LANXIDE CORP, 10KSB, 1998-01-13

LANXIDE CORP
10KSB, 1998-01-13
STRUCTURAL CLAY PRODUCTS

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

------------------------

FORM 10-KSB

[ X ] ANNUAL REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended September 30, 1997

[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT of 1934

For the Transition Period From to
---------- ----------

Commission File No. 0-16293

LANXIDE CORPORATION
(Exact name of Small Business Issuer in its charter)

Delaware 51-0270253
(State or other jurisdiction of incorporation or organization) (I.R.S.
Employer Identification No.)

1300 Marrows Road
P.O. Box 6077
Newark, DE 19714-6077
(Address of principal executive offices) (Zip Code)
(302) 456-6200
Issuer's telephone number, including area code

----------------------------

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

Title of Each Class
-------------------
Common Stock, par value $.01 per share
Series A Preferred Stock, par value $.01 per share

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

NONE

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

Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.[ X ]

Issuer's revenues for its most recent fiscal year were $26,429,000

The aggregate market value of the voting stock held by non-affiliates at
December 12, 1997, valued by reference to the bid price of such stock, was
$3,144,360.

Number of shares of Common Stock outstanding as of December 12, 1997: 1,325,598

Transitional Small Business Disclosure Format (check one):
[ ] Yes [ X ] No

THIS FORM 10-KSB CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT TO
THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF LANXIDE
CORPORATION, INCLUDING STATEMENTS UNDER ITEM 1. BUSINESS, ITEM 6. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION AND
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. THESE FORWARD-LOOKING
STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES. NO ASSURANCE CAN BE GIVEN
THAT ANY SUCH MATTERS WILL BE REALIZED. FACTORS THAT MAY CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS
INCLUDE, AMONG OTHERS, THE FOLLOWING POSSIBILITIES: (I) COMPETITIVE CONDITIONS
IN THE INDUSTRIES IN WHICH LANXIDE OPERATES; (II) FAILURE TO FURTHER
COMMERCIALIZE ONE OR MORE OF THE TECHNOLOGIES OF LANXIDE; AND (III) GENERAL
ECONOMIC CONDITIONS THAT ARE LESS FAVORABLE THAN EXPECTED.

ITEM 1. BUSINESS

INTRODUCTION

The Company is engaged in the development and commercialization of products
based upon a variety of material process technologies which represent 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(TM) composites, which offer superior combinations
of properties tailored to meet specific customer needs. LANXIDE(TM) composites
combine many of the features of ceramics and metals, and polymers. Its
technologies include a ceramic composite material process known as DIMOX(TM)
directed metal oxidation, a metallic composite material process known as
PRIMEX(TM) pressureless metal infiltration, and a ceramic polymer material
process and a ceramic coated graphite process known as CERASET(TM). LANXIDE(TM)
composites provide a new class of structural materials which exhibit
combinations of strength, damage tolerance, shape versatility, hardness, lighter
weight, 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(TM) composites in a wide
range of sizes and complex shapes and possessing a broad spectrum of performance
characteristics and believes that products made from LANXIDE(TM) composites
provide substantial cost/performance improvements over materials traditionally
used in numerous industrial and commercial applications. The Company has
developed products for electronic components, optical components, automotive
engine and brake components, heat exchangers, refractory components, armor,
industrial pump and cyclone components, components for gas turbine engines,
rocket engine components and certain other aerospace and military applications,
and sporting goods, some of which are currently being produced by the Company or
by its affiliates and licensees in limited quantities.

Based on a series of discoveries relating to metals oxidation, the Company
has developed a unique process technology for engineering a broad spectrum of
ceramic/metal composites. The LANXIDE(TM) process technology relies on
relatively low cost processing equipment, metals of commodity purity and
relatively low temperature requirements. Advantages of the LANXIDE(TM) 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 manageability of
this process technology provides the basis for commercial scale production of
components made of LANXIDE(TM) composites.

In 1993, to complement the extensive materials base generated internally,
the Company acquired substantially all of the assets and patents associated with
CERASET(TM) ceramer (ceramic-backboned polymer), ceramic paper and GEMINI(TM)
microcomposite technologies from Hercules Incorporated. 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.

The Company believes that 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 sporting equipment industries. Since 1983, in excess
of $275,000,000 has been expended for the research, development and
commercialization of the Company's technology. Such amounts have been funded
through equity issuances, borrowings, joint venture partners, including E. I.
DuPont de Nemours & Company (DuPont) and Kanematsu Corporation (Kanematsu), and
the U.S. Government. Prior to 1995, the Company's business strategy was to
develop and commercialize its technology and products exclusively through
individual subsidiary businesses and selective 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 of such
strategy, from 1983 through 1995, the Company structured 11 affiliated
businesses in a series of commercialization ventures. The Company's affiliated
partners include DuPont, Kanematsu and Nihon Cement Co., Ltd. (Nihon Cement).

Primarily as a result of continuing losses and increasing capital
requirements from its business ventures, the Company took steps in March 1995 to
reduce demands for capital and to shore up its cash reserves, 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 the majority
interest in three of its other subsidiaries. In addition, the Company embarked
on a program to license its technology in certain specific market sectors by
product and geography, in exchange for license fees and continuing royalties.
Since implementing such licensing strategy, the Company consummated license
agreements with A.P. Green Industries, Inc. (A.P. Green), Waupaca Foundry, Inc.
(Waupaca), Sturm Ruger & Company (Sturm Ruger), Brembo S.p.A. (Brembo), AKN
Corporation (AKN), and Nihon Cement.

RECENT DEVELOPMENTS

Loan from Lanxide K.K.

On December 29, 1997, Lanxide K.K., a 65% owned Japanese subsidiary, agreed
to loan $1.8 million to the Company (Lanxide Loan). The Company received
$1.3 million on December 29, 1997 and an additional $.5 million was received on
January 12, 1998. Cash held by Lanxide K.K. is generally unavailable to the
Company for general corporate purposes. The Lanxide Loan matures on January 31,
1998 and bears interest at the rate of 6% per annum. Upon an event of default
under the Lanxide K.K. Loan, the Company shall transfer to Lanxide K.K. either
its ownership of 100% of the common stock of Lanxide Electronic Components, Inc.
(the LEC Interest) or its 10% ownership in DuPont Lanxide Composites, Inc. (the
DLC Interest) as follows. If the Company's $5.9 million loan from PNC Bank (the
PNC Bank Loan), which loan is guaranteed by E.I. DuPont de Nemours and Company,
Inc. (DuPont), has been paid in full, then the Company shall transfer either,
the LEC Interest or the DLC Interest to Lanxide K.K., provided, however, that if
the Company defaults under the PNC Bank Loan and DuPont is required to satisfy
its obligations as guarantor, then (1) the Company shall first transfer to
DuPont, at DuPont's option, either the LEC Interest or the DLC Interest, both of
which serve as collateral for the PNC Bank Loan guarantee, and (2) the Company
shall then transfer to Lanxide K.K. the remaining interest: either the LEC
Interest or the DLC Interest. Upon an event of default under the Lanxide K.K.
Loan, the Company shall not be required to transfer the LEC Interest or the DLC
Interest to Lanxide K.K. until either an event of default has occurred under the
PNC Bank Loan or the Company has paid the PNC Bank Loan in full.

Stock Purchase by Commodore

In July 1997, Commodore Environmental Services, Inc. (Commodore) obtained
effective control of the Company pursuant to the Voting Agreement among the
Company and certain of its stockholders (the Voting Agreement) which was
executed in connection with the transactions contemplated by the Securities
Purchase Agreement, dated July 3, 1997, between the Company and Commodore (the
Securities Purchase Agreement). Pursuant to the Voting Agreement, stockholders
owning 50.1% of the outstanding Common Stock granted proxies to the members of
the Board of Directors of Commodore to vote all shares of Common Stock held by
each such stockholder until December 31, 1998.

Pursuant to the Securities Purchase Agreement, Commodore purchased 20,000
shares of Series G Preferred Stock for $2.0 million. For a description of the
terms of the Series G Preferred Stock, see Item 5 of this 10-KSB. The
Securities Purchase Agreement further provided that if prior to August 27, 1997,
Commodore received $10.5 million in financing, Commodore would purchase an
additional 85,000 shares of Series G Preferred Stock for an aggregate purchase
price of $8.5 million comprised of (x) $4.0 million in cash and (y) the
cancellation of the Company's outstanding indebtedness to Commodore and its
subsidiary, Commodore Applied Technology, Inc., in the amount of $4.5 million.
On August 27, 1997, Commodore informed the Company that it had not completed the
required financing and that it would not purchase the additional 85,000 shares
of Series G Preferred Stock.

Pursuant to the Securities Purchase Agreement, the Company also issued a
warrant to Commodore for the purchase of 250,000 shares of the Company's Series
F Preferred Stock at an exercise price of $100 per share. For a description of
the terms of the Series F Preferred Stock, see Item 5 of this 10-KSB. The
Warrant may be exercised, in part, by the exchange of the 20,000 shares of
Series G Preferred Stock acquired by Commodore pursuant to the Securities
Purchase Agreement for a like number of shares of Series F Preferred Stock.

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 selective 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(TM) 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(TM) 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(TM) technology through its
wholly or partially owned ventures, the Company intends to continue 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(TM) 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(TM) technology
in product areas into which the Company could not otherwise expand at this time.
The Company believes that benefits from licensing include:

o Accelerated adoption and recognition of its materials and technology.

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

o Immediate cash flow from licensing arrangements.

The Waupaca license was in the area of automotive brake system components
and certain agricultural equipment wear components. On December 6, 1996,
Waupaca notified the Company that it would not exercise its right under the
agreement to extend its license beyond March 31, 1997. Waupaca indicated that
it viewed its rate of market penetration with the new technology as insufficient
in light of large demands for investment in Waupaca's expanding cast iron
business.

On April 6, 1995, Sturm Ruger paid the Company $1.0 million as an initial
license fee and agreed to pay royalties on the sale of licensed products. The
license is exclusive for the manufacture of firearms and certain sporting goods
products outside of Japan. Under the terms of the initial agreement, Sturm
Ruger had a one-year option to terminate the license, forfeiting any rights to
use the technology thereunder, and to be repaid the $1.0 million by the Company
in the form of either cash or Old Common Stock at the Company's option. 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 $1.0 million was recorded as revenue during the second
quarter of fiscal year 1996.

Pursuant to the A.P. Green license agreement signed in October 1995 and
amended in May 1997, A.P. Green has the exclusive and perpetual right to use
Lanxide technology to make, use and sell industrial refactories, other than
those employed in the ferrous metal industry, worldwide except for Japan.
Pursuant to the May 1997 amendment, A.P. Green paid its remaining obligations
under the amended license agreement during the third quarter of 1997.
Accordingly, no further license payments are required of A.P. Green. However,
A.P. Green will pay royalties to the Company on annual sales of products
manufactured and sold under the license.

In December 1995, the Company and Brembo signed a license agreement, which
was subsequently amended in May 1997. The amended agreement gives Brembo a
license in the area of automotive brake rotors, drums and certain brake caliper
components for motor vehicles. Pursuant to the May 1997 amendment, Brembo paid
its remaining obligations under the amended license agreement during the third
quarter of 1997. Accordingly, no further license payments are required of
Brembo. However, under the license agreement, Brembo will pay royalties to the
Company on the sale of licensed products, including but not limited to a minimum
annual royalty payment for the four years following December 15, 1997.

In October 1996, the Company signed a non-exclusive license agreement with
AKN for the manufacture, use and sale of brake components in Southeast Asia and
Oceania. AKN is a newly created joint venture of three global companies
headquartered in Japan: Akebono Brake Industry Co., Ltd (Akebono); Kanematsu;
and Nihon Cement. The joint venture is also licensed exclusively by Lanxide
K.K. for the manufacture, use and sale of brake products in Japan. In addition
to license payments, the agreement also requires AKN to pay royalties on all
sales of licensed products. The agreement also granted AKN the option to
execute an exclusive manufacturing license in Southeast Asia and Oceania for an
additional license payment. This option, which expired in September 1997, was
not exercised by AKN.

In September 1997, the Company and Nihon Cement entered into another
license agreement that included an up-front license fee. The new license
extends Nihon Cement's rights to include the manufacture and sale of ceramic
reinforced aluminum ingot and concentrate (CRA Materials) using the Company's
technology. The license restricts the sale of the CRA Materials to licensees of
the Company or its Japanese affiliate, Lanxide K.K. Territory for the
additional license includes Japan, Eastern Asia and Oceania.

The Company has been engaged in discussions with a number of industrial
entities in the United States, Europe and Asia regarding the potential licensing
of the Company's technology to such entities for up-front fees and ongoing
royalty interests.

TECHNOLOGY, PATENTS AND TRADEMARKS

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

The Company's PRIMEX(TM) 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(TM) 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 pressure or vacuum. Either
continuous or discontinuous reinforcements 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 infiltrated. Examples of
composites produced are aluminum reinforced with aluminum oxide, aluminum
nitride, and silicon carbide. Components 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 aluminum by stirring,
and then using conventional casting techniques to form composite articles.

The Company's DIMOX(TM) 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 composite, 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(TM) 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
resulting composite can be engineered for specific performance requirements.
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 acquiring innovative,
patented CERASET(TM) 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(TM) 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 compounds,
such as silicon nitride, silicon carbide or aluminum nitride, depending on the
specific polymer and processing conditions. Certain CERASET(TM) ceramers, when
applied as fluids 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(TM) ceramers can also be combined with certain traditional
organic polymers (urethane, epoxies, acrylics, etc.) to produce CERASET(TM)
hybrid polymers, applicable to both composites and coatings. With only limited
additions of certain CERASET(TM) 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 processing characteristics. The hybrid polymeric
materials can be reinforced with ceramic or metallic constituents, further
enhancing performance such as strength, rigidity, thermal conductivity, flame
retardancy and wear resistance. CERASET(TM) 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(TM) and PRIMEX(TM) composite
formation processes, to produce high performance powders and fibers, and to act
as adhesives for both low- and high-temperature applications.

As of September 30, 1997, the Company had 320 issued patents in the United
States, none of which expires prior to 2004, with 32 additional patents pending,
and 1,134 patents issued in 44 foreign countries, none of which expires prior to
2000, with 358 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(TM) reinforced ceramics, PRIMEX(TM) reinforced metals
and CERASET(TM) inorganic polymers, including broad claims to both processes and
materials.

The Company maintains one registered trademark. The Company's registered
trademark is LANXIDE(R). The Company and its affiliates also have rights in the
following unregistered trademarks: DIMOX(TM), DIMOX HT(TM), PRIMEX(TM), PRIMEX
CAST(TM), PRIMEXCOOL(TM), 2K+(TM), CERASET(TM), CERASET SN(TM), CG896(TM) and
CG273(TM).

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

PRODUCT DEVELOPMENT AND ENGINEERING

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

A comprehensive, in-depth understanding of the DIMOX(TM) and PRIMEX(TM)
processes has been established as a result of a combination of government and
internally funded programs. Presently, materials development activities of the
Company focus on the development of new composite systems and basic
microstructure-process-property relationships. This development generates the
basis for the Company's expanding patent portfolio and provides technical
information in support of licensing, product development, and commercialization
efforts.

Product development activities of the Company are all market driven, and
include materials development, applications engineering, 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.

Recently, the Company has developed an aluminum oxide reinforced aluminum
castable composite that has attractive performance and cost for applications
such as train brakes and automotive brake rotors and drums.

The Company conducts its PD&E activities in state-of-the-art laboratories,
which include such specialized facilities as a chemical vapor deposition
coatings apparatus, analytical laboratories, a dynamic testing laboratory and a
physical properties testing laboratory. The Company's PD&E activities occupy
approximately 77,000 square feet in two adjacent buildings. See "Item 2 -
Property." The PD&E team is composed of 75 people, including about 21 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 telecommunications equipment, computers, power
controllers, and avionics.

Gas Turbine Engine Components (DuPont Lanxide Composites 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 nozzles for theatre air
defense and tactical missiles.

Aircraft Structural Components (DuPont Lanxide Composites 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 ceramic 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, chemical 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, lightweight, wear-resistant components using
investment casting, sand casting, die casting and permanent mold casting
processes. Current applications include rail and automotive brake rotors,
semiconductor wafer chucks, robot arms, photolithographic stages, avionics
chassis, satellite components, 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 retardant coatings, adhesives, encapsulants, binders,
fibers and molded components. Current applications under development
include automotive paints, cookware coatings, rubber formulations, 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; crucibles; 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

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

M3 Technologies, Inc. (formerly 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
Reinforced Aluminum Ingot

AKN Corporation
Brake System Components

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. Competition varies from market to market, both in terms of competing
entities and competing technology. Furthermore, time and resources 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(TM) 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 different 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 affiliates (aluminum composite ingot), Sumitomo
Metals (electronic heat sinks), Kyocera (wear parts), Carborundum (heat
exchanger components), 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 quantities of many
products, some of which are manufactured at commercially 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(TM) 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 marketing staffs. The Company additionally
undertakes market development 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 the technologies it has developed, the Company has
entered into and/or formed a number of joint ventures as well as operating
subsidiaries. Each affiliate is focused on a specific industry market segment,
with the exception of Lanxide K.K., which is effectively the Company's master
licensee and hub for the Company's business development activity in Japan. The
affiliates of the Company are:

Alanx Wear Solutions, Inc.

Alanx Products, Inc. (Alanx), a wholly owned subsidiary of the Company,
was a leader in introducing superior composite materials to solve industrial
wear problems and provided pump, cyclone and pipeline components to over 75
mines on six continents. On June 26, 1995, Alanx sold substantially all of its
assets to Alanx Wear Solutions, Inc. (Alanx Wear) for 15% of the equity of Alanx
Wear, a royalty bearing license and certain payments to the Company. Alanx
subsequently declined its preemptive right to purchase shares of preferred stock
upon issuance, therefore its interest in Alanx Wear has been diluted to 10%.
Alanx subsequently changed its name to Lanxide Wear Products, Inc.

DuPont Lanxide Composites Inc.

DuPont Lanxide Composites, Inc. (DLC) commenced as a joint venture between
the Company and DuPont in July 1987 to develop and commercialize the LANXIDE(TM)
technology in the area of gas turbine engine components, certain aerospace
components and high temperature heat exchanger components. In 1992 the
venture's charter was expanded to include rocket engine components and hot gas
filters. DLC was originally owned 70% by DuPont and 30% by the Company. On
June 28, 1996, the Company sold 20% of its interest in DLC to DuPont, thus
reducing its ownership from 30% to 10%.

Lanxide Armor Products, Inc.

Lanxide Armor Products, Inc. (LAP) was established in October 1986, as a
joint venture by DuPont and the Company 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 LAP to DuPont for $1.8 million, reducing the
Company's ownership from 57% to 27% and increasing DuPont's ownership to 73%.
On June 28, 1996, the Company purchased DuPont's entire interest in the venture
and now owns 100% of this business.

Lanxide Electronic Components Inc.

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 board cores, chip carriers, packages and chassis.
On June 30, 1995, the Company used the proceeds of its sale of equity in LAP to
purchase an additional 30% interest in LEC, raising the Company's ownership in
LEC to 80% and on June 28, 1996, the Company purchased DuPont's remaining 20%
common stock interest. DuPont continues to own 100% of the preferred stock.
This transaction reflects the Company's intention to increase its focus on high
volume manufacturing of ceramic-reinforced aluminum components.

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.

In April 1994, Kanematsu agreed to provide the Company with a $10.0
million line of credit (see Note 8). Concurrent with Kanematsu providing the
line of credit, the Company and Kanematsu revised the royalty sharing
arrangements to give Kanematsu 48% of the royalties from Lanxide K.K. as
compared with 20% under the original arrangements. The agreement also provides
that Lanxide K.K. will purchase its raw materials from the Company.

Lanxide Performance Materials, Inc.

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(TM) ceramer and PRIMEX CAST(TM) 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 in addition to sales to independent customers. Also,
LPM manufactures and sells ceramic-coated components.

Lanxide Technology Company, L.P.

Lanxide Technology Company, L.P. (Lanxide Technology) 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, trademarks and trade secrets.

Lanxide ThermoComposites, Inc.

Lanxide ThermoComposites, Inc. (Lanxide Thermo) was incorporated as a
wholly owned subsidiary of the Company 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(TM) reinforced ceramic materials can provide to the industry compared
to traditional refractory components.

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. Immediately 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 171 full-time employees, of whom 76 are in
its Technology Department. The rest are employed in administrative, marketing,
patent and other functions. Of the Company's total employees, 13 hold Ph.D.
degrees and another 10 hold other advanced degrees. The turnover rate for the
Company's employees during fiscal year 1997 was 13.5%. All employees are
provided with a standard benefits package consisting of hospital/medical, life,
disability and dental insurance, as well as educational assistance. Employees
also have access to certain savings/option plans. See "Item 10 - Executive
Compensation -- Existing 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.

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 government contract 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.

ITEM 2. 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 configured
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 independent electrical distribution banks.

Marrows Road Facility

The Company purchased the Marrows Road Facility in 1987. The two-story,
170,000 square foot building houses office space, laboratories and production
areas, along with shipping and receiving docks and inventory staging.

On March 28, 1996, the Company sold the Marrows road Facility for $8.6
million to QRS 12-16, Inc., an entity established by CPA:12, a real estate
investment 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
indebtedness, (ii) to become a guarantor of contingent obligations, and (iii) to
make restricted payments (as defined therein) including the declaration of
dividends on the Company's 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 connection with the sale and leaseback, the Company entered
into sublease agreements with each of the three joint venture companies.

