Usr Industries Inc/DE – ‘10-K405’ for 12/31/96

As of:  Monday, 7/14/97   ·   For:  12/31/96   ·   Accession #:  890566-97-1602   ·   File #:  1-08040

in

this entire Filing. an “Entity” Search.

Show

Documents searched

and

each “hit”. the 1st “hit”.

↓↑Hints

Annual Report — [x] Reg. S-K Item 405   —   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K405     Annual Report -- [x] Reg. S-K Item 405                46    196K 
 2: EX-22       Published Report Regarding Matters Submitted to a      1      4K 
                          Vote of Security Holders                               
 3: EX-27       Financial Data Schedule (Pre-XBRL)                     1      6K 

10-K405   —   Annual Report — [x] Reg. S-K Item 405
Document Table of Contents

10-K405
1st Page of 46
TOC
↑Top
Previous
Next
↓Bottom
Just 1st
 
 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

 For the fiscal year ended December 31, 1996

OR

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

 For the transition period from ______________ to ___________________.

Commission File No. 1-8040

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

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

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

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

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

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

   COMMON STOCK, $1.00 PAR VALUE
   -----------------------------
  (Title of Class)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405  
of Regulation S-K is not contained herein, and will not be contained, to the    
best of registrant's knowledge, in definitive proxy or information statements   
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]                                                                  

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

DOCUMENTS INCORPORATED BY REFERENCE                                             

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

 1 of 47

10-K405
2nd Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 2nd
USR INDUSTRIES, INC.

PART I ITEM   1. BUSINESS                                                       

GENERAL DEVELOPMENT OF BUSINESS                                                 

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

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

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

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

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

2 

10-K405
3rd Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 3rd
agencies which have asserted claims against the Company. However, the costs of  
initiating and maintaining such legal actions, together with costs to the       
Company for site monitoring, remediation and other programs, substantially      
exceed the Company's cash flow from recurring operations. Moreover, while       
substantial long-standing litigation has been settled, new or continuing actions
threaten to further damage the Company. Because of the nature of America's      
litigation system, the costs to determine whether and to what extent claims     
against the Company may be covered by insurance are themselves prohibitive.     

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

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

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

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

3 

10-K405
4th Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 4th
    USRC'S SALE OF DIVISION IN 1978. By the mid-1970s the management of USRC
recognized that the principal businesses of USRC would not return to their      
earlier levels of volume or profitability. By 1978 cumulative financial         
pressures forced USRC to sell the assets of a principal operating division, the 
Medical Products Division, in order to deal with debt payments and liquidity    
needs. In 1978, USRC sold the assets of its Medical Products Division to the GAF
Corporation, a large chemical company headquartered in New Jersey. This sale of 
this business line was the first of several sales necessary for debt and        
liquidity reasons. Management also took steps to reposition assets into business
sectors believed to offer more promise then did the domestic color TV, watch,   
and metal fabricating businesses.                                               

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

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

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

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

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

4 

10-K405
5th Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 5th
  For further discussion of environmental, insurance and other litigation,
see Notes to Consolidated Financial Statements and Note 10 thereof.             

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

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

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

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

5 

10-K405
6th Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 6th
Such sale was duly approved and ratified by the Company Stockholders at a       
Meeting of Stockholders held March 7, 1986 at which such transaction was        
considered.                                                                     

NARRATIVE DESCRIPTION OF BUSINESS                                               

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

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

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

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

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

6 

10-K405
7th Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 7th
other expenses of personnel employed on a regular basis in such work, were      
primarily connected with Metals' custom anodizing operations and are estimated  
as approximately $30,000 per year. Various activities of Metals are subject to  
federal, state or local regulation with regard to environmental impact.         
Operations conducted by Metals have received all certificates from regulatory   
agencies necessary to operate Metals' manufacturing equipment in the normal     
course of business. Currently, the Company is defending litigation in which     
substantial claims for alleged environmental injury are being asserted against  
it and Metals. Such claims arise from allegations as to operations of USRC many 
decades ago in the era of World War I and to the period following World War II. 

