SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-KSB
                  [ X ] ANNUAL REPORT UNDER SECTION 13 or 15(d)
                     OF THE SECURITIES EXCHANGE ACT of 1934

                  For the Fiscal Year Ended September 30, 1998

                                       OR

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


                        For the Transition Period From to


                           Commission File No. 0-16293


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


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

                1300 Marrows Road
                  P.O. Box 6077
                   Newark, DE                                  19714-6077
    (Address of principal executive offices)                   (Zip Code)

                                 (302) 456-6200
                 Issuer's telephone number, including area code
                               -------------------
      Securities registered pursuant to Section 12(b) of the Exchange Act:

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

      Securities registered pursuant to Section 12(g) of the Exchange Act"
                                      NONE
<PAGE>
Check whether the Issuer:  (1) filed all reports required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days.
                                [ X ] Yes [  ] No

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

Issuer's revenues for its most recent fiscal year were $16,122,000.

The  aggregate  market  value of the  voting  stock  held by non  affiliates  at
December  12,  1998,  valued by  reference  to the bid  price of such  stock was
$331,400.

Transitional Small Business Disclosure Format (check one):

                                Yes [ ]   No [ X ]

The number of shares of Common  Stock  outstanding  as of  December 1, 1998 was:
1,325,598.


THIS FORM 10-KSB CONTAINS CERTAIN FORWARD-LOOKING  STATEMENTS WITHIN THE MEANING
OF THE  PRIVATE  SECURITIES  LITIGATION  REFORM ACT OF 1995 WITH  RESPECT TO THE
FINANCIAL CONDITION,  RESULTS OF OPERATIONS AND BUSINESS OF LANXIDE CORPORATION,
INCLUDING STATEMENTS UNDER ITEM 1. FINANCIAL STATEMENTS AND ITEM 2. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION.  THESE
FORWARD-LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES. NO ASSURANCE
CAN BE GIVEN THAT ANY SUCH  MATTERS  WILL BE  REALIZED.  FACTORS  THAT MAY CAUSE
ACTUAL  RESULTS  TO  DIFFER   MATERIALLY   FROM  THOSE   CONTEMPLATED   BY  SUCH
FORWARD-LOOKING  STATEMENTS INCLUDE, AMONG OTHERS, THE FOLLOWING  POSSIBILITIES:
(I)  COMPETITIVE  CONDITIONS IN THE INDUSTRIES IN WHICH LANXIDE  OPERATES;  (II)
ABILITY TO FURTHER  COMMERCIALIZE  ONE OR MORE OF THE  TECHNOLOGIES  OF LANXIDE;
(III) GENERAL ECONOMIC CONDITIONS THAT ARE LESS FAVORABLE THAN EXPECTED AND (IV)
ABILITY TO SECURE ADEQUATE FUNDING.
<PAGE>
                              LANXIDE CORPORATION


                                TABLE OF CONTENTS



     Number                                                                     

     Item 1.     Business                                                       

     Item 2.     Property                                                       

     Item 3.     Legal Proceedings                                              

     Item 4.     Submission of matters to a vote of security holders            

     Item 5.     Market for Registrant's Common Equity and related stockholder 
                 matters                      

     Item 6.     Management's discussion and analysis of results of operation 
                 and financial condition       

     Item 7.     Financial statements and supplementary data                    

     Item 8.     Changes in and disagreements with Accountants on Accounting 
                 and financial disclosure.

     Item 9.     Directors, executive officers, promoters and control persons,
                 compliance with  Section 16(a) of the Exchange Act

     Item 10.    Executive compensation                                         

     Item 11.    Security ownership of certain beneficial owners and management 

     Item 12.    Certain relationships and related transactions                 

     Item 13.    Exhibits, Lists and reports on Form 8K.                        




<PAGE>
ITEM 1.  BUSINESS

Introduction

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

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

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

The Company believes that the market  opportunities  for the Company's  products
extend broadly across the basic processing,  automotive,  aerospace and defense,
electronics, machine tool, mining, chemical, glass, paper, textile, cement, rail
transport  and  sporting  equipment   industries.   Since  1983,  in  excess  of
$275,000,000   has   been   expended   for   the   research,   development   and
commercialization  of the  Company's  technology.  Such amounts have been funded
<PAGE>
through equity issuances,  borrowings,  joint venture partners,  including Alcan
Aluminium,  Ltd.  (Alcan) , E. I.  DuPont de  Nemours  &  Company  (DuPont)  and
Kanematsu Corporation (Kanematsu),  and the U.S. Government.  Prior to 1995, the
Company's  business strategy was to develop and commercialize its technology and
products  exclusively  through  individual  subsidiary  businesses and selective
market-focused  joint  ventures and  partnerships  utilizing its own  resources,
those of world-class  industrial  partners,  and contract  funding from the U.S.
Government. In furtherance of such strategy, from 1983 through 1995, the Company
structured 11 affiliated  businesses in a series of commercialization  ventures.
The Company's  affiliated partners included Alcan,  DuPont,  Kanematsu and Nihon
Cement Co., Ltd. (Nihon Cement).  Due to changes in certain  partners'  business
strategies, Alcan, Dupont and Kanematsu are no longer business partners with the
Company.

Primarily as a result of continuing expenses and increasing capital requirements
from its  business  ventures,  the  Company  took  steps in March 1995 to reduce
demands for capital and to shore up its cash  reserves,  including the reduction
of its work force, the  discontinuance  of two of its commercial  ventures,  the
sale of one of its subsidiaries  and the sale of majority  interests in three of
its other  subsidiaries.  In  addition,  the  Company  embarked  on a program to
license  its  technology  in certain  specific  market  sectors  by product  and
geography,  in  exchange  for  license  fees  and  continuing  royalties.  Since
implementing such licensing strategy, the Company consummated license agreements
with A.P. Green Industries,  Inc. (A.P. Green), Waupaca Foundry, Inc. (Waupaca),
Sturm Ruger & Company (Sturm Ruger),  Brembo S.p.A.  (Brembo),  AKN  Corporation
(AKN), Nihon Cement Co., Ltd. (Nihon),  AlliedSignal,  Inc. (AlliedSignal),  two
subsidiaries of Commodore Environmental Services, Inc.
(Commodore), and M3 Technologies, Inc. (M3).

Recent Developments

Termination of Employees

ON  JANUARY  6, 1999 THE  COMPANY  CLOSED  ITS  PLANT  FACILITY  AND  TERMINATED
SUBSTANTIALLY  ALL OF ITS  EMPLOYEES  DUE TO A LIQUIDITY  SHORTFALL.  UNLESS THE
COMPANY IS ABLE TO SELL ADDITIONAL  LICENSES,  EQUIPMENT OR LINES OF BUSINESS IN
THE  IMMEDIATE  FUTURE,  THE  COMPANY  MAY FILE  FOR  BANKRUPTCY.  THE  BOARD OF
DIRECTORS AND MANAGEMENT ARE CURRENTLY CONSIDERING THESE OPTIONS.

On February 3, 1998, the Company terminated  substantially of its employees,  as
well as those of three of its  subsidiaries  located  at the  Company's  Newark,
Delaware  offices,  as a result of its inability to secure  adequate  funding to
continue its operations.  The Company  subsequently  hired back approximately 30
employees and has restructured its operations.

Assignment of Option; Sale of Subsidiaries

DuPont entered into an agreement  with PNC Bank (PNC),  pursuant to which DuPont
agreed to guarantee the Company's  obligations  to PNC under a Revolving  Credit
and Term Note,  dated  February 24, 1993,  in the original  principal  amount of
$5,970,000 (the PNC Bank Loan). In  consideration  for DuPont's  guarantee,  the
Company and DuPont had entered into a Loan  Guarantee  Letter  Agreement,  dated
December 15, 1992 (as amended, the Guarantee  Agreement),  pursuant to which the
Company granted to DuPont, as collateral,  an option (the Option) to acquire all
of the  outstanding  common equity  securities of Lanxide Armor  Products,  Inc.
(LAP) and Lanxide Electronic  Components,  Inc. (LEC).  DuPont's exercise of the
<PAGE>
Option would release the Company from all obligations and liabilities  under the
PNC Bank Loan.  Under the terms of the  Guarantee  Agreement,  the Option  would
become  exercisable by DuPont upon the Company's  notification  to DuPont of the
Company's inability to meet its obligations under the PNC Bank Loan.

In a letter  agreement  entered  into  between the  Company  and  DuPont,  dated
February 6, 1998,  the Company  notified  DuPont that the Company would not meet
its obligations under the PNC Bank Loan.  Accordingly,  the Company consented to
DuPont's  assignment  of its right to exercise the Option to DHB Capital  Group,
Inc.  (DHB) and DuPont  agreed to repay the Bank all amounts owed by the Company
to the Bank under the PNC Bank Loan.

Concurrent  with the  assignment  of the  Option by DuPont to DHB,  the  Company
entered into a Transfer  Agreement,  dated as of February 6, 1998 (the  Transfer
Agreement),  by and among the  Company,  DHB,  LAP,  LEC and Lanxide  Technology
Company,  L.P. (LTC),  pursuant to which DHB elected to exercise the Option and,
accordingly, the Company transferred to DHB all of the outstanding common equity
securities of LEC and LAP. Pursuant to the Transfer Agreement,  LEC and LAP have
each amended their existing license  agreements with LTC to provide royalties to
LTC on future sales by LEC and LAP relating to the Company's technologies.

Termination of Voting Agreement; Resignation of Directors and Officers

On July 3, 1997,  Commodore assumed effective control of the Company pursuant to
a Voting Agreement among the Company and certain of its stockholders (the Voting
Agreement)   which  was  executed  in  connection   with  certain   transactions
contemplated by a Securities Purchase Agreement, dated July 3, 1997, between the
Company and Commodore  (Securities Purchase  Agreement).  Pursuant to the Voting
Agreement,  stockholders of the Company who owned 664,329 shares of common stock
or 50.1% of the outstanding common stock,  granted proxies to the members of the
Board of Directors of Commodore (the  Proxyholders) to vote all shares of common
stock held by each such stockholder until December 31, 1998.

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

The  Series  G Stock  was not  convertible  and was not  entitled  to vote or to
receive  dividends.  The Series G Stock could be  redeemed by the Company  after
December  31, 1998 to the extent  such shares had not been used to exercise  the
warrant.  The terms of the Series F Stock included,  among other things, (a) the
right to convert into shares of Common Stock at a rate,  subject to  adjustment,
of 13.5 shares of Common Stock for each share of Series F Stock; (b) a mandatory
conversion by the holders upon certain events, including the sale by the Company
of at least $10 million of Company  securities in a public offering or a private
placement prior to the time that Commodore exercises at least $10 million of the
warrant;  and (c) the right to elect  four of the seven  members of the Board of
Directors of the Company.  The Company claimed an exemption from registration of
the foregoing  transaction  under the Securities  Act of 1933, as amended,  (the
Securities Act) pursuant to Section 4(2) of the Securities Act.
<PAGE>
In accordance with the Securities Purchase Agreement,  the Board of Directors of
the Company  increased the number of members on the Company's Board of Directors
to seven and elected  Messrs.  Michael  Fullwood and William  Toller to fill the
newly created directorships.  In addition, the Board of Directors of the Company
appointed  Mr.  Toller to the  position of Vice  Chairman  and Senior  Executive
Officer  of the  Company  and  Mr.  Fullwood  to the  position  of  Senior  Vice
President, Chief Financial and Administrative Officer and General Counsel of the
Company.

On February 3, 1998,  COES  terminated the Voting  Agreement and accordance with
its terms, Messrs.  Fullwood and Toller resigned from their respective positions
as directors and officers of the Company.  In connection with the termination of
the Voting  Agreement,  COES  notified  the Company  that it would not  purchase
additional  securities  contemplated by the Securities  Purchase  Agreement.  On
February 6, 1998, Paul E.  Hannesson,  chairman of the Board of Directors of the
Company  and  COES,  resigned  from  his  position  on the  Company's  Board  of
Directors.  Messrs.  Stephen A. Weiss and J. Frederick Van Vranken, Jr. resigned
from their  positions on the Company's Board of Directors on February 11 and 12,
1998,  respectively.  On March 5, 1998 Michael J. Hollins was appointed to serve
on the Board of Directors, which currently consists of three directors:  Messrs.
Bentley J. Blum, Marc S. Newkirk and Michael J. Hollins.

Transactions with Commodore Environmental Services, Inc.

On March  5,  1998 the  Company  entered  into a  series  of  transactions  with
Commodore and certain of its subsidiaries pursuant to which, among other things,
Commodore paid $500,000 cash and its subsidiaries agreed to cancel $4,500,000 in
indebtedness  plus accrued interest of $300,000 owned by subsidiaries of Lanxide
(which  was   guaranteed   by  Lanxide)  in  exchange  for  the  issuance  of  a
royalty-bearing  license to use  CERASET  (TM) on a worldwide  basis,  excluding
Japan (the "License"),  which grants  Commodore  certain business and technology
rights  that do not  conflict  with the rights of  Lanxide's  other  licenses or
future  licenses in the fields for metal matrix  composites  and ceramic  matrix
composites.

In connection  with the issuance of the License,  Lanxide and Commodore  amended
the  Securities  Purchase  Agreement,  such that (i) Lanxide and Commodore  each
agreed  to  exchange  all of the  issued  and  outstanding  shares  of  Series G
Preferred  stock,  which are held by Commodore,  for an equal number of Series H
Preferred Stock of Lanxide (Series H Preferred Stock); (ii) Commodore's right to
purchase  additional shares of Series G Preferred Stock pursuant to the terms of
the original purchase agreement was cancelled;  (iii) Lanxide issued warrants to
Commodore for the purchase of up to 270,000 shares of Lanxide's common stock, at
an exercise  price of $7.41 per share;  and (iv)  Commodore's  right to purchase
250,000 shares of Series F Preferred Stock pursuant to the existing  warrant was
cancelled.  The  Series H  Preferred  Stock  does not pay  dividends  and is not
convertible,  however,  it carries a liquidation  preference of  $2,000,000.  In
addition, holders of the Series H Preferred Stock may utilize such securities to
satisfy the exercise  price of the warrants  described in item (iii) above based
on the liquidation value of the preferred stock.
<PAGE>
Loan from Lanxide K.K.

On December 29, 1997, Lanxide K.K., a 65% owned Japanese  subsidiary,  agreed to
loan $1.8 million to the Company (the Lanxide K.K. Loan).  The Company  received
$1.3 million on December 29, 1997 and an additional  $0.5 million on January 12,
1998.  The Lanxide K.K. Loan was to mature on January 31, 1998 and bore interest
at the rate of 6% per annum.  Upon an event of default  under the  Lanxide  K.K.
Loan,  the Company was required to transfer to Lanxide K.K. its 10% ownership in
DuPont  Lanxide  Composites,  Inc.  (DLC).  The loan  came  due and the  Company
negotiated  an  assignment  and  transfer  with Lanxide K.K. on April 1, 1998 to
settle the outstanding  balance.  As a result of the  settlement,  the Company's
interest  in DLC was  transferred  to  Lanxide  K.K.  on June  23,  1998 in full
satisfaction of the Lanxide K.K. Loan.

