<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, 2007         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 )

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).  YES ( )    NO (X)

State issuer's revenues for its most recent fiscal year: $ 20,550,000.

The aggregate value of the Registrants Common Stock held by non-affiliates of
the Registrant was approximately $21,593,594 as of June 21, 2007, based upon the
closing sale price on the American Stock Exchange on that date at which the
stock was last sold.

There were approximately 6,784,957 shares of the Registrants Common Stock issued
and outstanding as of June 21, 2007.

                      DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Company's Proxy Statement to be filed with the U.S.
Securities and Exchange Commission, or SEC, pursuant to Rule 14a-6 under the
Securities Exchange Act of 1934, as amended, in connection with the Company's
2007 Annual Meeting of Stockholders are incorporated by reference in Part III,
Items 9-14 of this Annual Report on Form 10-KSB.

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

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<TABLE>
<S>     <C>
                                        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.......................      6

PART II.
         ITEM 5            MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND.................      7
                           SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

         ITEM 6            MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS.................................................      7

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

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

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

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

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

         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
</TABLE>

<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 Hi-Shear'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 separate rocket
motors, nose cones, satellites, open satellite doors, payload fairings, operate
valves, deploy solar panels, booms, communications antennae, missile fins, and
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 for use on satellites, launch vehicles,
missiles and other space vehicles. These devices include separation nuts,
separation bolts, thrusters, wing/fin actuators, cutters valves, pin pullers and
other devices. 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, such as satellites, payload fairings, nose cones, capsules, booster


                                        1
<PAGE>

rockets, tanks, solar arrays, antenna booms and other devices. We maintain an
active program for new designs, including pyrotechnic and electric low shock
deployment systems for the increasingly lighter satellites used in
communications and intelligence gathering.

         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 providing
the advantage of reduced shock and resettable usage for appropriate
applications. Hi-Shear also manufactures sophisticated highly reliable
mechanical sub-components used on satellites to aim the satellites onboard
communications array and other components for space vehicles and weapons systems
according to customer supplied detailed designs and testing requirements.

         Hi-Shear's LIFESHEAR cartridge driven cutter is designed for use in
fire and rescue emergency situations. The LIFESHEAR'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 of electronic products
that fire pyrotechnic and/or explosive charges while at the same time
maintaining the utmost in safety.

         Hi-Shear supplies electronic safe arm fuzes for various military
programs. The Company's Patriot (PAC-3) missile system safe arm fuze is used to
fire explosive elements contained in the PAC-3 missile. This dual function high
reliability safe arm fuze is a key operational component onboard each missile
launch. The PAC-3 high performance anti-missile batteries are deployed with the
U.S. Army and its allies throughout the world to protect against enemy missile
attack. 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 missile
system safety checks, and an extended shelf life estimated at 30 years, which is
among the longest in the industry.

         Hi-Shear manufactures both the electronic Mark 58 Acoustic Firing
Device and its master control unit, the Mark 92 Acoustic Firing Code
Transmitter, for use by the U.S. Navy. This unique ordnance firing system
utilizes acoustic signals for underwater demolition and is used by Navy divers
to dispose of sea mines, limpet mines, sonobuoys and torpedoes. The acoustic
firing device is specially constructed and tested to be non-magnetic equipment
so that it may be used safely in the proximity of magnetic influenced ordnance.
The acoustic firing device is consumed in each explosive disposal firing.

         The Firing Code Transmitter is the compact portable electronic console
that is operated on the oceans surface to remotely control the operation of the
firing device. The firing code transmitter is programmed by its operator to
effectively function the acoustic firing device, which is located underwater, at
a significant distance from the code transmitter console. The transmitter is
self contained in a briefcase sized weather proof case and has its own power
supply. The transmitter unit is completely reusable and may efficiently signal
the firing of many acoustic firing devices.

         The Company supplies to the U.S. military and its allies an ejection
seat control unit and the ordnance devices that the control unit signals to
fire. These devices are sold for use on the U.S. Air Force ACES II crew ejection
seat installed in many fighter and bomber aircraft, including the A-10, B-2,
F-15 and F-16. The ejection seat utilizes multiple ordnance devices that deploy
parachutes, rockets and other events crucially necessary for the pilot's
ejection from the aircraft. Hi-Shear also manufactures various ejection seat
modification kits and other items used in the ejection system that are supplied
to the military services according to their detailed specifications.


                                       2
<PAGE>

                             CUSTOMERS AND CONTRACTS

         Most of the Company's customers are large aerospace prime or
subcontractors. In addition, the Hi-Shear 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 37% and 16%, respectively, of the
Company's revenues in fiscal year 2007, compared to 26% and 27%, respectively,
of the Company's revenues in fiscal year 2006. 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 2007 and 2006, 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, costly changes
made by the customer for which it refuses to pay 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 contractors are subject to termination for convenience by the
customer or the U.S. Government. However, if this termination for convenience
were exercised, the Company would be entitled to payment of costs incurred up to
the date of termination and a reasonable termination fee. U.S. Government
contracts extending beyond one year are also conditioned upon the continuing
availability of Congressional appropriations because Congress usually
appropriates on a fiscal year basis even though contract performance may take
several years.

                                     BACKLOG

         The 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 2007, we continued programs to reduce many of our manufacturing lead-times
to help our customers reduce their product manufacturing time 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 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 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, 2007, the Company's backlog of unrecognized revenue and
unbilled amounts on open customers' orders was $26.3 million and $34.2 million,
respectively, compared to unrecognized revenue and unbilled backlog amounts as
of the end of the prior fiscal year of $12.9 million and $19.6 million,
respectively. The increase in unbilled backlog is the result of large increases
in new contract awards.

                                   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


                                       3
<PAGE>

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 and
explosive 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 Company's
cartridge devices. 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 2007, Hi-Shear had
approximately 100 full time employees, the majority of whom are engineers and
technicians. The handling and processing of pyrotechnic materials requires
extensive experience and expertise as well as the proper equipment, facilities
and permits. We have been safely handling and processing these fuels and
oxidizers for over forty years.

                             ADDITIONAL INFORMATION

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

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

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, testing and assembly operations. The
Company leases these offices pursuant to a five (5) year lease through August
31, 2012. 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
facility. 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

         Hi-Shear filed suit against United Space Alliance, LLC, a Delaware
limited liability company ("Alliance"), and its predecessor USBI Company, a
Delaware Corporation ("USBI"), in November 2000, in the Circuit Court of the
Eighteenth Judicial Circuit, Brevard County, Florida, to recover damages which
include numerous contract invoices totaling $1,319,000 for specially
manufactured aerospace components and an unbilled amount for work performed of
$384,000. Compensatory damages were also sought alleging that Alliance
fraudulently induced Hi-Shear to enter into contracts that the defendant had no
intention of performing, and subsequently repudiated. Further damages were
sought for defendants' misappropriation of Hi-Shear's confidential, proprietary
and/or trade secret protected designs, drawings, and specifications for other
aerospace components.


                                       4
<PAGE>

         A counterclaim was subsequently 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 alleged a claim for a
declaratory judgment, a claim for conversion seeking return of certain alleged
government property and an accounting for a claim. As part of its defense in the
litigation, Alliance claimed that it was coerced through duress to enter into a
contract with Hi-Shear where Hi-Shear was the qualified successful lowest
bidder. In addition, Alliance demanded that Hi-Shear ship uncertified flight
hardware to it for use on the United States Space Shuttle, ahead of its normal
certification schedule.

