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 June 30, 1998 

      Commission file number                                  0-22924

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

               Delaware                        75-2147742
     (State or other jurisdiction           (I.R.S. Employer
         of incorporation or               Identification No.)
            organization)

           1671 S. Broadway
          Carrollton, Texas                       75006
         (Address of principal                  (Zip code)
            executive offices)

                              (972) 466-0475
          (Registrant's telephone number, including area code)

    Securities registered pursuant to Section 12(b) of the Act:   None
    Securities registered pursuant to Section 12(g) of the Act:   Common
    Stock, $.01 par value                           (Title of Class)

    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  (or
    for such shorter  period that the  registrant was  required to  file
    such reports), and (2) has been subject to such filing  requirements
    for the past 90 days.    Yes    X     No           

    Based upon the closing price on the NASDAQ National Market System on
    September 11, 1998, the aggregate market  value of the voting  stock
    held by non-affiliates of the registrant was $8,547,625.

    As of September 11, 1998, the Company had 4,900,000 shares of Common
    Stock outstanding.

                    DOCUMENTS INCORPORATED BY REFERENCE

    Registrant's Definitive  Proxy Statement  to  be filed  pursuant  to
    Regulation 14A promulgated by the Securities and Exchange Commission
    under the Securities  Exchange Act of  1934, which Definitive  Proxy
    Statement is anticipated to be filed  within 120 days after the  end
    of the registrant's fiscal year ended June 30, 1998 is  incorporated
    by reference in Part III hereof.

    Indicate by check mark if  disclosure of delinquent filers  pursuant
    to Item 405 of Regulation S-K  (Section 229.405 of this chapter)  is
    not contained herein,  and will  not be  contained, to  the best  of
    registrant's  knowledge,   in   definitive  proxy   or   information
    statements incorporated by reference in Part  III of this Form  10-K
    or any amendment to this Form 10-K.     Yes    X     No           

    <PAGE>
                                   PART I

    ITEM 1 - BUSINESS

    Hilite Industries, Inc.  (the "Company")  designs, manufactures  and
    sells a diversified line of highly-engineered products primarily for
    automotive applications.  These  products include brake valves  such
    as proportioning  valves,  power  transmission  components  such  as
    electromagnetic  clutches,  mounting   brackets  and  pulleys,   and
    specialty components  and assemblies  such as  stampings,  specialty
    springs and automated  assemblies.  Some  of the Company's  products
    are engineered in close cooperation with the Company's customers  to
    meet their specific performance requirements.  Approximately 70%  of
    the sales  of the  Company are  to  automotive companies  and  their
    suppliers for passenger  cars and light  trucks sold  in the  United
    States.    The  Company's  customers  include  all  three   domestic
    automotive companies: Ford  Motor Company  ("Ford"), General  Motors
    Corporation ("General Motors") and Chrysler Corporation ("Chrysler")
    as well as other  automotive companies such  as Toyota Motor  Sales,
    U.S.A.,  Inc.  ("Toyota"),  Navistar  International   Transportation
    Corporation ("Navistar"),  and Mitsubishi  Motor Sales  of  America,
    Inc. ("Mitsubishi").  The Company also sells products to  first-tier
    suppliers including Borg-Warner  Corporation ("Borg-Warner"),  Bosch
    Braking Systems Corporation  ("Bosch"), Denso of  Los Angeles,  Inc.
    ("Denso"), Motivair Corporation ("Motivair")  and ITT Automotive  of
    North America, Inc.   Significant  non-automotive customers  include
    Motorola, Inc.  ("Motorola"), Crane  National Vendors,  the  Balance
    Systems  Division  of  Amesburg  Group,  Inc.,  and  a  variety   of
    distributors for industrial/hydraulic clutches.

    In order  to create  a more  flexible corporate structure for making
    acquisitions,  engaging in  capital raising  activities and  for tax
    efficiency,  the  Company  was  reorganized on  January 30, 1998  by
    transferring all  of its assets to Hilite  Industries - Texas, Inc.,
    a Delaware corporation  ("Hilite Texas"),  a wholly-owned subsidiary
    of the Company.    Hilite Texas  simultaneously  transferred  99% of
    those assets to  Hilite Industries - Delaware, Inc.,  a newly formed
    Delaware corporation ("Hilite Delaware")  in exchange for all of the
    issued and  outstanding  shares of common  stock of Hilite Delaware.
    Hilite Texas  and Hilite Delaware  then contributed  those assets to
    Hilite Industries  Automotive,  LP  ("Hilite LP"),  a  newly  formed
    Texas limited partnership.    Hilite LP is now performing all of the
    manufacturing,  sales and product  development activities previously
    performed  by Hilite in the  state of Texas.    In this Report,  the
    term the  "Company"  refers  collectively  to  the  Company,  Hilite
    Texas,  Hilite Delaware,  Hilite LP and  North American  Spring  and
    Stamping Corp. ("NASS"),  a Delaware corporation and a  wholly-owned
    subsidiary of  Hilite.    The reorganization had no affect on  NASS.
    NASS remains a wholly-owned subsidiary of Hilite.

    Except for  historical  information,  certain  statements  contained
    herein are forward-looking statements that are made pursuant to  the
    safe harbor provisions of  the Private Securities Litigation  Reform
    Act of  1995. Words  such  as "expects,"  "anticipates,"  "intends,"
    "plans," "believes,"  "seeks," "estimates,"  or variations  of  such
    words and similar expressions are intended to identify such forward-
    <PAGE>
    looking statements.  These statements  are not guarantees of  future
    performance and involve  unknown risks and  uncertainties which  may
    cause the  Company's  actual results  in  future periods  to  differ
    materially from  forecasted results.    Those risks  include,  among
    others,  risks  associated  with  changes  in  automotive  and  non-
    automotive  build  rates  as  well  as  risks  associated  with  the
    manufacturing process and start-up of new products and risks related
    to technological changes in components which affect the life of  the
    product. Factors that could cause or contribute to such  differences
    include, but are  not limited to,  those discussed  in the  sections
    entitled Risk Factors, Competition, Raw Materials and Regulations.

    The Company's  revenues  have grown  in  recent years  through  both
    internal growth  and acquisition.  Sales increases  in each  of  the
    previous three years  were 18.6%, 1.2%,  and 61.8%  in fiscal  years
    1998, 1997, and 1996, respectively.  According to Ward's  Automotive
    Reports, U.S. sales  of automobiles and  light trucks have  remained
    flat over the past three years. Vehicles sold in the U.S., by  model
    year (July - June), were 15.5 million in 1998, 14.9 million in 1997,
    and 15.0 million in 1996.

    The  Company   believes  that   its  quick   response  to   customer
    requirements,  creative  engineering  and  ability  to  design   and
    manufacture high volumes of competitively-priced products to meet or
    exceed the  quality standards  of the  automotive industry  are  the
    principal reasons it  has been successful  in increasing its  market
    share and in growing faster  than the domestic automotive  industry.
    The Company has  made significant investments  in capital  equipment
    and   state-of-the-art   manufacturing   processes   in   order   to
    continuously improve its productivity and maintain its position as a
    low cost, high quality manufacturer.

    The Company's goal is to continue to increase sales and income  from
    operations by  further  expanding its  number  of customers  and  by
    increasing the sales dollar content per United States light  vehicle
    sold.  The Company's  strategy is to continue  to invest in new  and
    efficient production equipment and to capitalize on opportunities in
    niche or emerging markets by expanding its engineering  capabilities
    to other automotive products.  Additionally, the Company may  pursue
    selected acquisitions which complement its existing business.

    <PAGE>
    PRODUCTS

    The following table  sets forth the  Company's net  sales for  brake
    valves, power transmission components  and specialty components  and
    assemblies divisions together  with their corresponding  percentages
    of total  net  sales  for  each of  the  three  fiscal  years  ended
    June 30, 1998:
    <TABLE>
                                        Year ended June 30,
                             1998           1997           1996
    <S>                             (dollars in thousands)
    Net sales:         <C>      <C>     <C>      <C>    <C>      <C>
    Brake valves       $27,524  31.6%   $22,195  30.2%  $23,909  32.9%

    Power transmission
      components        23,762  27.3     21,762  29.6    21,533  29.7
                                                               
    Specialty components 
     and assemblies     35,881  41.1     29,535  40.2    27,200  37.4
      
    Total net sales    $87,167 100.0%   $73,492 100.0%  $72,642 100.0%
    </TABLE>
    BRAKE VALVES

    Brake valves sales  were $27,524,000,  accounting for  31.6% of  the
    Company's net sales for the 1998  fiscal year.  Brake  proportioning
    valves, the principal product of  this division, provide the  proper
    amount of pressure  to the  front and  rear brakes  to facilitate  a
    controlled stop within a minimum distance.   These valves are  found
    on  both  conventional  and  anti-lock  braking  systems  for   most
    passenger cars and  light trucks. The  Company manufactures  various
    types of brake valves, including  in-line valves and remote  valves,
    as well  as relief  valves and  actuator assemblies  which were  new
    products introduced in fiscal 1998.  The relief valve is an integral
    part of a  power brake booster  system used on  vehicles which  have
    inadequate vacuum to support power braking.    An actuator  assembly
    is used with  a height sensing  brake valve to  modify the  pressure
    distributed to the rear  wheels based on the  changing loads in  the
    vehicle.

    Brake proportioning  valves  have  been  used  in  automotive  brake
    systems since the 1960s. The  primary function of the  proportioning
    valve is to provide, at a specific point, reduced hydraulic pressure
    to the rear brakes of the vehicle to proportion the pressure between
    the front and rear brakes in relation to the shift in dynamic weight
    distribution during stopping. Controlled reduction of this  pressure
    minimizes  vehicle  stopping  instability.  The  range  of   vehicle
    performance during braking is subject to certain  federally-mandated
    guidelines. The need for  a different brake  valve for each  vehicle
    model is a  result of various  factors such as  automobile size  and
    specifications. Brake valves are used both in automobiles which  are
    equipped with anti-lock brakes as well as traditional brake systems.
    <PAGE>
    The Company's proprietary and patented in-line valves are  generally
    installed directly  in  the master  cylinder  of the  brake  system.
    In-line  valves  offer   advantages  to  automotive   manufacturers,
    including lower  cost,  reduced  size and  flexibility.  The  remote
    valve, which is installed away from  the master cylinder, is a  more
    sophisticated  proportioning  valve   used  in  applications   where
    additional functions are required,  such as metering, switching  and
    sending an electrical signal to  a dashboard light indicating  brake
    malfunction.  During the past decade, there has been a trend for the
    Company's customers to  select in-line valves  for new brake  system
    applications.

    Since the late 1980s, there has been a worldwide trend toward  anti-
    lock brake systems  ("ABS").  Recently  the trend seems  to be  away
    from ABS systems as a number of customer's question if the  increase
    in  braking  performance  is  justified  by  the  additional   cost.
    Therefore, the automotive manufacturers  are reducing the number  of
    vehicles with ABS in  an effort to reduce  costs.  As brake  systems
    are redesigned, Hilite  usually benefits  because Company  engineers
    support our  customers with  cost effective  designs and  engineered
    prototypes to meet their new requirements.

    The Company supplies  valves for  many well-known  car and  mini-van
    models for all three major automotive companies and is expanding the
    applications of the Company's brake valves.   In the second half  of
    fiscal 1997, the  Company began  supplying brake  valves on  General
    Motors "P90" and "W"  car models and in  fiscal 1998 began  shipping
    relief valves to  Bosch and actuator  assemblies to  Chrysler.   The
    Company believes,  based on  its estimate  of  the number  of  brake
    proportioning valves used in automobiles and light trucks, that  its
    market share of brake proportioning valves sold in the United States
    is approximately 22%.

    POWER TRANSMISSION COMPONENTS

    Power transmission component sales were $23,762,000, accounting  for
    27.3% of the Company's net sales for 1998. This division's  products
    fall into two broad categories:  electromagnetic clutches and  other
    power transmission products.

    Electromagnetic  Clutches.  Electromagnetic  clutches  provide   the
    on-off control of rotary motion.  They  are used in a wide range  of
    applications, including hydraulic pumps, automotive air conditioning
    compressors, generators, alternators and water pumps.  The Company's
    clutches can  also be  found on  various trucks,  fishing boats  and
    manufacturing and construction equipment.  The Company has  received
    the Borg-Warner Automotive Certified Quality Vendor Award every year
    since 1987.  Electromagnetic  clutches have been manufactured  since
    1956 under the trade  name Pitts Industries.    In fiscal 1995,  the
    Company began  shipping air  conditioning clutches  to Navistar  and
    Motivair and began  shipping clutch components  in transmissions  to
    Borg-Warner in fiscal 1998.
    <PAGE>
    Other Power  Transmission Products.  The Company's  other  products,
    manufactured under  the  MAPCO  trade  name,  consist  primarily  of
    mounting brackets,  pulleys  and  fans.   These  products  generally
    require less engineering  than brake valves  or clutches.   Mounting
    brackets are  used  in  a variety  of  applications,  including  the
    installation of automotive  air conditioning  compressors which  are
    primarily sold to  Japanese companies for  cars sold  in the  United
    States.  Pulleys and  fans are sold in  a variety of  specifications
    for a wide range of automotive and truck applications.

    In the early 1980s the  Company began developing relationships  with
    Japanese companies  doing  business  in  the  United  States.  These
    relationships began with Denso, a first tier supplier of Toyota. The
    Company has  supplied  products to  Honda  both direct  and  through
    Calhac, a  wholly owned  system supplier  for Honda,  and  currently
    supplies product to Mitsubishi  and Isuzu. The Company's  experience
    in understanding, implementing and producing products which meet the
    quality  requirements  and  other  specifications  of  its  Japanese
    customers provide the  Company with an  opportunity for growth  with
    its existing  customers  and  with other  Japanese  companies  doing
    business in  North  America.  The  Company  plans  to  expand  these
    relationships.  The Company has received the top awards for  quality
    and delivery from both Honda and Denso in the last several years.

    SPECIALTY COMPONENTS AND ASSEMBLIES

    Specialty  components   and  assemblies   sales  were   $35,881,000,
    accounting for 41.1% of the Company's net sales for the 1998  fiscal
    year.   This division  was originally  founded  in 1950  as  Shaffer
    Spring Company and subsequently changed  its name to North  American
    Spring and  Stamping  Corp. ("NASS")  in  1976.   This  division  is
    restructuring to provide  stronger focus on  high volume,  precision
    stampings and  automated assemblies  and to  de-emphasize  commodity
    products.