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, development and production areas, this building also
contains the Company's executive offices, a prototype machine shop (model shop)
and product quality and testing (characterization) laboratories.

The Company leases this facility from an affiliate of Bentley J. Blum, a
director and principal stockholder of the Company. A lease modification
agreement, effective August 1, 1996, was entered into whereby the primary term
of the lease was extended through December 31, 2008. The Company has an option
to extend the lease for another ten-year period commencing on January 1, 2009.
The Company has the right of first refusal with respect to the purchase of this
property.

ITEM 3. LEGAL PROCEEDINGS
None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

None.

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

The Company's Common Stock has been traded in the over-the-counter market
and quoted on the OTC Bulletin Board under the symbol "LNXI" since November 14,
1995. As of December 12, 1997, the Company had approximately 106 holders of
record of the Company's Common Stock. The following table sets forth, for the
periods indicated, the reported high and low bid prices per share of the
Company's Common Stock, from and after November 14, 1995, as quoted by the OTC
Bulletin Board. Such prices reflect inter-dealer quotations without retail
markup, markdown or commission and may not necessarily represent actual
transactions. The trading market for the Common Stock is extremely limited and
sporadic.

Common Stock

Year ended September 30, 1996 High Low
----------------------------- ---- ---
First quarter (from November 14, 1995)..........$10.50 $ 4.50
Second quarter.................................. 17.50 10.00
Third quarter................................... 19.75 17.25
Fourth quarter.................................. 20.00 16.00

Year ended September 30, 1997 High Low
----------------------------- ---- ---
First quarter...................................$15.00 $10.00
Second quarter.................................. 11.00 7.50
Third quarter................................... 8.00 5.50
Fourth quarter.................................. 9.00 5.00

Year ended September 30, 1998
-----------------------------
First quarter (to December 12, 1997)............$ 5.25 $ 5.00

Dividends

The Company has never paid dividends on the Company's Common Stock and
does not intend to pay dividends in the foreseeable future. The Company's
ability to declare and pay dividends on the Company's 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) 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 Company's Common Stock; and (iii) the terms of the
Company's Series A Preferred Stock, the Series F Preferred Stock and the Series
G Preferred Stock.

Recent Sales of Unregistered Securities

Pursuant to a Securities Purchase Agreement (the Securities Purchase
Agreement), dated July 3, 1997, between the Company and Commodore Environmental
Services, Inc. (Commodore), the Company sold 10,000 shares of Series G Preferred
Stock (the Series G Stock) on July 3, 1997 and an additional 10,000 shares of
Series G Stock on July 28, 1997 to Commodore. The aggregate purchase price for
the 20,000 shares of Series G Stock was $2.0 million. In addition, pursuant to
the Securities Purchase Agreement, on July 3, 1997, the Company issued to
Commodore a warrant to purchase 250,000 shares of Series F Preferred Stock (the
Series F Stock) at an exercise price of $100 per share. Pursuant to the terms
of the Warrant Agreement, the Warrant may be exercised, in part, by the exchange
of the shares of Series G Stock acquired pursuant to the Securities Purchase
Agreement for a like number of shares of Series F Stock.

The Series G Stock is not convertible and is not entitled to vote or to
receive dividends. The Series G Stock may be redeemed by the Company after
December 31, 1998 to the extent such shares have not been used to exercise the
Warrant. The terms of the Series F Stock include, among other things, (a) the
right to convert into shares of Common Stock at a rate, subject to adjustment,
of 13.5 shares of Common Stock for each share of Series F Stock; (b) a mandatory
conversion by the holders upon certain events, including the sale by the Company
of at least $10 million of Company securities in a public offering or a private
placement prior to the time that Commodore exercises at least $10 million of the
Warrant; and (c) the right to elect four of the seven members of the Board of
Directors of the Company. For a more complete description of the transaction
contemplated by the Securities Purchase Agreement, see the caption "Recent
Developments" under Item 1 of this 10-KSB. The Company claimed an exemption
from registration of the foregoing transaction under the Securities Act of 1933,
as amended, (the Securities Act) pursuant to Section 4(2) of the Securities Act.

ITEM 6. 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 years ended September 30, 1997 and
1996, 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 in this 10-KSB.

OVERVIEW

Historically, the Company's revenues were derived primarily from research
contracts and development agreements with DuPont and the U.S. Government, and a
substantial portion of its research, development and engineering and other
operating costs were funded by Alcan Aluminium Limited and its affiliates
(Alcan), DuPont and Kanematsu through the Company's consolidated affiliates.
More recently, the Company's revenues consist mainly of technology licensing
revenue and sales to outside customers and, to a lesser degree, contract
funding.

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 in this 10-KSB.

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(TM) 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 ventures.

During fiscal year 1995, 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. Since implementing this strategy,
the Company consummated license agreements with A.P. Green, Waupaca, Sturm
Ruger, Brembo, AKN and Nihon Cement which have generated license fees, as well
as future royalties. In addition, the Company entered into two license
agreements pursuant to the sale of two wholly-owned subsidiaries and converted
its joint venture with Nihon Cement into a license arrangement. On December 6,
1996, Waupaca notified the Company that it would not exercise its right to
extend its license beyond March 31, 1997.

The Company is in the process of conducting a comprehensive review of its
computer systems to identify the systems which could be affected by the "Year
2000" issue and is developing a plan to resolve the issue. The Year 2000 issue
creates risk for the Company from unforeseen problems in its own computer
systems and from third parties with whom the Company deals both domestically and
internationally. The Company presently believes that, with modifications to
existing software and conversions to new software, the Year 2000 problem will
not pose significant operational problems for the Company's computer systems.
However, if such modifications and conversions are not completed timely, the
year 2000 problem may have a material adverse impact on the operations of the
Company.

RESULTS OF OPERATIONS

Results of operations may vary from period to period depending on several
factors including licensing transactions and the sale of subsidiaries. Revenues
from license agreements often do not occur evenly in each reporting period,
which can cause the results to fluctuate. Additionally, non-recurring gains and
losses on the sale of a subsidiary can significantly impact the financial
results.

Revenues from research and development contracts and commercial 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."
Product development and engineering (PD&E) costs represent costs incurred
for projects sponsored by the Company and/or its commercial venture partners
through the Company's consolidated affiliates. This includes PD&E costs
expended in support of the Company's patent portfolio. Operating income and
losses allocated to commercial venture partners through the Company's
consolidated affiliates are reported under "Minority allocation of operating
(income) loss."

The Company's significant revenue sources in fiscal year 1997 consist
primarily of (i) technology licensing revenues; (ii) sales revenues of
consolidated subsidiaries of the Company; (iii) revenues from a brake component
development program between the Company and AKN; and (iv) U.S. Government
contract funding.

Commercial Relationships With DuPont

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

On June 28, 1996, the Company purchased DuPont's remaining ownership
interests in LAC and LEC and sold a portion of its interest in DLC to DuPont
(the Ownership Change). LAC and LEC are now owned 100% by the Company while its
ownership interest in DLC has been reduced to 10%. The Company recognized a net
gain of $6,388,000 from this transaction. Concomitant with the purchase, LAC
was merged into the company's wholly-owned subsidiary, Lanxide Armor Products,
Inc. (LAP), with LAP the surviving entity.

The ownership interests of these commercial ventures prior to and following
the Ownership Change are as follows:

Lanxide-Ownership DuPont-Ownership
---------------- ----------------
Before After Before After
------ ---- ------ ----
LEC 80% 100% 20% 0%
LAC 27% 100% 73% 0%
DLC 30% 10% 70% 90%

DuPont is required to provide 100% of the funding requirements of DLC
through 1999, after which funding will be based on ownership interest. If
either DuPont or the Company fails to meet future funding obligations, its
respective ownership interest will be diluted if such funding obligations are
met by the other owner.

LAP, LEC and DLC sublease space from the Company primarily in the Marrows
Road manufacturing facility. Also, the Company provides accounting, purchasing,
payroll and human resource services to these ventures. Amounts received by the
Company from unconsolidated affiliates for administrative and facilities costs
and services are reflected as a reduction to selling, general and administrative
expense, which totaled $637,000 and $2,094,000 for the years ended September 30,
1997 and 1996, respectively.

These three commercial ventures also contract R&D services from the
Company. Revenue received by the Company from unconsolidated affiliates is
recorded as contract revenue, which totaled $940,000 and $1,347,000 for the
years ended September 30, 1997 and 1996, 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,
1997 1996
---- ----
Revenues 100% 100%
Operating costs:
Cost of sales (25) (28)
Product development and engineering (32) (37)
Research and development contract costs (17) (19)
Selling, general and administrative (29) (38)
Minority allocation of operating loss (3) 3
Equity in net loss of unconsolidated affiliates (5)
Interest expense (7) (10)
Gain on sale of subsidiaries 40
Other income 2 4
Income tax expense (1) (1)
------- -------
Net income (loss) (12) 9

Year ended September 30, 1997 compared to Year ended September 30, 1996

The Company recorded net loss of $3,245,000 on revenues of $26,429,000
during the year ended September 30, 1997, as compared to a net income of
$1,573,000 on revenues of $18,661,000 during the year ended September 30, 1996.
Significant events occurring during these periods which impacted the results
comparison include the following:

1) As a result of the 1996 Ownership Change (see Commercial Relationships
with DuPont previously discussed), the Company recorded a non-
recurring $6.4 million gain in June 1996 and began consolidating the
full operations of LAP and LEC.

2) A non-recurring $1.1 million gain in 1996 associated with the sale of
Lanxide Precision, Inc. (LPI) to LNX Acquisition Company.

3) The completion of a $3.0 million government contract which began in
June 1995 and ended in December 1996.

4) Fiscal year 1996 included revenue of $750,000 associated with the
amortization of equipment purchased under a brake component
development program with Nihon Cement, which ended in April 1996.

5) The signing of a brake components licensing agreement by the Company
and Lanxide K.K., the Company's subsidiary, with AKN Corporation, in
October 1996, the impact of which was partially diluted by Kanematsu's
35% ownership in Lanxide K.K.

Net Sales and Cost of Sales

Consolidated sales increased 33% to $7,485,000 from $5,621,000 and cost of
sales increased 27% to $6,688,000 from $5,254,000 compared to the prior period.
These increases are primarily attributable to a significant increase in
commercial sales in Japan by Lanxide K.K. from electronic components and ingot
manufactured by LEC and LPM, respectively.

Licensing and Other Related Revenues

Licensing revenue of $13,754,000 and $7,525,000 during the years ended
September 30, 1997 and 1996, respectively, primarily relate to the license
agreements discussed below.
The Waupaca license was in the area of automotive brake system components
and certain agricultural equipment wear components. On December 6, 1996,
Waupaca notified the Company that it would not exercise its right under the
agreement to extend its license beyond March 31, 1997. Waupaca indicated that
it viewed its rate of market penetration with the new technology as insufficient
in light of large demands for investment in Waupaca's expanding cast iron
business.

Pursuant to the Sturm Ruger license agreement, which grants Sturm Ruger the
right to produce and sell certain sporting goods components outside of Japan,
the Company received an initial license fee of $1,000,000 in April 1995. The
initial license agreement granted Sturm Ruger a one-year option to terminate the
license and be repaid the $1,000,000 by the Company in the form of either cash
or common stock at the Company's option. As a result, the Company deferred
recognition of the license fee revenue in fiscal 1995. 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
$1,000,000 was recorded as revenue during the second quarter of fiscal year
1996. The license agreement includes a royalty to the Company on the sale of
licensed products.

In March 1996, Lanxide K.K. sold its remaining 50% 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 its interest in Celanx KK, Lanxide K.K. was to receive ongoing
royalties from precision instrument sales generated by Celanx KK. Concurrent
with this sale, Lanxide K.K. reacquired its wear products license from Celanx
KK. In November 1997, Lanxide K.K. and Nihon Cement subsequently agreed to
amend the Celanx KK royalty arrangement, whereby Celanx KK agreed to pay a one-
time fee in lieu of future royalties.

In October 1996, the Company signed a non-exclusive license agreement with
AKN for the manufacture, use and sale of brake components in Southeast Asia and
Oceania. AKN is a newly created joint venture of three global companies
headquartered in Japan: Akebono; Kanematsu; and Nihon Cement. Also in October
1996, the joint venture purchased a license from Lanxide K.K. for the
manufacture, use and sale of brake products in Japan. In addition to license
payments, the agreements also require AKN to pay royalties on all sales of
licensed products. The agreement with the Company also granted AKN the option to
execute an exclusive manufacturing license in Southeast Asia and Oceania for an
additional license payment. This option, which expired in September 1997, was
not exercised by AKN.

The Company expects to continue to license its technology in certain
specific market sectors by product and geography. Although the Company will,
subject to the availability of capital, continue to commercialize products using
the LANXIDE(TM) 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(TM) technology provides only a
portion of the necessary solution).

Research and Development Contract Revenue and Contract Costs

Research and development contract revenue decreased $325,000, from
$5,515,000 to $5,190,000, and contract costs increased $968,000, from $3,566,000
to $4,534,000, compared to the prior period. The decrease in contract revenue
was mostly due to the completion of a $3.0 million government contract in
December 1996. Partially offsetting this decrease was the work performed for a
development agreement between Akebono, Nihon Cement and the Company. The more
favorable gross margin in 1996 was primarily a result of revenue recorded under
the Nihon Cement brake program that ended in fiscal 1996.

Product Development and Engineering

PD&E spending increased by $1,587,000, from $6,862,000 in fiscal 1996 to
$8,449,000 in fiscal 1997. This increase was principally due to (i) the
consolidation of LAP operations a result of the previously mentioned Ownership
Change and (ii) development costs associated with the $3.0 million government
contract mentioned above.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $550,000, from
$7,130,000 to $7,680,000, over the prior period. This increase was mainly
attributable to two factors: (i) the consolidation of LAP operations in fiscal
1997 due to the Ownership Change and (ii) an expansion of the operations of
Lanxide Performance Materials, Inc. (LPM) a wholly-owned subsidiary.

Included in selling, general and administrative expenses are reimbursements
of $637,000 and $2,094,000 for 1997 and 1996, respectively, received from
unconsolidated affiliates for administrative and facilities costs and services.

Minority Allocation of Operating (Income) Loss

The Company recorded $817,000 in minority allocation of operating income
for fiscal year 1997 as compared to $487,000 in minority allocation of operating
loss for the prior year. This change was primarily attributable to $3.9 million
in licensing revenue recorded by Lanxide K.K. from AKN in October 1996, of
which, 35% was allocated to the minority owner.

Equity in Net Loss of Unconsolidated Affiliates

In fiscal 1996, the equity in net loss of unconsolidated affiliates was
$985,000. These losses pertained to the following:

1) The Company's 27% share of the losses of LAC. As a result of the
Ownership Change, LAC was consolidated into the Company's financials
starting in June 1996.

2) The start-up losses associated with Celanx KK, a subsidiary of Lanxide
K.K., which was sold in March 1996.

Interest Expense

Interest expense increased 1%, from $1,811,000 to $1,829,000, compared to
the prior period. This small change is the result of two offsetting
transactions. First, the Company prepaid a $4.1 million mortgage on the Marrows
Road facility when it consummated the sale and leaseback of the facility in the
second quarter of fiscal year 1996. Second, LPM borrowed $4.5 million from
Commodore needed to meet operating needs. For a further discussion of the
$4.5 million loans, see the Liquidity and Capital Resources section.

Gain on Sale of Subsidiaries

The $7,513,000 gain on the sale of subsidiaries for the period ended
September 30, 1996, reflects the gain of $6,388,000 on the sale of a DuPont
commercial joint venture as previously described, as well as a $1,125,000 gain
on the sale of LPI. Although the sale of LPI occurred in May 1995, the gain was
deferred until June 1996, when the final payment on the sale was received.

Other Income

Other income decreased $236,000 from $679,000 to $443,000 compared to the
prior period. The difference represents the amortization of a deferred gain in
1996 associated with the 1994 sale by Lanxide K.K. of a 50% interest in a
wholly-owned subsidiary. The recognition ended in 1996 when the remaining 50%
was sold and the venture was converted into a licensing arrangement.

Income Tax Expense

Income tax expense reflects taxes withheld on foreign source income of
$120,000 and $80,000 for fiscal years 1997 and 1996, respectively.
Additionally, in 1996, the Company incurred federal income taxes of $79,000.
Although the Company has substantial net operating loss carryforwards, the
amount of carryforwards which are able to be utilized in any one year are
limited by the alternative minimum tax (AMT). Any tax paid under the AMT
constitutes a future tax credit and can be carried forward indefinitely to
offset federal tax after the Company has utilized all available net operating
loss carryforwards. The net operating loss carryforwards expire in varying
amounts through the year 2011.

LIQUIDITY AND CAPITAL RESOURCES

Since its inception, the Company has financed its working capital and
capital expenditure requirements with the proceeds from the sale of stock,
borrowings, product sales, research and development contracts and, more
recently, technology licensing revenues. The Company's working capital was a
negative $2,650,000 at September 30, 1997, as compared to $4,367,000 at
September 30, 1996. The consolidated cash balance at September 30, 1997 was
$3,892,000 (including $2,378,000 held by a subsidiary company which is generally
unavailable to the Company for general corporate purposes).

At September 30, 1996, the Company had no significant commitments to
purchase capital equipment. However, the Company signed six leases during the
second and third quarters of fiscal 1997. These transactions were accounted for
as capital leases and amounted to $515,000. These transactions enabled the
Company to purchase needed equipment without utilizing valuable cash resources.
The payments required on the leases are reflected in the debt payout schedule
presented below.

In March 1995, the Company implemented a licensing strategy and has since
signed six technology licensing agreements which, along with other sources, have
provided funds for the continuing operations of the Company for the last three
years. For 1998, the Company continues to engage in discussions with a number
of industrial entities in the United States, Europe and Asia regarding the
potential licensing of the Company's technology to such entities for up-front
fees and ongoing royalty payments. However, no assurance can be given that any
of these discussions will lead to the licensing of the Company's technology to
any of these entities.

The Company has a $6.0 million revolving credit and term note with PNC
Bank, Delaware, guaranteed by DuPont, under which all available amounts have
been drawn. The note bears interest at the prime rate and is payable in
installments from March 1997 to March 2000. The Company also has a $10.0
million secured revolving credit and term 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. During the latter part of 1996, LPM
established an aggregate line of credit of $4.5 million with Commodore
Environmental Services, Inc. and Commodore Applied Technologies, Inc. As of
September 30, 1997, LPM had drawn all available amounts under this line. The
note bears interest at Citibank N.A.'s prime rate of interest and matures on
February 28, 1998. Principal payments due on the outstanding indebtedness are as
follows:

Fiscal Year Ended Principal Payments
(Dollars in thousands)
1998 $ 6,384
1999 12,834
2000 1,476
2001 119
2002 55
-------
Total $20,868
=======

No assurance can be given that the Company will be able to make these
payments when they become due.

The terms of the agreements relating to (i) the loan from Kanematsu and
(ii) the lease with QRS 12-16, Inc. as Landlord for the Marrows Road facility
currently prohibit the Company from incurring additional indebtedness other than
in connection with the operation of its subsidiaries.

Stock Purchase

In July 1997, the Company and Commodore Environmental Services, Inc.
(Commodore) entered into a Securities Purchase Agreement (the Agreement) for the
purchase of up to $25.0 million of preferred stock, under which Commodore has
obtained effective control of the Company. Under the terms of the Agreement,
Commodore purchased $2 million of the Company's Series G Preferred Stock during
July 1997. If Commodore obtained financing, it had an obligation to make an
additional purchase of such stock on August 27, 1997. On August 27, 1997, such
financing was not obtained and Commodore did not purchase additional preferred
stock of the Company. Commodore still controls the Company by virtue of a
voting trust agreement and Commodore continues to hold a warrant for the
purchase of 250,000 shares of the Company's preferred stock, which is
convertible into common stock. See "Business - Recent Developments".

Loan from Lanxide K.K.

On December 29, 1997, Lanxide K.K., a 65% owned Japanese subsidiary, agreed
to loan $1.8 million to the Company. The Company received $1.3 million on
December 29, 1997 and an additional $.5 million was received on January 12,
1998. The cash held by Lanxide K.K. is generally unavailable to the Company for
general corporate purposes. The loan matures on January 31, 1998 and bears
interest at 6% per annum. See "Business - Recent Developments".

The Company's immediate cash needs are being met through borrowings, cash
reserves and working capital from operations. However, the Company remains
critically dependent on generating additional cash in the near term to sustain
its current operations. Potential sources of cash include new licensing
arrangements and/or other alternative financing. No assurances can be given,
however, that the Company will be able to obtain any of these potential sources
of cash.

On January 31, 1998 and February 28, 1998, current debt in the amounts of
$1,800,000 and $4,500,000, respectively, is due to be paid. The Company is
attempting to meet these obligations through the infusion of new equity and/or
restructuring of the current payment terms. While discussions along these lines
are currently being held, there can be no assurance that the Company will be
able to raise new equity or negotiate new payment terms prior to their due date.

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, 1997 and
1996, and the results of their operations and their cash flows for each of the
two years in the period ended September 30, 1997, 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 presentation. 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
development and commercialization of its proprietary technology. The Company's
significant continuing investment in product development and commercialization
activities has resulted in recurring losses from operations 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 uncertainty.

