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

                                   FORM 10-QSB

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

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


[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
     OF 1934

     For the transition period from__________ to __________

     Commission file number:       0 - 32093
                                ---------------


                             HIENERGY TECHNOLOGIES, INC.
                             ---------------------------
        (Exact name of small business issuer as specified in its charter)

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


              1601 Alton Parkway, Unit B, 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 March 14, 2003, the issuer had
24,174,605  shares of Common  Stock,  par value  $0.001  per  share,  issued and
outstanding.


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


<PAGE>

<TABLE>
<CAPTION>


                           HIENERGY TECHNOLOGIES, INC.

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

<S>                                                                                             <C>

PART I - FINANCIAL INFORMATION                                                                  PAGE

Item 1     Financial Statements..........................................................................1

           Consolidated Balance Sheets as of April 30, 2002 and January 31, 2003 (unaudited)

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

           Consolidated  Statements of Shareholders`  Equity (Deficit) for the Period from
           August 21, 1995 (Inception) to January 31, 2003

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

           Notes to the Consolidated Financial Statements (unaudited)

Item 2     Management`s Discussion and Analysis or Plan of Operation....................................38

Item 3     Controls and Procedures......................................................................45

PART II - OTHER INFORMATION

Item 1     Legal Proceedings............................................................................46

Item 2     Changes in Securities........................................................................47

Item 5     Other Information............................................................................48

Item 6     Exhibits and Reports on Form 8-K.............................................................48

SIGNATURES     ........................................................................................ 50

CERTIFICATIONS   ...................................................................................... 51

</TABLE>


<PAGE>


                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL  STATEMENTS

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

                                    HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                                     CONSOLIDATED BALANCE SHEETS
                                 APRIL 30, 2002 AND JANUARY 31, 2003 (UNAUDITED)
--------------------------------------------------------------------------------

                                  ASSETS

                                                                               January 31,          April 30,
                                                                                   2003               2002
                                                                             ----------------   ----------------
                                                                               (unaudited)
<S>                                                                                   <C>            <C>

CURRENT ASSETS
     Cash and cash equivalents                                                    $ 755,833         $ 1,078,136
     Accounts receivable                                                                  -              29,166
     Other current assets                                                           883,041               7,500
                                                                             ----------------   ----------------


         Total current assets                                                     1,638,874           1,114,802

PROPERTY AND EQUIPMENT, net                                                         719,120             114,568
                                                                             ----------------   ----------------


TOTAL ASSETS                                                                   $  2,357,994         $ 1,229,370
                                                                             ================   ================


</TABLE>
   The accompanying notes are an integral part of these financial statements.

                                        1

<PAGE>

<TABLE>
<CAPTION>

                                    HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                                     CONSOLIDATED BALANCE SHEETS
                                 APRIL 30, 2002 AND JANUARY 31, 2003 (UNAUDITED)
--------------------------------------------------------------------------------

              LIABILITIES AND SHAREHOLDERS` EQUITY (DEFICIT)

                                                                                    January 31,        April 30,
                                                                                       2003               2002
                                                                                 ----------------   ----------------
                                                                                     (unaudited)
<S>                                                                                    <C>                <C>
CURRENT LIABILITIES
     Accounts payable                                                                $ 469,945           $ 209,895
     Accrued expenses                                                                    6,400             151,567
     Accrued payroll and payroll taxes                                                 429,034             350,000
     Accrued interest                                                                   32,973              29,767
     Notes payable - related parties                                                   135,000             621,691
     Convertible notes payable - related parties                                        10,400              35,400
                                                                                  ----------------   ----------------


         Total current liabilities                                                   1,083,752           1,398,320
                                                                                  ----------------   ----------------


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


COMMITMENTS AND CONTINGENCIES

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

                                        2
<PAGE>

                                    HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                                     CONSOLIDATED BALANCE SHEETS
                                 APRIL 30, 2002 AND JANUARY 31, 2003 (UNAUDITED)
--------------------------------------------------------------------------------


              LIABILITIES AND SHAREHOLDERS` EQUITY (DEFICIT)

                                                                                     January 31,          April 30,
                                                                                        2003               2002
                                                                                   -------------        ------------
                                                                                    (unaudited)
CONVERTIBLE, REDEEMABLE PREFERRED STOCK
     Series A convertible, redeemable preferred stock
         8% dividends, voting rights, liquidation preference
         $10,000 per share, 345 shares authorized
         96 (unaudited) and 0 shares issued and outstanding                           $      1             $     -
     Additional paid-in capital                                                        783,152                   -
                                                                                   -------------        ------------


            Total convertible, redeemable preferred stock                              783,153                   -
                                                                                   -------------        ------------


SHAREHOLDERS` EQUITY (DEFICIT)
     Preferred stock, $0.001 par value
         20,000,000 shares authorized
         0 (unaudited) and 0 issued and outstanding                                           -                   -
     Common stock, $0.001 par value
         100,000,000 shares authorized
         24,174,605 (unaudited) and 22,075,200 shares
            issued and outstanding                                                       24,174              22,075
     Additional paid-in capital                                                      10,390,628           2,514,616
     Committed common stock, 51,348 (unaudited) and
         0 outstanding                                                                   20,298                   -
     Deferred compensation                                                           (2,272,561)                  -
     Deficit accumulated during the development stage                                (7,690,373)         (2,724,564)
                                                                                   -------------        ------------


                Total shareholders` equity (deficit)                                   472,166             (187,873)
                                                                                   -------------        ------------


TOTAL LIABILITIES AND SHAREHOLDERS` EQUITY (DEFICIT)                               $ 2,357,994          $ 1,229,370
                                                                                    ============        ============

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

                                        3
<PAGE>
                                    HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                           CONSOLIDATED STATEMENTS OF OPERATIONS
    FOR THE THREE AND NINE  MONTHS ENDED JANUARY 31, 2003 AND 2002  (UNAUDITED),
        AND FOR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO  JANUARY 31, 2003
                                                                     (UNAUDITED)

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

                                                                                                      For the
                                                                                                    Period from
                                                                                                     August 21,
                                                                                                        1995
                                     For the Three Months Ended       For the Nine Months Ended    (Inception) to
                                            January 31,                     January 31,              January 31,
                                     ---------------------------      ---------------------------  ------------
                                          2003            2002            2003            2002          2003
                                     ------------     ----------      ------------    -----------  -------------
                                      (unaudited)     (unaudited)     (unaudited)     (unaudited)     (unaudited)

CONTRACT REVENUES                             $ -            $ -         $ 40,834      $ 117,000        $ 366,750

OPERATING EXPENSES
    General and administration          2,206,319        435,919        3,970,621        707,278        6,979,839
                                     ------------     ----------      ------------    -----------   -------------

LOSS FROM OPERATIONS                   (2,206,319)      (435,919)      (3,929,787)      (590,278)      (6,613,089)
                                     ------------     ----------      ------------    -----------   -------------


OTHER INCOME (EXPENSE)
    Interest income                         3,230              -            6,588              -            6,365
    Other income                              231              -              231              -              231
    Interest expense                       (3,135)        (6,483)          (8,540)        (7,647)         (38,595)
    Financing expense                           -              -         (223,710)             -         (223,710)
    Forgiveness of accounts
      payable                                   -               -          36,000              -           36,000
                                     ------------     ----------      ------------    -----------    -------------


Total other income
    (expense)                                326          (6,483)        (189,431)        (7,647)        (219,709)
                                     ------------     ----------      ------------    -----------    -------------


LOSS BEFORE PROVISION
    FOR INCOME TAXES                   (2,205,993)      (442,402)      (4,119,218)      (597,925)      (6,832,798)

PROVISION FOR INCOME
    TAXES                                    800              -               800              -           11,784
                                     ------------     ----------      ------------    -----------    -------------

NET LOSS                               (2,206,793)      (442,402)      (4,120,018)      (597,925)      (6,844,582)

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

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

                                        4
<PAGE>

                                    HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                           CONSOLIDATED STATEMENTS OF OPERATIONS
    FOR THE THREE AND NINE  MONTHS ENDED JANUARY 31, 2003 AND 2002  (UNAUDITED),
        AND FOR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO  JANUARY 31, 2003
                                                                     (UNAUDITED)
--------------------------------------------------------------------------------
                                                                                                      For the
                                                                                                    Period from
                                                                                                     August 21,
                                                                                                        1995
                                     For the Three Months Ended       For the Nine Months Ended    (Inception) to
                                            January 31,                     January 31,              January 31,
                                     ---------------------------      ---------------------------    ------------
                                          2003            2002            2003            2002          2003
                                     ------------     ----------      ------------    -----------    -------------
                                      (unaudited)     (unaudited)     (unaudited)     (unaudited)     (unaudited)


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


NET LOSS AVAILABLE TO
    COMMON
    SHAREHOLDERS                     $ (2,206,793)    $ (442,402)    $ (4,965,809)    $ (597,925)     $(7,690,373)
                                     =============    ===========    =============    ===========     ============

NET LOSS PER SHARE                        $ (0.09)       $ (0.03)         $ (0.18)       $ (0.04)         $ (0.55)

BENEFICIAL CONVERSION
    FEATURE GRANTED ON
    PREFERRED STOCK
    PER SHARE                                   -              -            (0.03)             -            (0.06)

PREFERRED STOCK
    DIVIDENDS PER SHARE                        -              -                -              -             (0.01)
                                     ------------     ----------      ------------    -----------    -------------


BASIC AND DILUTED LOSS
    AVAILABLE TO COMMON
    SHAREHOLDERS PER
    SHARE                                 $ (0.09)       $ (0.03)         $ (0.21)       $ (0.04)         $ (0.62)
                                     =============    ===========    =============    ===========     ============


BASIC AND DILUTED
    WEIGHTED-AVERAGE
    COMMON SHARES
    OUTSTANDING                       24,056,753     17,477,991       23,131,533     16,248,534       12,443,033
                                     =============    ===========    =============    ===========     ============

</TABLE>
   The accompanying notes are an integral part of these financial statements.

                                        5
<PAGE>

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

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



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

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

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

                                        6
<PAGE>
                                   HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                       CONSOLIDATED STATEMENTS OF SHAREHOLDERS` EQUITY (DEFICIT)
            FOR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO  JANUARY 31, 2003

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                                              Deficit
                                                                                                            Accumulated
                                             Common Stock            Additional  Committed                  during the
                                        --------------------------     Paid-in    Common       Deferred     Development
                                            Shares       Amount        Capital     Stock      Compensation     Stage       Total
                                        ------------ -------------   ----------- ---------- --------------- -----------  ----------
<S>                                         <C>          <C>            <C>         <C>            <C>         <C>          <C>

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

BALANCE, APRIL 30, 1999                 11,688,979      11,689         359,182         -             -      (714,836)     (343,965)
ISSUANCE OF COMMON STOCK
    FOR CASH                               638,548         638         295,008                                             295,646
ISSUANCE OF COMMON STOCK
    FOR SERVICES                         1,914,570       1,915          83,322                                              85,237
NET LOSS                                                                                                    (332,131)     (332,131)
                                        ------------ -------------   ----------- ---------- --------------- -----------  ----------

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

</TABLE>

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

                                        7
<PAGE>

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

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                                              Deficit
                                                                                                            Accumulated
                                             Common Stock            Additional  Committed                  during the
                                        --------------------------     Paid-in    Common       Deferred     Development
                                            Shares       Amount        Capital     Stock      Compensation     Stage       Total
                                        ------------ -------------   ----------- ---------- --------------- -----------  ----------
<S>                                         <C>          <C>            <C>         <C>            <C>         <C>          <C>

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


BALANCE, APRIL 30, 2002                 22,075,200      22,075       2,514,616         -             -    (2,724,564)     (187,873)
ISSUANCE OF COMMON STOCK IN
    PRIVATE PLACEMENT (unaudited)          500,000         500         499,500                                             500,000
ISSUANCE OF COMMON STOCK IN
    PRIVATE PLACEMENT (unaudited)        1,349,934       1,350       1,821,057                                           1,822,407
OFFERING COSTS (unaudited)                                   -        (196,793)                                           (196,793)
DIVIDENDS ON PREFERRED STOCK
    (unaudited)                             68,150          68          78,292                                              78,360
BENEFICIAL CONVERSION FEATURE
    GRANTED IN CONNECTION WITH
    ISSUANCE OF PREFERRED
    STOCK (unaudited)                                        -         767,431                                             767,431

