U.S. 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 December 31, 1998

                         Commission File Number 0-20701

                                Compositech Ltd.
                 (Name of small business issuer in its charter)

           Delaware                                              11-2710467
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

                  120 Ricefield Lane, Hauppauge, New York 11788
                    (Address of principal executive offices)

                    Issuer's telephone number: (516) 436-5200

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

                                      None

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

                          Common Stock, $.01 par value
                        Redeemable Common Stock Warrants

     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 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. Yes _X_ No ___

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

     Issuer's revenues for fiscal year ended December 31, 1998: $414,396

     As of March 23,  1999,  there were  15,643,694  shares of the  registrant's
Common Stock, $.01 par value  outstanding.  The aggregate market value of Common
Stock  held by  non-affiliates  of the  registrant,  as of  March  23,  1999 was
approximately $30,591,511.

Documents  Incorporated  By Reference:  Portions of the issuer's Proxy Statement
for its 1998  Annual  Meeting of  Stockholders  scheduled  to be held on June 1,
1999, are incorporated by reference into Part III of this Form 10-KSB.

     Transitional Small Business Disclosure Format (check one): Yes ___ No _X_


<PAGE>


                                     PART I

Item 1.  Description of Business

General

     Compositech  Ltd. (the "Company" or  "Compositech")  was founded in 1984 by
Jonas Medney, the Company's  Chairman,  and Fred Klimpl,  its Vice Chairman,  to
develop and market innovative  superior  copper-clad  fiberglass epoxy laminates
used to make printed circuit boards required by the  electronics  industry.  The
Company became a publicly owned  corporation in 1996. The primary  innovation of
Compositech was to replace the fiberglass cloth component of the laminate with a
more modern and structurally efficient fiberglass core resulting from a uniform,
orthogonally  layered  construction.  Based  on its own  benchmark  testing  and
evaluations by customers and other potential users, the Company believes that it
has  succeeded  in  developing  a  laminate  that  is  superior  to  competitive
copper-clad fiberglass epoxy laminates.

     From  May  through  August  1997,  the  Company  issued  $6,505,000  of  5%
Convertible  Debentures (the  "Debentures") in a private  placement and received
net proceeds of  approximately  $5.9  million for working  capital and to obtain
additional  production  equipment.  By April 23, 1998,  the  Debentures had been
fully converted into an aggregate of 4,586,957 shares of Common Stock.

     On May 29, 1998, the Company  issued  $2,200,000 of 7% Series B Convertible
Preferred   Stock,   (the  "Series  B  Stock")  and  received  net  proceeds  of
approximately  $1.9 million which were used for working  capital and to purchase
production  equipment.  In 1999,  Series B Stock  shares,  with a face  value of
$1,950,000, were converted into 1,387,332 shares of Common Stock.

     On June 23, 1998,  Christopher  F. Johnson was elected  President and Chief
Executive  Officer of the  Company  and  elected to the Board of  Directors.  He
replaced  Jonas  Medney as Chief  Executive  Officer.  Mr.  Medney  continues as
Chairman. Mr. Johnson has over thirty years of experience in sales and marketing
and general management with suppliers of specialty materials for printed circuit
fabrication.

Technology History

     The Company's innovative laminates are produced using proprietary processes
and  machinery,  designed by the Company's  engineering  staff.  The Company has
received  grants of 29 patents  covering its products,  processes and apparatus,
including five in the United States,  and has submitted five  additional  patent
applications.  The most recent patents granted were a fifth one in Japan and one
in  Kazakhstan.  The  patents on the  laminates,  processes  and  apparatus  are
supplemented  with other  proprietary  technology  unprotected  by  patents  and
considered by the Company to be of substantial value.

     Compositech's  laminate  construction is  structurally  more efficient than
competitive  copper-clad  fiberglass epoxy laminates designated "FR-4", which is
the industry standard,  resulting in enhanced smoothness and greater dimensional
stability.  The Company  believes,  based on results of customers'  evaluations,
that its improved products can economically  substitute for the fiberglass woven
cloth epoxy laminates currently used in the electronics  industry.  According to
the Institute for Interconnecting and Packaging Electronic Circuits (the "IPC"),
this market  exceeded  $3.2  billion in 1997,  the latest year for which data is
available.