    Currently, 64% of the division's business is OEM automotive with the
    remaining  36%  in  non-automotive   applications.    Some  of   the
    applications using  components and  assemblies manufactured  by  the
    division for the automotive industry include electronic  controllers
    for engines,  air  bags, fuel  systems  and anti-lock  brakes.    In
    addition to Ford, the division sells automotive components to  Delco
    Electronics and ITT  Automotive.  Products  sold for  non-automotive
    applications include delivery coils for vending machines, components
    used in  the  telecommunications  industry,  window  counter-balance
    springs and various other products.  These products will continue to
    be supplied by the division after the restructuring is complete.

    Early  in  fiscal  1997  the  specialty  components  and  assemblies
    division was  confronted  with  a  rapidly  deteriorating  situation
    resulting from the loss of Ford's  Q1 rating and mounting losses  on
    the start-up of  new business.   The  Company responded  with a  new
    management team for the division who began an aggressive program  to
    contain the  immediate  problems, maintain  positive  communications
    with customers  and  develop  a  plan  to  return  the  division  to
    profitability.   The new  management team,  along with  top  Company
    management, directed an intense effort to implement a  restructuring
    plan that returned the division to profitability in 1998.
    <PAGE>
    The restructuring plan was  presented and approved  by the Board  of
    Directors in June 1997 and consisted of the following elements:

    1.  Identify  the  core products  of the division which fit with the
        division's strengths.

    2.  Identify unprofitable, commodity  type products and  implement a
        plan for their orderly disposition.
     
    3.  Streamline the plant operating and  overhead structure to adjust
        to the downsized production levels  while increasing quality and
        engineering capability.
       
    4.  Upgrade  quality  systems  and   manufacturing  and   management
        processes to enable the division to qualify for a QS-9000 rating
        and to regain the Q1 status at Ford.

    As a result of implementing this restructuring plan a pre-tax charge
    of $2,700,000 ($1,757,000 after-tax) was recorded in the fiscal 1997
    results.  The  charge was  comprised of  a reduction  (approximately
    $900,000) in  the  net  book  value  of  certain  assets,  primarily
    machinery, equipment and tooling, to their estimated fair value, net
    of estimated  selling  costs, accrual  of  certain costs  which  the
    Company expected to  incur in  terminating contractual  obligations,
    but  for  which  no  future   economic  benefit  will  be   received
    (approximately $1,600,000) and other costs (approximately $200,000).

    During 1998, the Company successfully negotiated a price increase on
    certain  parts  which  were  identified  for  disposition  to   more
    accurately reflect the  manufacturing and support  costs during  the
    disposition period.   At the end  of fiscal 1998,  virtually all  of
    these identified  parts were  resourced to  other suppliers.   As  a
    result of restructuring the division, among other factors, sales  to
    Ford and its  divisions are currently  expected to be  approximately
    $5,000,000 lower for the fiscal year  ended 1999 as compared to  the
    fiscal year ended 1998.

    The division regained its  Q1 rating with  Ford during fiscal  1998,
    but has not regained its Q1  status at Visteon, a division of  Ford.
    While on probation, the division is prohibited from being considered
    for additional business from Visteon, although existing programs  in
    the development stages are allowed to continue.  A team of corporate
    and division management has  developed a restructuring plan  focused
    on returning the division to profitability and regaining Q1  status.
    There can be no assurance, at this  time, that the Q1 status can  be
    regained  or  what  effect  the  continued  probation  or   possible
    revocation will have on  future sales.   Sales to Visteon  represent
    approximately 50%  and  21% of  this  division's and  the  Company's
    sales, respectively, for the fiscal year ended June 30, 1998.

    Also during fiscal  1998, Hilite was  able to quickly  respond to  a
    critical  non-automotive  customer  requirement  for  a  significant
    increase in production by developing a unique flexible manufacturing
    process within greatly reduced lead time  parameters.  As a  result,
    Hilite received over  $4,000,000 in additional  sales from this  one
    time opportunity.
    <PAGE>
    PRODUCT DESIGN, RESEARCH AND DEVELOPMENT

    The Company employs a staff of over 44 engineers and technicians, 19
    of whom devote full time on new product design and on developing and
    improving products for the existing customer base, primarily for the
    brake valve  division.  The  remaining  engineers  are  involved  in
    production and manufacturing  process improvements and  implementing
    tooling on new projects

    The design  of new  brake valve  products generally  begins  several
    years before  production. The  process  begins when  the  automotive
    manufacturers or  system suppliers  request  the assistance  of  the
    Company's engineering department in designing products to meet their
    cost and  performance requirements  for future  vehicle models.  The
    Company's engineering department works closely with the customer  by
    providing drawings and prototype samples. These drawings and samples
    frequently undergo numerous  revisions until a  design is  accepted.
    The Company believes that its expertise in this area as well as  the
    quick response of its  engineering department are critical  elements
    of the success of its brake valves and other products.

    During the 1998, 1997, and 1996 fiscal years, the Company's research
    and  development   expenditures   were   approximately   $1,200,000,
    $882,000,  and  $945,000,   respectively.  Of  these   expenditures,
    $257,000, $240,000, and  $343,000, respectively,  were sponsored  by
    customers and the balance of which were sponsored by the Company.

    CUSTOMERS

    The Company's customers include automotive manufacturers as well  as
    major first-tier and second-tier suppliers of brake and transmission
    systems  to  automotive  manufacturers.  Approximately  70%  of  the
    Company's total  net sales  for the  1998 fiscal  year were  to  the
    automotive industry. The Company's five largest customers with their
    percentages of the Company's net sales for the 1998, 1997, and  1996
    fiscal years were as follows:
    <TABLE>
                                       Percentage of Net Sales
                                         Year ended June 30,
                     Customer            1998     1997     1996
        <S>                               <C>      <C>      <C>
        Ford .....................        26%      30%      30%
        Borg-Warner ..............         9        6        7
        Bosch (formerly AlliedSignal)      7        6        7
        Chrysler .................         7        7        7
        Motorola .................         7        3       --
    </TABLE>
    During fiscal 1996 Bosch purchased the braking systems division from
    AlliedSignal.   The  percentages  above reflect  the  sales  to  the
    manufacturing facilities previously operated by AlliedSignal, as  if
    no change  in  ownership  occurred.   The  Company's  customers  are
    primarily in the automotive industry and,  as a result, the  Company
    is impacted by the overall economic conditions within the industry.
    <PAGE>
    SALES AND MARKETING

    The   Company   utilizes   a   non-exclusive,   independent    sales
    representative company  based in  Detroit,  Michigan to  assist  the
    Company in selling its brake valves.  The representative's employees
    work directly with the engineering  and purchasing personnel of  the
    automotive manufacturers and their first-tier suppliers. This  sales
    representative, who  has considerable  experience in  selling  brake
    valves, is paid by commission based upon sales. The Company believes
    this sales  method  has  contributed to  the  sales  growth  of  the
    Company's brake valves,  is cost effective,  assists the Company  in
    identifying new  applications  for  its products  and  fosters  good
    relations with its customers.

    Company employed sales and customer service personnel are  primarily
    used for  selling  power  transmission  components.    Clutches  and
    machined products are sold by  the Company's direct sales  personnel
    who utilize trade journal advertising and direct customer  contacts.
    Clutches are also  sold through distributors  throughout the  United
    States which sell  to the  marine and  mobile equipment  industries.
    The Company believes these sales methods are cost effective,  assist
    the Company in  identifying new customers  and applications for  its
    products and foster good relations with its customers.

    Sales of  the  specialty  components  and  assemblies  division  are
    predominantly made through  independent sales  representatives.   As
    part of the restructuring plan at the division, effective July 1997,
    the Company terminated  the sales agency  which was responsible  for
    sales to  Ford.    This  agency  was  replaced  by  the  same  sales
    representative agency used by the brake valve division.  This agency
    has a long standing relationship and excellent contacts at all three
    major automotive companies.  The move  was made to reduce costs  and
    to broaden the future sales  growth opportunities for the  division.
    The  other  nonexclusive  sales  representatives  for  the  division
    operate under  agreements pursuant  to which  the representative  is
    paid a commission based upon sales.

    Inventory is delivered to various customer locations throughout  the
    country, based on automotive release schedules using common carriers
    that are  typically  selected  by  the  customers.  Consistent  with
    industry  practice,  outbound  freight  is  generally  paid  by  the
    customer.

    PATENTS AND PROPRIETARY TECHNOLOGY

    The Company  holds  several patents  for  brake valves  including  a
    patent  for   the  manufacturing   method  of   the  in-line   brake
    proportioning valve. This  method provides a  cost advantage to  the
    Company since it  reduces material costs.  In addition, the  Company
    uses many proprietary  processes and technologies  which are  either
    not patentable or are not yet patented. The Company's trade  secrets
    includes   proprietary   engineering   designs   and   manufacturing
    processes.
    <PAGE>
    COMPETITION

    The automotive industry is highly specialized and competitive. There
    are approximately  four principal  competitors of  the Company  that
    supply brake valves to the major domestic automotive  manufacturers.
    All of  these companies  are larger  and more  diversified than  the
    Company.  However, the  Company believes it  has the second  largest
    brake proportioning  valve  market share  and  its market  share  is
    growing.  The Company believes that  it has a competitive  advantage
    compared to these  competitors in that  it is the  only brake  valve
    manufacturer capable of manufacturing both in-line and remote  brake
    proportioning  valves.  Furthermore,   the  Company   is  the   only
    manufacturer of  brake proportioning  valves that  does not  compete
    with its customers.  Because of the capital investment in facilities
    and automated machining, testing and assembly equipment, the Company
    has a  state-of-the-art  brake valve  manufacturing  capability  and
    believes it is the low cost  producer of brake valves.

    There are two principal competitors  which dominate the high  volume
    automotive clutch market, one  of which is  a Japanese company.  The
    Company participates in specialized niches in the lower volume heavy
    truck clutch  market which  has few  competitors. The  Company  also
    manufactures  a  specialized  clutch  for  a  first-tier  automotive
    supplier of transmission systems.

    There are  several  manufacturers  which  supply  machined  products
    similar to the  Company's machined  products, certain  of which  are
    larger and have  greater financial  resources than  the Company.  In
    addition, the Company's customers  manufacture, engineer and  design
    components which compete with the Company's products and they  could
    expand  this  activity,  thereby  reducing  opportunities  for   the
    Company.

    There are  numerous  smaller  and a  few  larger  companies  located
    throughout the United States which produce products similar to those
    of the  specialty components  and assemblies  division.   Management
    believes that its niche includes stampings and automated  assemblies
    that  provide  more  value  added  benefits  through  investment  in
    equipment and engineering thus avoiding parts that fall  exclusively
    into  "commodity"  categories.    Growth  opportunities  have   been
    achieved  in  the  electronics  area  with  a  number  of  automated
    assemblies and specialty  stampings which  are the  primary area  on
    which this division will concentrate, according to the restructuring
    plan.

    A favorable trend  has been for  major automotive manufacturers  and
    their large  first-tier suppliers  to outsource  the manufacture  of
    specialty components and assemblies  such as brake valves,  clutches
    and machined brackets.   The Company has  benefited from this  trend
    which is expected  to continue.   However, many  of these  companies
    have the engineering  and financial resources  to manufacture  these
    products themselves should they choose to do so.
    <PAGE>
    The Company's  products,  which  are primarily  sold  to  automotive
    manufacturers  and  their  first-  and  second-tier  suppliers,  are
    utilized in over sixty major car models. Products for each of  these
    models represent  significant sales  for the  Company. Although  the
    Company generally is the  sole supplier of  the Company's parts  for
    the  life  of  the  model,  customer's  marketing  and   engineering
    decisions can limit the life of a car model or technological changes
    can cause a particular part to become obsolete. The Company competes
    for business  during the  development of  new  models and  upon  the
    redesign of certain existing models by its customers. Development of
    new and  redesigned models  usually begins  several years  prior  to
    their introduction to the public.  In recent years, the Company  has
    been successful in  obtaining new  business for  new and  redesigned
    models.   However, there  can  be no  assurance  that the  sales  of
    products for  use in  new models  will  fully offset  the  potential
    reduction in volume caused by discontinued models.

    The  Company  believes  that  it  must  compete  on  the  basis   of
    responsiveness, pricing,  quality and  breadth of  product line  and
    that it is  competitive with  respect to  each of  these areas.  The
    Company's business  is characterized  by technological  change.  New
    technology may be developed by the Company's competitors as well  as
    its customers. If the Company does  not successfully adapt to  these
    changes, it  may lose  part  of its  customer  base. To  maintain  a
    technologically  competitive   position,  the   Company  must   make
    significant  expenditures  for   new  machinery  and   manufacturing
    processes. The Company has incurred substantial capital expenditures
    during recent years which have enabled it to adapt to  technological
    changes in the  automotive industry which  we believe has  favorably
    positioned the Company for future growth.

    RAW MATERIALS

    The Company uses a variety of raw materials in the production of its
    products, including aluminum, copper and steel as well as  specialty
    parts.  The  automotive companies and  first-tier suppliers  require
    specific practices and  quality standards  to be  maintained by  the
    Company  over  their  suppliers  of  raw  materials  and   purchased
    components.    These  practices  are  reflected  in  the   Company's
    purchasing policies. The Company believes  that its supplies of  raw
    materials  for  manufacturing  requirements  are  adequate  and  are
    available  from  multiple  sources.  It  is  common,  however,   for
    customers  to  require  their  prior  approval  before  certain  raw
    materials or  components  can  be used,  thereby  possibly  reducing
    sources of supply  that would  otherwise be  available. The  Company
    believes that there are adequate numbers of its suppliers which meet
    these standards.
    <PAGE>
    BACKLOG

    The  Company's   backlog  at   June  30,   1998  was   approximately
    $23,168,000,  as   compared   to   $22,300,000   at   June 30, 1997,
    representing an increase of 4%. All of the backlog at June 30,  1998
    is expected  to be  delivered  during the  1999  fiscal year.    The
    increase in backlog is primarily  due to significantly higher  brake
    valve sales partially  offset by  the decreases  in sales  discussed
    earlier  by  the  specialty  components  and  assemblies   division.
    Backlog at any particular date may not be indicative of sales during
    the entire fiscal year.   See "Management's Discussion and  Analysis
    of Financial Condition and Results of Operations--Seasonality."