         Hi-Shear filed a related suit against Pacific Scientific Energetic
Materials Company, a Delaware Corporation, in July 2004 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. 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 Alliance and USBI commenced in July of
2005 in Titusville, Florida. Early in the trial, the court made legal rulings
holding that the Company does not have exclusive rights to certain 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. 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. 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 and USBI did not
seek an award of attorneys' fees incurred by it in the litigation.

         The trial court entered a final judgment on May 18, 2006 based on the
jury's verdict 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, ruled against
Hi-Shear on the remaining breach of contract claims and awarded Alliance no
damages on its counterclaims. 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.

         In October 2005 Hi-Shear filed a notice of appeal to the Florida Fifth
District Court of Appeal seeking review of the adverse judgment entered in favor
of USBI regarding the trial court's rejection of Hi-Shear's claims for recovery
of damages from USBI for the misappropriation of certain of Hi-Shear's trade
secrets and technical data. In February 2007, after hearing oral arguments, the
Appellate Court upheld the lower court's ruling. The Company is considering its
alternative legal courses of action at this time regarding the issues of this
appeal.

         The Company has also filed a Notice of Appeal to the Florida Fifth
District Court of Appeal challenging the legal basis of the lower court's final
judgment involving the amounts of the recovery of Hi-Shear's damages on
contracts for manufactured components and other claims at trial. The appeal
encompasses issues evident throughout the court proceedings, including the legal
basis of the trial court's judgments and questionable adverse rulings by the
court during the entire course of the trial.


                                       5
<PAGE>

         During the course of Hi-Shear's appeals, the trial court has retained
the jurisdiction to award attorney's fees and costs to the party in this
litigation that "prevailed on its claims" at the trial level. The trial court
decided in an order entered in December 2006, that although it was Hi-Shear that
was awarded $57,781 in damages by the jury and the Alliance was awarded no
damages on its counterclaims, that the defendant, the Alliance, was the
"prevailing party" in the suit and judged that it was entitled to an amount of
legal fees and costs. The trial court also held that the defendant, USBI, was
entitled to its costs. Although the trial court originally determined that the
appeals in this case be decided by the Appellate Court before it would determine
any specific fees and costs amount to the party it determined was entitled to
recover them, the trial court subsequently pronounced that it would decide the
amount of fees and costs to be awarded before the appeals were completed. The
court ruled that it would determine the amount of these fees and costs in
hearings to be held in December 2007.

         In September 2005, the defendant Alliance filed motions requesting a
gross amount of approximately $3.4 million in legal fees and costs, and USBI has
motioned costs in the gross amount of $48,000. The Company believes that these
amounts contain fees and costs which are not subject to recovery from Hi-Shear.
Court hearings will take place in December 2007 regarding the amounts of fees
and costs which are claimed by the defendants.

         Accordingly, the Company anticipates that in December 2007, the court
will determine the amount of attorneys' fees and costs payable by the Company to
the Space Alliance and costs payable to USBI. However, Hi-Shear's appeal is
currently pending before the Florida Fifth District Court of Appeal raising
significant appellate issues that challenge the legal basis relating to the
amounts of the recovery of Hi-Shear's damages on contracts for manufactured
components and other issues at trial. The final outcome of the Company's appeal
may have an effect on the award of attorneys' fees, but the Company does not
anticipate that the appeal will be decided before December 2007. Therefore, the
Company anticipates that it will seek to stay any order by the trial court
awarding the Space Alliance attorneys' fees until the appeal is decided. Given
the number and significance of the issues on appeal, the Company cannot predict
the outcome of the appeal before the Appellate Court, and Hi-Shear is not able
to estimate prior to the ruling on appeal the amount of related attorney fees or
costs for which it may be liable, if any. Accordingly, no accruals for potential
amounts payable, which may relate to the pending appeal, have been made at this
time. The award of an amount of attorney fees and costs against Hi-Shear could
have a material adverse impact on the Company's financial position and results
of operations.

         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.


                                       6
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                                     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 2007 ending May 31, 2007

                           4th Quarter                   $  12.11       $  10.15
                           3rd Quarter                      13.12           8.17
                           2nd Quarter                      11.70           6.16
                           1st Quarter                      18.90           8.68

         Fiscal Year 2006 ending May 31, 2006

                           4th Quarter                   $  12.00       $   3.50
                           3rd Quarter                       3.77           2.75
                           2nd Quarter                       3.84           2.66
                           1st Quarter                       4.18           3.39


         The Board of Directors approved and the Company paid a cash dividend of
$1,695,000, or $0.25 per share, to shareholders of record as of the close of
business March 30, 2007. The dividend was not special, and did not represent
that the Company will pay dividends on a scheduled basis. Dividends will be
determined by the Board of Directors in light of the conditions then existing,
including earnings, financial requirements and conditions, opportunities for
reinvesting earnings, business conditions and other factors.

         The number of holders of record of Hi-Shear's Common Stock was 56 and
the number of beneficial shareholders was approximately 1,455 as of June 21,
2007.

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.


                                       7
<PAGE>

                          CRITICAL ACCOUNTING POLICIES

         Hi-Shear's revenues are derived principally from 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 and invoices are submitted.

         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, 2007 would
change both the amount of revenue and earnings recognized by approximately
$90,000.

         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, 2007 COMPARED WITH FISCAL YEAR ENDED MAY 31, 2006

         Strong customer demand for product resulted in $25,969,000 of orders
received during the year in comparison to $21,360,000 for the previous year.
Revenues recognized during fiscal year 2007 were $20,550,000, compared to the
$21,052,000 of revenues recognized during fiscal year 2006. The revenues this
year consisted of a higher concentration of missile and space products and
resulted in increased profitability during the year. More revenues were not
recognized in the year as the result of some delays in receiving customer
furnished items and the receipt of less materials from suppliers than during
fiscal year 2006. Utilizing an increased workforce, production activities
increased during the year to meet the demand in both the electronic and
pyrotechnic-based device product areas. The Company serviced over 150 separate
space and defense projects during the year; of those, 109 were new contracts
received during fiscal year 2007. The 109 new contracts represented $7,353,000
of the $25,969,000 orders mentioned above. Products used in space applications
totaled 36% of total revenues while products manufactured for use in national
missile defense, accounted for 30% of total revenues.

         Cost of revenues for the fiscal year 2007 was $11,652,000, or 57% of
revenues, compared to $13,340,000, or 63% of revenues, for the prior fiscal
year. Cost containment programs, including utilization of new equipment,
absorption of fixed overhead expenses by a larger labor base and continuing
improvements in manufacturing procedures also contributed to the reduction in
cost of revenues. There was a $59,000 increase to inventory reserves for fiscal
year 2007.


                                       8
<PAGE>

         Gross margin continued to improve in both total amount and as a
percentage of revenues. A higher concentration of missile and space products
drove increased profitability and continues a trend increasing gross margin
percentages year over year. Gross margin for fiscal year 2007 increased
$1,186,000 to $8,898,000, or 43% of revenues, from $7,712,000, or 37% of
revenues, which was reported for fiscal year 2006. Consistent with year over
year reductions to cost of revenues, the Company continues to realize gross
margin improvement.

         Selling, general and administrative expenses were $3,225,000 for fiscal
year 2007, compared to $4,020,000 in fiscal year 2006. A larger amount of legal
fees were incurred during fiscal 2006 compared to the reduced amount spent in
fiscal 2007. These lower costs are the predominant reduction in administrative
expenses for fiscal year 2007.

