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
             For the fiscal year ended December 31, 1997

                                       OR

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

                         Commission file number 33-64142

                           UNITED STATES LEATHER, INC.
                            (Exact name of registrant
                          as specified in its charter)

                        Wisconsin                            13-3503310
               (State or other jurisdiction               (I.R.S. Employer
            of incorporation or organization)           Identification No.)

                  1403 West Bruce Street
                   Milwaukee, Wisconsin                        53204
         (Address of principal executive offices)            (Zip Code)

    Registrant's telephone number, including area code:    (414) 383-6030
    Securities registered pursuant to Section 12(b) of the Act:      None
    Securities registered pursuant to Section 12(g) of the Act:      None

   Indicate by check mark whether the registrant (1) has filed all reports
   required to be filed by Section 13 or 15(d) of the Securities Exchange Act
   of 1934 during the preceding 12 months (or for such shorter period that
   the registrant was required to file such reports), and (2) has been
   subject to such filing requirements for the past 90 days:
                            Yes  X         No ___

   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 the date hereof and at all times during 1997 there was no public
   market for the Company's Common Stock.

   Number of shares outstanding of the Company's Common Stock as of the date
   hereof:  100
                                 _______________

                 COMPANY'S DOCUMENTS INCORPORATED BY REFERENCE:
                                      None

   <PAGE>

   Special Note Regarding Forward-Looking Statements

        Certain matters discussed herein are "forward-looking statements"
   within the meaning of Section 27A of the Securities Act of 1933, as
   amended, and Section 21E of the Securities Exchange Act of 1934, as
   amended.  These forward-looking statements can generally be identified as
   such because the context of the statement will include words such as the
   Company "believes," "anticipates," "expects" or words of similar import.
   Similarly, statements that describe the Company's future plans, objectives
   or goals are forward-looking statements.  Such forward-looking statements
   are subject to certain risks and uncertainties which are described in
   close proximity to such statements and which could cause actual results to
   differ materially from those currently anticipated.  Readers are urged to
   consider these factors carefully in evaluating the forward-looking
   statements and are cautioned not to place undue reliance on such forward-
   looking statements.  The forward-looking statements made herein are only
   made as of the date of this report and the Company undertakes no
   obligation to publicly update such forward-looking statements to reflect
   subsequent events or circumstances.

   Item 1.        Business

        General

             United States Leather, Inc., a Wisconsin corporation ("USL" or
   the "Company"), is one of the largest and most diversified producers of
   leather in North America, and a leading leather producer for the domestic
   upholstery and footwear markets.  USL produces and sells a broad line of
   finished leather and related products which are sold to a diverse customer
   base in the United States and internationally.

             Furniture Group.  USL, under the trade name Lackawanna Leather,
   is a leading supplier of upholstery leather to the furniture industry.
   Furniture Group sales were approximately $70.2 million in 1997 and
   approximately $95.0 million for 1996.

             Footwear and Specialty Leather Group.  USL is a leading producer
   of finished leather for footwear, personal accessories, sporting goods,
   apparel and other personal leather goods.  Selling under the brand names
   Pfister & Vogel, A. L. Gebhardt, A. R. Clarke and Caldwell Moser, the
   Group's sales were approximately $181.7 million in 1997 and approximately
   $181.0 million for 1996.

             Automotive Group.  USL is an emerging producer of finished
   leather for use in automobile interiors.  Automotive Group sales were
   approximately $50.4 million in 1997 and approximately $18.2 million in
   1996.

             USL also sells unfinished hides, partially finished hides and
   leather by-products to other leather producers, although these sales
   constitute only a small portion of the USL's overall revenue.  The USL
   Trading Division ("Trading") traded hides and sold partially finished
   leather and unwanted or excess hides.  This division was discontinued in
   1996.  Prior thereto, Trading's 1996 sales were $7.4 million.  USL also
   operated a branch in Germany that procured partially finished hides from
   outside sources (principally from South America) contracted for them to be
   finished and sold the finished leather to furniture manufacturers in
   Europe.  This operation was also discontinued in 1996, prior to which its
   1996 sales were approximately $4.2 million.  USL also produced collagen, a
   protein extracted from cattlehides, for sales to food manufacturers.
   Prior to discontinuing this operation in 1997, collagen sales were
   approximately $3.2 million compared with $6.0 million for all of 1996.

             USL's principal executive offices are located at 1403 West Bruce
   St., Milwaukee, Wisconsin  53204.  Its telephone number is (414) 383-6030.

        The 1996 Holding Company Recapitalization

             In a series of transactions completed in 1993, USL was
   reorganized into a corporate structure consisting of USL and two new
   holding companies:  United States Leather Holdings, Inc. ("USLH"), which
   owned 100% of the capital stock of USL, and U.S. Leather Holdings, Inc.
   ("Old Holdings"), which in turn owned 100% of the capital stock of USLH.
   Old Holdings also carried, as of April 9, 1996, $86.0 million aggregate
   principal amount of 15% Senior Debentures Due 2004 (the "Old Holdings
   Debentures"), approximately 87% of which were owned by The Equitable Life
   Assurance Society of the United States and certain of its affiliates and
   13% of which were owned by First Plaza Group Trust (the "Former Holding
   Company Debenture Holders").  The Old Holdings Debentures were secured by
   the capital stock of USLH.

             A default occurred with respect to the Old Holdings Debentures
   due to the noncompliance, as of December 31, 1995, of Old Holdings with a
   financial covenant contained in the Old Holdings Debentures.  Old Holdings
   was unable to cure the default; however, the default did not give rise to
   any cross-defaults or other recourse to the Company's 10-1/4% Senior Notes
   due 2003 (the "Notes") or revolving credit facility in place at the time
   (the "Old Credit Facility").

             On April 9, 1996, a series of transactions were completed, with
   the consent of Old Holdings, USLH and USL, which resulted in the Former
   Holding Company Debenture Holders foreclosing on their security (the "1996
   Holding Company Recapitalization").  Such foreclosure resulted in the
   cancellation of the Old Holdings Debentures and the contribution of all
   USLH capital stock to Leather U.S., Inc. (the "New Holding Company"), a
   company wholly owned by the Former Holding Company Debenture Holders. The
   foreclosure also resulted in the elimination of any ownership interest in
   USLH or USL by the previous equity holders. The nominees of the previous
   equity holders resigned from the Board of Directors of USL and were
   replaced by nominees of the New Holding Company.  The 1996 Holding Company
   Recapitalization did not cause a default under any of the existing debt of
   USL, nor did it constitute a change of control or default under the Notes
   or the Old Credit Facility.

             Upon the consummation of the 1996 Holding Company
   Recapitalization, USL became a wholly-owned subsidiary of USLH which in
   turn became a wholly-owned subsidiary of the New Holding Company.  The New
   Holding Company and USLH had no assets other than the shares of their
   respective subsidiary, and had no independent operations.  USL owns all of
   its operating assets directly, except those owned by A.R. Clarke, Ltd.
   ("A.R. Clarke"), USL's wholly-owned subsidiary.  USL's principal
   indebtedness are the Notes and borrowings under its revolving credit
   facility.

             In November 1996, USL entered into a new asset-backed revolving
   credit facility (the "Replacement Credit Facility") that replaced the Old
   Credit Facility.  From February to November 1997, the Replacement Credit
   Facility was amended a number of times to, among other things, modify
   certain financial covenants.  In January 1998 USL entered into a new $55
   million asset-backed revolving credit facility (the "New Credit Facility")
   that replaced the Replacement Credit Facility.

        Company Reorganization and Financial Restructuring

             Prior to 1996, the Company, while reporting as an integrated
   company, operated as a series of stand-alone divisions or subsidiaries with
   separate financial statements and management teams for each unit.  During
   1996, the Company eliminated this divisional structure and reorganized its
   management structure along functional lines, and its business structure
   (i.e., segment financial reporting) along the lines of markets served.
   While the Company has preserved Lackawanna Leather, Pfister & Vogel, A.L.
   Gebhardt, Caldwell-Moser, and A.R. Clarke as valued trade names, it no
   longer evaluates or reports business results according to these
   designations.  During 1996 and continuing in 1997, the Company began a
   series of initiatives to strengthen the Company's financial position and
   return it to profitability.  Among these initiatives were (1) the
   reorganization of the management of the Company previously discussed,
   which included the elimination or replacement of several other senior
   executives in the Company, and a general reduction in salaried workforce,
   (2) comprehensive reviews of the Company's products and inventories, (3)
   closing three operations which had not either been profitable or were
   not strategically critical to the Company, (4) replacing critical talent
   which had been lost in prior years, and (5) vacating the Company's corporate
   offices and moving such offices into one of the Company's operating
   facilities.  The Company also continued efforts to grow and improve the
   business of its Automotive Group.

             The Company experienced liquidity problems in 1997, due
   primarily to operating losses and high debt service costs.  On September,
   24, 1997, the Company announced its intention to restructure its debt by
   converting all or a substantial portion of the Notes into equity in the
   Company.  Since that time, extensive discussions have taken place with
   certain material holders of the Notes to effect such an exchange of debt
   for equity.  On December 31, 1997, the Company's aggregate indebtedness
   was $173.5 million (compared with $162.1 million at December 31, 1996),
   consisting of $135.6 million of principal and accrued interest on the
   Notes and $37.9 million borrowed under the Replacement Credit Facility.

             In January 1998, the Company entered into the New Credit
   Facility, a $55 million asset-backed revolving credit facility that
   replaced the Replacement Credit Facility.  On January 31, 1998, the
   Company failed to make the semi-annual interest payment that was due on
   the Notes and, as a consequence, reclassified the Notes from long-term
   debt to current liabilities.  The Company does not have the capital
   resources necessary to satisfy this liability and, as a result,
   uncertainties exist concerning its ability to continue as a going concern.
   On March 25, 1998, the Company announced that it had reached an agreement
   in principle with its shareholders and an informal committee of holders of
   the Notes to convert all of the Notes into 97% of the equity of the
   Company outstanding on the date of conversion.  Upon completion of the
   necessary solicitation process, the Company anticipates that it will file
   a petition with the United States Bankruptcy Court for approval of a
   prenegotiated Joint Plan of Reorganization (the "Plan") and make the
   exchange of the Notes for common stock effective within a reasonable
   period of time thereafter.  There can be no assurances, however, that
   sufficient votes will be obtained to gain approval of the Plan.

             Although the Company had incurred losses in each of the last two
   years, it believes that it has implemented measures which will stabilize
   operations and permit it to reverse these losses and become profitable
   again within a reasonable period of time.  The capital restructuring
   provided by the Plan represents an essential step in this stabilization
   and return to profitability because it will (1) create greater liquidity
   and borrowing capacity under the terms of the New Credit Facility, and (2)
   enable the Company to compete more effectively and demand more favorable
   terms from suppliers because it will reduce uncertainties in the
   marketplace regarding the Company's financial stability.

             Because the Company believes that the Plan will be approved, and
   the measures it has implemented will be successful, the accompanying
   financial statements have been prepared on a going concern basis.  These
   statements contemplate the realization of assets and the satisfaction of
   liabilities in the normal course of business.

        The Leather Manufacturing Process

             The leather manufacturing process begins with the conversion of
   raw cattle hides into "wet blue" leather through soaking and agitating in
   alkaline and chromium solutions that dissolve the hair and preserve the
   hide.  The term "wet blue" is derived from the fact that this initial
   tanning process turns the hides into a bluish color.

             After bluing, hides are split and shaved to obtain uniform
   thicknesses and separated into classifications referred to as grain (the
   outside portion of the split hide which is considered the most desirable
   and is used to make the higher quality finished leathers) and splits (the
   interior portion of the hide used to make less expensive suede's and other
   leathers).  Grains are further sorted according to the quality of the
   tanned hide, based on such criteria as appearance, the number of surface
   defects and weight.  Hides are then colored with dyes, treated with fat
   liquors to soften and smooth the leather, and then dried and finished
   through a variety of sophisticated processes to improve the appearance and
   performance of the grain and, in some cases, to add such properties as
   water resistance.  Finally, hides are electronically measured and packaged
   for shipment to customers who, with the exception of certain automotive
   customers, cut the finished leather for their products.  In the case of
   certain automotive customers, USL cuts the leather into prescribed
   patterns (known as "cut sets"), and then sells such sets to seating
   manufacturers.

             As with any manufacturing process that involves organic
   materials such as cattle hides, which vary from lot to lot and season to
   season, there is a certain amount of art in addition to science which goes
   into the successful production of quality leathers.  The manufacturing
   processes must consistently generate finished leathers with the
   distinctive properties customers require.  The process also requires a
   selection of hides in order to permit the manufacture of the array of
   products customers demand.

             By its nature, leather manufacturing regularly generates excess
   and off-quality products.  Excess inventories may be created by changes in
   leather fashions, overestimation of customer requirements for a particular
   leather product or by customer returns.  Off-quality inventories may be
   created by hide defects, equipment malfunctions or manufacturing process
   mistakes.  Historically, USL adopted the practice of holding such
   inventories for rework and/or resale into other finished markets.  Such
   practices, however, consumed manufacturing capacity and sales effort, and
   often required such stocks to remain idly in inventory until a suitable
   opportunity to rework or sell the products arose.  In 1996, USL changed
   its policy toward disposing of these inventories.  The new policy calls
   for less rework, fewer small-lot sales (which require extensive time and
   effort from the sales force), and more bulk sales to leather brokers,
   particularly offshore brokers.  As a consequence, USL now writes such
   inventories down to a lower estimated net realizable value and attempts to
   sell them more promptly.

        Sales

             USL's finished leather operations are divided into three
   principal lines of business.  The following chart summarizes USL's sales
   by line of business:

                                          Year Ended December 31,
                                        1997         1996             1995
    Furniture Group                    $70.2        $95.0           $121.2
    Footwear and Specialty
      Leather Group                    181.7        181.0            191.7
    Automotive Group                    50.4         18.2              9.3
    Discontinued Operations              3.2         17.6             38.5
                                       -----        -----            -----
         Total Net Sales              $305.5       $311.8           $360.7
                                       =====        =====            =====


             USL sells its products into markets that tend to be cyclical.
   Furniture Group sales are affected by such factors as housing starts and
   competition, interest rates, consumer confidence levels and general
   economic conditions.  Footwear and Specialty Leather Goods Group sales
   tend to be functions of retail and fashion trends, and can also be
   affected by international markets, since the majority of footwear is now
   manufactured overseas.  Automotive Group sales are influenced by
   automobile sales and the economic and social factors which influence such
   sales.

        Furniture Group

             The Furniture Group was founded as Lackawanna Leather in 1896,
   and continues to sell under the Lackawanna trade name today.  The Group
   produces and markets finished leather for the furniture industry and, to a
   lesser extent, the aircraft seat manufacturing industry.  Group sales in
   1997 were $70.2 million, which accounted for 23.0% of USL's net sales in
   1997, and were $95.0 million in 1996, which accounted for 30.5% of USL's
   1996 net sales.

             Finished upholstery leather is sold primarily to furniture
   manufacturers, generally at three different price categories:
   promotional, mainstream and upscale.  Under the Lackawanna trade name, USL
   is a leader in the mainstream and upscale categories, and has a
   substantial share of the market serving the promotional price category.
   Selling such brands as Regency, Passport, Captiva, Rustica and Commanche,
   the group has built upon its strength in these categories to develop and
   sell new leathers at competitive price points, thus helping to satisfy
   consumer demand for quality leather furniture at affordable prices.  To
   maintain its leading market position, the group works closely with its
   customer base to develop and refine its leather upholstery products in a
   variety of fashion-oriented colors and textures.

             The Furniture Group receives tanned and partially tanned hides
   primarily from USL's tanneries in Omaha, Nebraska and Milwaukee,
   Wisconsin, although it also acquires tanned hides and finished leathers
   from other international tanneries.  The Group finishes the hides and then
   packages and ships them from its plant in Conover, North Carolina.