    REGULATION

    The  Company  is  subject  to  various  federal,  state  and   local
    regulations relating  to  the  operation of  its  business  and  the
    manufacture  of  its  products.    The  Company  believes  that  its
    manufacturing processes  and  facilities  have been  and  are  being
    operated in  compliance in  all  material respects  with  applicable
    regulations including those  relating to  environmental, health  and
    safety laws  and regulations.  Automobiles  are subject  to  federal
    safety regulations which  require, among other  things, that  brakes
    perform within certain  stopping distances.   Moreover,  automobiles
    are often marketed on the basis  of enhanced safety features.  While
    the Company is  not directly responsible  for compliance with  these
    safety standards, it must manufacture its products in a manner which
    permits its customers  to comply. These  regulations are subject  to
    change and  no  assurance  can  be  given  that  existing  laws  and
    regulations will not be amended or new laws and regulations will not
    be adopted  that  will  impose more  extensive  regulations  on  the
    Company and its customers.

    EMPLOYEES

    At June 30, 1998,  the Company had 743  employees, of whom 615  were
    paid hourly wages. These hourly employees were primarily engaged  in
    manufacturing, maintenance and warehousing.   Of the 743  employees,
    438 were employed in  Texas, 303 were employed  in Illinois and  two
    employed elsewhere.

    Approximately  134  hourly  employees  who  are  engaged  in  clutch
    manufacturing are covered  under a  collective bargaining  agreement
    with the  International Union  of Electronic,  Electrical,  Salaried
    Machine and Furniture  Workers, AFL-CIO ("IUEE")  Local Union  #1007
    which expires  on September  20, 2000.   A  separate agreement  with
    Local Union #1023 of the IUEE covering approximately 177  employees,
    engaged in brake valve manufacturing, expires on May 20, 1999.   All
    of the employees of the IUEE  are located in Texas, a  right-to-work
    state.    Approximately  252   hourly  employees  in  Illinois   are
    represented by the AFL-CIO Local unions  #10 and #24.  The  contract
    with Local  Union  #10,  which covers  approximately  221  employees
    expires on January 1, 2001; the contract with Local Union #24, which
    covers 31 employees,  expires on November  30, 1999.    The  Company
    believes that it has good relations with its employees.
    <PAGE>
    RISK FACTORS

    The risk  factors below,  along with  those discussed  in  Business,
    Competition, Raw Materials and  Regulations sections of this  Annual
    Report on  Form 10-K,  are some,  but not  necessarily all,  of  the
    matters which present  risks and  uncertainties which  could have  a
    material adverse  affect on  the Company's  ability to  operate  its
    business successfully  or in  a  manner consistent  with  historical
    operating results.    The  Company's  actual  results  could  differ
    materially from  projected results due to some or all of the factors
    discussed below.

    Reliance  on  Major  Customers  -   The  Company's  sales  to   Ford
    represented 26%, 30% and 30% of the Company's total sales in  fiscal
    1998, 1997 and  1996, respectively.   No other customer  represented
    more than 10% of the Company's total sales in fiscal 1998, 1997  and
    1996.  While the Company has a long-standing relationship with  Ford
    and sells a variety of products  to each of its divisions, the  loss
    of a significant portion of its sales to any of the Company's  major
    customers could have a material adverse effect on the Company.   See
    "Loss of  Q1  Status  at the  Specialty  Components  and  Assemblies
    Division" and "Business."

    Loss of  Q1  Status  at  the  Specialty  Components  and  Assemblies
    Division -  In late  September 1996,  the specialty  components  and
    assemblies division was  put on Q1  quality probation by  Ford as  a
    result of certain concerns regarding its products.  During 1998, the
    Company regained its Q1 rating with  Ford, but has not regained  its
    Q1 status at Visteon,  a Ford-owned supplier.   While on  probation,
    the division  is prohibited  from  being considered  for  additional
    business from  Visteon (although  certain existing  programs in  the
    development stages  are  allowed  to  continue).  Sales  to  Visteon
    represent approximately  50%  and 21%  of  this division's  and  the
    Company's sales, respectively  for the fiscal  year ended  1998.   A
    team of corporate  and division  management have  developed and  are
    implementing a restructuring plan focused on regaining Q1 status  by
    the end of the fiscal year.

    Reliance on  Sales Representatives  - With  the hiring  of the  same
    sales representative  agency that  represents  the Company  for  the
    brake valve division to represent the Company's specialty components
    and assemblies division  with Ford, this  agency is now  responsible
    for over 50% of the Company's total annual sales.  While the Company
    has maintained a close  relationship with this  agency for over  ten
    years, any disruption  of this  relationship could  have a  material
    adverse affect on the Company.  See "Sales and Marketing."

    Automotive Industry  Cyclicality  and Conditions  -  The  automotive
    industry is cyclical  and subject to  fluctuations based on  general
    economic  conditions.    Significant  declines  in  North   American
    passenger vehicles  and  light truck  sales  could have  an  adverse
    effect upon the Company.
    <PAGE>
    In recent years, there has been substantial and continuing  pressure
    from the major automotive  manufacturers to reduce costs,  including
    reduction in prices by outside suppliers such as the Company.  As  a
    result, certain of  the Company's customers  have requested and  the
    Company has agreed on occasion  to provide selling price  reductions
    and absorb inflationary cost increases.   There can be no  assurance
    that the  Company can  sustain current  profit margins  under  these
    business conditions.  See "Business."

    Quality Control, Product Liability and Recalls  - While the  Company
    maintains quality assurance procedures, in the event a defect in its
    products is not detected prior to shipment to a customer, or use  by
    a consumer,  substantial  costs could  be  incurred by  the  Company
    relating to a recall claim.  While this has not been material in the
    past, a recall could have a material effect on the Company.

    In addition, the  sale of the  Company's products  could expose  the
    Company to liability  claims.  The  Company currently has  liability
    insurance which it believes is adequate for its current  activities.
    There can be no assurance that the Company will be able to  maintain
    insurance at a reasonable cost, if at all, or that insurance will be
    adequate to  cover  liabilities  resulting  from  product  liability
    claims or that  the Company  will have  funds available  to pay  any
    claims over the limit of its  insurance.  While the Company has  had
    no material liability claims to date,  either an underinsured or  an
    uninsured claim could have a material adverse effect on the Company.

    On January 28, 1998, the Company announced that it had been notified
    by  Visteon,  a  division  of  Ford  Motor  Company,  that  a   part
    manufactured by the  Company's specialty  components and  assemblies
    division may be involved in a recall regarding a fuel gauge accuracy
    problem  with  certain  1997  model  year  vehicles.    Based   upon
    information currently available to the Company, management  believes
    that this matter will be resolved in a manner not materially adverse
    to the Company.

    Competition, Rapidly Changing Markets and Capital Intensive Business
    - The automotive parts industry is highly competitive.  The  Company
    competes with many  automotive parts  suppliers, many  of which  are
    larger and  have  greater  financial  resources  than  the  Company.
    Although  the  trend  has  been   for  the  major  U.S.   automobile
    manufacturers and their  suppliers to outsource  the manufacture  of
    specialty components such as brake valves, clutches and  assemblies,
    many  of  these  companies   have  the  engineering  and   financial
    resources, to manufacture these products  internally.  If this  were
    to occur, it could  have a material adverse  effect on the  Company.
    See "Business - Competition."

    The market  for  the  Company's  products  continues  to  change  as
    customers redesign their vehicles,  introduce new models and  change
    technologies.  A decline  in the demand  for the Company's  products
    due to  changes in  technologies or  market conditions  may have  an
    adverse effect on the Company.  See "Business - Customers."
    <PAGE>
    To remain competitive, the Company is  required to continue to  make
    significant capital investments in  new machinery and  manufacturing
    processes.  There can be no  assurance, however, that the  financial
    resources will be  available to enable  the Company  to continue  to
    effectively  respond  to  future  technological  changes  or  market
    demands of it customers.  See "Management's Discussion and  Analysis
    of Financial  Condition and  Results of  Operation -  Liquidity  and
    Capital Resources."



    ITEM 2 - PROPERTIES

    The Company  owns its  primary facility  which is  located on  seven
    acres of  land in  Carrollton, Texas,  approximately 12  miles  from
    Dallas, Texas.  The  facility consists  of  106,000 square  feet  of
    manufacturing space for brake valves and clutches, and approximately
    25,000 square  feet of  corporate office  space.   The  Company  has
    granted  a  security  interest  in   its  plant  and  equipment   to
    collateralize  certain  bank   loans.  See  Note   8  of  Notes   to
    Consolidated Financial Statements.

    The Company leases approximately 70,000 square feet of space in Fort
    Worth, Texas, 66,000  square feet  for the  manufacture of  machined
    components and 4,000 square feet of office space. The lease for this
    space expires in August 2001.

    NASS is located in Elk Grove,  Illinois, a suburb of Chicago,  where
    it operates its main manufacturing facility.   This real estate  and
    facility, consisting of  74,500 square feet  of manufacturing  space
    and 2,500  square  feet of  office  space, is  owned  by NASS.    In
    addition, NASS leases 21,150 square feet of space in nearby Lombard,
    Illinois where it manufactures non-automotive springs.

    Certain inventory  for  the Elk  Grove  plant and  for  after-market
    products are maintained in a leased warehouse, consisting of  40,000
    square feet, in Elk Grove, Illinois.  The lease expires in  December
    2001.  An  after-market sales office,  located in Atlanta,  Georgia,
    uses 250 square feet of space;  its lease expires in March 1999.

    The Company believes that the owned  and leased space is  sufficient
    for its  current manufacturing  needs but  supplemental  warehousing
    space, in Texas,  may be necessary  for anticipated sales  increases
    over the next  three years.   Sufficient  available warehouse  space
    exists in the area to fulfill any planned expansion.

    <PAGE>
    ITEM 3 - LEGAL PROCEEDINGS

    In May  1997, the  Company initiated  a suit  in the  United  States
    District Court  for  the  Northern  District  of  Illinois  (Eastern
    Division) against the former owners of  NASS.  The Company  alleged,
    among  other   things,  that   the  former   owners  made   material
    misrepresentations in connection with the  acquisition of NASS.   On
    February 13, 1998 an agreement was  reached between the Company  and
    the former owners of NASS  to settle the suit.   Under the terms  of
    the Settlement Agreement, the Company is relieved of its  obligation
    to pay approximately $2 million in principal and interest under  the
    Note issued  as part  of the  consideration for  the acquisition  of
    NASS.   The  reduction in  the  principal  amount of  the  note  was
    credited against goodwill.  The Company will not be required to make
    any future payments under the employment and non-compete  agreements
    with  the  former  owners  and,  in  addition,  the  former   owners
    reimbursed the Company for a portion  of its legal fees incurred  in
    connection with the law  suit.  The  former owners, however,  remain
    bound  by  the  non-competition   provisions  in  their   respective
    employment agreements.   In addition, the  parties executed  limited
    mutual general releases.

    In the normal course of business, the Company is subject to  certain
    claims and litigation  related to on-the-job  injuries. The  Company
    does not believe that any claims will have a material adverse effect
    on the Company.

    ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    There were  no matters  submitted to  a  vote of  security  holders,
    through the solicitation of proxies or otherwise, during the  fourth
    quarter ended June 30, 1998.


                                  PART II

    ITEM 5 - MARKET FOR COMPANY'S COMMON EQUITY AND RELATED
    STOCKHOLDER MATTERS

    (a)  Market Information

    The Common Stock of the Company is traded on the NASDAQ National
    Market System. The quarterly range of prices per share in the last
    two fiscal years was as follows:
    <TABLE>
                <S>                      High     Low
                 Fiscal 1997:           <C>        <C>
                 First Quarter          10 1/4     5
                 Second Quarter          6         4 1/4
                 Third Quarter           5 1/2     4 3/4
                 Fourth Quarter          5 1/2     3 1/4

                 Fiscal 1998:
                 First Quarter           6 1/4     4 1/4
                 Second Quarter          7 1/8     5 1/4
                 Third Quarter           7 7/8     6 3/4
                 Fourth Quarter          9 3/4     7 1/2
    </TABLE>
    <PAGE>

    (b)  Holders

    As of September 11, 1998, the approximate number of security holders
    of record of the Company were 46.      The Company believes that the
    number of beneficial shareholders is much larger.


    (c)  Dividends

    Dividends of $0.025 per share on 4,900,000 shares were paid on  each
    of November 17,  1997, February 23, 1998,  and  May  18, 1998.   The
    Board  of  Directors  of  the  Company  anticipate  continuing   the
    quarterly  cash  dividend  program  into  fiscal  1999.     However,
    subsequent quarterly dividends depend upon future operating results.


