<PAGE>

                                  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, 2005
                                               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 ( X ) NO ( )

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: $ 16,076,000.

The aggregate value of the Registrants Common Stock held by non-affiliates of
the Registrant was approximately $6,782,000 as of August 31, 2005, based upon
the closing sale price on the American Stock Exchange on that date at which the
stock was last sold.

There were approximately 6,701,000 shares of the Registrants Common Stock issued
and outstanding as of August 31, 2005.

Part III, other than Item 12, is incorporated by reference from the Registrant's
Proxy Statement for its 2005 Annual Meeting of Stockholders to be filed with the
Commission within 120 days of May 31, 2005.

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



<PAGE>


                         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, RELATED STOCKHOLDER MATTERS AND
            SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.............  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

     ITEM 8B OTHER INFORMATION............................................... 11

PART III.
     ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
            COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT................ 12

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

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

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

     ITEM 13 EXHIBITS ....................................................... 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 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 and defense business widely use the Company's 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 meet the specialized needs of the United States
space program and defense applications, and consist primarily of pyrotechnic
power cartridges and various types of separation devices designed to meet the
demand for reliable high performance, 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 firing systems that
control and sequentially fire the pyrotechnic devices according to
pre-programmed parameters. These electronic devices and pyrotechnic products are
used in missiles, launch vehicles, weapon systems, fighter aircraft ejection
seats and other applications. We continually 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, weapon systems
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 its
space exploration missions and the Space Shuttle.

         CARTRIDGE ACTUATED DEVICES. Hi-Shear's cartridge actuated devices are
mechanical gas-activated products utilized for use on 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 to pyrotechnic cartridge activated devices, we manufacture
a line of electrically driven ultra low shock separation nuts for satellite
applications where an alternative to pyrotechnic activation is desirable. These
high performance electric separation devices provide the strength and flight
heritage identical to our cartridge activated separation nuts while provide the
advantage of reduced shock and resettable usage for appropriate applications.
Hi-Shear also supplies sophisticated highly reliable mechanical sub-components
used for space vehicles and weapons systems according to customer supplied
detailed designs and testing requirements.

         Hi-Shear manufactures pyrotechnic cutters for use in a wide range of
emergency situations for fire and rescue. The LIFESHEAR cutter's light weight,
and ease of use enable it to quickly cut through 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 in the full-scale production phase. We employ a proprietary
initiator in the safe arm product 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, which is among the longest in the industry.

                             CUSTOMERS AND CONTRACTS

         Most of the Company's customers are large aerospace prime or
subcontractors. In addition, the Company derives a significant amount of its
revenue from contracts it has directly with Government customers, including the
U.S. Air Force, U.S. Navy, U.S. Army and NASA. Sales to Lockheed Martin and the
United States Government accounted for 31% and 29%, respectively, of the
Company's revenues in fiscal year 2005, compared to 30% and 24%, respectively,
of the Company's revenues in fiscal year 2004. 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 both fiscal years 2005 and 2004, 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 2005, we continued our programs to reduce many of the manufacturing
lead-times to help our 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, 2005, the Company's backlog of unrecognized revenue and
unbilled amounts on open customers' orders was $12.7 million and $17.3 million,
respectively, compared to unrecognized revenue and unbilled backlog amounts as
of the end of the prior fiscal year of $13.5 million and $18.3 million,
respectively. The decrease in both backlogs was a consequence of the total
amount of new orders booked during fiscal year 2005 being less than both revenue
recognized and billings to customers during fiscal year 2005. Two significant
orders for production of parts relative to on-going programs, which ordinarily
are received during each fiscal year, were received after the fiscal year ended
May 31, 2005. As a result, the Company's revenue and billing backlogs at May 31,
2005 did not include amounts relative to those orders. The total amount of those
late-arriving orders was $7.9 million. One order was received in June 2005 from
the U.S. Government for electronic ejection seat control products for military
aircraft, and the other order was received in early September 2005 for safe arm
fuzes for Patriot Advanced Capability (PAC-3) missiles.

                                   COMPETITION

         Hi-Shear's aerospace and defense 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 2005, Hi-Shear had
approximately 87 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.


                                       3
<PAGE>

                             ADDITIONAL INFORMATION

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

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

ITEM 2.  PROPERTIES

         Hi-Shear's manufacturing and executive offices are located in Torrance,
California, in a 76,000 square foot building organized for electronic,
mechanical, and pyrotechnic manufacturing and assembly operations. The Company
leases these offices pursuant to a five (5) year lease through August 31, 2009.
The Company also owns 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 the property in Santa
Clarita are adequately covered by insurance and will adequately support the
Company's operations for the foreseeable future.

ITEM 3.  LEGAL PROCEEDINGS

         In November 2000, Hi-Shear sued United Space Alliance, LLC, a Delaware
limited liability company ("Alliance"), and its predecessor USBI Company, a
Delaware Corporation ("USBI"), 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, were included in
accounts receivable. In addition to the Company's lawsuit complaints related to
the accounts receivable amounts, the Company also seeks compensatory damages
alleging that Alliance fraudulently induced Hi-Shear to enter into two contracts
that Alliance had no intention of performing, and that Alliance subsequently
repudiated. 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.

         A counterclaim was filed by the defendants 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, 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,
Alliance demanded that Hi-Shear ship uncertified flight hardware to it for use
on the United States Space Shuttle in order that Alliance receive a performance
incentive award payment from NASA of up to $6 million.


                                       4
<PAGE>

         In July 2004, Hi-Shear sued Pacific Scientific Energetic Materials
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 resulting from the defendant's misappropriation of Hi-Shear's
confidential, proprietary and/or trade secret protected designs, drawings and
specifications for certain aerospace components, conspiracy to steal and
misappropriate said items, and interference with Hi-Shear's advantageous
business relationships. The events of this matter are related to the United
Space Alliance lawsuit. Pending further resolution of the United Space Alliance
lawsuit, activity in the action against Pacific Scientific has been informally
abated.

         Trial of the lawsuit against United Space Alliance, LLC and USBI
commenced on July 5, 2005 in the Circuit Court of the Eighteenth Judicial
Circuit in and for Brevard County, Titusville, Florida. Approximately two weeks
following the start of the trial, the court made legal rulings holding that the
Company does not own exclusive rights to all of its technical data, which
constitute the trade secrets that the Company alleged were misappropriated.
Accordingly, the court made rulings on motions for summary judgments in favor of
Alliance and USBI, which caused the dismissal of some of Hi-Shear's claims for
misappropriation of trade secrets. As a result of the court's rulings, and in
order to perfect a subsequent appeal of the rulings, Hi-Shear dismissed, "with
prejudice", the remaining claims of its lawsuit alleging misappropriation of
trade secrets. As a consequence of those rulings and actions, USBI was dropped
as an active participant in the trial, but will remain a defendant in the event
the Company appeals the court's ruling after the trial. USBI has now made a
claim against the Company for recovery of its attorneys' fees and costs, but has
not yet specified the amount it may be seeking. The Company believes USBI is not
legally entitled to recovery of its attorneys' fees and intends to vigorously
oppose USBI's claim for fees. In addition to the summary judgment regarding
alleged trade secrets, the court also ruled on another summary judgment motion
to dismiss Hi-Shear's claims for willful breach of a non-disclosure agreement
against Alliance.