PRICE WATERHOUSE LLP

Philadelphia, Pennsylvania
January 9, 1998

ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Accountants...........................................21

Audited Financial Statements

Consolidated Balance Sheet
at September 30, 1997 and 1996.........................................23

Consolidated Statement of Operations
for the years ended
September 30, 1997, and 1996...........................................24

Consolidated Statement of Shareholders' Equity (Deficit)
for the years ended
September 30, 1997 and 1996............................................25

Consolidated Statement of Cash Flows
for the years ended
September 30, 1997 and 1996............................................26

Notes to Consolidated Financial Statements..................................27

<TABLE>
LANXIDE CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except per share data)
<CAPTION>
September 30,
1997 1996
---- ----
ASSETS
<S> <C> <C>
Cash and cash equivalents, including amounts restricted for use
by majority-owned affiliates (Note 1) $ 3,892 $ 3,458
Accounts receivable - trade 1,699 3,065
Other receivable (Note 2) 1,039
Inventories 3,036 1,942
Other current assets 447 456
---------- ----------
Total current assets 10,113 8,921

Property and equipment, net (Note 3) 9,681 10,408
Investment in affiliates 377 377
Other assets 346 454
---------- ----------
$ 20,517 $ 20,160
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current portion of long-term debt (Note 8) $ 6,789 $ 1,273
Accounts payable and accrued expenses 4,237 2,867
Deferred compensation 1,357
Deferred revenue 380 414
---------- ----------
Total current liabilities 12,763 4,554

Long-term debt (Note 8) 14,079 15,700
Deferred credit (Note 1) 357 354
Deferred compensation 20 1,230
---------- ----------
27,219 21,838
---------- ----------
Minority interest in consolidated affiliates (Note 2) 2,006 6,005
Commitments and contingencies (Note 13)
Redeemable Series E preferred stock (aggregate liquidation value, $261);
26,100 shares issued and outstanding (Note 10) 225 213
---------- ----------
Shareholders' equity (deficit) (Note 10)
Preferred stock 15,000,000 shares authorized:
Series A preferred stock (aggregate liquidation value, $88,135) $.01 par value;
1,101,683 shares issued and outstanding 11 11
Series G preferred stock (aggregate liquidation value, $2,000) $.01 par value;
20,000 shares issued and outstanding
Common stock, $.01 par value, 25,000,000 shares authorized:
1,325,598 issued and outstanding 13 13
Additional paid-in capital 191,006 188,480
Accumulated deficit (200,883) (197,626)
Cumulative translation adjustment 920 1,226
---------- ----------
Shareholders' equity (deficit) (8,933) (7,896)
---------- ----------
$ 20,517 $ 20,160
========== ==========
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>

<TABLE>
LANXIDE CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Amounts in thousands, except per-share data)
<CAPTION>
Year Ended September 30,
1997 1996
---- ----
Revenue:
<S> <C> <C>
Sales (Note 6) $ 7,485 $ 5,621
Licensing and other related revenues 13,754 7,525
Research and development contract revenue (Note 7) 5,190 5,515
---------- ----------
26,429 18,661
---------- ----------
Operating costs:
Cost of sales 6,688 5,254
Product development and engineering 8,449 6,862
Research and development contract costs 4,534 3,566
Selling, general and administration (Note 7) 7,680 7,130
---------- ----------
27,351 22,812
---------- ----------
Loss from operations before minority allocation (922) (4,151)
Minority allocation of operating (income) loss (Note 1) (817) 487
---------- ----------
Loss from operations (1,739) (3,664)
Equity in net loss of unconsolidated affiliates (985)
Interest expense (1,829) (1,811)
Gain on sale of subsidiaries (Note 2) 7,513
Other income 443 679
---------- ----------
Income (loss) before income taxes (3,125) 1,732
Income tax expense 120 159
---------- ----------
Net income (loss) (3,245) 1,573
Dividends on mandatorily redeemable preferred stock (30) (45)
Gain on redemption of subsidiary's preferred stock 680
---------- ----------
Net income (loss) applicable to common shares $ (2,595) $ 1,528
========== ==========
Historical income (loss) per share
Primary $(1.96) $0.34
Fully diluted $(1.96) $0.29

Proforma income per share
Primary $0.77
Fully diluted $0.77

Historical average common shares outstanding
Primary 1,326 4,517
Fully diluted 1,326 5,328

Proforma average common shares outstanding
Primary 1,986
Fully diluted 1,986
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>

<TABLE>
LANXIDE CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(Dollars in thousands, except per share data)
<CAPTION>
Series A Series B Series G
preferred stock preferred stock preferred stock
Number Number Number
of shares Amount of shares Amount of shares Amount
--------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1995 3,000,000 $ 30 4,325,507 $ 43
Conversion of Old Common Stock,
Old Series A Preferred Stock and Old Series B
Preferred Stock into New Series A Preferred
Stock (see Note 10) (1,888,339) (19) (4,325,507) (43)
Issuance of Common Stock (see Note 10)
Conversion of Series C Preferred Stock into
Common Stock (see Note 10)
Issuance of Common Stock Warrants (See Note 10 and 13)
Exercise of Series C Warrants (see Note 10)
Effect of Lanxide Armor consolidation (See Note 2) (2,500)
Translation adjustment
Net Income
Preferred stock dividends (see Note 10)
---------- ------- ---------- ------- -------- -------
Balance, September 30, 1996 1,109,161 11 0 0
Redemption of preferred stock (See Note 10) (7,478)
Exercise of stock options
Sale of preferred stock and warrants (See Note 10) 20,000
Translation adjustment
Gain on redemption of subsidiary's preferred stock
(See Note 2)
Net Loss
Preferred stock dividends (See Note 10)
---------- ------- ---------- ------- -------- -------
Balance, September 30, 1997 1,101,683 $ 11 0 $ 0 20,000 $ 0
========== ======= ========== ======= ======== =======
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>

<TABLE>
LANXIDE CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(Dollars in thousands, except per share data)
<CAPTION>
Common Stock Additional Cumulative
Number paid-in Accumulated translation
of shares Amount capital deficit adjustment
--------- ------ ------- ------- ----------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1995 10,580,444 $ 106 $ 182,739 $ (199,153) $ 1,395
Conversion of Old Common Stock,
Old Series A Preferred Stock and Old Series B
Preferred Stock into New Series A Preferred
Stock (see Note 10) (10,580,444) (106) 168
Issuance of Common Stock (see Note 10) 862,417 9 3,237
Conversion of Series C Preferred Stock into
Common Stock (see Note 10) 331,679 3 1,490
Issuance of Common Stock Warrants (See Note 10 and 13) 260
Exercise of Series C Warrants (see Note 10) 133,333 1 599
Effect of Lanxide Armor consolidation (See Note 2) (1,834) (13)
Translation adjustment (169)
Net Income 1,573
Preferred stock dividends (see Note 10) (46)
----------- -------- ----------- ------------ --------
Balance, September 30, 1996 1,325,595 13 188,480 (197,626) 1,226
Redemption of preferred stock (See Note 10) (34)
Exercise of stock options 3
Sale of preferred stock and warrants (See Note 10) 1,880
Translation adjustment (306)
Gain on redemption of subsidiary's preferred stock
(See Note 2) 680
Net Loss (3,245)
Preferred stock dividends (See Note 10) (12)
----------- -------- ----------- ------------ --------
Balance, September 30, 1997 1,325,598 $ 13 $ 191,006 $ (200,883) $ 920
=========== ======== =========== ============ ========
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>

<TABLE>
LANXIDE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
Year Ended September 30,
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ (3,245) $ 1,573
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,909 1,627
Minority allocation of operating income (loss) and equity in net loss of
unconsolidated affiliates 817 498
Gain on sale of subsidiaries (7,513)
Gain on sale of equipment (80)
Changes in assets and liabilities, net of effects of acquisitions
and changes in consolidated affiliates:
Decrease (increase) in receivables 327 (1,442)
(Increase) decrease in inventories (1,094) 2
Decrease in other assets 117 701
Increase (decrease) in accounts payable and accrued expenses 1,370 (1,552)
Decrease in deferred revenue and deferred credit (31) (5,188)
Increase in other liabilities 147 116
---------- ----------
Net cash provided by (used in) operating activities 237 (11,178)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital additions (704) (671)
Proceeds from sale of property and equipment 117 7,253
Proceeds from sale of investment in unconsolidated affiliate 1,250
Cash effect related to change in ownership of affiliates 864
---------- ----------
Net cash (used in) provided by investing activities (587) 8,696
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock, net 3,812
Issuance from preferred stock, net 1,880 331
Retirement of preferred stock (70)
Preferred stock dividends paid (1)
Redemption of a subsidiary's preferred stock (4,000)
Proceeds from issuance of debt obligations 3,825 1,257
Repayment of debt obligations (445) (4,341)
---------- ----------
Net cash provided by financing activities 1,260 988
---------- ----------
Effect of exchange rate translations (476) (260)
---------- ----------
Net increase (decrease) 434 (1,754)
Cash and cash equivalents, beginning of period 3,458 5,212
---------- ----------
Cash and cash equivalents, end of period $ 3,892 $ 3,458
========== ==========
Cash paid for interest $ 1,361 $ 1,731
<FN>
See notes 2 and 8 for noncash financing activities.

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

LANXIDE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Organization and business:

Lanxide Corporation (the Company) is engaged in the development and
commercialization of a new class of proprietary materials called LANXIDE(TM)
reinforced ceramics and metals and CERASET(TM) ceramers (collectively
LANXIDE(TM) technology). The Company develops and commercializes LANXIDE(TM)
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 1995, the Company began receiving fees for licensing its
technology in certain specific market sectors by product and geography.

During 1996, the Company's ownership interest in certain commercial ventures
changed, resulting in differences in the composition of the Company between
years (see Note 2 ).

Significant accounting policies:

Liquidity - The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has significant
ongoing investment in product development and commercialization activities and
continues to incur losses from operations.

The Company's immediate cash needs are being met through cash reserves,
borrowings and working capital from operations. However, the Company remains
critically dependent on generating additional cash in the near term to sustain
its current operations. Presently the Company does not have sufficient cash
resources to meet its requirements in fiscal 1998. Potential sources of cash
include new licensing arrangements and/or other alternative financing. No
assurances can be given, however, that the Company will be able to obtain any of
these potential sources of cash. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

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 - The Company's investment in affiliates which are
twenty to fifty percent owned are recorded using the equity method. Investments
for which ownership is less than twenty percent are recorded at cost.

Minority allocation of operating (income) loss - Operating income and losses are
allocated to minority owners (see Note 2) of the Company's consolidated
affiliates pursuant to certain agreements between the Company and its commercial
venture partners.

Inventories - Inventories are valued at the lower of cost (primarily average
cost) or market and consist of the following:
(Dollars in thousands)
1997 1996
---- ----
Raw materials and supplies $ 997 $ 1,046
Work in process 1,399 817
Finished goods 640 79
------- -------
$ 3,036 $ 1,942
======= =======

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
primarily recognized as products are shipped and, for certain other sales
contracts, using the percentage-of-completion method of accounting. Research
and development contract revenue is recognized as services are provided.

Licensing and other related revenues - Amounts earned by the Company from
licensing its technology by product and geographic area are recognized as
revenue when the Company fulfills its obligation under the applicable license
agreement. Also included in this revenue category are ancillary product sales
that are produced solely in support of existing or potential license agreements.

Deferred credit - The gain on the sale and subsequent leaseback of the Company's
Marrows Road facility has been deferred and is being amortized over 20 years
(see Note 13).

Product development and engineering - Product development and engineering costs
are expensed as incurred.

Translation of foreign currency - The financial position and results of
operations of Lanxide K.K., the Company's majority-owned Japanese 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 exchange. Translation
gains and losses are recorded as a separate component of shareholders' equity.

Financial Instruments - Financial instruments, including cash, accounts
receivable, accounts payable, accrued expenses and long-term debt, are recorded
at cost, which approximates fair value.

Cash and cash equivalents - Included in the cash balances at September 30, 1997
and 1996 are $2.4 million and $2.2 million, respectively, held by Lanxide K.K.,
a consolidated subsidiary, which amounts are not available to the Company (See
Note 14). All highly liquid investments with a maturity of three months or less
when purchased are considered to be cash equivalents. Cash equivalents of $1.0
million and $2.2 million at September 30, 1997, and 1996, 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
operating costs consist of services performed by the Company and its other
United States (U.S.) subsidiaries, which amounted to approximately $2.0 million
and $1.3 million during fiscal years 1997 and 1996, respectively.

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 10) 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 securities outstanding from the
completion of the Recapitalization Plan (as if such recapitalization occurred at
October 1, 1995).

During the year ended September 30, 1997, all potential dilutive securities
have an anti-dilutive effect on the loss per share and therefore, have not been
used in determining the total weighted average number of common shares
outstanding.

<TABLE>
For the Year ended September 30, 1996:
--------------------------------------
<CAPTION>
Primary Average Fully Diluted Average
Common Shares Outstanding Common Shares Outstanding
------------------------- -------------------------
Historical
<S> <C> <C>
Prior to Recapitalization (12.5% of Weighted Average)
Common Shares Outstanding 10,584,444 10,584,444
Assuming the conversion of convertible preferred stock 11,651,014 18,135,452
---------- ----------
22,235,458 28,719,896
========== ==========

After Recapitalization (87.5% of Weighted Average)
Common Shares Outstanding 1,227,423 1,227,423
Assuming exercise of options and warrants 513,301 513,301
Assuming purchase of shares with proceeds of options and warrants (168,339) (168,339)
Assuming the conversion of convertible preferred stock 413,203 413,203
---------- ----------
1,985,588 1,985,588
---------- ----------
Weighted average common shares 4,516,822 5,327,376
========== ==========

<CAPTION>
Primary Average Fully Diluted Average
Common Shares Outstanding Common Shares Outstanding
------------------------- -------------------------
Proforma
<S> <C> <C>
Common Shares Outstanding 1,227,423 1,227,423
Assuming exercise of options and warrants 513,301 513,301
Assuming purchase of shares with proceeds of options and warrants (168,339) (168,339)
Assuming the conversion of convertible preferred stock 413,203 413,203
---------- ----------
Weighted average common shares 1,985,588 1,985,588
========== ==========
</TABLE>

In February 1997, the Financial Accounting Standards Board (FASB) issued its
statement No. 128, "Earnings Per Share," effective for periods ending after
December 15, 1997. The Company does not anticipate that this new standard will
affect the reported loss per share for fiscal 1997 when adopted in fiscal 1998.
The new standard may, however, impact the comparative 1997 quarterly income
(loss) per share disclosed in the Company's fiscal 1998 quarterly reports.

Reclassifications - Certain reclassifications have been made to 1996 balances in
order to conform with the 1997 presentation.

Stock Based Compensation - In October 1995, the Financial Accounting Standards
Board issued its Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (FAS 123) which established financial
accounting and reporting standards for stock-based compensation. The new
standard defines a fair value method of accounting for employee stock options or
similar equity instruments. FAS 123 allows the Company the choice between
adopting the fair value method or continuing to use the intrinsic value method
under Accounting Principles Board Opinion No. 25 ("APB 25") with footnote
disclosures of the pro forma effects as if the fair value method had been
adopted. The Company has adopted the disclosure approach (see Note 10).

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
contingent assets and liabilities at the date of the financial statements.
Actual results could differ from estimates.

New Accounting Standards - In June 1997, the FASB issued FAS 130, "Reporting on
Comprehensive Income," effective for fiscal years beginning after December 15,
1997. FAS 130 requires that an enterprise (A) classify items of other
comprehensive income by their nature in the Financial Statements and (B) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital on the Balance Sheet.

Also in June 1997, the FASB issued FAS 131, "Disclosures About Segments of an
Enterprise and Related Information," effective for fiscal years beginning after
December 15, 1997. The Company is currently analyzing the effect that this
standard will have upon the notes to the financial statements.

NOTE 2 - TRANSACTIONS WITH COMMERCIAL
VENTURE PARTNERS:

Transactions with DuPont:

The Company was a party to three commercial venture agreements with E. I. DuPont
de Nemours & Company (DuPont).

In the first venture, the development and commercialization of armor products
was conducted through Lanxide Armor Company, L.P. (LAC), a limited partnership
in which Lanxide Armor Products, Inc. (LAP), a wholly-owned subsidiary, was the
managing partner and had an initial 60% interest. 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%; however, on June
28, 1996, the Company purchased DuPont's entire interest in the venture and now
owns 100% of this business. As a result of these transactions, the financial
results of this venture have been included in the consolidated financial
statements effective June 28, 1996.

The second venture arrangement, DuPont Lanxide Composites, L.P. (DLC), was
formed for the purpose of developing and commercializing heat exchangers,
turbine engine components and certain aerospace components. In exchange for a
70% ownership interest, DuPont agreed to fund the venture up to specified
amounts. In June 1993, the Company and DuPont amended the DLC venture
arrangement whereby the Company expanded the license to include rocket engine
components, and DuPont contributed all of its ceramic matrix composite business
including its manufacturing facility to the venture. 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. Concurrent with the purchase of LAC on June 28, 1996, the Company
sold a 20% interest in DLC to DuPont, reducing its ownership to 10%. The
Company now accounts for DLC under the cost method of accounting.

In April 1990, Lanxide Electronic Components (LEC) became the third commercial
venture with DuPont formed to develop and commercialize microelectronic products
with each partner having an initial 50% ownership interest. 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 part of the June
1996 purchase of LAC and the change in ownership interests in DLC mentioned
previously, the Company also purchased the remaining 20% of LEC from DuPont.
The Company now owns 100% of the Common Stock of LEC, while DuPont owns 100% of
the Preferred Stock. The Company recognized in 1996 a net gain of $6.4 million
on these changes in ownership interests associated with the three DuPont
ventures.

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 licensed on a worldwide basis to commercial ventures initially formed
with DuPont), using LANXIDE(TM) technology. Funding for the venture in the
amount of $20.0 million 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 the then
common stock of the Company for $13.0 million, 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 operating costs consist of services provided by
Lanxide and its other U.S. subsidiaries.

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 $20.0 million
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 $10.0 million line
of credit (see Note 8). Concurrent with Kanematsu providing the line of credit,
the Company and Kanematsu revised the royalty sharing arrangements to give
Kanematsu 48% of the royalties from Lanxide K.K. as compared with 20% under the
original arrangements. 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 Cement Co., Ltd. (Nihon Cement) purchased 500,000
shares of Redeemable Convertible Preferred Stock in Alanx Products Inc. (Alanx),
a wholly owned subsidiary of the Company, for $4.0 million. Nihon Cement had
the option to convert the preferred stock into common stock at any time prior to
the first anniversary of the sale. Nihon Cement elected not to convert and
Alanx was obligated to redeem the preferred stock ratably over a five year
period beginning in November 1999. At September 30, 1996, the preferred stock
was classified as a minority interest in the accompanying consolidated balance
sheet. In November 1996, the Company repurchased the $4.0 million of the
preferred stock from Nihon Cement. The Company also recognized a $680,000 gain
on the repurchase of the preferred stock as a direct credit to additional paid-
in capital.

In January 1994, Lanxide K.K. formed a subsidiary, Celanx KK, and contributed
$3.6 million 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 KK to Nihon Cement in exchange for $5.7 million. Because Celanx KK was a
development stage enterprise and Lanxide K.K. was committed to fund Celanx KK
during the development period, the gain associated with the above transaction
was deferred to be amortized over a 10 year period, or earlier upon completion
of the development stage.

On March 28, 1996, Lanxide K.K. sold its remaining 50% ownership interest in
Celanx KK 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 KK, Lanxide K.K. was to
receive ongoing royalties from precision instrument sales generated by Nihon
Cement. Concurrent with this sale, Lanxide K.K. reacquired its wear products
license from Celanx KK. As a result of this transaction, Lanxide K.K.
recognized the remaining $2.8 million deferred gain (net of its investment in
Celanx KK) associated with the above 1994 sale, of which $2.1 million is
recorded as license revenue. In November 1997, Lanxide K.K. and Nihon Cement
subsequently agreed to amend the Celanx KK royalty arrangement, whereby Celanx
KK agreed to pay a one-time fee in lieu of future royalties.

In April 1994, the Company and Nihon Cement entered into a two year agreement to
develop brake components for sale in Japan using LANXIDE(TM) technology. Nihon
Cement and the Company funded $3.0 and $1.0 million, respectively, of
development costs under this agreement.

In October 1996, the Company signed a non-exclusive license agreement with AKN
for the manufacture, use and sale of brake components in Southeast Asia and
Oceania. AKN is a newly created joint venture of three global companies
headquartered in Japan: Akebono Brake Industry, Co., Ltd. (Akebono); Kanematsu,
and Nihon Cement. Also in October 1996, the joint venture purchased a license
from Lanxide K.K. for the manufacture, use and sale of brake products in Japan.
In addition to license payments, the agreements also require AKN to pay
royalties on all sales of licensed products. A separate agreement between
Akebono, Nihon Cement and the Company provides for a joint development program
whereby the Company will be reimbursed $4.0 million for development work
performed over a two year period.

In September 1997, the Company and Nihon Cement entered into another license
agreement that included an up-front license fee. The new license extends Nihon
Cement's rights to include the manufacture and sale of ceramic reinforced
aluminum ingot and concentrate (CRA Materials) using the Company's technology.
The license restricts the sale of the CRA Materials to licensees of the Company
or its Japanese affiliate, Lanxide K.K. Territory for the additional license
includes Japan, Eastern Asia and Oceania.