    ITEM 6 - CONSOLIDATED SELECTED FINANCIAL DATA

    The following table sets forth selected consolidated financial  data
    with respect to the Company and  should be read in conjunction  with
    the consolidated financial statements of the Company and the related
    notes thereto and "Management's Discussion and Analysis of Financial
    Condition  and  Consolidated  Results  of  Operations,"  which   are
    included elsewhere  in  this  document.  The  selected  consolidated
    financial data presented below for each of the five years as of  and
    for the years  ended June 30,  1998 are derived  from the  Company's
    consolidated financial statements.
    <TABLE>
                                    Year ended June 30,
                               1998    1997      1996       1995     1994
                                 (Dollars in thousands, except share 
                                      and per share data)
    <S>                      <C>       <C>       <C>       <C>       <C>
    Net sales..............  $87,167   $73,492   $72,642   $44,900   $36,896
    Cost of sales..........   69,764    63,938    57,711    34,849    28,517
    Gross profit...........   17,403     9,554    14,931    10,051     8,379
    Selling, general and   
      administrative.......    9,026    10,340     7,576     4,286     3,696
    Operating income (loss)    8,377      (786)    7,355     5,765     4,683
    Interest expense, net..    1,320     1,714     1,659       130       234
    Income (loss) before
      income taxes.........    7,057    (2,500)    5,696     5,635     4,449
    Income tax provision
      (benefit)............    2,545      (843)    2,064     2,016     1,668 
    Net income (loss)......  $ 4,512   $(1,657)  $ 3,632   $ 3,619   $ 2,781

    Earnings (loss) per share:
    Basic..................  $   .92   $  (.34)  $   .74   $   .74   $   .66
    Diluted................  $   .92   $  (.34)  $   .74   $   .74   $   .66
    
    Shares used in computing earnings
    per share:
    Basic..................4,900,000 4,900,000 4,900,000 4,900,000 4,235,479
    
    Diluted................4,912,655 4,900,000 4,903,951 4,900,000 4,235,479
    </TABLE>
    <PAGE>      
    <TABLE>
                                                June 30,
                               1998     1997      1996       1995      1994
    <S>                                   (In thousands)
    Balance sheet data:      <C>       <C>      <C>        <C>       <C>
    Working capital .......  $10,569   $ 8,329  $ 11,285   $ 8,048   $ 9,779
    Property, plant and
      equipment, net.......   27,616    26,323    27,790    16,664     9,725
    Total assets ..........   57,356    57,219    56,198    30,243    26,013
    Long-term
      obligations (1)......   15,380    18,271    19,533     3,419     2,255
    Total liabilities......   31,209    35,216    32,538    10,219     9,603
    Stockholders' equity...   26,148    22,004    23,661    20,029    16,410
    </TABLE>
    (1) Includes noncurrent portion of long-term debt obligations.

    ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
    AND CONSOLIDATED RESULTS OF OPERATIONS

    OVERVIEW

    For  fiscal  1998,  net  sales  increased  approximately  18.6%   to
    $87,167,000 from $73,492,000  in fiscal 1997.   Net  income for  the
    1998 fiscal year was $4,512,000 ($0.92 per share) compared to a  net
    loss of $1,657,000 ($0.34 per share) for the fiscal year ended 1997.
    The 1997 net loss, which was entirely attributable to the  specialty
    components and assemblies division, included a fourth quarter after-
    tax charge  of  $1,757,000,  or $0.36  per  share,  related  to  the
    restructuring of the division.  The net sales of the Company's brake
    valve products increased 24.0% in the  1998 fiscal year to sales  of
    $27,524,000 from reported sales of  $22,195,000 in fiscal 1997.  Net
    sales of power  transmission components increased  9.2% in the  1998
    fiscal year with sales of $23,762,000 compared to $21,762,000 in the
    1997 fiscal year.  The specialty components and assemblies  division
    experienced a 21.5% increase in sales over the prior year with sales
    of $35,881,000 compared to $29,535,000 in  1997.  Management of  the
    Company expects  that the  sales growth  rate  of the  Company  will
    exceed the growth rate  of the automobile industry  as a whole  over
    the next two  years.   The Company's backlog  at June  30, 1998  was
    approximately $23,168,000, which represents an increase of 3.8% over
    the  backlog  of  approximately   $22,300,000  at  June  30,   1997.
    Additionally, customer commitments for new tooling at June 30,  1998
    were approximately $600,000, as compared to approximately $1,700,000
    at June 30, 1997.
    <PAGE>
    RESULTS OF OPERATIONS
    
    The following  table  sets forth,  for  the periods  indicated,  the
    percentage  of  net  sales  represented  by  certain  items  in  the
    Company's statements of operations:
    <TABLE>
    <S>                                      1998     1997      1996
    Net sales:                               <C>      <C>       <C>
    Specialty components and assemblies..    41.1%    40.2%     37.4%
    Brake valves ........................    31.6     30.2      32.9
    Power transmission components........    27.3     29.6      29.7
      Total net sales ...................   100.0    100.0     100.0
    Cost of sales .......................    80.0     87.0      79.4
    Gross profit ........................    20.0     13.0      20.6
    Selling, general and            
      administrative expenses ...........    10.4     14.1      10.5
    Operating income (loss) .............     9.6     (1.1)     10.1
    Interest expense, net ...............     1.5      2.3       2.3
    Income (loss) before income taxes....     8.1     (3.4)      7.8
    Income tax provision (benefit).......     2.9     (1.1)      2.8
    Net income (loss) ...................     5.2%    (2.3)%     5.0%
    </TABLE>
    YEAR ENDED JUNE 30, 1998 COMPARED TO YEAR ENDED JUNE 30, 1997

    Net  sales  in  fiscal  year  1998  were  $87,167,000  compared   to
    $73,492,000 for the prior fiscal  year, representing an increase  of
    $13,675,000 (18.6%).   Net  sales are  comprised of  sales from  the
    Company's three  divisions:  specialty  components  and  assemblies,
    brake  valves  and   power  transmission   components.     Specialty
    components and assemblies sales for fiscal 1998 were $35,881,000, an
    increase of  $6,346,000 (21.5%)  over sales  of $29,535,000  in  the
    prior  year.    The  increase  is  primarily  due  to  a  $4,000,000
    nonrecurring sales opportunity  of certain non-automotive  products.
    This division  benefited  by  price  increases  totaling  $2,800,000
    primarily for parts which were being  phased out as a result of  the
    restructuring plan.   However, lower sales  volumes associated  with
    these parts offset the added price increases.  Brake valve sales for
    fiscal year 1998 were $27,524,000, an increase of $5,329,000 (24.0%)
    from sales  of $22,195,000  in  the prior  year.   The  increase  is
    attributable to additional new business for brake valve and  related
    products in 1998 primarily pressure relief  valves for Bosch and  an
    actuator assembly for Chrysler.  Power transmission components sales
    were $23,762,000 in  fiscal 1998, an  increase of $2,000,000  (9.2%)
    over sales of $21,762,000  in the prior year.   The increased  sales
    are attributable to a significant  new program for certain  transfer
    case components as  well as  strong sales  of clutches  used in  the
    heavy truck industry.  The impact of price changes, other than those
    discussed above, was not significant.

    Fiscal year 1998  gross profit  increased by  $7,849,000 (82.2%)  to
    $17,403,000, representing 20.0% of net  sales, as compared to  gross
    profit of $9,554,000 or 13.0% of net sales in the same period of the
    prior fiscal year.   The primary  reason for the  increase in  gross
    profit is due to the price increases mentioned above and  additional
    costs resulting from the problems experienced in fiscal 1997 at  the
    specialty components  and  assemblies  division  and  the  resulting
    <PAGE>
    reorganization plan.  As a result  of the plan, a pre-tax charge  of
    $2,700,000 ($1,000,000 in cost of  sales and $1,700,000 in  selling,
    general  and  administrative  costs)  was  recognized.  This  charge
    includes termination  of certain  contracts, write-down  of  certain
    assets to fair value, net of estimated selling costs and other costs
    related to the reorganization.

    The gross profit  percentage at the  brake valve division  increased
    over the prior year primarily because  fixed costs did not  increase
    at the same rate  of sales.  Gross  profit percentages at the  power
    transmission components division were lower than the prior year  due
    primarily to startup  expenses associated with  the new  significant
    program for certain transfer case components.

    Selling, general and  administrative costs in  the 1998 fiscal  year
    were $9,026,000  (10.4% of  net sales)  as compared  to  $10,339,000
    (14.0% of  net  sales)  in the  1997  fiscal  year,  representing  a
    decrease of $1,313,000 (12.7%).   The decrease  is primarily due  to
    expenses associated with the  restructuring charge at the  specialty
    components and  assemblies  division in  the  prior year.      These
    decreases are offset  by increases in  certain selling, general  and
    administrative expenses, primarily  additional engineering  expenses
    associated with increased research and development costs.

    Net interest expense of $1,320,000 for the year ended June 30,  1998
    represents a $394,000 decrease  from the prior  year.  The  decrease
    results from lower  average debt balances  due to  the repayment  of
    bank debt during fiscal year 1998.

    Net income was $4,512,000  for the fiscal year  ended June 30,  1998
    compared to the net  loss of $1,657,000 for  the prior fiscal  year.
    The 1997  loss  was  attributable to  problems  encountered  at  the
    specialty components and assemblies division.    The net income  for
    the 1998 fiscal year represented an 18.7% return on equity and  debt
    represented 37% of total capitalization.

    YEAR ENDED JUNE 30, 1997 COMPARED TO YEAR ENDED JUNE 30, 1996

    Net  sales  in  fiscal  year  1997  were  $73,492,000  compared   to
    $72,642,000 for  the comparable  period of  the prior  fiscal  year,
    representing  an  increase  of  $850,000  (1.2%).    Net  sales  are
    comprised of  sales from  the Company's  three divisions:  specialty
    components and  assemblies,  brake  valves  and  power  transmission
    components.  Specialty  components and assemblies  sales for  fiscal
    1997 were $29,535,000, an increase  of $2,335,000 (8.6%) over  sales
    of $27,200,000 in the prior year.  The increase is primarily due  to
    a full  year's  sales  from  the  division  which  was  acquired  on
    July 21, 1995 and increased sales of  spring assemblies used in  the
    telecommunication industry.  Brake valve sales for fiscal year  1997
    were $22,195,000,  a decrease  of $1,714,000  (7.2%) from  sales  of
    $23,909,000 in  the  prior year.    The  decrease was  a  result  of
    products that  had  lower  volumes  or  were  being  phased  out  by
    customers.  Power transmission components sales were $21,762,000, an
    increase of $229,000 (1.1%) over sales  of $21,533,000 in the  prior
    year.  The impact of price changes was not significant.
    <PAGE>
    Fiscal year 1997  gross profit  decreased by  $5,377,000 (36.0%)  to
    $9,554,000, representing 13.0%  of net sales,  as compared to  gross
    profit of $14,931,000 or  20.6% of net sales  in the same period  of
    the prior fiscal year.  The primary reason for the decrease in gross
    profit  is  due  to  the  problems  experienced  in  the   specialty
    components and assemblies division.   Early in  the fiscal year  the
    division was  confronted  with  a  rapidly  deteriorating  situation
    resulting from the  loss of its  Q1 quality rating  from Ford  Motor
    Company and mounting losses on the start-up of new business.  A  new
    management team was  put in  place to  immediately address  customer
    concerns, to focus division personnel on engineering,  manufacturing
    and quality problems, to implement short-term corrective action  and
    to  develop  a  longer-term  plan  for  restoring  the  division  to
    profitability.    In  order  to  accomplish  the  short-term  tasks,
    significant  amounts  were  expended  for  quality  and  engineering
    resources and increased maintenance and  tooling on equipment.   The
    long-term plan, which was approved by the Board of Directors in June
    1997, involves  the  orderly  disposition  of  certain  unprofitable
    commodity-type products,  representing approximately  $8,000,000  of
    fiscal 1997  revenues,  and  focuses  the  division  on  value-added
    assemblies, stampings and  specialty springs.   As a  result of  the
    plan, a pre-tax charge of $2,738,000 ($986,000 in cost of sales  and
    $1,752,000  in  selling,  general  and  administrative  costs)   was
    recognized which includes termination  of certain contracts,  write-
    down of certain assets to fair value, net of estimated selling costs
    and other costs related to the reorganization.  The impact of  price
    increases on materials was not significant during the period.

    The gross profit  percentage at  the brake  valve division  declined
    slightly over the prior year primarily  due to the decline in  sales
    without a similar decline in fixed costs.  Gross profit  percentages
    at the power transmission  components division were slightly  higher
    than the prior  year due to  a favorable change  in product mix  and
    operating efficiencies.

    Selling, general and  administrative costs in  the 1997 fiscal  year
    were $10,340,000  (14.1% of  net sales)  as compared  to  $7,576,000
    (10.5% of  net  sales) in  the  1996 fiscal  year,  representing  an
    increase of $2,764,000 (36.5%).   The increase  is primarily due  to
    expenses associated with the  restructuring charge at the  specialty
    components and  assemblies  division.   The  remaining  increase  is
    primarily due to higher commissions,  legal expenses and salary  and
    travel costs associated  with the replacement  of management at  the
    specialty components and assemblies division.

    Net interest expense of $1,714,000 for the year ended June 30,  1997
    represents a $54,000  increase over the  prior year.   The  increase
    results from higher average debt balances  due to increases in  bank
    debt.

    The net loss was $1,657,000 for the 1997 fiscal year compared to net
    income of $3,632,000 for the same  period of the prior fiscal  year.
    The loss was  entirely attributable to  problems encountered at  the
    specialty components and assemblies division.  The net loss for  the
    1997 fiscal year represented a 7% negative return on equity and debt
    represents 48% of total capitalization.
    <PAGE>
    LIQUIDITY AND CAPITAL RESOURCES

    For the 1998 fiscal year, cash provided by operations before changes
    in operating assets and liabilities substantially improved as it had
    been adversely affected in the 1997  fiscal year by the  operational
    problems  and  resulting  restructuring  charge  at  the   specialty
    components and  assemblies division.   Cash  provided by  operations
    before changes  in  operating  assets and  liabilities  amounted  to
    $8,712,000 in fiscal 1998 as compared to $4,123,000 in fiscal  1997.
    However,  there  was  a  net   increase  in  operating  assets   and
    liabilities of  $1,745,000  in fiscal  1998  as compared  to  a  net
    decrease in operating assets and liabilities of $1,861,000 in fiscal
    1997.    The  increase  in  operating  assets  and  liabilities  was
    primarily due  to  increases  in trade  receivables  and  inventory,
    partially offset  by  higher  accounts payable.    These  additional
    working  capital   requirements  were   primarily  associated   with
    additional sales volumes, particularly in  the last quarter of  1998
    as compared to the sales levels at the end of the 1997 fiscal  year.
    Net cash flow from operations for  the year of $6,967,000  generated
    sufficient resources to fund capital expenditures of $3,070,000,  to
    pay down the Company's  debt by $3,897,000 and  to pay dividends  of
    $368,000.  In addition, debt was further reduced by $1,785,000 in  a
    non-cash transaction as part of a lawsuit settlement with the former
    owners of NASS (See  Note 4 of Notes  to the Consolidated  Financial
    Statements).  As a  result of the reduction  in debt, the  Company's
    ratio of debt to capitalization was reduced to 37% at June 30,  1998
    compared to 48% in the prior year.

