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

                                   FORM 10-QSB

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

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


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

             For the transition period from__________ to __________

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


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


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


              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 September 10, 2003, the issuer
had 30,657,406  shares of Common Stock,  par value $0.001 per share,  issued and
outstanding.


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


<PAGE>



                           HIENERGY TECHNOLOGIES, INC.

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


<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION                                                                        PAGE

<S>  <C>                                                                                                <C>
Item 1     Financial Statements..........................................................................1

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

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

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

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

           Notes to the Consolidated Financial Statements (unaudited)

Item 2     Management's Discussion and Analysis or Plan of Operation....................................30

Item 3     Controls and Procedures......................................................................41

PART II - OTHER INFORMATION

Item 1     Legal Proceedings............................................................................42

Item 2     Changes in Securities........................................................................43

Item 5     Other Information............................................................................43

Item 6     Exhibits and Reports on Form 8-K.............................................................44

SIGNATURES .............................................................................................46
</TABLE>

<PAGE>

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

<TABLE>
<CAPTION>
                                     ASSETS
                                                                                   July 31,        April 30,
                                                                                     2003            2003
                                                                                 ------------     ------------
CURRENT ASSETS                                                                    (unaudited)
<S>                                                                              <C>              <C>
    Cash and cash equivalents                                                    $     32,396     $    107,008
    Subscription receivable                                                                --          443,482
    Accounts receivable                                                                34,583           34,583
    Other current assets                                                              714,154          723,598
                                                                                 ------------     ------------

       Total current assets                                                           781,133        1,308,671

PROPERTY AND EQUIPMENT, net                                                           498,451          504,424
                                                                                 ------------     ------------

TOTAL ASSETS                                                                     $  1,279,584     $  1,813,095
                                                                                 ============     ============

                      LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
    Accounts payable                                                             $    538,067     $    670,895
    Accrued expenses                                                                       --            1,600
    Accrued payroll and payroll taxes                                                  17,116           28,525
    Accrued interest                                                                   40,514           35,288
    Notes payable - related parties                                                    85,000           85,000
    Convertible notes payable - related parties                                       295,933           57,117
    Note payable                                                                        1,077               --
                                                                                 ------------     ------------

       Total current liabilities                                                      977,707          878,425
                                                                                 ------------     ------------

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

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY
    Series A  convertible,  redeemable  preferred  stock 8% dividends,  voting
       rights, liquidation preference $10,000 per share, 345 shares authorized
       0 and 95.82 shares issued and outstanding                                           --                1
    Common stock, $0.001 par value
       100,000,000 shares authorized
       28,819,464 and 25,525,882 shares
          issued and outstanding                                                       28,819           25,525
    Additional paid-in capital                                                     10,972,210        9,837,437
    Committed common stock, 45,759 and
       76,937 outstanding                                                               7,164           34,404
    Deficit accumulated during the development stage                              (10,725,239)      (8,981,620)
                                                                                 ------------     ------------

             Total shareholders' equity                                               282,954          915,747
                                                                                 ------------     ------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                       $  1,279,584     $  1,813,095
                                                                                 ============     ============

</TABLE>

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

                                        1
<PAGE>

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


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

CONTRACT REVENUES                $    103,749    $         --    $    574,252
                                 ------------    ------------    ------------
OPERATING EXPENSES
    General and administration      1,028,240         519,145       6,937,304
    Research and development          202,071         166,595       2,630,253
                                 ------------    ------------    ------------
      Total operating expenses      1,230,311         685,740       9,567,557
                                 ------------    ------------    ------------

LOSS FROM OPERATIONS               (1,126,562)       (685,740)     (8,993,305)
                                 ------------    ------------    ------------

OTHER INCOME (EXPENSE)
    Interest income                       364           2,158           8,250
    Interest expense                   (5,225)         (3,020)        (46,135)
    Financing expense                      --        (223,710)       (223,710)
    Other income                           --              --             231
                                 ------------    ------------    ------------
Total other income
    (expense)                          (4,861)       (224,572)       (261,364)
                                 ------------    ------------    ------------

LOSS BEFORE PROVISION
    FOR INCOME TAXES               (1,131,423)       (910,312)     (9,254,669)

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

NET LOSS                           (1,132,223)       (910,312)     (9,268,052)

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

                                       2
<PAGE>

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


                                                                   For the
                                                                 Period from
                                                                  August 21,
                                        Three Months Ended           1995
                                             JULY 31,            (Inception) to
                                 ----------------------------      July 31,
                                      2003            2002           2003
                                 ------------    ------------    ------------
                                  (unaudited)     (unaudited)    (unaudited)
BENEFICIAL CONVERSION
    FEATURE GRANTED ON
    PREFERRED STOCK                        --              --        (767,431)
PREFERRED STOCK
    DIVIDENDS                        (611,396)             --        (689,756)
                                 ------------    ------------    ------------

NET LOSS AVAILABLE TO
    COMMON
    SHAREHOLDERS                 $ (1,743,619)   $   (910,312)   $(10,725,239)
                                 ============    ============    ============

NET LOSS PER SHARE               $      (0.04)   $      (0.04)   $      (0.70)

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

PREFERRED STOCK
    DIVIDENDS PER SHARE                 (0.02)             --           (0.05)
                                 ------------    ------------    ------------

BASIC AND DILUTED LOSS
    AVAILABLE TO COMMON
    SHAREHOLDERS PER
    SHARE                        $      (0.06)   $      (0.04)   $      (0.81)
                                 ============    ============    ============

BASIC AND DILUTED
    WEIGHTED-AVERAGE
    COMMON SHARES
    OUTSTANDING                    27,857,330      22,591,996      13,290,087
                                 ============    ============    ============

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


                                       3
<PAGE>

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

<TABLE>
<CAPTION>
                                            Series a
                                     Convertible, Redeemable
                                        Preferred Stock                                Additional      Committed
                                      ------------------        Common Stock            Paid-in         Common      Deferred
                                       Shares     Amount     Shares      Amount         Capital          Stock     Compensation
                                       ------     ------     ------      ------         -------          -----     ------------
BALANCE, AUGUST 21, 1995
<S>                                               <C>                        <C>             <C>          <C>           <C>
   (INCEPTION)                               -    $    -            -        $ -             $ -          $ -           $ -
RECAPITALIZATION UPON
   REVERSE MERGER                                           6,470,000      6,470          (6,456)
ISSUANCE OF COMMON STOCK
   FOR SERVICES                                               734,771        735           7,495
NET LOSS
                                       -------    ------   ----------   --------       ---------          ----        ---------
BALANCE, APRIL 30, 1996                      -         -    7,204,771      7,205           1,039            -             -
ISSUANCE OF COMMON STOCK
   FOR SERVICES                                                 3,219          3              33
NET LOSS
                                       -------    ------   ----------   --------       ---------          ----        ---------
BALANCE, APRIL 30, 1997                      -         -    7,207,990      7,208           1,072            -             -
ISSUANCE OF COMMON STOCK
   FOR CASH                                                   596,589        597         143,955
ISSUANCE OF COMMON STOCK
   FOR SERVICES                                             1,451,928      1,452          15,598
NET LOSS

                                       -------    ------   ----------   --------       ---------          ----        ---------
BALANCE, APRIL 30, 1998                      -         -    9,256,507      9,257         160,625            -             -
ISSUANCE OF COMMON STOCK
   FOR CASH                                                   264,852        265         150,965
ISSUANCE OF COMMON STOCK
   FOR SERVICES                                             2,167,620      2,167          47,592
NET LOSS
                                       -------    ------   ----------   --------       ---------          ----        ---------
BALANCE, APRIL 30, 1999                      -    $    -   11,688,979   $ 11,689       $ 359,182          $ -           $ -


<CAPTION>
                                      Deficit
                                    Accumulated
                                    During the
                                   Development
                                      Stage         Total
                                   ----------    ----------
BALANCE, AUGUST 21, 1995
<S>                                <C>           <C>
   (INCEPTION)                            $ -           $ -
RECAPITALIZATION UPON
   REVERSE MERGER                                        14
ISSUANCE OF COMMON STOCK
   FOR SERVICES                                       8,230
NET LOSS                              (39,387)      (39,387)
                                      --------      --------

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

BALANCE, APRIL 30, 1997              (149,391)     (141,111)
ISSUANCE OF COMMON STOCK
   FOR CASH                                         144,552
ISSUANCE OF COMMON STOCK
   FOR SERVICES                                      17,050
NET LOSS                             (293,019)     (293,019)
                                     ---------     ---------

BALANCE, APRIL 30, 1998              (442,410)     (272,528)
ISSUANCE OF COMMON STOCK
   FOR CASH                                         151,230
ISSUANCE OF COMMON STOCK
   FOR SERVICES                                      49,759
NET LOSS                             (272,426)     (272,426)
                                     ---------     ---------

BALANCE, APRIL 30, 1999            $ (714,836)   $ (343,965)
                                   ----------    ----------
</TABLE>

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

                                       4

<PAGE>


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

<TABLE>
<CAPTION>
                                            Series a
                                     Convertible, Redeemable
                                        Preferred Stock                                Additional      Committed
                                      ------------------        Common Stock            Paid-in         Common      Deferred
                                       Shares     Amount     Shares      Amount         Capital          Stock     Compensation
                                       ------     ------     ------      ------         -------          -----     ------------
ISSUANCE OF COMMON STOCK
<S>                                                           <C>          <C>         <C>
   FOR CASH                                  -    $    -      638,548      $ 638       $ 295,008          $  -          $ -
ISSUANCE OF COMMON STOCK
   FOR SERVICES                                             1,914,570      1,915          83,322
NET LOSS

