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

                               FORM 10-Q

(Mark One)

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR
      15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 1997

                                   OR

[  ]  TRANSACTION REPORT PURSUANT TO SECTION 13 OR
      15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________________ to ______________________

                          COMMISSION FILE NUMBER 1-8040

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

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

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

                                 (713) 622-9171
               (Registrants telephone number, including area code)

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

      As of March 31, 1997, the Registrant had outstanding 994,655 shares of
common stock, par value $1.00 per share.
<PAGE>
                                CONTENTS
                                                            PAGE
                                                            ----
PART I.     FINANCIAL INFORMATION

Item 1. Financial Statements

           Consolidated Balance Sheets ..................    3

           Consolidated Statements of Operations ........    5

           Consolidated Statements of Cash Flows ........    6

           Notes to Consolidated Financial Statements ...    8

Item 2. Management's Discussion and Analysis of Financial
         Condition and Results of Operations ............    9

PART II. OTHER INFORMATION

Item 1. Legal Proceedings ...............................   12

Item 6. Exhibits and Reports on Form 8-K ................   25

                                  2
<PAGE>
PART I.                        FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS.

                          USR INDUSTRIES, INC.

                      CONSOLIDATED BALANCE SHEETS
                              (UNAUDITED)

                                                    MARCH 31,       DECEMBER 31,
                                                      1997              1996
                                                   -----------      -----------
ASSETS
Current Assets:
  Cash and equivalents .......................     $     9,414      $    16,735
  Accounts receivable, net ...................         237,705          184,443
  Inventories ................................          38,251           39,540
  Prepaid expenses and other .................           3,333            7,331
                                                   -----------      -----------
       Total current assets ..................         288,703          248,049
                                                   -----------      -----------
Redeemable preferred stock, related party ....         116,247          144,372

Property, plant and equipment, at cost .......       1,692,113        1,692,113
     Less:  accumulated depreciation .........      (1,627,203)      (1,626,195)
                                                   -----------      -----------
                                                        64,910           65,918
                                                   -----------      -----------
Other ........................................           4,470            4,470
                                                   -----------      -----------
                                                   $   474,330      $   462,809
                                                   ===========      ===========

             See Notes to Consolidated Financial Statements
                              (Continued)

                                  3
<PAGE>
                          USR INDUSTRIES, INC.

                CONSOLIDATED BALANCE SHEETS (CONTINUED)
                              (UNAUDITED)

                                                      MARCH 31,     DECEMBER 31,
                                                         1997           1996
                                                     -----------    -----------
LIABILITIES AND STOCKHOLDERS' EQUITY                    
Current liabilities:
   Accounts payable ..............................   $   319,526    $   264,944
   Accrued expenses ..............................       429,865        469,451
                                                     -----------    -----------
        Total current liabilities ................       749,391        734,395
                                                     -----------    -----------
Long-term obligation under capital lease .........        53,417         53,635

Commitments and contingencies

Stockholders' equity:
  Common stock, par value $1;
    3,500,000 shares authorized, 994,655 shares
    issued and outstanding at March 31, 1997
    and December 31, 1996 ........................       994,655        994,655
Additional paid-in capital .......................       365,461        365,461
Accumulated deficit ..............................    (1,688,594)    (1,685,337)
                                                     -----------    -----------
       Total stockholders' equity ................      (328,478)      (325,221)
                                                     -----------    -----------
                                                     $   474,330    $   462,809
                                                     ===========    ===========

                 See Notes to Consolidated Financial Statements

                                  4
<PAGE>
                              USR INDUSTRIES, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

                                                         THREE MONTHS ENDED
                                                              MARCH 31,
                                                      -------------------------
                                                         1997            1996
                                                      ---------       --------- 
Revenues:
  Net sales ....................................      $ 342,490       $ 314,085
  Rental income ................................         14,250          15,169
  Interest and other income ....................             60             130
                                                      ---------       --------- 
       Total revenues ..........................        356,800         329,384
                                                      ---------       --------- 
Costs and expenses:
  Cost of sales ................................        205,337         215,410
  Selling, general and administrative ..........        148,087         144,365
  Depreciation and amortization ................          1,008           2,513
                                                      ---------       --------- 
       Total costs and expenses ................        354,432         362,288
                                                      ---------       --------- 
Discount on early redemptions
  of redeemable preferred stock ................          5,625           6,500
                                                      ---------       --------- 
Net loss .......................................      $  (3,257)      $ (39,404)
                                                      =========       ========= 
Net loss per common share ......................      $     --        $   (0.04)
                                                      =========       ========= 
Weighted average number of common
     shares outstanding ........................        994,655         994,655
                                                      =========       ========= 

