Hi Shear Industries Inc · 10-K · For 5/31/96

Filed On 8/29/96   ·   SEC File 1-07633   ·   Accession Number 950112-96-3116

Annual Report   ·   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Annual Report                                         31    144K 
 2: EX-22       Published Report Regarding Matters Submitted to        1      4K 
                          Vote of Security Holders                               
 3: EX-27       Financial Data Schedule                                1      7K 

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      SECURITIES AND EXCHANGE COMMISSION
      Washington, D.C. 20549
      ______________________

     FORM 10-K

      Annual Report Pursuant to Section 13 or 15(d) of
     the Securities Exchange Act of 1934

For the fiscal year ended May 31, 1996   Commission file number 1-7633

      HI-SHEAR INDUSTRIES INC.

        A Delaware Corporation            I.R.S. Employer Identification
                                            No. 11-2406878

      3333 New Hyde Park Road, North Hills, NY 11042

    Registrant's telephone number, including area code: (516) 627-8600

   Securities registered pursuant to Section 12(b) of the Act:

                                                   Name of each Exchange
          Title of each class                        on which registered
        -----------------------                    ---------------------
        Common Stock, $.10 par value                 Over The Counter Exchange

 Securities registered pursuant to Section 12(g) of the Act:  None

 Indicate by check mark whether the registrant (1) has filed all reports
    required to be filed by section 13 or 15(d) of the Securities Exchange Act
 of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days.                             

Yes X    No                                                           

    On August 23, 1996, 5,854,618 shares of the Registrant's Common Stock were
  outstanding.  Of these shares, 1,676,457 shares were held by persons who
   may be deemed to be affiliates.  The aggregate market value (based on the
    average bid and ask price of these shares on the Over The Counter Exchange
  of $2.69  a share) of the 4,178,161 shares held by non-affiliates of the
registrant was $11,239,000.                                           

     Documents Incorporated by Reference

     None.

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PART I    

Item 1.  Business                                                               

(a)  General Development of Business                                  

HI-SHEAR INDUSTRIES INC.("the Company"), a Delaware corporation       
organized in 1976, was engaged primarily in the manufacture and sale of         
high technology Aerospace Fastening Systems products through its wholly-        
owned subsidiary, Hi-Shear Corporation ("HSC") until February 26, 1996.         

During the fiscal year ended May 31, 1991, the Company adopted a plan 
to discontinue the operations of Hi-Shear's Space and Defense segment,          
comprised of Hi-Shear Technology Corp. ("HSTC") and Defense Systems             
Corporation ("DSC").   The operation of DSC was terminated in March 1991        
and in June 1993, the Company completed the sale of HSTC to a group led by      
the management of the subsidiary.                                               

In June, 1994, the automotive division of Hi-Shear Corporation was    
incorporated as Hi-Shear Automotive Corp.                                       

On February 26, 1996, the Company completed the sale of Hi-Shear      
Corporation and its subsidiaries which included Hi-Shear Automotive Corp.,      
Hi-Shear Holdings Limited, and Hi-Shear Fasteners Europe Limited, to GFI        
Industries S.A. (GFI") of Belfort, France for $46 million.  With the            
completion of this sale the Company disposed of its last remaining              
operating assets and effectively ceased operations.                             

(b)  Narrative Description of Business                                

With the sale of its last remaining manufacturing operation on        
February 26, 1996, the Company no longer conducts an operating business.        
As outlined in the Company's "Notice Of Annual Meeting of Stockholders",        
the Company currently anticipates that upon final resolution of its claims      
against the U.S. Navy, it will complete the distribution of its assets to       
stockholders and seek stockholder approval to dissolve the Company.             

The Company currently has four full-time employees.                   

Item 2. Properties                                                              

The Company's corporate headquarters are located in an office building
at North Hills, New York, where 5,300 square feet of space are leased at a      
current annual rental of approximately $138,000 under a lease which expires     
May 31, 1997.                                                                   

HSI Properties, Inc., a wholly-owned subsidiary of the Company, owns  
16 acres of land in Saugus, California, with incidental structures (2,700       
sq. ft.) currently being leased to a former subsidiary, Hi-Shear Technology     
Corp., for $90,000 per year.  The lease expires June 1, 1998.                   

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Item 3.  Legal Proceedings                                                      

In 1991, the U.S. Navy terminated for default two contracts held by a 
discontinued subsidiary of the Company and sought reimbursement of progress     
payments totaling $11.2 million made against these contracts.  The Company      
appealed the default terminations and on May 31, 1995 its appeal was            
sustained.  This decision effectively released the Company from any             
obligation to repay progress payments received under the contracts.  On         
January 31, 1996, the Company filed damage claims against the U.S. Navy         
totaling $62.9 million                                                          
On February 26, 1996, the Company completed the sale of Hi-Shear      
Corporation and related entities to GFI Industries S.A. of Belfort, France.     
As specified in the Stock Purchase Agreement, the sales price is subject to     
adjustment based upon a review of the closing consolidated balance sheet of     
Hi-Shear Corporation and verification of the net asset value.  To date, the     
Company and GFI have been unable to reach an agreement on the net asset         
value with GFI requesting downward adjustments to the sales price totaling      
$6.4 million.  Management of the Company firmly believes that the closing       
balance sheet as presented to GFI is in accordance with the terms of the        
Stock Purchase Agreement.  The disagreement is being submitted to               
arbitration as required under the Stock Purchase Agreement.  The parties        
are currently in the preliminary stages of selecting an arbitrator.  See        
Commitments and Contingencies in the notes to consolidated financial            
statements.                                                                     

Item 4.  Submission of Matters to a Vote of Security Holders                    
None                                                                  

PART II     

Item 5.   Market for the Company's Common Stock and Related Stockholder         
Matters                                                     

The Company's Common Stock had, until August 1, 1996, been traded on  
the New York Stock Exchange ("NYSE") under the symbol "HSI."  The following     
table sets forth the high and low prices per share of the Company's Common      
Stock, as reported on the NYSE Composite Tape for the periods indicated.        

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                                        Per Common Share
                                        ----------------
                                        Market Price
                                        ----------------
                                    High     Low
                                    ----     ---

Quarter Ended                                                                   
August 1995.........................              $8.13     $6.63           
November 1995.......................               7.63      6.75           
February 1996.......................               7.88      4.50           
May 1996............................               6.50      5.63           

Fiscal Year Ended May 31, 1996                      $8.13     $4.50             
                                       =====     =====

Quarter Ended                                                               
August 1994.........................              $6.75     $5.63           
November 1994.......................               6.00      4.88           
February 1995.......................               5.00      3.88           
May 1995............................               5.75      3.88           

Fiscal Year Ended May 31, 1995                      $6.75     $3.88             
                                       =====     =====

On August 1, 1996, the Company made an initial liquidating            
distribution of approximately $23.4 million ($4.00 per share).  Prior to        
that the Company had not paid a dividend on common stock since August 1990.     
Concurrent with this distribution, the NYSE suspended trading in the            
Company's common stock and made application to delist the issue.  The           
Company's common stock is currently being traded on the Over-The-Counter        
bulletin board.                                                                 

Under the terms of the agreement for the sale of Hi-Shear Corporation,
the Company is restricted from distributing to its stockholders, by means       
of a dividend or otherwise, at least $3.0 million of the purchase price         
through March 31, 1997.  After that date, the Company may distribute all        
remaining funds subject to the resolution of purchase price adjustments, if     
any, with GFI.  See Item 3 - Legal Proceedings and Sale of Subsidiary and       
Commitments and Contingencies in Notes To Consolidated Financial                
Statements.                                                                     

As of August 23, 1996 there were approximately 900 holders of record  
of the Company's Common Stock.                                                  

Item 6.  Selected Financial Data                                                

The following table sets forth selected financial information of the  
Company and its subsidiaries for the five years ended May 31, 1996.  This       
selected financial information should be read in conjunction with the           
Consolidated Financial Statements and notes thereto, and Management's           
Discussion and Analysis of Results of Operations and Financial Condition        
included elsewhere herein.                                                      