                                        ------    ------   ----------   --------     -----------          -----         -----
BALANCE, APRIL 30, 2000                      -         -   14,242,097     14,242         737,512             -            -
ISSUANCE OF COMMON STOCK
   FOR CASH                                                   465,437        465         109,265
ISSUANCE OF COMMON STOCK
   FOR SERVICES                                               371,035        371          36,097
NET LOSS

                                        ------    ------   ----------   --------     -----------          -----         -----
BALANCE, APRIL 30, 2001                      -         -   15,078,569     15,078         882,874             -            -
ISSUANCE OF COMMON STOCK
   FOR CASH                                                   712,071        712         180,857
ISSUANCE OF COMMON STOCK
   FOR SERVICES                                             5,059,560      5,060         227,110
ISSUANCE OF COMMON STOCK                                    1,225,000      1,225       1,223,775
   IN PRIVATE PLACEMENT
NET LOSS
                                        ------    ------   ----------   --------     -----------          -----         -----
BALANCE, APRIL 30, 2002                      -    $    -   22,075,200   $ 22,075     $ 2,514,616          $  -          $ -

<CAPTION>

                                      Deficit
                                    Accumulated
                                    During the
                                   Development
                                      Stage         Total
                                   ----------    ----------
<S>                                <C>           <C>
ISSUANCE OF COMMON STOCK
   FOR CASH                                       $ 295,646
ISSUANCE OF COMMON STOCK
   FOR SERVICES                                      85,237
NET LOSS                           $ (332,131)     (332,131)
                                   -----------     ---------

BALANCE, APRIL 30, 2000            (1,046,967)     (295,213)
ISSUANCE OF COMMON STOCK
   FOR CASH                                         109,730
ISSUANCE OF COMMON STOCK
   FOR SERVICES                                      36,468
NET LOSS                             (288,067)     (288,067)
                                     ---------     ---------

BALANCE, APRIL 30, 2001            (1,335,034)     (437,082)
ISSUANCE OF COMMON STOCK
   FOR CASH                                         181,569
ISSUANCE OF COMMON STOCK
   FOR SERVICES                                     232,170
ISSUANCE OF COMMON STOCK                          1,225,000
   IN PRIVATE PLACEMENT
NET LOSS                           (1,389,530)   (1,389,530)
                                   -----------   -----------

BALANCE, APRIL 30, 2002          $ (2,724,564)   $ (187,873)
</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 JULY 31, 2003

<TABLE>
<CAPTION>
                                            Series a
                                     Convertible, Redeemable
                                        Preferred Stock                                Additional      Committed
                                      ------------------        Common Stock            Paid-in         Common      Deferred
                                       Shares     Amount     Shares      Amount         Capital          Stock     Compensation
                                       ------     ------     ------      ------         -------          -----     ------------
ISSUANCE OF PREFERRED STOCK
<S>                                      <C>      <C>                                  <C>
   IN PRIVATE PLACEMENT FOR CASH         97.93    $    1                               $ 800,399
ISSUANCE OF COMMON STOCK FOR
   SUBSCRIPTION RECEIVABLE                                  1,410,000    $ 1,410         452,072
ISSUANCE OF COMMON STOCK IN
   PRIVATE PLACEMENT                                        1,849,934      1,850       2,320,556
OFFERING COSTS                                                                          (196,793)
ISSUANCE OF COMMON STOCK ON
   CASHLESS CONVERSION OF SERIES
   A PREFERRED STOCK                     (2.11)        -       18,336         18             (18)
DIVIDENDS ON PREFERRED STOCK                                   68,150         68          78,292
BENEFICIAL CONVERSION FEATURE
   GRANTED IN CONNECTION WITH
   ISSUANCE OF PREFERRED
   STOCK                                                                       -         767,431
ISSUANCE OF COMMON STOCK TO
   AN EMPLOYEE FOR A BONUS                                     11,178         11          21,339     $ 17,549
CONVERSION OF CONVERTIBLE NOTES
   PAYABLE - RELATED PARTIES INTO
   COMMON STOCK                                                37,898         38          37,858
ISSUANCE OF COMMON STOCK IN
   CASHLESS EXERCISE OF WARRANTS                               33,909         34             (34)
FINANCING EXPENSE IN
   CONNECTION WITH ISSUANCE
   OF WARRANTS                                                                           223,710

<CAPTION>

                                      Deficit
                                    Accumulated
                                    During the
                                   Development
                                      Stage         Total
                                   ----------    ----------
<S>                                <C>           <C>
ISSUANCE OF PREFERRED STOCK
   IN PRIVATE PLACEMENT FOR CASH                  $ 800,400
ISSUANCE OF COMMON STOCK FOR
   SUBSCRIPTION RECEIVABLE                          453,482
ISSUANCE OF COMMON STOCK IN
   PRIVATE PLACEMENT                              2,322,406
OFFERING COSTS                                     (196,793)
ISSUANCE OF COMMON STOCK ON
   CASHLESS CONVERSION OF SERIES
   A PREFERRED STOCK                                      -
DIVIDENDS ON PREFERRED STOCK        $ (78,360)            -
BENEFICIAL CONVERSION FEATURE
   GRANTED IN CONNECTION WITH
   ISSUANCE OF PREFERRED
   STOCK                             (767,431)            -
ISSUANCE OF COMMON STOCK TO
   AN EMPLOYEE FOR A BONUS                           38,899
CONVERSION OF CONVERTIBLE NOTES
   PAYABLE - RELATED PARTIES INTO
   COMMON STOCK                                      37,896
ISSUANCE OF COMMON STOCK IN
   CASHLESS EXERCISE OF WARRANTS                          -
FINANCING EXPENSE IN
   CONNECTION WITH ISSUANCE
   OF WARRANTS                                      223,710
</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 JULY 31, 2003

<TABLE>
<CAPTION>
                                            Series a
                                     Convertible, Redeemable
                                        Preferred Stock                                Additional      Committed
                                      ------------------        Common Stock            Paid-in         Common      Deferred
                                       Shares     Amount     Shares      Amount         Capital          Stock     Compensation
                                       ------     ------     ------      ------         -------          -----     ------------
<S>                                    <C>       <C>        <C>          <C>           <C>              <C>
STOCK OPTIONS ISSUED TO A
   CONSULTANT FOR SERVICES
   TO BE RENDERED                                                                      $ 948,170
STOCK OPTIONS ISSUED AS                                                                3,364,915               $ (3,305,542)
   COMPENSATION
AMORTIZATION OF DEFERRED
   COMPENSATION                                                                                                   1,032,981
REVERSAL OF DEFERRED
   COMPENSATION                                                                       (2,272,561)                 2,272,561
STOCK OPTIONS ISSUED TO A
   CONSULTANT IN EXCHANGE FOR
   ACCOUNTS PAYABLE                                                                       65,000
EXERCISE OF STOCK OPTIONS
   IN SUBSIDIARY                                                                                      $ 7,164
ISSUANCE OF COMMON STOCK
   FOR SERVICES                                                21,277       $ 21          10,288        9,691
WARRANTS ISSUED FOR SERVICES
   RENDERED                                                                              311,788
WARRANTS ISSUED FOR TERMINATION
   OF A CONTRACT                                                                         390,409
NET LOSS

                                       -------    ------   ----------   --------     -----------     --------     ---------
BALANCE, APRIL 30, 2003                  95.82    $    1   25,525,882   $ 25,525     $ 9,837,437     $ 34,404           $ -

<CAPTION>
                                      Deficit
                                    Accumulated
                                    During the
                                   Development
                                      Stage         Total
                                   ----------    ----------
<S>                               <C>            <C>
STOCK OPTIONS ISSUED TO A
   CONSULTANT FOR SERVICES
   TO BE RENDERED                                 $ 948,170
STOCK OPTIONS ISSUED AS                              59,373
   COMPENSATION
AMORTIZATION OF DEFERRED
   COMPENSATION                                   1,032,981
REVERSAL OF DEFERRED
   COMPENSATION
STOCK OPTIONS ISSUED TO A
   CONSULTANT IN EXCHANGE FOR
   ACCOUNTS PAYABLE                                  65,000
EXERCISE OF STOCK OPTIONS
   IN SUBSIDIARY                                      7,164
ISSUANCE OF COMMON STOCK
   FOR SERVICES                                      20,000
WARRANTS ISSUED FOR SERVICES
   RENDERED                                         311,788
WARRANTS ISSUED FOR TERMINATION
   OF A CONTRACT                                    390,409
NET LOSS                         $ (5,411,265)   (5,411,265)
                                 -------------   -----------

BALANCE, APRIL 30, 2003          $ (8,981,620)    $ 915,747
</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 JULY 31, 2003

<TABLE>
<CAPTION>
                                            Series a
                                     Convertible, Redeemable
                                        Preferred Stock                                Additional      Committed
                                      ------------------        Common Stock            Paid-in         Common      Deferred
                                       Shares     Amount     Shares      Amount         Capital          Stock     Compensation
                                       ------     ------     ------      ------         -------          -----     ------------
<S>                                    <C>       <C>        <C>          <C>           <C>              <C>
ISSUANCE OF COMMON STOCK
   FOR CASH                                                   600,000      $ 600       $ 199,400
ISSUANCE OF COMMON STOCK
   FOR LEGAL SERVICES                                         300,000        300          99,700
ISSUANCE OF COMMON STOCK
   FOR SERVICES                                                45,000         45          21,555
ISSUANCE OF COMMON STOCK TO
   CONVERT PREFERRED STOCK              (95.82)   $   (1)   2,191,878      2,192          (2,192)
DIVIDENDS ON PREFERRED STOCK                                                             611,396
ISSUANCE OF COMMON STOCK AS
   PENALTY SHARES                                              91,526         92             (92)
ISSUANCE OF COMMITTED COMMON
   STOCK                                                       31,178         31          27,209    $ (27,240)
EXERCISE OF WARRANTS                                           34,000         34             306
WARRANTS ISSUED AS
   CONSULTING EXPENSE                                                                     76,382
STOCK OPTIONS ISSUED AS
   CONSULTING EXPENSE                                                                    101,108
NET LOSS
                                       ------     -----   ----------   ---------    ------------     --------          ----
BALANCE AT JULY 31, 2003 (UNAUDITED)       --     $   -   28,819,464   $ 28,819     $10,972,210      $ 7,164           $ -
                                       ======     =====   ==========   =========    ============     ========          ====

