and
efficiencies achieved, in our financial controls. We expect accounting fees to
decrease slightly but remain higher than the norm as we complete the filing of
our restated annual and quarterly financial results as well as file registration
statements on behalf of employees and selling shareholders, and the Company. For
the remainder of fiscal 2006, we expect to continue to make improvements to and
generate efficiencies in our financial controls and plan to increase accounting
staff, which should reduce external accounting costs.

Investor and public relations expense increased nominally by $3,000 for the
three months ended July 31, 2005 as compared to the prior year period. During
the fiscal year 2005, we had redirected resources toward more immediate
concerns, such as product development, the funding of internal operations, and
expenditures related to legal and regulatory matters, and had internalized many

                                       37
<PAGE>

investor relations and shareholder services. In June 2005, we entered into a
cost-effective contract with a consultant to provide public media relations on a
success fee basis and most recently engaged an outside consultant to provide
investor relations services. Going forward we intend to increase our public
relations and investor relations activities as we seek to develop increased
awareness among the investor community and, accordingly, we anticipate a
moderate increase in investor and public relations fees throughout the remainder
of fiscal year 2006.

Insurance expense increased $4,000 for the three months ended July 31, 2005 over
the prior year period. This increase was primarily attributable to an increase
for health insurance associated with new hires. In May 2005, we renewed our
Directors and Officers liability policy for an additional year. Without a
substantial cost increase, we were able to increase our coverage from $2,000,000
to $3,000,000. We expect insurance expense to increase throughout the remainder
fiscal year 2006 as a result of increasing health insurance coverage as we
expand operations.

Travel expenses decreased $33,000 for the three months ended July 31, 2005 over
the prior year period. The decrease was attributed primarily to our better
administration of costs for offsite demonstrations and a decrease in activity
during the period. During the prior year period, we incurred significant costs
with regards to a demonstration of our CarBomb Finder prototype in Istanbul,
Turkey, which was attended by a team of scientific personnel and required
expedited shipments of heavy equipment and materials utilized in the
demonstration. We have since reduced the personnel requirement for
demonstrations to one or two scientific staff and one or two sales
representatives. Further, we are conducting all demonstrations with our
suitcase-borne system which is more cost effective to ship than our vehicle
system. Lastly, we have placed significant emphasis on the domestic market and
have limited demonstrations overseas. We expect that travel expenses for fiscal
year 2006 will remain high as our sales and marketing personnel continue to
attend numerous key industry conferences and trade shows, management continues
to meet with investors, consultants and potential strategic partners, such as in
Spain and the Middle East, and general business activity increases in connection
with our commercialization objectives.

Other expenses for the three months ended July 31, 2005 decreased $9,000 to
$188,000 as compared to the prior year period. Other equity-based compensation
expense consisted of $21,000 for common stock and a warrant issued in May 2005
and June 2005 for prepaid Edgar filing services. For the prior year period,
other equity-based compensation expense consisted of $60,000 for Edgar filing
fees. The issuance of equity for services has been costly to us for the reasons
discussed above. Excluding the equity-based compensation fees, other expenses
for the three months ended July 31, 2005 increased $30,000 as compared to the
prior year period. The increase was due in part to an inventory reserve of
$37,000 and business development expense of $30,000. Other expenses include
sponsor/participant fees and contributions to industry symposiums and related
events of $10,350 and marketing and material expense of $9,400. Postage and
delivery expense decreased from $63,000 from the prior year period to $13,000
for the three months ended July 31, 2005, due to significant reduction in
equipment transportation costs resulting from the better administration of
demonstration costs and a decrease in activity during the period as discussed in
travel expenses above. The remaining fees are associated with stock transfer
agent services, telecommunications, office equipment and supplies, and licenses
and permits, due to our expanding operations. For the remainder of fiscal 2006,
we expect other expenses to remain high as general business activity increases
in connection with our commercialization objectives and our growing emphasis on
marketing and business development.

Research and Development

Net research and development expenses for the three month period ended July 31,
2005 increased $198,000 from the prior year period. Excluding grant income,
which decreased $30,000, from the prior fiscal year, research and development
expenses increased $168,000 During the three month period ended July 31, 2005,
we have issued equity-based compensation to service providers in lieu of cash.
The major components of research and development expenses are as follows:

<TABLE>
<CAPTION>
                                                Three Months Ended
                                    ------------------------------------------        Increase/
                                        July 31, 2005        July 31, 2004           (Decrease)
                                    ------------------------------------------    ------------------
          <S>                                 <C>           <C>                    <C>
          Salaries and benefits                    201,000       $    165,000           $    36,000

          Consultants                               62,000             13,000                49,000

          Supplies                                  25,000             17,000                 8,000

          Travel                                         -             10,000               (10,000)

          Depreciation                              55,000             43,000                12,000

          Other                                    136,000             63,000                73,000

          Grant income                             (61,000)           (91,000)               30,000
                                    ------------------------------------------   -------------------
                          Net                      418,000       $    220,000           $   198,000
                                    ------------------------------------------   -------------------
</TABLE>

                                       38
<PAGE>

Salaries and benefits related to research and development activities increased
$36,000 for the three months ended July 31, 2005 as compared to the prior year
period. This increase was due to normal increases and increased bonuses as well
as the hiring of one research scientist in February 2005 to fill one of two
research and development positions vacated in July 2004. Consulting expenses for
the three months ended July 31, 2005 increased $49,000 from $13,000 to $ 62,000
over the prior year period with cash fees of $41,000 and equity based
compensation of $21,000 to consultants for product engineering and research
support. We expect salaries and benefits to increase throughout fiscal year 2006
with the addition of new scientific personnel to fill in current vacancies in
our scientific team and to advance the development of our technology and
devices. We also estimate an increase in equity-based compensation as we attempt
to better conserve cash by issuing registered securities to research and
development employees in lieu of cash bonuses and wage increases and
consultants, but at lesser or no discount and pursuant to more favorable terms
than in prior periods.

Supply expense increased $8,000 respectively, for the three months ended July
31, 2005 as compared to the prior year period due to increased activity under
our cooperative and research development agreements and the testing of new
configurations of our prototypes. In light of an increase in our grant
application activity and anticipated cooperative and research development
agreement, we expect that expenses related to supplies will increase for the
remainder of fiscal 2006. However, we intend to continue focusing on the
completion of final product design for commercialization and will direct most
resources toward that objective.

Travel expenses decreased $10,000 for the three months ended July 31, 2005 as
compared to the prior year period as our scientists were more involved in onsite
research and development during the current year period than the prior year
period. We expect travel expenses to increase throughout fiscal year 2006, with
increased grant application activity, anticipated co-development programs and
offsite testing.

For the three months ended July 31, 2005, depreciation expense increased by
$12,000 as we have continued to purchase equipment for research and development
activities. Cumulatively, these additions have increased depreciation expense.
In light of our expected increase in research and development activities and we
advance and/or develop prototypes and make technology improvements, we expect
further research and development purchases. Accordingly, depreciation expense
should increase as we continue to expense current equipment and increase our
capital expenditures year over year.

Other research and development expenses for the three months ended July 31, 2005
increased $73,000 compared to the prior year period. The primary increase was
due to key research equipment acquired under an operating lease. Total lease
payments were $83,000. Other expenses, including, telephone, furniture and
fixture rentals increased consistent with our expanded development efforts
during the current period.

We have completed the second year of Phase II of a Small Business Innovation
Research ("SBIR") contract awarded to us in August 2002 by the U.S. Army Night
Vision and Electronic Sensor Directorate ("NVESD"). Under the terms of the
contract, we are to develop and test its Anti-Tank Landmine Detector 7AT7(TM)
over a two-year period, which was extended for one additional year at the option
of the U.S. Army. As of July 31, 2005, we have earned $779,944 against the
contract. If further research and development work is required upon the
expiration of Phase II, we have the ability to submit a request for additional
Phase II and/or Phase III funding, which the government would consider based
upon our progress to date and the merits of the project. The U.S. Army is under
no obligation to continue to assist in funding these research and development
costs beyond Phase II or any subsequent extension, or to purchase any of our
products, including the Anti-Tank Landmine Detector 7AT7(TM), once we have
completed the development activities. Under the terms of the contract, the U.S.
Army pays a portion of our research and development costs on a periodic basis
during the term of the contract, for which we are required to submit monthly
written reports detailing its progress. We recognize the proceeds from the
contract as an offset against research and development expenses following the
submission of the monthly written reports. When the written report is accepted
by the U.S. Army, we usually receives payment in about 30 to 45 days. As of July
31, 2005, we collected all receivables due us in completion of Phase II.

In September 2004, we entered into a Cooperative Agreement with the U.S.
Transportation Security Administration (TSA). Under the agreement, we are to
provide proof-of-concept for the Company's "NextGen Checked Baggage Program
(STOXOR)" over a nine month period, which may be extended at the option of the
TSA. The agreement provides funding in the amount of $367,141 for Stage 1, and
an additional $145,381 for Stage 2, if, at the conclusion of Stage 1, the TSA


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elects to continue with us. As of July 31, 2005, we have earned $367,141 in
cooperative financing from the TSA to complete Stage 1. There is no obligation
for the TSA to fund our development efforts under this agreement beyond the
Stage 1 funded amount or to purchase any of our products once we have completed
the development activities. The TSA will pay the our research and development
costs on a periodic basis during the term of the contract, for which we are
required to submit monthly written reports detailing our progress under the
contract. When the written report is accepted by the TSA, we receive payment in
about 30 to 45 days. Payments commenced in November 2004 and we recognize the
Stage 1 funding amount as an offset against research and development expenses
upon submission of the monthly written reports. As of July 31, 2005, we
collected all receivables due it in completion of Stage 1.

