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

                                   FORM 10-KSB

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

    FOR THE FISCAL YEAR ENDED MAY 31, 2002     COMMISSION FILE NUMBER: 001-12810

                         HI-SHEAR TECHNOLOGY CORPORATION
                 (Name of Small Business Issuer in its Charter)

                     DELAWARE                                  22-2535743
         (State or other jurisdiction of                    (I.R.S. Employer
          incorporation or organization)                   Identification No.)

        24225 GARNIER STREET, TORRANCE, CA                     90505-5355
     (Address of principal executive offices)                  (Zip Code)

            Issuer's Telephone Number:                       (310) 784-2100

         Securities registered under Section 12(b) of the Exchange Act:

       (Title of each class)         (Name of each exchange on which registered)
       ---------------------         -------------------------------------------
            COMMON STOCK                       AMERICAN STOCK EXCHANGE

     Securities registered under Section 12(g) of the Exchange Act:

                         (Title of each class)
                         ---------------------
                                  NONE

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 registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES ( ) NO ( X )

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. ( X )

State issuer's revenues for its most recent fiscal year: $ 15,372,000.

The aggregate value of the Registrants Common Stock held by non-affiliates of
the Registrant was approximately $2,803,218 as of August 14, 2002, based upon
the closing sale price on the American Stock Exchange on that date at which the
stock was last sold.

There were approximately 6,670,000 shares of the Registrants Common Stock issued
and outstanding as of August 14, 2002.

Part III, other than Item 12, is incorporated by reference from the Registrant's
Proxy Statement for its 2002 Annual Meeting of Stockholders to be filed with the
Commission within 120 days of May 31, 2002.

Transitional Small Business Disclosure Format          YES (  )         NO ( X )

================================================================================

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                         HI-SHEAR TECHNOLOGY CORPORATION
                                   FORM 10-KSB

                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----
PART I.

         ITEM 1    BUSINESS................................................    1

         ITEM 2    PROPERTIES..............................................    4

         ITEM 3    LEGAL PROCEEDINGS.......................................    4

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


PART II.

         ITEM 5    MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS    5

         ITEM 6    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                   CONDITION AND RESULTS OF OPERATIONS.....................    5

         ITEM 7    FINANCIAL STATEMENTS....................................    8

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


PART III.

         ITEM 9    DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES.........    9

         ITEM 10   EXECUTIVE COMPENSATION..................................    9

         ITEM 11   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                   AND MANAGEMENT..........................................    9

         ITEM 12   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..........    9


PART IV.

         ITEM 13   EXHIBITS AND REPORTS ON FORM 8-K........................    9

SIGNATURES         ........................................................   10

EXHIBIT INDEX      ........................................................   11

INDEX TO FINANCIAL STATEMENTS..............................................   12

                                       i
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                                     PART I


ITEM 1.  BUSINESS
                                GENERAL OVERVIEW

         Hi-Shear Technology Corporation ("Hi-Shear" or the "Company") designs
and manufactures high reliability pyrotechnic, mechanical and electronic
products for the aerospace industry, national defense and other applications
where pyrotechnic power is desirable. Its aerospace products are primarily used
in space satellites and satellite launch vehicles, exploration missions,
strategic missiles, advanced fighter aircraft and military systems. Customers
such as military and commercial satellite manufacturers, launch vehicle
assemblers, the U.S. Government including NASA, foreign space agencies, and
others in the aerospace business widely use the Company's aerospace products.

         The Company's executive offices are located at 24225 Garnier Street,
Torrance, CA 90505-5355, Telephone (310) 784-2100 - Facsimile (310) 325-5354.

                                HI-SHEAR PRODUCTS

         Hi-Shear's products were originally introduced for the United States
space program, and consist primarily of pyrotechnic power cartridges and various
types of aerospace separation devices designed to meet the demand for reliable
high performance devices with the strength to fasten two structures under
rigorous conditions and then provide quick release upon command. In addition,
the Company designs and manufactures electronic systems that sequentially fire
the pyrotechnic devices according to pre-programmed parameters. These electronic
devices are used in missiles, launch vehicles, fighter aircraft ejection seats
and other applications. The Company also adapts its technology to produce
products for other applications where pyrotechnic power is desirable. Hi-Shear's
products can be grouped into four product categories as follows:

         POWER CARTRIDGES/INITIATORS. Satellites, missiles, and other space
vehicles require substantial stand-by power to perform certain timing-dependent
functions such as separation, cutting and deployment. Hi-Shear designs, markets
and manufactures pyrotechnic power cartridges/initiators that have a high-energy
output. These power cartridges are hermetically sealed electro-explosive devices
that are compact, lightweight, environment and corrosion resistant and operate
with ultra high reliability. The power cartridge provides the energy to operate
the Company's separation devices, pin pullers, thrusters, actuators and cutters.
These devices are used to open satellite doors, deploy solar panels, booms,
communications antennae, missile fins, and in driving stage separation on many
of today's major launch vehicles. Hi-Shear manufactures the highest reliability
NASA standard initiator used throughout the Space Shuttle.

         CARTRIDGE ACTUATED DEVICES. The Company's cartridge actuated devices
are gas-activated products utilized for satellites, missiles and other space
vehicles. These devices include separation nuts, separation bolts, thrusters,
wing/fin actuators, cutters and pin pullers. They are designed for use as
standard high strength fastening hardware with the ability to separate and/or
release components or structures on command. These devices provide the low shock
mechanical action required for rapid separation or deployment of structures or
components in multistage launch vehicles, nose cones and capsules, launching
pads and sleds, ejection seats, booster rockets, tanks, solar arrays, antenna
booms and other devices. The Company maintains an active development program for
new designs, including low shock deployment systems for the increasingly lighter
satellites used in communications and intelligence gathering.

                                       1
<PAGE>

         ELECTRONIC PRODUCTS. Hi-Shear is a key supplier both in the U.S. and
overseas of sequencers for the U.S. Air Force ACES II crew ejection seat
installed in many fighter aircraft, including the A-10, B-2, F-15 and F-16. The
Company originally developed the Analog Recovery Sequencer, which electronically
triggers various ordnance events that deploy parachutes and rockets in
connection with the pilot's ejection from fighter aircraft. These safety units
have a service life of seven years after which they must be replaced or
refurbished.

         Hi-Shear also supplies electronic safe arm fuzes for tactical and
conventional military programs. The Company's upgraded Patriot (PAC-3) missile
system product is fully developed and has entered the low rate initial
production (LRIP) and full-scale production phases. The Company employs a
proprietary initiator that, when removed, permits full testing of the
electronics without risk to personnel or damaging the integrity of the missile
system. This allows for economical system safety checks, and also a shelf life
estimated at 30 years making it among the longest in the industry.

         EMERGENCY CUTTERS. Hi-Shear pyrotechnic emergency cutters are fast,
safe, and reliable rescue tools designed for use in a wide range of emergency
situations for fire and rescue, law enforcement, and military rescue teams. The
LIFESHEAR cutter's light weight, mobility and ease of use enable it to quickly
cut through a variety of tough materials and auto parts in order that a victim
can readily be extracted from a life threatening situation or access can be
quickly gained to a locked area. The LIFESHEAR tool was used by rescue workers
at the site of the World Trade Center disaster in New York City. Hi-Shear's
European licensee is manufacturing and selling the LIFESHEAR product in its
assigned territory.

                             CUSTOMERS AND CONTRACTS

         Most of the Company's customers tend to be large aerospace prime or
subcontractors. Lockheed Martin and the Boeing Company together accounted for
47% of the Company's revenues in fiscal year 2002. The Company's Government
customers include the U.S. Air Force, U.S. Navy, U.S. Army, NASA and other
agencies of the government. Sales to the United States Government as direct
sales represented 11% of revenue in fiscal year 2002. Contract awards and
contract competition phases vary from year to year, and therefore sales
distribution among customers during any one fiscal year should not be considered
indicative of future sales to those customers.

         In fiscal year 2002 most of the Company's contracts were on a fixed
price contract basis where the Company agrees to perform certain work for a
fixed price. These fixed price contracts carry certain inherent risks, including
the underestimation of costs, problems with new technologies or the occurrence
of adverse changes over the contract period. Due to economies that can be
encountered over the period of the contract, these fixed price contracts can
also offer significant profit potential. Company contracts that evolve from the
U.S. Government or from subcontractors are subject to termination for
convenience by the customer or the U.S. Government. However, if this termination
for convenience were exercised, the Company would be entitled to payment of
costs incurred up to the date of termination and a reasonable termination fee.
U.S. Government contracts extending beyond one year are also conditioned upon
the continuing availability of Congressional appropriations because Congress
usually appropriates on a fiscal year basis even though contract performance may
take several years.

