LANXIDE CORP, 424B1, 1996-05-17

LANXIDE CORP
424B1, 1996-05-17

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Filed pursuant to Rule 424(b)(1)
File No. 33-94186

1,585,631 SHARES
LANXIDE CORPORATION

COMMON STOCK
(PAR VALUE $.01 PER SHARE)

This Prospectus is being furnished by Lanxide Corporation (the
"Company") to (i) holders of the Company's Unit Warrants (the "Unit
Warrants") to purchase Common Stock, par value $.01 per share (the "Common
Stock"), and (ii) holders of options to purchase Common Stock granted and
available for grant pursuant to the Company's 1995 Employee Stock Option
Plan and the 1991 Director Stock Option Plan (collectively, the "Options").
This Prospectus is also to be used by Bentley J. Blum, a director and
principal stockholder of the Company, in connection with offers and sales
of shares of Common Stock issued upon exercise of certain Warrants held by
Mr. Blum (the "Blum Warrants").

Of the 1,585,631 shares of Common Stock offered hereby, 192,096 shares
may be offered by Mr. Blum, a director and principal stockholder of the
Company. The Company will not receive any portion of the net proceeds from
the sale of shares by Mr. Blum.

The Unit Warrants were issued to stockholders of the Company in
connection with the Company's Recapitalization Plan, dated October 10, 1995
(the "Recapitalization Plan"). On November 14, 1995, the Effective Time of
the Recapitalization Plan (the "Effective Time"), a wholly owned subsidiary
of the Company merged with and into the Company, with the Company as the
surviving corporation (the "Merger"). Pursuant to the Merger, the
Company's old Common Stock, Series A Convertible Preferred Stock and Series
B Convertible Exchangeable Preferred Stock were converted into Units. Each
Unit consists of one share of the Company's new Series A Preferred Stock,
par value $.01 per share (the "Series A Preferred Stock"), and one Unit
Warrant. The Series A Preferred Stock and the Unit Warrants are not
separately transferable. The Unit Warrants may be exercised at an exercise
price of $60 per share until November 14, 1996, and one share of Common
Stock may be purchased with twenty Unit Warrants. The Company has reserved
the right, at any time or from time to time, to (i) reduce the exercise
price for the Unit Warrants, (ii) reduce the number of Unit Warrants which
must be exercised to receive one share of Common Stock to as low as one
Unit Warrant, (iii) extend the expiration time of the Unit Warrants, (iv)
allow the Unit Warrants and the shares of Series A Preferred Stock to be
separately transferable and (v) call the Unit Warrants for a price of $.05
per Unit Warrant.

190,308 Options were granted to employees and directors of the Company
at the Effective Time. In connection with the Recapitalization Plan, the
Company solicited the consents of holders of options granted pursuant to
the 1983 and 1993 Employee Stock Option Plans and the 1991 Director Stock
Option Plan to consent to the cancellation of such options in exchange for
Options granted pursuant to the 1995 Employee Stock Option Plan or the 1991
Director Stock Option Plan. In addition, this Prospectus also constitutes
a prospectus with respect to Options available for grant pursuant to the
1995 Employee Stock Option Plan and the 1991 Director Stock Option Plan and
an indeterminate number of shares of Common Stock that may become issuable
as a result of certain anti-dilution provisions of the 1995 Employee Stock
Option Plan and the 1991 Director Stock Option Plan.

This Prospectus also constitutes a prospectus relating to the resale
of up to 192,096 shares of Common Stock issuable upon exercise of the Blum
Warrants.

AN INVESTMENT IN THE COMPANY INVOLVES A HIGH DEGREE OF RISK. FOR
INFORMATION CONCERNING CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PERSONS
CONSIDERING AN INVESTMENT IN THE COMPANY, SEE "RISK FACTORS" BEGINNING ON
PAGE 5.

The Common Stock and the Units are traded in the over-the-counter
market on the OTC Bulletin Board under the symbols "LNXI" and "LNXU,"
respectively. The last reported sales price for the Common Stock was $21
per share on April 30, 1996 and for the Units was $8 per share on April 26,
1996. See "Price Range for Common Stock and Units."

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

____________________

THE DATE OF THIS PROSPECTUS IS MAY 17, 1996

TABLE OF CONTENTS

Page

THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . 3

RECENT DEVELOPMENTS . . . . . . . . . . . . . . . . . . . . . 4

SECURITIES OFFERED BY THIS PROSPECTUS . . . . . . . . . . . . 4

RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . 5

PRICE RANGE FOR COMMON STOCK AND UNITS . . . . . . . . . . . 9

DIVIDENDS AND DIVIDEND POLICY . . . . . . . . . . . . . . . . 9

CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . 10

USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . 10

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION . . . . . . 10

BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . 20

PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . 31

MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . 33

PRINCIPAL STOCKHOLDERS . . . . . . . . . . . . . . . . . . . 39

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . 39

DESCRIPTION OF CAPITAL STOCK . . . . . . . . . . . . . . . . 40

CERTAIN CORPORATE GOVERNANCE MATTERS . . . . . . . . . . . . 42

PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . 44

VALIDITY OF COMMON STOCK . . . . . . . . . . . . . . . . . . 44

EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . 44

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . F-1

THE COMPANY

The Company was founded in 1983 by Marc S. Newkirk, the
current President and Chief Executive Officer of the Company, to
develop and commercialize products based upon a novel approach to
the fabrication of ceramic-reinforced composite products. The
Company's patented technology has enabled it to engineer a new
class of high-performance materials, LANXIDE composites, which
offer superior combinations of properties tailored to meet
specific customer needs. LANXIDE composites combine many of the
features of ceramics and metals, providing a new class of struc-
tural materials which exhibit combinations of strength, damage
tolerance, shape versatility, hardness, stiffness, chemical
stability and temperature tolerance previously unavailable in a
single class of materials. The Company has developed proprietary
processes enabling the creation of LANXIDE composites in a wide
range of sizes and complex shapes and possessing a broad spectrum
of performance characteristics. The Company believes that
products made from LANXIDE composites provide substantial
cost/performance improvements over materials traditionally used
in numerous structural applications. Current fields of product
introduction include electronic components, optical components,
automotive engine and brake components, heat exchangers, refrac-
tory components, armor, industrial pump and cyclone components,
components for gas turbine engines, rocket engines and certain
other aerospace applications, and sporting goods.

Based on a series of discoveries relating to metals oxida-
tion, the Company has developed a unique process technology for
engineering a broad spectrum of ceramic/metal composites. The
LANXIDE process technology relies on relatively low cost pro-
cessing equipment, metals of commodity purity and relatively low
temperature requirements. Advantages of the LANXIDE process
technology include: ease of component fabrication, the ability
to combine a wide range of materials to tailor properties for
specific applications, the ability to make complex shaped parts
that require little machining, and the ability to make large
parts. The Company believes that the simplicity and manageabili-
ty of this process technology provides the basis for commercial
scale production of components made of LANXIDE composites.

In 1993, to complement the extensive materials base generat-
ed internally, the Company acquired substantially all of the
assets and patents associated with CERASET ceramer
(ceramic-backboned polymer), ceramic paper and GEMINI
microcomposite technologies from Hercules Inc. These chemically
derived materials and processes provide additional performance
advantages for the Company's reinforced metals and reinforced
ceramics, and extend the Company's advanced materials portfolio
into the rapidly expanding area of high-performance polymer
composites, adhesives, sealants and coatings.

CONSUMMATION OF RECAPITALIZATION PLAN

On November 14, 1995, the Company consummated its Recapital-
ization Plan, dated October 10, 1995 (the "Recapitalization
Plan"), as described in the Company's Proxy Statement/Prospectus,
dated October 11, 1995. Pursuant to the Recapitalization Plan, a
wholly owned subsidiary of the Company was merged with and into
the Company with the Company as the surviving corporation (the
"Merger"). Pursuant to the Merger, (a) each share of the
Company's old Common Stock, par value $.01 per share (the "Old
Common Stock"), and Series A Convertible Preferred Stock, par
value .01 per share (the "Old Series A Preferred Stock"), were
converted into one-twentieth of a Unit, (b) each share of the
Company's Series B Convertible Exchangeable Preferred Stock, par
value $.01 per share (the "Old Series B Preferred Stock"), was
converted into one-tenth of a Unit, (c) the outstanding shares of
the Company's 7% Redeemable Series D Preferred Stock, par value
$.01 per share, were converted into an aggregate of $70,577.26
and (d) each share of the Company's 7% Redeemable Series E
Preferred Stock, par value $.01 per share, remained outstanding
and continues to represent one share of 7% Redeemable Series E
Preferred Stock, par value $.01 per share (the "Series E Pre-
ferred Stock"), of the surviving corporation.

Each Unit consists of one share of the Company's new Series
A Preferred Stock, par value $.01 per share (the "Series A
Preferred Stock"), and one warrant (the "Unit Warrant") to
purchase one-twentieth of a share of the Company's new Common
Stock, par value $.01 per share (the "Common Stock"). The Unit
Warrants and the Series A Preferred Stock are not initially
separately transferable. The Unit Warrants may be exercised at
an exercise price of $60 per share at any time until November 14,
1996, and one share of Common Stock may be purchased for twenty
Unit Warrants. The Company reserves the right, at any time or
from time to time, to (i) reduce the exercise price for the Unit
Warrants, (ii) reduce the number of Unit Warrants which must be
exercised to receive one share of Common Stock to as low as one
Unit Warrant, (iii) extend the expiration time of the Unit
Warrants, (iv) allow the Unit Warrants and the Series A Preferred
Stock to become separately transferable and (v) call the Unit
Warrants for a price of $.05 per Unit Warrant.

Pursuant to its terms, the outstanding shares of the
Company's 8% Convertible Redeemable Series C Preferred Stock, par
value $.01 per share (the "Old Series C Preferred Stock"), were
converted into an aggregate of 331,679 shares of Common Stock,
all of which are owned by Bentley J. Blum, a director and princi-
pal stockholder of the Company.

In connection with the Recapitalization Plan, the Company
distributed pro rata to stockholders of Old Common Stock, Old
Series A Preferred Stock and Old Series B Preferred Stock a
special dividend of nontransferable rights to purchase Common
Stock at the rate of one share of Common Stock for each Right,
subject to the right to purchase additional shares of Common
Stock pursuant to the Oversubscription Privileges described in
the Proxy Statement/Prospectus. The Recapitalization Plan was
consummated on November 14, 1995. Pursuant to the Rights Offer-
ing, stockholders subscribed for 850,117 shares of Common Stock
at $4.50 per share with gross proceeds to the Company of $3.8
million.

RECENT DEVELOPMENTS

SALE AND LEASEBACK

On March 28, 1996, the Company sold its manufacturing
facility in Newark, Delaware (the "Marrows Road Facility") for
$8.6 million to QRS 12-16, Inc., an entity set up by Corporate
Property Associates 12 (CPA:12), a real estate investment trust
sponsored by W. P. Carey & Co., Inc., a purchaser and lessor of
corporate real estate. The sale of the Marrows Road Facility
generated cash proceeds of $3.3 million after prepayment of a
$4.1 million mortgage on the Marrows Road Facility and payment of
the associated fees and closing costs. The Company entered into
a lease agreement with the purchaser of the Marrows Road Facility
for a twenty-year period. For a more complete description of the
sale and leaseback transaction, see "Property -- Marrows Road
Facility."

RESTRUCTURING OF CELANX JOINT VENTURE

On March 28, 1996, the Company sold its remaining fifty
percent ownership interest in Celanx K.K. to Nihon Cement Co.,
Ltd. ("Nihon Cement"), effectively giving Nihon Cement sole
ownership of the license to manufacture, market and sell preci-
sion instruments in Japan. As consideration for the sale of its
interest in Celanx K.K., Lanxide K.K., a subsidiary of the
Company, reacquired its wear products license from Celanx K.K.
and will receive ongoing royalties from precision instruments
sales generated by Nihon Cement. As a result of this transac-
tion, Lanxide K.K. will recognize the remainder of the deferred
gain associated with the 1994 sale of its fifty percent ownership
in Celanx K.K. to Nihon Cement.

SECURITIES OFFERED BY THIS PROSPECTUS

COMMON STOCK ISSUABLE UPON EXERCISE OF STOCK OPTIONS

Options to purchase an aggregate of 266,596 shares of Common
Stock granted to employees of the Company pursuant to the 1995
Employee Stock Option Plan and to Directors pursuant to the 1991
Director Stock Option Plan are currently outstanding. These
Options may be exercised by the option holder upon vesting. In
addition, options to purchase an additional 15,279 shares of
Common Stock are available for grant pursuant to the 1995 Employ-
ee Stock Option Plan. No more options will be granted under the
1991 Director Stock Option Plan. This Prospectus also relates to
an indeterminate number of shares of Common Stock that may become
issuable as a result of certain anti-dilution provisions of the
1995 Employee Stock Option Plan and the 1991 Director Stock
Option Plan.

COMMON STOCK ISSUABLE UPON EXERCISE OF UNIT WARRANTS

Each Unit consists of one Unit Warrant and one share of
Series A Preferred Stock. As of April 30, 1996, there were
1,111,661 Units outstanding owned by 437 holders. The Unit
Warrants may be exercised at any time prior to November 14, 1996
at an exercise price of $60 per share, and twenty Unit Warrants
are needed to purchase one share of Common Stock. The Company
has reserved the right to (i) reduce the exercise price of the
Unit Warrants, (ii) reduce the number of Unit Warrants needed to
purchase one share of Common Stock, (iii) extend the expiration
date, (iv) allow the Unit Warrants and the shares of Series A
Preferred Stock to be separately transferable and (v) call the
Unit Warrants at $.05 per Unit Warrant.

RESALE OF COMMON STOCK ISSUED UPON EXERCISE OF THE BLUM WARRANTS

Bentley J. Blum, a director and principal stockholder of the
Company, owns (i) a warrant to purchase 133,333 shares of Common
Stock at an exercise price of $4.50 at any time until June 30,
1996 and (ii) a warrant to purchase 58,763 shares of Common Stock
at an exercise price of $4.50 per share until January 14, 1999
(collectively, the "Blum Warrants"). If Mr. Blum exercises any
of the Blum Warrants, he may resell any or all of the shares of
Common Stock issued pursuant thereto. Mr. Blum currently owns
441,253 shares of Common Stock or 37% of the outstanding shares
of Common Stock. The 192,096 shares of Common Stock registered
for resale by Mr. Blum represent only the maximum number of
shares that may be sold by him pursuant to this Prospectus.

RISK FACTORS

In addition to the other information included in this
Prospectus, the following factors should be considered carefully
by each prospective purchaser of shares of Common Stock. In view
of the significant risk factors and other information set forth
herein, persons who wish to invest in the Company should be able
to bear the economic risk of their investment for an indefinite
period of time and afford a total loss of their investment.

LOSSES AND UNCERTAINTY OF FINANCIAL RESULTS

The Company generated sales revenues of approximately
$9.4 million and $13.3 million for the fiscal years ended Septem-
ber 30, 1995 and 1994, respectively, and had net losses for those
same periods of approximately $22.7 million and $15.7 million,
respectively, and had an accumulated deficit of $9.9 million at
December 31, 1995. Such losses primarily reflect the Company's
investments in product development and commercialization activi-
ties. Although the Company had net income of $518,000 for the
quarter ended December 31, 1995, there can be no assurance that
the Company will continue to be profitable.

OUTSTANDING INDEBTEDNESS

At December 31, 1995, the Company had approximately
$20.2 million of indebtedness outstanding, which is secured by
substantially all of the fixed and current assets of the Company
and the Company's ownership interest in Lanxide K.K. On March
28, 1996, the Company consummated the sale and leaseback of its
Marrows Road Facility for $8.6 million to QRS 12-16, Inc. For a
more complete description of this transaction, see "Property --
Marrows Road Facility." After giving effect to the sale of the
Marrows Road Facility and the prepayment of a $4.1 million
mortgage on the facility held by PNC Bank, Delaware, principal
payments on outstanding indebtedness for the remaining three
quarters of 1996 is $140,000 and for the years 1997 through 2001
are $273,000, $2.0 million, $12.1 million, $1.6 million and $0,
respectively. The degree to which the Company is leveraged could
have important consequences to the Company, including: (i)
increased vulnerability to adverse general economic and industry
conditions, (ii) impaired ability to obtain additional financing
for future working capital, capital expenditures, acquisitions,
general corporate purposes or other purposes, and (iii) dedica-
tion of a substantial portion of the Company's cash flow from
operations to the payment of principal and interest on indebted-
ness, thereby reducing the funds available for operations and
future business opportunities. No assurances can be given that
the Company will have sufficient resources to repay the principal
of such indebtedness when it becomes due.

FUTURE CAPITAL NEEDS; ABILITY TO CONTINUE AS A GOING CONCERN;
EXPLANATORY PARAGRAPH IN ACCOUNTANT'S REPORT

Until the Company is able to meet its capital needs through
cash generated from licensing and operations, it will be depen-
dent on equity investments and borrowings from third parties.
Although the Company has thus far been able to meet its needs
through these sources, there can be no assurance that these
sources will continue to be available to the Company to sustain
operations. The Company's short-term viability depends on its
ability to attract equity investments and borrowings and/or sell
licenses to use its technology in certain areas in the immediate
future. During the past year the Company has successfully
implemented a licensing strategy and has signed four technology
licensing agreements which provided funds to continue the opera-
tions of the Company in 1995. The Company's cash needs through
the 1996 calendar year end are expected to be met through: (i)
projected licensing revenues; (ii) cash flow from operations;
(iii) proceeds from the sale and leaseback of the Marrows Road
Facility; (iv) $600,000 of proceeds from the exercise of a part
of the Blum Warrants by Bentley J. Blum, which expire on June 30,
1996; and (v) $1.25 million of payments on non-recourse notes
which were issued to the Company in connection with the sale of
the Company's interest in Lanxide Precision, Inc., a Delaware
corporation ("LPI"), and which mature on June 4, 1996. No
assurances can be given that all of the proceeds described above
will be realized by the Company. Moreover, Mr. Blum is under no
obligation to exercise the warrants and could let them expire
without the payment of any proceeds to the Company and, in the
event payments are not made with respect to the non-recourse
notes, the Company will be entitled to foreclose on the stock of
LPI but will have no other right to receive proceeds therefrom.
Further cash needs are anticipated to be met by a combination of
the existing license agreements, government contracts and prod-
ucts sales, together with proceeds from future license agree-
ments.

The Company's independent accountants have included an
explanatory paragraph in their report on the Company's financial
statements related to the Company's ability to continue as a
going concern. Such report states that the Company's financial
condition raises substantial doubt about its ability to continue
as a going concern.

TECHNOLOGICAL CHANGE AND COMPETITION

The materials industry has been characterized by extensive
research and development efforts and new developments in advanced
materials technology are expected to continue at a rapid pace.
The Company's long-term success will depend, in part, upon its
ability to maintain a competitive position for its LANXIDE
composites with respect to other materials, including materials
which may be developed in the future. A number of domestic and
foreign companies are actively engaged in the research and
development of advanced materials technology and many of these
companies have substantially greater financial resources and
production and marketing capabilities than the Company. In most
of its target markets, the Company will encounter competition
from metal, plastic, ceramic and other materials producers, as
well as from the manufacturers of components made of these
materials. Although the Company possesses proprietary rights to
its technologies, which it believes are commercially viable,
several large multinational corporations conduct large-scale
research and development programs in the composite materials
field. While no competitor has to date been identified which
competes broadly across the product areas for which the Company's
technology applies, the Company and its Affiliates compete with a
broad array of both large and small competitors in specific
market niches. In addition, some of the Company's suppliers are
competitors and some of the Company's competitors are also
customers of the Company, although in different product areas
than those they supply to or buy from the Company. Corporations
with which the Company has collaborative development relation-
ships may also be conducting independent research and development
efforts in areas which are or some day may be competitive with
the business of the Company. See "Business -- Competition and
Market Segments."

UNCERTAINTY OF PRODUCT SUCCESS OR MARKET ACCEPTANCE

The Company and its Affiliates manufacture limited quanti-
ties of many products, some of which are manufactured at commer-
cially viable production levels. There is no assurance that the
products presently being introduced will become commercially
successful or that the Company will be able to manufacture larger
quantities of its current products at commercially viable produc-
tion levels. The Company competes in markets where both ceramic
and non-ceramic products are currently in use and where competi-
tors have established marketing capabilities. Commercial accep-
tance of the Company's products depends in part on the ability of
the marketing and sales forces of the Company, its Affiliates and
its licensees to demonstrate effectively the advantages of
LANXIDE products over more traditional products. There is no
assurance that the Company's products will gain widespread market
acceptance.

UNIQUENESS OF TECHNOLOGIES

The uniqueness of the Company's technologies has made them
difficult to evaluate and value without extensive diligence. The
revolutionary characteristics of the Company's products means, in
effect, that the Company is the sole expert in its own technolo-
gy. Such lack of analytical capability to evaluate the Company's
technology and its implications has impeded the Company's efforts
to interest investors and generate equity for further technology
development and marketing.

PATENT AND TRADE SECRET PROTECTION

The Company continues to place a heavy emphasis on the
expansion and maintenance of its patent portfolio in the United
States and around the world. As of March 31, 1996, the Company
had 280 issued patents in the United States, with 73 additional
patents pending, and 1,112 patents issued in 44 foreign coun-
tries, with 473 additional patents pending. The Company intends
to continue to seek additional patents for its technology;
however, there can be no assurance that pending applications or
new additional patents will be issued or, if issued, that they
will give the breadth of protection sought by the Company.
Although the Company is not aware of any infringement claims,
there can be no assurance that technological developments by the
Company will not be subject to infringement claims based on
patents now held by, or which in the future may be issued to,
competitors of the Company. In such case, the Company could
incur substantial license fees or litigation expenses in defend-
ing patent infringement claims, and could be forced to abandon
the technology in question. The Company believes that certain of
its know-how and proprietary information is legally protected as
trade secret information, and the Company intends to maintain the
confidential and proprietary nature of its trade secrets and to
protect future proprietary developments. Such trade secret
protection does not preclude competitors from independently
developing technology and products which may compete with those
of the Company. See "Business -- Technology, Patents and Trade-
marks."

POTENTIAL VOLATILITY OF STOCK PRICE; LIMITED MARKET

The market price of the Common Stock may be highly volatile.
Many factors, including the results of operations and announce-
ments of technological innovations by either the Company or its
competitors, may have a significant impact on the market price of
the Common Stock. In addition, the market for the Common Stock
which trades on the OTC Bulletin Board is limited. The number of
trades during March 1996 was eight. Accordingly, holders of
Common Stock may not be readily able to liquidate their invest-
ment in the Company.

DIVIDEND RESTRICTIONS

The Company has never paid cash dividends on any shares of
its capital stock. The Company does not expect to pay any cash
dividends in the foreseeable future on the Common Stock and
intends to continue to retain any future earnings to finance the
growth and development of its business. The Company's ability to
declare and pay dividends on the Common Stock is limited by (i) a
Loan and Security Agreement, dated April 29, 1994, between the
Company and Kanematsu Corporation ("Kanematsu"), providing that
the Company may not declare or pay any dividend that would have a
material adverse effect on the collateral under such agreement
and (ii) the Lease Agreement, dated as of March 28, 1996, between
the Company and QRS 12-16, Inc., limiting the Company's ability
to make Restricted Payments, which term includes dividends on the
Common Stock. In addition, the terms of the Series A Preferred
Stock and the Series E Preferred Stock limit the Company's
ability to declare and pay dividends on the Common Stock. Any
payment of future dividends on the Common Stock and the amount of
any such dividend will depend upon the Company's earnings,
financial requirements, debt instrument restrictions and other
factors deemed relevant by the Board of Directors of the Company.
See "Dividends and Dividend Policy," "Description of Capital
Stock -- Common Stock."