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                                          For the Fiscal Year Ended May 31,       
                                 -------------------------------------------------
                                   1996      1995      1994      1993      1992   
                                 --------  --------  --------  --------  ---------
                                    (Dollars in thousands except per share data)  
                                 -------------------------------------------------
                                                                                  
     Selected Statement of                                                        
       Operations Data:                                                           
     Revenues from operations(A) $ 46,400  $ 58,639  $ 56,465  $ 71,519  $ 88,113 
                                 ========  ========  ========  ========  =======  

     Income (loss) before                                                         
       discontinued operations   $  1,106  $   (545) $ (2,974) $   (943) $  1,666 
     Income (loss) from                                                           
      discontinued operations(B)        -         -    (2,616)   (7,312)      442 
     Income from extraord-                                                        
       inary item (C)                   -         -         -         -       240 
                                  --------  --------  --------  --------  ------- 

     Net income (loss)           $  1,106  $   (545) $ (5,590) $ (8,255) $  2,348 
                                 ========  ========  ========  ========  ======== 

     Weighted Average Shares                                                      
       Outstanding                  5,855     5,855     5,855     5,855     5,855 
                                 ========  ========  ========  ========  ======== 

     Per Common Share Data:                                                       
     Income (loss) before                                                         
       discontinued operations(A)$    .19  $   (.09) $   (.51) $   (.16) $    .28 
     Income (loss) from                                                           
      discontinued operations (B)       -         -      (.45)    (1.25)      .08 
     Income from extra-                                                           
       ordinary item (C)                -         -         -         -       .04 
                                  --------  --------  --------  --------  ------- 

     Net income (loss)           $    .19  $   (.09) $   (.96) $  (1.41) $    .40 
                                 ========  ========  ========  ========  ======== 


                                                     As of May 31,                
                                 ---------------------------------------------    
                                  1996      1995      1994      1993      1992    
                                 --------  --------  --------  --------  -------- 
                                               (Dollars in thousands)             
                                 ------------------------------------------------ 
                                                                                  
     Selected Balance Sheet Data:                                                 
     Current assets(D)           $31,103   $34,846   $35,659   $44,324   $54,253  
     Current liabilities           1,131    12,563    12,013    24,025    14,282  

     Working capital              29,972    22,283    23,646    20,299    39,971  

     Total assets                 32,748    49,514    49,115    58,826    71,225  

     Long-term debt                    -     9,872     9,953         -    12,662  

     Stockholders' equity(D)      31,617    27,079    27,149    34,801    44,171  

     (A) Includes revenues and income (loss) from operations of HSC through       
     February 26, 1996 at which date HSC was sold.  With the completion of this   
     sale, the Company disposed of its last remaining operating assets and        
     effectively ceased operations.                                               

     (B) The loss from discontinued operations in fiscal 1994 includes            
     additional expenses, legal costs and an unexpected shortfall in amounts      
     realized in the sale of material and equipment of a discontinued operation.  
     In fiscal 1993 and 1991 the loss from discontinued operations includes an    
     after-tax provision of $6.2 million ($1.05 per share) and $22.4 million      
     ($3.83 per share) respectively, to write down the net assets of the          
     discontinued businesses to their estimated realizable values, record         
     estimated transaction costs and report operating results during the          
     phaseout period.                                                             

     (C) Extraordinary item represents the income tax benefit from the            
     utilization of an operating loss carryforward.                               

     (D) On a pro forma basis, after giving effect to the initial liquidating     
     distribution on August 1, 1996, pro forma current assets and stockholders'   
     equity would have been approximately $7.7 million and $8.2 million,          
     respectively.                                                                

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Item 8.  Financial Statements and Supplementary Data                              

                 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                       
                 HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES                        

                                                                       Page       
                                                                       ----       
Report of Independent Accountants.....................                    9       
Consolidated Balance Sheets...........................                   10       
Consolidated Statements of Operations.................                   11       
Consolidated Statements of Stockholders' Equity.......                   12       
Consolidated Statements of Cash Flows.................                   13       
Notes to Consolidated Financial Statements............                   14       

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Item 7.  Management's Discussion and Analysis of Results of                       
         Operations and Financial Condition                                       

On February 26, 1996, the Company sold its last remaining operating entity,       
Hi-Shear Corporation and effectively ceased operations.  The Company had          
previously disposed of its business activities dealing with space and defense     
in June 1993 and had since that time been reporting their operating               
activities as discontinued operations.  The results of operations of the          
Company include the operating activities of Hi-Shear Corporation and              
subsidiaries through February 26, 1996.                                           

Results of Operations                                                             

Fiscal 1996 compared to 1995                                                      
----------------------------                                                      

The Company's results of operations were significantly impacted by the            
shorter period of operating activities due to the sale of Hi-Shear                
Corporation on February 26, 1996. Revenues from operations decreased $12.2        
million (20.9%) to $46.4 million in fiscal 1996 from $58.6 million in fiscal      
1995 due to the sale of Hi-Shear Corporation. For the year ended May 31, 1996,    
the Company recorded a gain (net of transaction costs) on the sale of Hi-Shear    
Corporation of approximately $1.8 million.  Operating income decreased $744,000   
from $958,000 in fiscal 1995 to $214,000 in fiscal 1996 due to the shortened      
operating period as well as continued downward pressure on pricing levels and     
increasing material and labor costs associated with production.                   

The interest income reported in fiscal 1996 was due to interest earned on the     
investment of the proceeds from the sale of Hi-Shear Corporation.  Interest       
expense declined $227,000 from $1.3 million in fiscal 1995 to $1.1 million in     
the comparable 1996 period due to the repayment of approximately $13 million      
of amounts outstanding on the Company's loan agreements with proceeds from        
the sale of Hi-Shear Corporation.                                                 

With the exception of a provision for alternative minimum tax in fiscal 1996      
and 1995, the Company did not record a provision or benefit for federal           
income taxes due to the Company's tax loss carryforward position.                 

Fiscal 1995 compared to 1994                                                      
----------------------------                                                      

Revenues from operations increased slightly to $58.6 million in fiscal 1995       
compared to $56.5 million in fiscal 1994.   The increase of $2.1 million          
(3.9%) is due to a stabilization in build rates experienced in the commercial     
airframe manufacturing industry after several years of substantial reduction      
in both order levels and build rates.  Over the past several years, this          
reduced order activity has led to severe pricing pressures within the             
aircraft fastener market.  Lower levels of unit pricing combined with             
increased manufacturing costs associated with inefficient production levels       
resulted in an operating loss of $1.9 million in                                  

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fiscal 1994.  The operating income achieved in fiscal 1995 of $958,000 was        
the direct result of a cost reduction program instituted by the Company early     
in that fiscal year.  The program resulted in cost savings of approximately       
$1.8 million.                                                                     

The interest income reported in fiscal 1994 was primarily due to tax refunds      
received during that year.  Interest expense increased $259,000 in fiscal         
1995 compared to fiscal 1994 due to an increase in borrowing rates                
experienced during the period.                                                    

Results of Discontinued Operations                                                

In June 1993, the Company completed the sale of Hi-Shear Technology Corp.         
This corporation, together with Defense Systems Corporation, which had            
previously discontinued operations in 1991, comprised the Company's               
discontinued operations.  The 1994 loss from discontinued operations of $2.6      
million consisted of an addition to the reserve previously established in         
1991 for the closing of Defense Systems Corp.  This charge was due to             
additional expenses and legal costs incurred in maintaining the personnel and     
facilities required to pursue legal remedies regarding termination of two         
contracts with the U.S. Navy as well as an unexpected shortfall in amounts        
realized in the sale of material and equipment.                                   

