<PAGE>   1

                                   FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, DC 20549

                 QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
                      THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended September 28, 1996
----------------------------------------
Commission file number 1-6687
                       ------
                           JOHNSTON INDUSTRIES, INC.
                           -------------------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                        Delaware                               11-1749980
                        --------                               ----------
             (State or other jurisdiction of                (I.R.S. Employer
             incorporation or organization)               Identification No.)
                                                     
        105 Thirteenth Street, Columbus, Georgia                 31901
        (Address of principal executive offices)               (Zip Code)

                                 (706) 641-3140
                                 --------------
              (Registrant's telephone number, including area code)

N/A
(Former name, former address and former fiscal year if changed since last
report.)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (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      [ ]

The number of shares outstanding of the Registrant's Common Stock as of
September 28, 1996 was 10,362,874 shares.
<PAGE>   2




                   JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES





                         PART I - FINANCIAL INFORMATION

                                    INDEX





               ITEM 1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
                        
                           Condensed Consolidated Balance Sheets
                        
                           Condensed Consolidated Statements Of Income
                        
                           Condensed Consolidated Statements Of Cash Flows
                        
                           Notes To Condensed Consolidated Financial Statements


               ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                           CONDITION AND RESULTS OF OPERATIONS










                                      2
<PAGE>   3

ITEM 1.      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                   JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS
         (In Thousands of Dollars, Except Share and Per Share Amounts)

<TABLE>
<CAPTION>
                                                                           SEPTEMBER 28,  1996      DECEMBER 30,  1995   
                                                                           -------------------      ------------------
                                                                           (Unaudited)                                             
<S>                                                                       <C>                        <C>                           
ASSETS                                                                                                                             
Current Assets                                                                                                                     
    Cash and Cash Equivalents                                             $        3,510             $        1,471                
    Accounts and Notes Receivable                                                                                                  
       (Less Allowance for Doubtful Accounts                                                                                       
       of $1,823 and $1,772)                                                      41,549                     42,218                
    Income Taxes Receivable                                                        1,416                      1,310                
    Inventories                                                                   58,087                     52,951                
    Prepaid Expenses and Other                                                     3,482                        763                
    Deferred Income Taxes                                                            981                        919                
    Assets Held for Sale                                                           4,651                      5,462                
    Net Assets of Discontinued Operations                                          9,405                     17,793                
                                                                          --------------             --------------                
       Total Current Assets                                                      123,081                    122,887                
                                                                                                                                   
Property, Plant, and Equipment - Net                                             127,231                    109,572                
                                                                                                                                   
Intangible Asset - Pension                                                         2,464                      2,464                
Goodwill                                                                          14,258                                           
Other Assets                                                                       4,970                      5,616                
                                                                          --------------             --------------                
                                                                                                                                   
Total Assets                                                              $      272,004             $      240,539                
                                                                          ==============             ==============                
LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                               
Current Liabilities                                                                                                                
    Current Maturities of Long-Term Debt                                  $        4,388             $          206                
    Accounts Payable                                                              22,846                     26,901                
    Accrued Expenses                                                              15,885                     12,422                
                                                                          --------------             --------------                
       Total Current Liabilities                                                  43,119                     39,529                
                                                                                                                                   
Long-Term Debt                                                                   147,275                    110,758                
Other Liabilities                                                                 14,678                     13,791                
Deferred Income Taxes                                                              7,894                      3,314                
Commitments and Contingencies                                                                                                      
Minority Interest in Consolidated Subsidiary                                                                 17,968                
                                                                                                                                   
Stockholders' Equity:                                                                                                              
    Preferred Stock, par value $.01 per share;                                                                                     
       Authorized 3,000,000 shares; Issued                                                                                         
       325,000 shares and 0 shares                                                     3                                           
    Common Stock, par value $.10 per share;                                                                                        
       Authorized 20,000,000 shares; Issued                                                                                        
       12,449,391 and 12,426,891 shares                                            1,250                      1,243                
    Additional Paid-In Capital                                                    23,655                     17,293                
    Retained Earnings                                                             46,233                     46,505                
                                                                          --------------             --------------                
    Total                                                                         71,141                     65,041                
                                                                                                                                   
    Less Treasury Stock, 2,086,517 and 1,861,912                                                                                   
       shares at cost                                                            (10,349)                    (8,108)               
    Less Minimum Pension Liability Adjustment, Net                                                                                 
       of Tax Benefit                                                             (1,754)                    (1,754)               
                                                                          --------------             --------------                
    Stockholders' Equity                                                          59,038                     55,179                
                                                                          --------------             --------------                
                                                                                                                                   
Total Liabilities and Stockholders' Equity                                $      272,004             $      240,539                
                                                                          ==============             ==============                
</TABLE>
See notes to condensed consolidated financial statements.




                                      3
<PAGE>   4

                   JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
            CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
              (In Thousands of Dollars, Except Per Share Amounts)

<TABLE>
<CAPTION>
                                                                 FOR THE THREE                       FOR THE THREE         
                                                                 MONTHS ENDED                        MONTHS ENDED          
                                                        SEPTEMBER 28,    SEPTEMBER 30,      SEPTEMBER 28,    SEPTEMBER 30, 
                                                        -------------    -------------      -------------    ------------- 
                                                            1996             1995               1996             1995      
                                                            ----             ----               ----             ----      
<S>                                                      <C>             <C>                  <C>            <C>           
Net Sales                                                $   77,071      $   72,893           $ 242,844      $  250,202    
                                                         ----------      ----------           ---------      ----------    
 Costs and Expenses:                                                                                                       
     Cost of Sales, excluding Depreciation                                                                                 
       and Amortization                                      62,514          62,034             198,781         205,947    
     Selling, General, and Administrative                     6,013           6,668              19,143          20,205    
     Restructuring Charges                                      433                               2,685                    
     Depreciation and Amortization                            5,063           4,497              14,849          12,618    
                                                         ----------      ----------           ---------      ----------    
        Total Costs and Expenses                             74,023          73,199             235,458         238,770    
                                                         ----------      ----------           ---------      ----------    
 Income (Loss) from Operations                                3,048            (306)              7,386          11,432    
                                                                                                                           
 Other Expenses (Income):                                                                                                  
     Interest Expense                                         2,986           1,998               8,173           6,158    
     Interest Income                                            (51)            (27)               (190)           (128)   
     Other - Net                                                407            (216)                115           1,407    
                                                         ----------      ----------           ---------      ----------    
        Total Other Expenses                                  3,342           1,755               8,098           7,437    
                                                                                                                           
 Equity in Earnings (Loss) of Equity Investments                                                                    (40)   
                                                         ----------      ----------           ---------      ----------    
 Income (Loss) from Continuing Operations Before                                                                           
     Tax Provision, Minority Interest in Consolidated                                                                      
     Subsidiary, and Extraordinary Item                        (294)         (2,061)               (712)          3,955    
 Provision (Benefit) for Income Taxes                           (21)           (632)               (424)          1,961    
 (Loss) Income of Minority Interest in Consolidated                                                                        
     Subsidiary from Continuing Operations                                      (65)              1,200            (600)   
                                                         ----------      ----------           ---------      ----------    
 Income (Loss) from Continuing Operations                      (273)         (1,494)                912           1,394    
                                                                                                                           