On July 18, 2005, we executed a Time and Material Subcontract in the amount of
$333,688 with Integrated Concepts & Research Corporation (ICRC), which was
awarded as part of ICRC's Prime Contract Number DAAE07-02-C-L062 with the United
States Army Tank - Automotive and Armaments Command, Warren Michigan (TACOM).
Under the Subcontract, we are to deliver one CarBomb Finder(TM) head unit and
provide the engineering and technical support necessary for its integration in
the SmarTruck II Multi-Mission Vehicle and delivered for field testing by the
U.S. Army and D.C. Capitol Hill Police. Funding of the program was provided
through a supplemental authorization of the Defense Appropriations Act for
Fiscal Year 2005. ICRC will pay our time and material costs on a periodic basis
during the term of the contract, for which we are required to submit monthly
written reports detailing its progress under the subcontract. We intend to
recognize the proceeds from the subcontract as an offset against research and
development expenses following the submission of the monthly written reports.
Pursuant to the subcontract, when the written report is accepted by ICRC, we
will receive payment in about 30 to 45 days, or no later than 5 days after
payment by the U.S. Army Contracting Officer to ICRC.

Depreciation

Total depreciation expense for the three months ended July 31, 2005 and 2004 was
$67,000 and $52,000, respectively. The increase in depreciation expense reflects
additional equipment put into service during the proceeding and intervening
period.

Interest Expense and Income

Interest expense for the three months ended July 31, 2005 decreased to $30,000
from $756,000 for the prior year period. During the prior year period, interest
expense in the amount of $730,000 was recorded with the issuance of $730,000 of
CNP. Under GAAP accounting rules the combined value of the beneficial conversion
feature and the fair value of the detachable warrants, to the extent of the
proceeds received, is amortized over the terms of the notes. Since the
investors' notes were deemed subject to rescission rights (as discussed
elsewhere in this report), and immediately convertible, the full amount was
immediately expensed. The fair value of the beneficial conversion feature was
determined by taking the spread between the market price of the common stock at
the date of issuance and the conversion price, multiplied by the number of
shares underlying the CNP. The value of the warrants was determined using the
Black-Scholes model. Interest expense for the three months ended July 31, 2005
was comprised of interest generated on outstanding CNP in the amount of $673,000
issued to our former legal counsel for services and CNP issued to an investor.
The CNP to our former legal counsel carry a 10% interest and the CNP to
investors carry a 5% interest rate. All but $278,400 of the CNP was converted
into shares of our common stock during the three months ended July 31, 2005.

Interest income for the three-month periods ended July 31, 2005 and 2004 was
minimal.

Other Expenses

During the three months ended July 31, 2005, we disposed of property, plant and
equipment with a book value of $47,000 for $21,000. According we recorded a loss
on the disposal of $26,000.

Penalties on Debt and Equity Issuances

We have issued as penalties, CNP, common stock, and warrants to certain holders
of CNP, common stock and warrants with registration rights, as a result of our
inability to file and maintain an effective a registration statement within
certain specified deadlines. The penalties will stop accruing on all of the
instruments once a registration statement covering the instruments is filed and
maintained effective, or when the penalties become impermissible as a matter of
law as prescribed in the instrument.

For the three months ended July 31, 2005, we recorded $12,000 as a penalty
expense upon issuance of CNP with a face value of $12,000 as penalties for our
delayed registration statement.

During the three months ended July 31, 2005, the Company issued or committed to
issue 236,946 shares of common stock as penalty expenses in the amount of
$166,660 for the late registration of common stock. Certain holders of

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unregistered common stock received will continue to receive each month, as
applicable, additional shares calculated as a percentage of the original number
of shares they purchased.

The purchasers of the CNP and shares of common stock discussed above also
received detachable warrants with their purchases. These investors received and
will continue to receive each month, amendments to their warrants to increase
the number of shares underlying each original warrant. For the purchasers of the
CNP, the increase is 2% of the number of shares underlying the original
warrants. For the purchasers of common stock, the increase is a percentage of
the number of shares underlying the original warrants. For the three months
ended July 31, 2005, we recorded $305,500 as a penalty expense upon amending
warrants to provide for the purchase of an additional 1,067,838 common shares as
penalties to these investors. The fair value of these warrants was determined
using the Black-Scholes model.

For the three months ended July 31, 2004, we recorded penalty expenses in the
amount of $884,064, $581,008, and $3,000, against the issuance of 661,640 common
shares, warrants to purchase 499,602 common shares and $3,000 of CNP as
penalties, respectively. The fair value of the warrants was determined using the
Black-Scholes model.

LIQUIDITY AND CAPITAL RESOURCES

As of July 31, 2005, we had cash and cash equivalents of $171,000.

Other current assets, as of July 31, 2005 increased to $458,000 from $382,000 as
of prior year end and consisted primarily of $162,000 of prepaid insurance, a
$179,000 in deposits for an advanced generator and other equipment, $60,000 of
prepaid edgar filing services paid with equity, and $38,000 of prepaid legal
services.

During the three months ended July 31, 2005, our sources of cash were as
follows:

                                                               Amount
                                                           ----------------
         Sales or commitments of common stock                  $ 1,040,000

         Offering costs                                            (12,000)
                                                          -----------------
                                                               $ 1,028,000
                                                          -----------------

As of July 31, 2005, accounts payable increased $1,303,000 from that of the
prior year period to $2,591,000. A great part of this increase was due to the
receipt of robots ordered for the development of a new deployment platform for
our devices. Because we continue to operate under a tightened cash position,
which has resulted in delays to our making payments to some service providers
and vendors, we have adopted a policy to mitigate against the risks of high
stock inventories and growing accounts payable, especially in the event of any
unexpected delays or difficulties introducing our products into the marketplace.
For the remainder of fiscal year 2006, we foresee accounts payable remaining
high requiring significant cash conservation measures.

Accrued expenses of $206,000 as of July 31, 2005 consisted of $94,000 for
financed insurance premiums, a $14,000 draw on our line of credit and a fee
payable to an investment bank as discussed in our Annual Report on Form 10-KSB
for the year ended April 30, 2005.

For the three months ended July 31, 2005, we have accrued $8,000 for an
estimated payroll tax liability for stock compensation (in the form of
Microdevices shares) given for services rendered by officers, employees,
directors, legal advisors and consultants during the period from June 1997
through February 2002. Accrued interest on the estimated balance of $393,000
through the previous year end brings the total estimated liability to $439,000.
See "Note 8 - Accrued Payroll and Payroll Taxes" to our unaudited Consolidated
Financial Statements. Excluding the payroll tax liability mentioned above, as of
July 31, 2005, we have accrued payroll and payroll tax of $72,000, which
includes deferred salaries for certain employees.

As of July 31, 2005, we were delinquent on notes payable totaling $95,000 with a
shareholder and related party. The notes payable have been due on demand since
November 1997, however, no demand has been received.

As of July 31, 2005, we have outstanding unsecured convertible promissory notes
totaling $673,000 to our former legal counsel. The legal fees were expensed as a
general and administration expense in the periods incurred. The notes bear 10%
interest. $635,000 of the note became due on demand in April 2005, and the
remaining $38,000 became due on demand in May 2005. As of July 31, 2005, no
demand has been received on these notes.

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<PAGE>

In June 2004, we sold $300,000 of CNP deemed subject to rescission rights to
Richard Melnick and Sherbrooke Partners LLC in connection with the exercise of
an option to a second closing obtained in January 2004. As of July 31, 2005,
$240,000 of the CNP held by Richard Melnick remains currently outstanding and
based upon legal advice we have received as to the appropriate state and federal
limitations periods pertaining to the rescission obligations assumed, we
reclassified the $240,000 of CNP deemed subject to rescission rights to
convertible notes payable. The notes when combined with $38,400 of CNP issued as
penalties for late registration and interest of $13,860 accrued as of July 31,
2005 are convertible into 649,512 shares of our common stock. The CNP have a two
year term and bear interest at 5%, and when coupled with the proceeds allocated
to the detachable warrants have an estimated effective annual interest rate of
49%. They are convertible into common stock at $0.45 per share. The outstanding
CNP also contain warrants to purchase common stock with a three and one-half
year term as follows: 1,066,666 at $0.45 per share; 320,000 at $0.75 per share;
and 192,000 shares at $1.25 per share.

The CNP holder also has registration rights on the underlying shares and since
the securities were not registered by us before October 30, 2004, the investors
have received as penalties, additional detachable warrants to purchase 2% of the
amount of shares exercisable under the original warrants and CNP equal to 2% of
the principal balance of the original CNP, for each subsequent month through
June 2005, when the securities became saleable under Rule 144. The CNP and
warrants also provide the investor with ratchet rights, whereby the conversion
price of the CNP and the exercise price of the warrants will be reduced to equal
the price of any new shares sold below $0.45 in unrelated transactions at a
price per share below $0.45. If CNP are offered for sale at a price per share
under $0.45, the investor also has a first right of refusal to purchase the CNP
offered as well. See "Note 12 - Convertible Notes Payable" to our unaudited
Consolidated Financial Statements.

Pursuant to the terms of a note purchase agreement as described in "Note 11 -
Convertible Notes Payable - Related Parties" to our unaudited Consolidated
Financial Statements, Nicholas J. Yocca has the option to purchase an additional
$400,000 worth of CNP prior to the filing of a registration statement, which
have detachable warrants to purchase a number of shares of common stock as
follows: (i) a warrant to purchase common stock at $0.45 per share, for the
number of shares of common stock that could be purchased at that price with an
amount in cash equal to the face amount or principal balance of the CNP; (ii) a
warrant to purchase common stock at $0.75 per share, for the number of shares of
common stock that could be purchased at that price with an amount in cash equal
to the face amount or principal balance of the CNP; (iii) a warrant to purchase
common stock at $1.25 per share, for the number of shares of common stock that
could be purchased at that price with an amount in cash equal to the face amount
or principal balance of the CNP; and (iv) a warrant to purchase common stock at
$1.50 per share, for the number of shares of common stock that could be
purchased at that price with an amount in cash equal to the face amount or
principal balance of the CNP. The warrants expire between 120 days and three and
one-half years after issuance. In June 2005, the holder converted all principle
and accrued interest into common shares. The holder also has registration rights
on the underlying shares but is not entitled to receive penalties for delays or
failure to register the underlying shares. In order to preserve his registration
rights, the investor must make additional purchases before the filing of the
registration statement incorporating the underlying shares. In June 2005, Mr.
Yocca elected to convert $185,000 of CNP originally purchased in January 2004,
plus $11,932 of accrued interest, into 437,627 shares of our common stock. The
detachable warrants issued in the first closing to Mr. Yocca have since
expired..