         On September 2, 2005, the jury of the trial of Hi-Shear's lawsuit
against United Space Alliance, LLC rendered verdicts regarding both Hi-Shear's
breach of contract claims and Alliance's counterclaims. The jury ruled for
Hi-Shear on one breach of contract claim, for which it awarded damages in the
amount of $57,781, and it ruled against Hi-Shear on the remaining breach of
contract claims. The jury also determined that Hi-Shear converted certain
property, and awarded Alliance the amount of one dollar. All of the jury awards
were exclusive of interest and attorneys' fees.

         Final judgment hearings with the court regarding this litigation will
be scheduled in the coming months. Among the issues to be addressed in those
hearings will be the responsibility for attorneys' fees in this case. The court
will determine to what extent Hi-Shear may recover its attorneys' fees from
Alliance for the claim on which it prevailed, and to what extent Alliance and
USBI may recover their attorneys' fees from Hi-Shear relating to the claims on
which they prevailed, including Hi-Shear's claims that were dismissed. Hi-Shear
is not able to estimate the amount of attorneys' fees for which it may be
liable, if any. Accordingly, no accruals for potential amounts payable have been
made at this time. However, awards of attorneys' fees against Hi-Shear could
have a material adverse impact on the Company's financial position and results
of operations.

         As a result of the jury verdict, the net accounts receivable total at
May 31, 2005 was reduced by $1,645,000 from $1,703,000 to the $58,000 award to
Hi-Shear. That adjustment to accounts receivable resulted in reducing reported
net income, after income taxes, for the fiscal year ended May 31, 2005 by
$990,000. The Company may exercise its rights to appeal all aspects of this
litigation, where it considers it appropriate.

         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, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
        ISSUER PURCHASES OF EQUITY SECURITIES

       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 2005 ending May 31, 2005

                           4th Quarter                   $ 5.46      $ 3.33
                           3rd Quarter                     6.00        4.12
                           2nd Quarter                     5.90        3.21
                           1st Quarter                     3.34        2.90

         Fiscal Year 2004 ending May 31, 2004

                           4th Quarter                   $ 4.00      $ 2.95
                           3rd Quarter                     3.90        2.61
                           2nd Quarter                     3.83        2.50
                           1st Quarter                     3.50        2.02

         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 8, 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.

         Our 1993 nonstatutory stock option plan, which provided for the
issuance of options to purchase up to 500,000 shares of our common stock,
terminated by its terms on December 23, 2003 (See Note 13).

         The number of holders of record of Hi-Shear's Common Stock was 66 and
the number of beneficial shareholders was approximately 1,450 as of August 31,
2005.

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 and pricing of its new
products, the development and nature of its relationship with key strategic
partners, the allocation of the federal budget for government sponsored military
and aerospace programs, 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, 2005 would
change both the amount of revenue and earnings recognized by approximately
$64,000.

         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 the Company's past contracts relate to on-going programs, for
which it will be awarded similar contracts. The method utilized in management's
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 the likelihood
that the item will be used for a future contract. After similarly assessing and
calculating individual reserve amounts, the resulting total reserve percentage
of each 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, 2005 COMPARED WITH FISCAL YEAR ENDED MAY 31, 2004

         Revenues recognized during fiscal year 2005 were $16,076,000, which is
$343,000 and 2% less than the total revenues of $16,419,000 recognized during
fiscal year 2004. Decreased production on orders for electronic ejection seat
control products for military aircraft resulted in a $1,315,000 reduction in
revenues during fiscal year 2005 compared to last year, while revenues derived
from production on orders for safe arm fuzes for Patriot Advanced Capability
("PAC-3") missiles during fiscal year 2005 was almost the same as last year.
Together, those two product groups represented $6,190,000, and 39% of the
Company's total revenues, for fiscal year 2005 compared to $7,473,000, and 46%
of the Company's total revenues, for fiscal year 2004. Revenues on sales to
foreign customers decreased $612,000 from $2,296,000, and 14% of the Company's
total revenues, for fiscal year 2004 to $1,684,000, and 10% of the Company's
total revenues, for fiscal year 2005. Approximately 43% of that decrease related
to orders for electronic ejection seat control products. Offsetting most of the
revenue decreases noted above was a $1,249,000 increase in revenues related to
production on orders from the U.S. Navy for its Arm Fire Devices ("AFD"), which
are used in underwater demolition. Total revenues from that product group were
$1,705,000, and 11% of the Company's total revenues, for fiscal year 2005,
compared to $456,000 during for the prior fiscal year. Total revenue earned on
all orders received directly from U.S. government entities, including orders for
AFD and electronic ejection seat control products, amounted to $4,674,000, and
29% of total Company revenues, for the year ended May 31, 2005, compared to
$3,931,000, and 24% of total Company revenues, for the prior fiscal year.
Similar to the prior fiscal year, during fiscal year 2005 the Company continued
to devote a larger proportion of its engineering and manufacturing efforts
toward design, qualification and initial production activities associated with
new products, in an effort to expand its sales opportunities. Those types of
activities typically generate less revenue per hour worked than if the
activities performed by those people were devoted to previously produced
products.


                                       7
<PAGE>

         Cost of revenues for fiscal year 2005 was $10,859,000 compared to
$11,239,000 for the previous fiscal year. The $380,000 and 3% decrease in cost
of revenues corresponds to a similar reduction in revenues during the same
period. While the Company continued to incur more costs than it had historically
on the design, qualification and initial production of new products during
fiscal year 2005, the total of those costs were less than total costs incurred
during the previous fiscal year on similar activities. Additional cost savings
from fiscal 2004 to fiscal 2005 resulted from the Company's utilization of
recent investments in new manufacturing testing equipment. Reducing reliance
upon outside sub-contractors for testing enabled the Company to replace
sub-contracting costs with less incremental total costs associated with the use
of in-house labor and equipment. Increases to inventory reserves and write-off
of slow-moving inventory items resulted in $179,000 charged to cost of revenues
for fiscal year 2005, compared to $134,000 that was charged to cost of revenues
for similar adjustments during fiscal year 2004. The adjustments to inventory
valuations relate to management's estimates regarding the extent to which the
Company's inventory items will be used in generating future revenues. In
addition, cost of revenues for fiscal year 2005 include $83,000 for anticipated
future realization of gross margin losses on contracts in process at May 31,
2005. Recognition of similar anticipated future realization of gross margin
losses on contracts in process as of the end of the previous fiscal year
amounted to a $253,000 increase to cost of revenues for fiscal year 2004.

         Gross margin for fiscal year 2005 increased $37,000 to $5,217,000, or
32.5% of revenues, from $5,180,000, or 31.5% of revenues, which was reported for
the fiscal year 2004. The slight increase in both total gross margin amount and
percentage of revenues was primarily a result of net cost savings, as discussed
above, exceeding the decrease in total revenues.