        Footwear and Specialty Leather Group

             USL markets finished leather to the footwear and personal
   leather goods industries under the trade names of the companies originally
   acquired to form the Footwear and Specialty Leather Group - Pfister &
   Vogel, A.L. Gebhardt, A.R. Clarke and Caldwell Moser.  The Group is a
   leading producer of finished leathers used in the production of high
   quality dress and casual footwear, rugged outdoor and athletic footwear,
   leather apparel, sporting goods and personal accessories such as gloves,
   belts and handbags.  Under the Caldwell Moser trade name, the Group
   produces leather for shoe laces and harder, more durable leathers for such
   applications as shoe soles, saddles and animal collars.  The Group also
   provides contract tanning and finishing services to other small leather
   producers, and also sells finished splits, wet blue and various leather
   by-products.  Group sales in 1997 were $181.7 million, which accounted for
   59.5% of USL's net sales in 1997 net sales.  Group sales were $181.0
   million in 1996, which accounted for 58.1% of USL's net sales that year.

             The diversity of the Group's product line, enhanced regularly by
   the introduction of new products, is the source of USL's competitive
   strength in the footwear and specialty leather market segments.  Under the
   Pfister & Vogel trade name alone, USL markets over 100 types of shoe
   leather, each with its own distinct combination of color, finish and
   texture.  Examples are Durashu, the standard penny loafer shoe leather
   since the 1950's, Raindance, a highly water resistant shoe leather used in
   outdoor hiking and boat shoes, Thunderhead, a heavy oil, water resistant
   outdoor leather used in outdoor hiking shoes, and Cyclone, a heavy oil,
   pull-up leather used in men's casual footwear.  USL believes that the
   color, texture and consistency of its various products have been developed
   through a process that it considers proprietary in nature.

             The Footwear and Specialty Leather Group manufactures finished
   leather at  facilities located in Milwaukee, Wisconsin; New Albany,
   Indiana; Berlin, Wisconsin; and Toronto, Canada.  Through the diversity
   and flexibility of these facilities, USL is able to (a) produce a wide
   variety of leather products, including waterproof and water resistant
   leathers, as well as splits and other by-products, (b) support a customer
   base numbering in excess of 1,000,(c) productively utilize the different
   selections of leather each lot of hides produces, and (d) support, as
   needed, the tanning needs of USL's Furniture and Automotive Groups.

             Export sales are an increasingly important aspect of the
   international footwear market, as manufacturers continue to shift
   production from domestic facilities to overseas operations, especially in
   the Far East.  In addition to exporting finished products into these
   markets, USL had also contracted for certain leather tanning and finishing
   in China to support the growing demand for such operations in closer
   proximity to shoe manufacturers" overseas operations.  In December, 1997,
   after concluding that such means of serving Asian markets was not
   effective, the Company discontinued this operation.

             USL supports its footwear and personal leather goods sales
   through a direct sales and marketing force augmented by manufacturers
   representatives in Europe, Asia, Canada and the United States.  USL also
   maintains a sales office in Taiwan to support its Far East sales.

        Automotive Group

             USL formed the Automotive Group in 1992 to supply finished
   leather to the worldwide automotive leather interior market, which USL
   believes is over $1.0 billion per year.  Until 1996, the Group's sales
   consisted almost exclusively of finished hides sold to automotive original
   equipment manufacturers and aftermarket suppliers.  In 1996, however, the
   Group began selling cut sets to seating manufacturers that supply a major
   domestic automobile manufacturer.  Of the Group's $50.4 million of 1997
   sales, approximately 75.0% were sold as cut sets.  Approximately 37.0% of
   the Group's $18.2 million sales for 1996 were sold as cut sets.

             USL manufactures its Automotive leather at its facilities in
   Omaha, Nebraska.  The Automotive Group markets its products through
   automotive manufacturers" representatives located in the United States,
   Canada and Asia.

        Other

             In 1997, USL discontinued the manufacture and sale of food-
   quality collagen from its facilities in Omaha, Nebraska.  Although the
   business was modestly profitable, it created significant operating
   challenges and inefficiencies because the process required fresh hides to
   be soaked immediately upon receipt, and because of the need to maintain
   manufacturing standards regulated by the U.S. Food and Drug
   Administration.  These obstacles and the non-strategic nature of this by-
   product prompted USL to close this operation in July, 1997,  Prior to
   discontinuation, collagen sales were $3.2 million, $6.0 million, and $5.9
   million in 1997, 1996, and 1995, respectively.

             In 1996, USL discontinued its USL Trading Division and the
   German operations of its Furniture Group.  These operations consisted
   mostly of buying and selling activities, rather than the core
   manufacturing competencies for which USL had become best known.  Neither
   operation produced a material strategic or financial benefit or was
   expected to produce such a benefit in the foreseeable future.
   Consequently management discontinued these operations in 1996.

             In 1997, the Company placed its operations in New Albany, IN
   (Caldwell Moser) and Berlin, WI (Berlin Leather) up for sale.  No suitable
   buyers for these operations emerged and, in January, 1998, the Company
   took them off the market.  It has since closed its finishing plant in
   Berlin, WI, and transferred products finished at this location to other
   facilities.

        Raw Materials

             The single largest component of the cost of finished leather is
   the cost of the cattle hide.  Hide costs in each of the past three years
   have accounted for approximately 60% of USL's cost of goods sold.  USL
   believes it purchases approximately 5% of the hides taken from cattle
   slaughtered in the United States, and that it is among the largest U.S.
   buyers of raw domestic cattle hides.  The three largest domestic meat
   packers account for approximately 70% of the total number of U.S. cattle
   slaughtered for commercial purposes and, accordingly, are also USL's
   largest suppliers of hides.  USL purchases most of its raw cattle hides
   domestically on a spot basis.  Such hides are readily available, and the
   concentration of hide supplies among a limited number of meat packers has
   not historically had a material effect on USL's ability to source raw
   hides.

             Imported cattle hides in the form of partially tanned and
   finished leather constituted approximately 13% of USL's manufacturing
   material requirements in 1997.  Most of such imports by USL in 1997 were
   from tanners in Thailand and Argentina.

             USL's diverse product line enables it to utilize a wide variety
   of hide grades and types.  Consequently, USL is able to purchase large
   quantities of varied hides and use substantially all of the hides
   contained in each shipment from the meat packers.  This, in turn, enables
   USL to centralize its raw hide purchasing.  USL does, from time to time
   however, resell hides it is unable to use.  Since such resales also occur
   on a spot basis, the Company may incur gains or losses in connection with
   reselling hides.

             Hides are a by-product of the cattle slaughtered to meet the
   worldwide demand for beef and beef products.  Prices are subject to
   cyclical, seasonal and other market fluctuations.  Historically, USL has
   been generally successful in passing along raw material price increases to
   customers unless the demand for finished leather was weak.  Such increases
   take time to implement and when prices rise significantly in a short
   period of time USL's margins have suffered until such time as the price
   increases are fully implemented.  Such price increases, however, may also
   impact demand for leather goods by prompting customers to consider
   alternative materials, especially in the furniture and automotive
   segments. Hide price increases and decreases immediately impact USL's cost
   of goods sold because USL recognizes such changes immediately through its
   LIFO method of accounting.   Coupled with delays in passing such changes
   through to selling prices for finished products, hide price fluctuations
   have had and may continue to have a material impact on USL's reported
   financial results.

             From time to time, in an effort to improve the selection and
   yield of hides, USL will build hide inventories during the fall for use
   during the winter season.  Such hide buys benefit USL because the hides
   have fewer defects, have less hair and therefore cost less to tan, and
   generally produce higher quality leathers.  USL did not execute such a
   hide buy in 1996 or 1997.

             Other materials consumed in leather tanning and finishing, such
   as chemicals and dyes, typically aggregate less than 13% of total cost of
   goods sold.  Such materials are readily available from a variety of
   suppliers.

        Competition

             Each of USL's principal markets - furniture, footwear and
   personal leather goods, and automotive - is highly competitive, and
   certain of USL's competitors may have greater financial or other resources
   than USL.  Competition is based on price, service, quality and the ability
   to supply customers in a timely manner with a diverse product line through
   wide-spread marketing and distribution channels.  USL has historically
   been subject to both domestic and international competition.  USL's
   efforts to increase its international sales could be adversely affected
   by, among other things, currency fluctuations.

             Furniture Group.  The Furniture Group competes with both foreign
   and domestic leather manufacturers, domestic agents who represent foreign
   tanneries, and companies that import leather in a partially tanned state
   to finish and sell domestically.  Foreign leather manufacturers with
   significant domestic facilities include Elmo Leather of America, Inc., a
   Swedish concern, Italian Leather (formerly Valdapone SPA), an Italian
   concern, and Louis Schweitzer GmbH, a German concern that is represented
   by Arcona Trading Co., Inc.  Domestic manufacturers include Prime Tanning
   Company, Inc., Irving Tanning Company, Inc., and Garden State Tanning,
   Inc.  Agents located in the United States that represent several
   tanneries domestically include Americraft Leather, Inc., Carroll
   Companies, Inc. and Friitala of America, Inc.  Arpel Trading Co., Inc.
   represents foreign tanneries domestically and imports foreign partially
   tanned hides to finish and sell in the United States.  Arpel also
   purchases partially tanned hides produced and rejected by domestic leather
   manufacturers, including USL, to refinish and sell domestically.

             Footwear and Specialty Leather Group.  Competition in the
   footwear and specialty leather markets is highly fragmented.  In the men's
   footwear market, in which USL competes primarily under the Pfister & Vogel
   trade name, its principal competitors include Prime Tanning Company, Inc.;
   Irving Tanning Company, Inc.; S. B. Foot Tanning Company; and Dominion
   Tanners (Canada), a division of United Canadian Shares, Limited.  The
   Company also faces increased competition from tanneries in the Far East,
   principally China, whose proximity to footwear manufacturers' operations
   offer increasingly important competitive advantages.  Competitors in other
   market segments tend to be smaller tanneries with a single or very limited
   product focus.

             Automotive Group.  Domestically, competitors which supply
   leather products to the automotive industry include Eagle Ottawa Leather
   Company, a division of Trostel, Albert & Sons Company, Garden State
   Tanning, Inc. and Seton Leather Company.  These competitors supply
   predominantly precut leather to seat and interior manufacturers.
   Additional competition in the United States comes from smaller foreign
   tanneries seeking to enter the U.S. automotive market .  Whole hide
   competition in international automotive OEM markets typically comes from
   furniture leather manufacturers, including those previously mentioned.

        International Sales

             International sales include export sales from USL's domestic
   operations, and sales by A.R. Clarke, Ltd. (the Company's Candian
   subsidiary and part of the Footwear and Specialty Leather Group) to
   markets other than the United States, and sales, prior to discontinuation,
   from USL's German operations.  International sales for 1997, 1996 and 1995
   are as follows:

                                    Year Ended December 31,
                                 1997        1996         1995
                                     (dollars in millions)

   Asia                            $61.5        $46.5       $53.6
   Europe                           15.3         17.1        16.8
   Americas                         43.9         44.9        49.0
                                   -----        -----       -----
     Total International
       Sales                      $120.7       $108.5      $119.4
                                   =====        =====       =====


        Research and Development

             USL's research and development activities are directed toward
   leather product development and improvement designed to meet the specific
   requirements of its customers.  They involve both the formulation of
   proprietary processes and the development of new leather finishes.  USL
   works closely with its customers in its product development initiatives.
   USL has spent approximately $1.9 million, $2.3 million, and $2.4 million
   for research and development in 1997, 1996 and 1995 respectively.

        Major Customers

             USL had no customer that accounted for more than 10% of its
   combined net sales in 1997, 1996 or 1995.

        Patents and Trademarks

             Other than with respect to trademarks and tradenames, the
   Company does not rely to any material degree on intellectual property
   protection.  The Company has no registered copyrights.  The Company has
   been issued two patents relative to certain environmental processes.

             The Company has several registered trademarks and trade names in
   both the United States and Canada, and has submitted Applications for
   Registration of trademarks for several more.  Registered trade names
   include Lackawanna Genuine Leather, Pfister & Vogel, and A.L. Gebhardt,
   among others.

        Employees

             As of December 31, 1997, USL employed approximately 1,800 full-
   time employees, approximately 92% of which were engaged in manufacturing,
   with the remaining 8% engaged in sales, marketing and administrative
   activities.  Approximately 900 employees engaged in manufacturing
   activities as of December 31, 1997 were covered by collective bargaining
   agreements.  One agreement covering approximately 415 employees
   represented by the United Food and Commercial Workers Union (the "UFCWU")
   expires on May 10, 1998.  The Company and UFCWU are scheduled to begin
   negotiating a new contract in mid-March 1998, and the Company expects to
   have a new agreement in place by the May 10, 1998 expiration of the
   existing agreement, although no assurance can be given as to when such an
   agreement will be reached.

        Environmental Matters

             The Company's leather manufacturing and finishing operations are
   subject to numerous federal, state and local laws and regulations
   governing the protection of the environment.  These laws and regulations
   establish specific requirements for the handling of hazardous materials
   and wastes, impose limitations on the emission of air and water pollutants
   and establish administrative requirements for permits and reporting.  The
   Company places a high priority on compliance with environmental laws and
   regulations, and believes that it has obtained all material permits,
   licenses, orders or agreements from appropriate federal, state, and local
   regulators currently required for its manufacturing operations.  The
   Company's Board of Directors has adopted appropriate policies toward
   environmental compliance, and USL has a designated corporate officer
   responsible for implementing such policies.

             Except as set forth below, the Company is not aware of any
   current material environmental liabilities that exist at any of the
   Company's facilities because of prior leather manufacturing operations or
   waste management practices.  The Company has also implemented appropriate
   programs designed to minimize pollution and waste production.

             Toronto, Ontario Facility.  During 1997, the Company discovered
   subsurface contamination of soil and ground water with chlorinated
   hydrocarbons at its A.R. Clarke facility in Toronto, Ontario, Canada.  The
   contamination had crossed property boundaries to an adjacent commercial
   property.  The Company has reported the contamination to the Ontario
   Ministry of Environment and Energy, as required by the law.  Likewise, the
   Company has filed a claim against the previous owner of A.R. Clarke for
   restoration of the site under the terms of an Asset Purchase Agreement
   between the Company and the previous owner.  Options for on-site
   management and/or remediation are under investigation.

             Wastewater Discharges.  The Company believes that all of its
   facilities have either installed appropriate pretreatment equipment and
   are in compliance in all material respects with federal, state and local
   pretreatment categorical standards or are zero discharge facilities.
   Besides having to comply with such categorical standards specific to the
   tanning industry, each facility must also comply with local generic
   pretreatment standards as a condition of discharge.  Operational systems
   are subject to upsets and equipment malfunctions, which may lead to
   occasional violations of such discharge standards.

             In 1995, one of the Company's Milwaukee, Wisconsin facilities
   experienced equipment malfunctions that caused chromium discharges in
   excess of allowable limits.  A Consent Order with the Milwaukee
   Metropolitan Sewerage District ("MMSD") was signed, which provided for
   daily sampling a fine of less than $100,000.  Although the Company
   implemented measures to provide additional redundancy and monitoring to
   reduce the likelihood of a recurrence of such excess chromium discharges,
   and although such recurrences have been reduced, they have not been
   eliminated.  In October 1996, the Company received a Notice of
   Noncompliance from the MMSD for two incidents of excess chromium
   discharges during the first quarter of 1996, and in January 1997, the
   Company self-reported two additional such occurrences.  These incidents
   were caused by cross-connections in the facility's various effluent
   collection sewers.  Corrective measures were taken and the Company
   continues daily monitoring for chromium.  No fines or penalties were
   levied as a consequence of the 1996 or 1997 incidents.

              The Company received a Notice of Continuing Violation from the
   MMSD for a September 26, 1996 exceedence of the oil and grease discharge
   limits at another of its Milwaukee, Wisconsin facilities.  A subsequent
   Notice of Noncompliance was issued following a January 14, 1997
   exceedence.  The Company implemented steps to improve controls over slug
   loads of oil and grease discharged into the municipal sewer systems,
   including increased sampling and testing.   The Company also petitioned
   the MMSD to revise the Company's Discharge Permits to allow it to use an
   alternate method for testing discharge quantities.  The proposed alternate
   method is easier to comply with than the method previously specified by
   the  Discharge Permit.  The controls over slug discharges were effective.
   In addition, the MMSD approved the alternate method.  As a result of these
   two developments, the facility has remained compliant since the January
   14, 1997 date and the MMSD has discontinued their enforcement action.  No
   fines or penalties have been levied on the Company relating to this
   action.