Sale of Lanxide Precision, Inc.:

On May 26, 1995, the Company sold for $2.0 million its stock ownership in
Lanxide Precision, Inc. (LPI) to LNX Acquisition Company (LNX), which is
controlled by two of the Company's Board Members. The purchase price included a
$.8 million cash payment on the date of sale and a non-recourse note of $1.2
million secured by the stock of LPI. The note carried an interest rate equal to
the 30-day Treasury bill rate plus 1.0% and matured on June 4, 1996. The sale
converted the existing license agreement with LPI to a royalty bearing license
on sales of composite materials and components. The gain on the sale of $1.1
million was deferred in fiscal 1995 due to i) the non-recourse nature of the
$1.2 million note and ii) the Company remained contingently liable as guarantor
for LPI's $1.0 million line of credit until August 15, 1996. The gain was
subsequently recognized in fiscal 1996 upon receipt of the note payment and
removal of the Company as guarantor.

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 consideration 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.

Unaudited Proforma Results of Operations for the Year Ended September 30,
1996:

The following summarizes the condensed proforma results of operations of the
Company to give effect to the purchase of DuPont's interests in LAC and LEC on
June 28, 1996, as if they had occurred on October 1, 1995. The gain associated
with the sale of subsidiaries has been eliminated for proforma purposes.

(Proforma amounts in thousands except per share data)
Revenue $ 22,420
Loss from operations $ (5,804)
Net loss $ (7,676)
Loss per share $ (3.20)
Loss per share, adjusted for recapitalization $ (6.26)
Average number of common shares outstanding 2,397
Average number of common shares outstanding,
adjusted for recapitalization 1,227

The proforma loss per share and the proforma average number of common shares
outstanding reflect the Company's recapitalization that occurred on November 14,
1995 as if the recapitalization had taken place on October 1, 1995. All
potential dilutive securities have an antidilutive effect on the loss per share
and, therefore, have not been used in determining the total historical or
proforma average number of common shares outstanding.

NOTE 3 - PROPERTY AND EQUIPMENT:

(Dollars in thousands)
September 30, Estimated
1997 1996 useful lives
---- ---- ------------
Leasehold improvements $ 3,080 $ 2,946 12-20 Years
Machinery and equipment 19,724 19,165 5-10 Years
Furniture and fixtures 539 623 10 Years
------- -------
23,343 22,734
Less - Accumulated depreciation
and amortization (13,662) (12,326)
-------- --------
$ 9,681 $10,408
======= =======

NOTE 4 - ACCOUNTS PAYABLE AND
ACCRUED EXPENSES:

(Dollars in thousands)
September 30,
1997 1996
---- ----
Accounts payable $ 2,481 $ 1,367
Compensation-related costs 594 751
Other 1,162 749
------- -------
$ 4,237 $ 2,867
======= =======

NOTE 5 - INCOME TAXES:

Deferred income taxes are provided based on the estimated future tax effects of
differences between financial statement carrying amounts and the tax bases of
existing assets and liabilities. The provision for income taxes for the year
ended September 30 results in an effective tax rate which differs from the
federal income tax rate as follows:

<TABLE>
<CAPTION>
(Dollars in thousands)
1997 1996
-----------------------------------------
$ % $ %
--- --- --- ---
<S> <C> <C> <C> <C>
Expected tax (benefit) expense at federal statutory rate (1,063) (34) 589 34
Excluded foreign subsidiary income (516) (17) (23) (1)
Tax benefit not recognized due to change in valuation allowance 1,579 51
Release of valuation allowance (566) (32)
Foreign tax withheld on foreign source income 120 4 80 4
Alternative minimum tax 79 4
-----------------------------------------
Income tax expense 120 4 159 9
</TABLE>

As of September 30, 1997 and 1996, the Company has net deferred tax assets of
approximately $33.7 million and $32.1 million, respectively, which have been
fully reserved through a valuation allowance due to the uncertainty of
recoverability. The components of the net deferred income tax asset as of
September 30 are as follows:

(Amounts in thousands)
1997 1996
---- ----
Federal Net Operating Loss Carryforwards 16,425 16,173
State Net Operating Loss Carryforwards 4,303 5,094
Capitalized Costs 8,565 6,961
Tax Credit Carryforwards 3,892 3,866
Deferred Revenue 395 363
Deferred Compensation 777 726
Other 435 346
------ ------
Gross Deferred Tax Asset 34,792 33,529
------ ------

Excess of tax over book depreciation (1,132) (1,476)
------ ------
Gross Deferred Tax Liability (1,132) (1,476)
------ ------

Net Deferred Tax Asset 33,660 32,053
Valuation Allowance (33,660) (32,053)
------ ------
Deferred Tax Asset -0- -0-

The Company has federal net operating loss carryforwards of approximately $54.0
million at September 30, 1997 which expire in varying amounts beginning in 1999
through 2011. The Company also has comparable state net operating loss
carryforwards. As specified 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, 1997, the Company had research
and development tax credit carryforwards of approximately $3.9 million expiring
through 2012.

NOTE 6 - SIGNIFICANT CUSTOMERS
AND FOREIGN OPERATIONS:

Significant Customers

During fiscal 1997 and 1996, respectively, 5% and 18% of revenues were derived
from the U.S. Government. In fiscal 1997, revenue from one customer accounted
for approximately 39% of total revenues.

Foreign Operations

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

<TABLE>
<CAPTION>
(Dollars in Thousands)
Adjustments
and
United States Japan Eliminations Consolidated
------------- ----- ------------ ------------
Year ended September 30, 1997

<S> <C> <C> <C> <C>
Revenue to Unconsolidated Customers $ 20,503 $ 5,926 $ 26,429
Transfers between geographic areas 1,992 $ (1,992)
----------- ----------- ------------ -----------
Total Revenue $ 22,495 $ 5,926 $ (1,992) $ 26,429
=========== =========== ============ ===========

Net Income (Loss) $ (4,762) $ 2,334 $ (817) $ (3,245)
=========== =========== ============ ===========
Identifiable Assets at September 30, 1997 $ 15,689 $ 4,828 $ $ 20,517
=========== =========== ============ ===========

<CAPTION>
Adjustments
and
United States Japan Eliminations Consolidated
------------- ----- ------------ ------------
Year ended September 30, 1996
<S> <C> <C> <C> <C>
Revenue to Unconsolidated Customers $ 16,044 $ 2,617 $ 18,661
Transfers between geographic areas 953 $ (953)
----------- ----------- ------------ -----------
Total Revenue $ 16,997 $ 2,617 $ (953) $ 18,661
=========== =========== ============ ===========

Net Income $ 1,504 $ 106 $ (37) $ 1,573
=========== =========== ============ ===========
Identifiable Assets at September 30, 1996 $ 17,399 $ 2,761 $ $ 20,160
=========== =========== ============ ===========

</TABLE>

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 $.9
million and $1.3 million for the years ended September 30, 1997, and 1996,
respectively, related to revenue from unconsolidated affiliates.

In addition, the Company allocates certain administrative and facility charges
to its affiliates. Costs allocated to unconsolidated affiliates are reflected
as a reduction of selling, general and administrative expenses and totaled
$.6 million and $2.1 million for the years ended September 30, 1997, and 1996,
respectively.

At September 30, 1997, the Company owes $163,000 in interest payments on loans
from Commodore Environmental Services, Inc. and Commodore Applied Technologies,
Inc.

See Notes 2 and 8 for descriptions of various related party relationships.

NOTE 8 - LONG-TERM DEBT:
<TABLE>
<CAPTION>
(Dollars in thousands)
September 30,
1997 1996
---- ----
<S> <C> <C>
Note payable to PNC Bank guaranteed by DuPont, interest at prime
(8.5% at September 30, 1997), maturities through March 2000 (See Note 14) $ 5,900 $ 5,970

Note payable to Kanematsu, interest at 2% above LIBOR rate
(7.875% at September 30, 1997), matures in December 1998. 10,000 10,000

Secured revolving credit and demand note to Commodore Applied
Technologies, Inc.(Applied) for $1.5 million available during the period
August 1996 through February 1998; interest at Citibank prime
(8.5% at September 30, 1997) matures on February 28, 1998. 1,500 1,000

Secured revolving credit and demand note to Commodore Environmental
Services, Inc. (Commodore) for $3.0 million available during the period
November 1996 through February 1998; interest at Citibank prime rate
(8.5% at September 30, 1997) matures on February 28, 1998. 3,000

Other Borrowings 468 3
---------- ----------

Total debt 20,868 16,973
Less: Current portion (6,789) (1,273)
---------- ----------

Long-term debt $ 14,079 $ 15,700
========== ==========

</TABLE>

See Notes 2 and 10 for descriptions of equity ownership by Kanematsu and
Commodore.

The Kanematsu note requires the Company to maintain specified financial
covenants and prohibits the distribution of dividends without approval from
Kanematsu. The 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 its guarantee, the Company will, in
full satisfaction of its obligation: a) transfer all of its interest in LAP and
LEC to DuPont, or, alternatively at DuPont's option, b) transfer all of its
interest in LAP and DLC to DuPont.

The $3.0 million and $1.5 million lines of credit extended to LPM, a wholly-
owned subsidiary of the Company, by Commodore and Applied, respectively, are
secured by the assets of LPM, excluding its proprietary technology. The lines
of credit are guaranteed by the Company. As additional consideration for the
$1.5 million line of credit, the Company through its affiliate, Lanxide
Technology Company L.P., granted to Applied an exclusive worldwide (other than
Japan) license for the use of the Company's technology in process reactor
vessels for decontamination, remediation, neutralization, separation and
destruction of (i) soils and substrates contaminated with PCBs and other
halogenated substances, (ii) PCBs and other halogenated substances in their
unmixed form, (iii) other materials and substances subjected to Applied's SET
process, (iv) low level nuclear waste, radionuclides and other radioactive
matter, and (v) ordinance, chemical weapons and related materials. No license
revenues were recorded as a result of this transaction.

The principal payments due on the debt outstanding at September 30, 1997, are as
follows:
(Dollars in thousands)
Fiscal Year Ended Principal Payments
----------------- ------------------
1998 $ 6,789
1999 12,197
2000 1,708
2001 119
2002 55
----------
$ 20,868
==========

The repayment terms on the PNC Bank note were amended on November 6, 1997 (see
Note 14).

NOTE 9 - COSTS AND EXPENSES:

The following are included in operating costs:

(Dollars in thousands)
For the Year ended September 30,
1997 1996
---- ----
Patent expenses - external $ 595 $ 703
Depreciation and amortization 1,909 1,627

NOTE 10 - SHAREHOLDERS' EQUITY AND
RELATED ITEMS:

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
$3.8 million. In addition, 331,679 shares of common stock were issued 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 comprising Series
A Non-Voting Preferred Stock and Warrants to purchase common stock. Each share
of Series A Preferred Stock is convertible 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 Warrants expired on November 14, 1996.

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 the time
of the November 1995 Recapitalization. The resulting compensation expense was
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). The 1995 Director Plan authorizes the grant of
options to purchase up to 25,000 shares of Common Stock. In December 1995, 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 following the date of grant. Future directors will
receive a prorated portion of the option to purchase 3,000 shares. A non-
employee consultant was granted an option to purchase 3,000 shares of Common
Stock with terms identical to current directors.

Grant of Warrants to Employees

In December 1995, the Board of Directors approved the issuance of warrants (the
Warrants) to purchase 66,000 shares of Common Stock at the then current market
price to certain executive officers. All of the Warrants vest on the third
anniversary of the date of grant. As discussed under the caption Increase in
Stock Option and Warrant Grants, on July 3, 1997, the Board of Directors
approved the issuance of warrants to purchase an additional 66,000 shares of
Common Stock to certain executive officers.

Employee Stock Options

In December 1993, the Board of Directors adopted the 1993 Employee Stock Option
Plan. Under the 1993 Plan, the Stock Option Committee of the Board of Directors
(Committee) was authorized to grant incentive and non-qualified stock options to
employees to purchase no more than 1,000,000 shares of common stock. Employee
stock option exercise prices were not less than the Committee's estimated fair
market value of the common stock on the grant date and stock options were
generally exercisable at varying dates not to exceed ten years.

In connection with the Recapitalization Plan, The Company adopted the 1995
Employee Stock Option plan (the New Stock Option Plan). Holders of options
granted pursuant to the Company's prior employee stock option plans (the Old
Stock Option Plans) consented to the cancellation of such options in exchange
for options granted pursuant to the New Stock Option Plan. Pursuant to the New
Stock Option Plan, the Committee has authority to grant options to purchase
shares of Common Stock to officers and key employees of the Company, its
subsidiaries, affiliates and certain licensees.

Increase In Stock Option and Warrant Grants

The Board of Directors approved the Securities Purchase Agreement by and between
the Company and Commodore Environmental Services, Inc. on July 3, 1997. Among
other things, the Securities Purchase Agreement provided for the granting of
additional stock options and warrants to employees of the Company, Lanxide Armor
Products and Lanxide Performance Materials equal to that number of options and
warrants held by each employee on July 3, 1997.

The new stock options and warrants are exercisable at a price of $7.41 per
share; vest ratably over a five year period from the date of grant and are
exercisable commencing July 1, 2000, and then only proportionate to the extent
that Commodore has exercised its Warrant to purchase 250,000 shares of preferred
stock, which Warrant was issued pursuant to the Securities Purchase Agreement.
To-date, Commodore has invested $2.0 million in Series G Preferred Stock of the
Company which may be used to exercise 20,000 Warrant shares or 8% of the total
shares exercisable pursuant to the Warrants.

To provide for the additional stock options granted to employees and
consultants of the Company and Lanxide Performance Materials, the Company's 1995
Stock Option Plan was amended to increase the number of shares authorized for
grant from 277,211 to 536,869.

Summary of stock option activity of the employee stock option plans

1995 Stock Option Plan
1997 1996
---- ----
Options outstanding at beginning of year 262,938 0

Granted 260,993 264,224
Exercised 0 0
Canceled (7,078) (1,286)
------- -------
Options outstanding at end of year 516,853 262,938
======= =======
Options exercisable at end of year 170,436 113,676
Option exercise price range at end of year $5.62-22.00 $5.62-22.00

Old Stock Option Plans
1996
----
Options outstanding at beginning of year 1,585,184

Granted 0
Exercised 0
Canceled 1,585,184
---------
Options outstanding at end of year 0
=========
Option price range at end of year

The Company has adopted the intrinsic value method of accounting for stock
options and warrants under APB 25 with footnote disclosures of the pro forma
effects as if the FAS 123 fair value method had been adopted.

Had compensation expense for the Company's employee stock options been
determined based on the fair value at the grant date for awards in 1996 and 1997
consistent with the provisions of FAS 123, the Company's net income (loss) per
share would have been adjusted to the pro forma amounts indicated below:

1997 1996
---- ----
Net Income As reported $ (3,245) $ 1,573
Pro forma $ (3,665) $ 881

Primary earnings per share As reported $ (1.96) $ .34
Pro forma $ (2.27) $ .19

Fully diluted earnings per share As reported $ (1.96) $ .29
Pro forma $ (2.27) $ .16

FAS 123 requires stock options to be valued using an approach such as the Black-
Scholes option pricing model. The Black-Scholes model calculates the fair value
of the grant based upon certain assumptions about the underlying stock. The
average expected dividend yield of the stock is zero, the average expected
volatility is 60 percent, the average expected life of the options at grant date
is 6 years, and the average expected risk-free rate of return is 5.7 percent
calculated as the rate offered on U.S. Government securities with the same term
as the expected life of the options. The weighted average remaining contractual
life of options and warrants outstanding at September 30, 1997 is 9 years for
the Company. The weighted average fair values of options granted during 1997
and 1996 are $3.52 and $4.57 for the Company. At September 30, 1997, 98% of all
options exercisable and 49% of all options outstanding carry an exercise price
of $5.62. In addition, at that date 50% of all options outstanding carry an
exercise price of $7.41. The proforma calculations above assume that 8% of the
options issued on July 3, 1997 will ultimately vest to employees.

Lanxide Armor Products Employee Stock Option Plan

The 1995 LAP Stock Option Plan was adopted by LAP's Board of Directors in
November 1995 for the benefit of LAP's employees. The Plan is underlied by
shares of Lanxide Corporation Common Stock. On July 3, 1997, LAP's Board of
Directors amended the Stock Option Plan by increasing the number of shares
authorized for grant from 22,760 to 44,191 (see further discussion under the
caption "Increase In Stock Option and Warrant Grants"). As of September 30,
1997, options to purchase 42,775 were outstanding and 44 shares had been
exercised.

Lanxide Electronic Components Stock Option Plan

The 1996 LEC Stock Option Plan was adopted by LEC's Board of Directors in July
1996. This Plan provided for the issuance of incentive stock options and
replaced a previous plan which only allowed for the issuance of nonqualified
stock options. The combined Plans are underlied by 10,000 shares of LEC Common
Stock. As of September 30, 1997, options to purchase 7,225 shares were
outstanding.

Old Series A Preferred Stock:

During fiscal 1990, the Company sold 3 million shares of Old Series A Preferred
Stock, par value $.01 per share, for $30.0 million, of which $1.9 million was
financed through the issuance of investor interest bearing notes. All but
$60,000 of the notes were paid.

In connection with the Recapitalization Plan, each Old Series A Preferred Stock
was converted into one twentieth of a Unit, as defined above.

Old Series B Preferred Stock:

The Company issued 4,325,506.5 shares of its Old 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. 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.

Series C Preferred Stock:

On July 5,1995, the Company entered into a Securities Purchase Agreement 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 $1.7 million. The Company
issued 145,900 shares of Series C Preferred Stock for aggregate proceeds of $1.5
million. 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.

In connection with the Series C Securities Purchase Agreement, 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, which he exercised on June 30, 1996.

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 $70,000, and 26,100 shares of
mandatorily redeemable Series E Preferred Stock, at an aggregate price of
$261,000.

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 $70,000), plus any accrued but unpaid dividends and the
shares of Series D Preferred Stock were canceled and retired.

The Series E Preferred Stock pays a cumulative dividend at the rate of 7% per
annum when, as and if declared by the Board of Directors. Upon consummation of
the Recapitalization Plan, each share of Series E Preferred Stock remained
outstanding and continued to represent 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. The carrying amount of the Series E Preferred Stock is being accreted up
to the redemption value over the five year term. Pursuant to the Securities
Purchase Letter Agreement, 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.

Series F and G Securities Purchase Agreement:

On July 3, 1997, the Company entered into a Securities Purchase Agreement (the
Agreement) with Commodore Environmental Services, Inc. (Commodore), pursuant to
which the Company sold to Commodore 20,000 shares of Series G Preferred Stock,
at an aggregate purchase price of $2.0 million. The Series G Stock is not
convertible and is not entitled to vote or to receive dividends.

Pursuant to the Agreement, the Company also issued Commodore a warrant to
purchase 250,000 shares of Series F Preferred Stock, at an exercise price of
$100 per share. The Warrant may be exercised, in part, by the exchange of the
20,000 shares of Series G Preferred Stock acquired by Commodore pursuant to the
Agreement for a like number of shares of Series F Preferred Stock. The warrant
agreement expires on June 30, 2000. In the event that the Company consummates a
financing under a Superior Offer as described in the Securities Purchase
Agreement after August 27, 1997, the Company may redeem for $0.001 per warrant
share that portion of the warrant that can not be exercised by tendering
previously purchased shares of Series G Preferred Stock.

The terms of the Series F Stock include, among other things, (a) the right to
convert into shares of Common Stock at a rate, subject to adjustment, of 13.5
shares of common stock for each share of Series F Stock; (b) a mandatory
conversion by the holders upon certain events, including the sale by the Company
of at least $10 million of Company securities in a public offering or a private
placement prior to the time that Commodore exercises at least $10 million of the
Warrant and (c) the right to elect four of the seven members of the Board of
Directors of the Company. The Series F Stock is entitled to vote, but not
entitled to receive dividends.

Voting Agreement:

In July 1997, Commodore obtained effective control of the Company pursuant to a
voting agreement among the Company and certain of its shareholders (the Voting
Agreement) which was executed in connection with the transactions contemplated
by the Securities Purchase Agreement mentioned above. Pursuant to the Voting
Agreement, shareholders owning 50.1% of the outstanding common stock granted
proxies to the members of the Board of Directors of Commodore to vote all shares
of common stock held by each such shareholder until December 31, 1998.

Shareholder Lawsuit:

On July 17, 1996, certain stockholders of the Company, who owned an aggregate of
149,529 shares of the Company's Old Common Stock prior to the consummation of
the Company's Recapitalization Plan, filed a lawsuit in the United States
District Court for the District of Colorado against the Company. The
allegations in the Complaint arose from a settlement agreement entered into by
the plaintiffs and the Company in March 1996 relating to the Company's
Recapitalization Plan (the Settlement Agreement).