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

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

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

ITEM 2.   PROPERTIES                                                            

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

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

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

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

7 

10-K405
8th Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 8th
operations and did not renew the lease. In August 1995, Lighting executed a     
lease for 5,000 square feet, or approximately one-half of the available space,  
for a seven-year initial term through October 31, 2002. Lighting is seeking a   
new tenant for the remaining available space in the facility. The property which
was built by its owner, Blanchard Construction Company ("Blanchard"), using     
long-term "credit-lease" financing provided through USRC, has been the subject  
of continuing litigation with Blanchard for many years.                         

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

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

ITEM 3.     LEGAL PROCEEDINGS                                                   

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

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

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

8 

10-K405
9th Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 9th
Blanchard's claims seek to dispossess Lighting from continuing tenancy and      
control of the premises. To date, Blanchard has been unsuccessful. However,     
Blanchard continues to try new theories and prolific litigations aimed in part  
at increasing the costs of Lighting's occupancy to prohibitive levels, or to    
catch a local Judge who may be responsive to one of the various scenarios argued
by Blanchard. As further described in Note 10 to the Consolidated Financial     
Statements, during 1994, only thirteen days following final affirmation by the  
New Jersey Supreme Court against Blanchard's most recent previous claims,       
Blanchard started new litigation, again seeking to dispossess Lighting.         

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

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

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

 PART II

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

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

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

9 

10-K405
10th Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 10th
ITEM 6.    SELECTED FINANCIAL DATA.                                             

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

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

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

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

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

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

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

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

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

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

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

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

10

10-K405
11th Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 11th
As of December 31, 1996, the Company's working capital deficit was  
$486,346 and the ratio of current assets to current liabilities was 0.3 to 1.0  
versus a working capital deficit of $555,813 and a current ratio of 0.3 to 1.0  
as of December 31, 1995. The Company evaluates its accounts and notes receivable
from time to time and provides an allowance against current operations for      
accounts deemed to be uncollectable. During 1992 the terms of certain notes     
receivables were revised to increase the interest rate thereon to 8.5% and      
establish the maturity dates at March 31, 2004 and 2005, respectively. As       
further described in the Company's Consolidated Financial Statements and Note 3 
thereto, such notes were restructured during 1994. On an historical basis the   
Company has not experienced any significant losses from the extension of credit 
to its customers.                                                               

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

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

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

11

10-K405
12th Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 12th
    Beginning during February 1991 the Company and Safety Light successfully
negotiated individual settlement agreements with five primary insurance carriers
and three excess insurance carriers. Settlement documents were executed covering
the monies and releases to be exchanged between the parties. The insurance      
carriers paid $6,050,000 in cash into separate trust accounts administered by   
parties unrelated to the Company. Substantially all of such amounts were applied
to settle lawsuits, as further described in Note 10 of Notes to the Consolidated
Financial Statements (See Notes 10(a) and 10(b)). The Company also has settled  
matters described in such Notes (Note 10(d)); other claims that may be covered  
under the various trust fund agreements; two claims against Safety Light; and   
insurance actions discussed in the Consolidated Financial Statements and Note   
10(e) thereto. In January 1992 monies obtained under the initial installment    
were applied toward defense costs of matters described in Note 10. (See Notes   
10(f) and 10(g)). In January 1992, the Company and Safety Light negotiated a    
settlement agreement with an additional insurance carrier, pursuant to which the
insurance carrier paid two installments, one of which was paid in February 1992 
upon execution of all settlement documents and the other paid in January 1993.  
Monies have been placed into a separate trust account for the defense of matters
described in the Notes to the Consolidated Financial Statements (particularly   
Note 10(f) and Note 10(g)) and to a separate action naming the Company and      
Safety Light. On or about May 1992, the Company and Safety Light concluded a    
settlement agreement with three primary insurance carriers whereby the insureds 
will be reimbursed a total of seventy-five percent (75%) of legal costs and     
expenses incurred in the matter described in Note 10(f) of the Notes to         
Consolidated Financial Statements.                                              

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

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

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

12

10-K405
13th Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 13th
RESULTS OF OPERATIONS                                                           