     The Company successfully constructed, debugged and operated its first pilot
plant production equipment for laminates with a panel size of 24" x 24" in 1991.
In 1991 and 1992,  Compositech  recruited an initial  sales staff to develop the
market  potential of its product,  continued  refining its product and designing
its production equipment to manufacture laminates with a panel size of 36" x 48"
and initiated a sampling


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program targeted at major potential  customers.  In 1994, the Company started up
and  began  debugging  its first  production  module  to  manufacture  36" x 48"
laminates and, in 1995 and 1996, produced laminates on this equipment in limited
quantities for the purpose of making  modifications to the production  processes
and equipment  constituting the module and reformulating the laminates  produced
by the module.  In the last quarter of 1996, the Company began  installation  of
advanced production  equipment which was completed in 1997.  Throughout 1997 and
1998, the Company worked on adjusting and enhancing its production equipment and
its manufacturing  processes.  In 1998, the Company added production  equipment.
The Company also worked on solving  problems  with  incoming raw  materials  and
interior  environment  which affect  manufacturing  yields.  Sales  consisted of
qualifying orders and small production runs.

Joint Ventures

     On October 16,  1997,  the Company  closed a  transaction  with four Quebec
institutional investors  (collectively,  the "Quebec Investors") to form a 50/50
joint venture for the  establishment  of a plant in the greater Montreal area to
manufacture  Compositech's  laminates.  The investor  group is comprised of four
institutional  investors:  Societe  generale de financement du Quebec,  Fonds de
solidarite des  travailleurs  du Quebec  (F.T.Q.),  Societe  Innovatech du Grand
Montreal and Fonds regional de solidarite  Ile de Montreal.  The project cost is
estimated to be approximately  $24.5 million with an initial  capitalization  by
the  parties  of  approximately  $11  million  with  the  balance  to be in debt
financing from banks and governmental agencies. The Company's approximately $5.4
million  capital  investment  in the joint  venture  was  funded  by the  Quebec
Investors  purchasing 1,066,192 shares of the Company's Common Stock. The Quebec
Investors  have an option to sell their 50% interest in the joint venture to the
Company  for a like  number of shares  and,  under  certain  circumstances,  the
Company has an option to purchase  the  interest  for the same number of shares.
The plant is  planned to start  production  in 2000 with an  anticipated  annual
production capacity of approximately 12 million square feet.

     On February 9, 1998, the Company entered into a joint venture agreement and
patent,  information and trademark agreement with a Taiwanese investor group led
by Cheng Xin Venture  Capital  Corporation  (formerly  Fidelity  Venture Capital
Corp.) ("Cheng Xin") to establish a joint  venture,  under the name of Composite
Technologies,  Inc.,  to  manufacture  the  Company's  laminates in Taiwan.  The
Company  received  $1  million  as a  license  down  payment  and is to  receive
additional  up-front  license  payments of $1 million,  upon the  achievement of
certain milestones.  As part of the transaction,  Composite  Technologies,  Inc.
acquired  587,372 shares of the Company's Common Stock for $1 million and agreed
to buy a like amount of shares for another $1 million  within 30 days  following
approval  of the joint  venture  license  by the  science  park  where the joint
venture is proposed to be located.  During 1998, the Company received an advance
of $500,000 against the latter purchase of shares, substantially all of which it
invested in the joint  venture in accordance  with the joint venture  agreement.
The Company will receive an  approximate  10% interest in the joint  venture and
royalty  payments  based on sales.  A related  letter of intent  with  Cheng Xin
provides  for  entering  into a contract  with the  Company for it to supply the
joint venture with the requisite manufacturing equipment.