             See Notes to Consolidated Financial Statements

                                  5
<PAGE>
                              USR INDUSTRIES, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

                                                            THREE MONTHS ENDED
                                                                MARCH 31,
                                                          ---------------------
                                                            1997         1996
                                                          --------     --------
Cash flows from operating activities:
  Net loss ...........................................    $ (3,257)    $(39,404)
  Adjustments to reconcile net loss to net
       cash used in operating activities:
    Depreciation and amortization ....................       1,008        2,513
    Discount on early redemptions
       of redeemable preferred stock .................       5,625        6,500
    Changes in components of working capital:
       (Increase) decrease in accounts
          receivable, net ............................     (53,262)     (63,408)
       (Increase) decrease in inventories ............       1,289       12,120
       (Increase) decrease in prepaid expenses
          and other ..................................       3,998         --   
       Increase (decrease) in accounts payable .......      54,582       65,756
       Increase (decrease) in accrued expenses .......     (39,586)      (2,598)
                                                          --------     --------
       Net cash used in operating activities .........     (29,603)     (18,521)
                                                          --------     --------
Cash flows from investing activities:
       Redemptions of investment in
          redeemable preferred stock .................      22,500       26,000
                                                          --------     --------
       Net cash provided by investing activities .....    $ 22,500     $ 26,000
                                                          --------     --------

             See Notes to Consolidated Financial Statements
                              (Continued)

                                  6
<PAGE>
                              USR INDUSTRIES, INC.

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                                   (UNAUDITED)

                                                           THREE MONTHS ENDED
                                                                MARCH 31,
                                                        -----------------------
                                                           1997          1996
                                                        --------       --------
Cash flows from financing activities:
  Payments of long-term lease obligations ........      $   (218)      $   (400)
                                                        --------       --------
Net cash used in financing
    activities ...................................          (218)          (400)
                                                        --------       --------
Net increase (decrease) in cash and
   equivalents ...................................        (7,321)         7,079
Cash and equivalents at beginning of
   period ........................................        16,735          4,794
                                                        --------       --------
Cash and equivalents at end of period ............      $  9,414       $ 11,873
                                                        ========       ========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

      There were no cash interest payments for the three months ended March 31,
1997 and 1996, respectively. Due to its substantial tax loss carryforward and
operating losses, the Company was not required to make cash payments for federal
income taxes during such periods.

             See Notes to Consolidated Financial Statements

                                  7
<PAGE>
         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(1)   SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

      For a summary of significant accounting principles, see Notes to
Consolidated Financial Statements and Note 1 thereof contained in the Annual
Report on Form 10-K of USR Industries, Inc. (the "Company") for the year ended
December 31, 1996, which is incorporated herein by reference. The Company
follows the same accounting policies during interim periods as it does for
annual reporting purposes.

      The accompanying consolidated financial statements are unaudited and have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). In the opinion of management, the unaudited interim
financial statements reflect all adjustments of a normal recurring nature which
are necessary to present fairly the results for the interim periods. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to SEC rules or regulations; however,
the Company believes that the disclosures made are adequate to make the
information presented not misleading. These financial statements should be read
in conjunction with the financial statements and the notes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1996.

(2)  CERTAIN TRANSACTIONS

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

      In view of sudden and significant reductions in defense spending following
the end of the Cold War and the subsequent curtailment or cancellation of
military programs during the third quarter of 1993 the Company agreed to defer
principal payments on certain notes receivable from AeroPanel and to forgive
interest thereon from July 1, 1993 to September 1, 1994. In addition the Company
required AeroPanel to raise substantial new financing as a condition to the
possible restructuring or conversion of such notes. The Company's actions were
deemed necessary and in the best interests of the Company. As of September 1,
1993 AeroPanel fulfilled the first performance milestone required by the Company
by concluding a financing agreement with a commercial factor. The agreement
provided up to $250,000 of cash financing available immediately to AeroPanel
while granting the factor a senior security interest in AeroPanel's assets, as
well as other independent security. Effective during the first quarter of 1994
AeroPanel fulfilled the second condition required by the Company by obtaining
additional loan financing, subordinate to that provided by the factor, of up to
$400,000 in total amount.