Liquidity and Capital Resources                                                   

The Company's principal sources of liquidity have consisted of cash provided      
by operating activities and, until the sale of Hi-Shear Corporation, bank         
financing.  On February 26, 1996, the Company completed the sale of Hi-Shear      
Corporation to GFI Industries S.A. for a total purchase price of $46 million      
generating net proceeds from the sale, after deducting transaction costs, of      
$44.4 million.  Of that amount, approximately $13 million was used to repay       
all amounts outstanding under the Company's loan agreements and the remaining     
balance was deposited in short term investment accounts.  At May 31, 1996 the     
Company had $30.9 million remaining in cash and cash equivalents.                 

With the sale of Hi-Shear Corporation the Company no longer has operating         
businesses and has announced its intention to liquidate and distribute the        
proceeds from the sale of Hi-Shear Corporation as well as any settlement          
received from the resolution of the Company's long standing dispute with the      
U.S. Navy.  In this regard, the Company made an initial liquidating               
distribution to shareholders of approximately $23.4 million ($4.00 per share)     
on August 1, 1996.  Under the terms of the agreement for the sale of Hi-Shear     
Corporation, the Company must maintain working capital of not less than           
$3,000,000 through March 31, 1997.  Subsequent to that date the Company may       
distribute all remaining funds subject to the resolution of purchase price        
adjustments with GFI.                                                             

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On May 31, 1995 the Company learned that its appeal of the default                
terminations filed by the Navy with regard to the two contracts being held by     
a subsidiary, Defense Systems Corporation had been sustained and converted to     
termination for the convenience of the government.  On January 31, 1996 the       
Company filed damage claims against the U.S. Navy totaling $62.9 million.         
The government is currently in the process of auditing these claims. Therefore    
the total amount or timing of the recovery cannot be predicted at this time.      

 The Company's cash requirements include (i) ongoing costs relating to            
pursuing the settlement of the Company's dispute with the U.S. Navy, (ii)         
professional fees and other costs associated with defending GFI's request for     
purchase price adjustments; and (iii) general and administrative expenses.        
The Company anticipates that existing cash and cash equivalents (after giving     
effect to the dividend paid on August 1, 1996) will be sufficient to satisfy      
the Company's cash requirements through the time of settlement with the U.S.      
Navy and GFI and final liquidation of the Company.  Although management           
cannot currently estimate when these situations will be resolved, the Company     
has retained what it considers sufficient funds to allow it to pursue             
equitable settlements with regard to all open matters currently pending.          

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                  REPORT OF INDEPENDENT ACCOUNTANTS                               

Board of Directors and Stockholders                                               
Hi-Shear Industries Inc.                                                          
North Hills, New York                                                             

     We have audited the accompanying consolidated balance sheets  of Hi-Shear    
Industries Inc. and Subsidiaries as of May 31, 1996 and 1995, and the  related    
consolidated statements  of operations,stockholders' equity and cash flows for    
each of the  three years in the period  ended May 31, 1996,  and the financial    
statement  schedule listed  in the Index  at Item 14(a)(2)  of this form 10-K.    
These  financial  statements  and the  financial  statement  schedule  are the    
responsibility of the Company's management.  Our  responsibility is to express    
an opinion on these financial statements and  the financial statement schedule    
based on our audits.                                                              
     We  conducted our  audits in accordance  with generally accepted auditing    
standards.  Those  standards require  that we  plan and perform  the audit  to    
obtain reasonable  assurance about whether  the financial statements are  free    
of  material misstatement.    An audit  includes examining,  on a  test basis,    
evidence supporting the amounts and  disclosures in the financial  statements.    
An  audit  also  includes   assessing  the  accounting  principles   used  and    
significant estimates  made by management, as  well as evaluating  the overall    
financial  statement presentation.    We believe  that  our audits  provide  a    
reasonable basis for our opinion.                                                 

     In  our  opinion, the  financial  statements  referred to  above  present    
fairly,  in all  material  respects, the  consolidated  financial position  of    
Hi-Shear  Industries Inc.  and Subsidiaries as  of May 31,  1996 and 1995, and    
the consolidated results of their operations and their cash flows for  each of    
the three years in the period ended May 31, 1996  in conformity with generally    
accepted accounting  principles.  In addition,  in our opinion,  the financial    
statement  schedule referred  to above,  when considered  in  relation to  the    
basic financial statements  taken as a whole, presents fairly, in all material    
respects, the information required to be included therein.                        

     As discussed  in the Commitments  and Contingencies note to  Consolidated    
Financial  Statements, on  May 31,  1995,  the Company  was notified  that its    
appeal was  successful regarding  the default  for terminations  filed by  the    
Navy related to  certain contracts and  that the contracts had  been converted    
to terminations for the convenience  of the government.  On January  31, 1996,    
the Company  filed damage claims totaling $62.9  million against the Navy with    
respect  to these contracts.  These claims are subject to government audit and    
their  amount  may be  contested by the Navy.   Therefore, the total amount or    
timing of the recovery cannot be predicted at this time and no  recognition of    
income related to this claim has been made in the consolidated financial          
statements.                                                                       

     On  February 26,  1996, the  Company sold  its last  operating asset  and    
effectively ceased  operations.  The  Company is  presently in the  process of    
liquidation,  and management's  plans in  regard to  this  matter are  further    
discussed  in   the  Summary  of  Significant   Accounting  Policies  Note  to    
Consolidated Financial Statements.                                                

                                   COOPERS & LYBRAND L.L.P.                       

Los Angeles, California                                                           
August 7, 1996                                                                    

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               HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES                          
                       CONSOLIDATED BALANCE SHEETS                                

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                                                                 May 31,          
                                                        --------------------------
                                                            1996         1995     
                                                        --------------------------
                                                            (000 Omitted)         
                                                                                  
    ASSETS                                                                        
Current assets:                                                                   
  Cash and equivalents                                       $30,914         $636 
  Accounts receivable                                              -        9,879 
  Inventories                                                      -       22,821 
  Other                                                          189        1,510 
                                                        --------------------------
    Total current assets                                      31,103       34,846 

Property, plant and equipment, at cost:                                           
  Land                                                            80           80 
  Buildings and improvements                                       -        5,547 
  Machinery, equipment and fixtures                              188       21,580 
                                                        --------------------------
                                                                 268       27,207 
  Less, accumulated depreciation and amortization               (170)     (16,067)
                                                        --------------------------
                                                                  98       11,140 
Other assets                                                   1,547        3,528 
                                                        --------------------------
           Total assets                                      $32,748      $49,514 
                                                        ==========================

    LIABILITIES AND STOCKHOLDERS' EQUITY                                          

Current liabilities:                                                              
  Notes payable                                                   $-       $1,835 
  Accounts payable                                                 -        2,851 
  Accrued income taxes                                            43          145 
  Accrued salaries and wages                                       -        1,607 
  Other accrued expenses                                       1,088        6,125 
                                                        --------------------------
    Total current liabilities                                  1,131       12,563 
Long-term debt                                                     -        9,872 

Commitments and contingencies                                                     

Stockholders' equity:                                                             
  Capital stock:                                                                  
  Preferred stock, $1 par value: authorized 500,000                               
     shares; none issued                                           -            - 
  Common stock, $.10 par value: authorized 10,000,000                             
    shares; issued 6,139,756 shares                              614          614 
  Paid-in capital                                             34,572       34,572 
  Accumulated deficit                                           (865)      (1,971)
  Cumulative translation, pension and                                             
    other adjustments                                              -       (3,432)
  Less treasury stock, at cost (285,138 shares)               (2,704)      (2,704)
                                                        --------------------------
                                                              31,617       27,079 
                                                        --------------------------
    Total liabilities and stockholders' equity               $32,748      $49,514 
                                                       ========================== 

See notes to consolidated financial statements.                                   