For the three month period ended July 31, 2005, we reclassified 243,466 of the
remaining 312,012 shares deemed subject to rescission rights, reported at fiscal
year ended April 30, 2005, to common stock and additional paid in capital,
further reducing the recorded current liability for shares deemed subject to
rescission rights from $199,560 to $50,000. As of July 31, 2005, a total of
68,546 shares remained deemed subject to rescission rights. Based upon legal
advice received, we anticipate reclassifying the remaining 68,546 shares deemed
subject to rescission rights and eliminating the remaining current liability of
$50,000 in the current fiscal year.

As of July 31, 2005, we had total current liabilities of approximately $4.8
million and our liabilities continue to significantly exceed our cash on hand.
While we anticipate cash inflows from purchases from SEPTA, ICRC and Spain, we
currently do not have any significant revenue. Unless and until revenues reach a
sufficient level to cover operating expenses and our liabilities, we are
required to continue to sell equity or debt instruments in order to pay present
liabilities and fund on-going operations. If we cannot attract investment or
generate revenues, our ability to grow may be severely hindered and we may not
be able to continue as a going concern.

In April and May 2004, we issued purchase orders for $2.4 million to two vendors
for the purchase of components for our bomb detection units. In April 2004, we
ordered neutron generators at a cost of approximately $1,033,000 through vendor
financing. We received our first unit from this order in October 2004. We may
lease these units from the vendor for up to 12 months, with a buy-out option at

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<PAGE>

the termination of the lease, for estimated monthly payments of $5,800, and with
80% of the lease payments allocated toward the purchase price. In May 2004, we
ordered gamma ray detectors for $1,368,000. We have received 27 of the 60 gamma
radiation directors and included these as inventory to be assembled for sale as
of July 31, 2005. Payment terms for these detectors require 50% down payment
upon order with the balance due following our receipt and acceptance of the
goods.

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

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

As to the status of efforts to raise $8 to $10 million, representing our revised
financial requirements, we have raised through private placements to accredited
investors and institutional investors a total of $7 million in net proceeds from
financing activities from May 2004 to present. Additionally, we have earned
$610,000 from grants and other governmental funding for the fiscal year ended
April 2005, with additional grant proceeds in the amount of $334,000 anticipated
from August 2005 to the expected delivery date of one CarBomb Finder system in
connection with the U.S. Army SmarTruck program with ICRC. Further, we received
payment in the amount of $375,000 against an order of two SIEGMA(TM) 3E3 systems
from Southeastern Pennsylvania Transportation Authority (SEPTA) in the amount of
$603,000, with the balance of $228,000 due upon delivery, and we expect to
collect $227,000 representing the balance due upon delivery of one SIEGMA(TM)
3E3 ordered by Compania de Aprovisionamiento Especifico S.L. of Tenerife, Spain.
Although we have been able to raise capital through self-managed private
placements of our equity, we currently do not have an institutional commitment
for the additional capital necessary as of the date of this Report.

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

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<PAGE>

PLAN OF OPERATION

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

During the first quarter fiscal year 2006, we continue to see an increase in
significant positive feedback as to the potential demand for our explosives
identification and detection products and have correspondingly increased, and
directed greater resources toward, the direct and indirect sales and marketing
of our products both domestically and overseas. As of the date of this Report,
we have developed a strategic sales and marketing plan and have expanded our
relationship with distributors and resellers specializing in the security and
anti-terrorism industry, defense industry consultants, as well as potential
strategic partners in developing some key geographic markets and verticals.

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

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

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

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

Initial assembly of any orders will be performed at our research and development
facility located in Irvine, California. Assembly at this facility will be
limited, and we may be required to outsource certain functions and/or hire
additional technicians as needed. Based on preliminary marketing data suggesting
a strong demand for commercial versions of our explosion detection prototypes,
we anticipate the need to scale production to meet that demand. In August 2004,
we contracted an engineering and construction consultant to help facilitate the
location and design of a larger, dedicated manufacturing facility and completed

                                       44
<PAGE>

a detailed manufacturing plan, which we plan to implement, unless we decide to
outsource to a manufacturing partner. During fiscal year 2005, we studied
locations to serve as our principal assembly facility in various states and have
met with both local and state officials as part of this assessment. We have
estimated that the construction and/or build-out costs related to a
manufacturing facility fall between $1 million and $2.5 million, which costs are
expected to be supplemented by local municipalities and state agencies in the
form of monetary incentives offered to locate a facility to their respective
areas. As of the date of this report, we have not selected a site to locate a
facility and are unsure whether or not we will be able to meet the criteria
necessary to attract local municipalities and state suitors.

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

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

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

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

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

Historically, we have financed operations with periodic cash infusions through
various financing vehicles. The uncertainties of securing financing has limited
our capacity to make greater investments in research and development, inventory
and component procurement, and human resources, as well as the commercialization

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of our products. The estimated total costs to commercialize our current product
line, excluding contributions received through research and development grants,
is approximately $2 million. This amount includes personnel and consultant
expenses, property and materials, and ancillary costs related to concept
development, market assessment and verification, prototype development and
production of field testing units. We are currently seeking a larger capital
infusion in the range of $2 to $3 million, and we estimate that our total
financial requirements for calendar year 2005 will be between $8 and $10
million. The total requirement includes commercialization costs, manufacturing
facility build out, inventory procurement, as well as general administrative and
operational costs. In an attempt to control dilution, we intend to secure
financing on a quarterly or rolling basis to take advantage of any favorable
pricing that our stock may experience as we progress through the implementation
of our business plan. We also seek to limit our dependency on the sale of our
securities in funding working capital through proceeds from other sources, such
as pre-sales, sales, additional development grants, government contracts, as
well as the formation of joint ventures. Although we have been able to raise
capital through self-managed private placements of our equity, we currently do
not have a firm institutional commitment to raise the additional capital
necessary as of the date of this Report.


RISK FACTORS

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

Risks Related To Our Business

General Business Risks

We have a history of losses and an accumulated shareholders' deficit of
$33,853,466 as of July 31, 2005, and we may never achieve profitability.

We have not generated any significant revenue from operations during the past
two fiscal years, and we have incurred net losses available to common
shareholders every year since our inception, including $2,053,305 for the three
months ended July 31, 2005, as compared to $4,128,489 for the prior year period,
and $33,853,466 for the period from August 21, 1995 (inception) through July 31
2005. We expect that our operating expenses will increase in the near term, due
in part to investments that we intend to make in connection with our plans to
commercialize, manufacture and market our initial prototype devices: the CarBomb
Finder(TM) and SIEGMA(TM). To achieve profitability, we will need to generate
significant revenue, while achieving reasonable costs and expense levels. We may
not be able to generate enough revenue to achieve profitability. If we cannot
achieve or sustain profitability, we may not be able to fund our expected cash
needs or continue our operations.

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

For the last two fiscal years, we have experienced average monthly operating
expenses of approximately $360,000, and no revenues from operations to offset
that amount. As such, we must continually raise capital from the sale of equity
or the placement of debt to private investors, or from government grants or
development contracts, in order to fund our operations at current levels or at
all. Our ability to raise additional funds in the public and private markets
will be adversely affected if the results of our business operation are not
favorable, or if the commercialization of the CarBomb Finder(TM) and SIEGMA(TM)
is poorly received or fails altogether.

Although we intend to seek additional funding through corporate collaborations
or from loans or investments from new or existing stockholders, additional

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capital may not be available to us and, even if available, it may not be on
terms which our Board of Directors would be willing to accept. If we cannot
obtain the capital we need to fund our operations on terms which we can accept,
we may be required to curtail our operations significantly, or cease our
operations altogether, which would have a material adverse effect on our
business, our operations and our financial condition.

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

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

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

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

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

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

As a defense products company, we are sometimes requested or required to
demonstrate our technologies and our products at varying stages in our
development. Such demonstrations may be in front of potential purchasers of the
products, and/or sources of grant or private equity funding. To the extent that
any product or technology may not work in the manner in which it is intended,
such prospective purchasers and/or funding sources may lose confidence in our

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products and technology, and may determine not to purchase any products or fund
any developments. If a demonstration should not work successfully at any time
when large numbers of people are present, the news could spread within the
homeland defense industry we are working in, especially among the relatively
small universe of large potential governmental agencies and other organizations
who are likely purchasers of our products. If that were to happen, it could have
a materially adverse effect upon our ability to make sales of our products, as
well as on our overall business operations and financial condition.

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

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

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

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

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

      o     receipt of any requisite approvals from the Nuclear Regulatory
            Commission (NRC), the Department of State, the Department of
            Commerce, the Department of Defense, and similar state or foreign
            authorities, as applicable; market acceptance of the CarBomb
            Finder(TM) and SIEGMA(TM) and after-market satisfaction related to
            performance and maintenance issues;

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

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

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

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

We have introduced our systems, the CarBomb Finder(TM) 3C4 and SIEGMA(TM) 3E3
only recently, and all other applications of our technology are still in the
early stages of development. These include, at present, our CarBomb Finder(TM)
3C5, Anti-Tank Landmine Detector 7AT7, Unexploded Ordnance Sensor 3UXO3, Bomb
BombSquad Detector, and our Refractorymeter. For the three months ended July 31,
2005, we spent $418,016 or 28% of total operating expenses on research and
development, and we spent $1,095,739 or 72% of total operating expenses on
general and administrative expenses. We anticipate an increase in general and
administrative expenses due to additional operating expenses demanded for
commercialization of the CarBomb Finder(TM) and SIEGMA(TM) systems. We
anticipate research and development costs to stay approximately at the same
level, to the extent that independent testing of the CarBomb Finder(TM) and
SIEGMA(TM) systems will be required in order to obtain approvals from regulatory
authorities or gain better market acceptance by industry partners or
governmental officials.

