Form 10-Q
                           UNITED STATES
                SECURITIES AND EXCHANGE COMMISSION
                      Washington, D.C. 20549

                                           


       [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
              OF THE SECURITIES EXCHANGE ACT OF 1934
                                              
           For the quarterly period ended June 30, 1997

                                OR

      [   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
              OF THE SECURITIES EXCHANGE ACT OF 1934
                            
  For the transition period from                 to              

                    Commission File No. 1-4778


                      TALLEY INDUSTRIES, INC.
      (Exact name of registrant as specified in its charter)

             Delaware                             86-0180396
   (State or other jurisdiction of             (I.R.S. Employer
    incorporation or organization)            Identification No.)
                                                                         
   2702 North 44th Street - Suite 100-A, Phoenix, Arizona  85008
(Address of principal executive offices)                (Zip Code)

 Registrant's telephone number, including area code:(602) 957-7711

(Former name, former address and former fiscal year, if changed since last
report)

 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 requirement for the past 90 days.

       YES[ X ]                                  NO[   ]   

 Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.

                                                 Outstanding at
Class of Common Stock                             June 30, 1997  
 $1.00 par value                                    14,113,453

                                                                         
                                                                         
                                                                         
                                                                         
                                                                         
                                                                         
                                                                         
<PAGE>                                                                         

             TALLEY INDUSTRIES, INC. AND SUBSIDIARIES



                               INDEX



                                                               Page No.

Part I  Financial Information


   Consolidated Balance Sheet -
     June 30, 1997 and December 31, 1996                           1

   Consolidated Statement of Earnings -
     Three Months and Six Months Ended June 30, 1997 and 1996      2

   Consolidated Statement of Cash Flows -  
     Six Months Ended June 30, 1997 and 1996                       3

   Consolidated Statement of Changes in Stockholders'
     Equity - Six Months Ended June 30, 1997 and 1996              4

   Notes to Consolidated Financial Statements                     5-7

   Management's Discussion and Analysis                           8-14





Part II  Other Information


   Legal Proceedings                                               15 

   Submission of Matters to a Vote of Security Holders            15-16

   Exhibits and Reports on Form 8-K                               16-17

   Signatures                                                      18















<PAGE>

                  PART I - FINANCIAL INFORMATION

             TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
                    Consolidated Balance Sheet
                           (thousands)
                                                   June 30,   December 31,
ASSETS                                               1997         1996  
                                                   --------   ------------
  Cash and cash equivalents                        $ 45,554     $ 48,758 
  Accounts receivable, net of allowance for
    doubtful accounts of $1,114 at June 30,
    1997 and $925 at December 31, 1996               48,217       53,090 
  Inventories, net                                   62,348       64,684 
  Deferred income taxes                               3,700        3,660 
  Prepaid expenses                                    8,912        6,100 
                                                   --------     --------
    Current assets                                  168,731      176,292 

  Property, plant and equipment, net                 52,311       49,324 
  Intangibles                                        38,751       41,965 
  Deferred charges and other assets                  12,313       12,804 
  Deferred income taxes                                 666            - 
                                                   --------     --------
     Total assets                                  $272,772     $280,385 
                                                   ========     ========
LIABILITIES AND STOCKHOLDERS' EQUITY
  Current maturities of long-term debt             $  3,141     $  5,522 
  Accounts payable                                   25,104       20,116 
  Accrued expenses                                   33,963       44,189 
  U.S. and foreign income taxes                       1,590            - 
                                                   --------     --------
     Current liabilities                             63,798       69,827 

  Long-term debt                                    123,617      123,185 
  Deferred income taxes                                   -        2,179 
  Other liabilities                                  11,057       10,708 

  Stockholders' equity:
    Preferred stock, $1 par value,
      authorized 5,000,000 shares:
        Series A                                         14           14 
        Series B                                        750          750 
    Common stock, $1 par value,         
      authorized 20,000,000 shares                   14,113       14,618 
  Capital in excess of par value                     75,681       79,884 
  Foreign currency translation adjustment              (609)        (562)
  Accumulated deficit                               (15,649)     (20,218)
                                                   --------     --------
      Total stockholders' equity                     74,300       74,486 
        Total liabilities and                      --------     --------
          stockholders' equity                     $272,772     $280,385 
                                                   ========     ========

The accompanying notes are an integral part of the financial statements.


