<PAGE>



                       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, 1999             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 18, 1999, 5,854,618 shares of the Registrant's Common Stock were
outstanding. Of these shares, 1,677,218 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 $2.53 a share)
of the 4,177,400 shares held by non-affiliates of the registrant was
$10,570,000.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None.


<PAGE>


                                     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.

         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" dated
January 8, 1996, 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 2,475 square feet of space are leased at a
current annual rental of approximately $62,000 under a lease which expires
October 31, 2002.

         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.) being leased to a former subsidiary, Hi-Shear Technology
Corp., for $101,238 per year. The lease expired May 31, 1999. On June 4, 1999
this land was purchased by Hi-Shear Technology Corp. in accordance with the
lease terms. See SUBSEQUENT EVENTS in the notes to consolidated financial
statements.

<PAGE>


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. The government
audited these claims but was unwilling to negotiate a settlement of these claims
with the Company. As a result, on February 11, 1997, the Company filed an appeal
before the Armed Services Board of Contract Appeals requesting an adjudication
of this dispute. The Board conducted hearings on this appeal during August and
September 1998. Each side subsequently filed post hearing briefs and rebuttal
briefs in February and March 1999. The Board is currently considering the facts
brought out at the hearing as well as briefs filed by both sides in determining
the amount of claim damages to be awarded to the Company. 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." 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 following table sets forth the high and low prices per share of
the Company's Common Stock, as derived from trades executed on the
Over-The-Counter Exchange.


<PAGE>


<TABLE>
<CAPTION>

                                                    PER COMMON SHARE
                                                      MARKET PRICE
                                                    ----------------
                                                      HIGH     LOW
                                                      ----     ---
<S>                                                 <C>       <C>
Quarter Ended
  August 1998.........................              $3.00     $2.63
  November 1998.......................               2.88      2.44
  February 1999.......................               2.63      2.44
  May 1999............................               2.63      2.50

Fiscal Year Ended May 31, 1999                      $3.00     $2.44
                                                    -----     -----
                                                    -----     -----
  Quarter Ended
  August 1997.........................              $2.45     $2.25
  November 1997.......................               2.25      2.00
  February 1998.......................               2.50      2.00
  May 1998............................               2.63      2.00

Fiscal Year Ended May 31, 1998                      $2.63     $2.00
                                                    -----     -----
                                                    -----     -----
</TABLE>

         As of August 18, 1999 there were approximately 700 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, 1999. 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.

<TABLE>
<CAPTION>
                                                 FOR THE FISCAL YEAR ENDED MAY 31,
                                   --------------------------------------------------------------
                                   1999          1998          1997          1996          1995
                                   ----          ----          ----          ----          ----
                                            (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

<S>                             <C>           <C>           <C>           <C>           <C>
SELECTED STATEMENT OF
  OPERATIONS DATA:

Revenues from operations(A)     $     --      $     --      $     --      $ 46,400      $ 58,639
                                                                          --------      --------
                                                                          --------      --------

Net income (loss)(A)            $ (1,224)     $ (1,161)     $ (1,283)     $  1,106      $   (545)
                                --------      --------      --------      --------      --------
                                --------      --------      --------      --------      --------


Weighted Average Shares
  Outstanding                      5,855         5,855         5,855         5,855         5,855
                                --------      --------      --------      --------      --------
                                --------      --------      --------      --------      --------


Per Common Share Data:

Net income (loss)               $   (.21)     $   (.20)     $   (.22)     $    .19      $   (.09)
                                --------      --------      --------      --------      --------
                                --------      --------      --------      --------      --------

</TABLE>


<PAGE>

<TABLE>
<CAPTION>

                                                             AS OF MAY 31,
                                     ----------------------------------------------------
                                     1999        1998        1997        1996        1995
                                     ----        ----        ----         ----       ----
                                                       (DOLLARS IN THOUSANDS)
<S>                               <C>         <C>         <C>         <C>         <C>