             In July, 1996, the Environmental Protection Agency of the United
   States (the "EPA") revised the categorical pH standard for tannery
   discharges to publicly owned treatment works.  This revised standard as
   allowed the Company's facilities in Milwaukee, Wisconsin and Omaha,
   Nebraska to discontinue costly pH neutralization.  Based on EPA's action,
   authorities in Toronto, Canada also modified pH standards, thus allowing
   the Company's A.R. Clarke operation to also cease such neutralization
   procedures.

             Off-Site Liabilities.  Under existing environmental laws,
   companies can be held liable for cleanup costs if they arrange for the
   disposal or treatment of hazardous substances that are subsequently
   released into the environment.  Accordingly, the Company may be
   potentially liable for the cleanup of hazardous substances at facilities
   to which the Company shipped hazardous substances for treatment or
   disposal.  there are a number of solvents and other materials containing
   hazardous substances that have been shipped from the Company's facilities
   for disposal or treatment.

             In February 1998, the Company received a notice from the EPA of
   the opportunity to participate in a de minimis settlement at the Caldwell
   Systems, Inc. site in North Carolina.  The Company believes that at least
   a portion of any potential liability associated with this site should be
   borne by Beatrice Companies, Inc. under the terms of the Asset Purchase
   Agreement dated January 13, 1985, and has tendered the defense and
   indemnification of the claim to Beatrice Companies, Inc.  Beatrice has not
   yet responded to the tender.  The EPA settlement would require a payment
   by the Company of $46,000, in exchange for a release from future liability
   at the site related to specific issues.  The settlement agreement contains
   some exceptions for coverage, including liability for natural resource
   damages.  At this time, the Company is evaluating the settlement offer.
   It is not possible to determine what, if any, liability the Company may
   have for any matters that are not covered by the settlement agreement.

             In August 1997, the Company received information requests under
   Section 104(e) of the Comprehensive Environmental Response, Compensation
   and Liability Act ("CERCLA") regarding the Peter Cooper Site in Gowanda,
   New York with respect to two of its predecessors, A.L. Gebhardt and
   Lackawanna Leather.  Pursuant to the terms of the Asset Purchase Agreement
   dated January 13, 1985, Beatrice Companies, Inc. has agreed to defend and
   indemnify the Company for any potential liability associated with
   Lackawanna Leather at this site.  Beatrice Companies, Inc. has agreed to
   defend this matter on behalf of Lackawanna Leather.  At this time,
   however, it is not possible to determine what, if any, liability the
   Company, as the successor to A.L. Gebhardt and Lackawanna Leather, will
   have with respect to this site.

             The North Carolina Department of Environment, Health and Natural
   Resources ("DEHNR") identified the Company's facilities at Conover, North
   Carolina as a potentially responsible party ("PRP") that arranged for the
   disposal or treatment of hazardous waste at the Seaboard Chemical facility
   in North Carolina.  During the Phase I Remediation process, the Company
   was adjudged to be a de minimis contributor to the site and, with its
   payment of $25,512, was able to discharge its Phase I Remediation
   liability.  The Company joined a PRP group consisting of 946 companies to
   negotiate the Phase II Remedial Investigation and Feasibility Study
   ("RI/FS") with the DEHNR.  This group negotiated an Administrative Order
   of Consent with DEHNR to conduct the remedial investigation of the site.
   The Administrative Order contains a covenant not to sue the members of the
   PRP group, and provides signatories with protection from contribution
   actions.  Although there can be no assurances, the Company expects that
   (1) the Company will continue to be identified as a de minimis contributor
   to the site, (2) the Company's share of the costs remaining to clean up
   the site will aggregate less than $500,000, and (3) since approximately
   35% of the wastes in question were sent to the site during ownership of
   the Conover facilities by a previous owner, such previous owner will
   assume his pro rata share of the cleanup costs under the indemnity
   provisions of the January 13, 1985 Asset Purchase Agreement which conveyed
   these facilities to the Company.

             In March 1993 and December 1995, the EPA completed removal
   actions at the Cherokee Oil Sites, a commercial waste treatment facility
   located in Charlotte, North Carolina.  The Company had sent non-hazardous
   wastewater from its facilities in Conover, North Carolina to these sites
   between December 1988 and October 1990.  EPA spent approximately $6.5
   million to clean up and remove wastes from the sites, and is now
   attempting to recover costs from users of the facility.  In March 1996,
   EPA sent the Company a CERCLA Section 104(e) Information Request ("104(e)
   Request") relative to the wastes sent by the Company to the sites.  The
   Company responded to the Request in May, 1996 and, in order to prevent the
   Department of Justice from filing a cost recovery action in federal court,
   executed a Tolling Agreement along with other parties to allow time to
   negotiate a settlement.  In March 1997, the Company and the EPA
   tentatively agreed to settle the Company's share of cleanup costs for
   approximately $78,000.  The resulting settlement Consent Decree has been
   approved by a Federal District Court.

   Item 2.   Properties

             As of December 31, 1997, USL operated 16 manufacturing
   facilities in North America, of which nine were located in Wisconsin,
   three were located in Nebraska, and one each was located in North
   Carolina, Indiana and Toronto, Canada.  In addition, USL owned a
   manufacturing facility in Berlin, Wisconsin which it closed in January
   1998.  USL owns all but two of its facilities.  The leased facilities are
   subject to customary commercial leases.  The term of the lease for the
   larger facility expires in 2000, while the lease for the smaller facility
   has a month to month term.  The aggregate floor area of the Company's
   facilities is approximately 1.5 million square feet, as follows:

                     Approximate Area                    Principal Purpose
    Location         (in sq. ft.)      Owned or Leased   of Facility

    Milwaukee, WI    340,000           Owned             Manufacturing
    Milwaukee, WI    140,000           Owned             Manufacturing
    Conover, NC      175,000           Owned             Manufacturing
    Toronto, Canada  130,000           Owned             Mfg./Warehouse
    New Albany, IN   120,000           Owned             Manufacturing
    Omaha, NE        108,000           Owned             Manufacturing
    Milwaukee, WI    81,000            Owned             Admin./Warehouse
    Berlin, WI       80,000            Owned             Manufacturing
    Milwaukee, WI    70,000            Owned             Manufacturing
    Milwaukee, WI    70,000            Owned             Mfg./Warehouse
    Milwaukee, WI    50,000            Owned             Admin./Warehouse
    Omaha, NE        50,000            Owned             Manufacturing
    Milwaukee, WI    26,000            Owned             Warehouse
    Omaha, NE        28,000            Leased            Manufacturing
    Milwaukee, WI    22,000            Owned             Warehouse
    El Paso, TX      1,600             Leased            Warehouse
    Berlin, WI       40,000            Owned             Manufacturing
      (closed)

             USL considers its plant and equipment to be in generally good
   condition.  In addition to capital expenditures to replace worn out or
   obsolete equipment, USL incurred expenses to maintain and repair its
   plants and equipment of $9.3 million, $10.2 million, and $10.5 million in
   1997, 1996 and 1995 respectively.

             USL's executive offices are located at 1403 W. Bruce St.,
   Milwaukee, WI 53204, within one of the owned facilities summarized above.

   Item 3.   Legal Proceedings

             In May 1995, USL received a request for information from the
   United States Customs Service (the "Customs Service") concerning the
   classification and duties paid on a series of importations of Russian and
   Romanian wet blue from 1991 to 1993.  Upon review of the Harmonized Tariff
   Schedules in effect in 1991, 1992 and 1993, USL determined that it had
   paid less than the proper import duty and thereupon paid approximately
   $164,000 in additional duty.  In April and September 1996, the Customs
   Service issued a total of three penalty notices related to this matter.
   One of the penalty cases relating to such notices has been settled for
   less than $12,000.  The two remaining cases are pending, with a total
   potential exposure of approximately $680,000.  Petitions for relief from
   two remaining penalty cases have been filed, and a final administrative
   determination is expected by the end of 1998.  USL believes it is
   adequately reserved for any additional duties or penalties.

             USL is also involved in other litigation and proceedings.  Based
   on current information, management believes that future costs, if any, in
   excess of insurance coverage with respect to such litigation and
   proceedings, will not be material to USL's financial position or results
   of operations.

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

             No matters were submitted to a vote of the Company's security
   holders in the fourth quarter of 1997.

   Item 5.   Market for Registrant's Common Equity and Related Stockholder
   Matters

             As of December 31, 1997, there was no public market for the
   Company's common stock.  All 100 shares of the Company's common stock are
   owned by USLH, which is a wholly owned subsidiary of the New Holding
   Company.  The Company paid no cash dividends on its common equity in 1997
   and paid $50,000 in 1996, and, $1.2 million in 1995.

   Item 6.   Selected Financial Data

             The following table sets forth the selected financial data of
   USL for each of the preceding five years ended December 31, 1997.  The
   selected historical data for each of the preceding five years ended
   December 31, 1997 are derived from the audited consolidated financial
   statements of USL. The selected historical financial data presented herein
   are qualified in their entirety by, and should be read in conjunction
   with, the USL's Consolidated Financial Statements and Notes thereto
   included in Item 8 of this Form 10-K and "Management's Discussion and
   Analysis of Financial Condition and Results of Operations" included in
   Item 7 of this Form 10-K.

   <TABLE>
                  UNITED STATES LEATHER, INC. AND SUBSIDIARIES
                      SELECTED CONSOLIDATED FINANCIAL DATA
                             (Dollars in thousands)
   <CAPTION>

                                                                Year ended December 31,
                                           1997          1996               1995           1994            1993

   <S>                                   <C>           <C>                <C>            <C>             <C>
   Income Statement Data
   Net Sales                             $305,476      $311,843           $360,660       $371,584        $351,902
   Cost of sales(1)                       297,103       293,111            307,556        315,251         295,054
                                          -------       -------            -------        -------         -------
   Gross profit                             8,373        18,732             53,104         56,333          56,848
   Selling, general & administrative
     expenses                              24,254        24,916             22,974         27,040          23,486
   Restructuring expenses                      --         3,744                 --             --              --
   Asset valuation loss (5)               101,000            --                 --             --              --
   Amortization of intangible assets        4,631         4,134              3,529          3,177           3,334
                                          -------       -------            -------        -------         -------
   Income (loss) from operations         (121,512)      (14,062)            26,601         26,116          30,028
   Interest expense                        19,119        17,159             18,062         17,283          23,111
                                          -------       -------            -------        -------         -------
   Income (loss) before provision
     for income taxes and
     extraordinary item                  (140,631)      (31,221)             8,539          8,833           6,917
   Income tax (benefit) provision          (1,273)      (10,999)             4,373          4,685           3,791
                                          -------       -------            -------        -------         -------
   Net income (loss) before
     extraordinary item                  (139,358)      (20,222)             4,166          4,148           3,126
   Extraordinary gain (loss)                   --            --                417             --           (652)
                                          -------       -------            -------        -------         -------
   Net income (loss)                     (139,358)      (20,222)             4,583          4,148           2,474
   Preferred Stock dividends                   --            --                 --             --             705
                                          -------       -------            -------        -------         -------
   Net income (loss) available for
     common shares(2)                   ($139,358)     ($20,222)            $4,583         $4,148          $1,769
                                          =======       =======            =======        =======         =======
   Other Data
   Ratio of earnings to fixed
   charges(3)                                  --            --               1.47           1.50            1.30
   Deficiency of earnings available
     to cover fixed charges(3)          ($140,631)     ($31,221)                --             --              --
   Gross profit margin (3)                   2.7%          6.0%              14.7%          15.2%           16.2%
   EBITDA(4)                              ($7,841)      ($2,941)           $36,319        $34,548         $38,440
   FIFO EBITDA(4)                        ($10,439)        ($972)           $31,845        $44,038         $38,549
   Capital Expenditures                    $3,998        $6,523             $7,948         $6,062          $6,789
   Square footage of finished
     leather sold                         118,110       126,890            138,049        148,804         149,529

   Balance Sheet Data
   Working capital(6)                   ($118,085)      $44,117            $64,925        $65,902         $63,696
   Total assets                          $126,202      $264,822           $285,994       $286,309        $295,525
   Long-term debt, including current
     maturities(6)                       $130,144      $130,257           $130,320       $134,237        $134,871
   Stockholders' equity/(deficit)        $(78,268)      $61,073            $81,265        $78,047         $77,935

   __________________________________________

   (1)  Included in cost of sales is a charge (credit) of $(2,598), $1,969,
        $(4,474), $9,490, and $109 related to the change in LIFO inventory
        reserve for the years ended December 31, 1997, 1996, 1995, 1994 and
        1993, respectively.
   (2)  The Company paid cash dividends of $50, $1,173 and $4,036 related to
        shares of common stock in 1996, 1995 and 1994, respectively.  There
        were no cash dividends paid or declared related to common stock for
        1997 or 1993.
   (3)  For purposes of computing the ratio and deficiency of earnings to
        fixed charges, earnings represents income from operations, less that
        portion of rental obligations on operating leases that is
        representative of interest.  Fixed charges represents the sum of
        interest expense plus such portion of rental obligations that is
        representative of interest.
   (4)  EBITDA, the primary earnings measurement used in the Indenture,
        represents income or loss from operations plus non-cash charges
        related to depreciation and amortization of intangible assets and
        loss on asset impairment.  FIFO EBITDA, the primary earnings
        measuring in the New Credit Facility, represents EBITDA plus or minus
        charges or credits to operations related to the change in the LIFO
        inventory reserve from December 31 of the prior year to December 31
        of the current year, plus or minus certain other gains or charges
        related to non-recurring items.  Neither EBITDA nor FIFO EBITDA is
        determined pursuant to generally accepted accounting principles
        (GAAP"), and should not be considered in isolation or as an
        alteration to GAAP-derived measurements.
   (5)  During 1997 the Company recorded asset valuation losses aggregating
        $101.0 million:  a $7.0 million provision recorded in connection with
        certain operations which the Company put up for sale, and a $94.0
        million charge recorded to write off all of the remaining impaired
        goodwill as of December 31, 1997.
   (6)  On January 31, 1998 a semi-annual interest payment that was due on
        the Notes was not made.  As a consequence all of the Notes and
        accrued interest thereon, totaling $135.0 million, was classified as
        current as of December 31, 1997, and is included in the working
        capital deficit.
   </TABLE>


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


        Year 2000 Computer Compliance

             In order to address the problem relating to the inability of
   certain computer software programs to process 2-digit year-date codes
   after December 31, 1999, the Company has conducted a comprehensive review
   of its computer systems and formulated a plan to modify or replace
   programs where necessary.  It is anticipated that all reprogramming
   efforts of major programs will be completed by December 31, 1998.
   Management believes that the cost of completing the plan will be
   approximately $2.0 million.

        Company Reorganization and Financial Restructuring

             Prior to 1996, the Company, while reporting as an integrated
   company, operated as a series of stand-alone divisions or subsidiaries
   with separate financial statements and management teams for each unit.
   During 1996, the Company eliminated this divisional structure and
   reorganized its management structure along functional lines, and its
   business structure (i.e., segment financial reporting) along the lines of
   markets served.  While the Company has preserved Lackawanna Leather,
   Pfister & Vogel, A.L. Gebhardt, Caldwell-Moser, and A.R. Clarke as valued
   trade names, it no longer evaluates or reports business results according
   to these designations.

             During 1996 and continuing in 1997, the Company began a series
   of initiatives to strengthen the Company's financial position and return
   it to profitability.  Among these initiatives were (1) the reorganization
   of the management of the Company previously discussed, which included the
   elimination or replacement of several other senior executives in the
   Company, and a general reduction in salaried workforce, (2) comprehensive
   reviews of the Company's products and inventories, (3) closing three
   operations which had not either been profitable or were not strategically
   critical to the Company, (4) replacing critical talent which had been lost
   in prior years, and (5) vacating the Company's corporate offices and
   moving such offices into one of the Company's operating facilities.  The
   Company also continued efforts to grow and improve the business of its
   Automotive Group.