                                     BACKLOG

         The Company's average time to design, manufacture and ship its products
is typical of the lead times required for highly engineered, custom manufactured
aerospace products. The final negotiation of the detailed contract requirements
together with the purchase of long lead time material, manufacturing processes
and testing take between 4 to 12 months or more to accomplish. During fiscal
year 2002, the Company continued its programs to reduce many of its
manufacturing lead-times to help its customers with more timely delivery. This
is part of an overall strategy by Hi-Shear's aerospace customers to carry fewer
components in inventory and to speed the construction of launch vehicles and
satellites.

                                       2
<PAGE>

         Total requirements included in contracts undertaken by the Company may
contain options that extend beyond one year, and accordingly, portions are
carried forward from one year to the next as part of the backlog. Some of the
Company's contracts with the U.S. Government and its prime contractors are
supply contracts and/or multi-year options whose requirements are primarily
based on the Government's demand for products on a periodic basis. Because many
factors affect the scheduling of projects, no assurances can be given as to when
revenue will be realized on projects that are included in the Company's backlog.
Although backlog represents business that is considered to be firm, there can be
no assurance that cancellation, changes in quantities, funding changes, or scope
adjustments will not occur. As of May 31, 2002 the Company's backlog was $13.4
million.

                                   COMPETITION

         The Company's aerospace products are thoroughly tested individually, as
well as tested in conjunction with the end product into which they are
incorporated. After commencement of a given program, it is very costly for
competitors to design new competitive components or for customers to change
suppliers of the components since the customer would then be required to
re-qualify the products. Therefore, due to the Company's extensive financial
investment and years of involvement in the development of its products and the
practical barriers to entry into the market by competitors, competition is not a
critical factor for subsequent orders. In addition, local, state and federal
permits and licenses that are required to manufacture such pyrotechnic devices
as the Company produces are difficult to obtain and therefore provide further
barriers to entry into the market by competitors. The Company currently
qualifies as a small business entity for the purposes of obtaining small
business set aside contracts and dealing with U.S. Government contracts or
programs.

                          MANUFACTURING AND PRODUCTION

         Production of the Company's products consists of fabricating and
assembling the hardware components and separately preparing the pyrotechnic
charge used in the power cartridge. Production of the mechanical and electronic
devices involves machining components in the Company's precision machining
center, the assembly of the components and the testing of the completed units.
Throughout the entire process, strict quality assurance controls are maintained
including customer and, where required, government inspection. After assembly,
the products are functionally tested on a sample basis. The handling and
processing of pyrotechnic materials requires extensive experience and expertise
as well as the proper equipment, facilities and permits. The Company has been
safely handling and processing these fuels and oxidizers for over forty years.

                              INTELLECTUAL PROPERTY

         Hi-Shear's policy is to apply for patents and other appropriate
statutory protection when it develops new or improved technology. This has
resulted in over 40 U.S. patents as well as numerous trademark and copyrights.
All employees are required to assign to the Company any intellectual property
developed by the employee during the course and scope of the employment and
agree to preserve as confidential all information pertaining to the Company's
business obtained by the employee as a result of their employment. The Company
also relies on the laws of unfair competition and trade secrets to protect its
unpatented proprietary rights.

                                    EMPLOYEES

         The Company's success depends on its ability to attract and retain
highly qualified personnel. As of May 31, 2002 Hi-Shear had 88 full time
employees, the majority of whom are engineers and technicians. None of the
employees are represented by a labor union and the Company has no knowledge of
any labor organizing activities, has never suffered a work stoppage, and
considers its relations with its employees to be excellent.

                                       3
<PAGE>

                             ADDITIONAL INFORMATION

         The Company files annual and quarterly reports and proxy statements
with the Securities and Exchange Commission (the "Commission") pursuant to
federal securities laws. You may inspect such reports, including the exhibits
thereto, without charge, at the Public Reference Room of the Commission at 450
Fifth Street N.W., Washington, D.C. You may obtain information on the operation
of the Public Reference Room by calling the Commission at 1-800-SEC-0330. You
may also access such material electronically by means of the Commission's home
page on the Internet at http://www.sec.gov.

         We intend to make available to our stockholders annual reports
containing financial statements audited by an independent certified public
accounting firm. We may also make available to our stockholders, from time to
time, other reports about material corporate developments.

ITEM 2.  PROPERTIES

         Hi-Shear's manufacturing and executive offices are located in Torrance,
California, in a 75,000 square foot building organized for electronic,
mechanical, and pyrotechnic manufacturing and assembly operations. The Company
leases these offices pursuant to a lease for five (5) years which terminates in
August 2004. The Company owns 12 acres of land in Santa Clarita, California that
it utilizes as a storage and blending site. During fiscal year 2002, a highway
was constructed through four acres of property that was owned by the Company
until that portion of the original 16 acres of land was appropriated by the City
of Santa Clarita for the purpose of constructing the highway. This highway will
connect to the local freeway. The Company believes that its current leased
facilities in Torrance and property in Santa Clarita are adequately covered by
insurance and will adequately support its operations for the foreseeable future.

ITEM 3.  LEGAL PROCEEDINGS

         The Company is subject to certain legal proceedings and claims that
have arisen in the ordinary course of its business. In November 2000 Hi-Shear
sued USBI Company, a Delaware Corporation, and United Space Alliance, LLC, a
Delaware limited liability company, in the Circuit Court of the Eighteenth
Judicial Circuit in and for Brevard County, Florida. Hi-Shear filed suit to
recover damages resulting from the defendants' refusal to pay thirteen invoices
totaling $1,319,000 on four separate contracts for specially manufactured
aerospace components. In addition, the Company's suit also seeks compensatory
damages alleging that the defendants fraudulently induced Hi-Shear to make an
excessively low bid on a request for proposal to manufacture certain other
parts. Further damages are sought for defendants' misappropriation of Hi-Shear's
confidential, proprietary and/or trade secret protected designs, drawings, and
specifications for other aerospace components. The lawsuit remains in the
discovery phase while it progresses to trial that is now scheduled to begin in
January 2003. No counterclaims have been asserted against the Company.

         The Company is subject to other claims and legal actions that may arise
in the ordinary course of business. In the opinion of the Company's management,
after consultation with counsel, the ultimate liability, if any, with respect to
these other claims and legal actions will not have a material effect on the
financial position or on the results of operations.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
         None.

                                       4
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                                     PART II


ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The Company's Common Stock is traded on the American Stock Exchange
under the symbol "HSR". The following table reflects the high and low sales
prices of the Company's Common Stock, as reported by the American Stock Exchange
composite tape, for the periods set forth below:

                                                           High         Low
                                                           ----         ---
         Fiscal Year 2002 ending May 31, 2002

                           4th Quarter                  $  4.22      $  2.60
                           3rd Quarter                     3.00         1.70
                           2nd Quarter                     4.55         1.81
                           1st Quarter                     2.10         1.30

         Fiscal Year 2001 ending May 31, 2001

                           4th Quarter                  $  2.60      $  1.60
                           3rd Quarter                     2.80         0.81
                           2nd Quarter                     1.62         1.00
                           1st Quarter                     2.37         1.37


         The Company has never paid a cash dividend and the payment of any cash
dividends in the future are subject to the terms of the Company's credit
facility (see Note 10, Financial Statements). Dividends will be determined by
the Board of Directors in light of the conditions then existing, including the
Company's earnings, financial requirements and conditions, opportunities for
reinvesting earnings, business conditions and other factors.

         The number of holders of record of the Company's Common Stock was
approximately 60 and the number of beneficial shareholders was approximately
1,451 as of July 29, 2002.


ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

                                GENERAL OVERVIEW

         The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the financial
statements and notes thereto included elsewhere in this report. This report,
including this discussion, contains forward-looking statements about business
strategies, market potential, and product launches and future financial
performance that involve risks and uncertainties. The Company's actual results
may differ materially from those anticipated in these forward-looking statements
as a result of certain factors. These include the acceptance of its new
aerospace and non-aerospace products, the acceptance and pricing of its
non-aerospace products, the development and nature of its relationship with key
strategic partners, the allocation of the federal budget and the economy in
general.

                                       5
<PAGE>

                              RESULTS OF OPERATIONS

FISCAL YEAR ENDED MAY 31, 2002 COMPARED WITH FISCAL YEAR ENDED MAY 31, 2001

         Revenues recognized during fiscal year 2002 were $15,372,000, which is
$3,307,000, or 27%, more than the revenues recognized during fiscal year 2001.
The growth in revenues is reflective of an increase in the total amount of
average monthly orders that were received by the Company during the latter part
of fiscal year 2001 and throughout fiscal year 2002. This increase in new orders
reflects increased customer requirements for the military, satellite and launch
vehicle components produced by the Company. In addition, continued improvements
in productivity and other production efficiencies, which has enabled the Company
to expand total production output on the growing backlog of orders, has
contributed to the increase in revenue.

