UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K
(Mark One)
  [X]         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                 SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

                   For the fiscal year ended December 31, 1996

                                       OR

  [ ]        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

      For the transition period from ______________ to ___________________.

                           Commission File No. 1-8040

                              USR INDUSTRIES, INC.
             (Exact name of Registrant as specified in its charter)

           DELAWARE                                       22-2303184
(State or other jurisdiction of                     (I.R.S. Employer
 incorporation or organization)                      Identification No.)

     550 POST OAK BOULEVARD, SUITE 545, HOUSTON, TEXAS      77027
          (Address of principal executive offices)        (Zip Code)

       Registrant's telephone number, including area code: (713) 622-9171

        Securities registered pursuant to Section 12(b) of the Act: NONE

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

                           COMMON STOCK, $1.00 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 [ ]  No [X]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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. [X]

As of March 1, 1997, there were outstanding 994,655 shares of the Registrant's
Common Stock, $1.00 par value, and the aggregate market value held by
non-affiliates was approximately $20,000.

DOCUMENTS INCORPORATED BY REFERENCE

      The information called for by Part III, Items 10, 11, 12 and 13 is
expected to be filed by August 15, 1997.

                                     1 of 47
<PAGE>
                              USR INDUSTRIES, INC.

PART I ITEM   1. BUSINESS

GENERAL DEVELOPMENT OF BUSINESS

      USR Industries, Inc. (the "Company") was established in Delaware in 1980
as a holding corporation owning diversified small manufacturing interests. At
the time of its formation, the Company's principal business lines were held
through wholly-owned subsidiary corporations into which were contributed various
divisional operations of the former United States Radium Corporation ("USRC").
In connection with the establishment of the Company, USRC was merged into a
newly formed subsidiary of the Company and the respective assets and liabilities
of former divisional operations of USRC were assumed by separate, wholly-owned
subsidiaries of the Company. Thereafter, to more closely reflect its business as
primarily a manufacturer of safety lighting products, USRC changed its name to
Safety Light Corporation ("Safety Light"). In 1982 the Company sold all of its
common stock in Safety Light to a group led by Safety Light management
personnel.

      The Company's current operations consist primarily of the support and
development of the specialty metals business of its subsidiaries located in
Bloomsburg, Pennsylvania, USR Metals, Inc. and MultiMetal Products Corporation.
Also, very significant amounts of management time and corporate resources are
used in the conduct of litigation involving so-called environmental litigation
allegations dating back nearly a century ago. The increasing scope of such
litigation has frustrated and made moot the Company's former plans to pursue
corporate development pursuant to its plan for asset redeployment as previously
announced.

      The Company's financial resources and personnel levels effectively have
been reduced to bankruptcy levels as a result of the adverse effects of the
litigation and related proceedings referred to above. The Company's common stock
is not listed on a stock exchange for trading and the Company is advised that
during the last two years there has been no bid recorded for the Company's
securities. Litigation and related proceedings involving the Company is further
described in Notes to Consolidated Financial Statements and Note 10 thereof.

      The Company's remaining manufacturing operations generally are profitable
on a current operations basis, and generally they contribute towards payment of
legal expenses, administrative and other parent company overhead costs such as
accounting, tax, secretarial and management, as well as certain maintenance
expenses and ongoing regulatory costs. The Company's legal costs include
particularly the direct and indirect costs of ongoing environmental and
insurance litigation and regulatory matters. The Company is subject to serious
financial pressures due to having been required to conduct material legal
actions on both offensive and defensive fronts simultaneously. The Company
considers that its pursuit of offensive claims against more than a dozen major
insurance companies in which the Company seeks judicial determination of its
insurance coverages, payment of its defense costs and other relief are critical
to the Company's future.

      Multi-million dollar settlements of successful actions by the Company
against insurance companies have provided the basis for settlements with
plaintiffs, lawyers and with governmental 

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<PAGE>
agencies which have asserted claims against the Company. However, the costs of
initiating and maintaining such legal actions, together with costs to the
Company for site monitoring, remediation and other programs, substantially
exceed the Company's cash flow from recurring operations. Moreover, while
substantial long-standing litigation has been settled, new or continuing actions
threaten to further damage the Company. Because of the nature of America's
litigation system, the costs to determine whether and to what extent claims
against the Company may be covered by insurance are themselves prohibitive.

      Apart from litigation, Safety Light and the Company have engaged in
negotiations with their respective insurance carriers. The first major insurance
settlement was agreed to in 1985 (See paragraph (e) of Note 10 to the
Consolidated Financial Statements). During 1991, certain carriers entered into
settlement agreements which obligated them to fund separate accounts established
in connection with the environmental matters, while other carriers refused to
settle. Safety Light and the Company intend to pursue litigation against other
carriers which have not settled.

      Years before any environmental claims were asserted or any statutes were
adopted by Congress to provide unlimited retroactive liability for defendants in
certain environmental litigation, USRC's operating business lines already were
buffeted by negative trends and a deteriorating economic climate. During the
late 1960s and 1970s, there was a dramatic and general increase in foreign
competition against several important sectors of United States industry. The
domestic American automotive and consumer electronics industries, particularly
the color television and wristwatch industries which had been the primary
customers of USRC for many years, were severely damaged. Often the foreign
companies enjoyed political, financial and public support from their
governments, while similar support was not available to American companies. In
response, much of the former U.S. based television, watch and consumer
electronics business literally moved their production and jobs outside the
United States.

      In view of the foregoing, there is substantial doubt about the Company's
ability to continue as a going concern. As a result, the Company could be
required to seek protection from its creditors under the bankruptcy statutes.

      DEVELOPMENTS IN U.S. ECONOMY. As foreign companies increased their sales
into American markets in many industries, hundreds of thousands of American jobs
were lost, and America's industrial base was undercut. As a result, major
production facilities were closed and expansion of existing plants was moved
overseas. The American automotive and consumer electronics industries were
severely damaged. USRC's principal customers, the American color television,
wristwatch, automobile and consumer electronics manufacturers, were damaged and
their domestic business operations were cut back. In turn USRC's business as a
supplier to these markets was cut back, and USRC's principal business lines
became more intensely price competitive and were driven to marginal
profitability or losses. Foreign producers in Europe and Asia, whose export
businesses and capital expenditure programs often were subsidized or otherwise
supported by their home governments, were able to combine modern manufacturing
equipment with lower cost labor, improved worldwide delivery systems and more
realistic legal systems, delivered goods of increasing quality into America at
competitive prices.

                                       3
<PAGE>
      USRC'S SALE OF DIVISION IN 1978. By the mid-1970s the management of USRC
recognized that the principal businesses of USRC would not return to their
earlier levels of volume or profitability. By 1978 cumulative financial
pressures forced USRC to sell the assets of a principal operating division, the
Medical Products Division, in order to deal with debt payments and liquidity
needs. In 1978, USRC sold the assets of its Medical Products Division to the GAF
Corporation, a large chemical company headquartered in New Jersey. This sale of
this business line was the first of several sales necessary for debt and
liquidity reasons. Management also took steps to reposition assets into business
sectors believed to offer more promise then did the domestic color TV, watch,
and metal fabricating businesses.

      FORMATION OF NEW HOLDING CORPORATION. USR Industries, Inc. was formed in
1980 as a holding corporation primarily aiming for new areas such as the
financial services, natural resources and real estate sectors for improved
long-term potential. The Company intended to gradually diversify from
manufacturing operations dependent upon sales to segments of American business
which appeared to be in decline.

      Through the 1980s, the Company continued gradual divestiture of
manufacturing sector operations dependent on declining U.S. markets. Following
the 1978 sale of assets of the Medical Product Division to GAF Corporation as
above, in 1982 the Company sold certain net assets of USR Chemical Products,
Inc. ("Chemicals") to Mitsubishi Chemical Industries Limited of Japan
("Mitsubishi"). While at that time Chemicals was the Company's largest
subsidiary operation, it was competing to sell in worldwide markets to color
television manufacturers, a customer base which was rapidly leaving the U.S. as
described above. The business of Chemicals tended to be cyclical, capital
intensive and vulnerable to competition from foreign companies which were better
supported by their own governments such as Mitsubishi of Japan and Hoescht AG of
Germany.

      The Company believed it had to diversify from dependence on customers
whose businesses were being driven out of the U.S. To this end, the Company
repositioned its asset profile through divestitures and the purchase of
interests in other sectors, including financial services, real estate and
natural resources. Following is a summary of such transactions.

      FINANCIAL SERVICES/REALTY. During 1981 and early 1982, the Company
established an ownership interest in the financial services and real estate
sectors through the purchase of common stock of Boothe Financial Corporation
("BFC"), a diversified real estate and financial services concern based in San
Francisco, California. The Company's ownership position in the stock of BFC was
sold during late 1983 and 1984, with the Company realizing profits exceeding $1
million on such sales.

      During 1987, the Company purchased an interest in a limited partnership
which acquired a commercial office building located in Houston, Texas. However,
as the Company fell under increasing financial pressures arising from
environmental and related insurance litigation the Company negotiated non-cash
settlements of legal bills and ongoing administrative expenses related to
litigation by payments using such limited partnership interests as
consideration.

                                       4
<PAGE>
     For further discussion of environmental, insurance and other litigation,
see Notes to Consolidated Financial Statements and Note 10 thereof.

      NATURAL RESOURCES. During late 1983 the Company established an ownership
interest in the natural resources sector through the purchase of common stock of
the former Pinnacle Petroleum, Inc. ("Pinnacle"), a small, publicly-held oil and
gas exploration and production company. Thereafter Pinnacle successfully
expanded its scope of operations by merger transactions with other small,
publicly traded energy companies, including Spur Petroleum, Inc., Amarillo,
Texas; Regal Petroleum, Ltd. and V-Mc Operating Company, Denver, Colorado; and
Golden Oil Company ("Golden Oil"), Tulsa, Oklahoma. The name Golden Oil Company
was established for the parent corporation in 1989. The success gained in
earlier years by the foregoing transactions was undermined by the sudden
worldwide collapse of oil prices and a severe depression which spread throughout
the independent oil and gas industry. During this depression oil prices fell
from around $36 per barrel to around $10 per barrel and the value of the
Company's investment in Golden Oil declined.

      During the same general time as above, serious financial pressure on the
Company was caused by the environmental and related insurance and other
litigation combined with the erosion of traditional U.S. based markets as
described above. Such pressures forced the Company to continue to sell
divisional assets first begun in the mid-1970s following the collapse of the
domestic U.S. television manufacturing and consumer electronics industries.
Under intense pressure from litigation based on new legal theories of
retroactive liability propounded by legislation passed in the early 1980s and
vastly expanded by "active" judicial interpretation and with its traditional
markets eroding and its major consumer base moving out of the United States, the
Company faced a choice between retaining its remaining core manufacturing
operation in Bloomsburg, Pennsylvania or divesting its remaining investment in
shares of Golden Oil stock. The Company chose to divest such stock through a
rights offering to all Company shareholders. As registered with the SEC, the
same terms were offered to all Company stockholders to purchase stock of Golden
Oil at its then market value as traded on the National Association of Securities
Dealers Automated Quotation system ("NASDAQ"). The Company also conserved cash
resources by paying non-cash consideration rather than cash for a portion of its
compensation to directors.

      For further discussion of the environmental and related insurance and
other litigation, see Notes to Consolidated Financial Statements and Note 10
thereof.

      OTHER. In connection with plans to redeploy assets, the Company also
proposed to sell certain assets of its USR Lighting, Inc. subsidiary in order to
diversify from a single-product business which was heavily defense related.
Effective February 13, 1985 certain net assets of Lighting were sold to
AeroPanel Corporation ("AeroPanel") a newly formed corporation principally owned
by an officer of the Company and managed by former Company employees. In
connection with its review and approval of the transaction, the Company's Board
of Directors did not authorize the transaction until it had received the written
opinion of the investment banking group of Connecticut National Bank, a
subsidiary of Hartford National Corporation, that the transaction would be fair,
from a financial point of view, to the Company and its stockholders. 

                                       5
<PAGE>
Such sale was duly approved and ratified by the Company Stockholders at a
Meeting of Stockholders held March 7, 1986 at which such transaction was
considered.

NARRATIVE DESCRIPTION OF BUSINESS

      The Company's current operations consist primarily of the support of its
ownership interests in its specialty metals business. In addition a significant
proportion of management's time and corporate resources are involved with
litigation affecting the Company.