             The Company experienced liquidity problems in 1997, due
   primarily to operating losses and high debt service costs.  On September,
   24, 1997, the Company announced its intention to restructure its debt by
   converting all or a substantial portion of the Notes into equity in the
   Company.  Since that time, extensive discussions have taken place with
   certain material holders of the Notes to effect such an exchange of debt
   for equity.  On December 31, 1997, the Company's aggregate indebtedness
   was $173.5 million (compared with $162.1 million at December 31, 1996),
   consisting of $135.6 million of principal and accrued interest on the
   Notes and $37.9 million borrowed under the Replacement Credit Facility.

             In January 1998, the Company entered into the New Credit
   Facility, a $55 million asset-backed revolving credit facility that
   replaced the Replacement Credit Facility.  On January 31, 1998, the
   Company failed to make the semi-annual interest payment that was due on
   the Notes and, as a consequence, reclassified the Notes from long-term
   debt to current liabilities.  The Company does not have the capital
   resources necessary to satisfy this liability and, as a result,
   uncertainties exist concerning its ability to continue as a going concern.
   On March 25, 1998, the Company announced that it had reached an agreement
   in principle with its shareholders and an informal committee of holders of
   the Notes to convert all of the Notes into 97% of the equity of the
   Company outstanding on the date of conversion.  Upon completion of the
   necessary solicitation process, the Company anticipates that it will file
   a petition with the United States Bankruptcy Court for approval of  a
   prenegotiated Joint Plan of Reorganization and make the exchange of the
   Notes for common stock effective within a reasonable period of time
   thereafter.  There can be no assurances, however, that sufficient votes
   will be obtained to gain approval of the Plan.

             Although the Company had incurred losses in each of the last two
   years, it believes that it has implemented measures which will stabilize
   operations and permit it to reverse these losses and become profitable
   again within a reasonable period of time.  The capital restructuring
   provided by the Plan represents an essential step in this stabilization
   and return to profitability because it will (1) create greater liquidity
   and borrowing capacity under the terms of the New Credit Facility, and (2)
   enable the Company to compete more effectively and demand more favorable
   terms from suppliers because it will reduce uncertainties in the
   marketplace regarding the Company's financial stability.  There can be no
   assurance, however, that the measures the Company has implemented nor the
   effect of the restructuring, if approved, will be sufficient to permit it
   to remain an ongoing concern.

             Because the Company believes that the Plan will be approved, and
   the measures it has implemented will be successful, the accompanying
   financial statements have been prepared on a going concern basis.  These
   statements contemplate the realization of assets and the satisfaction of
   liabilities in the normal course of business.

   General

             The Company reported net sales of $305.5 million, $311.8 million
   and $360.7 million, in 1997, 1996 and 1995 respectively, of which sales of
   finished leather accounted for approximately 93%, 90% and 90%
   respectively.  The balance of sales revenues were attributable principally
   to sales of by-products, which included splits, wet blues and raw
   cattlehides.

   Results of Operations

             The following table sets forth certain consolidated income
   statement data of the Company as a percentage of net sales for the periods
   indicated.

                                           Year Ended December 31,
                                         1997       1996       1995

    Net Sales                           100.0%     100.0%     100.0%
    Gross Profit                           2.7        6.0       14.7
    Income/(loss) from operations        (39.8)      (4.5)       7.4
    Net income/(loss)                    (45.6)      (6.5)       1.3


   1997 Compared to 1996

             General.  The Company incurred a net loss of $139.4 million in
   1997, compared with a net loss of $20.2 million in 1996.  Included in
   these net losses were certain non-recurring charges recorded by the
   Company in each of these years.  In 1997, the Company wrote off all of the
   goodwill remaining ($94.0 million) from the 1988 acquisition of the
   Company's predecessors by the previous equity holders and recorded write
   downs of long-lived assets ($7.0 million) which the Company held for sale
   in 1997.  The Company also incurred non-recurring charges in 1997
   aggregating $6.8 million, including writedowns of excess and obsolete
   products, provisions for loss on certain automotive contracts, and
   discontinuation of leather refinishing in China.  In 1996, the Company
   recorded a series of pre-tax charges totaling $16.5 million associated
   with, among other things, changes in policies for the valuation and
   disposition of excess and off-quality inventories, restructuring charges,
   impairment of certain contracts, customer claims regarding the use of
   certain defective chemicals and the closing of its Trading and German
   operations (see 1996 compared to 1995).  In addition to the above non-
   recurring charges, the increased loss in 1997 was the result of increased
   competition from other leather producers, weakened demand for finished
   leather during most of the second half of 1997, particularly in the
   footwear and furniture upholstery segments, and loss of market share.  The
   Company attributes the loss of market share to the uncertainties
   surrounding its financial condition and the financial restructuring which
   it announced in September 1997.  Also contributing to the increased loss
   in 1997 was the high cost of cattlehides which the Company was unable to
   recover through higher pricing to customers.

             Net sales.  The Company's net sales in 1997 were $305.5 million,
   a decrease of $6.4 million or 2.0% from the prior year period.  Excluding
   $11.6 million of sales in 1996 from the closed Trading and German
   operations, comparable 1997 sales increased $5.3 million or 1.8%. Square
   footage of finished leather sales dropped  6.9% in 1997 compared to 1996.
   The decrease was principally due to weaker sales volume in the Furniture
   Group and Footwear and Specialty Leather Group, which was partially offset
   by increased cut set sales in the Automotive Group.

             USL's operations are divided into three principal lines of
   business.  The following chart summarizes USL's sales by line of business:

                                                Year Ended December 31,
                                              1997       1996       % Change
                                                    ($ in millions)
    Furniture Group                            $70.2      $95.0        (26)%
    Footwear and Specialty Leather Group       181.7      181.0         --
    Automotive Group                            50.4       18.2        177%
    Discontinued Operations                      3.2       17.6         N.A.
                                               -----      -----
         Total Net Sales                      $305.5     $311.8         (2)%
                                               =====      =====

             Furniture Group.  Furniture Group sales in 1997 were $70.2
   million, a decrease of $24.8 million or 26.1% from 1996.  Contributing to
   the decline was (1) volume lost because of severe price-based competition
   from foreign tanneries in the Group's promotional product lines, carryover
   difficulties the Company experienced from its 1996 quality and delivery
   problems and, to a lesser extent, softening in retail furniture sales, (2)
   the discontinuation of certain products during the second half of 1996,
   and (3) lower volume in the Group's mid and high-fashion product lines
   because of fewer cattlehides which met the Group's quality criteria for
   these products.  Lack of high-impact new product introductions in prior
   years contributed to the erosion.

             Footwear and Personal Leather Goods Group.  Footwear and
   Personal Leather Goods Group sales were $181.7 million in 1997, an
   increase of $0.7 million from 1996.  Strong first half sales during 1997,
   particularly in waterproof products, were offset by weakened market
   conditions during the second half of the year and the reluctance of
   customers to place substantial product commitments with USL due to
   uncertainty surrounding the Company's final condition.

             Automotive Group.  Automotive Group sales in 1997 were $50.4
   million, an increase of $32.2 million or 176.9% from 1996.  This increase
   was entirely attributable to volume in the Group's cut-to-pattern
   business.

             Gross profit.  The Company's gross profit decreased to $8.4
   million in 1997, from $18.7 million in 1996, a $10.3 million reduction.
   Excluding discontinued 1996 operations, gross profit decreased by $9.1
   million.  Excluding non-recurring charges of $5.3 million in 1997 and
   $12.2 million in 1996, comparable gross profit from operations decreased
   by $17.2 million in 1997.  Contributing to the lower gross profits in 1997
   were lower sales volumes in the Furniture Group and the Footwear and
   Specialty Leather Group, lingering inefficiencies in the Automotive
   Group's cut-to-pattern plant, and increased cattlehide prices, which were
   3% higher in 1997 than in 1996.  The lower volume in the Furniture Group
   and, during the second half of the year, the Footwear and Specialty
   Leather Group resulted in higher conversion costs per unit at the
   facilities manufacturing these products.

             Gross margins were 2.7% for 1997 compared to 6.0% in 1996.
   Excluding the effects of non-recurring charges, gross margins were 4.5%
   for 1997 and 9.9% for 1996.

             Selling, general and administrative expenses. Selling, general
   and administrative expenses during 1997 were $24.3 million, a 2.7%
   reduction from 1996.  Lower compensation and benefit expenses during 1997
   were partially offset by higher professional services fees.

             Restructuring expenses. In 1996, the Company incurred $3.7
   million of restructuring expenses.  These included severance costs
   associated with a management reorganization, costs incurred in connection
   with the closing of the Company's German operations, writedown of the
   lease for the prior corporate headquarters space, and writedown of
   equipment used in certain manufacturing processes.  The Company incurred
   no restructuring expenses in 1997.

             Asset valuation losses. In 1997, the Company recorded an asset
   valuation loss of $101.0 million consisting of $94.0 million of
   unamortized goodwill and $7.0 million for assets held for sale. During the
   third quarter of 1997 the Company approved a plan to sell two of its
   operations:  Caldwell Moser Leather Co. and Berlin Leather.  Both
   operations are part of the Company's Footwear and Specialty Leather Group.
   The Company recorded a pretax charge of $7.0 million in the third quarter
   to reduce the book value of the long-lived assets (property, plant,
   equipment and goodwill) of these operations to their estimated aggregated
   fair market value less costs to sell based on a contingent selling
   arrangement with an investment banker.  The assets and sales of these two
   operations do not represent a material portion of the Company's total
   assets or sales.

             Although the Company began implementing strategic measures in
   1996 which it believes will eventually improve the financial performance
   of the Company, operating losses continued in 1996 and 1997.  Pursuant to
   SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for
   Long-Lived Assets to be Disposed Of', the Company deemed its long-lived
   assets to be impaired as the future undiscounted cash flows of long-lived
   assets would not be sufficient to recover the carrying value of such
   assets.  The assets were therefore adjusted to their fair value based upon
   the estimated present value of expected future cash flows.  As a result,
   all unamortized goodwill was written off with no reduction in the carrying
   amounts of other long-lived assets.

             Earnings before interest, taxes, depreciation, amortization, and
   asset valuation loss.  Earnings before interest, taxes, depreciation,
   amortization, asset valuation loss and provisions for LIFO revaluations
   ("FIFO EBITDA") during 1997 was a loss of $10.4 million compared with a
   loss of $1.0 million in 1996.  The decline was due principally to the
   change in gross profit previously discussed.  FIFO EBITDA, which is the
   principal earnings measure in the New Credit Facility, is not determined
   pursuant to generally accepted accounting principles ("GAAP"), and should
   not be considered in isolation or as an alternative to GAAP-derived
   measurements

             Interest Expense.  Interest expense in 1997 was $19.1 million,
   $1.9 million higher than that of the prior year.  The increase was due to
   higher outstanding borrowings during the year and higher amortization of
   deferred financing fees.  The higher borrowings under the Replacement
   Credit Facility were required to fund greater working capital requirements
   caused earlier in the year by increased cattlehide prices and sales volume
   growth in the Automotive Group.

             Loss Before Income Taxes.  The Company incurred a loss before
   taxes of  $140.6 million in 1997, compared to a loss of $31.2 million in
   1996, an increase of $109.4 million.  Excluding the effects of non-
   recurring charges in 1997 of $107.8 million and $16.5 million in 1996 the
   respective losses were $32.8 million in 1997 compared to $14.7 million in
   1996.  This increase, as previously discussed, was primarily the result of
   lower operating margins.

             Income Tax(Benefit)/Provision.  In 1997 the Company recorded a
   tax benefit of $1.3 million compared to a benefit of $11.0 million in
   1996.  A minimal tax benefit was recorded in 1997 due to the
   nondeductibility of the goodwill impairment and valuation reserves being
   established for most of the remaining losses.

             Net Loss.  Due to the factors previously discussed, the Company
   had a net loss of $139.4 million in 1997, compared to a net loss of $20.2
   million in 1996.

   1996 Compared to 1995

             General.  The Company experienced a net loss of $20.2 million in
   1996, compared to a net profit of $4.6 million in 1995.  This loss was the
   result of increased competition from other leather producers, increased
   cattlehide prices, restructuring and turnaround initiatives undertaken by
   the Company, and certain quality problems the Company experienced.  In
   connection with the restructuring and turnaround initiatives, the Company
   recorded a series of charges in 1996 totaling $16.5 million which
   management believes are unusual or non-recurring items.  In the aggregate,
   these charges increased the Company's cost of goods sold by $12.2 million,
   selling general and administrative expenses by $0.6 million, and resulted
   in a charge for restructuring expenses of $3.7 million.  The cost of goods
   sold charges included $8.6 million in inventory reserve provisions to
   reflect a change in Company policy toward disposing of excess and off-
   quality products (see Item 1 of this form 10-K under the caption "The
   Leather Manufacturing Process"), $2.2 million to recognize that certain
   contracts the Company held were impaired, $0.9 million for the recovery
   and disposal of products produced using certain chemicals which were later
   determined to be defective, and $0.5 million in inventory writedowns in
   connection with the closing of German operations.  In addition, the
   Company incurred operating losses in 1996 aggregating $1.8 million in
   connection with the activities of the USL Trading Operation and German
   operations prior to their being discontinued.

             Net Sales.  The Company's net sales in 1996 were $311.8 million,
   a decrease of $48.8 million or 14% from the prior year period.  After
   adjusting for discontinued operations, net sales decreased by $27.9
   million or 9% to $300.2 million in 1996 from $328.1 million in 1995.  The
   decrease was entirely attributable to lower finished leather sales.
   Square footage of finished leather sales dropped 8% in 1996 compared to
   1995 because of lower volume in the Company's Furniture Group, driven by
   severe price-based competition from foreign tanneries in the Company's
   promotional product lines, and quality and delivery problems the Company
   experienced in 1996 in its mid and high fashion products.  Volume in 1996
   in the Company's Automotive Group was up substantially from 1995 due to
   higher OEM and cut-to-pattern business, while volume in the Footwear and
   Personal Leather Goods Group was approximately unchanged.  Average selling
   prices in 1996 dropped slightly from the levels experienced in 1995
   because of (1) lower cattlehide prices in late 1995 and early 1996 which
   were passed on to customers in 1996, (2) increased sales of excess and
   off-quality inventories stemming from the Company's previously mentioned
   policy change, and (3) lower selling prices in certain segments of the
   Company's Automotive Group business.

             Gross Profit.  The Company's gross profit decreased to $18.7
   million in 1996, from $53.1 million in 1995, a $34.4 million reduction.
   Gross margins decreased approximately 8.7%, from 14.7% to 6.0%.  Excluding
   discontinued operations, gross profit decreased by $33.2 million.  Much of
   the decrease was the result of higher cattlehide costs experienced in
   1996.  After dropping through the second half of 1995 and much of the
   first half of 1996, the purchase price of cattlehides rose significantly
   in the second half of 1996.  Approximately $7.6 million more was charged
   to cost of goods sold for hide costs in 1996 than in 1995.  Due to the
   restructuring and turnaround initiatives discussed previously, cost of
   goods sold increased $12.2 million in 1996.  Lower sales volumes and
   prices resulting in approximately $7.0 million lower gross profit in 1996
   than 1995.  The Company also experienced increased conversion costs in
   1996, as it absorbed inefficiencies and other ramp-up expenses associated
   with the Automotive Group's cut-to-pattern initiatives, and as it
   implemented remedial measures to cure quality and delivery problems.

             Selling, General and Administrative Expenses.  Selling, general
   and administrative expenses in 1996 were $24.9 million; compared with
   $23.0 million in 1995.  The increase, after adjusting for $0.6 million of
   non-recurring unusual items previously discussed, was principally the
   result of fees paid for outside professional services, including
   management fees paid to Claymore Partners, and executive recruitment fees
   paid in connection with the implementation of the Company's
   reorganization.

             Restructuring Expenses.  In 1996, the Company incurred $3.7
   million of restructuring expenses.  These included severance costs
   associated with the management reorganization previously discussed, costs
   incurred in connection with the closing of the Company's German
   operations, writedown of the lease for the prior corporate headquarters
   space, and writedown of equipment used in certain manufacturing processes
   which the Company intends to sell in 1997.  No restructuring expenses were
   recorded in 1995.