Selected Balance Sheet Data:
Current assets                    $   100     $ 2,308     $ 5,105     $31,103     $34,846
Current liabilities                   343         382         640       1,131      12,563
Working capital (deficit)            (243)      1,926       4,465      29,972      22,283
Total assets                        4,873       6,136       7,555      32,748      49,514
Long-term debt                         --          --          --          --       9,872
Stockholders' equity                4,530       5,754       6,915      31,617      27,079

</TABLE>


(A) Includes revenues and income (loss) from operations of HSC through
February 26, 1996 at which date HSC was sold. For the year ended May 31, 1996,
net income (loss) includes a gain on the sale of HSC in the amount of
$1.8 million. With the completion of this sale, the Company disposed of its
last remaining operating assets and effectively ceased operations.


<PAGE>


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 its subsidiaries 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


         The Company had no operating activities subsequent to the sale of
Hi-Shear Corporation during fiscal 1996. The $1.2 million and $1.3 million of
general and administrative costs incurred in fiscal 1999 and 1998, respectively,
include professional and other costs associated with the dispute over price
adjustment on the sale of Hi-Shear Corporation as well as the ongoing costs
necessary to pursue the settlement of the Company's dispute with the U.S. Navy.

         The interest income reported in fiscal 1999, 1998 and 1997 was due to
interest earned on the investment of the proceeds from the sale of Hi-Shear
Corporation. The investable proceeds declined considerably after the initial
liquidating distribution to shareholders of approximately $23.4 million on
August 1, 1996.

         The Company did not record a provision or benefit for federal income
taxes due to it's tax loss carryforward position.


LIQUIDITY AND CAPITAL RESOURCES


         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. With the sale of
Hi-Shear Corporation the Company no longer had operating businesses and
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 was required
to maintain working capital of not less than $3,000,000


<PAGE>


through March 31, 1997. Subsequent to that date there are no restrictions on
Company distributions. At May 31, 1999 the Company had $33,000 remaining in cash
and cash equivalents. On June 4, 1999, the Company received $1.1 million as
proceeds from the sale of real estate which was previously leased to a former
subsidiary. See SUBSEQUENT EVENTS in the notes to consolidated financial
statements.

         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 has audited these claims but has not expressed a willingness to
negotiate a settlement of these claims with the Company. As a result, on
February 11, 1997, the Company filed an appeal before the Armed Services Board
of Contract Appeals requesting an adjudication of this dispute. The Board
conducted hearings on this appeal during August and September 1998. Each side
subsequently filed post hearing briefs and rebuttal briefs in February and March
1999. The Board is currently considering the facts brought out at the hearing as
well as briefs filed by both sides in determining the amount of claim damages to
be awarded to the Company. It is not certain at this time how long it will take
the ASBCA to render its decision or whether the government will try to appeal
the Boards decision. Therefore the total amount or timing of the ultimate
recovery cannot be predicted at this time.

         The Company's cash requirements include ongoing costs relating to
pursuing the settlement of the Company's dispute with the U.S. Navy and normal
recurring general and administrative expenses. The Company anticipates that
existing cash and cash equivalents and the proceeds from the sale of real estate
(see SUBSEQUENT EVENTS in the notes to consolidated financial statements) will
be sufficient to satisfy the Company's cash requirements through the time of
settlement with the U.S. Navy and final liquidation of the Company. Although
management and its legal counsel 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. However, should this situation continue beyond a reasonable
period of time, the Company believes it has the ability to acquire additional
capital if necessary through bank or stockholder financing.


IMPACT OF THE YEAR 2000 ISSUE


         The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year thus causing
date-sensitive software to recognize a date using "00" as the year 1900 rather
than the year 2000. Since the Company


<PAGE>


no longer has operating activities, management believes that the Year 2000 Issue
will not have a material impact on the financial position, results of operations
or cash flows of the Company.