         The Company realized operating income of $5,673,000, or 28% of
revenues, for the fiscal year ended May 31, 2007, compared to operating income
of $3,692,000, or 18% of revenues, for the previous fiscal year. The improvement
of almost $2 million resulted from increased product margins, process
improvements and reductions to expenses noted above.

         Income tax expense for fiscal year 2007 was $2,255,000 and 40% of
operating income, compared to $1,397,000 and 38% of operating revenue for fiscal
year 2006. The increase in income tax expense occurred primarily as a
consequence of the corresponding increase in operating income, upon which
reported income tax expense is principally based.

         Net income for the fiscal year ended May 31, 2007 was $3,418,000, or
$0.50 per share and 17% of revenues, compared to $2,295,000, or $0.34 per share
and 11% of revenues, for the previous fiscal year. The increase in net income is
the result of focus on higher margin product markets resulting in higher product
gross margin and lower expenses. The Company's positive earnings and new orders
during the year supported the distribution of a $0.25 per share dividend to
shareholders in March 2007.

         Revenues were strong in the 4th quarter as previous delays in receiving
customer furnished equipment and supplier parts were ameliorated and hardware
deliveries continued. Revenues in the 4th quarter were $5,975,000 compared to
$4,979,000 for the same quarter in fiscal year 2006. A strong customer demand
for missile and space products contributed to higher gross margins and higher
operating margins. Gross margin in the 4th quarter of fiscal year 2007 was 43%
compared to 31% for the same period last year. The implementation of new
automated equipment, operating efficiencies and lower administrative costs
contributed to a strong operating margin. Operating margin in the 4th quarter of
fiscal year 2007 was 30% compared to 16% for the same period last year.
 Cash balances continue to remain strong. All operating expenses are and have
been covered by current cash balances and thus, there is no balance on the
revolving line of credit the Company maintains with the Bank.

                               FINANCIAL CONDITION

         Accounts receivable balances, which consist of billed and unbilled
amounts were $4,936,000 and $8,071,000 respectively at the end of fiscal year
2007. The billed and unbilled amounts at the completion of fiscal year 2006 were
$3,926,000 and $6,994,000 respectively. The accounts receivable balances at both
May 31, 2007 and May 31, 2006 were not reduced for reserves on doubtful
accounts. The increase in billed receivables of just over $1 million can be
attributed to the increase in progress payment contracts during fiscal year 2007
and the increase of revenues in the 4th quarter noted above. Progress payment
contracts allow some billing of accrued contract costs in advance of full
delivery of hardware.


                                       9
<PAGE>

         Unbilled receivables represent revenues recognized from 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 (generally tied to delivery of hardware), previously
unbilled receivables are converted to billed accounts receivable with the
preparation and submission of invoices to customers. Unbilled receivables at May
31, 2007 were $8,071,000, compared to $6,994,000 at the end of fiscal year 2006.
The increase in unbilled receivables at May 31, 2007 can be wholly attributed to
a build to print contract where delivery was scheduled and anticipated (and thus
billing) by fiscal year end; however, customer design issues prevented the
billing to occur by fiscal year end 2007.

         At May 31, 2007 (and previous fiscal years 2006 and 2005), an accounts
receivable claims balance, which relates to outstanding amounts due to Hi-Shear
for two claims on two related contracts terminated by the U.S. Army for
"convenience", was $18,000. That balance represents the $18,000 damages awarded
the Company by the United States Court of Federal Claims. The Company is
currently appealing the court's decision regarding legal fees.

         Inventories, net of reserves, decreased to $1,569,000 at May 31, 2007
from $1,610,000 at May 31, 2006. 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 $484,000 at May
31, 2007, compared to $425,000 at May 31, 2006.

         Trade accounts payable decreased to $793,000 at the end of fiscal year
2007 compared to $860,000 at the end of fiscal year 2006. Timing of receipts
submitted to Hi-Shear for payment at the end of any fiscal month/year will
directly impact the outstanding balance for invoices due. There are no disputed
amounts included in accounts payable at May 31, 2007.

         At both May 31, 2007 and May 31, 2006, the Company did not have any
bank debt and has available borrowing of up to $5,000,000 available from its
commercial bank under a revolving line of credit maturing December 15, 2008 (See
Note 8). The Company also has available a $1,000,000 equipment letter of credit
maturing January 18, 2008, and bearing interest under the same terms as the
revolving line of credit. As of May 31, 2007, there was no existing balance on
this instrument.

                         LIQUIDITY AND CAPITAL RESOURCES

         Net cash of $1,910,000 was provided by operating activities during
fiscal year 2007, compared to net cash of $2,429,000 that was provided by
operating activities during fiscal year 2006. The decrease in net operating cash
flows between the two fiscal years was primarily the result of increases in
accounts receivable as described above.

         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. There was no outstanding balance under this line of credit at May
31, 2007. Since the maximum borrowing limit under the line of credit is
$5,000,000, the amount available for borrowing at May 31, 2007 was $5,000,000.
The line of credit is available to the Company through December 15, 2008, 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 prime less .25%
(8.25% at May 31, 2007) or at the Company's option LIBOR plus 2% (7.39% at May
31, 2007).

         The business loan agreement contains various financial covenants that
have been modified during the fiscal year. On June 4th, 2007, the covenant
requiring a quarterly certificate of compliance was removed; in addition, the
requirement for the bank to pre-approve a dividend prior to payment was removed.
Revised language specifies the Company may make periodic distribution of excess
capital in the form of dividend to its shareholders if and only if at the time


                                       10
<PAGE>

of such payment, the Company is in compliance with all provisions of the loan
document, including (without limitation) all financial covenants, and no default
under the agreement has occurred, is continuing or would result from the making
of such payment. The covenants including current ratio (at least 2 to 1) and the
fixed charge coverage ratio (1.25 to 1) shall exist as covenants under the loan
agreement (although quarterly reporting is no longer required). At May 31, 2007,
the Company was compliant with all of the financial covenants.

         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. As a result of
this arrangement, the reported "cash and cash equivalents" amounts reflected on
the Company's balance sheet may be minimal if the need to sweep to cover line of
credit balances exist. Because no balance existed on the line of credit at May
31, 2007, the need to "sweep" excess cash was not necessary and therefore
reported "cash and cash equivalents" at that date was $997,000.

         With the approval of its Board of Directors and its bank, the Company
paid a cash dividend of $1,695,000, or $0.25 per share, to shareholders of
record as of the close of business March 30, 2007. The dividend was not special,
and did not represent that the Company will pay dividends on a scheduled basis.

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 Jan L.
Hauhe, Director of Finance and Information Systems. Based upon that evaluation,
the CEO and Director 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

         None.


