As filed with the Securities and Exchange Commission on March 18, 1998
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                                    FORM 10-K
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
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                  Annual Report Pursuant to Section 13 or 15(d)
                     Of the Securities Exchange Act of 1934

                                                             
                  For the fiscal year ended December 31, 1997
                       Commission file number 000-21153.

                                ALYN CORPORATION
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             (Exact name of registrant as specified in its charter)


                DELAWARE                                     33-0709359
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   (State or other jurisdiction of                        (IRS Employer
    incorporation or organization)                         Identification No.)

                       16761 Hale Avenue, Irvine, CA 92606
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          (Address of principal executive offices, including zip code)

                                 (714) 475-1525
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              (Registrant's telephone number, including area code)

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

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

                     Common Stock, par value $.001 per share
                               Title of Each Class

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

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

     The  approximate  aggregate  market  value  of the  voting  stock  held  by
non-affiliates of the Registrant as of February 24, 1998 was $41,333,049,  based
on the closing price of $9.44 on that date.

     As of February 24, 1998,  the  aggregate  number of  outstanding  shares of
common stock of the Registrant was 10,750,000 shares.
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                      DOCUMENTS INCORPORATED BY REFERENCE

     The  Registrant's  Proxy  Statement for the Annual Meeting of  Stockholders
scheduled to be held on June 3, 1998, is incorporated by reference into Part III
(Items 10, 11, 12 and 13) of this Form 10-K


<PAGE>
                                TABLE OF CONTENTS




SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER THE SECURITIES
LITIGATION REFORM ACT OF 1995 .................................................

PART I.........................................................................
         1.        BUSINESS....................................................
         2.        PROPERTIES .................................................
         3.        LEGAL PROCEEDINGS ..........................................
         4.        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ........

PART II........................................................................
         5.        MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
                   STOCKHOLDER MATTERS ........................................
         6.        SELECTED FINANCIAL DATA.....................................
         7.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                   AND RESULTS OF OPERATIONS...................................
         8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ................
         9.        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                   ACCOUNTING AND FINANCIAL DISCLOSURE ........................

PART III.......................................................................
         10.       DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..........
         11.       EXECUTIVE COMPENSATION......................................
         12.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                   MANAGEMENT..................................................
         13.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............

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

SIGNATURES.....................................................................




            Boralyn(R) is a registered trademark of Alyn Corporation



<PAGE>


                                     PART I


SAFE  HARBOR FOR  FORWARD-LOOKING  STATEMENTS  UNDER THE  SECURITIES  LITIGATION
REFORM ACT OF 1995

     Except for historical  information  contained herein, this Annual Report on
Form 10-K (the "Annual Report") contains  forward-looking  statements within the
meaning  of  the  Private  Securities  Litigation  Reform  Act  of  1995.  These
statements  involve known and unknown risks and uncertainties that may cause the
Company's  actual  results or outcomes  to be  materially  different  from those
anticipated and discussed herein.  Further,  the Company operates in an industry
sector where securities  values may be volatile and may be influenced by factors
beyond the Company's control.  Important factors that the Company believes might
cause such differences are discussed in the cautionary  statements  accompanying
the  forward-looking  statements and in the risk factors detailed in this Annual
Report. In assessing  forward-looking  statements contained herein,  readers are
urged to read carefully all cautionary  statements and risk factors contained in
this Annual Report.

1.    BUSINESS.

     Unless  otherwise  indicated,  all  information in this Annual Report gives
effect to the merger,  effective May 2, 1996, of Alyn Corporation,  a California
corporation ("Old Alyn"), with and into Alyn Corporation, a Delaware corporation
formerly  named AC  Acquisition  Corp.  ("Alyn"  or the  "Company").  Unless the
context otherwise requires,  the terms "Alyn" or the "Company",  as used in this
Annual Report, includes the Company and its predecessor, Old Alyn.

     Alyn designs,  develops and manufactures  consumer and industrial  products
for its customers  utilizing its  proprietary  advanced  metal matrix  composite
materials, which it believes have a superior combination of physical properties,
including strength, light weight,  stiffness,  hardness and fracture resistance,
for a variety of selected  markets.  The Company has developed  technology,  for
which it obtained its initial  patent in January 1996,  for the  application  of
boron  carbide  in  combination  with  aluminum  in  lightweight   metal  matrix
composites  under the name  Boralyn.  Boron  carbide,  a principal  component of
Boralyn, is an advanced ceramic that is the third hardest material in the world,
and the hardest  material  available  at a  commercially  reasonable  cost.  The
Company believes that no other material offers a range of properties  comparable
to those Boralyn provides.  Boralyn is lighter and can be more easily fabricated
than titanium;  has a higher specific  stiffness than aluminum and commonly used
titanium  or steel  alloys;  is  one-third  the  density of most  steels;  has a
resistance to wear greater than aluminum,  specialty steel and titanium;  and is
highly  fracture  resistant.  Boralyn is  available  in a range of grades,  with
varying  properties,  to  satisfy  specific  customer  requirements  and  can be
extruded, forged, cast, welded, bent and coated using conventional equipment and
tools. The Company  believes that Boralyn is a highly effective  replacement for
many premium-priced metal and composite products, such as those used in high-end
sporting  goods,  high-capacity  disks for computer  hard-disk  drives,  neutron
shielding and other applications.  The Company also believes that Boralyn can be
an  effective   replacement  for  conventional  aluminum  alloys  where  greater
stiffness  and wear  properties  are needed,  such as those in the aerospace and
automotive industries.

     The  Company is  currently  focusing  its  marketing  efforts on the use of
Boralyn in applications where its unique properties, combined with the Company's
manufacturing   capabilities,   justify  an  appropriate  price  premium.  These
applications to date include (i) high-end sporting goods, such as premium priced
golf club heads and shafts,  sticks and bats, and lightweight bicycle frames and
components,   (ii)  disks  for  computer   hard-disk  drives,   (iii)  aerospace
components,  (iv) automotive parts, (v) personal  accessories,  such as sunglass
frames and  high-end  watches,  and (vi)  neutron  shielding  for both  disposal
containers  and  reactor  installations.   The  Company  provides  an  in-house,
vertically  integrated  approach to manufacturing,  including the development of
new  metallurgical  processes,  the  manufacture  of  billets  and  ingots,  the
manufacture of cast and wrought fabricated shapes, and finishing for delivery to
original equipment manufacturer (OEM) customers.


<PAGE>


Development of the Company's Business

     The  growth  of  interest  in metal  matrix  composites  is a result of the
engineering  properties of these  composites.  Metal matrix  composites  compare
favorably to other materials with respect to weight, stiffness and strength, and
can be relatively easily fabricated. Engineering analyses demonstrate that these
materials  can  provide  significant  savings in weight and  greater  stiffness,
compared to traditional  metallic  alloys,  while still retaining key structural
and design properties.  They also compare favorably with certain other composite
materials,  namely polymer-matrix  materials, that have temperature and strength
limitations, are sensitive to moisture and, in some cases, also release gases or
moisture.

     The  Company  was  founded  in  January  1990 by Robin A.  Carden,  who had
previously  been a senior  engineer  at  Ceradyne  Inc.,  a company  engaged  in
advanced  ceramics,  where  he  developed  civilian  applications  for  advanced
ceramics  originally  developed  for military  use. At that time,  boron carbide
technology  had  only  recently  been  declassified  by the U.S.  Department  of
Defense.  In order to  capitalize  on the  commercial  possibilities  of a boron
carbide/metallic  alloy  composite  structure,  the Company,  under Mr. Carden's
direction,  began to experiment with new techniques for bonding boron carbide to
different metals, creating new composite structures. From 1990 through 1993, the
Company continued  development of metal matrix composites.  These efforts led to
the filing of a patent application in January 1994, and the granting of the U.S.
patent for "Metal  Matrix  Compositions  and Method of  Manufacture  Thereof" in
January 1996,  which covers the Company's  initial metal matrix  composites  and
methods for making them.

     In May 1996,  certain of the  Company's  stockholders  provided  additional
funding  to the  Company,  in the form of debt  (including  a credit  facility),
enabling the Company to begin the  commercialization of its products.  Following
the financing, the Company assembled a senior management team with experience in
areas such as operations,  manufacturing,  research and  development and finance
and administration.

     On October 22, 1996, the Company  completed an initial  public  offering of
2,750,000 shares of its Common Stock at a price of $13.50 per share. The Company
received  net  proceeds  of   approximately   $33.3  million   after   deducting
underwriting  discounts and offering  expenses.  Subsequently,  in October 1996,
$4.7  million of net proceeds  from the initial  public  offering  were used for
repayment  of  principal,  accrued  and unpaid  interest  thereon  and all other
amounts  owing  in  respect  to the May 1996  credit  facility,  and the  credit
facility was terminated.  Following  completion of the initial public  offering,
the Company added  personnel to its  marketing,  sales and  engineering  support
staff.

     In October 1996,  the Company moved its  operations to a 48,000 square foot
facility in Irvine, California.  That facility is fully operational and includes
extrusion, forging, casting (including soluble core) and sintering capabilities.
The  Company has leased an  additional  84,000  square foot  facility in Irvine,
which is under refurbishment.  The Company anticipates that construction will be
completed in the second  quarter and that the  additional  facility  will become
fully  operational  in the third  quarter of 1998.  This  facility  will  expand
forging and  extrusion  capabilities,  including the addition of a new 4,000-ton
extrusion press.

     The Company is developing  prototypes of products for a number of accounts.
For Taylor Made Golf Company ("Taylor Made"), a leading golf  manufacturer,  the
Company is  developing  product  designs,  molds and  manufacturing  tooling for
metalwood drivers and irons,  manufactured by both forged and cast methods.  For
True Temper Sports, Inc., a subsidiary of Black & Decker ("True Temper Sports"),
tubing  material  has been  supplied  for golf  club  shaft  and  bicycle  frame
prototypes  from which  product  designs and  manufacturing  processes are to be
developed.

     In 1998, the Company is scheduled to produce the engine cradle for the EV-1
electric vehicle for the General Motors Electric Vehicle  Division.  The Company
also  expects to produce  watch  components  for Mersey  Watch Co. and  sunglass
frames for Bolle, Inc.  ("Bolle") in 1998. A contract to produce  components for
business  aircraft  was  awarded  to the  Company by Cessna  Aircraft,  based on
prototype  evaluation.  In August  1997,  the  Company  signed a  Memorandum  of
Understanding with Seagate Technology  ("Seagate") for the development and joint
production  of  hard-disk  substrates  using  Boralyn.   Subject  to  successful
completion of the beta test phase and final acceptance of the Boralyn substrate,
production is expected to commence in the second half of 1998.

     There can be no assurance  with respect to whether or when the Company will
achieve production volumes, substantial revenues or profits under or from any or
all of the aforementioned arrangements.

Company Strategy

     Alyn's  objective is to become a leader in advanced metal matrix  composite
(MMC)  products  and  associated   manufacturing  processes,  and  to  establish
significant  market  share and brand  awareness  for  Boralyn in  markets  where
value-added  premiums  may  be  obtained.   The  Company  intends  to  focus  on
capitalizing  on its existing  proprietary  technology and patented  process for
producing  MMCs  through  the direct  manufacture  and sale of MMC  products  to
industrial and consumer product manufacturers and distributors, and, to a lesser
extent, to producers of military  products.  The Company believes that its focus
on marketing Boralyn for use in higher-priced  consumer and industrial  products
and applications,  where its properties  provide  performance  advantages,  will
maximize the opportunity for near and intermediate-term market penetration.  The
Company has  implemented  a  vertically  integrated  approach to  manufacturing,
including emphasis on strong R&D and quality  assurance,  and has developed what
it believes to be  superior  manufacturing  processes,  which  benefit  from the
characteristics of Boralyn. One of these processes is the Company's soluble core
method of  manufacturing  MMC  die-cast  structures,  which  allows for  forming
complex  hollow  chambers  and  passages,  often  within a one-piece  structure,
without the need for welding  together  separate  components or other  secondary
manufacturing  processes.  The Company  has filed  various  patent  applications
pertaining to materials,  processes and applications,  of which six patents have
been issued to date.  Application  patents issued include the use of Boralyn for
nuclear shielding and computer hard-disks.