</TABLE>


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

                                        8
<PAGE>

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

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                                              Deficit
                                                                                                            Accumulated
                                             Common Stock            Additional  Committed                  during the
                                        --------------------------     Paid-in    Common       Deferred     Development
                                            Shares       Amount        Capital     Stock      Compensation     Stage       Total
                                        ------------ -------------   ----------- ---------- --------------- -----------  ----------
<S>                                         <C>          <C>            <C>         <C>            <C>         <C>          <C>

ISSUANCE OF COMMON STOCK TO
    AN EMPLOYEE FOR A BONUS
    (unaudited)                             11,178        $ 11        $ 21,339                                            $ 21,350
COMMON STOCK COMMITTED TO
    AN EMPLOYEE FOR A BONUS
    (unaudited)                                                                   $13,136                                   13,134
ISSUANCE OF COMMON STOCK ON
    CONVERSION OF SERIES A
    REDEEMABLE CONVERTIBLE
    PREFERRED STOCK (unaudited)             18,336          18          17,228                                              17,246
ISSUANCE OF COMMON STOCK IN
    LEGAL SETTLEMENT (unaudited)            80,000          80         124,920                                             125,000
CONVERSION OF CONVERTIBLE NOTES
    PAYABLE - RELATED PARTIES INTO
    COMMON STOCK (unaudited)                37,898          38          37,858                                             37,896
ISSUANCE OF COMMON STOCK IN
    CASHLESS EXERCISE OF WARRANTS
    (unaudited)                             33,909          34             (34)                                                 -
FINANCING EXPENSE IN
    CONNECTION WITH ISSUANCE
    OF WARRANTS (unaudited)                                            223,710                                            223,710

</TABLE>


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

                                        9
<PAGE>

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

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                                              Deficit
                                                                                                            Accumulated
                                             Common Stock            Additional  Committed                  during the
                                        --------------------------     Paid-in    Common       Deferred     Development
                                            Shares       Amount        Capital     Stock      Compensation     Stage       Total
                                        ------------ -------------   ----------- ---------- --------------- -----------  ----------
<S>                                         <C>          <C>            <C>         <C>            <C>         <C>          <C>
STOCK OPTIONS ISSUED TO A
    CONSULTANT FOR SERVICES
    TO BE RENDERED (unaudited)                                       $ 761,007                                           $ 761,007
DEFERRED COMPENSATION IN
    CONNECTION WITH ISSUANCE
    OF STOCK OPTIONS TO
    EMPLOYEE (unaudited)                                             3,305,542            $ (3,305,542)                         -
STOCK OPTIONS ISSUED TO A
    CONSULTANT IN EXCHANGE FOR
    ACCOUNTS PAYABLE (unaudited)                                        65,000                                             65,000
WARRANTS ISSUED TO A CONSULTANT
    FOR SERVICES RENDERED OR TO BE
    RENDERED (unaudited)                                               349,955                                            349,955
AMORTIZATION OF DEFERRED
    COMPENSATION (unaudited)                                                                 1,032,981                  1,032,981
EXERCISE OF STOCK OPTIONS
    IN SUBSIDIARY (unaudited)                                                     $7,164                                    7,164
NET LOSS AVAILABLE TO COMMON
    SHAREHOLDERS (unaudited)                                                                               $(4,965,809) (4,965,809)
                                        ------------ -------------   ----------- ---------- --------------- -----------  ----------

BALANCE, JANUARY 31, 2003
    (UNAUDITED)                          24,174,605    $ 24,174      $10,390,628 $20,298      $(2,272,561) $(7,690,373)  $ 472,166
                                        ============ =============   =========== ========== =============== ============ ==========


</TABLE>


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

                                        10
<PAGE>
                                                 HIENERGY TECHNOLOGIES, INC. AND
                                                                    SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                           FOR THE NINE MONTHS ENDED JANUARY 31,
                                                  2003 AND 2002 (UNAUDITED), AND
                                             FOR THE PERIOD FROM AUGUST 21, 1995
                                     (INCEPTION) TO JANUARY 31, 2003 (UNAUDITED)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                                        For the
                                                                                                     Period from
                                                                                                      August 21,
                                                                   For the Nine Months Ended             1995
                                                                           January 31,              (Inception) to
                                                          ---------------------------------------      January 31,
                                                                    2003               2002              2003
                                                          --------------------  ----------------- ---------------------
                                                               (unaudited)         (unaudited)        (unaudited)
<S>                                                               <C>              <C>                    <C>

CASH FLOWS FROM OPERATING ACTIVITIES
    Net loss                                                   $ (4,120,018)         $ (597,925)      $ (6,844,582)
    Adjustments to reconcile net loss to net cash
      used in operating activities
        Depreciation                                                 72,556               5,829             79,988
        Compensation expense relating to issuance of
           common stock in exchange for services
           rendered                                                       -             161,707            428,950
        Compensation expense relating to issuance of
           common stock in exchange for services
           rendered to minority shareholders                              -                   -             18,923
        Warrants issued for services rendered                       349,955                   -            349,955
        Common stock issued to an employee for a
           bonus                                                     21,350                   -             21,350
        Common stock committed to an employee
           for a bonus                                               13,134                   -             13,134
        Common stock issued to a former officer
           as a settlement                                          125,000                   -            125,000
        Additional compensation to officer                                -                   -             42,171
        Amortization of deferred compensation                     1,032,981                   -          1,032,981
        Financing expense in connection with issuance
           of warrants                                              223,710                   -            223,710
        Forgiveness of accounts payable                              36,000                   -             36,000
        (Increase) decrease in
           Accounts receivable                                       29,166                   -                  -
           Other current assets                                    (114,534)                  -           (122,034)




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

                                        11
<PAGE>
                                                 HIENERGY TECHNOLOGIES, INC. AND
                                                                    SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                           FOR THE NINE MONTHS ENDED JANUARY 31,
                                                  2003 AND 2002 (UNAUDITED), AND
                                             FOR THE PERIOD FROM AUGUST 21, 1995
                                     (INCEPTION) TO JANUARY 31, 2003 (UNAUDITED)
--------------------------------------------------------------------------------

                                                                                                        For the
                                                                                                     Period from
                                                                                                      August 21,
                                                                   For the Nine Months Ended             1995
                                                                           January 31,              (Inception) to
                                                          ---------------------------------------      January 31,
                                                                    2003               2002              2003
                                                          --------------------  ----------------- ---------------------
                                                               (unaudited)         (unaudited)        (unaudited)


        Increase (decrease) in
           Accounts payable                                       $ 289,488           $ 147,020          $ 499,385
           Accrued expenses                                        (145,167)              5,669              6,416
           Accrued payroll and payroll taxes                         79,034              75,000            429,034
           Accrued interest                                           5,664               7,647             35,431
                                                          --------------------  ----------------- ---------------------


Net cash used in operating activities                            (2,101,681)           (195,053)        (3,624,188)
                                                          --------------------  ----------------- ---------------------


CASH FLOWS FROM INVESTING ACTIVITIES
    Purchase of property and equipment                             (677,108)            (44,818)          (799,108)
                                                          --------------------  ----------------- ---------------------


Net cash used in investing activities                              (677,108)            (44,818)          (799,108)
                                                          --------------------  ----------------- ---------------------


CASH FLOWS FROM FINANCING ACTIVITIES
    Proceeds from issuance of common stock in
      private placement                                           2,322,407                   -          3,547,407
    Offering costs on common stock                                 (196,793)                  -           (196,793)
    Proceeds from issuance of common stock                                -             153,000            882,723
    Proceeds from issuance of preferred stock                       979,301                   -            979,301
    Offering costs on preferred stock                              (178,902)                  -           (178,902)
    Exercise of stock options in subsidiary                           7,164                   -              7,164
    Proceeds from notes payable - related parties                         -             183,468            579,520
    Payments on notes payable - related parties                    (486,691)            (38,528)          (486,691)



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

                                        12
<PAGE>
                                                 HIENERGY TECHNOLOGIES, INC. AND
                                                                    SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                           FOR THE NINE MONTHS ENDED JANUARY 31,
                                                  2003 AND 2002 (UNAUDITED), AND
                                             FOR THE PERIOD FROM AUGUST 21, 1995
                                     (INCEPTION) TO JANUARY 31, 2003 (UNAUDITED)
--------------------------------------------------------------------------------

                                                                                                        For the
                                                                                                     Period from
                                                                                                      August 21,
                                                                   For the Nine Months Ended             1995
                                                                           January 31,              (Inception) to
                                                          ---------------------------------------      January 31,
                                                                    2003               2002              2003
                                                          --------------------  ----------------- ---------------------
                                                               (unaudited)         (unaudited)        (unaudited)




    Proceeds from convertible notes payable - related
      parties                                                      $ 29,280                 $ -           $ 84,680
    Payments on convertible notes payable - related
      parties                                                       (19,280)             (9,280)           (39,280)
                                                          --------------------  ----------------- ---------------------


Net cash provided by financing activities                         2,456,486             288,660          5,179,129
                                                          --------------------  ----------------- ---------------------


Net increase (decrease) in cash and cash
    equivalents                                                    (322,303)             48,789            755,833

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


CASH AND CASH EQUIVALENTS, END OF PERIOD                         $  755,833            $ 52,310          $ 755,833
                                                           ===================   ================= ====================


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

    INTEREST PAID                                                  $ 2,876                 $ -            $  2,876
                                                           ===================   ================= ====================


    INCOME TAXES PAID                                                $ 800                 $ -           $  11,783
                                                           ===================   ================= ====================


</TABLE>

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

                                        13
<PAGE>
                                    HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
  FOR  THE  NINE  MONTHS   ENDED  JANUARY  31,  2003 AND 2002  (UNAUDITED),  AND
FOR THE PERIOD  FROM  AUGUST 21, 1995  (INCEPTION)    TO   JANUARY    31,   2003
                                                                     (UNAUDITED)

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


SUPPLEMENT SCHEDULE OF NON-CASH FINANCING ACTIVITIES (UNAUDITED)
During the nine  months  ended  January  31,  2003 and 2002 and the period  from
August 21, 1995  (inception) to January 31, 2003, the Company issued 37,898,  0,
and 37,898 shares,  respectively,  of common stock for the outstanding principal
on convertible  notes payable - related parties and accrued interest of $37,896,
$0, and $37,896, respectively.

During the nine  months  ended  January  31,  2003 and 2002 and the period  from
August 21, 1995 (inception) to January 31, 2003, the Company converted  accounts
payable due to a  consultant  of $65,000,  $0, and $65,000,  respectively,  into
options to purchase 72,726, 0, and 72,726 shares, respectively, of common stock.
Of these options,  45,454 are exercisable at $1 per share,  vest over a one-year
period,  and expire in September 2012. The remaining  options are exercisable at
$2.24 per share, vest over a one-year period, and expire in December 2012.

During the nine  months  ended  January  31,  2003 and 2002 and the period  from
August 21, 1995  (inception) to January 31, 2003, the Company issued 68,150,  0,
and 68,150 shares,  respectively,  of common stock for $78,360, $0, and $78,360,
respectively,  of  dividends  accrued  on the Series A  convertible,  redeemable
preferred stock.

During the nine  months  ended  January  31,  2003 and 2002 and the period  from
August 21,  1995  (inception)  to January 31,  2003,  the holders of 2, 0, and 2
shares,  respectively,  of the Series A convertible,  redeemable preferred stock
converted  their  shares into 18,336,  0, and 18,336  shares,  respectively,  of
common stock.

During the nine  months  ended  January  31,  2003 and 2002 and the period  from
August 21, 1995 (inception) to January 31, 2003, warrants to purchase 47,000, 0,
and 47,000 shares,  respectively,  of common stock were exercised via a cashless
exercise, whereby the Company issued 33,909, 0, and 33,909 shares, respectively,
of common stock.