         Selling, general and administrative expenses increased by $1,690,000
and 53%, from $3,210,000 during fiscal year 2004 to $4,900,000 during fiscal
year 2005. Most of the increase to selling, general and administrative expenses
resulted from a write-down of accounts receivable from a customer, against which
the Company has filed a lawsuit. The total amount of the accounts receivable
write-down was $1,645,000, which is the amount by which the Company's total
accounts receivable balance for that customer exceeded the amount of damages
awarded by the jury of a recently concluded trial of the lawsuit (See Note 12).
While the Company may exercise its rights to appeal the verdict, it nonetheless
adjusted the related accounts receivable balance to the amount of the jury
award.

         The Company realized operating income of $317,000, or 2% of revenues,
for fiscal year 2005, compared to operating income of $1,970,000, or 12% of
revenues, for fiscal year 2004. The $1,653,000 decrease is the result of all the
factors identified above.

         Interest expense decreased from $55,000 for fiscal year 2004 to $-0-
for fiscal year 2005. The decrease was a consequence of the Company not having
any bank debt during the entire fiscal year ended May 31, 2005. Net cash
generated from operating activities throughout fiscal year 2005 was sufficient
to pay all of the Company's expenses and other financial obligations. While the
Company had no bank debt at May 31, 2005, it can borrow up to $2,500,000 from
its commercial bank under a revolving line of credit that remains available
through December 15, 2006.


                                       8
<PAGE>

         Income tax expense for the year ended May 31, 2005 was $102,000,
compared to $-0- income tax expense for the prior fiscal year. While the income
tax expense that ordinarily would be associated with the Company's amount of
taxable income for the year ended May 31, 2004 was entirely offset by the tax
"benefit" from the recognition of deferred tax assets, income tax expense for
the year ended May 31, 2005 was not entirely offset by a similar "benefit"
resulting from the reduction of a "valuation allowance" for previously
unrecognized deferred tax assets.

         Net income for fiscal year 2005 decreased by $1,700,000 from
$1,915,000, or $0.29 per share, to $215,000, or $0.03 per share.

                               FINANCIAL CONDITION

         Accounts receivable balances, which consist of billed and unbilled
amounts, plus claims receivable, were $9,149,000 and $8,327,000 at the end of
fiscal year 2005 and fiscal year 2004, respectively. The billed component of the
total accounts receivable balance at May 31, 2005 was $4,258,000 compared to
$3,287,000 at the end of the previous fiscal year. The total accounts receivable
balance at May 31, 2004 included $1,319,000 for invoices billed United Space
Alliance, LLC ("Alliance"), against which the Company had filed a lawsuit. As a
result of a recent jury verdict in the trial of that lawsuit, the billed
accounts receivable at May 31, 2005 were reduced by $1,261,000 to $58,000, which
is the amount of the jury's award in its verdict. The Company may exercise its
rights to appeal the verdict (See Note 12). Excluding the Alliance billed
receivable amounts included in the accounts receivable at both May 31, 2005 and
May 31, 2004, the $2,232,000 increase in total billed accounts receivable from
May 31, 2004 to May 31, 2005 is primarily attributable to billed receivables
during the last two months of fiscal year 2005 (April and May) being $2,233,000
greater than during the same two-month period of fiscal year 2004. The accounts
receivable balance at May 31, 2005 was not reduced for a reserve on doubtful
accounts, while the accounts receivable balance at May 31, 2004 was reduced by
$27,000 for a reserve on one doubtful account.

         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, 2005 were $4,873,000
compared to $5,049,000 at the end of fiscal year 2004. The $176,000 decrease in
the unbilled receivable balance includes the write-off of $384,000 that was
associated with work performed, but not billed, on contracts with the United
Space Alliance, LLC, against which the Company filed a lawsuit (See Note 12).
This unbilled receivable write-off resulted from the same trial jury's verdict,
as discussed above in the discussion regarding billed receivables. Unbilled
receivables at May 31, 2005 and May 31, 2004 also included reductions of $83,000
and $253,000, respectively, for anticipated future realization of gross margin
losses on contracts in process.

         At both May 31, 2005 and May 31, 2004, an accounts receivable claims
balance, which relates to outstanding amounts due for two claims on two related
contracts terminated by the U.S. Army for "convenience", was $18,000. That
balance represents the $17,794 damages awarded the Company by the United States
Court of Federal Claims. The Company is currently in the process of collecting
its damages award, plus legal fees and interest incurred from May 1997.

         Inventories, net of reserves, increased from $1,563,000 at May 31, 2004
to $1,635,000 at May 31, 2005. The $72,000 increase in net inventory balance
during fiscal year 2005 includes increases to inventory reserves and write-offs
of slow-moving inventory items amounting to $179,000. Excluding those reserves
increases and write-offs, total inventory increased $251,000. That increase is
the result of total costs for additions to inventory exceeding total costs of
inventory consumed in manufacturing during fiscal year 2005. Inventory reserves,
which are established in accordance with management's estimates regarding the
extent to which inventory items will ultimately be used to generate future
revenues, were $512,000 at May 31, 2005, compared to $420,000 at May 31, 2004.


                                       9
<PAGE>

         Trade accounts payable increased from $746,000 at the end of fiscal
year 2004 to $1,055,000 at the end of fiscal year 2005. The $309,000 increase is
primarily the result of total costs of material and sub-contract purchase
receipts for work on customer orders during May 2005 being greater than costs
for similar purchase receipts during the same month last fiscal year. There are
no disputed amounts included in accounts payable at May 31, 2005.

         At both May 31, 2005 and May 31, 2004, the Company did not have any
bank debt. While the Company had no bank debt at May 31, 2005, it can borrow up
to $2,500,000 from its commercial bank under a revolving line of credit that
remains available through its scheduled December 15, 2006 maturity date (See
Note 8).

         As of May 31, 2005, the Company had federal net operating loss
carryovers of approximately $3,623,000, which expire as follows: $177,000 in
2011; $170,000 in 2012; $2,497,000 in 2015 and $779,000 in 2016. The Company
also has state net operating loss carryovers of approximately $274,000, which
expire 2006. In addition, as of May 31, 2005, the Company had federal and state
income tax credit carryovers of approximately $229,000 and $39,000,
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 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 $501,000 was provided by operating activities during fiscal
year 2005, compared to net cash of $2,328,000 that was provided by operating
activities during fiscal year 2004. The $1,827,000 decrease in net operating
cash flows between the two fiscal years was primarily the result of collections
from billed accounts receivable totaling $1,851,000 less during fiscal year 2005
than during fiscal year 2004.

         To supplement cash provided by operating activities, the Company
maintains a business loan agreement including a revolving line of credit with a
commercial bank, for the purpose of having sufficient cash to meet its cash
obligations. The outstanding balance under this line of credit at May 31, 2005
was $-0-. Since the maximum borrowing limit under the line of credit is
$2,500,000, the amount available for borrowing at May 31, 2005 was $2,500,000.
The line of credit is available to the Company through December 15, 2006, which
is the maturity date of the business loan agreement covering the line of credit.
Outstanding amounts under the line of credit bear interest at the Wall Street
Journal's prime rate (6.0% at May 31, 2005) plus 0.5%.