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

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

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

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

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

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

13

10-K405
14th Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 14th
stock at a discount prior to maturity. During 1994, the Company recognized a    
non-cash loss of $144,055 on the restructuring of its note receivable. See Note 
3 to Consolidated Financial Statements.                                         

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

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

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

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

14

10-K405
15th Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 15th
ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                       
                                                                    PAGE
                                                                    ----
      Consolidated Balance Sheets                                     16
      Consolidated Statements of Operations                           18
      Consolidated Statements of Stockholders' Equity                 19
      Consolidated Statements of Cash Flows                           20
      Notes to Consolidated Financial Statements                      22

15

10-K405
16th Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 16th
USR INDUSTRIES, INC.

 CONSOLIDATED BALANCE SHEETS
 (UNAUDITED)

                                                        December 31,
                                                   ---------------------------
                                                    1996            1995
                                                   -----------     -----------
ASSETS                                                                          

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

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

See Notes to Consolidated Financial Statements
 (Continued)

16

10-K405
17th Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 17th
USR INDUSTRIES, INC.  

CONSOLIDATED BALANCE SHEETS (CONTINUED)   
(UNAUDITED)   

                                                    December 31,
                                                   ---------------------------
                                                    1996            1995
                                                   -----------     -----------
LIABILITIES AND STOCKHOLDERS' EQUITY                                            

Current liabilities:                                                            
    Accounts payable ..........................    $   264,944     $   300,989
    Accrued expenses ..........................        469,451         497,712
                                                   -----------     -----------
         Total current liabilities ............        734,395         798,701
                                                   -----------     -----------
Long-term obligation under                                                      
    capital lease .............................         53,635          55,220

Commitments and contingencies                                                   

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

See Notes to Consolidated Financial Statements  

17

10-K405
18th Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 18th
USR INDUSTRIES, INC.

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

See Notes to Consolidated Financial Statements  

18

10-K405
19th Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 19th
USR INDUSTRIES, INC.

 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 (UNAUDITED)

                                                        [Enlarge/Download Table]

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

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

Net loss .......................    --           --        --        (51,581)      (51,581)
                                 -------     --------  --------  -----------     ----------
Balance at                                                                                 
     December 31, 1996 ......... 994,655     $994,655  $365,461  $(1,685,337)    $(325,221)
                                 =======     ========  ========  ===========     ========= 

See Notes to Consolidated Financial Statements

19

10-K405
20th Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 20th
USR INDUSTRIES, INC.

 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)

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

See Notes to Consolidated Financial Statements
 (Continued)

20

10-K405
21st Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 21st
USR INDUSTRIES, INC.

 CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
 (UNAUDITED)

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

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

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

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

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

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

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                               

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

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

See Notes to Consolidated Financial Statements

21

10-K405
22nd Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 22nd
USR INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(1)   SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES                              

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

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

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

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

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

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

22

10-K405
23rd Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 23rd
USR INDUSTRIES, INC.

 NOTES TO CONSOLIDATED FINANCIAL
 STATEMENTS (Unaudited)(Continued)

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

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

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

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

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

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

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

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

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

23

10-K405
24th Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 24th
USR INDUSTRIES, INC.

 NOTES TO CONSOLIDATED FINANCIAL
 STATEMENTS (Unaudited)(Continued)

(2)   INTEREST IN LIMITED PARTNERSHIP                                           

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

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

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

(3)   CERTAIN TRANSACTIONS                                                      

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

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

24

10-K405
25th Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 25th
USR INDUSTRIES, INC.

 NOTES TO CONSOLIDATED FINANCIAL
 STATEMENTS (Unaudited)(Continued)

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

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

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

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

25

10-K405
26th Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 26th
USR INDUSTRIES, INC.

 NOTES TO CONSOLIDATED FINANCIAL
 STATEMENTS (Unaudited)(Continued)

(4)   PROPERTY, PLANT AND EQUIPMENT                                             

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

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

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

(5)   EMPLOYEE BENEFIT PLAN                                                     

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

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

26

10-K405
27th Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 27th
USR INDUSTRIES, INC.