             Interest Expense.  Interest expense in 1996 was $17.2 million,
   $0.9 million lower than that of the prior year.  The decrease was
   principally the result of borrowings which averaged approximately $5.2
   million lower in 1996 than in 1995, and lower amortization of deferred
   financing fees.

             Loss Before Taxes and Extraordinary Items.  The loss before
   taxes and extraordinary items was $31.2 million in 1996, compared to
   income before taxes and extraordinary items of $8.5 million in 1995.
   Lower gross profits and restructuring expenses were the principal drivers
   behind the $39.8 million reduction from 1995 to 1996 in the Company's
   income/(loss) before taxes and extraordinary income.

             Income Tax Provision.  The Company recorded a $11.0 million
   favorable tax provision in 1996, as a result of the operating losses it
   generated, compared with a $4.4 million charge in 1995.  The effective tax
   rate, prior to the inclusion in income of non-deductible amortization of
   goodwill and extraordinary items, was 35.2% in 1996, compared with 38.2%
   in 1995.

             Loss Before Extraordinary Items.  The loss before extraordinary
   items was $20.2 million in 1996, compared with net income before
   extraordinary items of $4.2 million in 1995.  Pre-tax operating losses and
   the slightly lower tax rate were the reasons for the change.

             Extraordinary Items.  In 1995, the Company recorded a $0.4
   million extraordinary gain in connection with the repurchase of $4.0
   million of its Notes.  No extraordinary items were recorded in 1996.

             Net Loss.  The net loss was $20.2 million in 1996, compared to
   net income of $4.6 million in 1995.  The reasons for the loss are
   described above.

   Seasonality

             The Company does not believe that its business is subject to
   seasonal factors which would materially affect its financial performance.
   However, the Company periodically shuts down its manufacturing operations
   during the third and fourth quarter for routine maintenance of such
   facilities.  As a result of these shutdowns, the Company may experience
   modest declines in sales and profitability during these quarters when
   compared to other quarters during the year.  Further, seasonal variations
   in hide quality can impact the Company's financial performance. See Item 1
   of this Form 10-K under the caption "Raw Materials."

   Liquidity and Capital Resources

             General.  The Company's ongoing liquidity requirements arise
   principally from its indebtedness and the funding of working capital.
   Such requirements are primarily driven by mandatory interest and principal
   payments, and fluctuations in raw material costs.  Vendor credit from
   cattlehide suppliers had been typically seven days from date of shipment,
   but during 1997 were generally reduced to cash on delivery, except in such
   situations were suppliers were secured by letters of credit.  The Company
   attributes the imposition of more restrictive terms to concerns of
   suppliers about the Company's financial condition.  The Company borrows
   under its revolving credit facilities to meet its working capital needs.

             The Company used $0.4 million for cash for operations during
   1997, compared with $1.7 million of cash provided by operations during the
   same period of 1996.  The principal reasons for change in cash flow was
   due to the increase in net losses, which were partially offset by the
   increase in cash provided by the reduction of inventory.  Days sales
   outstanding ("DSO") in accounts receivable as of December 31, 1997 were 52
   compared with 49 days as of December 31, 1996.  The increase in DSO was
   primarily due to changes in credit terms for certain customers and the
   increase in Automotive sales, which typically carry longer payment terms.

             Capital expenditures totaled $4.0 million during 1997.  This
   represents a decrease of approximately $3.6 million from the same period
   in 1996.

             On December 31, 1997, the Company's aggregate indebtedness was
   $173.5 million, compared with $162.1 million for the same date in 1996.
   This consisted of $135.6 million of principal and accrued interest on its
   Notes and $37.9 million borrowed under the Replacement Credit Facility.
   The Replacement Credit Facility was a $65 million facility, maturing on
   October 31, 2001.  Borrowing availability was based on accounts receivable
   and inventory balances, less certain exclusions, amounts already borrowed
   under the facility and letters of credit issued thereunder.

             On January 14, 1998, the Company replaced the Replacement Credit
   Facility with the New Credit Facility, a $55 million revolving credit
   facility which is secured by essentially all the assets of the Company.
   Loan availability is based on the Company's accounts receivable and
   inventories balances after certain exclusions.  The Company entered into
   the New Credit Facility because it (1) provided additional borrowing
   availability, (2) eliminated financial covenants for up to one year, (3)
   offered more favorable pricing, and (4) provided for debtor-in-possession
   and emergence financing terms which the Company considers attractive.
   Availability under the New Credit Facility as of the February 28, 1998 was
   approximately $2.9 million.

             On January 31, 1998, the Company failed to make the semi-annual
   interest payment which was due on its Notes and, as a consequence,
   reclassified the Notes from long term debt to current liabilities.  The
   Company does not have the capital resources necessary to satisfy this
   liability and, as a result, uncertainties exist concerning the Company's
   ability to continue as a going concern.

             On March 25, 1998, the Company announced that it had reached an
   agreement in principle with its shareholders and an informal committee of
   holders of the Notes to convert all of the Notes into 97% of the equity of
   the Company outstanding on the date of conversion.  Upon completion of the
   necessary solicitation process, the Company anticipates that it will file
   a petition with the United States Bankruptcy Court for approval of  a
   prenegotiated Joint Plan of Reorganization and make the exchange of the
   Notes for common stock effective within a reasonable period of time
   thereafter.  There can be no assurances, however, that sufficient votes
   will be obtained to gain approval of the Plan.

   New Accounting Pronouncements

             Information with respect to new accounting pronouncements is
   included in Item 8 of this Form 10-K in the Notes to Consolidated
   Financial Statements.

   Item 8.   Financial Statements and Supplementary Data

             The consolidated financial statements of the Company for the
   three years ended December 31, 1997 are set forth beginning on page F-1 of
   this Form 10-K.  See Item 14 of this Form 10-K under the caption
   "Exhibits, Financial Statement Schedules and Reports on Form 8-K" for a
   complete list of the Company's financial statements and financial
   statement schedules.  The independent public accountants report of Arthur
   Andersen LLP set forth on page F-1 to this Form 10-K includes an
   explanatory paragraph regarding substantial doubts about the Company's
   ability to continue as a going concern.

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

             None.

   Item 10.  Directors and Executive Officers

             The following table sets forth the name, age and position with
   the Company of each person who, as of February 28, 1998, is a director,
   nominee for director, and/or executive officer of the Company:

             Name           Age           Position with the Company


    Anthony Biancanello      58  President and Chief Executive Officer

    Kinzie L. Weimer         47  Senior Vice President, Chief Financial
                                 Officer and Secretary

    David R. Mathison        46  President of the Furniture and Automotive
                                 Groups

    Terry Horne              60  President of the Footwear & Specialty
                                 Leather Group

    Edwin M. Taylor, Jr.     49  Vice President, Human Resources and
                                 Administration

    George B. Stockman       48  Vice President, Environmental Affairs

    Katalin E. Kutasi        41  Director

    Thomas R. Cochill        58  Director

    Michael J. Drabb         64  Director

    Michael L. Pulte         60  Director

             Anthony Biancanello has been a member of the Company's Board of
   Directors since April 1996 and President and Chief Executive Officer of
   the Company since May 1997.  Mr. Biancanello is also President of Berwick
   Capital, Inc., a private investment company he founded in 1990.  Prior to
   this he served as the President and Chief Executive Officer of Laudauer
   Associates, Inc.  Previously, he was the co-founder, in 1976, of The
   Berwick Group, Inc., a general consulting company which he co-managed
   until 1990.  Prior to this, Mr. Biancanello was a senior consultant with
   Arthur D. Little, Inc. from 1972 until 1976, and previously held senior
   systems engineering positions with Sanders Associates, Inc. and the
   Raytheon Company.  Mr. Biancanello also serves as a director of Financial
   Communications Company, Inc.  Mr. Biancanello served as an officer in the
   United States Navy with service in Vietnam.  Mr. Biancanello also serves
   as President and Chief Executive Officer of Leather U.S., Inc. and USLH.

             Kinzie L. Weimer has served as Senior Vice President, Chief
   Financial Officer and Secretary of the Company since December 1996.  Mr.
   Weimer previously served as  Senior Vice President and Chief Financial
   Officer of Dade International Inc. from 1995 to 1996, and as Vice
   President and Chief Financial Officer of Eon Labs, Inc. from 1994 to 1995.
   Mr. Weimer held a variety of  financial management positions in the
   General Electric Company from 1973 through 1993, including graduating from
   GE's Financial Management Program in 1975.  Mr. Weimer has also served,
   since December 1996 as Vice President and Secretary of the Leather U.S.,
   Inc. and USLH.

             David R. Mathison has served as President of the Company's
   Furniture Group since June 1996 and the Automotive Group since December
   1997.  Mr. Mathison was President of Mathison/Murray Coverings, Ltd. from
   1994 to 1997.  Prior to that, Mr. Mathison worked for the Company or its
   predecessors for over ten years, including service as Vice President of
   Sales at Lackawanna Leather from 1984 to 1991 and National Sales Manager
   at Lackawanna Leather from 1981 to 1984.

             Terry Horne has served as President of the Company's Footwear
   and Specialty Leathers Group since April 1997.  Mr. Horne was President of
   Seidel Tanning Corporation from 1995 until he joined the Company in 1997.
   From 1969 until his retirement in 1993, Mr. Horne served the Company and
   its predecessors in a variety of sales management and executive rules,
   including as Executive Vice President from 1991 through 1993.

             Edwin M. Taylor, Jr. has served as Vice President of Human
   Resources and Administration of the Company since August 1996.  Mr. Taylor
   was Director of Human Resources for the Company's Furniture Group from
   1994 until assignment to his present position in 1996.  Previously, Mr.
   Taylor served in increasingly responsible positions in the Human Resources
   functions of Meredith/Burda Printing Company (a subsidiary of R.R.
   Donnelley and Sons Company since 1993) from 1979 to 1994.

             George B. Stockman has served as Vice President of Environmental
   Affairs since January 1995.  Previously, Mr. Stockman was Vice President
   of Manufacturing at the Company's Pfister & Vogel operations from December
   1990 until December 1994, and, prior to 1990 served in a variety of
   technical, environmental and manufacturing positions for Pfister & Vogel
   since 1972.

             Katalin E. Kutasi has been a member of the Company's Board of
   Directors since May 1997.  Ms. Kutasi is a Senior Vice President of Albion
   Alliance LLC and has spent over ten years in the field of restructuring.
   She is currently also a director of Quantegy Acquisition Corp., Riverside
   Millworks, Inc. and Hotel Property Holdings, Inc.

             Thomas R. Cochill has been a member of the Company's Board of
   Directors since July 1997.  Mr. Cochill served as President and CEO of
   Webcraft Technologies, Inc. from 1992 through 1997.  Prior to that, Mr.
   Cochill was President of the Commercial Products Group of the Lehigh
   Press, Inc.  In addition to serving on the Board of the Company, Mr.
   Cochill serves on the Board of Quantegy Acquisition Corp.

             Michael J. Drabb has been a member of the Company's Board of
   Directors since April 1996.  Mr. Drabb has served as Executive Vice
   President and Director of O'Brien Asset Management since 1993, and
   previously, was Executive Vice President of The Mutual Life Insurance
   Company of New York ("MONY") from 1989 until 1992.  From 1987 to 1989, Mr.
   Drabb was President of MONY Capital Management.  In addition to serving on
   the Boards of the Company, Leather U.S., Inc. and USLH, Mr. Drabb is a
   Director of U.S. Foodservice, Inc. and several funds sponsored by the New
   York Life Insurance and Annuity Corporation and MONY.

             Michael L. Pulte has been a member of the Company's Board of
   Directors since April 1996.  Mr. Pulte served The Joseph Horne Co., Inc.
   from 1977 until 1994, including positions as Chairman of the Board,
   President and Chief Executive Officer from 1991 to 1994, Senior Vice
   President, Chief Operating Officer and Director from 1987 to 1991, Senior
   Vice President of Operations and Real Estate from 1979 to 1987 and Vice
   President and Director of Stores from 1977 to 1979.  Previously, Mr. Pulte
   served in a variety of managerial and professional positions with The M.
   O'Neil Company and the J. L. Hudson Company.  Mr. Pulte has been a member
   of several professional and civic association boards, and also serves as a
   Director of Leather U.S., Inc. and USLH.

   Item 11.  Executive Compensation

             The following table sets forth the cash and non-cash
   compensation paid or accrued in 1997, 1996 and 1995 to the current and
   former Chief Executive Officer of the Company, and the four other most
   highly compensated executive officers at the end of 1997 whose combined
   salary and bonus for 1997 exceeded $100,000.

   <TABLE>
   <CAPTION>
                                                                                    Defined
              Name and                                               Other        Contribution
         Principal Position        Year     Salary     Bonus    Compensation(1)      Plans

    <S>                            <C>           <C>   <C>           <C>                    <C>
    Anthony Biancanello            1997          -0-   $50,000       $252,000(2)            -0-
     President and CEO             1996          -0-       -0-               -0-            -0-
                                   1995          -0-       -0-               -0-            -0-

    William F. Loftus              1997          -0-       -0-       $263,299(3)            -0-
     Former President and CEO      1996          -0-       -0-       $382,104(3)            -0-
                                   1995          -0-       -0-               -0-            -0-

    Kinzie L. Weimer               1997     $226,042   $50,000               -0-         $5,758
     Senior Vice President,        1996       $8,333       -0-               -0-           $720
     Chief Financial Officer       1995          -0-       -0-               -0-            -0-
     and Secretary

    David R. Mathison              1997     $103,846   $50,000               -0-         $5,061
     President of the Furniture    1996          -0-       -0-               -0-            -0-
     and Automotive Groups         1995          -0-       -0-               -0-            -0-

    Terry Horne                    1997     $166,764       -0-       $30,000( 4)         $7,098
     President of the Footwear     1996          -0-       -0-       $30,000( 4)         $1,248
     and Specialty Leather         1995          -0-       -0-       $70,000( 4)            -0-
     Group

    Edwin M. Taylor, Jr.           1997     $171,384       -0-               -0-         $7,189
     Vice President, Human         1996      $90,912   $20,000               -0-         $2,652
     Resources and                 1995      $98,466     1,250               -0-         $2,954
     Administration


   (1)  Except as otherwise provided herein, no amounts for executive
        perquisites and other personal benefits, securities or property are
        shown because the aggregate dollar amount per executive is less than
        the lesser of $50,000 or 10% of annual salary and bonus.

   (2)  Amounts paid to Berwick Capital in connection with Mr. Biancanellos'
        service as President and Chief Executive Office pursuant to the
        Company's agreement with Berwick Capital See Item 11 of this Form 10-
        K under the caption "Employment Agreements."

   (3)  Amounts paid to Claymore Partners Ltd. in connection with Mr. Loftus'
        service as President and Chief Executive Office pursuant to the
        Company's agreement with Claymore Partners Ltd.  See Item 11 of this
        Form 10-K under the caption "Employment Agreements."

   (4)  Includes amounts paid pursuant to severance arrangements in
        connection with Mr. Horne's previous employment with the Company and
        its predecessors.
   </TABLE>

   Director Compensation

             The Company pays non-affiliated Directors an annual fee of
   $15,000, plus $1,000 per meeting of the Board they attend ($500 for
   meetings by teleconference).  Additionally, the Company pays non-
   affiliated Directors who are members of Board committees a $500 fee per
   committee meeting held in connection with a Board meeting and a $1,000 fee
   for separate committee meetings, and the chairman of any Board committee a
   $500 quarterly fee.  The Company also reimburses Directors for expenses
   incurred in connection with travel to and from Board and Board committee
   meetings.  Messrs. Cochill, Drabb and Pulte are deemed non-affiliated
   Directors.  Mr. Biancanello, as President and Chief Executive Officer of
   the Company, and Ms. Kutasi, as an employee of an affiliate of the largest
   stockholder of the New Holding Company, are deemed affiliated Directors.

   Long Term Incentive Plans

             All long term incentive plans existing prior to the 1996 Holding
   Company Recapitalization were terminated as of May, 1996.