      CONTINUING MANUFACTURING OPERATIONS. USR Metals, Inc. and MultiMetal
Products Corporation, (such companies being together referred to herein as
"Metals") continue to own and operate the Company's core manufacturing
interests. Metals specializes in the custom fabrication of specialty dials and
in the anodizing treatment of metals. Metals' specialty dials are used as
components for clocks and timers for automotive and consumer applications, and
are marketed through direct sales and independent sales representatives.
Generally, Metals' products are fabricated and marketed on a quoted fixed-price
basis. The principal raw materials used are aluminum, steel, plastics and
paints. Raw materials are available from several commercial sources, and Metals
has experienced no significant difficulties in obtaining supplies for its
ongoing business operations. Metals holds patents, trademarks or licenses as
deemed advisable in connection with its activities, but does not believe that
its operations are materially dependent thereon. Metals' services include
various fabricating, finishing and decorating processes.

      Metals competes against a substantial number of small specialty companies,
many of which have sales and financial resources exceeding those of Metals.
Price, customer service and product performance are believed important in
marketing products manufactured by Metals. Price competition is very intense,
and requires the purchase of higher volume production machinery to lower Metals'
cost per unit. Metals' business is dependent on sales to a limited number of
customers. During 1996, sales to two customers constituted approximately 54% and
15%, respectively, of the total revenues. During 1995, sales to two customers
constituted approximately 57% and 18%, respectively, of the total revenues.
During 1994, sales to two customers constituted approximately 66% and 11%,
respectively of the total revenues. No other single customer accounted for more
than 10% of such sales in each of the respective years.

      Substantially all product development programs of Metals' specialty dial
business are undertaken by Metals at its expense. Due to the severe pressures
resulting from litigation, resources available for capital expenditures have
been severely limited. Under a settlement with the U.S. Nuclear Regulatory
Commission ("NRC") respecting the Bloomsburg, Pennsylvania site where Metals is
a tenant, Metals is unable to move existing equipment off the site without first
applying for and obtaining permission from the NRC. In view of such NRC
settlement and of ongoing Environmental Protection Agency ("EPA") negotiations,
the Company or potential outside investors are reluctant or unwilling to arrange
or provide funds needed to finance modernization of Metals' production
equipment.

      During the last three years through December 31, 1996, expenses for
research, development and engineering for the Company's continuing operations,
including salaries and 

                                       6
<PAGE>
other expenses of personnel employed on a regular basis in such work, were
primarily connected with Metals' custom anodizing operations and are estimated
as approximately $30,000 per year. Various activities of Metals are subject to
federal, state or local regulation with regard to environmental impact.
Operations conducted by Metals have received all certificates from regulatory
agencies necessary to operate Metals' manufacturing equipment in the normal
course of business. Currently, the Company is defending litigation in which
substantial claims for alleged environmental injury are being asserted against
it and Metals. Such claims arise from allegations as to operations of USRC many
decades ago in the era of World War I and to the period following World War II.

      For further discussion as to environmental regulations and litigation, see
Notes to Consolidated Financial Statements and Note 10 thereof.

      EMPLOYEES. The Company and its consolidated subsidiaries employed 29
persons on a full-time basis as of December 31, 1996. In addition, the Company
regularly employs part-time personnel and outside professionals who provide
accounting, legal and other services.

      FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS, FOREIGN AND DOMESTIC
OPERATIONS AND EXPORT SALES. Metals is engaged in custom anodizing, fabrication
and distribution of metal products and specialty dials. It had no export sales
during the last three years.

ITEM 2.   PROPERTIES

      The Company leases approximately 1,750 square feet of space for its
principal management and accounting offices located in a commercial office
building at 550 Post Oak Boulevard, Suite 545, Houston, Texas 77027 having
approximately 55,000 net rentable square feet. Such space is under a lease term
which extends through December 31, 2002.

      Metals' manufacturing facility is located in Bloomsburg, Pennsylvania
where Metals currently leases from the owner, Safety Light, approximately 10,000
square feet of space under a lease with renewals through March 31, 2007.

      During December 1983, upon expiration of the lease on its former 23,000
square foot factory and office facility in Parsippany, New Jersey, a subsidiary
of the Company, USR Lighting, Inc. ("Lighting"), entered into an industrial
lease for a term of ten years for a factory and office facility in Boonton, New
Jersey comprising approximately 27,000 feet. Following the sale of certain net
assets of Lighting effective February 13, 1985, facility betterments were leased
to the purchaser over a term which expired December 31, 1993. The facility is
owned by a partnership in which an officer and director of the Company holds a
principal interest.

      During 1980, a lease covering administrative offices in Morristown, New
Jersey formerly leased by the Company and having approximately 7,000 square feet
of office space was assigned to Lighting, which subleased the premises to an
unrelated third party subtenant for an initial term of five years with an
optional five year extension which was exercised by the subtenant. Upon
expiration of the lease extension in September 1990, the subtenant dissolved its
business 

                                       7
<PAGE>
operations and did not renew the lease. In August 1995, Lighting executed a
lease for 5,000 square feet, or approximately one-half of the available space,
for a seven-year initial term through October 31, 2002. Lighting is seeking a
new tenant for the remaining available space in the facility. The property which
was built by its owner, Blanchard Construction Company ("Blanchard"), using
long-term "credit-lease" financing provided through USRC, has been the subject
of continuing litigation with Blanchard for many years.

      During 1992 the Company and Lighting became involved in litigation for the
third time in approximately ten years with Blanchard, which owns the above
office premises. Blanchard constructed the building in the 1950s using financing
under a long-term "credit lease" provided by USRC. Relationships between USRC
and Blanchard remained mutually cordial and productive for some twenty years
until the succession to management of family heirs. Since then virtually
continual litigation ensued. Such litigation has the common theme that Blanchard
tries different theories before different local state Judges, all of which are
aimed at breaking Lighting's long-term sublease so that Blanchard can dispossess
its tenant and seize control of the premises. For further description of
litigation with Blanchard, see Item 3 ("Legal Proceedings") and Notes to
Consolidated Financial Statements and Note 10 thereof.

      Management of the Company and its respective subsidiaries are of the
opinion that the principal properties owned or leased thereby are adequate for
their present needs and are adequately protected against insurable risks
customary to their respective industries.

ITEM 3.     LEGAL PROCEEDINGS

      The Company and its subsidiary corporations continue to defend litigation
in which substantial claims for alleged environmental damages are being
asserted. Plaintiffs include both private parties and governmental regulatory
bodies. The Company is also pursuing claims against insurance carriers to
determine their responsibility for insurance coverages and their obligations to
assist in defense of their insureds.

      Legal proceedings involve claims by private sector parties and by
governmental agencies. The principal private sector party actions are also
described in Note 10 to the Consolidated Financial Statements. The primary
regulatory proceedings are actions by the EPA and by the NRC further described
in Note 10 to the Consolidated Financial Statements. Also, the Company is a
plaintiff in actions against certain insurance companies which have been settled
in part. These are discussed in Note 10 to the Consolidated Financial Statements
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources" hereof.

      During April 1992 Blanchard, owner of a commercial office property located
in Morristown, New Jersey leased by a subsidiary of the Company under a "credit
lease" entered in 1955, instituted an action against Lighting for summary
dispossession. Blanchard has made claims for dispossession three times during
the last ten years and has interfered with Lighting's rights by communicating to
potential subtenants that litigation between Blanchard and Lighting could affect
any lease such potential subtenants might have signed with Lighting. All of

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Blanchard's claims seek to dispossess Lighting from continuing tenancy and
control of the premises. To date, Blanchard has been unsuccessful. However,
Blanchard continues to try new theories and prolific litigations aimed in part
at increasing the costs of Lighting's occupancy to prohibitive levels, or to
catch a local Judge who may be responsive to one of the various scenarios argued
by Blanchard. As further described in Note 10 to the Consolidated Financial
Statements, during 1994, only thirteen days following final affirmation by the
New Jersey Supreme Court against Blanchard's most recent previous claims,
Blanchard started new litigation, again seeking to dispossess Lighting.

      Beginning during February 1991 the Company and Safety Light successfully
negotiated individual settlement agreements with five primary insurance carriers
and three excess insurance carriers. In January 1992 the Company and Safety
Light negotiated a settlement agreement with an additional insurance carrier.
Monies obtained under the initial installment thereunder have been applied in
part toward payment on settlement and defense of the environmental matters.
Monies obtained under the second and final installment will be applied toward
the NRC claims further discussed in Note 10 to the Consolidated Financial
Statements. For information relating to this and additional legal proceedings,
see Notes to Consolidated Financial Statements and Note 10 thereof.

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

      No matters were submitted for vote by security holders during the fourth
quarter of 1996.

                                     PART II

ITEM 5.     MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER 
            MATTERS

      The Company's common stock is not listed for trading on a regular
exchange. For each of the quarterly periods within the two years ended December
31, 1996, the transfer agent reported that there were no transfers recorded.

      No cash dividends were declared or paid during the two year period ended
December 31, 1996, and management believes it unlikely that the Company will pay
dividends in the future. At March 1, 1997 there were approximately 1,150 holders
of record of the Company's common stock.

                                       9
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ITEM 6.    SELECTED FINANCIAL DATA.

      The following selected financial information has been derived from, and is
qualified by reference to and should be read in conjunction with, the Company's
Consolidated Financial Statements and Notes thereto included elsewhere herein,
except that data relating to the fiscal year ended December 31, 1993 and 1992
has been derived from previously published financial statements.

                                            YEARS ENDED DECEMBER 31,
                                   --------------------------------------
                                  (in thousands, except per share amounts)

                                  1996      1995      1994      1993      1992
                                -------    ------    ------    ------    ------
Revenues ....................   $ 1,293     1,234     1,291     1,258     1,257

Net loss before
   extraordinary item .......   $   (52)     (115)     (121)     (396)     (278)

Net loss ....................   $   (52)     (115)     (265)     (396)     (278)

Net loss per
   common share .............   $  (.05)     (.12)     (.26)     (.40)     (.28)

Total assets ................   $   463       580       765       883     1,138

Total current liabilities ...   $   734       799       868       720       578

Long-term obligations .......   $    54        55        56        57        58

Stockholders' equity ........   $  (325)     (274)     (159)      106       502


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

      LIQUIDITY AND CAPITAL RESOURCES. To date the Company has funded its
internal cash needs from operations, asset sales and bank borrowings from time
to time. The Company expects to look to sales of other assets to meet its
liquidity needs, if such are not met from current operations. There can be no
assurance that the proceeds from such transactions would be sufficient to meet
the Company's future expenses, particularly its legal expenses. If in the future
the Company is unable to meet its obligations as they fall due, the Company
could seek protection from creditors under the federal bankruptcy statutes.

                                       10
<PAGE>
      As of December 31, 1996, the Company's working capital deficit was
$486,346 and the ratio of current assets to current liabilities was 0.3 to 1.0
versus a working capital deficit of $555,813 and a current ratio of 0.3 to 1.0
as of December 31, 1995. The Company evaluates its accounts and notes receivable
from time to time and provides an allowance against current operations for
accounts deemed to be uncollectable. During 1992 the terms of certain notes
receivables were revised to increase the interest rate thereon to 8.5% and
establish the maturity dates at March 31, 2004 and 2005, respectively. As
further described in the Company's Consolidated Financial Statements and Note 3
thereto, such notes were restructured during 1994. On an historical basis the
Company has not experienced any significant losses from the extension of credit
to its customers.

      As a result of complex litigation and the settlements pertaining thereto,
the Company has been required to bear very substantial legal and related
administrative and travel expenses, as well as increasingly costly and difficult
restrictions on its operations. While settlements of litigation and certain
legal expenses for environmental and related claims during 1991 and 1992 were
eventually caused to be paid directly by insurance carriers, the related direct
and indirect costs and restrictions, particularly restrictions on the Company's
ability to arrange equity financing, new debt agreements or lease financing so
as to remove and replace antiquated production equipment, have badly damaged the
Company. The combined effect of the foregoing have undermined the Company's
ability to modernize and compete. For further discussion of environmental
litigation matters, see Notes to Consolidated Financial Statements and Note 10
thereof.

      Under a Defense Agreement dated September 30, 1985 to which the Company,
Safety Light and five primary insurance carriers are parties ("Defense
Agreement"), certain of the Company's ongoing legal defense costs in the
environmental litigation were assumed by such insurance carriers. However,
payments by such carriers under the Defense Agreement do not cover either the
direct or indirect costs to the Company of the litigation and, in any event, the
Defense Agreement has been superseded to a substantial degree by subsequent
litigation settlements. To the extent such Defense Agreement may still be in
effect, it should be noted that the insurance carriers are defending "under
reservation" of their absolute rights to deny all liability on the underlying
claims and that certain of the insurance carriers under the 1985 Defense
Agreement and certain other insurance carries not party to the 1985 Defense
Agreement have advised that they may refuse to further assist the Company unless
compelled to do so by judicial means.