         Cost of revenues for the year was $11,338,000 compared to $9,393,000
for last year. The increase in cost of revenues corresponds to the increase in
revenues. However, the productivity improvements and production efficiencies
that contributed to the increase in revenues also contributed to reductions in
production costs. Consequently, cost of revenues increased at a smaller rate
(21%) than the rate of increase in revenues (27%). Another factor that
contributed to the rate of the increase in cost of revenues being less than the
rate of the increase in revenues was that the amount charged to cost of revenues
for inventory reserve adjustments was less during fiscal year 2002 than during
fiscal year 2001. Increases to inventory reserves in fiscal years 2002 and 2001
resulted in corresponding increases to cost of revenues of $392,000 and
$595,000, respectively.

         Gross margin for fiscal year 2002 was $4,034,000, or 26% of revenues,
compared to $2,672,000, or 22% of revenues, reported for the fiscal year 2001.
The year-to-year increase is $1,362,000, or 51%. The increase in the total gross
margin amount, and the improvement in gross margin as a percentage of revenues,
was a result of the factors identified above.

         Selling, general and administrative expenses increased by $37,000 or
1%, from $2,793,000 during fiscal year 2001 to $2,830,000 during fiscal year
2002. An increase in legal expenses associated with an arbitration proceeding
and the Company's lawsuit to collect delinquent accounts receivable invoices and
compensatory damages contributed to the increase.

         The Company realized operating income of $1,204,000 for fiscal year
2002 compared to an operating loss of $121,000 for fiscal year 2001. The
$1,325,000 improvement in operating performance is the result of the increase in
gross margin from fiscal year 2001 to fiscal year 2002.

         Interest expense decreased from $617,000 for fiscal year 2001 to
$359,000 for fiscal year 2002. The decrease of $258,000, or 42%, was the result
of significant decreases in both the total amounts of debt outstanding and the
average interest rates applicable to the bank line of credit and notes payable.
During fiscal year 2002, the total amount outstanding under the Company's
revolving line of credit decreased by $1,486,000, while the total balance due on
its notes payable decreased by $823,000. In addition, the average interest rates
applicable to the diminishing debt obligations decreased by an average of 3
percentage points for the fiscal year ended May 31, 2002 compared to the fiscal
year ended May 31, 2001. The lower average interest rates resulted from
decreases in the benchmark prime rates, to which the credit line and notes
payable interest rates are linked. The Company's overall reduction in debt was
accomplished through increased cash collections resulting from increased
billings to customers.

         No income tax expense was recorded for fiscal year 2002 compared to
$250,000 income tax expense reported for fiscal year 2001. The income tax
expense that ordinarily would be associated with the Company's amount of taxable
income for fiscal year 2002 was offset by an identical amount of tax "benefit"
from the recognition in fiscal year 2002 of net deferred tax assets. Income tax
expense for fiscal year 2001 included an increase in valuation allowance which
was offset by the tax benefit from the recognition of net deferred tax assets in
2001.


                                       6
<PAGE>

         The Company elected to early adopt SFAS No. 142 and the transition
provisions of SFAS No. 141. The cumulative effect of this change in accounting
principle was a write-off at the beginning of fiscal year 2002 of the
unamortized deferred credit ("excess of net assets acquired over purchase
price") of $276,000 that existed at the end of fiscal year 2001. Accordingly,
net income for fiscal year 2002 was increased by the amount of the write-off.

         Net income for fiscal year 2002 was $1,121,000, or $0.17 per share,
compared to a net loss for fiscal year 2001 of $988,000, or $(0.15) per share.

                               FINANCIAL CONDITION

         Accounts receivable balances, which consist of billed and unbilled
amounts, were $7,862,000 and $7,614,000 at the end of fiscal year 2002 and at
the end of fiscal year 2001, respectively. The billed component of the total
accounts receivable balance at May 31, 2002 was $3,560,000 compared to
$4,072,000 at the end of the previous fiscal year. The $512,000 decrease in the
billed accounts receivable balance at May 31, 2002 compared to May 31, 2001 was
primarily a consequence of the Company accelerating collection of outstanding
accounts receivable. The accounts receivable balances at the end of both fiscal
years 2002 and 2001 include an overdue amount of $1,319,000 from one account. A
lawsuit has been filed in order to collect that amount (See Note 13 in the Notes
to Financial Statements).

         Unbilled receivables represent revenues recognized from long-term fixed
priced contracts based upon percentage-of-completion, but in advance of
completing billable events for which invoices are submitted to customers. As
billing events occur for such contracts, previously unbilled receivables are
converted to billed accounts receivable with the preparation and submission of
invoices to customers. Unbilled receivables at May 31, 2002 were $4,302,000
compared to $3,542,000 at the end of fiscal year 2001. The $760,000 increase in
the unbilled receivable balance is reflective of the Company having "earned"
more contract revenues prior to billable "milestones" at the end of fiscal year
2002 than at the end of fiscal year 2001.

         Claims receivable balances decreased $452,000 from $816,000 for two
claims at May 31, 2001 to $364,000 for one claim at May 31, 2002. The total
claims receivable balances at the end of both fiscal year 2002 and fiscal year
2001 represent the unpaid balance for claims on contracts terminated by the
customers pursuant to the termination for "convenience" terms of the related
contracts. The claims are recorded at amounts which management expects to be
realized within the upcoming fiscal year.

         The $971,000 decrease in total inventories from $3,618,000 at the end
of fiscal year 2001 to $2,647,000 at the end of fiscal year 2002 was primarily a
result of the combination of a $392,000 increase in inventory reserves and a
$452,000 decrease in work in process inventories. The largest component of the
net decrease in work in process inventory was a reduction in the inventory of
sub-component parts produced in the Company's precision machining center in
anticipation of subsequent allocation to work in process jobs associated with
customer-funded contracts.

         Trade accounts payable decreased from $1,557,000 at the end of fiscal
year 2001 to $1,353,000 at the end of fiscal year 2002. The $204,000 decrease in
trade accounts payable occurred as a result of using cash generated from
accelerated collections of accounts receivable to accelerate payments of
accounts payable. Included in accounts payable at May 31, 2002 is $450,000 due
to Cincom, a software vendor, in accordance with the Company's settlement with
Cincom of a dispute that was the subject of an earlier arbitration proceeding.

         Long-term debt, all of which was incurred during prior fiscal years in
order to finance the acquisition of machines used in the Company's precision
machining center and the acquisition of land held for sale, was reduced from
$1,322,000 at the end of fiscal year 2001 to $499,000 at the end of fiscal year
2002 through principal payments of $823,000 during fiscal year 2002 compared to
principal payments of $1,052,000 during fiscal year 2001.

                                       7
<PAGE>

         The outstanding balance on the Company's revolving line of credit with
its bank decreased $1,486,000 from $4,857,000 at May 31, 2001 to $3,371,000 at
May 31, 2002. Accelerated collections of accounts receivable and collections on
the claims receivable, as noted above, enabled the Company to make the
significant reduction to the outstanding balance on the revolving line of credit
during fiscal year 2002.


                         LIQUIDITY AND CAPITAL RESOURCES

         Net cash of $2,226,000 was provided by operating activities during
fiscal year 2002 compared to net cash of $731,000 that was provided by operating
activities during fiscal year 2001. The $1,495,000 increase in operating cash
flows was primarily the result of collecting $3,061,000 more from accounts
receivable invoices than during fiscal year 2001. That increase in collections
was linked to a significant increase in total amounts billed customers during
fiscal year 2002 compared to fiscal year 2001. The increase in cash collections
was partially offset by a $1,667,000 increase in cash disbursements for payment
of accounts payable invoices during fiscal year 2002 compared to the prior year.

         To supplement cash provided by operating activities in order to meet
its cash obligations, the Company maintains a revolving line of credit with a
commercial bank and pays market interest on the outstanding balance. The
outstanding balance under this line of credit at May 31, 2002 was $3,371,000,
compared to an outstanding balance of $4,857,000 at May 31, 2001. The maximum
borrowing limit under the line of credit was $4,300,000 as of May 31, 2002.
Therefore, the amount available for borrowing at May 31, 2002 was $929,000. The
revolving line of credit, which matures on October 15, 2002, is covered by a
business loan agreement that contains various financial covenants. At May 31,
2002 the Company was not in compliance with one of those covenants. The bank has
waived that covenant violation. Based upon previous discussions with its current
commercial bank, as well as with other prospective banks, Hi-Shear's management
is confident that the availability of sufficient supplemental cash under a
revolving line of credit will continue well beyond the maturity date of the
current line of credit.