 NOTES TO CONSOLIDATED FINANCIAL
 STATEMENTS (Unaudited)(Continued)

(6)   FEDERAL INCOME TAXES                                                      

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

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

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

(7)   LEASES                                                                    

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

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

27

10-K405
28th Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 28th
USR INDUSTRIES, INC.

 NOTES TO CONSOLIDATED FINANCIAL
 STATEMENTS (Unaudited)(Continued)

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

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

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

(8)   NOTES PAYABLE AND LONG-TERM DEBT                                          

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

(9)   SIGNIFICANT CUSTOMERS                                                     

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

28

10-K405
29th Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 29th
USR INDUSTRIES, INC.

 NOTES TO CONSOLIDATED FINANCIAL
 STATEMENTS (Unaudited)(Continued)

(10)  COMMITMENTS AND CONTINGENCIES                                             

LEGAL PROCEEDINGS                                                               

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

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

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

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

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

29

10-K405
30th Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 30th
USR INDUSTRIES, INC.

 NOTES TO CONSOLIDATED FINANCIAL
 STATEMENTS (Unaudited)(Continued)

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

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

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

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

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

30

10-K405
31st Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 31st
USR INDUSTRIES, INC.

 NOTES TO CONSOLIDATED FINANCIAL
 STATEMENTS (Unaudited)(Continued)

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

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

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

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

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

31

10-K405
32nd Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 32nd
USR INDUSTRIES, INC.

 NOTES TO CONSOLIDATED FINANCIAL
 STATEMENTS (Unaudited)(Continued)

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

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

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

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

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

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

32

10-K405
33rd Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 33rd
USR INDUSTRIES, INC.

 NOTES TO CONSOLIDATED FINANCIAL
 STATEMENTS (Unaudited)(Continued)

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

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

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

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

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

33

10-K405
34th Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 34th
USR INDUSTRIES, INC.

 NOTES TO CONSOLIDATED FINANCIAL
 STATEMENTS (Unaudited)(Continued)

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

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

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

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

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

34

10-K405
35th Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 35th
USR INDUSTRIES, INC.

 NOTES TO CONSOLIDATED FINANCIAL
 STATEMENTS (Unaudited)(Continued)

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

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

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

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

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

35

10-K405
36th Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 36th
USR INDUSTRIES, INC.

 NOTES TO CONSOLIDATED FINANCIAL
 STATEMENTS (Unaudited)(Continued)

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

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

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

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

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

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

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

36

10-K405
37th Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 37th
USR INDUSTRIES, INC.

 NOTES TO CONSOLIDATED FINANCIAL
 STATEMENTS (Unaudited)(Continued)

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

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

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

37

10-K405
38th Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 38th
USR INDUSTRIES, INC.

 NOTES TO CONSOLIDATED FINANCIAL
 STATEMENTS (Unaudited)(Continued)

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

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

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

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

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

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

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

38

10-K405
39th Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 39th
USR INDUSTRIES, INC.

 NOTES TO CONSOLIDATED FINANCIAL
 STATEMENTS (Unaudited)(Continued)

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

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

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

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

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

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

39

10-K405
40th Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 40th
USR INDUSTRIES, INC.

 NOTES TO CONSOLIDATED FINANCIAL
 STATEMENTS (Unaudited)(Continued)

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

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

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

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

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

40

10-K405
41st Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 41st
USR INDUSTRIES, INC.

 NOTES TO CONSOLIDATED FINANCIAL
 STATEMENTS (Unaudited)(Continued)

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

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

SUMMARY                                                                         

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

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

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

41

10-K405
42nd Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 42nd
USR INDUSTRIES, INC.