      The Company is subject to additional environmental claims which are not
covered by the Defense Agreement or other agreements with insurers, although
discussions for the possible participation by certain insurance carriers have
been held. Of course there can be no assurance that any such discussions will
result in any further agreement as to the payment of defense costs by insurance
carriers. In the event that no agreement is reached with insurers with respect
to such defense costs, the Company will be required to pay additional legal and
litigation related expenses. Potential sources of payment for such costs include
the sale or transfer of Company assets or the sale, conveyance or discounting of
its accounts receivable.

                                       11
<PAGE>
      Beginning during February 1991 the Company and Safety Light successfully
negotiated individual settlement agreements with five primary insurance carriers
and three excess insurance carriers. Settlement documents were executed covering
the monies and releases to be exchanged between the parties. The insurance
carriers paid $6,050,000 in cash into separate trust accounts administered by
parties unrelated to the Company. Substantially all of such amounts were applied
to settle lawsuits, as further described in Note 10 of Notes to the Consolidated
Financial Statements (See Notes 10(a) and 10(b)). The Company also has settled
matters described in such Notes (Note 10(d)); other claims that may be covered
under the various trust fund agreements; two claims against Safety Light; and
insurance actions discussed in the Consolidated Financial Statements and Note
10(e) thereto. In January 1992 monies obtained under the initial installment
were applied toward defense costs of matters described in Note 10. (See Notes
10(f) and 10(g)). In January 1992, the Company and Safety Light negotiated a
settlement agreement with an additional insurance carrier, pursuant to which the
insurance carrier paid two installments, one of which was paid in February 1992
upon execution of all settlement documents and the other paid in January 1993.
Monies have been placed into a separate trust account for the defense of matters
described in the Notes to the Consolidated Financial Statements (particularly
Note 10(f) and Note 10(g)) and to a separate action naming the Company and
Safety Light. On or about May 1992, the Company and Safety Light concluded a
settlement agreement with three primary insurance carriers whereby the insureds
will be reimbursed a total of seventy-five percent (75%) of legal costs and
expenses incurred in the matter described in Note 10(f) of the Notes to
Consolidated Financial Statements.

      Because the uses of amounts paid to the trust accounts were specifically
restricted by terms of the settlement agreements entered into by the Company,
the effects of the above transactions were not reflected in the Company's
Consolidated Financial Statements, other than the reversal of certain previously
accrued legal expenses of $229,240 during 1991, as such expenses were reimbursed
through direct payments by the carriers. Furthermore, since settlements are
negotiated only with the consent of the insurance carriers, no insurance company
receivables are or have been reflected on the Company's Consolidated Financial
Statements.

      Having resolved several of its long-standing litigation matters, but with
new and different matters still in preliminary stages, at this time the
liability of the Company and its subsidiaries alleged to be corporate successors
to the former USRC cannot be reasonably estimated, nor at this time does
management believe that ultimate liability is sufficiently likely to be viewed
as "probable" or that an estimate of insurance proceeds can be made with any
degree of certainty. Therefore, the Company has not made additional accruals for
possible liability at this time. However, due to factors including the very
substantial potential costs of remediation and the uncertainty of the
possibilities of further settlements and of the ultimate outcome of these
matters, despite what the Company and its counsel believe are meritorious
defenses and claims, the Company may be materially adversely affected in the
future even if there is not judicial finding of successor liability.

      The Company is of the opinion that if, in the future, there is any further
material adverse development in such environmental litigation, the Company may
be required to make additional asset sales and to file for protection from
creditors under the federal bankruptcy statutes.

                                       12
<PAGE>
RESULTS OF OPERATIONS

      1996 COMPARED WITH 1995. For the year ended December 31,1996 total
revenues increased to $1,292,578 compared to $1,234,188 for the previous year, a
net increase of $58,390. Net sales from manufacturing for the year ended
December 31, 1996 decreased slightly to $1,233,878 compared to $1,234,188 for
the prior year. The Company reported net rental income of $57,919 for the year
ended December 31, 1996 compared to zero for the prior year. The current year
rental income reflects sublease income to a subsidiary of the Company from a
small commercial office property in Morristown, New Jersey.

      Cost of sales for the current year was $790,957 compared to $815,000 for
1995, a decrease of $24,043. Such decrease is primarily the result of changes in
the Company's sales mix which resulted in products with lower relative material
and overhead costs. Selling, general and administrative expenses for the year
ended December 31, 1996 were $520,099 compared to $497,969 for the prior year.
The increase of $22,130 is primarily a result of increased professional fees and
administrative expenses. The Company includes its legal expenses for the
environmental litigation and other litigation discussed in Note 10 to
Consolidated Financial Statements in selling, general and administrative
expenses. Depreciation and amortization expense increased slightly to $8,353 for
the year ended December 31, 1996 from $6,200 for the prior year. The Company
recognized a discount on early redemption of redeemable preferred stock of
$24,750 and $29,524, in 1996 and 1995, respectively, as a result of the issuer
of such stock exercising its right to redeem the stock at a discount prior to
maturity.

      Primarily as a result of the foregoing factors, the Company reported a net
loss of $51,581 for the year ended December 31, 1996 compared to a net loss of
$114,505 in 1995.

      1995 COMPARED WITH 1994. For the year ended December 31, 1995 total
revenues decreased to $1,234,188 compared to $1,291,294 for the previous year, a
net decrease of $57,106. Net sales from manufacturing for the year ended
December 31, 1995 decreased to $1,234,188 compared to $1,246,294 for the prior
year. The decrease of $12,106 is primarily a result of changes in the volume
shipments of products sold to certain customers.

      Cost of sales remained relatively constant, $815,000 in 1995 compared to
$815,876 for 1994, a decrease of $876. Selling, general and administrative
expenses for the year ended December 31, 1995 were $497,969 compared to $560,880
for the prior year. The decrease of $62,911 is primarily a result of decreases
in certain administrative expenses and professional fees. The Company includes
its legal expenses for the environmental litigation and other litigation
discussed in Note 10 to Consolidated Financial Statements in selling, general
and administrative expenses. Depreciation and amortization expense decreased to
$6,200 for the year ended December 31, 1995 from $35,148 for the prior year, as
a result of certain assets becoming fully depreciated for financial reporting
purposes in the current year.

      During 1994 the Company recorded a gain of $45,000 on the transfer of
partnership interests. During 1995 the Company recognized a discount on early
redemption of redeemable preferred stock of $29,524 as a result of the issuer of
such stock exercising its right to redeem the 

                                       13
<PAGE>
stock at a discount prior to maturity. During 1994, the Company recognized a
non-cash loss of $144,055 on the restructuring of its note receivable. See Note
3 to Consolidated Financial Statements.

      Primarily as a result of the foregoing factors, the Company reported a net
loss of $114,505 for the year ended December 31, 1995 compared to a net loss of
$264,665 in 1994.

      RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS. In March 1995, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-lived Assets
and for Long-lived Assets to be Disposed of ". This standard requires that
long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company adopted SFAS No. 121 in the first quarter of 1996 with
no effect on the operating results or financial condition of the Company.

      In the first quarter of 1997, the FASB issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS 128") and Statement of
Financial Accounting Standards No. 129, "Disclosure of Information about Capital
Structure" ("SFAS 129"). These statements will be adopted by the Company
effective December 31, 1997. SFAS 128 simplifies the computation of earnings per
common share by replacing primary and fully-diluted presentations with the new
basic and diluted disclosures. SFAS 129 establishes standards for disclosing
information about an entity's capital structure.

      In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" which encourages, but does not require, employers to adopt a fair
value method of accounting for employee stock-based compensation, and requires
increased disclosures if expense recognition is not adopted. The Company adopted
SFAS 123 in 1996 and did not elect expense recognition for sock options and
therefore implementation of SFAS No. 123 did not have an effect on the Company's
operating results or financial condition.

                                       14
<PAGE>
ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
                                                                        PAGE
                                                                        ----
          Consolidated Balance Sheets                                     16
          Consolidated Statements of Operations                           18
          Consolidated Statements of Stockholders' Equity                 19
          Consolidated Statements of Cash Flows                           20
          Notes to Consolidated Financial Statements                      22

                                       15
<PAGE>
                              USR INDUSTRIES, INC.

                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

                                                              December 31,      
                                                    ---------------------------
                                                        1996            1995
                                                    -----------     -----------
ASSETS              
               
Current assets:               
     Cash and equivalents ......................    $    16,735     $     4,794
     Accounts receivable:
          Trade ................................        130,371         131,698
          Other ................................         54,072          70,421
     Inventories ...............................         39,540          35,869
     Prepaid expenses and other ................          7,331             106
                                                    -----------     -----------
          Total current assets .................        248,049         242,888
                                                    -----------     -----------
Redeemable preferred stock, related party ......        144,372         268,122

Property, plant and equipment, at cost .........      1,692,113       1,687,113
     Less:  accumulated depreciation ...........     (1,626,195)     (1,617,842)
                                                    -----------     -----------
                                                         65,918          69,271
                                                    -----------     -----------
Other ..........................................          4,470            --   
                                                    -----------     -----------
                                                    $   462,809     $   580,281
                                                    ===========     ===========

                 See Notes to Consolidated Financial Statements
                                   (Continued)

                                       16
<PAGE>
                             USR INDUSTRIES, INC.

                   CONSOLIDATED BALANCE SHEETS (CONTINUED)
                                 (UNAUDITED)

                                                            December 31,       
                                                    ---------------------------
                                                        1996            1995
                                                    -----------     -----------
LIABILITIES AND STOCKHOLDERS' EQUITY              
               
Current liabilities:               
     Accounts payable ..........................    $   264,944     $   300,989
     Accrued expenses ..........................        469,451         497,712
                                                    -----------     -----------
          Total current liabilities ............        734,395         798,701
                                                    -----------     -----------
Long-term obligation under
     capital lease .............................         53,635          55,220

Commitments and contingencies

Stockholders' equity:
     Common stock, par value $1;
          3,500,000 shares authorized;
          issued and outstanding 994,655
          shares at December 31, 1996
          and 1995 .............................        994,655         994,655
     Additional paid-in capital ................        365,461         365,461
     Accumulated deficit .......................     (1,685,337)     (1,633,756)
                                                    -----------     -----------
          Total stockholders' equity ...........       (325,221)       (273,640)
                                                    -----------     -----------
                                                    $   462,809     $   580,281
                                                    ===========     ===========

                See Notes to Consolidated Financial Statements

                                       17
<PAGE>
                              USR INDUSTRIES, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
                                                Years Ended December 31,        
                                        ---------------------------------------
                                            1996          1995          1994
                                        -----------   -----------   -----------
Revenues:                     
   Net sales .........................  $ 1,233,878   $ 1,234,188   $ 1,246,294
   Rental income .....................       57,919          --            --   
   Gain on disposition of limited
        partnership interest .........         --            --          45,000
   Other income ......................          781          --            --   
                                        -----------   -----------   -----------
        Total revenues ...............    1,292,578     1,234,188     1,291,294
                                        -----------   -----------   -----------
Costs and expenses:
   Cost of sales .....................      790,957       815,000       815,876
   Selling, general and
        administrative ...............      520,099       497,969       560,880
   Depreciation and amortization .....        8,353         6,200        35,148
                                        -----------   -----------   -----------
        Total costs and expenses .....    1,319,409     1,319,169     1,411,904
                                        -----------   -----------   -----------
Discount on early redemptions of
   redeemable preferred stock ........       24,750        29,524          --   
                                        -----------   -----------   -----------
Net loss before
   extraordinary item ................      (51,581)     (114,505)     (120,610)
Extraordinary item, debt
   restructuring .....................         --            --        (144,055)
                                        -----------   -----------   -----------
Net loss .............................  $   (51,581)  $  (114,505)  $  (264,665)
                                        ===========   ===========   ===========
Net loss per common share:
   Net loss before extraordinary item   $     (0.05)  $     (0.12)  $     (0.12)
   Extraordinary item ................         --            --           (0.14)
                                        -----------   -----------   -----------
   Net loss ..........................  $     (0.05)  $     (0.12)  $     (0.26)
                                        ===========   ===========   ===========
Weighted average number of common
   shares outstanding ................      994,655       994,655       994,655
                                        ===========   ===========   ===========

                See Notes to Consolidated Financial Statements

                                       18
<PAGE>
                              USR INDUSTRIES, INC.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                     Common Stock
                                 -------------------      Paid-in       Accumulated   Stockholders  
                                 Shares       Amount      Capital         Deficit        Equity 
                                 -------     --------     --------     -----------      ----------
<S>                              <C>         <C>          <C>          <C>              <C>       
 Balance at                        
     December 31, 1994 ......... 994,655     $994,655     $365,461     $(1,519,251)     $(159,135)

Net loss .......................    --           --           --          (114,505)      (114,505)
                                 -------     --------     --------     -----------      ----------
Balance at
     December 31, 1995 ......... 994,655      994,655      365,461      (1,633,756)      (273,640)

Net loss .......................    --           --           --           (51,581)       (51,581)
                                 -------     --------     --------     -----------      ----------
Balance at
     December 31, 1996 ......... 994,655     $994,655     $365,461     $(1,685,337)     $(325,221)
                                 =======     ========     ========     ===========      ========= 
</TABLE>
                 See Notes to Consolidated Financial Statements

                                       19
<PAGE>
                              USR INDUSTRIES, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

                                                    Years Ended December 31,    
                                               --------------------------------
                                                  1996       1995        1994
                                               ---------  ---------   ---------
Cash flows from operating activities:                       
   Net loss .................................  $(51,581)  $(114,505)  $(264,665)
     Adjustments to reconcile net
          loss to net cash used
          in operating activities:
     Depreciation and amortization ..........     8,353       6,200      35,148
     Gain on disposition of limited
          partnership interest ..............      --          --       (45,000)
     Discount on early redemptions
         of redeemable preferred stock ......    24,750      29,524        --   
     Extraordinary item, debt
          restructuring .....................      --          --       144,055
     Changes in components of
          working capital:
          (Increase) decrease in
               accounts receivable ..........    17,676      75,716    (110,541)
          (Increase) decrease in
               inventories ..................    (3,671)     (7,474)     (3,388)
          (Increase) decrease in prepaid
               expenses and other ...........    (7,225)       (106)      2,697
          Increase (decrease) in
               accounts payable .............   (36,045)     39,392      33,893
          Increase (decrease) in
               accrued expenses .............   (28,261)   (108,952)    159,370
                                               ---------  ---------   ---------
Net cash used in operating activities .......  $(76,004)  $ (80,205)  $ (48,431)
                                               =========  =========   ========= 

                 See Notes to Consolidated Financial Statements
                                   (Continued)

                                       20
<PAGE>
                              USR INDUSTRIES, INC.

