<PAGE>

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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, 2003       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: $ 16,336,000.

The aggregate value of the Registrants Common Stock held by non-affiliates of
the Registrant was approximately $4,983,371 as of August 14, 2003, 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, 2003.

Part III, other than Item 12, is incorporated by reference from the Registrant's
Proxy Statement for its 2003 Annual Meeting of Stockholders to be filed with the
Commission within 120 days of May 31, 2003.

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........  5


PART II.

         ITEM 5   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...  6

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

         ITEM 7   FINANCIAL STATEMENTS....................................... 11

         ITEM 8   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                  AND FINANCIAL DISCLOSURE................................... 11

         ITEM 8A  CONTROLS AND PROCEDURES.................................... 11


PART III.

         ITEM 9   DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES............ 12

         ITEM 10  EXECUTIVE COMPENSATION..................................... 12

         ITEM 11  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                  AND MANAGEMENT............................................. 12

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

         ITEM 13  EXHIBITS AND REPORTS ON FORM 8-K........................... 12

         ITEM 14  PRINCIPAL ACCOUNTANT FEES AND SERVICES..................... 12

SIGNATURES        ........................................................... 13

EXHIBIT INDEX     ........................................................... 14

INDEX TO FINANCIAL STATEMENTS................................................ 15


<PAGE>

                                     PART I


ITEM 1.  BUSINESS
                                GENERAL OVERVIEW

         Hi-Shear Technology Corporation 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, tactical
weapons, advanced fighter aircraft and military systems. Customers such as the
military, satellite manufacturers, launch vehicle assemblers, U.S. Government
departments and agencies (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. Hi-Shear
cartridges, cutters, pin pullers, separation nuts and separation bolts are used
widely in the functioning of satellites and the vehicles which launch them into
space. In addition, we design and manufacture electronic systems that
sequentially fire the pyrotechnic devices according to pre-programmed
parameters. These electronic devices and pyrotechnic products are used in
missiles, launch vehicles, fighter aircraft ejection seats and other
applications. We adapt our technology to produce products for other applications
where pyrotechnic power is desirable. Hi-Shear's products can be grouped into
three product categories as follows:

         PYROTECHNIC 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. We maintain an active program for new designs,
including low shock deployment systems for the increasingly lighter satellites
used in communications and intelligence gathering.

                                       1
<PAGE>

         In addition we supply sophisticated highly reliable mechanical
sub-components used for space vehicles and weapons systems according to customer
supplied detailed designs and testing requirements.

         Hi-Shear also manufactures and markets pyrotechnic cutters that are
fast, safe, and reliable 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, auto parts and reinforcing bar 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 tools are manufactured and
marketed outside the United States and Canada under license by Akers Krutbruk
Protection AB, Akers Styckebruk, Sweden.

         ELECTRONIC PRODUCTS. Hi-Shear is a key supplier both in the U.S. and
overseas of ejection seat control units 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 Analog Recovery Sequencer electronically fires 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. We employ 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.


                             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
33% and 17% respectively of the Company's revenues in fiscal year 2003. 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 24% of revenue in fiscal year 2003. 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 2003, all of the Company's contracts were on a fixed
price contract basis where we agree 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. The Company's 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.

                                       2
<PAGE>

                                     BACKLOG

         The average time to design, manufacture and ship our 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 2003, we continued our 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, satellites and
weapon systems.

         Total requirements included in contracts undertaken by us 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, 2003, the Company's backlog of
unrecognized revenue and unbilled amounts on open customers' orders was $9.6
million and $14.3 million, respectively.

                                   COMPETITION

         Hi-Shear'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 our 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. Hi-Shear 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 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 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. During fiscal year 2003, Hi-Shear had
approximately 80 full time employees, the majority of whom are engineers and
technicians. The handling and processing of pyrotechnic materials requires
extensive experience and expertise as well as the proper equipment, facilities
and permits. We have been safely handling and processing these fuels and
oxidizers for over forty years.

                             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.

                                       3
<PAGE>

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 also own and operates a plant on twelve acres of land
in Santa Clarita, California that it utilizes as a storage and powder-blending
site. We believe that our 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 United Space Alliance, LLC, a Delaware
limited liability company ("Space Alliance"), and its predecessor USBI Company,
a Delaware Corporation, in the Circuit Court of the Eighteenth Judicial Circuit
in and for Brevard County, Florida. Hi-Shear filed suit to recover damages,
including damages for 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, plus an unbilled amount of $384,000
related to work performed on two of the contracts, are included in accounts
receivable at May 31, 2003. 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. At this time, the
Company is seeking in excess of $11,000,000 in damages, excluding potential
amounts for punitive and exemplary damages and pre-judgment interest.

         A counterclaim was filed by the defendants against the Company. On
September 11, 2003 Space Alliance submitted to the court its claim for damages
in the amount of $458,004 exclusive of costs, interest and attorney's fees based
on the Company's alleged breach of contract. It also alleges a claim for a
declaratory judgment, a claim for conversion seeking return of certain alleged
government property and an accounting for a claim. The counterclaim arises out
of the same circumstances as the Company's lawsuit. As part of its defense in
the litigation, Space Alliance claims that it was coerced through duress to
enter into a contract with the Company where the Company was the successful
lowest bidder. In addition, Space Alliance demanded that Hi-Shear ship
uncertified flight hardware to it for use on the United States Space Shuttle in
order that Space Alliance receive a performance incentive award payment from
NASA of up to $6 million. Hi-Shear believes that Space Alliance in early 2000,
to avoid responsibilities for its contractual obligations, instigated an
investigation by NASA which resulted in a criminal investigation of the Company
and a key employee by the United States Attorney for the Middle District of
Florida related to the claim above. The Company has assembled considerable
evidence that belies any unlawful acts and a summary of that evidence has been
presented to the United States Attorney. In August 2003, the Company was advised
that the United States Attorney has not decided whether to prosecute this
matter. The Company does not believe that it has engaged in any unlawful acts
regarding this matter and Hi-Shear continues to be awarded key contracts
directly by NASA. Although it is not possible to determine the results of the
investigation, the Company strongly believes it is not likely that the ultimate
outcome will be adverse to the Company and accordingly has made no accruals for
any associated losses.