RECENT ACCOUNTING STANDARDS

         In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and, if it is, the type of hedge transaction. The provisions
of the statement are effective for all fiscal quarters of all fiscal years
beginning after June 15, 1999. Management of the Company anticipates that the
adoption of SFAS 133 will not have a significant effect on the Company's results
of operations or its financial position.

FORWARD LOOKING STATEMENTS

         The statements in this Management's Discussion and Analysis which are
not historical fact are forward looking statements that are made pursuant to the
Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.
The statements are subject to risks and uncertainties, including, but not
limited to uncertainties surrounding the Company's dispute with the U.S. Navy
which could cause actual results to vary materially from those discussed herein.


<PAGE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

<TABLE>
<CAPTION>

                                                          PAGE
                                                          ----
<S>                                                       <C>
Report of Independent Accountants.....................    10
Consolidated Balance Sheets...........................    11
Consolidated Statements of Operations.................    12
Consolidated Statements of Stockholders' Equity.......    13
Consolidated Statements of Cash Flows.................    14
Notes to Consolidated Financial Statements............    15

</TABLE>


<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS

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

         In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity and cash
flows present fairly, in all material respects, the financial position of
Hi-Shear Industries Inc. and its subsidiaries at May 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended May 31, 1999 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.

         As discussed in the Commitments and Contingencies note to Consolidated
Financial Statements, the Company is involved in a dispute with the U.S. Navy
regarding the termination of certain contracts. The Company has filed damage
claims totaling $62.9 million against the Navy with respect to these contracts,
however, a settlement has not been reached and the claims are being contested by
the Navy. Therefore, the 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.

         The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Summary of
Significant Accounting Policies Note to Consolidated Financial Statements, on
February 26, 1996, the Company sold its last operating asset and effectively
ceased operations. Since that date the Company has suffered recurring losses and
cash flow deficit from operations that raise substantial doubt about its ability
to continue as a going concern. 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. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

                                   PRICEWATERHOUSECOOPERS LLP

Los Angeles, California
July 20, 1999


<PAGE>


                   HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                  May 31,
                                                             ------------------
                                                             1999          1998
                                                             ----          ----
                                                                (000 Omitted)

<S>                                                       <C>           <C>
    ASSETS
Current assets:
  Cash and equivalents                                    $     33      $  2,254
  Other                                                         67            54
                                                          --------      --------
    Total current assets                                       100         2,308

Property and equipment, at cost:
  Land                                                          80            80
  Equipment and fixtures                                       175           155
                                                          --------      --------
                                                               255           235
  Less, accumulated depreciation and amortization             (130)         (110)
                                                          --------      --------
                                                               125           125
Other assets                                                 4,648         3,703
                                                          --------      --------
           Total assets                                   $  4,873      $  6,136
                                                          --------      --------
                                                          --------      --------

    LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accrued income taxes                                    $     30      $     25
  Other accrued expenses                                       313           357
                                                          --------      --------
    Total current liabilities                                  343           382

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                                           11,153        11,153
  Accumulated deficit                                       (4,533)       (3,309)
  Less treasury stock, at cost (285,138 shares)             (2,704)       (2,704)
                                                          --------      --------
                                                             4,530         5,754
                                                          --------      --------
    Total liabilities and stockholders' equity            $  4,873      $  6,136
                                                          --------      --------
                                                          --------      --------

</TABLE>

See notes to consolidated financial statements.


<PAGE>


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

<TABLE>
<CAPTION>

                                                         Years ended May 31,
                                                 ----------------------------------
                                                 1999           1998           1997
                                                 ----           ----           ----
                                                        (000 Omitted except
                                                          per share data)

<S>                                             <C>            <C>            <C>
General and administrative expenses             $1,240         $1,322         $1,773
Interest income                                    (47)          (181)          (514)
                                               -------         -------       -------

    Loss before income taxes                    (1,193)        (1,141)        (1,259)

Provision for income taxes                          31             20             24
                                               -------         -------       -------

     Net loss                                  ($1,224)        ($1,161)      ($1,283)
                                               -------         -------       -------
                                               -------         -------       -------

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

    Basic net loss per share                    ($0.21)         ($0.20)       ($0.22)
                                               -------         -------       -------
                                               -------         -------       -------

</TABLE>


See notes to consolidated financial statements.