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HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES         
CONSOLIDATED STATEMENTS OF OPERATIONS         

                                                        · Enlarge/Download Table


                                                     Years ended May 31,                  
                                                ------------------------------------------
                                                    1996           1995          1994     
                                                -------------  ------------- -------------
                                                      (000 Omitted except                 
                                                        per share data)                   
                                                                                          
Revenues:                                                                                 
  Net sales                                          $45,268        $57,484       $55,332 
  Other                                                1,132          1,155         1,133 
                                                -------------  ------------- -------------
                                                      46,400         58,639        56,465 
                                                -------------  ------------- -------------
Cost of goods sold                                    37,316         46,855        46,979 
Selling, general and administrative expenses           8,870         10,826        11,361 
                                                -------------  ------------- -------------
                                                      46,186         57,681        58,340 
                                                -------------  ------------- -------------

    Operating income (loss)                              214            958        (1,875)

Gain on sale of subsidiary                             1,768              -             - 
Interest income                                          434              6           100 
Interest expense                                      (1,071)        (1,298)       (1,039)
                                                -------------  ------------- -------------

    Income (loss) before income taxes                                                     
       and discontinued operations                     1,345           (334)       (2,814)
Provision for income taxes                               239            211           160 
                                                -------------  ------------- -------------

    Income (loss) before discontinued                                                     
       operations                                      1,106           (545)       (2,974)
Loss from discontinued operations                                                         
   (net of income taxes)                                   -              -        (2,616)
                                                -------------  ------------- -------------

     Net income (loss)                                $1,106          ($545)      ($5,590)
                                                =============  ============= =============

Weighted average Common shares                                                            
  outstanding                                          5,855          5,855         5,855 
                                                -------------  ------------- -------------

Income (loss) per share before                                                            
       discontinued operations                         $0.19         ($0.09)       ($0.51)
(Loss) per share from discontinued                                                        
       operations                                          -              -         (0.45)
                                                -------------  ------------- -------------
    Net income (loss) per share                        $0.19         ($0.09)       ($0.96)
                                                =============  ============= =============

See notes to consolidated financial statements.                                           


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                           HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
                           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                           Years ended May 31, 1996, 1995 and 1994

                                                        · Enlarge/Download Table


                                                                                             Cumulative                    
                                                                                             translation,                  
                                                        Common Stock              Retained   pension and  Treasury Stock   
                                                      ---------------   Paid-in   earnings      other     --------------   
                                                       Shares   Amount  captial   (deficit)  adjustments  Shares   Amount  
                                                      -------  -------  -------    -------    -------     ------   ------  
                                                                            (000 Omitted)                                  
                                                                                                                           
Balance, May 31, 1993                                  6,140     $614   $34,572    $4,164    ($1,845)     (285)   ($2,704) 
Unrealized foreign currency translation adjustments        -        -         -         -       (176)        -          -  
Net loss                                                   -        -         -    (5,590)         -         -          -  
Pension adjustment                                         -        -         -         -     (1,886)        -          -  
                                                    --------  -------  --------  --------  ---------   --------   -------- 
Balance, May 31, 1994                                  6,140      614    34,572    (1,426)    (3,907)     (285)    (2,704) 
Unrealized foreign currency translation adjustments        -        -         -         -        378         -          -  
Net loss                                                   -        -         -      (545)         -         -          -  
Pension adjustment                                         -        -         -         -         97         -          -  
                                                    --------  -------  --------  --------  ---------   --------   -------- 
Balance, May 31, 1995                                  6,140      614    34,572    (1,971)    (3,432)     (285)    (2,704) 
Unrealized foreign currency translation adjustments        -        -         -         -       (265)        -          -  
Realized foreign currency translation and pension                                                                          
   adjustments upon sale of subsidiary                     -        -         -         -      3,697         -          -  
Net Income                                                 -        -         -     1,106          -         -          -  
                                                    --------  -------  --------  --------  ---------   --------   -------- 
Balance, May 31, 1996                                  6,140     $614   $34,572     ($865)        $0      (285)   ($2,704) 
                                                    =======================================================================

See notes to consolidated financial statements                                                                             

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               HI-SHEAR INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS

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                                                                                   Years Ended May 31,                  
                                                                 -------------------------------------------------------
                                                                       1996               1995               1994       
                                                                 ------------------ -----------------  -----------------
                                                                                    (000 Omitted)                       
                                                                                                                        
Cash flows from operating activities:                                                                                   
Net income (loss)                                                           $1,106             ($545)           ($5,590)
Adjustments to reconcile net income (loss) to net                                                                       
    cash provided by operating activities:                                                                              
      Net gain on sale of subsidiary                                        (1,768)                -                  - 
         Depreciation and amortization                                       1,789             2,006              2,686 
      DefLossdfromodiscontinued operations                                       -                 -              2,616 
         (Increase) decrease in accounts receivable                         (1,181)              235              1,247 
         Decrease in inventories                                               693               813              1,725 
         Increase in other assets                                             (842)           (1,642)              (208)
         Increase (decrease) in accrued income taxes                            95               (61)              (117)
         Increase (decrease) in accounts payable, accrued                                                               
           salaries and wages and other accrued expenses                    (1,295)             (144)              (404)
         Cash used for discontinued operations                                   -                 -             (1,223)
                                                                 ------------------ -----------------  -----------------
           Net cash provided by (used for) operating activities             (1,403)              662                732 
                                                                 ------------------ -----------------  -----------------

Cash flows from investing activities:                                                                                   
    Capital expenditures                                                    (3,344)           (1,649)            (1,596)
    Net proceeds from sale of subsidiary                                    45,397                 -                  - 
    Proceeds from sale of property and equipment                                83                45                  9 
    Proceeds from sale of discontinued operations                                -                 -              4,100 
                                                                 ------------------ -----------------  -----------------
           Net cash provided by (used for) investing activities             42,136            (1,604)             2,513 
                                                                 ------------------ -----------------  -----------------

Cash flows from financing activities:                                                                                   
    Proceeds from (payment of) short-term debt                                (409)              701            (13,108)
    Proceeds from long-term debt                                            39,141            50,918             50,808 
    Payment of long-term debt                                              (49,188)          (50,999)           (40,855)
                                                                 ------------------ -----------------  -----------------
           Net cash provided by (used for) financing activities            (10,456)              620             (3,155)
                                                                 ------------------ -----------------  -----------------
Effect of exchange rate changes on cash                                          1                18                  6 
                                                                 ------------------ -----------------  -----------------
Net increase (decrease) in cash and cash equivalents                        30,278              (304)                96 
Cash and cash equivalents - beginning of year                                  636               940                844 
                                                                 ------------------ -----------------  -----------------
Cash and cash equivalents - end of year                                    $30,914              $636               $940 
                                                                 ================== =================  =================

Supplemental disclosures of cash flow information                                                                       
  Cash paid during the year for:                                                                                        
    Interest                                                                $1,049            $1,232             $1,427 
    Income taxes                                                               341               239                283 

See notes to consolidated financial statements                                                                          


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HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES           
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS          

Summary of Significant Accounting Policies                                      

The significant accounting policies followed in the preparation of the
accompanying consolidated financial statements of Hi-Shear Industries Inc.      
and Subsidiaries (the "Company") are summarized below:                          

  Basis of Presentation.    The financial statements reflect the operating
results of Hi-Shear Corporation and Subsidiaries ("HSC") until its sale on      
February 26, 1996.                                                              

The financial statements also reflect the results of the former       
subsidiaries, Hi-Shear Technology Corp. ("HSTC") and Defense Systems            
Corporation ("DSC"), as discontinued operations.  Respective operating          
results of these subsidiaries for all prior periods presented have been         
segregated along with related taxes, and reported as discontinued operations    
on the Consolidated Statements of Operations.  Net assets of discontinued       
operations have been segregated on the Consolidated Statements of Cash Flows.   
With the sale of HSC,the Company no longer conducts an operating business.      
The Company currently anticipates that upon final resolution of its claims      
against the U.S. Navy, it will complete the distribution of its assets to       
stockholders and seek stockholder approval to dissolve the Company.             

Principles of Consolidation.  The consolidated financial statements   
include the accounts of Hi-Shear Industries Inc. and its majority-owned         
subsidiaries.  All intercompany accounts and transactions have been             
eliminated in consolidation.                                                    

Use of Estimates and Assumptions.  The preparation of financial       
statements in conformity with generally accepted accounting principles          
requires management to make estimates and assumptions that affect the           
reported amounts of assets and liabilities and disclosure of contingent         
assets and liabilities at the dates of the financial statements and the         
reported amounts of revenues and expenses during the reporting periods.         
Actual results could differ from those estimates.                               