                                       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, 2007 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, 2007 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, 2007 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, 2007 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, 2007 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: August 10, 2007       By:  /s/ George W. Trahan
                                 -----------------------------------------------
                                 President, Chief Executive Officer and Chairman

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

Date: August 10, 2007       By:  /s/ George W. Trahan
                                 -----------------------------------------------
                                 President, Chief Executive Officer and Chairman


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


                            By:  /s/ Jan L. Hauhe
                                 -----------------------------------------------
                                 Director of Finance and Information Systems


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


                                       13
<PAGE>

<TABLE>
<S>     <C>
                                                     EXHIBIT INDEX
EXHIBIT NUMBER                                        DESCRIPTIONS                                   SEQUENTIALLY 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(13)
10.2.3                 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(13)
10.3.3                 Employment Agreement with George W. Trahan
10.4.1                 Torrance Property Lease(6)
10.4.1.1               Torrance Property Lease Amendment #1(12)
10.4.1.2               Torrance Property Lease Amendment #2(15)
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(13)
10.6.3.5               Amendment to Promissory Note Relating to U.S. Bank Credit Facility(16)
10.6.3.6               Amendment to Promissory Note Relating to U.S. Bank Credit Facility
10.6.4                 Term Note Related to U.S. Bank Credit Facility(11)
10.6.4.1               Term Note Related to U.S. Bank Credit Facility(16)
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
31                     Rule 13a-14(a) Certifications
32                     Section 1350 Certifications
</TABLE>

(1)  PREVIOUSLY FILED AND INCORPORATED BY REFERENCE TO THE COMPANY'S FORM SB-2
     REGISTRATION STATEMENT NO. 33-73972 FILED WITH THE SECURITIES AND EXCHANGE
     COMMISSION ON JANUARY 10, 1994.
(2)  PREVIOUSLY FILED AND INCORPORATED BY REFERENCE TO THE COMPANY'S FORM SB-2
     REGISTRATION STATEMENT NO. 33-73972 FILED WITH THE SECURITIES AND EXCHANGE
     COMMISSION ON FEBRUARY 1, 1994.
(3)  PREVIOUSLY FILED AND INCORPORATED BY REFERENCE TO THE COMPANY'S FORM SB-2
     REGISTRATION STATEMENT NO. 33-73972 FILED WITH THE SECURITIES AND EXCHANGE
     COMMISSION ON MARCH 23, 1994.
(4)  PREVIOUSLY FILED AND INCORPORATED BY REFERENCE TO THE COMPANY'S FORM 10-KSB
     FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 12, 1998.
(5)  PREVIOUSLY FILED AND INCORPORATED BY REFERENCE TO THE COMPANY'S FORM 10-KSB
     FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 17, 1999.
(6)  PREVIOUSLY FILED AND INCORPORATED BY REFERENCE TO THE COMPANY'S FORM 10-KSB
     FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 24, 2000.
(7)  PREVIOUSLY FILED AND INCORPORATED BY REFERENCE TO THE COMPANY'S FORM 10-KSB
     FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 10, 2002.
(8)  PREVIOUSLY FILED AND INCORPORATED BY REFERENCE TO THE COMPANY'S FORM 10-KSB
     FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 29, 2002.
(9)  PREVIOUSLY FILED AND INCORPORATED BY REFERENCE TO EXHIBIT 16.2 TO FORM
     8-K/A FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 24,
     2003.
(10) PREVIOUSLY FILED AND INCORPORATED BY REFERENCE TO EXHIBIT 16.3 TO FORM
     8-K/A FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 8, 2003.
(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.
(13) PREVIOUSLY FILED AND INCORPORATED BY REFERENCE TO THE COMPANY'S FORM 10-KSB
     FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 13, 2005.
(14) PREVIOUSLY FILED AND INCORPORATED BY REFERENCE TO THE COMPANY'S FORM 10-KSB
     FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 28, 2006.
(15) PREVIOUSLY FILED AND INCORPORATED BY REFERENCE TO THE COMPANY'S FORM 10-QSB
     FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 16, 2007.
(16) PREVIOUSLY FILED AND INCORPORATED BY REFERENCE TO THE COMPANY'S FORM 10-QSB
     FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 13, 2007.


                                       14
<PAGE>

                          INDEX TO FINANCIAL STATEMENTS

                                                                         PAGE
                                                                         ----

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

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

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

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

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

Notes to Financial Statements......................................   F-6 - F-21


                                       15
<PAGE>

                              RAIMONDO PETTIT GROUP
                A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
                          CERTIFIED PUBLIC ACCOUNTANTS



             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


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, 2007, and the related statements of operations,
stockholders' equity, and cash flows for the years ended May 31, 2007 and 2006.
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, 2007 and the results of its operations and its cash flows for the
two year period then ended in conformity with accounting principles generally
accepted in the United States of America.

As discussed in notes 1 and 14 to the financial statements, effective June 1,
2006, the Company adopted the fair value method of accounting for stock-based
compensation as required by Statement of Financial Accounting Standards No.
123(R), Share-Based Payment.


/s/ Raimondo Pettit Group



Torrance, California
August 6, 2007


                                      F-1
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION


BALANCE SHEET
MAY 31, 2007

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

Current Assets
   Cash and cash equivalents                                         $   997,000
   Accounts receivable (Note 4)                                       13,025,000
   Inventories, net (Note 5)                                           1,569,000
   Deferred income taxes (Note 12)                                       976,000
   Prepaid expenses and other current assets                             142,000
                                                                     -----------

     TOTAL CURRENT ASSETS                                             16,709,000

Equipment, net (Note 6)                                                2,141,000
Land (Note 7)                                                            846,000
                                                                     -----------

                                                                     $19,696,000
                                                                     ===========

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

Current Liabilities
   Trade accounts payable                                            $   793,000
   Accrued liabilities (Note 9)                                        2,253,000
   Current portion of obligations under capital leases (Note 11)          40,000
   Deferred revenue (Note 10)                                            206,000
                                                                     -----------

     TOTAL CURRENT LIABILITIES                                         3,292,000

Deferred income taxes (Note 12)                                          288,000
Obligations under capital leases (Note 11)                                73,000
                                                                     -----------

     TOTAL LIABILITIES                                                 3,653,000
                                                                     -----------

Commitments and contingencies (Notes 8, 13 & 16)

Stockholders' Equity (Note 14)
   Preferred stock $1.00 par value; 500,000 shares authorized;
     no shares issued                                                         --
   Common stock, $.001 par value; 25,000,000 shares authorized;
     6,784,957 shares issued and outstanding                               7,000
   Additional paid-in capital                                          7,567,000
   Retained earnings                                                   8,469,000
                                                                     -----------

     TOTAL STOCKHOLDERS' EQUITY                                       16,043,000
                                                                     -----------

                                                                     $19,696,000
                                                                     ===========
See Notes to Financial Statements.


                                      F-2
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION


STATEMENTS OF OPERATIONS
YEAR ENDED MAY 31,

                                                         2007           2006
--------------------------------------------------------------------------------

REVENUES (Note 3)                                    $20,550,000     $21,052,000

Cost of Revenues                                      11,652,000      13,340,000
                                                     -----------     -----------

GROSS MARGIN                                           8,898,000       7,712,000

Selling, General and Administrative Expenses           3,225,000       4,020,000
                                                     -----------     -----------

OPERATING INCOME                                       5,673,000       3,692,000

Interest Expense (Note 8)                                      0               0
                                                     -----------     -----------

INCOME BEFORE INCOME TAX EXPENSE                       5,673,000       3,692,000

Income Tax Expense (Note 12)                           2,255,000       1,397,000
                                                     -----------     -----------

NET INCOME                                           $ 3,418,000     $ 2,295,000
                                                     ===========     ===========
                                                     ===========     ===========

Basic Earnings per Common Share                             0.50            0.34
Basic Earnings per Common Share Assuming Dilution    $      0.50     $      0.34
                                                     ===========     ===========

Weighted Number of Common Shares Outstanding:
     Basic                                             6,778,000       6,709,000
                                                     ===========     ===========
     Diluted                                           6,812,000       6,741,000
                                                     ===========     ===========

See Notes to Financial Statements.