                               -1-

<PAGE>
              TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
                 Consolidated Statement of Earnings
                (thousands, except per share amounts)

                                           Three Months        Six Months
                                               Ended              Ended
                                              June 30,           June 30,     
                                         ------------------  ------------------
                                           1997      1996      1997      1996   
                                         --------  --------  --------  --------
Sales                                    $ 66,272  $ 69,847  $133,205  $142,589
Services                                   21,078    17,902    42,269    32,822
Royalties                                     505     6,221       712    13,686
                                         --------  --------  --------  --------
                                           87,855    93,970   176,186   189,097
                                         --------  --------  --------  --------
Cost of sales                              48,833    52,315    97,903   107,693
Cost of services                           18,835    15,847    37,835    28,868
Selling, general,
  and administrative expenses              20,431    18,694    35,363    34,813
Reversal of reserves on realty assets      (6,300)        -    (6,300)        -
                                         --------  --------  --------  --------
                                           81,799    86,856   164,801   171,374
                                         --------  --------  --------  --------
Earnings from operations                    6,056     7,114    11,385    17,723
Other income (expense), net                   223    (1,241)      755    (2,193)
                                         --------  --------  --------  --------
                                            6,279     5,873    12,140    15,530
                                         --------  --------  --------  --------
Interest expense                           (3,644)   (7,191)   (7,321)  (14,372)
                                         --------  --------  --------  --------
Earnings (loss) before income
  taxes and extraordinary loss              2,635    (1,318)    4,819     1,158 
Income tax provision                          137       513       250     1,073
                                         --------  --------  --------  --------
Earnings (loss) before extraordinary loss   2,498    (1,831)    4,569        85 
Extraordinary loss                              -    (1,642)        -    (1,642)
                                         --------  --------  --------  --------
  Net earnings(loss)                     $  2,498  $ (3,473) $  4,569  $ (1,557)
                                         ========  ========  ========  ========
Earnings (loss) applicable
  to common shares                       $  2,307  $(11,112) $  4,187  $(14,308)
                                         ========  ========  ========  ========
Earnings (loss) per share of common stock 
  and common stock equivalents:
Earnings(loss)before extraordinary loss  $    .16  $   (.15) $    .29  $   (.05)
Extraordinary loss                              -      (.12)        -      (.13)
                                         --------  --------  --------  --------
Net earnings(loss)before consideration 
  for induced conversion of preferred stock   .16      (.27)      .29      (.18)
Assumed value of conversion inducement          -      (.55)        -      (.98)
  Earnings (loss) applicable             --------  --------  --------  --------
    to common shares                     $    .16  $   (.82) $    .29  $  (1.16)
                                         ========  ========  ========  ========
Weighted average shares outstanding        15,190    13,582    14,280    12,289
                                         ========  ========  ========  ========

The accompanying notes are an integral part of the financial statements.
                               -2-
<PAGE>                                    
               TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
                 Consolidated Statement of Cash Flows
                              (thousands)
                                                      Six Months Ended
                                                          June 30,    
                                                     ------------------
                                                       1997      1996  
                                                     --------  --------
Cash and cash equivalents at beginning of year       $ 48,758  $ 10,475
Cash flows from operating activities:                --------  --------
  Net earnings (loss)                                   4,569    (1,557)
  Adjustments to reconcile net income
    to cash flows from operating activities:
     Change in deferred income taxes                   (2,885)    1,657 
     Depreciation and amortization                      4,438     4,388
     Original discount amortization                         -     5,444
     Net loss on sale of subsidiary and product line    1,325         -
     Gain on sale of property and equipment               (24)      (53) 
     Other                                                409     1,540
  Changes in assets and liabilities, net of
    effects from acquired businesses:
     Decrease in accounts receivable                    4,736     6,458 
     Increase in inventories                           (2,051)  (12,062)
     Increase in prepaid expenses                      (2,874)   (1,940)
     Increase in other assets                          (6,349)     (554)
     Decrease in realty assets                              -     2,030
     Increase in accounts payable                       4,988     8,233 
     Decrease in accrued expenses                      (7,283)     (254)
     Increase (decrease) in other liabilities           1,185      (527)
     Other, net                                          (186)      (16)
                                                     --------  --------
      Cash flows from operating activities                 (2)   12,787 
Cash flows from investing activities:
  Proceeds from sale of subsidiary and product line     6,162         -
  Purchase of assets of acquired business                   -    (4,030)
  Purchases of property and equipment                  (7,103)   (2,675)
  Reduction of long-term receivables                    4,450       788
  Increase in long-term receivables                         -      (501)
  Proceeds from sale of property and equipment             57        76
                                                     --------  --------
   Cash flows from investing activities                 3,566    (6,342)
Cash flows from financing activities:
  Preferred stock conversion cost                           -      (319)
  Payment of dividends                                   (382)        -
  Purchase of common stock                             (4,332)        -
  Common stock issued                                       6         -
  Repayment of long-term debt                          (2,060)  (16,445)
  Reduction in borrowings under line of credit              -  (247,834)
  Proceeds from borrowings under line of credit             -   254,165 
                                                     --------  --------
Cash flows from financing activities                   (6,768)  (10,433) 

Net decrease in cash and cash equivalents              (3,204)   (3,988)
                                                     --------   -------
Total cash and cash equivalents at June 30           $ 45,554  $  6,487
                                                     ========  ========
The accompanying notes are an integral part of the financial statements.