Restructuring of Lanxide K.K.

The operations of Lanxide K.K. have been discontinued.  By an agreement on April
1, 1998,  between the Company and Kanematsu  (the then minority owner of Lanxide
K.K.), the net assets of Lanxide K.K. have been  distributed to the owners,  65%
to Lanxide and 35% to Kanematsu.  The Company distribution from Lanxide K.K. has
in turn been paid over to Kanematsu as a payment against the Company's loan from
Kanematsu .  Distribution  rights to sell  electronic  components in Japan using
Lanxide  technology  have  been  sold by  Lanxide  K.K.  to  Lanxide  Electronic
Components,  Inc.,  a subsidiary  of DHB. The proceeds  from that sale have also
been distributed  proportionately  to Kanematsu and the Company,  again with the
Company's  distribution  being  further  applied to its balance on the Kanematsu
loan.  While there is the  potential  for some further  economic  benefit to the
Company  under  certain  circumstances  from  the  further  sale  of the  former
distribution rights of Lanxide K.K., the former subsidiary is inactive,  and the
Company no longer owns any stock in Lanxide K.K. In that connection, the Company
has taken back all of the rights to its technology in Japan,  with the exception
of previously licensed rights to Nihon, AKN Celanx K.K., LEC, LAP and DLC.

Restructuring of Loan with Kanematsu Corporation

The  Company  and KG have  agreed  to  restructure  the $10  million  loan  from
Kanematsu  (Capital  Loan) to the Company  that had been  scheduled to mature in
December 1998.  Under the new agreement,  payments have been applied to the loan
balance from the sale of certain  equipment,  the conversion of part of the loan
to an equipment  installment loan dated April 10, 1998 and amended July 10, 1998
(Installment Note), and the disposition of Lanxide K.K. described above. The new
payment  schedule for the loan requires  principal and interest  payments over a
seven-year  period  commencing April 1, 1999. During the moratorium of principal
payments  in effect  until  that date,  the  Company  is  required  to make nine
payments of $5,000 each toward  interest on the loan.  The interest  rate on the
loan was reduced as of July 1, 1998 from LIBOR plus 2% to the  Japanese Yen Long
Term Prime Rate of the  Industrial  Bank of Japan plus 1%. As noted above and as
part of the  restructuring of the Kanematsu loan, the Company has agreed to sell
certain  equipment  and apply the  proceeds  from such  sales to reduce the loan
principal.  The  Installment  Note was in the initial amount of $1.9 million and
will mature over an eight-year period commencing May 10, 1998. The interest rate
on the Installment Note is LIBOR plus 2%.

New and amended License Agreements

On November 1, 1997 the Company issued a royalty bearing license to Nihon Cement
to use and sell Ceraset TM Polyureasilazane Polymers in Japan.
<PAGE>
On March 5, 1998 as noted above, the Company issued a royalty bearing license to
Commodore to use Ceraset TM on a worldwide  basis  excluding  Japan which grants
certain  business and technology  rights that do not conflict with the rights of
Lanxide's  other  licenses  or future  licenses  in the fields for metal  matrix
composites and ceramic matrix composites.

On August 11, 1998, the Company issued two licenses to AlliedSignal in the field
of friction materials. One license is for a worldwide territory,  outside Japan,
and the other  license  is for the  territory  of Japan.  Simultaneous  with the
issuance of the licenses to AlliedSignal,  Lanxide K.K. sold its 10% interest in
DLC to AlliedSignal, whereby by prior agreement 65% of the proceeds were applied
to reduce the Capital Loan from  Kanematsu.  The  combination  of these  related
transactions resulted in revenues of $1.1 million for the Company.

On  September  18, 1998,  the Company  amended its  licenses  agreement  with M3
Technologies,   Inc.   (M3)  to  clarify  and  slightly   expand  the  field  of
manufacturing  activities licensed to M3. The expansion included  semi-conductor
production  equipment.  The Company received a license fee, which is included in
licensing  and royalty  revenue.  In addition the Company  will receive  various
royalties on sales for the additional fields granted to M3 in the license.

Subsequent Events

On  November  17,  1998 the Company  sold its  ownership  interest in Alanx Wear
Solutions,  Inc. (Alanx) to Allied Resource  Corporation (ARC) for $80,000.  ARC
owned 90% of the  common  stock of Alanx and 100% of its  convertible  preferred
stock. The Company's 10% portion in the common stock of Alanx was  non-strategic
to the Company and had little prospect of producing income to the Company in the
future.

On  January  6, 1999 the  Company  closed  its  plant  facility  and  terminated
substantially  all of its  employees  due to a liquidity  shortfall.  Unless the
Company is able to sell additional  licenses,  equipment or lines of business in
the  immediate  future,  the  Company  may file  for  bankruptcy.  The  board of
directors and management are currently considering these options.

Business Strategy

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

Due to,  among other  things,  (i) the needs of the Company and its ventures for
further  funding and (ii) an increase  in the number of products  developed  and
demonstrated using the LANXIDE(TM) technology,  the Company revised its business
strategy  during fiscal 1995 and embarked on a program to license its technology
in certain areas by product and  geographic  territory and entered into a number
of  transactions  relating  to the sale of  certain  Company  assets  and equity
interests of the Company.
<PAGE>
The Company  expects that this revised  strategy will enable a greater number of
products utilizing LANXIDE(TM) technology to be commercialized in the near-term.
Although the Company will,  subject to the availability of capital,  continue to
commercialize products using the LANXIDE(TM) technology through its own efforts,
the Company intends to continue to seek advantageous licensing arrangements with
third  parties which have the ability to  commercialize  products in those areas
where there are significant barriers to entry (i.e.,  substantial up-front costs
or the need for a substantial industry presence) or where LANXIDE(TM) technology
provides only a portion of the  necessary  solution.  The Company  believes that
such   licensing   arrangements   will   benefit   the   Company   through   the
commercialization of the LANXIDE(TM)  technology in product areas into which the
Company  could not  otherwise  expand at this time.  The Company  believes  that
benefits from licensing include:

         o        Accelerated  adoption and  recognition  of its  materials  and
                  technology.

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

         o        Immediate cash flow from licensing arrangements.

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

Technology, Patents and Trademarks

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

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

The Company's  DIMOX(TM)  reinforced  ceramic technology is based upon a unique,
patented  approach  to the  creation  of  composites  by the  use of a  directed
oxidation  mechanism.  The  process  grows  ceramic  matrix  composite,  via  an
oxidation reaction between a molten metal and an adjacent oxidant. The technique
is generic and  applies to numerous  ceramic/metal  systems,  including  oxides,
nitrides,  carbides and borides of metals such as aluminum,  silicon,  titanium,
zirconium and hafnium.
<PAGE>
A key feature of the DIMOX(TM) reinforced ceramic technology is that reinforcing
materials  (such as fibers,  particles or platelets) can be placed into the path
of the oxidation  reaction so that they are captured in the  developing  ceramic
matrix.  Through  appropriate  choices  of parent  metal,  oxidant,  reinforcing
material and processing  conditions,  the properties of the resulting  composite
can be engineered for specific performance  requirements.  Growth of the ceramic
matrix into shaped preforms of reinforcing material produces components to final
or near-final  shape,  since essentially no shrinkage occurs during the process.
Simple or complex  parts can be  produced in a range of sizes from small to very
large.

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

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

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

As of  September  30,  1998,  the Company  had 329 issued  patents in the United
States, none of which expires prior to 2004, with 30 additional patents pending,
and 1,166 patents issued in 42 foreign countries, none of which expires prior to
2000, with 255 additional patents pending.  As is typical with most research and
development  efforts,  improvements to the technology contained in the Company's
early patents have been made and patented, and continue to be made and patented,
to provide the Company with continuing patent protection for its technology.  In
addition,  the Company  believes  that certain of its  know-how and  proprietary
<PAGE>
information is legally  protected as trade secret  information,  and the Company
intends to maintain the confidential and proprietary nature of its trade secrets
and to protect future  proprietary  developments.  The Company's core technology
patents cover its DIMOX(TM)  reinforced ceramics,  PRIMEX(TM)  reinforced metals
and CERASET(TM) inorganic polymers, including broad claims to both processes and
materials.

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

The Company's  patents are generally held within LTC, a wholly owned  subsidiary
of the Company.

Product Development and Engineering

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

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

Product development activities of the Company are all market driven, and include
materials  development,   applications  engineering,  prototype  production  and
process  engineering.  A major  component of this effort is the  development  of
light-weight,  high-performance  automotive components, such as brake components
(including  rotors,  drums,  calipers,  caliper  pistons  and brake pad  backing
plates),  connecting  rods,  piston pins,  valve  seats,  bearing caps and other
engine and transmission components.

The Company has developed a ceramic reinforced  aluminum castable composite that
has attractive  performance and cost for  applications  such as train brakes and
automotive brake rotors and drums.

The Company conducts its PD&E activities in state-of-the-art laboratories, which
include  such  specialized  facilities  as  analytical  laboratories,  a dynamic
testing laboratory and a physical properties testing  laboratory.  The Company's
PD&E  activities  occupy  approximately  15,000  square feet in the Marrows Road
facility and approximately  12,000 square feet in the Forge Drive facility.  See
"Item 2 - Property."

Products
<PAGE>
The following products are manufactured by the Company and its affiliates:

Ceramic-Reinforced  Aluminum Ingot and Concentrate:  Castable ceramic-reinforced
aluminum ingot and concentrate for production of high stiffness,  low expansion,
lightweight,  wear-resistant  components using investment casting, sand casting,
die casting and permanent mold casting processes.  Current  applications include
rail and  automotive  brake  rotors,  semiconductor  wafer  chucks,  robot arms,
photolithographic stages, avionics chassis and satellite components.

Ceramers:  Ceramic-backboned thermosetting polymers for production of chemically
stable, temperature-resistant, wear resistant, uv-resistant, moisture-resistant,
non-stick and fire retardant coatings, adhesives, encapsulants,  binders, fibers
and molded components.

Ceramic-Coated  Graphite  Components:  Ceramic-coated  graphite  components  for
fiberglass  manufacturing;  glass container manufacturing,  paper manufacturing,
crucibles, and molten metal processing.

The  following   products  are  licensed  by  the  Company  for  manufacture  by
affiliates:

Lanxide ThermoComposites, Inc.
         Steel refractories

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

Alanx Wear Solutions, Inc. (subsequent to November 17, 1998)
         Wear parts

AlliedSignal, Inc.
         Friction materials

AlliedSignal Composites, Inc.
         Ceramic engine components,  rocket engine  components,  reinforced heat
exchanger components, gas turbine and aerospace structural components.

AKN Corporation
         Brake system components

Alcan Aluminium Corporation
         Components for use in manufacturing primary aluminum.

A.P. Green Industries, Inc.
         Industrial refractories

Brembo S.p.A.
         Brake system components for motor vehicles

Celanx KK
         Precision equipment

Commodore Applied Technologies, Inc.
         Process reactor vessels

Commodore Polymer Technologies, Inc.
         Certain CERASET TM polymer applications
<PAGE>
Lanxide Armor Products, Inc.
         Ballistic armor

Lanxide Electronic Components, Inc.
         Electronic thermal management components

Lanxide K.K.
         Selected products for the Japanese market

M3 Technologies, Inc.
         Semiconductor  manufacturing  equipment Optical  components  Laboratory
         test  equipment  components  Metrology  components  Medical  diagnostic
         equipment components Robot components Automation equipment components

Nihon Cement Co., Ltd.
         Reinforced aluminum ingot
         Ceraset TM polymer

Sturm, Ruger & Company, Inc.
         Firearms components
         Sports equipment components

Competition and Market Segments

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

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

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

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

Sales and Marketing

The Company and its licensees  manufacture  limited quantities of many products,
some of which are manufactured at commercially  viable  production  levels.  The
Company  competes in markets  where both  ceramic and  non-ceramic  products are
currently in use and where competitors have established marketing  capabilities.
Commercial  acceptance of the Company's  products depends in part on the ability
of the  marketing  and  sales  forces  of  the  Company  and  its  licensees  to
demonstrate  effectively  the  advantages  of  LANXIDE(TM)  products  over  more
traditional  products.  Products of the Company's technology are marketed by the
individual commercial business units which comprise the Company's affiliates and
licensees,  which  have  their own  sales  and  marketing  staffs.  The  Company
additionally undertakes market development activities based at its headquarters,
aimed at identifying new  opportunities  which fall outside of the activities of
its  existing  business and that of its  licenses.  Such efforts are directed at
providing  the basis  either for  further  license  activity  or for  additional
product manufacture by the Company.

Employees

Prior to January 6, 1999, the Company had employed 32 full-time  employees.  All
employees  were  provided  with  a  standard  benefits  package   consisting  of
hospital/medical,  life, disability and dental insurance, as well as educational
assistance. Employees also had access to certain savings/option plans. See "Item
10 - Executive  Compensation  -- Existing  Company Plans." None of the Company's
employees  were  covered  by  collective  bargaining  agreements.   The  Company
considered its relationship with its employees to be good.

Regulatory Matters

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

ITEM 2.  PROPERTY

The Company  operates  from two  adjacent  buildings  in Newark,  Delaware.  The
facilities include offices, laboratories, and manufacturing space. Approximately
58% of the buildings are rented to third parties with various leases that expire
between May 2000 and March 2001.

Marrows Road Facility

The Company has a lease on this facility until March, 2016, plus renewal options
for five  years  each.  The annual  lease  payment  is  $976,000,  subject to an
adjustment for inflation  every five years.  The Marrows Road Lease requires the
Company to comply with  certain  financial  covenants  and limits the  Company's
ability,  among other things,  (i) to assume  additional  indebtedness,  (ii) to
become a  guarantor  of  contingent  obligations,  and (iii) to make  restricted
payments (as defined  therein)  including  the  declaration  of dividends on the
Company's Common Stock.

Forge Drive Facility

The  Company  leases  this  facility  from an  affiliate  of Bentley J. Blum,  a
director and principal stockholder of the Company. The lease is through December
31, 2008 for $275,000 per year with a $10,000  increase on January 1st, 1999 and
a $15,000  increase on January 1, 2004.  The Company has an option to extend the
lease for another ten-year period commencing on January 1, 2009. The Company has
the right of first refusal with respect to the purchase of this property.