During the nine  months  ended  January  31,  2003 and 2002 and the period  from
August 21, 1995 (inception) to January 31, 2003, options to purchase  1,000,000,
0, and  1,000,000  shares,  respectively,  of  common  stock  were  issued  to a
consultant for services to be rendered valued at $761,007, $0, and $761,007 (see
Note 8).


   The accompanying notes are an integral part of these financial statements.
                                       14
<PAGE>

                                   HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 APRIL 30, 2002 AND JANUARY 31, 2003 (UNAUDITED)
-------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND LINE OF BUSINESS

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

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

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

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

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



                                       15
<PAGE>

                                   HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 APRIL 30, 2002 AND JANUARY 31, 2003 (UNAUDITED)
--------------------------------------------------------------------------------
NOTE 2 - GOING CONCERN

         The accompanying  financial statements have been prepared in conformity
         with accounting  principles  generally accepted in the United States of
         America  which  contemplate  continuation  of the  Company  as a  going
         concern.  However,  during the nine months  ended  January 31, 2003 and
         2002 and the period  from August 21,  1995  (inception)  to January 31,
         2003, the Company incurred net losses available to common  shareholders
         of  $4,965,809  (unaudited),   $597,925  (unaudited),   and  $7,690,373
         (unaudited),   respectively,  and  it  had  negative  cash  flows  from
         operations  of  $2,101,681  (unaudited),   $195,053  (unaudited),   and
         $3,624,188 (unaudited),  respectively.  In addition, the Company had an
         accumulated   deficit  of  $7,690,373   (unaudited)   and  was  in  the
         development   stage  as  of  January  31,  2003.  These  factors  raise
         substantial  doubt about the  Company`s  ability to continue as a going
         concern.

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

         In  addition to the  capital  raised as of January  31, 2003  through a
         private  placement,  the Company is currently  negotiating with certain
         investors about raising  additional  capital through private  placement
         offerings.  Unless the Company raises additional funds,  either by debt
         or equity issuances,  management believes that its current cash on hand
         will be  insufficient  to cover its  working  capital  needs  until the
         Company`s  sales volume reaches a sufficient  level to cover  operating
         expenses.


NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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


                                       16
<PAGE>

                                   HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 APRIL 30, 2002 AND JANUARY 31, 2003 (UNAUDITED)
--------------------------------------------------------------------------------
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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

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

         Cash and Cash Equivalents
         --------------------------
         The  Company  maintains  its cash  deposits  at several  banks  located
         throughout California. Deposits at each bank are insured by the Federal
         Deposit Insurance  Corporation up to $100,000. As of April 30, 2002 and
         January 31,  2003,  uninsured  portions of the  balances at those banks
         aggregated to $1,125,206 and $640,357  (unaudited),  respectively.  The
         Company has not experienced any losses in such accounts and believes it
         is not exposed to any significant risk on cash and cash equivalents.

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

         Accounts Receivable
         -------------------
         Accounts receivable at April 30, 2002 consisted of an amount due from a
         governmental contract.

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


                                       17
<PAGE>


                                   HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 APRIL 30, 2002 AND JANUARY 31, 2003 (UNAUDITED)
--------------------------------------------------------------------------------
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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

         Fair Value of Financial Instruments
         ------------------------------------
         For certain of the Company`s financial instruments,  including cash and
         cash equivalents,  accounts receivable,  other current assets, accounts
         payable,  accrued  expenses,  accrued  payroll and payroll  taxes,  and
         accrued  interest,  the carrying amounts  approximate fair value due to
         their short  maturities.  The amounts shown for notes payable - related
         parties  and   convertible   notes  payable  -  related   parties  also
         approximate  fair value because  current  interest rates offered to the
         Company for debt of similar maturities are substantially the same.

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

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


                                       18
<PAGE>

                                   HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 APRIL 30, 2002 AND JANUARY 31, 2003 (UNAUDITED)
--------------------------------------------------------------------------------
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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

         The  following  potential  common  shares have been  excluded  from the
         computation  of diluted  net loss per share for the  periods  presented
         because the effect  would have been  anti-dilutive  for the nine months
         ended January 31, 2003 and 2002:
<TABLE>
<CAPTION>

                                                                                      2003               2002
                                                                                ---------------    ----------------
                                                                                    (unaudited)      (unaudited)
<S>                                                                                   <C>               <C>

                  Stock options outstanding                                           6,649,185                   -
                  Warrants outstanding                                                1,918,686                   -
                  Series A convertible, redeemable preferred stock                      833,217                   -
                  Microdevices minority shareholders                                    459,222             459,222
                  Microdevices option and warrant holders                               951,507             952,557
                                                                                ---------------    ----------------

                      TOTAL                                                          10,811,817           1,411,779
                                                                                ===============    ================
</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.

                                       19
<PAGE>




                                   HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 APRIL 30, 2002 AND JANUARY 31, 2003 (UNAUDITED)
--------------------------------------------------------------------------------

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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

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

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


                                       20
<PAGE>

                                   HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 APRIL 30, 2002 AND JANUARY 31, 2003 (UNAUDITED)
--------------------------------------------------------------------------------
NOTE 4 - OTHER CURRENT ASSETS

         Other current  assets at April 30, 2002 and January 31, 2003  consisted
of the following:

                                          January 31,          April 30,
                                               2003               2002
                                         ---------------    ----------------
                                          (unaudited)

        Restricted cash held in escrow   $       125,000    $              -
        Prepaid consulting                       706,515                   -
        Other                                     51,526               7,500
                                         ---------------    ----------------

            TOTAL                        $       883,041    $          7,500
                                         ===============    ================


NOTE 5 - PROPERTY AND EQUIPMENT

         Property and equipment at April 30, 2002 and January 31, 2003
consisted of the following:

                                            January 31,          April 30,
                                               2003               2002
                                         ---------------    ----------------
                                          (unaudited)

      Micro sensor                       $        53,115    $         42,127
      Laboratory equipment                       666,121                   -
      Web site development                        14,400              14,400
      Furniture and equipment                      7,473               7,473
      Neutron generator                           58,000              58,000
                                         ---------------    ----------------

                                                 799,109             122,000
      Less accumulated depreciation               79,989               7,432
                                         ---------------    ----------------

          TOTAL                          $       719,120    $        114,568
                                         ===============    ================

         Depreciation  expense  for the nine months  ended  January 31, 2003 and
         2002 and the period  from August 21,  1995  (inception)  to January 31,
         2003  was  $72,556   (unaudited),   $5,829  (unaudited),   and  $79,988
         (unaudited), respectively.


                                       21
<PAGE>

                                   HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 APRIL 30, 2002 AND JANUARY 31, 2003 (UNAUDITED)
--------------------------------------------------------------------------------
NOTE 6 - NOTES PAYABLE - RELATED PARTIES

         Notes payable - related parties at April 30, 2002 and January 31,
2003 consisted of the following:

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

                                                                                 January 31,          April 30,
                                                                                      2003               2002
                                                                                ---------------    ----------------
                                                                                 (unaudited)
                  Unsecured notes to a majority shareholder/officer/ director of
                      the Company, interest payable at 6% per annum, maturing in
                      December  2002.  During the nine months ended  January 31,
                      2003, the   notes were paid in full (unaudited).            $          -    $         59,083

                  Unsecured note to a majority  shareholder/officer/ director of
                      the    Company   as   a   signing    bonus.    Amount   is
                      non-interest-bearing,  $50,000  payable  upon  receipt  of
                      $1,000,000  or more from any source,  and $50,000  payable
                      upon  revenue  in  excess of  $500,000  or  $1,000,000  of
                      additional  funds from any source.  During the nine months
                      ended January 31, 2003,  $50,000 (unaudited) was repaid.          50,000             100,000

                  Unsecured  notes to a  shareholder  of the  Company,  interest
                      payable  at  10.5%  per  annum,  or 15%  per  annum  if in
                      default, and due in November 1997. As of January 31, 2003,
                      the notes were  in default (unaudited).                           40,000              40,000

                  Unsecured notes to a former  officer of the Company,  interest
                      payable at 6% per annum, and payable in February and March
                      2002.  The  Company  was  in  litigation  regarding  these
                      amounts, but a settlement was reached, and the full amount
                      was paid in January 2003 (unaudited)  (see Note 8).                    -              27,608

                  Secured   note  to  an   officer/director   of  the   Company,
                      non-interest-bearing,  and due in March 2002.  The note is
                      secured by 7,857 shares of common  stock.  As of April 30,
                      2002,  the note was in  default.  During  the nine  months
                      ended January 31, 2003, the note was paid in full  (unaudited).         -             50,000

</TABLE>

                                       22
<PAGE>

                                   HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 APRIL 30, 2002 AND JANUARY 31, 2003 (UNAUDITED)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S>                                                                               <C>                   <C>

NOTE 6 - NOTES PAYABLE - RELATED PARTIES (CONTINUED)
                                                                                 January 31,          April 30,
                                                                                      2003               2002
                                                                                ---------------    ----------------
                                                                                 (unaudited)

                 Secured notes to a shareholder/former officer/ director of the
                      Company, non-interest-bearing,  and due in March 2002. The
                      notes are secured by 23,571 shares of common stock.  As of
                      April 30, 2002, the notes were in default. During the nine
                      months ended January 31, 2003, the notes were paid in full
                      (unaudited).  In addition, since the notes were in default
                      and the principal  balance of $150,000 was paid late,  the
                      Company  granted  the  holder  of the  notes  warrants  to
                      purchase 150,000 shares of common stock (unaudited)
                     (see Note 11).                                             $             -    $        150,000

                  Unsecured  amount  to a  former  officer  of  the  Company  as
                      severance, non-interest-bearing,  and payable upon demand.
                      The Company was in litigation regarding this amount, but a
                      settlement was reached, and the full amount was paid in
                      January 2003 (unaudited) (see Note 8).                                  -             150,000

                  Unsecured notes to an unrelated party, non-interest-
                      bearing, and payable upon demand.                                  45,000              45,000
                                                                                ---------------    ----------------

                                                                                        135,000             621,691
                  Less current portion                                                  135,000             621,691
                                                                                ---------------    ----------------

                           LONG-TERM PORTION                                    $             -    $              -
                                                                                ===============    ================


</TABLE>


                                       23
<PAGE>

                                   HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 APRIL 30, 2002 AND JANUARY 31, 2003 (UNAUDITED)
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>


NOTE 7 - CONVERTIBLE NOTES PAYABLE - RELATED PARTIES
<S>                                                                              <C>                    <C>

         Convertible  notes  payable -  related  parties  at April 30,  2002 and
         January 31, 2003 consisted of the following:
                                                                                 January 31,          April 30,
                                                                                      2003               2002
                                                                                ---------------    ----------------
                                                                                 (unaudited)
                  Secured  note  to  a  shareholder/director   of  the  Company,
                      interest  payable at 8% per  annum,  and due in July 2001.
                      The note is secured by the patent  application for Europe,
                      Canada,  and Japan.  The holder of the note had the option
                      to convert  the  principal  and  interest  into  shares of
                      common  stock.  During the nine months  ended  January 31,
                      2003,  this  note  plus  accrued   interest  of  $780  was
                      converted into 5,780 shares of common stock (unaudited).   $            -    $         5,000

                  Secured  notes  to  a  shareholder/director  of  the  Company,
                      interest payable at 8% per annum, $5,000 due in July 2001,
                      and $5,400 due in July 2002.  The notes are secured by the
                      patent  application  for Europe,  Canada,  and Japan.  The
                      holder  of  the  notes  has  the  option  to  convert  the
                      principal and interest into shares of common stock.  As of
                      January 31, 2003, the notes were in default (unaudited).          10,400              10,400

                  Secured  note  to  a  shareholder/director   of  the  Company,
                      interest  payable at 8% per  annum,  and due in July 2001.
                      The note is secured by the patent  application for Europe,
                      Canada,  and Japan.  The holder of the note had the option
                      to convert  the  principal  and  interest  into  shares of
                      common  stock.  During the nine months  ended  January 31,
                      2003,  this  note plus  accrued  interest  of  $1,678  was
                      converted into 11,678  shares of common stock (unaudited).             -              10,000

</TABLE>

                                       24
<PAGE>


                                   HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 APRIL 30, 2002 AND JANUARY 31, 2003 (UNAUDITED)
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>


NOTE 7 - CONVERTIBLE NOTES PAYABLE - RELATED PARTIES (CONTINUED)
<S>                                                                              <C>                    <C>

                                                                                 January 31,          April 30,
                                                                                      2003               2002
                                                                                ---------------    ----------------
                                                                                 (unaudited)
                  Secured note to a  shareholder/director/former  officer of the
                      Company, interest payable at 8% per annum, and due in July
                      2001.  The note is secured by the patent  application  for
                      Europe,  Canada, and Japan. The holder of the note had the
                      option to convert the  principal  and interest into shares
                      of common stock.  During the nine months ended January 31,
                      2003, the   note was paid in full (unaudited).             $             -    $         5,000

                  Unsecured note to a shareholder/director/former officer of the
                      Company,  interest  payable  at 7% per  annum,  and due in
                      January  2002.  The  holder of the note had the  option to
                      convert the  principal  and interest into shares of common
                      stock. During the nine months ended January 31,
                      2003, the note was paid in full (unaudited).                            -               5,000
                                                                                ---------------    ----------------

                                                                                         10,400              35,400
                  Less current portion                                                   10,400              35,400
                                                                                ---------------    ----------------

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


NOTE 8 - COMMITMENTS AND CONTINGENCIES

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

     o    The Company  must pay a signing  bonus of $100,000,  of which  $50,000
          (unaudited) was paid during the nine months ended January 31, 2003.