                               -3-
<PAGE>                                    
<TABLE>
                                          


                             TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
<CAPTION>
                     Consolidated Statement of Changes in Stockholders' Equity
                          For the Six Months Ended June 30, 1997 and 1996
                                            (thousands)



                                                                          
                                           Preferred Stock                Capital in  Retained
                                    ----------------------------  Common   Excess of  Earnings
                                    Series A  Series B  Series D   Stock   Par Value  (Deficit)
                                    --------  --------  --------  -------  ---------  --------
<S>                                 <C>       <C>       <C>       <C>      <C>        <C>  
BALANCE AT DECEMBER 31, 1995         $   67    $1,548    $  120   $10,053   $86,035   $(38,959)

Net loss                                                                                (1,557) 
Conversion to Common stock              (53)     (798)     (120)    4,007    (3,434)     
Stock grant                                                            10        69           
                                     ------    ------    ------   -------   -------   --------
BALANCE AT JUNE 30, 1996             $   14    $  750    $    -   $14,070   $82,670   $(40,516)
                                     ======    ======    ======   =======   =======   ========

BALANCE AT DECEMBER 31, 1996         $   14    $  750    $    -   $14,618   $79,884   $(20,218)

Net earnings                                                                             4,569
Dividends - preferred stock                                                    (382)
Stock grant                                                             6
Common stock retirements                                             (511)   (3,821)          
                                     ------    ------    ------   -------  --------
BALANCE AT JUNE 30, 1997             $   14    $  750    $    -   $14,113  $ 75,681  $ (15,649) 
                                     ======    ======    ======   =======  ========
</TABLE>





The accompanying notes are an integral part of the financial statements.















                               -4-
<PAGE>

             TALLEY INDUSTRIES, INC. AND SUBSIDIARIES

            Notes to Consolidated Financial Statements



Note 1 - General
----------------

    In the opinion of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary to present
fairly the financial position as of June 30, 1997 and December 31,
1996 and the results of operations for the three-month and six-month 
periods ended June 30, 1997 and 1996, and cash flows and
changes in stockholders' equity for the six-month periods ended
June 30, 1997 and 1996.  Such results, however, may not be
indicative of the results for the full year.
    For additional information regarding significant accounting
policies, and accounting matters applicable to the Company,
reference should be made to the Company's Annual Report to
Shareholders for the year ended December 31, 1996.

Note 2 - Inventories
--------------------

   Inventories are summarized as follows (in thousands):

                                         June 30,  December 31,
                                          1997         1996    
                                         -------   -----------
   Raw materials and supplies            $11,935     $10,995
   Work-in-process                        11,083      11,564
   Finished goods                         24,579      26,158
   Inventories applicable to
     government contracts                 14,751      15,967
                                         -------     -------
                                         $62,348     $64,684
                                         =======     =======
Note 3 - Earnings Per Share
---------------------------

   Earnings per share of Common stock and Common stock equivalents
has been computed on the basis of the average number of Common
shares outstanding during each period.  The average number of
shares has been adjusted for assumed exercise at the beginning of
the period (or date of grant, if later) for any dilutive stock
options, with funds obtained  thereby  used  to  purchase shares of









                               -5-
                                    
<PAGE>                                    

Note 3 - Earnings Per Share, continued
--------------------------------------

the Company's Common stock at the average price during the period,
and assumed conversion of all dilutive convertible preferred stock. 
Common stock equivalents that are anti-dilutive are excluded from
the computation of earnings per share and earnings are reduced by
the dividend requirements on such equivalents.

Note 4 - Acquisition and Dispositions
-------------------------------------

   In May 1997, a subsidiary of the Company sold certain assets
of the connector product line.  Proceeds from the $2.1 million sale
price include a note receivable for $1.9 million and cash of $.2
million.
   In March 1997, the Company sold the assets of its Canadian
steel distributor.  Cash proceeds from the sale were $4.1 million. 
The purchaser assumed $2.3 million of liabilities.
   In January 1996, a subsidiary of the Company acquired certain
assets of a manufacturer of a silicone wire product line.  The
purchase price was approximately $4.3 million.