<CAPTION>


                                      Deficit
                                    Accumulated
                                    During the
                                   Development
                                      Stage         Total
                                   ----------    ----------
<S>                               <C>           <C>
ISSUANCE OF COMMON STOCK
   FOR CASH                                              $ 200,000
ISSUANCE OF COMMON STOCK
   FOR LEGAL SERVICES                                      100,000
ISSUANCE OF COMMON STOCK
   FOR SERVICES                                             21,600
ISSUANCE OF COMMON STOCK TO
   CONVERT PREFERRED STOCK                                       -
DIVIDENDS ON PREFERRED STOCK              $ (611,396)            -
ISSUANCE OF COMMON STOCK AS                                      -
   PENALTY SHARES                                                -
ISSUANCE OF COMMITTED COMMON                                     -
   STOCK                                                         -
EXERCISE OF WARRANTS                                           340
WARRANTS ISSUED AS
   CONSULTING EXPENSE                                       76,382
STOCK OPTIONS ISSUED AS
   CONSULTING EXPENSE                                      101,108
NET LOSS                               $  (1,132,223) $ (1,132,223)
                                       -------------- ------------
BALANCE AT JULY 31, 2003 (UNAUDITED)   $ (10,725,239) $    282,954
                                       ============== ============
</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 CASH FLOWS
                          FOR THE THREE MONTHS ENDED JULY 31, 2003 AND 2002, AND
                FOR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO JULY 31, 2003


<TABLE>
<CAPTION>
                                                                                      For the
                                                                                    Period from
                                                                                     August 21,
                                                          Three Months Ended           1995
                                                                JULY 31,           (Inception) to
                                                       --------------------------     July 31,
                                                           2003           2002          2003
                                                       -----------    -----------    -----------
                                                       (unaudited)     (unaudited)    (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                    <C>            <C>            <C>
   Net loss                                            $(1,132,223)   $  (910,312)   $(9,268,052)
   Adjustments to reconcile net loss to net cash
     used in operating activities
       Depreciation                                         30,281         14,112        129,706
       Compensation expense relating to issuance of
         common stock in exchange for services
         rendered                                               --             --        428,950
       Compensation expense relating to issuance of
         common stock in exchange for services
         rendered to minority shareholders                      --             --         18,923
       Warrants issued for services rendered
         or to be rendered                                      --             --        311,788
       Warrants issued for termination of contract              --             --        390,409
       Issuance of common stock for services
         rendered                                          121,600             --        141,600
       Stock options issued for services
         rendered                                               --             --        351,762
       Issuance of common stock to an employee
         for a bonus                                            --             --         38,899
       Stock options issued as compensation                101,108             --        160,481
       Warrants issued as compensation                      76,382             --         76,382
       Additional compensation to officer                       --             --         42,171
       Amortization of deferred compensation                    --         21,139      1,032,981
       Financing expense                                   223,710        223,710        223,710
       (Increase) decrease in
         Accounts receivable                                    --             --        (34,583)
         Subscription receivable                           443,482             --        443,482
         Other current assets                                9,444        (69,525)      (107,746)
       Increase (decrease) in
         Accounts payable                                 (132,828)       279,650        603,069
         Accrued expenses                                   (1,600)      (112,822)            16
         Accrued payroll and payroll taxes                 (11,409)            --         17,116
         Accrued interest                                    5,226          1,406         43,412
                                                       -----------    -----------    -----------
Net cash used in operating activities                     (490,537)      (552,642)    (4,955,524)
                                                       -----------    -----------    -----------
</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 CASH FLOWS
                          FOR THE THREE MONTHS ENDED JULY 31, 2003 AND 2002, AND
                FOR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO JULY 31, 2003


<TABLE>
<CAPTION>
                                                                                      For the
                                                                                    Period from
                                                                                     August 21,
                                                          Three Months Ended           1995
                                                                JULY 31,           (Inception) to
                                                       --------------------------     July 31,
                                                           2003           2002          2003
                                                       -----------    -----------    -----------
                                                       (unaudited)     (unaudited)    (unaudited)
CASH FLOWS FROM INVESTING ACTIVITIES
<S>                                                        <C>           <C>            <C>
   Purchase of property and equipment                      (24,308)      (294,000)      (628,158)
                                                       -----------    -----------    -----------

Net cash used in investing activities                      (24,308)      (294,000)      (628,158)
                                                       -----------    -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds from notes payable - related parties                --             --        604,160
   Payments on notes payable - related parties                  --       (279,803)      (546,331)
   Proceeds from convertible notes payable - related            --
     parties                                               238,816             --        345,933
   Payments on convertible notes payable - related              --
     parties                                                    --        (19,280)       (30,000)
   Notes payable issued for services                         1,077             --          1,077

   Proceeds from issuance of common stock in
     private placement                                          --        500,000      3,547,406
   Proceeds from issuance of preferred stock                    --             --        979,301
   Offering costs on preferred stock                            --             --       (178,902)
   Proceeds from issuance of common stock                  200,000             --      1,082,723
   Offering costs on common stock                               --             --       (196,793)
   Exercise of stock options in subsidiary                      --          7,164          7,164
   Exercise of warrants                                        340             --            340
                                                       -----------    -----------    -----------

Net cash provided by financing activities                  440,233        208,081      5,616,078
                                                       -----------    -----------    -----------

Net increase (decrease) in cash and cash
   equivalents                                             (74,612)      (638,561)        32,396

CASH AND CASH EQUIVALENTS, BEGINNING OF
   PERIOD                                                  107,008      1,078,136             --
                                                       -----------    -----------    -----------

CASH AND CASH EQUIVALENTS, END OF PERIOD               $    32,396    $   439,575    $    32,396
                                                       ===========    ===========    ===========


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

   INTEREST PAID                                       $        --    $        --          2,888
                                                       ===========    ===========    ===========
   INCOME TAXES PAID                                   $     2,400    $        --         14,183
                                                       ===========    ===========    ===========
</TABLE>

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

                                       10
<PAGE>


SUPPLEMENT SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

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

During the three  months ended July 31, 2003 and 2002 and the period from August
21, 1995  (inception)  to July 31,  2003,  the holders of shares of the Series A
convertible,  redeemable  preferred stock received a preferred stock dividend of
$611,396;  0; and  $689,756,  respectively,  as a result of the  exchange  price
difference upon conversion of their preferred stock into common stock.

During the three  months ended July 31, 2003 and 2002 and the period from August
21, 1995 (inception) to July 31, 2003, the Company issued 91,526;  0; and 91,526
shares  of  common  stock to  certain  shareholders  who  invested  in a private
placement,  dated October 29, 2002, to compensate them for the late registration
of the common stock.

During the three  months ended July 31, 2003 and 2002 and the period from August
21, 1995 (inception) to July 31, 2003, the Company issued 31,178;  0; and 31,178
shares,  respectively,  of  committed  common  stock  valued at $27,240;  0; and
$27,240, respectively.



                                       11
<PAGE>

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;  carbomb detection;
         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.

         MERGER
         On April 25, 2002, HiEnergy Technologies, Inc. entered into a voluntary
         share exchange  agreement,  whereby it acquired 92% of the  outstanding
         common  stock  of  HiEnergy  Microdevices,   Inc.  ("Microdevices")  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.



                                       12
<PAGE>

NOTE 2 - GOING CONCERN

         The accompanying  financial statements have been prepared in conformity
         with accounting  principles  generally accepted in the United States of
         America,  which  contemplate  continuation  of the  Company  as a going
         concern.  However, during the three months ended July 31, 2003 and 2002
         and the period from August 21, 1995  (inception)  to July 31, 2003, the
         Company  incurred  net  losses  available  to  common  shareholders  of
         $1,743,619;  $910,312;  and  $10,725,239,   respectively,  and  it  had
         negative  cash  flows  from  operations  of  $490,537;   $552,642;  and
         $4,955,524,  respectively.  In addition, the Company had an accumulated
         deficit of $10,725,239 and was in the development  stage as of July 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 July 31, 2003 through  private
         placements, the Company is currently negotiating with certain investors
         about raising additional  capital through private placement  offerings.
         Unless the Company raises  additional  funds,  either by debt or equity
         issuances,  management  believes  that its current cash on hand will be
         insufficient  to cover its working  capital  needs until the  Company's
         sales volume reaches a sufficient level to cover operating expenses


NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         PRINCIPLES OF CONSOLIDATION
         The consolidated  financial statements include the accounts of HiEnergy
         and  its  92%   owned   subsidiary,   Microdevices.   All   significant
         inter-company    accounts   and    transactions   are   eliminated   in
         consolidation.  In May  2003,  the  Board  of  Directors  approved  the
         liquidation  and  termination of the Company's  subsidiary,  VWO, Inc.,
         which had no assets or  transactions  during the year  ended  April 30,
         2003 or quarter ended July 31, 2003.

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

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

         REVENUE RECOGNITION
         The Company recognizes contract revenue as services are performed.