Industry Overview

     Initially,  most circuit boards had circuits  (traces) on one or two sides.
In the last ten years, rapid technological advances in both semiconductor design
and fabrication techniques have placed significant demands on the performance of
printed circuit boards. Greater circuit density,  complexity and miniaturization
have increased demand for more sophisticated printed circuit boards. In response
to  this  demand,   multilayer  printed  circuit  boards  were  developed  which
incorporate  multiple layers of metallic traces. The several layers of circuitry
are aligned and bonded together in a stack to form a multilayer  board with both
horizontal  and vertical  electrical  interconnections.  Further  circuit  board
sophistication  is currently  being  achieved by increasing the number of layers
and by decreasing the width and separation of the traces,



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drilling  and plating  smaller  holes to connect the  internal  trace layers and
precisely  situating  the  traces and pads on the board  surface to  accommodate
surface mount components.

     These trends in the printed circuit board industry have placed increasingly
rigorous demands on the electrical,  thermal, chemical and mechanical properties
of  laminates.  Mechanical  properties  must be  increasingly  more  uniform and
tightly  controlled in order to align the various layers in a multilayer printed
circuit board.  Electrical properties of laminates must be highly consistent and
predictable in order to avoid circuit timing malfunctions.  Thermal stability is
also critical for attaching the  components  and for dense,  high speed systems,
because of the heat generated.

     Compositech's  technology is targeted at the fiberglass laminate segment of
the  laminate  industry.   According  to  the  IPC,  in  1997  the  single-  and
double-sided   laminate   market  was   approximately   $1.1   billion  and  the
multilayer/high  performance  laminate  market was  approximately  $2.1 billion,
totaling  $3.2  billion.  In these two  segments,  the United  States' share was
approximately $988 million while experiencing a growth rate of 25%.

Products

     Printed  Circuit  Board  Laminates.  Printed  circuit  boards are the basic
platforms used to  interconnect  the  microprocessors,  integrated  circuits and
other  components  essential to the  functioning  of electronic  products.  They
consist of a pattern of electrical  circuitry resulting from etching copper foil
laminated  to a composite  made of  insulating  materials  usually  comprised of
fiberglass  and epoxy.  The  laminate  itself,  therefore,  is the  copper-clad,
fiberglass and epoxy core from which printed circuit boards are produced.

     Compositech's  Laminates.  CL200+ is the first Compositech  laminate.  This
laminate uses the same basic raw materials as conventional laminates: fiberglass
yarn, epoxy resin and copper foil.  Compositech  combines these materials into a
unique,  more  efficient  laminate.  Conventional  laminates are made from woven
fiberglass  cloth in which  the  yarn is  twisted  and  crimped  in the  weaving
process.  The resultant weave pattern is impressed into the copper foil, thereby
roughening the surface of the laminate.  In the  construction  of  Compositech's
laminates,  the filaments of fiberglass are wound in orthogonal  layers of flat,
continuous parallel filaments. This construction creates the enhanced smoothness
and improved dimensional stability of Compositech's laminates.

     High processing temperature tolerance is necessary for soldering components
to circuit  boards.  CL200+ uses a  proprietary  epoxy resin  formulation  that,
according  to Company  tests,  results in a thermal  rating  over  200(degree)C,
principally  because  of the  formulation,  which is  generally  20(degree)C  to
80(degree)C  higher than other copper-clad  fiberglass epoxy laminates.  Certain
laminates  produced from materials  other than  fiberglass  epoxy,  addressing a
small, higher cost end of the market, have thermal ratings which equal or exceed
those of the Company's introductory CL200+ laminates.

     Management  believes that the benefits of  Compositech's  laminates  should
enable the printed circuit board industry to:

o    Decrease costs through reducing waste in the manufacture of existing boards
     because the improved  dimensional  stability,  temperature  tolerances  and
     enhanced smoothness increase manufacturers' yields.

o    Economically  produce large printed  circuit  boards with high layer counts
     because of the improved dimensional stability.

o    Accelerate the development of new products  requiring  denser  circuitry by
     permitting finer lines and



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<PAGE>


     smaller pads. A pad is a portion of a conductive  pattern which is usually,
     but  not  exclusively,   used  for  the  connection  and/or  attachment  of
     components.

Compositech's Strategy

     The Company's  objective is to be the leading  manufacturer  of copper-clad
fiberglass  epoxy  laminates for electronics  equipment.  The Company expects to
achieve this  position  through the effective  exploitation  of its patented and
proprietary products and processes.