<PAGE>


                    HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                     Years ended May 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>

                                     COMMON STOCK                    RETAINED         TREASURY STOCK
                                   ----------------      PAID-IN     EARNINGS        ----------------
                                   SHARES    AMOUNT      CAPITAL     (DEFICIT)       SHARES    AMOUNT
                                   ------    ------      -------     ---------       ------    ------

<S>                                <C>       <C>         <C>         <C>             <C>       <C>
Balance, May 31, 1996              6,140     $   614     $34,572     ($  865)        (285)     ($2,704)

Distribution to Stockholders          --          --     (23,419)         --           --           --

Net Loss                                                              (1,283)
                                   -----     -------     -------     -------         ----      -------

Balance, May 31, 1997              6,140         614      11,153      (2,148)        (285)      (2,704)

Net Loss                              --          --          --      (1,161)          --           --
                                   -----     -------     -------     -------         ----      -------

Balance, May 31, 1998              6,140         614      11,153      (3,309)        (285)      (2,704)

Net Loss                              --          --          --      (1,224)          --           --
                                   -----     -------     -------     -------         ----      -------

Balance, May 31, 1999              6,140     $   614     $11,153     ($4,533)        (285)     ($2,704)
                                   -----     -------     -------     -------         ----      -------
                                   -----     -------     -------     -------         ----      -------

</TABLE>

See notes to consolidated financial statements


<PAGE>


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

<TABLE>
<CAPTION>

                                                                                   Years Ended May 31,
                                                                         -----------------------------------
                                                                          1999           1998           1997
                                                                          ----           ----           ----
                                                                                    (000 Omitted)
<S>                                                                     <C>            <C>            <C>
Cash flows from operating activities:
Net loss                                                                ($1,224)       ($1,161)       ($1,283)
Adjustments to reconcile net loss to net
 cash used for operating activities:
           Depreciation and amortization                                     20             19             13
           Increase in other assets                                        (958)        (1,269)          (752)
           Increase (decrease) in accrued income taxes                        5            (15)            (3)
           Decrease in other accrued expenses                               (44)          (243)          (488)
                                                                        -------        -------        -------
             Net cash used for operating activities                      (2,201)        (2,669)        (2,513)
                                                                        -------        -------        -------

Cash flows from investing activities:
        Capital expenditures                                                (20)           (29)           (30)
                                                                        -------        -------        -------
                    Net cash used for investing activities                  (20)           (29)           (30)
                                                                        -------        -------        -------

Cash flows from financing activities:
        Liquidating distribution                                             --             --        (23,419)
                                                                        -------        -------        -------
                    Net cash used for financing activities                   --             --        (23,419)
                                                                        -------        -------        -------
Net decrease in cash and cash equivalents                                (2,221)        (2,698)       (25,962)

Cash and cash equivalents - beginning of year                             2,254          4,952         30,914
                                                                        -------        -------        -------
Cash and cash equivalents - end of year                                 $    33        $ 2,254        $ 4,952
                                                                        -------        -------        -------
                                                                        -------        -------        -------

Supplemental disclosures of cash flow information Cash paid
 during the year for:
    Interest                                                                 $1            $53             $1
    Income taxes                                                             26             37             27

</TABLE>


See notes to consolidated financial statements


<PAGE>


                    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. 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.
Until that time, management's plans to continue as a going concern include
reducing expenses, the possible sale of certain property and banks or
stockholders' loans, if required.

         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 at times, have exceeded 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.

         Property and Equipment. Land, equipment and fixtures are carried at
cost. For financial reporting purposes, depreciation expense is provided on a
straight line basis, using estimated useful lives of 3 to 10 years for equipment
and fixtures. 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.