     In the last two  years,  the  Company  has  sought to  address  significant
material  and  manufacturing  issues  experienced  by  companies  engaged in the
markets it has chosen -- high-end sporting goods,  disks for computer  hard-disk
drives,  aerospace  and  automotive  parts  and  components,  high-end  personal
accessories and neutron shielding -- through  concentrated  product  development
and design  efforts and the  development  of close  working  relationships  with
participants  whom the Company  believes are leaders in those  markets.  In some
cases, the Company has elected to seek near-term market penetration and a better
understanding of technical requirements and other characteristics of key markets
by  entering  into  product  design,  development,  production  and  development
agreements that grant limited exclusivity to a given "spearhead"  participant in
a specific market. Further, experience gained in 1997 has enabled the Company to
better  identify the sequence in which it can enter markets and the factors that
are most  likely to  influence  its  timetable  for such  entry.  Those  factors
generally  include  the  relative  length  of  the  introduction   phase,  which
encompasses the product specification phase, the design phase, and the prototype
and  pre-production  phase,  and factors related to commercial  production.  For
example,  the high-end  sporting goods market has been found to be characterized
by  short-term  design  cycles and  "state-of-the-art"  specifications  that are
driven by frequently  changing  consumer  preferences.  The resultant design and
marketing  issues  experienced  by the  Company  have  delayed the timing of its
expected entry into those markets.  The Company  expects to be able to deal with
those and similar issues more readily and  expeditiously  as it gains design and
production  experience.  The  Company has also  found,  however,  that niches in
certain  markets that are  characterized  by  relatively  short  product  design
cycles,  because product  specifications  are known,  such as the automotive and
aerospace industries,  can be penetrated relatively quickly.  Additionally,  for
certain of the Company's chosen markets,  such as the hard drive disk field, the
market  penetration  cycle  is  materially  influenced  by  significant  testing
requirements.

     There can be no assurance  that the Company  will  achieve its  objectives,
that it will develop successful strategies to penetrate its chosen markets, that
it will enter markets in a timely and efficient manner, or that it will generate
significant revenues in any market it enters.

Characteristics of Boralyn

     Boralyn  is a metal  matrix  composite  material  principally  composed  of
aluminum and boron carbide. The Company believes that Boralyn compares favorably
to other materials with which it will compete in markets selected by the Company
with respect to density,  specific strength,  specific  stiffness,  hardness and
resistance  to wear,  fatigue and  corrosion  resistance,  resonance and neutron
absorption.

     Specific   Strength/Specific   Stiffness.   The  specific   strength  range
(dependent  somewhat on the grade) of Boralyn is substantially  higher than that
of aluminum and somewhat higher than that of many specialty steels and titanium.
Boralyn has greater  specific  stiffness  compared to titanium  alloy,  aluminum
alloy and specialty  steel.  The  combination of specific  strength and specific
stiffness is important for many products,  such as premium-priced golf clubs and
high-end  bicycle  frames and  components,  where the  combination  of strength,
stiffness and light weight is important. For many applications, far less Boralyn
is required to provide  necessary  strength and stiffness;  conversely,  for the
same weight,  Boralyn  provides  significantly  more strength and stiffness than
other  competing  materials.  Many other  applications,  such as arrows,  hockey
sticks, baseball bats, golf club shafts and automotive and aerospace components,
also benefit from these strength and stiffness advantages.

     Resistance to Wear.  Boralyn provides greater wear resistance than aluminum
or steel, and,  therefore,  can be used to advantage in applications  where high
wear resistance is significant,  such as in engine blocks,  brake discs, pistons
and certain aircraft applications.

     Fatigue and Corrosion Resistance.  Boralyn, in a 5% salt moist environment,
endures a higher  number of stress  cycles than  aluminum  alloy.  This property
makes Boralyn  superior to aluminum alloy for  applications in which many stress
cycles are  encountered,  particularly in certain  corrosive  environments.  Any
structural  support  where  stress is  applied  repeatedly  needs  high  fatigue
characteristics. Bicycle frames and components, airplane structures, boat masts,
booms and other marine  components,  piston rods and satellite supports are some
of the applications  where high fatigue  resistance is necessary.  Additionally,
many of those applications take place in salty and moist atmospheric conditions.

     Resonance.  Boralyn,  due  to  its  high  stiffness,  has  lower  resonance
characteristics  than glass and  aluminum  computer  hard-disk  substrates  over
rotational speeds ranging from 1,000 to 12,000  revolutions per minute.  Boralyn
disks  exhibit  minimal  vibration  over the entire range of  rotational  speeds
experienced  by current and planned  hard-disk  drives.  The lower  resonance of
Boralyn is particularly  advantageous in computer hard-disk drives,  where lower
resonance allows for closer  head-to-disk  distance at higher rotational speeds,
characteristics  that allow for  greater  storage  capabilities  and faster data
transfer rates.

     Neutron Absorption. Neutron absorption (attenuation) in boron carbide-based
materials such as Boralyn is primarily a function of the density (referred to as
areal density) and degree of uniformity of distribution  (i.e.,  homogeneity) of
boron carbide  particles  within the material.  The  predictable  homogeneity of
Boralyn   allows  for  the  design  of  structures   specific  to  a  customer's
requirements,  without incorporating  additional material.  The Company believes
competing materials may require as much as 40% additional material to compensate
for irregular  distribution of neutron-absorbing  particles (i.e., relative lack
of homogeneity) to achieve adequate levels of uniform  absorption.  Accordingly,
Boralyn can produce the same neutron absorbing  results as competing  materials,
but with less Boralyn, thereby reducing the weight and cost of the structure.

     Broad Range of Available  Grades.  Boralyn is  available in various  grades
depending  principally  on the aluminum alloy of choice and the percent of boron
carbide  that is  included.  A  specific  grade  can be  matched  to a  specific
application where a specific  property or properties are to be highlighted.  For
example, in aerospace applications,  where thermal expansion is a problem due to
the  extremes  of the  environment,  the  percentage  of  boron  carbide  can be
increased  to lower the  thermal  expansion.  As  another  example,  for  better
wearability, 35% boron carbide can be used for harder surfaces.

     Ease of Fabrication. In addition to the properties described above, Boralyn
can be  readily  extruded  and  forged,  can be used  in a  variety  of  casting
processes,  and has excellent brazing and welding capabilities.  The Company has
also  developed  what it believes to be superior  manufacturing  processes  that
benefit  from the  characteristics  of  Boralyn.  The Company has filed a patent
application for its soluble core method of manufacturing  metal matrix composite
die-cast  structures,  which  allows for forming  complex,  hollow  chambers and
passages,  often within a one-piece structure,  thereby eliminating the need for
welding together separate components or other secondary manufacturing processes.

     The  physical  characteristics  of a variety  of Boralyn  grades  have been
subjected to, and were verified and supported by, studies and tests performed by
independent  third  parties.  Tests  included  specific  strength,  homogeneity,
hardness, density, specific stiffness,  chemical composition,  neutron radiation
absorption characteristics,  fatigue, high temperature tensile strength, thermal
expansion, thermal conductivity, compression strength and formability.

Products and Applications

     The Company is focusing its initial marketing efforts on the use of Boralyn
in applications  where its unique  combination of properties,  combined with its
manufacturing   capabilities,   justify  an  appropriate  price  premium.  These
applications include the following:

     Golf Club Heads and Shafts.  The U.S.  wholesale market for  premium-priced
golf clubs was estimated by industry  sources to be  approximately $1 billion in
1996. The Company believes that the higher specific  stiffness,  higher specific
strength and ease of fabrication of Boralyn allow golf club heads to be designed
and  manufactured  with a larger  "sweet  spot" and  better  mass  distribution,
compared  with  titanium  heads,  thus,  yielding  what  golfers  term  a  "more
forgiving"  golf club.  The higher  specific  stiffness  of Boralyn  enables the
production of a club shaft with the "feel" of steel (i.e. greater control),  but
with a lighter weight.

     In  September  1996,  the Company and Taylor Made entered into an agreement
providing  for  the  development,   production  and  purchase  of  Boralyn-based
metalwood golf club heads. The Company and Taylor Made are continuing to develop
the club head designs,  tooling,  production  processes and promotional programs
for both metalwoods and irons.

     In May 1997,  the Company  reached  agreement  with True  Temper  Sports to
market golf club shafts using  Boralyn.  The Company and True Temper  Sports are
developing the related designs, tooling and production programs for the shafts.

     Computer  Hard-disks.  The U.S.  wholesale  market for  computer  hard-disk
substrates  was estimated by industry  sources to be  approximately  350 million
units in 1997.  The Company  believes that disks for  high-speed,  high-capacity
drives,  which the Company is  targeting  in its  marketing  efforts,  represent
between 5% and 10% of the total market. The Company has produced disk substrates
of Boralyn for,  and has signed a  Memorandum  of  Understanding  with,  Seagate
Technology.  The Memorandum of Understanding  provides for the joint development
of the Boralyn disk substrate and the joint  manufacture of the disks.  Compared
with  conventional  aluminum and glass  substrates  currently in use as disks in
computer  hard drives,  Boralyn  disks exhibit  higher  stiffness,  resulting in
minimal  vibration  over the entire  range of  rotational  speeds,  from initial
spin-up  to  current  maximum  speeds  of  existing  substrates,  as  well as at
substantially  higher  rotational  speeds.  The higher  stiffness  disks  permit
hard-disk  drives to be designed for closer  head-to-disk  distances  and higher
rotational speeds, characteristics that allow for greater storage capacities and
faster data transfer rates.

     Aerospace/Defense.  In  September  1997,  the  Company  received  its first
aerospace production order for aircraft components from Cessna Aircraft Company.
Production  is  expected  to  commence  in the first half of 1998.  The  Company
continues to produce samples and prototypes for other companies for a variety of
aerospace and defense applications. Product areas that are part of the Company's
initial  focus include  structural  support for overhead  luggage  compartments,
galley  components  and  flooring,  housings,  high wear  resistant  components,
components  requiring  vibration  dampening  and  other  parts  not  related  to
safety-of-flight.  Other areas of future opportunity are believed by the Company
to include  aircraft  structural  members,  nacelle  components,  low  vibration
rotating parts, actuators, bearings and armor for the military.

     Automotive.  In October 1997, the Company  received a production  order for
engine cradles for General Motors' EV-1 electric  vehicle,  which represents the
Company's  first order from the automotive  industry.  Production is expected to
commence in the first half of 1998. Vehicle components such as the engine cradle
benefit from decreased weight,  improved  material  properties and the Company's
precision  manufacturing  capabilities.  Other component  capabilities currently
being  marketed  by the  Company  in the  automotive  field  include  frame  and
suspension  parts,  brake  calipers and discs,  wheels,  drive shafts and engine
components such as cylinder liners, pistons, connecting rods and cylinder heads.

     Consumer and Other.  In 1997,  the Company  concluded its first  production
agreements for personal accessories.  The agreements include production of watch
bezels and cases for Mersey  Manufacturers  Limited and sunglass and safetyglass
frames for Bolle Inc. Both  agreements  call for initial  production to begin in
the first half of 1998. The Company's  capability to tailor Boralyn's properties
to  meet   specialized   product  design   requirements,   the  breadth  of  its
manufacturing  capabilities,  and the  marketing  opportunity  for  customers to
market their products using the Boralyn name provide the basis for the Company's
marketing  efforts in this general product  category.  The Company believes that
the  areas  of  specific   opportunity   include   those  where   weight,   high
strength-to-weight  ratios and wear or impact  resistance are important  product
requirements.

     Neutron Shielding.  Materials  traditionally used for neutron absorption in
nuclear  reactors and disposal  containers  for  radioactive  products and waste
require a separate neutron-absorbing material, such as boron carbide, encased in
layers of metallic  alloy,  such as aluminum,  supported  by steel,  in order to
provide  stiffness  and  structural  integrity.  The metal  matrix  structure of
Boralyn,  combined  with its  boron  carbide  ingredients,  provides  acceptable
neutron absorption characteristics as well as stiffness in a homogeneous, single
structure, with the advantages of ease of use and fabrication.  The Company does
not anticipate  production orders for neutron shielding  applications until late
1998 at the earliest,  and there can be no assurance that any production  orders
will be obtained.

     There can be no  assurance  with  respect to whether or when the  Company's
product will achieve meaningful market acceptance or whether or when the Company
will obtain material revenues or become profitable, if at all.

Marketing and Customer Support

     The Company  intends to achieve  market  penetration  in  selected  markets
through a multi-step  process usually  consisting of (i) initial  discussions of
the  product  application,  highlighting  the  advantages  of  Boralyn,  (ii) an
engineering  and  marketing  evaluation  by the  prospective  customer of sample
material and demonstration products, (iii) negotiation of appropriate agreements
allowing the customer to use and market  Boralyn-based  products in the relevant
application  and market,  and (iv)  development  of a production  program  where
appropriate  expenditures  are made for tooling,  equipment and quality  control
tests  necessary to fulfill  market  requirements.  The Company  intends to sell
primarily to OEM customers,  with  distribution  from the Company  manufacturing
sites  to  customer  facilities.  The  Company's  policy  is to seek to have its
customers absorb a significant portion of design and development-related  direct
costs.

     Consistent  with its  business  plan,  the Company has to date entered into
exclusive market  arrangements  with Taylor Made (with respect to metalwood golf
club heads),  True Temper  Sports (with  respect to golf club shafts and certain
bicycle  frames) and Bolle (with respect to sunglass and  safety-glass  frames).
The exclusive periods range from three years to five years, and each arrangement
imposes certain  conditions on each party that affect,  among other things,  the
commencement and maintenance of exclusivity.  There can be no assurance that the
conditions  regarding  exclusivity  in the  contracts  to which the Company is a
party  will be met by either or both of the  parties  to any of such  contracts,
that the  Company  will  extend or enter into any new  contracts  providing  for
exclusivity,  or that any such  contracts  will  prove to be  beneficial  to the
Company.