     Management has targeted the $2.1 billion multilayer  laminate market sector
for its initial sales  efforts to establish  its  laminates as the  leading-edge
technology  for  current and future  economical  production  of printed  circuit
boards.

     Management  believes that the strategic value of the Company's  products to
its prospective customers is to enable them economically to produce increasingly
sophisticated  circuit  boards in a shorter  time  cycle.  This  combination  of
benefits is a basic element of Compositech's product technology thrust.

     The Company has patented  and  developed a flexible  manufacturing  process
that it believes can be exceptionally  responsive to the  ever-changing  product
iterations   required  by  the  rapid  introduction  of  new  designs  into  the
electronics market. The manufacturing  capacity can be expanded incrementally in
response to increased market demand.

     Management  believes that the Company's  technology  has global  potential.
According to IPC data,  approximately  70% of the 1997 world laminate  market is
outside of North  America.  The Company  plans to export its  products  and form
strategic alliances to manufacture and market its laminates internationally.

     The foregoing strategic  objectives represent  anticipated  accomplishments
dependent on future events.  As in the case of all forward  looking  statements,
the Company can not ensure that it will achieve these goals.

Marketing and Customers

     The Company's  marketing  efforts are directed to establishing good working
relations with  leading-edge  producers of printed circuit boards.  According to
the IPC, in 1997 there were over 670  manufacturers of printed circuit boards in
North  America with nine  companies  comprising  approximately  one-third of the
market.  The Company  has sold its  laminates  principally  on a test basis to a
select  group  of  these  companies  considered  to be  the  key  companies  for
Compositech's  growth.  During the past three years,  Compositech has encouraged
benchmark  comparisons  of its  laminates  with  current  laminates  which  have
included  qualities  such as  dimensional  stability,  smoothness,  flatness and
thermal  processing.  In virtually all of these  evaluations,  CL200+ has proven
superior to current laminates. Customers benefit from increased production yield
primarily by reducing waste caused by circuitry misalignment. These results have
led  several  manufacturers  to  begin  to use  CL200+  for  current  production
applications in limited quantities. Recently, sales have been affected by delays
in or cancellation of customers' programs for which Compositech's  laminates had
been  qualified  or were in the  process of being  qualified  and from delays in
testing and qualification programs from major customers.

     During 1998, the Company received orders from Teradyne, Inc. for its CL200+
copper-clad laminates.  The orders will enable Teradyne to do extensive material
testing and product  evaluation in backplane  programs that will include circuit
boards with as many as 48 circuit layers.  The CL200+ laminates will be used for
expanded production testing and customer qualification of complex backplanes.  A
backplane,  sometimes known as a motherboard or backpanel,  is a type of printed
circuit board which



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serves as the backbone of large electronic  equipment,  such as internet servers
and  telecommunication  switching equipment and often utilizes 20-, 30- and even
60-layer boards to which smaller printed circuit boards are connected.

     Compositech's  laminates  are designed to be and have proven to be directly
substitutable for conventional laminates in the circuit board production process
as  demonstrated  by their use in production by  customers.  This  compatibility
enables the circuit board  manufacturer  to substitute  Compositech's  laminates
with minimal  process  changes and without the need for additional  equipment or
new process technology.

     The Company markets to circuit board manufacturers in the United States and
Canada  with its own  direct  sales  force  supplemented  by  independent  sales
representatives.  The  Company's  own  sales  force  currently  consists  of its
President,  its Vice President of Sales, its Technical  Director and a marketing
associate.  The  Company  plans to add to its  sales  force  and use  additional
independent sales representatives to expand sales.

     The Company does not intend that its future business will be dependent upon
a single customer.  In view of current production capacity the Company currently
is focusing  its efforts on a growing  number of select  accounts.  However,  in
1998, Teradyne, Inc. and HADCO Corporation represented 48% and 37% respectively,
of the Company's net sales. The printed circuit board industry generally follows
a "just-in-time"  strategy by purchasing laminates only as they are required for
production runs. Accordingly,  the Company currently does not have a significant
backlog of sales  commitments.  The  Company  expects the backlog to increase in
relation to its planned sales expansion,  including long term supply  agreements
and  warehouse  stock  points,   located  near  customer   locations,   enabling
just-in-time delivery.