DISCONTINUED OPERATIONS:                                                                                                   
Income (Loss) from Discontinued Operations of Jupiter                                                                      
    National (less applicable income tax provision                                                                         
    (benefit) of ($70) and (433) for the three months                                                                      
    and $5,037 and $1,348 for the nine months,                                                                             
    respectively) net of minority interest in income                                                                        
    (loss) of $0 and and (489) for the three months and                                                                    
    $1,083 and $676 for the nine months, respectively          (711)           (368)              4,722             423    
Loss on Disposal of Jupiter National, including                                                                            
    provision of $328 for the three months (less                                                                           
    applicable income tax benefit of $377) and $628                                                                        
    for the nine months (less applicable income tax                                                                        
    benefit of $3,178)                                   $    3,178)           (167)             (2,190)                   
                                                         ----------      ----------          ---------      ----------    
Income (Loss) from Discontinued Operations                     (878)           (368)              2,532             423    
                                                         ----------      ----------           ---------      ----------    
                                                                                                                           
EXTRAORDINARY ITEM, (less applicable income taxes of                                                                       
    $323), - Loss on Early Extinguishment of Debt                                                   527                    
                                                         ----------      ----------           ---------      ----------    
        Net Income (Loss)                                    (1,151)         (1,862)              2,917           1,817    
                                                                                                                           
Preferred Dividends                                              41                                  84               -    
                                                         ==========      ==========           =========      ==========    
Earnings (Loss) Applicable to Common Stock                                                                                 
                                                         $   (1,192)     $   (1,862)          $   2,833      $    1,817    
                                                         ==========      ==========           =========      ==========    
</TABLE>


                                      4
<PAGE>   5

                   JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
       CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)- CONTINUED
                    (In Thousands, Except Per Share Amounts)

<TABLE>
<CAPTION>
                                                                FOR THE THREE                           FOR THE NINE
                                                                 MONTHS ENDED                           MONTHS ENDED
                                                       SEPTEMBER 28,       SEPTEMBER 30,       SEPTEMBER 28,       SEPTEMBER 30,    
                                                            1996               1995                1996                1995
                                                    ------------------  ------------------  ------------------  ------------------
<S>                                                     <C>                <C>                  <C>                  <C>         
Earnings (Loss) Per Common Share:                                                                                                
    Continuing Operations                               $       (.03)      $       (.14)        $        .08         $       .13 
    Discontinued Operations                                     (.09)              (.04)                 .23                 .04 
    Extraordinary Item                                                                                  (.05)                    
                                                        ------------       ------------         ------------         ----------- 
       Total                                            $       (.12)      $       (.18)        $        .26         $       .17 
                                                        ============       ============         ============         =========== 
Dividends Per Share                                     $        .10       $        .10         $        .30         $       .30 
                                                        ============       ============         ============         =========== 
Weighted Average Number of Common                                                                                                
    and Common Equivalent Shares Outstanding                  10,363             10,565               10,704              10,659 
                                                        ============       ============         ============         =========== 
</TABLE>



See notes to condensed consolidated financial statements.

                                      
                                      5
                                      
<PAGE>   6

                   JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
          CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                           (In Thousands of Dollars)


<TABLE>
<CAPTION>
                                                                                     FOR THE NINE
                                                                                     MONTHS ENDED
                                                                                     ------------       
                                                                            SEPTEMBER 28,     SEPTEMBER 30,
                                                                            -------------     -------------
                                                                                1996              1995
                                                                                ----              ----  
<S>                                                                          <C>               <C>
Cash Flows from Operating Activities:
Net Income from Continuing Operations                                        $        912      $      1,394
                                                                             ------------      ------------     
Adjustments to Reconcile Net Income from Continuing
    Operations to Net Cash from Operating Activities:
    Depreciation and Amortization                                                  14,849            12,618 
    Provision for Doubtful Accounts                                                   235               150 
    Undistributed Loss in Unconsolidated Affiliates                                                      40  
    Gain on Sales of Assets                                                            91                 8 
    (Increase) Decrease - Assets:                                                                           
       Accounts and Notes Receivable                                               (1,861)           (8,421) 
       Inventories                                                                  3,370             5,925 
       Deferred Income Taxes                                                         (462)               -   
       Other Assets                                                                (1,341)           (2,476)        
    Increase (Decrease) - Liabilities:                                                                      
       Accounts Payable                                                             2,267               (49) 
       Accrued Expenses                                                             2,051               259 
       Income Taxes Payable                                                         1,461            (1,997) 
       Deferred Income Taxes                                                                            140 
       Other Liabilities                                                              949             1,605 
       (Loss) Income in Minority Interest of Consolidated Subsidiary               (1,200)              600 
    Other - Net                                                                                         101 
                                                                             ------------      ------------     
       Total Adjustments                                                           20,409             8,503
                                                                             ------------      ------------     
    Net Cash Provided by Continuing Operations                                     21,321             9,897
                                                                             ------------      ------------     

    Discontinued Operations:
       Income from Discontinued Operations                                          4,722               423  
       Loss on Disposal of Discontinued Operations                                 (2,190)                    
       Cash Provided by Discontinued Operations                                    16,577             1,295  
       Items Not Affecting Cash, Net                                               (9,619)           (4,958)  
                                                                             ------------      ------------     
    Net Cash Provided by Discontinued Operations                                    9,490            (3,240)
                                                                             ------------      ------------     
       Net Cash Provided by Operating Activities                                   30,811             6,657
                                                                             ------------      ------------     

Cash Flows From Investing Activities:
    Additions to Property, Plant, and Equipment                                   (14,893)          (23,226)
    Increase (Decrease) in Non-Operating Accounts Payable                          (6,873)            7,941
    Purchase of Minority Interest in Jupiter National                             (37,693)
    Purchase of T.J. Beall, Net of Cash Acquired                                     333
    Purchases of Investments                                                                         (3,909)
                                                                             ------------      ------------     
       Net Cash Used In Investing Activities                                      (59,126)          (19,194)
                                                                             ------------      ------------     
</TABLE>


                                       6
<PAGE>   7

                   JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - CONTINUED
                           (In Thousands of Dollars)


<TABLE>
<CAPTION>
                                                                                           FOR THE NINE
                                                                                           MONTHS ENDED
                                                                                           ------------
                                                                            SEPTEMBER 28,  1996       SEPTEMBER 30, 1995
                                                                            -------------------       ------------------
<S>                                                                          <C>                      <C>             
Cash Flows From Financing Activities:                                                                                 
    Principal Payments of Long-Term Debt                                          (109,812)                  (4,627)  
    Proceeds From Issuance of Long-Term Debt                                       159,532                   18,053   
    Payments Under Line-of-Credit Agreements                                       (18,000)                 (23,300)  
    Borrowings Under Line-of-Credit Agreements                                       4,750                   25,200   
    Purchase of Treasury Stock, at Cost                                             (2,241)                    (180)  
    Proceeds from Issuance of Common Stock                                             164                       48   
    Extraordinary Item, Loss on Extinguishment of Debt                                (850)                           
    Dividends Paid                                                                  (3,189)                  (3,170)  
                                                                             -------------            -------------   
       Net Cash Provided by Financing Activities                                    30,354                   12,024   
                                                                             -------------            -------------   
Net Increase (Decrease) in Cash and Cash Equivalents                                 2,039                     (513)  
                                                                                                                      
Cash and Cash Equivalents, Beginning of Period                                       1,471                    3,323   
                                                                             -------------            -------------   
Cash and Cash Equivalents, End of Period                                     $       3,510            $        2810   
                                                                             =============            =============   
                                                                                                                      
Supplemental Disclosures of Cash Flow Information:                                                                    
       Interest Paid                                                         $      10,171            $       6,952   
       Income Taxes Paid                                                     $       4,120            $       3,418   
</TABLE>

Supplemental Disclosures of Non Cash Investing Information:
  On March 25, 1996, the Company acquired T.J. Beall in exchange for 325,000
  shares of preferred stock at a stated value of $10 per share.