     The  Company's  sales and  marketing  activities  are  expected  to include
substantial  applications  engineering  support (to assist in the development of
products  for  specific  customers  and  markets),   evaluation  of  Boralyn  by
institutions  that  specialize  in  technology  and/or  markets  of  this  type,
development of appropriate  sales  materials (such as  specification  sheets and
corporate brochures) and promotion through participation at selected trade shows
and selective  advertising  in journals and the trade press.  These  activities,
even if successful,  may not result in proportional or any revenue  increases in
the same  period  in which  those  activities  occur.  The  Company's  marketing
activities have initially focused on prospective customers in the United States,
with international  sales activities being conducted on a narrowly focused basis
in selected markets such as sports and neutron shielding. It is anticipated that
broadly based international sales efforts will develop over the next 18 months.

Competition

     The materials industry in which the Company operates is highly competitive.
The Company  competes in its chosen markets  against several larger domestic and
multi-national companies, all of which are well established in those markets and
have  substantially  greater  financial  and other  resources  than those of the
Company.  Competitive  market  conditions  could adversely  affect the Company's
results of  operations if it were  required to reduce  product  prices to remain
competitive or were unable to achieve significant sales of its products.

     The Company  competes  at two levels.  First,  the  Company  competes  with
material  manufacturers,  i.e. companies that manufacture and market a choice of
materials for specific applications. In this area, the Company competes with (i)
titanium,  used widely today in  premium-priced  golf club heads,  with the base
material  being  supplied by  companies  such as RMI Titanium  Company,  Tremont
Industries,  Inc.,  and Titanium  Metals  Corporation of America  (Timet);  (ii)
aluminum  alloys,  supplied by  companies  such as the Aluminum  Corporation  of
America (Alcoa), Reynolds Metals Co., and Oregon Metallurgical Corporation;  and
(iii) other metal matrix composites,  such as that supplied by Duralcan Inc. For
neutron shielding,  current disposal containers  typically use Boral(R), a boron
and aluminum material supplied by AAR Brook & Perkins.

     At the second level, the Company competes with product fabricators.  In the
golf club  market,  companies  fabricating  clubs from  titanium  metal  include
Coastcast  Corp.  and Sturm,  Ruger & Co., Inc. In the sports market  generally,
aluminum alloy and steel products are made by companies such as Easton  Aluminum
Inc. and Sandvik Steel Co. In the computer disk drive market, the aluminum disks
are  currently  being made by Alcoa and Kobe Steel  Company.  In the  automotive
industry,  companies such as Teledyne Cast Products,  Kelsey-Hayes Co., Die Cast
Products, Inc. and many others are competitors.

Patents and Trademarks

     The Company  believes that  protection of its  proprietary  technology  and
know-how is important to the  development  of its business.  It seeks to protect
its interests  through a combination of patent  protection  and  confidentiality
agreements  with key  employees,  as well as by  limiting  the  availability  of
certain critical information to a small number of key employees.

     The Company intends to pursue a vigorous patent application  program in the
United States and abroad.  The Company has been issued six United States patents
to date. The Company  believes the initial patent issued,  (United States Patent
No. 5,486,223, originally issued to Robin A. Carden in January 1996, expiring in
January 2014),  provides  protection for its proprietary  Boralyn technology and
contains claims that cover the use of Boralyn, particularly in high-end sporting
goods and in certain other markets targeted by the Company.



<PAGE>


         The following  table  summarizes  the patents  issued to the Company to
date:

                       Patents Issued to Alyn Corporation
<TABLE>
<CAPTION>

     Title                                  Patent No.        Issue Date        Description
     -----                                  ----------        ----------        -----------
<S>   <C>                                   <C>              <C>              <C>
1.    Metal Matrix Composite and            5,486,223        1/23/96          Methods and processes for making
      Method of Manufacture thereof                                           Boralyn

2.    Improved Metal Matrix                 5,613,189        3/18/97          Divisional (extension) of 5,486,223
      Compositions and Method of
      Manufacture Thereof

3.    Metal Matrix Composites and            5,669,059       9/16/97           Divisional (extension) of 5,486,223
      Methods of Manufacture Thereof

4.    Metal Matrix Compositions for          5,700,962       12/23/97          Use of boron carbide metal matrix
      Nuclear Shielding Applications                                           composites for neutron shielding

5.    Metal Matrix Composition for           5,712,014       1/27/98           Use of boron carbide metal matrix
      Substrates Used to make Magnetic                                         composites for hard-disk
      Disks for Hard Drives                                                    substrates

6.    Fabrication Methods for Metal          5,722,033       2/24/98           Extrusion and casting composite
                                                                               techniques for boron carbide metal
                                                                               matrix composites
</TABLE>

     The Company has filed other patent  applications,  which are  pending.  The
Company is not aware of any reason why its  pending  applications  should not be
granted with claims that will provide  adequate  coverage and protection for its
anticipated  business  activities,  although  there can be no  assurance in that
regard.

     The Company  believes  that its current and  anticipated  business does not
infringe on any patent owned by others,  although there can also be no assurance
that the  Company's  products  will not infringe the patent  rights of others or
that it will  not be  forced  to  expend  substantial  funds to  defend  against
infringement  claims of, to obtain  licenses  from,  or to enforce  its  patents
against third parties.

Research and Development

     The Company  continuously  engages in the  development  of new products and
improvements to its existing  formulations and maintains  laboratory  facilities
for  these  purposes,   as  well  as  a  network  of  outside  independent  test
laboratories.  The Company has opened a facility in Fremont, California, for the
purpose of research and development  efforts in the computer  hard-disk  market.
The  research  and  development  department  employed ten people on December 31,
1997,  including  four  employees at the Fremont  facility.  The Company's  past
research  and  development  efforts  focused on various  applications  for cast,
forged and  extruded  Boralyn  products,  the  tooling  and  methods for product
production, and the formulation of other metal matrix composites using magnesium
and titanium.

     It is  expected  that  formulations  and  techniques  will  continue  to be
developed  and  refined by the Company  through  empirical  tests and  prototype
development.  The Company  expects that it will  continue to devote  substantial
resources to research and development  efforts.  The costs of those efforts will
be  recorded,  for  accounting  purposes,  as  expenses  as they  are  incurred,
notwithstanding  that the  benefits,  if any,  from the  Company's  research and
development  efforts (in the form of  increased  revenues or  decreased  product
costs) may not be reflected in the Company's operating results, if at all, until
subsequent periods.

     There can be no  assurance  that the  Company's  research  and  development
efforts will be successful in generating new or improved  products or processes,
or that,  if  successful,  such  products or  processes  will lead to  increased
revenues or profitability.


<PAGE>


Manufacturing and Supply

     Raw materials used by Alyn are principally  aluminum and boron carbide. The
Company is not dependent on the availability of supplies from any single source.
The  Company  presently  purchases  boron  carbide  from  a  limited  number  of
suppliers,  including  one  supplier  who  provides  approximately  50%  of  the
Company's current requirements. Although the Company believes that boron carbide
is available  from other  suppliers,  there can be no assurance that the Company
will be able to  continue to obtain  desired  quantities  of boron  carbide on a
timely basis or at prices and terms  deemed  reasonable  by the Company.  Alyn's
other  principal  raw material,  aluminum,  is available  from several  domestic
suppliers.

     Boralyn is produced  primarily by two methods.  The first  utilizes  powder
technology.  By this method,  the various powdered  elements are blended dry and
mixed uniformly to avoid  stratification  and settling.  After the  particulates
have  sufficiently  mixed,  they  are  directed  into  a die  and  then  into  a
cylindrical  container,  where the  particulates  are  subjected to up to 85,000
pounds per square inch (psi) of pressure, transforming the elements into a solid
billet. These Boralyn billets are used to extrude forms such as plate and tubes,
for use in various  consumer  products  and other end uses.  The  second  method
utilizes a molten process by which boron carbide powder is added into the molten
base alloy and then formed and cooled to create ingots for casting. Applications
include various automotive and consumer products.

     The Company  maintains a strict internal  quality control system to monitor
the quality of production at its facility.  Alyn's quality control laboratory is
capable of  conducting  both  physical  and chemical  testing.  The Company also
monitors the quality of processes that are completed by  subcontractors  through
frequent  tests  and  material  certification.  The  Company  maintains  product
liability insurance at levels it believes to be adequate.

     The Company intends to maintain a sufficient inventory of raw materials and
Boralyn billets and ingots on site to meet its production requirements. Finished
goods are expected to be  immediately  shipped at the time of  production to the
Company's  customers  by  commercial  carriers  and not remain at the  Company's
plant.

Government Regulations

     The  Company's  manufacturing  operations  are  subject  to a wide range of
federal,  state and local  regulations,  including those covering the discharge,
handling  and  disposal  of  hazardous  waste   regulations   contained  in  the
environmental   laws.  Plant  and  laboratory  safety  requirements  of  various
occupational  safety and health laws are also  applicable  to all the  Company's
facilities and operations.

     The Company  believes it complies in all material  respects  with regard to
governmental  regulations  applicable to it. To date, those regulations have not
materially restricted or impeded the Company's operations.

Management Information Systems

     The  Company   installed  a  software  system  designed  for  manufacturing
enterprises in April 1997. Management is currently planning to implement a fully
integrated  system  designed  to  meet  management's   future   information  and
accounting  requirements.  Such  requirements are anticipated as a result of the
Company's  manufacturing  methodology  and  large-scale  production  of  Boralyn
projected  to meet  future  sales  growth,  should it  materialize.  The Company
believes its current management information systems are Year 2000 compliant. All
future systems purchased will likewise include requirements for compliance.



<PAGE>


Personnel

     The Company  employed 61 persons as of December 31, 1997,  including  three
Company  executive  officers,  ten  research  and  development   personnel,   26
manufacturing  personnel  and  eight  persons  engaged  in sales  and  marketing
activities.  None of the Company's  employees is a member of a labor union.  The
Company considers its relationship with its employees to be good.

Risk Factors

     In  addition  to  historical  information,   this  Annual  Report  includes
forward-looking   statements   that   involve   known  and  unknown   risks  and
uncertainties  that may cause the  Company's  actual  results or  outcomes to be
materially  different from those anticipated and discussed herein. In evaluating
forward-looking  statements and the Company's performance,  readers are urged to
read  carefully  the  following  Risk  Factors,  as  well  as  other  cautionary
statements contained in this Annual Report.

     Emerging Technology; Substantial Risk of Uncertain Market Acceptance. Since
commencement  of  operations  in  1990,  the  Company  has been  engaged  in the
formulation,  development  and  fabrication of Boralyn for use in commercial and
consumer  products.  As with any new technology,  there is substantial risk that
the marketplace may not be receptive to products based on it. Market  acceptance
of the Company's  products will depend, in large part, upon the pricing of those
products and the Company's  ability to manufacture  and deliver them on a timely
basis,  as well as the ability of the Company to  demonstrate  the advantages of
its products over competing material methodologies and products. The Company has
experienced,  and will  continue to  experience,  long sales  cycles and lengthy
customer  product  design  times  prior to  production  orders.  There can be no
assurance that the Company will be able to market Boralyn  successfully  or that
any of the  Company's  future  boron  carbide-based  or other  products  will be
accepted in the marketplace.  The costs of the Company's  marketing efforts will
be  substantial  and  will  be  recorded  as  expenses  as  they  are  incurred,
notwithstanding that the benefits,  if any, from those marketing efforts (in the
form of revenues) may not be reflected, if at all, until subsequent periods.

     Limited  Operating  History;  Prior  Losses.  The  Company  has  a  limited
operating history,  having commenced its materials development and manufacturing
activities in 1990, and having had extremely  limited revenues through 1997. The
Company had a net loss of  $7,316,000  for the year ended  December 31, 1997 and
$2,255,000  for the year  ended  December  31,  1996.  The  Company  anticipates
incurring  operating  losses for the current  fiscal  year,  and may continue to
incur losses  thereafter.  There can be no assurance  that the Company will ever
achieve  profitability or maintain  profitability,  if achieved, on a consistent
basis.  Moreover,  the Company has entered  into a five-year  lease for its main
facility  in  Irvine,  California,  and a  ten-year  lease  for  its  additional
facility,  also in Irvine, and the Company has committed  substantial capital to
furnish both facilities with significant production capability. Unless and until
the Company achieves a significant level of sales of Boralyn-based products, the
Company will have substantial  production  overcapacity and underabsorbed  costs
that would cause the Company to incur substantial additional operating losses.