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


                                       25
<PAGE>


                                   HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 APRIL 30, 2002 AND JANUARY 31, 2003 (UNAUDITED)
-------------------------------------------------------------------------------
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

         Employment Agreements (Continued)
         ---------------------

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

o             The Company will grant its Chief  Scientist/Chairman  of the Board
              annually  during  the  term  of five  years  1% per  annum  of the
              Company`s stock issued and  outstanding  with an exercise price of
              the average  price for the  preceding 30 days. He must not receive
              less  than 10% of the  total  number  of  options  granted  by the
              Company for  services in that year.  As of January 31,  2003,  the
              Company is required to grant  options to purchase  405,492  shares
              (unaudited) of common stock.

o             The Company will provide its Chief Scientist/Chairman of the Board
              a car, pay his and his family`s health insurance, provide life and
              disability   insurance  and  will  reimburse  him  for  reasonable
              out-of-pocket expenses, not to exceed $20,000 in any one year, and
              reimburse  him for any  personal  tax  liabilities  arising  up to
              $75,000.  During the nine  months  ended  January  31,  2003,  the
              Company  paid $17,500  (unaudited)  for an  automobile  deposit on
              behalf of its Chief Scientist/Chairman of the Board.

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

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

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

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

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

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

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

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


                                       26
<PAGE>


                                   HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 APRIL 30, 2002 AND JANUARY 31, 2003 (UNAUDITED)
--------------------------------------------------------------------------------

NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)


Employment Agreements (unaudited)
--------------------
In September  2002,  the Company  entered into a three-year  employment
agreement        with       its        President/Chief        Executive
Officer/Treasurer/Director.   Major  terms  of  the  agreement  are  as
follows:

o The Company must pay a base salary as follows:

               o $135,000 per year

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

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

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

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

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

     As of January 31, 2003,  options to purchase 939,703 shares of common stock
     had vested, and $1,032,981 of the deferred compensation was expensed and is
     included  in  general  and  administration  expenses  on  the  accompanying
     statement of operations.


                                       27
<PAGE>


                                   HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 APRIL 30, 2002 AND JANUARY 31, 2003 (UNAUDITED)
--------------------------------------------------------------------------------
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

         Employment Agreements (unaudited) (Continued)
         ---------------------

          o    If the agreement is terminated  without  cause,  the Company must
               pay its President/Chief Executive  Officer/Treasurer/Director  an
               amount  equal to the  executive`s  annual  salary,  payable in 12
               monthly  installments  following the termination date, and health
               insurance benefits for 12 months.

          In      March      2003,      the      President/Chief       Executive
          Officer/Treasurer/Director resigned his position (see Note 13.)

          In February  2002,  Microdevices  entered  into a one-year  employment
          agreement with its Vice  President/Corporate  Secretary.  In May 2002,
          the Company assumed the employment agreement. Under the agreement, the
          Company will pay a salary of $91,000 per year, a car allowance of $100
          per week, a quarterly  bonus of 5,589 shares of the  Company`s  common
          stock, starting May 2002, and a non-qualified stock option to purchase
          89,410 shares of common stock at $0.157 per share, vesting immediately
          and having a five-year term. As of January 31, 2003,  11,178 shares of
          common  stock  were  issued,  and 5,589  shares of common  stock  were
          committed.  The shares were valued at $34,484,  which approximates the
          fair value of the shares.

          In March 2003, the Vice President / Corporate Secretary resigned her
          positions (see Note 13).

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

          The stock  options  were valued at  $761,007,  of which  $148,073  was
          expensed and is included in general and administration expenses on the
          accompanying  statement  of  operations.  The  remaining  balance  of
          $612,934  is  included  in prepaid consulting in other current assets,
          which  will  be  amortized  over  the remaining term of the consulting
          agreement.



                                       28
<PAGE>

                                   HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 APRIL 30, 2002 AND JANUARY 31, 2003 (UNAUDITED)
--------------------------------------------------------------------------------

NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

         Consulting Agreements (unaudited) (Continued)
         ---------------------
         In  August  2002,  the  Company  entered  into  a  one-year  consulting
         agreement with an investor and media relations firm. Under the terms of
         the  agreement,  the Company will pay $10,000 per month,  plus approved
         expenses.  In addition,  upon execution of the  agreement,  the Company
         issued  warrants to purchase  400,000  shares of common stock,  vesting
         immediately at an exercise price of $2 per share,  exercisable  for two
         years.  The  warrants  were valued at  $187,163,  of which  $93,582 was
         expensed and is included in general and administration  expenses on the
         accompanying statement of operations.  The remaining balance of $93,581
         is included in prepaid  consulting in other current assets,  which will
         be amortized  over the term of the consulting  agreement.  Either party
         may terminate the agreement six months after the  commencement  of this
         agreement.

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

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

         Lease Agreement (unaudited)
         ---------------
         In September  2002,  the Company  entered  into a three-year  operating
         lease agreement for its corporate officers in Irvine,  California.  The
         lease  provides for monthly rent of $8,000,  expiring in October  2005.
         Future minimum  payments at January 31, 2003 under this lease agreement
         were as follows:

                    12 Months
                     Ending
                   January 31,
                  ------------
                      2004                   $  96,000
                      2005                      96,000
                      2006                      72,000
                                            ------------

                           TOTAL             $ 264,000
                                            ============


                                       29
<PAGE>

                                   HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 APRIL 30, 2002 AND JANUARY 31, 2003 (UNAUDITED)
--------------------------------------------------------------------------------

NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

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

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

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

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

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

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

          o    Upon execution of the agreement,  the Company paid a retainer fee
               of $25,000 and will pay an additional $25,000 on March 1, 2003.

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

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


                                       30
<PAGE>

                                   HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 APRIL 30, 2002 AND JANUARY 31, 2003 (UNAUDITED)
--------------------------------------------------------------------------------

NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

         Placement Agent Agreements (unaudited) (Continued)
          -------------------------

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

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

         Tax Returns
         -----------
         Microdevices  has not filed its  federal  and state tax returns for the
         years ended April 30, 1995, 2000, and 2001; however, management reports
         that the minimum tax for the state of California  has been paid.  While
         the  estimated  tax owed has been  accrued,  the Company will not be in
         compliance  until such  reporting is made.  The Board of Directors  has
         approved the Company`s filing these tax returns.

          In  addition,  the  Company  seemingly  has  not  filed certain of its
          1099`s,  W-2`s,  and  payroll tax returns for the calendar years ended
          December  31,  1995  through 2001. As of January 31, 2003, federal and
          state  taxing authorities have not assessed the Company any additional
          amounts  due  for  payroll taxes, penalties, and interest. The Company
          has  reserved  $350,000  and  $350,000 for any potential taxes due for
          payroll  taxes,  penalties,  and  interest that may have accrued as of
          April  30,  2002  and  January  31,  2003,  respectively. The Board of
          Directors  has  approved  the Company`s filing these forms and payroll
          tax  returns,  and  the  Company is in the process of determining what
          needs  to  be  filed  and  what  amount,  if  any,  is  due.

         Litigation
         -----------
         The Company is involved in certain legal  proceedings  and claims which
         arise in the normal  course of  business.  Management  does not believe
         that the outcome of these  matters  will have a material  effect on the
         Company`s financial position or results of operations.

         In  addition,  the Company was sued by a former  officer of the Company
         for failure to pay wages,  breach of contract,  false  representations,
         and fraud.  In January  2003,  the Company  entered  into a  settlement
         agreement with this former officer.  The settlement  agreement provides
         that the Company will pay its former  officer  $25,000  (unaudited)  in
         salary  owed,  $25,000   (unaudited)  to  reimburse  legal  and  moving
         expenses,  plus  issue  80,000  shares  (unaudited)  of  the  Company`s
         restricted  common  stock.  The shares are to be  included  in the next
         registration  statement filed by the Company.  If the 80,000 shares are
         not sold through the  registered  offering  before  April 1, 2003,  the
         former  officer has the option of  tendering  the shares to the Company
         and demanding payment of $125,000.


                                       31
<PAGE>

                                   HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 APRIL 30, 2002 AND JANUARY 31, 2003 (UNAUDITED)
--------------------------------------------------------------------------------

NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

         Litigation (Continued)
         -----------
         Furthermore, if the former officer receives less than $125,000 upon the
         sale of the 80,000  shares  with 30 days of the  effective  date of the
         registration  statement,  he is entitled  to payment of the  difference
         between $125,000 and the amount he received from the sale of the stock.
         Under the terms of the agreement,  the $125,000 has been deposited into
         an escrow  account  acceptable to the former officer and is included in
         other current assets on the accompanying balance sheet.

         Minority Shareholders
         ---------------------
         Microdevices  has 20,540  minority shares issued and  outstanding.  The
         Company   has  agreed  that  in  the  event  of  any  merger  or  other
         consolidation   of   Microdevices   with   HiEnergy,   each   remaining
         Microdevices  shareholder  will receive the greater of the market value
         of  his/her  Microdevices  shares or shares in the  Company on the same
         terms as the voluntary  share  exchange.  If all minority  shareholders
         convert,  the  Company  will be required  to issue  459,222  additional
         shares of common stock to the minority shareholders.

         Warrant and Option Holders
         --------------------------
         Microdevices  has granted stock options and warrants to purchase 12,365
         and 32,247 shares,  respectively,  of common stock. These stock options
         and warrants are  exercisable  at $3.50 per share.  If the stock option
         and warrant  holders  exercise  their stock options and  warrants,  the
         Company has agreed to allow these stock  option and warrant  holders to
         voluntarily  exchange  their  shares  in  Microdevices  for  shares  in
         HiEnergy  at an  exchange  rate of  22.3524  per share (or  $0.157  per
         share).  If these stock option and warrant holders exercise and convert
         their shares,  the Company will be required to issue 997,272 additional
         shares of common stock to the stock option and warrant holders.

         During the nine months ended January 31, 2003, 2,047 (unaudited) of the
         above  stock  options  were  exercised  via a cash  payment  of  $7,165
         (unaudited),  or $3.50 per share.  The  Company  has agreed to exchange
         these shares in Microdevices for shares in HiEnergy at an exchange rate
         of 22.3524 per share, or 45,759 shares (unaudited) of common stock.

         During the nine  months  ended  January 31,  2003,  options to purchase
         4,000 (unaudited) shares of Microdevices`  common stock were assumed by
         the  Company at an  exchange  rate of 22.3524  per share (or $0.157 per
         share). Therefore, the Company issued options to purchase 89,410 shares
         (unaudited)  of its  common  stock at an  exercise  price of $0.157 per
         share.