Note 5 - Preferred Stock Conversions
------------------------------------

   On February 16, 1996, the Company issued 1,905,849 shares of
Talley Common stock in connection with the conversion of  all of
the Company's Series D Preferred stock, 702,919 more shares than
originally designated.  The conversion automatically extinguished
all unpaid dividends on that stock, totaling approximately $2.6
million as of December 31, 1995.  
   On April 22, 1996, pursuant to a conversion offer with respect
to the Company's Series B and Series A Preferred stock,
approximately 798,000 shares or approximately 52% of the
outstanding shares of Series B and approximately 53,000 shares or
approximately 79% of the Series A were converted to Common stock.
Series B holders who converted received 2.5 shares of Common stock
for each outstanding Series B share.  Series A holders who
converted received 2.0 shares of Common stock for each outstanding
Series A share.  Common stock issued of approximately 1,995,000
shares in connection with the conversion  of  Series B Preferred
stock and approximately 106,000 in connection with the conversion
of Series A Preferred stock was approximately 948,000 and 56,000
more shares than issuable under the stated conversion terms of the
respective series of preferred stock.  Prior to the  conversion
there were approximately 1,548,000 shares of Series B outstanding
and 67,000 shares of Series A outstanding.  The conversion
automatically extinguished all unpaid dividends on the Series B and
Series A shares that were converted totaling approximately $4.0
million ($5 per share) on the Series B Preferred stock and totaling
approximately $0.3 million ($5.50 per share) on the Series A
Preferred stock at March 31, 1996.




                               -6-
<PAGE>                                    

Note 5 - Preferred Stock Conversions, continued
-----------------------------------------------

   The transactions do not impact the net earnings of the Company,
but "earnings applicable to common shares (after deduction of
preferred stock dividends)," as supplementally disclosed by the
Company, and the "earnings per share of common stock and common
stock equivalent share" have been reduced.  The excess of the fair
value of the common shares transferred in the transactions by the
Company, over the fair value of the common shares issuable pursuant
to the stated conversion terms of the preferred stock, have been
subtracted from net earnings in the calculations of net earnings
available to common shareholders and earnings per share.

Note 6 - Bonds Repurchased and Covenant Defeasance
--------------------------------------------------

   During 1996, the Company repurchased $124.0 million aggregate
principal amount of the Senior Discount Debentures with an accreted
value of $97.4 million at the repurchase date.  The purchase price
of the debentures was $106.0 million, including accrued interest
and prepayment premiums.  The Company recognized $12.1 million in
extraordinary losses in connection with the repurchases of the
Senior Discount Debentures.  This amount represents the prepayment
premium and deferred debt cost on the extinguished debt.  During
the six months ended June 30, 1997, the Company repurchased an
additional $.3 million aggregate principal amount of the Senior
Discount Debentures.  
   An investment was made in U.S. Treasury obligations and placed
in trust in June 1997 to effect a covenant defeasance of the
remaining $1.9 million principal amount of outstanding debentures.
For financial reporting purposes, the assets held in trust are
included in the assets of the Company and the outstanding
debentures continue to be reflected as outstanding debt.  The
debentures will be redeemed on October 15, 1998, which is the
earliest optional redemption date.

Note 7 - Repurchase of Common Stock
-----------------------------------

   In late 1996 and early 1997, the Board of Directors approved
the repurchase of up to 950,000 shares of the Company's Common
stock, on  the open market or in  negotiated  transactions, from
time to time, at prices deemed appropriate by the Company's
officers, with such shares to be retired as authorized but 
unissued  shares.  At December 31, 1996, the total number of shares
of common stock repurchased was 277,300 shares for a total cost of
approximately $2.1 million.  For the six months ended June 30,
1997, another 510,367 shares were repurchased for a total cost of
approximately $4.3 million. 






                               -7-
                                    
<PAGE>

             TALLEY INDUSTRIES, INC. AND SUBSIDIARIES

               Management's Discussion and Analysis
         of Financial Condition and Results of Operations


   The following is management's discussion and analysis of
certain significant factors which have affected the Company.  A
summary of period-to-period changes in the consolidated statement
of earnings is shown below (in thousands):
                         
                                Three Months         Six Months 
                                   Ended                Ended
                                  June 30,             June 30,     
                            ------------------   -------------------
                              1997      1996        1997      1996  
REVENUES:                   --------  --------   ---------  --------
 Government Products
   and Services             $ 39,353  $ 37,352   $ 80,127   $ 68,971
 Airbag Royalties                  -     6,143          -     13,393
 Stainless Steel Products     29,111    32,601     59,374     71,536
 Industrial Products          19,391    17,670     36,685     33,700
 Realty                            -       204          -      1,497
                            --------  --------   --------   --------
                            $ 87,855  $ 93,970   $176,186   $189,097
                            ========  ========   ========   ========
OPERATING INCOME:
 Government Products
   and Services             $  4,805  $  2,756   $  9,056   $  4,793
 Airbag Royalties                  -     6,143          -     13,393
 Stainless Steel Products      2,401     4,915      5,030      9,860
 Industrial Products           1,787       454      2,774      1,086
 Realty                        6,310    (1,382)     6,310     (2,501)
                            --------  --------   --------   --------
   Total operating income     15,303    12,886     23,170     26,631
 Corporate expense            (9,607)   (7,109)   (12,140)   (11,313)
 Non-segment interest
   income                        583        96      1,110        212
 Interest expense             (3,644)   (7,191)    (7,321)   (14,372)
                            --------  --------   --------   --------
   Earnings (loss) before 
   income taxes and
   extraordinary loss       $  2,635  $ (1,318)  $  4,819   $  1,158
                            ========  ========   ========   ========