Cash and Equivalents.  The Company considers all highly liquid        
investments with an original maturity of three months or less to be cash        
equivalents.  The cash balances on deposit are held principally at one          
financial institution and exceed insurable amounts.  The Company believes it    
mitigates its risks by investing in or through a major financial institution.   
Cash and cash equivalents are reflected in the accompanying consolidated        
balance sheet at amounts considered by management to reasonably approximate     
fair value.                                                                     

Inventory Valuation.  Inventories are valued at the lower of cost or  
market.  Cost is determined by the first-in, first-out (FIFO) method.           

Property, Plant and Equipment.  Land, buildings, and equipment are    
carried at cost.  For financial reporting purposes,                             

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HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES         
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)            
Summary of Significant Accounting Policies - (Continued)                    

depreciation expense is provided on a straight line basis, using estimated      
useful lives of 2 to 40 years for buildings and improvements, and 3 to 10       
years for machinery and equipment.  Accelerated methods have been used for      
tax purposes where permitted.  Upon disposition, the cost and related           
accumulated depreciation are removed from the accounts and the resulting gain   
or loss is reflected in earnings for the period.                                

Income Taxes.  The Company and its subsidiaries file consolidated     
federal and state income tax returns.  Deferred provision is made for income    
taxes resulting from timing differences in the recognition of income and        
expense for tax and financial reporting purposes.  Effective June 1, 1993 the   
Company adopted Statement of Financial Standards No. 109 "Accounting for        
Income Taxes" which requires recognition of deferred tax assets and             
liabilities for temporary differences and net operating loss (NOL) and tax      
credit carryforwards.  Under this statement, deferred income taxes are          
established based on enacted tax rates expected to be in effect when            
temporary differences are scheduled to reverse and NOL and tax credit           
carryforwards are expected to be utilized.  A valuation allowance is provided   
when it is more likely than not that some portion or all of the deferred tax    
assets will not be realized.  The adoption of Statement 109 did not have a      
material effect on the 1994 consolidated financial statements.                  

Earnings Per Share.  Earnings per share are computed based on weighted
average number of common shares outstanding (excludes treasury stock) during    
the periods.  The effect of common stock equivalents is not significant for     
any periods presented.                                                          

Sale of Subsidiary                                                              

On February 26, 1996, pursuant to approval received at the Annual     
Meeting of Shareholders on February 23, 1996, the Company sold its aerospace    
fastener subsidiary Hi-Shear Corporation and its subsidiaries to GFI            
Industries S.A. of Belfort, France for $46 million in cash.  The sale was       
treated as a sale of stock for accounting purposes.  As a result, the Company   
recognized a gain of approximately $1.8 million in its statement of             
operations and the related balance sheet accounts of Hi-Shear Corporation and   
its affiliated companies were removed from the Company's consolidated balance   
sheet.  The sales price is subject to adjustment based upon a review of the     
closing balance sheet of Hi-Shear Corporation and verification by GFI of the    
net asset value as required under the terms of the sale.  To date, the          
Company and GFI have been unable to reach an agreement on the net asset value   
with GFI requesting downward adjustments to the sales price totaling $6.4       
million.  Management of the Company firmly believes that the closing balance    
sheet as presented to GFI is in accordance with the terms of the Stock          
Purchase Agreement.  The disagreement is being submitted to arbitration as      
required under the Stock Purchase Agreement.  The parties are currently in      
the preliminary                                                                 

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HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES         
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)  

stages of selecting an arbitrator.  Under the terms of the agreement for the    
sale of HSC, the Company is restricted from distributing to its stockholders,   
by means of dividend or otherwise, at least $3.0 million of the purchase        
price through March 31, 1997.  Subsequent to that date, the Company may         
distribute all remaining funds subject to the resolution of purchase price      
adjustments, if any, with GFI.  See Commitments and Contingencies in notes to   
consolidated financial statements.                                              

Discontinued Operations                                                         

 In fiscal 1991, the Company adopted a plan to discontinue its Space and
Defense operations, which were comprised of HSTC and DSC.  A provision of       
$22.4 million (net of income tax benefit of $2.6 million) was recorded in       
fiscal 1991 to write down the net assets of these businesses to their           
estimated realizable values, record estimated transaction costs and report      
operating results during the phaseout period.  During fiscal 1992, management   
reevaluated HSTC and decided to reinstate this subsidiary to continuing         
operations.  An amount of $3.4 million previously reserved for discontinued     
operations of HSTC was reallocated to provide for additional losses             
associated with the disposal of DSC.  In the fourth quarter of fiscal 1993,     
the Company entered into an agreement to sell HSTC to a newly formed            
corporation led by two managers of the subsidiary.  An amount of $6.2 million   
was  recorded in fiscal 1993 to provide for losses associated with the          
disposal of HSTC.  The sale of this facility for an amount of $4.1 million was  
successfully concluded in June 1993.  Proceeds from the sale were used to pay   
down bank debt.  During fiscal 1994, the Company recorded an additional         
provision for loss on disposal of discontinued operations on DSC due to         
additional expenses, legal costs and lower than anticipated proceeds on the     
sale of material and equipment.                                                 

Loan Agreements                                                                 

Prior to February 26, 1996, the Company maintained a revolving line of
credit which provided for borrowings tied to a percentage of eligible           
accounts receivable and inventory with a maximum borrowing capacity of $15      
million.  Borrowings under this agreement were collateralized by                
substantially all of the assets of HSC.  Concurrent with the sale of HSC, the   
Company used a portion of the proceeds of the sale to pay off this loan         
obligation as well as a term loan facility maintained by a foreign subsidiary   
of HSC.  At May 31, 1995, the Company had no credit facilities or other loan    
agreements.                                                                     

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HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES 
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Inventories                                                                 

Inventories consist of:                                             
                                 May 31,
                                   ---------------------
                                1995
                              ----
                               (000 Omitted)

Raw materials......................        $4,074           
Work in process....................         6,504           
Finished goods ....................        12,243           
                               -------
                               $22,821
                               =======

Cost elements included in determining inventory values are raw    
materials, freight, direct labor and manufacturing overhead.                

Provision For Income Taxes                                                  

   The components of the income tax provision are summarized as follows:

                                   Years ended May 31,
                                  ------------------------
                                      1996     1995     1994
                                   ---------   ------   ------
                                 (000 Omitted)

Current:                                                              
Domestic                                        
            Federal...................    $160     $ 24     $ 17
            State and local...........      58       27       28
        Foreign.......................      21      187      132
                                       -------  -------  -------
                                           239      238      177
                                       -------  -------  -------
Deferred:                                                             
Domestic                                        
             Federal...................       -        -      (17)
             State and local...........       -        -       (6)
        Foreign.......................       -      (27)       6
                                       -------  -------  -------
                                              -      (27)     (17)
                                       -------  -------  -------
Total income tax provision ...                 $239     $211     $160     
                                       =======  =======  =======

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   HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Provision For Income Taxes - (Continued)                                        

 The components included in determining the provision for income taxes are
shown below:                                                                    
                     Years ended May 31,
                    ------------------------
                    1996     1995     1994
                    ------   ------   ------
                     (000 Omitted)
Tax provision at federal income tax                                             
statutory rate.....................   $457    $(113)   $(957)               
Increase (decrease) in taxes                                                    
resulting from:                                                             
Permanent differences............      -      (11)    (115)             
Foreign tax rate differences.....      1       39        8              
Alternative minimum tax..........    177       24        -              
Benefit of operating loss                                               
carryforwards                     (457)       -        -            
Unrecognized tax benefit               -      236    1,210              
State and local taxes on income,                                        
net of federal tax benefit.....     38       18       14            
Other............................     23       18        -              
                    ------   ------   ------
Income tax provision per consolidated                                           
statements of operations..........   $239     $211     $160               
                    ======   ======   ======