                                       13
<PAGE>

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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

         CASH AND CASH EQUIVALENTS
         The  Company   maintains  its  cash  deposits  at  a  bank  located  in
         California.  Deposits at the bank are  insured by the  Federal  Deposit
         Insurance  Corporation up to $100,000.  The Company has not experienced
         any  losses in such  accounts  and  believes  it is not  exposed to any
         significant risk on cash and cash equivalents.

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

         As of July 31, 2003, the Company  maintained  restricted  cash totaling
         $4,880.  These funds may only be used to pay for specific  expenditures
         as allowed by a contract with the United States Department of Defense.

         ACCOUNTS RECEIVABLE
         Accounts  receivable  at July 31, 2003 and 2002  consisted of an amount
         due from separate governmental contracts.

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

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

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

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



                                       14
<PAGE>

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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


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

         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 three months
         ended July 31, 2003 and 2002:

<TABLE>
<CAPTION>
                                                      July 31, 2003      July 31, 2002
                                                      -------------      -------------
<S>                                                      <C>
         Stock options outstanding                       5,190,864                --
         Warrants outstanding                            1,761,686                --
         Microdevices minority shareholders                459,222           459,222
         Microdevices option and warrant holders           951,513           952,557
                                                         ---------         ---------
               TOTAL                                     8,363,285         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.

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



                                       15
<PAGE>

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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



                                       16
<PAGE>

NOTE 4 - OTHER CURRENT ASSETS

         Other current assets consisted of the following at:

                                   July 31, 2003     April 30, 2003
                                   -------------     --------------

         Prepaid consulting            $517,050         $609,198
         Prepaid insurance               89,104            6,400
         Deposits on equipment          100,000          100,000
         Other                            8,000            8,000
                                       --------         --------

                      TOTAL            $714,154         $723,598
                                       ========         ========


NOTE 5 - PROPERTY AND EQUIPMENT

         Property and equipment consisted of the following at:

                                             July 31, 2003   April 30, 2003
                                             -------------   --------------
         Prototype equipment                   $111,114         $111,114
         Laboratory equipment                   460,648          436,340
         Furniture and fixtures                  41,995           41,995
         Web site development                    14,400           14,400
                                               --------         --------

                                                628,157          603,849
         Less accumulated depreciation          129,706           99,425
                                               --------         --------

                      TOTAL                    $498,451         $504,424
                                               ========         ========

         Depreciation  expense for the three months ended July 31, 2003 and 2002
         and the period from August 21,  1995  (inception)  to July 31, 2003 was
         $30,281, $14,112, and $129,706, respectively.



                                       17
<PAGE>

NOTE 6 - NOTES PAYABLE - RELATED PARTIES

         Notes payable - related parties consisted of the following at:

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

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

                                                                                 85,000                85,000
             Less current portion                                                85,000                85,000
                                                                      --------------------  --------------------
                LONG-TERM PORTION                                     $              --     $              --
                                                                      ====================  ====================
</TABLE>


                                       18
<PAGE>

NOTE 7 - CONVERTIBLE NOTES PAYABLE - RELATED PARTIES

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


<TABLE>
<CAPTION>
                                                                                    July 31, 2003        April 30, 2003
                                                                                --------------------  --------------------
<S>                                                                             <C>                    <C>
             Unsecured notes payable to a shareholder  of the Company,  interest
                  payable  at 8% per  annum,  $5,000 due in July 2001 and $5,400
                  due in July 2002.  The notes payable are secured by the patent
                  applications  for Europe,  Canada and Japan. The holder of the
                  notes  payable  has the option to convert  the  principal  and
                  interest into shares of common stock.  As of July 31, 2003 and
                  April 30, 2003, the notes were in default.                            $10,400       $        10,400

             Unsecured notes payable to legal  counsel of the Company,  interest
                   payable  at 10% per  annum  and due in  September  2003.  The
                   holder of the note has the  option to convert  the  principal
                   and interest into shares of common stock of the Company.             285,533                46,717
                                                                                --------------------  --------------------
                                                                                        295,933                57,117
             Less current portion                                                       295,933                57,117
                                                                                --------------------  --------------------


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

NOTE 8 - NOTE PAYABLE

         Notes payable consisted of the following at:


<TABLE>
<CAPTION>
                                                                         July 31, 2003        April 30, 2003
                                                                      --------------------  --------------------
<S>                                                                   <C>                   <C>
             Unsecured note  payable to an  employee,  interest at
                   5% per annum, due in December 2003.                $             1,077   $             --
                                                                      --------------------  --------------------
                                                                                    1,077                 --
             Less current portion                                                   1,077                 --
                                                                      --------------------  --------------------
                   LONG-TERM PORTION                                  $                --   $             --
                                                                      ====================  ====================
</TABLE>



                                       19
<PAGE>




NOTE 9 - COMMITMENTS AND CONTINGENCIES

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

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

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

         o        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 April
                  30, 2003, the Company is required to grant options to purchase
                  456,717  shares of common stock at an exercise  price of $2.81
                  per share.

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

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

                  o January 1, 2002 to December 31, 2002       $125,000 per year
                  o January 1, 2003 to December 31, 2003       $175,000 per year
                  o January 1, 2004 to December 31, 2004       $175,000 per year
                  o January 1, 2005 to December 31, 2005       $175,000 per year
                  o January 1, 2006 to December 31, 2006       $283,013 per year

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

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

         In February 2003, the Company paid $50,000 due on a promissory  note to
         its Chief  Scientist/Chairman  of the Board.  The  Company  also issued
         options to purchase  416,712 shares of common stock in connection  with
         his  employment  agreement.  In  addition,  the Company is committed to
         issue  additional  options to purchase 40,000 shares of common stock to
         this executive in connection with his employment agreement. In relation
         to this transaction, the Company recorded compensation expense totaling
         $59,373.  As of July 31, 2003 the options to purchase  40,000 shares of
         common stock were issued.

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



                                       20
<PAGE>

NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

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

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

                  o        $135,000 per year

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

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

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

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

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

                  As of April 30, 2003,  options to purchase  939,073  shares of
                  common  stock  had  vested,  and  $1,032,981  of the  deferred
                  compensation was expensed. Since the President/Chief Executive
                  Officer/Treasurer/Director   resigned  in  March   2003,   the
                  unvested  portion of deferred  compensation  of $2,272,561 was
                  reversed.  During the quarter ended July 31, 2003,  the vested
                  stock options expired.

         In  February  2002,  Microdevices  entered  into a one-year  employment
         agreement with its Vice President/Corporate Secretary. In May 2002, the
         Company  assumed the employment  agreement.  Under the  agreement,  the
         Company paid a salary of $91,000 per year, a car  allowance of $100 per
         week, a quarterly bonus of 5,589 shares of the Company's  common stock,
         starting May 2002, and a non-qualified  stock option to purchase 89,410
         shares of common  stock at $0.157 per share,  vesting  immediately  and
         having a five-year term.  During the year ended April 30, 2003,  11,178
         shares of common stock were issued,  and 11,178  shares of common stock
         were committed.  The shares were valued at $38,899,  which approximates
         the   fair   value   of  the   shares.   In   March   2003,   the  Vice
         President/Corporate   Secretary  resigned  her  positions.  During  the
         quarter ended July 31, 2003, 11,178 committed shares were issued.



                                       21
<PAGE>

NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

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

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

         The stock options were valued at $761,007,  of which  $274,807 has been
         expensed and is included in general and administration  expenses on the
         accompanying statement of operations. The remaining balance of $486,200
         is included in prepaid  consulting in other current assets,  which will
         be  amortized  over the  remaining  term of the  consulting  agreement.
         During the  quarter  ended July 31,  2003,  $63,417  was  expensed  and
         included in general and administration expenses.

         In  August  2002,  the  Company  entered  into  a  one-year  consulting
         agreement with an investor and media relations firm. Under the terms of
         the  agreement,  the Company will pay $10,000 per month,  plus approved
         expenses.  In addition,  upon execution of the  agreement,  the Company
         issued  options to purchase  400,000  shares of common  stock,  vesting
         immediately at an exercise price of $2 per share,  exercisable  for two
         years.  The options  were valued at  $187,163,  of which  $140,372  was
         expensed and is included in general and administration  expenses during
         the year ended April 30, 2003 and the remaining  balance of $46,791 was
         expensed in the three months ended July 31, 2003.  This  agreement  was
         terminated after six months.

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



                                       22
<PAGE>

NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

         LEASE AGREEMENT
         In September  2002,  the Company  entered  into a three-year  operating
         lease agreement with one of its directors for its corporate  offices in
         Irvine,  California.  The lease provides for monthly rent of $8,000 for
         the first 18 months  and $8,320  for the  remaining  term of the lease,
         expiring in October  2005.  In July 2003,  the Company  entered  into a
         five-month  lease for a 2,400 square feet test site ending  December 1,
         2003 with a monthly lease rate of $1,200.  The lease  agreement is with
         the same Director as the office lease.  Future minimum payments at July
         31, 2003 under these lease agreements were as follows:

                    Year Ending
                      July 31,
                  ----------------
                       2004                             $       103,120

                       2005                                      99,840

                       2006                                       8,320
                                                        ---------------
                       TOTAL                            $       211,280
                                                        ---------------

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

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

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

         o        The Company issued  warrants to purchase 10% of the amounts of
                  securities  issued to  investors.  The  exercise  price of the
                  warrants  will be equal to the price at which the security was
                  issued.  The warrants vest  immediately  and expire five years
                  from the date of  grant.  Upon the  closing  of the  preferred
                  stock  private  placement  and  closing  of the  common  stock
                  private  placement,  the Company  issued  warrants to purchase
                  117,546 and 161,994 shares of common stock,  respectively,  at
                  an  exercise  price of $1.15 per  share  and $1.35 per  share,
                  respectively.

         o        In November 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.