         The lawsuit against United Space Alliance, LLC and USBI Company remains
in the discovery phase. The Company believes that is has valid claims receivable
against these defendants. Further, the Company believes that the counterclaim is
without merit. Accordingly, no accruals for either potential amounts payable or
reserves on uncollected receivables have been made at this time. However, there
can be no assurance that the Company will be successful in collecting its
receivable or not be held liable on the counterclaim. An unfavorable outcome
could have a material adverse impact on the Company's financial position and
results of operations.

                                       4
<PAGE>

         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.

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

         None.





                                       5
<PAGE>

                                     PART II


ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
       Hi-Shear'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 2003 ending May 31, 2003

                           4th Quarter               $     2.26          $  1.80
                           3rd Quarter                     2.84             1.99
                           2nd Quarter                     3.10             1.98
                           1st Quarter                     2.60             1.55

         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


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

         The number of holders of record of Hi-Shear's Common Stock was
approximately 70 and the number of beneficial shareholders was approximately
1,456 as of July 29, 2003.


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

                                GENERAL OVERVIEW

         The following discussion of Hi-Shear's financial condition and results
of operations 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.

                                       6
<PAGE>

                          CRITICAL ACCOUNTING POLICIES

         Hi-Shear'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 at completion of 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 are recognized
as deliveries are made.

         Because of the large amount of contracts in process at any point in
time, changes in estimated costs to complete can have a significant impact on
profitability of the Company. We estimate that each 1% change in the total
estimated costs to complete the contracts in process at May 31, 2003 would
change both the amount of revenue and earnings recognized by approximately
$40,000.

         We evaluate and update estimated costs to complete open contracts on a
regular basis. Those evaluations and updates include the participation of
management and other key employees from all operational areas. Changed estimates
to complete the contracts are then incorporated in the calculations of revenues
and profits.

         Included in the inventories recorded and maintained by the Company are
purchased and manufactured component parts and finished goods that relate to
previously completed contracts. The Company's management periodically assesses
the likelihood that those inventory items will be used in future contracts,
since many of its past contracts relate to on-going programs, for which it will
be awarded similar contracts. The method utilized in its assessment is to select
a sample of the total inventory that it considers to be representative of the
total inventory. Each sample item is separately evaluated, and reserve amounts
are calculated, based upon its assessment of likelihood that the item will be
used for a future contract. After similarly assessing and calculating individual
reserve amounts, where it deems appropriate, the resulting total reserve
percentage of the sample is applied to the total inventory. Since the inventory
reserve methodology is subjective, and subject to changes in estimates based
upon updated information, changes in those estimates can be substantial.

                              RESULTS OF OPERATIONS

FISCAL YEAR ENDED MAY 31, 2003 COMPARED WITH FISCAL YEAR ENDED MAY 31, 2002

         Revenues recognized during fiscal year 2003 were $16,336,000, which is
$964,000 and 6% more than the total revenues of $15,372,000 recognized during
fiscal year 2002. The increased revenues in fiscal 2003 reflect more
manufacturing activity in Hi-Shear's electronic ejection seat control product
line for military aircraft, and its production of "safe and arm" devices for the
Patriot Advanced Capability ("PAC-3") missile program. Revenues recognized on
PAC-3 contracts increased from $2,922,000 during fiscal year 2002 to $4,383,000
during fiscal year 2003. Similarly, revenues recognized on electronic ejection
seat control products increased from $2,184,000 during fiscal year 2002 to
$3,082,000 during fiscal year 2003. Together, both of those military product
lines represented $7,465,000, and 46% of total revenues, for fiscal year 2003,
compared to $5,106,000, and 33% of total revenues, for fiscal year 2002. Those
increases in revenues for those products are reflective of overall increases in
government spending for military programs, and of the resulting increase in
military-related contracts to the Company. Based upon the Company's backlog and
projected new contracts, it expects this trend to continue at least through the
upcoming fiscal year. While new contracts for military-related products have


                                       7
<PAGE>

increased significantly during the last few years, new contracts for satellite
and launch related products have reflected the worldwide reduction in
space-related activity. More recently, the suspension of NASA space shuttle
flights, which occurred as a result of the loss of the Columbia space shuttle,
is not expected to have a significant impact on the Company, since revenues
derived from the space shuttle program during the last two fiscal years have
accounted for less than approximately 3% of the Company's total revenues during
each fiscal year.

         Cost of revenues for the year was $11,683,000 compared to $11,338,000
for last year. The 3% increase in cost of revenues corresponds to the increase
in revenues. However, the smaller percentage increase of cost of revenues than
the percentage increase of revenues is a consequence of the Company's continual
improvement in productivity, production efficiencies, and pricing for new
orders. Cost of revenues for fiscal years 2003 and 2002 include $1,352,000 and
$392,000, respectively, for the combination of adjustments to inventory reserves
and write-offs of slow-moving inventory items. Those adjustments result from the
Company's current estimates regarding the extent to which its inventory items
will be used to generate future revenues.

         Gross margin for fiscal year 2003 was $4,653,000, or 28% of revenues,
compared to $4,034,000, or 26% of revenues, reported for the fiscal year 2002.
The year-to-year increase is $619,000, or 15%. 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 $57,000 and
2%, from $2,830,000 during fiscal year 2002 to $2,887,000 during fiscal year
2003. Establishment of a $346,000 reserve associated with two related
outstanding claims receivable offset the net combined reductions in the other
selling, general and administrative expense categories during fiscal year 2003.

         The Company realized operating income of $1,766,000 for fiscal year
2003 compared to operating income of $1,204,000 for fiscal year 2002. The
$562,000 and 47% improvement in operating performance is the result of all the
factors identified above.

         Interest expense decreased from $359,000 for fiscal year 2002 to
$199,000 for fiscal year 2003. The decrease of $160,000, or 45%, was primarily
the result of a significant reduction in outstanding debt with the Company's
bank. Total bank debt was reduced by $2,518,000 from May 31, 2002 to May 31,
2003. The total of the balances outstanding on the Company's revolving line of
credit and term notes payable was $1,352,000 at May 31, 2003, compared to
$3,870,000 at May 31, 2002. Also contributing to the decrease in interest
expense during fiscal year 2003 was a reduction in the interest rate for
outstanding balances under the revolving line of credit by 1.5 percentage
points, which became effective on December 15, 2002 when the Company's revolving
line of credit was renewed and restructured by its bank.

         There is no income tax expense recorded for either fiscal year 2003 or
fiscal year 2002. For both fiscal years the income tax expense that ordinarily
would be associated with the Company's amount of taxable income was offset by
the tax "benefit" from the recognition of net deferred tax assets.