ITEM 3.  LEGAL PROCEEDINGS

There are a number of pending  legal  actions from vendors  regarding  claims on
past due  obligations.  In addition,  there are five legal  actions from vendors
regarding claims for past due obligations of approximately $150,000. The Company
is also subject to certain purchase price adjustments related to the transaction
with DHB (See item 1). As of  September  30,  1998,  the Company has recorded an
accrual of $150,000 related to potential  liabilities for these matters.  In the
opinion of management  none of the claims are expected to have a material impact
on the Company.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

None.

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

The Company's  Common Stock has been traded in the  over-the-counter  market and
quoted on the OTC  Bulletin  Board under the symbol  "LNXI"  since  November 14,
1995.  As of December 1, 1998,  the  Company  had  approximately  106 holders of
record of the Company's  Common Stock.  The following table sets forth,  for the
periods  indicated,  the  reported  high  and low bid  prices  per  share of the
<PAGE>
Company's  Common Stock,  from and after November 14, 1995, as quoted by the OTC
Bulletin  Board.  Such prices  reflect  inter-dealer  quotations  without retail
markup,  markdown  or  commission  and  may  not  necessarily  represent  actual
transactions.  The trading market for the Common Stock is extremely  limited and
sporadic.
 

                                  Common Stock

     Year ended September 30, 1997                        High             Low
     -----------------------------                       ------           ------

     First quarter...................................    $15.00           $10.00
     Second quarter..................................     11.00             7.50
     Third quarter...................................      8.00             5.50
     Fourth quarter..................................      9.00             5.00

     Year ended September 30, 1998
     First quarter...................................     $8.00            $5.00
     Second quarter..................................      6.00              .25
     Third quarter...................................      2.00              .75
       Fourth quarter................................      1.00             .625

     Year ended September 30, 1999
     First quarter( to December 2, 1998).............     $0.56              .25



Dividends

The Company has never paid dividends on the Company's  Common Stock and does not
intend to pay dividends in the  foreseeable  future.  The  Company's  ability to
declare and pay  dividends on the  Company's  Common Stock is limited by (i) the
Lease Agreement,  dated March 28, 1996, between QRS 12-16, Inc. and the Company,
limiting the Company's ability to make restricted payments,  which term includes
dividends on the  Company's  Common  Stock;  and (ii) the terms of the Company's
Series  A  Preferred  Stock,  the  Series F  Preferred  Stock  and the  Series G
Preferred Stock.

Recent Sales and cancellation of Unregistered Securities

On July 3 and July 28, 1997,  the Company sold certain  securities  to Commodore
pursuant to the term of the Security Purchase Agreement as described in Item 1.

On March  5,  1998 the  Company  entered  into a  series  of  transactions  with
Commodore  whereby it  cancelled  the Series F and G preferred  stock and issued
Commodore 20,000 shares of non voting Series H Preferred stock with a redemption
value of $2,000,000 (See Item 1).
<PAGE>
ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND 
            FINANCIAL CONDITION

The  following is a  discussion  of the  consolidated  financial  condition  and
results of operations of the Company for the years ended  September 30, 1998 and
1997,  as well as certain  factors  that may affect  the  Company's  prospective
financial  condition.  This  section  should  be read in  conjunction  with  the
Consolidated Financial Statements and the Notes thereto included in this 10-KSB.

Overview

On  January  6, 1999 the  Company  closed  its  plant  facility  and  terminated
substantially  all of its  employees  due to a liquidity  shortfall.  Unless the
Company is able to sell additional  licenses,  equipment or lines of business in
the  immediate  future,  the  Company  may file  for  bankruptcy.  The  board of
directors and management are currently considering these options.

The Company's revenues consist mainly of technology  licensing revenue and sales
to outside customers and, to a lesser degree, contract funding.

The Company operates principally in the United States and to some degree through
its former subsidiary in Japan up to June 1998.

Since its founding in 1983, the Company,  Alcan,  DuPont,  the U.S.  Government,
Kanematsu  and  other  business  partners  have  expended  significant  funds on
research  and  development  of  the  Company's  technology  and  related  patent
strategy.  The funds  provided for such  expenditures  have been expensed by the
Company  and,  accordingly,  are  not  reflected  as  assets  on  the  Company's
consolidated   balance  sheet.   However,   the  Company   believes  that  these
expenditures have added  significant value to the LANXIDE(TM)  technology and to
the Company.  As a result of the successful  development of its technology,  the
Company had generally  been able to retain an ownership  interest in the various
commercial  ventures in exchange for licensing its  technology to such ventures.
This year the Company has sold its interests in such ventures.

The Company has  conducted a review of its  operating  and  computer  systems to
identify the areas which could be affected by the "Year 2000" issue. The Company
presently  believes  that  the Year  2000  problem  will  not  pose  significant
operational  problems for the Company's  computer systems.  The Company is small
and has flexible  procedures  that are not dependent on complex  automatic  data
collection  and  processing.  All time and date sensitive  internal  systems and
components  have been  inventoried and ranked for mission  critical  importance.
Critical  known  non-compliant  systems have been  identified  and replaced with
systems known to be compliant.  No critical system is  non-compliant  except for
the phone  system  which will be replaced in 1999.  Excluding  internal  payroll
costs, the estimated incremental costs of compliance with Year 2000 is less than
$50,000.  In addition  the Company has been in contact  with its  suppliers  and
other third  parties to determine  the extent to which they maybe  vulnerable to
Year  2000  issues.  As this  assessment  progresses,  matters  may  come to the
Company's  attention  which  could give rise to the need for  remedial  measures
which have not yet been  identified.  As a contingency,  the Company may replace
the  suppliers and third party  vendors who can not  demonstrate  to the Company
that their products and services will be Year 2000 compliant. The Company cannot
currently predict the potential effect of third parties' Year 2000 issues on its
business.  The Company  believes that its Year 2000  compliance  project will be
completed  in  advance  of the Year  2000  date  transition  and will not have a
<PAGE>
material adverse effect on the Company's  financial  condition or overall trends
in the  results  of its  operations.  However  there  can be no  assurance  that
unexpected  delays or  problems,  including  the  failure  to  ensure  Year 2000
compliance by systems or products  supplied to the Company by a third party will
not have an adverse  effect on the Company,  its financial  performance,  or the
competitiveness or customer acceptance of its products.

Results of Operations

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

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

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

The Company's  significant revenue sources in fiscal year 1998 consist primarily
of (i)  technology  licensing  revenues;  (ii) product sales  revenues and (iii)
revenues from a brake component development program between the Company and AKN.

Year ended September 30, 1998 compared to Year ended September 30, 1997

The Company recorded net income of $21,000 on revenues of $16,122,000 during the
year ended  September  30,  1998,  as  compared to a net loss of  $3,245,000  on
revenues  of  $26,429,000  during the year ended  September  30, 1997 due to the
factors described below.

Net Sales and Cost of Sales

Consolidated sales decreased 17% to $6,232,000 from $7,485,000 and cost of sales
increased  .3% to  $6,709,000  from  $6,688,000  compared  to the prior  period.
Negative   margin  on  product   sales  was  incurred   due  to  the   operating
inefficiencies experienced during the lay-offs in February 1998.

Licensing and Other Related Revenues

The Company  expects to continue to license its  technology in certain  specific
market sectors by product and geography.  Although the Company will,  subject to
the  availability  of capital,  continue  to  commercialize  products  using the
LANXIDE(TM)  technology,  the  Company  plans  to  seek  advantageous  licensing
arrangements with third parties which have the ability to commercialize products
in those areas where there are significant barriers to entry (i.e.,  substantial
up-front  costs  or the  need  for a  substantial  industry  presence  or  where
LANXIDE(TM) technology provides only a portion of the necessary solution).
<PAGE>
During  fiscal  year 1998 the  Company  concluded  licensing  arrangements  with
AlliedSignal  Composites,  Inc., M3 Technologies,  Inc., Commodore Environmental
Services,   Inc.  and  also  revised  for   additional   consideration   license
arrangements  with Celanx KK, Nihon Cement and Brembo S.p.A.  for a total amount
of $7,800,000.  During the prior fiscal year, licensing revenue was $13,800,000.
Given the reduced activity in developing new technology applications, there were
fewer  licensing  opportunities  in fiscal  year 1998 than  there  were in 1997.
Included in fiscal 1998 license revenues,  was $5,300,000 of fees from Commodore
paid through the cancellation of $4,800,000 of indebtedness and accrued interest
and a $500,000 cash payment.

Research and Development Contract Revenue and Research and Development Costs

In fiscal 1998, Research and development contract revenue decreased  $3,129,000,
from  $5,190,000 to $2,061,000  and contract  costs  decreased  $2,423,000  from
$4,534,000 to $2,111,000, compared to the prior period. The decrease in contract
revenue was primarily due to the sale of LEC and LAP and the temporary shut down
of the operation in February 1998.

Product Development and Engineering Costs

PD&E  spending  decreased  by  $5,039,000,  from  $8,449,000  in fiscal  1997 to
$3,410,000 in fiscal 1998.  This decrease was principally due to the lay-offs in
February 1998 noted above.

Selling, General and Administrative Expenses

Selling,   general  and  administrative   expenses  decreased   $4,059,000  from
$7,680,000 to $3,621,000  over the prior period.  This decrease was  principally
due to the lay-offs in February 1998 noted above.  Included in selling,  general
and administrative expenses are reimbursements of $147,000 and $637,000 for 1998
and  1997,   respectively,   received   from   unconsolidated   affiliates   for
administrative and facilities costs and services.

Interest Expense

Interest  expense  decreased 34%, from $1,829,000 to $1,216,000  compared to the
prior year ended September 30, 1997. This decrease is due to the cancellation of
a $5.7 million loan from PNC Bank on the sale of Lanxide Electronic  Components,
Inc. and Lanxide Armor  Products,  Inc. in February  1998. In addition the loans
from  Kanematsu  were  reduced to $8.5 million from $10 million and the rate was
reduced  from 7.875% to  approximately  3.5% for the last six months of the year
for $6.7 million of the Kanematsu debt.

Non-Operating and Extraordinary Items:

In  Fiscal  1998,  the  Company  experienced  the  following  non-operating  and
extraordinary gains and losses:

         1)   The sale of Lanxide Electronic Components,  Inc. (LEC) and Lanxide
              Armor  Products,  Inc.(LAP) in February  1998 which  resulted in a
              loss on the  sale of  $1,679,000  and  gain on the  troubled  debt
              restructuring of $940,000.

         2)   The sale of the  Company's  ownership  interest in Lanxide K.K. to
              Kanematsu which resulted in a gain of $847,000.
<PAGE>
         3)   The sale of DuPont Lanxide  Composites,  Inc. (DLC) which resulted
              in a  gain on  the sale of $500,000  and gain on the troubled debt
              restructuring of $455,000.

         4)   The  write-off of the Company's  ownership  interest in Alanx Wear
              Solutions,  Inc.  which  resulted  in a loss on the  write-off  of
              investment in affiliate of $377,000.

No such items were recorded by the Company in fiscal 1997.

Income Tax Expense (Benefit)

Income tax expense(benefit)  includes taxes withheld on foreign source income of
$150,000  and  $120,000  for  fiscal  years  1998 and  1997,  respectively.  The
remaining  $558,000  benefit in 1998 is primarily  related an  adjustment to the
valuation allowance account related to net operating loss carryforwards utilized
in the Company's 1997 federal tax return.  Although the Company has  substantial
net operating loss carryforwards,  the amount of carryforwards which are able to
be utilized in any one year are  limited by the  alternative  minimum tax (AMT).
Any tax paid  under the AMT  constitutes  a future tax credit and can be carried
forward  indefinitely  to offset  federal tax after the Company has utilized all
available net operating loss carryforwards. The net operating loss carryforwards
expire in varying amounts through the year 2012.


Liquidity and Capital Resources

On  January  6, 1999 the  Company  closed  its  plant  facility  and  terminated
substantially  all of its  employees  due to a liquidity  shortfall.  Unless the
Company is able to sell additional  licenses,  equipment or lines of business in
the  immediate  future,  the  Company  may file  for  bankruptcy.  The  board of
directors and management are currently considering these options.

Since its  inception,  the Company has financed its working  capital and capital
expenditure  requirements with the proceeds from the sale of stock,  borrowings,
product sales, research and development contracts and, more recently, technology
licensing  revenues.  The Company's  working  capital  deficit was $3,353,000 at
September  30, 1998,  compared to  $2,670,000  at September  30, 1997.  The cash
balances at  September  30, 1998 and January  7,1999 were  $84,000 and  $53,000,
respectively.  At September 30, 1998, the Company had no significant commitments
to purchase  capital  equipment  and  continues  to sell  surplus  equipment  to
generate  cash. At September 30, 1998,  the Company's  immediate cash needs were
being met  through  sales of assets,  cash  reserves  and working  capital  from
operations.  However,  the Company remained  critically  dependent on generating
additional  cash in the near term to sustain its current  operations.  Potential
sources of cash include new  licensing  arrangements  and/or  other  alternative
financing.

At September 30, 1998, the Company had a $10,000,000 note payable with Kanematsu
that was  schedule  to mature in  December  1998.  In fiscal  1998,  the Company
restructured the Kanematsu loan. Under the restructuring agreement,  part of the
loan was converted to an equipment  installment  loan,  payable in equal monthly
payments  maturing in April 2006,  with a balance of $1,895,000 at September 30,
1998. The remaining  balance of the $10,000,000  note, after other 1998 payments
was  $6,664,000 at September 30, 1998.  This amount is payable over a seven year
period  commencing  April 1999.  Principal  payments due on all of the Company's
outstanding indebtedness are as follows:
<PAGE>
                                                          Principal Payments
                         Fiscal Year Ended              (Dollars in thousands)
                         -----------------              ----------------------
                               1999                             $  685
                               2000                              1,144
                               2001                              1,199
                               2002                              1,218
                               2003                              1,224
                            Thereafter                           3,369
                                                                ------
                                                                $8,839
                                                                ======

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

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

During fiscal 1998, the Company decreased its debt and accrued interest balances
by  $13,454,000  through  the  issuance of  licenses,  sales of  investments  in
affiliates,  sales of other assets and  forgiveness  of debt. The Company cannot
assume that it will be able to further reduce amounts owed to creditors  through
such means.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA






                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS




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

Audited Financial Statements

         Consolidated Balance Sheet
         at September 30, 1998 and 1997.........................................

         Consolidated Statement of Operations
         for the years ended September 30, 1998, and 1997.......................

         Consolidated Statement of Shareholders' Deficit
         for the years ended September 30, 1998 and 1997........................

         Consolidated Statement of Cash Flows
         for the years ended September 30, 1998 and 1997........................