         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,
2005, the Company was not in compliance with all of the financial covenants. The
bank has advised the Company's management that it will waive the covenant
violations, which would not have occurred without the non-cash adjustments that
were made as a result of a jury verdict during the trial of the Company's
lawsuit seeking compensation for damages that included unpaid accounts
receivable. (See Notes 4 and 12)


                                       10
<PAGE>

         The Company's management believes that the current line of credit is
sufficient to enable the Company to meet its projected needs for cash throughout
the period of time during which the revolving line of credit is available for
its use.

         In its attempt to minimize interest expense associated with any
outstanding balance that may exist under the revolving line of credit, the
Company has arranged with its bank to maintain "zero balances" in its
disbursement and depository accounts for the purpose of "sweeping" excess
deposited cash to pay down any revolving line of credit balance. Consequently,
the reported "cash and cash equivalents" amounts reflected on the Company's
balance sheet occasionally are minimal. However, the need to "sweep" excess cash
at May 31, 2005 did not exist, and therefore reported "cash and cash
equivalents" at that date was $720,000.

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 15.

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

         None.

ITEM 8A. CONTROLS AND PROCEDURES

         The Company conducted an internal evaluation of its disclosure,
controls, and procedures with George W. Trahan, President and CEO, and Gregory
J. Smith, Vice President of Finance and CFO. Based upon that evaluation, the CEO
and CFO 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.

ITEM 8B. OTHER INFORMATION

         A Form 8-K was filed with the Securities and Exchange Commission on
April 14, 2005, relating to first and second quarter restatement of tax
provisions.





                                       11
<PAGE>

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(a) OF THE EXCHANGE ACT

         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, 2005 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, 2005 and is incorporated herein by
reference.


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS

         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, 2005 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 to be filed with the Securities and Exchange
Commission within 120 days after May 31, 2005 and is incorporated herein by
reference.

ITEM 13. EXHIBITS

         Exhibits: See "Exhibit Index", page 14.

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, 2005 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 13, 2005                 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 13, 2005                 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>


                                  EXHIBIT INDEX
                                                                    SEQUENTIALLY
EXHIBIT NUMBER                     DESCRIPTIONS                       NUMBERED
--------------                     ------------                       --------
3.1                  Certificate of Incorporation, as amended(1)
3.2                  Bylaws, as amended(2)
4.1                  Form of Common Stock(3)
10.1                 1993 Stock Option Plan(2)
10.2.1               Consulting Agreement with Thomas R. Mooney(6)
10.2.2               Consulting Agreement with Thomas R. Mooney
10.3                 Employment Agreement with George W. Trahan(5)
10.3.1               Amendment to Employment Agreement with George W. Trahan(6)
10.3.2               Employment Agreement with George W. Trahan
10.4.1               Torrance Property Lease(6)
10.4.1.1             Torrance Property Lease Amendment #1(12)
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(11)
10.6.3.3             Amendment to Promissory Note Relating to U.S. Bank Credit
                       Facility(12)
10.6.3.4             Amendment to Promissory Note Relating to U.S. Bank Credit
                       Facility
10.6.4               Term Note Related to U.S. Bank Credit Facility(11)
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(12)
23.1                 Consent of Raimondo Pettit Group
23.2                 Consent of Grant Thornton LLP(11)
31                   Rule 13a-14(a) Certifications
32                   Section 1350 Certifications

(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.
(11)  Previously filed and incorporated by reference to the Company's Form
      10-KSB filed with the Securities and Exchange Commission on September 19,
      2003.
(12)  Previously filed and incorporated by reference to the Company's Form
      10-KSB filed with the Securities and Exchange Commission on August 30,
      2004.



                                       14
<PAGE>


                          INDEX TO FINANCIAL STATEMENTS

                                                                            PAGE
                                                                            ----

Independent Auditors' Report.................................................F-1

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

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

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

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

Notes to Financial Statements.........................................F-6 - F-19




                                       15
<PAGE>


                              RAIMONDO PETTIT GROUP
                A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
                          CERTIFIED PUBLIC ACCOUNTANTS




                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Hi-Shear Technology Corporation

We have audited the accompanying balance sheet of Hi-Shear Technology
Corporation as of May 31, 2005, and the related statements of operations,
stockholders' equity, and cash flows for the years ended May 31, 2005 and 2004.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits 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
audits provide 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, 2005 and the results of its operations and its cash flows for the
two years in the period then ended in conformity with accounting principles
generally accepted in the United States of America.


/s/ Raimondo Pettit Group


Torrance, California
August 23, 2005
(except for the "Alliance" litigation described in note 12
and related information, as to which the date is September 6, 2005)



                                      F-1
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION


BALANCE SHEET
MAY 31, 2005

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

Current Assets
   Cash and cash equivalents                                         $   720,000
   Accounts receivable, net (Note 4)                                   9,149,000
   Inventories, net (Note 5)                                           1,635,000
   Deferred income taxes (Note 11)                                       825,000
   Prepaid expenses and other current assets                             165,000
                                                                     -----------

     TOTAL CURRENT ASSETS                                             12,494,000

Land (Note 7)                                                            846,000
Equipment, net (Note 6)                                                1,791,000
Deferred income taxes, net (Note 11)                                     817,000
                                                                     -----------

                                                                     $15,948,000
                                                                     ===========

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

Current Liabilities
   Trade accounts payable                                            $ 1,055,000
   Accrued liabilities (Note 9)                                        1,271,000
   Deferred revenue (Note 10)                                            374,000
                                                                     -----------

     TOTAL CURRENT LIABILITIES                                         2,700,000

Commitments and contingencies (Notes 12 & 15)

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;
     6,701,000 shares issued and outstanding                               7,000
   Additional paid-in capital                                          7,278,000
   Retained earnings                                                   5,963,000
                                                                     -----------

     TOTAL STOCKHOLDERS' EQUITY                                       13,248,000
                                                                     -----------

                                                                     $15,948,000
                                                                     ===========

See Notes to Financial Statements

                                      F-2
<PAGE>
HI-SHEAR TECHNOLOGY CORPORATION

STATEMENTS OF OPERATIONS
YEAR ENDED MAY 31,

                                                         2005           2004
--------------------------------------------------------------------------------

REVENUES (Note 3)                                     $16,076,000    $16,419,000

Cost of Revenues                                       10,859,000     11,239,000
                                                      -----------    -----------

GROSS MARGIN                                            5,217,000      5,180,000

Selling, General and Administrative Expenses            4,900,000      3,210,000
                                                      -----------    -----------

OPERATING INCOME                                          317,000      1,970,000

Interest Expense (Note 8)                                     -0-         55,000
                                                      -----------    -----------

INCOME BEFORE INCOME TAX EXPENSE                          317,000      1,915,000

Income Tax Expense (Note 11)                              102,000            -0-
                                                      -----------    -----------

NET INCOME                                            $   215,000    $ 1,915,000
                                                      ===========    ===========

Basic Earnings per Common Share and
     Per Common Share Assuming Dilution               $      0.03    $      0.29
                                                      ===========    ===========

Weighted Number of Common Shares Outstanding:
     Basic                                              6,691,000      6,675,000
                                                      ===========    ===========
     Diluted                                            6,737,000      6,696,000
                                                      ===========    ===========


See Notes to Financial Statements.