     No  Manufacturing  Experience;  Reliance on Manufacturing  Facilities.  The
Company has only recently developed internal  manufacturing  capacity and has no
experience in manufacturing its products in commercial  quantities.  The Company
intends to manufacture its products at its facilities in Irvine, California. The
current  facilities  include  casting  (including  soluble  core),  forging  and
extrusion   capabilities,   although  there  can  be  no  assurance  that  these
capabilities  will be  adequate  for  all of the  Company's  future  fabrication
requirements,  or, on the other  hand,  that the  Company  will be able to fully
utilize the plants' capacity.  The  manufacturing  processes for Boralyn utilize
high  temperature  and high  pressure  and may be subject to  volatile  chemical
reactions.  A mechanical  or human failure or  unforeseen  condition,  including
natural disasters such as earthquakes,  characteristic  of Southern  California,
could result in temporary interruption of the Company's  manufacturing capacity.
Moreover,  the Company's  manufacturing  operations  will use certain  equipment
that, if damaged or otherwise rendered  inoperable or unavailable,  could result
in the  disruption  of the  Company's  manufacturing  operations.  Although  the
Company has obtained  business  interruption  insurance  with  coverage for lost
profits  and  out-of-pocket  expenses  up  to $8  million  per  occurrence,  and
presently  maintains,  and intends to continue to maintain,  other  property and
casualty  coverage,  an extended  interruption  of  operations  at the Company's
manufacturing facilities would have a material adverse effect on the business of
the Company.

     Need for Future Capital. Future growth will be dependent, in part, upon the
capital  resources  available  to the Company from time to time.  The  Company's
ability to obtain future debt financing will be dependent in part on the quality
and  amount of the  Company's  trade  receivables  and  inventory.  The  Company
believes  that  internally  generated  funds,  cash on hand and  debt  financing
obtained in December 1997 should satisfy the Company's anticipated capital needs
through  1998.  However,  there can be no  assurance  that  those  funds will be
sufficient  to support the  Company's  business  strategy or that, if additional
financing is required, it will be available in amounts or on terms acceptable to
the Company, if at all.

     Revenue Timing;  Quarterly  Fluctuations in Operating Results.  The Company
has experienced, and will likely continue to experience, long sales cycle times,
lengthy  customer  design  processes for new product  introductions,  and market
trends that may significantly limit management's  ability to forecast accurately
time-to-market  schedules or  short-term  results of  operations.  The Company's
operating  results  may vary  significantly  from  quarter to  quarter,  in part
because of the costs  associated  with  changes in the  Company's  products  and
personnel  and the size and  actual  delivery  dates of  orders.  The  Company's
operating results for any particular  quarter are not necessarily  indicative of
any future  results.  Fluctuations  caused by variations in quarterly  operating
results  or the  Company's  failure  to meet  analysts'  projections  or  public
expectations  as to operating  results may adversely  affect the market price of
the Company's Common Stock.

     Rapid  Technological  Change  and  New  Product  Development.  The  Company
operates in a rapidly  evolving field - advanced  composite  materials - that is
likely  to be  affected  by future  technological  developments.  The  Company's
ability to anticipate changes in technologies,  markets and industry trends, and
to develop and  introduce  new and  enhanced  products on a timely basis will be
critical factors in its ability to grow and remain competitive.  There can be no
assurance  that new  products  will be completed or that any new products can be
marketed  successfully.  In addition,  development schedules for new or improved
products  are  inherently  difficult  to predict  and are subject to change as a
result of  shifting  priorities  in  response  to  customers'  requirements  and
competitors' new product  introductions.  Moreover,  the Company expects that it
will devote  substantial  resources to research  and  development  efforts.  For
accounting purposes,  the costs of those efforts will be recorded as expenses as
they are incurred, notwithstanding that the benefits, if any, from the Company's
research and development efforts (in the form of increased revenues or decreased
product costs) may not be reflected, if at all, until subsequent periods.

     Possible  Dependence  on  Significant  Customers;  Exclusivity  Granted  to
Certain Customers.  In view of the early stage nature of the Company's business,
currently  it has  only a  limited  number  of  customers,  several  of whom are
material  to the  Company's  near term  results of  operations.  In an effort to
obtain market penetration quickly, the Company has granted market exclusivity to
certain  of  its  material  customers,   thereby  eliminating  near-term  market
competition for its products in certain fields.  Even after the Company matures,
however,  certain  customers  may be material to the  business,  operations  and
future  prospects  of the Company.  There can be no  assurance  that one or more
principal  customers will not suffer business or financial setbacks resulting in
reduction  or  cancellation  of product  orders or the Company  being  unable to
obtain payment from such customers at any time or from time to time. The loss of
sales to one or more significant  customers could have a material adverse effect
on the business and operations of the Company.

     Dependence  on  Patents.  The Company  has been  granted one United  States
patent  that  it  believes  provides  protection  for  its  proprietary  Boralyn
technology  and contains  claims that cover the use of Boralyn.  The Company has
also been granted additional patents,  including divisional  (extension) patents
and  continuation-in-part  patents, that stem from the Company's original patent
application.  The Company has also applied for additional patents.  There can be
no assurance that the Company's  existing  patents or any other patents that may
be granted, will be valid and enforceable or provide the Company with meaningful
protection from competitors. Further, there can be no assurance that any pending
patent  application will issue or that any claim thereof will provide protection
against  infringement.  If the  Company's  present or future  patent  rights are
ineffective  in  protecting  the Company  against  infringement,  the  Company's
marketing  efforts  and  future  revenues  could  be  materially  and  adversely
affected.  Moreover,  if a competitor  were to infringe any patent issued to the
Company,  the costs of enforcing the Company's  patent rights may be substantial
or even  prohibitive.  There can also be no assurance that the Company's  future
products  will not infringe the patent rights of others or that the Company will
not be forced to expend substantial funds to defend against  infringement claims
of, or to obtain licenses from,  third parties.  The Company  currently has only
limited patent protection for its technology  outside the Untied States, and may
be unable to obtain even limited  protection for its  proprietary  technology in
certain foreign countries.

     Competition.  The  materials  industry is highly  competitive.  The Company
competes  in  its  chosen   markets   against   several   larger   domestic  and
multi-national  companies, all of which are well established in their respective
markets and have  substantially  greater  financial and other resources than the
Company.  Competitive  market  conditions  could adversely  affect the Company's
results of  operations if it were  required to reduce  product  prices to remain
competitive or were unable to achieve significant sales of its products.

     Product  Liability  Risks.  The Company faces an inherent  business risk of
exposure to product  liability  claims in the event that any of its products are
alleged to be  defective  or cause  harmful  effects.  The cost of  defending or
settling  product  liability  claims may be substantial.  The Company  currently
maintains,  and intends to continue to  maintain,  product  liability  insurance
coverage. There can be no assurance that the Company will be able to obtain such
insurance  on  acceptable  terms  in the  future  or that  such  insurance  will
adequately cover any claims.

     Dependence  on Principal  Suppliers.  The Company  presently  purchases its
principal  raw  material,  boron  carbide,  from a limited  number of suppliers,
including one supplier that provides  approximately 50% of the Company's present
requirements.  The Company's business would be materially and adversely affected
if it were unable to continue to purchase  boron  carbide at prices and on terms
comparable to those presently available from its principal  suppliers.  Although
the Company believes that boron carbide is available from other suppliers, there
can be no assurance  that the Company will be able to continue to obtain desired
quantities  of boron  carbide on a timely basis or at prices and on terms deemed
reasonable by the Company.

     Dependence on Management. The Company's future success and profitability is
substantially dependent upon the performance of its senior executives, including
Robin A. Carden, the Company's founder and principal stockholder,  and Walter R.
Menetrey,  its Chief Operating Officer.  Each of the Company's senior executives
has an  employment  agreement  with the  Company  and has a  substantial  equity
interest in the Company through ownership of shares of Common Stock or the grant
of options to purchase  shares of Common Stock.  The loss of Mr. Carden's or Mr.
Menetrey's  services  could  have a  material  adverse  effect  on the  Company.
Moreover,  the Company  does not maintain  key-man life  insurance on any of its
executives,  other than a $5.0  million  policy on the life of Mr.  Carden.  The
Company's  future growth will also be dependent  upon its ability to attract and
retain additional qualified management,  technical,  scientific,  administrative
and  other  personnel.  By reason  both of its  location  and the  nature of its
business,  the Company believes it will experience  significant  competition for
qualified management, supervisory, engineering and other personnel. There can be
no assurance  that the Company  will be  successful  in hiring or retaining  the
personnel it requires for continued growth.

     Management  Information  Systems.  The Company  installed a software system
designed for  manufacturing  enterprises in April 1997.  Management is currently
planning to implement a fully  integrated  system designed to meet  management's
future   information  and  accounting   requirements.   Such   requirements  are
anticipated  as  a  result  of  the  Company's  manufacturing   methodology  and
large-scale  production of Boralyn projected to meet future sales growth, should
it  materialize.  There can be no assurance  that current or planned  management
information systems will be adequate for the Company's future needs.

     Dependence on Trademarks for Current and Future Markets. The market for the
Company's  products  is and will  remain  dependent  in part  upon the  goodwill
engendered by its trademarks and trade names.  Trademark protection is therefore
material to the Company's business. Although Boralyn is registered in the United
States,  there  can be no  assurance  that the  Company  will be  successful  in
asserting trademark or trade name protection for its significant marks and names
in the  United  States or other  markets,  and the costs to the  Company of such
efforts could be substantial.

     Control by Certain Stockholders;  Anti-takeover Provisions.  Certain of the
Company's  present  stockholders  own a substantial  majority of the outstanding
shares of Common Stock.  Consequently,  those  stockholders  have the ability to
elect all the Company's directors and to control the outcome of all other issues
submitted to the Company's  stockholders.  Additionally,  the Company's Board of
Directors has the authority to issue up to 5,000,000  shares of Preferred  Stock
and to determine the price,  rights,  preferences and privileges of those shares
without  any  further  vote of, or action by, the  Company's  stockholders.  The
rights of holders  of Common  Stock  will be  subject  to, and may be  adversely
affected by, the rights of holders of any Preferred  Stock that may be issued in
the future.  Although  the Company has no present  intention  to issue shares of
Preferred Stock, any issuance of Preferred Stock,  while  potentially  providing
desirable  flexibility  in  connection  with  possible  acquisitions  and  other
corporate purposes, could have an effect of making it more difficult for a third
party to acquire a majority  of the  outstanding  voting  stock of the  Company.
Certain provisions of Delaware law applicable to the Company may also discourage
third-party attempts to acquire control.

     Shares Eligible for Future Sale.  Future sales of shares of Common Stock by
existing  stockholders pursuant to Rule 144 promulgated under the Securities Act
of 1933, as amended, or otherwise,  could have an adverse effect on the price of
the shares of Common Stock. In addition,  the Company has contractually  granted
certain of its existing stockholders,  including,  among others, Robin A. Carden
(the Company's  President,  Chief Executive  Officer and a director);  Walter R.
Menetrey (the Company's  Executive Vice President and Chief Operating  Officer);
M. Kingdon Offshore NV; Kingdon Associates, L.P.; and Kingdon Partners, L.P. (of
each of which Michael Markbreiter,  a director of the Company, is an affiliate);
Udi Toledano  (the Chairman of the  Company's  Board of  Directors)  and Edelson
Technology  Partners III (of which Harry Edelson, a director of the Company,  is
an affiliate),  certain registration rights. No prediction can be made as to the
effect that  future  sales of Common  Stock,  or the  availability  of shares of
Common Stock for future sales, will have on the market price of the Common Stock
prevailing from time to time.  Sales of substantial  amounts of Common Stock, or
the perception that such sales could occur,  could adversely  affect  prevailing
market prices for the Common Stock.

     Possible  Volatility  of Stock  Price.  Trading  volume  and prices for the
Common  Stock could be subject to wide  fluctuations  in  response to  quarterly
variations  in  operations,  results,  announcements  with  respect to sales and
earnings, as well as technological innovations, and new product developments and
other  events or factors,  which cannot be foreseen or predicted by the Company,
including  the sale or  attempted  sale of a large amount of  securities  in the
public market,  the  registration  for resale of any shares of Common Stock, and
the  effect  on the  Company's  earnings  of  existing  or  future  equity-based
compensation  awards to  management.  The market price of the  Company's  Common
Stock could also be  influenced  by  developments  or matters not related to the
Company.

2. PROPERTIES

     The Company leases its current  operating  facility in Irvine,  California,
under a five-year  lease  entered  into in June 1996,  with a five-year  renewal
option. The 48,000 square foot, primarily single-story facility, is located on a
three-acre  site at 16761 Hale Avenue in Irvine in an industrial park with close
proximity to truck,  rail and air (John Wayne Airport,  a major regional airport
in Orange  County)  connections  and a highly  trained  labor pool. Of the total
48,000  square foot area of the facility,  approximately  10,000 square feet are
used  for  office  space  and  approximately  38,000  square  feet  are used for
manufacturing  operations dedicated to Boralyn billet  manufacturing,  including
powder consolidation and sintering (approximately 10,000 square feet), extrusion
of tubes and other shapes and forging  (approximately  8,000 square  feet),  die
casting   (approximately   8,000  square  feet),  and  secondary  processes  and
warehousing.

     The  Company  has  begun  renovation  and  leasehold   improvements  on  an
additional  84,000 square foot building located at 17021 Von Karman Ave, Irvine,
California,  under a ten-year  lease  commencing  on  February  1, 1998,  with a
five-year renewal option. This additional facility is located  approximately one
half mile from the  Company's  main  facility and will be dedicated to extrusion
and  forging.  The  additional  facility,  which  will house the  Company's  new
4,000-ton extrusion press, is expected to be completed in the second quarter and
fully operational in the third quarter of 1998.