             Executive Incentive Compensation Plan.  In December 1996, the
   Board of Directors of the Company approved the United States Leather, Inc.
   Executive Incentive Compensation Plan (the "Incentive Plan") for certain
   key executive positions within the Company.  The purpose of the Incentive
   Plan is to motivate the key executive group in the Company to achieve
   certain earnings goals set forth in the Company's annual business plan.
   The amount of each participant's potential award under the Incentive Plan
   (the "Target Award") is determined by the Board of Directors at the
   beginning of each fiscal year as a percentage of such participant's annual
   base salary.  One-half of each participant's Target Award is based on
   attaining the Company's earnings goal (the "Target Portion") and the other
   half is based on a subjective evaluation of the participant's individual
   performance (the "Discretionary Portion").  If the Company exceeds the
   earnings goal of its business plan, the Target Portion of the Target Award
   is increased, with a maximum increase of two times such Target Portion if
   the actual earnings are 50% or greater than the earnings goal; however, in
   no event will the amount paid to a participant in any given year exceed
   twice the Target Award set for such participant.  An aggregate of $203,750
   was awarded under the Incentive Plan with respect to 1997.  No awards were
   made with respect to 1996.

             Executive Equity Ownership Plan.  In December 1996, the Board of
   Directors of the Company approved the United States Leather, Inc.
   Executive Equity Ownership Plan (the "Equity Ownership Plan") for certain
   key executive positions within the Company.  The purpose of the Equity
   Ownership Plan is to incent the selected executives to increase the value
   of the Company, and provide them an opportunity to share in such increased
   value at such time as the Company may be sold by its present owners to new
   owners.  The Equity Ownership Plan provides for each selected executive to
   defer all or part of his or her incentive compensation under the Incentive
   Plan (such incentive compensation to be awarded in the year following that
   in which it is earned) into the Equity Ownership Plan for a maximum of
   three years.  When the Company is sold, amounts deferred will be paid out
   to each participant plus (1) interest accrued at predetermined rates on
   such deferrals, and (2) matching Company contributions based on a formula
   which is governed by the value of the Company at the time of sale.  Such
   matching contributions may range from zero to twice the amount contributed
   by each executive.  If the Company is not sold within the three-year life
   of the Equity Ownership Plan, each participant will be paid the sum of his
   or her deferred incentive compensation plus interest.  The Equity
   Ownership Plan also contains a retention feature which requires each
   participant to forfeit both his or her contributions and any matching
   payments should he or she voluntarily terminate his or her employment with
   the Company prior to the date on which a sale is consummated.  No
   executives participated in the Equity Ownership Plan in 1997.

             Option Grants.  No stock options were granted in 1997 or 1996,
   and none were outstanding from prior years as of December 31, 1997.  All
   rights under stock options granted in prior years terminated with the 1996
   Holding Company Recapitalization.

   Compensation Committee Interlocks and Insider Participation

             The Board of Directors compensation committee consists of Mr.
   Drabb and Mr. Pulte, with Mr. Pulte serving as chairman.  No executive
   officer of the Company has served as a director or member of the
   compensation committee of any other entity of which one or more executive
   officers has served on the Board of Directors of the Company.

   Employment Agreements

             Effective May 15, 1997, the Company entered into an agreement
   with Berwick Capital Inc. ( Berwick')  providing for Anthony Biancanellos'
   service as President and Chief Executive Officer of the Company.  Under
   the terms of this agreement, Berwick is reimbursed at the rate of $2,000
   per work day for work performed by Mr. Biancanello, plus out of pocket
   expenses at cost.  The Company also agreed to indemnify Berwick against
   any liabilities that Berwick may incur in connection with its service to
   the Company under the agreement.

             Effective April 1, 1996, the Company entered into an agreement
   with Claymore Partners Ltd. ("Claymore") providing for, among other
   things, William F. Loftus' service as President and Chief Executive
   Officer of the Company.  Under the terms of this agreement, Claymore also
   agreed to provide the Company with certain financial consulting and
   business planning services.  In exchange for the services provided,
   Claymore is reimbursed at the rate of $200 per hour for work performed by
   partners of Claymore (including Mr. Loftus) and $160 per hour for work
   performed by senior associates of Claymore, plus in each case,
   reimbursement for out of pocket expenses at cost.  The Company also agreed
   to indemnify Claymore against any liabilities that Claymore may incur in
   connection with its service to the Company under the agreement.  The
   agreement with Claymore was terminated in June 1997.

   Item 12.  Security Ownership of Certain Beneficial Owners and Management

             All 100 outstanding shares of the Company's common stock are
   owned by USLH, which is a wholly-owned subsidiary of the New Holding
   Company.  The common stock of the New Holding Company is owned, in its
   entirety, by The Equitable Life Assurance Society of the United States and
   certain of its affiliates (87.23%) and First Plaza Group Trust (12.77%).

   Item 13.  Certain Relationships and Related Transactions

             None.


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

   (a)(1) Consolidated Financial Statements                              Page

          Report of Independent Public Accountants . . . . . . . . . . .  F-1

          Consolidated Statements of Operations for the Years
           Ended December 31, 1997, December 31, 1996 and
           December 31, 1995 . . . . . . . . . . . . . . . . . . . . . .  F-2

          Consolidated Balance Sheets - December 31, 1997
           and December 31, 1996 . . . . . . . . . . . . . . . . . . . .  F-3

          Consolidated Statement of Stockholders' Equity for
           the Years Ended December 31, 1997, December 31, 1996
           and December 31, 1995 . . . . . . . . . . . . . . . . . . . .  F-4

          Consolidated Statements of Cash Flows for the Years
           Ended December 31, 1997, December 31, 1996 and
           December 31, 1995 . . . . . . . . . . . . . . . . . . . . . .  F-5

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

   (a)(2) Financial Statement Schedules

          None

   (b)    Reports on Form 8-K

          The Company filed a Form 8-K dated September 24, 1997 with respect
          to the meeting held that day of the holders of its 10-1/4% Senior
          Notes Due 2003.

   (c)    Exhibits

          The Exhibits filed or incorporated by reference herewith are as
          specified in the Exhibit Index included herein.


   <PAGE>


                                   SIGNATURES

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

   Dated:  March 30, 1998             UNITED STATES LEATHER, INC.


                                      By:  /s/ Anthony Biancanello
                                           Anthony Biancanello
                                           President and Chief Executive
   Officer

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

             Name                        Title                     Date

    /s/Anthony Biancanello  President and Chief Executive     March 30, 1998
    Anthony Biancanello     Officer and Director
                            (Principal Executive Officer)

    /s/Kinzie L. Weimer     Senior Vice President, Chief      March 30, 1998
    Kinzie L. Weimer        Financial Officer and
                            Secretary (Principal Financial
                            Officer and Principal
                            Accounting Officer)

    /s/Katalin E. Kutasi    Director                          March 30, 1998
    Katalin E. Kutasi

    /s/Thomas R. Cochill    Director                          March 30, 1998
    Thomas R. Cochill

    /s/Michael J. Drabb     Director                          March 30, 1998
    Michael J. Drabb


    /s/Michael L. Pulte     Director                          March 30, 1998
    Michael L. Pulte

   <PAGE>

           Supplemental Information to be Furnished With Reports Filed
               Pursuant to Section 15(d) of the Act by Registrants
     Which Have Not Registered Securities Pursuant to Section 12 of the Act

             (c)  No annual report or proxy material has been sent to the
          Company's security holders

   <PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



   To the Board of Directors
   of United States Leather, Inc.:

             We have audited the accompanying consolidated balance sheets of
   United States Leather, Inc. (a Wisconsin corporation) and subsidiaries as
   of December 31, 1997 and 1996, and the related consolidated statements of
   operations, stockholder's equity and cash flows for each of the three
   years in the period ended December 31, 1997.  These financial statements
   are the responsibility of the Company's management.  Our responsibility is
   to express an opinion on these financial statements based on our audits.

             We conducted our audits in accordance with generally accepted
   auditing standards.  Those standards require that we plan and perform the
   audit to obtain reasonable assurance about whether the financial
   statements are free of material misstatement.  An audit includes
   examining, on a test basis, evidence supporting the amounts and
   disclosures in the financial statements.  An audit also includes assessing
   the accounting principles used and significant estimates made by
   management, as well as evaluating the overall financial statement
   presentation.  We believe that our audits provide a reasonable basis for
   our opinion.

             In our opinion, the financial statements referred to above
   present fairly, in all material respects, the financial position of United
   States Leather, Inc. and subsidiaries as of December 31, 1997 and 1996,
   and the results of their operations and their cash flows for each of the
   three years in the period ended December 31, 1997, in conformity with
   generally accepted accounting principles.

             The accompanying consolidated financial statements have been
   prepared assuming that the Company will continue as a going concern.  As
   discussed in Note (16) to the financial statements, the Company's
   recurring losses from operations and an event of default on the Company's
   $130 million 10-1/4% Senior Notes due 2003 resulting from the failure to make
   the January, 1998 debt service payment raise substantial doubt about its
   ability to continue as a going concern.  Management's plans in regard to
   these matters are also described in Note (16).  The consolidated financial
   statements do not include any adjustments relating to the recoverability
   and classification of recorded asset amounts or the amounts and
   classification of liabilities that might be necessary should the Company
   be unable to continue as a going concern.

                                                      /s/ ARTHUR ANDERSEN LLP

   Milwaukee, Wisconsin
   February 19, 1998  (except with respect to the matter
       discussed in Note (16), as to which
       the date is March 25, 1998)

   <PAGE>

                  UNITED STATES LEATHER, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  (Amounts in thousands, except per share data)


                                       For the Years Ended December 31,
                                         1997         1996        1995

   Net Sales                             $305,476    $311,843     $360,660
   Cost of Sales                          297,103     293,111      307,556
                                         --------     -------      -------
   Gross profit                             8,373      18,732       53,104

   Selling, general and
    administrative expenses                24,254      24,916       22,974
   Restructuring expense                       --       3,744           --
   Asset valuation loss                   101,000

   Amortization of intangible
    assets                                  4,631       4,134        3,529
                                         --------    --------      -------
   Income (loss) from operations        (121,512)    (14,062)       26,601
   Interest expense                        19,119      17,159       18,062
                                          -------     -------      -------
   Income (loss) before taxes and
    extraordinary item                  (140,631)    (31,221)        8,539
   Income tax provision (benefit)         (1,273)    (10,999)        4,373
                                         --------    --------      -------
   Net income (loss) before
    extraordinary item                  (139,358)    (20,222)        4,166
   Extraordinary item, net of tax              --          --          417
                                         --------    --------      -------
   Net income (loss)                   ($139,358)   ($20,222)       $4,583
                                         ========    ========      =======
   Per Common Share Data:
   Net income (loss) before
    extraordinary item               ($1,393,580)  ($202,220)      $41,660
   Extraordinary item                          --           -        4,170
                                       ----------    --------      -------
   Basic and diluted earnings per
    share                            ($1,393,580)  ($202,220)      $45,830
                                       ==========    ========      =======



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


   <PAGE>

                  UNITED STATES LEATHER, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
             (Amounts in thousands, except share and per share data)

                         ASSETS                       As of December 31,
                                                       1997         1996
   Current Assets:
     Cash                                             $1,054        $2,894
     Accounts receivable, less allowances
       of $2,587 and $2,892                           32,336        35,819
     Inventories                                      43,330        64,749
     Prepaid expenses and other                          822         1,228
     Refundable income taxes                              --         2,700
                                                     -------       -------
        Total current assets                          77,542       107,390

   Property, Plant and Equipment:
     Land                                              2,213         2,213
     Buildings and improvements                       18,780        18,424
     Machinery and equipment                          56,766        57,178
     Furniture and fixtures                            2,438         2,746
     Other                                             6,069         6,043
                                                     -------       -------
                                                      86,266        86,604
     Less-Accumulated depreciation                  (43,886)      (36,811)
                                                     -------       -------
     Property, plant and equipment, net               42,380        49,793

   Other Long-Term Assets:
     Goodwill, net of amortization of
       $22,115 in 1996                                    --       101,371
     Other                                             6,280         6,268
                                                     -------       -------
        Total assets                                $126,202      $264,822
                                                     =======       =======
       LIABILITIES AND STOCKHOLDER'S EQUITY

   Current Liabilities:
     Current maturities of long-term debt           $130,144          $210
     Revolving credit facility                        37,932        31,795
     Payable to bank                                   1,778         5,358
     Accounts payable                                  7,335         7,898
     Accrued liabilities                              18,438        17,352
     Income taxes payable                                 --           105
     Deferred income taxes                                --           555
                                                     -------       -------
        Total current liabilities                    195,627        63,273

   Long-Term Liabilities:
     Long-term debt, less current maturities              --       130,047
     Deferred income taxes                                --           794
     Other long-term liabilities                       8,843         9,635

   Stockholder's Equity:
     Preferred Stock, $.01 par value-5,000,000
       shares authorized, no shares issued                --            --
     Common Stock, voting, $.01 par value-
       35,000,000 shares authorized,
       100 shares issued                                   1             1
     Additional paid-in capital                       92,344        92,344
     Cumulative translation adjustment                  (95)         (112)
     Accumulated deficit                           (170,518)      (31,160)
                                                    --------      --------
        Total stockholder's equity/(deficit)        (78,268)        61,073
                                                     -------       -------
        Total liabilities and stockholder's
          equity                                    $126,202      $264,822
                                                     =======       =======

    The accompanying notes are an integral part of these consolidated balance
   sheets.

   <PAGE>


   <TABLE>
                  UNITED STATES LEATHER, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
                             (Amounts in thousands)
   <CAPTION>
                                            Common   Additional  Cumulative   Accumulated        Total
                                            Stock     Paid-in    Translation    Deficit      Stockholder's
                                                      Capital    Adjustment                     Equity

   <S>                                        <C>       <C>         <C>         <C>               <C>
   BALANCE, December 31, 1994                    $1     $92,344           --    ($14,298)          $78,047
      Net Income                                 --          --           --        4,583            4,583
      Cumulative Translation Adjustment          --          --        (192)           --            (192)
      Common Stock Dividends                     --          --           --      (1,173)          (1,173)
                                              -----     -------      -------     --------         --------
   BALANCE, December 31, 1995                    $1     $92,344       ($192)    ($10,888)          $81,265
                                              =====     =======      =======     ========         ========
      Net Loss                                   --          --           --     (20,222)         (20,222)
      Cumulative Translation Adjustment          --          --           80           --               80
      Common Stock Dividends                     --          --           --         (50)             (50)
                                              -----     -------      -------     --------         --------
   BALANCE, December 31, 1996                    $1     $92,344       ($112)    ($31,160)          $61,073
                                              =====     =======      =======     ========         ========
      Net Loss                                   --          --           --    (139,358)        (139,358)
      Cumulative Translation Adjustment          --          --           17           --               17
      Common Stock Dividends                     --          --           --           --               --
                                             ------     -------      -------     --------         --------
   BALANCE, December 31, 1997                    $1     $92,344        ($95)   ($170,518)        ($78,268)
                                             ======     =======      =======     ========         ========

   </TABLE>

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


   <PAGE>

                  UNITED STATES LEATHER, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Amounts in thousands)

                                           For the Years Ended December 31,
                                             1997         1996       1995
   Cash Flows from Operating Activities:
      Net income (loss)                    ($139,358)    ($20,222)   $ 4,583
      Adjustments to reconcile net
       income (loss) to net cash
       provided by operating activities:
      Depreciation and amortization            12,671       11,121     9,718
      Noncash loss on asset disposals             412           55         9
      Noncash gain on extraordinary item           --           --     (417)
      Noncash interest expense                    946        1,213     1,455
      Deferred income taxes                   (1,349)     (10,773)      (21)
      Asset valuation loss                    101,000           --        --
      Change in assets and liabilities:
        Accounts receivable                     3,483        8,784     2,774
        Inventories                            21,419        9,137   (1,728)
        Prepaid expenses and other                406          213     1,921
        Other assets                          (2,372)            9     1,791
        Accounts payable                        (563)      (2,469)   (4,010)
        Accrued liabilities                     1,086        4,349     (528)
        Income taxes payable/receivable         2,595      (2,335)       772
        Other long-term liabilities             (792)        2,664   (3,791)
                                             --------     --------   -------
        Net cash (used)/provided by             (416)        1,746    12,528
          operating activities