                                       8
<PAGE>
      After having successfully completed the performance milestones required by
the Company, during the first quarter of 1994, the Company agreed to restructure
certain notes and accounts receivable from AeroPanel and recognized a non-cash
loss of approximately $144,000. The preferred stock is redeemable by AeroPanel
prior to maturity at December 31, 2003 on a scheduled basis which provides an
incentive discount for early redemption. At December 31, 2003, the preferred
stock falls due and payable in full at par value. The schedule for early
redemption provides an incentive discount of 25% from face value if preferred
stock is redeemed by AeroPanel on or before December 31, 1995; 20% if redeemed
on or before December 31, 1997; 15% if redeemed on or before December 31, 1999;
10% if redeemed on or before December 31, 2001; and 5% if redeemed before
December 31, 2003.

      During the three months ended March 31, 1997 and 1996, AeroPanel made
early redemptions of $28,125 and $32,500 in par value of preferred stock,
respectively. Of course the ability of AeroPanel to continue to redeem its
preferred stock, whether on an accelerated basis or at maturity at December 31,
2003, is dependent upon a number of factors beyond the control of the Company,
including future developments in the aerospace and aircraft markets.

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

    I.  LIQUIDITY AND CAPITAL RESOURCES

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

      As of March 31, 1997 the Company's working capital deficit was $460,688
and the ratio of current assets to current liabilities was 0.4 to 1.0 as
compared to a working capital deficit of $486,346 and current ratio of 0.3 to
1.0 as of December 31, 1996. The Company evaluates its accounts receivable from
time to time and provides an allowance against current operations for accounts
deemed to be uncollectable. On an historical basis, the Company has not
experienced any significant losses from the extension of credit to its
customers.

      As a result of complex litigation and the settlements pertaining thereto,
the Company has been required to bear very substantial legal and related
administrative and travel expenses, as well as increasingly costly and difficult
restrictions on its operations. While settlements of litigation and certain
legal expenses for environmental and related claims during 1991 and 1992 were
eventually caused to be paid directly by insurance carriers, the related direct
and indirect costs and restrictions, particularly restrictions on the Company's
ability to arrange equity financing, new debt agreements or lease financing so
as to remove and replace antiquated production equipment, have badly 

                                       9
<PAGE>
damaged the Company. The combined effect of the foregoing have undermined the
Company's ability to modernize and compete. For further discussion of
environmental litigation matters, see Notes to Consolidated Financial Statements
and Note 10 thereof contained in the Company's 1996 Annual Report on Form 10-K
and Part II, Item 1 of this Quarterly Report on Form 10-Q.

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

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

      Beginning during February 1991 the Company and Safety Light successfully
negotiated individual settlement agreements with five primary insurance carriers
and three excess insurance carriers. Settlement documents were executed covering
the monies and releases to be exchanged between the parties. The insurance
carriers paid $6,050,000 into separate trust accounts administered by parties
unrelated to the Company. Substantially all such amounts were applied to settle
lawsuits, as further described in Part II, Item 1 hereof (see Sections (a) and
(b)). The Company also has settled matters described in such Part II, Item 1
hereof (Section (d)); other claims that may be covered under the various trust
fund agreements; two claims against Safety Light; and insurance actions
discussed in Part II, Item 1 hereof and Section (e) thereto. In January 1992
monies obtained under the initial installment were applied toward defense costs
of matters described in Part II, Item 1 hereof (See Sections (f) and (g)). In
January 1992, the Company and Safety Light negotiated a settlement agreement
with an additional insurance carrier, pursuant to which the insurance carrier
paid two installments, one of which was paid in February 1992 upon execution of
all settlement documents and the other paid in January 1993. Monies have been
placed into a separate trust account for the defense of matters described in
Part II, Item 1 hereof (Section (f) and (g)) and to a separate action naming the
Company and Safety Light. On or about May 1992, the Company and Safety Light
concluded a settlement agreement with three 

                                       10
<PAGE>
primary insurance carriers whereby the insureds will be reimbursed a total of
seventy-five percent (75%) of legal costs and expenses incurred in the matter
described in Section (f) of Part II, Item 1 hereof.

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

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

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

II.  RESULTS OF OPERATIONS

COMPARISON OF THREE MONTHS ENDED MARCH 31, 1997 WITH THREE MONTHS ENDED MARCH
31, 1996.