    Revenues for the six-month period ended June 30, 1997
decreased $12.9 million when compared with the corresponding period
in the prior year, principally because of the absence of airbag
royalty revenues for the 1997 period.  Royalties from automotive
airbags ceased with the mid-1996 payments from TRW to settle the
airbag royalties litigation.  Revenue increases for the first six





                               -8-

<PAGE>

months of 1997 from the Company's Government Products and Services
segment (primarily from the naval architectural and engineering
unit) were offset by decreases in stainless steel revenues
resulting from the March 1997 sale of the Canadian steel
distributor and from lower steel sales volume and prices, as
competitive pressures from United States and foreign suppliers
affected the sales volume and sales prices.
    During the six months ended June 30, 1997 operating income
from the Government Products and Services segment increased from
$4.8 million to $9.1 million as compared with the comparable year-
earlier period, and operating income from the Company's Industrial
Products segment increased $1.7 million.  These increases were more
than offset by the absence of any airbag royalty income for 1997. 
Also, operating  income  from  the  Stainless  Steel Products
segment for the six months ended June 30, 1997, when compared with
the first six months of 1996, was $4.8 million lower.
    The gross profit percentage, excluding  airbag  royalties and
realty, was 23.0% for the six months ended June 30, 1997, up
slightly from the gross profit percentage of 22.3% for the
comparable period in 1996.  The slight increase from the prior year
is primarily due to higher margins on certain government contracts
and an improvement in the margin on industrial products, partially
offset by a lower margin on stainless steel products.  
    Earnings before income taxes for the six months ended June 30,
1997 was $4.8 million compared with $1.2 million in the first six
months of the previous year.  Net earnings for the six months ended
June 30, 1997 were $4.6 million compared to a net loss of $1.6
million for the same period in the prior year.  Prior year's
results included a $1.6 million extraordinary loss relating to
expenses incurred in connection with the repurchase of the Senior
Discount Debentures.

    GOVERNMENT PRODUCTS AND SERVICES.  Revenue and operating
income for the six months ended June 30, 1997 increased by $11.2 
million and $4.3 million, respectively, when compared with the same
period in the prior year, primarily the result of an increase in
service revenues from the Company's naval architectural and
engineering unit and favorable results upon conclusion, or the
timing of completion, of certain other contracts.  Earnings were
also favorably impacted in 1997 when compared with 1996, as a
result of reimbursement of research and development cost by a joint
venture partner working with the Company in the development of
automotive airbag inflators.

    AIRBAG ROYALTIES.  As described in the Notes to the
Consolidated Financial Statements for the year ended December 31,
1996, the quarterly royalty payments ceased with the payments
received from TRW in the third quarter of 1996.  Airbag royalties
in the first six months of 1996 were $13.4 million.




                               
                               
                               
                               -9-
                                    
<PAGE>                                    
    
    STAINLESS STEEL PRODUCTS.  During the first six months of
1997,  sales  for  the Stainless Steel Products segment decreased
$12.2 million, while operating income decreased $4.8 million, when
compared with the same period in 1996.  Revenue and earnings were
affected by the sale of the Canadian steel distributor in March
1997, and by lower sales volume and prices, as competitive
pressures from United States and foreign suppliers affected the
sales volume and sales prices.

    INDUSTRIAL PRODUCTS.  In the six-month period ended June 30,
1997, Industrial Products sales increased $3.0 million while
operating income increased $1.7 million, when compared with the
same period in 1996.  Increases in sales and operating income
resulted primarily from increased orders for insecticides and air
fresheners.

    REALTY. In 1992, the Company initiated a plan for the orderly
disposition of all its remaining real estate assets.  With the
receipt of $156.4 million from TRW to settle the airbag royalty
dispute in the third quarter of 1996, and also in view of the
slower than expected improvement in the market conditions for real
estate assets, the Company re-evaluated and changed its strategy
for exiting the real estate business.  The Company adjusted its
strategy of selling properties to end users in an orderly process
over time, to a strategy of liquidation sales through pricing
adjustments and/or joint development arrangements.  This change in
strategy resulted in a third quarter $85.0 million reserve for real
estate assets.  In December of 1996 all real estate properties,
except for one, were sold for cash and assumption of certain
liabilities.  The property not included in the December 1996 sale
was sold on July 30, 1997.  In anticipation of the sale of this
single remaining property, the Company reversed $6.3 million of
excess reserves in June 1997.  Segment operating income of $6.3
million reflects this reversal and compares to a $2.5 million loss
for the first six months of 1996.