    The average days sales outstanding as of June 30, 1998 was unchanged
    from the  44 days  at June  30, 1997.   Throughout  fiscal 1998  and
    during the fourth quarter of fiscal 1997, the Company benefited from
    a temporary  acceleration  in  payments by  a  significant  customer
    associated with a special project.   These special terms expired  on
    June 30, 1998 and, as a result, the number of days sales outstanding
    are expected to increase  in fiscal 1999.   As of June 30, 1998,  no
    significant receivables were considered uncollectible.

    The Company  made expenditures  of $3,070,000  in 1998  for  capital
    equipment to improve  productivity and increase  capacity.   Capital
    spending in fiscal 1997 was $4,824,000.  Capital spending in  fiscal
    1999 is expected to be approximately $3,500,000.

    The Company's long-term debt includes consolidated term and mortgage
    notes (original  principal  amounts  of  $13,700,000  and  $960,000,
    respectively, and current  balances at June  30, 1998 of  $8,043,000
    and  $603,000,   respectively)   which  are   payable   in   monthly
    installments of $163,095 and $5,333, respectively, plus interest  at
    either LIBOR plus  1 1/2%  or the bank's  prime rate.   All  amounts
    borrowed under the consolidated term and mortgage notes are  secured
    by  the  Company's  real  estate,  accounts  receivable,  inventory,
    machinery and equipment and  have maturities of  August 1, 2002  and
    November 1, 2007, respectively.
    <PAGE>
    The Company has a revolving credit agreement of $12,000,000, subject
    to  certain  availability  amounts,  and  an  equipment  acquisition
    facility of $3,000,000  (collectively the  "Credit Facilities")  for
    working capital and capital equipment needs.  The Credit  Facilities
    mature on  July 21,  1999.   As  of June  30, 1998,  $5,436,000  was
    available under the  credit agreement and  $3,000,000 was  available
    under the  equipment acquisition  facility.   An annual  fee of  one
    quarter of one percent is payable  monthly on the unused portion  of
    the Credit Facilities.  The bank has the right to accelerate each of
    the maturity dates  of the consolidated  term note  and real  estate
    note to coincide with  the maturity date  of the Credit  Facilities.
    See Note 8 of Notes to the Consolidated Financial Statements.

    The current ratio of the Company was 1.7  to 1 at June 30, 1998  and
    1.6 to 1 at  June 30, 1997.  The book value  per share increased  to
    $5.34 at  June  30,  1998  compared  to  $4.49  at  June  30,  1997.
    Management anticipates  that  cash  flow from  operations  and  bank
    credit availability  will be  adequate to  fund the  existing  debt,
    dividend payments, anticipated capital and tooling requirements  and
    working capital needs for the next two years.   However, due to  the
    change in terms  of a significant  customer and  the typically  high
    working capital requirements in the first quarter, debt is  expected
    to increase early  in fiscal 1999,  but to be  reduced below  fiscal
    1998 levels by the end of fiscal 1999.

    FORWARD LOOKING STATEMENTS

    Looking  toward  fiscal  1999,  the  Company  anticipates  sales  to
    increase in both the brake valve and power transmission divisions by
    12% to 15% over the 1998 fiscal year sales.  Sales in the  specialty
    components and  assemblies  division  are expected  to  decrease  by
    approximately  27%  to  $26,000,000.     The decrease is  due to the
    restructuring plan that has  eliminated non-profitable parts and  to
    the one-time $4,000,000 sales  opportunity which occurred in  fiscal
    1998.  The  strong sales improvement  for both the  brake valve  and
    power transmission components  division is expected to substantially
    offset the planned reduction in sales  of  the specialty  components
    and assemblies division.  Given that the sales growth is expected to
    be in more profitable product lines, improvement in earnings for the
    Company should be achieved in fiscal 1999.  These statements  assume
    that automotive build  rates remain strong  throughout the year.  In
    addition  all  statements  made  herein  are  subject  to all of the
    cautionary statements contained in "Item 1 -- Business General"  and
    "Risk Factors."

    SEASONALITY

    Net sales and operating results do not follow a predictable seasonal
    pattern from quarter to quarter because the development and  initial
    production of new products may occur at different times of the year.
    Generally, in these periods  certain inefficiencies are  experienced
    which result  in  higher costs  to  the Company.  In  addition,  the
    Company usually  experiences somewhat  lower sales  in the  quarters
    ended December  31  and  September 30  as  automobile  manufacturers
    traditionally close their plants for vacations or model  changeovers
    during these periods  resulting in  lower demand  for the  Company's
    products.
    <PAGE>
    INFLATION

    The Company believes that the relatively moderate rate of  inflation
    in recent years has  not had a significant  impact on the  Company's
    revenues or profitability.

    RECENT FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENTS

    In June  1997,  the FASB  issued  FAS No.  131,  "Disclosures  about
    Segments of  an  Enterprise  and  Related  Information."    FAS  131
    established standards  for  reporting  information  about  operating
    segments in annual  financial statements and  requires reporting  of
    selected information about operating  segments in interim  financial
    reports issued to shareholders.   FAS 131 also establishes standards
    for related disclosure about products and services, geographic areas
    and major customers.  FAS 131 is effective for financial  statements
    for periods  beginning  after December  5,  1997, and  requires  the
    restatement of  disclosures  for  earlier  periods  for  comparative
    purposes unless the information is  not readily available, in  which
    case a  description of  unavailable information  is required.    The
    Company plans to adopt the disclosure standards during fiscal 1999.

    In June 1998, the FASB issued No. 133, "Accounting for  Derivatives,
    Investments and  Hedging Activities."   This  statement  establishes
    accounting  and   reporting  standards   for  derivative   financial
    statements,  including  certain  derivative  financial   instruments
    imbedded in other contracts and for hedging activities.  FAS 133  is
    effective for all  fiscal quarters  beginning after  June 15,  1999.
    This pronouncement  is  not  expected to  significantly  impact  the
    Company.

    YEAR 2000

    Until recently, computer  programs were  written to  store only  two
    digits of  date-related information  in  order to  more  efficiently
    handle and store data.  As  a result, these programs were unable  to
    properly distinguish between the year 1900 and the year 2000.   This
    is frequently referred to as the  "Year 2000 Problem."  The  Company
    recognizes the need to ensure its  operations will not be  adversely
    impacted  by  Year  2000  software  failures.    The  Company  began
    addressing  Year  2000  compliance   during  fiscal  1998  and   has
    determined that all significant software and machinery are  expected
    to be Year 2000  ready.   However,  certain personal computers  will
    need to be replaced and ancillary  software will be upgraded for  an
    estimated cost of $100,000.  The  majority of this will be  expended
    during fiscal 1999.

    During fiscal 1998 the  Company began the  process of surveying  all
    suppliers of raw materials and supplies to determine their readiness
    for the Year  2000 problem and  attempt to measure  what impact,  if
    any, it will  have on  the Company.   The survey  will be  completed
    during fiscal 1999 so it is uncertain at this time as to what impact
    supplier problems  will  have  on the  Company's  operations.    The
    Company expects to use manual processing in the event of any  system
    failure.   It is  not expected  that  manual processing  will  cause
    significant disruption to the Company's operations.
    <PAGE>
    The Company  does not  expect the  Year 2000  compliance to  have  a
    significant effect on operations, nor does it expect the cost to  be
    material to  the Company's  consolidated  results of  operations  or
    financial position.  The  costs of Year  2000 modifications and  the
    date of  completion  will be  closely  monitored and  are  based  on
    management's best estimates.  Actual results, however, could  differ
    from those anticipated.


    ITEM 8 - CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    For  information  required  with  respect   to  this  Item  8,   see
    "Consolidated Financial  Statements  and  Schedules"  on  pages  F-1
    through F-16 of this report.

    ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
    AND FINANCIAL DISCLOSURE

    Not applicable.


                                  PART III

    ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    Information required  for this  Item 10  is hereby  incorporated  by
    reference to the definitive proxy statement to be filed pursuant  to
    Regulation 14A promulgated by the Securities and Exchange Commission
    under the Securities Exchange Act of 1934, which proxy statement  is
    anticipated to  be  filed within  120  days  after the  end  of  the
    Company's fiscal year ended June 30, 1998.

    ITEM  11 - EXECUTIVE COMPENSATION

    Information required  for this  Item 11  is hereby  incorporated  by
    reference to the definitive proxy statement to be filed pursuant  to
    Regulation 14A promulgated by the Securities and Exchange Commission
    under the Securities Exchange Act of 1934, which proxy statement  is
    anticipated to  be  filed within  120  days  after the  end  of  the
    Company's fiscal year ended June 30, 1998.

    ITEM 12  -  SECURITY  OWNERSHIP OF  CERTAIN  BENEFICIAL  OWNERS  AND
    MANAGEMENT

    Information required  for this  Item 12  is hereby  incorporated  by
    reference to the definitive proxy statement to be filed pursuant  to
    Regulation 14A promulgated by the Securities and Exchange Commission
    under the Securities Exchange Act of 1934, which proxy statement  is
    anticipated to  be  filed within  120  days  after the  end  of  the
    Company's fiscal year ended June 30, 1998.
    <PAGE>
    ITEM  13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    Information required  for this  Item 13  is hereby  incorporated  by
    reference to the definitive proxy statement to be filed pursuant  to
    Regulation 14A promulgated by the Securities and Exchange Commission
    under the Securities Exchange Act of 1934, which proxy statement  is
    anticipated to  be  filed within  120  days  after the  end  of  the
    Company's fiscal year ended June 30, 1998.



                                  PART IV

    ITEM 14 - EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES,  AND
    REPORTS ON FORM   8-K

    (a)  (1) and (2)  Consolidated Financial Statements and Schedules

    The  consolidated  financial  statements  and  schedules  of  Hilite
    Industries, Inc. are included in Part IV of this report on the pages
    indicated below:

                                                                 Page

    Report of Independent Accountants                             F-1

    Consolidated Financial Statements:
    Consolidated Balance Sheets at June 30, 1998 and 1997         F-2

    Consolidated Statements of Operations for the years ended
    June 30, 1998, 1997 and 1996                                  F-3

    Consolidated Statements of Cash Flows for the years ended
    June 30, 1998, 1997 and 1996                                  F-4

    Consolidated Statements of Stockholders' Equity for the
    years ended June 30, 1998, 1997 and 1996                      F-5

    Notes to Consolidated Financial Statements               F-6 - F-16

    Consolidated Financial Statement Schedules:

    II.  Valuation and Qualifying Accounts and Reserves
         for the years ended June 30, 1998, 1997 and 1996        F-17


    Consolidated Financial Statement Schedules Omitted

    Certain  consolidated  financial  statement  schedules  are  omitted
    because of the absence of conditions  under which they are  required
    because the  required  information  is presented  in  the  financial
    statements or notes thereto.
    <PAGE>
    (a)  (3) Exhibits

    Exhibit
    Number              Description

    3.1            Amended and Restated Certificate of Incorporation of
                   the Company (Incorporated herein by reference to
                   Exhibit 3.1 of the Company's Registration Statement
                   on Form S-1, Registration No. 33-72014)

    3.2            Amended and Restated Bylaws of the Company
                   (Incorporated herein by reference to Exhibit 3.2 of
                   the Company's Registration Statement on Form S-1,
                   Registration No. 33-72014)

    4.1            Specimen of Common Stock certificate (Incorporated
                   herein by reference to Exhibit 4.1 of the Company's
                   Registration Statement on Form S-1, Registration
                   No. 33-72014)

    4.2            Form of Representative's Share Purchase Option
                   (Incorporated herein by reference to Exhibit 4.2 of
                   the Company's Registration Statement on Form S-1,
                   Registration No. 33-72014)

    10.1           1993 Stock Option Plan (Incorporated herein by
                   reference to Exhibit 10.1 of the Company's
                   Registration Statement on Form S-1, Registration
                   No. 33-72014)

    10.2           Lease Agreement between the Company and Roger C.
                   Hunsacker d/b/a Hunsacker Properties dated
                   September 2, 1993 (Incorporated herein by reference
                   to Exhibit 10.4 of the Company's Registration
                   Statement on Form S-1, Registration No. 33-72014)

    10.3           Lease Agreement between the Company and Leonard
                   Properties dated August 1992 and Amendment No. 1
                   thereto (Incorporated herein by reference to Exhibit
                   10.5 of the Company's Registration Statement on Form
                   S-1, Registration No. 33-72014)

    10.4           Equipment Acquisition Note dated December 12, 1994
                   (Incorporated herein by reference to Exhibit 10.1 of
                   the Company's Report on Form 10-Q for the fiscal
                   quarter ended December 31, 1994, File No. 0-22924)

    10.5           Equipment Acquisition Note dated June 26, 1995
                   (Incorporated herein by reference to Exhibit 10.13 of
                   the Company's Report on Form 10-K for the year ended
                   June 30, 1995, File No. 0-22924)
    <PAGE>
    10.6           Stock Purchase Agreement dated July 21, 1995,
                   among Hilite Industries, Inc., a Delaware
                   Corporation, Registrant and Michael L. McKee, Donald
                   P. Degenhardt and Robert S. Johnson (Incorporated
                   herein by reference to Exhibit 10.1 of the Company's
                   Report on Form 8-K on August 7, 1995, File No. 0-22924)

    10.7           Management contract between the Company and
                   Lineberger & Co., LLC dated July 1, 1996.
                   (Incorporated herein by reference to Exhibit 10.16 of
                   the Company's Report on Form 10-K for the year ended
                   June 30, 1996, File No. 0-22924)

    10.8           Second Amended and Restated Secured Loan
                   Agreement dated January 30, 1998 among Hilite
                   Industries, Inc., Hilite Industries Automotive, LP,
                   and Comerica Bank _ Texas.  (Incorporated herein by
                   reference to Exhibit 10.1 of the Company's report on
                   Form 10-Q for the fiscal quarter ended December 31, 1997
                   File No. 0-22924)

    10.9           Settlement Agreement and Mutual General Release
                   dated February 13, 1998 among Hilite Industries,
                   Inc., Michael L. McKee, Donald P. Degenhardt and
                   Robert S. Johnson. (Incorporated herein by reference
                   to Exhibit 10.2 of the Company's report on Form 10-Q
                   for the fiscal quarter ended December 31, 1997, File
                   No. 0-22924)

    10.10          Assignment and Assumption Agreement dated December
                   31, 1997 between Hilite Industries, Inc. and Hilite
                   Industries -- Texas, Inc. (Incorporated herein by
                   reference to Exhibit 10.3 of the Company's report on
                   Form 10-Q for the fiscal quarter ended
                   December 31, 1997, File No. 0-22924)

    10.11          Assignment and Assumption Agreement dated December
                   31, 1997 between Hilite Industries -- Texas, Inc. and
                   Hilite Industries -- Delaware, Inc. (Incorporated
                   herein by reference to Exhibit 10.4 of the Company's
                   report on Form 10-Q for the fiscal quarter ended
                   December 31, 1997, File No. 0-22924)

    10.12          Limited Partnership dated December 31, 1997 between
                   Hilite Industries -- Texas, Inc. and Hilite Industries --
                   Delaware, Inc. (Incorporated herein by reference to
                   Exhibit 10.5 of the Company's report on Form 10-Q for
                   the fiscal quarter ended December 31, 1997, File No.
                   0-22924)

    10.13          Employment Agreement dated July 1, 1998 between
                   the Company and Samuel M. Berry.


    (b)  Reports on Form 8-K

    No reports on Form 8-K were filed by the Company during the  quarter
    ended June 30, 1998.
    <PAGE>




    REPORT OF INDEPENDENT ACCOUNTANTS


    To the Board of Directors and
           Shareholders of Hilite Industries, Inc.