         In its attempt to minimize interest expense associated with the
outstanding balance under the revolving line of credit, the Company consistently
maintains a minimal cash balance. As cash becomes available through collections
of accounts receivable it is used to make payments on Company obligations,
including reductions on the revolving line of credit. "Cash and cash
equivalents" of $113,000 reported on the Company's balance sheet at May 31, 2002
was the approximate amount of cash deposited into the Company's bank account at
or just before the end of the fiscal year ended May 31, 2002 that had not yet
been "cleared" by the bank for the Company to use.

ITEM 7.  FINANCIAL STATEMENTS

         The report of the independent certified public accountants and
financial statements and notes listed in the accompanying index are part of this
report. See "Index to Financial Statements" on page 13.

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

         None.

                                       8
<PAGE>

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

         Information required by this item will be contained in the Company's
Proxy Statement to be filed with the Securities and Exchange Commission within
120 days after May 31, 2002 and is incorporated herein by reference.


ITEM 10.  EXECUTIVE COMPENSATION

         The information required by this item will be contained in the
Company's Proxy Statement to be filed with the Securities and Exchange
Commission within 120 days after May 31, 2002 and is incorporated herein by
reference.


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information required by this item will be contained in the
Company's Proxy Statement to be filed with the Securities and Exchange
Commission within 120 days after May 31, 2002 and is incorporated herein by
reference.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by this item will be contained in the
Company's Proxy Statement under the heading "Executive Compensation", to be
filed with the Securities and Exchange Commission within 120 days after May 31,
2002 and is incorporated herein by reference.




                                     PART IV

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

         (a) Exhibits: See "Exhibit Index", page 11.

         (b) Reports on Form 8-K. No reports on Form 8-K were filed during the
last quarter of the fiscal year ended May 31, 2002.

                                       9
<PAGE>

                                    SIGNATURE

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934
(the "Exchange Act"), the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                              HI-SHEAR TECHNOLOGY CORPORATION


Date: August 29, 2002                         By:  /s/ George W. Trahan
      ---------------                              -----------------------------
                                                   President, Chief Executive
                                                   Officer and Co-chairman

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

Date: August 29, 2002                          By:  /s/ George W. Trahan
      ---------------                               ----------------------------
                                                    President, Chief Executive
                                                    Officer and Co-chairman


                                               By:  /s/ Thomas R. Mooney
                                                    ----------------------------
                                                    Director, Co-chairman of
                                                    the Board


                                               By:  /s/ Gregory J. Smith
                                                    ----------------------------
                                                    Vice President of Finance
                                                    and Chief Financial Officer


                                               By:  /s/ Jack Bunis
                                                    ----------------------------
                                                    Director


                                               By:  /s/ David W. Einsel
                                                    ----------------------------
                                                    Director

                                       10
<PAGE>

                                  EXHIBIT INDEX

                                                                    SEQUENTIALLY
EXHIBIT NUMBER                       DESCRIPTIONS                     NUMBERED
--------------                       ------------                     --------

3.1             Certificate of Incorporation, as amended(1)

3.2             Bylaws, as amended(2)

4.1             Form of Common Stock(3)

10.1            1993 Stock Option Plan(2)

10.2.1          Consulting Agreement with Thomas R. Mooney(6)

10.3            Employment Agreement with George W. Trahan(5)

10.3.1          Amendment to Employment Agreement with George W. Trahan(6)

10.4.1          Torrance Property Lease(6)

10.5.1          Form of Buy/Sell Agreement(6)

10.6            Southern California Bank Credit Facility (now U.S. Bank)(4)

10.6.1          Promissory Note Relating to U.S. Bank Credit Facility(5)

10.6.2          Promissory Note Related to U.S. Bank Credit Facility(7)

10.6.3          Promissory Note and Amendment Relating to U.S. Bank
                Credit Facility(7)

10.6.3.1        Amendments to Promissory Notes Relating to U.S. Bank
                Credit Facility

23.1            Consent of Grant Thornton LLP

99.1            Certification of the CEO and the CFO pursuant to 18 U.S.C.
                Section 1350
------------------

(1)      Previously Filed and Incorporated by Reference to the Company's Form
         SB-2 Registration Statement No. 33-73972 Filed With the Securities and
         Exchange Commission On January 10, 1994.

(2)      Previously Filed and Incorporated by Reference to the Company's Form
         SB-2 Registration Statement No. 33-73972 Filed With the Securities and
         Exchange Commission On February 1, 1994.

(3)      Previously Filed and Incorporated by Reference to the Company's Form
         SB-2 Registration Statement No. 33-73972 Filed With the Securities and
         Exchange Commission On March 23, 1994.

(4)      Previously Filed and Incorporated by Reference to the Company's Form
         10-KSB Filed With the Securities and Exchange Commission On August 12,
         1998.

(5)      Previously Filed and Incorporated by Reference to the Company's Form
         10-KSB Filed With the Securities and Exchange Commission On August 17,
         1999.

(6)      Previously Filed and Incorporated by Reference to the Company's Form
         10-KSB Filed With the Securities and Exchange Commission On August 24,
         2000.

(7)      Previously Filed and Incorporated by Reference to the Company's Form
         10-KSB Filed With the Securities and Exchange Commission On October 10,
         2001.

                                       11
<PAGE>


                          INDEX TO FINANCIAL STATEMENTS

                                                                            PAGE
                                                                            ----

Report of Independent Certified Public Accountants..................         F-1

Balance Sheet.......................................................         F-2

Statements of Operations............................................         F-3

Statement of Stockholders' Equity   ................................         F-4

Statements of Cash Flows   .........................................         F-5

Notes to Financial Statements.......................................  F-6 - F-17


                                       12
<PAGE>

                                                      [Grant Thornton Logo Here]

ACCOUNTANTS AND MANAGEMENT CONSULTANTS




               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS




Board of Directors
Hi-Shear Technology Corporation

We have audited the accompanying balance sheet of Hi-Shear Technology
Corporation as of May 31, 2002, and the related statements of operations,
stockholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of management. Our responsibility is to
express an opinion on these financial statements based on our audit.

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

As discussed in Note 1 to the financial statements, the Company changed its
methods of accounting for business combinations, goodwill and other intangible
assets for the year ended May 31, 2002.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hi-Shear Technology Corporation
as of May 31, 2002, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States of America.


/S/ Grant Thornton LLP
----------------------
Los Angeles, California
July 25, 2002


                                      F-1
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

BALANCE SHEET
MAY 31, 2002

ASSETS
--------------------------------------------------------------------------------

Current Assets
   Cash and cash equivalents                                        $   113,000
   Accounts receivable (Note 5)                                       7,862,000
   Claims receivable (Note 6)                                           364,000
   Inventories (Note 7)                                               2,647,000
   Deferred income taxes (Note 12)                                      700,000
   Prepaid expenses and other current assets                            177,000
                                                                    ------------

     TOTAL CURRENT ASSETS                                            11,863,000

Land (Note 9)                                                           846,000
Equipment, net (Note 8)                                               2,174,000
Deferred income taxes (Note 12)                                         901,000
Intangible assets, net                                                   66,000
                                                                    ------------

                                                                    $15,850,000
                                                                    ============

LIABILITIES AND STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------

Current Liabilities
   Bank line of credit (Note 10)                                    $ 3,371,000
   Current portion of long-term notes payable (Note 10)                 430,000
   Trade accounts payable (Note 13)                                   1,353,000
   Accrued payroll and related costs                                    638,000
   Deferred revenue (Note 11)                                            89,000
   Other accrued liabilities                                            434,000
                                                                    ------------

     TOTAL CURRENT LIABILITIES                                        6,315,000

Long-Term Notes Payable, less current portion (Note 10)                  69,000
                                                                    ------------

     TOTAL LIABILITIES                                                6,384,000

Stockholders' Equity (Note 14)
   Preferred stock $1.00 par value; 500,000 shares authorized;
     no shares issued                                                        --
   Common stock, $.001 par value; 25,000,000 shares authorized;
     6,670,000 shares issued and outstanding                              7,000
   Additional paid-in capital                                         7,193,000
   Retained earnings                                                  2,266,000
                                                                    ------------

     TOTAL STOCKHOLDERS' EQUITY                                       9,466,000
                                                                    ------------

                                                                    $15,850,000
                                                                    ===========
See Notes to Financial Statements