         The Company elected to early adopt SFAS No. 142 and the transition
provisions of SFAS No. 141 at the beginning of fiscal year 2002. 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 beginning of
fiscal year 2002. Accordingly, net income for fiscal year 2002 was increased by
the amount of the write-off.

         Income before the cumulative effect of the accounting change noted
above increased by $722,000 and 85% from $845,000 for fiscal year 2002 to
$1,567,000 for fiscal year 2003.

         Net income for fiscal year 2003 increased by $446,000 and 40% from
$1,121,000, or $0.17 per share, to $1,567,000, or $0.23 per share.

                                       8
<PAGE>

                               FINANCIAL CONDITION

         Accounts receivable balances, which consist of billed and unbilled
amounts, were $8,247,000 and $7,862,000 at the end of fiscal year 2003 and
fiscal year 2002, respectively. The billed component of the total accounts
receivable balance at May 31, 2003 was $3,467,000 compared to $3,560,000 at the
end of the previous fiscal year.

         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, 2003 were $4,779,000
compared to $4,302,000 at the end of fiscal year 2002. The $477,000 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
2003 than at the end of fiscal year 2002.

         The accounts receivable balances at both May 31, 2003 and May 31, 2002
include a billed amount of $1,319,000 overdue from United Space Alliance, LLC, a
Delaware limited liability company, and an unbilled amount of $384,000 related
to work performed, but unbilled, on contracts for the same account. Those
accounts receivable amounts are the subject of on-going litigation. With the
litigation still in the discovery stage, the Company is unable to determine
whether this asset has been impaired, or whether the ultimate outcome of the
lawsuit will include recoveries of a total amount in excess of the recorded
asset. Accordingly, a reserve has not been booked to reduce the net book value
of the accounts receivable related to the lawsuit. Conversely, neither has a
contingent gain been recorded for potential recoveries that may be in excess of
the recorded accounts receivable related to the lawsuit. (See Note 12)

         The claims receivable balance decreased $346,000 from $364,000 for two
claims on two related contracts at May 31, 2002 to $18,000 for the same claims
at May 31, 2003. While the total of the submitted claims at May 31, 2003 remains
$364,000, the net claim balance of $18,000 is the result of the establishment of
a reserve of $346,000 in the event the Company does not collect the full amount
of its claims. The Company was awarded damages of $17,794, plus interest from
May 1997, during fiscal 2003 for those claims. However, it appealed the amount
of the award for damages by the United States Court of Federal Claims to the
Federal Circuit Court of Appeals. That appeal is currently in process. (See Note
5)

         The $1,056,000 decrease in total inventories from $2,647,000 at the end
of fiscal year 2002 to $1,591,000 at the end of fiscal year 2003 was primarily a
result of the combination of adjustments to inventory reserves and write-offs of
slow-moving inventory items, which totaled $1,352,000. Those adjustments result
from the Company's current estimates regarding the extent to which its inventory
items will be used to generate future revenues.

         Trade accounts payable decreased from $1,353,000 at the end of fiscal
year 2002 to $791,000 at the end of fiscal year 2003. The $562,000 decrease in
trade accounts payable was due primarily to payments to a software supplier
totaling $450,000, which was included in trade accounts payable at May 31, 2002
for the Company's settlement of a software dispute that had been the subject of
an earlier arbitration proceeding.

         The Company's total bank debt decreased during the fiscal year 2003 by
$2,518,000 from $3,870,000 at May 31, 2002 to $1,352,000 at May 31, 2003. The
large reduction in total bank debt was a consequence of total cash collected for
accounts receivable invoices exceeding total cash payments required for the
Company's financial obligations during fiscal year 2003. The outstanding balance
on the Company's revolving line of credit decreased from $3,371,000 at May 31,
2002 to $-0- at May 31, 2003. The total balance due on bank term notes payable
increased by $853,000 from $499,000 at May 31, 2002 to $1,352,000 at May 31,
2003. An increase in the total balance of term notes payable, and a
corresponding decrease in the revolving line of credit, occurred when $1,400,000
of the outstanding revolving line of credit balance was converted into a
four-year term loan on December 15, 2002 (see "Liquidity and Capital Resources"
section below)

                                       9
<PAGE>

         As of May 31, 2003, the Company had federal net operating loss
carryovers of approximately $5,298,000, which expire as follows: $120,000 in
2009; $2,340,000 in 2011; $170,000 in 2012; $1,938,000 in 2015 and $730,000 in
2016. The Company also has state net operating loss carryovers of approximately
$1,409,000, which expire as follows: $1,078,000in 2005 and $331,000 in 2006. In
addition, as of May 31, 2003, the Company had federal and state income tax
credit carryovers of $229,000 and $237,000, respectively. The realization of
deferred income tax assets is primarily dependent upon generating sufficient
taxable income prior to the expiration of the loss carryovers. 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 in the foreseeable future. A valuation
allowance is established to reduce the total deferred tax asset to the amount
considered realizable. This amount, however, could be increased or reduced in
the near term if estimates of future taxable income during the carryover periods
are increased or reduced.

                         LIQUIDITY AND CAPITAL RESOURCES

         Net cash of $2,560,000 was provided by operating activities during
fiscal year 2003, compared to net cash of $2,226,000 that was provided by
operating activities during fiscal year 2002. The $334,000 increase in operating
cash flows was primarily the result of collecting $616,000 more from accounts
receivable invoices than during fiscal year 2002. That increase in collections
was linked to a significant increase in total amounts billed customers during
fiscal year 2003 compared to fiscal year 2002.

         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. The outstanding balance under this line of credit at May 31,
2003 was $-0-, compared to an outstanding balance of $3,371,000 at May 31, 2002.
Therefore, the entire maximum borrowing amount of $2,500,000 was available for
borrowing at May 31, 2003. Outstanding amounts under the line of credit bore
interest at the Wall Street Journal's prime rate (4.25% at May 31, 2003) plus
0.05%.

         On December 15, 2002, the revolving line of credit was renewed and
restructured. $1,400,000 of the outstanding balance under the line of credit was
converted into a term note requiring monthly principal payments beginning
February 1, 2003, and continuing through January 1, 2007. The line of credit was
renewed twelve months until December 15, 2003, and the maximum limit under the
line of credit was reduced to $2,700,000. Effective January 31, 2003 the maximum
borrowing limit was further reduced to $2,500,000. Also included in the
restructuring was a reduction in the interest rate applicable to outstanding
principal balances under both the line of credit and the new term note. In both
cases the interest rate was reduced 1.5% to the sum of the Wall Street Journal's
rate (4.25% at May 31, 2003) plus 0.05%.