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




<PAGE>
                        Report of Independent Accountants








To the Board of Directors and Shareholders
Lanxide Corporation

In our opinion,  the  accompanying  consolidated  balance  sheet and the related
consolidated  statements of  operations,  of  shareholders'  deficit and of cash
flows  present  fairly,  in all material  respects,  the  financial  position of
Lanxide Corporation and its majority-owned  affiliates at September 30, 1998 and
1997,  and the  results of their  operations  and their cash flows for the years
then ended, in conformity with generally accepted accounting  principles.  These
financial  statements are the  responsibility of the Company's  management;  our
responsibility  is to express an opinion on these financial  statements based on
our audits.  We conducted  our audits of these  statements  in  accordance  with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable  assurance about whether the financial statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and  disclosures  in the financial  statements,
assessing the  accounting  principles  used and  significant  estimates  made by
management,  and evaluating the overall  financial  statement  presentation.  We
believe  that our audits  provide a reasonable  basis for the opinion  expressed
above.

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



/s/PricewaterhouseCoopers LLP
-----------------------------
PricewaterhouseCoopers LLP





Philadelphia, Pennsylvania
November 20, 1998, except as to Note 15,
which is as of January 8, 1999
<PAGE>
<TABLE>
<CAPTION>
                                                   Lanxide Corporation
                                                Consolidated Balance Sheet
                                      (Amounts in thousands, except per share data)

                                                                                                  September 30,
                                                                                          ------------------------------
Assets                                                                                        1998              1997
                                                                                          ------------      ------------
<S>                                                                                       <C>               <C>         
Cash and cash equivalents, including amounts restricted for use
  by majority owned affiliate (Note 1)                                                    $         84      $      3,892
Accounts receivable                                                                                236             2,738
Inventories (Note 1)                                                                              --               3,036
Other current assets                                                                                 2               447
                                                                                          ------------      ------------
  Total current assets                                                                             322            10,113

Property and equipment, net (Note 4)                                                             2,217             9,681
Investment in affiliate (Note 3)                                                                  --                 377
Other assets                                                                                      --                 346
                                                                                          ============      ============
                                                                                          $      2,539      $     20,517
                                                                                          ============      ============

Liabilities and Shareholders' Deficit
Current portion of long term debt (Note 9)                                                         685             6,789
Accounts payable and accrued expenses (Note 5)                                                   1,401             4,237
Deferred compensation (Note 13)                                                                  1,372             1,377
Deferred revenue (Note 3)                                                                          217               380
                                                                                          ------------      ------------
  Total current liabilities                                                                      3,675            12,783

Long-term debt (Note 9)                                                                          8,154            14,079
Deferred credit (Note 1)                                                                           317               357
                                                                                          ------------      ------------
                                                                                                12,146            27,219

Minority interest in consolidated affiliates (Note 1)                                             --               2,006

Commitments and contingencies (Note 14)

Redeemable Series E preferred stock (aggregate liquidation value, $261);
  26,100 shares issued and outstanding (Note 11)                                                   228               225
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                   Lanxide Corporation
                                                Consolidated Balance Sheet
                                      (Amounts in thousands, except per share data)
                                                       (continued)

                                                                                                  September 30,
                                                                                          ------------------------------
                                                                                             1998               1997
                                                                                          ------------      ------------
<S>                                                                                       <C>               <C>         
Shareholders'  Deficit  (Note 3 and 11)
  Preferred  stock 15,000,000 shares authorized:
       Series A preferred stock (aggregate liquidation value,$88,135) $.01 par value;
        1,101,683 shares issued and outstanding at September 30, 1998 and 1997                      11                11
       Series G preferred stock(aggregate liquidation value,$2,000) $.01 par value;               --                --
        20,000 shares issued and outstanding at September 30, 1997
       Series H preferred stock (aggregate liquidation value,$2,000) $.01 Par value;              --                --
        20,000 shares issued and outstanding at September 30, 1998
   Common stock,$.01 par value, 25,000,000 shares authorized:
        1,325,598 issued and outstanding at September 30, 1998 and 1997                             13                13
   Additional paid-in capital                                                                  191,006           191,006
   Accumulated deficit                                                                        (200,865)         (200,883)
   Cumulative translation adjustment                                                              --                 920
                                                                                          ------------      ------------
Total shareholders' deficit                                                                     (9,835)           (8,933)
                                                                                          ------------      ------------
                                                                                          $      2,539      $     20,517
                                                                                          ============      ============
</TABLE>
    The accompanying notes are an integral part of these financial statements
<PAGE>
<TABLE>
<CAPTION>
                                        Lanxide Corporation
                               Consolidated Statement of Operations
                           (Amounts in thousands, except per share data)


                                                                        Year Ended September 30,
                                                                        ------------------------
                                                                             1998          1997
                                                                          --------      --------
<S>                                                                       <C>           <C>     
Revenue:
  Sales (Note 7)                                                          $  6,232      $  7,485
  Licensing and other related revenues                                       7,829        13,754
  Research and development contract revenue (Note 8)                         2,061         5,190
                                                                          --------      --------
                                                                            16,122        26,429
                                                                          --------      --------

Operating costs:
  Cost of sales                                                              6,709         6,688
  Research and development contract costs                                    2,111         4,534
  Product development and engineering                                        3,410         8,449
  Selling, general and administration (Note 8)                               3,621         7,680
                                                                          --------      --------
                                                                            15,851        27,351
                                                                          --------      --------

Income (loss) from operations before
 minority allocation                                                           271          (922)

Minority allocation of investment in operating (income) loss (Note 1)          274          (817)
                                                                          --------      --------
Income (loss) from operations                                                  545        (1,739)

Write-off of investment in affiliate (Note 3)                                 (377)         --
Loss on sale of affiliates (Note 3)                                           (332)         --
Interest expense                                                            (1,216)       (1,829)
Other income                                                                   156           443
                                                                          --------      --------
Loss before income taxes                                                    (1,224)       (3,125)

Income tax (benefit) expense (Note 6)                                         (408)          120
                                                                          --------      --------
Net loss before extraordinary item                                            (816)       (3,245)

Extraordinary item-gain on troubled debt restructuring,
 net of taxes of $558 (Note 3)                                                 837          --
                                                                          --------      --------

Net income (loss)                                                         $     21      ($ 3,245)
                                                                          ========      ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                        Lanxide Corporation
                               Consolidated Statement of Operations
                           (Amounts in thousands, except per share data)
                                           (continued)


                                                                        Year Ended September 30,
                                                                        ------------------------
                                                                             1998          1997
                                                                          --------      --------
<S>                                                                       <C>           <C>     
Gain on redemption of  subsidiary's preferred stock                           --             680

Dividends on mandatorily redeemable
preferred stock                                                                 (3)          (30)
                                                                          --------      --------

Net income (loss) applicable to common shareholders                       $     18      $ (2,595)
                                                                          ========      ========


Net loss per share before extraordinary item-basic and diluted            $  (0.62)     $  (1.96)

Extraordinary item per share-basic and diluted                                0.63          --
                                                                          --------      --------

Net income (loss) per share-basic and diluted                             $   0.01      $  (1.96)
                                                                          ========      ========

</TABLE>

   The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
                                                         Lanxide Corporation
                                           Consolidated Statement of Shareholders Deficit
                                            (Dollars in thousands, except per share data)



                                                     Series A                         Series G                        Series H
                                                  preferred stock                  preferred stock                 preferred stock 
                                            --------------------------      --------------------------     -------------------------
                                              Number                           Number                         Number                
                                            of shares         Amount         of shares         Amount       of shares        Amount 
                                            ----------      ----------      ----------      ----------     ----------     ----------
<S>                                         <C>             <C>             <C>             <C>            <C>            <C>       
Balance, September 30, 1996                  1,109,161      $       11                                                              
Redemption of preferred stock                   (7,478)                                                                             
Exercise of stock options                                                                                                           
Sale of preferred stock and warrants                                            20,000            --                                
Translation adjustment                                                                                                              
Gain on redemption of subsidiary's
     preferred stock                                                                                                                
Net loss                                                                                                                            
Preferred stock dividends                                                                                                           
                                            ----------      ----------      ----------      ----------     ----------     ----------
Balance, September 30, 1997                  1,101,683              11          20,000            --             --             --  
Exchange of Series G preferred stock for                                       (20,000)           --           20,000               
  Series H preferred stock (See note 3)
Translation adjustment                                                                                                              
Release of translation adjustment (Note 3)                                                                                          
Net income                                                                                                                          
Preferred stock dividends                                                                                                           
                                            ----------      ----------      ----------      ----------     ----------     ----------
Balance, September 30, 1998                  1,101,683      $       11            --        $     --           20,000     $     --  
                                            ==========      ==========      ==========      ==========     ==========     ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                         Lanxide Corporation
                                           Consolidated Statement of Shareholders Deficit
                                            (Dollars in thousands, except per share data)
                                                             (continued)


                                                   Common Stock          
                                            -------------------------     Additional                     Cumulative 
                                               Number                      paid- in      Accumulated     translation                
                                             of shares       Amount         capital         deficit       adjustment        Total  
                                            ----------     ----------      ----------     ----------      ----------     ---------- 
<S>                                         <C>            <C>            <C>            <C>             <C>            <C>         
Balance, September 30, 1996                  1,325,595     $       13     $  188,480     ($ 197,626)     $    1,226     ($   7,896) 
Redemption of preferred stock                                                    (34)                                          (34) 
Exercise of stock options                            3             --                                                           --  
Sale of preferred stock and warrants                                           1,880                                         1,880  
Translation adjustment                                                                                         (306)          (306) 
Gain on redemption of subsidiary's                                                                                                  
     preferred stock                                                             680                                           680  
Net loss                                                                                      (3,245)                       (3,245) 
Preferred stock dividends                                                                        (12)                          (12) 
                                            ----------     ----------      ----------     ----------      ----------     ---------- 
Balance, September 30, 1997                  1,325,598             13         191,006       (200,883)            920         (8,933)
Exchange of Series G preferred stock for                   --             --                                                        
  Series H preferred stock (See note 3)                                                                                             
Translation adjustment                                                                                           (47)           (47)
Release of translation adjustment (Note 3)                                                                      (873)          (873)
Net income                                                                                        21                             21 
Preferred stock dividends                                                                         (3)                            (3)
                                            ----------     ----------      ----------     ----------      ----------     ---------- 
Balance, September 30, 1998                  1,325,598     $       13      $  191,006     ($ 200,865)     $     --       ($   9,835)
                                            ==========     ==========      ==========     ==========      ==========     ========== 
                                            
</TABLE>
   The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
                                     Lanxide Corporation
                            Consolidated Statement of Cash Flows
                                   (Amounts in thousands)


                                                                   Year Ended September 30,
                                                                   ------------------------
                                                                        1998         1997
                                                                      -------      ------- 
<S>                                                                   <C>          <C>     
Cash flows from operating activities:
Net income (loss)                                                     $    21      ($3,245)
Adjustments to reconcile net income (loss) to net cash flows from
   operating activities:
 Depreciation and amortization                                          1,110        1,909
 Non-cash revenues (Note 3)                                            (4,800)        --
 Loss on sale of affiliates                                               332         --
 Gain on redemption of debt                                            (1,395)        --
 Write-off of investment in affiliate                                     377         --
 Minority allocation of operating income (loss)                          (274)         817
 Loss (Gain) on the sale of equipment                                      64          (80)
 Other non-cash charges                                                   268         --
 Change in assets and liabilities, net of sale of subsidiaries:
   Decrease in receivables                                                804          327
   Decrease (increase) in inventories                                   1,226       (1,094)
   Decrease in other assets                                               525          117
   (Decrease) increase in accounts payable and accrued expenses          (678)       1,370
   Decrease in deferred revenue and deferred credit                      (203)         (31)
   Increase (decrease) in other liabilities                                (5)         147
                                                                      -------      -------
Net cash provided by (used in) operating activities                    (2,628)         237

Cash flows from investing activities
 Cash held by subsidiaries at time of disposition                      (1,105)        --
 Capital additions                                                       (304)        (704)
 Proceeds from the sale of equipment                                      466          117
                                                                      -------      -------
    Net cash used in investing activities                                (943)        (587)


</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                     Lanxide Corporation
                            Consolidated Statement of Cash Flows
                                   (Amounts in thousands)
                                        (continued)


                                                                   Year Ended September 30,
                                                                   ------------------------
                                                                        1998         1997
                                                                      -------      ------- 
<S>                                                                   <C>          <C>     
Cash flows from financing activities
  Issuance of preferred stock, net                                       --          1,880
  Redemption of a subsidiary's preferred stock                           --         (4,000)
  Proceeds from issuance of debt obligations                             --          3,825
  Repayment of debt obligations                                          (190)        (445)
                                                                      -------      -------
    Net cash provided by (used in) financing activities                  (190)       1,260

Effect of exchange rate translations                                      (47)        (476)
                                                                      -------      -------

Net (decrease) increase in cash and cash equivalents                   (3,808)         434

Cash and cash equivalents, beginning of period                          3,892        3,458
                                                                      -------      -------

Cash and cash equivalents, end of period                              $    84      $ 3,892
                                                                      =======      =======

Supplemental disclosure of cash flow information
  Cash paid during the year for:
       Interest                                                       $   788      $ 1,361
                                                                      =======      =======
       Taxes                                                          $   150      $   120
                                                                      =======      =======


</TABLE>
   The accompanying notes are an integral part of these financial statements.
<PAGE>
LANXIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Organization and business:

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

During 1998, the Company sold its ownership interests in Lanxide Armor Products,
Inc. (LAP), Lanxide Electronic  Components,  Inc .(LEC), Lanxide K.K. and DuPont
Lanxide Composites,  Inc. (DLC) which resulted in a significant reduction in the
operating revenues and net assets of the Company (See Note 3).

Significant accounting policies:

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

The  Company's  immediate  cash needs are being met through  cash  reserves  and
working  capital  from  operations.  However,  the  Company  remains  critically
dependent on generating  additional cash in the near term to sustain its current
operations.  Presently the Company does not have  sufficient  cash  resources to
meet its  requirements  in fiscal  1999.  Potential  sources of cash include new
licensing arrangements and/or other alternative financing.  No assurances can be
given,  however,  that the Company will be able to obtain any of these potential
sources of cash. The financial  statements do not include any  adjustments  that
might result from the outcome of this uncertainty.

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

Investment in affiliates - Investment in affiliates of less than twenty  percent
ownership  are  recorded at cost.  In fiscal  1998,  the  Company  sold 2 of its
investments in affiliates as discussed in Note 3.