                                      F-2
<PAGE>
<TABLE>

STATEMENTS OF OPERATIONS
YEAR ENDED MAY 31

<CAPTION>

                                                                2002              2001
-------------------------------------------------------------------------------------------

<S>                                                         <C>               <C>
REVENUES (Notes 4 and 5)                                    $ 15,372,000      $ 12,065,000

Cost of Revenues (Notes 3 and 7)                              11,338,000         9,393,000
                                                            -------------     -------------

GROSS MARGIN                                                   4,034,000         2,672,000

Selling, General and Administrative Expenses (Note 9)          2,830,000         2,793,000
                                                            -------------     -------------

OPERATING INCOME (LOSS)                                        1,204,000          (121,000)

Interest Expense (Note 10)                                       359,000           617,000
                                                            -------------     -------------

INCOME (LOSS) BEFORE INCOME TAX EXPENSE AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE                                      845,000          (738,000)

Income Tax Expense (Benefit) (Note 12)                                 0           250,000
                                                            -------------     -------------

INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE                                                845,000          (988,000)

Cumulative Effect of Accounting Change (Note 1)                  276,000                 0
                                                            -------------     -------------

NET INCOME (LOSS)                                           $  1,121,000      $   (988,000)
                                                            =============     =============

Basic Earnings (Loss) per Common Share and
     Per Common Share Assuming Dilution:
Income (Loss) before Cumulative Effect of
     Accounting Change                                      $       0.13      $      (0.15)
Cumulative Effect of Accounting Change                              0.04                --
                                                            -------------     -------------

NET INCOME (LOSS)                                           $       0.17      $      (0.15)
                                                            =============     =============

Weighted Number of Common Shares Outstanding:
     Basic                                                     6,670,000         6,670,000
                                                            =============     =============
     Diluted                                                   6,673,000         6,670,000
                                                            =============     =============

See Notes to Financial Statements.

</TABLE>

                                      F-3
<PAGE>
<TABLE>

STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED MAY 31, 2002 AND 2001

<CAPTION>


                                   Common Stock              Additional                            Total
                             ---------------------------      Paid-In           Retained        Stockholders'
                               Shares         Amount          Capital           Earnings           Equity
------------------------------------------------------------------------------------------------------------

<S>                          <C>            <C>              <C>              <C>               <C>
Balance, May 31, 2000        6,670,000      $     7,000      $ 7,193,000      $ 2,133,000       $ 9,333,000

  Net loss                          --               --               --         (988,000)         (988,000)
                           ------------     ------------     ------------     ------------      ------------

Balance, May 31, 2001        6,670,000            7,000        7,193,000        1,145,000         8,345,000

  Net income                        --               --               --        1,121,000         1,121,000
                           ------------     ------------     ------------     ------------      ------------

Balance May 31, 2002         6,670,000      $     7,000      $ 7,193,000      $ 2,266,000       $ 9,466,000
                           ============     ============     ============     ============      ============


See Notes to Financial Statements

</TABLE>

                                                F-4
<PAGE>

<TABLE>

STATEMENTS OF CASH FLOWS
YEAR ENDED MAY 31

<CAPTION>

                                                                   2002               2001
---------------------------------------------------------------------------------------------
<S>                                                            <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income (loss)                                           $ 1,121,000       $  (988,000)
   Adjustments to reconcile net income (loss) to net cash
     provided by (used in) operating activities:
     Gain on sale of land                                          (92,000)                0
     Depreciation and amortization                                 518,000           864,000
     Provision for inventory reserves                              392,000           595,000
     Amortization of excess of net assets
       acquired over purchase price                               (276,000)         (138,000)
     Deferred income taxes                                               0           234,000
     Changes in assets and liabilities:
       Accounts receivable                                        (248,000)          428,000
       Claims receivable                                           452,000           305,000
       Inventories                                                 579,000        (1,304,000)
       Prepaid expenses and other assets                           130,000           (11,000)
       Accounts payable                                           (204,000)          832,000
       Accrued payroll and related costs                           111,000           (88,000)
       Deposits held                                              (247,000)                0
       Deferred revenue                                            (13,000)         (155,000)
       Other accrued liabilities                                     3,000           157,000
                                                               ------------      ------------

         NET CASH PROVIDED BY OPERATING ACTIVITIES               2,226,000           731,000
                                                               ------------      ------------

CASH FLOWS FROM INVESTING ACTIVITIES
   Proceeds from deposit for land held for sale                          0           247,000
   Proceeds from sale of land                                      178,000                 0
   Purchase of equipment                                           (43,000)         (172,000)
                                                               ------------      ------------

         NET CASH FLOWS PROVIDED BY INVESTING ACTIVITIES           135,000            75,000
                                                               ------------      ------------

CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds (payments) on bank line of credit                   (1,486,000)          307,000
   Principal payments on notes payable                            (823,000)       (1,052,000)
                                                               ------------      ------------

         NET CASH USED IN FINANCING ACTIVITIES                  (2,309,000)         (745,000)
                                                               ------------      ------------

         NET INCREASE IN CASH                                       52,000            61,000

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                      61,000                 0
                                                               ------------      ------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                       $   113,000       $    61,000
                                                               ============      ============

Supplemental Disclosure of Cash Flow Information
   Cash paid during the year for interest                      $   373,000       $   634,000

   Cash paid during the year for income taxes                            0            50,000

</TABLE>

See Notes to Financial Statements.

                                                F-5
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS

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

NOTE 1.  NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS:

Hi-Shear Technology Corporation ("HSR" or the "Company") is engaged in the
design and manufacture of power cartridges, separation devices, electronic
sequencers and other special components used by the aerospace industry, the
military and NASA. The Company is listed on the American Stock Exchange (symbol
"HSR"). HSR's aerospace products are procured under both long and short-term
contracts with numerous aerospace contractors, subcontractors and agencies of
the United States Government. The Company is dependent on the continuation of
government sponsored military and aerospace programs in order to maintain its
revenues.

Hi-Shear also has diversified into a non-aerospace product. The Company has made
significant investments in inventory and tooling for the LIFESHEAR emergency
rescue cutting tool. The Company is marketing the tool in the U.S. and Canada.
However, since the Company has focused most of its attention and resources on
its core aerospace products, the sales volumes of this new product have not been
significant.

A SUMMARY OF THE COMPANY'S SIGNIFICANT ACCOUNTING POLICIES IS AS FOLLOWS:

USE OF ESTIMATES:

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities. The statements disclose
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Significant estimates and assumptions made by management are used for, but not
limited to, the realization of claims receivable and certain inventories, costs
to complete contracts, and the carrying value of long-lived assets. Actual
results could differ from those estimates, and such changes could be material.

REVENUE RECOGNITION:

The Company's revenues are derived principally from long-term fixed-price
contracts that are accounted for on the percentage-of-completion method.
Revenues for those contracts are calculated on the basis of the relationship
between costs incurred and total estimated costs to complete the contracts
(cost-to-cost type of percentage-of-completion method of accounting). Revenue
recognition for contracts that require relatively less time to complete than
those contracts accounted for on a percentage-of-completion basis, plus
contracts for non-aerospace products, are recognized as deliveries are made.

Provisions for estimated total contract losses on uncompleted contracts are made
in the period in which such losses are determined. Amounts representing contract
change orders are included in revenues only when the amounts can reliably be
estimated and realization is probable. Changes in estimates of revenues, costs
and profits are recognized in the period such changes are made.

The Company submits claims for cost reimbursement related to contract
requirement changes not yet incorporated into its contract or other contract
costs in negotiation. These claims for reimbursement result from changes to
specifications, additional work required to be performed by the Company to
satisfy customer requests beyond contract scope, failure of customer designed
components and adjustments to contract pricing due to the customer reducing unit
quantities. Claims receivable are recorded to the extent of costs incurred, and
when, in management's opinion, it is probable that the claim will be collected
in full and the amount of the claim can be reasonably estimated.

                                      F-6
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS

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

NOTE 1.  NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ACCOUNTS RECEIVABLE:

Included are amounts billed and currently due from customers under all types of
contracts, plus amounts earned but unbilled on long-term contracts accounted for
under the cost-to-cost type of percentage-of-completion method of accounting.

INVENTORIES:

Inventory costs for defense and aerospace relate primarily to production cost of
contracts in process under fixed-price type contracts and represent accumulated
contract costs less the portion of such costs allocated to revenue recognized on
units delivered or progress completed. Accumulated contract costs include direct
labor, material costs, and factory and engineering overhead. In accordance with
industry practice, such inventoried costs are classified as a current asset and
include amounts related to contracts having production cycles longer than one
year. Selling, general and administrative costs are charged to expense as
incurred. Aerospace raw materials and components consist of purchased and
manufactured parts, which are not allocated to an existing production contract
but will be utilized in anticipated future contracts. These parts are valued at
the lower of cost or estimated market value.