    OTHER.  Interest expense for the six months ended June 30,
1997 decreased to $7.3 million, from $14.4 million in the
comparable period in 1996.  The decrease is primarily due to the
repurchase of a substantial portion of the Company's Senior
Discount Debentures and the paydown of the Company's revolving
credit facility in the second half of 1996.  The $1.6 million
extraordinary loss in the second quarter of 1996, which consists of
premiums paid and deferred debt costs associated with the
repurchase of the discount debentures, was reclassified from
interest expense during the fourth quarter of 1996 and is so
classified in the prior year's Statement of Earnings included in
this quarterly report.  The overhead expenses  in the first six
months of 1997 of $12.1 million and $11.3 million in 1996 are above
historical levels.  The 1997 corporate expenses include $5.8
million incurred in connection with the severance payments made to 



                               
                               
                               -10-
                                    
<PAGE>                                    

the former Chief Executive Officer of the Company.  Higher than
normal corporate expenses were also attributed to above average
proxy solicitation costs incurred in connection with the 1997
Annual Meeting of Stockholders, due to the contested nature of the
meeting.  The 1996 corporate expenses include $5.5 million of costs
incurred in connection with the TRW litigation.  The income tax
provision for the first six months of 1997 was $.3 million compared
to $1.1  million in the comparable period in 1996.  Due to
unrecognized federal tax carryforward benefits, primarily the
result of losses in the Company's real estate segment, the Company
has no Federal tax provision in the 1996 or 1997 period; the tax
provision is primarily for state jurisdictions.


Financial Condition, Liquidity and Capital Resources
----------------------------------------------------

    At June 30, 1997, the Company had $45.6 million in cash and
cash equivalents and net working capital of $104.9 million.  Cash
generated from operating activities for the six months ended June
30, 1997 was offset by cash used in operating activities.  Cash
generated from operating activities includes amounts from earnings,
a decrease in accounts receivable, and an increase in accounts
payable, offset by cash used to increase inventories, an increase
in prepaid expenses and other assets, and a decrease in accrued
expenses.  Cash generated from operations during the first six
months of 1996 was $12.8 million.  Cash generated from investing
activities during the six months ended June 30, 1997 was $3.6
million, consisting primarily of the sale of assets of a subsidiary
and a product line, the collection of an income tax refund
receivable, offset by capital expenditures.  Cash used in financing
activities of $6.8 million reflects the repurchases of the
Company's common stock, the payment of preferred stock dividends,
and a decrease in the Company's long-term debt.  There were no
borrowings under the Company's line of credit during this period.
    In October 1993, the Company completed a major refinancing
program.  This refinancing program included an offering of $185
million of debt securities, consisting of $70 million gross
proceeds of Senior Discount Debentures due 2005, issued by the
Company to yield 12.25%, and $115 million of Senior Notes due 2003,
with an interest rate of 10.75% issued by a wholly owned subsidiary
of the Company, Talley Manufacturing and Technology, Inc. ("Talley
Manufacturing").  In connection with this refinancing, Talley
Manufacturing obtained a secured credit facility with institutional
lenders.
    Borrowings under the secured credit facility may not exceed
the collateral base as defined in the governing credit agreement. 
The facility consists of a five-year revolving credit facility of
up to $40.0 million and a five-year $20.0 million term loan 
facility.  At June 30, 1997  availability  under the total facility
was approximately $49.7 million, of which approximately $9.7 
million (the  principal  balance  of  the  term loan) was borrowed.




                               -11-
                                    
<PAGE>                                    

A substantial portion of the proceeds received in 1996 from the
sale of the assets of the real estate operations and from the
resolution of the automotive airbag royalties litigation have been
used to reduce the Company's total indebtedness.
    The Company has recently entered into a joint venture
agreement with Delphi Automotive Systems to manufacture automotive
airbag inflators, which will require significant capital
contributions through 1998 to fund the capital requirements of the
venture, as it develops its manufacturing capability.  In addition,
the Company is expected to have capital requirements to develop its
manufacturing capability for other airbag related products.  The
Company is also committed to significantly higher-than-normal
research and development expenditures for automotive airbag
inflators and other airbag related products.  These commitments
will require financial resources in the next two to three years.
The Company believes with present cash balances and cash available
under the Company's credit facility, there will be sufficient
financial resources to meet these needs and to support the long-term 
growth of the Company's core businesses.
    As a holding company with no significant operating or income-
producing assets beyond its stock interests in Talley
Manufacturing, the Company is dependent primarily upon
distributions from Talley Manufacturing to meet its funding
requirements.  Furthermore, because certain debt covenants limit
the Company's ability to incur additional indebtedness, the Company 
will be dependent upon the payment of dividends from Talley
Manufacturing (which payments are limited by debt covenants of
Talley Manufacturing) and to any future sales of equity securities
as its primary sources of discretionary  liquidity.  Nevertheless,
and particularly in light of the current June 30, 1997 cash
balances of $25.3 million held at the parent holding company level,
the Company believes that funds will be available to permit the
Company to meet its requirements.