<PAGE>




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


         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.

         Earnings Per Share. In February 1997, the FASB issued SFAS
No. 128,"Earnings Per Share." SFAS No. 128 supersedes and simplified the
previous computational guidelines under APB Opinion No. 15, "Earnings Per
Share." Among other changes, SFAS No. 128 eliminates the presentation of
primary EPS and replaces it with basic EPS for which common stock equivalents
are not considered in the computation. It also revises the computation of
diluted EPS. Basic net income (loss) per share is computed by dividing the
net income (loss) attributable to common shareholders by the weighted average
number of common shares outstanding during the period. Diluted net income
(loss) per share is computed by dividing the net income (loss) attributable
to common shareholders by the weighted average number of common and common
equivalent shares outstanding during the period. The Company did not have any
common equivalent shares outstanding during the years ended May 31, 1999,
1998 and 1997. Net income (loss) per share and weighted-average shares
outstanding for the year ended May 31, 1997 has been restated in accordance
with SFAS No. 128.

         Recent Accounting Standards. In June 1998, the FASB issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities". This statement
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. The provisions of the statement are effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999. Management of
the Company anticipates that the adoption of SFAS 133 will not have a
significant effect on the Company's results of operations or its financial
position.


<PAGE>


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


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 was
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. The Company and GFI were unable to reach an
agreement on the net asset value with GFI requesting downward adjustments to the
sales price totaling $6.4 million. The disagreement was submitted to arbitration
as required under the Stock Purchase Agreement. After reviewing material
submitted by both parties, the arbitrator decided in favor of the Company and
essentially finalized the purchase price at $46 million. Additionally, under the
terms of the agreement for the sale of HSC, the Company was 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 any remaining funds not utilized for
operations.


PROVISION FOR INCOME TAXES

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

<TABLE>
<CAPTION>
                                                 YEARS ENDED MAY 31,
                                              ------------------------
                                               1999     1998     1997
                                              ------   ------   ------
                                                    (000 OMITTED)
<S>                                            <C>      <C>      <C>
   Current:
         Domestic:
                 State and local...........    $ 31     $ 20     $ 24
                                               ----     ----     ----

         Total income tax provision........    $ 31     $ 20     $ 24
                                               ----     ----     ----
                                               ----     ----     ----
</TABLE>

<PAGE>


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


         The components included in determining the provision for income taxes
are shown below:

<TABLE>
<CAPTION>

                                                          YEARS ENDED MAY 31,
                                                   --------------------------------
                                                   1999          1998          1997
                                                   ----          ----          ----
                                                            (000 OMITTED)

<S>                                               <C>           <C>           <C>
Tax provision at federal income tax
  statutory rate .........................        $(406)        $(388)        $(428)
Increase (decrease) in taxes
  resulting from:
    Unrecognized tax benefit .............          406           388           430
    State and local taxes on income,
      net of federal tax benefit .........           17            16            16
    Other ................................           14             4             6
                                                  -----         -----         -----
Income tax provision per consolidated
   statements of operations ..............        $  31         $  20         $  24
                                                  -----         -----         -----
                                                  -----         -----         -----

</TABLE>

         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, 1999 and 1998
were as follows:

<TABLE>
<CAPTION>
                                                                MAY 31,
                                                     -----------------------------
                                                       1999                  1998
                                                       ----                  ----
                                                             (000 Omitted)
<S>                                                  <C>                   <C>
Assets
  Federal net operating loss carryforwards           $ 5,174               $ 4,084
  State net operating loss caryforwards                  683                   613
  Alternative minimum tax credit carryforwards           273                   273
  Other                                                  142                   142
                                                     -------               -------
     Total deferred tax assets                         6,272                 5,112
                                                     -------               -------
  Valuation allowance                                 (6,272)               (5,112)
                                                     -------               -------
     Net deferred taxes                              $    --               $    --
                                                     -------               -------
                                                     -------               -------
</TABLE>

      As of May 31, 1999, the Company had a federal net operating loss
carryforward of approximately $15,200,000 which expires between 2006 and 2014,
state net operating loss carryforwards of approximately $11,330,000 expiring
between 1999 and 2014 and alternative minimum tax credit carryforward of
$273,000 with no expiration.