     These  facilities  are designed  for  expansion of capacity to match future
needs over the next several years, with additional warehousing to be leased at a
nearby  location,  if required.  There can be no assurance that these facilities
will be adequate for the Company's entire future  fabrication  requirement,  or,
alternatively,  that the Company  will be able to fully  utilize the capacity of
its  additional  facility.  The Company  believes  its  current  and  additional
facility will be adequate for its contemplated needs.

     A  research  and  development  facility  dedicated  to the  development  of
computer disk  substrates  used in hard-disk  drives was established in February
1997 at 4576 Enterprise  Street,  Fremont,  California,  approximately 400 miles
from the Company's Irvine facilities. The three-year lease commenced on February
1, 1997 and will expire on January 31, 2000.  The facility  originally  occupied
3,900 square feet of industrial  space, but was expanded to 7,800 square feet in
October 1997.

3. LEGAL PROCEEDINGS.

     There are no material legal  proceedings  pending or, to the Company's best
knowledge, presently threatened against the Company.

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

     No matter was  submitted  to the vote of  security  holders of the  Company
during the fourth quarter of the year ended December 31, 1997.



<PAGE>


                                     PART II

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

     The Company's  Common Stock is listed for quotation under the symbol "ALYN"
on the National Market of The Nasdaq Stock Market, Inc. The following table sets
forth the high and low per share bid prices for the  Company's  Common Stock for
each  quarterly  period since the  completion  of the Company's  initial  public
offering on October 22, 1996. 

                                                   Common Stock 
       Calendar Year                               High      Low

       1996
       Fourth Quarter                               16        10

       1997
       First Quarter                                13.5        8.25
       Second Quarter                               12.62       8.38
       Third Quarter                                17.62       6.88
       Fourth Quarter                               16.62       9.5

     As of February 24, 1998,  there were 42 holders of record of the  Company's
Common Stock.  The Company  believes that the number of beneficial  owners as of
that date exceeds 750.

     The Company does not anticipate paying any dividends on its Common Stock in
the foreseeable future. The Company presently intends to retain its earnings, if
any, to finance the development of its business. The payment of any dividends in
the future will depend on the evaluation by the Company's  Board of Directors of
such factors as it deems relevant at the time. Currently, the Board of Directors
believes that all of the Company's earnings,  if any, should be retained for the
development of the Company's business.



<PAGE>
6. Selected Financial Data
  (In thousands except per share data)

<TABLE>
<CAPTION>
                                                             Alyn                                    Old Alyn
                                               ---------------------------------- -----------------------------------------------
                                                                   Period from    Period from
                                                                   May 2, 1996     January 1,
                                                  Year ended           to             1996
                                                 December 31,     December 31,     to May 1,        Years ended December 31,
                                               ---------------------------------- ------------- ---------------------------------
                                                     1997             1996            1996         1995      1994        1993
                                               ---------------------------------- ------------- --------------------- -----------
<S>                                                         <C>              <C>          <C>         <C>       <C>         <C> 
Statements of Operations Data:

Net revenue                                                 $364             $90          $104        $319      $309        $540
                                               ---------------------------------- ------------- --------------------- -----------

Costs and expenses:
     Cost of goods sold                                      323              80            34         203        92         265
     Establishment of manufacturing facilities             1,809             262
     General and administrative expenses                   2,633           1,257            53         219       352         259
     Selling and marketing                                 1,371             587            23          52       143         114
     Research and development                              2,338             283             7          79       180          24
                                               ---------------------------------- ------------- --------------------- -----------

     Total costs and expenses                              8,474           2,469           117         553       767         662
                                               ---------------------------------- ------------- --------------------- -----------

     Operating loss                                      (8,110)         (2,379)          (13)       (234)     (458)       (122)

Other income (expense), net                                  806             141           (2)        (10)      (11)         (3)
                                               ---------------------------------- ------------- --------------------- -----------

Loss before provision for income taxes                   (7,304)         (2,238)          (15)       (244)     (469)       (125)

Provision for income taxes                                    12               1             1           1         1           1
                                               ---------------------------------- ------------- --------------------- -----------

Net loss                                                ($7,316)        ($2,239)         ($16)      ($245)    ($470)      ($126)
                                               ================================== ============= ===================== ===========

Per Share Data:

Basic and diluted net loss per share                     ($0.68)         ($0.25)
                                               ==================================

Common shares used in computing                           10,750           8,800
                                               ==================================
     net loss per share (Note 1)

</TABLE>
<TABLE>
<CAPTION>


Balance Sheet Data:                                                   1997            1996         1995      1994        1993
                                                                 ---------------- ------------- --------------------- -----------

<S>                                                                      <C>           <C>          <C>       <C>            <C>
Working capital (deficit)                                                $11,717       $23,494      ($382)    ($133)         $18
Total assets                                                              31,127        32,203         128       193         219
Long-term obligations                                                      5,501             0         128       128         128
Total stockholders' equity (deficit)                                      23,750        31,066       (490)     (245)        (99)
</TABLE>

<PAGE>


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

Overview

     Since its  inception  in 1990,  the Company has been  engaged in  research,
development, testing and prototype production of advanced metal matrix composite
materials and products,  utilizing proprietary technology for the application of
boron carbide in combination with aluminum alloys,  under the name Boralyn.  The
Company  was granted a patent  regarding  Boralyn in January  1996.  In 1995 and
1996,  Boralyn sales were primarily the result of prototype orders. In September
1996,  the Company and Taylor Made entered into an agreement  that  provides for
the production and purchase of  Boralyn-based  metalwood golf club heads through
June 30, 1999 and an exclusive license through that date should specific minimum
volume  requirements  be met. In May 1997,  the  Company and True Temper  Sports
entered  into an agreement  that  provides  for the  production  and purchase of
Boralyn-based  golf club shafts through August 31, 2003 and an exclusive license
through that date should  specific  minimum volume  requirements be met. Under a
five-year  agreement  entered into in September  1997,  the Company is to supply
True  Temper  Sports  with tubing for  bicycle  frame sets and  components.  The
Company and Bolle Inc.  have  entered into an  agreement  that  provides for the
purchase  of  approximately  $5 million of  sunglass  frames  over a  three-year
period,  with the first  deliveries  scheduled for mid-1998.  Under a multi-year
agreement entered into in October 1997, the Company will be the sole supplier of
the  engine  cradle for  General  Motors  Corporation's  new  consumer  electric
vehicle, EV-1, commencing in mid-1998. The Company has also entered into a joint
development  effort with  Seagate  Technology  to produce  alternative  computer
hard-disk  substrates.  The Company does not expect to achieve  sales of Boralyn
prior to the first  quarter  of 1998,  and there  can be no  assurance  that any
significant  sales  will be  achieved.  The  Company  was  unprofitable  through
December 31, 1997,  incurring a loss of $7,316,000  for the full year 1997, as a
result of start-up  expenses in anticipation of production  orders.  The Company
may continue to incur losses.

Results of Operations

     For  purposes of  comparison  with the results of  operations  for the year
ended  December 31, 1997,  the results of operations  for the period  January 1,
1996  through May 1, 1996 and the period from May 2, 1996  through  December 31,
1996 have been aggregated.

     Total  revenues for 1997  increased  88% to $364,000 from $194,000 in 1996.
The  increase  was the result of  additional  prototype  sales of  Boralyn-based
products and revenue on custom-built  tooling.  In 1996, total revenue decreased
39% to  $194,000  from  $319,000  in  1995.  The  decrease  was  the  result  of
management's  decision to focus its efforts on sales of  Boralyn-based  products
and to reduce its efforts to sell boron carbide powders and ceramic products.

     Cost of goods sold  increased  183% to  $323,000  in 1997 from  $114,000 in
1996.  Cost of goods sold for 1997 increased as a percentage of total revenue to
89% from 59% in 1996.  The  increase  was  primarily  attributable  to the lower
margin on sales of custom-built  tooling and prototype sales.  Certain customers
have  renegotiated  tooling  contracts,  where future tooling payments are to be
treated as a reimbursement  of tooling  expenses as opposed to being recorded as
revenue.  In 1996 cost of goods sold  decreased 44% to $114,000 from $203,000 in
1995,  reflecting  primarily the reduction in revenues.  Cost of goods sold as a
percentage  of total  revenue  decreased  in 1996 to 59%  from 64% in 1995.  The
decrease reflected the change in product mix which included a greater proportion
of higher margin Boralyn-based products in 1995.

     Expenses  incurred  in  1997  in  establishing  a  manufacturing   facility
increased  591% to $1,809,000  from $262,000 in 1996. The increase was primarily
attributable   to  the   additional   manufacturing   management   and   related
pre-operating  costs incurred by the Company in building its  infrastructure and
installed  machinery  and  equipment  to  produce  Boralyn-based  products.  The
increase in 1997 was the result of occupying the building for the entire year as
compared  to only the  fourth  quarter  in 1996.  The  Company  expects to begin
production in 1998 and anticipates  reaching normal production levels by the end
of 1998.  There were no  expenses  incurred  during  1995 for  establishment  of
manufacturing facilities.

     General and  administrative  expenses for 1997 increased 101% to $2,633,000
from  $1,310,000 in 1996.  The increase was primarily the result of doubling the
Company's staff in preparation for production,  including  professional services
and other  administrative  costs. In 1996, general and  administrative  expenses
increased 498% to $1,310,000  from $219,000 in 1995. The increase was the result
of additional staff and  administrative  costs associated with the transition of
the Company to fully commercialize Boralyn.

     Selling and marketing  expenses in 1997 increased  125% to $1,371,000  from
$610,000  in 1996.  The  increase  was the result of an  increase  in  marketing
expenses incurred in the expanding marketing efforts for Boralyn-based products.
These expenses will continue to increase to support  anticipated Company growth.
Selling and marketing expenses increased 1,073% to $610,000 in 1996 from $52,000
in 1995.  This  increase  was the result of  increased  sales  staff,  including
specialists  in  sporting  goods,  computers,  and  transportation   industries,
marketing staff and an increase in marketing  expenses  incurred in the start-up
marketing efforts for Boralyn-based products.

     Research and development expenses in 1997 increased 706% to $2,338,000 from
$290,000  in 1996.  This  increase  was  attributable  to an increase in ongoing
development  programs,  including  establishment  of the  research  facility  in
Fremont,  California,  which focuses solely on the computer hard-disk  substrate
market.  Research  and  development  expenses  are  expected  to increase as the
Company expands programs to support the development of  Boralyn-based  products.
In 1996,  research and  development  expenses  increased  267% to $290,000  from
$79,000 in 1995.  The increase was  attributed to an increase in research  staff
and ongoing development  programs  associated with the Company's  transition for
Boralyn commercialization.

     The Company's  customer sales  contracts are quoted in U.S.  Dollars,  such
that there is no current foreign  exchange  exposure.  However,  there can be no
assurance that market  conditions will allow continued  pricing in U.S.  Dollars
and may require pricing in local  currencies.  The Company's  agreements for the
purchase of raw materials  and tooling  which are obtained from sources  outside
the United States are also quoted in U.S.  Dollars,  although  current  purchase
agreements  do not exceed  one year.  Raw  material  and  tooling  prices may be
affected materially and adversely by currency value fluctuations.

Liquidity and Capital Resources

     At December 31, 1997,  the Company had working  capital of $11,717,000 as a
direct  result of the  completed  initial  public  offering  in October  1996 of
2,750,000  shares of its  Common  Stock at a price of $13.50  per  share,  which
generated  net  proceeds to the Company of  approximately  $33.3  million  after
expenses,  and the debt  financing of $6.5 million  completed in December  1997.
Working capital at December 31, 1996 was  $23,494,000.  During 1997, the Company
invested  approximately $7.3 million in new machinery,  equipment and production
facilities  and $3.1  million in deposits  on  equipment.  In 1996,  the Company
invested  approximately  $5.1 million in capital  equipment  for new  production
facilities,  equipment and tooling and $1.7 million in deposits on equipment. In
accordance  with  investment  guidelines  approved  by the  Company's  Board  of
Directors,  cash balances in excess of those  required to fund  operations  have
been  invested in  interest-bearing  high quality  short-term  investment  grade
corporate and government securities.

     The Company's future liquidity and capital funding requirements will depend
on  numerous   factors,   including   principally   results  of  marketing   its
Boralyn-based products, their acceptance in the market, and the costs and timing
of growth in sales, marketing and manufacturing activities.  The Company intends
to use debt  financing  for some of its  existing and future  capital  equipment
needs.  The  Company  anticipates,  based on its  currently  proposed  plans and
assumptions  relating to its  operations,  that its existing cash  resources and
future   capital   equipment   financing  will  be  sufficient  to  satisfy  its
contemplated cash requirements through 1998.

8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     See Item 14 for a list of the Alyn  Corporation  Financial  Statements  and
Schedules and Supplementary Information filed as part of this Annual Report.