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

Due to our losses and accumulated deficit, our auditors have raised concerns
about our ability to continue as a going concern.

Our independent certified public accountants qualified their opinion contained
in our consolidated financial statements as of and for the three months ended
July 31, 2005, and all subsequent periods, to include an explanatory paragraph

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related to our ability to continue as a going concern, stating that "the Company
had negative cash flows from operations of approximately $10,962,030 for the
period from August 21, 1995 (inception) to July 31, 2005,. In addition, the
Company had an accumulated deficit of $33,853,466 and was in the development
stage as of July 31, 2005. These factors raise substantial doubt about the
Company's ability to continue as a going concern." The auditors recognize that
the cash flow uncertainty makes their basic assumptions about value uncertain.
When it seems uncertain whether an asset will be used in a "going concern" or
sold at auction, the auditors assume that the business is a "going concern" for
purposes of all their work, and then they disclose that there is material
uncertainty about that assumption. It is definitely a consequence of our
negative cash flows from operations that we continually need additional cash. At
any time, a serious deficiency in cash flows could occur and it is not always
possible or convenient to raise additional capital. A problem in raising capital
could result in temporary or permanent insolvency and consequently potential
lawsuits by unpaid creditors and perhaps closure of the business. All of these
things are possibilities. It is certain, in any case, that analysts and
investors view unfavorably any report of independent auditors expressing
substantial doubt about a company's ability to continue as a going concern.
Consequently, we urge potential investors to review the report of our
independent certified public accountants and our consolidated financial
statements before making a decision to invest in us, and not to invest in our
common stock unless they can afford the potential loss of their entire
investment.

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

Based upon our review of the industry, we believe that no other company today
markets a technology which is similar to or competitive with our stoichiometric
technology used in our CarBomb Finder(TM) and SIEGMA(TM) systems, and the other
prototype devices referenced in this Report. The market for explosives and
contraband detection equipment generally is dominated by a few very large
corporations (or their subsidiaries), which have greater access to capital,
manpower, technical expertise, distribution channels and other elements which
would give them a huge competitive advantage over us were they to begin to
compete in our market. Our ability to market our technology as "unique" is
dependent upon the fact that these larger, better-established companies do not
have the ability to determine the exact identity, amount and weight of each
element their equipment detects. If one of these competitors was to throw
sufficient capital and other resources at developing a competitive technology,
notwithstanding our efforts to secure protection of our core intellectual
property rights, they might be able to do so, in which case it would be very
difficult for us to compete and we might not be able to maintain our existing
market share as of that point, or capture any additional market share, with our
products. Furthermore, if one of these competitors were to develop a technology
which was viewed as an improvement over our existing technology, our ability to
maintain any segment of the neutron-based detection market might disappear
altogether, which would have a materially adverse effect upon our business,
operations and financial condition.

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

      o     adversely impact our competitive position;
      o     require write-downs of obsolete technology;
      o     require us to discontinue production of obsolete products before we
            can recover any or all of our related research, development and
            commercialization expenses; or
      o     require significant capital expenditures beyond those currently
            contemplated.

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

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

Our future success will be due, in part, to the continued services of our senior
management team. The loss of services by one or more members of our management
and scientific teams could negatively affect our business and development
strategies. During the fiscal year, we lost several members of its executive and

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scientific team and we could be seriously harmed by the loss of any of our
executive officers, including Dr. Maglich. In order to meet our objectives, we
will need to recruit additional members for our senior management team. We also
anticipate hiring additional skilled personnel, such as advanced engineering
professionals, as part of a product development team that could be self
sufficient and operate with minimal supervision. As a result, our future growth
and success will depend in large part upon our need and ability to attract and
retain qualified personnel.

We are unable to predict the impact that the continuing threat of terrorism and
the responses to that threat by military, government, business and the public
may have on our financial condition and ability to continue to implement the
government sales portion of our business plan.

The terrorist attacks in the U.S. and other countries have brought devastation
to many people, shaken consumer confidence and disrupted commerce throughout the
world. The continuing threat of terrorism and heightened security measures, as
well as current and any future military and civil action in response to such
threat, may cause significant disruption to the global economy, including
widespread recession. We are unable to predict whether the continuing threat of
terrorism or the responses to such threat will interfere with our efforts to
raise additional capital to fund our operations through the development stage.
If we are unable to raise sufficient capital due to economic conditions, we may
be unable to finalize development of our detection systems under government
contracts and to bring them to military, civil or commercial markets as planned.

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

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


      o     changes in domestic and foreign regulatory requirements;
      o     political instability in the countries where we sell products;
      o     differences in technology standards;
      o     foreign currency controls;
      o     longer payment cycles and inadequate collection system;
      o     fluctuations in currency exchange rates;
      o     inconsistent intellectual property protections in foreign
            jurisdictions;
      o     export restrictions, tariffs, embargoes or other barriers;
      o     prejudicial employment laws and business practices;
      o     difficulties in obtaining and managing distributors; and
      o     potentially negative tax consequences.

Manufacturing Risks

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

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

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

      o     the ability to raise additional capital to cover the costs of
            constructing and equipping a facility and for the manufacturing of

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            the CarBomb Finder(TM) and SIEGMA(TM) systems in quantities
            necessary to meet anticipated demand should approval by regulatory
            authorities be obtained;

      o     the ability to manufacture products that have minimal and acceptable
            defects;
      o     the ability to obtain product liability insurance;
      o     the ability to obtain approvals from any applicable state or federal
            regulatory agencies;
      o     unexpected changes in regulatory requirements;
      o     inadequate protection of intellectual property; and
      o     risks of fire, earthquake, or other man-made or natural acts
            affecting manufacturing facilities.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In contracting with governmental agencies, we are subject to public agency
contract requirements that vary from jurisdiction to jurisdiction. Any potential

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

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

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

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

We have incurred net losses since our inception. For the three months ended July
31, 2005, we reported net losses available to common shareholders of $2,053,305
as compared to a net loss available to common shareholders of approximately
$4,128,489 for the three months ended July 31, 2004. Our accumulated deficit
through July 31, 2005 is $33,853,466. We expect that our losses will continue
into fiscal year 2006. We estimate that our aggregate financial requirements
will be between $8,000,000 and $10,000,000 for the fiscal year, until we can
generate sufficient revenues from sales to cover our operating costs. One of the
factors for the continuation of such anticipated losses is that we are highly
dependent on governmental customers, which typically require long lead times
before sales are made.

Marketing Risks

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

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

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

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

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significant costs associated with extricating ourselves from the agreement and
market share could be compromised if a smooth transition to another distributor
is not made.

Intellectual Property Risks

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

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

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

In the operation of our business, it is inevitable that certain employees,
consultants, vendors, current or prospective customers, distributors, government
officials, investors and other persons having a business relationship with us
will come in contact from time to time with certain of our trade secrets and
other proprietary information. Although we use reasonable efforts to ensure that
such persons sign confidentiality agreements with us, or otherwise respect the
proprietary and confidential nature of this information, our ability to protect
our rights depends upon us being aware that proprietary information has been or
may be misused and, even if we are aware of such fact, our ability further
depends upon having the resources necessary to compel such person not to misuse
such information, which may require costly legal proceedings which we may not be
able to afford at the time. If that were to be the case, our inability to
protect our proprietary and confidential trade secrets and information could
impair or destroy our ability to continue to claim proprietary rights in such
information, and/or could allow our competitors to access such information to
their competitive advantage and at our expense, either of which results could
have a materially adverse effect upon our business, operations and financial
condition, as well as the value of some or all of our intellectual property
rights in general.

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

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

If an invention is developed under an SBIR contract, it must be reported to the
granting agency. The U.S. federal government has royalty-free rights when
purchasing the products from our federal government SBIR contracts. We
nevertheless own the data and title to the products resulting from those
contracts and are permitted to obtain patent protection. The U.S. federal
government does not contractually undertake to protect data or inventions from
public disclosure beyond four years after the term of an SBIR contract.
Therefore, our competitors possibly could gain access to certain information
relating to our SuperSenzor advancements or any other technologies we develop

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under SBIR contracts. The U.S. government however, has no rights over our
patents because the inventions were developed prior to the SBIR contracts. Also,
the U.S. federal government might create competition by utilizing its own right
and license to any technology developed under the SBIR contract if it is not
being developed by the inventor. The U.S. government in exercising these rights
to produce or have produced for the U.S. government competing products using the
technology developed under the SBIR, could limit the marketability of our
products. Furthermore, if we were to participate in research and development
projects jointly with one of the U.S. or foreign military branches, where the
relevant government is deemed to be the owner of the resulting technology, we
may be foreclosed from using, or protecting as our own, technology which we
helped to develop and which could otherwise be eligible for patent protection if
we had developed it independently. Accordingly, technology which we develop
could end up becoming used by our competitors and against us. If either of these
events were to occur, it might lessen the value of that technology, or of our
company, to prospective future investors or candidates for our acquisition,
which could have a material effect upon the market for our shares.