                                       23
<PAGE>

NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

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

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

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

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

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

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

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

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

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

         LITIGATION
         On or about May 2, 2003,  a former  consultant  to the Company  filed a
         complaint against the Company and its Chief  Scientist/Chairman  of the
         Board for breach of contract  and other  common  counts in the Superior
         Court of Orange County.  The plaintiff is suing the Company for alleged
         unpaid  services.  On June 20,  2003,  the  plaintiff  filed an amended
         complaint. The Company intends to file a demurrer to this complaint and
         propound  the  written   discovery   and  notice  of  the   plaintiff's
         deposition.  The Company  intends to  vigorously  defend itself in this
         matter.

         On or about May 22, 2003, a former  director and officer of the Company
         filed a complaint  against the Company for  advancement  of fees in the
         State Court of Delaware. The plaintiff was seeking the reimbursement of
         his legal fees  associated  with a pending SEC  investigation.  Through
         negotiations,  the Company  was  successful  in getting  the  complaint
         dismissed  without prejudice on or about June 17, 2003. If and when the
         plaintiff  re-files  his  lawsuit,  the Company  intends to  vigorously
         defend itself in this matter.

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



                                       24
<PAGE>

NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

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

         WARRANT AND OPTION HOLDERS
         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 may agree to allow these  stock  option and warrant  holders to
         voluntarily  exchange  their  shares  in  Microdevices  for  shares  in
         HiEnergy  at an  exchange  rate of  22.3524  per share (or  $0.157  per
         share).  At July 31, 2003,  if these stock  option and warrant  holders
         exercise  and convert  their  shares,  the Company  will be required to
         issue 951,513 additional shares of common stock to the stock option and
         warrant holders.

         WARRANT AND OPTION HOLDERS
         During the year ended April 30, 2003,  stock options were exercised for
         the purchase of 2,047 shares of  Microdevices'  common stock via a cash
         payment  of  $7,164,  or $3.50 per  share.  The  Company  has agreed to
         exchange  these  shares in  Microdevices  for shares in  HiEnergy at an
         exchange rate of 22.3524 per share, or 45,759 shares of common stock.

         During the year ended April 30, 2003,  options to purchase 4,000 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 of its common
         stock at an exercise price of $0.157 per share.

         In  conjunction  with the  merger  (see Note 1),  options  to  purchase
         111,040  shares of  Microdevices'  common  stock  were  assumed  by the
         Company at an exchange  rate of 22.3524  per share  ($0.134 per share).
         Therefore,  the Company issued options to purchase  2,482,011 shares of
         its common stock at an exercise price of $0.134 per share.



                                       25
<PAGE>

NOTE 10 - SHAREHOLDERS' EQUITY

         SERIES A CONVERTIBLE, REDEEMABLE PREFERRED STOCK
         In August  2002,  the Board of  Directors  approved an amendment to the
         Company's  Articles of  Incorporation to authorize the Company to issue
         345 shares of Series A  convertible,  redeemable  preferred  stock (the
         "Series  A"),  par value  $0.001 per share.  Each share of Series A was
         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  would be subject to  adjustment.
         Furthermore,  upon a certain major transaction or triggering event, the
         holder of the Series A had 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 was $10,000 per share.  The holders of the
         Series A were 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  could be paid in cash or
         common  stock at the election of the Board of  Directors.  The Series A
         had certain class voting rights and general voting rights.

         In October 2002,  the Company sold 97.93 shares of the Series A for net
         cash  proceeds of  $800,400.  At the time of issuance,  the  conversion
         price of the preferred stock was 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, 2.11 shares of the Series A were converted into 18,336
         shares of the Company's common stock totaling $17,246.

         In May 2003,  all of the remaining  holders of the Series A surrendered
         and exchanged their shares for 2,191,878 shares of the Company's common
         stock  valued at $0.45 per  share.  During the  quarter  ended July 31,
         2003, the Company  recorded a preferred stock dividend of $611,396 as a
         result of  conversion of the  preferred  stock into common  stock.  The
         dividend  is the  result of the price  difference  between  the  stated
         conversion price per share of $1.15 and the actual conversion price per
         share of $0.45, in addition to the issuance of 62,562 penalty shares of
         common stock for late  registration.  In addition,  the Company  issued
         91,526 shares of common stock to certain shareholders who invested in a
         private  placement,  dated October 29, 2002, to compensate them for the
         late registration of the common stock.

         STOCK INCENTIVE PLAN
         In May 2003, the Board of Directors  approved the  establishment of the
         2003 Stock Incentive Plan and reserved  2,000,000  shares of authorized
         and unissued shares of common stock for such plan. As of July 31, 2003,
         the Board of  Directors  also  approved  the  issuance  of  options  to
         purchase 690,000 shares of common stock to various directors, employees
         and non-employee consultants of the Company at various exercise prices.
         The plan and the  grants  are  subject  to  approval  by the  Company's
         shareholders at the next annual meeting in November 2003.



                                       26
<PAGE>

NOTE 10 - SHAREHOLDERS' EQUITY (CONTINUED)

COMMON STOCK ISSUED FOR CASH AND SERVICES

<TABLE>
<CAPTION>
                                     Three Months ended July 31, 2003   Three Months ended July 31, 2002
                               -------------------------------------------------------------------------
                                        Shares              Amount              Shares          Amount
                               -------------------------------------------------------------------------
<S>                                     <C>             <C>                                   <C>
Common stock issued for cash            600,000         $  200,000                 --         $       --
Common stock issued for
  services rendered                     345,000            121,600                 --                 --
Common stock issued to
  convert preferred stock             2,191,878                 --                 --                 --
Common stock issued as
  penalty shares                         91,526                 --                 --                 --
 Common stock issued for
  committed stock                        31,178                 --                 --                 --
 Common stock issued for
  exercise of warrants                   34,000                340                 --                 --
 Common stock issued to
  exchange convertible
  notes payable                              --                 --             37,898             37,896
                               -------------------------------------------------------------------------
                                      3,293,582         $  321,940             37,898         $   37,896
                               -------------------------------------------------------------------------
</TABLE>

                                     Period from August 21, 1995 to
                                              July 31, 2003
                                ------------------------------------
                                       Shares               Amount
                                ------------------------------------
Common stock issued for cash           3,277,497         $ 1,082,727
Common stock issued for
  services rendered                   12,068,980             560,859

Common stock issued to
  convert preferred stock              2,191,878                  --
Common stock issued as
  penalty shares                          91,526                  --
 Common stock issued for
  committed stock                         31,178                  --
 Common stock issued for
  exercise of warrants                    34,000                 340
 Common stock issued to
  exchange convertible
  notes payable                           37,898              37,896
                                ------------------------------------
                                      17,732,957         $ 1,681,822
                                ------------------------------------


                                       27
<PAGE>

NOTE 10 - SHAREHOLDERS' EQUITY (CONTINUED)

Common Stock Warrants and Options Issued

<TABLE>
<CAPTION>
                                  Three Months ended July 31, 2003     Three Months ended July 31, 2002
                                  --------------------------------        -----------------------------
                                  Number            Exercise Price        Number         Exercise Price
                                  ------            --------------        ------         --------------
Warrants issued as
<S>                                                  <C>                   <C>             <C>
  financing expense                       --         $          --         150,000         $        1.50
Warrants issued as
  compensation                       150,000         $        0.45              --         $          --
Warrants issued as
  compensation                        50,000         $        0.50              --         $          --
Employee stock options               250,000         $        0.75       2,482,221         $        0.13
Non-employee stock options
  issued to directors                210,000         $        0.75              --         $          --
Non-employee stock options
  issued as compensation             200,000         $        0.50       1,000,000         $        1.00
Non-employee stock options
  issued as compensation              30,000         $        0.75              --         $          --
                                ------------                           -----------
                                     890,000                             3,482,221
                                ------------                           -----------
</TABLE>


NOTE 11 - FINANCING EXPENSE - RELATED PARTY

         In May 2002, the Company issued warrants to purchase  150,000 shares of
         common stock to a  shareholder/former  officer/director of the Company.
         The warrants vest immediately,  are exercisable at $1.50 per share, and
         expire on May 31,  2005.  Since the  Company was in default on the note
         payable for $150,000 to this shareholder/former officer/director of the
         Company, the Company granted these warrants.  Accordingly,  the Company
         recorded  financing  expense of $223,710  during the three months ended
         July 31, 2002.


NOTE 12 - RELATED PARTY TRANSACTIONS

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

         See  Notes  6,  7,  8,  9,  11  and  13 for  additional  related  party
         transactions.



                                       28
<PAGE>

NOTE 13 - SUBSEQUENT EVENTS

         In  July  2003,   the  Company   signed  an   Exclusive   International
         Distribution  Agreement for its beta-model  CarBomb Finder(TM) with the
         Electronic  Equipment  Marketing  Company  (EEMCO)  based in Riyadh and
         London.  The  agreement  covers the following  entities and  countries:
         Kingdom of Saudi Arabia Land Forces,  Signal Corps,  RSAF,  Ministry of
         Interior and Navy; the Middle-East  countries of Saudi Arabia,  Kuwait,
         Qatar, Bahrain, Oman, UAE, Iraq, Yemen, Syria, Jordan, and Lebanon; and
         the North African countries of Sudan,  Libya,  Egypt,  Morocco,  Tunis,
         Algeria,  and  Mauritania.  Mr.  Harb  S.  Al  Zuhair,  who  is  one of
         HiEnergy's Directors, serves as the Chairman of the Board of EEMCO.