Deferred income taxes reflect the net tax effects of temporary        
differences between the carrying amounts of assets and liabilities for          
financial reporting purposes, and the amounts used for income tax purposes.     
The major components of deferred tax liabilities and assets as of May 31,       
1996 and 1995 were as follows:                                                  

                               May 31,
                             ---------------
                              1996    1995
                             ------- -------
                             (000 Omitted)
Liabilities                                                                 
Property, plant and equipment              $     - $  (426)             
                             ------- -------
Total deferred tax liabilities                       -    (426)                 
                             ------- -------
Assets                                                                      
Bad debt reserves                                -     132              
Pension benefits                                 -     392              
Accrued vacation pay                             -     374              
Federal net operating loss carryforwards     2,841   6,239              
State net operating loss caryforwards          299     376              
Foreign tax credit carryforwards                39      76              
Capital loss carryforwards                       -     320              
Alternative minimum tax credit carryforwards   369     178              
Charitable contribution carryforwards          119     116              
Other                                          190     211              
                             ------- -------
Total deferred tax assets                 3,857   8,414           
                             ------- -------
Valuation allowance                         (3,857) (7,988)             
                             ------- -------
Net deferred taxes                      $     - $     -           
                              ======== =======

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   HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

As of May 31, 1996, the Company had a federal net operating loss      
carryforward of approximately $8,400,000 which expires between 2006 and 2009,   
state net operating loss carryforward of approximately $4,900,000 expiring      
between 1998 and 2000, foreign tax credit carryforward of $39,000 expiring in   
1997 and alternative minimum tax credit carryforward of $369,000 with no        
expiration.                                                                     

Pension and Incentive Compensation Plans                                        

Prior to February 26, 1996, the Company maintained a defined benefit    
pension plan and deferred investment profit sharing plan covering               
substantially all of its eligible domestic employees.  The Company also had     
contractual arrangements with certain key employees which provided for          
supplemental retirement benefits.  The Company's policy was to fund pension     
costs annually based on accrued amounts and to amortize past service pension    
costs over a thirty-year period.  Effective with the sale of HSC on February    
26, 1996, these plans and related liabilities and assets were assumed by the    
purchaser of HSC.  For the fiscal year ended May 31, 1996, the Company          
incurred total pension costs of approximately $365,000.  The components of      
such costs are not available as the Company did not prepare actuarial           
calculations for the fiscal year ended May 31, 1996.  The following financial   
information regarding these plans, relates to periods prior to the sale.        

Net periodic pension cost for fiscal years 1995 and 1994 consists of the  
following:                                                                      

Fiscal Years Ended May 31,  
--------------------------------  
1995             1994 
---------------  ---------------
Funded Unfunded  Funded Unfunded
------ --------  ------ --------
(000 Omitted) 
Service cost for                                                                
benefits earned                                                               
during the year         $  -     $107    $  -     $171                        
Interest cost on                                                                
projected                                                                     
benefit                                                                       
obligation.....          522      185     520      152                        
Actual return                                                                   
on plan assets          (166)       -    (185)       -                        
Asset gain (loss)        (321)      38    (317)       6                         
Net amortization           95       72     (10)      72                         
-----    -----   -----    ----- 
Net periodic                                                                    
pension cost...         $130     $402      $8     $401                        
=====    =====   =====    ===== 

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HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES           
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Pension and Incentive Compensation Plans - (Continued)                          

The following table sets forth the funded status of the Company's       
domestic pension plans:                                                         

     As of the Fiscal Year Ended
     -----------------------------------
          May 31, 1995
       -----------------
       Funded   Unfunded
       ------   --------
   (000 Omitted)
Actuarial present value of:                                                     
Vested benefit obligation       $6,877     $2,336                           
Accumulated benefit                                                         
obligation.............        6,877      2,549                         
Projected benefit                                                           
obligation.............        6,877      2,549                         
Plan assets at fair value,                                                  
primarily mutual funds.        5,489          -                         
Projected benefit oblig-                                                    
ation in excess of                                                      
plan assets............      $(1,388)   $(2,549)                        
Unrecognized net (asset)                                                        
obligation...............         (138)       503                           
Unrecognized net                                                                
loss.....................        1,932        681                           
    -------    -------
Pension asset (liability)..         $406    $(1,365)                            
    =======    =======

The weighted average discount rate in 1995 was 8.00% for all plans.  The
expected long-term rate of return on funded plan assets was 9%.  Plan assets    
for the unfunded plan consist of life insurance policies on the lives of the    
plan participants; accounting principles do not permit recognition of such      
policies as plan assets.                                                        

In accordance with the provisions of Statement of Financial Accounting  
Standards No. 87 "Employers Accounting for Pensions," the Company recorded      
additional minimum pension liabilities totaling $2,978,000 at May 31, 1995.     
This amount was included in "Other accrued liabilities" on the Company's        
balance sheet.  This liability was offset by an intangible asset of $484,000    
resulting in a cumulative reduction to retained earnings of $2,494,000 as of    
May 31, 1995.                                                                   

        HSC had a discretionary incentive compensation plan which provided
current and deferred compensation to various employees based upon the           
achievement of specific levels of operational earnings and other financial      
performance criteria.  The amounts charged to expense under these plans were    
$0, $62,000 and  $75,000 for the years ended May 31, 1996, 1995 and 1994,       
respectively.                                                                   

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   HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)            

Pension and Incentive Compensation Plans - (Continued)                          

Pension coverage for employees of Hi-Shear Corporation's foreign      
subsidary was provided through a separate plan.  Obligations under this plan    
were provided for by depositing funds with a trustee.  The 1996, 1995 and       
1994 pension cost for the plan was approximately $150,000, $197,000 and         
$190,000, respectively.  In 1995, approximately $470,000 represented the excess 
of the accumulated pension cost over the payment of contributions to the pension
fund and was included in "Other accrued liabilities" on the Company's balance   
sheet.                                                                          

Contributions to Hi-Shear Corporation's Deferred Investment Profit    
Sharing Plan under Section 401(k) of the Internal Revenue Code were             
$285,000, $444,000 and $399,000 for the years ended May 31, 1996, 1995 and      
1994, respectively.  Subsequent to the sale of HSC, the Company transferred     
the balances of its corporate employees who participated in this plan to a      
new Hi-Shear Industries Inc. 401(k) Profit Sharing Plan.  Company               
contributions to this Plan for the year ended May 31, 1996 were $28,000.        

Capital Stock                                                                   

  Common stock outstanding at May 31, 1996 does not include 284,222 shares
reserved under the Company's stock option incentive plan.  At May 31, 1996,     
there were no options outstanding under this plan.                              

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HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES           
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)            

Operating Segment Information and Concentration of Credit Risk                  

Prior to the sale of Hi-Shear Corporation on February 26, 1996, the Company     
operated primarily in one industry segment,  the manufacture and sale of        
precision fastening systems and components.  The Company serviced its           
worldwide customer base from two manufacturing facilities located in Torrance   
California and Rugby England.  Financial information for fiscal 1996,           
includes the operating activity for the nine month period prior to the sale.    

Sales and transfers between geographic areas were generally priced to recover   
cost plus an appropriate mark-up for profit.  Sales and transfers from          
domestic to foreign locations amounted to $1,110,000, $1,566,000, and           
$579,000 for fiscal 1996, 1995 and 1994, respectively.  Sales and transfers     
from foreign to domestic locations were not material for any period             
presented.  Operating profit is revenue less related costs and direct and       
allocated operating expenses, excluding interest and corporate expenses.        
Corporate assets are those assets maintained for general purposes,              
principally cash and cash equivalents and corporate facilities.                 