DEPENDENCE ON KEY PERSONNEL

The Company's success depends upon key management and
research and development personnel, and the loss of their servic-
es or a reduction in the time they devote to the Company's
business could seriously adversely affect the Company's business
and prospects. Due to the specialized nature of the Company's
business, the Company is highly dependent upon its ability to
attract and retain personnel with advanced education and experi-
ence. A limited number of persons trained in disciplines that
would qualify them to perform research and development for the
Company enter the job market in any year and competition for
their services is intense.

DEPENDENCE ON SIGNIFICANT CUSTOMERS/FUNDING PARTNER

During fiscal years 1995 and 1994, approximately 16% and
17%, respectively, of the Company's total revenues were derived,
directly or indirectly, from the U.S. Government. In an era of
Federal budgetary cutbacks and constraints, there can be no
assurance that U.S. Government development and procurement
policies will be continued. Moreover, contracts with the U.S.
Government generally may be terminated at the convenience of the
government upon written notice to the Company. The loss of such
funding would adversely affect the Company. Although the Company
has relied in the past on research and development funding from
the U.S. Government, the Company does not believe its future
business will be dependent on large government contracts. The
Company intends to continue to seek to increase sales to commer-
cial entities. Additionally, during fiscal 1995 and 1994, 19%
and 17%, respectively, of the Company's revenues were derived
from unconsolidated affiliates, primarily funded by E. I. du Pont
de Nemours and Company ("DuPont"). The loss of any significant
customer could adversely affect the Company. See "Management's
Discussion and Analysis of Results of Operations and Financial
Condition -- Results of Operations -- Significant Customers;
Commercial Relationships With the U.S. Government."

PRICE RANGE FOR COMMON STOCK AND UNITS

The Company's Common Stock and Units are traded in the over-
the-counter market on the OTC Bulletin Board. As of April 30,
1996, there were 219 holders of record of Common Stock and 437
holders of record of Units.

The range of high and low sales price for the Company's
Common Stock for the fiscal quarters indicated, as reported on
the OTC Bulletin Board, is as follows:

High Low

Fiscal 1996
1st Quarter
(from November 14, 1995) $12.50 $ 5.00
2nd Quarter . . . $22.00 $12.00
3rd Quarter
(through April 30, 1996) $23.50 $19.75

The range of high and low sales price for the Company's
Units for the fiscal quarters indicated, as reported on the OTC
Bulletin Board, is as follows:

High Low

Fiscal 1996
1st Quarter
(from November 14, 1995) $6.25 $2.4375
2nd Quarter . . . $9.75 $5.50
3rd Quarter
(through April 30, 1996) $8.875 $7.875

DIVIDENDS AND DIVIDEND POLICY

The Company has never paid dividends on its Common Stock and
does not intend to pay dividends in the foreseeable future. The
Company's ability to pay dividends is subject to certain restric-
tions. The Company's ability to declare and pay dividends on the
Common Stock is limited by (i) a Loan and Security Agreement,
dated April 29, 1994, between the Company and Kanematsu Corpora-
tion, providing that the Company may not declare or pay any
dividend that would have a material adverse effect on the collat-
eral under such agreement, and (ii) the Lease Agreement, dated
March 28, 1996, between QRS 12-16, Inc. and the Company, limiting
the Company's ability to make Restricted Payments, which term
includes dividends on the Common Stock. The terms of the Series
A Preferred Stock and the Series E Preferred Stock limit the
Company's ability to declare and pay dividends on the Common
Stock. Any payment of future dividends on the Common Stock and
the amounts thereof will be dependent upon the Company's earn-
ings, financial requirements, debt instrument restrictions and
other factors deemed relevant by the Board of Directors of the
Company.

CAPITALIZATION

The following table sets forth the capitalization of the
Company and its consolidated subsidiaries as of December 31,
1995. This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Consolidated Financial Statements
of the Company and related Notes thereto included elsewhere in
this Prospectus. All dollar amounts are in thousands.

December 31, 1995

Total long-term debt:
Current portion . . . . . . . . . . . . . . . . $ 507
Long-term portion . . . . . . . . . . . . . . . 19,680
Total long-term debt . . . . . . . . . . . $ 20,187

Redeemable Series E Preferred Stock . . . . . . . . . 204
Stockholders' deficit:
Common Stock, $.01 par value, 25,000,000 shares
authorized, 1,181,796 issued and outstanding . $ 2
Series A Preferred Stock, par value $.01 per
share . . . . . . . . . . . . . . . . . . . . 11
Additional paid-in capital . . . . . . . . . . . 187,409
Accumulated deficit . . . . . . . . . . . . . . (198,672)
Cumulative translation adjustment . . . . . . . 1,371
Total stockholders' deficit . . . . . . . . $ (9,869)

USE OF PROCEEDS

The Company will use proceeds from the exercise of the Unit
Warrants and the Options for general corporate purposes. The
Company will not receive any proceeds from the resale of any
shares of Common Stock by Bentley J. Blum upon his exercise of
the Blum Warrants.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

The following is a discussion of the consolidated financial
condition and results of operations of the Company for the three
months ended December 31, 1995 and 1994 and for the fiscal years
ended September 30, 1995 and 1994, as well as certain factors
that may affect the Company's prospective financial condition.
This section should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto included elsewhere in
this Prospectus. All dollar amounts in this section, unless
otherwise noted, are in thousands of dollars, except per share
data.

OVERVIEW

Historically, the Company's revenues have been derived
primarily from research contracts and development agreements with
DuPont and the U.S. Government and, more recently, from technolo-
gy licensing revenues and sales to outside customers. In addi-
tion, a substantial portion of the Company's research and devel-
opment ("R&D") and other operating costs have been funded by
Alcan Aluminium Limited and its affiliates ("Alcan"), DuPont and
Kanematsu through the Company's consolidated affiliates.

The Company operates principally in the United States and to
some degree through its subsidiary in Japan. See Note 6 to the
Company's Consolidated Financial Statements included elsewhere in
this Prospectus.

Since its founding in 1983, the Company, Alcan, DuPont, the
U.S. Government, Kanematsu and other business partners have
expended significant funds on research and development of the
Company's technology and related patent strategy. The funds
provided for such expenditures have been expensed by the Company
and, accordingly, are not reflected as assets on the Company's
consolidated balance sheet. However, the Company believes that
these expenditures have added significant value to the LANXIDE
technology and to the Company. As a result of the successful
development of its technology, the Company has generally been
able to retain an ownership interest in the various commercial
ventures in exchange for licensing its technology to such ven-
tures and without providing any of the ventures' initial funding
requirements.

Prior to March 1995, the Company's business strategy was to
develop and commercialize its technology and products through
individual subsidiary businesses and selective market-focused
commercial ventures and partnerships utilizing its own resources,
those of world-class industrial partners and contract funding
from the U.S. Government. In furtherance thereof, during 1994,
three new businesses focused on specific product areas being
developed by the Company were added to the Company's portfolio of
commercial ventures, with the Company responsible for the funding
of each.

During 1995, the Company continued to experience
larger-than-anticipated losses, and the increasing cash demands
placed on the Company from both its new businesses and more
established commercial ventures made it increasingly apparent to
the Company that a fundamental change in strategy was required.
The Company took steps to reduce demands for capital through a
number of different actions, including the reduction of its work
force, the discontinuance of two of its commercial ventures, the
sale of one of its subsidiaries and the sale of a majority
interest in three of its other subsidiaries.

Simultaneously with these actions, the Company embarked on a
program to license its technology in certain specific market
sectors by product and geography in order to generate immediate
cash for the Company. During 1995, the Company consummated
license agreements with A.P. Green Industries, Inc. ("A.P.
Green"), Waupaca and Sturm Ruger & Company, Inc. ("Sturm Ruger")
which generated $3.5 million in initial license fees, as well as
future license fees and royalties which are subject to certain
termination clauses. In addition, on December 22, 1995, the
Company entered into a license agreement with Brembo S.p.A
("Brembo") with respect to certain brake system components for
motor vehicles. On March 28, 1996, the Company also converted
the Celanx K.K. joint venture into a licensing arrangement. See
"Business -- Affiliates of the Company -- Celanx K.K."

The Company anticipates that its revenue for the coming
fiscal year will continue to be derived primarily from research
and development contract revenue, technology licensing revenue
and sales.

RESULTS OF OPERATIONS

Revenues from research and development contracts and commer-
cial development agreements (other than the Company's agreements
with its consolidated affiliates) are reported under "Research
and development contract revenue" in the Company's Consolidated
Statement of Operations. Expenses related to these contracts and
agreements are reported under operating costs as "Research and
development contract costs."

Research and development costs represent costs incurred for
projects sponsored by the Company and/or its commercial venture
partners through the Company's consolidated affiliates. This
includes research costs to develop and provide patent protection
for the Company's technology. Operating costs funded by commer-
cial venture partners through the Company's consolidated affili-
ates are allocated to such partners as "Minority allocation of
operating costs."

Significant Customers; Commercial Relationships With the
U.S. Government

The Company's significant revenue sources consist primarily
of (i) technology licensing revenues; (ii) U.S. Government
contract funding; (iii) revenues from a brake component agreement
between the Company and Nihon Cement; (iv) product development
revenues received from unconsolidated commercial ventures between
the Company and DuPont which are not included in the Company's
Consolidated Financial Statements; and (v) revenues of consoli-
dated subsidiaries of the Company.

The U.S. Government is a significant customer of the Compa-
ny. Contract revenues received from the Government amounted to
$2,865 and $3,411 for the years ended September 30, 1995 and
1994, respectively, and $594 and $738 for the three months ended
December 31, 1995 and 1994, respectively. Currently, the Company
has five government contracts totalling $4,100 of which $1,300
has been billed through December 31, 1995. The Company antici-
pates revenues of $2,300 in 1996 associated with these government
contracts. These contracts may be terminated at the convenience
of the government upon written notice to the Company. Termina-
tion of these contracts would adversely affect the Company.

Commercial Relationships With DuPont

Since 1987, the Company and DuPont have formed three commer-
cial joint ventures: Lanxide Electronic Components, Inc.
("LEC"), Lanxide Armor Company, L.P. ("LAC") and DuPont Lanxide
Composites, L.P. ("DLC").

The current ownership interests of the commercial joint
ventures are as follows:

Lanxide Ownership DuPont Ownership
LEC 80% 20%
LAC 27% 73%
DLC 30% 70%

DuPont's and the Company's current funding responsibilities
for each of LAC and LEC are based upon their respective ownership
interests. Also, DuPont is required to provide 100% of the
funding requirements of DLC through 1999, after which funding
will be based on ownership interest (70% -- DuPont; 30% -- the
Company). If either DuPont or the Company fails to meet these
funding obligations, its respective ownership interest in any
such unfunded venture will be diluted. The Company anticipates
that it will provide funding to LEC in 1996. The Company does
not currently intend to meet any further funding requirements of
LAC and, accordingly, its interest therein will be diluted if
further requirements exist and they are met by DuPont.

Prior to March 28, 1996, LAC, LEC and DLC leased space in
the Company's Marrows Road Facility. In connection with the sale
and leaseback transaction, the Company entered into sublease
agreements with each of LAC, LEC and DLC. See "Property --
Marrows Road Facility". Also, the Company provides accounting,
purchasing, payroll and human resource services to these ven-
tures. Amounts received by the Company from unconsolidated
affiliates for administrative and facilities costs and services
are reflected as a reduction to selling, general and administra-
tive expense, which totalled $1,417 and $776 for the years ended
September 30, 1995 and 1994, respectively, and $508 and $280 for
the three months ended December 31, 1995 and 1994, respectively.

These three commercial ventures also contract R&D services
from the Company. Revenue received by the Company from unconsol-
idated affiliates are recorded as contract revenue, which to-
talled $1,066 and $555 for the years ended September 30, 1995 and
1994, respectively, and $249 and $198 for the three months ended
December 31, 1995 and 1994, respectively.

Percentage Relationship to Net Revenues

The following table sets forth the percentage relationship
to net revenues of certain items in the Company's Consolidated
Statements of Operations for the periods presented:

Year ended September 30, Three Months ended December 31,
1995 1994 1995 1994

Revenues . . . . . . . 100% 100% 100% 100%
Operating costs:
Cost of sales . . . . (51) (69) (21) (43)
Research and development
contract costs . . (30) (27) (20) (49)
Research and development (46) (46) (22) (57)
Selling, general, and
administrative (79) (68) (27) (72)
Minority allocation of
operating costs 15 31 8 12
Equity in net loss of
unconsolidated (14) (2) (5) (11)
Interest expense . . . (12) (4) (9) (9)
Loss on sale of
subsidiary assets (17) 0
Other income (loss) . . 6 4 5 (8)
Net income (loss) . . . (130) (81) 9 (137)

Three months ended December 31, 1995 compared to three months
ended December 31, 1994

The Company recorded a net income of $518 on revenues of
$5,352 during the three months ended December 31, 1995, as
compared to a net loss of $5,653 on revenues of $4,098 during the
three months ended December 31, 1994. The Company's revenue was
generated primarily from licensing revenues, commercial sales and
research and development contracts as discussed in greater detail
below.

The Company's net income of $518 for the three months ended
December 31, 1995 as compared to a $5,653 loss for the prior
period was primarily a result of three factors:

(1) first quarter 1996 license fees of $2,900 versus none
in the first quarter of 1995.
(2) a reduction in losses attributable to its commercial
ventures because of the following events:
(A) During the second quarter of fiscal year 1995, the
Company discontinued the Lanxide Sports Interna-
tional, Inc. and Lanxide Surgical Devices Company
("Lanxide Surgical") commercial ventures.
(B) In May 1995, the Company sold all of its stock
ownership in LPI to LNX Acquisition Company.
(C) In June 1995, the Company sold an 85% interest in
the business of Alanx Products, Inc. ("Alanx") to
Alanx Wear Solutions, Inc. ("Alanx Wear").
(D) In June 1995, the Company sold a 30% interest in
LAC to DuPont which reduced its ownership percent-
age to 27%.
(E) In December 1995, the Company sold its majority
ownership in Lanxide ThermoComposites, Inc.
("Lanxide Thermo").
These events were partially offset by the Company's
June 1995 purchase of an additional 30% interest in LEC
from DuPont raising the Company's ownership percentage
and corresponding funding obligation to 80%.
(3) a reduction in the Company's work force during the
second quarter of fiscal year 1995.

The Company believes that these factors will continue to
have a favorable impact on future operations.

Net Sales and Cost of Sales
Consolidated sales decreased 50% to $962 from $1,924, and
cost of sales decreased 37% to $1,109 from $1,757 compared to the
prior period. These decreases are primarily attributable to the
fact that the sales of LPI and Alanx were not consolidated during
the first three months of fiscal year 1996. The exclusion of LPI
sales and its positive gross margin also caused the difference
between the percent decrease in sales versus cost of sales.

Licensing Revenue

Licensing revenue of $2,900 during the quarter ended Decem-
ber 31, 1995 relates to the following three license agreements:

Waupaca $2,000
A.P. Green 500
Brembo 400
$2,900

The Waupaca license is in the area of automotive brake
system components and certain agricultural machine wear compo-
nents. Subject to its right to unilaterally terminate this
license, Waupaca is required to make additional license payments
totaling $13,000 over the next four years: $2,000 in January
1996; $2,500 in March 1997; $4,000 in March 1998; and $4,500 in
March 1999. In December 1995, Waupaca firmly committed to pay
the $2,000 due in January 1996 which amount was subsequently
received. In addition, the license agreement includes a royalty
to the Company amounting to 1% of sales of licensed products
following the first $150 million in cumulative sales.

Pursuant to the A.P. Green license agreement, A.P Green has
the exclusive and perpetual right to use LANXIDE technology to
make, use and sell industrial refractories, other than those
employed in the ferrous metal industry, worldwide except for
Japan. Subject to its unilateral right to terminate this li-
cense, A.P. Green is required to make the following additional
payments totaling $1,300 over the next two years: $250 in July
1996; $250 in April 1997; $300 in July 1997; and $500 in January
1998. A.P. Green will also pay to the Company royalties of 3% on
the first $20 million in annual sales of products manufactured
and sold under the license and 4% on annual sales exceeding $20
million.

The Brembo license agreement is in the area of certain brake
system components for motor vehicles. With the signing of the
agreement, Brembo is required to make two payments which are not
subject to cancellation. The first two payments of $150 and $250
were received in January 1996 and March 1996, respectively.
Subject to its unilateral right to terminate the license, Brembo
is required to make the following additional payments totaling
$1,600 over two years: $400 in June 1996; $400 in December 1996;
$400 in June 1997; and $400 in December 1997. In addition, the
license agreement includes a royalty to the Company amounting to
4% of sales of licensed products. A minimum royalty payment of
$250 is applicable for years three through six of the license
agreement.

Additionally, in April 1995, the Company entered into a
license agreement with Sturm Ruger for rights to produce and sell
certain sporting goods components outside of Japan, and received
an initial license fee of $1,000. Since the initial license
agreement with Sturm Ruger granted the licensee a one-year option
to terminate the license and be repaid the $1,000 by the Company
in the form of either cash or common stock at the Company's
option, the Company deferred recognition of the license fee
revenue. In January 1996, the Company and Sturm Ruger signed a
new license agreement which grants the licensee some additional
product rights to certain sporting goods components outside of
Japan. In consideration for the expanded license, Sturm Ruger
waived its one-year option to terminate the license. Thus, the
original deferred amount of $1,000 will be recorded as revenue
during the second quarter of fiscal year 1996. In addition, the
license agreement includes a royalty to the Company amounting to
3% of sales of licensed products following the first $33.3
million in cumulative sales.

Contract Revenue and Contract Costs

Research and development contract revenue decreased $684,
from $2,174 to $1,490, and contract costs decreased $939, from
$1,998 to $1,059, compared to the prior period. Beginning in
July 1995, product development, including both revenue and costs,
performed by the Company for LEC is eliminated in consolidation
due to the Company's ownership in LEC increasing to 80%. Like-
wise, contract revenue work performed by LAC for other companies
is no longer included in the Company's consolidated financial
statements due to its ownership in LAC decreasing from 57% to
27%. These ownership changes occurred at the end of June 1995.

Partially offsetting these decreases was the work performed
in support of a brake component development agreement with Nihon
Cement, including the amortization of equipment purchased under
the contract. Under this agreement, Nihon Cement and the Company
have funded $3,000 and $1,000, respectively, of development
costs, of which $873 remains in deferred revenue at December 31,
1995.

Research and Development Costs

R&D spending decreased by $1,158 from $2,345 to $1,187, for
the quarters presented. This decrease is primarily attributable
to the Company's emphasis on reducing its expenses associated
with the parent company and its subsidiaries. Such items include
the previously mentioned 20% work force reduction in March 1995,
the discontinuance of two of its commercial ventures, the sale of
one of its subsidiaries and the sale of a majority interest in
three of its other subsidiaries.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased
$1,519, from $2,959 to $1,440, over the prior period, principally
for the same reasons cited above for the R&D cost reduction.

Included in selling, general and administrative expenses are
reimbursements of $508 and $280 for 1995 and 1994, respectively,
received from unconsolidated affiliates for administrative and
facilities costs and services.

Equity in Net Loss of Unconsolidated Affiliates

The equity in net loss of unconsolidated affiliates de-
creased $197 from $446 to $249. This decrease was mainly due to
consolidation of LEC and deconsolidation of LAC, both of which
were effective as of June 30, 1995.

Interest Expense

Interest expense increased 29%, from $387 to $501, compared
to the prior period. This increase was principally attributable
to the draw-down of the remaining $6,000 of the $10,000 Kanematsu
line of credit during the first half of fiscal year 1995.

Other Income

The Company recorded $275 in other income for the quarter
ended December 31, 1995 as compared to a $335 loss for the prior
period. The change was primarily attributable to a gain associ-
ated with the sale of a majority interest in Lanxide Thermo.
Additionally, the Company recorded a $200 charge in the first
quarter of fiscal year 1995 associated with accrued dividends on
preferred stock of a subsidiary company.

Year ended September 30, 1995 compared to year ended September
30, 1994

Revenues

The Company incurred a net loss of $22,717 on revenues of
$17,523 during the year ended September 30, 1995, compared to a
net loss of $15,684 on revenues of $19,375 during the year ended
September 30, 1994. The Company's revenue was generated primari-
ly from commercial sales, research and development contracts and
licensing revenues, as discussed in greater detail below.

The net losses in both periods represent the Company's
significant investment in product development, patents, market
development and start-up costs associated with its various
commercial ventures. The increase in net loss of $7,033 during
the period presented is primarily due to three factors: (1) the
Company's funding of commercial ventures (LPM, LEC and Lanxide
Thermo) that were partially funded by an outside party or did not
exist during much of 1994 ($3,194); (2) the loss attributable to
the sale of substantially all of the assets of Alanx ($3,058) to
Alanx Wear Solutions Inc., a venture in which the Company ob-
tained a 15% ownership position and (3) additional interest
expense resulting from the Kanematsu line of credit and the
refinancing of the Marrows Road Facility ($1,083).

The Company believes that the net losses will be signifi-
cantly reduced in the future. Losses attributable to commercial
ventures, which totaled $17,342 for the year ended September 30,
1995, will be significantly reduced as a result of the sale of
LPI and the business of Alanx and the discontinuance of LSI and
Lanxide Surgical. Additionally on December 14, 1995, the Company
became a minority owner of Lanxide Thermo. The new majority
owner, A.P. Green Industries, Inc., has agreed to provide funding
for the venture. Reduced expenses resulting from the Company's
work force reduction in 1995 should also favorably impact re-
sults. In addition, it is expected that additional licensing
revenue will be generated from both existing as well as new
license agreements.

Net Sales

Consolidated sales decreased 29.4% to $9,393 from $13,302,
and cost of sales decreased 33.1% to $8,975 from $13,421 compared
to the prior period. These decreases are primarily attributable
to reduced sales of Alanx distributed products primarily to
Kennemetal, and the fact that LEC sales were not consolidated
from April 1994 through June 1995, partially offset by an in-
crease in sales by LPI and the parent company.

During 1994, Alanx discontinued the resale and distribution
of products of wear-related materials purchased from other
manufacturers because such sales were determined to utilize too
much of Alanx's limited resources, detracting from the achieve-
ment of rapid development of more attractive manufactured product
sales. This decision resulted in a sales decrease of $5,680,
primarily of sales to Kennemetal. As a result of the sale of 85%
of the business of Alanx on June 26, 1995, Alanx's operating
results will no longer be included in the Company's Consolidated
Financial Statements.

The $1,242 increase in LPI sales relates to increased sales
to its largest customer, due to LPI's ability to combine advanced
materials technology and precision manufacturing capability. As
a result of the sale of the Company's interest in LPI in May
1995, LPI results will no longer be included in the Company's
Consolidated Financial Statements.

Included in sales are $7,714 and $12,643 relating to the
activities of the Company's consolidated affiliates for the 1995
and 1994 periods, respectively, of which $6,823 and $11,133,
respectively, will no longer be included in the Company's Consol-
idated Financial Statements due to ownership changes. This
decrease will be offset by the sales of LEC which will be consol-
idated due to an ownership change. The Company's sales would have
been higher in 1995 and 1994 by $1,105 and $682, respectively,
had LEC been consolidated for a full year. The majority of the
Company's sales from other sources, which totaled $1,679 and $659
for the 1995 and 1994 periods, respectively, are primarily
attributable to sales of prototypes and deliverables under U.S.
Government contracts.