         During  August 2003,  the Company sold  1,793,237  shares of its common
         stock and raised  $1,116,000,  net of  commissions.  In connection with
         these sales,  the Company  also issued  warrants to purchase its common
         stock in the following  amounts and exercise prices;  100,000 shares at
         $0.65,  55,556  shares at $0.60,  68,116  shares at $0.69,  and 243,188
         shares at $0.75

         In August 2003,  the Company  announced  that it has secured  financial
         backing from an investment  bank, for its bid to obtain a contract with
         the U.S.  Navy to develop a  prototype  SuperSenzor  for  detection  of
         biological  agents  in  sealed  containers.  The  investment  bank  has
         confirmed to the Navy that it would provide the necessary  funding of a
         minimum of $2,500,000 and a maximum of $4,000,000, by purchasing common
         stock of the Company to guarantee  that the Company will have  positive
         cash flow through the performance of the 18-month contract. In exchange
         for the  guarantee,  the Company will owe fees to the  investment  bank
         ranging from $50,000 (if the contract is not awarded to the Company) to
         $150,000  (upon  the  award  of the  contract).  The  Company  had been
         approved for a grant of $1,600,000;  however, the Contracting Office of
         the  Naval  Surface  Warfare  Center  denied  the  contract  due to the
         Company's financial condition.

         In August 2003,  the Company  announced the  incorporation  of HiEnergy
         Defense, Inc. an 85% owned subsidiary that will focus on developing and
         marketing defense applications of the Company's SuperSenzor technology.
         HiEnergy  Defense,  Inc. will operate in the Washington  D.C. area from
         Arlington,  Virginia.  Colonel William J. Lacey, Jr. has been appointed
         CEO of HiEnergy Defense,  Inc. and the Honorable William A. Nitze, Esq.
         is Chairman of the Board.

         In September  2003,  Bruce Del Mar resigned from the Company's Board of
         Directors for personal reasons.




                                       29
<PAGE>

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

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

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

OVERVIEW

We 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 four 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.



                                       30
<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 accounting principles generally accepted in the
United States of America.  This going concern basis of presentation assumes that
we will  continue  operations  for the  foreseeable  future  and will be able to
realize our assets and discharge our  liabilities  and commitments in the normal
course of business.  As described below under  Liquidity and Capital  Resources,
there is  substantial  uncertainty  about our  ability  to  continue  as a going
concern.  Our financial  statements do not include adjustments that might result
from the outcome of this uncertainty.

CRITICAL ACCOUNTING POLICIES

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

OPERATING RESULTS

For the three months ended July 31, 2003, we incurred a net loss of  $1,132,223,
as compared to a net loss of $910,312 for the same period in 2002. For the three
months  ended July 31,  2003,  we had  negative  cash flows from  operations  of
$490,537 as compared to negative cash flows from  operations of $552,642 for the
same period in 2002. In addition,  we had an accumulated  deficit of $10,725,239
and were in the  development  stage as of July 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 JULY 31, 2003 COMPARED TO THREE MONTHS ENDED JULY 31, 2002

         REVENUE

We had  revenues of $103,749  during the three months ended July 31, 2003 and no
revenues  during the same period in 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 expect to complete  development and begin sales
of our products  some time in the current  fiscal year,  which ends on April 30,
2004.

         OPERATING EXPENSES

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

Our general and  administration  expenses were  $1,028,240 for the quarter ended
July 31,  2003 versus  $519,145  for the same  period in 2002.  The  increase in
operating  expenses was primarily due to increases in administrative  personnel,
general office, legal,  accounting and investor relations expenses. Our research
and  development  expenses  increased to $202,071 for the quarter ended July 31,
2003 from  $166,595  for the same quarter in 2002,  as we hired more  scientific
personnel and incurred more costs to further the  development  of our detections
systems.



                                       31
<PAGE>

         DEPRECIATION

Accumulated  depreciation  for  property  and  equipment  at July  31,  2003 was
$129,706. Depreciation expense for the three months ended July 31, 2003 and 2002
was $30,281 and  $14,112,  respectively.  The increase in  depreciation  expense
reflects additional equipment put into service during the intervening period.

         RECENT ACCOUNTING PRONOUNCEMENTS

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


LIQUIDITY AND CAPITAL RESOURCES; PLAN OF OPERATION

During the three  months  ended July 31, 2003,  we used  $490,537 for  operating
activities  and  $24,308 to acquire  equipment.  These uses of cash were  funded
principally through opening cash on April 30, 2003 of $107,008, private sales of
common stock of $200,000 and the conversion of legal costs into notes payable of
$238,816 for the period. As of July 31, 2003, we had cash of $32,396 and current
liabilities of $977,707.  The Company has to continue to sell equity in order to
pay for on-going  operations  and pay its present  liabilities.  There can be no
assurance  that  we  will be able to  continue  as a going  concern  or  achieve
material revenues or profitable operations.

In private sales in August and September 2003, the Company sold 1,793,237 shares
of its common stock and raised $1,116,000, net of commissions.

The continued  development and testing of our technology to create  market-ready
products depends upon raising  additional funds. We believe that we will require
a total  of  approximately  $5,000,000  in order to  continue  implementing  our
business  plan during the fiscal  year ending  April 30,  2004,  and  anticipate
needing an additional  $5,000,000 for the year ending April 30, 2005. We believe
we have sufficient authorized capital to raise $10 million during the coming two
fiscal years, as our Certificate of Incorporation  authorizes 100,000,000 shares
of common stock and 20,000,000  shares of preferred  stock.  As of September 10,
2003,  there were  30,657,406  shares of common stock and no shares of preferred
stock outstanding.

We plan to continue to utilize a combination of equity financings and government
grants to fund our  short-term  growth and are currently  engaged in discussions
with  respect to raising  additional  capital.  On April 23, 2003 we  registered
shares of common stock for sale under the Securities  Act of 1933  (Registration
No. 333-101055). We may make public offerings in certain states. From day to day
we have discussions  with potential  investors.  However,  we have no definitive
plans or  arrangements  in place with respect to additional  capital  sources at
this time. We have no lines of credit  available to us at this time. 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.

We have committed to make at least $400,000 in additional  capital  expenditures
during the current  fiscal year ending  April 30,  2004.  If we obtain  adequate
financing,  however,  we may make more capital  expenditures in order to further
the  development  and testing of our  technology  and  proposed  products and to
provide equipment and working capital necessary to manufacture our products.



                                       32
<PAGE>


RISKS RELATED TO OUR BUSINESS

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

We were  first made aware by a  reporter  with the Dow Jones News  Service  that
there may be an alleged  relationship  between an individual by the name of Phil
Gurian,  who had previously  been  convicted and awaits  sentencing for previous
alleged stock  manipulation  schemes,  and a former director and Chief Executive
Officer of each of SLW and HiEnergy  Technologies,  Barry Alter. We initiated an
independent  investigation into whether such relationship existed, and if so, to
determine  further whether we or any of our directors or officers engaged in 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 SLW or HiEnergy
Technologies  or HiEnergy  Microdevices.  However,  we believe  that Mr.  Gurian
introduced other investors to SLW who did own our stock or do own our stock. Our
investigation  revealed that some stockholders who purchased significant amounts
of SLW  shares  shortly  prior  to the  reverse  acquisition  knew or had  other
business  dealings  with Mr.  Gurian.  One of these  stockholders  was a company
reportedly owned by Mr. Gurian's  mother,  which disposed of its shares in April
2002 at a substantial profit. We believe that, innocently or intentionally,  Mr.
Alter  knew  of  these  purchases.   Please  see  the  section  entitled  "Legal
Proceedings." After our independent  investigation concluded, the Dow Jones News
Service has developed further its story about various connections that allegedly
may have existed  between these and other  investors and Mr. Gurian  himself and
other  connections  including some between a former market maker and Mr. Gurian.
We continue the development of our technology and products. Thus far our efforts
are proceeding  undisturbed and without interruption.  Naturally,  we cooperated
fully with the SEC's every request. We feel that we have fully complied with the
request by the SEC for  information.  For instance,  we have provided over 3,000
pages of documents.  As to the conclusions of the independent committee,  please
see "Legal  Proceedings." We will also rely upon the SEC's investigation to help
us determine whether and what kind of corporate legal action is appropriate.  We
anticipate that the SEC investigation will not be swiftly concluded.

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



                                       33
<PAGE>


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

Our independent  public  accountants  qualified  their opinion  contained in our
consolidated  financial statements as of and for the years ended April 30, 2003,
2002 and 2001 to  include an  explanatory  paragraph  related to our  ability to
continue as a going concern, stating that "during the year ended April 30, 2003,
the Company  incurred a net loss of  $5,411,265,  and it had negative cash flows
from  operations  of  $2,942,480.  In addition,  the Company had an  accumulated
deficit of  $8,981,620  and was in the  development  stage as of April 30, 2003.
These factors, among others, as discussed in Note 2 to the financial statements,
raise  substantial  doubt  about the  Company's  ability to  continue as a going
concern." Reports of independent auditors that mention substantial doubt about a
company's   ability  to  continue  as  a  going  concern  are  generally  viewed
unfavorably by analysts and  investors.  This  qualified  audit report,  and the
facts underlying the qualification, may make it challenging and difficult for us
to raise  additional  debt or equity  financing  to the  extent  needed  for our
continued operations or for planned increases,  particularly if we are unable to
attain and maintain profitable  operations in the future.  Consequently,  future
losses may have a material adverse effect on our business, prospects,  financial
condition,  results of operations and cash flows. We urge potential investors to
review  the  report of our  independent  certified  public  accountants  and our
consolidated financial statements before making a decision to invest in HiEnergy
Technologies,  and not to invest in our common  stock unless they can afford the
potential loss of their investment.