  In connection with the March 28, 1996 acquisition of the Jupiter National,
  Inc. minority interest, the Company issued 410,514 incentive stock options
  and 99,816 non-qualified stock options with an aggregate value of $2,958,439
  in exchange for certain Jupiter options having a similar value.

See notes to condensed consolidated financial statements














                                      7
<PAGE>   8

                   JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



 1.      BASIS OF PRESENTATION

         The accompanying condensed consolidated financial statements for the
         nine months ended September 28, 1996 and September 30, 1995 are
         unaudited. The September 30, 1995 statements included the accounts of
         Johnston Industries, Inc. ("Johnston"), its wholly owned subsidiaries,
         Southern Phenix Textiles, Inc. ("Southern Phenix") and Opp and Micolas
         Mills, Inc. ("Opp and Micolas"), and its majority-owned subsidiary,
         Jupiter National, Inc. ("Jupiter") and Jupiter's wholly-owned
         subsidiaries, Wellington Sears Company ("Wellington") and Greater
         Washington Investments, Inc. ("GWI").

         On April 3, 1996, after the acquisition by Johnston of the minority
         interest in Jupiter (see note 2), Jupiter was merged into Opp and
         Micolas. At the close of business on June 29, 1996, the name of Opp
         and Micolas was changed to Johnston Industries Alabama, Inc. ("JI
         Alabama"). Southern Phenix and Wellington were merged into JI Alabama
         and Johnston Industries Composite Reinforcements, Inc. ("JICR"
         formerly Tech Tech Textiles, USA), T.J. Beall Company ("TJB") and
         GWI became subsidiaries of JI Alabama.

         The September 28, 1996 statements include the accounts of Johnston,
         its direct wholly owned subsidiary, JI Alabama and its indirect wholly
         owned subsidiaries, JICR, TJB, and GWI (collectively, the "Company").

         In the opinion of management, the unaudited condensed consolidated
         financial statements reflect all adjustments, consisting only of
         normal recurring accruals, necessary for a fair presentation of the
         results for the periods presented. Operating results for the three
         months and nine months ended September 28, 1996 are not necessarily
         indicative of the results that may be expected for the entire year.
         The condensed consolidated financial statements included herein should
         be read in conjunction with the financial statements and notes thereto
         included in the Company's Transition Report on Form 10-K for the
         period July 1, 1995 to December 30, 1995 and in the Company's
         Quarterly Reports on Form 10-Q for the quarters ended June 29, 1996
         and March 30, 1996. Reference is made to the accounting policies of
         the Company described in the notes to consolidated financial
         statements included in the Company's Transition Report on Form 10-K
         for the period July 1, 1995 to December 30, 1995.

2.       JUPITER NATIONAL

         Acquisition of Minority Interest

         On March 28, 1996, the Company consummated the acquisition of the
         remaining outstanding shares of Jupiter at a purchase price of $33.97
         per share. Total purchase consideration was approximately $45,950,000
         which included payments of $39,000,000 to stockholders, and certain
         holders of options to purchase common stock and the assumption of
         certain Jupiter options by Johnston. Other acquisition costs included
         approximately $5,488,000 of merger related expenses paid by Jupiter
         less a reduction for Johnston equity-related deferred taxes of



                                      8
<PAGE>   9

         $1,432,000. The acquisition was accounted for under the purchase
         method of accounting as a "step acquisition" resulting in a partial
         step-up in Jupiter's tangible assets. At September 28, 1996 the
         Company had recorded goodwill of $12,196,000 which will be amortized
         over 20 years.

         The following represents the results of operations on a pro forma
         basis assuming Johnston had owned 100% of Jupiter as of January 1,
         1995. This pro forma information is provided for information purposes
         only. Such pro forma information is based on historical information
         and is not necessarily indicative of the actual results that would
         have been achieved had Johnston purchased the additional shares of
         Jupiter on January 1, 1995, nor is it indicative of future results of
         operations:

<TABLE>
<CAPTION>
                                                                             Nine Months Ended
                                                                             -----------------
                                                                    September 28, 1996    September 30, 1995
                                                                    ------------------    ------------------
         <S>                                                              <C>                   <C>
         Net Sales                                                        $242,844,000          $250,202,000
                                                                    
         Earnings (Loss) from Continuing Operations                           (735,000)            1,102,000
         Earnings (Loss) from Discontinued Operations                        3,769,000            (1,900,000)
         Loss from Extraordinary Item                                         (527,000)             (527,000)
                                                                          ------------          ------------
         Earnings Applicable to Common Stock                              $  2,507,000          $  1,325,000
                                                                          ============          ============
                                                                    
         Earnings (Loss) Per Share                                  
             Continuing Operations                                        $       (.07)         $        .10
             Discontinued Operations                                               .35                  (.18)
             Extraordinary Item                                                   (.05)                 (.05)
                                                                          ------------          ------------
                 Total                                                    $        .23          $       (.13)
                                                                          ============          ============
</TABLE>


         Discontinuance of the Venture Capital Segment

         The Company's management has made the decision to discontinue the
         venture capital investment segment of Jupiter's operations and plans
         to sell all portfolio investments within one year. The Company's
         consolidated financial statements have been modified to separate the
         discontinued operations from those operations which will continue. The
         net assets of the discontinued segment are reflected as a current
         asset on the condensed consolidated balance sheet. The financial
         statements for the prior periods have been restated in order to be on
         a comparable basis.

         Income before taxes from discontinued operations includes net realized
         and unrealized gains from investments of approximately $13,818,000
         less interest expense and operating expenses. The gains from
         investments are mainly due to gains realized on the sale of the
         Company's investment in EMC Corporation, Viasoft, Fuisz and Zoll
         Medical during the nine months ended September 28, 1996.

         For the nine months ended September 28, 1996, the loss after income 
         taxes for the disposal of the discontinued operations include a 
         $2,122,000 write down for the carrying value after considering
         liquidiation plans on disposal of the remaining portfolio investments 
         and related debt as well as a $319,000 provision for future operating 
         costs.