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

We may be called upon to enforce our protections against intellectual property
and trade secrets, or to determine the validity and scope of the proprietary
rights of others. Any subsequent litigation, regardless of the outcome, could be
costly and divert the efforts of key management and technical and scientific
personnel. Both domestic and international competitors may have pre-existing
claims and patents against intellectual property that may prevent, limit or
interfere with our ability to manufacture and sell our products. As of this
date, we have not conducted an independent review of patents issued to third
parties. Because of the market opportunity we perceive, companies possessing
technology rights, which they believe we may be infringing upon, will be
motivated to assert claims of infringement against us. Any adverse outcome in
the defense of an infringement matter could subject us to significant
liabilities to third parties, require disputed rights to be licensed from third
parties, or prohibit us from selling our products.

Regulatory and Legal Risks

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

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

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

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

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we were to develop our own customized neutron source, could be prohibitively
expensive or adversely affect our ability to manufacture our devices as
currently contemplated, which could have a materially adverse effect upon our
future sales and financial condition.

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

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

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

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

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

The Company may from time to time make projections as to the sale of its units
or the growth of its business. These are considered forward looking statements
and the Company advises investors to not rely on these projections in making any
determination whether or not to invest in, or maintain an investment in our
stock. However, to the extent that any investor has so relied, and if the
investor can prove that any misstatements we have made were intentional or
reckless, that such investor's reliance on these misstatements was reasonable,
and that the investor has suffered actual damages as a result of such reliance,
than such investor may have a cause of action against us. If any investor were
to prevail in making such assertions in any legal proceeding, it could have a
materially adverse impact on our business, operations, and financial condition,
as well as the market for our public securities.

We may owe indemnification obligations to our current and former directors and
officers.

Our certificate of incorporation and bylaws contain provisions that provide for
indemnification of officers and directors, in each instance to the maximum
extent permitted by law. To the extent indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers and controlling
persons of HiEnergy Technologies under the above provisions, or otherwise, we


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have been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act, and is therefore
unenforceable. In May 2003, former director Barry Alter engaged his own separate
legal counsel with respect to the SEC investigation regarding SLW Enterprises,
and demanded that we advance him in excess of $24,000 in connection with the
investigation that the SEC has conducted. We did not advance him these expenses,
and he brought an action against us in Delaware seeking payment of his costs and
expenses, then subsequently informed us that the action had been voluntarily
dismissed without prejudice. Mr. Alter could make further demands for
advancement of expenses, and the voluntary dismissal of his action does not
prevent him from initiating a new action to recover past, present, and future
expenses from us. A stockholder's investment in our company may be adversely
affected to the extent that we pay costs of settlement and damage awards against
directors or officers under the indemnification provisions of the certificate of
incorporation and bylaws. The impact on a stockholder's investment in terms of
the costs of defending a lawsuit on behalf of a director or officer may also
deter us from bringing suit against former directors or officers. Claims for
indemnification under our certificate of incorporation or bylaws may also
dissuade us from bringing lawsuits against current or former directors or
officers.

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

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

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

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

Corporate Risks

One of our stockholders, whose interests may differ from other of our
stockholders, has substantial influence over the direction of the Company.

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

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

For the three months ended July 31, 2005, our management identified material
weakness in our internal controls and a lack of segregation of duties which
resulted from, among other things, a lack of capital and human resources. We



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have a very small finance and accounting staff and, due to our limited
resources, it is not always possible to have optimum segregation of accounting
and finance duties. If we are unsuccessful in attracting the capital and human
resources necessary to implement and maintain an effective system of internal
controls, and if as a result we were to fail to disclose timely material items
as required under the Securities Exchange Act, it could give rise to potential
regulatory and/or shareholder actions, which could have a material adverse
effect on our business and financial condition, and on the market value of our
shares.

We may have increasing difficulty to attract and retain outside members of our
board of directors.

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

We may have insufficient amounts of, or may be otherwise unable to draw from,
directors' and officers' liability insurance.

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

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

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

RISKS RELATED TO OUR STOCK

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

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


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The amount of the penalties paid or accrued as a result of the defaults
described above for the three months ended July 31, 2005 is 239,946 shares of
common stock, $12,000 in aggregate face amount of additional convertible notes,
and warrants to purchase an additional 1,067,838 shares of common stock. Our
existing stockholders have suffered, and will continue to suffer, substantial
dilution as a result of the issuance and payment of these securities as
penalties. Such dilution can have a material and adverse impact upon the actual
and perceived value of our shares, which can be a depressive force upon the
price of our stock at market and cause losses for our existing stockholders, as
well as render it much more difficult for us to raise additional equity capital
in the future.

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

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

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

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

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

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

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

      o     changes in key customer and supplier relationships;

      o     recommendations of research analysts and guidance;

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

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

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

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

As of July 31, 2005, we have accrued and recorded a payroll tax liability of
$439,385 for stock compensation given during the period from June 1997 through
February 2002. The stock given during this period was HiEnergy Microdevices
stock, which in April 2002 was exchanged, in a transaction treated as a reverse
takeover. Because, at the time, HiEnergy Microdevices was a closely-held
corporation with negative net worth, no marketable product, no meaningful
revenue potential and no dividend paying capacity, the value originally assigned
to the stock was nil.

We identified a public sale of the closely-held HiEnergy Microdevices stock
where a HiEnergy Microdevices shareholder filed for chapter 7 bankruptcy
protection and his stock was sold by the bankruptcy trustee in February 2002. We
have calculated the $439,385 payroll tax liability by treating this sale as an
arms length transaction and recognizing employment taxes, withholding
requirements, penalties and interest. We engaged tax advisors regarding the
nature of our obligations, and we plan to settle this liability as soon as we
have the resources to do so.

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


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

We issued options to purchase 313,221 shares of our common stock to Dr. Bogdan
Maglich in fiscal year 2004 and options to purchase 421,980 shares in fiscal
year 2005 for services rendered as our Chief Executive Officer, President,
Treasurer, Chief Scientific Officer and Chairman, pursuant to his employment
contract. We also issued or committed to issue options to purchase 2,535,000
shares and options to purchase 1,425,000 in fiscal years 2005 and 2004,
respectively, to employees and directors. As to consultants, we issued or
committed to issue 402,455 shares and a warrant to purchase 100,000 shares to
our former controller in fiscal year 2005, as compared to 558,500 shares,
options to purchase 649,000 shares, and warrants to purchase 380,000 shares
issued to consultants in fiscal year 2004. Likewise, we issued notes payable to
our former legal counsel during fiscal years 2003 and 2004 that are convertible
into 802,060 shares of common stock as of July 31, 2005. Under the terms of Dr.
Maglich's employment agreement, we are obligated to issue options to Dr. Maglich
annually for the term of the agreement. Continued issuances of securities of
this magnitude may have a dilutive effect on the market price for our common
stock and of the percentages of ownership of stockholders, if the options and
warrants are exercised, or the notes are converted. The terms upon which we will
be able to obtain additional equity capital could also be adversely affected.

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

There are 50,171,581 shares of our common stock outstanding as of July 31, 2005
(including 68,546 shares deemed subject to rescission rights), which does not
include 38,610,209 new shares we have committed to issue upon exercise of
options and warrants and convertible notes. We also may be required to issue up
to 704,190 shares of our common stock to former holders of options and warrants
of HiEnergy Microdevices who hold rights to purchase our shares of common stock
at $0.156 per share. These rights survived the short-form merger completed in
January 2005, and may be exercised any time before April 25, 2007, subject to
the payment of promissory notes representing the purchase price. If we issue all
of the shares underlying currently outstanding warrants and options currently
in-the money and convertible notes, this will result in approximately 15%
dilution of the ownership interest of holders of our common stock. If all
currently outstanding warrants, options and convertible notes were immediately
exercised and converted, we would receive approximately $28,651,456 in cash and
approximately $1,072,727 in forgiveness of indebtedness. While this amount
exceeds the current market value of the stock that would be issued, exercise and
conversion might take place when the total value received by us is much less
than the market value of the stock that would be issued. Under our current
business plan, we must also raise funds in part by issuing new equity
securities, which would have a dilutive effect on the percentage ownership of
stockholders. The shares issued in such transactions could be very large and may
even exceed the number of shares issued and outstanding today, which would
significantly decrease the percentage ownership of current stockholders. Our
requirement for new equity capital for the financing of operating deficits will
continue until we successfully commercialize a product and achieve a sufficient
level of positive operating cash flow. Possible costs that would require funding
include investments in capital equipment, technology and research and
development, marketing initiatives, inventory, accounts receivable and human
resources, as well as financial contributions toward potential joint ventures,
acquisitions, collaborative projects and other general corporate purposes.

We may be required to sell restricted equity securities at prices less than the
market price for unrestricted shares. We have thus far sold restricted equity
securities at prices less than prevailing market prices of our stock and have
issued convertible debt. When the shares that are issuable in connection with
those securities become available for public sale, the additional supply of
shares may adversely affect the market price of our common stock. Also, our
anticipated private financings and the exercise or conversion of securities
outstanding may dilute the voting or other rights of other holders at the time,
or be prior and senior or receive rights that the holders of common stock do not
have, which could reduce the economic value of our common stock. Further, we
have sold through private placements, warrants that have cashless exercise
provisions, in which the holder shall receive a net number of shares based upon
the share price on the trading day preceding the exercise date of the warrant if
the underlying shares of warrants with cashless exercise provisions are not
registered under an effective registration statement by a certain date.
Accordingly, in the event there is a large spread between the exercise price and
the share price on the trading day of our common stock, a cashless exercise of
warrants could result in a significant amount of additional shares.