                                      F-3

<PAGE>
<TABLE>

HI-SHEAR TECHNOLOGY CORPORATION

STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED MAY 31, 2005 AND 2004



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

<S>                           <C>         <C>           <C>           <C>           <C>
Balance, May 31, 2003         6,670,000   $     7,000   $ 7,193,000   $ 3,833,000   $11,033,000

  Stock options exercised        13,000            --        26,000            --        26,000
  Net income                         --            --            --     1,915,000     1,915,000
                            -----------   -----------   -----------   -----------   -----------

Balance, May 31, 2004         6,683,000         7,000     7,219,000     5,748,000    12,974,000

  Stock options exercised        18,000            --        59,000        59,000
  Net income                         --            --            --       215,000       215,000
                            -----------   -----------   -----------   -----------   -----------

Balance May 31, 2005          6,701,000   $     7,000   $ 7,278,000   $ 5,963,000   $13,248,000
                            ===========   ===========   ===========   ===========   ===========


See Notes to Financial Statements.



                                                       F-4

<PAGE>


STATEMENTS OF CASH FLOWS
YEAR ENDED MAY 31,
                                                                       2005          2004
---------------------------------------------------------------------------------------------

CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                      $   215,000    $ 1,915,000
   Adjustments to reconcile net income to net cash
     provided by operating activities:
       Depreciation and amortization                                   394,000        364,000
       Gain on disposition of fixed assets                             (45,000)             0
       Provision for inventory reserves                                123,000         97,000
       Write-off of obsolete inventory, net of reserves                 56,000         37,000
       Provision for (reduction to) accounts receivable reserves       (27,000)        27,000
       Write-down of accounts receivable, net of reserves            1,645,000              0
       Deferred income taxes                                            45,000        (86,000)
   Changes in assets and liabilities:
     Accounts receivable                                            (2,440,000)       (90,000)
     Inventories                                                      (251,000)      (106,000)
     Prepaid expenses and other assets                                 (11,000)        24,000
     Trade accounts payable                                            309,000        (45,000)
     Accrued liabilities                                               205,000        155,000
     Deferred revenue                                                  283,000         36,000
                                                                   -----------    -----------

         NET CASH PROVIDED BY OPERATING ACTIVITIES                     501,000      2,328,000
                                                                   -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES
   Proceeds from sale of equipment                                     114,000              0
   Purchase of equipment                                              (460,000)      (553,000)
                                                                   -----------    -----------

         NET CASH USED IN INVESTING ACTIVITIES                        (346,000)      (553,000)
                                                                   -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds from stock options exercised                                59,000         26,000
   Proceeds from notes payable                                               0        230,000
   Principal payments on notes payable                                       0     (1,582,000)
                                                                   -----------    -----------

         NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES            59,000     (1,326,000)
                                                                   -----------    -----------

         NET INCREASE IN CASH                                          214,000        449,000

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                         506,000         57,000
                                                                   -----------    -----------

CASH AND CASH EQUIVALENTS, END OF PERIOD                           $   720,000    $   506,000
                                                                   ===========    ===========

Supplemental Disclosure of Cash Flow Information:
   Cash paid for interest                                          $         0    $    61,000

   Cash paid for income taxes                                      $    39,000         39,000



See Notes to Financial Statements.

                                                F-5
</TABLE>

<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 was incorporated in Delaware in 1993 and 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-6
<PAGE>
HI-SHEAR TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


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

ACCOUNTS RECEIVABLE:

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

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.

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, 3 years; furniture and fixtures, 10 years.

LAND:

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

IMPAIRMENT ON LONG-LIVED ASSETS:

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


                                      F-7
<PAGE>
HI-SHEAR TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


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

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 2005 and fiscal year 2004 did not change the
earnings per share for either of those fiscal years.

The following is a reconciliation of the numerators and denominators used to
calculate earnings per common share, as presented in the statements of
operations:

<TABLE>
                                                             Years ended May 31,
                                                          -----------------------
                                                             2005          2004
<S>                                                       <C>
EARNINGS PER COMMON SHARE - BASIC:

   Numerator: earnings available for common
     Stockholders                                         $  215,000    1,915,000

   Denominator: weighted average shares                    6,691,000    6,675,000

   EARNINGS PER COMMON SHARE - BASIC                      $     0.03         0.29


EARNINGS PER COMMON SHARE - DILUTED:

   Numerator: earnings available for common
stockholders                                              $  215,000    1,915,000

   Denominator: weighted average shares - diluted          6,737,000    6,696,000

EARNINGS PER COMMON SHARE - DILUTED                       $     0.03         0.29

CALCULATION OF WEIGHTED AVERAGE COMMON SHARE - DILUTED:

   Weighted Average Number of Common
     Shares Outstanding during the Period                  6,691,000    6,675,000

   Effect of Dilutive Securities Options                      46,000       21,000
                                                          ----------   ----------

   Weighted Number of Common Shares and
     Dilutive Potential Common Stock used
       in Diluted EPS                                      6,737,000    6,696,000
                                                          ==========   ==========
</TABLE>

                                      F-8

<PAGE>
HI-SHEAR TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

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

Not included in the calculation of diluted earnings per share because their
impact is antidilutive:

Stock options outstanding                                  49,000         77,000
                                                     ============   ============

FAIR VALUE OF FINANCIAL INSTRUMENTS:

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

CASH AND CASH EQUIVALENTS:

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

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

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>
<S>       <C>
                                                                     2005         2004
                                                                  ----------   ----------
Net income:

         As reported                                              $  215,000   $1,915,000
         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                             24,000       19,000
                                                                  ----------   ----------

         Pro forma                                                $  191,000   $1,896,000
Earnings per common share and common share assuming dilution:
         As reported                                              $     0.03   $     0.29
         Pro forma                                                $     0.03   $     0.28
</TABLE>



                                      F-9
<PAGE>
HI-SHEAR TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


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

The fair value of each grant is estimated at the grant date using the
Black-Scholes option-pricing model. While no options were granted during fiscal
year 2005, the fair value of options granted during fiscal year 2004 was
calculated by using the following weighted-average assumptions: No dividend
rate; price volatility of 20%; risk-free interest rate of 4.4%; and expected
lives of ten years.

NEW PRONOUNCEMENTS:

In November 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 151 "Inventory Costs, an Amendment of ARB No. 43 Chapter 4" ("Statement
151"). Statement 151 requires that items such as idle facility expense,
excessive spoilage, double freight, and rehandling be recognized as
current-period charges rather than being included in inventory, regardless of
whether the costs meet the criterion of "abnormal" as defined in ARB 43.
Statement 151 is applicable for inventory costs incurred during fiscal years
beginning after June 15, 2005. The Company will adopt this standard when it
becomes effective, which is not applicable until its fiscal year beginning June
1, 2006. However, Company's management does not expect the adoption to have a
material impact on the Company's future financial condition or results of
operations.