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                                   (UNAUDITED)

                                                   Years Ended December 31,
                                               --------------------------------
                                                 1996        1995        1994
                                               --------    --------    --------

Cash flows from investing activities:
   Redemptions of investment in redeemable
     preferred stock ........................  $ 99,000    $ 88,571    $   --

   Additions to property, plant and
      equipment .............................    (5,000)     (4,369)     (1,672)
                                               --------    --------    --------
    Net cash provided by (used in)
      investing activities ..................    94,000      84,202      (1,672)
                                               --------    --------    --------
Cash flows from financing activities:

    Payment of long-term lease obligations ..    (1,585)     (1,055)     (1,150)

    Rent deposit ............................    (4,470)       --          --
                                               --------    --------    --------
    Net cash used in financing activities ...    (6,055)     (1,055)     (1,150)
                                               --------    --------    --------
Net increase (decrease) in cash
    and equivalents .........................    11,941       2,942     (51,253)


Cash and equivalents at beginning of year ...     4,794       1,852      53,105
                                               --------    --------    --------
Cash and equivalents at end of year .........  $ 16,735    $  4,794    $  1,852
                                               ========    ========    ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

      There were no cash interest payments in 1996, 1995 and 1994. Due to its
substantial tax loss carryforward and operating losses, the Company was not
required to make cash payments for income taxes during 1996, 1995 and 1994.

      As more fully described in Note 3 to the Consolidated Financial
Statements, during 1994, the Company restructured certain notes receivable,
together with certain unsecured accounts receivable, into preferred stock having
a par value of approximately $386,000.

                 See Notes to Consolidated Financial Statements

                                       21
<PAGE>
                              USR INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(1)   SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

      SUMMARY AND PRINCIPLES OF CONSOLIDATION. The accompanying Consolidated
Financial Statements and Notes thereto present on a consolidated basis the
accounts of USR Industries, Inc. ("Company") and its wholly owned subsidiaries
USR Chemicals, Inc. ("Chemicals"); USR Lighting, Inc. ("Lighting"); and Metal
Fabricators, Inc. ("Fabricators"); which in turn owns its subsidiaries USR
Metals, Inc. ("Metals"); and MultiMetal Products Corporation ("MultiMetals").
All significant intercompany accounts and transactions have been eliminated in
consolidation.

      PRESENTATION. As more fully discussed in Note 10 to the Consolidated
Financial Statements, the Company is subject to material contingent liabilities
for environmental claims arising from allegations of nearly a century ago. Such
claims have been asserted through litigation and by proceedings with various
governmental agencies. Certain insurance carriers which have assisted the
Company's defense in earlier years have indicated recently that they may refuse
or restrict further financial assistance for defense costs. Litigation related
costs are expected to continue to be material.

      It is uncertain whether the Company's current operations will generate
sufficient working capital to enable it to continue to support an effective
legal defense, which raises substantial doubts about the Company's ability to
continue as a going concern. As the outcome of these uncertainties cannot
presently be determined, the accompanying financial statements have been
prepared assuming that the Company will continue as a going concern and do not
include any adjustments that might result from the outcome of these
uncertainties.

      The Company's financial resources effectively have been reduced to
bankruptcy levels as a result of the adverse effect of the litigation and
related proceedings referred to above. The Company's common stock is not listed
on a stock exchange for trading and there has been no transactions recorded by
the Company's transfer agent during the last two full years. The accompanying
Financial Statements and related Notes are unaudited, as the Company is without
resources necessary to continue to engage independent certified public
accountants. In the opinion of management, such unaudited statements reflect all
adjustments which are necessary to present fairly, in all material respects, the
results of the Company for the periods included herein.

      INVENTORIES. Inventories of raw materials are carried at the lower of cost
(first-in, first-out) or market. Work-in-process and finished goods inventories
are valued at the lower of average cost or market. The majority of inventories
at December 31, 1996 consisted of work-in-process.

      INVESTMENTS. The Company had no short-term investments at December 31,
1996 and 1995.

                                       22
<PAGE>
                              USR INDUSTRIES, INC.

                         NOTES TO CONSOLIDATED FINANCIAL
                        STATEMENTS (Unaudited)(Continued)

      PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are
depreciated over the estimated useful lives of the depreciable assets using the
straight line method. Expenditures for maintenance and repairs which do not
improve or extend the useful lives are charged to operations as incurred, while
expenditures for major renewals and betterments are capitalized.

      Dispositions of assets are reflected at their historical cost less
accumulated depreciation, with resulting gain or loss reflected in operations
currently.

      In March 1995, the Financial Accounting Standards Board ("FASB") issued
statement of Financial Accounting Standards (SFAS") No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of ".
This standard requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The Company adopted SFAS No. 121 in the first
quarter of 1996 with no effect on the operating results or financial condition
of the Company.

      INCOME TAXES. The Company and its wholly-owned subsidiaries join in filing
a consolidated federal income tax return. Investment tax credits are accounted
for by the flow-through method.

      ACCRUALS AND RESERVES. The consolidated balance sheets include an accrual
provision of $200,000 and $250,000 at December 31, 1996 and 1995, respectively,
in respect of estimated future litigation expenses in connection with claims
asserted against the Company and its wholly owned subsidiaries. See Note 10 to
the Consolidated Financial Statements. Also at December 31, 1996 and 1995 fees
owed but unpaid to directors had accrued to $107,500 and $87,500, respectively.

      EARNINGS PER SHARE. Earnings per share of common stock are based on the
weighted average number of shares of common stock outstanding during each
period.

      In the first quarter of 1997, the FASB issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS 128") and Statement of
Financial Accounting Standards No. 129, "Disclosure of Information about Capital
Structure" ("SAFS 129"). These statements will be adopted by the Company
effective December 31, 1997. SFAS 128 simplifies the computation of earnings per
common share by replacing primary and fully-diluted presentations with the new
basic and diluted disclosures. SFAS 129 establishes standards for disclosing
information about an entity's capital structure.

      CASH EQUIVALENTS. For purposes of accounting presentation, highly liquid
instrument purchases with an original maturity of three months or less are shown
as cash equivalents.

      RECLASSIFICATIONS. Certain amounts from prior periods have been
reclassified to conform with the presentation format of the 1996 Consolidated
Financial Statements with no effect on reported results of operations.

                                       23
<PAGE>
                              USR INDUSTRIES, INC.

                         NOTES TO CONSOLIDATED FINANCIAL
                        STATEMENTS (Unaudited)(Continued)

(2)   INTEREST IN LIMITED PARTNERSHIP

      During 1987 the Company formed 550 POB, Inc. ("POB"), and through it
acquired an interest in a Texas limited partnership which purchased a commercial
office building located at 550 Post Oak Boulevard, Houston, Texas 77027. POB
agreed to serve as the corporate general partner of the limited partnership,
known as Houston-Phoenix Co., Ltd. As corporate general partner POB could be
contingently liable for the debts of such partnership.

      As of September 30, 1993, the Company settled certain net amounts due to
another company which shares office facilities with the Company (and which has
one common officer and director but no ownership of the Company) in the amount
of $77,000 and from an officer in the amount of $180,000 by non-cash payment and
exchange of interests in the limited partnership. The Company realized a gain on
the transfer of these interests totaling approximately $38,000. As the result of
such changes in the Company's relative ownership, as of September 30, 1993 the
Company began accounting for such limited partnership investment under the cost
method rather than the equity method. During 1994, the Company settled with
partnership interests amounts due to such other company for $45,000, which
resulted in a gain to the Company for financial reporting purposes.

      During January 1995, the Company assigned the ownership, rights and
obligations of POB to an officer of the Company. Due to the elimination of the
Company's ownership in the limited partnership as a result of the settlements
described above, the partners preferred that ownership of POB, the corporate
general partner of the limited partnership, should be in the hands of a party
with a principal interest in the partnership.

(3)   CERTAIN TRANSACTIONS

      Effective February 13, 1985 Company stockholders considered and approved
the sale of certain net assets of Lighting to AeroPanel Corporation
("AeroPanel") a newly formed corporation owned by an officer of the Company and
managed by former Company personnel. In connection with its review and approval
of the transaction, the Board of Directors of the Company received the written
opinion of the investment banking group of Connecticut National Bank (a
subsidiary of Hartford National Corporation) that the transaction would be fair,
from a financial point of view, to the Company and its stockholders. At a
meeting held March 7, 1986 the Company's stockholders voted to approve and
ratify the sale.

      In connection with the asset sale, in addition to cash consideration of
$325,000, the Company received notes payable to it having aggregate face value
of $570,000 as of the transaction date, secured by a subordinated interest in
AeroPanel assets. The principal amounts of such notes were discounted at
issuance using an imputed interest rate of 11%, which for financial statement
reporting purposes resulted in an original issue discount of $175,950. Effective
as of December 31,1992, the terms of such notes were revised to increase the
interest rate to 8.5% and to establish the maturity dates at March 31, 2004 and
2005, respectively. As more fully discussed below, such notes were restructured
effective during the first quarter of 1994.

                                       24
<PAGE>
                              USR INDUSTRIES, INC.

                         NOTES TO CONSOLIDATED FINANCIAL
                        STATEMENTS (Unaudited)(Continued)

      During the third quarter of 1993 the Company agreed to defer principal
payments on such notes receivable and to forgive interest thereon from July 1,
1993 to September 1, 1994. As a condition thereto, the Company required
AeroPanel to raise substantial new financing. The Company's actions were deemed
necessary and in the best interests of the Company in view of sudden and
significant reductions in defense spending following the end of the Cold War and
the curtailment or cancellation of military and space exploration programs for
which AeroPanel serves as a subcontractor. The Company believed that if it were
to attempt to force accelerated payment of the notes payable to it, AeroPanel in
turn might be forced to seek defensive reorganization under the bankruptcy
statutes, impairing the value of a Company asset.

      As of September 1, 1993 AeroPanel fulfilled the first performance
milestone required by the Company as a condition to the possible restructure of
the notes by concluding an agreement with a commercial factor. The agreement
provided up to $250,000 of cash financing available immediately to AeroPanel and
provided the factor a senior security interest in AeroPanel's assets, as well as
other independent security. Effective during the first quarter of 1994 AeroPanel
fulfilled the second condition required by the Company on obtaining new loan
financing. Such loan, which may extend to a total amount of $400,000, is secured
by second liens on the business and assets of AeroPanel, and is subordinate to
the first lien of the commercial factor as above.

      Upon receiving evidence satisfactory to the Company of the successful
completion of the AeroPanel financing as above, the Company agreed to
restructure the notes receivable, together with certain unsecured accounts
receivable from AeroPanel, into non-cumulative, redeemable preferred stock
having a par value of approximately $386,000. In connection with the
restructuring, the Company recognized a non-cash loss of approximately $144,000.
The preferred stock is redeemable by AeroPanel prior to maturity at December 31,
2003 on a scheduled basis which provides an incentive discount for early
redemption. In the year 2003, the preferred stock becomes payable in full at par
value. The schedule for early redemption provides an incentive discount of 25%
from face value if preferred stock is redeemed by AeroPanel on or before
December 31, 1995; 20% if redeemed on or before December 31, 1997; 15% if
redeemed on or before December 31, 1999; 10% if redeemed on or before December
31, 2001; and 5% if redeemed on or before December 31, 2003.