                                      9

<PAGE>   10

3.       RESTRUCTURING CHARGES

         In February 1996, the Company announced that it was closing
         Wellington's Tarboro facility ("Tarboro") in an effort to realign and
         consolidate certain operations, concentrate capital resources on more
         profitable operations and better position itself to achieve its
         strategic corporate objectives. All activities related to the closing
         are expected to be completed within one year of the announcement. In
         December 1995, the Company recorded a write down of $6,532,000 for an
         impairment in the value of Tarboro's property, plant and equipment.
         During the nine months ended September 28, 1996, the Company recorded
         restructuring charges totaling $4,551,000 which includes $1,619,000
         related to write-downs of accounts receivable and inventory, $834,000
         for severance costs, $433,000 for relocating production equipment
         $964,000 for actual operating losses and $910,000 for other costs
         related to the operation. Of these restructuring costs, $1,866,000,
         representing the minority interest (the portion of Wellington not
         owned by Johnston), has been recorded as part of the cost of acquiring
         Jupiter, with the remaining $2,685,000 recorded as an expense on the
         consolidated statement of income.

         The plan for the closing of the Tarboro facility called for
         termination of 168 employees with various job descriptions at the
         facility. As of September 28, 1996, 162 employees had been terminated. 
         Through September 28, 1996 approximately $1,331,000 have been charged
         to the reserves established for the closing. These costs included
         $367,000 related to severance costs.

4.       INVENTORIES

         Inventories consisted of the following at September 28, 1996 and
         December 30, 1995:

<TABLE>
<CAPTION>
                                                        SEPTEMBER 28, 1996        DECEMBER 30, 1995
                                                        ------------------        -----------------
         <S>                                                <C>                       <C>
         Finished Goods                                     $ 28,962,000              $ 22,982,000
         Work-In Process                                       8,876,000                15,595,000
         Raw Materials and Supplies                           20,249,000                14,374,000
                                                            ------------              ------------
         Total                                              $ 58,087,000              $ 52,951,000
                                                            ============              ============
</TABLE>



                                      10
<PAGE>   11

5.       LONG-TERM FINANCING AND SHORT-TERM BORROWINGS

         Long-term debt and short-term borrowings consisted of the following at
         September 28, 1996 and December 30, 1995:

<TABLE>
<CAPTION>
                                                        SEPTEMBER 28, 1996        DECEMBER 30, 1995
                                                        ------------------        -----------------
         <S>                                                <C>                      <C>
         Johnston Industries, Inc.
           Lines of Credit Borrowings                       $          0             $  13,250,000
           Term Loans                                         74,500,000                         0
           Revolving Credit Loans                             75,399,000                45,000,000
           Purchase Money Mortgage Debt                        1,130,000                 1,174,000
                                                            ------------             -------------      
                                                             151,029,000                59,424,000


         Wellington Sears Company
           Revolving Credit Loan                                       0                27,471,000
           Term Loan                                                   0                18,594,000
           Equipment Loans                                             0                 4,806,000
           Amounts Due Former Affiliates
             of Polylok                                            8,000                    13,000
           Other Debt                                            626,000                   656,000
                                                            ------------             -------------      
                                                                 634,000                51,540,000

                                                            ------------             -------------
           Total                                             151,663,000               110,964,000
         Less Current Maturities                              (4,388,000)                 (206,000)
                                                            -----------              ------------
                                                            $147,275,000             $ 110,758,000
                                                            ============             =============
</TABLE>




         Johnston Industries, Inc.
         Credit Agreement

         On March 28, 1996, the Company signed a new credit agreement with a
         syndicate of banks (the "Credit Agreement") to provide aggregate loans
         of up to $160,000,000 to repay existing indebtedness, to provide funds
         used to acquire the remaining outstanding shares of the common stock
         of Jupiter and to finance working capital needs.  The Credit Agreement
         provides for revolving credit loans (the "Revolver") of up to
         $80,000,000, a term loan for $40,000,000 ("Term Loan A") and a term
         loan for an additional $40,000,000 ("Term Loan B"). Borrowings under
         the Revolver and the Term Loan A mature on March 28, 2001, and Term
         Loan B matures on March 28, 2003. The term loans are repayable in
         quarterly installments starting in 1997.

         Covenants and Restrictions

         Under the terms of the Credit Agreement, substantially all assets are
         pledged as collateral for the borrowings under the Credit Agreement.
         The Credit Agreement requires the Company to maintain certain
         financial ratios and specified levels of tangible net worth. The
         Credit Agreement places a limit on the Company's level of capital
         expenditures and its ability to effect certain type of mergers or
         acquisitions. The Credit Agreement permits the Company to pay




                                      11
<PAGE>   12

         dividends on its Common Stock provided it is in compliance with
         various covenants and provisions contained therein, which among other
         things limit dividends and restrict investments to the lesser of (x)
         20% of total assets of the Company, on a fully consolidated basis, as
         of the date of determination thereof, or (y) $5,000,000 for the period
         commencing on January 1, 1996 and ending on December 31, 1996 or (z)
         $5,000,000 plus 50% of cumulative consolidated net income for the
         period commencing January 1, 1997, minus 100% of cumulative
         consolidated net loss for the consolidated entities for such period,
         as calculated on a cumulative basis as of the end of each fiscal
         quarter of the consolidated entities with reference to the financial
         statements for such quarter.

         The Credit Agreement includes covenants which requires the Company to
         maintain certain financial ratios and specified levels of tangible net
         worth. As of September 28, 1996, the Company is in compliance with
         such covenants.

6.       FINANCIAL INSTRUMENTS

         Interest Rate Swaps

         In order to minimize the Company's exposure to the uncertainty of
         floating interest rates, the Credit Agreement requires the Company to
         maintain interest rate protection agreements covering a minimum of 50%
         of the principal amount outstanding under the term loans, as long as
         these loans exceed an aggregate of $40 million. Under the Credit
         Agreement, the Company may elect to pay interest based on either the
         prime rate plus various margins or the LIBOR rate plus various
         margins. Effective June 7, 1996, the Company entered into interest
         rate swap agreements with several lenders whereby it exchanged its
         floating rate obligations under the Credit Agreement on $38 million
         notional principal amount for a fixed rate payment obligation of
         6.705% for a term of three years, with an option to renew for an
         additional two years. Prior to the interest rate swap agreements, the
         Company was paying interest based on a floating rate of 5.535%, based
         on a three month LIBOR rate.

         Cotton Put Contracts

         Depending on the conditions within the cotton market, the Company may
         from time to time purchase cotton puts to reduce or eliminate the risk
         of price fluctuation for its operations using cotton as a raw
         material. At September 28, 1996, the Company owned 900 cotton put
         contracts with a cost of approximately $270,000, a fair value of
         $32,000, and maturity dates of December 6, 1996. During the quarter
         ended September 28, 1996, the Company recorded an unrealized loss on
         valuation of $238,000 related to the 900 put contracts held at
         September 28. Additionally, during the nine months ended September 28,
         1996, the Company executed two transactions in which it bought and
         sold cotton puts realizing a net pre-tax profit of $626,000. The gains
         and losses are included in Other-Net Income on the condensed
         consolidated statements of income. As sales contracts are completed,
         puts covering an analogous amount of raw cotton are to be sold. The
         value of puts owned will be adjusted to market value during the period
         such puts are outstanding.