    In our opinion, the consolidated financial statements listed in  the
    index appearing  under Item  14(a)(1) and  (2)  on page  19  present
    fairly, in all material respects,  the financial position of  Hilite
    Industries, Inc. and its subsidiary at  June 30, 1998 and 1997,  and
    the results of their operations and their cash flows for each of the
    three years in  the period ended  June 30, 1998, 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.


    PRICEWATERHOUSECOOPERS  LLP



    Dallas, Texas
    July 28, 1998
















                                    F-1
    <PAGE>
    <TABLE>
                      HILITE INDUSTRIES, INC.
                    Consolidated Balance Sheets
                                                  As of June 30,
    <S>                                         1998         1997
    ASSETS                                  <C>           <C>
    Current assets:
    Cash and cash equivalents..........     $          0  $         0
    Accounts receivable, less allowance
      for doubtful accounts of $193,015
      at June 30, 1998 and $195,427 at
      June 30, 1997....................       11,289,779    9,991,098
    Tooling receivable.................          716,700       96,734
    Inventories........................        9,927,849   10,075,786
    Income taxes receivable............          542,188            0
    Deferred income taxes..............        1,817,012    1,774,082
    Assets held for disposal...........          532,533            0
    Prepaid expenses and other current     
      assets...........................        1,015,764      739,803
    Total current assets...............       25,841,825   22,677,503
         
    Property, plant and equipment......       43,538,367   38,400,240
    Less accumulated depreciation and        
      amortization.....................      (15,921,909) (12,077,533)
    Property, plant and equipment, net.       27,616,458   26,322,707
    Assets held for disposal...........                0    2,330,800
    Goodwill, net of accumulated
      amortization.....................        3,898,209    5,888,167
    TOTAL ASSETS.......................      $57,356,492  $57,219,177
                       
    LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities:
    Accounts payable and accrued expenses    $12,849,981  $11,875,962
    Long-term debt - current portion...        2,422,945    2,422,950
    Income taxes payable...............                0       49,883
    Total current liabilities..........       15,272,926   14,348,795
    
    Long-term debt.....................       12,956,896   16,486,252
    Subordinated debt..................                0    1,785,184
    Deferred income taxes..............        2,978,761    2,595,392
    Total non-current liabilities......       15,935,657   20,866,828
    Commitments and Contingencies (See Note 12.)

    Stockholders' equity:
    Preferred Stock, $.01 par value; 5,000
      shares authorized, none issued and
      outstanding......................                0            0
    Common stock, $.01 par value;
      15,000,000 shares authorized,
      4,900,000 isssued and outstanding at
      June 30, 1998 and 1997...........           49,000       49,000
    Additional paid-in capital.........        9,105,674    9,105,674
    Retained earnings..................       16,993,235   12,848,880
    Total stockholders' equity.........       26,147,909   22,003,554
    TOTAL LIABILITIES AND STOCKHOLDERS'     
    EQUITY...............................    $57,356,492  $57,219,177
    The accompanying notes are an integral part of these consolidated
                           financial statements.
    </TABLE>
                                    F-2
    <PAGE>
    <TABLE>
                         HILITE INDUSTRIES, INC.
                  Consolidated Statements of Operations
                                            
                                              For the Year Ended June 30,
                                            1998        1997         1996
    <S>                                 <C>          <C>          <C>
    Net sales.......................    $87,166,468  $73,492,117  $72,641,500
    Cost of sales...................     69,763,754   63,938,186   57,710,737
    
    Gross profit....................     17,402,714    9,553,931   14,930,763
    
    Selling, general and adminis-
      trative expenses..............      9,026,028   10,339,722    7,575,953
    
    Operating income (loss).........      8,376,686     (785,791)   7,354,810
    
    Interest expense................      1,319,957    1,713,763    1,659,373
    
    Income (loss) before income
      taxes.........................      7,056,729   (2,499,554)   5,695,437
    
    Income tax provision (benefit)..      2,544,874     (842,569)   2,063,580
    
    Net income (loss)...............    $ 4,511,855 $ (1,656,985) $ 3,631,857
    
    Earnings (loss) per share:
    Basic...........................    $      0.92  $     (0.34) $      0.74

    Diluted.........................    $      0.92  $     (0.34) $      0.74

    Shares used in computing earnings
    per share:
    Basic...........................      4,900,000    4,900,000    4,900,000
    
    Diluted.........................      4,912,655    4,900,000    4,903,951
    

   


    The accompanying notes are an integral part of these consolidated
    financial statements.

                                  F-3
    </TABLE>
    <PAGE>
    <TABLE>
                       HILITE INDUSTRIES, INC.
                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                  For the Year Ended June 30,
    <S>                                     1998        1997           1996
    Cash flows from operations:         <C>          <C>           <C>
    Net income (loss)................   $ 4,511,855  $ (1,656,985) $ 3,631,857
    Adjustments to reconcile net income (loss)
      to net cash provided by operations:
    Depreciation.....................     3,574,599     3,517,792    3,005,474
    Goodwill amortization............       285,019       307,123      316,968
    Restructuring charge.............             0     2,738,352            0
    Increase (decrease) in net
      deferred income taxes..........       340,439      (783,652)     647,962
    Cash provided from operations
      before changes in operating
      assets and liabilities.........     8,711,912     4,122,630    7,602,261
    
    Changes in operating assets and liabilities:
    (Increase) decrease in
      accounts receivable............    (1,298,681)    1,365,379   (2,491,920)
    (Increase) decrease in tooling
      receivable.....................      (619,966)      664,248     (106,215)
    (Increase) decrease in inventories      147,937    (1,370,079)    (149,820)
    (Increase) decrease in prepaid
      expenses and other current
      assets.........................      (275,961)     (370,017)     332,406
    Increase (decrease) in accounts
      payable and accrued expenses...       893,772     1,285,554      (80,014)
    Increase (decrease) in income
      taxes payable..................      (592,070)      285,498     (248,952)
    Total changes in operating
      assets and liabilities.........    (1,744,969)    1,860,583   (2,744,515)
    Net cash provided by operations..     6,966,943     5,983,213    4,857,746
    
    Cash flows from investing activities:
    Additions to property, plant
      and equipment, net.............    (3,070,083)   (4,824,375)  (5,764,817)
    Acquisition of subsidiary........             0             0   (7,789,000)
    Net cash used in investing
      activities.....................    (3,070,083)   (4,824,375) (13,553,817)
    
    Cash flows from financing activities:
    Proceeds from acquisition
      financing......................             0             0   15,397,000
    Dividends paid...................      (367,500)            0            0
    Repayment of subordinated debt...             0       (75,000)           0
    Proceeds from long-term debt.....             0     1,212,258    1,841,085
    Repayments of long-term debt.....    (3,529,360)   (2,296,096)  (9,662,557)
    Net cash provided by (used in)
      financing activities...........    (3,896,860)   (1,158,838)   7,575,528
    Net decrease in cash and cash
      equivalents....................             0             0   (1,120,543)
    Cash and cash equivalents at
      beginning of period............             0             0    1,120,543
    Cash and cash equivalents at
      end of period..................    $        0 $           0 $          0
    The accompanying notes are an integral part of the consolidated
    financial statements.
                                      F-4
    </TABLE>
    <PAGE>
    <TABLE>
                       HILITE INDUSTRIES, INC.
           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                  
                                           Additional             Total
                                            Paid-in    Retained  Stockholders'
                               Amount       Capital    Earnings   Equity

    <S>                   <C>       <C>     <C>        <C>         <C>
    Balance
    June 30, 1995...      4,900,000 49,000  9,105,674  10,874,008  20,028,682
    
    Net income for
    the year ended
    June 30, 1996...              -      -          -   3,631,857   3,631,857
 
    Balance
    June 30, 1996...      4,900,000 49,000  9,105,674  14,505,865  23,660,539

    Net loss for
    the year ended
    June 30, 1997...              -      -          -  (1,656,985) (1,656,985)
    
    Balance
    June 30, 1997...      4,900,000 49,000  9,105,674  12,848,880  22,003,554
   
    Dividends
    paid..........                -      -          -    (367,500)   (367,500)
    
    Net income for
    the year ended
    June 30, 1998...              -      -          -   4,511,855   4,511,855
    
    Balance
    June 30, 1998...      4,900,000 49,000 $9,105,674 $16,993,235 $26,147,909
    
    </TABLE>











    
    The accompanying notes are an integral part of these consolidated
    financial statements.
    
                                 F-5
    <PAGE>

    1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       Hilite Industries, Inc. ("Hilite" or the "Company") is engaged in
       the manufacture  of products  used  primarily in  the  automotive
       industry.  The   Company's  products   are  sold   primarily   to
       manufacturers of  automobiles and  their suppliers,  pursuant  to
       credit terms customarily  extended in the  industry. The  Company
       operates separately under the  names Pitts Industries  ("Pitts"),
       Surfaces, Machine  Parts  Company ("MAPCO")  and  North  American
       Spring  and  Stamping   Corp.  ("NASS").     Pitts   manufactures
       electromagnetic  clutches  for  various  applications.   Surfaces
       manufactures brake  proportioning  valves  for  automotive  brake
       systems. MAPCO  manufactures mounting  brackets, fan  blades  and
       pulleys.  NASS manufactures specialty springs, stamping  products
       and assemblies.

       On July 21, 1995,  the Company acquired  100% of the  outstanding
       common stock of North American Spring and Stamping Corp. from its
       three stockholders  ("Selling Shareholders").   In  consideration
       for the transaction, the Company paid $17,397,000.  During fiscal
       1998, as  a  result of  a  lawsuit settlement,  the  Company  was
       relieved of its  obligation to  pay approximately  $2 million  in
       principal and interest on subordinated notes associated with  the
       acquisition (See Footnote 4).  The acquisition was accounted  for
       by the  purchase  method  of  accounting  and  NASS'  assets  and
       liabilities were recorded at their fair value at the date of  the
       acquisition.  The Company's consolidated statements of operations
       include the results of operation of  NASS subsequent to July  21,
       1995.

       The Company's significant accounting policies are as follows:

       Cash and Cash  Equivalents -  Cash and  cash equivalents  include
       cash on hand and short-term investments with original  maturities
       of three months or less.

       Inventory -  Inventories  are stated  at  the lower  of  cost  or
       market, cost being determined  on a first-in, first-out  ("FIFO")
       basis.

       Property, Plant and Equipment - Property, plant and equipment are
       carried at cost.  Depreciation  and amortization are computed  on
       the straight-line basis  over the estimated  useful lives of  the
       assets as follows:
    
         Buildings and improvements   20 years or remaining useful life
         Machinery and equipment      5 to 10 years
         Other assets                 3 years
    
       Repair and maintenance expenditures are charged to operations  as
       incurred and expenditures for major renewals and betterments  are
       capitalized.  When units  of property are  disposed of, the  cost
       and  related  accumulated  depreciation  are  removed  from   the
       accounts, and the resulting gains or  losses are included in  the
       results of operations.
    <PAGE>
       Property,  plant  and  equipment  are  reviewed  for   impairment
       whenever events or changes in circumstances indicate the carrying
       amount of an  asset or group  of assets may  not be  recoverable.
       The impairment review includes a comparison of future cash  flows
       expected to be  generated by the  asset or group  of assets  with
       their associated carrying value.   If the  carrying value of  the
       asset  or   group  of   assets   exceeds  expected   cash   flows
       (undiscounted and without interest  charges), an impairment  loss
       is recognized to the extent carrying amounts exceed fair value.

       The Company  routinely makes  expenditures for  tooling  fixtures
       and equipment required  for production of  specific products  for
       customers. These costs are generally reimbursed by customers.  To
       the extent that expenditures do not equal related reimbursements,
       the difference is capitalized and included in property, plant and
       equipment (other) and amortized over the related production life.
       Net  costs  expended  for  tooling  which  are  expected  to   be
       reimbursed within one year are  included in prepaid expenses  and
       other current assets.   Net reimbursements  in excess of  amounts
       expended are recorded  in accounts payable  and accrued  expenses
       until expended.

       Goodwill  - The excess of cost over the fair value of net  assets
       acquired in an acquisition (goodwill) is being amortized over  20
       years on a straight-line basis.   The recoverability of  goodwill
       is assessed by the Company on  an ongoing basis by comparing  the
       undiscounted value of expected future operating cash flows to the
       carrying value of goodwill.   Amortization expense was  $285,000,
       $307,000, and  $317,000 as  of June  30,  1998, 1997,  and  1996,
       respectively.

       Revenue Recognition  -  Sales revenue and  related cost of  sales
       are recognized as  products are shipped.  In the ordinary  course
       of business, certain products sold by the Company are subject  to
       retroactive price  adjustments.   No material  retroactive  price
       adjustments were  recorded in  the financial  statements for  the
       1998,  1997, or  1996  fiscal  years.  The  Company's  management
       believes that  there  are  no sales  recorded  in  the  financial
       statements for periods which are subject to material  retroactive
       adjustment.