      For the three months ended March 31, 1997 total revenues increased to
$356,800 compared to $329,384 for the previous year quarter, a net increase of
$27,416. Net sales from manufacturing for the three months ended March 31, 1997
were $342,490 as compared to $314,085 for the prior year quarter. Increased
manufacturing sales of $28,405 were primarily due to increased shipping volumes
rather than to increased price levels. The Company reported net rental income of
$14,250 for the quarter ended March 31, 1997 as compared to $15,169 for the
prior year quarter. The Company's rental income reflects sublease income to a
subsidiary of the Company from a small commercial office property in Morristown,
New Jersey.

      Cost of sales for the current quarter was $205,337 compared to $215,410
for the prior year quarter, a decrease of $10,073. Such decrease is primarily
the result of 

                                       11
<PAGE>
changes in the Company's sales mix to products with lower relative material and
overhead costs.

      Selling, general and administrative expenses for the three months ended
March 31, 1997 were $148,087 compared to $144,365 for the prior year quarter.
The Company includes its legal expenses for litigation in selling, general and
administrative expenses as further discussed in Note 10 to the Consolidated
Financial Statements contained in the Company's 1996 Annual Report on Form 10-K
and Part II, Item 1 hereof. Depreciation and amortization expense decreased to
$1,008 for the three months ended March 31, 1997 compared to $2,513 for the
prior year three month period as a result of certain assets having become fully
depreciated for financial reporting purposes.

      The Company recognized a discount on early redemptions of redeemable
preferred stock of $5,625 for the three months ended March 31, 1997 compared to
$6,500 for the prior year quarter as a result of the issuer of such stock
exercising its right to redeem the stock at a discount prior to maturity.

      Primarily as a result of the foregoing factors, the Company reported a net
loss of $3,257 for the three months ended March 31, 1997 compared to a net loss
of $39,404 for the comparable quarter in 1996.

PART II.  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

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

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

                                       12
<PAGE>
     In early 1985 the Company prevailed against a motion for summary judgment
by the plaintiff seeking judgment that the Company is the successor to USRC.

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

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

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

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

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

      On July 9, 1986, plaintiff filed a Notice of Appeal from the June 20, 1986
judgment. On August 11, 1988 the Appellate Division reversed the lower court's
decision, entered judgment in favor of plaintiff based on plaintiff's absolute
liability claim and remanded the case to the trial court for a new trial on the
issue of damages. By order dated September 19,1988 Safety Light's motion for
re-consideration was denied by the Appellate Division. A petition for
certification to the Supreme Court of New Jersey was granted and oral arguments
were heard on March 12, 1990. On April 2, 1991 Safety 

                                       13
<PAGE>
Light and the Company settled all claims asserted by plaintiff with the
exception of future unknown third party claims against plaintiff relating to the
property and future cleanup costs incurred by plaintiff. Settlement documents
have been finalized and executed by all parties. All monies for this settlement
have been provided by certain insurance carriers of the Company and Safety
Light. On April 3,1991, the Supreme Court modified the Appellate Division's
decision, affirmed the decision and modified and remanded the matter for a new
trial on damages. Because of the aforementioned settlement, this new trial will
not be necessary.

      Claims also were made by T & E Industries in an action brought in the U.S.
District Court for the District of New Jersey, allegedly pursuant to the
Comprehensive Environmental Response, Compensation Liability Act of 1980
("CERCLA") seeking a declaration that defendants are liable for all costs of
cleanup and decontamination, consistent with the National Contingency Plan, of
the site presently known as 422 Alden Street, Orange, New Jersey and seeking a
judgment for "response costs" already incurred and injunctive relief for
enforcing such remedy. Defendants made a motion to dismiss and plaintiffs made a
cross-motion for partial summary judgment against Safety Light. The motions were
heard on February 10, 1988. The Court, through Judge Wolin, found against the
defendants' motion to dismiss and granted T & E's application that Safety Light
is liable under CERCLA for all necessary costs of response incurred by T & E
which are consistent with the National Contingency Plan. The Court, however,
limited T & E's alleged damages and determined, inter alia, that T & E's claim
for attorney's fees are not recoverable response costs under CERCLA.