                                      12
<PAGE>   13

7.       EARNINGS PER SHARE

         Earnings per share for the nine months ended September 28, 1996 and
         September 30, 1995 were calculated based on the weighted average
         number of shares of common and common equivalent shares outstanding
         during the periods.  Earnings per share for the three months ended
         September 28, 1996 and September 30, 1995 were calculated based on the
         weighted average number of shares outstanding only due to the
         antidilutive effect of including common equivalent shares in periods
         reporting a loss. Preferred dividends were deducted from net income to
         compute earnings applicable to common stock. Additionally, earnings
         (loss) per share were computed for continuing operations, discontinued
         operations, and extraordinary item.

8.       INCOME TAXES

         The provision for income taxes from continuing operations as computed
         under Financial Accounting Standards Board Standard No. 109,
         "Accounting for Income Taxes", is comprised of the following for the
         nine months ended September 28, 1996 and September 30, 1995:

<TABLE>
<CAPTION>
                                                                     1996                 1995
                                                                     ----                 ----
             <S>                                                <C>                    <C>
             Federal:
                 Current                                        $   (528,000)          $   915,000
                 Deferred                                            (50,000)              705,000
                                                                ------------           -----------
                                                                    (578,000)            1,620,000

             State:
                 Current                                              77,000               161,000
                 Deferred                                             77,000               180,000
                                                                ------------            ----------
                                                                     154,000               341,000

             Provision (benefit) for income taxes               $   (424,000)           $1,961,000
                                                                ============            ==========
</TABLE>

         The reconciliation of the Company's effective income tax rate to the
         Federal statutory rate from continuing operations of 34% for the nine
         months ended September 28, 1996 and September 30, 1995 follows:

<TABLE>
<CAPTION>
                                                                      1996                1995
                                                                      ----                ----  
             <S>                                                 <C>                   <C>
             Federal income taxes at statutory rate              $  (242,000)          $ 1,345,000

             State income taxes, net of Federal tax benefit          102,000               328,000
             Equity in Income of Majority-Owned Subsidiary          (508,000)              204,000
             Amortization of Goodwill                                155,000
             Other - Net                                              69,000                84,000
                                                                 -----------           -----------
                                                                 $  (424,000)          $ 1,961,000
                                                                 -----------           -----------
             Effective rate                                             59.6%                 49.6%
                                                                 ===========           ===========
</TABLE>

         The significant equity loss from continuing operations has distorted
         the 1996 effective rate which is usually comparable with the effective
         rate for the same period of the prior year.



                                      13
<PAGE>   14

9.       COMMITMENTS AND CONTINGENCIES

         Former Steel Fabrication Operations

         In 1981, a subsidiary of the Company closed a steel fabricating
         facility in Pennsylvania which it had operated before its closing. The
         facility was purchased from the Company and again operated as a steel
         fabricating facility by the new owner for approximately two years and,
         thereafter, was purchased by the present owner who also operated it as
         a steel fabricating facility for about three years. Since that time,
         the facility has been closed for several years but in 1995 the
         facility was being prepared by the present owner to be reopened as a
         rebar steel manufacturing facility.

         In February 1994, the operators of the facility filed a complaint in
         the United States District Court, Eastern District of Pennsylvania,
         Bethlehem Iron Works, Inc. and Steel Structures Corp. vs. Lewis
         Industries, Inc., Charles P. Lewis and Johnston Industries, Inc. No.
         94-CV-0752, against previous owners and operators of the facility,
         including the Company, claiming contamination by a former Johnston
         subsidiary which had operated at the facility before its close in
         1981. The complaint sought to hold predecessors in title and former
         operators at the site responsible for costs alleged to have been
         incurred to remediate the plant site by the present owners. A non-jury
         trial began in the United States District Court for the Eastern
         District of Pennsylvania on July 20, 1995 and was concluded on August
         25, 1995. The plaintiffs' claim, which was revised during the course
         of the trial, alleged environmental cleanup costs and damages of $3.5
         million, including interest through August 22, 1995. The Company
         disputed that the expenditures by the plaintiffs were incurred for
         response to contamination at the site and presented meritorious
         defenses against the imposition of such costs.

         An opinion and order of the Court was entered September 27, 1996. The
         Court found that under the Comprehensive Environmental Response
         Compensation and Liability Act ("CERCLA"), a Federal environmental
         statute, the plaintiffs failed to establish a threat to public health
         or welfare or the environment and therefore could only recover the
         response costs for initial monitoring and assessment in the amount of
         $65,778. The Court in considering the contribution claim filed by the
         Company apportioned the response costs based upon the following
         percentages: the Company 35%, the plaintiffs 65% and the other
         defendants 0%. Pursuant to CERCLA, judgment was entered against the
         Company in the net amount of $23,022 plus prejudgment interest in the
         amount of $3,660.

         The Court also allowed the plaintiffs to recover additional
         expenditures under the Pennsylvania Hazardous Sites Cleanup Act
         ("HSCA"), a Pennsylvania environmental statute. The Court inferred
         that the Pennsylvania General Assembly intended to establish a
         presumption under HSCA that the disposal of hazardous substances
         necessarily poses a threat to public health and natural resources and
         that liability under HSCA is not contingent upon a demonstrated threat
         to public health or the environment. The Court found that under HSCA,
         the plaintiffs could recover response costs in the amount of
         $1,992,705 after deducting the $65,778 already recoverable under
         CERCLA. The Court rejected the plaintiffs' claims that they were
         entitled to an additional $933,135 finding such expenditures to have
         been unnecessary and unreasonable or inappropriate for recovery under
         HSCA. Liability for the recovery under HSCA was apportioned in the
         same percentages as the liability under CERCLA. Accordingly, a
         judgment was entered against the Company for claims under HSCA in the
         net amount of $697,446 plus pre judgment interest in the amount of
         $90,088. The total judgment against the Company for both the CERCLA
         claims and the HSCA claims was $814,216, including prejudgment
         interest.  


                                      14
<PAGE>   15
                                                                       
         A declaratory judgment was also entered for future response
         costs in accordance with the Court's allocation of liability for the
         contribution claims discussed above. The Company's management does not
         believe it prudent to reduce the $2,000,000 reserve established for
         claims asserted in this matter to the total judgment amount of
         $814,216 because of the declaratory judgment and the associated claim
         for additional as yet unspecified damages.

         On October 23, 1996, the Company filed an appeal to the United States
         Court of Appeals for the Third Circuit from the September 27, 1996
         final judgment. The Company secured a stipulated order staying
         execution on the judgment until all rights of appeal have been
         exhausted. On November 7, 1996, the plaintiffs filed a cross-appeal
         with the Court of Appeals for the Third Circuit. Although management
         believes, based upon the currently available facts, that the reserve
         established for this matter is reasonable, the ultimate outcome of the
         Company's appeal and/or the plaintiffs' cross appeal or the range of
         the Company's future potential liability for response costs pursuant
         to the declaratory judgment cannot presently be determined.

         General

         The Company is periodically involved in legal proceedings arising out
         of the ordinary conduct of its business.  Management does not expect
         that any of these legal proceedings or the legal proceedings discussed
         above, will have a material adverse effect on the Company's
         consolidated financial statements or consolidated results of
         operations.

10.      RELATED PARTY TRANSACTIONS

         Redlaw Industries, Inc. ("Redlaw"), a stockholder, is the
         commissioned sales agent for the Company for sales of the Company's
         products into Canada.  For the nine months ended September 28, 1996,
         sales to Redlaw were $662,000 and as of September 28, 1996, accounts
         receivable from Redlaw was $470,000 and consignment inventory placed
         with Redlaw in Canada was $555,000.