       Research and  Development - The  Company is  engaged in  numerous
       research and development projects.   Costs associated with  these
       projects are charged to operations  when incurred.  Research  and
       development   costs,  which   are   included   in   general   and
       administrative  expenses,  totaled   $1,280,000,  $882,000,   and
       $945,000 for  the  years ended  June 30,  1998, 1997,  and  1996,
       respectively.   Of these  expenditures, $257,000,  $240,000,  and
       $343,000,  respectively,   were   sponsored  by   customers   and
       $1,023,000, $642,000, and  $602,000, respectively, was  sponsored
       by the Company.
    <PAGE>
       Income Taxes - Deferred income  taxes are provided for using  the
       liability method.   Under this  method, deferred  tax assets  and
       liabilities are  recognized  on  the tax  effect  of  differences
       between the  financial  statement and  tax  basis of  assets  and
       liabilities using presently enacted tax rates.

       Use of Estimates  -  Financial statements prepared in  conformity
       with generally accepted accounting principles require  management
       to make  estimates  and  assumptions about  reported  amounts  of
       assets  and liabilities,  disclosure  of  contingent  assets  and
       liabilities  and  reported  amounts  of  revenue  and   expenses.
       Management must also  make estimates and  judgments about  future
       results  of  operations  related  to  specific  elements  of  the
       business  in assessing  recoverability  of  assets  and  recorded
       values of liabilities.   Actual results  could differ from  these
       estimates.

       Stock-Based Compensation - The  Company adopted, on a  disclosure
       basis only, Statement of Financial Accounting Standards No.  123,
       Accounting for  Stock-Based Compensation,  in fiscal  1996.   The
       Company continues to measure compensation costs under  Accounting
       Principles Board Opinion No. 25,  Accounting for Stock Issued  to
       Employees.

       Earnings Per Share  - Effective  December 31,  1997, the  Company
       adopted Financial  Accounting Standards  No. 128,  "Earnings  per
       Share" ("FAS 128").  FAS 128 establishes standards for  computing
       and  presenting  earnings  per  share  ("EPS").    The  statement
       requires dual  presentation  of  basic and  diluted  EPS  on  the
       income statement  for entities  with complex  capital  structures
       and requires reconciliation of  the numerator and denominator  of
       the basic  EPS computation to  the numerator  and denominator  of
       the diluted EPS computation.   Basic EPS  excludes the effect  of
       potential dilutive  securities  while diluted  EPS  reflects  the
       potential dilution  that would  have  occurred if  securities  or
       other contracts to issue common stock were exercised,  converted,
       or resulted in the issuance of common stock that would have  then
       shared in the  earnings of  the entity.   EPS data  for the  year
       ended June 30, 1998 and  all prior periods presented herein  have
       been restated to conform with  the provisions of this  statement.
       The  table  below  is  a  reconciliation  of  the  numerator  and
       denominator used in the basic and diluted EPS calculations.

       Options to purchase 69,800  shares of common  stock in 1998,  and
       warrants to purchase 100,000 shares  of common stock in 1998  and
       1996 were  not included in  the computation  of diluted  earnings
       per common share in 1998 and 1996 because the excercise price  of
       these equity  instruments was  greater  than the  average  market
       price of  the common stock  during the  year.   In 1997,  120,200
       options and 100,000  warrants to purchase  common stock were  not
       included in the computation of diluted earnings per common  share
       because the Company was  in a loss  position and their  inclusion
       would have been antidilutive.
    <PAGE>
    <TABLE>
       <S>                                1998        1997         1996
       Net income (loss)            <C>         <C>          <C>
         available to shareholders  $4,511,855  $(1,656,985) $3,631,857
         
       Weighted average number
         of shares in basic EPS      4,900,000    4,900,000   4,900,000
         
       Effect of dilutive securities:
       Stock options                    12,655         --         3,951
       
       Weighted average number of
         common shares and dilutive
         potential common shares used
         in diluted EPS              4,912,655    4,900,000   4,903,951
    </TABLE>  
       Reclassifications  -  Certain  prior   year  amounts  have   been
       reclassified to conform with the current year presentation.


    2.   NASS ACQUISITION

       On July 21, 1995,  the Company acquired  100% of the  outstanding
       common stock  of North American  Spring and  Stamping Corp.  from
       its three stockholders.   In consideration  for the  transaction,
       the  Company paid  $17,397,000.    The  amount  paid  at  closing
       included:
   <TABLE>
       <S>                                                <C>
       Cash paid to Selling Shareholders ................ $ 7,789,000
       Cash used to refinance certain long-term debt    
         of NASS ........................................   7,608,000
       Total cash portion of acquisition ................  15,397,000
       Subordinated notes payable ("Subordinated Notes")
         issued to the Selling Shareholders .............   2,000,000
       Total ............................................ $17,397,000
   </TABLE>
       The acquisition  was  accounted for  by  the purchase  method  of
       accounting and  NASS' assets  and  liabilities were  recorded  at
       their fair value at the  date of the acquisition.  The  Company's
       consolidated statements  of  operations include  the  results  of
       operations of NASS subsequent  to July 21,  1995.  In  connection
       with the acquisition, goodwill of $6,512,000 was recorded.

       During fiscal 19998,  as a result  of a  lawsuit settlement,  the
       Company was relieved  of its obligation  to pay approximately  $2
       million  in  principal   and  interest   on  subordinated   notes
       associated with the acquisition.  The reduction in the  principal
       of the note was credited against goodwill.  (See Footnote 4.)


    <PAGE>
       Supplemental Proforma Results of Operations (Unaudited)
    
       The   following   unaudited   proforma   summary   presents   the
       consolidated  results  of  operations   as  if  the   acquisition
       occurred at the beginning of fiscal 1995 and does not purport  to
       be indicative  of what would  have occurred  had the  acquisition
       actually been made as of such date or of results which may  occur
       in the future.
   <TABLE>
                                                       1996
                <S>                                <C>
                Net sales .....................    $ 73,744,530
                Net income ....................       3,597,833
                Net income per share ..........            0.73
   </TABLE>
       Adjustments made in  arriving at the  proforma unaudited  results
       of operations  include  the difference  in  depreciation  expense
       resulting from the change in  the carrying value of property  and
       equipment to their estimated fair values, differences in cost  of
       sales for the change  in inventory valued on  the FIFO method  of
       inventories rather than the LIFO method and increase in  goodwill
       amortization resulting from the transaction.

    3. RESTRUCTURING CHARGE

       As a result of operating problems  and inefficiencies at the NASS
       division,  the Company's  Board of Directors  approved a plan, in
       June 1997,  to  substantially  restructure  the  NASS operations.
       In conjunction with this plan, the  Company recorded a  charge to
       pre-tax earnings totaling approximately $2,700,000 ($1,000,000 in
       cost of sales  and $1,700,000  in selling,  general  and adminis-
       trative costs).  The charge is comprised of a reduction (approxi-
       mately  $900,000)  in  the net  book  value  of  certain  assets, 
       primarily machinery,  equipment and tooling,  to their  estimated
       fair value,  net of estimated selling costs,  accrual of  certain
       costs   which  the  Company  expects  to  incur  in   terminating
       contractual obligations, but for which no future economic benefit
       will be  received  (approximately  $1,600,000)  and  other  costs
       (approximately $200,000).  During the year ending  June 30, 1998,
       the   restructuring   plan   was   substantially  completed   and
       approximately $950,000 had  been charged  against the accrual for
       terminating contractual obligations and approximately $30,000 had
       been charged against the accrual for other costs.  As of June 30,
       1998,  approximately  $830,000   of  the  restructuring   accrual
       remained and is expected to be paid during fiscal 1999.

    
    4. LAWSUIT SETTLEMENT

       In  May  1997, the Company  initiated  a law  suit in the  United
       States District  Court  for  the Northern  District  of  Illinois
       (Eastern Division) against the former  owners of NASS (now  known
       as  the specialty  components  and  assemblies  division).    The
       Company alleged, among  other things, that  the former owners  of
       NASS made  material  misrepresentations in  connection  with  the
       Company's  acquisition  of  NASS.    On  February  13,  1998,  an
       agreement was reached between the  Company and the former  owners
       <PAGE>
       of NASS to settle  the suit.  Under  the terms of the  Settlement
       Agreement, the  Company  is relieved  of  its obligation  to  pay
       approximately $2  million in  principal  and interest  under  the
       Note issued as part of  the consideration for the acquisition  of
       NASS.   The reduction in  the principal  amount of  the note  was
       credited against goodwill.  The  Company will not be required  to
       make any  future payments  under the  employment and  non-compete
       agreements with the  former owners and,  in addition, the  former
       owners reimbursed the  Company for a  portion of  its legal  fees
       incurred in  connection with  the lawsuit.   The  former  owners,
       however, remain bound by the non-competition provisions in  their
       respective  employment agreements.    In  addition,  the  parties
       executed limited mutual  general releases.   As a  result of  the
       settlement,  selling,  general  and  administrative  expense  and
       interest expense in  1998 were reduced  by approximately  $52,000
       and $84,000, respectively.
           
    5. INVENTORIES

       Inventories at June 30, 1998 and 1997 consisted of the following:
    <TABLE>
                                              1998        1997
       <S>                              <C>           <C>
       Raw materials ...............    $ 4,401,069   $ 3,916,344
       Work in process .............      2,244,363     2,254,960
       Finished goods ..............      3,282,417     3,904,482
                                        
                                        $ 9,927,849   $10,075,786
    </TABLE>                                    
    6. PROPERTY, PLANT AND EQUIPMENT

       Property, plant and equipment at June 30, 1998 and 1997 consisted
       of the following:
    <TABLE>
                                             1998        1997
       <S>                              <C>          <C>
       Land ........................    $ 1,150,000  $ 1,150,000
       Building and improvements ...      7,414,306    6,855,531
       Machinery and equipment .....     34,714,567   29,834,599
       Other........................        259,494      560,110

                                         43,538,367   38,400,240
       
       Less accumulated depreciation
       and amortization.............    (15,921,909) (12,077,533)
       
                                        $27,616,458  $26,322,707
    </TABLE>                                    
       Progress  payments  for  machinery  ordered  and  not  placed  in
       service totaling $1,434,450  and $1,635,000 as  of June 30,  1998
       and 1997, respectively, are included in machinery and  equipment.
       Open commitments to purchase machinery and equipment at June  30,
       1998 totaled $1,001,000.
    <PAGE>
       As part of the  restructuring plan at NASS,  net fixed assets  of
       $2,330,800  (fixed   assets   of   $3,476,318   and   accumulated
       depreciation of  $1,146,518)  were reclassified  on  the  balance
       sheet as  assets held  for disposal  on June  30, 1997.    During
       fiscal 1998,  the  Company decided  to  retain certain  of  these
       assets with a net book value of $1,600,000.  Depreciation expense
       on these assets for a full  year is included in the 1998  results
       of operations.  As of June 30, 1998, net fixed assets of $532,533
       (fixed assets  of  $1,071,577  and  accumulated  depreciation  of
       $539,019) are classified as assets held for disposal.  On July 1,
       1998, the Company entered into an  agreement to sell $475,000  of
       the assets held  for disposal  which represented  their net  book
       value.

       Retirements of machinery and equipment were $242,000 and $644,310
       during fiscal year 1998  and 1997, respectively.   There were  no
       significant disposals during fiscal year 1996.

       Routine  repairs  and   maintenance  charged   to  expense   were
       $2,012,716, $1,847,735, and $1,355,757  for the years ended  June
       30, 1998, 1997, and 1996, respectively.

    7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

       Accounts payable  and accrued liabilities  at June  30, 1998  and
       1997 consisted of the following:
    <TABLE>
                                              1998        1997
       <S>                               <C>          <C>
       Trade accounts payable ......     $ 7,442,026  $ 5,531,022
       Restructuring accrual........         828,212    2,082,026
       Accrued payroll and payroll   
         related ...................       1,584,400    1,447,151
       Accrued employee benefit plan  
         costs .....................         813,508      698,539
       Accrued health plan claims ..         268,324      291,961
       Accrued occupational injury    
         plan costs ................         140,000      475,000
       Other accrued expenses ......       1,773,511    1,350,263
       
       Total .......................     $12,849,981  $11,875,962
    </TABLE>
    8. LONG-TERM DEBT

       Long-term debt  at  June  30, 1998  and  1997  consisted  of  the
       following:
    <TABLE>
                                              1998       1997
       <S>                              <C>           <C>
       Consolidated term loans ......   $ 8,043,052   $ 9,973,385
       Revolving line of credit .....     5,394,062     6,500,477
       Equipment acquisition term    
        notes payable ...............     1,340,060     1,768,673
       Real estate term note payable.       602,667       666,667
                                         15,379,841    18,909,202

       Less current portion .........    (2,422,945)   (2,422,950)
                                        $12,956,896   $16,486,252
    </TABLE>
    <PAGE>
       Effective August 30, 1997, the bank increased the revolving  line
       of credit  to $12  million and  on September  18, 1997  the  bank
       increased  the  availability  under  the  equipment   acquisition
       facility to $3 million to reflect new credit facilities  totaling
       $28,700,000.   The  credit  facilities,  as  of  June  30,  1998,
       consist of the following:

      1)  Term  loans of  $13,700,000  original  principal  balance  and
          $8,043,052 outstanding at  June 30, 1998.  Principal  payments
          on the  term  loan  of approximately  $163,000  together  with
          interest are payable monthly.   The maturity date of the  term
          loans is August 1,  2002.  The term  loans bear interest at  a
          blended  rate of  6-month  and  12-month  LIBOR  plus  1  1/2%
          (7.525% at  June 30, 1998).    The term  loans were  used  for
          funding the acquisition  of NASS and  for refinancing  Company
          debt,

       2) A  revolving  line  of  credit  of  $12,000,000,  subject   to
          availability requirements,  with interest  payable monthly  at
          either the  bank's prime  rate less  1/2% (8.00%  at June  30,
          1998) or a blended rate of  6-month and 12-month LIBOR plus  1
          1/4 % (7.070%)  at June  30, 1998.   As of  the balance  sheet
          date, the  revolving  line of  credit  was due  to  expire  on
          July 21, 1999 and  is reflected  as a  long-term liability  on
          the financial  statements.   A  commitment  fee of  1/4%,  per
          annum, is  charged  on  the  average  unused  portion  of  the
          revolving line of credit to the  bank, payable quarterly.   As
          of June 30,  1998, $5,394,062  had been  used on  the line  of
          credit and $5,435,891 is available,

       3) An  equipment  acquisition  facility  of  $3,000,000  for  the
          financing  of  equipment  is available at June  30, 1998.  Any
          term  notes payable  issued under this facility bear interest,
          at  the Company's  option,  at either prime rate or LIBOR plus
          1 1/2%.