On January 30, 1997, the Company entered into a new settlement agreement with
the plaintiffs (the New Settlement Agreement) pursuant to which the plaintiffs
agreed to dismiss, with prejudice, their lawsuit against the Company, and the
Company agreed to pay an aggregate of $200,000 to the plaintiffs in the form of
a promissory note (the Lanxide Note). The Lanxide Note provides that the
Company will pay the plaintiffs $50,000 plus accrued interest on July 1, 1997
and $10,000 plus accrued interest on the first of each month commencing on
August 1, 1997 for fifteen months. Interest will accrue at a rate of 10% per
annum. Pursuant to the New Settlement Agreement, Bentley J. Blum, a director
and principal stockholder of the Company, executed a promissory note in
favor of the plaintiffs (the Blum Note) with the same terms as the Lanxide Note,
except that Mr. Blum has no obligations under the Blum Note unless an Event of
Default occurs under the Lanxide Note.

The Company recorded a charge of $74,000 in March 1996 relating to the
Settlement Agreement and a charge of $92,000 in January 1997 relating to the New
Settlement Agreement. The remaining $34,000 represents the value of the
plaintiffs' shares returned to the Company as part of the New Settlement
Agreement.

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 contribute 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 compensation. Company contributions to the Plan were
$202,000 and $193,000 in 1997 and 1996, respectively.

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' compensation was deferred
and payable in five years together with 12% interest compounded annually.
Payment was to be in cash or Old Lanxide Common Stock at a rate of $13 per share
at the option of the employees. 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 or the fair market value per share of Common Stock on the first
anniversary of the effective date of the Recapitalization Plan (see Note
10). On November 14, 1996, the fair market value per share of Common Stock was
below $25, therefore, $25 per share will be used in the calculations.

NOTE 13 - COMMITMENTS AND CONTINGENCIES:

In 1984, Mr. Blum exercised his option to purchase for $1.8 million the
Company's land and building (Forge Drive facility). The building was originally
leased back to the Company through December 31, 1998. On August 1, 1996, the
Company entered into a lease modification agreement for the Forge Drive
facility. The modified lease term covers the period August 1, 1996 through
December 31, 2008, with a 10-year renewal option at the expiration of the lease.
Minimum annual lease payments are $275,000 through December 31, 1998, increasing
to $285,000 and $300,000 on January 1, 1999 and 2004, respectively. The lease
grants the Company the right of first refusal with respect to the purchase of
the facility.

On March 28, 1996, the Company sold the Marrows Road facility for $8.6 million
to W.P. Carey, a purchaser and lessor of corporate real estate. Concurrent with
the sale, the Company entered into a noncancelable twenty-year operating lease
with the Buyer with renewal options for another 20 years. The lease requires
prepaid quarterly payments of $244,000 with inflation adjustments every five
years, and is being accounted for as an operating lease. In connection with the
sale and leaseback, the Company entered into sublease agreements with each of
three commercial venture companies that occupy the facility. Because of the
significance of these subleases the $361,000 gain on the sale of the building is
being deferred and will be recognized over the initial 20-year lease term. In
connection with this transaction, the Company sold at fair value ($200,000) a
warrant to purchase 15,500 shares of Common Stock at an exercise price of $14
per share.

The sale and leaseback transaction generated $3.3 million of working
capital 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 non-cash brokerage fee for the arrangement of the transaction in the
amount of 10,700 shares of Common Stock.

Minimum annual operating lease payments were $1,253,000 and $785,000 for 1997
and 1996, respectively.

In addition to the Forge Drive and Marrows Road facilities, the Company leases
certain machinery and equipment. Commitments for minimum rentals under all non-
cancelable leases at the end of 1997 are as follows:

(Dollars in thousands)
Capital Operating
Fiscal Year Ended Lease Payments Lease Payments
----------------- -------------- --------------
1998 $ 131 $ 1,295
1999 131 1,282
2000 131 1,261
2001 131 1,261
2002 56 1,261
Thereafter 0 15,032
-------- ----------
Total minimum lease payments 580 $ 21,392

Less amount representing interest 113
--------
Present value of net minimum
lease payments, including
current maturities of $88 $ 467
========

Property and equipment at year-end includes the following amounts for
capitalized leases:

(Dollars in thousands)
1997
----
Machinery and Equipment $ 447
Leasehold Improvements 68
------
515
Less: Accumulated Depreciation and Amortization (20)
-------
$ 495
=======

NOTE 14 - SUBSEQUENT EVENTS:

Line of Credit Amended:

On November 6, 1997, the repayment terms on the PNC Bank note were amended.
After giving effect to the amendment, the principal payments due on the debt
outstanding at September 30, 1997, are as follows:

(Dollars in thousands)
Fiscal Year Ended Principal Payments
----------------- ------------------
1998 $ 6,384
1999 12,834
2000 1,476
2001 119
2002 55
--------
$ 20,868
========

Loan from Lanxide K.K.

On December 29, 1997, Lanxide K.K., a 65% owned Japanese subsidiary, agreed to
loan $1.8 million to the Company (Lanxide Loan). The Company received
$1.3 million on December 29, 1997 and an additional $.5 million was received on
January 12, 1998. Cash held by Lanxide K.K. is generally unavailable to the
Company for general corporate purposes. The Lanxide Loan matures on January 31,
1998 and bears interest at the rate of 6% per annum. Upon an event of default
under the Lanxide K.K. Loan, the Company shall transfer to Lanxide K.K. either
its ownership of 100% of the common stock of Lanxide Electronic Components, Inc.
(the LEC Interest) or its 10% ownership in DuPont Lanxide Composites, Inc. (the
DLC Interest) as follows. If the Company's $5.9 million loan from PNC Bank (the
PNC Bank Loan), which loan is guaranteed by E.I. DuPont de Nemours and Company,
Inc. (DuPont), has been paid in full, then the Company shall transfer either,
the LEC Interest or the DLC Interest to Lanxide K.K., provided, however, that if
the Company defaults under the PNC Bank Loan and DuPont is required to satisfy
its obligations as guarantor, then (1) the Company shall first transfer to
DuPont, at DuPont's option, either the LEC Interest or the DLC Interest, both of
which serve as collateral for the PNC Bank Loan guarantee, and (2) the Company
shall then transfer to Lanxide K.K. the remaining interest: either the LEC
Interest or the DLC Interest. Upon an event of default under the Lanxide K.K.
Loan, the Company shall not be required to transfer the LEC Interest or the DLC
Interest to Lanxide K.K. until either an event of default has occurred under the
PNC Bank Loan or the Company has paid the PNC Bank Loan in full.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

The following table sets forth, as of September 30, 1997, certain information
concerning the directors and executive officers of the Company:

<TABLE>
<CAPTION>
Year
first
elected
Name Age Position Director
---- --- -------- --------
<S> <C> <C> <C>
Marc S. Newkirk 50 President, Chief Executive Officer and Director 1983
Mark G. Mortenson 39 Executive Vice President and Chief Operating Officer --
Michael J. Hollins 53 Vice President, Corporate Development --
Robert J. Ferris 57 Treasurer, Secretary and Vice President, Administration --
Christopher R. Kennedy 49 Vice President, Technology --
Paul E. Hannesson 57 Chairman of the Board of Directors 1983
Bentley J. Blum 56 Director 1983
J. Frederick Van Vranken, Jr. 62 Director 1983
Stephen A. Weiss 56 Director 1995
William R. Toller 67 Vice Chairman, Senior Executive Officer and Director 1997
Michael D. Fullwood 50 Senior Vice President, Chief Financial and Administrative Officer,
General Counsel and Director 1997
</TABLE>

MARC S. NEWKIRK founded the Company and has been its President 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 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 Incorporated, 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, Technology, of the
Company since April 1993, and as a section manager at the Company 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 served as the Chairman of the Board of the Company
since 1983. He currently serves as Chairman of the Board and Chief Executive
Officer of Commodore. Mr. Hannesson also has served as the President, Chairman
and Chief Executive Officer of Commodore Applied Technologies, Inc. (Applied)
and has been a director of Applied since 1996. He has also been the Chairman
and Chief Executive Officer of Commodore Separation Technologies, Inc. since
November 1995. Mr. Hannesson was a private investor and business consultant
from 1990 to 1993, and was also an officer and director of Specialty Retail
Services, Inc. from 1989 to August 1991. Mr. Hannesson is the brother-in-law of
Bentley J. Blum, a director of the Company.

BENTLEY J. BLUM has been a director of the Company since 1983. He served
as the Chairman of the Board of Commodore from 1984 through November 1996, and
has served as a director of Commodore since that date. Mr. Blum served as
Chairman of the Board of Applied and Commodore Labs until November 1996, and has
served as a director of Applied since that date. Mr. Blum also currently serves
as a director of Commodore Separation Technologies, Inc., Commodore Advanced
Sciences, Inc. and Commodore CFC Technologies, Inc. For more than 15 years, Mr.
Blum has been actively engaged in real estate acquisitions and currently is the
sole stockholder and director of a number of private corporations which hold
real estate interests, oil drilling interests and other corporate interests.
Mr. Blum is a director of Federal Resources Corporation, a company formerly
engaged in manufacturing, retail distribution and natural resources development;
Specialty Retail Services, Inc., a former distributor of professional beauty
products; and North Valley Development Corp., an inactive real estate
development company. Mr. Blum is the principal stockholder of Commodore and the
Company, and is the brother-in-law of Paul E. Hannesson, the Chairman of the
Board of the Company.

J. FREDERICK VAN VRANKEN, JR. has been a director of the Company since
1983. He 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 has been a director of the Company since July 1995, having
been appointed pursuant to the terms of a securities purchase agreement, dated
July 5, 1995, between Mr. Blum and the Company. For the past 25 years, Mr. Weiss
has practiced corporate and business law in New York, New York. He is currently
a shareholder of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, which
represented Commodore in the Merger and the Public Offerings. Mr. Weiss serves
on the Board of Directors of Consolidated Stainless, Inc., a manufacturer and
distributor of stainless steel pipe, valves and fittings, and T.J.T., Inc., a
company engaged in the business of repairing and reconditioning axles and tires
for the manufactured housing industry. Mr. Weiss received his B.S. and L.L.B.
from New York University in 1962 and 1965, respectively.

WILLIAM R. TOLLER joined the Board of Directors of the Company in July
1997, having been appointed pursuant to the terms of a securities purchase
agreement, dated July 3, 1997, between Commodore and the Company. Mr. Toller
also serves as the Vice Chairman and Senior Executive Officer of the Company.
Since September 1996, he has been the Chairman and Chief Executive Officer of
Titan Consultants, Inc. and serves on the Board of Directors of a number of
companies including Chase Industries, Inc.; Commodore Separation Technologies,
Inc.; Fuseplus, Inc. and the United States Chamber of Commerce. Mr. Toller was
the Chairman and Chief Executive Officer of Witco Corporation, a New York Stock
Exchange traded manufacturer of quality specialty chemical and petroleum
products (Witco). Mr. Toller had been the Chairman and Chief Executive
Officer of Witco since October 1990 and retired in July 1996. Mr. Toller joined
Witco in 1984 as an executive officer when it acquired the Continental Carbon
Company of Conoco, Inc., where he had been its President and an officer since
1955. Mr. Toller is a graduate of the University of Arkansas with a
Bachelor's degree in Economics, and the Stanford University Graduate School
Executive Program.

MICHAEL D. FULLWOOD was elected Senior Vice President, Chief Financial and
Administrative Officer and General Counsel of the Company in July 1997 and has
been appointed to similar positions at Commodore, Commodore Applied
Technologies, Inc. and Commodore Separation Technologies, Inc. Mr. Fullwood was
elected a director of the Company in July 1997 having been appointed pursuant to
the terms of a securities purchase agreement, dated July 3, 1997, between
Commodore and the Company. From 1987 to 1996, Mr. Fullwood held numerous
positions ranging from Senior Attorney to Executive Vice President and Chief
Financial Officer of Witco. From 1983 to 1987, Mr. Fullwood served as Senior
Attorney at Scallop Corporation (Royal Dutch/Shell Group), where he specialized
in corporate matters and mass tort litigation and handled international law for
Royal Dutch/Shell Group. Mr. Fullwood also previously served as Senior Attorney
of Caltex Petroleum and Arabian American Oil Company, handling corporate,
contractual and transnational matters. Mr. Fullwood holds a law degree from
Harvard Law School.

Prior to the Company's 1996 Annual Meeting of Stockholders on February 28,
1996, the Company's Board of Directors was divided into 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 Board of Directors currently consists of one Class
I Director, two Class II Directors, two Class III Directors and two directors
(Messrs. Fullwood and Toller) who are elected annually. The term of the Class I
Director, Mr. Newkirk, expires at the next annual meeting of stockholders; 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.

Pursuant to an amendment to the Company's Certificate of Incorporation
which was adopted by the stockholders of the Company at its 1996 Annual Meeting
of Stockholders, the Board of Directors will no longer be divided into classes.
Commencing with the next 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 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 collectively
and each director individually.

BOARD OF DIRECTORS COMMITTEES

The Board of Directors currently has five standing committees: the Audit
Committee, the Compensation Committee, the Stock Option Committee, the Finance
Committee and the Executive Committee.

Audit Committee

As of September 30, 1997, the Audit Committee consisted of Messrs.
Fullwood, Van Vranken and Weiss, each of whom are non-employee directors. The
Audit Committee did not formally meet during the 1997 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 policies and its internal accounting
control system. It reviews and approves significant accounting changes and the
annual financial statements.

Compensation Committee

The Compensation Committee currently consists of Messrs. Toller, Van
Vranken and Weiss, each of whom are non-employee directors. The Compensation
Committee did not meet formally during the 1997 fiscal year. The Compensation
Committee determines and sets the annual compensation to be paid to the Company
officers.

Stock Option Committee

The Stock Option Committee consists of Messrs. Toller, Van Vranken and
Weiss. The Stock Option Committee did not meet formally during the 1997 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, Fullwood, Newkirk and Van
Vranken, of whom Messrs. Blum, Fullwood 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 Committee

The Executive Committee consists of Messrs. Blum, Hannesson, Newkirk and
Toller. The Executive Committee, with the assistance of management, develops
the overall business strategy to be followed by the Company and submits it to
the full Board of Directors for adoption.

ITEM 10. EXECUTIVE COMPENSATION

Summary of Cash and Certain Other Compensation

The following table sets forth the annual and long-term compensation of the
Chief Executive Officer and the four other most highly compensated officers of
the Company for the fiscal years ended September 30, 1997, 1996 and 1995 (the
Named Executives).

<TABLE>
TABLE I
Summary of Compensation to Certain Executive Officers

Annual Compensation Long-Term Compensation
----------------------------- ---------------------------------
Awards Payouts
----------- ------------
<CAPTION>
Securities All Other
Fiscal Underlying Compensation
Name and Principal Position Year Salary ($)(1) Options (#) ($)(2)
------ ------------- ----------- ------------
<S> ..................... <C> <C> <C> <C>
Marc S. Newkirk ......... 1997 $279,637 114,123 $5,421
President and 1996 $257,425 114,123 $6,021
Chief Executive Officer 1995 $251,425 -- $4,441

Mark G. Mortenson, Esq. . 1997 $155,011 11,150 $4,064
Executive Vice President and 1996 $141,901 11,150 $4,168
Chief Operating Officer 1995 $118,073 -- $3,503

Michael J. Hollins ...... 1997 $148,810 18,605 $4,622
Vice President, 1996 $136,423 18,605 $4,521
Corporate Development 1995 $135,655 -- $4,244

Christopher R. Kennedy .. 1997 $128,306 9,500 $3,759
Vice President, Technology 1996 $120,714 9,500 $3,440
1995 $120,194 -- $3,269

Robert J. Ferris 1997 $134,412 12,199 $4,342
Treasurer, Secretary and 1996 $123,320 12,199 $4,033
Vice President, Administration 1995 $122,178 -- $3,789
</TABLE>

(1) Includes the following salary restoration adjustments in 1997 and 1996,
respectively: $73,004 and $49,950 for Mr. Newkirk; $39,492 and $27,021 for
Mr. Hollins; $41,369 and $32,535 for Mr. Mortenson; $34,364 and $23,513 for
Mr. Kennedy; and $35,534 and $24,313 for Mr. Ferris.

(2) 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.

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 the
fiscal year, the officers are eligible to receive restoration of their lost
salary (the Restored Portion) 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 restoration of salaries.

Compensation of Directors

In addition to the Director Option Plan referred to below, 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.

The following table shows the number of shares of Common Stock underlying
the Stock Options granted in fiscal year 1997 to each of the Named Executives,
the percentage of total options granted which each Named Executive's stock
option grant represents, the exercise price of each option granted and the
expiration date of each option granted.
<TABLE>
TABLE II
Option/SAR Grants in Last Fiscal Year
<CAPTION>
# of Securities Percent of total
Underlying options granted Option
Name Options in fiscal year Exercise Price Expiration Date
---- ------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Marc S. Newkirk 114,123 44 % $7.41 07/03/07

Mark G. Mortenson 11,150 4 % " 07/03/07

Michael J. Hollins 18,605 7 % " 07/03/07

Christopher Kennedy 9,500 4 % " 07/03/07

Robert J. Ferris 12,199 5 % " 07/03/07
</TABLE>

Options Exercised in Fiscal Year 1997

The following table shows the number and value of stock options exercised
by each of the Named Executives during fiscal year 1997, the number of all
vested (exercisable) and unvested (not yet exercisable) stock options held by
each Named Executive at the end of fiscal year 1997, and the value of all such
options that were "in the money" (i.e., the market price of the Common Stock was
greater than the exercise price of the options) at the end of fiscal year 1997.
<TABLE>
TABLE III
Aggregated Option Exercises in Fiscal Year 1997 and
Fiscal Year End Option Values
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options In-the-Money Options
Shares at End of Fiscal 1997 at End of Fiscal 1997
Acquired Value Exercisable / Exercisable /
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
---- --------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Marc S. Newkirk........... -0- $0 96,346/131,900 $0/$0
Mark G. Mortenson......... -0- 0 5,099/17,201 $0/$0
Michael J. Hollins........ -0- 0 12,778/24,432 $0/$0
Christopher R. Kennedy.... -0- 0 4,666/14,334 $0/$0
Robert J. Ferris.......... -0- 0 6,845/17,553 $0/$0
</TABLE>

EXISTING COMPANY PLANS

1995 Employee Stock Option Plan

In connection with the Recapitalization Plan, the Company adopted the 1995
Employee Stock Option Plan (the New Stock Option Plan), which was approved by
stockholders at the Special Meeting held on November 10, 1995. In addition,
holders of options granted pursuant to the Company's 1983 and 1993 Employee
Stock Option Plans (the Old Stock Option Plans) consented to the cancellation 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 will
have authority to grant options to purchase shares of New Common Stock to
officers, key employees and consultants of the Company, its subsidiaries,
affiliates and certain licensees. Options to purchase 516,853 shares of Common
Stock have been granted pursuant to the New Stock Option Plan and are currently
outstanding, and an additional 20,016 remain available for grant. For further
information on employee stock options, see Note 10 to the Company's Consolidated
Financial Statements included in this 10-KSB.

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 the time of the November 1995 Recapitalization. The resulting
compensation expense was 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). 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
following the date of grant. Future directors will receive a prorated portion
of the option to purchase 3,000 shares. A non-employee consultant was granted
an option to purchase 3,000 shares of Common Stock with terms identical to the
directors. The stockholders of the Company approved the 1995 Director Plan at
the Annual Meeting of Stockholders held on February 28, 1996.

Grant of Warrants

In December 1995, the Board of Directors approved the issuance to certain
executive officers of warrants (the Warrants) to purchase 66,000 shares of
Common Stock. All of the Warrants vest on the third anniversary of the date of
grant. On July 3, 1997, pursuant to the terms of the Securities Purchase
Agreement, the Board of Directors approved the issuance to certain executive
officers of warrants to purchase an additional 66,000 shares of Common Stock.
For further information on warrants, see Note 10 to the Company's Consolidated
Financial Statements included in this 10-KSB.

Deferred Compensation Plan

From June 1993 through May 1994, the Company implemented a Deferred
Compensation Plan whereby a portion of the employee's compensation is deferred
and payable in five years together with 12% interest compounded annually. 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 employees. The deferred compensation accrual as of
September 30, 1997 and 1996 was, $1,357,000 and $1,230,000, respectively.

In connection with the Recapitalization Plan, the Board of Directors
adopted an amendment to the Deferred Compensation Plan, effective November 14,
1995, 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 November 14, 1996.
On November 14, 1996, the fair market value per share of Common Stock was below
$25, therefore, $25 per share will be used in the calculations.

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 compensation 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 $202,000 and $193,000 in 1997 and 1996, respectively.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Below is a table setting forth the beneficial ownership as of December 12,
1997 of the Common Stock of the Company by each of its officers, directors and
each entity known by the Company to beneficially own five percent or more of any
class of the Company's voting securities.

<TABLE>
<CAPTION>
Number of Percent of
Title of Class Name and Address of Beneficial Owner(1) Shares Class
-------------- --------------------------------------- ------ -----
<S> <C> <C> <C>
Common Stock Commodore Environmental Services, Inc. (2) 4,039,329 85.9%
Alcan (3), (4) 188,432 12.4
Marc S. Newkirk (5), (6), (7) 187,306 12.7
Michael J. Hollins (5), (7), (8) 29,217 2.2
Mark G. Mortenson (7) 8,816 *
Christopher R. Kennedy (7) 7,833 *
Robert J. Ferris (5), (7) 13,233 *
Bentley J. Blum (5), (7), (9) 657,492 46.7
Michael D. Fullwood (7), (14) 500 *
Paul E. Hannesson (5), (7), (10) 36,116 2.7
William R. Toller (7), (13) 500 *
J. Frederick Van Vranken, Jr. (5), (7), (11) 22,553 1.7
Stephen A. Weiss (5), (7), (12) 2,139 *
All directors and executive officers 965,705 59.5
as a group (eleven persons) (5), (6), (7), (8), (9), (10)

Series F Preferred Stock Commodore Environmental Services, Inc. 250,000 100
</TABLE>

* Less than 1% of outstanding shares.