Competition

     The  laminate  business  is  highly  competitive.   The  Company  has  many
competitors  of  varying  sizes and  financial  resources  located in the United
States,  Western Europe and Asia.  Competition  in the laminate  market is based
upon factors such as product  quality,  performance,  technological  capability,
responsiveness to customers,  delivery,  service and price. The Company believes
there are more than 40 competitors  worldwide,  with more than ten in the United
States.   The  Company  believes  that  its  major  domestic  and  international
competitors  are  ADI/Isola,  AlliedSignal  Laminate  Systems (a  subsidiary  of
AlliedSignal,  Inc.), Arlon Inc., General Electric Company, Hitachi Chemical Co.
Inc.,   Matsushita  Electric  Industrial  Co.,  Nan  Ya  Plastics  Corp.,  Nelco
International  Corp.  (a  subsidiary of Park  Electrochemical  Corp.),  Polyclad
Laminates, Inc. (a subsidiary of Cookson Group), Sumitomo Bakelite Co. Ltd., and
Toshiba Chemical Corp. The Company's  competitors  consist of companies that are
usually divisions or subsidiaries of some of the world's leading electronics and
manufacturing  concerns and have significantly  greater financial resources than
the Company.

     The Company believes its patented and proprietary technology will enable it
to become an effective  competitor by offering  customers products with a higher
value. The unique physical  characteristics of the Company's products should, in
the  Company's  opinion,  allow it to penetrate  the market and increase  sales.
However,  there is no assurance  that the  Company's  products  will prove to be
economically   competitive   or  that  the  Company  will  continue  to  develop
technologically competitive products in the future.

Manufacturing

     The Company  occupies a leased building at 120 Ricefield  Lane,  Hauppauge,
New York,  which  includes its  corporate  offices,  laboratory,  machine  shop,
engineering offices and manufacturing  operations.  The building is large enough
to allow the Company's  production line to be expanded to meet near-term  needs.
The technologically  advanced products manufactured by the Company require clean
environments  to ensure high yields.  Clean rooms are utilized by the Company in
certain areas of the production line to


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<PAGE>


control contamination from small particles.

     Compositech's   manufacturing   process   is  unique  and   patented.   The
manufacturing  equipment has been designed by the Company's  engineering  staff.
Much of the equipment  incorporates  proprietary  designs including hardware and
software.   Management  believes  that  the  Company's   manufacturing   process
eliminates many manufacturing  steps compared to the conventional  manufacturing
process, including weaving fiberglass cloth.

     The  Company's  manufacturing  process  enables  the Company to control the
consistency  of mechanical,  thermal and  electrical  properties of laminates in
various  thicknesses.  In addition,  the Company's process eliminates the use of
solvents as an integral part of the manufacturing process although it uses small
amounts of  solvents  for the sole  purpose of cleaning  some of its  equipment.
Compositech's  CL200+  laminate is  comprised of copper,  fiberglass  and epoxy.
Other  combinations  of materials  usable in this process include aramid fibers,
quartz fibers, carbon fibers,  cyanate ester resins,  polyimide resins and other
conductive metal foils.

     The  expansion  of the  Company's  production  facilities  in 1997 and 1998
increased  its  annual  capacity  significantly.  This  expansion  is the  first
production-scale  expansion  undertaken  by the  Company,  and  consequently  no
assurances can be made that the Company's  production  facilities  will meet the
Company's  production targets in a timely way or that the resultant product will
meet the high  commercial  standard  needed for successful  market  penetration.
Furthermore,  the  expanded  production  facilities  may not be able to  provide
adequate efficiency and yield.