         The Company's management believes that the line of credit, together
with the new term note, is sufficient to meet the Company's projected needs for
cash throughout the extended period of time during which the revolving line of
credit is available for its use. Furthermore, Hi-Shear's management is confident
that the availability of sufficient 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. Consequently, the reported
"cash and cash equivalents" amounts reflected on the Company's balance sheet at
May 31, 2003 was $57,000.

                                       10
<PAGE>

ITEM 7.  FINANCIAL STATEMENTS

         The reports 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 17.

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

         A copy of the Company's Form 8-K/A filed with the Securities and
Exchange Commission on August 8, 2003, relating to the change in the Company's
independent accountant is attached hereto and incorporated herein by reference.

ITEM 8A.  CONTROLS AND PROCEDURES

         The Company conducted an internal evaluation of its disclosure,
controls, and procedures with George W. Trahan, President, Chief Executive
Officer and Co-chairman, and Gregory J. Smith, Vice President of Finance and
Chief Financial Officer. Based upon that evaluation, the chief executive officer
and chief financial officer concluded that the Company's disclosure controls and
procedures were effective. They concluded that the controls and procedures
provided the officers, on a timely basis, with all information necessary for
them to determine that the Company has disclosed all material information
required to be included in the Company's periodic reports filed with the
Securities and Exchange Commission. Based upon the officers' evaluation, there
were not any significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation.


                                       11
<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, 2003 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, 2003 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, 2003 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,
2003 and is incorporated herein by reference.


ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibits: See "Exhibit Index", page 14.

         (b)      Reports on Form 8-K. Form 8-K/A filed on May 2, 2003, as
                  amended by Form 8-K/A filed on August 8, 2003.


ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

         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, 2003 and is incorporated herein by
reference.

                                       12
<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: September 19, 2003                   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: September 19, 2003                   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

                                       13
<PAGE>
<TABLE>

                                            EXHIBIT INDEX
<CAPTION>

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

<S>                   <C>
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(8)
10.6.3.2              Amendments to Promissory Notes Relating to U.S. Bank Credit Facility
10.6.4                Term Note Related to U.S. Bank Credit Facility
16.2                  Letter on Change in Certifying Accountant(9)
16.3                  Letter on Change in Certifying Accountant (10)
20                    Form 8-K/A filed August 8, 2003
23.1                  Consent of Raimondo Pettit Group
23.2                  Consent of Grant Thornton LLP
31                    Rule 13a-14(a) Certifications
32                    Section 1350 Certifications
------------------
</TABLE>

(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, 2002.
(8) PREVIOUSLY FILED AND INCORPORATED BY REFERENCE TO THE COMPANY'S FORM 10-KSB
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 29, 2002.
(9) PREVIOUSLY FILED AND INCORPORATED BY REFERENCE TO EXHIBIT 16.2 TO FORM 8-K/A
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 24, 2003.
(10) PREVIOUSLY FILED AND INCORPORATED BY REFERENCE TO EXHIBIT 16.3 TO FORM
8-K/A FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 8, 2003. .


                                       14

<PAGE>



                          INDEX TO FINANCIAL STATEMENTS

                                                                            PAGE
                                                                            ----

Independent Auditors' Report, Raimondo Pettit Group..........................F-1

Report of Independent Certified Public Accountants, Grant Thornton LLP.......F-2

Balance Sheet................................................................F-3

Statements of Operations.....................................................F-4

Statement of Stockholders' Equity   .........................................F-5

Statements of Cash Flows   ..................................................F-6

Notes to Financial Statements.........................................F-7 - F-19



                                       15
<PAGE>



                              RAIMONDO PETTIT GROUP
                A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
                          CERTIFIED PUBLIC ACCOUNTANTS




                          INDEPENDENT AUDITORS' REPORT




Board of Directors
Hi-Shear Technology Corporation

We have audited the accompanying balance sheet of Hi-Shear Technology
Corporation as of May 31, 2003, 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. The
financial statements of Hi-Shear Technology Corporation as of, and for the year
ended, May 31, 2002 were audited by other auditors whose report dated July 25,
2002, expressed an unqualified opinion on those statements.

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.

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, 2003, 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/ Raimondo Pettit Group


Torrance, California
August 28, 2003



                                      F-1
<PAGE>


ACCOUNTANTS AND MANAGEMENT CONSULTANTS




               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS




Board of Directors
Hi-Shear Technology Corporation

We have audited the statements of operations, stockholders' equity, and cash
flows of Hi-Shear Technology Corporation for the year ended May 31, 2002. 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.

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

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.


/s/ Grant Thornton LLP


Los Angeles, California
July 25, 2002



                                      F-2
<PAGE>


HI-SHEAR TECHNOLOGY CORPORATION

BALANCE SHEET
MAY 31, 2003

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

Current Assets
   Cash and cash equivalents                                        $    57,000
   Accounts receivable (Note 4)                                       8,247,000
   Claims receivable, net (Note 5)                                       18,000
   Inventories, net (Note 6)                                          1,591,000
   Deferred income taxes (Note 11)                                      740,000
   Prepaid expenses and other current assets                            177,000
                                                                    ------------

     TOTAL CURRENT ASSETS                                            10,830,000

Land (Note 8)                                                           846,000
Equipment, net (Note 7)                                               1,605,000
Deferred income taxes, net (Note 11)                                    861,000
                                                                    ------------

                                                                    $14,142,000
                                                                    ============

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

Current Liabilities
   Bank line of credit (Note 9)                                     $         0
   Current portion of long-term notes payable (Note 9)                  419,000
   Trade accounts payable                                               791,000
   Accrued payroll and related costs                                    662,000
   Deferred revenue (Note 10)                                            55,000
   Due to Related Party (Note 14)                                        13,000
   Other accrued liabilities                                            236,000
                                                                    ------------

     TOTAL CURRENT LIABILITIES                                        2,176,000

Long-Term Notes Payable, less current portion (Note 9)                  933,000
                                                                    ------------

     TOTAL LIABILITIES                                                3,109,000

Commitments and contingencies (Note 12)

Stockholders' Equity (Note 13)
   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                                                  3,833,000
                                                                    ------------

     TOTAL STOCKHOLDERS' EQUITY                                      11,033,000
                                                                    ------------

                                                                    $14,142,000
                                                                    ============
See Notes to Financial Statements.