Licensing Revenue

Licensing revenue of $2,000 during the year ended September
30, 1995 relates to a license agreement with Waupaca in the area
of automotive brake system components and certain agricultural
machine wear components. As discussed above, the Company entered
into several additional licenses which will provide substantial
revenues to the Company. The Company expects to continue to
license its technology in certain specific market sectors by
product and geography in order to generate immediate cash for the
Company. Although the Company will, subject to the availability
of capital, continue to commercialize products using the LANXIDE
technology through its wholly or partially owned ventures, the
Company plans to seek advantageous licensing arrangements with
third parties which have the ability to commercialize products in
those areas where there are significant barriers to entry (i.e.,
substantial up-front costs or the need for a substantial industry
presence or where LANXIDE technology provides only a portion of
the necessary solution).

Contract Revenue

Research and development contract revenue increased $57,
from $6,073 to $6,130, and contract costs increased $144, from
$5,169 to $5,313, compared to the prior period. These increases
are a result of LEC not being consolidated from April 1994
through June 1995, during which period all work performed in
support of LEC by the Company was not eliminated in consolida-
tion. The increase was also attributable to work performed in
support of a brake component development agreement with Nihon
Cement. Offsetting this increase was a reduction in government
revenues in 1995 caused primarily by the completion of phase 1 of
a government program in March 1995. The second phase has been
awarded and work began in June 1995 (see further discussion
below).

Revenues of $3,333 and $3,354 for the 1995 and 1994 periods,
respectively, were generated from contract work performed in
support of unconsolidated affiliates. Of these amounts, $2,267
and $2,542 were recorded by certain of the Company's consolidated
affiliates which will no longer be consolidated in the future due
to the Company's divestiture of part or all of its ownership in
these commercial ventures.

In June 1995, the Company signed an eighteen-month, $3,000
development contract with the Office of Naval Research of the
Department of the Navy. The contract represents the second phase
of a program to develop flexible manufacturing technology based
on the Company's PRIMEX ceramic-reinforced aluminum technology.
The Company recorded revenue associated with this contract of
$392 in 1995 and anticipates revenues of $2,000 for 1996 and $608
for 1997.

Research and Development Costs

R&D spending decreased by $819, from $8,920 to $8,101, for
the years presented. This decrease is primarily attributable to
the Company's emphasis on reducing its expenses and transferring
its R&D resources from internal R&D to product sales and
revenue-generating programs, such as the Nihon Cement brake
component program. The Company's R&D spending is expected to
continue to decrease in future periods. Such decrease will
result primarily from (i) a greater emphasis on revenue-producing
activities, while allocating less resources to internal R&D and
(ii) the 20% work force reduction in March 1995, which will
proportionally reduce the Company's R&D expense.

The present reduction in U.S. Government R&D spending, the
proposed elimination of the U.S. Department of Energy and the
downsizing of the U.S. Department of Defense ensure that the
Company's business strategy remains firmly focused on its product
development and commercialization activities. The Company is not
projecting any further U.S. Government R&D contract activity
beyond the activity currently under contract, although the
Company believes it unlikely that such activity will completely
disappear.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased 4.7%,
from $13,249 to $13,869, over the prior year, principally as a
result of the Company's increased marketing and sales initiatives
during late 1994 and 1995. Such increase would have been larger
if (i) LEC had continued to be included in the Company's Consoli-
dated Financial Statements from April 1994 to June 1995 and (ii)
LAC, LPI and Alanx continued to be consolidated in the fourth
quarter of 1995.

During the latter half of 1994, the Company expanded its
efforts to commercialize its technology by forming three new
ventures -- Lanxide Surgical, Lanxide Thermo and LPM -- to
exploit the markets in the surgical, refractory, PRIMEX CAST and
CERASET product areas. In addition, the Company's Japanese
subsidiary, Lanxide K.K., also intensified sales and marketing
efforts in its licensed areas.

Even though additional resources have been expended on the
sale and marketing of the Company's technology, it has had little
impact on sales to date, and two of the Company's commercial
ventures -- LSI and Lanxide Surgical -- have since been discon-
tinued. The Company plans to continue to focus on generating
sales and additional markets; however, future selling, general
and administrative expenses are anticipated to be lower due to
the sale or closure of part or all of five ventures in 1995 and
the sale of a majority interest in Lanxide Thermo in December
1995.

In addition to the usual costs included in selling, general
and administrative expenses, the Company also incurs significant
patent-related expenses, which decreased by $535, from $1,542 to
$1,007, over the prior period. Such decrease in patent-related
expenses was a result of the Company's continuing efforts to
reduce cash expenditures. Included in selling, general and
administrative expenses are reimbursements of $1,417 and $776 for
1995 and 1994, respectively, received from unconsolidated affili-
ates for administrative and facilities costs and services.

Minority Allocation of Operating Costs

Minority allocation of operating costs decreased 56.2%, from
$6,079 to $2,664. This decrease was primarily a result of the
recognition of $3,248 associated with a deferred credit. This
amount was being amortized over the life of the contract.
However, in 1994, the credit was recognized as future obligations
under the contract ceased to exist.

Equity in Net Loss of Unconsolidated Affiliates

The equity in net loss of unconsolidated affiliates of
$2,532 consists primarily of the Company's portion of the losses
incurred by LEC and Celanx. Losses for these unconsolidated
affiliates primarily represent the significant start-up costs
associated with the development and commercialization of their
respective licensed products.

Interest Expense

Interest expense increased 138.4%, from $867 to $2,067,
compared to the prior period. This increase was principally
attributable to the draw-down of the remaining $6,000 of the
$10,000 Kanematsu line of credit. Additionally, in July 1994,
the Company refinanced its Marrows Road Facility, which resulted
in additional debt of approximately $2,000.

Loss on Sale of Subsidiary Assets

The Company recorded a $3,058 loss on the sale of substan-
tially all of Alanx's assets to Alanx Wear. Pursuant to the
Asset Purchase Agreement, dated June 26, 1995 between Alanx and
Alanx Wear, Alanx Wear assumed $907 of Alanx's liabilities, but
did not assume the $4,000 redeemable preferred stock held by
Nihon Cement. Alanx received a 15% interest in Alanx Wear and
will receive a 4% royalty-bearing license fee on sales exceeding
$1,125 for any quarter after the first 24 months following the
sale date. The Company continues to own 100% of the common stock
of Alanx, whose name has been changed to Lanxide Wear Products,
Inc.

Other Income

Other income increased 29.4%, from $781 to $1,011, over the
prior period, primarily due to the amortization of a deferred
gain on the sale by Lanxide K.K. of a 50% interest in a wholly
owned subsidiary, which is being recognized over a 10-year
period.

LIQUIDITY AND CAPITAL RESOURCES

Since its inception, the Company has financed its working
capital and capital expenditure requirements with the proceeds
from the private sale of stock, borrowings, product sales,
research and development contracts and technology licensing
revenues. The Company had working capital of $4,900 at December
31, 1995, as compared to $500 at September 30, 1995. The consol-
idated cash balance at December 31, 1995 was $5,700 (including
$3,900 held by subsidiary companies which amounts were not
available to the Company). See Note 1 to the Company's Consoli-
dated Financial Statements included elsewhere in this Prospectus.

At December 31, 1995, the Company had no significant commit-
ment to purchase capital equipment. However, the Company has a
$200 obligation on previously purchased capital equipment that
contains deferred payment terms of approximately $33 per quarter.

On October 3, 1995, the Company raised $331 from the sale of
shares of Series D Preferred Stock and Series E Preferred Stock
to Bentley J. Blum. At the Effective Time of the Recapitaliza-
tion Plan, the Series D Preferred Stock was converted into cash
equal to $71 which was paid by the Company, and the Series E
Preferred Stock continues to remain outstanding. In connection
with the sale of the Series D Preferred Stock and the Series E
Preferred Stock, Mr. Blum received a warrant to purchase 58,763
shares of Common Stock at an exercise price of $4.50 per share
exercisable until January 14, 1999.

On November 14, 1995, the Company completed its Recapital-
ization Plan. Pursuant to the Recapitalization Plan, stockhold-
ers subscribed for 850,117 shares of the Company's Common Stock
at $4.50 per share, providing aggregate gross proceeds of $3,800.

During the past year, the Company has successfully imple-
mented a licensing strategy and has signed four technology
licensing agreements which provided funds to continue the opera-
tions of the Company in 1995. These begin to form a financial
base to cover operating expenses in 1996 and beyond. License
agreements which are in place but subject to cancellation by the
licensor provide the following funds in addition to various
royalty provisions (Dollars in Millions):

1995 1996 1997 1998 1999

1. Waupaca 2.0 2.0 2.5 4.0 4.5
2. A.P. Green - .75 .55 .5 -
3. Brembo - .8 .8 .4 -
4. Sturm Ruger 1.0 - - - -

On March 28, 1996, the Company consummated the sale and
leaseback of the Marrows Road Facility. This transaction gener-
ated $3.3 million after prepayment of a $4.1 million mortgage on
the Marrows Road Facility and payment of associated fees and
closing costs. See "Property -- Marrows Road Facility".

The Company's cash needs through the 1996 calendar year end
are expected to be met through: (i) projected licensing reve-
nues, including those revenues described above; (ii) cash flow
from operations; (iii) proceeds from the sale and leaseback of
the Marrows Road Facility; (iv) $600 of proceeds from the exer-
cise of a part of the Blum Warrants by Bentley J. Blum, which
expire on June 30, 1996; and (v) $1,250 of payments on non-
recourse notes which were issued to the Company in connection
with the sale of the Company's interest in LPI and which mature
on June 4, 1996. No assurances can be given that all of the
proceeds described above will be realized by the Company.
Moreover, Mr. Blum is under no obligation to exercise any of the
Blum Warrants and could let them expire without the payment of
any proceeds to the Company and, in the event payments are not
made with respect to the non-recourse notes, the Company will be
entitled to foreclose on the stock of LPI but will have no other
right to receive proceeds therefrom. Further cash needs are
anticipated to be met by a combination of the existing license
agreements, government contracts and products sales, together
with proceeds from future license agreements.

The Company has been engaged in discussions with a number of
industrial entities in the United States, Europe and Asia regard-
ing the potential licensing of the Company's technology to such
entities for up-front fees and ongoing royalty interests.
However, no assurance can be given that any of these discussions
will actually lead to the licensing of the Company's technology
to any of these entities or that any licensing fees actually
received will be sufficient to maintain the Company's operations.

Except for LEC and LPM, the Company anticipates that there
will be no future funding requirements placed on it by its
commercial ventures. It is anticipated that any cash require-
ments of LAC will be met by DuPont, which would lead to minor
dilution in the Company's percentage ownership of LAC. DuPont is
also responsible for all funding of DLC. The Company sold its
majority ownership in Lanxide Thermo in December 1995. The new
majority owner, A.P. Green, has assumed responsibility for its
ongoing funding needs.

After giving effect to the sale and leaseback of the Marrows
Road Facility mentioned above and the prepayment of a $4,100
mortgage on the facility held by PNC Bank, Delaware, principal
payments on outstanding indebtedness for the remaining three
quarters of 1996 is $140 and for the years 1997 through 2001 are
$273, $2,000, $12,100, $1,600 and $0, respectively. No assuranc-
es can be given that the Company will be able to make these
payments when they become due.

The Company has a $6 million revolving credit and term note
with PNC guaranteed by DuPont, under which all available amounts
have been drawn. The note bears interest at the prime rate and
is payable in installments beginning in March 1997 and maturing
in March 2000. The Company has a $10 million secured revolving
credit and time note with Kanematsu under which all available
amounts have been drawn. This note bears interest at 2% above
LIBOR and matures in full in December 1998. See Note 2 and Note
8 to the Company's Consolidated Financial Statements.

The Company currently has no availability under its lines of
credit. Moreover, the terms of the agreement relating to the
loan from Kanematsu currently prohibit the Company from incurring
additional indebtedness.

BUSINESS

INTRODUCTION

BUSINESS STRATEGY

The market opportunities for the Company's products extend
broadly across the basic processing, automotive, aerospace and
defense, electronics, machine tool, mining, chemical, glass,
paper, textile, cement, rail transport and sports equipment
industries. Prior to March 1995, the Company's business strategy
was to develop and commercialize its technology and products
exclusively through individual subsidiary businesses and selec-
tive market-focused joint ventures and partnerships utilizing its
own resources, those of world-class industrial partners, and
contract funding from the U.S. Government. In furtherance
thereof, the Company structured 11 Affiliates in a series of
commercialization ventures. The Company's affiliated partners
include DuPont, Kanematsu and Nihon Cement.

Due to, among other things, (i) the needs of the Company and
its ventures for further funding and (ii) an increase in the
number of products developed and demonstrated using the LANXIDE
technology, the Company revised its business strategy during
fiscal 1995 and embarked on a program to license its technology
in certain areas by product and geographic territory and entered
into a number of transactions relating to the sale of certain
Company assets and equity interests in the Company.

The Company expects that this revised strategy will enable a
greater number of products utilizing LANXIDE technology to be
commercialized in the near-term. Although the Company will,
subject to the availability of capital, continue to commercialize
products using the LANXIDE technology through its wholly or
partially owned ventures, the Company plans to seek advantageous
licensing arrangements with third parties which have the ability
to commercialize products in those areas where there are signifi-
cant barriers to entry (i.e., substantial up-front costs or the
need for a substantial industry presence) or where LANXIDE
technology provides only a portion of the necessary solution.
The Company believes that such licensing arrangements will
benefit the Company through the commercialization of the LANXIDE
technology in product areas into which the Company could not
otherwise expand at this time. The Company believes that bene-
fits from licensing include:

* Accelerated adoption and recognition of its materials
and technology.

* Allocation of available capital to those products which
the Company is best able to commercialize.

* Immediate cash flow from licensing arrangements.

On March 31, 1995, Waupaca paid the Company $2 million as
part of a license fee for rights to manufacture licensed products
in North America and sell them worldwide (excluding Japan) in the
following fields: automotive brake rotors, brake drums, brake
pistons, clutch plates and certain agricultural equipment compo-
nents. Subject to its right to unilaterally terminate this
license, Waupaca is required to make additional license payments
totaling $13,000; $2,000 in January 1996 (payment received);
$2,500 in March 1997; $4,000 in March 1998; and $4,500 in March
1999. In addition, the license agreement includes a royalty to
the Company amounting to 1% of sales of licensed products follow-
ing the first $150 million in cumulative sales. Waupaca is
entitled to terminate the license, for any reason, upon ninety
days' notice or by not making any additional payments; provided,
however, that upon termination, (i) Waupaca will continue to have
the right to use the LANXIDE technology for a one-year period to
the extent necessary to fulfill customer contracts and (ii)
Waupaca will have a royalty-free, perpetual, non-exclusive
license to use any LANXIDE technology which is not patented.

On April 6, 1995, the Company entered into a license agree-
ment with Sturm Ruger for rights to produce and sell certain
sporting goods components outside of Japan, and received an
initial license fee of $1,000. Since the initial license agree-
ment with Sturm Ruger granted the licensee a one-year option to
terminate the license and be repaid the $1,000 by the Company in
the form of either cash or Common Stock at the Company's option,
the Company deferred recognition of the license fee revenue. In
January 1996, the Company and Sturm Ruger signed a new license
agreement which grants the licensee some additional product
rights to certain sporting goods components outside of Japan. In
consideration for the expanded license, Sturm Ruger waived its
one-year option to terminate the license. Thus, the original
deferred amount of $1,000 will be recorded as revenue during the
second quarter of fiscal year 1996. In addition, the license
agreement includes a royalty to the Company amounting to 3% of
sales of licensed products following the first $33.3 million in
cumulative sales.

On October 2, 1995, the Company entered into a license
agreement with A.P. Green, under which A.P. Green is exclusively
and perpetually licensed with the right to use LANXIDE technolo-
gy to make, use and sell industrial refractories, other than
those employed in the ferrous metals industry, worldwide except
for Japan. In connection with the license, A.P. Green paid the
Company $500,000 on closing and will pay additional payments of
$250,000, $250,000, $300,000 and $500,000 on the ninth, fif-
teenth, twenty-first and twenty-seventh month anniversaries,
respectively, of the agreement. A.P. Green will also pay to the
Company royalties of 3% on the first $20 million in annual sales
of products manufactured and sold under the license, and 4% on
annual sales exceeding $20 million. A.P. Green has the right at
any time under the agreement to discontinue payments, in which
case all rights granted to A.P. Green under the license agreement
will terminate.

On December 22, 1995, the Company entered into a license
agreement with Brembo providing for the grant by the Company to
Brembo of a license to use LANXIDE technology to make in Europe
and to sell worldwide (excluding Japan) certain brake system
components for motor vehicles. With the signing of the agree-
ment, Brembo is required to make two payments which are not
subject to cancellation. The first two payments of $150 and $250
were received in January 1996 and March 1996, respectively.
Subject to its unilateral right to terminate the license, Brembo
is required to make the following additional payments totaling
$1,600 over two years: $400 in June 1996; $400 in December 1996;
$400 in June 1997; and $400 in December 1997. In addition, the
license agreement includes a royalty to the Company amounting to
4% of sales of licensed products. A minimum royalty payment of
$250 is applicable for years three through six of the license
agreement.

On March 28, 1996, the Company converted Celanx into a
royalty bearing license arrangement. The new arrangement will
permit Nihon Cement, as licensee, to fully exploit the precision
instruments market in Japan without creating demands on the
Company's working capital. This new license agreement is expect-
ed to provide an ongoing royalty stream to Lanxide KK as the
precision components business develops over the next several
years. See "Affiliates of the Company -- Celanx KK".

In addition, in connection with the sale of LPI in May 1995
and the business of Alanx in June 1995, the Company entered into
license arrangements with those entities. See "Business --
Products" for a description of the products that are expected to
be manufactured by the Company's licensees.

TECHNOLOGY, PATENTS AND TRADEMARKS

The Company's patented reinforced materials technologies
include reinforced metals made by the PRIMEX pressureless metal
infiltration process and the PRIMEX CAST foundry process,
reinforced ceramics made by the DIMOX directed metal oxidation
process, and reinforced polymers or reinforced ceramics made
using CERASET ceramers.

The Company's PRIMEX reinforced metal technology offers
features such as size and shape versatility; as formed, high
tolerance dimensional capabilities; low processing costs; and
engineerable properties. Reinforced metals are produced using
the PRIMEX pressureless metal infiltration process, which occurs
spontaneously in a controlled atmosphere above the melting point
of a matrix alloy which is employed. The alloy infiltrates
preformed configurations of reinforcing materials without pres-
sure or vacuum. Either continuous or discontinuous reinforce-
ments are accommodated, and a wide range of volume fractions of
reinforcement can be produced. Near-net or net shaped components
with reinforcement volume fractions of 30% to 80% are made by
forming the filler into a shaped preform which is then infiltrat-
ed. Examples of composites produced are aluminum reinforced with
aluminum oxide, aluminum nitride, and silicon carbide. Compo-
nents containing from 5% to 40% by volume of reinforcement can be
produced by conducting the infiltration process with excess
aluminum, dispersing the filler uniformly into the excess alumi-
num by stirring, and then using conventional casting techniques
to form composite articles.

The Company's DIMOX reinforced ceramic technology is based
upon a unique, patented approach to the creation of composites by
the use of a directed oxidation mechanism. The Company literally
grows ceramic matrix composites via an oxidation reaction between
a molten metal and an adjacent oxidant. The technique is generic
and applies to numerous ceramic/metal systems, including oxides,
nitrides, carbides and borides of metals such as aluminum,
silicon, titanium, zirconium and hafnium.

A key feature of the DIMOX reinforced ceramic technology is
that reinforcing materials (such as fibers, particles or
platelets) can be placed into the path of the oxidation reaction
so that they are captured in the developing ceramic matrix.
Through appropriate choices of parent metal, oxidant, reinforcing
material and processing conditions, the properties of the result-
ing composite can be engineered for specific performance require-
ments. Growth of the ceramic matrix into shaped preforms of
reinforcing material produces components to final or near-final
shape, since essentially no shrinkage occurs during the process.
Simple or complex parts can be produced in a range of sizes from
small to very large.

In 1993, the Company extended its technology base by acquir-
ing innovative, patented CERASET ceramer, ceramic paper and
ceramic microcomposite technologies from Hercules Inc. These
technologies are synergistic with the Company's reinforced metals
and reinforced ceramics processes. They have also provided a
proprietary basis for extension of the Company's endeavors into
polymer and reinforced polymer components, coatings, sealants and
adhesives, monolithic ceramics and ceramic and reinforced ceramic
coatings.

CERASET ceramers are a unique family of low viscosity
liquid, thermosettable ceramic-backboned, polyureasilazane-based
polymers. These polymers have exceptional thermal stability,
corrosion resistance and rigidity. As temperatures are increased
from 400 C to 1400 C, the polymers progressively condense and
cross-link as polymers, ultimately converting to ceramic com-
pounds, such as silicon nitride, silicon carbide or aluminum
nitride, depending on the specific polymer and processing condi-
tions. Certain CERASET ceramers, when applied as liquids and
then thermoset, exhibit strong adhesion to both metals and
ceramic materials. This characteristic makes the polymers
especially well-suited for making polymer matrix composites or
for applications as binders for metal or ceramic particulate
processing. The polymers can be used to prepare parts that are
both strong and rigid by mixing a ceramic powder into the liquid
polymer, forming the desired shape and then thermosetting the
shape to achieve required strength.

Certain CERASET ceramers can also be combined with certain
traditional organic polymers (urethane, epoxies, acrylics, etc.)
to produce CERASET hybrid polymers, applicable to both compos-
ites and coatings. With only limited additions of certain
CERASET polymers, properties such as temperature stability,
corrosion resistance, moisture resistance, wear resistance,
strength, toughness and stiffness of the base polymers can be
improved in many instances, while retaining advantageous process-
ing characteristics. The hybrid polymeric materials can be
reinforced with ceramic or metallic constituents, further enhanc-
ing performance such as strength, rigidity, thermal conductivity,
flame retardancy and wear resistance. CERASET ceramers can also
be used to fabricate monolithic ceramics or ceramic matrix
composites to near-net shape, to act as binders for preforms used
in the DIMOX and PRIMEX composite formation processes, to
produce high performance powders and fibers, and to act as
adhesives for both low- and high-temperature applications.

As of March 31, 1996, the Company had 280 issued patents in
the United States, none of which expires prior to 2004, with 73
additional patents pending, and 1,112 patents issued in 44
foreign countries, none of which expires prior to 1999, with 473
additional patents pending. As is typical with most research and
development efforts, improvements to the technology contained in
the Company's early patents have been made and patented, and
continue to be made and patented, to provide the Company with
continuing patent protection for its technology. In addition,
the Company believes that certain of its know-how and proprietary
information is legally protected as trade secret information, and
the Company intends to maintain the confidential and proprietary
nature of its trade secrets and to protect future proprietary
developments. The Company's core technology patents cover its
DIMOX reinforced ceramics, PRIMEX reinforced metals and
CERASET ceramers, including broad claims to both processes and
materials.

The Company maintains two registered trademarks. The
Company's registered trademarks are ALANX and LANXIDE . The
Company and its Affiliates also have rights in the following
unregistered trademarks: DIMOX , DIMOX HT , PRIMEX , PRIMEX
CAST , PRIMEXCOOL , 2K+ , CERASET , CERASET SN , CG896 and
CG273 .