Materials and Sources of Supplies

     The principal  materials used in the manufacture of the Company's laminates
are copper foil,  fiberglass yarn and specially formulated resins and chemicals.
The  Company's  policy is to identify  and  concentrate  on a limited  number of
chosen  suppliers.  The Company's major suppliers are Circuit Foil USA, Inc. for
copper foil;  Advanced  Glassfiber  Yarns LLC  (successor to Owens  Corning) for
fiberglass  yarn;  John C. Dolph Company and Eastech  Chemicals for resins;  and
Lonza Inc. for certain  chemicals.  The Company attempts to develop and maintain
close  working  relationships  with those chosen  suppliers  who comply with the
Company's stringent technical  requirements and specifications.  The Company has
identified  alternative  sources of supply for each of the  required  materials.
However,  there  exists  a  limited  number  of  qualified  suppliers  of  these
materials,  and  although  the  Company  considers  its  relationships  with its
suppliers to be satisfactory, a disruption of the supply of material from one or
more of the Company's  principal  suppliers could adversely affect its business.
Substitutes  for some of  these  materials  are not  readily  available,  and an
inability  to  obtain  essential  materials,  if  prolonged,   could  materially
adversely affect the business of the Company.

     In 1997, the Company  encountered high levels of defects in incoming copper
foil. Although the Company is not experiencing high levels of defects currently,
no assurance can be made that it can obtain adequate quality supplies  necessary
for its planned expansion.

Patents and Proprietary Information

     The Company  continues to build a patent estate to protect its  technology.
To date, 29 patents have been granted in the United States and  internationally.
The U.S. patents granted expire from 2007 to 2011. The foreign patents generally
have expiration  dates from 2004 to 2009.  Five patent  applications in the U.S.
and internationally are currently pending.  These patents and applications cover
the unique laminate product and the process and equipment used for producing the
laminates.  The patents also cover a precision  multilayer process and a circuit
transfer  process.  Additional  inventions  have been disclosed to the Company's
patent attorneys and may be the subject of future patent applications.



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     In addition,  the Company has developed extensive  proprietary  information
considered  to be of  substantial  value.  The  Company  has no patents for this
proprietary  information.  The Company believes that, although such information,
techniques  and  expertise  are  subject to  misappropriation  or  obsolescence,
development  of improved  methods,  processes and techniques by the Company will
continue on an ongoing basis.

     The Company  expended  approximately  $283,000 and $77,000 for research and
development  during the years ended  December  31, 1998 and 1997,  respectively,
reflecting the Company's development efforts on new processes to manufacture its
patented laminates.

Environmental Matters

     Unlike other laminate  manufacturing  operations,  Compositech does not use
solvents as an integral part of its manufacturing process.  However, the Company
uses copper and chemicals in its  manufacturing  process and limited  amounts of
solvents for the sole purpose of cleaning  some of its  equipment and is subject
to a variety of applicable  environmental  laws.  The Company  believes that its
facilities  comply in all material respects with applicable  federal,  state and
local  environmental  laws and believes that costs arising from  compliance with
existing  environmental  laws  will not have a  material  adverse  effect on the
Company's  operations.  However,  environmental laws could become more stringent
over time,  imposing greater compliance costs and increasing risks and penalties
associated with a violation.

Employees

     The Company has 80 full-time employees. None of the employees is subject to
collective bargaining agreements. Management considers its labor relations to be
satisfactory  and believes that there is an adequate pool of labor  available to
satisfy foreseeable hiring needs.

Important Factors Regarding Future Results

     Information  provided by the Company,  including  information  contained in
this  Annual  Report,  or by its  spokespersons  from  time to time may  contain
forward-looking  statements concerning projected financial  performance,  market
and industry segment growth,  product development and commercialization or other
aspects of future operations.  Such statements, made pursuant to the safe harbor
established by recent securities  legislation,  are based on the assumptions and
expectations  of the Company's  management at the time such statements are made.
The  Company  cautions  investors  that its  performance  (and,  therefore,  any
forward-looking  statement)  is  subject  to risks  and  uncertainties.  Various
important  factors,  including but not limited to the  following,  may cause the
Company's  future  results  to differ  materially  from those  projected  in any
forward-looking statement.