      During 1996 and 1995, AeroPanel made early redemptions of $123,750 and
$118,095 in par value of preferred stock. Of course the ability of AeroPanel to
redeem its preferred stock, whether on an accelerated basis or at maturity in
2003, is dependent upon a number of factors beyond the control of the Company,
including future developments in the aerospace and aircraft markets.

                                       25
<PAGE>
                              USR INDUSTRIES, INC.

                         NOTES TO CONSOLIDATED FINANCIAL
                        STATEMENTS (Unaudited)(Continued)

(4)   PROPERTY, PLANT AND EQUIPMENT

      A summary of property, plant and equipment at December 31, 1996 and 1995
is as follows:

                                                       1996             1995
                                                   -----------      -----------

Land and buildings, under capital lease ......     $   183,254      $   183,254
Machinery and equipment ......................         858,438          858,438
Office furniture and fixtures ................          76,921           76,921
Leasehold improvements .......................         573,500          568,500
                                                   -----------      -----------
                                                     1,692,113        1,687,113
Less accumulated depreciation (including
  accumulated amortization of assets
  under capital lease of $123,950 in
  1996 and $120,896 in 1995) .................      (1,626,195)      (1,617,842)
                                                   -----------      -----------
                                                   $    65,918      $    69,271
                                                   ===========      ===========

(5)   EMPLOYEE BENEFIT PLAN

      Effective January 1, 1987 the Company adopted a 401(k) savings plan. The
plan covers all employees who have completed one or more years of service and
are not covered by a collective bargaining agreement. Each participant may make
annual contributions up to the lesser of the maximum amount allowable or 13% of
compensation. The Company, at its discretion, may match participants'
contributions up to 2% of their compensation. Participant contributions are
vested at all times, and the discretionary employer contributions vest 20% per
year after two years. No contributions were made by the Company in 1996, 1995 or
1994.

      Effective January 1, 1987 the Company adopted a defined benefit plan for
all employees covered by a collective bargaining agreement. The Company's annual
contribution to the plan is actuarially determined. Currently the defined
benefit plan covers 18 employees and the participants in the plan are fully
vested after five years of service. The actuarial status of the defined benefit
plan at December 31,1996 has not been determined; however, management does not
consider the impact of the plan to be material to the Consolidated Financial
Statements. The Company incurred pension expense of $7,020, $6,270 and $4,385 in
1996, 1995 and 1994 respectively.

                                       26
<PAGE>
                              USR INDUSTRIES, INC.

                         NOTES TO CONSOLIDATED FINANCIAL
                        STATEMENTS (Unaudited)(Continued)

(6)   FEDERAL INCOME TAXES

      At December 31, 1996 the Company had aggregate net operating loss
carryforwards of approximately $2,336,000 which expire at various dates through
the year 2008. Certain restrictions may exist as to the utilization of such
carryforwards. The components of the Company's deferred tax assets and
liabilities at December 31, 1996 and 1995 are as follows:

                                                             Deferred Tax
                                                          Assets (Liabilities)
                                                      -------------------------
                                                         1996            1995
                                                      ---------       ---------
Inventory ......................................      $    --         $   5,932
Property, plant and equipment ..................         (1,974)          1,656
Accrued expenses ...............................        113,121        (130,394)
Net operating losses ...........................        794,328         813,961
                                                      ---------       ---------
   Subtotal ....................................        905,475         691,155
Valuation allowance ............................       (905,475)       (691,155)
                                                      ---------       ---------
Net deferred tax assets (liabilities) ..........      $    --         $    --
                                                      =========       =========

     Due to the Company's ongoing litigation expenses and resultant financial
position, the Company believes it is unlikely that it will be able to utilize
its deferred tax asset prior to its expiration and, accordingly, has provided a
reserve on the full amount of the asset. During 1996, the Company's valuation
allowance increased by approximately $214,000 primarily due to the addition of
current year tax loss carryforwards.

(7)   LEASES

      The Company leases its administrative offices in a commercial office
building at 550 Post Oak Boulevard, Houston, Texas under a lease through
December 2002. The Company has owned a limited partnership interest in such
building. The Company's office space comprises 1,750 square feet in such
building, which has a total of approximately 55,000 square feet.

      The Company's wholly-owned subsidiary, Lighting, leases an office building
and leased a manufacturing facility under long-term capital and operating
leases, respectively. During 1980 through 1990 the office building leased by
Lighting was subleased at rentals in excess of its lease expense; however, there
has been no subtenant since 1990. The operating lease expired on December 31,
1993. The Company did not guarantee any obligation under the operating lease.

                                       27
<PAGE>
                              USR INDUSTRIES, INC.

                         NOTES TO CONSOLIDATED FINANCIAL
                        STATEMENTS (Unaudited)(Continued)

      At December 31, 1996, the aggregate future minimum lease payments under
the above capital lease is as follows:

                                                                   Capital Lease
                                                                   -------------
1997 .....................................................               $5,318
1998 .....................................................                5,318
1999 .....................................................                5,318
2000 .....................................................                5,318
Subsequent to 2001 .......................................               81,994
                                                                      ---------
Total minimum lease payments .............................              103,266
Less amount representing
  interest ...............................................              (48,298)
                                                                      ---------
Present value of future 
  minimum lease payments .................................               54,968

Less current obligation ..................................               (1,333)
                                                                      ---------
                                                                      $  53,635
                                                                      =========

(8)   NOTES PAYABLE AND LONG-TERM DEBT

      At December 31, 1992 the Company had a note payable to a commercial bank
of $13,230, collateralized by certain accounts receivable, inventory and
equipment of MultiMetals. The note bore interest at bank prime plus 1% (the bank
prime rate was 6.0% at December 31, 1992) and required monthly principal
payments of $1,167 plus accrued interest until maturity at November 1,1993. This
note was fully repaid during 1993.

(9)   SIGNIFICANT CUSTOMERS

      For the year ended December 31, 1996, subsidiaries of the Company had
sales to two (2) customers of approximately 54% and 15% of total revenues. For
the year ended December 31, 1995, subsidiaries of the Company had sales to two
(2) customers of approximately 57% and 18% of total revenues. For the year ended
December 31, 1994, subsidiaries of the Company had sales to two (2) customers of
approximately 66% and 11% of its total consolidated revenues. The Company's
accounts receivable are primarily from companies involved in the consumer
products and machinery control industries and generally are not collateralized.

                                       28
<PAGE>
                              USR INDUSTRIES, INC.

                         NOTES TO CONSOLIDATED FINANCIAL
                        STATEMENTS (Unaudited)(Continued)

(10)  COMMITMENTS AND CONTINGENCIES

LEGAL PROCEEDINGS

      (a) T&E INDUSTRIES, INC. On April 2, 1981 an action was commenced in the
Superior Court of New Jersey, Essex County, by T & E Industries, Inc. naming
USRC, the corporate predecessor to Safety Light Corporation ("Safety Light"), as
a defendant and alleging, inter alia, that property in Orange, New Jersey owned
by the plaintiff suffers from contamination from certain radioactive materials
allegedly deposited thereon by USRC during prior years. The litigation arises
from operations conducted by USRC at the site during the years 1917 through
1925. Subsequent to the commencement of this action the complaint was amended to
include the Company and certain of its wholly owned subsidiary corporations
alleged to be corporate successors to the former USRC. The plaintiff seeks to
compel remedial action as to alleged improper condition of the site and damages
in unspecified amounts in compensation for alleged injury to its property and
business as well as punitive damages.

      During December 1983 plaintiffs amended such complaint to include as
additional defendants GAF Corporation, Mitsubishi Chemical Industries, Inc.
("MCI") and MCI's subsidiary in New Jersey, USR Optonix, Inc., which was alleged
to be a corporate successor to the former USRC. The additional defendants were
claimed to be liable under the product line exception to the general theory that
a third party purchaser of assets is not liable as a successor. The additional
defendants answered denying liability and demanded that the previously named
defendants defend the action on their behalf and indemnify them against costs
and any potential liability in connection therewith. In 1984 the additional
defendants were successful on a motion for summary judgment against the
plaintiffs and, accordingly, the claims of the additional defendants against the
Company and its subsidiaries were dismissed.

      In early 1985 the Company prevailed against a motion for summary judgment
by the plaintiff seeking judgment that the Company is the successor to USRC.

      In September 1985 five primary insurance carriers of the Company and
Safety Light assumed the defense of the Company, certain of the Company's
subsidiaries and Safety Light, pursuant to a Defense Agreement. While the
insurance carriers assisted in the defense of certain actions their defense was
made subject to an absolute reservation of rights to deny liability on any of
the underlying claims.

      On February 3, 1986, this matter was tried before a jury in front of the
Honorable Stanley G. Bedford. This trial was only with respect to the liability,
if any, of Safety Light. Prior to trial, the Court bifurcated the count
asserting liability against the Company and certain of the Company's
subsidiaries and on November 18, 1985 ordered that all claims against the
Company would be severed and separately tried, if at all, in the event plaintiff
obtains a judgment against Safety Light.

                                       29
<PAGE>
                              USR INDUSTRIES, INC.

                         NOTES TO CONSOLIDATED FINANCIAL
                        STATEMENTS (Unaudited)(Continued)

      During the trial the Court granted a directed verdict in favor of Safety
Light dismissing all of plaintiff's strict liability claims, all negligence
based claims relating to the conduct of USRC between 1917-1925, and all claims
based upon fraud, recklessness and intentional conduct. The only remaining
claims against Safety Light were an alleged negligent failure to warn when the
premises were sold in 1943 and a negligence theory which allegedly placed upon
USRC a continuing duty to warn prospective purchasers up through the time
plaintiff purchased the property in 1974, thirty-one years later. The Court also
reduced plaintiff's damage claim from $2.8 million to under $400,000.

      On March 11, 1986, the jury returned a verdict, finding that USRC was not
negligent in 1943 when it failed to warn its immediate purchaser that the
presence of radioactive tailings on the premises constituted a potential risk to
health or property. The jury did find that USRC was negligent for not warning
plaintiff before its purchase of the property thirty-one years later, in 1974,
that some potential risk to health or property existed on the premises. Damages
were assessed against Safety Light in the amount of $372,100.

      On April 25, 1986, Judge Bedford granted Safety Light's motion for
judgment in its favor notwithstanding the jury's verdict of March 11, 1986. The
Court also denied plaintiff's application for indemnification by Safety Light of
all cleanup costs assessed against plaintiff as a result of any future
government efforts to decontaminate the property. Final judgment was thereafter
entered in favor of Safety Light, the Company and certain of the Company's
subsidiaries on May 29, 1986 and awarded on September 20, 1986, dismissing all
of plaintiff's claims in their entirety.

      On July 9, 1986, plaintiff filed a Notice of Appeal from the June 20, 1986
judgment. On August 11, 1988 the Appellate Division reversed the lower court's
decision, entered judgment in favor of plaintiff based on plaintiff's absolute
liability claim and remanded the case to the trial court for a new trial on the
issue of damages. By order dated September 19,1988 Safety Light's motion for
re-consideration was denied by the Appellate Division. A petition for
certification to the Supreme Court of New Jersey was granted and oral arguments
were heard on March 12, 1990. On April 2, 1991 Safety Light and the Company
settled all claims asserted by plaintiff with the exception of future unknown
third party claims against plaintiff relating to the property and future cleanup
costs incurred by plaintiff. Settlement documents have been finalized and
executed by all parties. All monies for this settlement have been provided by
certain insurance carriers of the Company and Safety Light. On April 3,1991, the
Supreme Court modified the Appellate Division's decision, affirmed the decision
and modified and remanded the matter for a new trial on damages. Because of the
aforementioned settlement, this new trial will not be necessary.

      Claims also were made by T & E Industries in an action brought in the U.S.
District Court for the District of New Jersey, allegedly pursuant to the
Comprehensive Environmental Response, Compensation Liability Act of 1980
("CERCLA") seeking a declaration that defendants are liable for all costs of
cleanup and decontamination, consistent with the National Contingency Plan, of
the site presently known as 422 Alden Street, Orange, New Jersey and seeking a
judgment for "response costs" already incurred and injunctive relief for
enforcing such remedy. Defendants 

                                       30
<PAGE>
                              USR INDUSTRIES, INC.

                         NOTES TO CONSOLIDATED FINANCIAL
                        STATEMENTS (Unaudited)(Continued)

made a motion to dismiss and plaintiffs made a cross-motion for partial summary
judgment against Safety Light. The motions were heard on February 10, 1988. The
Court, through Judge Wolin, found against the defendants' motion to dismiss and
granted T & E's application that Safety Light is liable under CERCLA for all
necessary costs of response incurred by T & E which are consistent with the
National Contingency Plan. The Court, however, limited T & E's alleged damages
and determined, inter alia, that T & E's claim for attorney's fees are not
recoverable response costs under CERCLA.