       In addition  to the  above  credit facility,  the Company  has  a
       fifteen-year real estate note with the same bank that expires  on
       November 1,  2007.   The note,  which has  an original  principal
       amount of  $960,000 and a  $602,667 outstanding  balance at  June
       30, 1998,  is  payable in  monthly  installments of  $5,333  plus
       interest at  the prime  rate (8.50%  at  June 30,  1998).     The
       Company also  has two  equipment acquisition  term notes  payable
       with the  same bank  that expire  on March  1, 2001  and June  1,
       2002, respectively.  The notes, which have an original  principal
       amount  of  $1,498,000   and  $645,000,   respectively,  and   an
       outstanding balance of  $823,704 and  $516,356, respectively,  on
       June 30,  1998, are payable  in monthly  installments of  $24,961
       and $10,750,  respectively,  plus interest  at  LIBOR plus 1 1/2%
       (7.241% at June 30, 1998).
    <PAGE>
       All of the  notes and line  of credit are  collateralized by  the
       accounts receivable, inventory, equipment and real estate of  the
       Company.   The bank  has  the right  to  accelerate each  of  the
       maturity dates  of the  consolidated term  note and  real  estate
       note to coincide with the maturity date of the revolving line  of
       credit. The  Agreement  contains certain  covenants  relating  to
       tangible net worth, debt and cash flow coverage ratio.

       Principal payments  on long-term  debt, excluding  the  revolving
       line of credit,  due in each  of the next  five fiscal years  and
       thereafter are  $2,422,945, $2,422,945,  $2,348,063,  $2,123,437,
       $385,724, and $282,665, respectively.  Interest  payments  during
       the years ended  June 30, 1998,  1997 and  1996 were  $1,425,865,
       $1,662,215, and $1,659,373, respectively.

    9.    INCOME TAXES

       The provision for federal income  taxes for the years ended  June
       30, 1998, 1997, and 1996 consisted of the following:
    <TABLE>
       <S>                              1998        1997       1996
       Current:                    <C>         <C>          <C>
       Federal ................... $ 2,040,099 $  (205,251) $ 1,274,580
       State .....................     164,336     145,699      113,000
       Deferred ..................     340,439    (783,017)     676,000
       Total ..................... $ 2,544,874 $  (842,569) $ 2,063,580
    </TABLE>
       The following is  a reconciliation between  the Company's  income
       tax expense  calculated using  the statutory  federal income  tax
       rate and the  tax expense calculated  using the effective  income
       tax rate for the years ended June 30, 1998, 1997, and 1996:
    <TABLE>
       <S>                             1998         1997         1996
       Pre-tax book income at      <C>         <C>          <C>
         statutory rate .......... $ 2,399,288 $  (849,897) $ 1,936,450
       State taxes ...............     131,506      33,257      113,000
       Other .....................      14,080     (25,929)      14,130
       
                                   $ 2,544,874 $  (842,569) $ 2,063,580
    </TABLE>
       The components of net deferred  tax assets and liabilities at  of
       June 30, 1998 and 1997 consisted of the following:
    <TABLE>
       <S>                                         1998       1997
       Deferred assets:
       Book accruals and reserves in excess    <C>          <C>
         of cumulative tax deductions ......   $ 1,345,094  $ 1,599,293
       Inventory capitalization ............       471,918      174,789
       Total ...............................   $ 1,817,012  $ 1,774,082
       
       Deferred liability - tax depreciation 
         in excess of book .................   $ 2,978,761  $ 2,595,392
    </TABLE>   
       Tax payments  during the  years ended  June 30,  1998, 1997,  and
       1996 were $1,935,000,  $139,000, and $1,630,000, respectively.

    <PAGE>
    10. SALES TO MAJOR CUSTOMERS

       The Company's five  largest customers with  their percentages  of
       the Company's net sales for the 1998, 1997 and 1996 fiscal  years
       were as follows:
    <TABLE>
                                         Percentage of Net Sales
                     Customer            1998     1997     1996
          <S>                            <C>      <C>      <C>
          Ford .....................     26%      30%      30%
          Borg-Warner ..............      9        7        7
          Bosch (formerly      
            AlliedSignal) ..........      7        6        7
          Chrysler .................      7        6        7
          Motorola .................      7        3       --
    </TABLE>
       The Company's customers are primarily in the automotive  industry
       and, as a result, the Company is impacted by the overall economic
       conditions within the industry.


   11. TRANSACTIONS WITH RELATED PARTIES

      During the year ended June  30, 1998, 1997, and 1996, the  Company
      paid  management   fees  of  $283,750,   $235,000,  and   $235,000
      respectively,  to Lineberger & Co.,  LLC,  an entity owned by  the
      Company's Chairman of the Board.

      In connection  with the acquisition of  North American Spring  and
      Stamping Corp. on July 21, 1995, Lineberger & Co., LLC was paid  a
      transaction fee of $150,000.

      In  March, 1998,  the Company  entered into  an agreement  with  a
      Director's  automotive aftermarket  consulting firm  for  business
      and marketing development.  For the year ended June 30, 1998,  the
      Company paid fees of $10,000.


   12. CONTINGENCIES

       On January  28, 1998,  the  Company announced  that it  had  been
       notified by Visteon,  a division of  Ford Motor  Company, that  a
       part  manufactured by  the  Company's  specialty  components  and
       assemblies division  is involved  in a  recall regarding  a  fuel
       gauge accuracy  problem with  certain 1997  model year  vehicles.
       Based  upon  information  currently  available  to  the  Company,
       management believes  that  this  matter will  be  resolved  in  a
       manner not materially adverse to the Company.

       In the  normal course  of  business, the  Company is  subject  to
       certain claims  and litigation  related to  on-the-job  injuries.
       The  Company does  not  believe  that  any  claims  will  have  a
       material adverse effect on the Company.

   <PAGE>
   13. LEASE COMMITMENTS

       The following  is a  schedule of  future minimum  lease  payments
       under operating leases with initial lease terms in excess of  one
       year:
   <TABLE>
                                      Operating
                                        Leases
       <S>
       Year ending June 30,            <C>
         1999 ......................   $  380,610
         2000 ......................      194,007
         2001 ......................      105,009
         2002 ......................       25,517
         2003 ......................        8,100
         Thereafter ................         -

       Total minimum lease payments    $  713,243
   </TABLE>
       Total minimum lease  payments have  been reduced  by $224,000  to
       reflect the total minimum lease payments expected to be  received
       under a noncancelable sublease arrangement.Rental   expense   for
       the years  ended June  30,  1998, 1997,  and 1996  was  $373,165,
       $500,047, and $419,231, respectively.


   14. EMPLOYEE BENEFITS

       The Company sponsors three defined contribution retirement  plans
       for Company employees.  Employees are eligible to participate  in
       the plan  upon attaining  certain age  and service  requirements.
       Under these  plans,  eligible employees  may  contribute  amounts
       through payroll  deductions.   Employer  contributions  are  made
       either through matching contributions  of employee deductions  or
       through a  discretionary contribution.   During  the years  ended
       June 30, 1998, 1997 and 1996, employer contribution were expensed
       of $380,000, $346,000, and $360,000, respectively.

       The Company  has noncontributory  defined benefit  pension  plans
       covering NASS salaried  and bargaining unit  employees.   Pension
       plan  assets  are   primarily  invested   in  marketable   equity
       securities and  corporate and  government securities.    Benefits
       are generally based on  years of service,  age at retirement  and
       the employee's compensation.  The Company's funding policy is  to
       contribute  amounts  equal  to,  or  exceeding,  minimum  funding
       requirements of the  Employee Retirement Income  Security Act  of
       1974, as amended  ("ERISA").  The  projected benefit  obligation,
       plan assets and net periodic  pension cost associated with  these
       defined  benefit  pension  plans  are  not  significant  to   the
       Company's consolidated financial statements.

       In December  1995, the  Company froze  all benefits  in the  NASS
       defined benefit pension plan  for salaried employees.    In  June
       1997,  the  Board  of  Directors  of  the  Company  approved  the
       termination of  the  plan.   As  of  June 30,  1998,  there  were
       sufficient plan assets and Company reserves to satisfy the  asset
       distribution.
    <PAGE>
       The  Company sponsors  two  self-funded  employee  benefit  plans
       which  provide  comprehensive  medical  benefits  and  life   and
       accidental  death   and   dismemberment  insurance   to   Company
       employees and their dependents.   Eligible employees include  all
       employees (excluding union  employees at the  NASS location)  who
       work  full-time  (at  least  thirty  hours  per  week)  and  have
       completed either  thirty or  sixty days  of continuous  full-time
       employment, depending on their classification.  During the  years
       ended June 30, 1998, 1997 and 1996, the Company incurred  expense
       of $1,724,000,  $1,637,000, and  $1,230,000, respectively,  under
       these plans.

       Union employees  at the  NASS location  receive medical  benefits
       through a trust administered by a third party.  The Company  paid
       premiums into  the trust  during the  years ended  June 30, 1998,
       1997,   and  1996  totaling  $737,000,  $682,000,  and  $613,000,
       respectively.


   15.  STOCK-BASED COMPENSATION
   
       During November 1993, the stockholders of the Company approved  a
       stock option plan and 100,000  shares (increased to 125,000  upon
       shareholder approval  in  November  1997) of  Common  Stock  were
       reserved for issuance upon exercise of the options to be  granted
       to employees,  officers and directors  of the  Company under  the
       plan.

       A summary of stock option activity is as follows:
   <TABLE>
                               1998               1997             1996
                          Number   Average   Number  Average  Number  Average
                            of     Exercise    of    Exercise   of    Exercise
    <S>                   Shares   Price     Shares   Price   Shares  Price
    Options outstanding
      at beginning of     <C>       <C>      <C>     <C>     <C>     <C>
      year..............  120,200   $ 7.38   69,800  $ 9.00  69,800  $ 9.00
    Options granted.....        -        -   50,400    5.13       -       -
    Options exercised...        -        -        -       -       -       -
    Options cancelled...        -        -        -       -       -       -
    Options outstanding
      at end of year...   120,200   $ 7.38  120,200  $ 7.38  69,800  $ 9.00
    Options exercisable
      at end of year...   120,200   $ 7.38  116,200  $ 7.32  53,396  $ 9.00
   </TABLE>   
    The following information is presented for stock options outstanding
    at June 30, 1998.
   <TABLE>
                          Outstanding              Exercisable
                      Average    Average                   Average
                       Life      Exercise                  Exercise
           Shares     (in years)  Price         Shares      Price
            <C>            <C>     <C>           <C>         <C>
            69,800          7      $ 9.00        69,800      $ 9.00
            50,400         10      $ 5.13        50,400      $ 5.13
           120,200                              120,200
   </TABLE>
   <PAGE>
       In  conjunction  with  the  Company's  initial  public  offering,
       100,000  warrants were  issued  to  certain  Underwriters.    The
       exercise price for these warrants  is $10.80 per share.  At  June
       30, 1998, all of these warrants are outstanding and exercisable.

       In fiscal 1996,  the Company adopted  the disclosure-only  option
       under  Statement  of  Financial  Accounting  Standards  No.  123,
       "Accounting for Stock-Based Compensation"  ("FAS 123").  For  the
       purposes of pro  forma disclosures, the  estimated fair value  of
       the options and restricted share  awards is amortized to  expense
       over the  vesting  period.   The  estimated  fair  value  of  the
       options granted during the  year ended June  30, 1997, using  the
       Black-Scholes pricing model, is $147,017.

       If the Company  had recorded compensation  expense in the  fiscal
       years  ended  1998,  1997,  and  1996  in  accordance  with   the
       provisions  of  FAS  123,  the  pro  forma  net income (loss) and
       earnings (loss)  per share  for these  periods would have been as
       follows:
   <TABLE>
       <S>                                1998        1997         1996
       Net income (loss) available <C>         <C>           <C>
         to shareholders.......... $ 4,511,855 $ (1,754,457) $ 3,631,857
       Earnings (loss) per 
         common share:
       Basic...................... $      0.92 $      (0.36) $      0.74
       Diluted.................... $      0.92 $      (0.36) $      0.74
   </TABLE>     
       The significant assumptions  used to estimate  the fair value  of
       the stock  options granted  in fiscal  1997 include  a  risk-free
       rate of  return of  6.70%,  expected option  life of  ten  years,
       expected volatility of 29.48% and no expected dividend  payments.
       The effects of applying FAS 123 in this pro forma disclosure  are
       not indicative of future amounts as the pro forma amounts do  not
       include the  impact  of  stock option  awards  granted  prior  to
       fiscal 1996.

    <PAGE>
    SIGNATURES

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

                                   HILITE INDUSTRIES, INC.
                                   (Registrant)


    September 28, 1998             /s/Daniel W. Brady
                                   Daniel W. Brady
                                   Chief Executive Officer

    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 Company and in the capacities and on the dates indicated.


    September 28, 1998             /s/James E. Lineberger
                                   James E. Lineberger
                                   Chairman of the Board


    September 28, 1998             /s/Daniel W. Brady
                                   Daniel W. Brady
                                   Chief Executive Officer and Director
                                   (Principal Executive Officer)


    September 28, 1998             /s/Samuel M. Berry
                                   Samuel M. Berry
                                   President, Chief Operating Officer and
                                   Director


    September 28, 1998             /s/Ronald G. Assaf
                                   Ronald G. Assaf
                                   Director


    September 28, 1998             /s/James D. Gerson
                                   James D. Gerson
                                   Director


    September 28, 1998             /s/John F. Creamer
                                   John F. Creamer
                                   Director


    September 28, 1998             /s/Roy Wiegmann
                                   Roy Wiegmann
                                   Vice President and Chief Financial Officer
                                   (Principal Financial and Accounting Officer)