(1) Unless otherwise indicated, (i) the address of each of the beneficial
owners is c/o Lanxide Corporation, 1300 Marrows Road, P.O. Box 6077,
Newark, Delaware 19714-6077, (ii) all shares are owned directly, and
(iii) each person has sole investment and voting power.
(2) Includes (i) 3,375,000 shares of Common Stock convertible from 250,000
shares of Series F Stock which may be acquired upon exercise of the
Warrant and (ii) 664,329 shares of Common Stock which the Board of
Directors of Commodore is entitled to vote pursuant to the Voting
Agreement. Commodore's address is 150 East 58th Street, Suite 3400,
New York, New York 10155.
(3) Consists solely of shares of the Company's Series A Preferred Stock,
convertible at any time into the Company's Common Stock.
(4) Includes 27,007; 96,865; and 64,560 shares owned by Alcan Aluminium
Limited, Alcan Aluminum Corporation and Alcan Automotive Castings,
respectively. Alcan's address is 1188 Sherbrooke Street West, Montreal,
Quebec, Canada H3A 3G2.
(5) Includes an aggregate of 185,069 shares of the Company's Series A
Preferred Stock, convertible at any time into shares of the Company's
Common Stock as follows: 36,869 shares for Mr. Newkirk, 2,279 shares
for Mr. Hollins, 423 shares for Mr. Ferris, 21,386 shares for Mr. Blum,
5,579 shares for Mr. Hannesson, 2,159 shares for Mr. Van Vranken and 139
shares for Mr. Weiss.
(6) Includes shares owned by Mr. Newkirk's spouse, Karen H. Newkirk (2,487
shares); and minor children trusts dated 3/3/88 for the benefit of Corey
E. Newkirk (1,827 shares) and Ross S. Newkirk (1,827 shares) and trust
under agreement of Marc S. Newkirk dated 3/3/88 (66,773 shares) for
which Mr. Newkirk has voting power. Pursuant to the Voting Agreement,
Mr. Newkirk is not entitled to vote the 33,000 shares of Common Stock
owned by him.
(7) Includes the following options to purchase shares of the Company's
Common Stock which are exercisable within 60 days, including: 114,123
shares for Mr. Newkirk, 16,938 shares for Mr. Hollins, 8,816 shares
for Mr. Mortenson, 7,833 shares for Mr. Kennedy, 10,532 shares for Mr.
Ferris, 2,757 shares for Mr. Blum, 2,757 shares for Mr. Hannesson, 3,589
shares for Mr. Van Vranken, 2,000 shares for Mr. Weiss, 500 shares for
Mr. Toller and 500 shares for Mr. Fullwood.
(8) 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.
(9) Includes 41,088 shares owned by Mr. Blum's spouse, Laura Utley, as to
which Mr. Blum disclaims beneficial ownership. Also includes warrants
to purchase 58,763 shares of the Company's Common Stock exercisable
until January 14, 1998. Mr. Blum's address is 150 E. 58th Street, Suite
3400, New York, New York 10155. Pursuant to the Voting Agreement, Mr.
Blum and Ms. Utley are not entitled to vote the 574,586 shares of Common
Stock owned by them.
(10) Includes 16,680 shares owned by Mr. Hannesson's spouse, Suzanne G.
Hannesson, as to which Mr. Hannesson disclaims beneficial ownership.
Mr. Hannesson's address is 150 East 58th Street, New York, NY 10155.
Pursuant to the Voting Agreement, Mr. and Mrs. Hannesson are not
entitled to vote the 27,780 shares of Common Stock owned by them.
(11) Includes shares owned by Mr. Van Vranken's Individual Retirement
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.
(12) Mr. Weiss' address is 153 East 53rd Street, 35th Floor, New York, NY
10022.
(13) Mr. Toller's address is 1177 High Ridge Road, Stamford, CT 06905.
(14) Mr. Fullwood's address is 150 East 58th Street, New York, NY 10155.
(15) Consists entirely of a warrant to purchase 250,000 shares of Series F
Preferred Stock exercisable until June 30, 2000 at an exercise price of
$100 per share. This warrant may be exercised in part by exchanging the
20,000 shares of Series G Preferred Stock held by Commodore for a like
number of shares of Series F Preferred Stock. Commodore's address is
set forth in footnote 1 above.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In November 1996, the Company entered into a Merger Agreement with
Commodore Environmental Services, Inc. (Commodore) providing for the acquisition
of the Company by Commodore and the conversion of the Company's outstanding
Common Stock and Series A Preferred Stock into common stock of Commodore
(the Merger). The Merger was subject to several conditions, including the
completion of a public offering of Commodore capital stock with gross proceeds
of at least $50 million. In July 1997, the merger discussions were terminated
as a result of the consummation of the transaction between the Company and
Commodore described below.

In July 1997, Commodore obtained effective control of the Company pursuant
to the Voting Agreement which was executed in connection with the transactions
contemplated by the Securities Purchase Agreement. Pursuant to the Voting
Agreement, stockholders owning 50.1% of the outstanding Common Stock granted
proxies to the members of the Board of Directors of Commodore to vote all shares
of Common Stock held by each such stockholder until December 31, 1998.

Pursuant to the Securities Purchase Agreement, Commodore purchased 20,000
shares of Series G Preferred Stock for $2.0 million. For a description of the
terms of the Series G Preferred Stock, see Item 5 of this 10-KSB. The
Securities Purchase Agreement further provided that if prior to August 27, 1997,
Commodore received $10.5 million in financing, Commodore would purchase an
additional 85,000 shares of Series G Preferred Stock for an aggregate
purchase price of $8.5 million comprised of (x) $4.0 million in cash and (y) the
cancellation of the Company's outstanding indebtedness to Commodore and its
subsidiary, Commodore Applied Technology, Inc., in the amount of $4.5 million.
On August 27, 1997, Commodore informed the Company that it had not completed the
required financing and that it would not purchase the additional 85,000 shares
of Series G Preferred Stock.

Bentley J. Blum, a director and principal stockholder of the Company, is a
director and principal stockholder of Commodore. Paul E. Hannesson, the
Chairman of the Board of the Company, is the Chairman of the Board and the Chief
Executive Officer of Commodore. Pursuant to the Securities Purchase Agreement,
Michael Fullwood, the Senior Vice President, Chief Financial and Administrative
Officer, Secretary and General Counsel of Commodore, and William Toller, a
director of Commodore Separation Technologies, Inc., [a subsidiary of
Commodore], became members of the Board of Directors of the Company.

During the latter part of 1996, Lanxide Performance Materials, Inc. (LPM)
established an aggregate line of credit of $4.5 million with Commodore and its
subsidiary, Commodore Applied Technology, Inc. LPM has drawn all available
amounts under this line which bears interest at Citibank N.A.'s prime rate of
interest and matures on February 28, 1998.

ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K

a. 2.3 Recapitalization Plan, dated October 10, 1995. Incorporated by
reference to Exhibit 2.3 of the Company's Annual Report on Form
10-KSB for the fiscal year ended September 30, 1995.

2.4 Merger Agreement, dated October 10, 1995

3.5 Restated Certificate of Incorporation

3.6 By-laws. Incorporated by reference to Exhibit 3.2 of the
Company's Registration Statement on Form S-4 (No. 33-94186)

4.8 Specimen Certificate for Common Stock

4.9 Specimen Rights Certificate

4.10 Warrant Agreement, dated as of March 28, 1996, between QRS 12-
16, Inc. and the Company. Incorporated by reference to Exhibit
4.12 of the Company's Post-Effective Amendment No. 1 to the
Registration Statement on Form S-4 under cover of Form SB-1
(No. 33-94186).

4.11 Form of Warrant Agreement among the Company and the individuals
listed on Schedule A thereto. Incorporated by reference to
Exhibit 4.13 of the Company's Post-Effective Amendment No. 1 to
the Registration Statement on Form S-4 under cover of Form SB-1
(No. 33-94186).

4.12 Warrant Agreement, dated as of December 22, 1995, among the
Company and the officers listed on Schedule A thereto.
Incorporated by reference to Exhibit 4.14 of the Company's
Post-Effective Amendment No. 1 to the Registration
Statement on Form S-4 under cover of Form SB-1 (No. 33-94186).

4.14.1 Amendment to Warrant Agreement, dated June 26, 1996 among the
Company and the Warrantholders. Incorporated by reference to
Exhibit 4.14.1 to the Company's Quarterly Report on Form 10-QSB
for the fiscal quarter ended June 30, 1996.

9.1 Voting Trust Agreement, dated as of May 28, 1992, between
Kanematsu Corporation, the Company and Michael J. Hollins,
incorporated by reference to Exhibit 9.1 of the Company's
Registration Statement on Form S-4 (No. 33-94186)

10.23.1 License Agreement between the Company, Lanxide Technology
Company L.P. and Sturm, Ruger and Company, Inc., dated January
5, 1996. Incorporated by reference to Exhibit 10.23.1 of the
Company's Post-Effective Amendment No. 1 to the Registration
Statement on Form S-4 under cover of Form SB-1 (No. 33-94186)

10.24 Stock Purchase Agreement among LNX Acquisition Company, the
Company and Lanxide Technology Company, dated May 25, 1995.
Incorporated by reference to Exhibit 10.24 to the Company's
Registration Statement on Form S-4 (No. 33-94186)

10.25 Asset Purchase Agreement between Alanx Products Inc. and Alanx
Wear Solutions, Inc., dated June 26, 1995. Incorporated by
reference to Exhibit 10.25 to the Company's Registration
Statement on Form S-4 (No. 33-94186)

10.26 Guarantee (Asset Purchase Agreement) between the Company and
Alanx Wear Solutions, Inc., dated June 26, 1995. Incorporated
by reference to Exhibit 10.26 to the Company's Registration
Statement on Form S-4 (No. 33-94186)

10.28 Amendment to Note, dated August 15, 1995, between PNC Bank,
Delaware and the Company. Incorporated by reference to Exhibit
10.28 to the Company's Registration Statement on Form S-4 (No.
33-94186)

10.31 Letter Agreement between Alcan and the Company, dated July 14,
1995. Incorporated by reference to Exhibit 10.31 to the
Company's Registration Statement on Form S-4 (No. 33-94186)

10.32 Lease, between the Company and Terrace Realty, Inc. relating to
the Company's Forge Drive Facility, dated June 1, 1995.
Incorporated by reference to Exhibit 10.32 to the Company's
Registration Statement on Form S-4 (No. 33-94186)

10.36 Amendment to Loan Agreement between the Company and PNC Bank,
Delaware, dated September 29, 1995. Incorporated by reference
to Exhibit 10.36 to the Company's Registration Statement on
Form S-4 (No. 33-94186)

10.41 Amendment to Loan Agreement between the Company and PNC Bank,
Delaware, dated September 30, 1995. Incorporated by reference
to Exhibit 10.41 to the Company's Registration Statement on
Form S-4 (No. 33-94186)

10.43 1995 Employee Stock Option Plan. Incorporated by reference to
Exhibit 10.43 to the Company's Annual Report on Form 10-KSB for
the fiscal year ended September 30, 1995.

10.47 Amendment to Loan Agreement, dated December 7, 1995, between
PNC Bank, Delaware and the Company. Incorporated by reference
to Exhibit 10.47 to the Company's Annual Report on Form 10-KSB
for the fiscal year ended September 30, 1995.

10.48 Registration Rights Agreement, dated November 7, 1995, among
the Company, Alcan and Marc S. Newkirk. Incorporated by
reference to Exhibit 10.48 to the Company's Annual Report on
Form 10-KSB for the fiscal year ended September 30, 1995.

10.49 Special Warranty Deed, dated as of March 28, 1996, from the
Company to QRS 12-16, Inc. with respect to the Marrows Road
Facility. Incorporated by reference to Exhibit 10.49 of the
Company's Post-Effective Amendment No. 1 to the Registration
Statement on Form S-4 under cover of Form SB-1 (No. 33-94186)

10.50 Lease Agreement, dated as of March 28, 1996, between QRS 12-16,
Inc., as landlord, and the Company, as tenant. Incorporated by
reference to Exhibit 10.50 of the Company's Post-Effective
Amendment No. 1 to the Registration Statement on Form S-4 under
cover of Form SB-1 (No. 33-94186)

10.51 Sublease Agreement, dated as of March 28, 1996, between the
Company, as landlord, and Lanxide Armor Company, L.P., a
Delaware limited partnership (LAC), as subtenant. Incorporated
by reference to Exhibit 10.51 of the Company's Post-Effective
Amendment No. 1 to the Registration Statement on Form S-4 under
cover of Form SB-1 (No. 33-94186)

10.52 Sublease Agreement, dated as of March 28, 1996, between the
Company, as landlord, and DuPont Lanxide Composites, L.P., a
Delaware limited partnership (DLC), as subtenant. Incorporated
by reference to Exhibit 10.52 of the Company's Post-Effective
Amendment No. 1 to the Registration Statement on Form S-4 under
cover of Form SB-1 (No. 33-94186)

10.53 Sublease Agreement, dated as of March 28, 1996, between the
Company, as landlord, and Lanxide Electronic Components, Inc.,
a Delaware corporation (LEC), as subtenant. Incorporated by
reference to Exhibit 10.53 of the Company's Post-Effective
Amendment No. 1 to the Registration Statement on Form S-4 under
cover of Form SB-1 (No. 33-94186)

10.54 Assignment of Subleases and Rents, dated as of March 28, 1996,
between Lanxide and QRS 12-16, Inc. Incorporated by reference
to Exhibit 10.54 of the Company's Post-Effective Amendment No.
1 to the Registration Statement on Form S-4 under cover of Form
SB-1 (No. 33-94186)

10.55 Promissory Note, dated as of March 28, 1996, from QRS 12-16,
Inc. to the Company. Incorporated by reference to Exhibit
10.55 of the Company's Post-Effective Amendment No. 1 to the
Registration Statement on Form S-4 under cover of Form SB-1
(No. 33-94186)

10.56 Purchase and Sale Agreement, dated as of February 29, 1996,
among Nihon Cement Co. Ltd., Lanxide K.K. and Celanx, KK.
Incorporated by reference to Exhibit 10.56 of the Company's
Post-Effective Amendment No. 1 to the Registration Statement on
Form S-4 under cover of Form SB-1 (No. 33-94186)

10.57 Form of Settlement Agreement among the Company and the
individuals listed on Schedule A thereto. Incorporated by
reference to Exhibit 10.57 of the Company's Post-Effective
Amendment No. 1 to the Registration Statement on Form S-4 under
cover of Form SB-1 (No. 33-94186)
10.58 Registration Rights Agreement, dated as of April 11, 1996,
between Mees Pierson, Inc. and the Company. Incorporated by
reference to Exhibit 10.58 of the Company's Post-Effective
Amendment No. 1 to the Registration Statement on Form S-4 under
cover of Form SB-1 (No. 33-94186)

10.59.10 Sale of Interest Agreement, dated June 28, 1996, among DuPont,
Lanxide Armor Products, Inc. and Lanxide Armor Company, Inc.
Incorporated by reference to Exhibit 2.0 of the Company's
current report on Form 8-K filed on July 17, 1996.

10.59.20 Sale of Interest Agreement, dated June 28, 1996, between DuPont
and the Company. Incorporated by reference to Exhibit 2.1 of
the Company's current report on Form 8-K filed on July 17,
1996.

10.59.30 Sale of Interest Agreement, dated June 28, 1996, among DuPont,
Lanxide Technology Company, L.P. and DuPont Lanxide Composites,
Inc. Incorporated by reference to Exhibit 2.2 of the Company's
current report on Form 8-K filed on July 17, 1996.

10.59.40 Letter Agreement, dated June 28, 1996, between the Company and
DuPont relating to the Guaranty Agreement, dated February 11,
1993. Incorporated by reference to Exhibit 10.59 of the
Company's current report on Form 8-K filed on July 17, 1996.

10.60 Agreement and Plan of Merger, dated November 13, 1996, by and
among the Company, Commodore and COES Acquisition Corp.
Incorporated by reference to Exhibit 1 to the Company's Current
Report on Form 8-K, dated November 13, 1996.

10.61 Line of Credit Agreement, dated November 13, 1996, by
and between Lanxide Performance Materials, Inc. and Commodore.
Incorporated by reference to Exhibit 3 to the Company's Current
Report on Form 8-K, dated November 13, 1996.

10.62 Line of Credit Promissory Note, dated November 13, 1996, by
Lanxide Performance Materials, Inc. in favor of Commodore.
Incorporated by reference to Exhibit 4 to the Company's Current
Report on Form 8-K, dated November 13, 1996.

10.63 Security Agreement, dated November 13, 1996, by and between
Lanxide Performance Materials, Inc. and Commodore.
Incorporated by reference to Exhibit 5 to the Company's Current
Report on Form 8-K, dated November 13, 1996.

10.64 Guaranty, dated November 13, 1996, by the Company in favor of
Commodore. Incorporated by reference to Exhibit 6 to the
Company's Current Report on Form 8-K, dated November 13, 1996.

10.65 Letter Agreement, dated November 13, 1996, by and between
Lanxide Performance Materials, Inc. and Commodore Applied
Technologies, Inc. Incorporated by reference to Exhibit 7 to
the Company's Current Report on Form 8-K, dated November 13,
1996.

10.66 Joint Development Agreement, dated as of October 25, 1996, by
and among Akebono Brake Industry Co., Ltd., Nihon Cement
Company Ltd. and the Company. Incorporated by reference to
Exhibit 10.66 of the Company's Annual Report on Form 10-KSB for
the fiscal year ended September 30, 1996.

10.67 Joint Venture Agreement, dated as of October 25, 1996 by and
among Akebono Brake Industry Co., Ltd., Nihon Cement
Company Ltd., Lanxide K.K., Kanematsu Corporation and the
Company. Incorporated by reference to Exhibit 10.67 of the
Company's Annual Report on Form 10-KSB for the fiscal year
ended September 30, 1996. (Portions of this exhibit have been
omitted pursuant to a request for confidential treatment by
Lanxide Corporation, which has been granted.)

10.68 Settlement Agreement, dated January 30, 1997, among the
Company, the plaintiffs listed in Exhibit A thereto, (the
"Plaintiffs") and Bentley J. Blum. Incorporated by reference
to Exhibit 10.68 of the Company's Quarterly Report on Form 10-
QSB for the quarter ended March 31, 1997.

10.69 Promissory Note of the Company, dated January 30, 1997 in favor
of the Plaintiffs. Incorporated by reference to Exhibit B of
Exhibit 10.68 of the Company's Quarterly Report on Form 10-QSB
for the quarter ended March 31, 1997.

10.70 Securities Purchase Agreement, dated July 3, 1997, between the
Company and Commodore Environmental Services, Inc.
Incorporated by reference to Exhibit 10.70 of the Company's
Current Report on Form 8-K filed on July 18, 1997. (No. 0-
16293)

10.71 License Agreement between the Company and Nihon Cement Company,
Ltd. dated September 5, 1997. (Portions of Exhibit 10.71 have
been omitted pursuant to a request for confidential treatment.)

21.1 Subsidiaries of the Company.

27 Financial Data Schedule

b. Reports on Form 8-K

The Company filed a Current Report on Form 8-K dated October 2,
1996, reporting the revised structure of the previously announced
merger transaction with Commodore.

The Company filed a Current Report on Form 8-K dated October 24,
1996, reporting the determination by the Board of Directors not
to change its fiscal year end to December 31.

The Company filed a Current Report on Form 8-K dated November 13,
1996, reporting (i) the execution of the Merger Agreement and
(ii) the execution of loan documents between Commodore and
Lanxide Performance Materials, Inc.

The Company filed a Current Report on Form 8-K dated July 18,
1997, reporting the change in control of the Company.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

Lanxide Corporation Date

/s/Marc S. Newkirk January 13, 1998
__________________________ ________________

By: Marc S. Newkirk
President and Chief
Executive Officer

Pursuant to the requirements of the Exchange Act, the report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date

<S> <C> <C>
/s/ Marc S. Newkirk President, Chief Executive Officer
______________________________ and Director January 13, 1998

Marc S. Newkirk

/s/ Robert J. Ferris Secretary, Treasurer
______________________________ and Vice President, Administration January 13, 1998

Robert J. Ferris

/s/ William R. Toller Vice Chairman,
______________________________ Senior Executive Officer and Director January 13, 1998

William R. Toller

/s/ Michael D. Fullwood Senior Vice President,
______________________________ Chief Financial and Administrative Officer,
General Counsel and Director January 13, 1998
Michael D. Fullwood

/s/ Bentley J. Blum Director January 13, 1998
______________________________

Bentley J. Blum

/s/ J. Frederick Van Vranken, Jr. Director January 13, 1998
______________________________

J. Frederick Van Vranken, Jr.

/s/ Paul E. Hannesson Director January 13, 1998
______________________________

Paul E. Hannesson

/s/ Stephen A. Weiss Director January 13, 1998
______________________________

Stephen A. Weiss
</TABLE>

EXHIBIT INDEX

Sequential
Exhibit Page
Number Description Number
- ------ ----------- ------
* 2.3 Recapitalization Plan, dated October 10, 1995.
Incorporated by reference to Exhibit 2.3 of the
Company's Annual Report on Form 10-KSB for the fiscal
year ended September 30, 1995.