                                      15
<PAGE>   16
ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS



GENERAL
 

Johnston Industries, Inc. ("Johnston") is a consolidated entity which includes
its direct wholly owned operating subsidiary, Johnston Industries Alabama,
Inc., and its indirect wholly own subsidiaries, Johnston Industries Composite
Reinforcements, Inc. ("JICR") (formerly Tech Textiles, USA), T.J. Beall Company
("TJB"), and Greater Washington Investments, Inc. ("GWI") (collectively, the
"Company").

The September 30, 1995 consolidated financial statements included the accounts
of Johnston, its wholly owned subsidiaries, Southern Phenix Textiles, Inc.
("Southern Phenix") and Opp and Micolas Mills, Inc. ("Opp and Micolas"), and
its majority-owned subsidiary, Jupiter National, Inc. ("Jupiter") and Jupiter's
wholly-owned subsidiaries, Wellington Sears Company ("Wellington") and Greater
Washington Investments, Inc. ("GWI"), (collectively, the "Company").

On March 28, 1996, the Company acquired the outstanding minority interest in
Jupiter for a total purchase consideration of $45,950,000 which included
payments of $39,000,000 to security holders.  Thereafter, on April 3, 1996,
Jupiter was merged into Opp and Micolas.  At the close of business on June 29,
1996, the name of Opp and Micolas was changed to Johnston Industries Alabama,
Inc. ("JI Alabama"), Southern Phenix and Wellington were merged into JI
Alabama, and JICR, TJB and GWI became subsidiaries of JI Alabama.

Management's operating strategy calls for the divestiture of all non-textile
investments, consisting primarily of the investment portfolio acquired in the
merger, in order to allow management to focus its attention on the Company's
core textile operations.  Accordingly, all non-textile investments and
operations are now held for disposition and the portfolio investment business
is in the process of being marketed and sold.  Through September 28, 1996, the
Company had sold $35,000,000 of publicly traded portfolio investments.  Such
investment portfolio business has been classified as discontinued operations
because such business formerly represented an operating segment of the Company. 
All prior period financial information has been restated in order to reflect
Jupiter and GWI as discontinued operations.

While no assurances can be given, management believes the acquisition of the
minority interest in Jupiter, tactical acquisitions (such as TJB acquisition),
the shutdown of Wellington's unprofitable Tarboro facility (discussed below),
and the disposition of all non-textile operations, combined with continued
implementation of the Company's core operating strategy of product innovation,
capital investment, and aggressive marketing, will result in operational
synergies and will enhance the Company's growth and performance potential.  The
effect of such operational synergies will, however, be realized over time.

RESULTS OF OPERATIONS

Results for the three months and nine months ended September 28, 1996 show
marked improvement in comparison to the same periods ended September 30, 1995. 
While the quarter ended September 30, 1995 experienced record levels in
pricing of the Company's raw materials, prices have subsided and, although
still high, have resulted in improved margins for the third quarter of 1996. 
Markets for the Company's products have strengthened; however, certain segments
of the economy remain weak as reflected in the market for the Company's
upholstery and home furnishings fabrics.  Results for the quarter ended



                                      16

<PAGE>   17
September 28, 1996 were adversely affected by restructuring charges in
connection with relocation of selected manufacturing equipment from
Wellington's Tarboro facility which has been closed.  Restructuring charges
related to the plant closing which were recorded in the quarter ended March 30,
1996 also adversely affected the nine months ended September 28, 1996.

Net sales for the three months ended September 28, 1996 were $77,071,000        
compared to $72,893,000 for the same period in the prior year.  Sales in the
Automotive fabric market increased by $1,377,000, almost double the same period
in 1995.  Sales of Industrial fabrics increased marginally by $981,000 for the
quarter compared to the prior year.  Sales in the Specialty Products market
grew by $3,345,000 reflecting the Company's acquisition of TJB in March of
1996.  Sales of Upholstery/Furniture fabrics grew by $2,405,000 for the quarter
despite a weak market, although sales of Home Products fabrics declined by
$1,611,000 due to a continued weak market for such fabrics.  Apparel fabric
sales dropped by $1,243,000 reflecting the Company's de-emphasis of these low   
margin fabrics.  Net sales for the nine months ended September 28, 1996 were
$242,844,000 compared to $250,202,000 for the nine months ended September 30,
1995.  Most prominent in the sales decline for such nine months compared same
period in 1995 are Industrial and Apparel which dropped by $7,969,000 and
$2,997,000, respectively.  The decline in sales of Industrial fabrics for the
nine months resulted from weakness in demand for abrasives and the Company's
decision to exit markets for duck and certain filtration fabrics which were
produced at JI Alabama's Langdale Plant.  The duck and these particular
filtration fabrics were low margin products manufactured on looms with old fly
shuttle technology.  Exiting these markets is in keeping with management's core
operating strategy of product innovation, and capital investment in
state-of-the-art technology, and focus on higher margin markets.  Discontinued
production of these particular fabrics is not expected to have a material
impact on the Company's operations at the Langdale facility.  Consistent with
the foregoing, sales of low margin Apparel fabrics continue to decline and now
represent less than 2% of the Company's sales.  The Company's management
continues to de-emphasize fabrics and markets with low margins, such as duck
and apparel while focusing on expanding sales of the high margin products and
designs in the decorative fabrics sector of the home furnishings markets.  The
decline in sales of Industrial and Apparel fabrics for the nine months was
partially offset by a $4,273,000 increase in sales of Upholstery/Furniture
fabrics.  Such increase was attributable to increased sales to existing
customers.  Although, this increase reflects the net effect of sales volume to
a large customer which was lost when they discontinued operations which used
the Company's fabrics.

At September 28, 1996, the sales backlog of the Company was approximately
$75,163,000 compared to sales backlog of approximately $64,399,000 at December
30, 1995 and $66,883,000 at September 30, 1995.  The backlog at September 28,
1996 includes approximately $11,282,000 for TJB which would not be reflected in 
the September and December 1995 amounts since these periods preceded the
acquisition of TJB.  Management believes the comparable decrease in sales
backlog (after excluding the TJB backlog) is representative of continued
softness in certain markets served by the Company.

Cost of sales increased slightly in the three months ended September 28, 1996 to
$62,514,000 from $62,034,000 for the comparable 1995 period, reflective of much
improved operating margins, while sales increased by $4,178,000.  Gross margin
was approximately 18.9% for the three months ended September 28, 1996 compared
to approximately 14.9% for the three months ended September 30, 1995 and was
approximately 18.1% for the nine months ended September 28, 1996 compared to
approximately 17.7% for the nine months ended September 30, 1995.  This increase
resulted largely from improvement in the price of raw materials and also from
the Company's efforts to move away from certain low margin products while
pursuing niche markets offering a higher return.  Costs of raw materials have
improved; although they have not returned entirely to the levels experienced
prior to the inflationary period which began early in 1995.  The Company has
generally been unable to pass such increased costs on to its customers, and it
is important



                                      17
<PAGE>   18
to note that the improvement in cost of raw materials are expected to be
realized in improved margins over a period of time as the Company turns its
inventory of goods manufactured during the periods of inflated cost.  However,
management continues to be encouraged by the improvement in gross margin during
the three months and nine months ended September 28, 1996 (18.9% and 18.1%
respectively) versus the transition period ended December 30, 1995 gross margin
of 14%.