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

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

                                       14
<PAGE>
      By notice of motion returnable on July 18, 1986, the Company, certain of
the Company's subsidiaries and Safety Light moved for summary judgment
dismissing plaintiff's claims based upon the continued lack of a factual nexus
between their activities and the presence of radon in plaintiffs' homes. The
motion was also based upon the inapplicability of the legal theories advanced by
plaintiffs to these matters. By order dated August 22, 1986, the Court granted
in part and denied in part the motion for summary judgment, ruling that there
remained factual issues preventing the dismissal of certain claims which could
not be resolved without a full plenary hearing. The Court dismissed all causes
of action based upon manufacture of a defective product, breach of an express or
implied warranty, battery and trespass. By the same order, the Court also
consolidated these matters for discovery and trial purposes.

      By order dated January 16, 1987, the Court granted the motion filed by the
Company, certain of the Company's subsidiaries and Safety Light for severance
and separate trial of certain liability and damage issues. The Court directed
that these matters be tried in three separate phases: (1) a Phase I trial
relating solely to plaintiffs' claims that the allegedly contaminated soil
around plaintiffs' homes originated at the former USRC site in Orange, New
Jersey; (2) if plaintiffs are successful in the Phase I trial, a second trial
would follow encompassing all remaining liability issues; and (3) if plaintiffs
are successful again in the Phase II trial, a third trial would follow relating
to the plaintiffs' personal injury and property damage claims.

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

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

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

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

      (c) U.S. ENVIRONMENTAL PROTECTION AGENCY PROCEEDINGS. The U.S.
Environmental Protection Agency ("EPA") has included the Orange, New Jersey site
and the Montclair, Glen Ridge and West Orange sites on the national priorities
list of the Comprehensive Environmental Response Compensation Liability Act of
1980, 42 U.S.C. 9601, et seq., and has notified the Company that it, among
others, may be a potentially responsible party under the Act. The Company has
provided requested information to the EPA. In view of the decision of Judge
Wolin of the U.S. Federal District Court declaring Safety Light a liable party
under CERCLA for the remediation and cleanup for the Orange site, the EPA
completed a Work Plan for Remedial Investigation and Feasibility Study ("RI/FS")
for cleanup of the Orange, New Jersey site. Based on a preliminary review and
certain assumptions about the remediation steps to be undertaken, a consultant
for defendants estimated remediation costs at $4,800,000. EPA has estimated
remediation costs with this property and so called satellite and vicinity
properties at $80,000,000. Defendants agreed to erect a security fence around
the Orange site. An Administrative Consent Order embodying this agreement was
negotiated with EPA and the fence was completed. Four of the same five
preliminary insurance carriers of the Company and Safety Light assumed all the
costs associated with the construction of the security fence. The RI/FS is
currently planned to begin within the near future.

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

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

                                       16
<PAGE>
      During the spring of 1996 counsel for the Company and Safety Light in this
matter advised the EPA that the Company had won litigation settlements from
insurers in multi-million dollar amounts. The total of amounts won to date is
substantially greater than the net worth of the Company. Such proceeds have been
set aside for use in connection with environmental claims, including payment of
legal fees and certain other expenses.

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

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

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

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

                                       17
<PAGE>
      By order dated February 8, 1990, the Licensing Board reconsidered and
modified the stay of the March and August Orders, and required the Company to
make contributions to an escrow fund pursuant to the August 21, 1989 order. The
Atomic Safety and Licensing Appeal Board heard oral argument on the issue of
reconsideration and modification of the stay on March 6, 1990. The Appeal Board
has not yet issued a decision on the imposition of a stay. On April 24, 1990,
the Atomic Safety and Licensing Appeal Board affirmed the Licensing Board's
February 8, 1990 Order. On August 3, 1990, the Company filed a timely petition
for review of the Appeal Board's decision in the United States Court of Appeals
for the District of Columbia Circuit. That appeal has been stayed pending
further agency action.

      On or about May 4, 1990, the Company and the NRC Staff entered into a
partial interim settlement, which provided for partial characterization study of
the Safety Light site to be completed on or by October 15, 1990. By order dated
May 4, 1990, the Licensing Board granted a joint motion by the NRC Staff and the
Company to stay the NRC proceedings during the term of the partial interim
settlement agreement. The NRC Staff and the Company further agreed to (a) report
to the Licensing Board on or by November 26, 1990, on the results of the study
and (b) to make recommendations for further action at that time. On or about
October 15, 1990, the Company forwarded to the NRC Staff and to the members of
the Licensing Board copies of the partial interim characterization study
prepared by Chem-Nuclear Systems, Inc., pursuant to the partial settlement
agreement. Based on that study, the Company has been advised that remediation
costs could total between $15,000,000 to in excess of $25,000,000 based on
remediation costs for similar properties if all remediation actions originally
ordered were completed.