* 2.4 Merger Agreement, dated October 10, 1995

* 3.5 Restated Certificate of Incorporation

* 3.6 By-laws. Incorporated by reference to Exhibit 3.2 of
the Company's Registration Statement on Form S-4 (No.
33-94186)

* 4.8 Specimen Certificate for Common Stock

* 4.9 Specimen Rights Certificate

* 4.10 Warrant Agreement, dated as of March 28, 1996, between
QRS 12-16, Inc. and the Company. Incorporated by
reference to Exhibit 4.12 of the Company's Post-
Effective Amendment No. 1 to the Registration Statement
on Form S-4 under cover of Form SB-1 (No. 33-94186).
* 4.11 Form of Warrant Agreement among the Company and the
individuals listed on Schedule A thereto. Incorporated
by reference to Exhibit 4.13 of the Company's Post-
Effective Amendment No. 1 to the Registration Statement
on Form S-4 under cover of Form SB-1 (No. 33-94186).

* 4.12 Warrant Agreement, dated as of December 22, 1995, among
the Company and the officers listed on Schedule A
thereto. Incorporated by reference to Exhibit 4.14 of
the Company's Post-Effective Amendment No. 1 to the
Registration Statement on Form S-4 under cover of Form
SB-1 (No. 33-94186).

* 4.14.1 Amendment to Warrant Agreement, dated June 26, 1996
among the Company and the Warrantholders. Incorporated
by reference to Exhibit 4.14.1 to the Company's
Quarterly Report on Form 10-QSB for the fiscal quarter
ended June 30, 1996.

* 9.1 Voting Trust Agreement, dated as of May 28, 1992,
between Kanematsu Corporation, the Company and Michael
J. Hollins, incorporated by reference to Exhibit 9.1 of
the Company's Registration Statement on Form S-4 (No.
33-94186)

* 10.23.1 License Agreement between the Company, Lanxide
Technology Company L.P. and Sturm, Ruger and Company,
Inc., dated January 5, 1996. Incorporated by reference
to Exhibit 10.23.1 of the Company's Post-Effective
Amendment No. 1 to the Registration Statement on Form S-
4 under cover of Form SB-1 (No. 33-94186)
* 10.24 Stock Purchase Agreement among LNX Acquisition Company,
the Company and Lanxide Technology Company, dated May
25, 1995. Incorporated by reference to Exhibit 10.24 to
the Company's Registration Statement on Form S-4 (No.
33-94186)

* 10.25 Asset Purchase Agreement between Alanx Products Inc. and
Alanx Wear Solutions, Inc., dated June 26, 1995.
Incorporated by reference to Exhibit 10.25 to the
Company's Registration Statement on Form S-4 (No. 33-
94186)

* 10.26 Guarantee (Asset Purchase Agreement) between the Company
and Alanx Wear Solutions, Inc., dated June 26, 1995.
Incorporated by reference to Exhibit 10.26 to the
Company's Registration Statement on Form S-4 (No. 33-
94186)

* 10.28 Amendment to Note, dated August 15, 1995, between PNC
Bank, Delaware and the Company. Incorporated by
reference to Exhibit 10.28 to the Company's Registration
Statement on Form S-4 (No. 33-94186)

* 10.31 Letter Agreement between Alcan and the Company, dated
July 14, 1995. Incorporated by reference to Exhibit
10.31 to the Company's Registration Statement on Form S-
4 (No. 33-94186)

* 10.32 Lease, between the Company and Terrace Realty, Inc.
relating to the Company's Forge Drive Facility, dated
June 1, 1995. Incorporated by reference to Exhibit
10.32 to the Company's Registration Statement on Form S-
4 (No. 33-94186)

* 10.36 Amendment to Loan Agreement between the Company and PNC
Bank, Delaware, dated September 29, 1995. Incorporated
by reference to Exhibit 10.36 to the Company's
Registration Statement on Form S-4 (No. 33-94186)

* 10.41 Amendment to Loan Agreement between the Company and PNC
Bank, Delaware, dated September 30, 1995. Incorporated
by reference to Exhibit 10.41 to the Company's
Registration Statement on Form S-4 (No. 33-94186)

* 10.43 1995 Employee Stock Option Plan. Incorporated by
reference to Exhibit 10.43 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended
September 30, 1995.

* 10.47 Amendment to Loan Agreement, dated December 7, 1995,
between PNC Bank, Delaware and the Company.
Incorporated by reference to Exhibit 10.47 to the
Company's Annual Report on Form 10-KSB for the fiscal
year ended September 30, 1995.

* 10.48 Registration Rights Agreement, dated November 7, 1995,
among the Company, Alcan and Marc S. Newkirk.
Incorporated by reference to Exhibit 10.48 to the
Company's Annual Report on Form 10-KSB for the fiscal
year ended September 30, 1995.

* 10.49 Special Warranty Deed, dated as of March 28, 1996, from
the Company to QRS 12-16, Inc. with respect to the
Marrows Road Facility. Incorporated by reference to
Exhibit 10.49 of the Company's Post-Effective Amendment
No. 1 to the Registration Statement on Form S-4 under
cover of Form SB-1 (No. 33-94186)

* 10.50 Lease Agreement, dated as of March 28, 1996, between QRS
12-16, Inc., as landlord, and the Company, as tenant.
Incorporated by reference to Exhibit 10.50 of the
Company's Post-Effective Amendment No. 1 to the
Registration Statement on Form S-4 under cover of Form
SB-1 (No. 33-94186)

* 10.51 Sublease Agreement, dated as of March 28, 1996, between
the Company, as landlord, and Lanxide Armor Company,
L.P., a Delaware limited partnership (LAC), as
subtenant. Incorporated by reference to Exhibit 10.51
of the Company's Post-Effective Amendment No. 1 to the
Registration Statement on Form S-4 under cover of Form
SB-1 (No. 33-94186)

* 10.52 Sublease Agreement, dated as of March 28, 1996, between
the Company, as landlord, and DuPont Lanxide Composites,
L.P., a Delaware limited partnership (DLC), as
subtenant. Incorporated by reference to Exhibit 10.52
of the Company's Post-Effective Amendment No. 1 to the
Registration Statement on Form S-4 under cover of Form
SB-1 (No. 33-94186)

* 10.53 Sublease Agreement, dated as of March 28, 1996, between
the Company, as landlord, and Lanxide Electronic
Components, Inc., a Delaware corporation (LEC), as
subtenant. Incorporated by reference to Exhibit 10.53
of the Company's Post-Effective Amendment No. 1 to the
Registration Statement on Form S-4 under cover of Form
SB-1 (No. 33-94186)

* 10.54 Assignment of Subleases and Rents, dated as of March 28,
1996, between Lanxide and QRS 12-16, Inc. Incorporated
by reference to Exhibit 10.54 of the Company's Post-
Effective Amendment No. 1 to the Registration Statement
on Form S-4 under cover of Form SB-1 (No. 33-94186)

* 10.55 Promissory Note, dated as of March 28, 1996, from QRS
12-16, Inc. to the Company. Incorporated by reference
to Exhibit 10.55 of the Company's Post-Effective
Amendment No. 1 to the Registration Statement on Form S-
4 under cover of Form SB-1 (No. 33-94186)

* 10.56 Purchase and Sale Agreement, dated as of February 29,
1996, among Nihon Cement Co. Ltd., Lanxide K.K. and
Celanx, KK. Incorporated by reference to Exhibit 10.56
of the Company's Post-Effective Amendment No. 1 to the
Registration Statement on Form S-4 under cover of Form
SB-1 (No. 33-94186)

* 10.57 Form of Settlement Agreement among the Company and the
individuals listed on Schedule A thereto. Incorporated
by reference to Exhibit 10.57 of the Company's Post-
Effective Amendment No. 1 to the Registration Statement
on Form S-4 under cover of Form SB-1 (No. 33-94186)

* 10.58 Registration Rights Agreement, dated as of April 11,
1996, between Mees Pierson, Inc. and the Company.
Incorporated by reference to Exhibit 10.58 of the
Company's Post-Effective Amendment No. 1 to the
Registration Statement on Form S-4 under cover of Form
SB-1 (No. 33-94186)

* 10.59.10 Sale of Interest Agreement, dated June 28, 1996, among
DuPont, Lanxide Armor Products, Inc. and Lanxide Armor
Company, Inc. Incorporated by reference to Exhibit 2.0
of the Company's current report on Form 8-K filed on
July 17, 1996.

* 10.59.20 Sale of Interest Agreement, dated June 28, 1996, between
DuPont and the Company. Incorporated by reference to
Exhibit 2.1 of the Company's current report on Form 8-K
filed on July 17, 1996.

* 10.59.30 Sale of Interest Agreement, dated June 28, 1996, among
DuPont, Lanxide Technology Company, L.P. and DuPont
Lanxide Composites, Inc. Incorporated by reference to
Exhibit 2.2 of the Company's current report on Form 8-K
filed on July 17, 1996.

* 10.59.40 Letter Agreement, dated June 28, 1996, between the
Company and DuPont relating to the Guaranty Agreement,
dated February 11, 1993. Incorporated by reference to
Exhibit 10.59 of the Company's current report on Form 8-
K filed on July 17, 1996.

* 10.60 Agreement and Plan of Merger, dated November 13, 1996,
by and among the Company, Commodore and COES Acquisition
Corp. Incorporated by reference to Exhibit 1 to the
Company's Current Report on Form 8-K, dated November 13,
1996.

* 10.61 Line of Credit Agreement, dated November 13, 1996, by
and between Lanxide Performance Materials, Inc. and
Commodore. Incorporated by reference to Exhibit 3 to
the Company's Current Report on Form 8-K, dated November
13, 1996.

* 10.62 Line of Credit Promissory Note, dated November 13, 1996,
by Lanxide Performance Materials, Inc. in favor of
Commodore. Incorporated by reference to Exhibit 4 to
the Company's Current Report on Form 8-K, dated November
13, 1996.

* 10.63 Security Agreement, dated November 13, 1996, by and
between Lanxide Performance Materials, Inc. and
Commodore. Incorporated by reference to Exhibit 5 to
the Company's Current Report on Form 8-K, dated November
13, 1996.

* 10.64 Guaranty, dated November 13, 1996, by the Company in
favor of Commodore. Incorporated by reference to
Exhibit 6 to the Company's Current Report on Form 8-K,
dated November 13, 1996.

* 10.65 Letter Agreement, dated November 13, 1996, by and
between Lanxide Performance Materials, Inc. and
Commodore Applied Technologies, Inc. Incorporated by
reference to Exhibit 7 to the Company's Current Report
on Form 8-K, dated November 13, 1996.

* 10.66 Joint Development Agreement, dated as of October 25,
1996, by and among Akebono Brake Industry Co.,
Ltd., Nihon Cement Company Ltd. and the Company.
Incorporated by reference to Exhibit 10.66 of the
Company's Annual Report on Form 10-KSB for the fiscal
year ended September 30, 1996.

* 10.67 Joint Venture Agreement, dated as of October 25, 1996 by
and among Akebono Brake Industry Co., Ltd., Nihon Cement
Company Ltd., Lanxide K.K., Kanematsu Corporation and
the Company. Incorporated by reference to Exhibit 10.67
of the Company's Annual Report on Form 10-KSB for the
fiscal year ended September 30, 1996. (Portions of this
exhibit have been omitted pursuant to a request for
confidential treatment by Lanxide Corporation, which has
been granted.)

* 10.68 Settlement Agreement, dated January 30, 1997, among the
Company, the plaintiffs listed in Exhibit A thereto,
(the "Plaintiffs") and Bentley J. Blum. Incorporated by
reference to Exhibit 10.68 of the Company's Quarterly
Report on Form 10-QSB for the quarter ended March 31,
1997.

* 10.69 Promissory Note of the Company, dated January 30, 1997
in favor of the Plaintiffs. Incorporated by reference
to Exhibit B of Exhibit 10.68 of the Company's Quarterly
Report on Form 10-QSB for the quarter ended March 31,
1997.

* 10.70 Securities Purchase Agreement, dated July 3, 1997,
between the Company and Commodore Environmental
Services, Inc. Incorporated by reference to Exhibit
10.70 of the Company's Current Report on Form 8-K
filed on July 18, 1997. (No. 0-16293)

10.71 License Agreement between the Company and Nihon Cement
Company, Ltd. dated September 5, 1997. (Portions of
Exhibit 10.71 have been omitted pursuant to a request
for confidential treatment.)

21.1 Subsidiaries of the Company.

27 Financial Data Schedule

* previously filed

* THIS MATERIAL HAS BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT AND SUCH MATERIAL HAS BEEN FILED SEPARATELY.

LICENSE AGREEMENT
_________________

This License Agreement ("Agreement"), dated as of September 5, 1997, (the
"Effective Date" is made among

1. Lanxide Technology Company L.P. of 1300 Marrows Road, P.O. Box 6077,
Newark, Delaware 19714-6077, U.S.A., a Delaware limited partnership
("LTC"),

2. Nihon Cement Company, Ltd. of Ohtemachi Bldg., No. 6-1, 1-Chome,
Ohtemachi, Chiyoda-ku, Tokyo 100, JAPAN, a Japanese corporation
("Licensee"), and

3. Lanxide Corporation of 1300 Marrows Road, P.O. Box 6077, Newark,
Delaware 19714-6077, U.S.A., a Delaware corporation ("Lanxide").

WHEREAS, LTC is wholly owned and controlled by Lanxide; and

WHEREAS LTC holds rights in certain valuable technology and Lanxide holds
rights in certain valuable trademarks; and

WHEREAS, Licensee wishes to license certain of such rights for the purposes
defined herein; and

NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereto hereby agree as follows:

I. DEFINITIONS

Terms used with initial capital letters in this Agreement shall have the
meaning set forth below

1.1 "Affiliates(s)" of a corporation or other entity means a Person that,
directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with, such person.

1.2 "AKN" shall mean AKN Corporation, a Japanese Company licensed by
Lanxide K.K. in the field of brake components.

1.3 "Ceramic-Reinforced Aluminum" ("CRA") shall mean materials comprised of
a qdiscontinuous ceramic reinforcing phase and a continuous aluminum
metal matrix phase.

1.4 "CRA Materials" shall mean those items listed as inclusions in Schedule
A to this Agreement.

1.5 "DLC" shall mean Du Pont Lanxide Composites, Inc., a Delaware
corporation licensed by Lanxide and its Affiliates in the field of
aerospace, turbine engine heat exchanger and rocket nozzle components.

1.6 "Government Entity" shall mean any sovereign, state or political
subdivision thereof, whether foreign or domestic

1.7 "Government Regulations" shall mean and include any and all terms,
conditions and provisions of (a) any law, regulation, order, statute,
decree, rule, writ, injunction, determination or award of any court or
Governmental Entity and (b) any contract for research, development
and/or manufacturing between LTC and any department or agency of the
United States government but only to the extent such contracts reflect
provisions required by clause (a) above to be included therein.

1.8 "Japan" shall mean the country of Japan to the extent of its geographic
boundaries as of the Effective Date.

1.9 "Lanxide K.K." shall mean Lanxide Kabushiki Kaisha, a Japanese Stock
Company licensed by Lanxide and its Affiliates with certain product
rights in Japan.

1.10 "LAP" shall mean Lanxide Armor Products, Inc. a Delaware Corporation
licensed by Lanxide and its Affiliates in the field of armor products.

1.11 "LEC" shall mean Lanxide Electronic Components, Inc. a Delaware
Corporation licensed by Lanxide and its Affiliates in the field of
electronic products.

1.12 "Licensed Technology" shall mean Technology which is now or hereafter
owned by LTC, and all other Technology licensed to LTC without
restriction upon the grant of sublicenses, that is relevant to CRA
Materials which are comprised of CRA, but excluding Technology the
transfer or license of which, or an interest in which, would be
expressly prohibited, either generally or specifically, by Government
Regulations.

1.13 "Permitted Licensees" shall mean licensees of Lanxide, LTC or Lanxide
K.K. other than DLC, LAP, LEC or their successors or assigns.

1.14 "Person" shall mean any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated
organization or government or any agency or political subdivision
thereof.

1.15 "Raw Materials" shall mean ceramic powders, ceramic paper, fibers
and/or polymers produced using technology owned by or licensed to
Lanxide or its Affiliates.

1.16 "Technology" shall mean technical information, know-how data,
techniques, patents, patent applications and trade secrets.

1.17 "Territory B" shall mean the geographic area as defined in Schedule B.

II. GRANT OF TECHNOLOGY LICENSES

2.1 Japan

2.1.1 License to Licensed Technology. Subject to Government Regulations and
the provisions of this Agreement, LTC hereby grants to Licensee a
perpetual license to use the Licensed Technology solely for the
manufacture of CRA Materials in Japan, and the sale of CRA Materials:

(i) in Japan but only to Permitted Licensees who are licensed by
Lanxide K.K. to use CRA Materials to manufacture cast products
in Japan, and only for their use in manufacturing such licensed
cast products, and

(ii) in Territory B but only to Permitted Licensees who are licensed
by Lanxide and/or LTC to use CRA Materials to manufacture cast
products in Territory B, and only for their use in
manufacturing such licensed cast products.

2.1.2 Non-Exclusive Using/Selling Rights. The license of Licensed Technology
granted under paragraph 2.1.1 shall be exclusive in Japan except that:

(i) the Licensees right to sell CRA Materials to AKN shall be
non-exclusive,

(ii) DLC, LAP, LEC or their successors or assigns shall retain the
right to make and use CRA Materials in Japan, and

(iii) it shall be subject to the rights, now or in the future, of
other authorized users of the Licensed Technology to use CRA
Materials within Japan; provided that LTC agrees not to grant
to any party any future license rights, beyond the scope of the
license rights granted to DLC, LAP, LEC and AKN, to make and
sell products made using CRA Materials in Japan.

2.1.3 Rights Outside Japan. The license granted under paragraph 2.1.1 shall
not include:

(i) any rights to use the Licensed Technology for the manufacture
of CRA Materials outside the Japan, or

(ii) any right to export CRA Materials from Japan except the right
to sell CRA Materials non-exclusively in Territory B to
Permitted Licensees who are licensed by Lanxide and/or LTC to
use CRA Materials to manufacture cast products in Territory B
but only for their use in manufacturing such licensed cast
products.

2.2 Territory B.

2.2.1 License to Licensed Technology. Subject to Government Regulations and
the provisions of this Agreement, LTC hereby grants to Licensee a
perpetual license to use the Licensed Technology in Territory B solely
for the manufacture of CRA Materials in Territory B and the sale of CRA
Materials:

2.2.2 Non-Exclusive Using/Selling Rights. The license of Licensed Technology
granted under paragraph 2.1 shall be non-exclusive and subject to:

(i) the rights of DLC, LAP, LEC or their successors or assigns to
make and use CRA Materials within Territory B, and

(ii) the rights, now or in the future, of other authorized users of
the Licensed Technology to use CRA Materials within Territory
B.

2.2.3 Rights Outside Territory B. The license granted under paragraph 2.2.1
shall not include:

(i) any rights to use the Licensed Technology for the manufacture
of CRA Materials outside Territory B or

(ii) any right to export CRA Materials from Territory B except the
right to sell CRA Materials non-exclusively in Japan to
Permitted Licensees who are licensed by Lanxide K.K. to use CRA
Materials to manufacture cast products in Japan but only for
their use in manufacturing such licensed cast products.

2.3 Limitations on License. With respect to the Licensed Technology,
Licensee and its authorized sublicensees may conduct design and
engineering on Product applications and manufacturing. New materials
development and process research relating to Licensed Technology may
performed by Licensee and its authorized sublicensees to the extent
that is related to the development or manufacture of CRA Materials.

2.4 Sublicensing Rights. The Licenses granted under paragraph 2.1 and 2.2
shall not include the right to grant sublicenses without the prior
written consent of LTC, except that the Licensee may sublicense its
wholly owned subsidiary Celanx Kabushiki Kaisha ("Celanx'') to use the
Licensed Technology on terms no less restrictive to Celanx than those
granted to the Licensee in this Agreement. In the event of such
sublicense Celanx shall affirm its obligations to Lanxide and LTC as if
it were the Licensee.

2.5 Reservation of Rights. No rights are granted under the Licensed
Technology except as expressly set forth in this Section 2 and all
rights not expressly granted are reserved.

2.6 Provision of Technology. Subject to applicable Government Regulations,
including obtaining any necessary licenses prior to disclosure, LTC or
Lanxide shall, make available in the English language and U.S. units of
measurement to Licensee at Licensee's request: (i) within two weeks of
the Effective Date complete copies of all standard Operating Procedures
in use at Lanxide used for the Manufacture of CRA Materials;
(ii) prompt training at Lanxide facilities in Newark, Delaware of any
engineers provided by Nihon Cement or Celanx KK with respect to CRA
Materials; (iii) additional technical support at a cost to Licensee
equal to LTC's or Lanxide's fully burdened cost according to Generally
Accepted Accounting Principles (GAAP) and on a basis of availability no
less favorable to the Licensee than that afforded to any other licensee
of the Licensed Technology.