      This matter has also been settled pursuant to the terms of the settlement
agreement discussed previously with all monies paid in settlement provided by
certain insurance carriers of the Company and Safety Light. The same reservation
of rights by plaintiff pertains to this matter. Plaintiff has asserted no claims
against the Company or Safety Light under this reserved right to seek recovery
for future unknown third party claims against plaintiff relating to the property
and future cleanup costs incurred by plaintiff. At this time, since no claims
have been made, the Company cannot predict whether or in what amount plaintiff
may seek recovery against the Company under plaintiff's right to make such
claims.

      (b) MONTCLAIR, GLEN RIDGE AND WEST ORANGE. Between 1984 and 1990 Safety
Light, the Company and its two manufacturing subsidiaries, USR Lighting, Inc.
and USR Metals, Inc., were named as defendants in seven actions commenced in
Superior Court, Essex County, New Jersey. These actions were brought on behalf
of certain residents in the Townships of Montclair, Glen Ridge and West Orange,
New Jersey and claim, inter alia, damages to land and personal injury in amounts
to be proved at trial as well as punitive damages. Such alleged damages are
claimed to have been caused by actual or threatened exposure of the property and
persons of plaintiffs to gamma radiation and levels of radon gas, a radioactive
decay product of uranium or radium bearing ores, at levels above background
levels naturally occurring and in excess of permissible levels established by
the government for members of the public. Plaintiffs allege that such radiation
is a product of landfill obtained from the former USRC site in Orange, New
Jersey.

      By notice of motion returnable on July 18, 1986, the Company, certain of
the Company's subsidiaries and Safety Light moved for summary judgment
dismissing plaintiff's claims based upon the continued lack of a factual nexus
between their activities and the presence of radon in plaintiffs' homes. The
motion was also based upon the inapplicability of the legal theories advanced by
plaintiffs to these matters. By order dated August 22, 1986, the Court granted
in part and denied in part the motion for summary judgment, ruling that there
remained factual issues preventing the dismissal of certain claims which could
not be resolved without a full plenary hearing. The Court dismissed all causes
of action based upon manufacture of a defective product, breach of an express or
implied warranty, battery and trespass. By the same order, the Court also
consolidated these matters for discovery and trial purposes.

      By order dated January 16, 1987, the Court granted the motion filed by the
Company, certain of the Company's subsidiaries and Safety Light for severance
and separate trial of certain liability and damage issues. The Court directed
that these matters be tried in three separate phases: (1) a Phase I trial
relating solely to plaintiffs' claims that the allegedly contaminated soil

                                       31
<PAGE>
                              USR INDUSTRIES, INC.

                         NOTES TO CONSOLIDATED FINANCIAL
                        STATEMENTS (Unaudited)(Continued)

around plaintiffs' homes originated at the former USRC site in Orange, New
Jersey; (2) if plaintiffs are successful in the Phase I trial, a second trial
would follow encompassing all remaining liability issues; and (3) if plaintiffs
are successful again in the Phase II trial, a third trial would follow relating
to the plaintiffs' personal injury and property damage claims.

      On November 19 and 20, 1987 the defendants' motion for partial summary
judgment regarding the absence of contaminated soil originating from the Orange
site of the former USRC on plaintiffs' property was argued before the Superior
Court of New Jersey, Law Division, Essex County. By letter opinion dated January
29, 1988, as supplemented by Judge Yanoff's letter of February 4, 1988, the
Court granted in part and denied in part defendants' application. The Court
adjudicated as a fact that there is no contamination fill originating from the
Orange site on six of the properties claiming to be contaminated and directed a
hearing, with further expert testimony, regarding the alleged presence of
contaminated sub-surface material on 14 properties as well as 30 remaining
properties where certain bore hole sampling results were relied upon. On March
18, 1988, the Court denied plaintiffs' request for a rehearing on defendants'
motion, as well as plaintiffs' request for leave to perform additional bore hole
sampling and analysis to oppose defendants' application. Following a lengthy
hearing in April and May, 1989, the Court, by letter opinion dated July 12,
1989, determined such testimony to be inadmissible.

      By notice of motion dated September 15, 1989 defendants renewed their
motion for partial summary judgment adjudicating as a fact that there is not
contaminated fill originating from the former USRC's former property in Orange
on 18 plaintiff owned or occupied properties. Defendants also moved for the
dismissal of all property damage and consequential damage claims of 22
plaintiffs, based on the absence of contaminated fill on certain properties.

      As in the T&E Industries matter, the same five primary insurance carriers
of the Company and Safety Light assumed the defense of the Company, certain of
the Company's subsidiaries and Safety Light, with a complete reservation of
rights.

      On March 15, 1991, the parties agreed to the terms of a settlement
pursuant to which plaintiffs would release the Company and Safety Light from all
claims, present and future, known and unknown. All monies paid as the result of
this settlement were provided by certain insurance carriers of the Company and
Safety Light. Settlement documents have been executed with all monies paid as of
September 30, 1991. These monies have been distributed to all plaintiffs
following receipt of signed releases from each plaintiff and/or court approval
of the settlement as to all plaintiffs who have not yet reached the age of
majority.

      (c) U.S. ENVIRONMENTAL PROTECTION AGENCY PROCEEDINGS. The U.S.
Environmental Protection Agency ("EPA") has included the Orange, New Jersey site
and the Montclair, Glen Ridge and West Orange sites on the national priorities
list of the Comprehensive Environmental Response Compensation Liability Act of
1980, 42 U.S.C. 9601, et seq., and has notified the Company that it, among
others, may be a potentially responsible party under the Act. The Company has
provided requested information to the EPA. In view of the decision of Judge
Wolin of the U.S. Federal District Court declaring Safety Light a liable party
under CERCLA for the 

                                       32
<PAGE>
                              USR INDUSTRIES, INC.

                         NOTES TO CONSOLIDATED FINANCIAL
                        STATEMENTS (Unaudited)(Continued)

remediation and cleanup for the Orange site, the EPA completed a Work Plan for
Remedial Investigation and Feasibility Study ("RI/FS") for cleanup of the
Orange, New Jersey site. Based on a preliminary review and certain assumptions
about the remediation steps to be undertaken, a consultant for defendants
estimated remediation costs at $4,800,000. EPA has estimated remediation costs
with this property and so called satellite and vicinity properties at
$80,000,000. Defendants agreed to erect a security fence around the Orange site.
An Administrative Consent Order embodying this agreement was negotiated with EPA
and the fence was completed. Four of the same five preliminary insurance
carriers of the Company and Safety Light assumed all the costs associated with
the construction of the security fence. The RI/FS is currently planned to begin
within the near future.

      The RI/FS and supplemental RI/FS have been completed by EPA for the Glen
Ridge, Montclair and West Orange sites. EPA has estimated remediation costs for
a ten year excavation and removal program at these offsite locations to be
approximately $250,000,000. The Record of Decision ("ROD") selecting the remedy
for the sites was issued by EPA and implementation of the selected remedy has
begun. At this time, the federal government has not commenced any proceedings
against the Company or Safety Light for the recovery costs associated with the
investigation or remediation of the Orange site or the Glen Ridge, Montclair and
West Orange sites.

      The Company has not made additional accruals for any potential exposure in
this matter at this time due to the preliminary stage of the matter and the
unresolved question of the Company's liability under CERCLA as an alleged
successor to the former USRC. However, the costs of remediation are potentially
very large, and in the event the Company is found liable and the insurance
carriers prevail in any further action seeking to deny or limit coverage, the
Company would be materially adversely affected and would be required to seek
protection under the federal bankruptcy code. At this time, the Company believes
it has meritorious defense against liability as an alleged successor and
meritorious claims against its insurance carriers; however, of course no
assurance can be given as to the outcome of these matters.

      During the spring of 1996 counsel for the Company and Safety Light in this
matter advised the EPA that the Company had won litigation settlements from
insurers in multi-million dollar amounts. The total of amounts won to date is
substantially greater than the net worth of the Company. Such proceeds have been
set aside for use in connection with environmental claims, including payment of
legal fees and certain other expenses.

      The EPA was further advised that, except for the multi-million dollar
amounts won by the Company and set aside as above, the Company is presently
unable to pay any additional costs for environmental claims. The Company has
been advised that it may be eligible for legislative exception by reason of its
limited ability to pay. Accordingly, the Company has made various filings and
proposals to the EPA with a view towards establishing the Company's limited
ability to pay. The EPA has not advised whether the EPA intends to accept the
Company's application under the limited ability to pay exception. If it elects
to do so, the EPA may file additional environmental litigation to add to the
pending claims referenced in this Note 10.

                                       33
<PAGE>
                              USR INDUSTRIES, INC.

                         NOTES TO CONSOLIDATED FINANCIAL
                        STATEMENTS (Unaudited)(Continued)

      The Company believes that its employees, stockholders and itself have been
unfairly and wrongfully subjected to theories of retroactive liability springing
from allegations dating back to the turn of the century and the era before World
War I. The Company believes that the actions complained of were legal and,
moreover were in accordance with the accepted knowledge and practice of their
time. If further litigation claims are made by the government or private parties
the Company will have no alternative but to file for reorganization pursuant to
the bankruptcy statutes.

      (d) U.S. NUCLEAR REGULATORY COMMISSION PROCEEDING. During the first
quarter of 1989 the Company received from the U.S. Nuclear Regulatory Commission
("NRC") an order dated March 16, 1989 modifying certain operating licenses of
Safety Light and demanding information respecting the Bloomsburg, Pennsylvania
site of Safety Light. The order, which alleges in part that the Company is
liable as a "corporate successor" of Safety Light, requires certain activities
including the preparation and implementation of a plan for site characterization
and decontamination of the Bloomsburg facility, and makes demand for certain
information. On June 2, 1989, a Joint Characterization Plan prepared by the
Company's consultant was submitted in response to the March 16, 1989 Order. That
plan was rejected by the NRC Staff on June 16, 1989. An alternative plan was
submitted in August 1989.

      On August 21, 1989, the NRC Staff issued a second immediately effective
order requiring the named parties, including the Company, to establish a one
million dollar trust fund to finance a broad plan to characterize the extent of
contamination at the Bloomsburg site. The Company requested a hearing before the
Atomic Safety and Licensing Board (the "Licensing Board") with respect to both
the March and August orders. In addition, the Company filed a petition for
Review before the United States Court of Appeals for the District of Columbia
Circuit. By orders dated November 22, 1989 and December 1, 1989, the Licensing
Board issued a stay of the March and August orders with respect to the Company.
By order dated July 26, 1989, the District of Columbia Circuit Court stayed
further action in that proceeding pending further action by the NRC on the March
16, 1989 order.

      By order dated February 8, 1990, the Licensing Board reconsidered and
modified the stay of the March and August Orders, and required the Company to
make contributions to an escrow fund pursuant to the August 21, 1989 order. The
Atomic Safety and Licensing Appeal Board heard oral argument on the issue of
reconsideration and modification of the stay on March 6, 1990. The Appeal Board
has not yet issued a decision on the imposition of a stay. On April 24, 1990,
the Atomic Safety and Licensing Appeal Board affirmed the Licensing Board's
February 8, 1990 Order. On August 3, 1990, the Company filed a timely petition
for review of the Appeal Board's decision in the United States Court of Appeals
for the District of Columbia Circuit. That appeal has been stayed pending
further agency action.

      On or about May 4, 1990, the Company and the NRC Staff entered into a
partial interim settlement, which provided for partial characterization study of
the Safety Light site to be completed on or by October 15, 1990. By order dated
May 4, 1990, the Licensing Board granted 

                                       34
<PAGE>
                              USR INDUSTRIES, INC.

                         NOTES TO CONSOLIDATED FINANCIAL
                        STATEMENTS (Unaudited)(Continued)

a joint motion by the NRC Staff and the Company to stay the NRC proceedings
during the term of the partial interim settlement agreement. The NRC Staff and
the Company further agreed to (a) report to the Licensing Board on or by
November 26, 1990, on the results of the study and (b) to make recommendations
for further action at that time. On or about October 15, 1990, the Company
forwarded to the NRC Staff and to the members of the Licensing Board copies of
the partial interim characterization study prepared by Chem-Nuclear Systems,
Inc., pursuant to the partial settlement agreement. Based on that study, the
Company has been advised that remediation costs could total between $15,000,000
to in excess of $25,000,000 based on remediation costs for similar properties if
all remediation actions originally ordered were completed.