                                       32
<PAGE>

                                   HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 APRIL 30, 2002 AND JANUARY 31, 2003 (UNAUDITED)
--------------------------------------------------------------------------------

NOTE 9 - PREFERRED STOCK

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

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

          In  October  2002,  the Company sold 98 shares of the Series A for net
          cash  proceeds  of  $800,396.  At the time of issuance, the conversion
          price  of  the  preferred stock was less than the fair market value of
          the  common stock. Since the Series A was convertible immediately, the
          Company  recorded  a  beneficial  conversion  feature upon issuance of
          $767,431.

          In January 2003, two shares of the Series A were converted into 18,336
          shares  of  the  Company`s  common  stock.

          As  of  March  2003,  the  Company may be in default with a triggering
          event;  therefore,  the holders of the Series A may be able to request
          the  Company  to  redeem their shares in cash at $10,000 per share. If
          all  holders were to request redemption, the Company would be required
          to  make a cash payment of $958,200. In addition, the Company could be
          subject  to  paying  penalties  of approximately $28,000 for the first
          month  (ending  in  December 2002) and approximately $42,000 per month
          thereafter.



NOTE 10 - SHAREHOLDERS` EQUITY (DEFICIT)

         Common Stock Issued for Cash (unaudited)
         ----------------------------
         During the nine months  ended  January 31, 2003 and 2002 and the period
         from  August 21, 1995  (inception)  to January  31,  2003,  the Company
         issued 0, 344,255, and 2,677,497, shares, respectively, of common stock
         in exchange for cash of $0, $153,000, and $882,723, respectively.


                                       33
<PAGE>

                                   HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 APRIL 30, 2002 AND JANUARY 31, 2003 (UNAUDITED)
--------------------------------------------------------------------------------

NOTE 10 - SHAREHOLDERS` EQUITY (DEFICIT) (CONTINUED)

         Common Stock Issued for Services Rendered (unaudited)
         -----------------------------------------
         During the nine months  ended  January 31, 2003 and 2002 and the period
         from  August 21, 1995  (inception)  to January  31,  2003,  the Company
         issued 0, 1,051,318,  and 11,702,703  shares,  respectively,  of common
         stock in exchange for services rendered valued at the fair market value
         of the stock given of $0, $161,707, and $428,950, respectively.

         Notes Payable Converted into Common Stock (unaudited)
         -----------------------------------------
         During the nine months  ended  January 31, 2003 and 2002 and the period
         from  August 21, 1995  (inception)  to January  31,  2003,  the Company
         issued 37,898, 0, and 37,898 shares, respectively,  of common stock for
         the  outstanding  principal  on  convertible  notes  payable  - related
         parties and accrued interest of $37,896, $0, and $37,896, respectively.

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

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

         In October 2002, the Company  completed its second  private  placement,
         issuing  1,349,934  shares  (unaudited) of common stock in exchange for
         net  cash  proceeds  of  $1,625,614  (unaudited),   of  which  $184,000
         (unaudited) was recorded as a subscription  receivable and collected in
         November 2002.

         Common Stock Issued for Dividends (unaudited)
         ---------------------------------
         In October 2002,  the Company  issued 68,150 shares of common stock for
         $78,360 of dividends accrued on the Series A.

         Common Stock Issued for Employee Bonus (unaudited)
         --------------------------------------
         The Company issued 11,178 shares of common stock and committed to issue
         5,589 shares of common stock to an employee of the Company in lieu of a
         cash bonus. The shares were valued at $34,484,  which  approximates the
         fair value of the shares.


                                       34
<PAGE>

                                   HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 APRIL 30, 2002 AND JANUARY 31, 2003 (UNAUDITED)
--------------------------------------------------------------------------------

NOTE 10 - SHAREHOLDERS` EQUITY (DEFICIT) (CONTINUED)

         Accounts Payable Converted into Stock Options (unaudited)
         ---------------------------------------------
         During the nine months  ended  January 31, 2003 and 2002 and the period
         from  August 21, 1995  (inception)  to January  31,  2003,  the Company
         converted  accounts  payable due to a  consultant  of $65,000,  $0, and
         $65,000,  respectively,  into options to purchase 72,726, 0, and 72,726
         shares,  respectively,  of common stock.  Of these options,  45,454 are
         exercisable at $1 per share, vest over a one-year period, and expire in
         September  2012.  The remaining  options are  exercisable  at $2.24 per
         share, vest over a one-year period, and expire in December 2012.

         Cashless Exercise of Warrants (unaudited)
         ------------------------------
         In December  2002,  warrants to purchase  47,000 shares of common stock
         were  exercised  via a cashless  exercise,  whereby the Company  issued
         33,909 shares of common stock.

         Common Stock Issued to a Former Officer as a Settlement (unaudited)
         -------------------------------------------------------
         In February 2003, the Company issued 80,000 shares of restricted common
         stock valued at $125,000 in connection with a settlement agreement with
         a former officer.

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


NOTE 11 - FINANCING EXPENSE - RELATED PARTY (UNAUDITED)

         In May 2002, the Company issued warrants to purchase  150,000 shares of
         common stock to a  shareholder/former  officer/director of the Company.
         The warrants vest  immediately,  are  exercisable at $1 per share,  and
         expire on May 31,  2005.  Since the  Company was in default on the note
         payable for $150,000 to this shareholder/former officer/director of the
         Company,  the Company granted these warrants (see Note 6). Accordingly,
         the Company  recorded  financing  expense of  $223,710  during the nine
         months ended January 31, 2003.


NOTE 12 - RELATED PARTY TRANSACTIONS

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

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

                                       35
<PAGE>

                                   HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 APRIL 30, 2002 AND JANUARY 31, 2003 (UNAUDITED)
-------------------------------------------------------------------------------

NOTE 13 - SUBSEQUENT EVENTS (UNAUDITED)

         Management Changes
         ------------------
         Appointments
         In  February  2003,  the  Company  appointed Mr. David R. Baker to the
         Board  of  Directors  of  the  Company.

         In March 2003, the Company appointed Mr. Robert Drysdale and Mr. Bruce
         Del  Mar  to  its  Board  of  Directors.

         In  March  2003,  Ms.  Ioana C. Nicodin was appointed Secretary of the
         Company.

         In  March  2003,  Dr.  Bogdan C. Maglich was appointed Chief Executive
         Officer,  President,  and  Treasurer  of  the  Company.

         Resignations
         At the  request  of the  Chief  Scientist/Chairman  of the  Board,  Mr.
         Gregory Gilbert and Mr. Barry Alter, both of whom were directors of the
         Company, resigned their positions in March 2003.

         In  March  2003,   Mr.   Thomas   Pascoe   resigned  his  positions  as
         President/Chief Executive Officer/Treasurer/Director of the Company.

         In March 2003,  Ms. Michal Levy resigned her positions as Secretary and
         Vice President of the Company.

         SEC Investigation
         -----------------
          In  February  2003,  the  Enforcement  Division  of the Securities and
          Exchange  Commission  opened an investigation requesting the Company`s
          cooperation  on a voluntary basis and we have not been notified of any
          formal  investigation.  The  Company  has  supplied  the  Enforcement
          Division`s  attorneys  with  the  reports  developed  by the Company`s
          independent  investigators.  The  Company  has cooperated promptly and
          continuously  and intends to cooperate with the Enforcement Division`s
          investigation  and  has  agreed to voluntarily provide the Enforcement
          Division  with  other  documents  they  have requested in its informal
          investigation. At this time, the Enforcement Division`s attorneys have
          not  indicated  whether  they  intend  to recommend action against the
          Company  or  any  of its officers or directors and has not commenced a
          formal  investigation.

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

         Consulting Agreement
         --------------------
         Effective  February 21, 2003,  the Company  terminated  the  consulting
         agreement  with a former  Chief  Executive  Officer  by mutual  written
         consent.

                                       36
<PAGE>

                                   HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                   (DEVELOPMENT STAGE COMPANIES)
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 APRIL 30, 2002 AND JANUARY 31, 2003 (UNAUDITED)
--------------------------------------------------------------------------------

NOTE 13 - SUBSEQUENT EVENTS (UNAUDITED)

         Employment Agreement
         --------------------
         In February 2003, the Company paid $50,000 due on a promissory  note to
         its  Chief  Scientist/Chairman  of the  Board  and  issued  options  to
         purchase  416,712  shares  of  common  stock  in  connection  with  his
         employment agreement.

         Stock Options
         -------------
         In February 2003, the Company issued warrants to purchase 80,000 shares
         of common stock to a placement  agent.  The options  vest  immediately,
         have an exercise price of $1.50 per share, and expire in February 2006.



                                       37
<PAGE>



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

Except for the historical  information  presented in this document,  the matters
discussed in this Form 10-QSB, and specifically in "Management`s  Discussion and
Analysis or Plan of Operation," or otherwise incorporated by reference into this
document contain  "forward  looking  statements" (as such term is defined in the
Private  Securities  Litigation  Reform Act of 1995).  These  statements  can be
identified  by the  use  of  forward-looking  terminology  such  as  "believes,"
"expects," "may," "will," "intends,"  "should," or "anticipates" or the negative
thereof or other variations thereon or comparable terminology, or by discussions
of strategy that involve risks and uncertainties.  The safe harbor provisions of
Section 21E of the Securities Exchange Act of 1934, as amended,  and Section 27A
of the Securities Act of 1933, as amended,  apply to forward-looking  statements
made by HiEnergy Technologies,  Inc. (the "Company"). You should not place undue
reliance on forward-looking statements. Forward-looking statements involve risks
and uncertainties. The actual results that we achieve may differ materially from
any  forward-looking  statements  due to such  risks  and  uncertainties.  These
forward-looking  statements are based on current expectations,  and we assume no
obligation to update this information. Readers are urged to carefully review and
consider the various disclosures made by us in this report on Form 10-QSB and in
our other reports filed with the Securities and Exchange Commission ("SEC") that
attempt to advise  interested  parties of the risks and factors  that may affect
our business.

The following  discussion  and analysis of our  financial  condition and plan of
operation should be read in conjunction with the unaudited financial  statements
and accompanying notes and the other financial  information  appearing elsewhere
in this report and with the audited financial  statements  contained in our Form
10-KSB for the year ended April 30, 2002.

OVERVIEW

We were  incorporated  under  the laws of the State of  Washington  on March 22,
2000,  under the name SLW  Enterprises  Inc. On April 30, 2002,  SLW changed its
name to HiEnergy  Technologies,  Inc. in conjunction  with the acquisition of an
approximately   92%  interest  in  HiEnergy   Microdevices,   Inc.,  a  Delaware
corporation  based  in  Irvine,  California  in the  business  of  developing  a
stoichiometric-based  technology  that  can  remotely  determine  the  empirical
chemical composition of substances, including explosives, biological weapons and
illegal drugs. HiEnergy Microdevices was formed on August 21, 1995.

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

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

We  plan  to  develop  three   detection   systems   based  on  our   innovative
stoichiometric  technology,  which has been proven in the laboratory to remotely
and  non-intrusively  determine  the  chemical  formulas  of  certain  concealed
substances  in  controlled   situations  and  "see  through"  metals  and  other
materials.

                                       38
<PAGE>



BASIS OF PRESENTATION

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

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

CRITICAL ACCOUNTING ESTIMATES

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

OPERATING RESULTS

For  the  nine  months  ended  January  31,  2003,  we  incurred  a net  loss of
approximately $4.1 million, as compared to a net loss of approximately  $600,000
for the same period in 2002.  For the three  months ended  January 31, 2003,  we
incurred a net loss of approximately $2.2 million,  as compared to a net loss of
approximately  $440,000  for the same period in 2002.  For the nine months ended
January 31, 2003,  we had negative cash flows from  operations of  approximately
$2.1 million.  In addition,  we had an accumulated deficit of approximately $7.7
million and were in the development stage as of January 31, 2003. These factors,
among others,  raise  substantial doubt about our ability to continue as a going
concern.  Our consolidated  financial  statements do not include any adjustments
that might result from the outcome of this uncertainty.