<PAGE>


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


PENSION AND INCENTIVE COMPENSATION PLANS

         Prior to its sale on February 26, 1996, Hi-Shear Corporation maintained
a Deferred Investment Profit Sharing Plan under Section 401(k) of the Internal
Revenue Code. 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 were $11,000, $9,000 and $12,000 for the years ended May 31, 1999,
1998 and 1997, respectively.

CAPITAL STOCK

         Common stock outstanding at May 31, 1999 does not include 284,222
shares reserved under the Company's stock option incentive plan. At May 31,
1999, there were no options outstanding under this plan.


SUBSEQUENT EVENTS

         On June 4, 1999, in accordance with the terms of a lease between HSI
Properties Inc., a wholly owned subsidiary of the Company, and Hi-Shear
Technology Corporation (HSTC) dated June 4, 1993, HSTC exercised its option to
purchase the property it was currently leasing in Saugus California. The
purchase price was $1,000,000 plus escalations totaling $124,864 which will
result in a gain on sale of land of approximately $1,045,000. The total
proceeds of $1,124,864 will be used as working capital by the Company.


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. The government audited
these claims but did not express a willingness to negotiate a settlement of
these claims with the Company.

<PAGE>


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


As a result, on February 11, 1997, the Company filed an appeal before the
Armed Services Board of Contract Appeals requesting an adjudication of this
dispute. The Board conducted hearings on this appeal during August and
September 1998. Each side subsequently filed post hearing briefs and rebuttal
briefs in February and March 1999. The Board is currently considering the
facts brought out at the hearing as well as briefs filed by both sides in
determining the amount of claim damages to be awarded to the Company. As a
result of the above, the 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, 1999 claims receivable of $4.4 million are included as
other long term assets on the balance sheet, as management believes such
amounts are reasonable and collectable. In addition, the Company has netted
deferred legal cost, subject to negotiations, against other assets of
approximately $1.8 million which will be settled upon final resolution of
the claim with the U.S. Navy. 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 statements.

         Subsequent to the completion of the trial against the U.S. Navy,
certain employees involved in preparing the case were promised a discretionary
bonus contingent upon the successful recovery of monetary claims. In this
regard, the Company has entered into agreements with two of these individuals
providing for the payment of bonuses totaling 8% of the claim proceeds
recovered.

         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.

         In addition to related property taxes and insurance, the Company made
net rental payments of approximately, $62,000, $96,000 and $138,000, for the
years ended May 31, 1999, 1998 and 1997, respectively. At May 31, 1999 the
Company's commitment for future minimum lease payments under noncancellable
operating leases is $212,000, expiring in October, 2002.


<PAGE>


                   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, 1999 and May 31, 1998:

<TABLE>
<CAPTION>

                                                       FOR THE QUARTER ENDED
                                            --------------------------------------------
                                             AUG 31,     NOV 30,     FEB 28,     MAY 31,
                                              1998        1998        1999        1999
                                              ----        ----        ----        ----
                                                (000 Omitted, except per share data)

<S>                                          <C>         <C>         <C>         <C>
General and administrative expenses          ($331)      ($299)      ($343)      ($267)
                                            ------      ------      ------      ------
                                            ------      ------      ------      ------

Net loss                                     ($306)      ($286)      ($336)      ($296)
                                            ------      ------      ------      ------
                                            ------      ------      ------      ------

Net loss per share                          ($0.05)     ($0.05)     ($0.06)     ($0.05)
                                            ------      ------      ------      ------
                                            ------      ------      ------      ------