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

     None


<PAGE>


                                    PART III

10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information  required by this Item, insofar as it relates to Directors,
is incorporated herein by reference to the Company's  definitive Proxy Statement
with respect to the Company's  Annual  Meeting of  Stockholders  scheduled to be
held on June 3, 1998.

     The current Directors and Executive  Officers of the Company,  each of whom
is expected to continue in his  respective  position  immediately  following the
1998 Annual Meeting, are:
<TABLE>
<CAPTION>

Name                             Age        Position
<S>                              <C>        <C>
Robin A. Carden                  40         President, Chief Executive Officer and a Director
Walter R. Menetrey               64         Executive Vice President, Chief Operating Officer and a Director
Richard L. Little                53         Vice President, Finance and Administration and Chief Financial Officer
Harry Edelson                    61         Director
Michael Markbreiter              36         Director
Udi Toledano                     47         Chairman of the Board and a Director
</TABLE>

     The business experience,  principal occupations and employment,  as well as
the periods of service,  of each of the Directors and Executive  Officers of the
Company during at least the last five years are set forth below.

     Robin A. Carden is the  founder of the Company and has been the  President,
Chief  Executive  Officer and a director  since its formation in 1990.  Prior to
1990,  Mr.  Carden was  employed  by  Ceradyne  Inc.,  a company  engaged in the
development  and  production  of advanced  ceramics  products,  as Senior  Sales
Engineer,  and was engaged in  developing  civilian  applications  for  advanced
ceramics  products  originally  developed for military use. Mr. Carden graduated
from Long Beach State  University with a Bachelor of Science degree. A number of
United States patents have been issued to Mr. Carden.

     Walter R. Menetrey has been the Executive Vice  President,  Chief Operating
Officer and a Director of the Company since May 1996.  From August 1992 to April
1996, he worked as an independent  management  consultant to numerous  companies
engaged in, among other things, the security and software  industries.  Prior to
July 1992, Mr.  Menetrey was Chief Executive  Officer of Meret,  Inc., a company
engaged in the manufacture and sale of fiber optics communications equipment. In
July 1995,  Mr.  Menetrey filed for personal  bankruptcy  under Chapter 7 of the
Bankruptcy Code, and was granted a discharge of the claims of certain  creditors
pursuant to Section 727 of the Bankruptcy  Code in November  1995. Mr.  Menetrey
received a Bachelor  of  Science  in Physics  and a Master of Science  degree in
Electrical Engineering from the California Institute of Technology.

     Richard L. Little has been the Vice President,  Finance and  Administration
and Chief  Financial  Officer  of the  Company  since May 1997.  Mr.  Little was
Executive Vice President of d'essence  Designer  Fragrances,  a marketer of fine
perfumes  and related  products  from 1995 to 1997 and  President  of  d'essence
International  from  1996 to  1997.  From  1994 to 1995 he was  Chief  Operating
Officer and Chief Financial  Officer of Graphix Zone, a publicly traded producer
of CD-ROMS. In 1989, Mr. Little co-founded Bainbridge  International Holdings, a
merchant bank  specializing in acquiring middle market  companies.  From 1986 to
1989, Mr. Little was Chief Financial Officer, Vice President Finance,  Treasurer
and  Secretary  of Teradata  Corporation,  a publicly  traded  manufacturer  and
marketer of supercomputers for managing very large data bases.  Before Teradata,
Mr. Little was Chief  Financial  Officer of Quotron  Systems,  a publicly traded
provider of on-line financial information services. Mr. Little has a Bachelor of
Science degree in Engineering and Masters of Business  Administration in Finance
from the University of California, Los Angeles. He is also a CPA.

     Harry  Edelson  has been a  Director  of the  Company  since May 1996.  Mr.
Edelson has been the Managing Partner of Edelson Technology  Partners, a venture
capital  fund  that is an  affiliate  of  Edelson  Technology  Partners  III,  a
principal  stockholder  of  the  Company,  for  more  than  ten  years.  Edelson
Technology  Partners  and its  related  funds  have  invested  in  more  than 70
companies    involved   in   a   wide   range   of    technologies,    including
telecommunications,     computers,    semiconductors,    specialty    chemicals,
environmental  and publishing,  with a focus on funding  technologies that could
assist its corporate  partners.  Mr. Edelson was a financial analyst for over 12
years,  covering  technology  companies for Merrill Lynch & Co.,  Drexel Burnham
Lambert and First Boston  Corporation.  He has consulted for dozens of companies
and is a frequent  speaker and  contributor  to leading  business  magazines  in
Europe, Asia and the United States.

     Michael  Markbreiter  has been a Director  of the  Company  since May 1996.
Since  August 1995,  Mr.  Markbreiter  has been a portfolio  manager for private
equity investments for Kingdon Capital Management Corp., a manager of investment
funds.  In April 1994, he co-founded  Ram Investment  Corp.,  a venture  capital
company.  From March 1993 to January 1994, he served as a portfolio  manager for
Kingdon Capital Management Corp. Prior to February 1993, he worked as an analyst
at Alliance Capital  Management  Corp. Since December 1997, Mr.  Markbreiter has
been a Director of Global Pharmaceutical  Corporation, a publicly traded generic
pharmaceutical  manufacturing  company. Mr. Markbreiter graduated from Cambridge
University with a degree in Engineering.

     Udi Toledano has been a Director of the Company since May 1996 and Chairman
of the  Board  since  January  1997.  Mr.  Toledano  has been the  President  of
Andromeda Enterprises,  Inc., a private investment company, since December 1993.
Prior to that he was the  president  of CR Capital  Inc.,  a private  investment
company,  for more than five years. He has been an advisor to various public and
private corporations,  none of which competes with the Company.  Since May 1996,
Mr.  Toledano has been a Director of HumaScan  Inc., a publicly  traded  medical
device  company,  and  since  April  1995  he has  been  a  Director  of  Global
Pharmaceutical   Corporation,   a   publicly   traded   generic   pharmaceutical
manufacturing  company.  Since July 1994,  Mr.  Toledano  has been a Director of
Universal  Stainless & Alloy Products,  Inc., a publicly traded  specialty steel
producing company.

     All  Directors  hold  office  until the  Annual  Meeting  of  Stockholders,
scheduled  to be held on June 3, 1998,  and the election  and  qualification  of
their successors.

11. EXECUTIVE COMPENSATION

     The information  required by this Item is incorporated  herein by reference
to the Company's definitive Proxy Statement with respect to the Company's Annual
Meeting of Stockholders scheduled to be held on June 3, 1998.

12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information  required by this Item is incorporated  herein by reference
to the Company's definitive Proxy Statement with respect to the Company's Annual
Meeting of Stockholders scheduled to be held on June 3, 1998.

13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information  required by this Item is incorporated  herein by reference
to the Company's definitive Proxy Statement with respect to the Company's Annual
Meeting of Stockholders scheduled to be held on June 3, 1998.


<PAGE>


                                     PART IV

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

     (a)  Documents filed with this Report.

     The following statements, schedules and documents are filed as part of this
report.

          1.   Financial Statements

               The  financial  statements  listed  in the  accompanying  List of
               Financial   Statements   covered   by   Report   of   Independent
               Accountants.

          2.   Financial Statement Schedules

               None

          3.   Exhibits

               Exhibit
                Number        Description

                3.1*    Restated Certificate of Incorporation.

                3.2*    By-Laws of the Registrant.

                4.1*    Specimen Copy of Stock  Certificate for shares of Common
                        Stock.

                4.2*    Stockholder  Agreement,  dated as of May 1, 1996, by and
                        among  the  Company  and  certain  stockholders  of  the
                        Registrant.

                10.1*   1996 Stock Incentive Plan of the Registrant.

                10.2*   Employment  Agreement  between  the Company and Robin A.
                        Carden,  dated  as of  April  1,  1996,  as  amended  by
                        Amendment Number One, dated as of April 30, 1996.

                10.3*   Form of  Employment  Agreement  between  the Company and
                        certain senior executives.

                10.4*   Lease, dated as of June 12, 1996, between the Registrant
                        and  Taylor-Longman,  with  respect to premises at 16761
                        Hale Avenue, Irvine, California.

                10.5*   Sale of Goods Agreement and Exclusive License,  dated as
                        of September 10, 1996,  by and between  Taylor Made Golf
                        Company, Inc. and the Registrant (for which confidential
                        treatment  has been  granted  with  respect  to  certain
                        provisions).

                10.6**  Exclusive Customer Agreement,  dated as of May 13, 1997,
                        by and  between  True Temper  Sports and the  Registrant
                        (for which confidential  treatment has been granted with
                        respect to certain provisions).

                10.7    Lease,  dated as of July 1,  1997,  as  amended by First
                        Amendment  to  Lease,  dated as of  December  23,  1997,
                        between  the  Registrant  and the Irvine  Company,  with
                        respect to premises at 17021 Von Karman Avenue,  Irvine,
                        California.

                23      Consent of Price Waterhouse LLP

                27.1    Financial  Data Schedule for the year ended December 31,
                        1997.

                99.1*   U.S. Patent Number 5,496,223, dated January 23, 1996.

        (b) Reports on Form 8-K.

     The  Registrant  filed no reports on Form 8-K during the fourth  quarter of
the year ended December 31, 1997. 

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

*    Incorporated  by reference to the  Registrant's  Registration  Statement of
     Form S-1 (File no. 333-09143) and any amendments thereto.

**   Incorporated by reference to the  Registrant's  Current Report on Form 8-K,
     dated August 13, 1997.

<PAGE>

                                   SIGNATURES

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


                                         ALYN CORPORATION

                                  By:    /s/   Robin A. Carden
                                         ---------------------
                                         Robin A. Carden
                                         President and Chief Executive Officer

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

         Signature                             Title                       Date

<S>                                 <C>                                  <C>
/s/ Robin A, Carden                 President, Chief Executive           March 10, 1998
---------------------------         Officer and Director         
Robin A. Carden                     (principal executive officer)
                                    


/s/ Richard L. Little               Vice President, Finance and          March 10, 1998
---------------------------         Administration and Chief         
Richard L. Little                   Financial Officer (principal     
                                    financial and accounting officer)
                                    


/s/ Walter R. Menetrey              Executive Vice President, Chief      March 10, 1998
---------------------------         Operating Officer and Director
Walter R. Menetrey                  


/s/ Harry Edelson                   Director                              March 10, 1998
---------------------------
Harry Edelson


/s/ Michael Markbreiter             Director                              March 10, 1998
----------------------------
Michael Markbreiter


/s/ Udi Toledano                    Chairman of the Board and             March 10, 1998
----------------------------        a Director
Udi Toledano                                


</TABLE>

<PAGE>
                            FORM 10-K ITEM 14 (a)(1)

                                ALYN CORPORATION
                          LIST OF FINANCIAL STATEMENTS





The following financial statements of
Alyn Corporation are included in Item 8:                                     

Report of Independent Accountants . . . . . . . . . . . . . . . . . .  . . .F-2 
Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . 
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . .  . . . 
Statement of Stockholders' Equity . . . . . . . . . . . . . . . . . .  . . . 
Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . .  . . . 
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . .  . . . 

     Schedules  for  which  provision  is  made  in  the  applicable  accounting
regulation of the Securities and Exchange  Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.


                                      F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors and
Stockholders of Alyn Corporation

     We have audited the  accompanying  balance sheet of Alyn  Corporation  (the
"Company")  as of December  31, 1997 and 1996,  and the  related  statements  of
operations,  stockholders'  equity and of cash flows for the year ended December
31, 1997 and for the period from May 2, 1996 through  December 31, 1996. We have
also audited the statements of operations, stockholders' equity (deficit) and of
cash flows of Old Alyn for the period from  January 1, 1996  through May 1, 1996
and the year  ended  December  31,  1995.  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 in accordance  with  generally  accepted  auditing
standards.  Those standards 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.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion,  the financial  statements audited by us present fairly, in
all material  respects,  the  financial  position of the Company at December 31,
1997 and 1996,  and the results of operations  and cash flows of the Company and
of Old  Alyn  for  the  periods  described  in the  first  paragraph  above,  in
conformity with generally accepted accounting principles.