 NOTES TO CONSOLIDATED FINANCIAL
 STATEMENTS (Unaudited)(Continued)

(11)  SELECTED QUARTERLY FINANCIAL DATA                                         

 The following selected financial data is unaudited and summarizes the
Company's operations on a quarterly basis:                                      
                            1996
                                ------------------------------------------------
                                 March 31     June 30  September 30  December 31
                                ---------     -------  ------------  -----------
Net sales ...................   $ 314,085     290,503     317,373      311,917  
Cost of sales ...............   $ 215,410     170,821     181,991      222,735  
Selling, general and                                                            
administrative expenses ...   $ 144,365     146,701     114,231      114,802
Net earnings (loss) .........   $ (39,404)    (19,321)     21,479      (14,335) 
Net earnings (loss)                                                             
 per common share ..........   $   (0.04)      (0.02)       0.02        (0.01)

                            1995
                                ------------------------------------------------
                                 March 31     June 30  September 30  December 31
                                ---------     -------  ------------  -----------
Net sales ...................   $ 309,249     322,616     295,779      306,544  
Cost of sales ...............   $ 215,474     183,388     149,036      267,102  
Selling, general and                                                            
administrative expenses ...   $ 109,040     159,909     189,386       39,634
Net earnings (loss) .........   $ (19,774)    (34,189)    (58,391)      (2,151) 
Net earnings (loss)                                                             
per common share ..........   $   (0.02)      (0.03)      (0.06)        0.00

                            1994
                                ------------------------------------------------
                                 March 31     June 30  September 30  December 31
                                ---------     -------  ------------  -----------
Net sales ...................   $ 286,363     361,225     304,855      293,851  
Cost of sales ...............   $ 204,546     226,263     215,626      169,441  
Selling, general and                                                            
administrative expenses ...   $ 134,735     194,378     160,482       71,285
Net earnings (loss)                                                             
before extraordinary                                                        
item ......................   $ (64,708)    (71,207)    (82,820)      98,125
Net earnings (loss) .........   $(208,763)    (71,207)    (82,820)      98,125  
Net earnings (loss)                                                             
per common share ..........   $   (0.21)      (0.07)      (0.08)        0.10

42

10-K405
43rd Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 43rd
USR INDUSTRIES, INC.

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

Not applicable.                                                     

PART III                                                                        

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                  

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

ITEM 11.    EXECUTIVE COMPENSATION                                              

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

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT      

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

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                      

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

43

10-K405
44th Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 44th
USR INDUSTRIES, INC.  

PART IV                                                                         

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

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

CONSOLIDATED FINANCIAL STATEMENTS:          

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

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

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

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

                 Notes to Consolidated Financial Statements                 22

2.    FINANCIAL STATEMENT SCHEDULES:                                

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

(b)   REPORTS ON FORM 8-K                                                       

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

(c)   EXHIBITS                                                                  

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

3.    ARTICLES OF INCORPORATION AND BYLAWS                                      

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

44

10-K405
45th Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 45th
USR INDUSTRIES, INC.

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

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

10.   MATERIAL CONTRACT                                                         

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

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

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

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

22.1  SUBSIDIARIES OF THE COMPANY (filed herewith).                             

45

10-K405
Last Page of 46
TOC
1st
Previous
Next
↓Bottom
Just 46th
USR INDUSTRIES, INC.
SIGNATURES                                                                      

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

                          USR INDUSTRIES, INC.

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

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

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

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

46

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10-K405’ Filing		Date		First		Last			Other Filings
		3/31/07		7
		3/31/05		11		24
		3/31/04		11		24
		12/31/03		25
		12/31/02		7
		10/31/02		8
		12/31/01		25
		12/31/99		25
		12/31/97		14		25			10-K405,  NT 10-K
		8/15/97		1		43
Filed on:		7/14/97							10-K405,  10-Q
		4/18/97		40
		4/10/97		46
		3/1/97		1		9
For Period End:		12/31/96		1		44			NT 10-K,  NT 10-K/A
		6/30/96		40
		12/31/95		11		44			NT 10-K
		12/31/94		19		45			10-K405
		9/20/94		36
		9/1/94		25
		1/1/94		45
		12/31/93		7		27
		9/30/93		24					10-Q
		9/1/93		25
		7/1/93		25
		5/3/93		36
		4/2/93		36
		3/15/93		36
		12/31/92		10		28
		12/16/92		38
		5/20/92		39
		5/15/92		39
		5/8/92		39
		4/30/92		39
		4/29/92		39
		2/7/92		35
									List all Filings