IF OUR LOSSES CONTINUE INTO THE FUTURE,  OUR BUSINESS AND OUR STOCKHOLDERS  WILL
BE ADVERSELY  AFFECTED,  AND OUR  DEPENDENCE ON  GOVERNMENTAL  CUSTOMERS,  AS WE
ANTICIPATE, CAN REQUIRE LONGER THAN AVERAGE LEAD TIMES BEFORE SALES ARE MADE.

We have incurred net losses since our inception.  For the quarter ended July 31,
2003, we reported a net loss available to common  shareholders of  approximately
$1,743,619,  as  compared  to a net loss  available  to common  shareholders  of
approximately  $910,312  for the quarter  ended July 31, 2002.  Our  accumulated
deficit through July 31, 2003 was  approximately  $10,725,239.  We have financed
operations  to date  through a  combination  of  government  funding  and equity
financing.  We expect  that our losses  will  continue  in fiscal  year 2004 and
further  into the future.  We cannot  assure you that we will attain  profitable
operations in the future. In the past, the cash available from financial sources
has funded  operations with aggregate losses of $10,725,239 and has left a small
surplus of equity at July 31, 2003 of $282,954.  It appears  that our  financial
requirements until we can become breakeven are at least $15,000,000.  One of the
reasons  for the  continuation  of  anticipate  losses  is  that  we are  highly
dependent on governmental  customers,  which typically  require long lead times,
and regarding security have demonstrated the same characteristics.

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

Our former  director Barry Alter has engaged his own separate legal counsel with
respect to the SEC investigation regarding SLW Enterprises and is a recipient of
what we understand to be an informal request from the SEC as to obtain documents
from him in its investigation.  Mr. Alter demanded that we advance him in excess
of  $24,000  in  connection  with the  informal  investigation  that the SEC has
conducted Mr. Alter brought an action against us in Delaware  seeking payment of
his costs and expenses,  then subsequently  informed us that the action had been
voluntarily  dismissed without  prejudice.  Mr. Alter could make further demands
for advancement of expenses,  and the voluntary dismissal of his action does not
prevent him from  initiating a new action to recover past,  present,  and future
expenses  from us. We will, if  financially  able,  vigorously  contest any such
action by Mr. Alter and could also bring action against Mr. Alter for indemnity,
breach of fiduciary duty,  fraud and other relief.  If it is determined that Mr.
Alter's claim satisfies the conditions for  advancement of expenses  incurred in
the SEC investigation,  we may be obligated to advance any expenses, liabilities
or losses incurred by him in connection with the investigation  prior to a final
determination whether Mr. Alter has satisfied the standard of conduct to justify
indemnification.  We could be subject to  indemnification  demands by Mr.  Alter
until  there  is a final  judgment,  which  could  be  years  away.  See  "Legal
Proceedings" for more information.



                                       34
<PAGE>


FORMER DIRECTOR FAILED TO DISCLOSE OUTSIDE LEGAL PROCEEDINGS.

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

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

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

In April,  June and October  2002,  we sold  5,204,248  shares of our  presently
outstanding  common  stock for gross  proceeds of  approximately  $4,455,000  in
private  equity  offerings.  Facts  related  to Gregory  Gilbert  and a separate
investigation  by the SEC  involving  persons  suspected of stock  manipulation,
which are described  under  "Former  director  failed to disclose  outside legal
proceedings,"  "We  understand  there is  presently  a formal SEC  inquiry  that
relates to investors in our  predecessor  company  about the time of the reverse
acquisition  transaction between SLW Enterprises Inc. and HiEnergy Microdevices,
Inc." and "Legal  Proceedings,"  were not known to us and were not  disclosed in
sales  materials or filings with the SEC. 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,  if any,  they  were  culpable.  These  matters  were
disclosed to the  stockholders  and the public before the public offering became
effective.



                                       35
<PAGE>

WE MAY BE ADVERSELY AFFECTED BY WEAKNESSES IN OUR INTERNAL CONTROLS.

A review by our management has determined that our internal controls suffer from
inadequate policies and procedures.  Deficiencies in the design and operation of
our internal  controls could  adversely  affect our ability to record,  process,
summarize and report  material  financial  information or to regulate and govern
misconduct.  New  management is committed to improving the state of our internal
controls  and  their  effectiveness.   Deficiencies  have  been  and  are  being
addressed.  Even  if  our  management  believes  that  disclosure  controls  and
procedures are adequate,  mistakes may occur.  Such mistakes might have material
adverse  consequences to the Company.  No assurance is possible that the Company
will be able to make timely filings in every case.

WE HAVE A SINGLE INDIVIDUAL  SERVING AS OUR CHAIRMAN,  CHIEF EXECUTIVE  OFFICER,
PRESIDENT AND TREASURER,  AND LACK OF BREADTH AND DEPTH OR OTHER WEAKNESS IN THE
BUSINESS AND FINANCIAL  EXPERIENCE  OF  MANAGEMENT  MAY IMPAIR OUR FINANCIAL AND
BUSINESS PERFORMANCE.

The  potential  success of our business  depends to a great extent on Dr. Bogdan
Maglich,  the  Chairman  of our Board of  Directors,  Chief  Executive  Officer,
President, Treasurer, and Chief Scientific Officer. We have not obtained key man
insurance with respect to Dr. Maglich or any of our executive officers. Although
Dr. Maglich has ample  experience in monitoring the research and  development of
our  technology  as Chief  Scientific  Officer,  and ample  previous  experience
managing  large  numbers  of  researchers  in  academia,   including   financial
management,  he has  relatively  little or no direct  experience  in business or
financial  matters other than past  experience in the general  management of the
business and financial operations of the Company. Dr. Maglich's lack of previous
experience in the area of  management  could  adversely  affect the existing and
future  operations  of the Company.  As a result,  our future growth and success
will  depend  in large  part upon our need and  ability  to  attract  additional
qualified management, scientific and professional personnel. The competition for
qualified personnel in the technological  industry is intense, and our inability
to attract  and retain  additional  key  personnel  could  adversely  affect our
business and financial operations.

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

For the  time  being,  we will try to  maintain  a  strategy  to  segregate  the
deployment of our technology from the general  public.  We anticipate a possible
adverse public reaction to the concept of "neutron  bombardment."  We anticipate
the need for neutron shielding to make our equipment satisfactory as a matter of
health and safety in certain applications, such as airports, to shield personnel
from  anticipated  levels of radiation  bombardment.  We have not determined the
levels of shielding that are required,  which may vary tremendously depending on
the applicable regulations of the jurisdiction in which the system is installed.
We  believe  that any public  objections  can  ultimately  be  overcome  through
education.  Our  Chief  Scientific  Officer,  Dr.  Maglich,  believes  that  our
equipment's anticipated level of neutron radiation dose will result in 10 to 100
times  less  tissue  damage  than the level of x-ray  radiation  dose  needed to
accomplish  baggage  security  screening.  Fast neutrons,  which are used in our
technology, do not produce the same radioactive environment as thermal neutrons.
Despite the relative safety of our technology,  we propose to use our technology
initially only for screening  procedures that are remote from the general public
(such as checked  baggage) to avoid this  adverse  public  reaction,  instead of
proposing  to use our  technology  for  check-in  procedures  (such as  carry-on
baggage screening).  As public knowledge and awareness increase, we believe that
the broader array of uses for our  technology  will become  available.  Concerns
about safety may challenge our ability to generate revenues and adversely affect
our financial position, cash flows and results of operations.



                                       36
<PAGE>


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

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

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

Our competitors and potential competitors have greater financial resources. Also
we anticipate  that our  competitors  will have access to some of our technology
because we have Small Business Innovation  Research (SBIR) grant contracts.  The
federal  government does not undertake to protect data or inventions from public
disclosure beyond four (4) years after the term of our SBIR grant contract.  The
federal  government might also create competition by utilizing its own right and
license to our technology  developed under the SBIR contract.  The U.S.  federal
government has  royalty-free  rights in the products and data resulting from our
federal  government SBIR grants.  We nevertheless  own the data and title to the
products  resulting  from our SBIR  grants and are  permitted  to obtain  patent
protection.  A delay in  development  or testing of our prototypes may result in
foregone potential sources of investment or revenue. Laboratory experiments have
demonstrated  the  basic  capability  of  the  stoichiometric   technology.  Our
technology must now be converted into saleable products. Experiments to increase
the efficacy of our  technology  are  ongoing.  If we are unable to complete the
development  of our  technology  and commence to manufacture at least one of our
models of  detection  systems  within a  reasonable  period of time and if other
stoichiometric  technologies  are  developed,  we may  miss the  opportunity  to
capitalize on our lead-time to market.  The development of products based on our
technology may take longer, cost more or be more difficult than expected.  Other
enterprises are seeking to develop  products with similar  capabilities.  Please
see  the  separate  section  entitled  "Competition"  under  the  major  heading
"Description of Business."

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

We must secure enough funds to pay our current liabilities and fund the research
and development of our products.  We are currently in the process of negotiating
several proposals with various  government  agencies for the development and use
of our  technology,  which we believe  will  provide  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.  However,  the  government
contracting  process  involves  further  steps,  such  as  financial  capability
evaluations,  that have  caused the loss of such  contracts  to second  bidders.
Raising  investment  capital  is a  near-term  necessity  in order to pursue any
government contracts.  If we finance our needs with debt, the stockholders could
receive nothing upon any foreclosure or material  default.  If we sell shares of
preferred equity, the rights of the present stockholders would be subject to any
senior rights of the preferred  series of shares.  If common 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.