In December 2004, the FASB issued SFAS No. 153, "Exchanges of Non-monetary
Assets, an Amendment of APB Opinion No. 29" ("Statement 153"). Statement 153 is
based on the principle that exchanges of non-monetary assets should be measured
based upon the fair value of the assets exchanged. This statement amends APB 29
to eliminate the exception for non-monetary exchanges of similar productive
assets, and replaces it with a general exception for exchanges of non-monetary
assets that do not have commercial substance. A non-monetary exchange has
commercial substance, if the future cash flows of the entity are expected to
change significantly as a result of the exchange. Statement 153 is effective for
non-monetary exchanges occurring in fiscal periods beginning after June 15,
2005. The Company will adopt this standard when it becomes effective, which is
not applicable until its fiscal year beginning June 1, 2006. However, Company's
management does not expect the adoption to have a material impact on the
Company's future financial condition or results of operations.

In December 2004, The FASB issued a revision to SFAS No. 123, "Share-Based
Payment." This Statement supersedes APB Opinion No. 25, "Accounting for Stock
Issued to Employees" and its related implementation guidance. It establishes
standards for the accounting for transactions in which an entity exchanges its
equity instruments for goods or services. It also addresses transactions in
which an entity incurs liabilities in exchange for goods or services that are
based on the fair value of the entity's equity instruments or that may be
settled by the issuance of those equity instruments. This Statement does not
change the accounting guidance for share-based payment transactions with parties
other than employees provided in Statement No. 123 as originally issued and EITF
Issue No. 96-18. This Statement is effective for public entities that file as
small business issuers as of the beginning of the first fiscal period that
begins after December 15, 2005. The Standard provides for a prospective
application. Under this method, the Company will begin recognizing compensation
cost for equity based compensation for all new or modified grants after the date
of adoption. In addition, the Company will recognize the unvested portion of the
grant date fair value of awards issued prior to the adoption based on the fair
values previously calculated for disclosure purposes.

NOTE 2.  FOURTH QUARTER ADJUSTMENTS

As a result of a jury verdict issued September 2, 2005 in the trial of the
Company's lawsuit against the United Space Alliance, LLC ("Alliance"), which
included an award of damages to the Company that was less than the sum of
related unpaid accounts receivable amounts, the total net accounts receivables
balance as of May 31, 2005 was reduced by the difference between the award
($58,000) and the related accounts receivable total ($1,703,000).


                                      F-10
<PAGE>
HI-SHEAR TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 2.  FOURTH QUARTER ADJUSTMENTS (CONTINUED)

The net impact of those adjustments on the financial statements was to reduce
the net accounts receivable balance as of May 31, 2005 by $1,645,000, and to
reduce net income, after income taxes, for the fiscal year ended May 31, 2005 by
$990,000. The reduction to the accounts receivable balance resulted from the
combination of a $1,261,000 write-down of billed and unpaid invoices to
Alliance, and a write-off of $384,000 unbilled accounts receivable for work
performed and not billed on contracts with Alliance. (See Notes 4 and 12)

During the fourth quarter of fiscal year 2005, 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
$129,000. 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.

As a result of a workplace accident that occurred earlier in the year, the
Company was assessed a $96,000 fine by the California Occupational Safety and
Health Agency during the fourth quarter. The Company is in the process of
appealing the basis and amount of the fine. Offsetting the fine was the
recognition during the fourth quarter of a $77,000 gain on disposition of fixed
assets damaged in two workplace accidents, including the accident for which the
above fine was assessed. The gain related to recording the financial effects of
insurance proceeds totaling $155,000 for two claims for the accidents. Receipt
of the insurance proceeds occurred shortly after the end of the Company's fiscal
year ended May 31, 2005. The $77,000 gain was included in selling, general and
administrative expenses in the Company's statement of operations for the year
ended May 31, 2005, while the $78,000 balance of the insurance proceeds was
offset against costs included in cost of revenues.

NOTE 3.  MAJOR CUSTOMERS AND SUPPLIER CONCENTRATION

The Company derives a major portion of its revenues directly from sales to
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 provided revenues during fiscal year 2005 in excess of 10% of
total revenues, consist of the following:

                                                         2005           2004
                                                     ------------   ------------

Lockheed Martin                                           31%            30%
United States Government (Including NASA)                 29%            24%

At May 31, 2005, billed accounts receivable included totals of $1,390,000, or
33% of total billed accounts receivable, due from Lockheed Martin companies, and
$391,000, or 9% of total billed accounts receivable, due from the U.S.
Government entities, respectively.

During fiscal year 2005, the Company had only one supplier from which it
received purchased materials and/or services that exceeded 10% of all purchased
materials and services. Purchases during the year from that supplier,
Eagle-Picher Technologies, amounted to 16% of all purchases. Disruption of
purchases from Eagle-Picher could negatively impact Hi-Shear's reported
financial results in the short term, in the event of a disruption of purchases
from that key supplier. At May 31, 2005, the Company did not have any
outstanding accounts payable with Eagle-Picher.


                                      F-11
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 4.  ACCOUNTS RECEIVABLE

Billed and unpaid receivables at May 31, 2004                      $  3,287,000
Billed receivables for fiscal year 2005                              16,447,000
Write-down billed receivables                                        (1,261,000)
                                                                   ------------
                                                                     18,473,000
Collected receivables for fiscal year 2005                           14,215,000
                                                                   ------------

Billed and unpaid receivables at May 31, 2005                         4,258,000
                                                                   ------------


Unbilled receivables at May 31, 2005:
      Unbilled receivables on contracts in process                    4,614,000
      Accrued losses on uncompleted contracts                           (83,000)
      Unbilled receivables on completed contracts                       342,000
                                                                   ------------
                                                                      4,873,000
                                                                   ------------

Claims receivable at May 31, 2005                                        18,000
                                                                   ------------

Total gross accounts receivable at May 31, 2005                       9,149,000
Allowance for doubtful accounts                                               0
                                                                   ------------

Total net accounts receivable at May 31, 2005                      $  9,149,000
                                                                   ============

Accounts receivable consists of billed and unbilled amounts due from the United
States Government, prime and subcontractors under long-term contracts. Billed
and unbilled accounts receivables at May 31, 2005 were $4,258,000 and
$4,873,000, respectively.

The billed accounts receivable balance includes $58,000 for damages awarded to
the Company by the jury of a recently concluded trial of the Company's lawsuit
against the United Space Alliance, LLP for alleged breaches of contracts. The
Company intends to exercise its rights to appeal the verdict (See Note 12).

The accounts receivable balance at May 31, 2005 also includes $18,000 for two
claims on two related contracts terminated by the U.S. Army for "convenience".
The balance represents the $17,794 damages awarded the Company by the United
States Court of Federal Claims. The Company is currently in the process of
collecting its damages award, plus legal fees and interest incurred from May
1997.