THREE MONTHS ENDED JANUARY 31, 2003 COMPARED TO THREE MONTHS ENDED
JANUARY 31, 2002
------------------------------------------------------------------

         REVENUE

We had no revenues  during the  three-month  periods  ended  January 31, 2003 or
2002. Our only revenues have been derived from government grants for development
and testing of our remote detection  technology.  We have not commenced  selling
our products.  Until we complete development of one of our detector systems, our
revenues will most likely be limited to  government  grants.  We cannot  predict
exactly when we will complete  development of our planned  detection systems and
begin  production for specific  applications,  but we expect that it will not be
within the fiscal year that will end on April 30, 2003.

         OPERATING EXPENSES

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

Our general and administration  expenses increased to approximately $2.2 million
during the  three-month  period  ended  January  31,  2003,  from  approximately
$436,000  during the same period in 2002. The increase in operating expenses was
primarily  due  to  increases  in  scientific  administrative personnel, general
office,  legal,  accounting and investor relations expenses, as well as research
and  development  expenses.

                                       39
<PAGE>


NINE MONTHS ENDED JANUARY 31, 2003 COMPARED TO NINE MONTHS ENDED
JANUARY 31, 2002
----------------------------------------------------------------

         REVENUE

We had revenues of  approximately  $41,000  during the  nine-month  period ended
January 31, 2003, as compared to revenues of  approximately  $117,000 during the
same period last year.  Our revenues  were derived  from  government  grants for
development and testing of our remote detection technology.

         OPERATING EXPENSES

Our general and administration  expenses increased to approximately $4.0 million
during the nine-month period ended January 31, 2003, from approximately $707,000
during the same period in 2002. The increase in operating expenses was primarily
due  to  increases  in  scientific and administrative personnel, amortization of
deferred  compensation and prepaid consulting, general office, legal, accounting
and  investor  relations expenses, as well as research and development expenses.

         OTHER EXPENSES

We  incurred  finance  expenses of $223,710 during the nine months ended January
31, 2003 as discussed in Note 10, page 35 of the Notes to Consolidated Financial
Statements.

         DEPRECIATION

Accumulated  depreciation  for  property  and  equipment at January 31, 2003 was
approximately  $80,000.  Depreciation  expense for the nine-month  periods ended
January 31, 2003 and 2002 was approximately $72,500 and $5,800, respectively.

OTHER MATTERS
-------------

         TAX RETURNS

The  Company`s  subsidiary,  HiEnergy Microdevices, has not filed certain of its
Forms  1099  and  W-2 and payroll tax returns for the years ended April 30, 1996
through  2002. HiEnergy Microdevices has reserved $350,000 as of April 30, 2002,
and  $350,000  as  of  January  31, 2003 for any potential taxes due for payroll
taxes, penalties and interest that may have accrued as of such dates. The Boards
of  Directors  of  HiEnergy Microdevices and HiEnergy Technologies have directed
that  any  delinquent  Forms  1099  and  W-2  and  payroll tax returns be filed.

         RECENT ACCOUNTING PRONOUNCEMENTS

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

LIQUIDITY AND CAPITAL RESOURCES; PLAN OF OPERATION

During the nine  months  ended  January 31,  2003,  we used  approximately  $2.1
million for operating  activities,  approximately  $677,000 to acquire equipment
and  approximately  $506,000  to  repay related party liabilities. These uses of
cash  were  funded  principally  through  opening  cash  on  April  30,  2002 of
approximately  $1.1  million  and  private  placement  offerings  of  common and
preferred  stock that provided net proceeds of approximately $2.9 million. As of
January  31, 2003, we had cash of approximately $756,000 and current liabilities
of  approximately  $1.1  million.

We raised  approximately $2.5 million in net proceeds (after commissions) during
the three  months  ended  October  31,  2002.  On October 7, 2002,  we closed an
offering of our Series A  Convertible  Preferred  Stock,  providing net proceeds
(after commissions) of approximately $855,000. We issued approximately 98 Series
A Preferred  shares at a face value of $10,000 per share. The Series A Preferred
shares are  convertible  into  common  stock at a fixed rate of $1.15 per share.
Each investor also received 30% warrant coverage,  based on the number of common
shares their Series A Preferred can be converted into, with an exercise price of
$1.50 per  share.  We also paid an 8%  dividend  on the  Series A  Preferred  in
advance by issuing  approximately  68,000  common  shares to the  investors.  On
October 31, 2002,  we completed an offering of our common  stock,  providing net
proceeds  (after   commissions)  of  approximately   $1.7  million.   We  issued
approximately  1.3  million  common  shares at a price per share of $1.35.  Each
investor  also  received  20%  warrant  coverage,  based on the number of common
shares  purchased,  with an exercise price of $2.50 per share. The offerings and
sales of our Series A Preferred  Stock and our common stock were not  registered
under the Securities Act and were  conducted  pursuant to applicable  exemptions
from the Securities Act`s registration  requirements.  This disclosure is not an


                                       40
<PAGE>

offer of securities by us or a solicitation  of an offer to buy securities  from
us. Placements were made only to accredited  investors with preexisting contacts
with HiEnergy Technologies and its authorized representatives.

On  February  7, 2003,  we repaid  approximately  $50,000  of the  approximately
$145,000 of related  party notes  payable that were  outstanding  on January 31,
2003. The remaining unpaid balance of approximately $95,000 is in default or due
on demand. As discussed in the section entitled "Legal Proceedings",  on January
15,  2003,  we  executed  a  settlement  agreement  with Keith  Cowan,  a former
executive  officer  of  HiEnergy  Microdevices,  that  contains  a maximum  cash
exposure of $175,000.  The  settlement  agreement  provides that we will pay Mr.
Cowan  $50,000.  In addition,  Mr. Cowan  received  80,000  shares of restricted
HiEnergy  Technologies  common  stock with  registration  rights.  If the 80,000
shares are not sold through a registered offering before April 1, 2003, then Mr.
Cowan has the  option of  tendering  the  shares to  HiEnergy  Technologies  and
demanding  payment of  $125,000.  The  $125,000 is being held in escrow.  In the
alternative,  if Mr.  Cowan  receives  less than  $125,000  upon the sale of the
80,000  shares  within  30  days  of the  effective  date  of  the  registration
statement,  he is entitled to payment of the difference between $125,000 and the
amount he received from the sale of the stock.  Once HiEnergy  Technologies  has
fulfilled its obligations under the settlement  agreement,  Mr. Cowan has agreed
to request dismissal, with prejudice, of the lawsuit.

After  filing  our payroll tax returns, we intend to negotiate payment schedules
with  relevant  taxing  authorities.  The  Company`s  subsidiary,  HiEnergy
Microdevices,  has  reserved  $350,000  as of April 30, 2002, and $350,000 as of
January  31,  2003  for  any potential taxes due to payroll taxes, penalties and
interest  that  may  have  accrued  as  of  such  dates.

On November 6, 2002, we filed a registration  statement on Form SB-2 to register
an  offering  of  common  stock by some of our  shareholders  on a  delayed  and
continuous  basis.  The Securities and Exchange  Commission  notified us that it
would not review the  registration  statement.  During the course of our ongoing
due  diligence  in  connection  with this  filing,  we  determined  that certain
disclosures  should be  updated  prior to  requesting  that the  Securities  and
Exchange Commission declare the registration  statement  effective.  On February
25, 2003, we filed a pre-effective  amendment to the registration statement that
updates  these  disclosures  and  includes updated financial statements. We will
have  to  file  a  second  pre-effective amendment because the February 25, 2003
filing  now  contains  outdated  financial  statements  and  does not accurately
reflect  the current composition of our Board of Directors. Certain shareholders
may  have rights under their respective registration rights agreements to demand
payment  of  penalties  because  we  did not request the Securities and Exchange
Commission  to declare our registration statement effective. Although we believe
we  have valid reasons for amending our registration statement, we may be liable
for  these  penalties  nonetheless.  If  a  court determines us liable for these
penalties,  or  if we agree to pay them to avoid litigation, the penalties would
be  approximately  $28,000  for  the  first  month  (ending  in  December)  and
approximately  $42,000  per  month  thereafter.  We  cannot  predict whether the
Securities  and  Exchange  Commission  will  decide  to  review  our  second
pre-effective amendment, but a decision to review our filing could substantially
lengthen  the period during which we will be exposed to liability for penalties.
We  have  the  option  to  pay a portion of these penalties in common stock that
would  be  included  in  the registration statement. Although we believe we have
valid  reasons  for  amending our registration statement, it may be possible for
our  Series A shareholders to claim a right to redeem their Series A Convertible
Preferred  Stock  by  alleging  that  our  decision  to  update  and  amend  our
registration statement is a material breach of our registration rights agreement
with  them. If all of our Series A shareholders made such a claim and prevailed,
we would have to redeem their Series A shares in an amount of approximately $1.0
million  (this amount is in addition to the penalties discussed above). Although
this  claim is a reasonable possibility, we believe we have defenses against it.

The  SEC  has  initiated an investigation which includes an investigation of the
relationship  of  certain of our directors and stockholders to an individual who
has  previously  been  involved  in  stock  manipulation  schemes  and  our
relationships,  contracts  and  press  releases.  The  SEC  has  requested  our
cooperation  on  a  voluntary  basis. We had previously conducted an independent
investigation  of  such  relationships  with that individual, the conclusions of
which  are  discussed further below in the section entitled "Legal Proceedings."
We  intend to cooperate with the ongoing investigation of this matter by the SEC
and  may  be required to incur additional expenses related to the investigation.
We  may  also  be  subject  to  a claim by Barry Alter, a former Chief Executive
Officer  and  director  of  HiEnergy  Technologies,  for  an  alleged  right  to
indemnification  from  expenses  incurred  by  him  in  connection  with  the
investigation  under  the  indemnification  provisions  of  our  Certificate  of
Incorporation  and  Bylaws. We are in the process of considering the request for


                                       41
<PAGE>

indemnification  and have not made a determination that Mr. Alter is entitled to
it. If it is determined  that Mr.  Alter`s claim  satisfies the  conditions  for
indemnification,  we may be obligated to pay for any  expenses,  liabilities  or
losses incurred by him in connection with the investigation.  In a determination
of Mr.  Alter`s  right to  indemnification,  we will bear the burden of proof in
demonstrating that he is not entitled to indemnification under the provisions of
the Certificate of Incorporation and Bylaws.

During  the  quarter ended January 31, 2003, our monthly cash used in operations
was  around  $265,000,  excluding  the  $50,000 paid to and the $125,000 held in
escrow  for  Keith Cowan in connection with the settlement agreement. We are now
working  to  conserve  our  cash.  As  a result of cost cutting measures, we are
trying  to  limit  our monthly cash used in operations to approximately $150,000
per  month.  We  have  no  contractual obligations to make capital expenditures.
During  the  nine-month  period  ended  January  31,  2003, we have made capital
expenditures  of  approximately  $677,000.  We intend to make additional capital
expenditures  of  approximately  $30,000  through April 30, 2003, for a total of
approximately  $700,000  during  the fiscal year, to further the development and
testing of our technology and proposed products. If we make all of these capital
expenditures  and  our  cash  used in operations remains steady at approximately
$150,000  per  month,  we  expect to have enough cash to support our operations,
with  continued  cost-cutting  measures, for approximately three to four months.
Our  cash  on  hand, however, may not be sufficient to fund our operations for a
period  of four months and we will need to raise additional funds to support our
operations  beyond  four  months.

The continued  development and testing of our technology to create  market-ready
products  depends  upon  raising  additional  funds.  We  anticipate  needing an
additional $2.0 million for the year ending April 30, 2004, in order to continue
our operations at their current level. We believe we have sufficient  authorized
capital to raise  approximately  $2.0 million  during the coming fiscal year, as
our Certificate of Incorporation  authorizes  100,000,000 shares of common stock
and  20,000,000  shares of preferred  stock.  As of March 14,  2003,  there were
24,174,605  shares of common stock and  approximately  95.82 shares of preferred
stock outstanding.  There can, however,  be no assurance that we will be able to
continue  as  a  going  concern  or  achieve  material  revenues  or  profitable
operations.