      By order dated November 21, 1990, the Licensing Board granted a joint
motion to hold the NRC proceeding in abeyance until January 21, 1991, to enable
the NRC Staff to issue Demands for Information to USR Industries, Inc. and
Safety Light regarding NRC decommission funding requirements found in 10 C.F.R.
_ss.30.35. On January 7, 1991, the NRC Staff issued the Demand for Information
to the Company. The Company responded on February 7, 1991. On January 22, 1991,
the NRC Staff and the Company filed a second joint motion to hold the NRC
proceeding in abeyance until March 4, 1991, to enable the staff to complete its
review. On March 4, 1991, the NRC Staff again moved to stay action.

      In addition, on February 7, 1992 the NRC issued an order to the Company
and Safety Light in which it denied the license renewal applications which had
been filed by Safety Light on January 24, 1984 and November 27, 1987,
respectively. The NRC based its denial on Safety Light's alleged violation of
regulations regarding a decommissioning funding plan. The Company and Safety
Light have filed an answer and request for hearing. Among the issues identified
for that hearing is whether the NRC has jurisdiction over the Company. No
schedule has been set in that proceeding. However, the Licensing Board has asked
the parties to respond to a series of questions to enable the Licensing Board to
determine if the proceedings should be consolidated.

      Pursuant to the settlement agreements referenced in (e) below, the Company
and Safety Light have allocated approximately $975,000 of trust funds toward
defense efforts and payment of costs and expenses associated with the continuing
investigation and decommissioning of the property. Approximately $230,000 of
this amount has been paid to consultants retained by the Company and Safety
Light. Of the aforementioned allocated amount, $200,000 was paid in January 1993
by the insurance carrier with whom settlement was reached in January 1992.
Additional costs and expenses are anticipated.

      During March 1993 the Company's NRC counsel became concerned that the
money available from insurance settlements for legal costs, remediation and
additional settlements was being outstripped by accelerating legal expenses to
defend motions, requests for interrogatories and other actions by the NRC legal
staff. Such counsel and the Company both believe that the combined legal costs
to wage simultaneous actions offensively against the insurance carriers and
defensively to protect the Company are running substantially in excess of
amounts currently available. Accordingly, such counsel advised the Company,
Safety Light and the NRC that it has 

                                       35
<PAGE>
                              USR INDUSTRIES, INC.

                         NOTES TO CONSOLIDATED FINANCIAL
                        STATEMENTS (Unaudited)(Continued)

withdrawn from representation of the Company and Safety Light effective March
15, 1993. Thereafter, other than with respect to certain limited contributions
of legal services to encourage settlement between the Company, Safety Light and
the NRC and, except to provide representation of the Company to contest NRC
jurisdiction, such counsel will no longer represent the interests of the Company
or Safety Light in the foregoing proceedings.

      The Company thereupon advised the NRC that, as it would be unable to
continue to pay legal counsel both for defense of the NRC matter and offensive
pursuit of the insurers, the Company had no alternative but to represent itself
before the NRC. On April 2, 1993 the Company and Safety Light appeared before a
three judge panel of the Atomic Safety and Licensing Board in a settlement
review. On April 2, 1993 that Board directed that all pending legal motions in
the matter would be suspended to allow for direct review and negotiation between
Safety Light and the NRC technical staff without use of attorneys by any party.
The Company was given standing to be present and to assist at such meetings.

      One of the areas to review is a proposal for site characterization and
potential remediation which Safety Light arranged to be submitted by Amersham
International, Inc. ("Amersham"), a leading worldwide specialist in nuclear
medicine and remediation. Amersham is a commercial outgrowth of a government
atomic energy authority of the United Kingdom. A conference between NRC
technical personnel and Amersham was set for the week beginning May 3, 1993.

      Following conferences and proposals between the Company; Safety Light; NRC
staff, licensing, enforcement and technical personnel; outside experts on
remediation, lead by Amersham; and with the further limited participation and
assistance of NRC counsel for the Company and Safety Light, a settlement
agreement was concluded on September 20, 1994 between the NRC, Safety Light and
the Company. Under the agreement the Atomic Safety and Licensing Board dismissed
proceedings which were then pending against Safety Light and the Company.
Dismissal of these proceedings effectively terminated enforcement actions which
had been brought by the NRC staff against the Company and Safety Light for a
period of five years through December 1999. In conjunction with the NRC
settlement the Company agreed to make monthly payments into a trust account in
the amount of $1,000 for forty-eight (48) consecutive months. Safety Light
undertook independent financial and remediation obligations.

      Separately the NRC advised the Company that the Licensing Board of the NRC
had determined that, for NRC purposes, the Company is deemed a "successor" to
USRC.

      At this time, the Company believes it has meritorious defenses against
liability as an alleged successor and meritorious claims for defense and
coverage against its insurance carriers; however, of course no assurance can be
given as to the final outcome of these matters.

      (e) PROCEEDINGS AGAINST CERTAIN INSURERS. During 1984 the Company notified
its insurance carriers as to the pendancy of certain of the above described
actions and requested that such carriers defend and indemnify the Company as a
named insured under various primary 

                                       36
<PAGE>
                              USR INDUSTRIES, INC.

                         NOTES TO CONSOLIDATED FINANCIAL
                        STATEMENTS (Unaudited)(Continued)

insurance policies as well as excess coverage or umbrella policies. All such
carriers answered denying liability and denying any obligation to defend the
Company against the claims asserted. Thereupon on August 20, 1984 the Company
commenced an action in Superior Court of New Jersey, Essex County, naming as
defendants all of the Company's primary and excess coverage insurers and seeking
judicial determination as to such carriers' duty to defend and to indemnify the
Company and its subsidiaries and seeking reimbursement of costs expended by the
Company for its defense, assumption of such defense on an ongoing basis, damages
for wrongful declination to defend and punitive damages and counsel fees for
willful failure to defend and indemnify the Company in each of the foregoing
actions.

      In September 1985, five primary insurance carriers of Safety Light and the
Company assumed the defense of the Company and certain of its subsidiaries
alleged to be successors in certain of the underlying actions described above,
while reserving their right to disclaim liability. As a result of that
Agreement, this action had been stayed except with respect to applications by
plaintiffs to require other primary insurance carriers not party to the Defense
Agreement to provide for a defense and indemnification of the Company, certain
of the Company's subsidiaries and Safety Light. By case management order dated
March 21, 1989, the case was re-activated to the extent that discovery was taken
concerning the existence, placement, negotiation and terms of insurance
contracts potentially applicable to the underlying matters referred to in the
Amended Complaint.

      Beginning during February 1991 Safety Light and the Company successfully
negotiated individual settlement agreements with all five primary insurance
carriers and three excess insurance carriers. Settlement documents have been
executed with all monies and releases to be exchanged between the parties. The
insurance carriers paid $6,050,000 on behalf of the Company and Safety Light
into separate trust accounts administered by parties unrelated to the Company,
none of which amounts were received by the Company. These amounts were used to
settle matters described in Note 10(a) and 10(b) of Notes to Consolidated
Financial Statements as well as various payments discussed in Note 10(d) to the
Consolidated Financial Statements and approximately $229,000 of legal fees
previously accrued by the Company. The remaining $672,000 in these trust
accounts may be used solely to pay future costs and expenses in resolving the
matters described in Note 10(c) and 10(d) to the Consolidated Financial
Statements as well as other claims that may be covered under the various trust
fund agreements; two claims against Safety Light, and the prosecution of the
Company's insurance actions discussed in 10(e) to the Consolidated Financial
Statements. In January 1992, monies obtained under the initial installment were
applied toward defense costs of matters described in Note 10(f) and 10(g).
Because the use of amounts paid to the trust accounts were specifically
restricted, the effects of the above transactions were not reflected in the
Company's Consolidated Financial Statements, other than reversal of previously
accrued legal expenses of $229,240 during 1991, which expenses were paid through
direct insurance carrier payments. Furthermore, since settlements are negotiated
only with the consent of the insurance carriers, no insurance company
receivables are or have been reflected on the Company's Consolidated Financial
Statements. Monies will also be applied towards defense costs, remediation
efforts made pursuant to settlements and the continued pursuit of non-settling
carriers. During late March 1993 Judge Humphreys, the administrative judge

                                       37
<PAGE>
                              USR INDUSTRIES, INC.

                         NOTES TO CONSOLIDATED FINANCIAL
                        STATEMENTS (Unaudited)(Continued)

currently assigned for the foregoing insurance litigation, ordered that the
trial date for USR Industries, Inc. et al. versus INA, et al., Docket No.
L-055362-84, would be set. In order to more fully prepare this complex matter
for trial, both sides evaluated a possible agreement to procedurally dismiss the
case by stipulation, shortly after which the action would be refiled under a new
docket number. Such stipulation would include agreements by both sides not to
change the status quo in other respects, including a Discovery Order issued by
Judge Yanoff on December 16, 1992. Following further negotiation the Company and
Safety Light entered a stipulation in the foregoing case and is in settlement
discussions with INA.

      While there can of course be no assurance as to the outcome of these
matters, the Company has been advised that it has meritorious claims to support
its actions against the remaining insurance carriers for defense and
indemnification.

      (f) TAYLOR MATTER. In this matter it was alleged that plaintiff's decedent
was employed by the Wellsbach Company of Philadelphia during the years 1966 and
1967. His duties there allegedly included quality control testing of gas
mantles. The complaint as amended contends that during the course of his
employment he was exposed to thorium, thorium nitrate, thorium dioxide and/or
tredium. Such exposure allegedly caused angiosarcoma of the liver and ultimately
his death on April 7, 1990.

      Theodore Taylor ("Taylor"), while still living, filed a complaint in the
same court in 1989 to which the Company was not a party. The 1989 action was
dismissed without prejudice in March 1991 based on plaintiff's failure to comply
with a number of discovery orders directing plaintiff to specify the products
which allegedly caused Taylor's injuries and to identify the manufacturers and
distributors of same.

      The Company believes that the plaintiff's claims against the Company are
without merit as the former USRC was not involved in the manufacture,
distribution or sale of thorium or thorium compounds, nor was it involved in
manufacturing gas mantles, nor did it deal with the Wellsbach Company. Further,
although USRC dealt with tritium, the Company has been advised that tritium
could not have been used in the making of gas mantles due to its scientific
properties. Based on the foregoing, the Company has successfully defended
against this claim and a Stipulation of Dismissal with Prejudice was filed with
the court and received by the Company.

      (g) SHARKEY LANDFILL MATTER. A third-party complaint was filed on July 31,
1991 against, inter alia, USR Industries, Inc., as the alleged successor to the
former USRC.

      The claim against the Company is based on an affidavit claiming that Carl
Gulick, Inc., a waste hauler, pumped a sudsy rinse water from a photographic
slide manufacturing process from USRC's plant at Hanover Avenue and Horsehill
Road in Morris County, New Jersey. The affidavit further claims that this
material was believed to have been taken to the Sharkey Landfill in Parsippany,
New Jersey and that such substances are of the type alleged by government
plaintiffs to have been found at the Landfill. Based on this allegation, the
third-party complaint 

                                       38
<PAGE>
                              USR INDUSTRIES, INC.

                         NOTES TO CONSOLIDATED FINANCIAL
                        STATEMENTS (Unaudited)(Continued)

seeks contribution under Section 113(f) of CERCLA, and under New Jersey
statutes, for the investigation and remediation of the Landfill.

      The Company has joined the Sharkey Landfill Steering Committee and from
the aforementioned trust funds paid the sum of $10,000 for its share of
administrative costs incurred by the Committee. The litigation has been stayed
pending settlement discussions with the government plaintiffs. When and if any
settlement figure is agreed upon, the Steering Committee members must arrive at
an allocation of that sum amongst themselves. In connection with that effort,
the Company has responded to an Allocation Questionnaire and has submitted the
required position statements to the Allocation Consultant. After the Allocation
Consultant issues the first draft report, the Company will have an opportunity
to request withdrawal from the group.

      At this time, the Company cannot determine the final outcome of this
matter and of course no assurance can be given with respect thereto.

      (h) BLANCHARD SECURITIES CO. MATTERS. On April 29, 1992 Blanchard
Securities Co. ("Blanchard") owner of a commercial office property located in
Morristown, New Jersey which is leased by a subsidiary of the Company under a
long term "credit lease", instituted an action for summary dispossession against
its tenant, USR Lighting, Inc. ("Lighting") and the Company. The property is
subject to a Lease Agreement entered into in 1955 which upon the exercise of
options expires in 2016. Blanchard's complaint was filed in the Landlord-Tenant
Special Civil Part Division, Morris County. On April 30, 1992 Lighting commenced
an action by Verified Complaint against Blanchard and its managing partner,
William C. Blanchard, in the Superior Court of New Jersey, Chancery Division,
Morris County. By this Complaint, Lighting seeks injunctive and declaratory
relief relating to Blanchard's attempted termination of the 1955 Lease
Agreement, as well as compensatory and punitive damages for business torts,
including tortious interference with Lighting's contract with a proposed
subtenant with whom Lighting had signed a long-term sublease held in escrow and
to which Blanchard had consented as Landlord.