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, 2005 are as follows:

Total contracts in process                                         $ 27,237,000
                                                                   ============

Total costs incurred                                               $ 10,772,000
Add estimated earnings                                                5,527,000
                                                                   ------------

Total revenue recognized                                             16,299,000
Less amounts billed                                                  12,059,000
                                                                   ------------

                                                                   $  4,240,000
                                                                   ============

Unbilled receivables on contracts in process                       $  4,614,000
Deferred revenue on contracts in process                               (374,000)
                                                                   ------------
                                                                   $  4,240,000
                                                                   ============


                                      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, 2005 would
change both the recognized revenue and earnings by approximately $64,000.

During the fiscal years 2005 and 2004, the Company generated revenues of
approximately $1,684,000 and $2,296,000, respectively, from sources outside of
the United States.

NOTE 5.  INVENTORIES

Aerospace and defense inventory:
         Raw materials and component parts                          $   519,000
         Work-in-process                                              1,022,000
         Finished goods                                                 592,000
                                                                    -----------
                                                                      2,133,000
         Less inventory reserves                                       (512,000)
                                                                    -----------
                  Total aerospace and defense inventory               1,621,000

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

                           Total net inventory                      $ 1,635,000
                                                                    ===========


Included in 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 the Company's past contracts relate to on-going programs, for which it
will be awarded similar contracts. The method utilized in management's
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 the likelihood
that the item will be used for a future contract. After similarly assessing and
calculating individual sample item reserve amounts, the resulting total reserve
percentage of each sample group 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.

NOTE 6.  EQUIPMENT

Machinery and equipment                                               $4,554,000
Office equipment and furniture                                           215,000
Leasehold improvements                                                   210,000
Production and test tooling                                              155,000
Projects in process                                                      170,000
                                                                      ----------
                                                                       5,304,000
Less accumulated depreciation and amortization                         3,513,000
                                                                      ----------

                                Total net equipment                   $1,791,000
                                                                      ==========


                                      F-13
<PAGE>
HI-SHEAR TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 6.  EQUIPMENT (CONTINUED)

For fiscal year 2005, the Company capitalized costs amounting to $70,000 that
was incurred in the purchase or manufacture of production and test tooling
related primarily to new products designed and qualified for production by the
Company during fiscal year 2005. Each tool, for which costs are capitalized, is
expected to be used repeatedly in the production or test of similar parts for
multiple orders over an extended period of time of at least three years.
Accordingly, capitalized tooling costs are depreciated on a straight-line basis
over three years.

NOTE 7. 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.

NOTE 8. BANK LINE OF CREDIT AND NOTES PAYABLE

The Company has a business loan agreement with a bank for the purpose of
obtaining a revolving line of credit and term loans. Borrowings under this
business loan agreement are collateralized by substantially all of the Company's
assets.

At May 31, 2005 and throughout fiscal year 2005, the Company did not have any
bank debt.

On February 22, 2005, the revolving line of credit was renewed twenty-two months
until December 15, 2006. No changes were made to either the maximum borrowing
limit of $2,500,000 or the calculation of interest rate applicable to
outstanding balances under the line of credit, which is the sum of the Wall
Street Journal's rate (6.0% at May 31, 2005) plus 0.5%.

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, 2005, the
Company was not in compliance with all of the covenants. The bank has advised
the Company's management that it will waive the covenant violations.

NOTE 9. ACCRUED LIABILITIES

As of May 31, 2005, accrued liabilities consist of the following:

Accrued vacation                                                      $  650,000
Accrued salaries, wages and bonus                                        319,000
Deferred compensation                                                    151,000
Accrued commissions                                                       26,000
Accrued professional fees                                                 67,000
Accrued income taxes                                                           0
Miscellaneous                                                             58,000
                                                                      ----------

            Total accrued liabilities                                 $1,271,000
                                                                      ==========

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 $374,000 at May 31, 2005.


                                      F-14
<PAGE>
HI-SHEAR TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 11.  INCOME TAXES

Deferred income tax net assets in the accompanying balance sheet at May 31,
2005, consist of the following, of which $825,000 is included in current assets:

Deferred income tax net assets:
    Net operating loss carryovers                                   $ 1,256,000
    Accrued vacation                                                    292,000
    Income tax credits                                                  268,000
    Inventory reserves                                                  219,000
    Fixed assets                                                       (334,000)
    Other                                                               (59,000)
                                                                    -----------

                                                                      1,642,000
    Valuation allowance                                                       0
                                                                    -----------
    Net deferred income taxes                                       $ 1,642,000
                                                                    ===========

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 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.

The provision for income taxes consists of the following:

                                                         2005            2004
                                                       ---------      ---------
Current tax expense:
         Federal                                       $ 203,000      $ 702,000
         State                                            72,000        207,000
         Use of NOL's & tax credit carryovers           (218,000)      (824,000)
                                                       ---------      ---------
                                                       $  57,000      $  85,000
                                                       =========      =========
Deferred tax expense (benefit):
         Federal                                       $ 123,000      $ 646,000
         State                                           131,000        201,000
         Change in valuation allowance                  (209,000)      (932,000)
                                                       ---------      ---------
                                                       $  45,000      $ (85,000)
                                                       =========      =========

Total tax provision                                    $ 102,000      $       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:

                                                           2005         2004
                                                         ---------    ---------

Federal income tax computed at 34% statutory rate        $ 108,000    $ 651,000
Permanent differences                                       45,000        4,000
State taxes, net of federal benefit                         19,000      122,000
Other state tax and minimum taxes                           56,000       85,000
Change in valuation allowance                             (209,000)    (932,000)
Use of state tax credit carryover                                0     (182,000)
Prior year tax credits                                      83,000      252,000
                                                         ---------    ---------

                                                         $ 102,000    $       0
                                                         =========    =========


                                      F-15

<PAGE>
HI-SHEAR TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 11.  INCOME TAXES (CONTINUED)

As of May 31, 2005, the Company had federal net operating loss carryovers of
approximately $3,623,000, which expire as follows: $177,000 in 2011; $170,000 in
2012; $2,497,000 in 2015 and $779,000 in 2016. The Company also has state net
operating loss carryovers of approximately $274,000, which expire 2006. In
addition, as of May 31, 2005, the Company had federal and state income tax
credit carryovers of approximately $229,000 and $39,000, 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 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.

NOTE 12.  COMMITMENTS AND CONTINGENCIES

The Company leases its facilities, automobiles and certain equipment under
operating lease agreements that expire at various dates through 2010. Rental
expense under operating leases for the years ended May 31, 2005 and 2004 was
approximately $632,000 and $581,000 respectively.

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

                       2006                 589,000
                       2007                 585,000
                       2008                 594,000
                       2009                 610,000
                       2010                 165,000
                                        -----------
                                        $ 2,543,000
                                        ===========

$2,282,000 of the above lease commitment is for rent of the Company's offices
and production facility in Torrance. The lease agreement for the facility
extends through August 31, 2009.