The Company's patents are generally held within Lanxide
Technology Company L.P., a wholly owned subsidiary of the Company
("Lanxide Technology").

RESEARCH, DEVELOPMENT AND ENGINEERING

To support the Company's continuing efforts to increase its
technology base and to commercialize products, the Company
maintains extensive research, development and engineering
("RD&E") facilities and a sophisticated RD&E team. With emphasis
on materials research, product development and process engineer-
ing, the Company's RD&E activities are fast-paced and dynamic.

A comprehensive, in-depth understanding of the DIMOX and
PRIMEX processes has been established as a result of a combina-
tion of government and internally funded programs. Presently,
materials development activities of the Company focus on the
development of new composite systems, especially hybrid polymers
formulated from combinations of CERASET and other commercial
polymers, and basic microstructure-process-property relation-
ships. This development generates the basis for the Company's
expanding patent portfolio and provides technical information in
support of product development and commercialization efforts.

Several recent RD&E breakthroughs offer significant new
product opportunities. For example, the Company has successfully
demonstrated, on laboratory scale equipment, wrought processing
of PRIMEX CAST reinforced aluminum containing 30 volume percent
ceramic particles. Sheet products have been rolled and both bar
and structural shapes have been extruded. Initial mechanical
properties measurements show that these wrought products offer
significant increases in ductility, at equivalent strengths and
stiffness, as compared to their cast reinforced aluminum counter-
parts. These processing breakthroughs are expected to open
markets not previously available to the Company. Examples of
anticipated markets include automobile space frames, aerospace
structural components, rail car structural components and
truck/trailer structural components. The Company has also
demonstrated the first reinforced aluminum brake rotor capable of
operating at temperatures up to 1000 F. This represents a
performance enhancement of almost 200 F over competing rein-
forced aluminum products, and provides a significant advantage in
performance for this safety-critical component.

Product development activities of the Company are all market
driven, and include materials development, applications engineer-
ing, prototype production and process engineering. A major
component of this effort is the development of light-weight,
high-performance automotive components, such as brake components
(including rotors, drums, calipers, caliper pistons and brake pad
backing plates), connecting rods, piston pins, valve seats,
bearing caps and other engine and transmission components. The
Company has installed a pilot production line capable of manufac-
turing up to 25,000 brake rotors per year using the PRIMEX
reinforced aluminum technology. This program has been funded
primarily by Nihon Cement and is being undertaken in close
cooperation with Waupaca.

During fiscal 1995, the Company signed an 18-month, $3
million contract with the Office of Naval Research of the U.S.
Navy in a program funded by the Advanced Research Projects Agency
("ARPA") of the U.S. Department of Defense. The goal of this
program, which is an extension of a previous contract, is the
development of flexible manufacturing systems for producing
products based upon the Company's PRIMEX reinforced aluminum
technology. The program has important implications for lowering
the cost of military procurements, while substantially enhancing
the Company's competitiveness in addressing world-wide commercial
markets for net or near net shape, high-performance, light-weight
industrial components ranging from electronic heat sinks and golf
club inserts to automotive engine components.

The Company conducts its RD&E activities in state-of-the-art
laboratories, which include such specialized facilities as a
chemical vapor deposition coatings apparatus, analytical labora-
tories, a dynamic testing laboratory and a physical properties
testing laboratory. The Company's RD&E activities occupy approx-
imately 100,000 square feet in two adjacent buildings. See
"Property." The RD&E team is composed of 72 people, including
about 20 degreed professionals in a variety of professions such
as materials science, metallurgy, organometallic chemistry,
ceramic science and mechanical engineering.

PRODUCTS

The following products are manufactured by the Company and
its Affiliates:

Electronic Components (Lanxide Electronic Components,
Inc.): Ceramic-reinforced aluminum heat sinks, heat slugs,
chip carriers, circuit board cores and chassis for telecom-
munications equipment, computers, power controllers, and
avionics.

Gas Turbine Engine Components (DuPont Lanxide Compos-
ites, Inc.): Ceramic-reinforced ceramic combustor liners,
shrouds, vanes, and flameholders for aircraft and stationary
gas turbine engines.

Rocket Engine Components (DuPont Lanxide Composites
Inc.): Ceramic-reinforced ceramic hot gas valves and noz-
zles for theatre air defense and tactical missiles.

Aircraft Structural Components (DuPont Lanxide Compos-
ites Inc.): Ceramic-reinforced ceramic leading edges and
fins for hypersonic aircraft and missiles.

Hot Gas Filters (DuPont Lanxide Composites Inc.):
Ceramic combustion gas filters for combined cycle and
coalfired gas turbine engine stationary power generators.

Heat Exchanger Components (DuPont Lanxide Composites
Inc.): High temperature ceramic-reinforced ceramic heat
exchanger components for petrochemical processes, aluminum
remelt furnaces and industrial incinerators.

Armor (Lanxide Armor Products Inc.): Reinforced ceram-
ic and ceramic-reinforced metallic armor and armor arrays
for ballistic protection of personnel, aircraft, marine
vessels and ground vehicles.

Materials Handling Components (Alanx Wear Solutions,
Inc.): Wear-resistant ceramic-reinforced ceramic components
for slurry pumps, hydrocyclones, chute liners and combustor
fan liners for the mining, electric power generation, chemi-
cal process, glass, cement and paper industries.

High Performance Refractories (Lanxide ThermoComposites
Inc.): Ceramic-reinforced ceramic components for continuous
casting of molten steel.

Ceramic-Reinforced Aluminum Ingot (Lanxide Performance
Materials Inc.): Castable ceramic-reinforced aluminum ingot
for production of high stiffness, low expansion, light-
weight, wear-resistant components using investment casting,
sand casting, die casting and permanent mold casting pro-
cesses. Current applications include rail and automotive
brake rotors, semiconductor wafer chucks, robot arms,
photolithographic stages, avionics chassis, satellite compo-
nents, and jet ski drive components.

Ceramers (Lanxide Performance Materials Inc.):
Ceramic-backboned thermosetting polymers for production of
chemically stable, temperature-resistant, wear resistant,
uv-resistant, moisture-resistant, non-stick and fire retar-
dant coatings, adhesives, encapsulants, binders, fibers and
molded components. Current applications under development
include automotive paints, cookware coatings, rubber formu-
lations, fastener coatings, floor coatings, concrete patch
mixes, television tube fixturing, wear tiles, pipeline
coatings, golf club heads, ceramic filter binders, flatiron
coatings and engineering polymer additives.

Ceramic-Coated Graphite Components (Lanxide Performance
Materials Inc.): Ceramic-coated graphite components for
optical fiber, fiberglass and polymer fiber manufacturing;
glass container manufacturing; paper manufacturing; computer
hard disk substrates; television tube manufacturing; cruci-
bles; and molten metal processing.

The following products are licensed by the Company for
manufacture by the following non-Affiliates:

A.P. Green Industries, Inc.
Industrial Refractories

Brembo S.p.A.
Brake System Components for Motor Vehicles

Waupaca Foundry, Inc.
Automotive Brake System Components
Agricultural Components

Sturm, Ruger & Company, Inc.
Firearms Components
Bicycle Components
Golf Club Heads

Lanxide Precision, Inc.
Semiconductor Manufacturing Equipment
Optical Components
Business Machine Components
Vending Machine Components
Laboratory Test Equipment Components
Metrology Components
Medical Diagnostic Equipment Components
Robot Components
Automation Equipment Components

Nihon Cement Co., Ltd.
Precision Instruments

COMPETITION AND MARKET SEGMENTS

The materials industry has been characterized by extensive
research and development efforts and new developments in advanced
materials technology are expected to continue at a rapid pace.
The markets to which the Company's technology and products apply
are diverse in character. Market drivers differ widely. Compe-
tition varies from market to market, both in terms of competing
entities and competing technology. Furthermore, time and re-
sources necessary to penetrate any market segment vary widely.

The Company's long-term success will depend, in part, upon
its ability to maintain a competitive position for its LANXIDE
composites with respect to other materials, including materials
which may be developed in the future. A number of domestic and
foreign companies are actively engaged in the research and
development of advanced materials technology and many of these
companies have substantially greater financial resources and
production and marketing capabilities than the Company. In most
of its target markets, the Company will encounter competition
from metal, plastic, ceramic and other materials producers, as
well as from the manufacturers of components made of these
materials. Although the Company possesses proprietary rights to
its technologies, which it believes are commercially viable,
several large multinational corporations conduct large-scale
research and development programs in the composite materials
field.

At the same time, the Company believes it has no broadscale
competitor. For example, the materials technology the Company is
promoting in the steel refractory industry is completely differ-
ent from such technology in the auto industry, the electronics
industry, the aircraft industry, the semiconductor equipment
industry, or in the mining industry. Similarly, the competing
companies are generally not common among any of those same
industries. Barriers to entry in the Company's markets vary from
low to high, and foreign competition varies from meaningful to
non-existent, depending upon which market opportunities are being
discussed. Since the Company's technology is anticipated to be
applicable in a hundred or more markets (it has already been
adopted in more than a dozen), it is difficult to consider each
market separately, let alone any one in depth, or to generalize
regarding their character, which is diverse. Because of this
broad diversity in competition, the Company does not characterize
its competitors as primarily advanced materials companies,
composites producers, ceramics producers or commodity metals
producers.

While no competitor has to date been identified which
competes broadly across the product areas for which the Company's
technology applies, the Company and its Affiliates compete with a
broad array of both large and small competitors in specific
market niches. Examples of such direct competitors include:
B.F. Goodrich (turbine engine parts), S.E.P. (turbine engine
parts), Coors Ceramics (wear parts and armor), PCC Composites
(electronic components), Alcan Aluminium Limited and its affili-
ates (aluminum composite ingot), Sumitomo Metals (electronic heat
sinks), Kyocera (wear parts), Carborundum (heat exchanger compo-
nents), North American Refractory (steel refractories), Alcoa
(electronic components), Cookson (steel refractories), Ceramic
Process Systems (electronic package lids) and Ube (coatings). In
addition, some of the Company's suppliers are competitors and
some of the Company's competitors are also customers of the
Company, although in different product areas than those they
supply to or buy from the Company. Corporations with which the
Company has collaborative development relationships may also be
conducting independent research and development efforts in areas
which are or some day may be competitive with the business of the
Company.

SALES AND MARKETING

The Company and its Affiliates manufacture limited quanti-
ties of many products, some of which are manufactured at commer-
cially viable production levels. The Company competes in markets
where both ceramic and non-ceramic products are currently in use
and where competitors have established marketing capabilities.
Commercial acceptance of the Company's products depends in part
on the ability of the marketing and sales forces of the Company,
its Affiliates and its licensees to demonstrate effectively the
advantages of LANXIDE products over more traditional products.

Products of the Company's technology are marketed by the
individual commercial business units which comprise the Company's
Affiliates and licensees, which have their own sales and market-
ing staffs. The Company additionally undertakes market develop-
ment activities based at its headquarters, aimed at identifying
new opportunities which fall outside of the activities of its
existing business units and licenses. Such efforts are directed
at providing the basis either for further license activity or for
additional product manufacture by the Company or its Affiliates.

AFFILIATES OF THE COMPANY

In order to exploit technologies developed by the Company,
the Company has entered into and/or formed a number of joint
ventures, one of which was recently converted to a license
arrangement, and operating subsidiaries, two of which were
deactivated and one of which was sold during fiscal 1995. Each
Affiliate is focused on an industry market segment, with the
exception of Lanxide K.K., which is effectively the Company's
master licensee and hub for most of the Company's business
development activity in Japan. The Affiliates of the Company
are:

Alanx Products Inc.

Alanx was incorporated on September 9, 1993 in Delaware.
Alanx is a leader in introducing superior composite materials to
solve industrial wear problems. Alanx provides pump, cyclone and
pipeline components to over 75 mines on six continents. The
capitalization of Alanx consists of common stock, par value $0.01
("Alanx Common Stock"), all of which prior to June 26, 1995 was
owned by the Company, and Redeemable Convertible Preferred Stock,
par value $0.01 ("Alanx Preferred Stock"), all of which is owned
by Nihon Cement. Nihon Cement declined to exercise its right to
convert its shares of Alanx Preferred Stock into 10% of the
shares of Alanx Common Stock prior to the expiration of that
right in November 1994. On June 26, 1995, Alanx sold substan-
tially all of its assets to Alanx Wear for 15% of the equity of
Alanx Wear, a royalty bearing license and certain payments to the
Company. Alanx has changed its name to Lanxide Wear Products,
Inc.

Celanx K.K.

Prior to March 1996, Celanx was a joint venture between
Nihon Cement and Lanxide K.K., 50% owned by each. The venture
was formed in November 1993 to commercialize the Company's
technology in the same product areas as Alanx and LPI, but within
the domestic Japanese market. Celanx's strategy is to develop
the market initially based upon imports purchased from Alanx and
LPI, transitioning to domestic manufacture once local demand is
sufficient to warrant the investment in a plant in Japan.

On March 28, 1996, the Company sold its remaining fifty
percent ownership interest in Celanx K.K. to Nihon Cement,
effectively giving Nihon Cement sole ownership of the license to
manufacture, market and sell precision instruments in Japan. As
consideration for the sale of its interest in Celanx K.K.,
Lanxide K.K. reacquired its wear products license from Celanx
K.K. and will receive ongoing royalties from precision instru-
ments sales generated by Nihon Cement. As a result of this
transaction, Lanxide K.K. will recognize the remainder of the
deferred gain associated with the 1994 sale of its fifty percent
ownership in Celanx K.K. to Nihon Cement.

DuPont Lanxide Composites Inc.

DLC commenced as a joint venture between the Company and
DuPont in July 1987 to develop and commercialize the LANXIDE
technology in the area of gas turbine engine components, certain
aerospace components and high temperature heat exchanger compo-
nents. In 1992 the venture's charter was expanded to include
rocket engine components and hot gas filters. DLC is owned 70%
by DuPont and 30% by the Company.

Lanxide Armor Company, L.P.

LAC was established on October 21, 1986 in Delaware for the
purpose of developing, manufacturing and marketing products for
use in the areas of personnel, aircraft, marine and land vehicle
armor. On June 30, 1995, the Company sold part of its equity
interest in LAC to DuPont for $1.8 million, reducing the
Company's ownership from 57% to 27% and increasing DuPont's
ownership to 73%.

Lanxide Electronic Components Inc.

LEC was formed as a joint venture in April 1990 by DuPont
and the Company to commercialize electronic components, including
heat sinks, circuit boardcores, chip carriers, packages and
chassis. On June 30, 1995, the Company used the proceeds of its
sale of equity in LAC to purchase an additional 30% interest in
LEC, raising the Company's ownership in LEC to 80%. This trans-
action reflects the Company's intention to increase its focus on
high volume manufacturing of ceramic-reinforced aluminum compo-
nents.

Lanxide K.K.

Lanxide K.K. was incorporated under the laws of Japan in
April 1992 by the Company and Kanematsu Corporation for the
purpose of broadly commercializing products of the Company's
technology in Japan. Lanxide K.K. is owned 35% by Kanematsu and
65% by the Company.

Lanxide Performance Materials, Inc.

LPM, a wholly owned subsidiary, was formed in August 1994 in
Delaware to supply two key proprietary raw material constituents,
CERASET ceramer and PRIMEX CAST reinforced aluminum ingot, to
various commercial component businesses and licensees of the
Company. Centralized manufacturing of these materials allows the
Company to maximize production volume efficiencies and provide
economic benefits to all of its Affiliates and licensees. A
ten-fold expansion of PRIMEX CAST ingot capacity to 1,500 tons
per year is currently underway and will be operational as rapidly
as market conditions demand. That manufacturing activity has
been contracted to LAC by LPM. CERASET ceramer production has
been contracted to an outside specialty chemical manufacturer,
Harris Specialty Chemical Company.

Lanxide Sports International, Inc.

LSI was incorporated in Delaware in 1992 to commercialize
the new materials technology of the Company in the sporting goods
industry. LSI's initial development efforts were intended to
focus on golf clubs and ice skate blades, with potential future
expansion to other product categories, including bicycle compo-
nents, ski equipment, tennis rackets, fishing gear, and water and
team sports equipment. In February 1995, the Company acquired
the 39% interest in LSI, which it did not own, from certain
accredited investors and management of LSI in exchange for an
aggregate of 110,962 shares of Old Common Stock. Subsequently,
the Board of Directors determined that, due to the cost of
funding operations at LSI and the failure of LSI to earn revenues
from the development and sale of products in the sporting goods
industry, it was in the best interests of the Company to discon-
tinue operations at LSI.

Lanxide Surgical Products, Inc.

Lanxide Surgical, a wholly owned subsidiary of the Company,
and Cerametals Surgical, Inc. ("Cerametals") pursued the develop-
ment of a joint venture to address the need in the surgical
market for superior net shape forming technology. Development
efforts initially centered around a particular component where
the net shape capabilities of the PRIMEX process are crucial in
allowing the part to be economically manufactured to tight
tolerances. Based upon a customer's indications of strength
requirements for the initial part, the Company developed a
composite material believed to be suitable for the application.
The customer placed an order with the Company for delivery of the
component amounting to $3.6 million. Subsequently, the customer
revised its view on the strength requirements of the part, to the
point where it became apparent that a major, high-risk additional
investment in materials development would be required. The
Company declined to pursue the project further, in light of its
limitations in capital and alternative, more promising opportuni-
ties. During the period of this project, Cerametals failed on
three occasions to meet capital calls of the venture. As a
result of all of these factors, this venture was discontinued as
of March 1995.

Lanxide Technology Company, L.P.

Lanxide Technology Company, L.P. was established in January
1986 as a Delaware limited partnership in which the Company has
since become the sole partner. Lanxide Technology holds the
intellectual property of the Company, including patents, trade-
marks and trade secrets.

Lanxide ThermoComposites, Inc.

Lanxide Thermo, until recently a wholly owned subsidiary of
the Company, was incorporated on May 25, 1994 in Delaware to
provide high-performance refractory components to the ferrous
metals industry. This entity is undertaking to capitalize on the
substantially greater performance that DIMOX reinforced ceramic
materials can provide to the industry compared to traditional
refractory components. Manufacturing of the initial products has
been contracted to LAC, which is expected to have sufficient
manufacturing capacity to support the needs of the new venture
for up to two years.

In December 1995, the Company sold 51% of its interest in
Lanxide Thermo to A.P. Green in consideration for A.P. Green
providing funding to support Lanxide Thermo's business. Immedi-
ately prior to the sale to A.P. Green, Lanxide Thermo acquired
Chiam Technologies Inc. in exchange for a 20% common stock
interest in Lanxide Thermo. Chiam Technologies Inc. specializes
in the export of refractory products from the People's Republic
of China.

EMPLOYEES

The Company currently employs 145 full-time employees, of
whom 71 are in its Technology Department. The rest are employed
in administrative, marketing, patent and other functions. Of the
Company's total employees, 14 hold Ph.D. degrees and another 14
hold other advanced degrees. The turnover rate for the Company's
employees during fiscal year 1995 was 9.4%. All employees are
provided with a standard benefits package consisting of hospi-
tal/medical, life, disability and dental insurance, as well as
educational assistance. Employees also have access to certain
savings/option plans. See "Management -- Company Plans."

None of the Company's employees are covered by collective
bargaining agreements. The Company considers its relationship
with its employees to be good.

SETTLEMENT OF THREATENED APPRAISAL RIGHTS ACTION

In connection with the Recapitalization Plan, certain
holders (the "Holders") of Old Common Stock sought appraisal
rights pursuant to Section 262 of the Delaware General Corpora-
tion Law (the "DGCL"). On March 5, 1996, the Company entered
into a letter agreement with the Holders pursuant to which the
Holders released all claims against the Company relating to the
Recapitalization Plan in exchange for which the Company agreed
(i) to convert the Holders' Old Common Stock into Units on the
terms described in the Recapitalization Plan, (ii) to allow the
Holders to purchase the number of shares of Common Stock equal to
one-twentieth of the number of shares of Old Common Stock held by
such Holder at an exercise price of $4.50 per share and (iii) to
grant a Warrant to each Holder to purchase a number of shares of
Common Stock equal to 1.479 times the number of shares of Common
Stock which such Holder purchased pursuant to the above offer of
Common Stock at an exercise price of $18.00 per share for a four-
year period.

REGULATORY MATTERS

The Company generates small quantities of used solvents and
chemicals categorized by Federal and/or state governments as
hazardous waste in its research and development and manufacturing
operations. Disposal of such waste is regulated by state and
Federal regulations. The Company is currently engaged, and
expects to engage in the future, in collaborative development and
other agreements with foreign entities. The Company must comply
with Federal regulations regarding import and export of raw
materials, finished products and technology. Although regulatory
constraints in the environmental, import and export and govern-
ment contracts areas do not currently pose material impediments
to the Company's operations, any substantial change in these or
other regulations could have a material adverse effect on the
Company's business.

PROPERTY

The Company operates from two adjacent buildings in a
campus-like setting in Newark, Delaware. Both buildings are
configured to meet the needs of the Company with central security
systems, fire alarm systems, sprinklers, central fiber optic
phone switches and network computing. The facilities are config-
ured for research, product development and manufacturing with
central compressed air, exhaust and makeup ventilation, natural
gas and liquid nitrogen systems, and are served by eleven inde-
pendent electrical distribution banks.

MARROWS ROAD FACILITY

The Company has owned its largest facility, located at 1300
Marrows Road in Newark, Delaware (the "Marrows Road Facility"),
since 1987. The two-story, air conditioned, 170,000 square foot
building houses office space, research laboratories and produc-
tion areas, along with shipping and receiving docks and inventory
staging. In July 1994, the Company refinanced its mortgage held
on the Marrows Road Facility through PNC Bank, Delaware (the
"Refinancing"). Part of the proceeds from the Refinancing was
used by the Company to pay off a note due to Cognitronics Corpo-
ration, the company from which LPI purchased Stamford Tool & Die,
Inc. in June 1993. The mortgage on the Marrows Road Facility
(the "Mortgage") bears interest at 2% above the Prime Rate
(10.75% at September 30, 1995). As of September 30, 1995, the
amount of the Mortgage was $4,314,000. The Mortgage matures on
August 1, 2004, and it may be prepaid in whole or in part at any
time without penalty.

On March 28, 1996, the Company sold the Marrows Road Facili-
ty for $8.6 million to QRS 12-16, Inc., an entity established by
Corporate Property Associates 12 (CPA:12), a real estate invest-
ment trust sponsored by W.P. Carey, a leading purchaser and
lessor of corporate real estate. The Company entered into a
lease with QRS 12-16, Inc., as Landlord (the "Marrows Road
Lease"). The term of the Marrows Road Lease is twenty years with
four automatic renewals of five years each. Pursuant to the
Marrows Road Lease, the Company makes quarterly payments equal to
approximately $244,000, subject to adjustment for inflation every
five years. The Marrows Road Lease requires the Company to
comply with certain financial covenants and limits the Company's
ability, among other things, (i) to assume additional indebted-
ness, (ii) to become a guarantor of contingent obligations and
(iii) to make Restricted Payments (as defined therein) including
the declaration of dividends on the Common Stock. The Marrows
Road Lease also grants the Company a right of first refusal with
respect to the purchase of the Marrows Road Facility. In addi-
tion, under the terms of the Marrows Road Lease, the Company
placed a $400,000 security deposit with QRS 12-16, Inc., as
Landlord.