                                      F-3
<PAGE>
<TABLE>

HI-SHEAR TECHNOLOGY CORPORATION

STATEMENTS OF OPERATIONS
YEAR ENDED MAY 31,

<CAPTION>

                                                                  2003             2002
--------------------------------------------------------------------------------------------

<S>                                                            <C>              <C>
REVENUES (Note 3)                                              $16,336,000      $15,372,000

Cost of Revenues (Note 6)                                       11,683,000       11,338,000
                                                               ------------     ------------

GROSS MARGIN                                                     4,653,000        4,034,000

Selling, General and Administrative Expenses                     2,887,000        2,830,000
                                                               ------------     ------------

OPERATING INCOME                                                 1,766,000        1,204,000

Interest Expense (Note 9)                                          199,000          359,000
                                                               ------------     ------------

INCOME BEFORE INCOME TAX EXPENSE AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE                                                1,567,000          845,000

Income Tax Expense (Note 11)                                           -0-              -0-
                                                               ------------     ------------

INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE                                                1,567,000          845,000

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

NET INCOME                                                     $ 1,567,000      $ 1,121,000
                                                               ============     ============

Basic Earnings per Common Share and
     Per Common Share Assuming Dilution:
Income before Cumulative Effect of
     Accounting Change                                         $      0.23      $      0.13
Cumulative Effect of Accounting Change                                0.00             0.04
                                                               ------------     ------------

NET INCOME                                                     $      0.23      $      0.17
                                                               ============     ============

Weighted Number of Common Shares Outstanding:
     Basic                                                       6,670,000        6,670,000
                                                               ============     ============
     Diluted                                                     6,673,000        6,673,000
                                                               ============     ============
</TABLE>

See Notes to Financial Statements.


                                            F-4
<PAGE>
<TABLE>
HI-SHEAR TECHNOLOGY CORPORATION

STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED MAY 31, 2003 AND 2002

<CAPTION>


                                    Common Stock              Additional                          Total
                            ----------------------------       Paid-In          Retained       Stockholders'
                              Shares         Amount            Capital          Earnings          Equity
-----------------------------------------------------------------------------------------------------------
<S>                          <C>            <C>              <C>              <C>              <C>
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

  Net income                        --               --               --        1,567,000        1,567,000
                           ------------     ------------     ------------     ------------     ------------

Balance May 31, 2003         6,670,000      $     7,000      $ 7,193,000      $ 3,833,000      $11,033,000
                           ============     ============     ============     ============     ============

</TABLE>

See Notes to Financial Statements.


                                                     F-5
<PAGE>
<TABLE>

HI-SHEAR TECHNOLOGY CORPORATION

STATEMENTS OF CASH FLOWS
YEAR ENDED MAY 31,
<CAPTION>
                                                                            2003              2002
------------------------------------------------------------------------------------------------------

<S>                                                                     <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                           $ 1,567,000       $ 1,121,000
   Adjustments to reconcile net income (loss) to net cash
     provided by (used in) operating activities:
     Gain on sale of land                                                         0           (92,000)
     Depreciation and amortization                                          733,000           518,000
     Provision for inventory reserves                                       647,000           392,000
     Write-off of obsolete inventory, net of reserves                       705,000                 0
     Provision for claims receivable reserve                                346,000                 0
     Amortization of excess of net assets
       acquired over purchase price                                               0          (276,000)
     Deferred income taxes                                                        0                 0
     Changes in assets and liabilities:
       Accounts receivable                                                 (385,000)         (248,000)
       Claims receivable                                                          0           452,000
       Inventories                                                         (296,000)          579,000
       Prepaid expenses and other assets                                          0           130,000
       Accounts payable                                                    (562,000)         (204,000)
       Accrued payroll and related costs                                     24,000           111,000
       Deposits held                                                              0          (247,000)
       Deferred revenue                                                     (34,000)          (13,000)
       Other accrued liabilities                                           (185,000)            3,000
                                                                        ------------      ------------

         NET CASH PROVIDED BY OPERATING ACTIVITIES                        2,560,000         2,226,000
                                                                        ------------      ------------

CASH FLOWS FROM INVESTING ACTIVITIES
   Proceeds from sale of land                                                     0           178,000
   Purchase of equipment                                                    (98,000)          (43,000)
                                                                        ------------      ------------

         NET CASH FLOWS (USED IN) PROVIDED BY INVESTING ACTIVITIES          (98,000)          135,000
                                                                        ------------      ------------

CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds (payments) on bank line of credit, net                       (3,371,000)       (1,486,000)
   Proceeds from notes payable, net                                       1,400,000                 0
   Principal payments on notes payable                                     (547,000)         (823,000)
                                                                        ------------      ------------

         NET CASH USED IN FINANCING ACTIVITIES                           (2,518,000)       (2,309,000)
                                                                        ------------      ------------

         NET (DECREASE) INCREASE IN CASH                                    (56,000)           52,000

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                              113,000            61,000
                                                                        ------------      ------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                $    57,000       $   113,000
                                                                        ============      ============

Supplemental Disclosure of Cash Flow Information
   Cash paid during the year for interest                               $   220,000       $   373,000

   Cash paid during the year for income taxes                           $    41,000                 0
</TABLE>

See Notes to Financial Statements.


                                                     F-6
<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") designs and
manufactures power cartridges, separation devices, electronic firing units and
other special components used by the aerospace industry, the military and the
National Aeronautics and Space Administration (NASA). The Company'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.


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 both assets and liabilities and disclosures of
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 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-7
<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.

The Company evaluates all outstanding billed accounts receivable to assess the
potential need for an allowance for doubtful accounts. In that assessment, the
Company considers the financial condition of its customers and the legal and
contractual bases underlying the accounts receivable. No allowance for billed
accounts receivable was deemed necessary at May 31, 2003.

INVENTORIES:

Inventories are composed of raw materials and component parts, work-in-process,
and finished goods available for sale. Raw materials and component parts
consists of purchased and manufactured parts that are not allocated to an
existing production job and are expected to be utilized in anticipated future
customer contracts. Work-in-process consists of costs incurred for non-contract
jobs in process for manufacturing components and sub-assemblies that do not
relate to existing production contracts, but are built in anticipation of future
customer contracts. Finished goods consist of completed manufactured products to
fulfill future anticipated customer contracts.