In fiscal 1996, 1995 and 1994, approximately 13%, 17% and 15%  respectively,    
of revenue was attributable to a single customer who purchases through          
several different divisions and plants.                                         

A summary of the Company's operations by geographic area is presented below:    

(Dollars in thousands)         1996      1995       1994                        
------------------------------------------------------------                    
Net Revenues to Unaffiliated                                                    
Customers:                                                                  
United States               $36,547    $46,547    $46,162                 
Foreign                       9,853     12,092     10,303                 
           -------    -------    -------
           $46,400    $58,639    $56,465
           =======    =======    =======
Operating Profit:                                                               
United States                $2,518     $3,233       $577                 
Foreign                         189        341        422                 
           -------    -------    -------
             2,707      3,574        999

Gain on Sale of Subsidiary       1,768          -          -                    
Corporate Expenses              (2,493)    (2,616)    (2,874)                   
Interest, net                     (637)    (1,292)      (939)                   
           -------    -------    -------
Profit (Loss) before                                                            
income taxes                $1,345      $(334)   $(2,814)               
           =======    =======    =======

Identifiable Assets                                                             
United States               $     -     $37,146    $39,157                
Foreign                           -       9,000      7,812                
Corporate                    32,748       3,368      2,146                
            -------     -------    -------
            $32,748     $49,514    $49,115
            =======     =======    =======

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HI-SHEAR INDUSTRIES INC.                
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Operating Segment Information and Concentration of Credit Risk - (Continued)    

Foreign operations were conducted primarily in Europe.  Certain products were   
manufactured in the United States and exported to foreign customers.  Export    
sales from domestic operations were $4,700,000, $8,300,000 and $7,200,000 for   
the years ended May 31, 1996, 1995 and 1994, respectively.                      

The Company sold aerospace and transportation fastening systems worldwide,      
primarily to major aircraft and automotive manufacturers.  Concentrations of    
credit risk were limited due to the large number of customers which comprise    
the Company's customer base.  Credit was extended based upon an evaluation of   
each customer's financial condition, and generally, collateral was not          
required.  Credit losses, if any, have been provided for in the financial       
statements, and have been consistently within management's expectations.        

Commitments and Contingencies                                                   

In March 1991, the Company terminated the operations of one of its    
subsidiaries, Defense Systems Corporation in Reno, Nevada.  As a result of      
shutting down operations at this facility, two contracts with the U.S. Navy     
were terminated for default.  The Company appealed the default terminations     
and on May 31, 1995 its appeals from the default terminations was sustained     
by the armed services Board of Contract Appeals.  This decision released the    
Company from any obligation to repay progress payments received under the       
contracts, and entitled the Company to recover contract and additional costs    
expended in connection with the contracts.  On January 31, 1996, the Company    
filed damage claims against the U.S. Navy totaling $62.9 million.  These        
claims are subject to government audit and their amount may be contested by     
the U.S. Navy.  Therefore the total amount or timing of the recovery cannot be  
predicted at this time.  The Company had previously written off additional      
costs associated with this matter due to the uncertainty of the outcome,        
however, since the rendering of the favorable decision, the Company began       
accruing additional costs incurred, primarily claims preparation and legal,     
as claims receivable.  At May 31, 1996 claims receivable of $1.4 million are    
included as other long term assets on the balance sheet, as management          
believes collection of such amounts are probable.  Since the ultimate recovery  
of these claims cannot presently be determined, no recognition from any         
settlement proposal, other than the claim receivable noted above,has been       
reflected in the accompanying financial statments.                              

In connection with the sale of its aeropsace fastener subsidiary Hi-  
Shear Corporation in February 1996, the Company and the purchaser have been     
conducting financial reviews dealing with the valuation of certain assets and   
liabilities contained in the closing balance sheet of HSC and its related       
subsidiaries.  To date, the Company and GFI have been unable to reach an        
agreement                                                                       

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HI-SHEAR INDUSTRIES INC.            
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Commitments and Contingencies - (Continued)                                     

on the net asset value with GFI requesting downward adjustments to the sales    
price totaling $6.4 million.  Management of the Company firmly believes that    
the closing balance sheet as presented to GFI is in accordance with the terms   
of the Stock Purchase Agreement.  The disagreement is being submitted to        
arbitration as required under the Stock Purchase Agreement.  The parties are    
currently in the preliminary stages of selecting an arbitrator.  Management     
of the Company does not believe that adjustments, if any, resulting from this   
arbitration will have a material adverse impact on its financial position.      
Due to the uncertainty of the outcome of this arbitration, no adjustments       
which may occur as a result of the arbitration have been recognized in the      
Company's May 31, 1996 financial statements.                                    

The Company is involved in various other actions arising in the normal
course of business with respect to contracts and employment claims.             
Management, after taking into consideration legal counsel's evaluation of all   
contingent matters believes that the disposition of these matters will not      
have a material adverse effect on the Company's financial position, net         
income or cash flows.                                                           

The Company's operations were conducted from leased facilities, all of
which were under operating leases which expired at various dates through        
2004.  The Company also had operating leases covering machinery and equipment   
which provided for the Company to pay operating expenses.  All leases, other    
than the lease of corporate office space, were assigned to the purchaser of     
HSC or terminated.                                                              

In addition to related property taxes and insurance, the Company made 
net rental payments of approximately, $950,000, $1,278,000 and $1,260,000, for  
the years ended May 31, 1996, 1995 and 1994, respectively.  At May 31, 1996     
the Company's commitment for future minimum lease payments under a              
noncancellable operating leases is $138,000.                                    

Subsequent Event                                                                

 On August 1, 1996, the Company made an initial liguidating distribution
of approximately $23,400,000 ($4.00 per share) to stockholders of record on     
July 25, 1996.                                                                  

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HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES 

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Summary Of Quarterly Results (Unaudited)                                        
The following summarizes unaudited quarterly financial data for the fiscal      
years ended May 31, 1996 and May 31, 1995:                                      

                                                        · Enlarge/Download Table

                                                                                For The Quarter Ended                     
                                                              ------------------------------------------------------------
                                                               Aug 31,          Nov 30,          Feb 28,           May 31,
                                                                1995             1995             1996              1996  
                                                              --------         --------          --------         --------
                                                                      (000 Omitted, except per share data)                

                                                                                                                          
Revenues                                                       $14,877          $16,264           $15,144             $115
                                                              ========         ========          ========         ========
Gross profit                                                    $2,325           $2,912            $3,198             $649
                                                              ========         ========          ========         ========
Net incone (loss)                                               ($475)            ($199)           $1,709 (A)          $71
                                                              ========         ========          ========         ========
Net income (loss) per share                                     $(.08)            $(.03)             $.29             $.01
                                                              ========         ========          ========         ========

                                                               Aug 31,          Nov 30,          Feb 28,           May 31,
                                                                1994             1994             1995              1995  
                                                              --------         --------          --------         --------
Revenues                                                       $13,838          $14,303           $14,461          $16,037
                                                              ========         ========          ========         ========
Gross profit                                                    $2,507           $3,056            $2,847           $3,374
                                                              ========         ========          ========         ========
Net income (loss)                                                ($328)            ($27)            ($241)             $51
                                                              ========         ========          ========         ========

Net income (loss) per share                                     ($0.06)              $-            ($0.04)           $0.01
                                                              ========         ========          ========         ========

(A)  Includes an estimated gain on sale of subsidiary of approximately                                                    
     $2 million which was adjusted in the Fourth Quarter.                                                                 


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Item 9.  Changes in and Disagreements with Accountants on Accounting and        
Financial Disclosure                                                            

None.                                                                   

PART III  

Item 10.  Directors and Executive Officers of the Company                       

Name                                Principal Occupation and Position           
----                                ---------------------------------           

Harold L. Bernstein                 Lawyer.  Secretary of the Company.          
                   Director of Pressure Piping
                      Components, Inc. (until 1985 a
                             manufacturer of industrial products).

Victor J. Galgano                   Vice President and Chief Financial Officer  
                                   of the Company. Director of Pressure Piping
        Components, Inc.

Philip M. Slonim                    Private investor.  Chairman of Pressure     
               Piping Components, Inc.

David A. Wingate                    Chairman of the Board, Chief Executive      
                             Officer and President of the Company.
                   Director of Pressure Piping
        Components, Inc.