</TABLE>

<TABLE>
<CAPTION>

                                             AUG 31,     NOV 30,     FEB 28,     MAY 31,
                                              1997        1997        1998        1998
                                              ----        ----        ----        ----
<S>                                          <C>         <C>         <C>         <C>
General and administrative expenses          ($439)      ($330)      ($378)      ($175)
                                            ------      ------      ------      ------
                                            ------      ------      ------      ------

Net loss                                     ($382)      ($283)      ($337)      ($159)
                                            ------      ------      ------      ------
                                            ------      ------      ------      ------

Net loss per share                          ($0.07)     ($0.05)     ($0.06)     ($0.03)
                                            ------      ------      ------      ------
                                            ------      ------      ------      ------
</TABLE>


<PAGE>


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

<TABLE>
<CAPTION>

NAME                                       PRINCIPAL OCCUPATION AND POSITION
----                                       ---------------------------------

<S>                                       <C>
Harold L. Bernstein                        Lawyer. Secretary of the Company.

Victor J. Galgano                          Vice President and Chief Financial
                                           Officer of the Company.

Philip M. Slonim                           Private investor.

David A. Wingate                           Chairman of the Board, Chief Executive
                                           Officer and President of the Company.

Arthur M. Winston                          Investment Manager, Glickenhaus & Co.

</TABLE>


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 1999, 1998
and 1997, paid to or accrued for those persons who were, at May 31, 1999, 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:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>

                                                            ANNUAL
                                                         COMPENSATION
                                                      -------------------
                                                      SALARY        BONUS
NAME AND PRINCIPAL POSITION                 YEAR         $            $
---------------------------                 ----      ------        -----
<S>                                         <C>       <C>          <C>
David A. Wingate                            1999      $325,000     $  0
Chairman, President & Chief Executive       1998       325,000        0
                                            1997       325,000        0

Robert A. Schell                            1999       175,000        0
Vice President & Chief Operating            1998       175,000      50,000
   Officer/Space and Defense                1997       175,000        0

Victor J. Galgano                           1999       162,000        0
Vice President and Chief Financial          1998       162,000        0
   Officer                                  1997       162,000        0

</TABLE>

<PAGE>


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth, as of August 18, 1999, 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.

<TABLE>
<CAPTION>

                                                                         PERCENT
                                                                           OF
NAME AND ADDRESS OF                                   AMOUNT              COMMON
BENEFICIAL OWNER                               BENEFICIALLY OWNED         STOCK
----------------                               ------------------        -------

<S>                                              <C>                      <C>
GAMCO Investors, Inc.                            1,417,540 (1)(2)         24.21%
  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 Investment Management                     1,072,900 (4)            18.32%
  2330 West Joppa Rd., Suite 108
  Lutherville, MD 21093

Philip M. Slonim                                   446,067 (5)             7.62%
  P.O. 27835
  San Diego, CA 92128

All directors and officers as a group            1,677,218                28.65%
                                                 ---------                -----

</TABLE>

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

(2) Share ownership is based upon information in Amendment No. 46 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.


<PAGE>


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

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

         (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

         None.


<PAGE>


                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.

                                           HI-SHEAR INDUSTRIES INC.


                                           By /s/ David A. Wingate
                                              ------------------------------
                                              David A. Wingate, Chairman,
                                                 President and Chief
                                                 Executive


                                           By /s/ Victor J. Galgano
                                              ------------------------------
                                               Victor J. Galgano, Vice
                                                 President and Chief
                                                 Financial Officer

August 24, 1999

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.

By /s/ Harold L. Bernstein
   ------------------------------
   Harold L. Bernstein, Director


             August 24, 1999
           --------------------
                   Date


By /s/ Philip M. Slonim
   ------------------------------
   Philip M. Slonim, Director


             August 24, 1999
           --------------------
                   Date


By /s/ Arthur M. Winston
   ------------------------------
   Arthur M. Winston, Director


             August 24, 1999
           --------------------
                   Date