Inventory costs for component parts, work-in-process and finished goods include
costs for material, direct labor, sub-contracting for manufacturing processes
and testing, and manufacturing and engineering overhead. Selling, general and
administrative costs are not included in inventory, and are charged to expense
as incurred. In accordance with industry practice, inventories are classified as
a current asset, and include items that may be allocated to contracts that will
not be completed within twelve months. Inventory is valued at the lower of cost
or estimated market value, and is determined on a "first-in, first-out" basis.

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. The
entire net patent costs of $66,000 at May 31, 2002 were amortized during fiscal
year 2003, based upon a change in the expected useful life of the patents that
relate to specialized lock designs. Despite that change in estimate, which
resulted in an additional amortization expense of $58,000 for fiscal year 2003,
the Company retains ownership of the patents that have approximately 7 years
remaining at May 31, 2003.

                                      F-8
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS

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


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

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.

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 pronouncement issued by
the Financial Accounting Standards Board that resulted 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. For the fiscal year ended May 31, 2002, that amortization amount
of $276,000 appears in the Statement of Operations separately as "Cumulative
Effect of Accounting Change."

INCOME TAXES:

Deferred income taxes are provided using 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 PER SHARE:

Earnings per share (EPS) are computed as net income 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 both fiscal year 2003 and fiscal year 2002 did not change the
earnings per share for either of those fiscal years.

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.


                                      F-9
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS

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

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

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.

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. 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:

<TABLE>
<CAPTION>
                                                                                 2003                    2002
                                                                                 ----                    ----
         <S>                                                           <C>                       <C>
         Net income:
              As reported                                              $    1,567,000            $    1,121,000
              Add: Stock-based compensation cost included in
                   reported net income, net of related tax effects                  0                         0
              Less:Total stock-based compensation cost determined
                   under fair value based method for all awards,
                   net of related tax effect                                    5,000                    65,000
                                                                       ---------------           ---------------

              Pro forma                                                $    1,562,000            $    1,056,000
         Earnings per common share and
                   common share assuming dilution:
              As reported                                              $         0.23            $         0.17
              Pro forma                                                $         0.23            $         0.16
</TABLE>

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 fiscal years 2003 and 2002, respectively. No dividend
rate for all years; price volatility of 10% in 2003 and 84% in 2002; risk-free
interest rates of approximately 3.6% in 2003 and 5.4% in 2002; and expected
lives of ten years.

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

                                      F-10
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS

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


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

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 was required to adopt SFAS No. 141 effective
fiscal year 2003; however, early adoption was 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.

NEW PRONOUNCEMENTS:

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, An Amendment of FASB Statement No.
123" ("SFAS 148"). This statement provides alternative methods of transition for
a voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS 148 amends the disclosure requirements
of Statement No. 123 to require more prominent disclosures, in both interim and
annual financial statements, about the method of accounting for stock-based
employee compensation and the effect the method used has on reported results.
The provisions of SFAS 148 are effective for fiscal years ending after December
15, 2002 and the interim disclosure provisions are effective for financial
reports containing financial statements for interim periods beginning after
December 15, 2002. The Company will continue to account for stock-based
compensation using the intrinsic value method and has adopted the disclosure
requirements prescribed by SFAS 148 as of May 31, 2003. The additional required
disclosures have been provided in Note 1 to the financial statements.

In November 2002, the FASB issued Interpretation 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, Interpretation of FASB Statement Nos. 5, 57 and 107 and
Rescission of FIN 34" ("FIN 45"). FIN 45 clarifies the requirements of SFAS No.
5, "Accounting for Contingencies," relating to the guarantor's accounting for,
and disclosure of, the issuance of certain types of guarantees. FIN 45 requires,
that upon issuance of a guarantee, the entity must recognize a liability for the
fair value of the obligation it assumes under the guarantee. The disclosure
provisions of FIN 45 are effective for financial statements of interim or annual
periods that end after December 15, 2002, while the initial recognition and
measurement provisions are effective on a prospective basis for guarantees that
are issued or modified after December 31, 2002. The Company adopted the
disclosure and initial recognition and measurement provisions of FIN 45
effective for the period ended May 31, 2003. The adoption of FIN 45 has not had
a material effect on the Company's financial statements.

NOTE 2.  FOURTH QUARTER ADJUSTMENTS

During the fourth quarter, a combination of adjustments to inventory reserves
and write-offs of slow-moving inventory items, which were either ready to sell
as finished goods or use to produce finished goods, totaled $532,000. Those
adjustment amounts, which related to current estimates regarding the extent to
which some inventory items would contribute to future sales, were charged to
cost of revenues.


                                      F-11
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS

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


NOTE 3.  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:


                                                    2003              2002
                                               ---------------   --------------
Lockheed Martin                                     33%                32%
United States Government (Including NASA)           24%                18%
Boeing Company                                      17%                16%


NOTE 4.  ACCOUNTS RECEIVABLE


Billed and unpaid receivables at May 31, 2002             $          3,560,000
Billed receivables for fiscal year 2003                             15,812,000
                                                          ---------------------
                                                                    19,372,000
Collected receivables for fiscal year 2003                          15,905,000
                                                          ---------------------

Billed and unpaid receivables at May 31, 2003                        3,467,000

Unbilled receivables at May 31, 2003:
        Unbilled receivables on contracts in process                 3,685,000
        Unbilled receivables on completed contracts                  1,095,000
                                                          ---------------------

         Total accounts receivable at May 31, 2003        $          8,247,000
                                                          =====================

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, 2003 were $3,467,000 and $4,780,000,
respectively.

Unbilled receivables represent revenues recognized from long-term fixed priced
contracts under the percentage-of-completion method, but in advance of
completing billable events for which invoices are submitted to customers. The
total costs and earnings recognized from inception-to-date on contracts in
process at May 31, 2003 are as follows:

         Total contracts in process                        $ 19,965,000
                                                           =============

         Total costs incurred                              $  7,825,000
         Add estimated earnings                               2,976,000
                                                           -------------

         Total revenue recognized                            10,801,000
         Less amounts billed                                  7,148,000
                                                           -------------

                                                           $  3,653,000
                                                           =============

         Unbilled receivables on contracts in process      $  3,685,000
         Deferred revenue on contracts in process               (32,000)
                                                           -------------

                                                           $  3,653,000
                                                           =============

                                      F-12
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS

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


NOTE 4.  ACCOUNTS RECEIVABLE (CONTINUED)

Because of the large amount of contracts in process at any point in time,
changes in estimates to complete can have a significant impact on the
profitability of the Company. Management estimates that each 1% change in the
total estimated costs to complete the contracts in process at May 31, 2003 would
change both the recognized revenue and earnings by approximately $40,000.