In November 2000, Hi-Shear sued United Space Alliance, LLC, a Delaware limited
liability company ("Alliance"), and its predecessor USBI Company, a Delaware
Corporation ("USBI"), 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, were included in accounts
receivable. In addition to the Company's lawsuit complaints related to the
accounts receivable amounts, the Company also seeks compensatory damages
alleging that Alliance fraudulently induced Hi-Shear to enter into two contracts
that Alliance had no intention of performing, and that Alliance subsequently
repudiated. 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.


                                      F-16
<PAGE>
HI-SHEAR TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 12.  COMMITMENTS AND CONTINGENCIES (CONTINUED)

A counterclaim was filed by the defendants 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, 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, Alliance
demanded that Hi-Shear ship uncertified flight hardware to it for use on the
United States Space Shuttle in order that Alliance receive a performance
incentive award payment from NASA of up to $6 million.

In July 2004, Hi-Shear sued Pacific Scientific Energetic Materials 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
resulting from the defendant's misappropriation of Hi-Shear's confidential,
proprietary and/or trade secret protected designs, drawings and specifications
for certain aerospace components, conspiracy to steal and misappropriate said
items, and interference with Hi-Shear's advantageous business relationships. The
events of this matter are related to the United Space Alliance lawsuit. Pending
further resolution of the United Space Alliance lawsuit, activity in the action
against Pacific Scientific has been informally abated.

Trial of the lawsuit against United Space Alliance, LLC and USBI commenced on
July 5, 2005 in the Circuit Court of the Eighteenth Judicial Circuit in and for
Brevard County, Titusville, Florida. Approximately two weeks following the start
of the trial, the court made legal rulings holding that the Company does not own
exclusive rights to all of its technical data, which constitute the trade
secrets that the Company alleged were misappropriated. Accordingly, the court
made rulings on motions for summary judgments in favor of Alliance and USBI,
which caused the dismissal of some of Hi-Shear's claims for misappropriation of
trade secrets. As a result of the court's rulings, and in order to perfect a
subsequent appeal of the rulings, Hi-Shear dismissed, "with prejudice", the
remaining claims of its lawsuit alleging misappropriation of trade secrets. As a
consequence of those rulings and actions, USBI was dropped as an active
participant in the trial, but will remain a defendant in the event the Company
appeals the court's ruling after the trial. USBI has now made a claim against
the Company for recovery of its attorneys' fees and costs, but has not yet
specified the amount it may be seeking. The Company believes USBI is not legally
entitled to recovery of its attorneys' fees and intends to vigorously oppose
USBI's claim for fees. In addition to the summary judgment regarding alleged
trade secrets, the court also ruled on another summary judgment motion to
dismiss Hi-Shear's claims for willful breach of a non-disclosure agreement
against Alliance.

On September 2, 2005, the jury of the trial of Hi-Shear's lawsuit against United
Space Alliance, LLC rendered verdicts regarding both Hi-Shear's breach of
contract claims and Alliance's counterclaims. The jury ruled for Hi-Shear on one
breach of contract claim, for which it awarded damages in the amount of $57,781,
and it ruled against Hi-Shear on the remaining breach of contract claims. The
jury also determined that Hi-Shear converted certain property, and awarded
Alliance the amount of one dollar. All of the jury awards were exclusive of
interest and attorneys' fees.

Final judgment hearings with the court regarding this litigation will be
scheduled in the coming months. Among the issues to be addressed in those
hearings will be the responsibility for attorneys' fees in this case. The court
will determine to what extent Hi-Shear may recover its attorneys' fees from
Alliance for the claim on which it prevailed, and to what extent Alliance and
USBI may recover their attorneys' fees from Hi-Shear relating to the claims on
which they prevailed, including Hi-Shear's claims that were dismissed. Hi-Shear
is not able to estimate the amount of attorneys' fees for which it may be
liable, if any. Accordingly, no accruals for potential amounts payable have been
made at this time. However, awards of attorneys' fees against Hi-Shear 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)

As a result of the jury verdict, the net accounts receivable total at May 31,
2005 was reduced by $1,645,000 from $1,703,000 to the $58,000 award to Hi-Shear.
That adjustment to accounts receivable resulted in reducing reported net income,
after income taxes, for the fiscal year ended May 31, 2005 by $990,000. The
Company may exercise its rights to appeal all aspects of this litigation, where
it considers it appropriate.

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 had a non-statutory stock option plan, which was in effect from
December 23, 1993 through its termination date of December 23, 2003. Under the
plan, options to purchase common stock, with a maximum term of 10 years, were
granted and vested as determined by the Company's Stock Option Committee.
Options for up to 500,000 shares could be granted to employees or directors.
Termination of the stock option plan did not nullify stock options previously
granted, but not exercised. Those options continue to be exercisable through
their expiration dates, which occur ten years after their grant dates.

A summary of the status of the option plan and changes during fiscal years 2005
and 2004 is as follows:
<TABLE>

                                                         2005                                 2004
                                           ---------------------------------    ----------------------------------
                                                                  Weighted-                         Weighted-
                                                                   Average                           Average
                                                                  Exercise                          Exercise
               Fixed Options                    Shares              Price          Shares             Price
------------------------------------------------------------------------------------------------------------------

<S>                                               <C>            <C>               <C>            <C>
Outstanding at beginning of year                  191,216        $   3.95          136,466        $   4.54
     Granted                                            0              --           76,000            2.68
     Exercised                                    (18,300)           3.25          (12,500)           2.05
     Forfeited                                    (21,000)           5.50           (8,750)           5.00
                                               -----------                     -----------

Outstanding at end of year                        151,916            3.81          191,216            3.95
                                             ==============                    ===========

Exercisable at end of year                         95,999            4.52          107,216            5.02

Weighted-average fair value during the year
for options outstanding at year end                              $   4.62                         $   3.20

A further summary about fixed options outstanding at May 31, 2005, is as
follows:

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

$2.05 to $4.99                    102,750    7.9 years          $   2.53                 46,833          $ 2.44
$5.00 to $6.99                     35,166    1.8 years              5.92                 35,166            5.92
$7.00 to $8.50                     14,000    2.7 years              7.97                 14,000            7.97
                           ---------------                                      ----------------

                                  151,916                       $   3.81                 95,999          $ 4.52
                           ===============                                      ================
</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 under a
two-year contract that expires February 28, 2007. The Company incurred $182,000
and $175,000 of consulting fees for the years ended May 31, 2005 and 2004,
respectively. At May 31, 2005, $10,000 was due to the related party.

NOTE 15. 401(k) RETIREMENT PLAN

The Company has a 401(k) Retirement Savings Plan (the "401(k) Plan") that covers
substantially all employees. Employees may elect to contribute a percentage of
compensation to the maximum deferred amount allowed by tax laws. The Company may
make a matching contribution to the 401(k) Plan and/or a profit sharing
contribution which is allocated to all eligible participants, whether they made
deferral contributions or not. Contributions are made solely at the discretion
of the Company's Board of Directors. The Company did not make a matching
contribution or a profit sharing contribution to the 401(k) Plan for the fiscal
years ended May 31, 2005 and 2004.

                                      F-19