Minority allocation of operating (income) loss - Operating income and losses are
allocated to minority owners of the Company's  consolidated  affiliates pursuant
to certain agreements between the Company and its commercial venture partners.
<PAGE>
Inventories -  Inventories  are valued at the lower of cost  (primarily  average
cost) or market and consist of the following as of September 30:

                                                         (Dollars in thousands)
                                                          1998             1997
                                                         ------           ------
Raw materials and supplies                               $    0              997
Work in process                                               0            1,399
Finished goods                                                0              640
                                                         ------           ------
                                                         $    0           $3,036
                                                         ======           ======


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

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

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

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

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

Translation  of  foreign  currency  - The  financial  position  and  results  of
operations  of  Lanxide  K.K.,  the  Company's  former  majority-owned  Japanese
affiliate  (See Note 3), were  measured  using  Japanese  yen as the  functional
currency. Revenues and expenses of such affiliate were translated at the average
exchange rate.  Assets and  liabilities  were translated at the year-end rate of
exchange.  Translation gains and losses were recorded as a separate component of
shareholders' equity.

Financial  Instruments  -  Financial   instruments,   including  cash,  accounts
receivable,  accounts payable and accrued expenses,  are recorded at cost, which
approximates  fair value. At September 30, 1998, the Company  estimates the fair
value of its  long-term  debt to be minimal due to the lack of  liquidity of the
Company and the substantial  doubt about the Company's  ability to continue as a
going concern.

Cash and cash  equivalents - Included in the cash balances at September 30, 1997
was $2.4 million held by Lanxide K.K., a consolidated subsidiary,  which was not
available  for general  use by Company.  All highly  liquid  investments  with a
maturity  of three  months  or less when  purchased  are  considered  to be cash
equivalents.
<PAGE>
Research and Development - Research and development  expenditures are charged to
operations as incurred.

Reclassifications - Certain prior year amounts have been reclassified to conform
with current year presentations.

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

New  Accounting  pronouncements  - In 1997, The Financial  Accounting  Standards
Board  (FASB)  issued its  Statement of Financial  Accounting  Standards  (SFAS)
No.129,  "Disclosure  of  Information  About Capital  Structure,"  effective for
periods ending after December 15, 1997 and has not had a material  impact on the
financial statements or related disclosures of the Company.

In 1997 the FASB also  issued SFAS 130,  "Reporting  on  Comprehensive  Income,"
effective for fiscal years  beginning after December 15, 1997. SFAS 130 requires
that an enterprise  (a) classify  items of other  comprehensive  income by their
nature in the financial  statements and (b) display the  accumulated  balance of
other  comprehensive  income  separately  from retained  earnings and additional
paid-in-capital on the balance sheet.

Also in 1997,  the FASB  issued  SFAS 131,  "Disclosures  About  Segments  of an
Enterprise and Related information,"  effective for fiscal years beginning after
December 15, 1997.

The Company does not  anticipate  that SFAS 130 or SFAS 131 will have a material
impact on the financial statements or related disclosures made by the Company.


Note 2 - EARNINGS PER SHARE

All earnings per share reflect the implementation of SFAS 128, which established
new standards for computing and presenting earnings per share and which required
all prior  period  earnings  per share  data be  restated  to  conform  with the
provisions of the  statement.  Basic earnings per share are computed by dividing
net income  available to common  shareholders by the weighted  average number of
shares  outstanding  during the period.  Diluted earnings per share are computed
using  the  weighted   average  number  of  shares   determined  for  the  basic
computations  plus the  number of shares of common  stock  that  would be issued
assuming all  contingently  issuable shares having a dilutive effect on earnings
per share were outstanding for the period.
<PAGE>
<TABLE>
<CAPTION>
                                                                     Years Ended September 30,
                                                                   ----------------------------
                                                                      1998              1997
                                                                   -----------      -----------
                                                                      (Dollars in thousands, 
                                                                       except per share data)

<S>                                                                <C>              <C>         
Net loss before extraordinary item                                 $      (816)     ($    3,245)
Dividends on mandatorily redeemable preferred stock                         (3)             (30)
Gain on redemption of subsidiary's preferred stock                         680
                                                                   -----------      -----------
Net loss applicable to common stockholders before
  extraordinary item                                               $      (819)     $    (2,595)
Extraordinary item-gain on troubled debt restructuring                     837          _______
                                                                                    -----------
Net income (loss) applicable to common shareholders                $        18      $    (2,595)
                                                                   ===========      ===========


Weighted average common shares outstanding (basic)                   1,325,598        1,325,598

Employee stock options                                                     (A)              (A)
Warrants to purchase common shares                                         (A)              (A)
Convertible preferred stock                                                (A)              (A)
                                                                   -----------      -----------
Weighted average common shares outstanding (diluted)                 1,325,598        1,325,598
                                                                   ===========      ===========

Net loss per share before extraordinary item-basic and diluted     $     (0.62)     $     (1.96)

Extraordinary item per share-basic and diluted                     $      0.63      $      --
                                                                   -----------      -----------
Net income (Loss) per share-basic and diluted                      $      0.01      $     (1.96)
                                                                   ===========      ===========
</TABLE>


(A) Due to the  Company's net loss before  extraordinary  item in 1998 and 1997,
the  incremental  shares  issueable in  connection  with these  instruments  are
anti-dilutive and accordingly not considered in the calculation.


Note 3 - SIGNIFICANT TRANSACTIONS

Termination of Employees

         On  February  3, 1998,  the  Company  terminated  substantially  of its
employees,  as well  as  those  of  three  of its  subsidiaries  located  at the
Company's  Newark,  Delaware  offices,  as a result of its  inability  to secure
adequate funding to continue its operations. The Company subsequently hired back
approximately 30 employees and has restructured its operations.
<PAGE>
Transfer of Subsidiaries: LAP and LEC

In 1992,  E.I DuPont de Nemours  and  Company,  Inc.  (DuPont)  entered  into an
agreement with PNC Bank (PNC),  pursuant to which DuPont agreed to guarantee the
Company's  obligations  to PNC  under a  Revolving  Credit  and Term Note in the
original  principal  amount of $5,970,000 (the PNC Bank Loan). In  consideration
for DuPont's guarantee, the Company and DuPont had entered into a Loan Guarantee
Letter Agreement (as amended,  the Guarantee  Agreement),  pursuant to which the
Company granted to DuPont, as collateral,  an option (the Option) to acquire all
of the  outstanding  common equity  securities of Lanxide Armor  Products,  Inc.
(LAP) and Lanxide Electronic  Components,  Inc. (LEC).  DuPont's exercise of the
Option would release the Company from all obligations and liabilities  under the
PNC Bank Loan.  Under the terms of the  Guarantee  Agreement,  the Option  would
become  exercisable by DuPont upon the Company's  notification  to DuPont of the
Company's inability to meet its obligations under the PNC Bank Loan.

In a letter  agreement  entered  into  between the  Company  and  DuPont,  dated
February 6, 1998,  the Company  notified  DuPont that the Company would not meet
its obligations under the PNC Bank Loan.  Accordingly,  the Company consented to
DuPont's  assignment  of its right to exercise the Option to DHB Capital  Group,
Inc.  (DHB) and DuPont  agreed to repay the Bank all amounts owed by the Company
to the Bank under the PNC Bank Loan.

Concurrent  with the  assignment  of the  Option by DuPont to DHB,  the  Company
entered  into a  Transfer  Agreement,  dated  February  6,  1998  (the  Transfer
Agreement),  by and among the  Company,  DHB,  LAP,  LEC and Lanxide  Technology
Company,  L.P. (LTC),  pursuant to which DHB elected to exercise the Option and,
accordingly, the Company transferred to DHB all of the outstanding common equity
securities of LEC and LAP. Pursuant to the Transfer Agreement,  LEC and LAP have
each amended their existing license  agreements with LTC to provide royalties to
LTC on future sales by LEC and LAP relating to the Company's technologies.

In  connection  with the  transfer  of LEC and LAP to DHB and the release of the
Company  from the PNC Bank  Loan,  the  Company  recorded  a loss on the sale of
affiliates of $1,679,000 and a gain on troubled debt restructuring of $940,000.

Transactions with Kanematsu Corporation

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

Lanxide  K.K.  was owned 65% by the  Company and 35% by  Kanematsu  and has been
granted an exclusive license to make, use and sell products in Japan (other than
products licensed on a worldwide basis to commercial  ventures  initially formed
with DuPont),  using LANXIDE(TM)  technology.  A significant  portion of Lanxide
K.K.'s  operating  costs  consist of services  provided by Lanxide and its other
U.S. subsidiaries.

In April 1994, Kanematsu agreed to provide the Company with a $10.0 million line
of credit (see Note 9). Concurrent with Kanematsu  providing the line of credit,
the Company and  Kanematsu  revised the  royalty  sharing  arrangements  to give
Kanematsu  48% of the  royalties  from Lanxide K.K.  compared with 20% under the
original  arrangements.  The agreement  also  provided  that Lanxide K.K.  would
purchase its raw materials from the Company.

On April 1, 1998 the Company entered into a memorandum  agreement with Kanematsu
to  restructure  the $10  million  note  payable  (Capital  Loan)  that had been
scheduled to mature in December 1998.
<PAGE>
On April 10, 1998, as amended July 10, 1998, Kanematsu transferred $1,960,000 of
the Capital Loan to a new equipment  installment  loan.  The  equipment  loan is
payable in equal  monthly  installments  through May 2006 and bears  interest at
LIBOR plus 2%.  The loan is  collateralized  by  specifically  identified  fixed
assets of the Company (See Note 9).

On July 10, 1998,  the Company  entered into a  restructuring  agreement for the
remaining   Capital  Loan.  In  connection  with  the  agreement,   the  Company
transferred its 65% interest in Lanxide K.K. to Kanematsu. The fair market value
of the Company's  interest in Lanxide K.K. of $1,114,000 was applied directly as
a reduction  to the  Capital  Loan.  The Company  recorded a gain on the sale of
affiliates  of  $847,000  in  connection  with the  transfer,  inclusive  of the
$873,000 balance in foreign currency translation  adjustment account, a separate
component of shareholders'  deficit.  Pursuant to the agreement,  50% of certain
license  revenues  generated by the Company in the future must be used to reduce
the outstanding balance on the loan. In addition, the Company has agreed to sell
its surplus  equipment and apply the proceeds from such sales to reduce the loan
principal.

The restructured  capital loan is payable in monthly  installments  over a seven
year  period  commencing  April 1, 1999.  During  the  moratorium  of  principal
payments  in effect  until  that date,  the  Company  is  required  to make nine
payments of $5,000 each toward  interest on the loan.  The interest  rate on the
loan was reduced as of July 1, 1998 from LIBOR plus 2% to the  Japanese Yen Long
Term Prime Rate of the Industrial Bank of Japan plus 1% (See Note 9).

Transactions with Commodore Environmental Services, Inc.

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

Pursuant  to the  Agreement,  the  Company  also  issued  Commodore a warrant to
purchase  250,000  shares of Series F Preferred  Stock,  at an exercise price of
$100 per share.  The warrant could have been exercised,  in whole or in part, by
the  exchange of the shares of Series G Preferred  Stock  acquired by  Commodore
pursuant  to the  Agreement  for a like  number of shares of Series F  Preferred
Stock.  The warrant  agreement  was scheduled to expire on June 30, 2000. In the
event  that the  Company  consummated  a  financing  under a  Superior  Offer as
described in the  Securities  Purchase  Agreement  after  August 27,  1997,  the
Company  could  redeem for $0.001 per warrant  share that portion of the warrant
that had not been exercised.

The terms of the Series F Stock included,  among other things,  (a) the right to
convert into shares of Common Stock at a rate,  subject to  adjustment,  of 13.5
shares  of  common  stock  for each  share of  Series F Stock;  (b) a  mandatory
conversion by the holders upon certain events, including the sale by the Company
of at least $10 million of Company  securities in a public offering or a private
placement prior to the time that Commodore exercises at least $10 million of the
Warrant  and (c) the right to elect  four of the seven  members  of the Board of
Directors  of the  Company.  The Series F Stock was  entitled  to vote,  but not
entitled to receive dividends.
<PAGE>
Also in July 1997,  Commodore obtained effective control of the Company pursuant
to a voting  agreement  among the Company and certain of its  shareholders  (the
Voting  Agreement)  which  was  executed  in  connection  with the  transactions
contemplated by the Securities Purchase Agreement  mentioned above.  Pursuant to
the Voting Agreement,  shareholders owning 50.1% of the outstanding common stock
granted  proxies to the members of the Board of  Directors  of Commodore to vote
all shares of common  stock held by each such  shareholder  until  December  31,
1998.

On March  5,  1998 the  Company  entered  into a  series  of  transactions  with
Commodore and certain of its subsidiaries pursuant to which, among other things,
Commodore paid $500,000 cash and its subsidiaries agreed to cancel $4,500,000 in
indebtedness  and $300,000 in accrued interest to subsidiaries of Lanxide (which
was  guaranteed  by Lanxide) in exchange for the  issuance of a  royalty-bearing
license  to  use  CERASET  (TM)  on a  worldwide  basis,  excluding  Japan  (the
"License").  The License, which was issued pursuant to the terms of a Settlement
and Release  agreement  (the  "Release  Agreement"),  grants  Commodore  certain
business and technology rights that do not conflict with the rights of Lanxide's
other licenses, or future licenses in the fields for metal matrix composites and
ceramic matrix composites. Based on management's assessment of the fair value of
the license,  the Company  recognized  license revenue of $5,300,000  associated
with this transaction.

In connection  with the issuance of the License,  Lanxide and Commodore  amended
the  Securities  Purchase  Agreement,  such that (i) Lanxide and Commodore  each
agreed  to  exchange  all of the  issued  and  outstanding  shares  of  Series G
Preferred Stock for an equal number of Series H Preferred Stock of Lanxide, (ii)
Commodore's  right to purchase  additional  shares of Series G  Preferred  Stock
pursuant to the terms of the original  purchase  agreement was cancelled;  (iii)
Lanxide issued warrants to Commodore for the purchase of up to 270,000 shares of
Lanxide's  common  stock,  at an  exercise  price of $7.41 per  share;  and (iv)
Commodore's  right to  purchase  250,000  shares  of  Series F  Preferred  Stock
pursuant  to the  previously  described  warrant  was  canceled.  The  Series  H
Preferred  Stock does not pay  dividends  and is not  convertible,  however,  it
carries a liquidation  preference  of  $2,000,000.  In addition,  holders of the
Series H Preferred  Stock may utilize  such  securities  to satisfy the exercise
price of the  warrants  described  in item (iii) above based on the  liquidation
value of the preferred stock.

Sale of  DLC

On December 29, 1997,  Lanxide K.K.  agreed to loan $1.8 million to the Company.
The Lanxide K.K. Loan was to mature on January 31, 1998 and bore interest at the
rate of 6% per annum.  Upon an event of default under the Lanxide K.K. Loan, the
Company was  required to transfer to Lanxide  K.K.  its 10%  ownership in DuPont
Lanxide Composites,  Inc. (DLC). The loan came due and the Company negotiated an
assignment  and  transfer  with  Lanxide  K.K.  on April 1, 1998 to  settle  the
outstanding  balance.  As a result of the settlement,  the Company's interest in
DLC was  transferred to Lanxide KK on June 23, 1998 in full  satisfaction of the
loan. In connection with the transfer of DLC to Lanxide KK, the Company recorded
a gain on the  sale of  affiliates  of  $175,000  and a gain  on  troubled  debt
restructuring of $455,000.