The accounts receivable balance at May 31, 2003 includes a billed amount of
$1,319,000 overdue from one account and an unbilled amount of $384,000 related
to work performed, but unbilled, on contracts for the same account. The Company
has filed a lawsuit to collect the billed and unbilled costs associated with the
contracts alleged by the Company to have been breached by the account. (See Note
12)

During the fiscal years 2003 and 2002, the Company generated revenues of
approximately $1,120,000 and $2,136,000, respectively, from sources outside of
the United States.

NOTE 5.  CLAIMS RECEIVABLE

As of May 31, 2003, the net claims receivable balance, which relates to
outstanding amounts due for two claims on two related contracts terminated by a
single customer for "convenience", was $18,000. While the total of the submitted
claims at May 31, 2003 remains $364,000, the net claims' balance of $18,000 is
the result of the establishment of a reserve of $346,000 in the event the
Company does not collect the full amount of its claims.

Since Hi-Shear and its customer (the U.S. Army) were unable to come to agreement
on the contracts' termination amounts, Hi-Shear elected to pursue the matter in
the United States Court of Federal Claims. The judge agreed with Hi-Shear that
the U.S. Army has liability to the Company for the U.S. Army's negligence in
determining its estimated requirements for materials covered by the contracts.
The judge awarded damages of $17,794, plus interest from May 1997, to Hi-Shear.
The Company believes the judge miscalculated the amount of the award for
damages, and as a result has appealed the matter to the Federal Circuit Court of
Appeals. That appeal is in process. Since there can be no assurance that the
Company will prevail on its appeal to the Federal Circuit Court of Appeals, the
net receivable balance reflected on the Company's balance sheet was reduced to
the amount of the judgment.

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.

NOTE 6.  INVENTORIES

Aerospace and defense inventory:
         Raw materials and component parts                       $     530,000
         Work-in-process                                               913,000
         Finished goods                                                599,000
                                                                 --------------
                                                                     2,042,000
         Less inventory reserves                                      (465,000)
                                                                 --------------
                  Total aerospace and defense inventory              1,577,000

Non-aerospace and non-defense inventory:
         Work-in-process                                                14,000
                                                                 --------------

                           Total net inventory                   $   1,591,000
                                                                 ==============

                                      F-13
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS

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


NOTE 7.  EQUIPMENT

Machinery and equipment                                       $      4,050,000
Office equipment and furniture                                         661,000
Leasehold improvements                                                 154,000
Projects in process                                                          0
                                                              -----------------
                                                                     4,865,000
Less accumulated depreciation and amortization                       3,260,000
                                                              -----------------

                                                              $      1,605,000
                                                              =================

For fiscal year 2003, depreciation expense related to a capitalized computer
software item was approximately $198,000 more than the depreciation expense for
that item during fiscal year 2002. A reduction in the asset's expected useful
life, which occurred during fiscal year 2003, resulted in the additional
depreciation.

NOTE 8. LAND

The Company owns twelve acres of land in Santa Clarita, CA, on which it has
several buildings that it uses for storage and blending of pyrotechnic powders
utilized in many of its manufactured products. During fiscal year 2002, the
Company completed the sale of four acres of its land to the City of Santa
Clarita for construction of a city highway. The negotiated sale price of
$425,000, for which final payment was received in fiscal 2002, less both costs
directly associated with the negotiation of the settlement and the pro-rata cost
of acquiring the land, yielded a gain of $92,000, which was included in net
income reported for fiscal year 2002.

NOTE 9.  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.

On December 15, 2002, the revolving line of credit was renewed and restructured.
$1,400,000 of the outstanding balance under the line of credit was converted
into a term note requiring monthly principal payments beginning February 1,
2003, and continuing through January 1, 2007. The line of credit was renewed
twelve months until December 15, 2003, and the maximum limit under the line of
credit was reduced was reduced to $2,700,000. Effective January 31, 2003, the
maximum borrowing limit was further reduced to $2,500,000. Also included in the
restructuring was a reduction in the interest rate applicable to outstanding
principal balances under both the line of credit and the new term note. In both
cases the interest rate was reduced 1.5% to the sum of the Wall Street Journal's
rate (4.25% at May 31, 2003) plus 0.05%.

At May 31, 2003, the total outstanding balance under the revolving line of
credit was $-0-. Consequently, the entire maximum borrowing amount of $2,500,000
was available for borrowing.

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, 2003, the
Company was compliant with all of the covenants.

Long-term notes payable at May 31, 2003, which are subject to the business loan
agreement above, consists of the following:

                                      F-14
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS

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

NOTE 9.  BANK LINE OF CREDIT AND NOTES PAYABLE (CONTINUED)

<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.                                                           $     69,000

Promissory note, payable in monthly installments of $29,167 through January
  2007, plus interest at the Wall Street Journal's prime plus 0.5%, secured by
  substantially all assets.                                                           $  1,283,000
                                                                                      -------------
                                                                                         1,352,000
Less current portion                                                                       419,000
                                                                                      -------------

Long-term notes payable, less current portion                                         $    933,000
                                                                                      =============
</TABLE>

NOTE 10. 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 $55,000 at May 31, 2003.

NOTE 11.  INCOME TAXES

Deferred income tax assets in the accompanying balance sheet at May 31, 2003,
consist of the following, of which $740,000 is included in current assets:

Deferred income tax assets:
    Net operating loss carryovers                                 $  1,926,000
    Income tax credit                                                  466,000
    Other                                                              351,000
                                                                  -------------

                                                                     2,743,000
    Less valuation allowance                                         1,142,000
                                                                  -------------
    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 carryovers.
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
carryover periods are increased or reduced, or if certain changes in the
ownership structure of the Company occur.