Selling, general, and administrative expenses of $6,013,000 for the three
months and $19,143,000 for the nine months ended September 28, 1996 decreased by
$655,000 and $1,062,000, respectively, compared to the same periods in the
prior year.  While no assurances can be given, management believes that
synergies expected to be achieved upon integration of Johnston and Jupiter
operations will result in further reductions in selling, general, and
administrative expenses.  The full impact of the synergies and operational
integration on selling, general, and administrative expenses are expected to be
completely realized during 1997.

In February 1996, the Company announced that it was closing Wellington's Tarboro
plant in an effort to realign and consolidate certain operations, concentrate
capital resources on more profitable operations, and better position itself to
achieve its strategic corporate objectives.  As a result of closing this
facility, the Company recorded a $6,532,000 non-recurring impairment charge
during the transition period ended December 30, 1995 and a further $2,685,000
non-recurring restructuring charge to operations during the nine months ended
September 28, 1996.  Through September 28, 1996, approximately $1,331,000 of
costs have been charged to reserves established for closing of the Tarboro
facility.  (See Note 3 of the condensed consolidated financial statements for
further discussion.)

Depreciation and amortization expense for the three months ended September 28,
1996 increased $566,000 compared to the three months ended September 30, 1995
and depreciation and amortization expense increased $2,231,000 for the nine
months ended September 28, 1996 as compared to the nine months ended September
30, 1995.  The increased depreciation resulted from additional depreciation
based on the Company's capital investment program to upgrade machinery and
equipment to state-of-the-art levels, and to move into new, more profitable,
markets and additional depreciation related to the Company's step-up in basis
of property, plant, and equipment in connection with the Jupiter acquisition.

Interest expense for the three months and nine months ended September 28, 1996
was $2,986,000 and $8,173,000 reflecting increases of $988,000 and $2,015,000,
respectively, as compared to the three months and nine months ended September
30, 1995.  Such increases were reflective of higher average borrowings and
higher average rates through the Company's credit facilities during the three
months and nine months ended September 28, 1996.  The majority of the increased
borrowings were deployed to complete the acquisition of the minority interest in
Jupiter.

There was a provision for income tax benefit of $21,000 for the three months
ended September 28, 1996.  The benefit for income taxes of $424,000 for the
nine months ended September 28, 1996 largely reflects a tax benefit related to
the indirect majority owned subsidiary, Wellington, which was recorded during
the first quarter of 1996.  Additionally, for the three and nine months ended
September 30, 1995, the Company recorded income tax benefit of $632,000 and
provision of $1,961,000 respectively.

The income/loss on the minority interest in consolidated subsidiary from
continuing operations reflects the minority shareholders' proportionate share
in the earnings (losses) for the applicable periods of Wellington through March
28, 1996, the merger date.

As discussed above, the portfolio investment business of Jupiter and GWI is in
the process of being marketed and sold.  Since this business formerly was
treated as an operating segment, such operation has



                                      18
<PAGE>   19
now been classified as a discontinued operation.  Accordingly, the three months
ended September 30, 1995 have been restated reflecting a loss from such
discontinued operations of $368,000 net of tax benefit of $433,000 and minority
interest in loss of $489,000.  Additionally, the nine months ended September    
30, 1995 have been restated reflecting income from such discontinued operations
of $423,000 net of taxes of $1,348,000 and minority interest in income of
$676,000.  For the three months ended September 28, 1996, loss from the
discontinued operations was $711,000 net of applicable tax benefit of $70,000
and for the nine months ended September 28, 1996, income from discontinued
operations was $4,722,000 net of income taxes of $5,037,000 and minority
interest in income of $1,083,000.  Income from discontinued operations for the
nine months ended September 28, 1996 is mainly reflective of gains on the sale
of the Company's investment in EMC Corporation and Viasoft during the quarter
ended March 30, 1996 and gains on the sale of Fuisz and Zoll Medical during the
quarter ended June 29, 1996.  During the nine months ended September 28, 1996,
and in connection with the classification of the investment portfolio business
as discontinued operations, the Company recorded a loss on disposal of Jupiter
of $2,190,000 net of the applicable income tax benefit of $3,178,000.  Such
write-down was recorded to reduce the investments to their estimated fair value
at acquisition date versus the value of these investments held on a long-term
basis.

MATERIAL CHANGES IN FINANCIAL CONDITION

As a result of the merger of Jupiter into a subsidiary of Johnston, the Company
has revalued certain Jupiter assets, mainly inventories and property, plant,
and equipment.  Due to Johnston's previous ownership interest in Jupiter, the
acquisition of the remaining outstanding interest is accounted for a "step
acquisition" resulting in a partial step-up in Jupiter assets.  The Company
recorded such partial step-up in basis on such assets and has recorded
goodwill of $12,196,000 which is to be amortized over 20 years.

LIQUIDITY AND CAPITAL RESOURCES

Working capital at September 28, 1996 was $79,962,000 representing a ratio of
current assets to current liabilities of 2.85 to 1.

On March 28, 1996, the Company signed a new credit agreement with a syndicate
of banks (the "Credit Agreement") to provide aggregate loans of up to
$160,000,000 to repay existing indebtedness, to provide funds used to acquire
the remaining outstanding shares of the common stock of Jupiter and to finance
working capital needs.  The Credit Agreement provides for revolving credit
loans (the "Revolver") of up to $80,000,000, a term loan for $40,000,000 ("Term
Loan A") and a term loan for an additional $40,000,000 ("Term Loan B"). 
Borrowings under the Revolver and the Term Loan A mature on March 28, 2001 and
Term Loan B matures on March 28, 2003.  The term loans are repayable in
quarterly installments starting in 1997.

Under the terms of the Credit Agreement, substantially all assets are pledged
as collateral for the borrowings under the Credit Agreement.  The Credit
Agreement requires the Company to maintain certain financial ratios and
specified levels of tangible net worth.  The Credit Agreement places a limit on
the Company's level of capital expenditures and its ability to effect certain
type of mergers or acquisitions.  The Credit Agreement permits the Company to
pay dividends on its Common Stock provided it is in compliance with various     
covenants and provisions contained therein, which among other things limit
dividends and restrict investments to the lesser of (x) 20% of total assets of
the Company, on a fully consolidated basis, as of the date of determination
thereof, or (y) $5,000,000 for the period commencing on January 1, 1996 and
ending on December 31, 1996 or (z) $5,000,000 plus 50% of cumulative
consolidated net income for the period commencing January 1, 1997, minus 100%
of cumulative consolidated net loss for the consolidated entities



                                      19
<PAGE>   20
for such period, as calculated on a cumulative basis as of the end of each
fiscal quarter of the consolidated entities with reference to the financial
statements for such quarter.

As of September 28, 1996, the Company had outstanding borrowings under the
Credit Agreement of $151,663,000.

Management believes that funds generated from operations and borrowings under
the Credit Agreement (as described above) will be sufficient to meet the needs
of the Company's current operations for at least the next 12 months.