Non-aerospace inventory is stated at the lower of cost (first-in, first-out
method) or market and represents direct labor, materials and overhead costs
incurred in production.

EQUIPMENT:

Equipment is recorded at cost. The Company also capitalizes certain material and
labor incurred in connection with the construction of assets. Depreciation and
amortization are charged against income using the straight-line method over the
estimated useful service lives of the related assets. The principal lives used
in determining depreciation and amortization rates are as follows: machinery and
equipment, 5 to 10 years; tooling, 5 years; furniture and fixtures, 10 years.

LAND:

Investment in land is recorded at the lower of cost or net realizable value.

INTANGIBLE ASSETS:

Intangible assets, consisting of capitalized patent costs, are amortized over
the lesser of the expected economic life or the 17-year life of the patent.

DETERMINING IMPAIRMENT ON LONG-TERM ASSETS:

The Company records impairment losses on long-lived assets used in operations
when events and circumstances indicate that the assets might be impaired and the
undiscounted cash flows estimated to be generated by those assets are less than
the carrying amounts of those assets. Assets deemed impaired are recorded to the
lower of carrying value or fair value.

                                      F-7
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS

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

NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

EXCESS OF NET ASSETS ACQUIRED OVER PURCHASE PRICE:

In June 1993, the total purchase price of the Company was allocated to the
assets acquired and liabilities assumed based upon their relative fair values at
the date of the acquisition using the purchase method of accounting. The
resulting amount by which the net assets acquired exceeded the purchase price
(also referred to as "negative goodwill") was amortized into income in equal
increments during each fiscal year through 2001.

As a consequence of the Company's early adoption of a new pronouncement issued
by the Financial Accounting Standards Board (see "New Pronouncement"),
resulting in a change in accounting principle, the entire $276,000 amount of
unamortized negative goodwill that existed at May 31, 2001 was amortized at the
beginning of the fiscal year ended May 31, 2002. However, unlike fiscal year
ended May 31, 2001, when the total amortization amount of $138,000 was included
in Selling, General and Administrative expenses, the total amortization amount
of $276,000 for the fiscal year ended May 31, 2002 appears in the Statement of
Operations separately as "Cumulative Effect of Accounting Change."

INCOME TAXES:

Deferred income taxes are provided on the liability method whereby deferred
income tax assets are recognized for deductible temporary differences and
operating loss carryforwards and deferred income tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred income tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred income tax assets will not be realized. Deferred income tax assets
and liabilities are adjusted for the effects of changes in tax laws and rates on
the date of enactment.

EARNINGS (LOSS) PER SHARE:

Earnings (loss) per share (EPS) are computed as net income (loss) divided by the
weighted-average number of common shares outstanding for the period. EPS
assuming dilution reflects the potential dilution that could occur from common
shares issuable through stock options. The dilutive effect from outstanding
options for fiscal year 2002 did not change the earnings per share. There was no
dilutive effect from outstanding options for fiscal year 2001 since all the
outstanding options were anti-dilutive.

FAIR VALUE OF FINANCIAL INSTRUMENTS:

The estimated fair value of long-term debt, which approximates the carrying
value, is based on interest rates that are currently available to the Company
for issuance of debt with similar terms and remaining maturities. The carrying
amount of notes payable to the bank approximates fair value since the interest
rate changes with the market interest rate. The carrying amount of cash
equivalents, accounts receivable and accounts payable approximates fair value
because of the short maturity of these instruments.

CASH AND CASH EQUIVALENTS:

For purposes of reporting cash flows, the Company considers all highly liquid
debt instruments purchased with a maturity date of three months or less to be
cash equivalents.

The Company periodically has cash on deposit with its bank that exceeds the
insurance limits of the FDIC. The Company has not experienced any losses on such
deposits.

                                      F-8
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS

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

NOTE 1.  NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

STOCK-BASED COMPENSATION:

The Company accounts for stock-based employee compensation under the
requirements of Accounting Principles Board (APB) Opinion No. 25, which does not
require compensation to be recorded if the exercise price is equal to or greater
than the fair value of the stock at the measurement date. Nonemployee
stock-based transactions are accounted for under the requirements of SFAS No.
123 ACCOUNTING FOR STOCK BASED COMPENSATION which requires compensation to be
recorded based on the fair value of the securities issued or the services
received, whichever is more reliably measurable.

CHANGE IN ACCOUNTING PRINCIPLE:

In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141 ("SFAS No. 141"), "Business Combinations"
and No. 142 ("SFAS No. 142"), "Goodwill and Other Intangible Assets." SFAS No.
141 requires all business combinations initiated after June 30, 2001 to be
accounted for using the purchase method. Under SFAS No. 142, goodwill and
intangible assets with indefinite lives are no longer amortized, but are
reviewed annually (or more frequently if impairment indicators arise) for
impairment. Separable intangible assets will continue to be amortized over their
useful lives, (but with no maximum life). The amortization provisions of SFAS
No. 142 apply to goodwill and intangible assets acquired after June 30, 2001.
With respect to the unamortized deferred credit ("negative goodwill") acquired
prior to July 1, 2001, the Company is required to adopt SFAS No. 141 effective
fiscal year 2003; however, early adoption is allowed in fiscal year 2002. The
Company elected to adopt SFAS No. 142 and the transition provisions of SFAS No.
141 in fiscal year 2002. The cumulative effect of this change in accounting
principle was a write-off of the $276,000 negative goodwill remaining at the
beginning of the fiscal year ended May 31, 2002. There was no income tax effect
as a result of the change.

The pro forma net income (loss), adjusted to exclude amortization of negative
goodwill, for fiscal years 2002 and 2001 is as follows:

                                                      2002              2001
                                                  ------------     ------------
Reported Net Income (Loss) Before
   Cumulative Effect of Accounting Change         $   845,000      $  (988,000)

   Less amortization of negative goodwill                  --          138,000
                                                  ------------     ------------

Adjusted Net Income (Loss) Before Cumulative
   Effect of Accounting Change                    $   845,000      $(1,126,000)
                                                  ============     ============

Reported Basic and Diluted Earnings
   Per Share Before Cumulative Effect
   of Accounting Change                           $      0.13      $     (0.15)

Less amortization of negative goodwill                     --             0.02
                                                  ------------     ------------

Adjusted Basic and Diluted Earnings (Loss)
   Per Share Before Cumulative Effect of
   Accounting Change                              $      0.13      $     (0.17)
                                                  ============     ============

                                      F-9
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS

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

NOTE 1.  NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

NEW PRONOUNCEMENT:

In August 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SAFS No.
144"). SFAS No. 144 establishes a single accounting model for the impairment or
disposal of long-lived assets, including discontinued operations. SFAS No. 144
superseded Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
(SFAS No. 121), and APB Opinion No. 30, Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions. The
provisions of SFAS No. 144 are effective for the Company beginning June 1, 2002.
The Company believes the adoption of SFAS No. 144 will not have a material
impact on its financial position or results of operations.

RECLASSIFICATIONS:

The presentation of certain prior year information has been reclassified to
conform to the current year presentation.

NOTE 2.  RISKS AND UNCERTAINTIES

The Company's future operating results may be affected by a number of factors.
The Company is dependent on the continuation of government funding of government
sponsored military and aerospace programs in order to maintain and enhance its
revenues. The Company experienced increased revenues during fiscal year 2002 as
the result of increased customer requirements for military, satellite and launch
vehicle components that occurred during the latter months of fiscal year 2001
and continued through fiscal year 2002. While the total value of those new
customer orders has enabled the Company to return to historic total booking
levels experienced prior to the slow-down period that occurred during the
two-year period preceding mid-fiscal year 2001, continuation of this recent
trend of increased customer requirements and new orders are necessary for the
Company to maintain profitable operations.

The Company relies on its borrowing capacity to provide additional funds for its
operations. During all of fiscal year 2002 the Company was able to borrow
against a revolving line of credit. The maximum borrowing limit under this line
of credit was reduced during fiscal year 2002. The limit, which was $5,100,000
at May 31, 2001, was reduced on March 16, 2002 to $4,300,000. The line of
credit, which originally matured on October 15, 2001, and was subsequently
extended to October 15, 2002, contains various financial covenants. At May 31,
2002 the Company was in violation of one covenant. The bank has waived the
covenant violation.