                                      F-15
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS

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


NOTE 11.  INCOME TAXES (CONTINUED)

The provision for income taxes consists of the following:

                                                      2003            2002
                                                      ----            ----

Current tax expense:
         Federal                                   $ 412,000       $ 403,000
         State                                       105,000         101,000
         Use of NOL's & tax credit carryovers       (517,000)       (504,000)
                                                   ----------      ----------
                                                   $       0       $       0
                                                   ==========      ==========
Deferred tax expense (benefit):
         Federal                                   $ (82,000)      $  69,000
         State                                      (114,000)       (290,000)
         Change in valuation allowance               196,000         221,000
                                                   ----------      ----------
                                                   $       0       $       0
                                                   ==========      ==========


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:

                                                          2003           2002
                                                       ----------     ----------

Federal income tax computed at 34% statutory rate      $ 532,000      $ 391,000
Permanent differences                                      2,000       (117,000)
State taxes, net of  federal benefit                      91,000         67,000
Other state tax and minimum taxes                         14,000         13,000
Change in valuation allowance                            196,000        221,000
Use of state tax credit carryover                       (105,000)       (55,000)
Prior year tax credits                                  (730,000)      (457,000)
Other                                                          0        (63,000)
                                                       ----------     ----------

                                                       $       0      $       0
                                                       ==========     ==========

As of May 31, 2003, the Company had federal net operating loss carryovers of
approximately $5,298,000, which expire as follows: $120,000 in 2009; $2,340,000
in 2011; $170,000 in 2012; $1,938,000 in 2015 and $730,000 in 2016. The Company
also has state net operating loss carryovers of approximately $1,409,000, which
expire as follows: $1,078,000 in 2005 and $331,000 in 2006. In addition, as of
May 31, 2003, the Company had federal and state income tax credit carryovers of
$229,000 and $237,000, respectively.

NOTE 12.  COMMITMENTS AND CONTINGENCIES

The Company leases its facilities, automobiles and certain equipment under
operating lease agreements that expire at various dates through 2007. Rental
expense under operating leases for the years ended May 31, 2003 and 2002 was
approximately $599,000 and $598,000 respectively.

                                      F-16
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS

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


NOTE 12.  COMMITMENTS AND CONTINGENCIES (CONTINUED)

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

                                   2004           $     576,000
                                   2005                 202,000
                                   2006                  45,000
                                   2007                   7,000
                                                  --------------
                                                  $     830,000
                                                  ==============

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 United Space Alliance, LLC, a Delaware limited
liability company ("Space Alliance"), and its predecessor USBI Company, a
Delaware Corporation, in the Circuit Court of the Eighteenth Judicial Circuit in
and for Brevard County, Florida. Hi-Shear filed suit to recover damages,
including damages for 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, plus an unbilled amount of $384,000
related to work performed on two of the contracts, are included in accounts
receivable at May 31, 2003. 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. At this time, the
Company is seeking in excess of $11,000,000 in damages, excluding potential
amounts for punitive and exemplary damages and pre-judgment interest.

A counterclaim was filed by the defendants against the Company. On September 11,
2003 Space Alliance submitted to the court its claim for damages in the amount
of $458,004 exclusive of costs, interest and attorney's fees based on the
Company's alleged breach of contract. It also alleges a claim for a declaratory
judgment, a claim for conversion seeking return of certain alleged government
property and an accounting for a claim. The counterclaim arises out of the same
circumstances as the Company's lawsuit. As part of its defense in the
litigation, Space Alliance claims that it was coerced through duress to enter
into a contract with the Company where the Company was the successful lowest
bidder. Hi-Shear believes that Space Alliance in early 2000, to avoid
responsibilities for its contractual obligations, instigated an investigation by
NASA which resulted in a criminal investigation of the Company and a key
employee by the United States Attorney for the Middle District of Florida
related to the claim above. The Company has assembled considerable evidence that
belies any unlawful acts and a summary of that evidence has been presented to
the United States Attorney. In August 2003, the Company was advised that the
United States Attorney has not decided whether to prosecute this matter. The
Company does not believe that it has engaged in any unlawful acts regarding this
matter. Although it is not possible to determine the results of the
investigation, the Company strongly believes it is not likely that the ultimate
outcome will be adverse to the Company and accordingly has made no accruals for
any associated losses.

The lawsuit against United Space Alliance, LLC and USBI Company remains in the
discovery phase. The Company believes that is has valid claims receivable
against these defendants. Further, the Company believes that the counterclaim is
without merit. Accordingly, no accruals for either potential amounts payable or
reserves on uncollected receivables have been made at this time. However, there
can be no assurance that the Company will be successful in collecting its
receivable or not be held liable on the counterclaim. An unfavorable outcome
could have a material adverse impact on the Company's financial position and
results of operations.

                                      F-17
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS

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


NOTE 12.  COMMITMENTS AND CONTINGENCIES (CONTINUED)

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.

NOTE 13.  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, 2003 there were
200,534 shares available for grant under the Company's option plan.

A summary of the status of the option plan and changes during fiscal years 2003
and 2002 is as follows:

<TABLE>
<CAPTION>
                                                         2003                                 2002
                                           ---------------------------------    ----------------------------------
                                                                  Weighted-                           Weighted-
                                                                   Average                             Average
                                                                  Exercise                            Exercise
               Fixed Options                    Shares              Price          Shares               Price
------------------------------------------------------------------------------------------------------------------
<S>                                               <C>        <C>                     <C>        <C>
Outstanding at beginning of year                  142,466    $      4.73             105,466    $       5.67
     Granted                                        7,000           2.15              37,000            2.05
     Exercised                                     -                  -               -                   -
     Forfeited                                    (13,000)            5.35            -                   -
                                             --------------                     --------------

Outstanding at end of year                        136,466           4.54             142,466            4.73
                                             ==============                     ==============

Exercisable at end of year                        113,966           5.03             112,466            5.45

Weighted-average fair value per
     option granted during the year                          $      2.24                        $       1.77
</TABLE>

A further summary about fixed options outstanding at May 31, 2003, 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
-------------------------- --------------- --------------- ----------------- ------------------- ------------------
<S>                               <C>        <C>           <C>                          <C>        <C>
$2.05 to $4.99                     51,000    8.1 years     $        2.09                 28,500    $      2.12
$5.00 to $6.99                     68,466    2.7 years              5.50                 68,466           5.50
$7.00 to $8.50                     17,000    4.2 years              8.06                 17,000           8.06
                           ---------------                                      ----------------

                                  136,466                  $        4.54                113,966    $      5.03
                           ===============                                      ================
</TABLE>

                                      F-18
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS

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


NOTE 14.  RELATED PARTIES

A director of the Company performs consulting services for the Company. The
Company incurred $169,000 and $150,000 of consulting fees for the years ended
May 31, 2003 and 2002, respectively. At May 31, 2003, $13,000 was due to the
related party.




                                      F-19
<PAGE>