2.7 Protection of Technology. Licensee shall not use and shall not permit
its authorized sublicensees to use the Licensed Technology for any
purpose other than to manufacture, use and sell CRA Materials, as
provided in this Agreement. Licensee shall take no action in respect
of the Licensed Technology which is inconsistent with the terms of the
licenses granted under this Agreement.

2.8 Acknowledgment of Rights; Patent Marking. Licensee acknowledges that
Licensee's right to use the Licensed Technology arises only out of the
licenses granted under this Agreement. All CRA Materials manufactured
under issued patents of LTC shall bear a patent notice as may be
necessary or desirable under the Laws of the applicable Government
Entities.

III. FEE AND ROYALTY

3.1 Fee Payment and Amount. Licensee shall pay to LTC a license fee in
accordance with the following schedule:

Payment to be made on or before September 5, 1997 to Lanxide K.K. as
the agent of Lanxide (the "Fee").

3.2 Third Party Royalties. In any case where use of Licensed Technology
requires or required LTC to pay a royalty to a third party (whether
lump-sum or payable by reference to sales) under the terms of any
future third party license that LTC may enter into, then in the event
that Licensee determines to use such Technology, Licensee will be
responsible for payment to LTC of a further amount equal to the royalty
payable to the third party attributable to sales by Licensee and its
authorized sublicensees. In case LTC needs to obtain a third party
technology which LTC is aware may be useful to licensee and therefore
may require Licensee to be responsible for additional royalty, Lanxide
shall let Licensee know the need, with prior written form, and consult
with Licensee as to whether such additional technology is truly
necessary. If Licensee decides such technology is unnecessary,
Licensee shall have the right not to use such third party technology
and therefore not be required to pay any third party royalty associated
therewith. Even though Licensee decides such technology is
unnecessary, subject to the terms of this License Agreement, Licensee
can use licensed technology not requiring such third party royalty.

3.3 Tax Withholding. Licensee may withhold taxes from royalties payable
hereunder only to the extent that such withholding is required under
applicable law and to the extent that Licensee provides copies of all
documents required by LTC hereunder to claim credit for such foreign
tax payment.

3.4 Payment and Accounting. Third party royalties due under this Agreement
shall be paid in U.S. dollars to the bank account specified by LTC
within 45 days after each of December 31, March 31, June 30 and
September 30, in relation to the period of three (3) calendar months
(or less in the case of the first such period) ending on such date.
Overdue payments shall bear interest at the annual rate of two percent
(2%) above the prime rate of Citibank, in New York.

3.5 Books and Records. Licensee shall keep proper books and records
showing the description and price of products sold, and such records
shall be open at all reasonable times to inspection by Lanxide or its
representatives, who shall be entitled to take copies of such books and
records.

3.6 Currency Conversion. For the purpose of converting into U.S. dollars
the currency in which royalties may arise, the rate of exchange to be
applied shall be the rate of exchange for the purchase of U.S. dollars
with the currency quoted by Citibank, in New York as at the close of
business on the last business day of the quarterly period to which a
payment shall relate.

IV. TERM AND TERMINATION

4.1 Effective Date. This Agreement shall come into effect upon the
Effective Date set forth in the first page hereof. This Agreement
shall thereafter be perpetual and non-cancellable, subject to earlier
termination as provided herein.

4.2 Events of Termination. This Agreement may be terminated upon the
happening of any of the following events:

(i) Upon written notice from LTC or Lanxide, in the event that
Licensee is in material breach of any of its obligations under
this Agreement each dated one year earlier than the date hereof
to which both Licensee and Lanxide are parties, and fails to
remedy that breach within 30 days after receipt of written
notice from LTC or Lanxide, requiring it to remedy that breach;

(ii) Upon written notice from LTC or Lanxide, in the event that
Licensee ceases to carry on business, becomes or is declared
insolvent, files or has filed against it a petition in
bankruptcy, has a receiver appointed over its assets, or takes
or has taken against it any similar act as a result of debt;

(iii) Upon written notice by Licensee to LTC.

(iv) As provided elsewhere in this Agreement

4.3 Effects of Termination. On termination of this Agreement for any
reason, the following provisions shall have effect;

(i) All licenses and rights granted to Licensee by Licensor shall
forthwith cease and Licensee shall cooperate in cancelling any
registration of such licenses.

(ii) Licensee shall, except as otherwise agreed with LTC or Lanxide,
as applicable, forthwith cease all use of the Licensed
Technology and the Trademarks.

(iii) Termination of this Agreement shall not affect the continued
enforceability of Section 8 and the continued existence of the
license from Licensee to Licensor under paragraph 6.1 hereunder
of improvements and inventions made up to the date of
termination.

(iv) Licensee shall promptly deliver all Proprietary Information in
all forms to LTC or to its authorized representatives

4.4 LTC License. In the event that Lanxide ceases to carry on business,
becomes or is declared insolvent, files or has filed against it a
petition in bankruptcy, has a receiver appointed over its assets, or
takes or has taken against it any similar act as a result of debt, as a
result of action or inaction by some Person other than Licensee or LTC
or a Person controlled by Licensee or LTC; LTC shall take the measures
under the applicable laws to retain its rights under any agreement
between LTC and Lanxide relating to the Licensed Technology, as such
rights existed immediately before the happening of such an event.

V. GOVERNMENT REGULATIONS, ETC.

5.1 Compliance with Government Regulations. The grant of licenses and the
transfer of Licensed Technology under this Agreement shall be
conditional on all necessary governmental consents and licenses being
obtained and maintained. LTC and Licensee shall use reasonable efforts
to obtain all such consents and licenses. Licensee shall comply with
all Government Regulations governing export of goods and information
from Japan and Territory B and between the various countries of Japan
and Territory B, including without limitation the Export Administration
Regulations of the United States (15 C.F.R. 730 et seq.) as such may be
amended from time to time, and the terms of any licenses or consents
obtained.

VI. PATENTS AND IMPROVEMENTS

6.1 Rights in Inventions. Licensee shall promptly disclose to LTC any
inventions or improvements which relate to composition and processing
of Ceramic-Reinforced Aluminum as material for CRA Materials that are
made by Licensee's employees or by the employees of any authorized
sublicensees without the participation of any of the employees of LTC
or its Affiliates and Licensee shall obtain the right to grant, and
grant, to LTC a full world-wide, royalty-free, perpetual, irrevocable,
non-exclusive license to make, use and sell such improvements or
inventions in any manner not prevented by the terms of the license to
Licensee under this agreement, with full right by LTC to grant
sublicenses of such improvements or inventions which themselves include
the right to sublicense.

The provisions of this Section 6.1 shall not affect the ownership of
inventions or improvements made by employees of LTC or its Affiliates
(with or without the participation of the employees of the Licensee or
its authorized sublicensees) which inventions and improvements shall be
the property of LTC or its Affiliates, but subject to the license
granted under this Agreement.

6.2 Prosecution and Registration. Licensee shall not seek any patent or
other intellectual property registration in relation to the Licensed
Technology in its own name, other than improvements and inventions
relating to the Licensed Technology made by Licensee's employees with
or without the participation of employees of authorized sublicensees or
contract manufacturers. Licensee will cooperate with LTC as reasonably
requested by LTC in relation to obtaining and prosecuting patents in
the name of LTC. In addition LTC and Licensee shall cooperate in
seeking the registration of this Agreement or of an executed registered
user agreement as may be necessary or desirable under the laws of any
country to record the patent license granted under this Agreement at
the reasonable expense of Licensee.

6.3 Actions and Claims Against Third Parties. If, during the term of this
Agreement, Licensee learns of any infringement, unfair competition or
misappropriation ("Infringement") by a third party of any Licensed
Technology licensed exclusively to Licensee, Licensee shall promptly
and fully notify LTC in writing.

6.4 Infringement Claims by Third Parties. If, during the term of this
Agreement, any claim or action is threatened or commenced by a third
party alleging Infringement of third party rights by practice of
Licensed Technology by Licensee, Licensee shall promptly and fully
notify LTC in writing.

6.5 Procedure. LTC shall have the right, but not the obligation, to take
all reasonable steps to prosecute or defend any such claim or action
relating to the matter set forth in paragraphs 6.3 or 6.4, and may
institute, defend, or settle claims, actions or proceedings at its
expense. Licensee, at LTC's request shall render all reasonable
assistance and cooperation at LTC's expense. If LTC refuses or fails
to take or defend such actions within six (6) months after receipt of
the notice described above (or such shorter period as shall be
reasonable in the circumstances), then Licensee shall have the right
(but not the obligation), after first notifying LTC in writing, to
institute, defend or settle such actions or claims or proceedings,
which shall be at Licensee's expense. In such case LTC, at Licensee's
request, shall render all reasonable assistance and cooperation at
Licensee's expense, and LTC shall have the right to participate in such
proceedings through LTC's own counsel. In no event shall LTC bear any
expense of any claims, actions, or proceedings not instituted or
defended by LTC unless their written consent is obtained prior to the
institution or defense of such claims, actions, or proceedings. In
addition, LTC will have the right to instruct Licensee to modify or
terminate any practices which have given rise to a claim of
Infringement of third party rights.

VII. CONFIDENTIALITY, RESTRICTED DISCLOSURE AND LIMITED USE COMMITMENTS.

7.1 Confidentiality Undertaking. The parties hereto shall (i) treat as
confidential all Proprietary Information (as hereinafter defined) which
is obtained by a receiving party directly or indirectly from a
disclosing party in connection with this Agreement, and (ii) not
disclose the same to any third party nor use the same, except as
provided herein. The provisions of this Section shall apply, without
limitation, to all information learned by the parties in the course of
implementing this Agreement concerning the business, assets, customers,
processes or methods of Lanxide, LTC, or Licensee, or their Affiliates.
The provisions of Section 7 shall remain in effect during the term of
this Agreement and for a period of five (5) years after termination or
expiration of the Agreement.

7.2 Proprietary Information. As used herein, "Proprietary Information"
means any information of Lanxide, LTC, Licensee, or their Affiliates
that might reasonably be considered proprietary, sensitive or private,
including but not limited to the following:

(i) Technical information, know-how, data, techniques, discoveries,
inventions, ideas, unpublished patent applications, proprietary
information, formulae, analyses, laboratory reports, other
reports, financial information, studies, findings, or other
information relating to Lanxide, LTC, Licensee, or their
Affiliates, or the Licensed Technology or methods or techniques
used by Lanxide, LTC, Licensee, or their Affiliates, whether or
not contained in samples, documents, sketches, photographs,
drawings, lists, and the like;

(ii) Data and other information employed in connection with the
marketing of the products of Lanxide, LTC, Licensee, or their
Affiliates including cost information, business policies and
procedures, revenues and markets, distributors and customers,
and similar items of information whether or not contained in
documents or other tangible materials; and

(iii) Any other information obtained by the parties to this Agreement
during the term hereof, that is not generally known to, and not
readily ascertainable by proper means by, third parties.

7.3 Precautions. The parties hereto shall take all appropriate steps to
prevent unauthorized disclosure of any Proprietary Information by their
employees, which steps include the execution by all such persons of
written agreements containing obligations of confidentiality,
restricted disclosure and limited use relative thereto consistent with
this Section 8 prior to disclosure of Proprietary Information to them.
The parties shall not permit access to Proprietary Information by their
employees, except on a need-to-know basis. The parties shall further
take all appropriate steps to protect the Proprietary Information
against espionage, misuse, loss or theft.
7.4 Exclusions. The provisions of this Section 7 shall not apply to any
Proprietary Information after (i) it has become generally available to
the public through no fault of the receiving party or its employees,
(ii) the receiving party can prove by clear and convincing documentary
evidence that it was in its possession before disclosure hereunder and
did not come directly or indirectly from the disclosing party or
(iii) it becomes known to the receiving party through lawful disclosure
from a third party that is not subject to a confidentiality agreement
with any disclosing party or Affiliate.

7.5 Permitted Disclosure. Proprietary Information may not be disclosed by
the receiving party without the prior written consent of the disclosing
party, except that:

(i) Lanxide or LTC, as appropriate, may disclose such Proprietary
Information to their employees on a need-to-know basis for the
purposes of this Agreement in accordance with paragraph 8.3.

(ii) Lanxide may disclose Licensee's Proprietary Information to its
Affiliates or its other licensees or sublicensees of the
Licensed Technology, provided that prior to disclosure of the
Proprietary Information, such Persons execute written
agreements containing obligations of confidentiality consistent
with this Section 7.

(iii) In the event that a third party wishes to evaluate Licensee's
proprietary technology in connection with a business
transaction with Lanxide or its Affiliates, Lanxide may
disclose as much of Licensee's Proprietary Information to that
third party as is necessary to conduct such evaluation,
provided that prior to disclosure such third party executes a
written agreement prohibiting use of the Proprietary
Information for any reason other than evaluation of this
technology and containing obligations of confidentiality
consistent with this section 7.

7.6 Government Regulations. The provisions of this Section 7 shall not be
deemed to obligate either party to do or refrain from doing any act,
the doing or not doing of which would cause or reasonably be expected
to cause either party to fail to fulfill or comply with any obligation
or requirement imposed by any Governmental Regulation, provided that,
any disclosures of Proprietary Information made to fulfill or comply
with any such Regulation shall be made (i) only after notice to the
other party, and (ii) under conditions invoking all confidentiality
protections as are available by law or regulation.

VIII. MISCELLANEOUS

8.1 Warranty of LTC; Indemnity. LTC hereby represents and warrants that to
the best of its knowledge, use of the Licensed Technology for the
manufacture and sale of CRA Materials in Japan and Territory B will
not, in any material respect, infringe any patent, copyright, design
right, utility model right or any other proprietary right owned or
controlled by any third party in Japan or Territory B. LTC shall
indemnify the Licensee against any and all loss, charges, damages,
costs and expenses, including without limitation reasonable attorneys'
fees, incurred by Licensee as a result of LTC's breach of the warranty
contained in this paragraph 8.1, provided Licensee abides by the
procedures set forth in paragraph 6.5 hereto.

8.2 No Other Warranties. LTC and Lanxide make no other warranty or
representation beyond those in section 8.1 hereto with respect to the
Trademarks the Licensed Technology or other assistance furnished under
this Agreement, or with respect to the Trademarks, nor are LTC or
Lanxide in any way responsible for the accuracy, utility or
completeness of any Licensed Technology or other assistance furnished
under this Agreement. LTC AND LANXIDE HEREBY EXPRESSLY DISCLAIM ANY
AND ALL WARRANTIES AND REPRESENTATIONS, EXPRESS OR IMPLIED, ARISING BY
LAW OR CUSTOM, WITH RESPECT TO THE TRADEMARKS OR THE LICENSED
TECHNOLOGY, INCLUDING, WITHOUT LIMITATION, WARRANTIES OF
NON-INFRINGEMENT (BEYOND THOSE SPECIFIED IN SECTION 8.1 HERETO),
MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE. LTC AND LANXIDE
DO NOT IN ANY WAY PROMISE THAT THE LICENSED TECHNOLOGY WILL PRODUCE ANY
PARTICULAR RESULTS, PRODUCTS OR PROFITABILITY.

8.3 Force Majeure. Neither party shall be liable for failure to perform
its obligations hereunder for so long as that failure may be the result
of any event beyond its reasonable control (a "force majeure" event),
provided that such party uses all reasonable efforts to comply with the
terms of this Agreement to the extent that it is able to do so.

8.4 Waivers. The failure at any time of either party to require
performance by the other party of any obligation required by this
Agreement shall in no way affect the first party's right to require
such performance at any time thereafter, nor shall the waiver by either
party of a breach of any provision of this Agreement by the other party
constitute a waiver of any other breach of the same or any other
provision or constitute a waiver of the obligation itself.

8.5 Amendment. This Agreement may be amended only by an instrument in
writing duly executed by the parties hereto.

8.6 Assignability. This Agreement shall be binding upon and inure to the
benefit of the permitted successors and assigns of each party hereto.
Neither this Agreement nor any right or obligation hereunder may be
assigned or delegated in whole or in part by any party without the
prior written consent of the other parties, except that LTC shall have
the right to transfer its rights and obligations to an Affiliate.

8.7 Notices. In any case where any notice or other comnunication is
required or permitted to be given hereunder (including, without
limitation, any change in the information set forth in this paragraph
8.6) such notice or communication (i) shall be in writing and in the
English language, (ii) shall be sent to the parties set out below, and
(iii) shall be (A) personally delivered, (B) sent by postage prepaid
registered airmail, (C) transmitted by telecopy receipt of which is
confirmed, (D) sent by courier service requiring signature on receipt,
as follows:

If to LTC, to:

Lanxide Technology Company, L.P.
c/o Lanxide Corporation, General Partner
1300 Marrows Road
P.O. Box 6077
Newark, DE 19714-6077
U.S.A
Attention: President

If to Lanxide, to:

Lanxide Corporation
1300 Marrows Road
P.O. Box 6077
Newark, Delaware 19714-6077
U.S.A.
Attention: President
If to Licensee, to:

Nihon Cement Company, Ltd.
Ohtemachi Bldg.,
No. 6-1, 1-Chome, Ohtemachi,
Chiyoda-ku, Tokyo 100,
JAPAN
Attention: President

All such notices or other communications shall be deemed to have been
given or received (i) upon receipt if personally delivered, or if by
courier, (ii) on the tenth business day following posting if by postage
prepaid registered airmail, or (iii) when sent with confirmed answer
back if sent by telecopy.

8.8 Choice of Law. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Delaware,
United States of America.

8.9 Forum Jurisdiction, Venue and Service. The Licensee hereby irrevocably
and unconditionally:

(i) agrees that any action, suit or proceeding by any person
arising from or relating to this Agreement or any statement,
course of conduct, act, omission, or event occurring in
connection herewith (collectively, "Related Litigation'') may
be brought in any state or federal court of competent
jurisdiction sitting in the State of Delaware, submits to the
jurisdiction of such courts, and to the fullest extent
permitted by law agrees that it will not bring any Related
Litigation in any other forum;

(ii) waives any objection which it may have at any time to the
laying of venue of any Related Litigation brought in any such
court, waives any claim that any such Related Litigation has
been brought in an inconvenient forum, and waives any right to
object, with respect to any Related Litigation brought in any
such court, that such court does not have jurisdiction over the
Licensee; and

(iii) consents and agrees to service of any summons, complaint or
other legal process in any Related Litigation by registered or
certified U.S. mail, postage prepaid, to the Licensee at the
address for notices described in paragraph 9.6 hereof, and
consents and agrees that such service shall constitute in every
respect valid and effective service (but nothing herein shall
affect the validity or effectiveness of process served in any
other manner permitted by law).

8.10 Interpretation. The headings of the sections and paragraphs in this
Agreement are provided for convenience of reference only and shall not
be deemed to constitute a part hereof. The Agreement is executed in
the English language.

8.11 Entire Agreement. This Agreement constitutes the entire agreement of
the parties hereto with respect to the subject matter of this Agreement
and supersedes all prior agreements and understandings, oral and
written, if any, among the parties hereto with respect to the subject
matter of this Agreement.

8.12 Severability. Should any provision of this Agreement be deemed in
contradiction with the laws of any jurisdiction in which it is to be
performed or unenforceable for any reason, such provision shall be
deemed null and void, but, except as provided in paragraph 4.2, this
Agreement shall remain in force in all other respects.

8.13 Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which together
shall constitute one and the same instrument.

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the day and year first above written.

LANXIDE CORPORATION NIHON CEMENT COMPANY LTD.

BY: /s/Marc S. Mewkirk BY: /s/Michio Kimura
_________________________ _______________________

NAME: Marc S. Newkirk NAME: Michio Kimura
_________________________ _______________________

TITLE: President TITLE: President
_________________________ _______________________

LANXIDE TECHNOLOGY COMPANY L.P.

BY: LANXIDE CORPORATION
General Partner

BY: /s/Marc S. Mewkirk
_________________________

NAME: Marc S. Newkirk
_________________________

TITLE: President
_________________________

SCHEDULE A
__________

"CRA Materials" shall mean

a) Ceramic-reinforced aluminum ("CRA") ingot for making cast CRA
products; and

b) CRA concentrate for making cast CRA products.

SCHEDULE B
__________

TERRITORY B

The following countries and administrative divisions to the extent of
their territorial boundaries as of the Effective Date:

Australia
Brunei
Burma
Cambodia
China
Indonesia
Laos
Malaysia
Mongolia
New Zealand
North Korea
Papua New Guinea
Philippines
Singapore
South Korea
Taiwan
Thailand
Vietnam

<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Company's Consolidated Balance Sheet at September 30, 1997 and Consolidated
Statement of Operations for the 12 months ended September 30, 1997, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 3,892
<SECURITIES> 0
<RECEIVABLES> 2,797
<ALLOWANCES> (59)
<INVENTORY> 3,036
<CURRENT-ASSETS> 10,113
<PP&E> 23,343
<DEPRECIATION> (13,662)
<TOTAL-ASSETS> 20,517
<CURRENT-LIABILITIES> 12,763
<BONDS> 22,225
225
11
<COMMON> 13
<OTHER-SE> 191,006
<TOTAL-LIABILITY-AND-EQUITY> 20,517
<SALES> 7,485
<TOTAL-REVENUES> 26,429
<CGS> 6,688
<TOTAL-COSTS> 19,671
<OTHER-EXPENSES> 7,680
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,829
<INCOME-PRETAX> (3,125)
<INCOME-TAX> 120
<INCOME-CONTINUING> (3,245)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,245)
<EPS-PRIMARY> (1.96)
<EPS-DILUTED> (1.96)

</TABLE>