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

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

      Pursuant to the settlement agreements referenced in (e) below, the Company
and Safety Light have allocated approximately $975,000 of trust funds toward
defense efforts and payment of costs and expenses associated with the continuing
investigation and 

                                       18
<PAGE>
decommissioning of the property. Approximately $230,000 of this amount has been
paid to consultants retained by the Company and Safety Light. Of the
aforementioned allocated amount, $200,000 was paid in January 1993 by the
insurance carrier with whom settlement was reached in January 1992. Additional
costs and expenses are anticipated.

      During March 1993 the Company's NRC counsel became concerned that the
money available from insurance settlements for legal costs, remediation and
additional settlements was being outstripped by accelerating legal expenses to
defend motions, requests for interrogatories and other actions by the NRC legal
staff. Such counsel and the Company both believe that the combined legal costs
to wage simultaneous actions offensively against the insurance carriers and
defensively to protect the Company are running substantially in excess of
amounts currently available. Accordingly, such counsel advised the Company,
Safety Light and the NRC that it has withdrawn from representation of the
Company and Safety Light effective March 15, 1993. Thereafter, other than with
respect to certain limited contributions of legal services to encourage
settlement between the Company, Safety Light and the NRC and, except to provide
representation of the Company to contest NRC jurisdiction, such counsel will no
longer represent the interests of the Company or Safety Light in the foregoing
proceedings.

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

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

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

                                       19
<PAGE>
      Separately the NRC advised the Company that the Licensing Board of the NRC
had determined that, for NRC purposes, the Company is deemed a "successor" to
USRC.

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

      (e) PROCEEDINGS AGAINST CERTAIN INSURERS. During 1984 the Company notified
its insurance carriers as to the pendancy of certain of the above described
actions and requested that such carriers defend and indemnify the Company as a
named insured under various primary insurance policies as well as excess
coverage or umbrella policies. All such carriers answered denying liability and
denying any obligation to defend the Company against the claims asserted.
Thereupon on August 20, 1984 the Company commenced an action in Superior Court
of New Jersey, Essex County, naming as defendants all of the Company's primary
and excess coverage insurers and seeking judicial determination as to such
carriers' duty to defend and to indemnify the Company and its subsidiaries and
seeking reimbursement of costs expended by the Company for its defense,
assumption of such defense on an ongoing basis, damages for wrongful declination
to defend and punitive damages and counsel fees for willful failure to defend
and indemnify the Company in each of the foregoing actions.

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

      Beginning during February 1991 Safety Light and the Company successfully
negotiated individual settlement agreements with all five primary insurance
carriers and three excess insurance carriers. Settlement documents have been
executed with all monies and releases to be exchanged between the parties. The
insurance carriers paid $6,050,000 on behalf of the Company and Safety Light
into separate trust accounts administered by parties unrelated to the Company,
none of which amounts were received by the Company. These amounts were used to
settle matters described in Section (a) and (b) of Part II, Item 1 hereof as
well as various payments discussed in Section (d) of Part II, Item 1 hereof and
approximately $229,000 of legal fees previously accrued by the Company. The
remaining $672,000 in these trust accounts may be used solely to pay future
costs and expenses in resolving the matters described in Section (c) and (d) as
well as other claims that may be covered under the various trust fund
agreements; two claims against Safety Light, and the prosecution of the
Company's insurance actions discussed in Section (e) of Part II, Item 1 hereof.
In January 1992, monies obtained under the initial installment were applied
toward defense costs of matters described in Section (f) and (g). 