Other Matters
-------------

  Litigation - TRW Inc.
  ---------------------
    
    A judgment in the Company's favor in the amount of $138.0
million was entered against TRW Inc. (TRW) by the United States
District Court for  the  District of Arizona in June 1995 following
a jury verdict that TRW had repudiated and breached the April 1989
Airbag Royalty Agreement with the Company.  The $138.0 million
damages amount represented the jury's calculation of the present
value of the remaining stream of Airbag Royalties which would have 
been payable by TRW through the April 2001 scheduled expiration
date of the Airbag Royalty Agreement had TRW not breached the
Agreement.  TRW appealed the judgment, and, during the pendency of
the appeal, was ordered by the District Court to  continue making 




                               -12-
                                    
<PAGE>                                    

quarterly payments to the Company in the same amounts as if the
Airbag Royalty Agreement had not been terminated and repudiated by
TRW.  On June 19, 1996, the United States Court of Appeal for the
Ninth Circuit rejected TRW's appeal and affirmed the $138.0 million
judgment.  A petition for rehearing filed by TRW with the Court of
Appeals was denied on July 30, 1996.
    In August 1996 TRW made payments aggregating approximately
$133.1 million to the Company on account of TRW's obligations under
the judgment.  The payments represented the $138.0 million face
amount of  the  judgment  award, plus interest at the default rate
specified by the Airbag Royalty Agreement (prime plus 5%), less the
quarterly payments made by TRW pursuant to the District Court's
order during the pendency of the appeal.  A further payment was
made by TRW at the same time in the amount of approximately $6.7 
million as that portion of a court-ordered reimbursement of
litigation fees and costs (and interest on the reimbursement amount
at the same default rate).
    During  September  1996, claims  between  the  Company  and
TRW (which had been scheduled for trial) and all other matters in 
dispute with TRW were settled by the parties pursuant to a global
settlement agreement.  Under that settlement, TRW made a further
cash payment to the Company on September 3, 1996 in the aggregate
amount of $16.6 million.  Accordingly, all claims between the
parties have now been resolved, and cash payments have been made by
TRW aggregating $156.4 million.
    The litigation in which this judgment was entered arose out of
the Asset Purchase Agreement dated February 4, 1989 and the License
Agreement dated April 21, 1989, between TRW and the Company
pursuant to which TRW acquired the Company's airbag business.  The
court dismissed TRW's claims that the Company had breached a non-
compete provision contained in the Asset Purchase Agreement,
thereby entitling TRW to terminate airbag royalty payments to the
Company under the License Agreement (which it purported to do in
February 1994) and obtain a paid-up license to use the Company's
airbag technology.  The jury found in fact that TRW had improperly
terminated and repudiated the License Agreement.

  Recently Issued Accounting Standards
  ------------------------------------

    In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS) No. 128
"Earnings per Share" which is effective for financial statements
issued for periods ending after December 15, 1997, including
interim periods.  Under the provisions of this new pronouncement,
the Company is required to present Basic Earnings per share and
Diluted Earnings per share.  Basic Earnings per share is computed
by dividing income available to common stockholders (the numerator)
by the weighted-average number of common shares outstanding (the
denominator) during the period.  Income available to common
stockholders is computed  by  deducting  both dividends declared in 




                               
                               -13-
                               
<PAGE>                               

the period on preferred stock (whether or not paid) and the
dividends accumulated for the period on cumulative preferred stock
(whether or not earned) from income from continuing operations and
also from net income.  Diluted Earnings per share is computed
similar to Basic Earnings per share, except that the denominator is
increased to include the  number of additional common shares that 
would have been outstanding if the dilutive potential common shares
had been issued.  Under this new pronouncement, the Company is
required to disclose a reconciliation of the numerators and the
denominators of the basic and diluted per-share computations for
income from continuing operations, the effect that has been given
to preferred dividends in arriving at income available to common
stockholders in computing basic earnings per share, and securities
that could potentially dilute basic earnings per share in the
future that were not included in the computation of diluted
earnings per share because to do so would have been anti-dilutive
for the period(s) presented.
    Had this Statement been effective for the six months ending
June 30, 1997, the Basic Earnings per share and the Diluted
Earnings per share would have been $.29 and $.30, respectively.