NOTE 3.  FOURTH QUARTER ADJUSTMENTS

The Company provided an additional $280,000 of reserves against the total
recorded value of raw material and components "stock" inventory items used to
produce aerospace and defense products and finished goods of aerospace and
defense products available to meet future customer needs. The inventory reserve
adjustments were charged to cost of revenues.

Losses totaling $218,000 were recognized from changes in estimated projected
total costs to complete two contracts in process.


                                      F-10
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS

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

NOTE 4.  MAJOR CUSTOMERS

The Company derives a major portion of its revenues directly from certain large
companies that have operations associated with satellite, launch vehicle and/or
government defense contracts, as well as directly from departments and agencies
of the United States Government. Sales to these major customers, which are in
excess of 10% of total sales, consist of the following:

                                                2002                 2001
                                           ---------------       --------------

Lockheed Martin                                 32%                   21%
Boeing Company                                  16%                   17%
United States Government                        11%                   24%

NOTE 5.  ACCOUNTS RECEIVABLE

Billed and unpaid receivables at May 31, 2001                     $  4,072,000
Billed receivables for fiscal year 2002                             14,777,000
                                                                  -------------
                                                                    18,849,000
Collected receivables for fiscal year 2002                          15,289,000
                                                                  -------------

Billed and unpaid receivables at May 31, 2002                        3,560,000

Unbilled receivables at May 31, 2002                                 4,302,000
                                                                  -------------

         Total accounts receivable at May 31, 2002                $  7,862,000
                                                                  =============


Accounts receivable consists of billed and unbilled amounts due from the United
States Government, prime and subcontractors under long-term contracts. Billed
and unbilled receivables at May 31, 2002 were $3,560,000 and $4,302,000,
respectively.

The billed receivables include an overdue amount of $1,319,000 from one account.
To expedite collection of this receivable, the Company has filed a lawsuit. (See
Note 13)

Unbilled receivables represent revenues recognized from long-term fixed priced
contracts based upon a percentage-of-completion basis, but in advance of
completing billable events for which invoices are submitted to customers.

During the fiscal years 2002 and 2001, the Company generated revenue of
approximately $2,136,000 and $1,474,000, respectively, from sources outside of
the United States.

NOTE 6.  CLAIMS RECEIVABLE

As of May 31, 2002, the outstanding amount due for two claims on two related
contracts terminated by a single customer for "convenience" was $364,000. The
Company's claims against its customer (the U.S. Army) were initially submitted
May 1997. Since Hi-Shear and its customer were unable to come to agreement on
the claims, Hi-Shear elected to pursue its claims in the United States Court of
Federal Claims. Trial of the case occurred in February 2000, and post-trial
briefs were submitted in April and June 2000. A decision by the judge who
presided over the trial has not yet been rendered.

Claims are subject to review and audit by the customer. If no agreement is
reached with the customer, the Company may pursue other alternatives including
litigation. The ultimate realization of the claims may be different than the
amount recorded and the difference could be significant.

                                      F-11
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS

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

NOTE 7.  INVENTORIES

Aerospace and defense inventory:
         Raw materials and components "stock" inventory           $   1,374,000
         Work-in-process                                              1,040,000
         Finished goods                                                 530,000
                                                                  --------------
                                                                      2,944,000
         Less inventory reserves                                       (462,000)
                                                                  --------------
                  Total aerospace and defense inventory               2,482,000

Non-aerospace and non-defense inventory:
         Raw materials and components                                   543,000
         Work-in-process                                                 76,000
                                                                  --------------
                                                                        619,000
         Less inventory reserves                                       (454,000)
                                                                  --------------
                  Total non-aerospace and non-defense inventory         165,000
                                                                  --------------
                           Total net inventory                    $   2,647,000
                                                                  ==============


Work-in-process consists of costs incurred for customer contracts in excess of
costs associated with revenues recognized for contracts on a
percent-of-completion basis, plus costs incurred on non-contract jobs for
components and sub-assemblies being built in anticipation of future customer
contracts for parts that will require those components and sub-assemblies. The
status of the work in process for both contracts in process and non-contract
jobs in process at May 31, 2002, is as follows:

<TABLE>
<CAPTION>
                                                          Aerospace &      Non-aerospace &
                                                            Defense          Non-defense
                                                         -------------      -------------
<S>                                                      <C>                <C>
Total contracts in process                               $ 23,520,000       $          0

Costs incurred to date:
   Contracts in process                                    11,050,000                  0
   Non-contract jobs in process                               667,000             76,000

Estimated profit recognized on contracts in process         3,161,000                  0

Less revenue recognized on contracts in process           (13,838,000)                 0
                                                         -------------      -------------

Work in process                                          $  1,040,000       $     76,000
                                                         =============      =============
</TABLE>

Because of the large amount of contracts in process at any point in time,
changes in estimates to complete can have a drastic impact on the ultimate
profitability of the Company. Management estimates that each 1% change in the
estimates to complete at May 31, 2002 would change contract profits or losses by
approximately $173,000.

                                      F-12
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS

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

NOTE 8.  EQUIPMENT

Machinery and equipment                                              $4,856,000
Office equipment and furniture                                          661,000
Leasehold improvements                                                  154,000
Projects in process                                                      10,000
                                                                     -----------
                                                                      5,681,000
Less accumulated depreciation and amortization                        3,507,000
                                                                     -----------

                                                                     $2,174,000
                                                                     ===========
NOTE 9. LAND

The Company owns land in Santa Clarita, CA that it uses as a storage and
blending site. During the fiscal year ended May 31, 2001, the City of Santa
Clarita through condemnation proceedings took four acres of Hi-Shear's
sixteen-acre site for construction of a city highway. Hi-Shear disputed the
amount offered by the City and accepted $247,000 during fiscal year 2001 as a
deposit on the condemnation of the four acres. In November 2001, Hi-Shear and
the City of Santa Clarita reached agreement on a total compensation amount of
$425,000. After deducting both costs directly associated with the negotiation of
the settlement and the pro-rata cost of acquiring the land, the Company realized
a gain of $92,000. In March 2002 the Company received from the City $178,000,
which was the difference between the settlement amount and the amount previously
received as a deposit ending final settlement.

NOTE 10.  BANK LINE OF CREDIT AND NOTES PAYABLE

The Company has a business loan agreement with a bank for the purpose of
obtaining a revolving line of credit and term loans. Borrowings under this
business loan agreement are collateralized by substantially all of the Company's
assets. At May 31, 2002, the total outstanding balance under the revolving line
of credit was $3,371,000, and the amount available for borrowing was $929,000.
The maximum borrowing limit under the line of credit was reduced during fiscal
year 2002. The limit, which was $5,100,000 at May 31, 2001, was reduced March
16, 2002 to $4,300,000. The revolving line of credit, which originally was
scheduled to mature on October 15, 2001, was extended to October 15, 2002. The
extension was effective March 16, 2002.

Outstanding amounts under the line of credit bear interest at the Wall Street
Journal's prime rate (4.75% at May 31, 2002) plus 2.50%. During fiscal year 2002
the incremental interest amount added to the Wall Street Journal's prime rate
increased from 0.50% to 2.50%.

The business loan agreement prohibits payments of dividends without prior
approval and contains various financial covenants including minimum working
capital, minimum tangible net worth, maximum debt to tangible net worth, minimum
cash flow coverage and positive cash flow from operations. At May 31, 2002, the
Company was not in compliance with one of these covenants. The bank has waived
the covenant violation.

Long-term notes payable at May 31, 2002, which are subject to the business loan
agreement above, consists of the following:

                                      F-13
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS

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


NOTE 10.  BANK LINE OF CREDIT AND NOTES PAYABLE (CONTINUED)

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>
Promissory note, payable in monthly installments of $22,917 through August 2003, plus
    interest at the Wall Street Journal's prime plus 0.5%, secured by substantially all
    assets.                                                                                      344,000

Promissory note, payable in monthly installments of $12,890 through March 2003, plus
    interest at the Wall Street Journal's prime plus 0.5%, secured by substantially all
    assets.                                                                                      129,000

Promissory note, payable in monthly installments of $13,346 through August 2002,
    plus interest at the Wall Street Journal's prime plus 1%, secured by
    substantially all
    assets.                                                                                 $     26,000
                                                                                            -------------
                                                                                                 499,000
Less current portion                                                                             430,000
                                                                                            -------------

Long-term notes payable, less current portion                                               $     69,000
                                                                                            =============
</TABLE>

NOTE 11. DEFERRED REVENUE

Deferred revenue is composed of amounts billed to customers in excess of
revenues earned and recognized on the related contracts at the end of a
financial period. As the Company continues to perform work on those contracts in
process, revenue is earned and "deferred revenue" on the balance sheet is
reclassified to earned "revenue" on the statements of operations. Deferred
revenue was $89,000 and $103,000 at May 31, 2002 and 2001, respectively.