The foregoing sale and leaseback transaction generated net
proceeds of $3.3 million after the prepayment of a $4.1 million
mortgage on the facility and payment of the associated fees and
closing costs. In connection with the sale and leaseback, the
Company entered into sublease agreements with each of the three
joint venture companies which, prior to the transaction, leased
105,600 square feet of space from the Company.

As part of the sale and leaseback transaction, the Company
granted to the purchaser of the Marrows Road Facility a Warrant
to purchase 15,500 shares of Common Stock at an exercise price of
$14.00 per share for a five-year period. The Company also paid
MeesPierson, Inc. a fee for arranging the sale and leaseback
transaction, which fee was equal to $150,000 and 10,700 shares of
Common Stock (ten percent of the net proceeds of the sale and
leaseback transaction payable 37.5% in cash and 62.5% in Common
Stock at the fair market value of the Common Stock on the day of
closing of the sale and leaseback transaction).

FORGE DRIVE FACILITY

This 60,000 square foot, air conditioned, largely one-story
building is the original site of the Company. Besides housing
the Company's technical library and extensive research, develop-
ment and production areas, this building also contains the
Company's executive offices, a prototype machine shop (model
shop) and product quality and testing (characterization) labora-
tories.

The Company leases this facility from an affiliate of
Bentley J. Blum, a director and a principal stockholder of the
Company. The lease expires in 1998, at which time the Company
will have an option to extend its lease for one or two ten-year
terms or to purchase the property.

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth, as of April 30, 1996,
certain information concerning the directors and executive
officers of the Company:

Year first
elected
Name Age Position Director

Marc S. Newkirk 49 President, Chief Execu- 1983
tive Officer and Direc-
tor

Mark G. Mortenson 37 Executive Vice President ---
and Chief Operating Of-
ficer

Michael J. Hollins 51 Vice President, Corpo- ---
rate Development

Robert J. Ferris 55 Treasurer, Secretary and ---
Vice President, Adminis-
tration

Christopher R. Kennedy 47 Vice President, Technol- ---
ogy

Paul E. Hannesson 55 Chairman of the Board of 1983
Directors

Bentley J. Blum 54 Director 1983
J. Frederick Van
Vranken, Jr. . 60 Director 1983

Stephen A. Weiss 55 Director 1995

MARC S. NEWKIRK founded the Company and has been its Presi-
dent since 1983 and its Chief Executive Officer since 1984. Mr.
Newkirk is a past Chairman and President of the United States
Advanced Ceramic Association, the trade association for the
advanced ceramics industry. He serves on the Board of Directors
of The Institute for Applied Composite Technology and is a member
of The Council on Competitiveness. He is the inventor of numerous
patented developments in materials processing systems.

MARK G. MORTENSON, ESQ. has served as the Company's Chief
Patent Counsel since December 1987. He was promoted to Vice
President and Chief Patent Counsel in 1994, to President of LPM
in March 1995 and to Executive Vice President and Chief Operating
Officer of the Company in May 1995.

MICHAEL J. HOLLINS has served as Vice President, Corporate
Development, of the Company since its inception in 1983. From
1978 to 1983, Mr. Hollins was Operations Manager in charge of
manufacturing, engineering and market development for SES Incor-
porated ("SES"), a Shell Oil Company venture in the field of
solar energy conversion.

ROBERT J. FERRIS has served as Treasurer and Secretary of
the Company since its inception in 1983. In 1988, he assumed the
added position of Vice President,Administration. From 1965 to
1983, Mr. Ferris was employed by Shell Oil Company in various
financial capacities, including, from 1980 to 1983, as Finance
Manager of SES.

CHRISTOPHER R. KENNEDY has served as Vice President, Tech-
nology, of the Company since April 1993, and as a section manager
at Lanxide since 1984. He manages research and development
activities involving composites for high temperature structural
applications, armor, electronic ceramics, refractories, sporting
goods, automotive applications, and precision machine components.

PAUL E. HANNESSON has been President and Chief Executive
Officer and a director of Commodore Environmental Services, Inc.
since 1993. Mr. Hannesson was a private investor and business
consultant from 1983 to 1993. From 1979 to 1982, Mr. Hannesson
was Senior Vice President and Chief Financial Officer of Overhead
Door Corporation, a manufacturer of products for the transporta-
tion and construction industries. Mr. Hannesson is the
brother-in-law of Bentley J. Blum.

BENTLEY J. BLUM has been Chairman of the Board of Commodore
Environmental Services, Inc. since 1984. For more than fifteen
years, Mr. Blum has been actively engaged in real estate acquisi-
tions and currently is the sole stockholder and director of a
number of corporations which hold real estate interests, oil
drilling interests, and other corporate interests. Mr. Blum is a
director of Federal Resources Corp., Specialty Retail Services,
Inc. and Conquest Industries, Inc. Mr. Blum is the brother-in-law
of Paul E. Hannesson. Mr. Blum and his affiliates receive legal
advice from Stephen A. Weiss, a director of the Company, and Mr.
Weiss' law firm.

J. FREDERICK VAN VRANKEN, JR. has been a Managing Director
of Furman Selz Incorporated since September 1995. From July 1995
to September 1995, Mr. Van Vranken was a private investor. From
December 1983 through July 1995, Mr. Van Vranken was Senior Vice
President of Sanford C. Bernstein & Co. Inc., an investment
research and management firm. From 1980 to 1983, Mr. Van Vranken
was self-employed in the venture capital business. Prior thereto,
he served as Senior Vice President, director and member of the
Executive Committee of Smith Barney, an investment banking firm,
as well as President of Smith Barney, Harris Upham International.

STEPHEN A. WEISS is a shareholder of Greenberg, Traurig,
Hoffman, Lipoff, Rosen & Quentel, a law firm in New York. Mr.
Weiss and his law firm provide legal advice to Bentley J. Blum, a
director of the Company, and to affiliates of Mr. Blum. Mr.
Weiss serves as a director of Consolidated Stainless, Inc., a
manufacturer and distributor of stainless steel pipe,
valves,fittings and related products. Mr. Weiss was appointed a
director of the Company pursuant to the terms of the Securities
Purchase Agreement, dated July 5, 1995, between Mr. Blum and the
Company pursuant to which Mr. Blum purchased shares of Old Series
C Preferred Stock which were converted into 331,679 shares of
Common Stock at the Effective Time of the Recapitalization Plan.

Prior to the 1996 Annual Meeting of Stockholders on February
28, 1996, the Company's Board of Directors was divided into (a)
three classes, each of which was elected by holders of Old Common
Stock and Old Series A Preferred Stock, voting together as a
single class, for a three-year term, with one class being elected
each year. The exact number of directors is determined from time
to time by a majority of directors then in office, but may not be
less than three nor more than fifteen. The Board of Directors
currently consists of one Class I Director, two Class II Direc-
tors and two Class III Directors. The term of the Class I
Director, Mr. Newkirk, expires in 1997; the term of the Class II
Directors, Messrs. Hannesson and Van Vranken, expires in 1998;
and the term of the Class III Directors, Messrs. Blum and Weiss,
expires in 1999. Mr. Weiss was elected to fill the vacancy
created by the resignation of Edward Palmer. There are currently
two vacancies on the Board of Directors due to the resignations
of Clyde V. Prestowitz, Jr. and R. Henry Marini in June 1995.

The Company's officers are elected or appointed by the Board
of Directors at its first meeting after the annual meeting of
stockholders, and from time to time during each year, and hold
office until their successors are duly elected or appointed and
qualified.

Pursuant to an amendment to the Company's Restated Certifi-
cate of Incorporation which was adopted by the stockholders of
the Company at the 1996 Annual Meeting of Stockholders, the Board
of Directors is no longer divided into classes. Commencing with
the 1997 Annual Meeting of Stockholders, directors will be
elected for one-year terms. Each incumbent director will be
entitled to complete his term such that commencing with the 1999
Annual Meeting of Stockholders, all directors will be elected for
one-year terms.

The Board of Directors determined that eliminating the
classified Board of Directors and instead having all of the
Company's Directors elected annually would best serve the inter-
ests of the Company and its stockholders. The elimination of the
staggered board requires each Director to stand for election
annually. This procedure allows stockholders an opportunity to
annually register their views on the performance of the Board of
Directors collectively and each Director individually.

BOARD OF DIRECTORS' COMMITTEES

The Board of Directors currently has four standing commit-
tees: the Audit Committee, the Compensation Committee, the Stock
Option Committee and the Finance Committee.

Audit Committee

The Audit Committee consists of Messrs. Hannesson and Van
Vranken, each of whom are non-employee directors. The Audit
Committee did not formally meet during the 1995 fiscal year. The
Audit Committee, through direct communication with the Company's
independent accountants, evaluates the adequacy and effectiveness
of the Company's administrative, operating and accounting poli-
cies and its internal accounting control system. It reviews and
approves significant accounting changes and the annual financial
statements.

Compensation Committee

The Compensation Committee consists of Messrs. Hannesson and
Weiss, both of whom are non-employee directors. The Compensation
Committee did not meet formally during the 1995 fiscal year. The
Compensation Committee determines and sets the annual compensa-
tion to be paid to the Company officers.

Stock Option Committee

The Stock Option Committee consists of Messrs. Hannesson and
Weiss, both of whom are non-employee directors. The Stock Option
Committee did not meet formally during the 1995 fiscal year. The
Stock Option Committee administers the Stock Option Plans as
approved by the stockholders of the Company and determines each
employee's participation in the plans.

Finance Committee

The Finance Committee consists of Messrs. Blum, Newkirk and
Van Vranken, of whom Messrs. Blum and Van Vranken are
non-employee directors, and is chaired by Mr. Van Vranken. The
Finance Committee advises the Board of Directors on corporate
finance transactions and the selection of underwriters for such
transactions.

EXECUTIVE COMPENSATION

The following table sets forth the annual and long-term com-
pensation of the Chief Executive Officer and the four most highly
compensated officers of the Company for the fiscal year ended
September 30, 1995.

<TABLE>
<CAPTION>
TABLE I
SUMMARY OF COMPENSATION TO CERTAIN EXECUTIVE OFFICERS

Annual Compensation Long-Term Compensation
Awards Payouts

Other Annual Securities All Other
Fiscal Compen- Restricted Underlying Compen-
Name and Principal Position Year Salary($) Bonus($) sation($) Stock Awards($) Options(#) sation($)(1)

<S> <C> <C> <C> <C> <C>
Marc S. Newkirk 1995 $251,189 -- -- -- $4,441
President and
Chief Executive
Officer

Michael J. Hollins 1995 $135,655 -- -- -- $4,244
Vice President,
Corporate De-
velopment

Robert J. Ferris 1995 $122,178 -- -- -- $3,789
Treasurer, Sec-
retary and
Vice President,
Administration

Christopher R. Kennedy 1995 $120,194 -- -- -- $3,269
Vice President,
Technology

Mark G. Mortenson, Esq 1995 $118,073 -- -- -- $3,503
Executive Vice
President and
Chief Operating
Officer
____________

<FN>
(1) Represents interest earned on the Deferred Compensation Plan which is
in excess of the maximum allowable federal rate of 7.79%, plus the
Company's matching contributions under the Employee Savings Plan.

</TABLE>

SALARY RESTORATION PROGRAM

Due to the Company's ongoing cash needs, as of March 20,
1995, the officers of the Company agreed to a temporary 33%
salary reduction. During fiscal 1995, the total amount of this
salary reduction was approximately $160,000. Although this
salary reduction remains in effect, on December 8, 1995, the
Board of Directors approved a salary restoration program. During
each quarter of 1996, the officers are eligible to receive
restoration of their lost salary (the "Restored Portion") for
fiscal 1996 to the extent that the operating income of the
Company, excluding extraordinary items, is greater than $15,000
for the quarter, after giving effect to the restoration of the
salaries. If the operating income in any quarter is insufficient
to pay each participant's Restored Portion, then the Company is
permitted to pay to the participants that amount of salary not
previously restored, to the extent that the operating income of
the Company, excluding extraordinary items, is greater than
$60,000 for the fiscal year, after giving effect to the restora-
tion of salaries.

GRANT OF WARRANTS

In December 1995, the Board of Directors approved the
issuance by the Company to certain executive officers of warrants
(the "Warrants") to purchase shares of Common Stock. Marc S.
Newkirk was issued a Warrant to purchase 51,000 shares of Common
Stock, and each of Michael J. Hollins, Mark G. Mortenson, Chris-
topher R. Kennedy and Robert J. Ferris was issued a Warrant to
purchase 3,000 shares of Common Stock. All of the Warrants vest
on the third anniversary of the date of grant; provided, however,
that the vesting of the Warrants will be accelerated if the
Company achieves a net profit amount on a consolidated basis at
the end of each fiscal year as follows: September 30, 1996:
$3,000,000 and September 30, 1997: $5,000,000. One-third of the
Warrants vest and become exercisable on September 30, of each
year in which the Company achieves the foregoing net profit
amounts.

STOCK OPTIONS

The following table shows the number and value of stock
options exercised by each of the named executives listed in Table
I during fiscal year 1995, the number of all vested (exercisable)
and unvested (not yet exercisable) stock options held by each
such officer at the end of fiscal year 1995, and the value of all
such options that were "in the money" (i.e., the market price of
the Old Common Stock was greater than the exercise price of the
options) at the end of fiscal year 1995.

TABLE III
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1995 AND
FISCAL YEAR END OPTION VALUES*

Number of
Securities Value of Un-
Underlying exercised
Unexercised In-the-Money
Options Options
Shares at End of at End of
Acquired Fiscal 1995 Fiscal 1995
on Value Exercisable / Exercisable /
Name Exercise(#) Realized ($) Unexercisable Unexercisable

Marc S. Newkirk -0- $0 300,000/0 $0

Michael J. Hollins -0- 0 149,556/0 0

Mark G. Mortenson -0- 0 83,000/0 0

Christopher R.
Kennedy -0- 0 89,384/616 0

Robert J. Ferris -0- 0 121,189/0 0

____________

* Table III does not take into account the effect of the
Recapitalization Plan which was consummated after the end of
the 1995 fiscal year.

COMPANY PLANS

1995 Employee Stock Option Plan

In connection with the Recapitalization Plan, (i) the Company
adopted the 1995 Employee Stock Option Plan (the "New Stock Option
Plan"), which was approved by stockholders at the Special Meeting
relating to the Recapitalization Plan and (ii) holders of options
granted pursuant to the Company's 1983 and 1993 Employee Stock
Option Plans (the "Old Stock Option Plans") consented to the cancel-
lation of such options in exchange for options granted pursuant to
the New Stock Option Plan. Pursuant to the New Stock Option Plan,
the Stock Option Committee has authority to grant options to pur-
chase shares of Common Stock to officers and key employees and
consultants of the Company, its subsidiaries, affiliates and certain
licensees. On November 29, 1995, the Company granted options to
purchase 5,000 shares of Common Stock pursuant to the New Stock
Option Plan to each of Michael J. Hollins, Robert J. Ferris, Mark G.
Mortenson and Christopher R. Kennedy. Options to purchase 261,932
shares of Common Stock have been granted pursuant to the New Stock
Option Plan and are currently outstanding, and an additional 15,279
remain available for grant pursuant to the New Stock Option Plan.

1991 Director Stock Option Plan

In October 1991, the Board of Directors approved the Director
Option Plan to compensate Directors for services. Prior to the
Recapitalization Plan, eligible Directors had been granted options
to purchase 93,198 shares of Old Common Stock at prices between $5
and $8 per share, all of which were outstanding at April 30, 1996.
The resulting compensation expense is charged to operations over the
option vesting period. In connection with the Recapitalization
Plan, (i) current directors holding options granted pursuant to the
1991 Director Stock Option Plan consented to the cancellation of
such options in exchange for new options granted pursuant to the
1991 Director Stock Option Plan to purchase one-twentieth of the
options previously held at an exercise price of $5.625 per share and
(ii) options held by former directors were equitably adjusted with
the effect that the holder thereof is entitled to purchase a number
of Units equal to one-twentieth of the shares of Old Common Stock
underlying such options at a per Unit exercise price equal to twenty
times the exercise price per share of Old Common Stock.

1995 Director Stock Option Plan

In December 1995, the Board of Directors approved the 1995
Director Stock Option Plan (the "1995 Director Plan"), and the
stockholders approved the 1995 Director Plan at the Company's Annual
Meeting of Stockholders on February 28, 1996. The 1995 Director
Plan authorizes the grant of options to purchase up to 25,000 shares
of Common Stock. In December 1995, subject to stockholder approval,
each director was granted an option to purchase 3,000 shares of
Common Stock at an exercise price of $5.62 per share. One-twelfth
of these options vest at the end of each three-month period follow-
ing the date of grant. Future directors will receive a pro rata
portion of the option to purchase 3,000 shares. Non-employee
consultants to the Company designated by the Stock Option Committee
are also eligible to participate in the 1995 Director Plan.

Deferred Compensation Plan

From June 1993 through May 1994, the Company implemented a
Deferred Compensation Plan (the "Deferred Compensation Plan")
whereby a portion of the employee's compensation is deferred and
payable in five years together with 12% interest compounded annual-
ly. The Deferred Compensation Plan, as initially adopted, provided
that payments of such compensation would be made in cash or Old
Common Stock at a rate of $13 per share at the option of the employ-
ees. The deferred compensation accrual as of September 30, 1995 and
1994 was $1,097,000 and $1,018,000, respectively.

In connection with the Recapitalization Plan, the Board of
Directors adopted an amendment to the Deferred Compensation Plan,
effective at the Effective Time, pursuant to which the deferred
portion of an employee's compensation will be payable in cash or
Common Stock at a rate equal to the greater of $25 per share and the
fair market value per share of Common Stock on the first anniversary
of the Effective Time.

401(k) Matched Savings Plan

In July 1988, the Company implemented a 401(k) Matched Savings
Plan (the "Employee Savings Plan") permitting eligible employees to
defer and have the Company contribute a portion of their compensa-
tion on a pre-tax basis to the Employee Savings Plan. The Company
may make a matching contribution of fifty cents for each dollar
deferred by a participant up to 4% of a participant's total cash
compensation. Company contributions to the Employee Savings Plan
were $242,000 and $147,000 in 1995 and 1994, respectively.

COMPENSATION OF DIRECTORS

In addition to the Director Stock Option Plans referred to
above, the Directors are reimbursed for normal expenses incurred in
attending Board of Directors or committee meetings and for other
miscellaneous expenses incurred while performing their duties as
Directors. No cash compensation is paid to the Directors for their
services.

PRINCIPAL STOCKHOLDERS

Below is a table setting forth the beneficial ownership as of
April 30, 1996 of the Common Stock of the Company by each of its
officers, directors and each entity known by the Company to benefi-
cially own five percent or more of any class of the Company's voting
securities. As of April 30, 1996, the Common Stock was held of
record by 219 stockholders. The address for each of the Officers of
the Company listed below is Lanxide Corporation, 1300 Marrows Road,
P.O. Box 6077, Newark, Delaware 19714.

NUMBER OF PERCENT
TITLE OF CLASS NAME OF BENEFICIAL OWNER SHARES OF CLASS

Common Stock Alcan (1), (2) 213,724 15.3%
Marc S. Newkirk (3), (4), (5) 182,250 13.7
Michael J. Hollins (3), (5), (6) 21,204 1.8
Mark G. Mortenson (5) 1,383 *
Christopher R. Kennedy (5) 1,500 *
Robert J. Ferris (3), (5) 5,916 *
Bentley J. Blum (3), (5), (7) 657,856 47.0
Paul E. Hannesson (3), (5), (8) 39,180 3.3
J. Frederick Van Vranken, Jr.
(3), (5), (9) 19,617 1.7
Stephen A. Weiss (3), (10) 157 *
Executive Officers and Directors 929,063 59.1
as a Group (3), (4), (5),
(6), (7), (8)

____________
* Represents less than 1% of such class of capital stock.
(1) Consists solely of shares of Series A Preferred Stock, convert-
ible at any time into Common Stock, and Warrants to purchase
Common Stock, exercisable until November 14, 1996.
(2) Includes shares owned by Alcan Aluminium Limited, Alcan Alumi-
num Corporation and Alcan Automotive Castings. Alcan's address
is 1188 Sherbrooke Street West, Montreal, Quebec, Canada H3A
3G2.
(3) Includes shares of Series A Preferred Stock, convertible at any
time into Common Stock, and Warrants to purchase Common Stock,
exercisable until November 14, 1996.
(4) Includes shares owned by Mr. Newkirk's wife, minor children and
trusts for which Mr. Newkirk has voting power.
(5) Includes options to purchase shares of Common Stock which are
exercisable within 60 days.
(6) Excludes shares beneficially owned by Kanematsu which are
subject to the Voting Trust Agreement, dated as of May 28,
1992, between Kanematsu and Mr. Hollins, as voting trustee.
(7) Includes shares owned by Mr. Blum's wife, as to which Mr. Blum
disclaims beneficial ownership. Also includes warrants to
purchase 133,333 shares of Common Stock, exercisable until
November 14, 1996, and warrants to purchase 58,763 shares of
Common Stock exercisable until January 14, 1998. Mr. Blum's
address is 150 E. 58th Street, New York, NY 10155.
(8) Includes shares owned by Mr. Hannesson's wife and children, as
to which Mr. Hannesson disclaims beneficial ownership.
Mr. Hannesson's address is 150 E. 58th Street, New York, NY
10155.
(9) Includes shares owned by Mr. Van Vranken's Individual Retire-
ment Account, of which Mr. Van Vranken is the beneficial owner.
Mr. Van Vranken's address is 230 Park Avenue, 13th Floor, New
York, NY 10169.
(10) Mr. Weiss' address is 153 E. 53rd Street, 35th Floor, New York,
NY 10022.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

TRANSACTIONS WITH CERTAIN DIRECTORS

In connection with the sale of the Company's equity interest in
LPI to LNX Acquisition Company ("LNX") on May 26, 1995 and the
subsequent exercise of its option to buy shares of LPI's common
stock, par value $.01 per share (the "LPI Common Stock"), by Argen-
tum Capital Partners, L.P. and certain other investors, the Company
received $750,000 in cash and $1.25 million in non-recourse notes,
secured by the LPI Common Stock. The notes bear interest at the
rate of the 3-month U.S. Treasury bill rate plus 1% and are payable
in June 1996. LNX is controlled by Messrs. Blum and Hannesson,
directors of the Company.

Pursuant to an agreement, dated July 5, 1995, between the
Company and Bentley J. Blum, a director and principal stockholder of
the Company (the "Series C Purchase Agreement"), the Company issued
145,900 shares of Old Series C Preferred Stock in exchange for
installment payments equal to $1,459,000 which were paid to the
Company between July 1995 and October 1995. Pursuant to their
terms, these shares of Old Series C Preferred Stock were automati-
cally converted into an aggregate of 331,679 shares of Common Stock
at the Effective Time of the Recapitalization Plan. In addition,
the Company issued to Mr. Blum a warrant to purchase 133,333 shares
of Common Stock, exercisable from the Effective Time of the Recapi-
talization Plan until June 30, 1996 at a price of $4.50 per share,
in consideration for Mr. Blum's obligation to pay certain obliga-
tions of the Company, when, as and if due, up to $600,000. In
addition, pursuant to the Series C Purchase Agreement, (i) one of
the vacancies on the Board of Directors created by the resignation
of three directors during fiscal 1995 was filled by Stephen A. Weiss
and (ii) the next vacancy on the Board of Directors shall be filled
by a person acceptable to Mr. Blum.