      On May 8, 1992 Lighting moved to transfer Blanchard's Special Civil Part
suit and consolidate that matter with Lighting's Chancery Division action.
Lighting's motion was granted on May 15, 1992. On May 20, 1992 Blanchard and
William C. Blanchard filed their Answer to Lighting's Verified Complaint.
Blanchard's Answer generally denied Lighting's allegations and asserted a
counterclaim which incorporated the summary dispossession action.

      Blanchard, which since 1979 has followed the pattern of attempting to
hinder or block potential subtenants from taking occupancy, has repeatedly
asserted similar claims against Lighting and the Company. To date Blanchard has
been unsuccessful in each such claim. Blanchard's summary dispossession action
primarily rests upon the premise that repairs to the roof and heating,
ventilation, and air conditioning ("HVAC") systems were required under the
parties 1955 Lease Agreement, and that Lighting's failure to effect those
repairs after due notice from Blanchard resulted in a breach of that agreement.
The sole basis for Blanchard's claim that Lighting breached the 1955 Lease
Agreement consists of provisions in the sublease agreement concerning
improvements to the roof and the HVAC systems which Lighting agreed to perform
in

                                       39
<PAGE>
                              USR INDUSTRIES, INC.

                         NOTES TO CONSOLIDATED FINANCIAL
                        STATEMENTS (Unaudited)(Continued)

order to induce its proposed subtenant to enter into a long-term sublease with
Lighting. Blanchard admitted to never having inspected the roof or operated the
HVAC systems to determine whether any repairs were in fact necessary under the
1955 Lease Agreement. Blanchard also admitted to not knowing the condition of
the roof and HVAC systems or the specific nature of the improvements agreed to
between Lighting and its proposed subtenant.

      During 1994, only thirteen days following final affirmation by the New
Jersey Supreme Court against Blanchard's most recent previous claims, Blanchard
started new litigation in Supreme Court, Morris County, New Jersey seeking to
dispossess Lighting. Again Blanchard's litigation was first filed in
Landlord-Tenant Special Civil Part Division, Morris County and, upon application
by Lighting, was again transferred to the Superior Court, Chancery Division,
Morris County, New Jersey.

      In the latest chapter of its ongoing suits, Blanchard repeated its
theories that Lighting had not properly maintained and repaired the building.
Blanchard cited in particular the allegedly excessive length of time required to
repair substantial water damage to the building caused by freezing and burst
plumbing which occurred as a result of a power outage during the winter of 1994.
Blanchard also asserted that Lighting did not meet repair and maintenance
obligations respecting grounds maintenance and removal of trash, principally
containers deposited on the wooded area of the property by patrons of a nearby
fast food restaurant. Blanchard also alleged, inter alia, that the property had
been abandoned by Lighting; that Lighting had not made a proper effort to
sublease the property; and that Lighting was not meeting on a full and timely
basis other incidents of long-term ownership in that Lighting was late in
delivering local property taxes assessed on the property. Lighting had appealed
the property tax assessment, which appeal successfully reduced applicable
property taxes by approximately 25%. Blanchard's complaint was amended during
February 1996 to assert that Blanchard had no notice of Lighting's intention to
extend its lease following its June 30, 1996 expiration.

      For its part, Lighting answered and counterclaimed against Blanchard,
asserting repeated and willful breaches of the lease covenants of good faith and
Lighting's right to quiet enjoyment of the premises which Lighting has paid for
and duly occupied since 1955.

      Trial was conducted in Morristown, New Jersey over a three week period
during May and June 1996. During October 1996, the presiding Superior Court
Judge, The Honorable Kenneth C. MacKenzie, issued an opinion in which he found
in favor of the Company on all claims with respect to the occupancy,
maintenance, insurance, tax payment, repair and other related assertions by
Blanchard. However, on the sole finding that Blanchard had not been given notice
of Lighting's intent to extend the lease Judge MacKenzie ordered Lighting to
vacate as of June 30, 1996. On April 18, 1997 Lighting filed notice of appeal of
this element of Judge MacKenzie's Opinion. Lighting will also appeal Judge
MacKenzie's finding that Blanchard acted in a commercially reasonable manner
with respect to this lease and that punitive damages should not be awarded to
Lighting. For its part, Blanchard has given notice of appeal of virtually every
aspect of Judge MacKenzie's Opinion except Judge MacKenzie's finding on
notification of intention to renew, which was favorable to Blanchard. Formal
appellate briefs have not yet been 

                                       40
<PAGE>
                              USR INDUSTRIES, INC.

                         NOTES TO CONSOLIDATED FINANCIAL
                        STATEMENTS (Unaudited)(Continued)

filed with the Superior Court of New Jersey, Appellate Division. The date by
which such must be filed is expected to be during September 1997.

      Lighting has been advised that it has good cause for appeal and
meritorious defenses against the appeals by Blanchard. Of course, there can be
no assurance as to whether, and to what extent, appeals by Lighting or Blanchard
may be successful

SUMMARY

      Having resolved several of the Company's long-standing litigation matters,
but with other matters still in preliminary stages, at this time the liability
of the Company and its subsidiaries alleged to be corporate successors to the
former USRC cannot be reasonably estimated, nor does management believe at this
time that ultimate liability is sufficiently likely to be viewed as "probable"
or that an estimate of insurance proceeds can be made with any degree of
certainty. For these reasons the Company has not made additional accruals for
possible liability at this time. However, due to factors including the very
substantial potential costs of remediation and the uncertainty of the final
outcome of these matters, despite what the Company believes are meritorious
defenses and claims, the Company may be materially adversely affected in the
future even if there is no judicial funding of successor liability.

      The legal costs both to defend and to prosecute the above litigation and
related contingent items have been and are expected to be material in amount. If
the Company is not successful in its pursuit of additional financial assistance
from its insurance companies, it is unlikely that current operations will
generate sufficient working capital to enable the Company to continue its legal
defense.

      The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern and do not include any adjustments that
might result from the outcome of these uncertainties. The Company believes that
its employees, stockholders and itself have been unfairly and wrongfully
subjected to theories of retroactive liability springing from allegations dating
back to the turn of the century and the era before World War I. The Company
believes that the actions complained of were legal and, moreover were in
accordance with the accepted knowledge and practice of their time. If further
litigation claims are made by the government or private parties the Company will
have no alternative but to file for reorganization pursuant to the bankruptcy
statutes.

                                       41
<PAGE>
                              USR INDUSTRIES, INC.

                         NOTES TO CONSOLIDATED FINANCIAL
                        STATEMENTS (Unaudited)(Continued)

(11)  SELECTED QUARTERLY FINANCIAL DATA

      The following selected financial data is unaudited and summarizes the
Company's operations on a quarterly basis: 
                                                    1996
                                ------------------------------------------------
                                 March 31     June 30  September 30  December 31
                                ---------     -------  ------------  -----------
Net sales ...................   $ 314,085     290,503     317,373      311,917
Cost of sales ...............   $ 215,410     170,821     181,991      222,735
Selling, general and                                                 
  administrative expenses ...   $ 144,365     146,701     114,231      114,802
Net earnings (loss) .........   $ (39,404)    (19,321)     21,479      (14,335)
Net earnings (loss)                                                  
  per common share ..........   $   (0.04)      (0.02)       0.02        (0.01)
                                                                     
                                                    1995
                                ------------------------------------------------
                                 March 31     June 30  September 30  December 31
                                ---------     -------  ------------  -----------
Net sales ...................   $ 309,249     322,616     295,779      306,544
Cost of sales ...............   $ 215,474     183,388     149,036      267,102
Selling, general and                                                  
  administrative expenses ...   $ 109,040     159,909     189,386       39,634
Net earnings (loss) .........   $ (19,774)    (34,189)    (58,391)      (2,151)
Net earnings (loss)                                                   
  per common share ..........   $   (0.02)      (0.03)      (0.06)        0.00
                                                                     
                                                    1994
                                ------------------------------------------------
                                 March 31     June 30  September 30  December 31
                                ---------     -------  ------------  -----------
Net sales ...................   $ 286,363     361,225     304,855      293,851
Cost of sales ...............   $ 204,546     226,263     215,626      169,441
Selling, general and                                                  
  administrative expenses ...   $ 134,735     194,378     160,482       71,285
Net earnings (loss)                                                   
  before extraordinary                                                
  item ......................   $ (64,708)    (71,207)    (82,820)      98,125
Net earnings (loss) .........   $(208,763)    (71,207)    (82,820)      98,125
Net earnings (loss)                                                   
  per common share ..........   $   (0.21)      (0.07)      (0.08)        0.10

                                       42
<PAGE>
                              USR INDUSTRIES, INC.

ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
            DISCLOSURE

      Not applicable.

PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The information to be filed by the Company pursuant to Regulation 14A of
the Securities Exchange Act of 1934 is expected to be filed by August 15, 1997.

ITEM 11.    EXECUTIVE COMPENSATION

      The information to be filed by the Company pursuant to Regulation 14A of
the Securities Exchange Act of 1934 is expected to be filed by August 15, 1997.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The information to be filed by the Company pursuant to Regulation 14A of
the Securities Exchange Act of 1934 is expected to be filed by August 15, 1997.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The information to be filed by the Company pursuant to Regulation 14A of
the Securities Exchange Act of 1934 is expected to be filed by August 15, 1997.

                                       43
<PAGE>
                             USR INDUSTRIES, INC.

PART IV

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

                                                                           PAGE
                                                                           ----
(a)   1.    The following Consolidated Financial Statements are included
            in Part II, Item 8:

                  CONSOLIDATED FINANCIAL STATEMENTS:

                  Consolidated Balance Sheets as of
                  December 31, 1996 and 1995                                 16

                  Consolidated Statements of Operations for the
                  years ended December 31, 1996, 1995 and 1994               18

                  Consolidated Statements of Stockholders' Equity
                  for the years ended December 31, 1996 and 1995             19

                  Consolidated Statements of Cash Flows for the
                  years ended December 31, 1996, 1995 and 1994               20

                  Notes to Consolidated Financial Statements                 22

      2.    FINANCIAL STATEMENT SCHEDULES:

      All schedules are omitted because they are not applicable or the
      information is included in the financial statements and notes included
      herewith.

(b)   REPORTS ON FORM 8-K

      No reports on Form 8-K were filed during the Company's last fiscal quarter
      of 1996.

(c)   EXHIBITS

      The following exhibits are filed as part of this report. Where such filing
      is made by incorporation by reference to a previously filed statement or
      report, such statement or report is identified in parenthesis.

3.    ARTICLES OF INCORPORATION AND BYLAWS

3.1   Certificate of Incorporation (incorporated by reference to Exhibit 3(a) of
      Form 8-B dated October 15, 1980).

                                       44
<PAGE>
                              USR INDUSTRIES, INC.

3.2   Amendment to Certificate of Incorporation filed on June 13, 1984
      (incorporated by reference to Exhibit 3 of Form 10-K for year ended
      December 31, 1984).

3.3   Bylaws (incorporated by reference to Exhibit 3(b) of Form 8-B dated
      October 15, 1980).

10.   MATERIAL CONTRACT

10.1  Asset Purchase Agreement between USR Lighting, Inc. and AeroPanel
      Corporation (incorporated by reference to Exhibit 2(a) of Form 8-K March
      8, 1985).

10.2  Asset Purchase Agreement between USR Metals, Inc. and MultiMetal Products
      Corporation (incorporated by reference to Exhibit 2(b) of Form 8-K March
      8, 1985).

10.3  Lease dated as of December 12, 1983 between USR Lighting, Inc. and 661
      Myrtle Property Co., Ltd. (incorporated by reference to Exhibit 10 of Form
      10-K for year ended December 31, 1984).

10.4  Restructuring Agreement between USR Lighting, Inc. and AeroPanel
      Corporation dated as of January 1, 1994. (Incorporated by reference to
      Exhibit 10.4 of Form 10-K for the year ended December 31, 1994.)

22.1  SUBSIDIARIES OF THE COMPANY (filed herewith).

                                       45
<PAGE>
                              USR INDUSTRIES, INC.
SIGNATURES

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

                                           USR INDUSTRIES, INC.

 Date:      April 10, 1997                 By: /s/ RALPH T. MCELVENNY, JR.
                                           Ralph T. McElvenny, Jr.,
                                           Director, Acting Principal Executive,
                                           Financial and Accounting 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.

Date:       April 10, 1997                  By: /s/ STEPHEN B. AYCOCK
                                            Stephen B. Aycock,
                                            Director

Date:       April 10, 1997                  By: /s/ RALPH T. MCELVENNY, JR.
                                            Ralph T. McElvenny, Jr.,
                                            Director


                                       46