Subsequently in 1998, Lanxide K.K. sold DLC to AlliedSignal,  Inc. for $500,000.
Pursuant to the terms of the Lanxide K.K.  transfer  agreement  with  Kanematsu,
Lanxide received  $325,000 (65%) of the sales price which was recorded as a gain
on the sale of affiliates  and applied  directly  against the Kanematsu  Capital
Loan.
<PAGE>
Write off of investment in Alanx Wear Solutions, Inc. (Alanx)

Due to the  continued  significant  losses  incurred  by  Alanx,  the  Company's
investment  of  $377,000 in this 10% owned  affiliate  was written off in fiscal
1998.

Transactions with Nihon Cement

On November 30, 1993,  Nihon Cement Co., Ltd. (Nihon Cement)  purchased  500,000
shares  of  Redeemable  Convertible  Preferred  Stock in Alanx,  a wholly  owned
subsidiary  of the  Company,  for $4.0  million.  Nihon Cement had the option to
convert the  preferred  stock into  common  stock at any time prior to the first
anniversary  of the sale.  Nihon  Cement  elected  not to convert  and Alanx was
obligated  to  redeem  the  preferred  stock  ratably  over a five  year  period
beginning in November  1999.  At September  30, 1996,  the  preferred  stock was
classified  as a minority  interest  in the  accompanying  consolidated  balance
sheet.  In  November  1996,  the  Company  repurchased  the $4.0  million of the
preferred  stock from Nihon Cement.  The Company also recognized a $680,000 gain
on the  repurchase  of the  preferred  stock as a direct  credit  to  additional
paid-in capital.

In October 1996, the Company signed a non-exclusive  license  agreement with AKN
for the  manufacture,  use and sale of brake  components  in Southeast  Asia and
Oceania.  AKN was a newly  created  joint  venture  of  three  global  companies
headquartered in Japan: Akebono Brake Industry, Co., Ltd. (Akebono);  Kanematsu,
and Nihon Cement.  Also in October 1996,  the joint venture  purchased a license
from Lanxide K.K. for the manufacture,  use and sale of brake products in Japan.
In  addition  to  license  payments,  the  agreements  also  require  AKN to pay
royalties  on all sales of  licensed  products.  A  separate  agreement  between
Akebono,  Nihon Cement and the Company provides for a joint development  program
whereby  the Company  will be  reimbursed  $4.0  million  for  development  work
performed over a two year period. At September 30, 1998, $217,000 is included in
deferred revenue related to this program.

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

The following table  summarizes the above described gains and losses on the sale
of  affiliates  and troubled debt  restructuring  related to the sale of LEC and
LAP, Lanxide K.K. and DLC for the year ended September 30, 1998:
<TABLE>
<CAPTION>
                                                 Gain (Loss) on         Gain on Troubled
                                               Sale of Affiliates     Debt Restructuring
                                               ------------------     ------------------
                                                         (Dollars in thousands)
<S>                                                 <C>                      <C>        
Sale of LEC and LAP to DHB                          $(1,679)                 $  --      
Forgiveness of PNC loan related to sale                                                 
  of LEC and LAP                                       --                        940    
Sale of DLC from Lanxide to Lanxide K.K                 175                             
Forgiveness of debt owed to Lanxide K.K                                                 
  after intercompany eliminations                      --                        455    
Lanxide portion of sale of DLC from Lanxide K.K                                         
  to AlliedSignal                                       325                             
Sale of interest in Lanxide K.K. to Kanematsu           847                             
                                                    -------                  -------    
Total                                               $  (332)                 $ 1,395    
                                                    =======                  =======    
</TABLE>      
NOTE 4 - PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
                                                            (Dollars in thousands)
                                                                 September 30,                     Estimated
                                                          1998                  1997              useful lives
                                                       -----------           -----------          ------------
<S>                                                    <C>                   <C>                  <C>        
      Leasehold improvements                           $     1,591           $     3,080          12-20 Years
      Machinery and equipment                               10,406                19,724           5-10 Years
      Furniture and fixtures                                   535                   539             10 Years
                                                       -----------           -----------
                                                            12,532                23,343
      Accumulated depreciation                             (10,315)              (13,662)
                                                       -----------           -----------
                                                       $     2,217           $     9,681
                                                       ===========           ===========
</TABLE>
NOTE 5 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
<TABLE>
<CAPTION>
                                                (Dollars in thousands)
                                                     September 30,
                                               -----------------------
                                               1998             1997
                                              ------           ------
<S>                                            <C>              <C>   
                Accounts payable               $1,042           $2,481
                Compensation-related costs          0              594
                Other                             359            1,162
                                               ------           ------
                                               $1,401           $4,237
                                               ======           ======
</TABLE>
<PAGE>
NOTE 6 - INCOME TAXES:

Deferred income taxes are provided based on the estimated  future tax effects of
differences  between financial  statement  carrying amounts and the tax bases of
existing  assets and  liabilities.  The  provision for income taxes for the year
ended  September  30 results in an  effective  tax rate which  differs  from the
federal income tax rate as follows:
<TABLE>
<CAPTION>
                                                          (Dollars in thousands)
                                                           1998           1997
                                                          -------       -------
<S>                                                       <C>           <C>     
Expected tax benefit at federal statutory rate            $  (416)      $(1,063)
Excluded foreign subsidiary (income) loss                      93          (516)
Loss of NOL's, R&D credits and other changes
  in connection with sale of affiliates                     6,368          --
Changes in valuation allowance                             (6,614)        1,607
Foreign tax withheld on foreign source income                 150           120
Other                                                          11           (28)
                                                          -------       -------
Income tax (benefit) expense                              $  (408)      $   120
                                                          =======       =======
</TABLE>

As of  September  30, 1998 and 1997,  the Company has net deferred tax assets of
approximately  $26.5 million and $33.7  million,  respectively,  which have been
fully  reserved  through  a  valuation  allowance  due  to  the  uncertainty  of
recoverability.  The  components  of the net  deferred  income  tax  asset as of
September 30 are as follows:
<TABLE>
<CAPTION>
                                                         (Amounts in thousands)
                                                            1998          1997
                                                         --------      --------
<S>                                                      <C>           <C>     
         Federal Net Operating Loss Carryforwards        $ 13,015      $ 16,425
         State Net Operating Loss Carryforwards             3,064         4,303
         Capitalized Costs                                  6,185         8,565
         Tax Credit Carryforwards                           3,196         3,892
         Deferred Revenue                                     243           395
         Deferred Compensation                                775           777
         Other                                                210           435
                                                         --------      --------
           Gross Deferred Tax Asset                        26,688        34,792
                                                         --------      --------

         Excess of tax over book depreciation                (200)       (1,132)
                                                         --------      --------
           Gross Deferred Tax Liability                      (200)       (1,132)
                                                         --------      --------

         Net Deferred Tax Asset                            26,488        33,660
         Valuation Allowance                              (26,488)      (33,660)
                                                         --------      --------
         Deferred Tax Asset                              $   --        $   --
                                                         ========      ========
</TABLE>
<PAGE>
The Company has federal net operating loss carryforwards of approximately  $40.3
million at September 30, 1998 which expire in varying amounts  beginning in 1999
through  2012.  The  Company  also  has  comparable  state  net  operating  loss
carryforwards.  As specified in the Internal  Revenue  Code,  certain  ownership
changes would result in limitations on the Company's  ability to utilize its net
operating  loss  carryforwards.  At September 30, 1998, the Company had research
and development tax credit  carryforwards of approximately $3.2 million expiring
through 2012. An  additional  $558 was released from the valuation  allowance to
offset a like amount of tax liability recorded on the extraordinary gain.

NOTE 7 - SIGNIFICANT CUSTOMERS AND FOREIGN OPERATIONS:

Significant Customers

During  fiscal 1997, 5% of revenues  were derived from the U.S.  Government.  In
fiscal 1998,  revenues from six customers  accounted  for  approximately  52% of
total  revenues.  In fiscal  1997,  revenues  from one  customer  accounted  for
approximately 39% of total revenues.

Foreign Operations

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

                                                            (Dollars in Thousands)
                                                United States        Japan         Consolidated
                                                -------------        -----         ------------
Year ended September 30, 1998
<S>                                               <C>              <C>               <C>       
Total Revenues                                    $   11,479       $    4,643        $   16,122
                                                  ==========       ==========        ==========

Net income (loss) before extraordinary item       $      (34)      $     (782)       $     (816)
                                                  ===========      ==========        ==========

Identifiable Assets at September 30, 1998         $    2,539       $        -        $    2,539
                                                  ==========       ==========        ========== 

<CAPTION>
                                                United States        Japan         Consolidated
                                                -------------        -----         ------------
Year ended September 30, 1997
<S>                                               <C>              <C>               <C>       
Total Revenues                                    $   20,503       $    5,926        $   26,429
                                                  ==========       ==========        ==========

Net income (loss) before extraordinary item       $   (5,579)      $    2,334        $   (3,245)
                                                  ===========      ==========        ========== 

Identifiable Assets at September 30, 1997         $   15,689       $    4,828        $   20,517
                                                  ==========       ==========        ==========

</TABLE>
<PAGE>
NOTE 8 - RELATED PARTY TRANSACTIONS:

The Company previously  performed research and development  activities on behalf
of its  affiliates.  Included in research and development  contract  revenue are
$75,000  and  $900,000  for  the  years  ended   September  30,  1998  and  1997
respectively, related to revenue from unconsolidated affiliates.

In  addition,  the  Company  previously  allocated  certain  administrative  and
facility charges to its affiliates. Costs allocated to unconsolidated affiliates
are reflected as a reduction of selling, general and administrative expenses and
totaled  $147,000 and $637,000 for the years ended  September  30, 1998 and 1997
respectively.

At September 30, 1997,  the Company owed $163,000 in interest  payments on loans
from Commodore  Environmental Services, Inc. and Commodore Applied Technologies,
Inc. (See Note 3).

NOTE 9 - LONG-TERM DEBT:
<TABLE>
<CAPTION>
                                                                        (Dollars in thousands)
                                                                             September 30,
                                                                        ----------------------
                                                                          1998          1997
                                                                        --------      --------


<S>                                                                     <C>           <C>     
Notes payable to Kanematsu (See Note 3)                                 $  8,559      $ 10,000

Note payable to PNC Bank guaranteed by DuPont (See Note 3)                  --
                                                                                         5,900

Secured revolving credit and demand note to Commodore Applied
 Technologies, Inc. (See Note 3)                                            --           1,500

Secured revolving credit and demand note to Commodore Environmental
  Services, Inc. (See Note 3)                                               --           3,000

Capital leases                                                               280           468
                                                                        --------      --------

   Total debt                                                              8,839        20,868
      Less:  Current portion                                                (685)       (6,789)
                                                                        --------      --------

Long-term debt                                                          $  8,154      $ 14,079
                                                                        ========      ========

</TABLE>
The note  payable  to  Kanematsu  includes  a capital  loan  with a  balance  of
$6,664,000  and an equipment  installment  note with a balance of  $1,895,000 at
September 30, 1998.  The capital loan is payable in equal  monthly  installments
over a seven year  period,  commencing  April 1, 1999 and bears  interest at the
Japanese  Yen long term prime rate of the  Industrial  Bank of Japan plus 1% (an
effective rate of 3.5% at September 30, 1998). The equipment installment note is
payable  in equal  monthly  installments  and  matures  on April 10,  2006.  The
equipment  loan bears interest at LIBOR plus 2%,  adjusted on a quarterly  basis
(an effective rate of 8% at September 30, 1998).
<PAGE>
The principal  payments due on the debt outstanding at September 30, 1998 are as
follows:

                                            (Dollars in thousands)
                 Fiscal Year Ended            Principal Payments
                 -----------------            ------------------
                      1999                        $       685
                      2000                              1,144
                      2001                              1,199
                      2002                              1,218
                      2003                              1,224
                      Thereafter                        3,369
                                                  -----------
                                                  $     8,839

The loan from PNC Bank was cancelled on the transfer of ownership of LEC and LAP
to DHB on  February  6, 1998.  The  interest  rate was at prime.  The loans from
Commodore Applied Technologies,  Inc. and Commodore Environmental Services, Inc.
were repaid by the  granting of a license to Commodore  Environmental  Services,
Inc The interest rate on these loans was at Prime (See Note 3).

NOTE 10 - COSTS AND EXPENSES:

The following are included in operating costs:

                                                  (Dollars in thousands)
                                              For the Year ended September 30,
                                              --------------------------------
                                                  1998                1997
                                              -----------          -----------
           Patent expenses - external         $       374          $       595
           Depreciation and amortization            1,110                1,909


NOTE 11 - SHAREHOLDERS' EQUITY AND
             RELATED ITEMS:

Common Stock

The Company has 25,000,000  authorized  shares of voting common stock with $0.01
par value and has issued and outstanding 1,325,598 shares

Preferred Stock

The  Company  has  15,000,000  authorized  shares  of  preferred  stock of which
1,101,683 Series A non-voting  shares are issued and outstanding.  Each share of
Series A preferred  stock is  convertible  into  approximately  0.372  shares of
common stock and has an annual dividend of $3.20 commencing January 1, 2001. The
dividend is cumulative thereafter, subject to a limitation of 50% of net income.
The Series A preferred stock has a liquidation preference of $88,135,000.

On October 3, 1995,  the Company sold 26,100  shares of  mandatorily  redeemable
Series E Preferred  Stock to an existing common  shareholder  for $261,000.  The
Series E Preferred Stock pays a cumulative  dividend at the rate of 7% per annum
when, as and if declared by the Board of Directors.  Each  outstanding  share of
Series E Preferred  Stock is  mandatorily  redeemable  by the Company at $10 per
<PAGE>
share,  plus  accrued  but  unpaid  dividends  out of assets  legally  available
therefor on October 3, 2000. The carrying amount of the Series E Preferred Stock
is being  accreted  up to the  redemption  value  over the  five-year  term.  In
connection  with the initial  sale of  preferred  stock,  the  Company  issued a
warrant to purchase 58,763 shares of common stock, at an exercise price of $4.50
per share, for a period expiring January 1999.

The  Company has issued and  outstanding  20,000  non-voting  shares of Series H
Preferred Stock which has a liquidation preference of $2,000,000 (See Note 3).