On October 3, 1995, the Company issued to Mr. Blum 7,000 shares
of 7% Redeemable Preferred Stock, par value $.01 per share (the "Old
Series D Preferred Stock"), and 26,100 shares of 7% Redeemable
Preferred Stock, par value $.01 per share (the "Old Series E Pre-
ferred Stock"), in exchange for $70,000 and $261,000, respectively.
In addition, the Company issued to Mr. Blum a warrant to purchase
58,763 shares of Common Stock exercisable until January 14, 1998 at
a price of $4.50 per share. Pursuant to the Recapitalization Plan,
the shares of Old Series D Preferred Stock were converted into an
amount of cash equal to $70,577.26, and the shares of Old Series E
Preferred Stock remain outstanding and continue to represent shares
of Series E Preferred Stock of the surviving corporation.

TRANSACTIONS WITH ALCAN

Prior to the Recapitalization Plan, Alcan owned an approximate-
ly 46% equity interest in the Company. Pursuant to the Alcan Letter
Agreement dated July 14, 1995, Alcan agreed with the Company that
(i) at the Special Meeting Alcan would vote all of its shares of Old
Common Stock and all of its shares of Old Series B Preferred Stock
in favor of the Recapitalization Plan and (ii) Alcan would not
exercise any Rights issued to it pursuant to the Rights Offering.
In addition, the Company, Marc S. Newkirk and Alcan agreed to
terminate the Alcan Stockholder's Agreement at the Effective Time.
The Company has agreed to indemnify Alcan and the members of the
Board of Directors serving as representatives of Alcan against
certain liabilities arising against such directors as a result of
the Recapitalization Plan.

As a result of the Recapitalization Plan, Alcan now owns no
Common Stock and 506,610 Units which include shares of Series A
Preferred Stock and Unit Warrants to purchase Common Stock. In
November 1995, the Company entered into a Registration Rights
Agreement with Alcan which provides for certain registration rights
with respect to the Company's securities held by Alcan.

DESCRIPTION OF CAPITAL STOCK

COMMON STOCK

The holders of Common Stock will be entitled to receive, pro
rata, dividends, when, if and as declared by the Board of Directors
out of any funds lawfully available therefor. However, the
Company's ability to declare and pay dividends on the Common Stock
is limited by (i) a Loan and Security Agreement, dated April 29,
1994, between the Company and Kanematsu, providing that the Company
may not declare or pay any dividend that would have a material
adverse effect on the collateral under such agreement, (ii) a Lease
Agreement, dated as of March 28, 1996, between the Company and QRS
12-16, Inc., limiting the Company's ability to make Restricted
Payments, which term includes dividends on the Common Stock, and
(iii) the terms of the Series A Preferred Stock. See "-- Series A
Preferred Stock" and "Dividends and Dividend Policy." In the event
of a liquidation, dissolution or winding up of the Company, the
holders of Common Stock will be entitled to participate ratably in
the distribution of assets remaining after payment of liabilities
and any outstanding liquidation preferences due holders of any
classes of preferred stock. The issued and outstanding shares of
Common Stock issued upon the exercise of the Unit Warrants or the
Options will be fully paid and nonassessable. The holders of Common
Stock will be entitled to vote at all meetings of stockholders of
the Company for the election of directors and for other purposes.
The holders will have one vote for each share of Common Stock held.
The Common Stock will not have cumulative voting rights. Therefore,
holders of more than 50% of the shares of Common Stock voting can
elect all members of the Board of Directors. The Company's Restated
Certificate of Incorporation authorizes the issuance of 25,000,000
shares of Common Stock. StockTrans, Inc. of Ardmore, Pennsylvania
serves as transfer agent and registrar for the Common Stock.

SERIES A PREFERRED STOCK

The Series A Preferred Stock, par value $.01 per share, has a
liquidation value of $80 per share, plus accrued but unpaid divi-
dends, over the Common Stock, pari passu with other classes of
preferred stock of the Company. Prior to January 1, 2001, the
holders of the Series A Preferred Stock shall not receive any
dividends thereon unless the Company declares a dividend payable to
holders of the Common Stock. In such case, the Company shall
declare a dividend payable to the holders of the Series A Preferred
Stock equal to the following amount per share: the quotient of the
aggregate amount of the dividend paid to the holders of the Common
Stock divided by the total number of outstanding shares of the
Series A Preferred Stock. From and after January 1, 2001, subject
to certain limitations and qualifications, the holders of the
Series A Preferred Stock shall be entitled to receive, when, as, and
if declared by the Board of Directors out of funds legally available
therefor, an annual cumulative dividend of $3.20 per share. Not-
withstanding the foregoing, dividends on the Series A Preferred
Stock shall only be paid in any year from and to the extent of 50%
of the Company's net after-tax income (excluding the effect of
extraordinary gains or losses) earned in the immediately prior
fiscal year of the Company. In addition, from and after January 1,
2001 until December 31, 2005, if the Company shall pay a dividend to
the holders of Common Stock which exceeds $3.20 per share in one
year, then the Company shall declare a dividend payable to the
holders of the Series A Preferred Stock equal to the following
amount per share: the quotient of the aggregate amount of the
dividend paid to the holders of the Common Stock divided by the
total number of outstanding shares of the Series A Preferred Stock.
See "Dividends and Dividend Policy."

The Series A Preferred Stock ranks senior to the Common Stock
and to all other series of preferred stock which by their terms
provide that they are junior to the Series A Preferred Stock. The
Board of Directors has authority to issue preferred stock in one or
more classes or series and to fix the designations, powers, prefer-
ences and rights of the shares of each such class or series except
that the Board of Directors may not, without the approval of a
majority of the then-outstanding shares of Series A Preferred Stock,
issue any series of preferred stock which is equal to or senior to
the Series A Preferred Stock in terms of dividend rights, and rights
on liquidation, winding up and dissolution. The ability of the
Board of Directors to issue multiple classes of preferred stock,
while providing flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire, or of discouraging a
third party from acquiring, a majority of the outstanding voting
stock of the Company.

Each share of Series A Preferred Stock is convertible at any
time at the option of the holder thereof, into approximately .37
shares of Common Stock. The conversion of any shares of Series A
Preferred Stock shall not extinguish the Company's obligation to pay
any accrued but unpaid dividends with respect to such converted
shares. The Series A Preferred Stock shall have no voting rights,
except as required by law, and no representation on the Board of
Directors.

The Series A Preferred Stock is redeemable at any time at the
option of the Company, pro rata or by lot, at $80 per share, plus
accrued but unpaid dividends.

The Series A Preferred Stock is a part of the Units and is not
separately transferable from the Unit Warrants. See "-- The Units."

SERIES E PREFERRED STOCK

The Company has authorized 26,100 shares of Series E Preferred
Stock, all of which have been issued and sold to Bentley J. Blum.
The Series E Preferred Stock ranks junior to the Series A Preferred
Stock, but senior to the Common Stock. Holders of Series E Pre-
ferred Stock are entitled to receive out of assets legally available
therefor an annual dividend of $.70 per share payable on October 3
in each of the years 1996, 1997, 1998, 1999 and 2000. Holders of
Series E Preferred Stock have no voting rights, except as required
by law. Each outstanding share of Series E Preferred Stock is
mandatorily redeemable by the Company at $10 per share, plus accrued
but unpaid dividends, out of assets legally available therefor on
October 3, 2000. In the event of a liquidation of the Company,
holders of Series E Preferred Stock are entitled to receive $10 per
share, plus any accrued but unpaid dividends thereon.

THE UNITS

Each Unit consists of one share of Series A Preferred Stock and
one Unit Warrant. The shares of Series A Preferred Stock and the
Unit Warrants which constitute the Units are not separately trans-
ferable. The Company has reserved the right to separate the Units
so that the Unit Warrants and the Series A Preferred Stock are
separately transferable.

Pursuant to a Deposit Agreement between StockTrans, Inc., as
Depositary, and the Company, until such time as the Company may
determine, the shares of Series A Preferred Stock and the Unit
Warrants, which together constitute the Units, will be held by the
Depositary. The Company can terminate the Deposit Agreement at any
time to allow the shares of Series A Preferred Stock and the Unit
Warrants to become separately transferable.

THE UNIT WARRANTS

The Unit Warrants are exercisable at an exercise price of $60
until November 14, 1996. Twenty Unit Warrants are needed to pur-
chase one share of Common Stock. The Unit Warrants and the Series A
Preferred Stock comprise the Units and are not separately transfer-
able. The Company reserves the right to (i) reduce the exercise
price of the Unit Warrants, (ii) reduce the number of Unit Warrants
which must be exercised to receive one share of Common Stock to as
low as one Unit Warrant, (iii) extend the expiration time of the
Unit Warrants, (iv) allow the Unit Warrants and the shares of
Series A Preferred Stock to be separately transferable and (v) call
the Unit Warrants at a price of $.05 per Unit Warrant. The Company
has entered into a Warrant Agreement with StockTrans, Inc. as
Warrant Agent. The Warrant Agreement provides for antidilution
adjustments upon the occurrence of certain events.

CERTAIN CORPORATE GOVERNANCE MATTERS

CERTAIN PROVISIONS OF THE COMPANY'S CHARTER AND BYLAWS

Certain provisions of the Restated Certificate of Incorporation
and Bylaws of the Company could be deemed to have an anti-takeover
effect. These provisions are intended to enhance the likelihood of
continuity and stability in the composition of the Board of Direc-
tors and in the policies formulated by the Board of Directors and to
discourage an unsolicited takeover of the Company if the Board of
Directors determines that such takeover is not in the best interests
of the Company and its stockholders.

Board of Directors

Prior to the Company's 1996 Annual Stockholders Meeting, the
Restated Certificate of Incorporation provided for a classified
Board of Directors consisting of three classes as nearly equal in
size as the then authorized number of directors constituting the
Board of Directors permits. At each annual meeting of stockholders,
the class of directors to be elected at such meeting was elected for
a three-year term and the directors in the other two classes contin-
ued in office. Each class held office until the date of the third
annual meeting for the election of directors following the annual
meeting at which such director was elected. Pursuant to an amend-
ment to the Company's Restated Certificate of Incorporation which
was adopted by the stockholders of the Company at the 1996 Annual
Meeting of Stockholders, the Board of Directors is no longer divided
into classes. Commencing with the 1997 Annual Meeting of Stockhold-
ers, directors will be elected for one-year terms. Each incumbent
director will be entitled to complete his term such that commencing
with the 1999 Annual Meeting of Stockholders, all directors will be
elected for one-year terms.

The Board of Directors determined that eliminating the classi-
fied Board of Directors and instead having all of the Company's
Directors elected annually would best serve the interests of the
Company and its stockholders. The elimination of the staggered
board requires each Director to stand for election annually. This
procedure allows stockholders an opportunity to annually register
their views on the performance of the Board of Directors collective-
ly and each Director individually. The Board of Directors deter-
mined that this change should be implemented on a prospective basis,
commencing with the 1997 Annual Meeting of Stockholders, so as not
to shorten the term for which any incumbent Director already has
been elected to serve. Thus, the amended Restated Certificate of
Incorporation provides that at each Annual Meeting of Stockholders,
commencing with the Annual Meeting of Stockholders in 1997, the
successors of the Directors whose terms expire in that year shall be
elected for a one-year term. Accordingly, upon the expiration in
1999 of the terms of the Directors elected at this year's Annual
Meeting, all Directors will be elected to hold office for a one-year
term.

Any vacancy on the Board of Directors, including a vacancy
resulting from an increase in the size of the Board of Directors,
may be filled only by the remaining directors. Any director elected
to fill a vacancy or a newly created directorship resulting from an
increase in the authorized number of directors will hold office
until the next Annual Meeting. Any Director or the entire Board of
Directors may be removed, with or without cause, by the holders of a
majority of the shares then entitled to vote at an election of
Directors.

Advance Notification

The Bylaws establish an advance notice procedure for the
nomination, other than by or at the direction of the Board of
Directors, of candidates for election as directors as well as for
other stockholder proposals to be considered at annual meetings of
stockholders. In general, notice must be received by the Company
not less than 50 calendar days nor more than 75 days prior to the
meeting and must contain certain specified information concerning
the persons to be nominated and concerning the stockholder submit-
ting the proposal.

Special Meetings

The Bylaws of the Company provide that special meetings of
stockholders may only be called by the President or by the Board of
Directors.

Business Combinations

The Restated Certificate of Incorporation contains a "fair
price/supermajority" provision with respect to certain mergers,
sales or pledges of assets, plans of liquidation or dissolution,
recapitalization or by-law amendments (collectively, "Business
Combinations") involving or proposed by any holder of 10% or more of
the Company's then outstanding voting stock (an "Interested Stock-
holder"). Under such provision, a Business Combination proposed by
or on behalf of an Interested Stockholder generally must be approved
by the holders of at least 66-2/3% of the Company's voting stock,
excluding shares beneficially owned by the Interested Stockholder
and certain related parties. Such supermajority vote requirement
will not be applicable, however, if either (i) the transaction is
approved by a majority of the directors who are not associated with
the Interested Stockholder and who were directors at September 25,
1987 (or who were nominated or elected by such directors) or were
directors prior to the time the Interested Stockholder acquired 5%
of the Company's voting stock or (ii) certain minimum price and
procedural requirements are met.

LIMITATION ON LIABILITY OF DIRECTORS

The Restated Certificate of Incorporation limits the personal
liability of directors and officers of the Company to the fullest
extent permitted by the DGCL. Under the terms of the Restated
Certificate of Incorporation, directors shall not be personally
liable to the Company or its stockholders for any monetary damages
for breach of fiduciary duty as a director, except for (i) any
breach of the duty of loyalty to the Company or its stockholders,
(ii) acts or omissions not in good faith or which involve intention-
al misconduct or a knowing violation of law, (iii) liability under
Section 174 of the DGCL (involving certain unlawful dividends or
stock repurchases) or (iv) any transaction from which the director
derives an improper personal benefit.

INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, the
Company has been informed that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securi-
ties Act and is therefore unenforceable.

PLAN OF DISTRIBUTION

The shares of Common Stock are offered pursuant to this Pro-
spectus relating to (i) the sale of Common Stock issuable upon
exercise of the Unit Warrants, (ii) the sale of Common Stock issu-
able upon exercise of the Options and (iii) the resale of Common
Stock issuable upon exercise of the Blum Warrants by Mr. Blum.

VALIDITY OF COMMON STOCK

The validity of the Common Stock has been passed upon for the
Company by Skadden, Arps, Slate, Meagher & Flom, Wilmington, Dela-
ware. Certain members of Skadden, Arps, Slate, Meagher & Flom own
securities of the Company.

EXPERTS

The financial statements as of September 30, 1995 and for each
of the two years in the period ended September 30, 1995 included in
this Prospectus and Registration Statement have been so included in
reliance on the reports (which contain an explanatory paragraph
relating to the Company's ability to continue as a going concern as
described in Note 1 to the Consolidated Financial Statements) of
Price Waterhouse LLP, independent accountants, given on the authori-
ty of said firm as experts in auditing and accounting.

AVAILABLE INFORMATION

The Company has filed with the Commission a Registration
Statement on Form S-4, subsequently amended under cover of Form SB-2
under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commis-
sion. The Registration Statement may be inspected and copied at the
public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549; at its Midwest
Regional Office, Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and at its New York Regional Office, 7
World Trade Center, 13th Floor, New York, New York 10048. Copies of
such material can be obtained upon written request from the Public
Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. For further informa-
tion pertaining to the Company and Common Stock offered hereby,
reference is made to the Registration Statement, including the
exhibits thereto and the financial statements, notes and schedules
filed as part thereof.

The Company is subject to the periodic reporting and other
informational requirements of the Exchange Act and, in accordance
therewith, files reports, proxy and information statements and other
information with the Commission. Such reports, proxy and informa-
tion statements and other information can be inspected and copied at
the addresses set forth above.
____________________

Statements contained in this Prospectus as to the contents of
any agreement, contract or other document are not necessarily
complete, and in each instance reference is made to the copy of such
agreement, contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all
respects by such reference.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Accountants . . . . . . . . . . . . . . . F-2

Audited Financial Statements and
Unaudited Interim Financial Statements

Consolidated Balance Sheet at
September 30, 1995 and
December 31, 1995 (unaudited) . . . . . . . . . . . . . . . F-3

Consolidated Statement of Operations for
the years ended September 30, 1995 and
1994 and the quarters ended December 31,
1995 (unaudited) and 1994 (unaudited) . . . . . . . . . . . F-4

Consolidated Statement of
Shareholders Equity (Deficit)
for the years ended
September 30, 1995 and 1994
and the quarter ended
December 31, 1995 (unaudited) . . . . . . . . . . . . . . . F-5

Consolidated Statement of Cash Flows for
the years ended September 30, 1995 and
1994 and the quarters ended December 31,
1995 (unaudited) and 1994 (unaudited) . . . . . . . . . . . F-6

Notes to Consolidated Financial Statements . . . . . . . . . . F-7

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders
Lanxide Corporation

In our opinion, the accompanying consolidated balance sheet and
the related consolidated statements of operations, of shareholders'
equity (deficit) and of cash flows present fairly, in all material
respects, the financial position of Lanxide Corporation and its
majority-owned affiliates at September 30, 1995, and the results of
their operations and their cash flows for each of the two years in
the period ended September 30, 1995, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our
audits. We conducted our audits of these statements in accordance
with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presenta-
tion. We believe that our audits provide a reasonable basis for the
opinion expressed above.

The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As described in
Note 1 to the financial statements, the Company's principal business
activities are research, development and commercialization of its
proprietary technology. The Company's significant continuing
investment in product development and commercialization activities
has resulted in significant losses and the resultant shareholders'
deficit. Furthermore, the Company needs significant additional
financing to fund its ongoing business operations. These factors
raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are
also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncer-
tainty.

PRICE WATERHOUSE LLP

Philadelphia, Pennsylvania
December 20, 1995

LANXIDE CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except per share data)

DECEMBER SEPTEMBER
31, 1995 30, 1995
(UNAUDITED)
ASSETS
Cash and cash equivalents, including amounts
restricted for use by majority-owned
affiliates (Note 1) $ 5,655 $ 5,212
Accounts receivable - trade 3,935 1,331
Other receivable (Note 2) 1,250 1,250
Inventories 1,242 1,475
-------- -------
Total current assets 12,082 9,268

Property and equipment, net 14,645 14,837
Investment in affiliates 2,296 2,499
Other assets 593 1,416
-------- --------
$ 29,616 $ 28,020
======== ========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current portion of long-term debt $ 507 $ 904
Accounts payable and accrued expenses 2,350 3,102
Deferred revenue (Notes 1 and 2) 3,209 3,810
Payable to affiliate 1,136 930
-------- -------
Total current liabilities 7,202 8,746

Long-term debt 19,680 19,803
Deferred credit (Note 1) 3,357 3,465
Deferred compensation 1,115 1,097
------- --------
31,354 33,111
------- --------

Minority interest in consolidated affiliates 7,927 8,290
Commitments and contingencies (Notes 2 and 13)
Redeemable Series E preferred stock
(aggregate liquidation value $261);
26,100 shares and outstanding 204
Redeemable Series C preferred stock (aggregate
liquidation value, $1,459); 145,900 shares
issued and outstanding (Note 10) 1,459
-------- -------

Shareholders' deficit (Note 14)
Old preferred stock 10,000,000 shares
authorized
Series A preferred stock (aggregate
liquidation value, $30,000)
$.01 par value; 3,000,000 shares
issued and outstanding 30
Old Series B preferred stock (aggregate
liquidation value, $433)
$.01 par value; 4,325,507 shares issued
and outstanding 43
Old common stock, $.01 par value, 50,000,000
shares authorized:
10,580,444 shares issued and outstanding 106
Preferred stock 15,000,000 shares authorized
Series A preferred stock (aggregate liq-
uidation value, $88,933)
$.01 par value; 1,111,661 shares issued
and outstanding 11
Common stock, $.01 par value, 25,000,000
shares authorized; 1,181,796 issued
and outstanding 12
Additional paid-in capital 187,409 182,739
Accumulated deficit (198,672) (199,153)
Cumulative translation adjustment 1,371 1,395
Shareholders' deficit (9,869) (14,840)
--------- ---------
$ 29,616 $ 28,020
========= =========

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

<TABLE>
<CAPTION>
LANXIDE CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Amounts in thousands, except per share data)

Three Months Ended Year Ended
December 31, September 30,
------------------ -------------
1995 1994 1995 1994
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Revenue:
Sales $ 962 $ 1,924 $ 9,393 $ 13,302
Licensing Revenue 2,900 2,000
Research and development contract
revenue (Note 7) 1,490 2,174 6,130 6,073
-------- ------- -------- ---------
5,352 4,098 17,523 19,375
-------- ------- -------- ---------

Operating costs:
Cost of sales 1,109 1,757 8,975 13,421
Research and development contract costs 1,059 1,998 5,313 5,169
Research and development 1,187 2,345 8,101 8,920
Selling, general and administration
(Note 7) 1,440 2,959 13,869 13,249
------- ------- -------- --------
4,795 9,059 36,258 40,759
------- ------- -------- --------

Income (loss) from operations before
minority allocation 557 (4,961) (18,735) (21,384)

Minority allocation of operating costs
(Note 1) 436 476 2,664 6,079
------- ------- -------- ---------
Income (loss) from operations 993 (4,485) (16,071) (15,305)

Equity in net loss of unconsolidated
affiliates (249) (446) (2,532) (293)
Interest expense (501) (387) (2,067) (867)
Loss on the sale of assets of a
subsidiary (Note 2) (3,058)
Other income (loss) 275 (335) 1,011 781
------- ------- -------- --------
Net income (loss) 518 (5,653) (22,717) (15,684)

Dividends on mandatorily redeemable
preferred stock (22) (19)
-------- ------- --------- --------
Net income (loss) applicable to common
shares $ 496 $ (5,653) $(22,736) $(15,684)
========= ======== ======== ========

Historical income (loss) per share
Primary $ 0.04 $ (0.55) ($2.18) ($1.55)
Fully diluted $ 0.03 $ (0.55) ($2.18) ($1.55)
Pro forma income per share
Primary $ 0.27
Fully diluted $ 0.27
Historical average common shares out-
standing
Primary 12,023 10,276 10,443 10,141
Fully diluted 15,285 10,276 10,443 10,141
Pro forma average common shares out-
standing
Primary 1,811
Fully diluted 1,850

The accompanying notes are an integral part of these financial statements.||
</TABLE>

<TABLE>
<CAPTION>
LANXIDE CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY (DEFICIT)
(Dollars in thousands, except per share data)

Pre-
ferred
stock Un- Cumu-
Series A Series B sub- amor- lative
preferred preferred Common Addit- Accumu- script- tized- trans
stock stock stock ional lated ions Com- lation
Number Number Number paid-in defi- receiv- pensa- adjust-
of shares Amount of shares Amount of shares Amount capital cit able tion ment
--------- ------ -------- ------ --------- ------ ------- ------ ------ ------ -------

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30,1993 3,000,000 $30 4,325,507 $43 9,898,874 $99 $178,133 $(160,752) $(60) $(90) $ 898
Exercise of stock
options 5,247
Deferred compensation 164 (164)
Deferred compensation
amortization 151
Sale of Common Stock 243,750 4 3,704
Issuance of stock to 128,205 1 (1)
Hercules (see Note 2)
Translation adjustment 485
Net loss (15,684)

Balance, September 30, 1994 3,000,000 30 4,325,507 43 10,276,076 104 182,000 (176,436) (60) (103) 1,383
Exercise of stock options 15,200
Deferred compensation
amortization 103
Exchange of Common Stock 110,962 1 450
(see Note 2)
Effect of Lanxide Armor
deconsolidation (see
Note 2) 50,000 350
Issuance of stock to
Hercules (see Note 2) 128,206 1 (1)
Cancellation of pre-
ferred stock subscrip-
tions receivable (60) 60
Translation adjustment 12
Net loss (22,717)