   Cash Flows from Investing Activities:
      Capital expenditures                    (3,998)      (7,612)   (9,028)
      Acquisition of A.R. Clarke & Co.,
        Limited                                   --           --   (4,914)
                                            --------     --------  --------
      Net cash used in investing
        activities                            (3,998)      (7,612)  (13,942)
                                             --------     --------  --------
   Cash Flows from Financing Activities:
      Payments of revolving credit          (190,780)     (93,049)  (76,648)
       facility
      Borrowings under revolving credit       196,917       98,234    82,258
       facility
      Net change in payable to bank           (3,580)          334       890
      Senior debt refinancing fees                 --      (1,240)        --
      Purchase of Senior Notes                     --           --   (3,280)
      Payment of long-term debt                    --        (163)      (43)
      Payment of common stock dividends            --         (50)   (1,173)
                                             --------     --------  --------
      Net cash provided by financing
       activities                               2,557        4,066     2,004
                                             --------     --------  --------
   Effect of Exchange Rate Changes on
     Cash                                          17           80     (192)
                                             --------     --------  --------
   Net (decrease) increase in cash            (1,840)      (1,720)       398
   Cash, beginning of period                    2,894        4,614     4,216
                                             --------     --------  --------
   Cash, end of period                        $ 1,054      $ 2,894   $ 4,614
                                             =========    ========  ========
   Supplemental cash flow disclosures:
     Interest paid                            $18,228      $15,963   $16,663
     Income taxes                             (1,826)      (1,684)     5,021


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

   <PAGE>
                  UNITED STATES LEATHER, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996

             (Amounts in thousands, except share and per share data)

   (1)  Basis of Presentation

   1996 Holding Company Recapitalization:

             On April 9, 1996, a series of transactions were completed with
   the consent of United States Leather, Inc. ("the Company") which resulted
   in a change in the ultimate ownership of the Company from U.S. Leather
   Holdings, Inc. ("Old Holdings") to Leather U.S., Inc. (the "New Holding
   Company").  Old Holdings had been in default under its senior debentures
   (the "Old Holdings Debentures") due to the noncompliance by Old Holdings
   of a financial covenant contained in the Old Holdings Debentures as of
   December 31, 1995.

             The holders of the Old Holdings Debentures foreclosed, with Old
   Holdings consent, on their security which was the stock of Old Holdings'
   direct subsidiary, United States Leather Holdings, Inc. ("USLH"), the
   immediate parent of the Company.  Such foreclosure resulted in the
   satisfaction and cancellation of the Old Holdings Debentures.  The
   covenant default, and the subsequent consensus foreclosure, did not
   constitute a default or a change in control under the terms of the
   Company's existing public or bank debt.

             Such foreclosure resulted in the elimination of any ownership in
   the Company by Bear Stearns Acquisition Corp. VII, the majority
   shareholder of Old Holdings, and vested complete ultimate share ownership
   in the Company in The Equitable Life Assurance Society of the United
   States and certain of its affiliates and First Plaza Group Trust.  The
   nominees of Bear Stearns Acquisition Corp. VII resigned from the Board of
   Directors of the Company and were replaced by nominees of the New Holding
   Company.

             Subsequent to August, 1996, the Company is a direct subsidiary
   of USLH, which, in turn, is a direct subsidiary of New Holdings Company.
   The New Holding Company and USLH have no assets other than the shares of
   common stock of their respective subsidiaries, and have no independent
   operations.

   Financial Restructuring:

             The Company's financial statements for the year ended December
   31, 1997 have been prepared on a going concern basis which contemplates
   the realization of assets and settlement of liabilities and commitments in
   the normal course of business.  As discussed in Note (16) to the financial
   statements, the Company's recurring losses from operations and an event of
   default on the Company's $130 million 10-1/4% Senior Notes due 2003 resulting
   from the failure to make the January 1998 debt service payment raise
   substantial doubt about its ability to continue as a going concern.
   Management's plans in regards to these matters are also described in Note
   (16).

   (2)  Summary of Significant Accounting Policies

   Revenue recognition:

             Revenue is recognized upon shipment of the Company's products.

   Consolidation

             The consolidated financial statements include the accounts of
   the Company and its wholly owned subsidiaries.  All intercompany accounts
   and transactions have been eliminated.

   Cash:

             The Company considers all highly liquid investments with a
   maturity of three months or less when purchased to be cash equivalents.

   Inventories:

             Substantially all of the Company's inventories are valued at the
   lower of cost, determined on a last-in, first-out (LIFO) basis, or market.
   Inventory costs include raw material, primarily cattlehides, labor and
   factory overhead.

   Property, plant and equipment:

             Property, plant and equipment are stated at cost.  Property,
   plant and equipment is depreciated on a straight-line basis over the
   following estimated useful lives:

                                                Years

                  Buildings and improvements       30
                  Machinery and equipment          10
                  Furniture and fixtures            7
                  Computer equipment                3

   Goodwill:

             Goodwill is amortized on a straight-line basis over 40 years.
   The Company continually evaluates whether later events and circumstances
   have occurred that indicate the remaining estimated useful life of
   goodwill may warrant revision or that the remaining balance of goodwill
   may not be recoverable.  When factors indicate that goodwill should be
   evaluated for possible impairment, the Company uses an estimate of the
   related segment's discounted net cash flows over the remaining life of its
   assets in measuring whether the goodwill is recoverable.  Amortization
   expense was $3,168, $3,497, and $3,177,  for 1997, 1996 and 1995,
   respectively.  See Note (15) for further discussion on the 1997 assessment
   of the Company's goodwill and its impairment.

   Other Assets:

             Other assets include $5,202 and $5,306 of deferred financing
   costs at December 31, 1997 and 1996, respectively.  These costs are
   amortized as interest expense over the terms of the related debt.  Such
   expense was $926, $1,093 and $1,329 for 1997, 1996 and 1995, respectively.

   Accrued liabilities:

             Accrued liabilities include $5,583 and $5,752 of accrued
   interest payable as of December 31, 1997 and 1996, respectively.

   Payable to bank:

             Payable to bank represents outstanding checks written by the
   Company in excess of cash balances.  This amount is classified as a
   current liability by the Company.

   Income taxes:

             The Company accounts for income taxes under Statement of
   Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
   Taxes."  Under the liability method prescribed by SFAS No. 109, deferred
   taxes are provided based upon enacted tax laws and rates applicable to the
   periods in which the taxes become payable.

   Net income (loss) per share:

             In 1997, the Financial Standards Board issued Statement of
   Financial Accounting Standard No. 128 ("SFAS 128") "Earnings Per Share".
   This statement established a new standard for computing and presenting
   earnings per share.  Basic earnings per share has been computed based on
   the weighed average number of common shares outstanding (100 in each of
   1997, 1996, and 1995).  Diluted earnings per share is the same as basic
   earnings per share in each of 1997, 1996, and 1995 as there are no
   dilutive securities.

   Research and development:

             Research and development costs are expensed as incurred.
   Expenses were $1,904, $2,333 and $2,402 for 1997, 1996 and 1995,
   respectively.

   Refinancing expense:

             The Company incurred expenditures of $369 and $1,225 in 1997 and
   1996, respectively, in relation to the refinancing of the revolver
   discussed in Note (8).  These expenditures have been capitalized as
   deferred financing costs and are included in Other Assets.

   Use of estimates:

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

             The Company's operations are affected by changes in the price of
   hides.  Hides are the key raw material component for the Company's
   business.  Hides are a by-product of the cattle slaughtered to meet the
   worldwide demand for beef and beef products.  Hide prices are subject to
   cyclical, seasonal and other market fluctuations.  Historically, the
   Company has been generally successful in passing along hide price
   increases to customers unless the demand for finished leather was weak.
   Such increases take time to implement and when hide prices rise
   significantly in a short period of time the Company's margins have
   suffered until such time as the finished leather price increases are fully
   implemented.  Such finished leather price increases, however, may also
   impact demand for leather goods by prompting customers to consider
   alternative materials, especially in the furniture and automotive
   segments.  Hide price increases and decreases immediately impact the
   Company's cost of goods sold because the Company recognizes such changes
   through its LIFO method of accounting.  Coupled with delays in passing
   such changes through to selling prices for finished products, hide price
   fluctuations have had a material impact on the Company's reported
   financial results.

   Foreign currency translation:

             Foreign currency balance sheet accounts are translated into U.S.
   dollars at the rates of exchange in effect at fiscal year end.  Income and
   expenses are translated at the average rates of exchange in effect during
   the year.  The related translation adjustments are made directly to a
   separate component of stockholder's equity.

   Reporting comprehensive income:

             In June 1997, the Financial Accounting Standards Board issued
   Statement No. 130, "Reporting Comprehensive Income" ("SFAS 130") which is
   effective for periods beginning after December 15, 1997, including interim
   periods.  SFAS 130 establishes standards for reporting and displaying
   comprehensive income and its components in a full set of general-purpose
   financial statements, either in the statement of operations or a separate
   statement.  Additionally, SFAS 130 requires the display of the accumulated
   balance of other comprehensive income.  Adoption of this standard will not
   have a material impact on the financial statements of the Company.

   Reclassifications

             Certain financial statement amounts have been reclassified to be
   consistent with the 1997 presentation.

   (3)  Description of Business

             The Company, which operates in a single business segment,
   produces a broad line of semi-finished and finished leather and related
   products which are sold domestically and internationally to a diverse
   customer base in three principal markets:

             Furniture Group - The Company, under the trade name Lackawanna
   Leather, is a supplier of upholstery leather to the furniture industry.

             Footwear and Specialty Leather Group - The Company is a producer
   of finished leather for footwear, accessories, sporting goods, apparel and
   other personal leather goods.  Sales are made under the brand names of
   Pfister & Vogel, A.L. Gebhardt, A.R. Clarke and Caldwell-Moser Leather.

             Automotive Group - The Company is a producer of finished leather
   for use in automobile interiors.

             International sales include export sales from the Company's
   domestic operations, and sales by A.R. Clarke, Ltd. (a division of the
   Footwear and Personal Leather Goods Group) to markets other than the
   United States, and sales, prior to discontinuation, from the Company's
   German operations.  International sales for the years 1997, 1996 and 1995
   are as follows:

    Area                       1997          1996          1995

    Asia                      $61,488       $46,471       $53,631
    Europe                     15,315        17,113        16,763
    Americas                   43,885        44,934        49,008
                              -------       -------       -------
       Total                 $120,688      $108,518      $119,402
                              =======       =======       =======

             In June 1997, the Financial Accounting Standards Board issued
   Statement No. 131 "Disclosures about Segments of an Enterprise and Related
   Information" ("SFAS 131") which is effective for fiscal years beginning
   after December 15, 1997.  SFAS 131 establishes standards for the reporting
   of segment information.  The Company is currently evaluating the impact
   this standard will have on future reporting.


   (4)  Purchase of A.R. Clarke & Co., Limited

             On January 30, 1995, the Company purchased substantially all of
   the non-cash assets of A.R. Clarke & Co., Limited of Toronto, Canada for
   $4,914 in cash, plus the assumption of certain liabilities approximating
   $800.  This acquisition was accounted for under the purchase method of
   accounting and accordingly, the acquired company's results of operations
   are included in the Company's consolidated statement of operations
   beginning on January 31, 1995.  No material amount of goodwill arose out
   of this acquisition.  The purchase was financed through borrowings under
   the Company's revolving credit facility.

   (5)  Allowance for Doubtful Accounts

             Information for the allowance for doubtful accounts is as
   follows:

                                    Balance   Additions  Write-offs  Balance
                                   Beginning   Charged     Net of     End of
                                    of Year   to Income  Recoveries    Year

    Year ended December 31, 1997
                                      $2,892        929       1,234    2,587
    Year ended December 31, 1996
                                       3,924      1,752       2,784    2,892
    Year ended December 31, 1995
                                       3,113        927         116    3,924


             The allowance for doubtful accounts is based on management's
   estimate of amounts expected to be uncollectible considering historical
   experience and the information management is able to obtain regarding the
   financial condition of major customers.  Due to the concentration of the
   Company's customers in three key industries (furniture, footwear and
   personal leather goods, and automotive), significant changes in these
   markets could cause management's estimates of uncollectible accounts to
   differ materially from the estimates used in the consolidated financial
   statements as of December 31, 1997.

   (6)  Inventories

             Inventories consisted of the following at December 31:

                                                     1997          1996
    At lower of cost, using the first-in,
     first-out (FIFO) cost method or market:
       Raw materials and supplies . . . . . . .     $14,150       $18,556
       Work-in-process  . . . . . . . . . . . .      17,322        29,655
       Finished goods . . . . . . . . . . . . .      17,975        25,253
                                                    -------      --------
          Total FIFO inventories  . . . . . . .      49,447        73,464
    Difference between FIFO and LIFO cost
     of inventories . . . . . . . . . . . . . .      (6,117)       (8,715)
                                                    -------      --------
          Total LIFO inventories  . . . . . . .     $43,330       $64,749
                                                    =======      ========


             During 1997, inventory quantities were reduced resulting in
   liquidations of LIFO inventory layers carried at lower costs which
   prevailed in prior years.  Had these liquidations occurred at current
   costs the effect of these liquidations would have been  a reduced benefit
   of $3,379.

   (7)  Lease Commitments

             The Company leases certain manufacturing, warehouse,
   transportation and office facilities and equipment.  The leases generally
   require the Company to pay tax, insurance and maintenance expenses
   relating to the leased assets.

             As of December 31, 1997, future minimum lease payments required
   under operating leases are as follows:

                       Year

                       1998                      $363
                       1999                       263
                       2000                       105
                       2001                        56
                       2002                        50
                       Thereafter                   2
                                               ------
                                                 $839
                                               ======

             Rent expense under operating leases for the years ended December
   31, 1997, 1996 and 1995 was $565, $504 and $582 respectively.

   (8)  Revolving Credit Facility

             At December 31, 1997 the Company had a five year, $65,000,
   asset-based revolving credit facility (the "Replacement Credit Facility")
   with a group of banks that was entered into in November 1996.  The
   Replacement Credit Facility was secured by essentially all of the assets
   of the Company  with the exception of real property.  Loans under the
   Replacement Credit Facility bore interest at a rate equal to prime plus
   1.00%.  The Company paid a 0.375% commitment fee on the unused portion of
   the facility.  The terms of the agreement covering the Replacement Credit
   Facility required the Company to, among other things, maintain a minimum
   quarterly ratio of FIFO earnings before interest expense, income tax
   expense, depreciation expense and amortization expense ("FIFO EBITDA")  to
   interest expense, a minimum tangible FIFO asset to total debt ratio and
   minimum EBITDA.  The agreement also included restrictions related to
   capital expenditures and further indebtedness.

             Due to losses incurred in 1996 and 1997, the Company was not in
   compliance with certain financial covenants as of December 31, 1997 and
   1996.  Beginning in February 1997, the Replacement Credit Facility was
   amended several times to (a) eliminate FIFO EBITDA related covenants for
   1996, (b) modify FIFO EBITDA related covenants, (c) increase the available
   reserves for the remainder of 1997 and (d) reduce the maximum amount of
   the credit facility to $65,000 from $80,000.

             The maximum and average outstanding borrowings and the weighted
   average interest rates under the Replacement Credit Facility were
   calculated on daily borrowings outstanding.  Letters of credit were $3,356
   and $7,619 as of December 31, 1997 and 1996, respectively.  These letters
   of credit guaranteed the Company's compliance with certain contractual
   obligations relating to imported raw material purchases.