Arthur M. Winston                   Investment Manager, Glickenhaus & Co.       
                                   Director of Lea Ronal, Inc. (a processor of
                                chemical specialties for the electronics
                                 and metal finishing industries). Director
                           of Pressure Piping Components, Inc.

Item 11. Executive Compensation                                                 

       The following table sets forth the cash compensation for services
rendered to the Company and its subsidiaries during the fiscal years 1996,      
1995 and 1994, paid to or accrued for those persons who were, at May 31,        
1996, the Company's Chief Executive and all of the other executive officers     
of the Company and subsidiaries whose total annual salary and bonus exceeded    
$100,000:                                                                       

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Summary Compensation Table                                                      
--------------------------                                                      

                              Annual
                               ---------------
                              Compensation
                               ---------------
                               Salary    Bonus
Name and Principal Position             Year      $         $                   
---------------------------             ----    ------    -----                 

David A. Wingate                        1996    $462,000    0                   
Chairman, President & Chief Executive   1995     458,000    0                   
                     1994     458,000    0

Robert A. Schell                        1996     175,000    0                   
Vice President & Chief Operating        1995     175,000    0                   
Officer/Space and Defense            1994     175,000    0                

Victor J. Galgano                       1996     162,000    0                   
Vice President and Chief Financial      1995     150,000    0                   
Officer                              1994     150,000    0                

Item 12.  Security Ownership of Certain Beneficial Owners and Management        

    The following table sets forth, as of August 23, 1996, certain
information concerning the persons known to management to be the beneficial     
owners of more than 5% of the Company's common stock, and for all of the        
Company's officers and directors as a group.  Except as otherwise indicated,    
the persons listed have sole voting and investment power with respect to        
shares beneficially owned by them.                                              
                                         Percent
                                          of
Name and Address of                       Amount          Common                
Beneficial Owner                     Beneficially Owned   Stock                 
-------------------                  ------------------  -------                

GAMCO Investors, Inc.                1,871,390 (1)(2)    31.96%                 
One Corporate Center                                                        
Rye, NY 10580                                                               
David A. Wingate                     1,181,494(3)        20.18%                 
3333 New Hyde Park Road                                                     
North Hills, NY 11042                                                       
Corbyn Invesment Management            645,360(4)        11.02%                 
2330 West Joppa Rd., Suite 108                                              
Lutherville, MD 21093                                                       
Greenspring Fund, Inc.                 532,260(4)         9.09%                 
2330 West Joppa Rd., Suite 110                                              
Lutherville, MD 21093                                                       
Philip M. Slonim                       446,067(5)         7.62%                 
P.O. 27835                                                                  
San Diego, CA 92128                                                         
Dimensional Fund Advisors Inc.         406,900(6)         6.95%                 
1299 Ocean Avenue                                                           
Suite 650                                                                   
Santa Monica, CA 90401                                                      
All directors and officers as a                                                 
group                             1,676,457           28.63%              
                    ---------           ------

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(1)     Firm and related entities have investment discretion regarding this     
aggregatenumber of shares, which are beneficially owned by many investment      
clients.                                                                        

(2)     Share ownership is based upon information in Amendment No. 40 to        
Schedule 13D filed with the Securities and Exchange Commission.                 

(3)     Include shares held by Mr. Wingate as the sole trustee of The Wingate   
Family Trust of 1980 and shares held by Mr. Wingate's spouse as the sole        
trustee of a revocable trust.  Does not include 150,000 shares owned by The     
David A. & Shoshanna Wingate Foundation Inc. of which Mr. Wingate is one of     
four directors.                                                                 

(4)     Share ownership is based upon information in Schedule 13G filed with    
the Securities and Exchange Commission.                                         

(5)     Mr. Slonim and spouse hold these shares as trustees of a revocable      
trust.                                                                          

(6)     Share ownership is based upon information in Amendment No. 7 to         
Schedule 13G filed with the Securities and Exchange Commission; the firm        
certifies that the shares were not acquired for the purpose of changing or      
influencing control of the Company.  Shares are held in portfolios of DFA       
Investment Dimensions Group Inc., a registered open-end investment company,     
or the DFA Group Trust, an investment vehicle for qualified employee benefit    
plans, both of which Dimensional Fund Advisors Inc. serves as investment        
manager.  Dimensional disclaims beneficial ownership of all such shares.        

Item 13.  Certain Relationships and Related Transactions                        

None.                                                     

PART IV 

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K       

(a)(1)  Financial Statements - See "Index to Consolidated 
Financial Statements" in Part II Item 8 herein.                                 

(a)(2)  Financial Statement Schedules                     

     Schedule II - Valuation and Qualifying Accounts

  All other schedules have been omitted because they are inapplicable, not
required, or the required information is included elsewhere in the financial    
statements or notes thereto.                                                    

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(a)(3)  Exhibits                                          

         (3)(a)  Certificate of Incorporation of the Company, restated
to include amendments adopted September 30, 1980, filed as an Exhibit to the    
Company's Report on Form 10-K filed with the Commission on August 28, 1981      
and incorporated herein by reference.                                           

  (3)(b)  By Laws of the Company, as amended March 27, 1986, filed as an
Exhibit to the Company's Report on Form 10-K filed with the Commission on       
August 26, 1986 and incorporated herein by reference.                           

(10)(a)  Contingent Compensation Agreement between the Company and an 
executive signed as of December 26, 1985 (updated November 17, 1987), filed     
as an Exhibit to the Company's Report on                                        
Form 10-K filed with the Commission on August 26, 1986 and incorporated         
herein by reference.                                                            

 (10)(b) Employment agreement dated October 16, 1989 between the Company
and an executive, filed as an Exhibit to the Company's Report on Form 10-K      
filed with the Commission on August 24, 1991 and incorporated herein by         
reference.                                                                      

(22)  Subsidiaries of the Company, filed herewith.                          

      All other required exhibits have been previously reported in the
Company's prior 10-K's.                                                         

Item 14 (b) Reports on Form 8-K                                                 

      On March 6, 1996, the Company reported that it had completed the
sale of its aerospace fastener business through the sale of all of the          
outstanding stock of its wholly-owned subsidiary, Hi-Shear Corporation to GFI   
Industries S.A. of Belfort, France.                                             

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                                                        · Enlarge/Download Table

                                                                                                       SCHEDULE II

                                          HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES                               
                                  SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS                                 
                                          For the years ended May 31, 1996, 1995 and 1994                         

                                             Balance      Charged to     Charged                        Balance   
                                          beginning of    costs and      to other                      at end of  
               Description                   period        expenses      accounts    Deductions (A)     period    
                 -------                     -------       -------       -------        -------         -------   
                                                                                                                  
1996:                                                                                                             
 Valuation adjustment for deferred                                                                                
    income tax assets ..................      $7,988            $0            $0           $4,131        $3,857   
                                           ====================================================================   

1995:                                                                                                             
   Valuation adjustment for deferred                                                                              
      income tax assets ................      $7,139             $0         $849               $0        $7,988   
                                           ====================================================================   

1994:                                                                                                             
   Valuation adjustment for deferred                                                                              
      income tax assets ................          $0             $0       $7,139               $0        $7,139   
                                           ====================================================================   

(A)  Deductions are the result of utilization of net operating loss carryforwards and reversal                    
       of other temporary differences.                                                                            

Dates Referenced Herein   and   Documents Incorporated By Reference

				Referenced-On Page
This 10-K Filing		Date		First		Last			Other Filings
		6/1/93		16
		5/31/94		13		31
		5/31/95		3		31			10-K
		1/31/96		3		24
		2/23/96		16					NT 10-Q
		2/26/96		2		23			8-K
		3/6/96		30					SC 13D/A
For The Period Ended		5/31/96		1		31
		7/25/96		25
		8/1/96		3		25
		8/7/96		10
		8/23/96		1		28
Filed On / Filed As Of		8/29/96
		3/31/97		4		17
		5/31/97		2					10-K
		6/1/98		2
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