                                      F-3
<PAGE>

<TABLE>
<S>     <C>
HI-SHEAR TECHNOLOGY CORPORATION


STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MAY 31, 2007 AND 2006

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

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

  Stock options exercised            73,000                --           225,000               --           225,000
  Dividend                       (1,512,000)       (1,512,000)
  Net income                             --                --                --        2,295,000         2,295,000
                               ------------      ------------      ------------     ------------      ------------

Balance, May 31, 2006             6,774,000             7,000         7,503,000        6,746,000        14,256,000

  Stock based compensation               --                --            16,000               --            16,000
  Stock options exercised            11,000                --            48,000               --            48,000
  Dividend                               --                --                --       (1,695,000)       (1,695,000)
  Net income                             --                --                --        3,418,000         3,418,000
                               ------------      ------------      ------------     ------------      ------------

Balance, May 31, 2007             6,785,000      $      7,000      $  7,567,000     $  8,469,000      $ 16,043,000
                               ============      ============      ============     ============      ============


See Notes to Financial Statements.

                                                       F-4
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION


STATEMENTS OF CASH FLOWS
YEAR ENDED MAY 31,

                                                                2007            2006
----------------------------------------------------------------------------------------

CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                               $ 3,418,000      $ 2,295,000
   Adjustments to reconcile net income to net cash
     provided by operating activities:
       Depreciation and amortization                            465,000          417,000
       Loss (gain) on disposition of fixed assets                     0            9,000
       Provision for inventory reserves                          59,000           87,000
       Write-off of obsolete inventory, net of reserves               0           25,000
       Deferred income taxes, net                              (216,000)       1,169,000
       Stock based compensation                                  16,000                0
   Changes in assets and liabilities:
     Accounts receivable                                     (2,087,000)      (1,789,000)
     Inventories                                                (18,000)         (87,000)
     Prepaid expenses and other assets                           28,000           (5,000)
     Trade accounts payable                                     (67,000)        (195,000)
     Accrued liabilities                                        348,000          635,000
     Deferred revenue                                           (36,000)        (132,000)
                                                            -----------      -----------

         NET CASH PROVIDED BY OPERATING ACTIVITIES            1,910,000        2,429,000
                                                            -----------      -----------

CASH FLOWS FROM INVESTING ACTIVITIES
   Proceeds from sale of equipment                                    0            2,000
   Purchase of equipment                                       (734,000)        (345,000)
                                                            -----------      -----------

         NET CASH USED IN INVESTING ACTIVITIES                 (734,000)        (343,000)
                                                            -----------      -----------

CASH FLOWS FROM FINANCING ACTIVITIES
   Payments on capital lease obligation                         (40,000)         (11,000)
   Proceeds from stock options exercised                         48,000          225,000
   Payment of dividend                                       (1,695,000)      (1,512,000)
                                                            -----------      -----------

         NET CASH USED IN FINANCING ACTIVITIES               (1,687,000)      (1,298,000)
                                                            -----------      -----------

         NET INCREASE (DECREASE) IN CASH                       (511,000)         788,000

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                1,508,000          720,000
                                                            -----------      -----------

CASH AND CASH EQUIVALENTS, END OF PERIOD                    $   997,000      $ 1,508,000
                                                            ===========      ===========

Supplemental Disclosure of Cash Flow Information:
   Cash paid for interest                                             0                0
   Cash paid for income taxes                               $ 2,337,000      $   105,000

   Non-cash investing and financing activities
   Assets acquired under capital lease obligation           $         0      $   164,000


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 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; autos, 5 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 years 2007 and 2006 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>
<S>     <C>
                                                                 YEAR ENDED MAY 31,
                                                             -------------------------
                                                                2007           2006
                                                             ----------     ----------
EARNINGS PER COMMON SHARE - BASIC:

   Numerator: earnings available for common
     Stockholders                                            $3,418,000      2,295,000

   Denominator: weighted average shares                       6,778,000      6,709,000

   EARNINGS PER COMMON SHARE - BASIC                         $     0.50           0.34


EARNINGS PER COMMON SHARE - DILUTED:

   Numerator: earnings available for common Stockholders     $3,418,000      2,295,000

   Denominator: weighted average shares - diluted             6,812,000      6,741,000

EARNINGS PER COMMON SHARE - DILUTED                          $     0.50           0.34

CALCULATION OF WEIGHTED AVERAGE COMMON SHARE - DILUTED:

   Weighted Average Number of Common
     Shares Outstanding During the Period                     6,778,000      6,709,000

   Effect of Dilutive Securities Options                         34,000         32,000
                                                             ----------     ----------

   Weighted Number of Common Shares and
     Dilutive Potential Common Stock used
       in Diluted EPS                                         6,812,000      6,741,000
                                                             ==========     ==========
</TABLE>


                                      F-8
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

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

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

CASH AND CASH EQUIVALENTS:

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

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

STOCK-BASED COMPENSATION:

As of June 1, 2006, the Company accounts for stock-based employee and non
employee transactions under the requirements of SFAS No. 123R "Share Based
Payment" which requires compensation to be recorded based on the fair value of
the securities issued or the services received, whichever is more reliably
measurable. The Company adopted this statement using a modified prospective
application. Prior to June 1, 2006, the Company accounted for share-based
compensation based on the intrinsic value of options at the grant date.

The Company uses the Black-Scholes option-pricing model to calculate the fair
value of the stock options. The adoption of SFAS 123R resulted in additional
stock-based compensation of $16,000 for the year ended May 31, 2007.

If the Company had elected to recognize compensation expense based upon the fair
value at the grant date for awards under these plans consistent with the
methodology prescribed by SFAS No. 123, the Company's net income and earnings
per share would be reduced to the pro-forma amounts indicated below for May 31,
2006:

                                                                        2006
                                                                     -----------
Net income:

         As reported                                                 $ 2,295,000
         Add:   Stock-based compensation cost included in
                reported net income, net of related tax effects                0
         Less:  Total stock-based compensation cost determined
                under fair value based method for all awards,
                net of related tax effect                                 24,000
                                                                     -----------

         Pro forma                                                   $ 2,271,000
Earnings per common share and common share assuming dilution:
         As reported                                                 $      0.34
         Pro forma                                                   $      0.34


                                      F-9
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

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

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

NEW ACCOUNTING PRONOUNCEMENTS:

In July, 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 48, Accounting for Uncertainty in Income Taxes--an
interpretation of FASB Statement No. 109. Interpretation 48 clarifies the
accounting for uncertainty in income taxes recognized in an entity's financial
statements in accordance with Statement 109 and prescribes a recognition
threshold and measurement attribute for financial statement disclosure of tax
positions taken or expected to be taken on a tax return. Additionally,
Interpretation 48 provides guidance on de-recognition, classification, interest
and penalties, accounting in interim periods, disclosure and transition.
Interpretation 48 is effective for fiscal years beginning after December 15,
2006, with early adoption permitted. The Company intends to implement FIN 48
during the quarter ended August 31, 2007. Management is in the process of
evaluating the impact and does not expect the adoption of Interpretation 48 to
have a material effect on the Company's future financial position, results of
operations or cash flows.

In September, 2006, the FASB issued Statement of Financial Accounting Standard
157 (SFAS 157), Fair Value Measurements. SFAS 157 addresses how companies should
measure fair value when they are required to use a fair value measure for
recognition or disclosure purposes under generally accepted accounting
principles (GAAP). As a result of SFAS 157, there is now a common definition of
fair value to be used throughout GAAP. The FASB believes that the new standard
will make the measurement of fair value more consistent and comparable and
improve disclosures about those measures. SFAS 157 is effective for fiscal years
beginning after November, 15, 2007. The Company will apply this standard for the
fiscal year beginning June 1, 2008, and does not expect the implementation of
SFAS 157 to have a material impact on the Company's financial position, results
of operations or cash flows.

