Strong customer demand for Hi-Shear's national missile defense products and satellite related hardware increased our orders to $26.0 million during the year. Revenues of $20,550,000 for fiscal year 2007 consisted of a higher concentration of missile and space products and drove increased profitability and resulted in Operating Income of $5,673,000. Our positive earnings and growing space and defense orders during the year supported the distribution of a $0.25 per share dividend to shareholders in April.

Production activities during the year accelerated to meet the continuing increased demand for Hi-Shear products. Our workforce was expanded, new methods were employed and automated machinery was purchased to ensure meeting customers commitments successfully. The volume of space and defense activity during the year improved gross margins to 43% of revenues compared to 37% of revenues last year. Lower expenses and enhanced product margins resulted in Net Income for the year increasing 55% to $3,418,000, which represents earnings of $0.50 per share.

OOur customers rely on Hi-Shear's product performance and its flawless flight heritage to ensure the complete success of their missions. Our high quality fail-safe pyrotechnic initiation and separation products, and electronic firing devices, are used in weapons, national missile defense, satellites and the rockets that launch them, both in the U.S. and abroad. NASA has baselined Hi-Shear's initiators for its "Orion" program to the moon. Also, Hi-Shear is proud to have been selected by the NASA Jet Propulsion Laboratory (JPL) as its prime supplier of pyrotechnic separation devices on the upcoming mission to the planet Mars. The innovative Mars Science Laboratory mission utilizes the largest and most advanced payload of scientific instruments ever used on the surface of Mars. Over four times the weight of the previous Mars Exploration Rovers, this plutonium powered vehicle will report back to earth on the planets "habitability" and its potential for microbial life. Launch is currently planned in the fall of 2009.

WWe are pleased with the solid execution of our business strategy which is supported by growth in the demand for our products in key space and defense applications. We are actively investing in new product qualification for both space and military applications to continue to expand the range of Hi-Shear products to fill our customers’ needs. The Hi-Shear team is committed to the highest customer satisfaction and we thank all of our loyal customers and shareholders for their support.

George W. Trahan President and Chief Executive Officer