In August  2002,  our  project  to develop  the  SuperSenzor  was  competitively
selected  by the  Department  of  Defense  Small  Business  Innovation  Research
("SBIR")  program to receive up to $780,000 in funding  over two years for Phase
II testing and development of an anti-tank  landmine detection system. The total
cost of the project is  $1,400,000,  which  includes  private  matching funds of
$550,000 and $70,000 granted by the Department of Defense for Phase I testing of
the system  currently  being  completed.  The private  contribution  consists of
approximately   $200,000  in  matching  funds  from  private   individuals   and
approximately  $350,000 worth of HiEnergy  Technologies`  hi-tech equipment.  On
January 15, 2003,  the contract  with the  Department of Defense was executed by
the parties. We have commenced work under year one of the $415,000 contract.  We
are  contractually  scheduled  to receive  $34,585 per month under the  contract
commencing  in February  2003 and have  submitted  invoices to the DOD for the
February and March 2003  payments,  but have not yet received  them.  The second
year of the contract,  valued at approximately $364,000, is under an option that
can be exercised by the DOD at the end of the first year.

We plan to continue to utilize a combination of equity financings and government
grants to fund our short-term growth. Negative publicity surrounding the matters
discussed  in the  section  entitled  "Legal  Proceedings"  could  increase  the
challenge of raising additional  capital.  However,  the lower stock price could
make the stock more attractive to private investors.  There is no assurance that
additional capital will be available when or if required.

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

                                       42
<PAGE>




RISKS RELATED TO OUR BUSINESS

THERE  HAS BEEN AN  INFORMAL  SEC  INQUIRY  THAT  RELATES  TO  INVESTORS  IN OUR
PREDECESSOR  COMPANY  ABOUT  THE  TIME OF THE  REVERSE  ACQUISITION  TRANSACTION
BETWEEN SLW ENTERPRISES INC. AND HIENERGY MICRODEVICES, INC.
-------------------------------------------------------------------------------

We  were made aware by a reporter with the Dow Jones News Service that there may
be  a relationship between a former director and Chief Executive Officer of each
of  SLW and HiEnergy Technologies, Barry Alter, and an individual by the name of
Phil  Gurian,  who had previously been convicted and awaits sentencing for stock
manipulation  schemes.  We  initiated  an independent investigation into whether
such  relationship existed, and if so, to determine further whether we or any of
our directors or officers engaged in any wrongdoing. The investigation concluded
that  Mr.  Alter  had  contact  with  Mr.  Gurian in connection with the reverse
acquisition  of HiEnergy Microdevices by SLW in April 2002. Mr. Gurian was never
a  record  stockholder  of  HiEnergy  Technologies. However, we believe that Mr.
Gurian introduced other investors who did own our stock or do own our stock. Our
investigation  revealed that some stockholders who purchased significant amounts
of  SLW  shares  shortly  prior  to  the  reverse  acquisition knew or had other
business  dealings  with  Mr.  Gurian.  One  of these stockholders was a company
reportedly  owned  by Mr. Gurian`s mother, which disposed of its shares in April
2002  at a substantial profit. We believe that, innocently or intentionally, Mr.
Alter  knew  of  these  purchases. Please see "Legal Proceedings." Mr. Alter has
engaged his own separate legal counsel and is a recipient of an informal inquiry
by  the  SEC as to this matter. Mr. Alter has also requested that we advance him
legal  counsel  retainer  against  future  expenses  in  connection  with  that
investigation. After our independent investigation concluded, the Dow Jones News
Service has developed further its story about various connections that allegedly
may  have  existed  between these and other investors and Mr. Gurian himself and
other  connections  including some between a former market maker and Mr. Gurian.

Despite  the ongoing investigation by the SEC, the development of our technology
and  products  is proceeding undisturbed and without interruption. Naturally, we
have cooperated fully with the SEC. We feel that we have fully complied with the
request by the SEC for information. For instance, we have provided approximately
3,000  pages  of documents. There will be a few additional documents supplied as
and  when  requested.  As  to  the conclusions of the independent investigators,
please  see  "Legal  Proceedings."

The price of our stock declined  precipitously in connection with the news story
and  our  announcements  concerning  our  investigation.  Nevertheless,  current
management is highly confident of the Company`s ability to raise financing.  The
SEC has not made or filed any  allegations  as it is still a matter of  informal
investigation.  One of the  possible  effects on us could be a  depressed  stock
price,  which may result in  difficulty  raising  equity  capital or the sale of
equity at prices that are less than the price of our common stock on the market.
We also would be subject to indemnification claims by Mr. Alter, who claims that
we are required to advance his expenses until there is a final  judgment,  which
could be years  away.  We are in the  process of  considering  the  request  for
indemnification  and have not made a determination that Mr. Alter is entitled to
it. There may be costs and expenses in addition to these, such as legal expenses
and other  incremental  expenses  that could be  involved  in sorting  out these
issues and assisting the SEC with such work.

We may also consider  instituting  litigation as a result of any wrongdoing that
is found.  Such litigation  could also involve  material costs that could affect
our financial  position.  We will rely upon the SEC`s  investigation  to help us
determine whether and what action is appropriate.

FORMER DIRECTOR FAILED TO DISCLOSE COURT JUDGMENT.
--------------------------------------------------

We filed on March 11, 2003 an amendment to our annual  report on Form 10-KSB for
the year ended April 30, 2002  disclosing  additional  biographical  information
about Gregory F. Gilbert, a former director. Specifically, we obtained a copy of
a "Final  Judgment as to Gregory  Gilbert" from the United States District Court
for the District of Columbia  dated May 7, 1999, in SEC v. Bio-Tech  Industries,
Inc., et al., Case No. 98 Civ.  2298.  Based on a review of the civil docket for
this case, we do not believe this  judgment,  as reinstated on or about July 20,
1999, has been reversed,  suspended or vacated. Therefore, this involvement by a
director in such legal  proceedings was not known by the Company or disclosed in
the Form 10-KSB pursuant to Item 401(d) of Regulation S-B.

                                       43
<PAGE>

The judgment  permanently  restrains and enjoins Mr.  Gilbert from violating the
anti-fraud provisions of the Securities Exchange Act of 1934 and imposes a civil
penalty of $100,000 on him.  Mr.  Gilbert did not disclose  this  judgment to us
during the course of our preparation of our annual report on Form 10-KSB for the
year ended April 30, 2002. We also determined,  based on SEC Litigation  Release
No. 16182 (June 9, 1999), that a predecessor to Hamilton-Biophile  Companies, of
which Mr. Gilbert is Chief Executive Officer, was enjoined to file its quarterly
and annual  reports  due under the  Securities  Exchange  Act of 1934.  Based on
entries  on  the  SEC`s  EDGAR   database,   it  does  not  appear  that  either
Hamilton-Biophile   or  the  predecessor  has  complied  with  this  injunction.
Additionally,  Hamilton-Biophile,  including its predecessors,  has filed or had
filed against it petitions for voluntary and involuntary  bankruptcy  during Mr.
Gilbert`s tenure as its Chief Executive Officer.

Because the  information  had not been  disclosed by Mr. Gilbert to us, we could
not include the  information  in any filings with the SEC prior to the filing on
March 11, 2003 of the amendment to our annual report on Form 10-KSB for the year
ended April 30, 2002.

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

In April, June and October 2002, we sold 1,725,000 shares of Common Stock, 97.93
shares of Series A Convertible  Preferred  Stock and 1,349,934  shares of Common
Stock in three  separate  private  equity  offerings.  Facts  related to Gregory
Gilbert and a separate  investigation by the SEC involving  persons suspected of
stock  manipulation,  which  are  described  under  "Former  Director  Failed to
Disclose  Court  Judgment"  "There  Has  Been  an  Informal  SEC Inquiry ... SLW
Enterprises  Inc. and HiEnergy Microdevices, Inc." and "Legal Proceedings," were
not  known  to  us and were not disclosed in sales materials or filings with the
SEC. We do not believe that the information was material, and we believe that we
have  valid  defenses  against  liability  under the Securities Act of 1933 (the
"Securities  Act"), the Securities Exchange Act of 1934 (the "Exchange Act") and
other  state  and  federal  securities  laws. However, if a court decides to the
contrary,  that  could  result  in  liability  under  the Securities Act to such
purchasers  or  under  the  Securities  Exchange Act of 1934 to stockholders, or
under  other state securities laws that may apply similar or different standards
as  the  federal  law.  In  such  case,  we  would  pursue all of our rights and
remedies,  if  any, against our former officers and directors to the extent they
were  involved.

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

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

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

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

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

                                       44
<PAGE>

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

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

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

OUR AUDITORS INCLUDED A GOING CONCERN QUALIFICATION IN THEIR REPORT ON OUR
AUDITED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

Our  recurring  losses,  our  accumulated  deficit,  and  our  working  capital
deficiency,  among  other factors, raises substantial doubt about our ability to
continue as a going concern and led our independent certified public accountants
to  qualify  their opinion contained in our consolidated financial statements as
of  and  for  the  years ended April 30, 2002 and 2001 to include an explanatory
paragraph  related  to  our  ability  to continue as a going concern. Reports of
independent  auditors  questioning  a  company`s  ability to continue as a going
concern  are generally viewed unfavorably by analysts and investors. This report
may make it difficult for us to raise additional debt or equity financing to the
extent  needed  for  our  continued  operations  or  for  planned  expansion,
particularly  if  we  are unable to attain and maintain profitable operations in
the  future.  Consequently,  future losses may have a material adverse effect on
our  business,  prospects,  financial  condition, results of operations and cash
flows.


ITEM 3.  CONTROLS AND PROCEDURES

(A)  EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Our Chief  Executive  Officer and  Treasurer,  Dr. Bogdan C.  Maglich,  with the
assistance of other  management,  has evaluated the  effectiveness of the design
and operation of our disclosure controls and procedures (as such term is defined
in Rules 13a -14(c) and 15d-14(c) under the Securities  Exchange Act of 1934, as
amended  (the  "Exchange  Act")) as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"). Based on such evaluation,
he has concluded  that, as of the Evaluation  Date, our disclosure  controls and
procedures  are  effective  to ensure  that he is alerted  on a timely  basis to
material   information   relating  to  HiEnergy   Technologies   (including  its
consolidated  subsidiaries)  required to be  included  in our  reports  filed or
submitted  under  the  Exchange  Act and  that  such  information  is  recorded,
processed and reported as and when required.

(B)  CHANGES IN INTERNAL CONTROLS

The  finding  of  the  evaluation  of  our  internal  controls is that they need
improvements,  and  we  are  in the process of addressing these issues. In March
2003, our Board of Directors revised the procedures for monetary payments by the
Company  to  require  that  all  monetary  payments  made  by the Company or its
subsidiaries  be  first  approved in writing by Dr. Maglich and that Dr. Maglich
has  sole  authority  to  sign  checks,  notes or drafts for the Company and its
subsidiaries.


                                       45
<PAGE>


                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

As we reported in our February 25, 2003, amendment to our Form SB-2 registration
statement,  we have become aware of rumors  regarding  certain  stockholders and
their  relationship  to a  person  who has  previously  been  involved  in stock
manipulation  schemes.  Our general  policy is not to respond to rumors,  but we
believe that these rumors may have  contributed to a decline in the market price
of our common stock and may continue to  contribute  to a further  decline.  Our
Board  of  Directors  directed  our  President  to  hire a team  of  independent
investigators  to  investigate  whether the Company or any of our  officers  and
directors engaged in any wrongdoing.  The core team of independent investigators
consisted of two former federal  prosecutors,  a former  Assistant United States
Attorney in the civil division who has been in private  practice since 1981 with
experience  in  securities   litigation   and   regulatory   and   investigative
proceedings,  and  a  former  supervisory  agent  from  the  Federal  Bureau  of
Investigation.  The  independent  investigators  reviewed  disclosures  HiEnergy
Technologies has made, reviewed disclosures made by SLW Enterprises prior to the
April 2002 reverse merger,  reviewed other publicly available  information,  and
conducted a number of interviews,  including  interviews with the person who had
previously  been  involved  in stock  manipulation  schemes  and two of HiEnergy
Technologies` former directors who know him.