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

Our common stock has been traded under the symbol "HIET" on the OTC Bulletin
Board(R) since May 3, 2002 and previously under the symbol "SLWE" from February



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

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

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

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

Selling short is a technique used by a stockholder to take advantage of an
anticipated decline in the price of a security. A significant number of short
sales or a large volume of other sales within a relatively short period of time
can create downward pressure on the market price of a security. Further sales of
common stock issued upon exercise of our warrants and options could cause even
greater declines in the price of our common stock due to the number of
additional shares available in the market, which could encourage short sales
that could further undermine the value of our common stock. You could,
therefore, experience a decline in the value of your investment as a result of
short sales of our common stock. As of January 2005, our shares have appeared on
the "Threshold Security List" published in connection with Regulation SHO, which
may indicate questionable shorting activity involving our securities. We have
also learned that our listing on the Berlin-Bremen Stock Exchange ("BBSE") by a
third-party poses a risk to our stock and provides an avenue for such short
trading activity by providing a loophole in the short sales regulations adopted
by the National Association of Securities Dealers. The loophole is applicable to
those shares traded in the U.S. stock market and listed for trading on a foreign
stock market, such as the BBSE, and purportedly held in foreign brokerage
accounts. While we have taken steps to effectuate the delisting of our stock
from the BBSE, under the rules of that exchange an issuer does not necessarily
have the right to compel such delisting and, accordingly, there can be no
assurance if or when our stock might be delisted from the BBSE. If our stock
were not promptly delisted from the BBSE, it could have a materially adverse
effect upon the price of our shares in the market and increase price volatility,
which could in turn affect our ability to raise needed capital, which could have
a materially adverse effect upon our business, operations and financial
condition.

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

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

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

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


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


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                  ITEM 3. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Within the 90 days prior to the date of the filing of this Form 10-KSB, Dr.
Bogdan C. Maglich, serving in his capacity as our CEO and Treasurer, carried out
an evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14(c) and 5d-14(c).
Based upon this evaluation, Dr. Maglich concluded that our disclosure controls
and procedures as of the three months ended July 31, 2005 were effective in
meeting our requirements as to the disclosure of material information in our
reports filed under the Securities Exchange Act. Notwithstanding, we are
cognizant that certain deficiencies still remain to be addressed including: (i)
a lack of segregation of duties due to understaffing and (ii) a the lack of a
more systematic and formal approach to the conduct of our corporate, financial
and business affairs. These deficiencies, which we continue to experience, are
primarily the result of a general lack of resources dedicated to make the
improvements necessary for more timely reporting and diclosure with less
reliance on internal auditing.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

Other than as described above, there were no further significant changes in our
controls that in management's estimates have materially affected, or are likely
to materially affect, our disclosure controls and procedures subsequent to the
date of the evaluation, including any corrective actions with regards to
significant deficiencies and material weaknesses.


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                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

BARRY ALTER

On May 27, 2003, Mr. Alter brought a lawsuit against us in the New Castle County
Court of Chancery in Delaware to recover the advancement of expenses in the
amount of $20,000 he allegedly incurred and future expenses he would incur in
response to an SEC investigation which mirrored our investigation by the SEC,
and for which Mr. Alter obtained separate legal counsel to represent him. That
action was identified as Civil Action No. 20320NC. On June 17, 2003, Mr. Alter
notified us that this action had been voluntarily dismissed without prejudice.
However, to the date of this Report there has been no settlement of our dispute
with Mr. Alter, and there can be no assurance that the claims he asserted
against us will not be resuscitated at some time in the future.

YEFFET SECURITY CONSULTANTS, INC.

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

FILED COMPLAINTS

As reported in our annual report on Form 10-KSB for the fiscal year ended April
30, 2005, we were under SEC investigation for alleged violations of several
sections of the Securities Exchange Act, and the rules promulgated under that
act, involving the making of false and misleading statements in its public
documents. On September 2, 2005, the Company was notified by the staff of the
Securities and Exchange Commission that the formal investigation of HiEnergy has
been terminated with a staff recommendation that no enforcement action be taken
against the Company.

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

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

In April 2005, a claim was filed against us with the 101st Judicial District
Court, Dallas County, Texas by Data Discovery Inc. ("DDI") (Civil Action No.
3-05-CV-0949-M). DDI, representing one party of a dissolved partnership, is
seeking the collection of $107,300 allegedly owed to the partnership for
services purported to have been fully-provided to us. We engaged local counsel


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and filed on May 10, 2005, a Notice of Removal to move the case to federal
court, and a Motion for Dismissal. In July 2005, the District Court delivered a
Memorandum Opinion and Order granting our Motion for Dismissal and ordered that
within twenty days DDI amend its suit to the satisfaction of the District Court,
or the order will become a dismissal with prejudice, which would bar DDI from
filing any other suit against us related to the matters within its claim. In
August 2005, DDI filed a new lawsuit on behalf of the partnership which is
expected to go before the Court following an appropriate period for discovery.
Our counsel will respond to the allegations in any further pleading with
appropriate challenges to its legal sufficiency to state a claim upon which
relief may be granted. The costs of defending against the Complaint could be
substantial; however we are unable to predict an exact amount, or even a
meaningful estimate, at this time.


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                          ITEM 2. CHANGES IN SECURITIES

SET FORTH BELOW IS INFORMATION REGARDING THE ISSUANCE AND SALE OF UNREGISTERED
SECURITIES SINCE OUR FISCAL YEAR ENDED APRIL 30, 2005

o      In September 2005, we issued 190,000 shares of our common stock, par
       value $0.001 ("Shares") and warrants to purchase 95,000 Shares at $0.75
       previously committed during the prior period to various investors in a
       private placement in exchange for $95,000. We believe the issuances of
       these securities are exempt under Regulation D and/or Section 4(2) of the
       Securities Act.

o      In September 2005, we committed to issue warrants to purchase 502,085
       Shares at various exercise prices between $0.45 and $1.75, to various
       holders of securities with registration rights as a penalty, due to our
       inability to file and maintain effective a registration statement within
       certain specified deadlines.

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

o      In September 2005, we issued 1,200,001 Shares and warrants to purchase
       1,200,001 Shares at $0.45 previously committed during the prior period to
       various investors in a private placement in exchange for $320,000 in
       subscription receivable and $220,000 in cash. We believe the issuances of
       these securities are exempt under Regulation D and/or Section 4(2) of the
       Securities Act.

o      In August 2005, we committed to issue 111,111 Shares and warrants to
       purchase 111,111 Shares at $0.45 to an investors in a private placement
       in exchange for $50,000 in subscription receivable. We believe the
       issuances of these securities are exempt under Regulation D and/or
       Section 4(2) of the Securities Act.

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

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

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

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

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

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


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<PAGE>

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


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

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

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

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

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

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

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

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

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

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

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


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<PAGE>

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

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

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

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

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


                                       68
<PAGE>

ITEM 6. EXHIBITS

  (A). EXHIBIT INDEX

<TABLE>
<CAPTION>
    EXHIBIT
    NUMBER       DESCRIPTION
<S>             <C>
    2.1 (1)      Voluntary  Share  Exchange  Agreement  by and between  HiEnergy  Technologies,  Inc. and HiEnergy
                 Microdevices, Inc. dated March 22, 2002

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

    3.1 (5)      Certificate of Incorporation of HiEnergy Technologies, Inc., a Delaware corporation, filed on October 17, 2002

    3.2 (5)      Bylaws of HiEnergy Technologies, Inc., a Delaware corporation, adopted on October 18, 2002

    3.3 (10)     Certificate of Elimination of Series A Convertible Preferred Stock

    4.1.1 (5)    Specimen Common Stock Certificate

    4.2 (1)      Form of Registration Rights Agreement between the Registrant and each April 2002 Private Placement Common
                 Stock Investor. See also Exhibit 10.55 Form of Subscription Agreement between the Registrant and each April
                 2002 Private Placement Common Stock investor.

    4.3 (1)      Form of Amendment No. 1 to Registration Rights Agreement between the Registrant and each April 2002 Private
                 Placement Common Stock Investor

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

    4.4.1 (5)    Form of Registration Rights Agreement between the Registrant and each June 2002 Private Placement Common Stock
                 investor. See also Exhibit 10.24 Form of Subscription Agreement between the Registrant and each June 2002
                 Private Placement Common Stock investor.

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

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

    4.7 (5)      Registration Rights Agreement dated October 7, 2002 between the Registrant and the Series A Convertible
                 Preferred Stock Investors set forth below:

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

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

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

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

    10.1.1 (10)  Addendum to Original Lease  Agreement  dated August 15, 2002,  between the Registrant and Del Mar Avionics
                 dated July 1, 2003

    10.1.2 (16)  Addendum No. 2 to Original Lease Agreement dated August 15, 2002, between the Registrant and Del Mar Avionics
                 dated January 1, 2004.

    10.1.3 (16)  Addendum No. 3 to Original Lease Agreement dated August 15, 2002, between the Registrant and Del Mar Avionics
                 dated January 20, 2004.

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

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

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

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

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

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

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


                                       69
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    10.22 (16)   Series A Convertible Preferred Stock Purchase Agreement dated October 7, 2002 between the Registrant and the
                 Series A Convertible Preferred Stock investors.

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

    10.24 (5)    Form of Subscription Agreement between the Registrant and each June 2002 Private Placement Common Stock
                 investor. See also Exhibit 4.4.1 Form of Registration Rights Agreement between the Registrant and each June
                 2002 Private Placement Common Stock investor.

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

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

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

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

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

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

    10.32.1 (10) Letter dated July 2003 terminating agreement with Seabury Transportation Advisors, LLC.

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

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

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

    10.36 (7)    Settlement Agreement dated February 14, 2003 among HiEnergy Technologies, Inc., Columbus Group/cFour Partners,
                 Robert W. Bellano and Shaun Corrales. See also Exhibit 10.37 Form of Warrant Certificate dated February 17,
                 2003 between HiEnergy  Technologies,  Inc. and the principals of Columbus Group/cFour Partners.

    10.37 (7)    Form of Warrant Certificate dated February 17, 2003 between HiEnergy Technologies, Inc. and the principals of
                 Columbus Group/cFour Partners. See also Exhibit 10.36 Settlement Agreement dated February 14, 2003 among
                 HiEnergy Technologies,  Inc., Columbus Group/cFour Partners, Robert W. Bellano and Shaun Corrales.
</TABLE>


                                       70
<PAGE>

<TABLE>
<S>             <C>
    10.38 (16)   Award Contract dated January 15, 2003 by the U.S.  Department  of Defense to HiEnergy Technologies, Inc.