                                       20
<PAGE>
Because the use of amounts paid to the trust accounts were specifically
restricted, the effects of the above transactions were not reflected in the
Company's Consolidated Financial Statements, other than reversal of previously
accrued legal expenses of $229,240 during 1991, which expenses were paid through
direct insurance carrier payments. Furthermore, since settlements are negotiated
only with the consent of the insurance carriers, no insurance company
receivables are or have been reflected on the Company's Consolidated Financial
Statements. Monies will also be applied towards defense costs, remediation
efforts made pursuant to settlements and the continued pursuit of non-settling
carriers. During late March 1993 Judge Humphreys, the administrative judge
currently assigned for the foregoing insurance litigation, ordered that the
trial date for USR Industries, Inc. et al. versus INA, et al., Docket No.
L-055362-84, would be set. In order to more fully prepare this complex matter
for trial, both sides evaluated a possible agreement to procedurally dismiss the
case by stipulation, shortly after which the action would be refiled under a new
docket number. Such stipulation would include agreements by both sides not to
change the status quo in other respects, including a Discovery Order issued by
Judge Yanoff on December 16, 1992. Following further negotiation the Company and
Safety Light entered a stipulation in the foregoing case and is in settlement
discussions with INA.

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

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

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

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

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

                                       21
<PAGE>
      The claim against the Company is based on an affidavit claiming that Carl
Gulick, Inc., a waste hauler, pumped a sudsy rinse water from a photographic
slide manufacturing process from USRC's plant at Hanover Avenue and Horsehill
Road in Morris County, New Jersey. The affidavit further claims that this
material was believed to have been taken to the Sharkey Landfill in Parsippany,
New Jersey and that such substances are of the type alleged by government
plaintiffs to have been found at the Landfill. Based on this allegation, the
third-party complaint seeks contribution under Section 113(f) of CERCLA, and
under New Jersey statutes, for the investigation and remediation of the
Landfill.

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

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

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

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

      Blanchard, which since 1979 has followed the pattern of attempting to
hinder or block potential subtenants from taking occupancy, has repeatedly
asserted similar claims against Lighting and the Company. To date Blanchard has
been unsuccessful in each such claim. Blanchard's summary dispossession action
primarily rests upon the premise 

                                       22
<PAGE>
that repairs to the roof and heating, ventilation, and air conditioning ("HVAC")
systems were required under the parties 1955 Lease Agreement, and that
Lighting's failure to effect those repairs after due notice from Blanchard
resulted in a breach of that agreement. The sole basis for Blanchard's claim
that Lighting breached the 1955 Lease Agreement consists of provisions in the
sublease agreement concerning improvements to the roof and the HVAC systems
which Lighting agreed to perform in order to induce its proposed subtenant to
enter into a long-term sublease with Lighting. Blanchard admitted to never
having inspected the roof or operated the HVAC systems to determine whether any
repairs were in fact necessary under the 1955 Lease Agreement. Blanchard also
admitted to not knowing the condition of the roof and HVAC systems or the
specific nature of the improvements agreed to between Lighting and its proposed
subtenant.

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

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

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

      Trial was conducted in Morristown, New Jersey over a three week period
during May and June 1996. During October 1996, the presiding Superior Court
Judge, The Honorable Kenneth C. MacKenzie, issued an opinion in which he found
in favor of the Company on all claims with respect to the occupancy,
maintenance, insurance, tax payment, repair and other related assertions by
Blanchard. However, on the sole finding that Blanchard had not been given notice
of Lighting's intent to extend the lease Judge MacKenzie ordered Lighting to
vacate as of June 30, 1996. On April 18, 1997 Lighting filed notice of appeal of
this element of Judge MacKenzie's Opinion. Lighting will also 

                                       23
<PAGE>
appeal Judge MacKenzie's finding that Blanchard acted in a commercially
reasonable manner with respect to this lease and that punitive damages should
not be awarded to Lighting. For its part, Blanchard has given notice of appeal
of virtually every aspect of Judge MacKenzie's Opinion except Judge MacKenzie's
finding on notification of intention to renew, which was favorable to Blanchard.
Formal appellate briefs have not yet been filed with the Superior Court of New
Jersey, Appellate Division. The date by which such must be filed is expected to
be during September 1997.

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

SUMMARY

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

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

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

                                       24
<PAGE>
                          USR INDUSTRIES, INC.

                       PART II. OTHER INFORMATION

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K.

        (a) Exhibits

        None.

        (b) Reports on Form 8-K

        None.

                                       25
<PAGE>
                          USR INDUSTRIES, INC.

                               SIGNATURES

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

                                      USR INDUSTRIES, INC.

Date: May 14, 1997                    By:/s/ RALPH T. McELVENNY, JR.
                                          Ralph T. McElvenny, Jr.
                                          Acting Principal Executive,
                                          Financial and Accounting Officer

                                       26