In September 2006, the FASB issued SFAS 158, Accounting for Defined Benefit
Pension and Other Post-Retirement Plans. SFAS 158 supersedes the handling of
pension costs described in SFAS 132R. The purpose of SFAS 158 was to improve
financial reporting by requiring an employer to recognize the over-funded or
under-funded status of a defined benefit postretirement plan (other than a
multiemployer plan) as an asset or liability in its statement of financial
position and to recognize changes in that funded status in the year in which the
changes occur through comprehensive income of a business entity or changes in
unrestricted net assets of a not-for-profit organization. The Company has no
material defined benefit plan and accordingly, the implementation of SFAS 158
had no material impact on the Company's financial position, results of
operations or cash flow.

In September, 2006, the Securities Exchange Commission (SEC) released Staff
Accounting Bulletin (SAB) 108. SAB 108 specifies how public companies (and their
auditors) quantify financial statement misstatements with respect to annual
financial statements. The interpretations in SAB 108 express the staff's view
regarding the process of quantifying financial statement misstatement. SAB 108
requires that public companies use both an income statement focused assessment
and a balance sheet focused assessment in assessing the quantitative effects of
financial misstatements. The adoption of SAB 108 does not have a material impact
on the Company's financial position, results of operations or cash flows.


NOTE 2.  FOURTH QUARTER ADJUSTMENTS

There were no material fourth quarter adjustments.


                                      F-10
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

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

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 2007 in excess of 10% of
total revenues, consist of the following:

                                                    2007              2006
                                               -------------     --------------

Lockheed Martin                                     37%               26%
United States Government (Including NASA)           16%               27%

At May 31, 2007, billed and unpaid accounts receivable included totals of
$1,852,000, or 38% of total billed and unpaid accounts receivable, due from
Lockheed Martin companies, and $622,000, or 13% of total billed and unpaid
accounts receivable, due from the U.S. Government entities, respectively.


NOTE 4.  ACCOUNTS RECEIVABLE

Billed and unpaid receivables at May 31, 2006                        $ 3,926,000
Billed receivables for fiscal year 2007                               19,444,000
                                                                     -----------
                                                                      23,370,000
Collected receivables for fiscal year 2007                            18,434,000
                                                                     -----------

Billed and unpaid receivables at May 31, 2007                          4,936,000
                                                                     -----------


Unbilled receivables at May 31, 2007:
      Unbilled receivables on contracts in process                     7,581,000
      Unbilled receivables on completed contracts                        490,000
                                                                     -----------
                                                                       8,071,000
                                                                     -----------

Claims receivable at May 31, 2007                                         18,000
                                                                     -----------

Total gross accounts receivable at May 31, 2007                       13,025,000
Allowance for doubtful accounts                                                0
                                                                     -----------

Total net accounts receivable at May 31, 2007                        $13,025,000
                                                                     ===========


                                      F-11
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

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

NOTE 4.  ACCOUNTS RECEIVABLE (CONTINUED)

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, 2007 were $4,936,000 and
$8,071,000, respectively.

The billed accounts receivable balance includes $58,000 for damages awarded to
the Company by the jury of a concluded trial of the Company's lawsuit against
the United Space Alliance, LLP for alleged breaches of contracts. The Company
has filed a Notice of Appeal of that jury verdict (See Note 13).

The accounts receivable balance at May 31, 2007 also includes $18,000 for two
claims on two related contracts terminated by the U.S. Army for "convenience".
The balance represents the $18,000 damages awarded the Company by the United
States Court of Federal Claims. The Company is currently appealing the court's
decision regarding legal fees.

The Company submits claims for cost reimbursement related to contract
requirement changes not yet incorporated into its contract or other contract
costs in negotiation. The Company is currently providing effort on two
build-to-print contracts for which it has a claim. The claims result from either
flaws on customer provided build-to-print designs or additional testing
requirements initiated by the customer. As of May 31, 2007 the company had
incurred $178,000 of additional costs outside the scope of the original
contracts. Included in revenue for the year ended May 31, 2007 was $253,000 and
is classified as a current unbilled receivable on the balance sheet. Total
customer price modifications are expected to be $276,000 for these contracts.
There are currently no progress billings associated with these claims.

Unbilled receivables include revenues recognized from 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,
2007 are as follows:

Total contracts in process                                         $ 47,618,000
                                                                   ============

Total estimated costs                                              $ 20,530,000
Add estimated earnings                                               11,756,000
                                                                   ------------

Total revenue recognized                                             32,286,000
Less amounts billed                                                  24,421,000
                                                                   ------------

                                                                   $  7,865,000
                                                                   ============

Unbilled receivables on contracts in process                       $  8,071,000
Deferred revenue on contracts in process                               (206,000)
                                                                   ------------
                                                                   $  7,865,000
                                                                   ============

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, 2007 would
change both the recognized revenue and earnings by approximately $90,000.

During the fiscal years 2007 and 2006, the Company generated revenues of
approximately $2,073,000 and $2,166,000, respectively, from sources outside of
the United States.


                                      F-12
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

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

NOTE 5.  INVENTORIES

Raw materials and component parts                                   $   351,000
Work-in-process                                                       1,130,000
Finished goods                                                          572,000
                                                                    -----------
                                                                      2,053,000
Less inventory reserves                                                (484,000)

                  Total net inventory                               $ 1,569,000
                                                                    ===========

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                                               $5,259,000
Office equipment and furniture                                           207,000
Leasehold improvements                                                   221,000
Production and test tooling                                              204,000
Automobiles/delivery vehicle                                             187,000
Projects in process                                                      423,000
                                                                      ----------
                                                                       6,501,000
Less accumulated depreciation and amortization                         4,360,000
                                                                      ----------

                                Total net equipment                   $2,141,000
                                                                      ==========

For fiscal year 2007, the Company capitalized costs amounting to $31,000 that
were 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 2007. 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.

Included in automobiles is $164,000 in capital leases, which is reduced by
accumulated depreciation of $50,000 at May 31, 2007.


                                      F-13
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

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

NOTE 7.  LAND

The Company owns twelve acres of land located in the Santa Clarita Business Park
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 the Company's assets.

At May 31, 2007 and throughout fiscal year 2007, the Company did not have any
bank debt.

The revolving line of credit, under which the Company can borrow up to a maximum
limit of $5,000,000, is set to mature on December 15, 2008. Outstanding balances
under the line of credit bear interest based on prime less .25% (8.25% at May
31, 2007) or at the Company's option LIBOR plus 2% (7.39% at May 31, 2007).

The Company also has available a $1,000,000 equipment letter of credit maturing
January 18, 2008, and bearing interest under the same terms as the revolving
line of credit. As of May 31, 2007, there was no existing balance on this
instrument.

The business loan agreement contains various financial covenants that have been
modified during the fiscal year. On June 4th, 2007, the covenant requiring a
quarterly certificate of compliance was removed; in addition, the requirement
for the bank to pre-approve a dividend prior to payment was removed. Revised
language specifies the Company may make periodic distribution of excess capital
in the form of dividend to its shareholders if and only if at the time of such
payment, the Company is in compliance with all provisions of the loan document,
including (without limitation) all financial covenants, and no default under the
agreement has occurred, is continuing or would result from the making of such
payment. The covenants including current ratio (at least 2 to 1) and the fixed
charge coverage ratio (1.25 to 1) shall exist as covenants under the loan
agreement (although quarterly reporting is no longer required).