PRICE WATERHOUSE LLP
Costa Mesa, California
January 16, 1998

                                      F-2
<PAGE>


                                ALYN CORPORATION
                                 BALANCE SHEET




                                                December 31,        December 31,
                                                    1997               1996
                                                -----------         ------------
                                      ASSETS
Current assets:

  Cash and cash equivalents                      $13,126,000         $24,411,000
  Accounts receivable, net of allowance 
    for doubtful accounts of $25,000 in 1997
    and $4,000 in 1996                                94,000              57,000
  Inventories                                        172,000              41,000
  Other current assets                               201,000             122,000
                                                 -----------        ------------
          Total current assets                    13,593,000          24,631,000

  Equipment, furniture and fixtures, net          13,302,000           5,027,000
  Other assets, net                                3,454,000           1,771,000
  Intangibles, net of accumulated amortization
    of $152,000 in 1997 and $56,000 in 1996          778,000             774,000
                                                  ----------        ------------
                                                 $31,127,000         $32,203,000
                                                 ===========        ============


                      LIABILITIES AND STOCKHOLDERS' EQUITY


Current liabilities:

  Accounts payable                                 $551,000             $945,000
  Current portion of long term debt                 999,000                   -
  Accrued and other current liabilities             326,000              192,000
                                                   --------             --------
          Total current liabilities               1,876,000            1,137,000

Long term debt (Note 4)                           5,501,000

Commitments and contingencies (Note 8)

Stockholders' equity:

  Preferred stock, $0.001 par value;
    5,000,000 shares authorized;
    no shares issued and outstanding

  Common stock, $0.01 par value; 
    20,000,000 shares authorized;
    10,750,000 shares issued and
    outstanding                                       11,000             11,000 

  Additional paid-in capital                      33,294,000         33,294,000
  Accumulated deficit                             (9,555,000)        (2,239,000)
                                                 -----------        -----------
    Total stockholders' equity                    23,750,000         31,066,000
                                                 -----------        -----------
                                                 $31,127,000        $32,203,000
                                                 ===========        ===========

See accompanying notes to financial statements
<PAGE>
                                ALYN CORPORATION
                             STATEMENT OF OPERATIONS


<TABLE>
<CAPTION>

                                                                    Alyn                                   Old Alyn
                                                         --------------------------------      ----------------------------------
                                                             Year        Period From             Period From             Year
                                                            Ended      May 2, 1996 to          January 1, 1996          Ended
                                                         December 31,   December 31,              to May 1,          December 31,
                                                             1997           1996                    1996                 1995
                                                         --------------------------------      ----------------------------------

<S>                                                           <C>                 <C>               <C>                  <C>       
Net sales                                                     $305,000            $25,000           $104,000            $261,000   
Contract revenue                                                59,000             65,000                  -              58,000   
                                                               -------            -------           --------             -------
       Total revenue                                           364,000             90,000            104,000             319,000   
                                                                                                                                   
                                                                                                                                   
                                                                                                                                   
Costs and expenses:                                                                                                                
      Cost of goods sold                                       323,000             80,000             34,000             203,000   
      Establishment of manufacturing facilities              1,809,000            262,000                  -                   -   
      General and administrative expenses                    2,633,000          1,257,000             53,000             219,000   
      Selling and marketing                                  1,371,000            587,000             23,000              52,000
      Research and development                               2,338,000            283,000              7,000              79,000 
                                                             ---------            -------              -----              ------ 
          Total costs and expenses                           8,474,000          2,469,000            117,000             553,000 
                                                             ---------          ---------            -------             ------- 


          Operating loss                                    (8,110,000)        (2,379,000)           (13,000)          (234,000)
                                                                                                                                   
Interest expense                                                (3,000)          (141,000)            (3,000)            (12,000)
Interest income                                                809,000            282,000              1,000               2,000
                                                               -------            -------              -----               -----
                                                                                                                                   
Loss before provision for income taxes                      (7,304,000)        (2,238,000)           (15,000)           (244,000)
                                                                                                                                   
Provision for income taxes                                      12,000              1,000              1,000               1,000
                                                                ------              -----              -----               -----

Net loss                                                  ($7,316,000)       ($2,239,000)          ($16,000)          ($245,000)
                                                          ===========        ===========           ========           ========= 
                                                                                                                                   
Basic and diluted net loss per share                           ($0.68)            ($0.25)                                          
                                                                                                                                   
Common shares used in computing                                                                                                    
      net loss per share (Note 1)                           10,750,000          8,800,205                                          
                                                                                                                                   
</TABLE>
<PAGE>
                                ALYN CORPORATION
                        STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>

                                        Common Stock               Common Stock - Class A  Common Stock - Class B     Accumulated
                                     Shares     Amount           Shares        Amount       Shares          Amount      Deficit
                                     ---------------------  ---------------------------   ------------------------     ---------
<S>                                   <C>         <C>            <C>         <C>         <C>        <C>             <C> 
 Old Alyn (Notes 1 and 5)
 Balance at December 31, 1994           -          -             1,700,000   $1,000      300,000    $   325,000     $  (571,000)
       Net loss                                                                                                        (245,000)

                                     ---------------------  ------------------------     -----------------------       ----------
 Balance at December 31, 1995           -          -             1,700,000    1,000      300,000        325,000        (816,000)

      Repurchase of common stock                                                       (200,000)      (217,000)         (43,000)
      Net loss                                                                                                          (16,000)
                                     ---------------------  -----------------------   --------------  ----------  ---------------
 Balance May 1, 1996                    -           -            1,700,000   $1,000      100,000    $   108,000     $  (875,000)
                                     =====================  ========================  ==========================  ===============

</TABLE>


<TABLE>
<CAPTION>
                                                                                                Additional
                                       Preferred Stock                  Common Stock              Paid-in          Accumulated
                                     Shares         Amount           Shares        Amount          Capital            Deficit
                                     -------------------------      -----------------------    ----------------    ---------------
<S>                                  <C>             <C>            <C>          <C>                 <C>           <C>
 Alyn (Note 1)

      Issuance of common stock                                       4,240,000   $  4,000        $  1,000

      Common stock issued in exchange
         for Old Alyn common stock                                   3,760,000      4,000           (4,000)

      Common stock issued in initial
         public offering, net of 
         offering costs                                              2,750,000      3.000        33,297,000

      Net loss                                                                                                   $ (2,239,000)
                                     -------------------------  --------------------------    --------------  -----------------
 Balance at December 31, 1996                                       10,750,000     11,000        33,294,000        (2,239,000)
                                              -             -

      Net loss                                                                                                     (7,316,000)
                                     -------------------------  --------------------------    --------------     -------------
 Balance at December 31, 1997                 -             -       10,750,000   $ 11,000     $  33,294,000      $ (9,555,000)
                                     =========================  ==========================    ==============  =================
</TABLE>


<PAGE>
                                ALYN CORPORATION
                        CONDENSED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                    Alyn                                Old Alyn
                                                     -----------------------------------   -----------------------------------
                                                           Year          Period From         Period From           Year
                                                           Ended        May 2, 1996 to     January 1, 1996         Ended
                                                       December 31,      December 31,         to May 1,        December 31,
                                                           1997              1996                1996              1995
                                                     -----------------------------------   -----------------  ----------------
<S>                                                       <C>              <C>                    <C>              <C>       
Cash flows from operating activities:
   Net Loss                                               ($7,316,000)     ($2,239,000)           ($16,000)        ($245,000)
   Adjustments to reconcile net loss to
     net cash provided by operating activities:
   Depreciation and amortization                               856,000          111,000               1,000             2,000
                                                                                                      
   Provision for allowance for doubtful accounts               95,000            2,000               8,000                 -
                                                                
   (Increase) decrease in operating assets and liabilities:
     Accounts receivable                                     (158,000)         (22,000)            (30,000)           (7,000)
                                                                                       
     Inventories                                             (131,000)         (32,000)               7,000           138,000
                                                                                                     
     Other current assets                                     (54,000)        (122,000)                   -                 -

     Deferred offering costs                                        -                -             (128,000)                -

     Other assets                                          (3,385,000)      (1,624,000)                   -                 -

     Intangible assets                                        (99,000)         (60,000)             (1,000)            (6,000)

     Accounts payable                                        (394,000)          884,000             (4,000)            22,000
                                                                                                    
     Accrued and other current liabilities                     134,000        (588,000)              94,000           158,000
                                                                                                    
                                                     -----------------------------------   -----------------  ----------------

   Net cash used in operating activities                  (10,452,000)      (3,690,000)             (69,000)           62,000

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

Cash flows from investing activities:
   Capital expenditures                                    (7,333,000)      (5,075,000)               (4,000)
                                                                                                    
                                                     -----------------------------------   -----------------  ----------------

   Net cash used in investing activities                   (7,333,000)      (5,075,000)               (4,000)
                                                     -----------------------------------   -----------------  ----------------

Cash flows from financing activities:
   Proceeds from initial stock offering                                      33,300,000
   Payment of stockholder note payable                                        (128,000)
   Proceeds from stockholder credit facility                                  4,650,000
   Repayment of stockholder credit facility                                 (4,650,000)
   Proceeds from long term debt                              6,500,000
                                                     -----------------------------------   -----------------  ----------------

   Net cash provided by financing activities                 6,500,000       33,172,000
                                                     -----------------------------------   -----------------  ----------------

Net (decrease) increase  in cash                          (11,285,000)       24,407,000            (73,000)            62,000
                                                                                                   

Cash and cash equivalents at beginning of period            24,411,000            4,000              77,000         15,000

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

Cash and cash equivalents at end of period                 $13,126,000      $24,411,000              $4,000           $77,000
                                                     ===================================   =================  ================

Supplemental cash flow information:
   Cash paid during the period for income taxes                $12,000           $1,000              $1,000            $1,000
                                                     ===================================   =================  ================
   Cash paid during the period for interest                     $3,000         $144,000
                                                     ===================================

Noncash investing and financining activities:
   Liability recorded for repurchase of common
     stock from stockholder                                                                        $260,000
                                                                                           =================
</TABLE>

See accompanying notes to financial statements.


<PAGE>


                                ALYN CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


1. Description of business and summary of significant accounting policies

Description of business

     Alyn designs,  develops, and manufactures  industrial and consumer products
utilizing its proprietary  advanced metal matrix composite  materials.  Old Alyn
had developed  technology,  for which it obtained a patent in January 1996,  for
the  application  of Boron Carbide in  combination  with aluminum in lightweight
metal matrix composites under the name Boralyn(R).

     Alyn  Corporation  (Alyn or the  Company) was  incorporated  in Delaware on
April 9, 1996. In May 1996, the Company  acquired Alyn Corporation (Old Alyn), a
California  corporation,  whereby  all of the  1,800,000  outstanding  shares of
common stock of Old Alyn were  exchanged at a ratio of 2.1-to-one  for 3,760,000
shares  of  common  stock  of the  Company  (0.02611-to-one  for  47,000  shares
pre-split discussed below). Subsequent to the acquisition, Old Alyn stockholders
owned  forty-seven  percent of Alyn. As a result of the change in control of Old
Alyn, the acquisition was accounted for as a purchase.

     In July 1996,  the  Company's  Board of  Directors  amended its Articles of
Incorporation  to increase the number of shares  authorized of common stock from
110,000 to 20,000,000 and to authorize  5,000,000  shares of preferred stock and
declared an 80-for-one  split of its common stock.  All share amounts  presented
for Alyn have been adjusted to give retroactive effect for this split.

     On October 22, 1996, the Company  completed its initial public  offering of
2,750,000  shares of common  stock at a price of $13.50 per share.  The  Company
received  net  proceeds  of  approximately   $33.3  million  after  underwriting
discounts and offering expenses.  Subsequently,  in October 1996,  approximately
$4.7  million of net proceeds  from the initial  public  offering  were used for
repayment of  principal,  accrued  interest  thereon and all other amounts owing
with  respect to a credit  facility  provided  by  stockholders,  and the credit
facility was terminated.

     In  December  1997,  the  Company  completed  a  $2,500,000  term  loan and
established,  subject to a  collateral  audit,  a  $5,000,000  revolving  credit
facility,  based upon an advance against accounts receivable,  with a commercial
bank.  As of December  31, 1997,  no advances had been made under the  revolving
credit  facility.  Also in December 1997, the Company  established an $8,000,000
secured term loan credit facility with a large financial  institution.  Advances
under  the  facility  are  secured  by  specific  Company  owned   manufacturing
equipment. As of December 31, 1997, $4,000,000 was outstanding under this credit
facility.

Summary of accounting policies

     Inventories

     Inventories  are  stated  at the  lower  of  cost  or  market,  cost  being
determined on a first-in, first-out basis.

     Equipment, furniture and fixtures
 
     Equipment,  furniture and fixtures,  including tooling, are stated at cost.
Depreciation  is computed  using the  straight-line  method  over the  estimated
useful  lives of  individual  assets,  which  range  from 18 months to 10 years.
Amortization  of  leasehold  improvements  is recorded  using the  straight-line
method  over  the  shorter  of the  life of the  improvement  or the term of the
related lease.

     Intangible assets

     Intangible  assets consisting of patents for the  Boralyn(R)technology  and
goodwill are amortized on a straight-line basis over the estimated economic life
of 10 years.  Intangible  assets are  periodically  reviewed for  impairment  to
ensure that they are fairly stated.  The Company reviews the  recoverability  of
intangible  assets by comparing cash flows on an  undiscounted  basis to the net
book value of the assets. In the event the projected undiscounted cash flows are
less than the net book value of the  assets,  the  carrying  value of the assets
will be written-down to their fair value, less cost to sell.

     Revenue

     The Company  recognizes sales of product at the time of shipment.  Contract
revenue  of  $59,000  in  1997  was  recognized  as  the  related  research  and
development costs of $59,000 were incurred.  Contract revenue of $65,000 in 1996
was  recognized as the related  research and  development  costs of $39,000 were
incurred.  Contract  revenue of $58,000 in 1995 was  recognized  as the  related
research and development costs of $58,000 were incurred.  Amounts received prior
to performance are classified as customer advances and recognized as earned. The
Company  performs  on-going  credit   evaluations  and  maintains  reserves  for
potential credit losses. In 1997, three customers accounted for 74% of prototype
and  tooling  sales,  individually  48%,  14% and 12%.  In 1996,  two  customers
accounted  for 38% of product  sales,  individually  19% and 19%.  In 1995,  two
customers accounted for 54% of product sales, individually 40% and 14%.