                                       37
<PAGE>


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.  The loss of Dr.  Maglich  may  prevent  us from
implementing our business plan, which may limit our  profitability  and decrease
the  value of your  stock.  Dr.  Maglich  is 75  years of age.  We do not have a
succession  plan or a policy  for  succession;  the  Board of  Directors  of the
Company would meet and name a successor or successors to offices held now by Dr.
Maglich.

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

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

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

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

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



                                       38
<PAGE>


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

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

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

The  terrorist  attacks in the United  States and other  countries  have brought
devastation to many people,  shaken consumer  confidence and disrupted  commerce
throughout the world.  The  continuing  threat of terrorism in the United States
and other countries and heightened security measures, as well as current and any
future  military  and  civil  action  in  response  to such  threat,  may  cause
significant disruption to the global economy, including widespread recession. We
are  unable  to  predict  whether  the  continuing  threat of  terrorism  or the
responses  to such threat will  interfere  with our efforts to raise  additional
capital to fund our operations  through the development  stage. If we are unable
to raise a sufficient amount of capital due to economic conditions,  we will not
be able to  finalize  development  of our  detection  systems  under  government
contracts and to bring them to military, civil or commercial markets as planned.

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

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

Linear accelerators are a central component of our sensors. There are only three
suppliers of this component,  and we are currently using only one supplier. This
supplier has limited production capacity,  also supplies one of our competitors,
and has delayed delivery of components on three occasions. The unit we are using
has been  re-designed as requested by us, and this has led to delays recently in
delivery. While we believe that alternate suppliers for neutron accelerators are
available, further interruption could materially impair our operations.

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

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



                                       39
<PAGE>

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

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

Our management is  inexperienced  in doing business in many overseas  markets in
which we plan to sell our products. We may experience unexpected difficulties in
our  overseas  marketing  and sales  efforts,  and such  efforts may depend upon
leveraging the skills of strategic partners with experience in these markets. We
have entered  into an Exclusive  International  Distribution  Agreement  for our
beta-model CarBomb Finder with the Electronic Equipment Marketing Company, based
in London and Riyadh, for our marketing and sales efforts in the Middle East and
certain European Union nations.  Presently no other strategic partners have been
decided upon.

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

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

OUR  COMPETITORS  COULD  PURCHASE THE SAME  COMPONENTS  FROM OUR  SUPPLIERS  AND
ATTEMPT  TO COPY OUR  PRODUCTS  TO THE  EXTENT  NOT  COVERED  BY PATENT OR OTHER
INTELLECTUAL PROPERTY RIGHTS.

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




                                       40
<PAGE>


ITEM 3.  CONTROLS AND PROCEDURES

(A)  EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

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

(B)  CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

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




                                       41
<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

We  received a letter  dated  December 5, 2002,  from an  attorney  representing
Richard T. Eckhouse,  a consultant,  demanding  payment for accounting  services
allegedly  performed  by Mr.  Eckhouse  pursuant  to a  Letter  Agreement  dated
November 7, 2001,  between Mr.  Eckhouse  and  HiEnergy  Microdevices,  Inc. The
Letter Agreement  provides that Mr. Eckhouse was to be paid $350 per hour, which
was to be paid as follows: (i) one-third or $117 in cash; (ii) one-third or $117
paid by a  Promissory  Note  at 10%  annual  interest,  maturing  when  HiEnergy
Technologies  receives  government funding of $900,000 or an investment totaling
$300,000 or more; and (iii)  one-third or $117 paid by Class A (common stock) of
HiEnergy  Microdevices at $5.00 per share.  Mr. Eckhouse filed a lawsuit against
the Company,  Microdevices and Dr. Bogdan Maglich on May 2, 2003 in the Superior
Court of the State of California,  County of Orange, Central Justice Center, and
an amended  complaint  on June 20, 2003,  alleging  that  Microdevices  owes Mr.
Eckhouse a total of $313,580 for services  rendered,  plus interest,  attorney's
fees and costs.  We deny these  allegations  and are  vigorously  defending this
lawsuit.  We have  demurred to the  complaint,  and our  demurrer  was  granted;
however the court also granted the plaintiff leave to amend his complaint.

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

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

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

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

As mentioned in item 3, above,  the independent  investigators  believe there is
insufficient  evidence to fully  conclude  that there was no  wrongdoing  by SLW
Enterprises  prior  to the  April  2002  reverse  acquisition.  The  independent
investigators  obtained  evidence  that some of our  stockholders  who purchased
significant  amounts of SLW Enterprises shares prior to the reverse  acquisition
knew or had business dealings with Phil Gurian, a person who had previously been
involved in stock manipulation, and that one of these stockholders was a company
reportedly owned by Mr. Gurian's  mother,  which disposed of its shares in April
2002 at a profit believed to be between $500,000 and $600,000.  Mr. Barry Alter,
a person who later  served as a director  of the Company and for a short time as
our interim President,  was aware of these purchases of SLW Enterprises  shares.
The independent  investigators believe the evidence is inconclusive whether Phil
Gurian had control over these SLW  Enterprises  shares and  whether,  if so, our
former President and director had any knowledge of such control.


                                       42

<PAGE>

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

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

ITEM 2.  CHANGES IN SECURITIES

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

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

         o        In May 2003, we issued  2,191,878 shares of common stock which
                  includes  62,582  shares of  common  stock  issued as  penalty
                  shares for late  registration  of common stock,  to holders of
                  Series  A   convertible,   redeemable   preferred   stock  who
                  surrendered  and exchanged their shares of Series A for common
                  stock of the Company.  We believe the  issuance of  securities
                  was exempt under Section 3(a)(9) of the Securities Act.

         o        In May 2003,  we  issued  91,526  shares  of  common  stock to
                  certain  stockholders  who  invested  in a private  placement,
                  dated  October  29,  2002,  to  compensate  them  for the late
                  registration  of the common stock.  We believe the issuance of
                  securities was exempt as constituting a dividend rather than a
                  sale.

         o        In May 2003,  we issued  34,000  shares of common  stock to an
                  investor who exercised  warrants to purchase our common stock.
                  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 June 2003,  we issued  11,178  shares of common  stock to a
                  former  employee as payment of a bonus in accordance  with her
                  employment  contract with the Company. We believe the issuance
                  of  securities   was  exempt  under  Section  4(2)  under  the
                  Securities Act.

         o        In May,  June, and July 2003, we issued options to purchase an
                  aggregate of 690,000 shares of common stock, 490,000 shares of
                  common stock to employees and other service providers, with an
                  exercise  price of $0.75 and a term of six years;  and 200,000
                  shares of common  stock to other  service  providers,  with an
                  exercise  price of $0.50 and a term of six years,  pursuant to
                  the  HiEnergy  Technologies  2003  Stock  Incentive  Plan.  We
                  believe the issuance of  securities  was exempt under  Section
                  4(2) under the Securities Act.

ITEM 5.  OTHER INFORMATION

In September 2003, Mr. Bruce Del Mar resigned from the Board of Directors of the
Company.




                                       43
<PAGE>




ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(A) EXHIBITS

EXHIBIT
NUMBER           DESCRIPTION
---------------- ---------------------------------------------------------------

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

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


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

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

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

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

10.50(10)        Richard Melnick Stock Purchase Agreement dated June 18, 2003

10.51(10)        Jeffrey Herman Stock Purchase Agreement dated June 23, 2003

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

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

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

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

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

* Indicates a management compensatory plan or arrangement.

(10)  Filed  on  September  3,  2003 as an  exhibit  to  HiEnergy  Technologies'
post-effective  amendment no. 1 to its registration statement on Form SB-2 (File
No. 333-101055), and incorporated herein by reference.


                                       44
<PAGE>



(b) REPORTS ON FORM 8-K

On June 20, 2003, we filed a report on Form 8-K dated June 20, 2003.  The report
disclosed  under Item 9 that we had engaged a German-based  business & financial
consultant,  that we had engaged a German investor  relations firm, and that our
stock was listed on the Berlin Stock Exchange.

On June 11, 2003, we filed a report on Form 8-K dated June 10, 2003.  The report
disclosed  under Item 5 that the Company's  $200,000  contract with the Navy had
not been granted on financial grounds,  that the Company's device scored 100% in
tests of explosive  detection through steel, and that the Company was initiating
a "carbomb finder" counter-terrorism product.

On May 19, 2003,  we filed a report on Form 8-K dated May 16,  2003.  The report
disclosed  under Item 5 the results of our exchange  offer to the holders of our
Series A Preferred Stock.

On May 12,  2003,  we filed a report on Form 8-K dated May 9,  2003.  The report
disclosed  under Item 5 that we had  initiated an exchange  offer on May 9, 2003
for the purpose of retiring our Series A Preferred Stock.



                                       45
<PAGE>


                                   SIGNATURES

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

                                           HIENERGY TECHNOLOGIES, INC.



Date:    SEPTEMBER 12, 2003                By: /S/ B. C. MAGLICH
      ------------------------                 ------------------------------
                                               Name: Bogdan C. Maglich
                                               Title: Chief Executive Officer
                                                      and President



                                       46
<PAGE>


                                  EXHIBIT INDEX

EXHIBIT
NUMBER           DESCRIPTION
---------------- ---------------------------------------------------------------

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

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


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

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

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

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

10.50(10)        Richard Melnick Stock Purchase Agreement dated June 18, 2003

10.51(10)        Jeffrey Herman Stock Purchase Agreement dated June 23, 2003

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

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

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

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

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

* Indicates a management compensatory plan or arrangement.


(10)  Filed  on  September  3,  2003 as an  exhibit  to  HiEnergy  Technologies'
post-effective  amendment no. 1 to its registration statement on Form SB-2 (File
No. 333-101055), and incorporated herein by reference.


                                       47