             Information regarding borrowings under the Revolving Credit
   Facility is as follows:

                                        1997          1996         1995
    At period end -
      Outstanding                     $37,932       $31,795       $26,610
      Interest rate                    9.50%         7.69%         8.10%

    During the period -
      Maximum outstanding             $61,738       $36,842       $43,025
      Average outstanding             $46,914       $24,152       $33,108
      Weighted average interest
        rates                          8.36%         8.17%         8.90%

        On January 14, 1998, the Company replaced the Replacement Credit
   Facility with the New Credit Facility, a $55,000 revolving facility which
   is secured by essentially all the assets of the Company.  Loans under the
   New Revolving Credit Facility bear interest at a rate equal to prime plus
   1.25% or LIBOR plus 3.00%.  The Company pays a 0.375% commitment fee on
   the unused portion of the facility.  The terms of the agreement covering
   the New Revolving Credit Facility require the Company to, among other
   things, beginning in 1999 maintain a minimum  ratio of FIFO earnings
   before interest expense, income tax expense, depreciation expense and
   amortization expense ("FIFO EBITDA")  to fixed charges, a minimum tangible
   net worth and minimum EBITDA.  The agreement also includes restrictions
   related to capital expenditures and further indebtedness.

   (9)  Long-Term Debt

    Long-term debt consisted of the
         following:
                                                      1997            1996
     10 1/4% unsecured Senior Notes due
     2003 (the "Senior Notes") interest
     payable semi-annually January 31,
     and July 31, net of unamortized
     discount of $561 and $661 at
     December 31, 1997 and 1996,
     respectively                                 $129,439        $129,339
    Other                                              705             918
                                                   -------         -------
    Total debt                                     130,144         130,257
    Less - current maturities                    (130,144)           (210)
                                                  --------         -------
    Long-term debt                              $      --         $130,047
                                                  ========         =======

             The terms of the Senior Notes contain certain covenants which
   restrict, among other things, additional indebtedness, restricted payments
   and investments.  These covenants are generally less restrictive than
   those contained in the Replacement Credit Facility.  At December 31, 1996
   the Company did not meet certain financial criteria established by such
   covenants and therefore was prohibited from incurring any additional
   indebtedness as defined in the Senior Note indenture.  Further, an
   acceleration of the amounts borrowed under the Replacement Credit Facility
   after a default would cause a cross-default under the Senior Note
   indenture.

             On January 31, 1998 a semi annual interest payment was due on
   the Senior Notes.  This interest payment was not made and failure to make
   the payment represents an event of default.  As a consequence all of the
   Senior Notes are classified as current at December 31, 1997.  See Note
   (16).

             Based on quoted market prices or dealer quotes, the fair market
   value of the outstanding Senior Notes was $57,200 and $113,100 at December
   31, 1997 and 1996, respectively.  The fair market value of the Replacement
   Credit Facility discussed in Note 8 approximates its book value.

   (10) Income Taxes

             The Company is an indirect wholly-owned subsidiary of the New
   Holding Company and it will join in the filing of a consolidated federal
   income tax return with the New Holding Company.  The income tax provision
   and related tax accounts of the Company are prepared as if the Company
   were filing on a stand-alone basis.

             Income taxes have been provided for (benefitted) in the
   accompanying financial statements as follows:

                                 1997              1996             1995
   Current:
        Federal                $   --          $(2,700)           $3,792
        Foreign                    76               311              280
        State                      --                --              297
                               ------           -------          -------
                                   76           (2,389)            4,369
   Deferred                   (1,349)           (8,610)                4
                              -------          --------          -------
                             ($1,273)         ($10,999)           $4,373
                              =======          ========          =======


             A reconciliation of the statutory Federal income tax rate to the
   effective income tax rate for the year ended December 31 is as follows:

                                            Year ended December 31,
                                           1997        1996       1995

   Statutory Federal income tax rate     ($35.0)%    ($35.0)%     35.0%
   State income taxes, net of Federal
    income tax benefit                     (1.6)      (2.8)        2.3
   Benefit related to foreign sales
    corporation                             --         0.1        (5.5)
   Nondeductible amortization of
    intangibles                             0.8        4.0        13.0
   Asset valuation loss                    24.4         --         --
   Meals and entertainment                  --         0.1         1.0
   Valuation Allowance                     11.6         --         --
   Other                                   (1.1)       (1.6)       5.4
                                           ----        ----       ----
   Effective income tax rate              (0.9)%      (35.2)%     51.2%
                                           ====        ====       ====


             Temporary differences and credits which give rise to deferred
   tax liabilities as of December 31 are as follows:

                                                 1997           1996
   Deferred tax assets:
     Allowance for doubtful accounts             $977          $1,099
     Accrued liabilities                        4,595           3,150
     Other                                        118              87
     Net operating loss carryforward           21,001           7,428
     Valuation allowance                      (16,867)          (500)
                                               ------          ------
        Total deferred tax assets             $ 9,824         $11,264
                                               ------          ------
   Deferred tax liabilities:
     Depreciation                              $5,383          $7,809
     Inventory                                  4,441           4,804
                                               ------          ------
        Total deferred tax liabilities         $9,824         $12,613
                                               ------          ------
        Net deferred tax liability           $     --         $ 1,349
                                               ======          ======

        The Company has tax benefits from net operating loss carryforwards
   for Federal tax totaling $17,340 that expire through 2017.  In addition
   the Company has tax benefits from state net operating loss carryforwards
   for state purposes of $3,661 that expire through 2017.  At December 31,
   1997, the Company has established valuation reserves for such deferred tax
   assets to the extent they are not realizable through the turnaround of
   other temporary differences.

   (11) Stockholder's Equity

   Common Stock

        The Company has 35,000,000 shares of authorized Common Stock, $.01
   par value, 100 shares of which are issued and outstanding.

        Prior to 1996, certain members of management held shares in Old
   Holdings, the Company's ultimate parent.  Under the provisions of the
   stockholders agreement between Old Holdings and the management
   shareholders (the "Stockholders Agreement"), the Company was obligated to
   purchase shares held by management, at the employee's option, at their
   original purchase price (a net amount of approximately $1,870).  In
   January 1996, all of the management shareholders required the Company to
   purchase their Old Holdings shares as provided for in the Stockholders
   Agreement.  Accordingly, the Company paid $1,755 to those shareholders in
   January 1996.

   Preferred Stock

        The Company has 5,000,000 shares of authorized preferred stock, $.01
   par value, none of which was issued and outstanding.  The Board of
   Directors is authorized to issue preferred stock with such voting powers,
   dividends, or other rights as it may deem advisable.

   (12) Profit Sharing and Pension Plans

        Substantially all of the employees of United States Leather, Inc.
   participate in profit sharing plans.  Charges to income relating to these
   plans were $1,527, $1,589 and $1,914 for the periods ending December 31,
   1997, 1996 and 1995, respectively.   Prior to 1995, the Company had
   defined benefit pension plans covering substantially all of the employees
   of Lackawanna and the salaried employees of United States Leather, Inc.
   and Pfister & Vogel.  In 1995, the Company terminated the plans and
   settled the accumulated benefit obligation of $8,981 by making lump-sum
   distributions, and purchasing non-participating annuity contracts.
   Defined benefits were not provided under any successor plan.  As a result,
   the Company recognized a gain of $235 in 1995.

   (13) Incentive Plans

        Executive Incentive Compensation Plan.  In December 1996, the Board
   of Directors of the Company approved the United States Leather, Inc.
   Executive Incentive Compensation Plan (the "Incentive Plan") for certain
   key executive positions within the Company.  The purpose of the Incentive
   Plan is to motivate the key executive group in the Company to achieve
   certain earnings goals set forth in the Company's annual business plan.
   The amount of each participant's potential award under the Incentive Plan
   (the "Target Award") is determined by the Board of Directors at the
   beginning of each fiscal year as a percentage of such participant's annual
   base salary.  One-half of each participant's Target Award is based on
   attaining the Company's earnings goal (the "Target Portion") and the other
   half is based on a subjective evaluation of the participant's individual
   performance (the "Discretionary Portion").  If the Company exceeds the
   earnings goal of its business plan, the Target Portion of the Target Award
   is increased, with a maximum increase of two times such Target Portion if
   the actual earnings are 50% or greater than the earnings goal; however, in
   no event will the amount paid to a participant in any given year exceed
   twice the Target Award set for such participant.  An aggregate of $203,750
   was awarded under the Incentive Plan with respect to 1997.  No awards were
   made with respect to 1996.

        Executive Equity Ownership Plan.  In December 1996, the Board of
   Directors of the Company approved the United States Leather, Inc.
   Executive Equity Ownership Plan (the "Equity Ownership Plan") for certain
   key executive positions within the Company.  The purpose of the Equity
   Ownership Plan is to incent the selected executives to increase the value
   of the Company, and provide them an opportunity to share in such increased
   value at such time as the Company may be sold by its present owners to new
   owners.  The Equity Ownership Plan provides for each selected executive to
   defer all or part of his or her incentive compensation under the Incentive
   Plan (such incentive compensation to be awarded in the year following that
   in which it is earned) into the Equity Ownership Plan for a maximum of
   three years.  When the Company is sold, amounts deferred will be paid out
   to each participant plus (1) interest accrued at predetermined rates on
   such deferrals, and (2) matching Company contributions based on a formula
   which is governed by the value of the Company at the time of sale.  Such
   matching contributions may range from zero to twice the amount contributed
   by each executive.  If the Company is not sold within the three-year life
   of the Equity Ownership Plan, each participant will be paid the sum of his
   or her deferred incentive compensation plus interest.  The Equity
   Ownership Plan also contains a retention feature which requires each
   participant to forfeit both his or her contributions and any matching
   payments should he or she voluntarily terminate his or her employment with
   the Company prior to the date on which a sale is consummated.  No
   executives participated in the Equity Ownership Plan in 1997.

   (14) Environmental Matters

        The Company's production facilities are subject to numerous
   environmental laws and regulations concerning, among other things,
   emissions to the air, discharges to the land, surface, subsurface strata
   and water, and the generation, handling, storage, transportation and
   treatment of waste byproducts and regulation regarding health and safety
   matters.  The Company believes that its business, operations and
   facilities are being operated in substantial compliance in all material
   respects with applicable environmental and health and safety laws and
   regulations.  The Company has been identified as a "potentially
   responsible party" ("PRP") by the EPA at three off-site disposal
   facilities and while it has responded to a section 104(e) request
   concerning its use of another off-site disposal facility, it has not been
   identified as a PRP at this site.  Based on information currently
   available regarding the estimated remediation costs at these sites and the
   Company's relatively minimal contributions to such sites, the Company
   believes that its ultimate liability will not materially adversely affect
   its consolidated financial statements.  In addition, the Company believes
   that it is entitled to indemnification from the previous owners of its
   divisions with respect to any potential liability at three of the four
   sites, although no assurances can be given as to the ability of the
   Company to enforce, or collect any amounts due under, such
   indemnification.

   (15) Long-Lived Assets Including Goodwill

        In 1997, the Company recorded an asset valuation loss of $101.0
   million consisting of $94.0 million of unamortized goodwill and $7.0
   million for assets held for sale. During the third quarter of 1997 the
   Company approved a plan to sell two of its operations:  Caldwell Moser
   Leather Co. and Berlin Leather.  Both operations are part of the Company's
   Footwear and Specialty Leather Group. The Company recorded a pretax charge
   of $7.0 million in the third quarter to reduce the book value of the long-
   lived assets (property, plant, equipment and goodwill) of these operations
   to their estimated aggregated fair market value less costs to sell based
   on a contingent selling arrangement with an investment banker.  The assets
   and sales of these two operations do not represent a material portion of
   the Company's total assets or sales.

        Although the Company began implementing strategic measures in 1996
   which it believes will eventually improve the financial performance of the
   Company, operating losses continued in 1996 and 1997.  Pursuant to SFAS
   No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-
   Lived Assets to be Disposed Of', the Company deemed its long-lived assets
   to be impaired as the future undiscounted cash flows of long-lived assets
   would not be sufficient to recover the carrying value of such assets.  The
   assets therefore were adjusted to their fair value based on the estimated
   present value of expected future cash flows.  As a result, all unamortized
   goodwill was written off with no reduction in the carrying amounts of
   other long-lived assets.

   (16) Financial Restructuring Developments and Going Concern Consideration

        The Company is highly leveraged and certain recent developments have
   had a material adverse effect on the Company's short term liquidity and
   its ability to service its debts.  On January 31, 1998, the Company failed
   to make the semi-annual interest payment which was due on its 10-1/4% Senior
   Notes due 2003 (the "Notes") and, as a consequence, reclassified the Notes
   from long term debt to current liabilities.  The Company does not have the
   capital resources necessary to satisfy this liability and, as a result,
   substantial doubt exists concerning its ability to continue as a going
   concern.

        On September, 24, 1997, the Company announced its intention to
   restructure its debt by converting all or a substantial portion of the
   Notes into equity in the Company.  Since that time, extensive discussions
   have taken place with certain material holders of the Notes to effect such
   an exchange of debt for equity.  On March 25, 1998, the Company announced
   that it had reached an agreement in principle with its shareholders and an
   informal committee of holders of the Notes to convert all of the Notes
   into equity in the Company.  Upon completion of the necessary solicitation
   process, the Company anticipates that it will file a petition with the
   United States Bankruptcy Court for approval of  a prenegotiated Joint Plan
   of Reorganization (the "Plan") and make the exchange of the Notes for
   shares of common stock representing 97% of the then outstanding common
   stock effective within a reasonable period of time thereafter.  There can
   be no assurances, however, that sufficient votes will be obtained to gain
   approval of the Plan.

        Although the Company had incurred losses in each of the last two
   years, it believes that it has implemented measures which will stabilize
   operations and permit it to reverse these losses and become profitable
   again within a reasonable period of time.  The capital restructuring
   provided by the Plan represents an essential step in this stabilization
   and return to profitability because it will (1) create greater liquidity
   and borrowing capacity under the terms of the New Credit Facility, and (2)
   enable the Company to compete more effectively and demand more favorable
   terms from suppliers because it will reduce uncertainties in the
   marketplace regarding the Company's financial stability.  There can be no
   assurances, however, that the measures the Company has implemented nor the
   effect of the restructuring, if approved, will be sufficient to permit the
   Company to remain an ongoing concern.


   <PAGE>

                                  EXHIBIT INDEX

                           UNITED STATES LEATHER, INC.
                           ANNUAL REPORT ON FORM 10-K

     Exhibit   Exhibit
      Number

       3.1     Restated Articles of Incorporation of the Company, as
               amended [Incorporated by reference to Exhibit 3.1 to
               Amendment No. 2 to the Company's Registration Statement
               on Form S-1 (File No. 33-64142)].

       3.2     Bylaws of the Company, as amended [Incorporated by
               reference to Exhibit 3.2 to Amendment No. 2 to the
               Company's Registration Statement on Form S-1 (File No.
               33-64142)].

       4.1     Indenture dated August 2, 1993, between the Company and
               M&I First National Bank, as Trustee, in respect of the
               Company's 103% Senior Notes due 2003, including the form
               of Note [Incorporated by reference to Exhibit 4.5 to
               Amendment No. 2 to the Company's Registration Statement
               on Form S-1 (File No. 33-64142)].

       4.2     Revolving Credit Agreement dated as of January 14, 1998,
               among United States Leather, Inc., A.R. Clarke Limited,
               BankAmerica Business Credit, Inc. and the other banks
               which may become parties thereto.

       10.1    Letter Agreement with Claymore Partners, Ltd.
               [Incorporated by reference to Exhibit 10.1 to the
               Company's Annual Report on Form 10-K for the fiscal year
               ended December 31, 1996].

       10.2    United States Leather, Inc. Executive Incentive
               Compensation Plan [Incorporated by reference to Exhibit
               10.2 to the Company's Annual Report on Form 10-K for the
               fiscal year ended December 31, 1996].

       10.3    United States Leather, Inc. Executive Equity Ownership
               Plan [Incorporated by reference to Exhibit 10.3 to the
               Company's Annual Report on Form 10-K for the fiscal year
               ended December 31, 1996].

       10.4    Letter Agreement with Berwick Capital

       12.1    Statement re: computation of ratios (deficiency) of
               earnings to fixed charges

        21     Subsidiaries of the Company [Incorporated by reference
               to Exhibit 21 to the Company's Annual Report on Form 10-
               K for the fiscal year ended December 31, 1996].

        27     Financial Data Schedule (EDGAR version only)