OTHER MATTERS

The Company is involved in litigation.  (See Item I - Legal Proceedings and
Note 9 to condensed consolidated financial statements).

The Company is periodically involved in legal proceedings arising out of the
ordinary conduct of business.  Management does not expect that they will have a
material adverse effect on the Company's consolidated financial position or
results of operations.

RISKS AND UNCERTAINTIES

Except for historical information contained herein, the matters set forth in
this report are forward looking statements which are subject to certain risks
and uncertainties that could cause actual results to differ materially from
those in, or which could be expected based on, such forward looking statements. 
The Company's expectations regarding future sales and profits assume, among
other things, reasonable continued growth in the general economy which affects
demand for the Company's products, and reasonable stability in raw materials
pricing, changes in which affect customer purchasing decisions as well as the
Company's prices and margins.  The costs and benefits of the Company's
discontinuance of Jupiter and GWI portfolio investments and the Tarboro
disposition may vary from the Company's expectations due to various factors
such as:  higher or lower than anticipated proceeds from the sale of assets;
the extent of management's ability to control duplications of costs,
inefficiencies and overhead during the period of phasing out operations; and
the difficulties inherent in forecasting the operating results of an operating
mode different from that which exists at the time the forecast is made.  For a
further discussion of risks and uncertainties associated with the Company's
business, readers are referred to the cautionary statement set forth in Item 1
of the Company's annual report on Form 10-K for the transition period ended
December 30, 1995, which cautionary statement is incorporated by reference
herein.



                                      20
<PAGE>   21

                   JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES

                          PART II.  OTHER INFORMATION


ITEM 1.      LEGAL PROCEEDINGS

         No reportable legal proceedings arose in the quarter ended September
         28, 1996.

         Former Steel Fabrication Operations

         In 1981, a subsidiary of the Company closed a steel fabricating
         facility in Pennsylvania which it had operated before its closing. The
         facility was purchased from the Company and again operated as a steel
         fabricating facility by the new owner for approximately two years and,
         thereafter, was purchased by the present owner who also operated it as
         a steel fabricating facility for about three years. Since that time,
         the facility has been closed for several years but in 1995 the
         facility was being prepared by the present owner to be reopened as a
         rebar steel manufacturing facility.

         In February 1994, the operators of the facility filed a complaint in
         the United States District Court, Eastern District of Pennsylvania,
         Bethlehem Iron Works, Inc. and Steel Structures Corp. vs. Lewis
         Industries, Inc., Charles P. Lewis and Johnston Industries, Inc. No.
         94-CV-0752, against previous owners and operators of the facility,
         including the Company, claiming contamination by a former Johnston
         subsidiary which had operated at the facility before its close in
         1981. The complaint sought to hold predecessors in title and former
         operators at the site responsible for costs alleged to have been
         incurred to remediate the plant site by the present owners. A non-jury
         trial began in the United States District Court for the Eastern
         District of Pennsylvania on July 20, 1995 and was concluded on August
         25, 1995. The plaintiffs' claim, which was revised during the course
         of the trial, alleged environmental cleanup costs and damages of $3.5
         million, including interest through August 22, 1995. The Company
         disputed that the expenditures by the plaintiffs were incurred for
         response to contamination at the site and presented meritorious
         defenses against the imposition of such costs.

         An opinion and order of the Court was entered September 27, 1996. The
         Court found that under the Comprehensive Environmental Response
         Compensation and Liability Act ("CERCLA"), a Federal environmental
         statute, the plaintiffs failed to establish a threat to public health
         or welfare or the environment and therefore could only recover the
         response costs for initial monitoring and assessment in the amount of
         $65,778. The Court in considering the contribution claim filed by the
         Company apportioned the response costs based upon the following
         percentages: the Company 35%, the plaintiffs 65% and the other
         defendants 0%. Pursuant to CERCLA, judgment was entered against the
         Company in the net amount of $23,022 plus prejudgment interest in the
         amount of $3,660.

         The Court also allowed the plaintiffs to recover additional
         expenditures under the Pennsylvania Hazardous Sites Cleanup Act
         ("HSCA"), a Pennsylvania environmental statute. The Court inferred
         that the Pennsylvania General Assembly intended to establish a
         presumption under HSCA that the disposal of hazardous substances
         necessarily poses a threat to public health and natural resources and
         that liability under HSCA is not contingent upon a demonstrated threat
         to public health or the environment. The Court found that


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<PAGE>   22

         under HSCA, the plaintiffs could recover response costs in the amount
         of $1,992,705 after deducting the $65,778 already recoverable under
         CERCLA. The Court rejected the plaintiffs' claims that they were
         entitled to an additional $933,135 finding such expenditures to have
         been unnecessary and unreasonable or inappropriate for recovery under
         HSCA. Liability for the recovery under HSCA was apportioned in the
         same percentages as the liability under CERCLA. Accordingly, a
         judgment was entered against the Company for claims under HSCA in the
         net amount of $697,446 plus pre judgment interest in the amount of
         $90,088. The total judgment against the Company for both the CERCLA
         claims and the HSCA claims was $814,216, including prejudgment
         interest.

         A declaratory judgment was also entered for future response costs in
         accordance with the Court's allocation of liability for the
         contribution claims discussed above. The Company's management does not
         believe it prudent to reduce the $2,000,000 reserve established for
         claims asserted in this matter to the total judgment amount of
         $814,216 because of the declaratory judgment and the associated claim
         for additional as yet unspecified damages.

         On October 23, 1996, the Company filed an appeal to the United States
         Court of Appeals for the Third Circuit from the September 27, 1996
         final judgment. The Company secured a stipulated order staying
         execution on the judgment until all rights of appeal have been
         exhausted. On November 7, 1996, the plaintiffs filed a cross-appeal
         with the Court of Appeals for the Third Circuit. Although management
         believes, based upon the currently available facts, that the reserve
         established for this matter is reasonable, the ultimate outcome of the
         Company's appeal and/or the plaintiffs' cross appeal or the range of
         the Company's future potential liability for response costs pursuant
         to the declaratory judgment cannot presently be determined. (See Note
         9 of the condensed consolidated financial statements.)


ITEM 6.      EXHIBITS AND REPORTS ON FORM 8-K

    (a)    Exhibits

             11      Statements of Computation of Per Share Earnings
             27.1    Financial Data Schedule (Filed Electronically)
             27.2    Financial Data Schedule (Filed Electronically)


    (b)  Reports on Form 8-K

             (I)     None.



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<PAGE>   23

JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES

                                   SIGNATURES



 Pursuant to the requirements of the Securities and Exchange Act of 1934, the
undersigned has duly caused this report to be filed on its behalf by the
undersigned hereto duly authorized.





                                        JOHNSTON INDUSTRIES, INC.
                                     
                                     
                                     
                                     
Dated:  November 12, 1996               By:   /s/ John W. Johnson
                                              -----------------------
                                              John W. Johnson
                                              Vice President
                                              Chief Financial Officer
                                     
                                     
                                     
                                     
                                        By:   /s/ John W. Johnson
                                              -----------------------------
                                              John W. Johnson
                                              (Principal Accounting Officer)
                                                                 









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