     Research and development

     Expenditures  for research and development  costs are charged to expense as
incurred.

     Net loss per share

     Effective in the fourth  quarter of fiscal year 1997,  the Company  adopted
Statement of Financial  Accounting Standards No. 128, "Earnings per Share" ("FAS
128") and the related  interpretations.  FAS 128 requires dual  presentation  of
Basic Earnings per Share ("Basic EPS") and Diluted  Earnings per Share ("Diluted
EPS"). Basic EPS excludes dilution and is computed by dividing net income by the
weighted average number of common shares outstanding during the reported period.
Diluted EPS reflects the  potential  dilution  that could occur if stock options
were exercised. For all periods presented, stock options have been excluded from
the calculation as they produce an anti-dilutive  effect.  Basic and diluted net
loss per  share for 1997 is based  upon the  weighted  average  number of common
stock shares  outstanding  during the year. Basic and diluted net loss per share
for 1996 is based  upon the  weighted  average  number  of common  stock  shares
outstanding during the period from May 2, 1996 to December 31, 1996 after giving
retroactive effect to the 80-for-one stock split.

     Use of estimates in the preparation of financial statements

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period.

     Concentrations of credit risk

     The Company  sells its products and  services to various  companies  across
several  industries,   and  therefore   management  believes  that  no  material
concentrations of credit risk exist.

     Cash and cash equivalents

     Cash and cash equivalents  consist of cash on hand and held in banks, money
market funds, commercial paper and other short-term investments with a remaining
or original maturity of twelve months or less when purchased.

     Fair value of financial instruments

     The  Company's  financial  instruments  consist  primarily of cash and cash
equivalents,  accounts  receivable,  accounts  payable,  and  accrued  and other
current  liabilities.  These financial  instruments are stated at current value,
which approximates fair value.

    Long-lived assets

         The Financial Accounting Standards Board ("FASB") issued Statement 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" (SFAS No. 121") which is  effective  for fiscal years  beginning
after  December 15, 1995.  SFAS No. 121 was adopted  January 1, 1996 and did not
have  a  material  impact  on  the  Company's  financial  position,  results  of
operations or liquidity.

2.       Balance sheet components
                                                         December 31,
                                                 -----------------------------
                                                     1997             1996
                                                     ----             ----
    Inventories:
         Raw materials                           $   157,000       $    24,000
         Finished goods                               15,000            17,000
                                                  ----------         ---------
                                                  $   172,000      $    41,000
                                                  ===========      ===========

    Equipment, furniture and fixtures:
         Machinery, equipment and tooling        $ 9,262,000       $    42,000
         Furniture and office equipment            1,239,000           656,000
         Leasehold improvements                    3,353,000             2,000
         Construction in progress -
                  Machinery and equipment                  -         2,055,000
                  Leasehold improvements             276,000         2,339,000
                                                  ----------        ----------
                                                  14,130,000         5,094,000


         Less:  accumulated depreciation and
                  amortization                    ( 828,000)        (  67,000)
                                                  ----------        ----------
                                                 $13,302,000        $5,027,000
                                                 ===========        ==========

    Other assets
         Deposits on machinery and equipment      $3,139,000        $1,702,000
         Other                                       315,000            69,000
                                                  ----------       -----------
                                                  $3,454,000        $1,771,000
                                                  ==========        ==========

   Accrued and other current liabilities:
         Accrued compensation                     $   81,000        $        -
         Accrued professional fees                   138,000            82,000
         Other                                       107,000           110,000
                                                  ----------           -------
                                                  $  326,000         $ 192,000
                                                   =========          =========

3. Income taxes

     The  Company  accounts  for  income  taxes  under  the  liability   method.
Accordingly, deferred tax assets and liabilities are measured each year based on
the difference  between the financial  statement and tax bases of all assets and
liabilities at the current  expected  income tax rates.  Deferred tax assets and
liabilities  are not  material  to the  financial  position  of the  Company  at
December  31,  1997  and  1996,   with  the  exception  of  net  operating  loss
carryforwards  of  $4,465,000  and  $918,000  at  December  31,  1997 and  1996,
respectively,  against which full valuation  allowances were recorded.  In 1994,
Old Alyn elected to become an  S-Corporation  for Federal and California  income
tax  purposes.  As a result  of these  elections,  Federal  and  California  tax
attributes  of  Old  Alyn  passed  to  the  Old  Alyn  stockholders.  Alyn  is a
C-Corporation  for income tax purposes and is taxed  accordingly.  The provision
for income  taxes for the three  years  ended  December  31,  1997 is  comprised
primarily of the annual minimum California franchise tax.

4. Long term debt

        Long term debt at December 31, 1997 comprised:

(i)     A  46-month  term  loan  at  9.5%  interest  with  a
        commercial  bank.  Payments are  interest  only from
        January  31,  1998 to April 30,  1998.  From May 31,
        1998 to  October  31,  2001,  monthly  payments  are
        principal  of $60,000,  plus  interest.  The loan is
        secured by substantially all the Company's  tangible
        personal    property    including    inventory   and
        unencumbered equipment.                                  $2,500,000

(ii)    An  $8,000,000,  72 month term facility with a major
        financial  institution.  The interest rate, which is
        fixed at the time of each advance under the line, is
        set at 3.5% over like-term U.S. Treasuries.  At such
        time as the Company  achieves a  specified  level of
        profitability  for  two  consecutive  quarters,  the
        previously  fixed  rate  decreases  by 1.0%  for the
        remaining  term of that advance.  Each advance under
        the facility is secured by  manufacturing  equipment
        owned by the Company, based upon a 75% advance rate.
        As of  December  31,  1997,  the Company had drawn a
        single  advance  of  $4,000,000   under  the  credit
        facility,  at a rate of 9.29%,  payable  in  monthly
        installments  of $73,000,  including  principal  and
        interest  beginning  February  1, 1998 to January 1,
        2004.                                                     4,000,000
                                                                  ---------
                                                                  6,500,000
       Less current portion of long-term debt                    (  999,000)
                                                                  ---------
                                                                 $5,501,000
                                                                 ==========


        The aggregate  maturities  of long-term  debt are as
        follows:

         Fiscal Year                             Amount
         -----------                             ------

         1998                                   $   999,000
         1999                                     1,237,000
         2000                                     1,338,000
         2001                                     1,279,000
         2002                                       751,000
         Thereafter                                 896,000
                                                 ---------- 
                                                 $6,500,000
                                                 ==========

     In December  1997,  the Company also  established,  subject to a collateral
audit, a $5,000,000  secured  revolving credit facility with the same commercial
bank. The credit facility is secured by substantially all the Company's tangible
personal  property  including  accounts  receivable,  inventory and unencumbered
equipment.  Advances under the credit facility are based upon an advance rate of
80% of eligible accounts receivable with a floating interest rate option, chosen
at the  time of each  advance,  of the  bank's  Prime  Rate or  2.25%  over  the
like-term  LIBOR rate.  There have been no advances  under the facility to date.
The  credit  facility  expires  one year  from the  initial  advance  under  the
facility.

     The  provisions  of the credit  facilities  require the Company to maintain
certain covenants including minimum cash and equivalents  balances of $5,000,000
and other  financial  ratios and  restrict the Company  from  incurrence  of new
indebtedness,  disposition of assets, payment of dividends and the redemption or
retirement  of  stock.

5. Stock transactions - Old Alyn

     In June 1994, Old Alyn's Articles of Incorporation were amended authorizing
10,000,000  shares of Series A common  stock and  10,000,000  shares of Series B
common stock.  The  stockholders  of Old Alyn exchanged their existing shares of
common stock for 1,700,000  shares of Series A common  stock.  Old Alyn received
$75,000 cash in exchange  for an option to acquire  Series B common stock of Old
Alyn.  Pursuant to this option agreement,  Old Alyn issued 300,000 shares of the
new Series B common stock for an additional $250,000 in cash. In April 1996, Old
Alyn executed an agreement to repurchase  200,000  shares of the Series B common
stock for $260,000 in cash. The cash was paid to the stockholder in May 1996.

6. Related party transactions

     The Company  paid $60,000 in 1997 and $100,000 in 1996 to a firm managed by
the Chairman of the Board for sales, marketing and consulting services.

7. Stock options

     In July 1996, the Company  established a stock  incentive plan (the "Plan")
for key employees, non-employee directors and consultants to the Company who are
expected to  contribute to the  Company's  future growth and success.  Under the
Plan,  the  Company may grant  options  with  respect to a maximum of  1,000,000
shares of common stock. The options will be granted at not less than fair market
value and vest  ratably over three or  four-year  periods with the  exception of
certain  non-employee  director options that will be fully vested at the date of
grant or vest over a two-year  period.  No award may be  granted  under the plan
after June 30, 2006. At December 31, 1996,  there were 617,000  shares of common
stock  reserved  under the plan for the future  granting  of stock  options.  At
December 31, 1997 there were 475,500  shares of common stock  reserved under the
Plan for future  stock  option  grants.  

     As  permitted  by Statement  of  Financial  Accounting  Standards  No. 123,
"Accounting for Stock-Based  Compensation"  (SFAS NO. 123),  effective for 1996,
the Company continues to account for stock compensation costs in accordance with
the provisions of Accounting  Principles  Board Opinion No. 25,  "Accounting for
Stock Issued to Employees".  Had compensation  cost been determined based on the
fair value at the grant dates for awards  under the  Company's  incentive  stock
plan in  accordance  with SFAS No. 123,  net loss would have been  increased  by
$773,000 ($0.07 per share) in 1997 and the net loss would have been increased by
$167,000  ($0.02 per share) in 1996. As required by SFAS No. 123, the fair value
of each option grant is  estimated on the date of grant using the  Black-Scholes
option pricing model with historical volatility of 56.92% and a weighted average
risk-free rate of return of 6.28%; for 1996:  historical dividend yield of 0.0%,
an expected life of five years,  historical volatility of 58.09% and a risk-free
rate of return of 6.34%. The weighted-average  fair value of the options granted
during 1997 was $5.44 and in 1996 was $7.62.

     The following  table  summarizes the Company's Plan as of December 31, 1997
and 1996:
<TABLE>
<CAPTION>

                                                  1997                                         1996
                                    -----------------------------                ---------------------------
                                       Shares    Weighted-Average                Shares     Weighted-Average
                                        (000)     Exercise Price                 (000)      Exercise Price
                                    -----------------------------                ---------------------------

<S>                                       <C>         <C>                          <C>         <C>   
Outstanding, beginning of year            383         $13.50                         --            --
Granted                                   261         $ 9.41                        383        $13.50
Forfeited                                 (119)       $13.16                         --           --
                                          -----                                     ---
Outstanding, end of year                  525         $11.72                        383        $13.50
                                          ===                                       ===

Options exercisable at year end           139                                        25
                                         ====                                       ===
</TABLE>

     The  following  table  summarizes  information  about fixed  stock  options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>

                                    Options Outstanding                               Options Exercisable
                      --------------------------------------------------           ----------------------------
                        Number       Weighted-Average        Weighted                Number        Weighted
   Range of           Outstanding        Remaining            Average              Exercisable      Average
Exercise Prices       at 12/31/97    Contractual Life     Exercise Price           at 12/31/97   Exercise Price
---------------       -----------    ----------------     --------------           -----------   --------------

<S>                     <C>                 <C>             <C>                       <C>             <C>   
  $ 8 to  9             145,000             3.4 years       $  8.63                       --              --
    9 to 10              36,000             3.2                9.66                       --              --
   11 to 12              47,500             2.6               11.28                   10,000          $11.00
   12 to 13               6,000             1.0               12.57                    3,000           12.25
   13 to 14             275,000             1.5               13.50                  125,904           13.50
   14 to 15              15,000             3.9               14.88                       --              --
                       --------                                                      -------
  $ 8 to 15             524,500             2.3               11.72                  138,904           13.29
                        =======                                                      =======
</TABLE>


8. Commitments and contingencies

     Commitments and leases

     Future  minimum lease  payments  required  under  non-cancelable  operating
leases are as follows: $787,000 in 1998, $854,000 in 1999, $811,000 in 2000, and
$719,000 in 2001, $531,000 in 2002 and $2,700,000 thereafter.

     Rent  expense  totaled  $336,000 in 1997,  $84,000 in 1996,  and $17,000 in
1995.

     Litigation and claims

         In the ordinary course of business, the Company is generally subject to
claims,  complaints,  and legal actions.  The  litigation  process is inherently
uncertain  and it is possible  that the  resolution of such matters might have a
material  adverse  effect  upon the  financial  position of the  Company.  As of
December 31, 1997,  there was no pending or  threatened  litigation  against the
Company,  which could have a material adverse effect upon the financial position
of the Company.