Adoption of New Stock Option Plan

On March 5, 1998 the Board of Directors approved the 1998 Stock option Plan (the
1998 Plan) for  employees  of the Company.  Under the 1998 Plan,  options may be
granted to employees and certain  consultants of the Company to acquire not more
than 1,000,000 shares of common stock.  Options under the Plan will be primarily
incentive stock options, but some number of non-qualified stock options may also
be issued.  The stock  option price is equal to 100% of the fair market value of
the common  stock on the grant  date.  During  1998,  the stock  options  had an
average  exercise price of $1.00.  The Board has  discretion in determining  the
term and  vesting  period of the option up to a maximum of ten years.  The stock
options  issued in 1998 under the 1998 Plan are  scheduled to vest over eighteen
to twenty-seven month periods commencing on the date of the grant.

Options  granted under the 1995 Plan were converted into stock options under the
1998 Plan for all existing employees at the time the 1998 Plan became effective.
A minimal  number of options  under the 1995 Plan  remain  outstanding,  held by
former employees.

1995 Director Stock Option Plan

In December 1995, the Board of Directors approved the 1995 Director Stock Option
Plan (the 1995 Director  Plan).  The 1995 Director Plan  authorized the grant of
options to purchase up to 25,000 shares of Common Stock.  In December 1995, each
director  that was not an  employee  of the  Company  was  granted  an option to
purchase  3,000 shares of Common Stock at an exercise  price of $5.62 per share.
One-twelfth  of  these  options  vest  at the  end of  each  three-month  period
following the date of grant. This Plan has been suspended.

Grant of Warrants

In  December  1995,  the Board of  Directors  approved  the  issuance to certain
executive officers of warrants to purchase 66,000 shares of Common Stock. All of
the  warrants  vest on the  third  anniversary  of the date of grant and have an
exercise  price  of  $8.50.  On July  3,  1997,  pursuant  to the  terms  of the
Securities  Purchase  Agreement with Commodore,  the Board of Directors approved
the issuance to certain executive  officers,  warrants to purchase an additional
66,000 shares of Common Stock. In 1998,  substantially  all of the warrants were
canceled and replaced with new options granted under the 1998 Plan for officers.
<PAGE>
Summary of stock option activity of the employee stock option plans

                  1998 Stock Option Plan
                                                   1998
                                                 --------
Options outstanding at beginning of year                0
Granted                                           619,397
Exercised                                               0
Canceled                                          (16,000)
                                                 --------
Options outstanding at end of year                603,397
                                                 ========

Options exercisable at end of year                252,699

     Option exercise price at end of year        $   1.00

         1995 Stock Option Plan
                                                   1998             1997
                                                 --------         --------
Options outstanding at beginning of year          516,853          262,938
Granted                                                 0          260,993
Exercised                                               0                0
Canceled                                         (502,370)          (7,078)
                                                 --------         --------
Options outstanding at end of year                 14,483          516,853
                                                 ========         ========

Options exercisable at end of year                 14,483          170,436

Option exercise price (range) at end of year     $  5.625      $5.62-22.00


The Company  has adopted the  intrinsic  value  method of  accounting  for stock
options and  warrants  under APB 25 with  footnote  disclosure  of the  proforma
effects as if the FAS 123 fair value method had been adopted.  Had  compensation
expense for the Company's  employee stock options been  determined  based on the
fair  value at the grant date for  awards in 1998 and 1997  consistent  with the
provisions of FAS 123, the Company's net income (loss) per share would have been
adjusted to the pro forma amounts indicated below:
<TABLE>
<CAPTION>

                                                                     1998            1997
                                                                    ------         --------
<S>                                                <C>              <C>            <C>      
         Net income (loss)                         As reported      $    21        $ (3,245)
                                                   Pro forma        $  (248)       $ (3,665)

         Basic and diluted income (loss) per share As reported      $   0.01       $  (1.96)
                                                   Pro forma        $  (0.19)      $  (2.27)
</TABLE>
<PAGE>
FAS 123  requires  stock  options  to be valued  using an  approach  such as the
Black-Scholes  option pricing model. The Black-Scholes model calculates the fair
value of the grant based upon certain  assumptions  about the underlying  stock.
For 1998 the average  expected  dividend yield of the stock is zero, the average
expected  volatility is 60 percent,  the average expected life of the options at
grant date is 5 years, and the average expected  risk-free rate of return is 5.6
percent  calculated as the rate offered on U.S.  Government  securities with the
same term as the expected life of the options.  For 1997,  the average  expected
dividend  yield of the stock was zero,  the average  expected  volatility was 60
percent,  the average  expected  life of the options was 6 years and the average
expected  risk  free  rate of  return  was 5.7  percent.  The  weighted  average
remaining  contractual life of options and warrants outstanding at September 30,
1998 and 1997 was 4.5 and 9 years respectively. The weighted average fair values
of options granted during 1998 and 1997 are $0.57 and $3.52 for the Company.

NOTE 12 - EMPLOYEE BENEFIT PLAN:

The Company has a 401(k) Matched Savings Plan that permits eligible employees to
defer and have the  Company  contribute  a portion  of their  compensation  on a
pre-tax basis to the Plan. The Company shall make a 50% matching contribution up
to 4% of a participant's  compensation.  Company  contributions to the Plan were
$90,000 and $202,000 in 1998 and 1997, respectively.

NOTE 13 - DEFERRED COMPENSATION PLAN:

The Company implemented a Deferred Compensation Plan for the period June 1993 to
May 1994,  whereby a portion of the  employees'  compensation  was  deferred and
payable in June 1998,  together with 12% interest compounded annually up to June
1, 1998.  Payment  is to be in cash or common  stock at a rate of $25 per share.
The stock has traded below $25 and management  has commenced  paying cash to the
Plan  participants  on a 24 month payout schedule from June 1, 1998. The Company
has the right to amend the Plan at any time solely at its discretion. Due to the
limited  liquidity of the Company,  only three of the monthly  installments have
been paid and payments have been suspended  pending the generation of sufficient
cash flow to recommence payments under the Plan.

NOTE 14 - COMMITMENTS AND CONTINGENCIES:

On August 1, 1996, the Company entered into a lease  modification  agreement for
the Forge Drive  facility.  The modified  lease term covers the period August 1,
1996 through  December 31, 2008, with a 10-year renewal option at the expiration
of the lease.  Minimum annual lease payments are $275,000  through  December 31,
1998,  increasing  to  $285,000  and  $300,000  on  January  1,  1999 and  2004,
respectively.  The lease  grants the  Company  the right of first  refusal  with
respect to the purchase of the facility.

On March 28, 1996,  the Company sold the Marrows Road facility for $8.6 million.
Concurrent with the sale, the Company  entered into a noncancelable  twenty-year
operating  lease with the Buyer with renewal  options for another 20 years.  The
lease requires prepaid quarterly payments of $244,000 with inflation adjustments
every five years, and is being accounted for as an operating lease.

Minimum annual  operating lease payments were $1,276,000 and $1,253,000 for 1998
and 1997, respectively.
<PAGE>
In addition to the Forge Drive and Marrows Road  facilities,  the Company leases
certain  machinery  and  equipment.  Commitments  for minimum  rentals under all
non-cancelable leases at the end of 1998 are as follows:
<TABLE>
<CAPTION>
                                                                       (Dollars in thousands)
                                                               Capital                       Operating
          Fiscal Year Ended                                Lease Payments                 Lease Payments
          -----------------                                --------------                 --------------
<S>                                                          <C>                         <C>       
                1999                                         $     86                    $    1,177
                2000                                               86                         1,180
                2001                                               86                         1,304
                2002                                               71                         1,315
                2003                                                                          1,315
             Thereafter                                                                      15,476
                                                             --------                    ----------
        Total minimum lease payments                              329                    $   21,767
                                                                                         ==========
        Less amount representing interest                          48
                                                             --------
        Present value of net minimum lease payments,
        including current maturities of $86                  $    281
                                                             ========
</TABLE>

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

<TABLE>
<CAPTION>

                                                            (Dollars in thousands)
                                                                1998       1997
                                                               -----      -----
<S>                                                            <C>        <C>  
Machinery and Equipment                                        $ 386      $ 447
Leasehold Improvements                                             0         68
                                                               -----      -----
                                                                 386        515
     Less:  Accumulated Depreciation and Amortization           (128)       (20)
                                                               -----      -----
                                                               $ 258      $ 495
                                                               =====      =====
</TABLE>

Legal proceedings

There are a number of pending  legal  actions from vendors  regarding  claims on
past due  obligations.  In addition,  there are five legal  actions from vendors
regarding claims for past due obligations of approximately $150,000. The Company
is also subject to certain purchase price adjustments related to the transaction
with DHB (See note 3). As of  September  30,  1998,  the Company has recorded an
accrual of $150,000 related to potential  liabilities for these matters.  In the
opinion of management  none of the claims are expected to have a material impact
on the Company.
<PAGE>
Note 15 - Subsequent Event:

On  January  6, 1999 the  Company  closed  its  plant  facility  and  terminated
substantially  all of its  employees  due to a liquidity  shortfall.  Unless the
Company is able to sell additional  licenses,  equipment or lines of business in
the  immediate  future,  the  Company  may file  for  bankruptcy.  The  board of
directors and management are currently considering these options.


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

              None.

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

     The  following  table  sets  forth,  as  of  September  30,  1998,  certain
information concerning the directors and executive officers of the Company:
<TABLE>
<CAPTION>

                                                                                                            Year
                                                                                                            first
                                                                                                           elected
       Name                     Age                 Position                                              Director
       ----                     ---                 --------                                              --------
<S>                              <C>     <C>                                                                <C> 
Marc S. Newkirk                  51      President, Chief Executive Officer and Director                    1983
Michael J. Hollins               54      Vice President, Corporate Development                              1998
Bentley J. Blum                  57      Director                                                           1983
</TABLE>

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

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

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

Prior to the Company's 1996 Annual Meeting of Stockholders on February 28, 1996,
the Company's  Board of Directors was divided into three classes,  each of which
was  elected by holders of Old Common  Stock and Old Series A  Preferred  Stock,
voting together as a single class,  for a three-year  term, with one class being
elected each year.

Pursuant to an amendment to the Company's Certificate of Incorporation which was
adopted  by the  stockholders  of the  Company  at its 1996  Annual  Meeting  of
Stockholders,  the  Board  of  Directors  is no  longer  divided  into  classes.
Commencing with the next Annual Meeting of  Stockholders,  Directors will now be
elected for one-year terms.

Board of Directors Committees

The Board of Directors has three standing committees:  the Audit Committee,  the
Compensation Committee and the Stock Option Committee.

Audit Committee

As of September  30, 1998,  the Audit  Committee  consisted of Mr. Blum who is a
non-employee director. The Audit Committee did not formally meet during the 1998
fiscal year. The Audit Committee evaluates the adequacy and effectiveness of the
Company's  administrative,  operating and  accounting  policies and its internal
accounting  control  system.  It reviews  and  approves  significant  accounting
changes and the annual financial statements.

Compensation Committee

The Compensation Committee currently also consists of Mr. Blum. The Compensation
Committee  determines and sets the annual compensation to be paid to the Company
officers.

Stock Option Committee

The Stock Option Committee  currently  consists of Messrs.  Newkirk and Hollins.
The Stock Option Committee administers the Stock Option Plans as approved by the
stockholders of the Company and determines each employee's  participation in the
plans. Mr. Blum approved the option grants for Messrs. Newkirk and Hollins.
<PAGE>
ITEM 10.  EXECUTIVE COMPENSATION

Summary of Cash and Certain Other Compensation

The  following  table sets forth the annual and  long-term  compensation  of the
Chief  Executive  Officer and the four other most highly  compensated  executive
officers of the Company for the fiscal years ended  September 30, 1998, 1997 and
1996 (the Named Executives).

                                     TABLE I
              Summary of Compensation to Certain Executive Officers
<TABLE>
<CAPTION>
                                                 Annual Compensation                 Long-Term Compensation
                                            -----------------------------        --------------------------------
                                                                                   Awards               Payouts
                                                                                 -----------         ------------
                                                                                 Securities            All Other
                                            Fiscal                               Underlying          Compensation
     Name and Principal Position             Year           Salary ($)(1)        Options (#)            ($)(2)
     ---------------------------             ----           -------------        -----------         ------------
<S>                                         <C>                <C>                 <C>                  <C>   
     Marc S. Newkirk                        1998               $267,647            283,198              $9,016
        President and                       1997               $279,637            114,123              $5,421
        Chief Executive Officer             1996               $257,425            114,123              $6,021

     Michael J. Hollins                     1998               $138,197            106,199              $6,176
        Vice President                      1997               $148,810             18,605              $4,622
                                            1996               $136,423             18,605              $4,521

</TABLE>

(1)  Includes the following  salary  restoration  adjustments  in 1997 and 1996,
     respectively:  $73,004 and $49,950 for Mr. Newkirk; $39,492 and $27,021 for
     Mr. Hollins;
(2)  Represents  interest earned on the Deferred  Compensation  Plan which is in
     excess of the maximum  allowable  federal rate of 7.79%, plus the Company's
     matching contributions under the Employee Savings Plan.


Salary Restoration Program

Due to the Company's ongoing cash needs,  during the period ended March 20, 1995
through  February 6, 1998, the officers of the Company agreed to a temporary 33%
salary reduction.  During fiscal 1995, the total amount of this salary reduction
was  approximately  $160,000.  Although this salary reduction  remains in effect
during  that  period,  on December 8, 1995,  the Board of  Directors  approved a
salary restoration program. During each quarter of the fiscal year, the officers
were eligible to receive restoration of their lost salary (the Restored Portion)
to the extent that the operating income of the Company,  excluding extraordinary
items,  was greater  than $15,000 for the  quarter,  after giving  effect to the
restoration  of the  salaries.  If the  operating  income  in  any  quarter  was
insufficient to pay each  participant's  Restored Portion,  then the Company was
permitted  to pay to the  participants  that  amount  of salary  not  previously
restored,  to the extent that the  operating  income of the  Company,  excluding
extraordinary  items, was greater than $60,000 for the fiscal year, after giving
effect to the restoration of salaries.
<PAGE>
Compensation of Directors

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

The following  table shows the number of shares of Common Stock  underlying  the
Stock Options granted in fiscal year 1997 to each of the Named  Executives,  the
percentage of total options  granted which each Named  Executive's  stock option
grant  represents,  the exercise price of each option granted and the expiration
date of each option granted.

                                    TABLE II
                      Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>



                                  # of Securities      Percent of total
                                    Underlying          options granted                                  Option
     Name                             Options           in fiscal year        Exercise Price         Expiration Date
     ----                             -------           --------------        --------------         ---------------
<S>                                   <C>                     <C>                  <C>                  <C>   <C>
Marc S. Newkirk                       283,198                 40 %                 $1.00                03/05/03

Michael J. Hollins                    106,199                 15 %                   "                  03/05/03
</TABLE>

Options Exercised in Fiscal Year 1998

The  following  table shows the number and value of stock  options  exercised by
each of the Named  Executives  during fiscal year 1998, the number of all vested
(exercisable)  and unvested  (not yet  exercisable)  stock  options held by each
Named  Executive  at the end of  fiscal  year  1998,  and the  value of all such
options that were "in the money" (i.e., the market price of the Common Stock was
greater than the exercise price of the options) at the end of fiscal year 1998.