The  independent  investigators  have completed their  investigation.  Except as
discussed  in the  next  two  paragraphs,  the  independent  investigators  have
concluded the following:

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

2.            The independent  investigators have not identified any evidence of
              wrongdoing   following  the  April  2002  reverse  merger  of  SLW
              Enterprises and HiEnergy  Microdevices that resulted in our public
              company, HiEnergy Technologies.

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

4.            Our  post-merger  officers and  directors  responded  promptly and
              cooperated fully with the investigation.

Concerning  item  3, above, the independent investigators obtained evidence that
some of HiEnergy Technologies` stockholders who purchased significant amounts of
SLW Enterprises shares prior to the reverse merger then had know or had business
dealings  with the person who had previously been involved in stock manipulation
and that one of these stockholders was a company reportedly owned by his mother,
which  disposed  of  its shares in April 2002 at a profit believed to be between
$500,000  and  $600,000.  A  person  who  later served as HiEnergy Technologies`
interim  President and was a director was aware of at least some aspect of these
purchases  of  SLW Enterprises shares. The independent investigators believe the
evidence  is inconclusive whether the person who had previously been involved in
stock manipulation had control over these SLW Enterprises shares and whether, if
so,  HiEnergy  Technologies`  former President and director had any knowledge of
such  control.

Subsequent  to the  conclusion  of the  independent  investigation,  we obtained
information  concerning  former director Gregory Gilbert`s past that should have
been included in his  biographical  information  in the Form 10-KSB for the year
ended  April 30,  2002.  We filed an  amendment  to our Form 10-KSB on March 11,
2003, to include this information.

The Enforcement Division of the Securities and Exchange Commission has opened an
investigation  requesting  HiEnergy  Technologies`  cooperation  on a  voluntary
basis.  We have supplied the  Enforcement  Division  attorneys  with the reports
developed by our  independent  investigators.  We intend to  cooperate  with the
Enforcement  Division`s  investigation  and  have  voluntarily  provided  the
Enforcement  Division  with  documents  they  have  requested.  At this time the
Enforcement  Division  attorneys  have  not  indicated  whether  they  intend to
recommend  action  against  the  Company  or any of its officers or directors or
former  officers  or  directors.

We  received a letter  dated  December 5, 2002,  from an  attorney  representing
Richard T. Eckhouse,  a consultant,  demanding  payment for accounting  services


                                       46
<PAGE>

allegedly  performed  by Mr.  Eckhouse  pursuant  to a  Letter  Agreement  dated
November 7, 2001,  between Mr.  Eckhouse  and  HiEnergy  Microdevices,  Inc. The
Letter Agreement  provides that Mr. Eckhouse was to be paid $350 per hour, which
was to be paid as follows: (i) one-third or $117 in cash; (ii) one-third or $117
paid by a  Promissory  Note  at 10%  annual  interest,  maturing  when  HiEnergy
Technologies  receives  government funding of $900,000 or an investment totaling
$300,000 or more; and (iii)  one-third or $117 paid by Class A (common stock) of
HiEnergy  Microdevices at $5.00 per share. The demand letter received by us does
not  specify a  specific  amount  of  damages  but  states  that such  amount is
"considerable".  No lawsuit  has been filed by Mr.  Eckhouse  as of  February 1,
2003.

In  March,   2002,   Keith  Cowan,  a  former  CEO  and  President  of  HiEnergy
Microdevices,  filed a lawsuit against HiEnergy  Microdevices,  Dr. Maglich, and
Mr. Richard Alden in the Superior  Court of the State of  California,  County of
Orange,  Central  Justice  Center.  Mr.  Cowan  sought  damages in the amount of
$873,455,  plus  interest,  penalties,  attorney`s  fees, and costs based on the
following  claims:  (a) failure to pay wages due in  violation of the Labor Code
against HiEnergy  Microdevices  and Dr. Maglich;  (b) breach of contract against
HiEnergy  Microdevices and Dr. Maglich; (c) false  representation  regarding the
kind and  character  of the work  against  all three  defendants;  and (d) fraud
against all three  defendants.  The parties to the lawsuit executed a settlement
agreement on January 15, 2003. The settlement  agreement  provides that HiEnergy
Technologies will pay Mr. Cowan $50,000:  $25,000 in the form of wages that will
be subject  to payroll  taxes and  $25,000  in the form of a  reimbursement  for
moving expenses and legal fees. In addition, Mr. Cowan received 80,000 shares of
restricted common stock of HiEnergy  Technologies  with registration  rights. If
the 80,000  shares are not sold  through a registered  offering  before April 1,
2003,  then Mr.  Cowan  has the  option of  tendering  the  shares  to  HiEnergy
Technologies and demanding payment of $125,000. In the alternative, if Mr. Cowan
receives less than $125,000 upon the sale of the 80,000 shares within 30 days of
the effective date of the registration  statement,  he is entitled to payment of
the difference  between $125,000 and the amount he received from the sale of the
stock.  Once  HiEnergy  Technologies  has fulfilled  its  obligations  under the
settlement agreement, Mr. Cowan has agreed to request dismissal, with prejudice,
of the lawsuit.

As discussed more fully above under Management`s Discussion and Analysis or Plan
of  Operation,  the  Company`s  subsidiary,  HiEnergy Microdevices, has reserved
$350,000  as  of  April  30,  2002,  and $350,000 as of January 31, 2003 for any
potential  taxes  due  to  payroll  taxes,  penalties and interest that may have
accrued  as  of  such  dates.

Except as  described  above,  to the  knowledge  of our  executive  officers and
directors,  neither we nor our subsidiaries are party to any legal proceeding or
litigation and none of our property is the subject of a pending legal proceeding
and our  executive  officers  and  directors  know  of no  other  threatened  or
contemplated legal proceedings or litigation.


ITEM 2.  CHANGES IN SECURITIES

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

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

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

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



                                       47
<PAGE>

ITEM 5.  OTHER INFORMATION

RESIGNATIONS AND APPOINTMENTS OF DIRECTORS AND OFFICERS

In February 2003, HiEnergy Technologies appointed David R. Baker to its Board of
Directors.

Mr.  Baker has been an attorney for over 45 years and is currently Of Counsel to
the firm Haskell Slaughter Young & Rediker, LLC, of Birmingham,  Alabama and New
York City, and is a Retired  Partner of Jones,  Day, Reavis & Pogue from its New
York City office.  Mr. Baker is a graduate of Harvard Law School. He is a member
of the  Alabama  and New York  State Bar  Associations,  serves  on the  Liaison
Committee of the American Bar Association to the Financial  Accounting Standards
Board and is the International Bar Association`s principal representative in New
York to the United Nations.  In addition,  he serves as Chairman of the New York
Legislative Service.

Subsequent  to the  quarter  that is the  subject of this  report,  and as first
reported by us in an amendment to our Annual  Report on Form 10-KSB for the year
ended  April  30,  2002  which was filed  with the SEC on March  11,  2003,  the
following  directors  and  officers  resigned  at the  request of Dr.  Bogdan C.
Maglich,  Chairman of our Board of  Directors.  Gregory  Gilbert and Barry Alter
resigned  their  positions  on the  HiEnergy  Technologies  Board of  Directors,
effective  March 3, 2003,  and March 7, 2003,  respectively.  In  addition,  Mr.
Gilbert  resigned  his  position on the  HiEnergy  Microdevices,  Inc.  Board of
Directors. Tom Pascoe also resigned his positions as President,  Chief Executive
Officer and Director on March 7, 2003.

Dr. Maglich has been elected Chief Executive Officer, President and Treasurer on
an interim basis.

In March 2003,  Mr. Robert  Drysdale and Mr. Bruce Del Mar were appointed to the
Board of Directors.

Also in March 2003, Ms. Michal Levy resigned her positions as Vice President and
Secretary of the Company and Ms. Ioana C. Nicodin was appointed Secretary of the
Company.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(A)  EXHIBITS
<TABLE>
<CAPTION>
<S>                <C>

EXHIBIT
NUMBER             DESCRIPTION
------------------ ---------------------------------------------------------------------------------------------------
   10.29*          Termination Agreement dated November 27, 2002 between HiEnergy Technologies, Inc. and H.C.
                   Wainwright & Co., Inc.

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

   10.31*          Form of Warrant Certificate dated December 9, 2002 issued by HiEnergy Technologies, Inc. to H.C.
                   Wainwright & Co., Inc. and Assigns

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

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

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

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

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



                                       48
<PAGE>

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

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

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

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

</TABLE>

*  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.

(B)  REPORTS ON FORM 8-K

In  connection  with the filing of our  quarterly  report on Form 10-QSB for the
period  ended  October 31, 2002,  on December  16,  2002,  we filed the periodic
report certifications  required by Section 906 of the Sarbanes-Oxley Act of 2002
under Item 7 and Item 9 of a report on Form 8-K dated December 16, 2002.

On November 12, 2002, we filed a report on Form 8-K dated  October 7, 2002.  The
report  contained an Item 5,  disclosing  the closing of a Series A  Convertible
Preferred  Stock  private  placement  offering,  the  closing of a Common  Stock
private placement offering, and the Company`s reincorporation from Washington to
Delaware. The report also contained an Item 7 listing exhibits.







                                       49
<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:    MARCH 21, 2003           By:  /S/ B. C. MAGLICH
      --------------------           --------------------------------
                                  Name: Bogdan C. Maglich
                                  Title:  Chief Executive Officer and President


                                       50
<PAGE>



                                 CERTIFICATIONS

                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER
                                  AND TREASURER
                         PURSUANT TO SECTION 302 OF THE
                           SARBANES-OXLEY ACT OF 2002



I, Bogdan C. Maglich, certify that:


1.  I  have  reviewed  this   quarterly   report  on  Form  10-QSB  of  HiEnergy
Technologies, Inc.;


2. Based on my  knowledge,  this  quarterly  report  does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made, not  misleading  with respect to the period covered by this quarterly
report;


3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included in this quarterly  report,  fairly present in all material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;


4.  The  registrant`s  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:


         a) designed  such  disclosure  controls and  procedures  to ensure that
material  information  relating to the  registrant,  including its  consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this quarterly report is being prepared;


         b) evaluated the effectiveness of the registrant`s  disclosure controls
and  procedures  as of a date  within 90 days prior to the  filing  date of this
quarterly report (the "Evaluation Date"); and


         c)  presented  in this  quarterly  report  our  conclusions  about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;


5. The registrant`s other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant`s auditors and the audit committee of
registrant`s board of directors (or persons performing the equivalent function):


         a) all significant  deficiencies in the design or operation of internal
controls  which  could  adversely  affect  the  registrant`s  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant`s auditors any material weaknesses in internal controls; and


         b) any fraud,  whether or not  material,  that  involves  management or
other  employees  who  have a  significant  role  in the  registrant`s  internal
controls; and


6. The  registrant`s  other  certifying  officers  and I have  indicated in this
quarterly  report  whether or not there  were  significant  changes in  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.




Date:       March 21, 2003                /s/ B.C. Maglich
      ------------------------------     -----------------------------------
                                         Bogdan C. Maglich
                                         Chief Executive Officer and
                                         Treasurer


                                       51
<PAGE>
<TABLE>
<CAPTION>

                                  EXHIBIT INDEX

<S>                <C>

EXHIBIT
NUMBER             DESCRIPTION
------------------ ---------------------------------------------------------------------------------------------------
   10.29*          Termination Agreement dated November 27, 2002 between HiEnergy Technologies, Inc. and H.C.
                   Wainwright & Co., Inc.

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

   10.31*          Form of Warrant Certificate dated December 9, 2002 issued by HiEnergy Technologies, Inc. to H.C.
                   Wainwright & Co., Inc. and Assigns

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

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

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

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

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

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

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

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

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


*  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.




<PAGE>