Balance, September 30, 1995 3,000,000 30 4,325,507 43 10,580,444 106 182,739 (199,153) 0 0 1,395

Conversion of Old Common
Stock, Old Series A
Preferred Stock and Old
Series B Preferred
Stock into New Series
A Preferred Stock
(unaudited) (see Note 14) (1,888,339) (19) (4,325,507) (43) (10,580,444) (106) 168
Issuance of Common Stock 850,117 9 2,952
Conversion of Series C
Preferred Stock into
Common Stock (unaudit-
ed) (see Note 14) 331,679 3 1,490
Issuance of Common Stock
Warrants (unaudited) 60
Translation Adjustment
(unaudited) (24)
Net Income (unaudited) 518
Preferred Stock Divi-
dends (unaudited) (37)

Balance, December 31, 1,111,661 $11 0 $0 $1,181,796 $12 $187,409 $(198,672) $ 0 $ 0 1,371
1995 (unaudited)

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

</TABLE>

LANXIDE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)

Three Months Ended Year Ended
December 31, September 30,
------------------ -------------
1995 1994 1995 1994
---- ---- ---- ----
(unaudited)

<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 518 $ (5,653) $ (22,717) $ (15,684)
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Depreciation and amortization 474 678 2,488 2,844
Minority allocation of operating
costs and equity in net loss of
unconsolidated affiliates (187) (30) (132) (5,786)
Loss on the sale of assets of
a subsidiary 3,058
Changes in assets and liabilities,
net of effects of acquisitions and
changes in consolidated affiliates:
(Increase) decrease in receivables (2,743) 497 1,793 (927)
Increase in inventories (318) (449) (1,962) (390)
Decrease (increase) in other assets 791 22 (623) (186)
(Decrease) increase in accounts
payable and accrued expenses (456) (253) 1,821 (59)
(Decrease) increase in deferred
revenue and deferred credit (754) (393) 1,036 1,592
Increase in other liabilities 18 68 96 790
--------- --------- --------- ---------
Net cash used in operating activities (2,657) (5,513) (15,142) (17,806)
--------- --------- --------- ---------
CASH USED IN INVESTING ACTIVITIES:
Capital additions (300) (985) (4,114) (1,636)
Investment in unconsolidated affiliate (451) (1,600) (3,594)
Proceeds from sale of investment in
unconsolidated affiliate 750 4,728
Cash effect related to change in
ownership of affiliates 542
--------- --------- -------- --------
Net cash used in investing activities (300) (1,436) (4,422) (502)
--------- --------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock, net 2,962 3,708
Proceeds from preferred stock, net 331 1,459
Retirement of preferred stock (70)
Preferred stock dividends paid (1)
Capital contributions to consolidat-
ed affiliates by commercial venture
partners 72 1,686 4,841 9,993
Proceeds from issuance of debt obligations 257 5,260 8,423 12,184
Repayment of debt obligations (127) (829) (1,412) (5,046)
------- ------- --------- --------
Net cash provided by financing
activities 3,424 6,117 13,311 20,839
------- ------ -------- --------

Effect of exchange rate translations (24) 8 12 485
-------- ------- -------- -------
Net increase (decrease) 443 (824) (6,241) 3,016

Cash and cash equivalents, beginning
of year 5,212 11,453 11,453 8,437
------- ------- -------- --------
Cash and cash equivalents, end of year $ 5,655 $10,629 $ 5,212 $ 11,453
======= ======= ======== ========

Cash paid for interest $ 455 $ 382 $ 1,919 $ 870

</TABLE>

See notes 2, 3, and 8 for noncash financing activities.
The accompanying notes are an integral part of these financial statements.

LANXIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per-share data)

NOTE 1-ORGANIZATION AND BUSINESS,
SIGNIFICANT ACCOUNTING POLICIES
AND LIQUIDITY:

Organization and business:

Lanxide Corporation (the Company) engages in research, develop-
ment and commercial exploitation of a new class of proprietary
materials called LANXIDE reinforced ceramics and metals and
CERASET ceramers (collectively LANXIDE technology). The
Company develops and commercializes LANXIDE technology using its
own resources as well as the resources of a select number of
industrial and financial partners through the formation of
commercial ventures. In addition, through August 1994, the
Company, through its Alanx Products subsidiary, purchased and
resold at a mark-up raw materials used in the manufacture of wear
parts to some of its suppliers. Such sales approximated 29% of
revenues in 1994. In 1995, the Company began receiving fees for
licensing its technology in certain specific market sectors by
product and geography.

During 1995, the Company s ownership interest in certain commer-
cial ventures changed, resulting in differences in the composi-
tion of the Company between 1995 and 1994 (see Note 2).

Significant accounting policies:

CONSOLIDATION - The consolidated financial statements include the
accounts of the Company and its majority-owned affiliates.
Transactions with majority-owned affiliates are eliminated in
consolidation.

INVESTMENT IN AFFILIATES - consists of the Company s investment
in affiliates which are less than or equal to fifty percent
owned. The equity method of accounting is used for affiliates
for which ownership is between twenty and fifty percent. Affili-
ates for which ownership is less than twenty percent are recorded
at cost.

MINORITY ALLOCATION OF OPERATING COSTS - Operating costs spon-
sored and funded by commercial venture partners (see Note 2)
through the Company's majority-owned affiliates are allocated to
such partners, pursuant to certain agreements between the Company
and its commercial venture partners.

INVENTORIES - Inventories are valued at the lower of cost (pri-
marily average cost) or market and consist of the following:

SEPTEMBER DECEMBER 31,
30, 1995 1995
--------- -----------
(unaudited)
Raw materials and supplies $581 $599
Work in process 754 501
Finished goods 140 142
$1,475 $1,242
======= =======

PROPERTY AND EQUIPMENT - Property and equipment are carried at
cost, and depreciation is computed using the straight-line method
over estimated useful asset lives. Maintenance and repair costs
are expensed as incurred; significant renewals and betterments
are capitalized.

SALES AND RESEARCH AND DEVELOPMENT CONTRACT REVENUE RECOGNITION -
Sales are recognized as products are shipped and, for certain
other contracts, using the percentage-of-completion method of
accounting. Certain sales include charges to customers for
materials, process and prototype development, and applications
engineering required to fulfill product specifications. Research
and development contract revenue is recognized as services are
provided.

LICENSING REVENUE - Represents amounts earned by the Company from
licensing its technology by product and geographic area and is
recognized as revenue when the Company fulfills its obligation
under the applicable license agreement. During 1995, the Company
received $3 million in licensing fees, $1 million of which is
included in deferred revenue at September 30, 1995, because a
licensee (Sturm Ruger) had the right to request a $1 million
refund for a one year period payable in either cash or common
stock at the option of the Company.

Unaudited
In January 1996, a new licensee agreement was signed with Sturm
Ruger which granted additional product rights to the licensee and
waived the one year option to terminate the license.

DEFERRED CREDIT - The deferred credit consists of a deferred gain
on the sale by Lanxide K.K. of a 50% interest in a wholly-owned
subsidiary (see Note 2 - Transactions with Nihon Cement).

RESEARCH AND DEVELOPMENT - Research and development costs are
expensed as incurred.

TRANSLATION OF FOREIGN CURRENCY - The financial position and
results of operations of Lanxide K.K., the Company's foreign
majority-owned affiliate, are measured using Japanese yen as the
functional currency. Revenues and expenses of such affiliate
have been translated at the average exchange rate. Assets and
liabilities have been translated at the year-end rate of ex-
change. Translation gains and losses are being deferred as a
separate component of shareholders' equity.

CASH AND CASH EQUIVALENTS - All highly liquid investments with a
maturity of three months or less when purchased are considered to
be cash equivalents. Cash equivalents were $3,749 (unaudited)
and $4,450 at December 31, 1995 and September 30, 1995, respec-
tively. Included in the cash balances at December 31, 1995 and
September 30, 1995 are $3,857 (unaudited) and $4,810, respective-
ly, held by subsidiary companies which amounts are not available
to the Company. The majority of the cash balances, $3,749
(unaudited) and $4,450, respectively, were held and invested on a
short-term basis by a finance subsidiary of Kanematsu on behalf
of Lanxide K.K. (see Note 2). A significant portion of Lanxide
K.K. s operations consists of product development and engineering
services performed by the Company, which amounted to approximate-
ly $1,670 and $2,800 during fiscal years 1995 and 1994, respec-
tively. Other cash and cash equivalents are primarily held by
one financial institution.

EARNINGS PER SHARE - Historical net income (loss) per share is
computed using the weighted average number of common shares and
potentially dilutive securities outstanding during the period.
On November 14, 1995, the Company completed its Recapitalization
Plan (see Note 14) and the number of common shares outstanding
was significantly reduced. Accordingly, the computation of
historical weighted average common shares outstanding reflects
this recapitalization.

Proforma net income per share is computed using the weighted
average number of common shares and potentially dilutive securi-
ties outstanding from the completion of the Recapitalization Plan
(as if such recapitalization occurred at October 1, 1995).

RECLASSIFICATIONS - For fiscal 1994, research and development
contract revenue and selling, general and administration costs
have been reduced to reflect reimbursements for administrative
and facility services provide by the Company to its affiliates
(see Note 7).

LIQUIDITY - The accompanying financial statements have been
prepared assuming that the Company will continue as a going
concern. The Company s significant ongoing investment in product
development and commercialization activities has resulted in
significant losses. The Company anticipates its funding for the
coming fiscal year will be derived primarily from research and
development contract revenue, sales, technology licensing reve-
nues and/or borrowings. In addition, on November 14, 1995, the
Company completed its Recapitalization Plan with aggregate
proceeds of $3,800 (see Note 14).

Unaudited
On March 28, 1996, the Company also completed the sale and
leaseback of its Marrows Road Facility for $8.6 million (see Note
15). This transaction generated net proceeds of $3.3 million
after the prepayment of a $4.1 million mortgage on the facility.
The projected license revenues, along with the proceeds from the
Recapitalization Plan and sale of the Marrows Road Facility,
working capital from operations, and payments pursuant to non-
recourse notes from the sale of LPI and Blum Warrants that expire
on June 30, 1996 are anticipated to cover the Company's cash
needs through the 1996 calendar year end. There is no assurance
the Company can continue to obtain the necessary capital needed
to fund its ongoing operations beyond this point. The financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.

INTERIM FINANCIAL STATEMENTS - The accompanying interim financial
statements are unaudited, and include all adjustments, consisting
solely of normal recurring adjustments, necessary for a fair
presentation of the Company's financial position, results of
operations, and cash flows in accordance with generally accepted
accounting principles.

USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make reasonable estimates and assumptions, based
upon all known facts and circumstances, that affect the reported
amounts of assets and liabilities and the disclosure of contin-
gent assets and liabilities at the date of the financial state-
ments. Actual results could differ from estimates.

NOTE 2-TRANSACTIONS WITH COMMERCIAL VENTURE PARTNERS:

Transactions with DuPont:

The Company is a party to three commercial venture agreements
with E. I. DuPont de Nemours & Company (DuPont) to develop and
commercialize four product areas.

In the first venture, the development and commercialization of
armor products is conducted through Lanxide Armor Company, L.P.
(LAC), a limited partnership in which Lanxide Armor Products,
Inc. (LAC), a wholly-owned subsidiary, was the managing partner
and had an initial 60% interest. All funding requirements in
excess of initial capital contributions as contemplated in the
agreements are determined annually and are generally funded based
upon each partner's percentage interest. If a partner funds less
than the amount required based upon its ownership interest, the
partner's respective interest in the partnership may be reduced
in accordance with the terms of the agreements. Prior to June
30, 1995, the Company had funded less than the required amount
and its ownership percentage was reduced to 57%. On June 30,
1995, the Company sold a 30% equity interest in LAC to DuPont
which reduced its ownership percentage to 27%. As a result of
this transaction, LAC is accounted for under the equity method
for the period after June 30, 1995.

The second venture arrangement with DuPont, DuPont Lanxide
Composites, Inc. (DLC), is for the development of heat
exchangers, turbine engine components and certain aerospace
components in which DuPont has a 70% interest. DuPont agreed to
pay specified amounts for the development and commercialization
costs associated with these product areas.

In June 1993, the Company and DuPont amended the DLC venture
arrangement whereby Lanxide expanded the license to the venture
to include rocket engine components, and DuPont contributed all
of its ceramic matrix composite business including its manufac-
turing facility. DuPont also agreed to provide solely for DLC s
funding requirements through December 31, 1999, and the Company
agreed to recognize DuPont as having fulfilled its prior funding
commitments.

In April 1990, the Company entered into the third commercial
venture with DuPont to develop and commercialize microelectronic
products. Through March 1994, this commercial venture was
conducted through two limited partnerships. The first such
limited partnership, Lanxide Electronic Components, L.P. (LEC),
was primarily responsible for military applications. The effec-
tive ownership interests of LEC were the Company - 60% and DuPont
- 40%. The second such partnership, CLP (1990), L.P. (CLP), was
primarily responsible for commercial applications. The effective
ownership interests of CLP were the Company - 40% and DuPont - 60%.

In April 1994, the LEC and CLP partnerships were combined into
one partnership, LEC. The effective ownership interests of LEC
became the Company - 50% and DuPont - 50%. As a result of this
combination, the assets and liabilities of LEC, which were
principally assets under capital lease and related capital lease
obligations, were no longer consolidated by the Company through
June 30, 1995.

DuPont initially agreed to contribute to the venture up to an
aggregate of $35,000 of which $20,000 was to fund capital assets
and working capital and $15,000 to fund operating costs. As part
of the agreement to combine LEC and CLP, DuPont s funding obliga-
tion was reduced to amounts funded at the time of the new agree-
ment ($18,500) plus up to an additional $1,500 in equipment and
working capital requirements. The Company s funding obligation
under the new agreement was limited to $1,500 in operating losses
excluding depreciation.

Concurrent with the sale of LAC on June 30, 1995, the Company
purchased an additional 30% interest in LEC from DuPont raising
its ownership percentage to 80%. As a result of this transac-
tion, LEC is included in the consolidated financial statements
effective June 30, 1995.

See Note 7 for related party disclosures.

Transactions with Kanematsu:

In May 1992, the Company and Kanematsu Corporation (Kanematsu)
entered into an agreement to commercialize products of Lanxide
technology in Japan by the formation of a commercial venture,
Lanxide K.K.

Lanxide K.K. is owned 65% by the Company and 35% by Kanematsu and
has been granted an exclusive license to make, use, and sell
products in Japan (other than products currently licensed on a
worldwide basis to existing commercial ventures with DuPont), using
LANXIDE technology. Funding for the venture in the amount of
$20,000 was provided by the Company and Kanematsu in proportion to
their respective interests in the venture. Concurrent with the
commercial venture agreement, Kanematsu agreed to purchase 943,750
shares of common stock of the Company for $13,000, such proceeds to
be utilized by the Company to satisfy its funding commitment to
Lanxide K.K. A significant portion of Lanxide K.K. s operations
consists of product development and engineering services provided
by Lanxide.

Kanematsu may exchange all, but not less than all, of its interest
in Lanxide K.K. for additional shares of the Company s Common Stock
for five years from the formation date of Lanxide K.K.

All shares of the Company's stock purchased by Kanematsu are held
in a voting trust. The trustee of the voting trust is a member of
the Company's management. Also, the Company agreed to pay a 5%
commission on this $20,000 transaction, payable when Kanematsu
purchased the stock and made its contribution to Lanxide K.K.

In April 1994, Kanematsu agreed to provide the Company with a $10
million line of credit (see Note 8). Concurrent with Kanematsu
providing the line of credit, the Company and Kanematsu agreed to
revise the sharing of any royalties paid by Lanxide K.K., such that
48% of such royalty flow will be paid to Kanematsu and 52% to the
Company (as compared previously to 20% and 80%, respectively). The
agreement also provides that Lanxide K.K. will purchase its raw
materials from the Company.

Transactions with Nihon Cement:

On November 30, 1993, Nihon purchased $4,000 of Redeemable Convert-
ible Preferred Stock in Alanx Products Inc. (Alanx). Nihon had the
option to convert the preferred stock into common stock at any time
prior to the first anniversary, November 30, 1994. Nihon elected
not to convert and Alanx is obligated to redeem the preferred stock
at the purchase price plus accrued but unpaid dividends ratably
over a five year period beginning in November 1999. The cumulative
dividends accrue at a rate of 6% per annum. The preferred stock is
classified as minority interest in the accompanying consolidated
balance sheet.

In January 1994, Lanxide K.K. formed a subsidiary, Celanx K.K., and
contributed $3,594 and a license to manufacture, market and sell
wear and precision products in Japan. Subsequently, Lanxide K.K.
sold 50% of its ownership in Celanx K.K. to Nihon Cement Co., Ltd.
(Nihon) in exchange for $5,674. Lanxide K.K. s gain associated
with the above transaction is being amortized over a 10 year period
and is reflected on the consolidated balance sheet as a long-term
deferred credit. In addition, the venture partners will also
provide a line of credit of approximately $10,000 to Celanx K.K.
for which the terms have not been determined (see Note 15).

In April 1994, the Company and Nihon entered into an agreement to
develop brake components for sale in Japan using LANXIDE technolo-
gy. Nihon and the Company have funded $3,000 and $1,000, respec-
tively, of development costs under this agreement, of which $1,494
remains in deferred revenue at September 30, 1995.

Sale of Assets of Alanx Products, Inc.:

In June 1995, Alanx sold substantially all of its assets to Alanx
Wear Solutions (the Buyer). The Buyer assumed $907 of the liabili-
ties of Alanx, but did not assume the $4,000 of redeemable pre-
ferred stock issued to Nihon. Alanx received a 15% common stock
interest in the Buyer and a 4% royalty bearing license on sales
exceeding $1,125 for any quarter after the first 24 months from the
sale date. The Company will continue to own 100% of the common
stock of Alanx. Alanx recorded a loss of $3,058 on this transac-
tion. Concurrent with the above sale, Alanx changed its name to
P.A. Holdings, Inc. and has since been renamed Lanxide Wear Prod-
ucts, Inc.

Lanxide Precision, Inc.:

In June 1993, LPI, a wholly-owned subsidiary of the Company,
purchased substantially all of the assets and business of Stamford
Tool and Die from Cognitronics Corporation (Cognitronics) for a
purchase price of $1,900 in the form of a five year promissory note
bearing interest at the annual rate of 1.5% over the prime rate.
The Company accounted for the acquisition using the purchase method
of accounting and allocated the purchase price to the assets
acquired and liabilities assumed based on their estimated fair
market values. Assets acquired were primarily cash, machinery and
equipment, and accounts receivable valued at approximately $2,400
and liabilities assumed approximated $50. Approximately $450,
which represents the fair market value of the net assets acquired
in excess of the purchase price, were allocated to and reduced the
value of the machinery and equipment. In July 1994, LPI repaid the
promissory note.

Effective June 1, 1994, LPI established an employee stock option
plan that allows LPI to grant stock options to employees to pur-
chase no more than 2,778 shares of its common stock. Stock option
prices are not less than the estimated fair market value of the
common stock on the grant date and are exercisable at varying
dates. As of September 30, 1994, 1,788 options were granted and
outstanding.

On December 22, 1994, a group of investors led by Argentum Capital
Partners, LP. (the Investors) purchased 1,000 shares of LPI s Class
A 5% Redeemable Convertible Preferred Stock for $1,000. At any
time, the Investors may convert the preferred stock into shares of
common stock of LPI at an initial conversion rate of five common
shares for each preferred share. Upon the occurrence of certain
events, the conversion rate may be adjusted. In addition, each
share of preferred stock will automatically be converted into
common stock in the event of a public offering.

The Investors are entitled to receive cumulative preferential
dividends at the rate of 5% per annum of the preferred stock
purchase price payable at the end of each quarter when declared by
the Board of Directors. If certain events have not taken place by
the fifth anniversary of the issuance of the preferred stock
(Redemption Date), the Investors may elect by an 80% majority vote
to have LPI redeem all, but not less than all, of the outstanding
shares of preferred stock within six months of the Redemption Date.

The Investors also loaned LPI $1,000 through 10% Convertible Notes
with interest payable quarterly in arrears. The conversion rights,
which cannot be exercised until approximately fiscal year 1999,
initially entitle the Investors to receive five shares of LPI
common stock for each $1 in convertible notes. Upon the occurrence
of certain events, the conversion rate may be adjusted. Conversion
rights become null and void in the event that LPI earns at least
$5,000 before income taxes in any fiscal year ending on or prior to
September 30, 1998. The notes also contain a prepayment option
starting in fiscal year 1996 that entitles LPI to repay all, but
not less than all, of the notes outstanding for a premium.

The preferred stock and the convertible notes constituted 33% of
the equity of LPI on a fully-diluted, as-converted basis excluding
for such purposes LPI s stock option plan.

On May 26, 1995, the Company sold for $2,000 all of its stock
ownership in LPI to LNX Acquisition Company (LNX), which is con-
trolled by two of the Company s Board Members. The purchase price
included a $750 cash payment on the date of sale and a non-recourse
note of $1,250 secured by the stock of LPI. The note bears inter-
est at the 30-day Treasury bill rate plus 1.0% and matures on June
4, 1996. Additionally, the sale converted the existing license
agreement with LPI to a royalty bearing license of 3% on sales of
composite materials and components. The gain on the sale of $1,125
has been deferred and will be recognized after the note of $1,250
is paid. The Company remains contingently liable as guarantor for
LPI s $1,000 line of credit until June 30, 1996.

Lanxide Sports International:

In May 1993, the Company entered into an agreement to commercialize
opportunities within the sporting goods field by the formation of a
commercial venture, Lanxide Sports International (LSI). The
venture raised $1,170 for initial capitalization through a private
placement of equity. In exchange for a 50% ownership in LSI, the
Company contributed a perpetual and exclusive license to use
LANXIDE technology for the manufacture and marketing of sports
equipment outside Japan. In April 1994, the Company increased its
ownership in LSI to 61% through the purchase of additional shares
of stock for approximately $500.

In February 1995, the Company acquired the remaining 39% interest
in LSI in exchange for 110,962 shares of common stock. Subsequent-
ly, during the second quarter of fiscal 1995, the Company discon-
tinued the operations of LSI.

Lanxide Surgical Devices Company:

In January 1994, the Company and Cerametals Surgical, Inc.
(Cerametals) entered into an agreement to manufacture laproscopic
and surgical instruments using LANXIDE technology through the
formation of a commercial venture, Lanxide Surgical Devices Company
(LSDC). The Company contributed a license to use its proprietary
technology for the manufacture and marketing of surgical instru-
ments outside of Japan for a 55% ownership interest and Cerametals
agreed to contribute $4,000 over a two year period for a 45%
ownership interest. Cerametals did not make the $500 capital
contribution due in 1994, which resulted in a reduction of its
ownership interest to 39% as of September 30, 1994. In fiscal 1995,
Cerametals ownership percentage was further reduced to 29% when it
failed to make a required $1,000 capital contribution.

During the second quarter of fiscal year 1995, the Company discon-
tinued the operations of Lanxide Surgical Devices Company.

Transaction with Hercules:

In March 1993, the Company purchased certain ceramic and ceramic
composite technologies from Hercules Incorporated for 384,616
shares of its common stock valued at $5,000. Of this amount, $300
were assigned to the value of equipment acquired. Approximately
$4,700 were allocated to in-process research and development and
immediately expensed in the Company s 1993 statement of operations.
Under the agreement, the Company issued these shares over a three
year period. The purchase price in excess of the issued stock s
par value was recorded as paid-in capital. As additional shares
were issued, par value and paid in capital were adjusted accordingly.