NOTE 12.  INCOME TAXES

Deferred income tax assets in the accompanying balance sheet at May 31, 2002,
consist of the following, of which $700,000 is included in current assets:

Deferred income tax assets:
  Net operating loss carryforwards                                  $ 1,603,000
  Income tax credit                                                     457,000
  Other                                                                 487,000
                                                                    ------------

                                                                      2,547,000
  Less valuation allowance                                              946,000
                                                                    ------------
  Net deferred income taxes                                         $ 1,601,000
                                                                    ============

Realization of deferred income tax assets is primarily dependent upon generating
sufficient taxable income prior to the expiration of the loss carryforwards.
Although realization is not assured, management believes it is more likely than
not that some, but not all of, the net deferred income tax assets will be
realized prior to expiration. That assessment is based upon the Company's
expectations for a continuation of profitable operations. The amount of the
deferred income tax assets considered realizable, however, could be increased or
reduced in the near term if estimates of future taxable income during the
carryforward period are increased or reduced, or if certain changes in the
ownership structure of the Company occur.

A reconciliation of actual tax (credit) to the amount computed by applying the
federal statutory income tax rates to income before income taxes is as follows:

                                      F-14
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS

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


NOTE 12.  INCOME TAXES (CONTINUED)

                                                           2002          2001
                                                        ----------    ----------

Federal income tax computed at the statutory rate       $ 391,000     $(251,000)
Permanent differences, primarily negative goodwill       (117,000)      (53,000)
State taxes, less federal benefit                          67,000       (44,000)
Other state tax and minimum taxes                          13,000        14,000
Change in valuation allowance                             221,000       584,000
Prior year tax credits                                   (457,000)            0
Tax credits utilized                                      (55,000)            0
Other                                                     (63,000)            0
                                                        ----------    ----------

                                                        $       0     $ 250,000
                                                        ==========    ==========

As of May 31, 2002, the Company had federal net operating loss carryforwards of
approximately $4,817,000, which expire $1,197,000 in 2009; $2,340,000 in 2011;
$170,000 in 2012; $330,000 in 2015 and $779,000 in 2016.

NOTE 13.  COMMITMENTS AND CONTINGENCIES
The Company leases its facilities, automobiles and certain equipment under
operating lease agreements that expire at various dates through 2006. Rental
expense under operating leases for the years ended May 31, 2002 and 2001 was
approximately $598,000 and $620,000 respectively.

Minimum annual rentals under all non-cancelable operating leases are as follows:

                    2003                     $      515,000
                    2004                            513,000
                    2005                            150,000
                    2006                             10,000
                                             ---------------
                                             $    1,188,000
                                             ===============


The Company is subject to certain legal proceedings and claims that have arisen
in the ordinary course of its business. In November 2000 Hi-Shear sued USBI
Company, a Delaware Corporation, and United Space Alliance, LLC, a Delaware
limited liability company, in the Circuit Court of the Eighteenth Judicial
Circuit in and for Brevard County, Florida. Hi-Shear filed suit to recover
damages resulting from the defendants' refusal to pay thirteen invoices totaling
$1,319,000 on four separate contracts for specially manufactured aerospace
components. All of those unpaid invoices are included in accounts receivable at
May 31, 2002. In addition, the Company's suit also seeks compensatory damages
alleging that the defendants fraudulently induced Hi-Shear to make an
excessively low bid on a request for proposal to manufacture certain other
parts. Further damages are sought for defendants' misappropriation of Hi-Shear's
confidential, proprietary and/or trade secret protected

                                      F-15
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS

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

NOTE 13.  COMMITMENTS AND CONTINGENCIES (CONTINUED)

designs, drawings, and specifications for other aerospace components. The
lawsuit remains in the discovery phase while it progresses to trial that is now
scheduled to begin in January 2003. No counterclaims have been asserted against
the Company.

In addition, the Company is subject to other claims and legal actions that may
arise in the ordinary course of business. In the opinion of the Company, after
consultation with counsel, the ultimate liability, if any, with respect to these
other claims and legal actions will not have a material effect on the financial
position or on the results of operations.

The Company was a party to an arbitration proceeding initiated August 2000 by
Cincom Systems, Inc. ("Cincom"), a software supplier, for collection of license
and consulting fees. Cincom later amended its claim to include copyright
infringement damages. Hi-Shear denied all allegations contained in Cincom's
claims and counterclaimed for damages. An arbitration decision was made in
November 2001 in which Cincom was awarded $580,746 and the Company's
counterclaims were denied. The Company subsequently sought and obtained judicial
relief in federal court in February 2002, when the court reduced the award in
favor of Cincom to $515,800. Further challenges by the Company to the award
ultimately resulted in an agreement negotiated by Cincom and Hi-Shear in June
2002 to reduce the total amount to be paid by Hi-Shear to $450,000, which is
included in the accounts payable balance at May 31, 2002.

NOTE 14.  STOCKHOLDERS' EQUITY

The Company has an option plan under which it may grant options to purchase
common stock, with a maximum term of 10 years. Options for up to 500,000 shares
may be granted to employees or directors under the Plan. Options are granted and
vested as determined by the Stock Options Committee. At May 31, 2002 there were
207,534 shares available for grant under the Company's option plan.

A summary of the status of the option plan and changes during fiscal years 2002
and 2001 is as follows:

<TABLE>
<CAPTION>
                                                         2002                                 2001
                                           ---------------------------------    ----------------------------------
                                                                  Weighted-                           Weighted-
                                                                   Average                             Average
                                                                  Exercise                            Exercise
               Fixed Options                    Shares              Price          Shares               Price
------------------------------------------------------------------------------------------------------------------
<S>                                               <C>        <C>                    <C>         <C>
Outstanding at beginning of year                  105,466    $      5.67             110,466    $       5.91
     Granted                                       37,000           2.05               7,000            2.25
     Exercised                                     -                  -               -                   -
     Forfeited                                     -                  -              (12,000)           5.76
                                             --------------                     --------------

Outstanding at end of year                        142,466           4.73             105,466            5.67
                                             ==============                     ==============

Exercisable at end of year                        112,466           5.45              98,466            5.91

Weighted-average fair value per
     option granted during the year                          $      1.77                        $       1.74

</TABLE>

                                      F-16
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS

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


NOTE 14.  STOCKHOLDERS' EQUITY (CONTINUED)

A further summary about fixed options outstanding at May 31, 2002, is as
follows:

<TABLE>
<CAPTION>
                                         Options Outstanding                            Options Exercisable
                           -------------------------------------------------     -----------------------------------
                                             Weighted-
                                              Average           Weighted-                              Weighted-
                                             Remaining           Average                                Average
        Range of               Number       Contractual          Exercise           Number              Exercise
     Exercise Price         Outstanding         Life              Price           Exercisable            Price
--------------------------------------------------------------------------------------------------------------------
<C>                               <C>         <C>          <C>                          <C>        <C>
$2.05 to $4.99                     44,000     9 years      $        2.08                 14,000    $      2.15
$5.00 to $6.99                     81,466     4 years               5.47                 81,466           5.47
$7.00 to $8.50                     17,000     5 years               8.06                 17,000           8.06
                           ---------------                                      ----------------

                                  142,466                  $        4.73                112,466    $      5.45
                           ===============                                      ================
</TABLE>

Grants under the Company's stock option plans are accounted for following APB
Opinion No. 25 and related interpretations. Accordingly, as the exercise price
equals or exceeds the fair value, no compensation cost has been recognized for
grants under the plan. Had compensation cost for the stock-based compensation
plans been determined based on the grant date fair values of awards (the method
described in FASB Statement No. 123), reported net income and earnings per
common share would have been reduced to the pro forma amounts shown below:

                                                   2002                2001
--------------------------------------------------------------------------------
Net income (loss)
    As reported                             $    1,121,000      $     (988,000)
    Pro forma                                    1,056,000          (1,000,000)

Earnings (loss) per common share and
    common share assuming dilution
    As reported                             $         0.17      $        (0.15)
    Pro forma                                         0.16               (0.15)

The fair value of each grant is estimated at the grant date using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for grants in 2002 and 2001, respectively. No dividend rate for all
years; price volatility of 84% in 2002 and 65% in 2001, risk-free interest rates
of approximately 5.4% in 2002 and 5.4% in 2001; and expected lives of ten years.

NOTE 15.  RELATED PARTIES

A director of the Company performs consulting services for the Company. The
Company incurred $150,000 and $138,000 of consulting fees for the years ended
May 31, 2002 and 2001, respectively.

                                      F-17