                                    TABLE III
               Aggregated Option Exercises in Fiscal Year 1998 and
                          Fiscal Year End Option Values
<TABLE>
<CAPTION>
                                                                        Number of
                                                                  Securities Underlying         Value of Unexercised
                                                                   Unexercised Options          In-the-Money Options
                                  Shares                          at End of Fiscal 1998         at End of Fiscal 1998
                                 Acquired          Value              Exercisable/                   Exercisable/
   Name                       on Exercise (#)   Realized ($)          Unexercisable                 Unexercisable
   ----                       ---------------   ------------          -------------                 -------------
<S>                                <C>               <C>            <C>                                  <C>  
Marc S. Newkirk..........          -0-               $0             141,599/141,599                      $0/$0
Michael J. Hollins.......          -0-                0              53,100/53,099                       $0/$0

</TABLE>
<PAGE>
COMPANY PLANS
1998 Stock Option Plan

In March 5, 1998 the Board of Directors approved the 1998 Stock option Plan (The
1998 Plan) for  employees  of the Company.  Under the 1998 Plan,  options may be
granted to employees and certain  consultants of the Company to acquire not more
than 1,000,000 shares of common stock.  Options under the Plan will be primarily
incentive stock options, but some number of non-qualified stock options may also
be issued.  The stock  option price is equal to 100% of the fair market value of
the common  stock on the grant  date.  During  1998,  the stock  options  had an
average  exercise price of $1.00.  The Board has  discretion in determining  the
term and  vesting  period of the option up to a maximum of ten years.  The stock
options  issued in 1998 under the 1998 Plan are  scheduled to vest over eighteen
to  twenty-seven  month  periods  commencing  on the date of the grant.  Options
granted  under the 1995 Plan were  converted  into stock  options under the 1998
Plan for all existing  employees at the time the 1998 Plan became  effective.  A
minimal number of options under the 1995 Plan remain outstanding, held by former
employees.

1995 Director Stock Option Plan

In December 1995, the Board of Directors approved the 1995 Director Stock Option
Plan (the 1995 Director  Plan).  The 1995 Director Plan  authorized the grant of
options to  purchase up to 25,000  shares of Common  Stock.  In  December  1995,
subject to stockholder approval, each director was granted an option to purchase
3,000  shares  of  Common  Stock  at an  exercise  price  of  $5.62  per  share.
One-twelfth  of  these  options  vested  at the end of each  three-month  period
following the date of grant. Future directors will receive a prorated portion of
the option to purchase 3,000 shares.  A  non-employee  consultant was granted an
option to purchase  3,000  shares of Common  Stock with terms  identical  to the
directors.  The  stockholders of the Company  approved the 1995 Director Plan at
the Annual Meeting of Stockholders held on February 28, 1996.

Grant of Warrants

In  December  1995,  the Board of  Directors  approved  the  issuance to certain
executive officers of warrants to purchase 66,000 shares of Common Stock. All of
the  warrants  vest on the  third  anniversary  of the date of grant and have an
exercise  price  of  $8.50.  On July  3,  1997,  pursuant  to the  terms  of the
Securities  Purchase  Agreement with Commodore,  the Board of Directors approved
the issuance to certain executive  officers,  warrants to purchase an additional
66,000 shares of Common Stock. In 1998,  substantially  all of the warrants were
canceled and replaced with new options granted under the 1998 Plan for officers.

Deferred Compensation Plan

The Company implemented a Deferred Compensation Plan for the period June 1993 to
May 1994,  whereby a portion of the  employees'  compensation  was  deferred and
payable in June 1998,  together with 12% interest compounded annually up to June
1, 1998.  Payment  is to be in cash or common  stock at a rate of $25 per share.
The stock has traded below $25 and management  has commenced  paying cash to the
Plan  participants  on a 24 month payout schedule from June 1, 1998. The Company
has the right to amend the Plan at any time solely at its discretion. Due to the
limited  liquidity of the Company,  only three of the monthly  installments have
been paid and payments have been suspended  pending the generation of sufficient
cash flow to  recommence  payments  under the Plan.  The  deferred  compensation
accrual  as of  September  30,  1998 and 1997 was,  $1,372,000  and  $1,377,000,
respectively.
<PAGE>
401(k) Matched Savings Plan

The  Company has a 401(k)  Matched  Savings  Plan (the  Employee  Savings  Plan)
permitting eligible employees to defer and have the Company contribute a portion
of their  compensation  on a pre-tax  basis to the Employee  Savings  Plan.  The
Company may make a matching contribution of fifty cents for each dollar deferred
by a participant up to 4% of a participant's  total cash  compensation.  Company
contributions  to the Employee  Savings Plan were  $90,0000 and $202,000 in 1998
and 1997, respectively.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Below is a table setting forth the beneficial  ownership as of December 12, 1998
of the Common Stock of the Company (on a common stock equivalent  basis) by each
of its officers,  directors and each entity known by the Company to beneficially
own five percent or more of any class of the Company's voting securities.
<TABLE>
<CAPTION>

                                                                                      Number of        Percent of
   Title of Class            Name and Address of Beneficial Owner(1)                    Shares            Class
   --------------            ---------------------------------------                    ------            -----
<S>                          <C>                                                      <C>                <C>  
   Common Stock              Commodore Environmental Services, Inc. (2)                 270,000            10.4%
                             Alcan (3)                                                  188,432            7.3
                             Marc S. Newkirk (4), (5), (6)                              356,381            8.3
                             Michael J. Hollins (4), (6), (7)                           118,478            2.5
                             Bentley J. Blum (4), (6), (8)                              657,492           25.4
                             All directors and executive officers                     1,132,351           36.2
                             as a group (eleven persons) (4),(5), (6), (7), (8)

   Series H Preferred Stock  Commodore Environmental Services, Inc.                      20,000            100
</TABLE>
----------------------- 

(1)      Unless otherwise  indicated,  (i) the address of each of the beneficial
         owners is c/o Lanxide  Corporation,  1300 Marrows Road,  P.O. Box 6077,
         Newark,  Delaware 19714-6077,  (ii) all shares are owned directly,  and
         (iii) each person has sole investment and voting power.
(2)      Includes  270,000  shares of Common  Stock from the  exercise of common
         stock  warrants  issued to Commodore.  Commodore's  address is 150 East
         58th Street, Suite 3400, New York, New York 10155.
(3)      Consists  solely of shares of the Company's  Series A Preferred  Stock,
         convertible  at any time into the  Company's  Common Stock and includes
         27,007;  96,865;  and 64,560  shares of Series A preferred  stock on as
         converted  basis  owned  by Alcan  Aluminium  Limited,  Alcan  Aluminum
         Corporation  and  Alcan  Automotive  Castings,  respectively.   Alcan's
         address is 1188 Sherbrooke Street West,  Montreal,  Quebec,  Canada H3A
         3G2.
(4)      Includes  an  aggregate  of  60,534  shares of the  Company's  Series A
         Preferred  Stock,  convertible at any time into shares of the Company's
         Common Stock as follows:  36,869 shares for Mr.  Newkirk,  2,279 shares
         for Mr. Hollins, 21,386 shares for Mr. Blum,.
(5)      Includes shares owned by Mr. Newkirk's spouse,  Karen H. Newkirk (2,487
         shares);  and minor  children  trusts  dated  3/3/88 for the benefit of
         Corey E. Newkirk  (1,827 shares) and Ross S. Newkirk (1,827 shares) and
         trust under  agreement of Marc S. Newkirk dated 3/3/88 (66,773  shares)
         for which Mr. Newkirk has voting power.
<PAGE>
(6)      Includes  the  following  options to purchase  shares of the  Company's
         Common Stock which are exercisable within 60 days,  including:  141,599
         shares for Mr. Newkirk,  53,099 shares for Mr. Hollins and 2,757 shares
         for Mr. Blum.
(7)      Excludes  shares  beneficially  owned by Kanematsu which are subject to
         the Voting Trust Agreement, dated as of May 28, 1992, between Kanematsu
         and Mr. Hollins, as voting trustee.
(8)      Includes  41,088 shares owned by Mr. Blum's spouse,  Laura Utley, as to
         which Mr. Blum disclaims beneficial  ownership.  Also includes warrants
         to purchase  58,763  shares of the Company's  Common Stock  exercisable
         until January 14, 1998. Mr. Blum's address is 150 E. 58th Street, Suite
         3400, New York, New York 10155.  Pursuant to the Voting Agreement,  Mr.
         Blum and Ms.  Utley  are not  entitled  to vote the  574,586  shares of
         Common Stock owned by them.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

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

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

Pursuant to the Securities Purchase Agreement, the Company also issued a warrant
to  Commodore  for the  purchase  of 250,000  shares of the  Company's  Series F
Preferred Stock at an exercise price of $100 per share. For a description of the
terms of the Series F Preferred  Stock,  see Item 5 of this 10-KSB.  The Warrant
may be  exercised,  in part,  by the  exchange of the 20,000  shares of Series G
Preferred  Stock  acquired  by  Commodore  pursuant to the  Securities  Purchase
Agreement for a like number of shares of Series F Preferred Stock.
<PAGE>
Bentley J. Blum,  a director and  principal  stockholder  of the  Company,  is a
director and principal stockholder of Commodore. Paul E. Hannesson, the Chairman
of the  Board  of the  Company,  is the  Chairman  of the  Board  and the  Chief
Executive Officer of Commodore.  Pursuant to the Securities  Purchase Agreement,
Michael Fullwood, the Senior Vice President,  Chief Financial and Administrative
Officer,  Secretary and General  Counsel of  Commodore,  and William  Toller,  a
director  of  Commodore   Separation   Technologies,   Inc.,  [a  subsidiary  of
Commodore], became members of the Board of Directors of the Company.

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

On March 5, 1998,  the Company  and  Commodore  entered  into a  settlement  and
Release   agreement  that  terminated  the  voting  trust  thereby   eliminating
Commodore's  potential vote on 3,769,329  shares.  The Company on that same date
also issued a technology  license to a wholly-owned  subsidiary of Commodore for
$5,297,500  the  proceeds of which were used in part to repay all the  Commodore
indebtedness  of $4.5  million plus accrued  interest of $297,500.  Finally,  on
March 5, 1998, the Company and Commodore entered into an amendment to Securities
Purchase agreement whereby all the Commodore warrants to purchase 250,000 shares
of Series F preferred  stock were  cancelled  and  Warrants to purchase  270,000
shares  of  Common  stock  were  issued  and all the  20,000  shares of Series G
preferred  stock  previously  issued to Commodore  were exchanged for the 20,000
shares of the Company's newly issued Series H preferred stock,
<PAGE>
ITEM 13.  EXHIBITS, LISTS AND REPORTS ON FORM 8-K

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

         2.4          Merger Agreement, dated October 10, 1995

         3.5          Restated Certificate of Incorporation

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

         4.8          Specimen Certificate for Common Stock

         4.9          Specimen Rights Certificate

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

         10.48        Registration  Rights  Agreement,  dated  November 7, 1995,
                      among the Company, Alcan and Marc S. Newkirk. Incorporated
                      by  reference  to Exhibit  10.48 to the  Company's  Annual
                      Report on Form 10-KSB for the fiscal year ended  September
                      30, 1995.
<PAGE>
         10.49        Special  Warranty Deed,  dated as of March 28, 1996,  from
                      the Company to QRS 12-16, Inc. with respect to the Marrows
                      Road Facility.  Incorporated by reference to Exhibit 10.49
                      of the  Company's  Post-Effective  Amendment  No. 1 to the
                      Registration  Statement  on Form S-4  under  cover of Form
                      SB-1 (No. 33-94186)

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

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

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

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

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

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

         10.56        Purchase  and Sale  Agreement,  dated as of  February  29,
                      1996,  among  Nihon  Cement Co.  Ltd.,  Lanxide  K.K.  and
                      Celanx, KK.  Incorporated by reference to Exhibit 10.56 of
                      the  Company's  Post-Effective  Amendment  No.  1  to  the
                      Registration  Statement  on Form S-4  under  cover of Form
                      SB-1 (No. 33-94186)
<PAGE>
         10.57        Form of  Settlement  Agreement  among the  Company and the
                      individuals listed on Schedule A thereto.  Incorporated by
                      reference to Exhibit 10.57 of the Company's Post-Effective
                      Amendment No. 1 to the Registration  Statement on Form S-4
                      under cover of Form SB-1 (No.
                      33-94186)

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

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

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

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

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

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

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

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

         10.63        Security  Agreement,  dated  November  13,  1996,  by  and
                      between Lanxide Performance Materials, Inc. and Commodore.
                      Incorporated  by reference  to Exhibit 5 to the  Company's
                      Current Report on Form 8-K, dated November 13, 1996.
<PAGE>
         10.64        Guaranty, dated November 13, 1996, by the Company in favor
                      of  Commodore.  Incorporated  by reference to Exhibit 6 to
                      the Company's  Current  Report on Form 8-K, dated November
                      13, 1996.

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

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

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

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

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

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

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

         10.72*       Capital  loan   restructuring   between  the  Company  and
                      Kanematsu dated April 1, 1998.

         10.73*       Amendment to  Securities  Purchase  Agreement  between the
                      Company and Commodore Environmental Services, Inc. (COES)

         10.74*       Transfer  agreement  between  the  Company and DHB Capital
                      Group, Inc. to transfer all of the stock of LAP and LEC

         * Filed with this report, all other reports previously filed.
<PAGE>
     b.  Reports on Form 8-K

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

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

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

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

                      The  Company  filed a Current  Report  on Form 8-KA  dated
                      February 6, 1998  reporting a pro forma  balance sheet and
                      income  statement as of  September  30, 1997 as if Lanxide
                      Electronic  Components,  Inc. and Lanxide Armor  Products,
                      Inc. had been sold as of September 30, 1997.

                      The Company filed a Current Report on Form 8-K dated March
                      5, 1998  reporting  the issuance of a license to Commodore
                      Environmental Services, Inc.




<PAGE>


                                   SIGNATURES


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


                                                         Lanxide Corporation 
Date
January 12, 1999
                                                          
                                                         By: /s/Marc S. Newkirk
                                                             ------------------
                                                             Marc S. Newkirk 
                                                             President and Chief
                                                             Executive Officer

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


     Signature                      Title                            Date
     ---------                      -----                            ----


                         
/s/Marc S. Newkirk        President, Chief Executive Officer                   
------------------        and Director                          January 12, 1999
Marc S. Newkirk