Unaudited Pro Forma Results of Operations for the Year Ended
September 30, 1995:

The following summarizes the 1995 unaudited pro forma results of
operations of the Company to give effect to the sale of LPI, the
sale of substantially all of the assets and business of Alanx (with
the exception of dividends on the Alanx preferred stock which will
be continuing), including elimination of the loss on the Alanx
sale, the sale of the controlling interest in LAC and the purchase
of a controlling interest in LEC as if all had occurred on October
1, 1994.

Revenue:
Sales $ 3,798
Licensing Revenue 2,000
Research and development contract
revenue 3,805
--------
9,603
--------
Operating costs:
Cost of sales 3,774
Research and development contract
costs 2,494
Research and development 6,719
Selling, general and administration 11,326
--------
24,313
--------

Loss from operations before minority
allocation (14,710)

Minority allocation of operating costs 2,031
---------
Loss from operations (12,679)

Equity in net loss of unconsolidated
affiliates (2,332)
Interest expense (2,067)
Other income 1,127
-----------
Net loss $ (15,951)
===========

NOTE 3 - PROPERTY AND EQUIPMENT:

September Estimated
30, 1995 useful lives
--------- ------------

Land (see Note 15) $ 864
Building and improvements (see Note 15) 8,321 25 years
Leasehold improvements 2,273 10-12 years
Machinery and equipment 17,144 5-10 years
Furniture and fixtures 616 10 years
-------
29,218
Less - Accumulated depreciation
and amortization (14,381)
--------
$14,837
=======

NOTE 4-ACCOUNTS PAYABLE AND
ACCRUED EXPENSES:
SEPTEMBER 30, 1995

Accounts payable $ 2,462
Patent-related expense 65
Compensation-related costs 355
Other 220
-------
$ 3,102

NOTE 5 - INCOME TAXES:

There is no provision for income taxes in 1995 and 1994 due to the
losses.

Effective October 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 (FAS109), accounting for income taxes.
The adoption of FAS109 changes the Company s method of accounting for
income taxes from the deferred method (APB11) to an asset and liabili-
ty approach. Previously, the Company deferred the past tax effects of
timing differences between financial reporting and taxable income.
The asset and liability approach requires the recognition of deferred
tax liabilities and assets for the expected future tax consequences of
temporary differences between the carrying amounts and the tax bases
of assets and liabilities. The effect of adopting FAS109 was not
significant.

As of September 30, 1995, the Company has deferred tax assets of
approximately $36,000, composed principally of net operating loss
carryforwards, which have been fully reserved through a valuation
allowance due to the uncertainty of recoverability. The Company has
federal net operating loss carryforwards of approximately $74,000 at
September 30, 1995, which expire in 1999 through 2010. The Company
also has comparable state net operating loss carryforwards. As speci-
fied in the Internal Revenue Code, certain ownership changes would
result in limitations on the Company s ability to utilize its net
operating loss carryforwards. At September 30, 1995, the Company had
research and development tax credit carryforwards of approximately
$3,300 expiring through 2010.

The provision for income taxes results in an effective tax rate which
differs from the federal income tax rate as follows:

For the Year Ended For the Year Ended
September 30, 1995 September 30, 1994
$ % $ %

Expected Tax Benefit at
Federal Statutory Rate (7,724) (34) (5,333) (34)
Excluded Foreign Sub-
sidiary Loss 1,124 5 1,106 7
Tax Benefit Not Recog-
nized Due to
Change In Valuation
Allowance 6,600 29 4,227 27
------- ----- -------- ----
Income Tax Benefit 0 0 0 0

NOTE 6 - SIGNIFICANT CUSTOMERS AND FOREIGN OPERATIONS:

Significant Customers

During fiscal 1995 and 1994, 16% and 17%, respectively, of revenues
were derived from the U.S. Government.

Sales in fiscal 1994 to one customer comprised approximately 16% of
total revenues. No individual customer comprised greater than 10% of
total revenues in fiscal 1995.

Foreign Operations

The following financial data are presented to provide additional
information on the Company s foreign operations.

Adjust-
ments and
For the Year ended Sep- United Elimina- Consoli-
tember 30, 1995 States Japan tions dated
----------------------- ------ ----- --------- --------
Revenue to Unconsolidated
Customers $ 17,102 $ 421 $ 17,523
Transfers between
geographic areas 1,677 (1,677)
-------- ------- ------- --------
Total Revenue $ 18,779 $ 421 $(1,677) $ 17,523
========= ======= ======= ========

Net Loss $(19,410) $(5,087) $ 1,780 $(22,717)
========= ======= ======= ========
Identifiable Assets at
September 30, 1995 $ 21,544 $ 6,476 $ $ 28,020
======== ======= ======= ========

Adjust-
ments and
For the Year ended Sep- United Elimina- Consoli-
tember 30, 1994 States Japan tions dated
----------------------- ------ ----- --------- --------
Revenue to Unconsolidated
Customers $ 19,238 $ 137 $ 19,375
Transfers between
geographic areas 2,696 $(2,696)
-------- ------- ------- ---------
Total Revenue $ 21,934 $ 137 $(2,696) $ 19,375
======== ======= ======== ========

Net Loss $(12,431) $(4,803) $ 1,550 $(15,684)
========= ======= ======= ========
Identifiable Assets at
September 30, 1994 $ 31,056 $10,775 $ $ 41,831
======== ======= ======= ========

NOTE 7 - RELATED PARTY TRANSACTIONS:

The Company performs research and development activities on behalf of
its affiliates. Included in research and development contract revenue
are $274 (unaudited) and $1,144 (unaudited) for the three months ended
December 31, 1995 and 1994, respectively, and $3,333 and $3,354 for
the years ended September 30, 1995 and 1994, respectively, related to
revenue from unconsolidated affiliates.

In addition, the Company allocates certain administrative and facility
charges to its affiliates. Costs allocated to unconsolidated affili-
ates are reflected as a reduction of selling, general and administra-
tive expenses and totaled $508 (unaudited) and $280 (unaudited) for
the three months ended December 31, 1995 and 1994, respectively, and
$1,417 and $776 for the years ended September 30, 1995 and 1994,
respectively.

NOTE 8 - LONG-TERM DEBT:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1995
(unaudited)
<S> <C> <C>
Secured bank loan and mortgages, interest at 2%
above prime (10.75% at September 30, 1995),
maturities through 2004 $ 4,314 $ 4,193

Revolving credit and time note for $6 million
available during the period April 1993 through
February 1995. Guaranteed by DuPont, interest at
prime (8.75% at September 30, 1995), maturities
through March 2000 5,970 5,970

Secured revolving credit and time note with
Kanematsu for $10 million available during the
period April 1994 through December 1995, interest
at 2% above LIBOR rate (8.125% at September 30,
1995), matures in December 1998 10,000 10,000

Other Short-Term Borrowings 423 24
-------- -------
Total debt 20,707 20,187
Less: Current portion (904) (507)
-------- -------
Long-term debt $ 19,803 $19,680
======== =======
</TABLE>

Certain debt instruments require the Company to maintain certain
financial covenants and prohibit the distribution of dividends without
approval from the bank and Kanematsu. As of September 30, 1995, the
Company would not have been in compliance with the minimum tangible
net worth covenant contained in its second mortgage. The covenant was
amended such that the Company would not have to meet any minimum
tangible net worth requirements until December 31, 1996.

The revolving credit and time note with Kanematsu is secured by the
Company s holdings of common stock of Lanxide K.K., a lien position on
the Company s fixed and current assets, and a residual interest in the
cash balances of Lanxide K.K.

If DuPont is required to make payment under the $6 million line of
credit, the Company will, in full satisfaction of its obligation: a)
transfer all of its interest in LAC and LEC to DuPont, or, alterna-
tively at DuPont s option, b) transfer all of its interest in LAC to
DuPont, and transfer a 10% interest in DLC and 10% of the outstanding
shares of common stock of DuPont Lanxide Composites, Inc. to DuPont.

The remaining secured debt is collateralized by assets with an aggre-
gate net book value of $12,314 at September 30, 1995. Long-term debt
maturing during each of the next five years ending September 30 is:
1996, $904; 1997, $757; 1998, $2,484; 1999, $12,584; 2000, $2,084.

NOTE 9 - COSTS AND EXPENSES:

The following are included in operating costs:

FOR THE YEAR ENDED SEPTEMBER 30,

1995 1994
Patent expenses - external $1,007 $1,542
Depreciation and amortization 2,385 2,693

NOTE 10 - SHAREHOLDERS' EQUITY AND RELATED ITEMS:

Directors Compensation Program:

In October 1991, the Board of Directors approved a Discounted Stock
Option Plan to compensate Directors for services. Under the Plan,
eligible Directors may be granted options to purchase up to 97,500
shares of common stock at a per share exercise price equal to 50% of
the estimated fair market value of the stock at date of grant.
Eligible Directors have been granted options to purchase 93,198 shares
of common stock at prices between $5 and $8 per share. The resulting
compensation expense was charged to operations over the option vesting
period.

In connection with the Recapitalization Plan, current directors
holding options granted pursuant to the 1991 Director Stock Option
Plan consented to the cancellation of such options in exchange for new
options granted pursuant to the 1991 Director Stock Option Plan to
purchase one-twentieth of the options previously held. Under the 1991
Director Stock Option Plan, eligible directors may be granted options
to purchase up to 4,875 shares of New Common Stock at a per share
exercise price of $5.62 (see Note 14).

Employee Stock Options:

The 1983 Employee Stock Option Plan expired in October 1993. Stock
options granted prior to the expiration date may be exercised at
various times during the ten year period following the date of grant
unless otherwise canceled. Stock options outstanding at September 30,
1995 grant employees the right to purchase 1,051,079 shares of the
Company s common stock.

In December 1993, the Board of Directors adopted the 1993 Employee
Stock Option Plan which was submitted to and approved by the Company s
shareholders at the 1994 Annual Shareholders Meeting. Under the 1993
Plan, the Stock Option Committee of the Board of Directors (Committee)
may grant incentive and non-qualified stock options to employees to
purchase no more than 1,000,000 shares of common stock. Stock options
outstanding at September 30, 1995 grant employees the right to pur-
chase 534,105 shares of the Company s common stock. Employee stock
option prices are not less than the Committee's estimated fair market
value of the common stock on the grant date and stock options are
generally exercisable at varying dates not to exceed ten years.

Following is a summary of stock option activity of the 1983 and 1993
plans:

FOR THE YEAR ENDED SEPTEMBER 30,
1995 1994

Options outstanding at beginning
of year 1,667,153 1,087,907
Granted 64,375 622,275
Exercised (15,200) (5,247)
Canceled (131,144) (37,782)
--------- ---------
Options outstanding at end of year 1,585,184 1,667,153
========= =========
Option price range at end of year $5.00-16.00 $5.00-16.00

In 1989, LAC purchased 25,400 shares of Lanxide common stock and
received 24,600 shares from Lanxide in lieu of a capital contribution.
Such shares had a fair value of $7.00 per share, or an aggregate of
$350, and are to be used exclusively for LAC's non-qualified stock
option plan. As of September 30, 1995, stock options covering 49,466
shares of Lanxide s common stock have been granted under LAC s stock
option plan and none have been exercised.

In connection with the Recapitalization Plan, the Company adopted the
1995 Employee Stock Option Plan. The aggregate number of options
available for issuance pursuant to the New Stock Option Plan, together
with the number of options to be granted as consideration for the
cancellation of options granted under the 1983 and 1993 Stock Option
Plans, is 277,211. Upon grant, these options will have an exercise
price equal to the fair market value of the Company's common stock
(see Note 14).

Series A Preferred Stock:

During fiscal 1990, the Company sold 3 million shares of Series A
Preferred Stock, par value $.01 per share, for $30,000, of which
$1,880 was financed through the issuance of investor interest bearing
notes.

In connection with the Recapitalization Plan, each Series A Preferred
Stock was converted into one twentieth of a Unit. Each Unit consists
of one share of the Company s New Series A Preferred Stock and one
warrant to purchase on-twentieth of a share of the Company s New
Common Stock (see Note 14).

Series B Preferred Stock:

The Company issued 4,325,506.5 shares of its Series B Preferred Stock
to Alcan Aluminium Limited and its affiliates (Alcan) in May 1992 in
conjunction with the complete restructuring of Alcan s interest in the
Alcan/Lanxide commercial ventures. Each share had limited voting
rights and was convertible into two shares of common stock upon the
occurrence of certain events, including the sale of such shares by
Alcan. Notwithstanding Alcan s approximate 35.3% total equity posi-
tion, Alcan owns only 10.9% or 1,481,146 shares of the Company s full
voting stock (Common and Series A Preferred). Alcan was subject to
certain restrictions on the amount of stock it may sell to any one
person and was bound by certain anti-takeover provisions until June
28, 1995. In connection with the Recapitalization Plan, each share of
the Company s Series B Preferred Stock was converted into one-tenth of
a Unit, as defined above. (see Note 14).

Series C Preferred Stock:

On July 5,1995, the Company entered into a Securities Purchase Agree-
ment with Bentley Blum, a Director of the Company (the Series C
Securities Purchase Agreement), for the issuance and sale of up to
172,000 shares of Series C Preferred Stock, at an aggregate purchase
price of $1,720. The Company has issued 145,900 shares of Series C
Preferred Stock for aggregate proceeds of $1,459. The cumulative
dividends accrued at a rate of 8% per annum. Upon consummation of
the Recapitalization Plan, the Series C Preferred Stock automatically
converted into New Common Stock (see Note 14.)

The Series C Securities Purchase Agreement also provides that, in
consideration for Mr. Blum s obligation to pay, when, as and if due,
certain accrued obligations of the Company relating to employees
salaries, up to an aggregate of $600, the Company issued to Mr. Blum a
warrant to purchase 133,333 shares of New Common Stock at an exercise
price of $4.50 per share exercisable until June 30, 1996.

NOTE 11 - EMPLOYEE BENEFIT PLAN:

In July 1988, the Company implemented a 401(k) Matched Savings Plan
that permits eligible employees to defer and have the Company contrib-
ute a portion of their compensation on a pre-tax basis to the Plan.
The Company may make a matching contribution of fifty cents for each
dollar deferred by a participant up to 4% of a participant's compensa-
tion. Company contributions to the Plan were $242 and $147 in 1995
and 1994, respectively. During the period June 1993 to May 1994, the
Company suspended its matching contributions to the Plan for Lanxide
Corporation employees.

NOTE 12 - DEFERRED COMPENSATION PLAN:

During the period June 1993 to May 1994, the Company implemented a
Deferred Compensation Plan whereby a portion of the employees compen-
sation was deferred and payable in five years together with 12%
interest compounded annually. Payment will be in cash or Lanxide
Common Stock at a rate of $13 per share at the option of the employ-
ees. In connection with the Recapitalization Plan, the Board of
Directors adopted an amendment to the Deferred Compensation Plan,
pursuant to which the deferred portion of an employee s compensation
will be payable in cash or New Common Stock at a rate equal to the
greater of $25 per share and the fair market value per share of Common
Stock on the first anniversary of the effective date of the Recapital-
ization Plan (see Note 14).

NOTE 13 - COMMITMENTS AND CONTINGENCIES:

In 1984, Mr. Blum exercised his option to purchase for $1,800 the
Company's land and building that was originally financed by an indus-
trial development revenue bond. The building was leased back to the
Company through December 31, 1998, and the Company continues to be
contingently liable for repayment under the original financing inden-
ture ($333 at September 30, 1995). In 1999, the Company can repur-
chase the property at the greater of its then market value or $2,400.
Minimum annual operating lease payments for the building were $288 for
1995 and 1994.

Minimum annual operating lease payments for the next five years ending
September 30 are: 1996, $288; 1997, $288; 1998, $288; 1999, $72; 2000,
$0.

NOTE 14 - SUBSEQUENT EVENTS:

Series D and E Securities Purchase Agreement:

On October 3, 1995, the Company entered into a securities purchase
letter agreement (the Securities Purchase Letter Agreement), pursuant
to which the Company sold to Bentley Blum 7,000 shares of mandatorily
redeemable Series D Preferred Stock, at an aggregate price of $70, and
26,100 shares of mandatorily redeemable Series E Preferred Stock, at
an aggregate price of $261.

The Series D Preferred Stock paid a dividend at the rate of 7% per
annum. Upon consummation of the Recapitalization Plan, each share of
Series D Preferred Stock was automatically converted into an amount of
cash equal to $10 per share (or an aggregate of $70), plus any accrued
but unpaid dividends and the shares of Series D Preferred Stock were
cancelled and retired.

The Series E Preferred Stock will pay a dividend at the rate of 7% per
annum. Upon consummation of the Recapitalization Plan, each share of
Series E Preferred Stock remained outstanding and continued to repre-
sent one share of New Series E Preferred Stock of the surviving
corporation. Each outstanding share of Series E Preferred Stock is
mandatorily redeemable by the Company at $10 per share, plus accrued
but unpaid dividends out of assets legally available therefor on
October 3, 2000. Pursuant to the Securities Purchase Letter Agree-
ment, the Company issued Mr. Blum a warrant to purchase 58,763 shares
of New Common Stock, at an exercise price of $4.50 per share, for a
period expiring thirty-eight months after the completion of the
Recapitalization Plan.

Completion of Lanxide Recapitalization Plan:

On November 14, 1995, the Company completed its Recapitalization Plan
(the Plan.) Pursuant to the Plan, stockholders subscribed for 850,117
shares of the Company s common stock at $4.50 per share, providing
aggregate gross proceeds of $3,800. In addition, 331,679 shares of
common stock were issued to Bentley Blum, upon conversion of shares of
the Series C Preferred Stock. In connection with the Plan, shares of
Old Common Stock, Old Series A Preferred Stock and Old Series B
Preferred Stock were converted into a total of 1,111,661 Units com-
prising of Series A Non-Voting Preferred Stock and Warrants to pur-
chase common stock. Each share of Series A Preferred Stock is con-
vertible into approximately .37 share of common stock and has an
annual cumulative dividend of $3.20 per share after January 1, 2001,
subject to the extent of fifty percent of earnings of the Company and
certain other limitations. The Series A Preferred Stock is redeemable
at any time at the option of the Company at $80 per share plus accrued
but unpaid dividends.

The Company also cancelled and converted the Series D Preferred Stock
into a right to receive cash. Such amounts were distributed on
November 16, 1995.

The following table sets forth the unaudited pro forma capitalization
of the Company as if the Recapitalization Plan and related conversions
had occurred on September 30, 1995.

Long-term debt:
Current portion $ 904
Long-term portion 19,803
-------
Total long-term debt 20,707
-------
New Series E Preferred Stock 201
-------
Stockholders equity (deficit):
Non-Voting New Series A Preferred Stock,
par value $.01 per share 11
New Common Stock, par value $.01 per share 12
Additional paid-in capital 187,375
Accumulated deficit (199,153)
Cumulative translation adjustment 1,395
--------
Total stockholders equity (deficit) $(10,360)
---------

Sale of Lanxide ThermoComposites, Inc.:

On December 13, 1995, the Company sold 51% of its stock ownership in a
wholly-owned subsidiary, Lanxide ThermoComposites, Inc. (Lanxide
Thermo), to A.P. Green Industries, Inc. (A.P. Green). In consider-
ation for its interest in Lanxide Thermo, A.P. Green agreed to fund
the venture s ongoing cash requirements. Concurrent with A.P. Green s
acquisition, Lanxide Thermo acquired Chiam Technologies, Inc. in
exchange for a 20% common stock interest in Lanxide Thermo. Lanxide
Thermo was formed in 1994 to commercialize high performance refractory
products for the continuous casting segment in the steel industry.

NOTE 15 - EVENTS SUBSEQUENT TO ISSUANCE OF AUDITOR'S REPORT
(UNAUDITED)

Sale and Leaseback of Marrows Road Facility

On March 28, 1996, the Company sold the Marrows Road Facility for $8.6
million to QRS 12-16, Inc. (the Buyer), an entity established by
Corporate Property Associates (CPA: 12), a real estate investment
trust sponsored by W.P. Carey, a purchaser and lessor of corporate
real estate. Concurrent with the sale, the Company entered into a
noncancelable twenty-year lease with the Buyer with renewal options
for another twenty years. In connection with sale and leaseback, the
Company entered into sublease agreements with each of the three
commercial venture companies occupying the facility. The lease terms
require prepaid quarterly payments of $244 with inflation adjustments
every five years. The transaction is being accounted for as an
operating lease. The $361 gain on the sale of the building is being
deferred and will be recognized over the life of the lease.

As part of this transaction, the Company granted the Buyer a warrant
to purchase 15,500 shares of Common Stock at an exercise price of
$14.00 per share for a five-year period.

The sale and leaseback transaction generated net proceeds of $3.3
million after the prepayment of a $4.1 million mortgage on the Marrows
Road Facility and the payment of associated fees and closing costs.
The Company also paid a fee for the arrangement of the transaction
which fee included 10,700 shares of Common Stock. In addition, under
the terms of the lease agreement, the Company placed a $400,000
security deposit with the Buyer.

Sale of Celanx K.K.

On March 28, 1996, the Company sold its remaining fifty percent
ownership interest in Celanx K.K. to Nihon, effectively giving Nihon
sole ownership of the license to manufacture, market and sell preci-
sion instruments in Japan. As consideration for the sale of its
interest in Celanx K.K., Lanxide K.K. reacquired its wear products
license from Celanx K.K. and will receive ongoing royalties from
precision instruments sales generated by Nihon. As a result of this
transaction, Lanxide K.K. will recognize the remainder of the deferred
gain associated with the 1994 sale of its fifty percent ownership in
Celanx K.K. to Nihon.

Settlement of Stockholder Demand for Appraisal Rights

A. the right to convert each share of Old Common Stock owned
by each Holder into one-twentieth of a Unit, comprised of one share of
Series A Preferred Stock and one Unit Warrant, on the terms described
in the Recapitalization Plan;

B. the right to purchase the number of shares of Common Stock
equal to one-twentieth of the number of shares of Old Common Stock
held by each Holder at an exercise price of $4.50 per share; and

C. a Warrant to purchase a number of shares of Common Stock
equal to 1.479 times the number of shares of Common Stock which such
Holder purchased pursuant to the above offer of Common Stock at an
exercise price of $18.00 per share for a four-year period.

The securities issued in connection with the foregoing settlement will
contain restrictions on the Holders' ability to sell such securities.

LANXIDE CORPORATION
1300 MARROWS ROAD
P. O. BOX 6077
NEWARK, DELAWARE 19714

May 16, 1996

Hand Delivery

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Attention: Errol Sanderson, Esquire
Mail Stop 3-5, Room 3046
(202) 942-1943

Re: Lanxide Corporation; Post-Effective
Amendment No. 1 to Registration Statement
on Form S-4 under cover of Form SB-2
(File No. 33-94186)

Gentlemen:

Pursuant to Rule 461 of the Securities Act of
1933, as amended (the "Securities Act"), Lanxide
Corporation (the "Registrant") hereby requests that the
effective date of the above-referenced Registration
Statement be accelerated to May 17, 1996, or as soon
thereafter as possible.

The Registrant hereby confirms its awareness of
its obligations under the Securities Act.

Very truly yours,

LANXIDE CORPORATION

By: /s/ Robert J. Ferris
_________________________
Robert J. Ferris
Vice President - Administration,
Secretary and Treasurer