NOTE 9.  ACCRUED CURRENT LIABILITIES

As of May 31, 2007, accrued current liabilities consist of the following:

Accrued vacation                                                    $1,022,000
Accrued salaries, wages and bonus                                      676,000
Deferred compensation                                                  114,000
Accrued commissions                                                     25,000
Accrued income taxes                                                   251,000
Miscellaneous                                                          165,000
                                                                    ----------

                           Total accrued current liabilities        $2,253,000
                                                                    ==========

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 $206,000 at May 31, 2007.


                                      F-14
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

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

NOTE 11.  CAPITAL LEASES

The Company leases vehicles under capital leasing agreements which expire at
various dates through July 2012. Future minimum lease payments are as follows:

Year Ending May 31,

2008                                                              46,000
2009                                                              43,000
2010                                                              36,000
2011                                                               1,000
                                                               ---------

Total minimum lease payments                                     126,000
Amounts representing interest                                    (13,000)
                                                               ---------

Present value of net minimum lease payments                      113,000

Current maturities                                               (40,000)
                                                               ---------

                                                               $  73,000
                                                               =========

NOTE 12.  INCOME TAXES

Deferred income taxes at May 31, 2007 consist of the following:

Current
   Deferred income tax asset:
     Accrued vacation                                               $   445,000
     Income tax credits                                                   2,000
     Inventory reserves                                                 207,000
     Current year state tax expense                                     172,000
     Accrued bonus                                                      197,000
     Deferred compensation                                               49,000
                                                                    -----------
   Total current deferred income tax asset                            1,072,000

   Deferred income tax liability:
     Prepaid expenses                                                   (49,000)
     Deferred state taxes                                               (47,000)
                                                                    -----------
   Total current deferred income tax liability                          (96,000)

Net current deferred income tax asset                                   976,000
                                                                    -----------

Non-current
   Deferred income tax liability:
     Fixed assets                                                      (288,000)
                                                                    -----------
   Total net non-current deferred tax liability                        (288,000)

Total net deferred income taxes                                     $   688,000
                                                                    ===========


                                      F-15
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

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

NOTE 12.  INCOME TAXES (CONTINUED)

Realization of deferred income tax assets is primarily dependent upon generating
sufficient taxable income to absorb the tax benefit of the deferred income tax
assets. 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:

                                                       2007             2006
                                                   -----------      -----------
Current tax expense:
         Federal                                   $ 1,905,000      $ 1,275,000
         State                                         565,000          321,000
         Use of NOL's & tax credit carryovers                0       (1,359,000)
                                                   -----------      -----------
                                                   $ 2,470,000      $   237,000
                                                   ===========      ===========
Deferred tax expense (benefit):
         Federal                                   $  (166,000)     $ 1,127,000
         State                                         (49,000)          33,000
                                                   -----------      -----------
                                                   $  (215,000)     $ 1,160,000
                                                   ===========      ===========

Total tax provision                                $ 2,255,000      $ 1,397,000
                                                   ===========      ===========

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:

                                                       2007             2006
                                                   -----------      -----------

Federal income tax computed at statutory rate      $ 1,929,000      $ 1,255,000
Permanent differences                                    8,000          (21,000)
State taxes, net of federal benefit                    336,000          211,000
Other state tax and minimum taxes                        7,000                0
Tax credits                                            (25,000)         (48,000)
                                                   -----------      -----------

                                                   $ 2,255,000      $ 1,397,000
                                                   ===========      ===========

NOTE 13.  COMMITMENTS AND CONTINGENCIES

The Company leases its facilities, automobiles and certain equipment under
operating lease agreements that expire at various dates through 2012. Rental
expense under operating leases for the years ended May 31, 2007 and 2006 was
approximately $660,000 and $631,000 respectively.


                                      F-16
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

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

NOTE 13.  COMMITMENTS AND CONTINGENCIES (CONTINUED)

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

                             2008                $  600,000
                             2009                   616,000
                             2010                   613,000
                             2011                   605,000
                             2012                   623,000
                       Thereafter                   157,000
                                                 ----------
                                                 $3,214,000
                                                 ==========

$3,100,000 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, 2012.

Hi-Shear filed suit against United Space Alliance, LLC, a Delaware limited
liability company ("Alliance"), and its predecessor USBI Company, a Delaware
Corporation ("USBI"), in November 2000, in the Circuit Court of the Eighteenth
Judicial Circuit, Brevard County, Florida, to recover damages which include
numerous contract invoices totaling $1,319,000 for specially manufactured
aerospace components and an unbilled amount for work performed of $384,000.
Compensatory damages were also sought alleging that Alliance fraudulently
induced Hi-Shear to enter into contracts that the defendant had no intention of
performing, and subsequently repudiated. Further damages were 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 subsequently 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 alleged a claim for a declaratory
judgment, a claim for conversion seeking return of certain alleged government
property and an accounting for a claim. As part of its defense in the
litigation, Alliance claimed that it was coerced through duress to enter into a
contract with Hi-Shear where Hi-Shear was the qualified successful lowest
bidder. In addition, Alliance demanded that Hi-Shear ship uncertified flight
hardware to it for use on the United States Space Shuttle, ahead of its normal
certification schedule.

Hi-Shear filed a related suit against Pacific Scientific Energetic Materials
Company, a Delaware Corporation, in July 2004 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. 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 Alliance and USBI commenced in July of 2005 in
Titusville, Florida. Early in the trial, the court made legal rulings holding
that the Company does not have exclusive rights to certain 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. 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. 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 and USBI did not seek an award of
attorneys' fees incurred by it in the litigation.


                                      F-17
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

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

NOTE 13.  COMMITMENTS AND CONTINGENCIES (CONTINUED)

The trial court entered a final judgment on May 18, 2006 based on the jury's
verdict 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, ruled against Hi-Shear on the
remaining breach of contract claims and awarded Alliance no damages on its
counterclaims. 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.

In October 2005 Hi-Shear filed a notice of appeal to the Florida Fifth District
Court of Appeal seeking review of the adverse judgment entered in favor of USBI
regarding the trial court's rejection of Hi-Shear's claims for recovery of
damages from USBI for the misappropriation of certain of Hi-Shear's trade
secrets and technical data. In February 2007, after hearing oral arguments, the
Appellate Court upheld the lower court's ruling. The Company is considering its
alternative legal courses of action at this time regarding the issues of this
appeal.

The Company has also filed a Notice of Appeal to the Florida Fifth District
Court of Appeal challenging the legal basis of the lower court's final judgment
involving the amounts of the recovery of Hi-Shear's damages on contracts for
manufactured components and other claims at trial. The appeal encompasses issues
evident throughout the court proceedings, including the legal basis of the trial
court's judgments and questionable adverse rulings by the court during the
entire course of the trial.

During the course of Hi-Shear's appeals, the trial court has retained the
jurisdiction to award attorney's fees and costs to the party in this litigation
that "prevailed on its claims" at the trial level. The trial court decided in an
order entered in December 2006, that although it was Hi-Shear that was awarded
$57,781 in damages by the jury and the Alliance was awarded no damages on its
counterclaims, that the defendant, the Alliance, was the "prevailing party" in
the suit and judged that it was entitled to an amount of legal fees and costs.
The trial court also held that the defendant, USBI, was entitled to its costs.
Although the trial court originally determined that the appeals in this case be
decided by the Appellate Court before it would determine any specific fees and
costs amount to the party it determined was entitled to recover them, the trial
court subsequently pronounced that it would decide the amount of fees and costs
to be awarded before the appeals were completed. The court ruled that it would
determine the amount of these fees and costs in hearings to be held in December
2007.