Forward-Looking Statements
--------------------------

    This Management's Discussion and Analysis of Financial
Condition and Results of Operations and other sections of this
Quarterly Report contain forward-looking statements that are based
on current expectations, estimates and projections about the
industries in which the Company operates.  Words such as "expects,"
"anticipates," "intends," "plans," "believes," "seeks,"
"estimates," and variations of such words and similar expressions
are intended to identify such forward-looking statements.  These
statements are not guarantees of future performance and involve
certain risks, uncertainties and assumptions which are difficult to
predict.  Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in such forward-
looking statements.  The Company undertakes no obligation to update
publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.
    Factors affecting the future include, but are not limited to,
increasing prices and product/service competition by foreign and
domestic competitors, including new entrants; rapid technological
developments and changes; the ability to continue to introduce
competitive new products and services on a timely and cost
effective basis; the mix of products/services; the achievement of
lower costs and expenses; domestic and foreign governmental and
public policy changes including environmental regulations;
protection and validity of patent and other intellectual property
rights; reliance on large customers; the cyclical nature of certain
of the Company's businesses; the outcome of pending and future
litigation and governmental proceedings and continued availability
of financing, and financial resources in the amounts, at the times 



                               
                               -14-

<PAGE>

and on the terms required to support future business.  In addition,
such statements could be affected by general industry and market
conditions and growth rates, general domestic and international
economic conditions including interest rate and currency exchange
rate fluctuations and other factors.

















































                               
                               
                               -15-
                               
<PAGE>                               

                   PART II - OTHER INFORMATION


Item 1.  Legal Proceedings
--------------------------
  Litigation - TRW Inc.
  ---------------------

    For a description of legal proceedings involving the Company, 
    see "Other Matters" within Management's Discussion and
    Analysis.

Item 4.  Submission of Matters to a Vote of Security Holders
------------------------------------------------------------

(a) The Registrant held its Annual Meeting of Stockholders on May
    8, 1997.

(b) The directors elected at the meeting are as follows:

       Paul L. Foster
       Robert T. Craig
       Ralph A. Rockow

    The directors whose term of office continued after the meeting
    are as follows:

       Jack C. Crim
       Fred Israel
       Joseph A. Orlando
       Alex Stamatakis
       John W. Stodder
       Donald J. Ulrich, Jr.
       David Victor

(c) The results of the election of directors were as follows:


                                       For      Withheld
                                   ----------   --------
       Paul L. Foster              11,392,506    674,871
       Robert T. Craig              6,061,800     47,333
       Ralph A. Rockow              6,061,800     47,333
       Townsend Hoopes              5,513,933    459,430
       William H. Mallender         5,496,879    479,202











                               -16-
                               
<PAGE>                               

    Proposals made by a shareholder as recommendations to the
    Board of Directors were also voted on at the meeting.  Certain
    of these proposals suggest changes to the Company's
    Certificate of Incorporation, and can only be implemented by
    a super-majority vote of the shareholders following action by
    the Board.  The results of the votes on these proposals are as
    follows:


              Issue                   For       Against   Abstain
    -------------------------      ---------   ---------  -------
    Elimination of classified
    Board of Directors             6,760,664   5,219,125  102,705

    Provision to allow holders
    of ten percent of shares to
    call special stockholder
    meetings                       6,619,334   5,355,144  108,017

    Elimination of certain super-
    majority requirements          7,429,644   4,513,877  138,974

    Elimination of the share-
    holder rights ("poison pill")
    plan                           6,718,283   5,232,308  131,906


No other matters were voted upon at the annual meeting.


Item 6.  Exhibits and Reports on Form 8-K
-----------------------------------------

(a) Exhibits:

       11*   Computation of Earnings per Common and Common
             Equivalent Share.

       27*   Financial Data Schedule for Talley Industries, Inc.,
             June 30, 1997.

     99.1*   Consent and Seventh Amendment to the Loan and
             Security Agreement dated June 5, 1997 by and among
             Talley Manufacturing and Technology, Inc. and
             Transamerica Business Credit Corporation.

     99.2*   Consent and Eighth Amendment to the Loan and Security
             Agreement dated July 17, 1997 by and among Talley
             Manufacturing and Technology, Inc. and Transamerica
             Business Credit Corporation.






                               -17-
                               
<PAGE>                               

     99.3*   Defeasance Trust and Security Agreement dated as of
             June 13, 1997 among Talley Industries, Inc., Bank
             One, N.A., as Trustee and Bank One, N.A., as
             Custodian.


* Documents marked with an asterisk are filed with this report.


(b) Reports on Form 8-K:

       There were no reports filed on Form 8-K for the three
       months ended June 30, 1997.









































                               
                               
                               -18-
                               
<PAGE>                               

                            SIGNATURES




Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.




                                   TALLEY INDUSTRIES, INC.    
                                   -----------------------------
                                   (Registrant)







Date:   August 7, 1997             By  s/s   Kenneth May                
     ----------------------           --------------------------                

  
                                      Kenneth May
                                      Vice President, Controller
                                      Principal Accounting
                                      Officer






Date:   August 7, 1997             By  s/s   Mark S. Dickerson          
     ----------------------           --------------------------                
                                      Mark S. Dickerson
                                      Vice President 
                                      and Secretary
                                   
















                               -19-