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

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

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

    10.40.3 (12) Amendment of the Promissory Note issued to Yocca, Patch & Yocca, LLP

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

    10.42 (9)    Vertical Ventures Investments LLC Stock Purchase Agreement dated April 23, 2003. See also Exhibit 10.72 Form
                 of Escrow Agreement.

    10.43 (9)    Greenwich Growth Fund Limited Stock Purchase Agreement dated April 28, 2003. See also Exhibit 10.72 Form of
                 Escrow Agreement.

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

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

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

    10.47 (10)   HiEnergy Technologies, Inc. 2003 Stock Option Plan*

    10.48 (10)   HiEnergy  Technologies,  Inc. Form of Stock Option  Agreement*

    10.49 (10)   Yocca, Patch & Yocca, LLP Stock Purchase Agreement dated June 16, 2003

    10.50 (10)   Richard Melnick Stock Purchase Agreement dated June 18, 2003. See also Exhibit 10.72 Form of Escrow Agreement.

    10.51 (10)   Jeffrey Herman Stock Purchase Agreement dated June 23, 2003. See also Exhibit 10.72 Form of Escrow Agreement.

    10.52 (10)   Form of Stock Purchase Agreement dated August 5-29, 2003 between HiEnergy Technologies, Inc. and the
                 purchasers of common stock and warrants. See also Exhibit 10.72 Form of Escrow Agreement.

    10.53 (10)   Form of Warrant Certificate dated August 8-29, 2003 between HiEnergy  Technologies,  Inc. and the purchasers
                 of common stock and warrants

    10.53.1 (13) Form of Amendment of Warrant dated December 15, 2003 between HiEnergy Technologies,  Inc. and the purchasers
                 of common stock and warrants

    10.54 (10)   International  Distribution  Agreement  between the Registrant  and Electronic  Equipment Marketing Company
                 (EEMCO) dated July 28, 2003

    10.55 (10)   Form of Subscription Agreement between the Registrant and each April 2002 Private Placement Common Stock
                 investor. See also Exhibit 4.2 Form of Registration Rights Agreement between the Registrant and each April
                 2002 Private Placement Common Stock investor.

    10.56 (16)   Form of Amendment No. 1 to Subscription  Agreement  between the Registrant and each April 2002 Private
                 Placement Common Stock investor

    10.57 (11)   Memorandum of Understanding between HiEnergy Technologies, Inc. and Aeropuertos Espanoles y Navegacion Aerea,
                 Edificio La Piovera - Peonias dated October 6, 2003

    10.58 (12)   Form of Stock Purchase Agreement dated October 15 - December 2, 2003 between HiEnergy Technologies, Inc. and
                 the purchasers of common stock and warrants. See also Exhibit 10.72 Form of Escrow Agreement.

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

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

    10.61 (14)   Promissory Note issued to Bogdan Maglich by HiEnergy Technologies, Inc.

    10.62 (14)   Note Purchase Agreement dated January 16, 2004 between HiEnergy Technologies, Inc. and Platinum Partners Value
                 Fund LP, with attached Form of Convertible Note and Warrant

    10.63 (14)   Note Purchase Agreement dated January 31, 2004 between HiEnergy Technologies, Inc. and Richard Melnick with
                 attached Form of Convertible Note and Warrant

    10.64 (14)   Stock Purchase Agreement dated February 9, 2004 between HiEnergy Technologies, Inc. and Bullbear Capital
                 Partners, LLC with attached Form of Warrant

    10.65 (14)   Letter Agreement between KCSA Public Relations Worldwide and HiEnergy Technologies, Inc. dated January 6, 2003
</TABLE>


                                       71
<PAGE>

<TABLE>
<S>             <C>
    10.66 (14)   Assignment of Patent Rights by Dr. Bogdan C. Maglich to HiEnergy Microdevices, Inc. dated March 26, 2002.

    10.66.1 (14) Assignment of Patent Rights from HiEnergy Microdevices, Inc. to HiEnergy Technologies, Inc. dated November 17,
                 2003.

    10.67 (14)   Assignment of Patent Rights by Dr. Bogdan C. Maglich to HiEnergy Technologies, Inc. dated November 17, 2003

    10.68 (14)   Employment Agreement between HiEnergy Technologies, Inc. and Ioana C. Nicodin dated February 3, 2004

    10.69 (14)   Note Purchase Agreement dated January 28, 2004 between HiEnergy Technologies, Inc. and Nicholas J. Yocca with
                 attached Form of Convertible Note and Warrant

    10.70 (15)   Form of Consent and Waiver from April 2003 purchasers of common stock.

    10.71 (15)   Form of Release from June 2003 purchasers of common stock.

    10.72 (16)   Form of Escrow Agreement utilized in connection with the Stock Purchase Agreements filed as Exhibits 10.50,
                 10.51, 10.52 and 10.58.

    10.73 (19)   Employment Letter dated April 12, 2004 between Sean Moore and HiEnergy Technologies, Inc.

    10.74 (19)   Proposal for Detailed Concept Design Services dated June 7, 2004 between Lockwood Greene Engineering &
                 Construction and HiEnergy Technologies, Inc.

    10.75 (19)   Employment letter dated July 26, 2004 between Jim Hertzog and HiEnergy Technologies, Inc.

    10.76 (19)   Engagement Agreement dated July 27, 2004 between Pacific Summit Securities and HiEnergy Technologies, Inc.

    10.77 (19)   Teaming Agreement dated August 4, 2004 between HiEnergy Technologies, Inc. and Siemens Maintenance Services, LLC

    10.78 (20)   Consulting Agreement dated July 22, 2004 between Greg Henkel and HiEnergy Technologies, Inc.

    10.79 (21)   Form of Stock Purchase Agreement and Warrant dated  October 18, 2004 - December 15, 2004  issued in connection
                 with the sale of restricted shares to various accredited investors and HiEnergy Technologies, Inc.

    10.80 (21)   Form of Debt Conversion Agreement and Warrant between Maglich Family Holdings and HiEnergy Technologies, dated
                 November 19, 2004

    10.81 (24)   Amendment to Share Purchase Agreement dated January 24, 2005  between HiEnergy Technologies, Inc. and Bull Bear
                 Capital Partners, LLC

    10.82 (23)   Employment letter dated November 22, 2004 between Roger Spillmann and HiEnergy Technologies, Inc.

    10.83 (22)   Consulting Agreement dated November 22, 2004 between Don Abbe and HiEnergy Technologies, Inc.

    10.84 (25)   Proposal for Preliminary Manufacturing Facility Assessment Consulting Services dated April 13, 2004 between
                 HiEnergy Technologies, Inc. and Lockwood Greene Engineering & Construction (filed in its entirety)

    10.85 (25)   Promissory Note dated January 15, 2004 issued to Bogdan Maglich by HiEnergy Technologies, Inc.

    10.86 (25)   Promissory Note dated January 15, 2004 issued to Bogdan Maglich by HiEnergy Technologies, Inc.

    10.87 (25)   Promissory Note dated January 15, 2004 issued to Bogdan Maglich by HiEnergy Technologies, Inc.

    10.88 (25)   Promissory Note dated March 15, 2004 issued to Bogdan Maglich by HiEnergy Technologies, Inc.

    10.89 (25)   Promissory Note dated April 5, 2004 issued to Bogdan Maglich by HiEnergy Technologies, Inc.

    10.90 (25)   Promissory Note dated April 15, 2004 issued to Bogdan Maglich by HiEnergy Technologies, Inc.

    10.91 (25)   Promissory Note dated April 29, 2004 issued to Bogdan Maglich by HiEnergy Technologies, Inc.

    10.92 (25)   Promissory Note dated August 3, 2004 issued to Bogdan Maglich by HiEnergy Technologies, Inc.

    10.93 (25)   Promissory Note dated August 4, 2004 issued to Bogdan Maglich by HiEnergy Technologies, Inc.

    10.94 (25)   Promissory Note dated August 10, 2004 issued to Bogdan Maglich by HiEnergy Technologies, Inc.

    10.95 (25)   Promissory Note dated August 18, 2004 issued to Bogdan Maglich by HiEnergy Technologies, Inc.

    10.96 (25)   Promissory Note dated August 25, 2004 issued to Bogdan Maglich by HiEnergy Technologies, Inc.

    10.97 (25)   Promissory Note dated August 30, 2004 issued to Bogdan Maglich by HiEnergy Technologies, Inc.

    10.98 (25)   Proposal for Detailed Concept Design Services between HiEnergy Technologies, Inc. and Lockwood Greene Engineering
                 & Construction dated June 7, 2004

    10.99 (25)   Consulting Agreement between HiEnergy Technologies, Inc. and Greg Henkel dated July 22, 2004

    10.100 (25)  Consulting Agreement between HiEnergy Technologies, Inc. and Jim Hertzog dated July 26, 2004

    10.101 (25)  Engagement letter between HiEnergy Technologies, Inc. and Pacific Summit Securities dated July 27, 2004

    10.102 (25)  Employment letter dated April 12, 2004 between Sean Moore and HiEnergy Technologies, Inc.
</TABLE>


                                       72
<PAGE>

<TABLE>
<S>             <C>
    10.103 (25)  Teaming Agreement between HiEnergy Technologies, Inc. and Siemens Maintenance Services, LLC dated August 4,
                 2004

    10.104 (25)  Retention Agreement between HiEnergy Technologies, Inc. and Pellettieri, Rabstein and Altman dated November
                 11, 2004

    10.105 (25)  Retention Agreement between HiEnergy Technologies, Inc. and Feldhake Roquemore LLP dated January 12, 2005

    10.106 (26)  Form of Stock Purchase Agreement dated March 22, 2005 and issued in connection with the sale of restricted
                 shares to various accredited investors and HiEnergy Technologies, Inc.