In September 2005, the defendant Alliance filed motions requesting a gross
amount of approximately $3.4 million in legal fees and costs, and USBI has
motioned costs in the gross amount of $48,000. The Company believes that these
amounts contain fees and costs which are not subject to recovery from Hi-Shear.
Court hearings will take place in December 2007 regarding the amounts of fees
and costs which are claimed by the defendants.

Accordingly, the Company anticipates that in December 2007, the court will
determine the amount of attorneys' fees and costs payable by the Company to the
Space Alliance and costs payable to USBI. However, Hi-Shear's appeal is
currently pending before the Florida Fifth District Court of Appeal raising
significant appellate issues that challenge the legal basis relating to the
amounts of the recovery of Hi-Shear's damages on contracts for manufactured
components and other issues at trial. The final outcome of the Company's appeal
may have an effect on the award of attorneys' fees, but the Company does not
anticipate that the appeal will be decided before December 2007. Therefore, the
Company anticipates that it will seek to stay any order by the trial court
awarding the Space Alliance attorneys' fees until the appeal is decided. Given
the number and significance of the issues on appeal, the Company cannot predict
the outcome of the appeal before the Appellate Court, and Hi-Shear is not able
to estimate prior to the ruling on appeal the amount of related


                                      F-18
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

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

NOTE 13.  COMMITMENTS AND CONTINGENCIES (CONTINUED)

attorney fees or costs for which it may be liable, if any. Accordingly, no
accruals for potential amounts payable, which may relate to the pending appeal,
have been made at this time. The award of an amount of attorney fees and costs
against Hi-Shear could have a material adverse impact on the Company's financial
position and results of operations.

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 and results of operations.

NOTE 14.  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.

On July 31, 2006 the Company's Board of Directors approved the 2006 Stock Award
Plan, which was subsequently accepted by Company's shareholders for adoption at
the October 16, 2006 annual shareholders' meeting. Under the plan, options to
purchase common stock, with a maximum term of 10 years, are 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.

Stock options are valid for ten years and have various vesting schedules.
Current options have 6 month, 3 year and 4 year vesting schedules. There were
2,000 options granted during fiscal year 2007.

The fair value of each grant is estimated at the grant date using the
Black-Scholes option-pricing model. The Black-Scholes option pricing model
requires the use of certain assumptions, including fair value, expected terms,
expected volatility, expected dividends, risk-free interest rate and expected
forfeiture rate to calculate the fair value of stock-based payment awards. The
assumptions used in calculating the fair value of stock option awards involve
inherent uncertainties and the application of management judgment. As a result,
if factors change and the Company use different assumptions, the computed fair
value and resulting stock-based compensation expense could be different in the
future. Furthermore, the Company is required to estimate the expected forfeiture
rate and recognize expense only for those shares expected to vest. If our actual
forfeiture rate is materially different from our estimate, the stock based
compensation expense could be different from what we have recorded in the
current period. The fair value of those options granted in 2007 was calculated
by using the following weighted-average assumptions: dividend rate of 4.7%;
price volatility of 81.55%; risk-free interest rate of 4.96%; and expected life
of six years.

The Company does not have information available which is indicative of future
exercise and post-vesting behavior to estimate the expected term. The Company
adopted the simplified method of estimating the expected term of a stock option,
as permitted by SAB 107. Under this method, the expected term is presumed to be
the mid-point between the vesting date and the contractual end of the term.


                                      F-19
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

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

NOTE 14.  STOCKHOLDERS' EQUITY (CONTINUED)

The expected volatility is derived from historical volatility of the Company's
common stock.

The dividend rate is based on the Company's historic dividend rate.

The risk-free interest rate is based on the implied yield available on U.S.
Treasury zero-coupon issues with a remaining term approximately equal to the
expected life of the Company's stock options.

As the Company has no history of actual forfeitures, nor any indication of
pending forfeitures, the pre-vesting forfeiture rate is estimated to be zero.

A summary of the status of the option plan and changes during fiscal years 2007
and 2006 is as follows:

<TABLE>
<S>     <C>
                                                           2007                                       2006
                                          --------------------------------------  ------------------------------------------
                                                                   Weighted-                                     Weighted-
                                                                    Average                                       Average
                                                                    Exercise                                     Exercise
         Fixed Options                         Shares               Price               Shares                     Price
----------------------------------------------------------------------------------------------------------------------------

Outstanding at beginning of year               71,500           $      4.32             151,916                $      3.81
     Granted                                    2,000                 10.94                   0                          0
     Exercised                                (10,500)                 5.67             (73,416)                      3.06
     Forfeited                                (10,166)                 5.95              (7,000)                      6.50
                                         ------------------                      ------------------

Outstanding at end of year                     52,834           $      4.20              71,500                $      4.32
                                         ==================                      ==================

Exercisable at end of year                     43,584           $      4.14              43,666                $      5.36


Available for grant at end of year            498,000                                        0
                                         ==================                      ==================
</TABLE>

As a result of adopting SFAS 123(R), the Company recorded stock-based
compensation of $16,000 during the year ended May 31, 2007. The Company elected
to recognize stock-based compensation expense on a straight-line basis over the
requisite service period for the entire award.

As of May 31, 2007, total unrecognized compensation costs related to stock
options of $15,146 is expected to be recognized over a weighted-average period
of 1.7 years.


                                      F-20
<PAGE>

HI-SHEAR TECHNOLOGY CORPORATION

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

NOTE 14.  STOCKHOLDERS' EQUITY (CONTINUED)

Information relating to stock options at May 31, 2007 summarized by exercised
price is as follows:

<TABLE>
<S>     <C>
                               Options Outstanding                                    Options Exercisable
---------------------------------------------------------------------------   --------------------------------------
                                   Weighted-
                                    Average        Weighted-                              Weighted-
                                   Remaining        Average       Aggreg.                   Average      Aggreg.
     Range of         Number      Contractual       Exercise     Intrinsic     Number      Exercise     Intrinsic
  Exercise Price    Outstanding      Life            Price         Value      Exercise       Price        Value
----------------   ------------  --------------   ------------   ----------   ----------  ------------  ------------

$2.05 to $4.99          36,334     5.3 years      $    2.52      $  91,888      29,084    $    2.49     $    66,704
$5.00 to $6.99           3,500     2.0 years           5.38          9,415       3,500         5.38           9,415
$7.00 to $8.50          11,000     0.75 years          8.13         44,690      11,000         8.13          44,690
$8.51 to $12.00          2,000    10.00 years         10.94         11,012           0         0                  0
                   ------------                                  ----------                             ------------

                        52,834                    $    4.20      $ 157,005      43,584    $    4.14     $   120,809
                   ============                                  ==========                             ============
</TABLE>

Information related to non-vested stock options at May 31, 2007 is as follows:

                                                              Weighted Average
                                            Number of           Grant Date
                                             Shares         Fair Value Per Share
                                        ----------------------------------------

Non-Vested Options at May 31, 2006           17,542           $      1.15
Granted                                       2,000                  5.51
Vested                                       13,917                  1.15
Forfeited                                         0                     0
                                        ------------------    ------------------
Non-Vested Options at May 31, 2007            5,625           $      2.69
                                        ==================    ==================

NOTE 15.  RELATED PARTIES

A director of the Company performs consulting services for the Company under a
two-year contract that expires February 28, 2009. The Company incurred $230,000
and $194,000 of consulting fees for the years ended May 31, 2007 and 2006,
respectively.

NOTE 16. 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, 2007 and 2006.


                                      F-21