    10.107 (26)  Form of Warrant to Purchase Shares of Common Stock of HiEnergy Technologies, Inc. dated March 22, 2005 and issued
                 in connection with the sale of restricted shares to various accredited investors

    10.108 (26)  Form of Stock Purchase Agreement dated April 2005 and issued in connection with the sale of restricted shares
                 to various accredited investors and HiEnergy Technologies, Inc.

    10.109 (26)  Form of Warrant to Purchase Shares of Common Stock of HiEnergy Technologies, Inc. dated April 2005 and issued in
                 connection with the sale of restricted shares to various accredited investors.

    10.110 (26)  Form of Stock Purchase Agreement for the period from May 16, 2005 through July 12, 2005 and issued in connection
                 with the sale of restricted shares to various accredited investors.

    10.111 (26)  Form of Warrant to Purchase Shares of Common Stock of HiEnergy Technologies, Inc. for the period from May 16,
                 2005 through July 12, 2005 and issued in connection with the sale of restricted shares to various accredited
                 investors.

    10.112 (26)  Form of Debt Conversion Agreement between Nicholas J. Yocca and HiEnergy Technologies, Inc., dated May 13, 2005.

    10.113 (26)  Debt Conversion Agreement between David R. Baker and HiEnergy Technologies, Inc., dated July 15, 2005, and form
                 of detachable warrant.

    10.114 (26)  Debt Conversion Agreement between Baker, Johnston & Wilson LLP and HiEnergy Technologies, Inc., dated July 15,
                 2005, and form of detachable warrant.

    10.115 (26)  Agreement between Mason, Griffin & Pierson and HiEnergy Technologies, Inc., dated April 29, 2005.

    10.116 (26)  Subcontract Agreement between Siemens Maintenance Services LLC and HiEnergy Technologies, Inc., dated April
                 15, 2005

    10.117 (26)  Agreement between Vintage Filings, LLC and HiEnergy Technologies, Inc., dated May 1, 2005.

    10.118 (26)  Engagement Letter between Henry S. Sprintz and HiEnergy Technologies, dated June 20, 2005.

    10.119 (26)  Employment Agreement between Gregory C. Henkel, Controller, and HiEnergy Technologies, Inc., dated March 1, 2005.

    10.120 (26)  Equipment Sales Agreement between Southeastern Pennsylvania Transportation Authority and HiEnergy Technologies,
                 Inc., dated June 6, 2005.

    10.121 (26)  Time and Material Subcontract between Integrated Concepts & Research Corporation and HiEnergy Technologies, dated
                 July 18, 2005.

    10.122 (26)  International Distribution Agreement between Electronic Equipment Marketing Company (EEMCO) and HiEnergy
                 Technologies, dated July 25, 2003

    10.123 (27)  Form of Stock Purchase Agreement dated July 26, 2005 and issued in connection with the sale of restricted
                 shares to various accredited investors.

    10.124 (27)  Form of Warrant to Purchase Shares of Common Stock of HiEnergy Technologies, Inc. dated July 26, 2005 and
                 issued in connection with the sale of restricted shares to various accredited investors.

    10.125*      Engagement Letter between Vladimir Stanich and HiEnergy Technologies, dated September 9, 2005.

    10.126*      Independent Contractor Agreement between Metaskill, Inc. and HiEnergy Technologies, dated September 15, 2005.

    14.1 (9)     Code of Ethics for Senior Financial Officers of HiEnergy Technologies, Inc.

    16.1 (1)     Letter of Manning Elliott

    21.1 (9)     List of Subsidiaries

    21.2 (26)    List of Subsidiaries

    31.1*        Certification of Chief Executive Officer and Treasurer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

    32.1*        Certification of Chief Executive Officer and Treasurer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

    99.1 (28)    Press release dated September 2, 2005 announcing the termination of the formal investigation of HiEnergy
                 Technologies by the Securities and Exchange Commission.
</TABLE>

*        Filed herewith


                                       73
<PAGE>

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

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

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

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

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

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

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

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

(9)   Filed on August 8, 2003 as an exhibit to HiEnergy Technologies' annual
      report on Form 10-KSB for the fiscal year ended April 30, 2003, and
      incorporated herein by reference.

(10)  Filed on September 19, 2003 as an exhibit to HiEnergy Technologies'
      registration statement on Form SB-2 (File No. 333-108934) and incorporated
      herein by reference.

(11)  Filed on October 8, 2003 as an exhibit to HiEnergy Technologies' report on
      Form 8-K dated October 7, 2003 and incorporated herein by reference.

(12)  Filed on December 16, 2003 as an exhibit to HiEnergy Technologies'
      quarterly report on Form 10-QSB for the fiscal quarter ended January 31,
      2004, and incorporated herein by reference.

(13)  Filed on December 24, 2003 as an exhibit to Pre-Effective Amendment No. 1
      to HiEnergy Technologies' registration statement on Form SB-2 (File No.
      333-108934) and incorporated herein by reference.

(14)  Filed on February 25, 2004 as a like numbered exhibit to HiEnergy
      Technologies' current report on Form 8-K dated February 24, 2004 and
      incorporated herein by reference.

(15)  Filed on March 25, 2004 as an exhibit to HiEnergy Technologies'
      Pre-Effective Amendment No 2 registration statement on Form SB-2 (File No.
      333-108934) and incorporated herein by reference.

(16)  Filed on April 12, 2004 as a like numbered exhibit to HiEnergy
      Technologies' current report on Form 8-K/A dated April 9, 2004 and
      incorporated herein by reference.

(17)  Filed on May 17, 2004 as a like numbered exhibit to HiEnergy Technologies'
      current report on Form 8-K dated May 17, 2004 and incorporated herein by
      reference.

(19)  Filed on May 21, 2004 as a like numbered exhibit to HiEnergy Technologies'
      current report on Form 8-K dated May 21, 2004 and incorporated herein by
      reference.

(20)  Filed on September 14, 2004 as a like numbered exhibit to HiEnergy
      Technologies' annual report on Form 10-KSB for the fiscal year ended April
      30, 2004 and incorporated herein by reference.

(21)  Filed on October 20, 2004 as an exhibit to HiEnergy Technologies'
      quarterly report on Form 10-QSB for the quarter ended July 31, 2004, and
      incorporated herein by reference.


                                       74
<PAGE>

(22)  Filed on November 30, 2004 as exhibit 99.1 to HiEnergy Technologies'
      current report on Form 8-K dated November 30, 2004 and incorporated herein
      by reference.

(23)  Filed on December 17, 2004 as Exhibit 10.80 to HiEnergy Technologies'
      quarterly report on Form 10-QSB for the quarter ended October 31, 2004 and
      incorporated herein by reference.

(24)  Filed on January 11, 2005 as Exhibit 99.3 to HiEnergy Technologies'
      current report on Form 8-K dated January 7, 2005 and incorporated herein
      by reference.

(25)  Filed on February 2, 2005 as Exhibit 10.81 to HiEnergy Technologies'
      current report on Form 8-K dated January 27, 2005 and incorporated herein
      by reference.

(25)  Filed on March 17, 2005 as a like numbered exhibit to HiEnergy
      Technologies' quarterly report on Form 10-QSB for the quarter ended
      January 31, 2005 and incorporated herein by reference.

(26)  Filed on July 27, 2005 as a like numbered exhibit to HiEnergy
      Technologies' amendment to its annual report on Form 10-KSB for the fiscal
      year ended April 30, 2004 and incorporated herein by reference.


(27)  Filed on August 15, 2005 as a like numbered exhibit to HiEnergy
      Technologies' annual report on Form 10-KSB for the fiscal year ended April
      30, 2005 and incorporated herein by reference.

(28)  Filed on September 6, 2005 as an exhibit to HiEnergy Technologies' report
      on Form 8-K dated September 2, 2005 and incorporated herein by reference.



                                       75
<PAGE>

(B) REPORTS ON FORM 8-K


o     On September 6, 2005, we filed a report on Form 8-K dated September 2,
      2005. The report disclosed under Item 8.01 the termination by the staff of
      the Securities and Exchange Commission of a formal investigation of us
      with recommendation of no enforcement action. The filing includes a copy
      of a press release regarding the same as issued.

o     On September 1, 2005, we filed a report on Form 8-K dated August 31, 2005.
      The report disclosed under Item 8.01 that we received payment in the
      amount of $375,581 from the Commonwealth of Pennsylvania - PEMA against a
      purchase order.

o     On June 22, 2005, we filed a report on Form 8-K dated June 21, 2005. The
      report disclosed under Item 8.01 the status of the Class Action Complaint
      filed against us, including a Court Order for Dismissal and basis of our
      defense.

o     On February 8, 2005, we filed a report on Form 8-K dated February 3, 2005.
      The report disclosed under Item 8.01 that we had executed a Memorandum of
      Understanding to form a joint venture company Tecnologia de Alta Energia,
      S.A., which will establish and maintain an assembly, testing, sales and
      service center in Tenerife, Spain.

o     On February 2, 2005, we filed a report on Form 8-K dated January 27, 2005.
      The report disclosed under Item 3.02, a private placement of Common Stock
      and Warrants and under Item 8.01 the announcement of the consummation of
      the short-form merger between us and HiEnergy Microdevices, Inc.

o     On January 11, 2005, we filed a report on Form 8-K dated January 7, 2005.
      The report disclosed under Item 5.02, the appointment of our Vice
      President and Corporate Secretary, effective as of January 1, 2005.


                                       76
<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: September 19, 2005                 By: /s/ Bogdan C. Maglich
      --------------------------             ----------------------------------
                                         Bogdan C. Maglich,
                                         Chief Executive Officer, President,
                                         Treasurer and Chief Scientific Officer
                                         (Principal Executive Officer and
                                         Principal Financial Officer)





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