Development Stage Company Until December 31, 1996;  Ability to Continue as Going
Concern; Uncertainty of Future Financial Results

     The Company was a development  stage company through  December 31, 1996 and
has had limited  revenues from the sale of laminates,  has incurred  significant
losses and has had  substantial  negative cash flow since its  inception.  As of
December 31, 1998, the Company had an accumulated  deficit of  $33,954,155.  The
Company's  independent auditors have included an explanatory  paragraph in their
report  covering the December 31, 1998  financial  statements,  which  expresses
substantial  doubt about the Company's  ability to continue as a going  concern.
The Company  will require  additional  funding to cover  operating  expenses and
expenditures  for  additional  equipment  until  revenues  from  operations  are
sufficient for these purposes.  The Company expects that  significant  operating
losses will continue for a  substantial  part of 1999. No assurance can be given
that the Company will successfully complete expansion and



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<PAGE>


enhancement of its production equipment,  achieve broad commercial acceptance of
its product or generate sufficient revenues to achieve profitable operations.

Need for Additional Financing

     The Company's available funds, without giving effect to alternative sources
of  revenue,  are not  sufficient  to raise the  Company's  production  level to
profitability or provide  sufficient working capital for expansion of sales. The
Company  will need  additional  funding for  operations  in 1999 and  additional
funding is being sought.  Such additional  funding may be raised through sources
including:

o    license fees;

o    sales of equipment in connection with licensing operations;

o    joint ventures or other collaborative relationships; or

o    equity or debt financing.

     No assurance can be given that  additional  funding will be sufficient  and
available or, if it is available, that it will be available on acceptable terms.

     If additional funds are raised through the issuance of equity securities or
securities convertible into equity securities,  the percentage ownership of then
current stockholders of the Company will be reduced and such securities may have
rights,  preferences  or  privileges  senior to those of the  holders  of Common
Stock.

     If  adequate  funds are not  available  to  satisfy  either  short-term  or
long-term  capital  requirements,  the  Company  may be  required  to limit  its
operations significantly.

Liens on Assets and Patents

     The  Company's  patents  and  certain  other  assets  are  subject to liens
securing outstanding debt of the Company as follows:

o    Notes payable to  stockholders  in the amount of $100,000 and notes payable
     to stockholders/directors/officers in the amount of $675,000 due January 2,
     2000 (as extended) are  collateralized by a second lien on U.S. Patents and
     Patent Applications.

o    Notes payable to  stockholders/directors/officers in the amount of $745,000
     due January 2, 2000 (as extended) are collateralized by a first lien on the
     Company's patents, patent applications and certain production equipment.

o    A term note of $500,000 obtained in March 1999 is collateralized by two
     pieces of production equipment.

     If there is a default  under the notes,  the Company could lose all or most
of its patents and certain  production  equipment.  The potential  loss of these
assets could force the Company to  negotiate  new and  disadvantageous  terms to
extend such notes.

Competition

     The laminate  manufacturing  business is highly competitive.  The Company's
competitors  include major  corporations,  such as General  Electric Company and
AlliedSignal  Inc.,  which have substantial  financial,  marketing and technical
resources.  In 1994, the Company  granted patent immunity on its product patents
to AMP and Akzo  Electronics  Products NV, which,  at the time, were operating a
joint venture which was developing a new process to make linear  laminates.  The
Company  may  need  to  raise  substantial   additional   resources  to  compete
effectively.  There is no  assurance  that the  Company  will be able to compete
successfully in the future.



                                       9
<PAGE>


Management of Growth

     The  Company  intends  to  expand   significantly   its  overall  level  of
operations.  Any such  expansion,  however,  is expected to strain the Company's
management,   technical,   financial  and  other  resources.  To  manage  growth
effectively,  the Company must:

o    add manufacturing capacity;

o    add personnel;

o    maintain a high level of quality;

o    achieve good manufacturing efficiency; and

o    expand, train and manage its employee base.

     The Company's  failure to add capacity and manage growth  effectively could
have a material adverse effect on the Company's  business,  financial  condition
and results of operations.

Reliance Upon Key Personnel

     The Company  believes that its success will depend to a significant  extent
upon the efforts of its executive  officers and senior management as well as its
ability to attract and retain highly qualified  managerial,  technical and sales
personnel. The Company maintains and is the beneficiary of $2 million key person
life  insurance  policies on each of Jonas  Medney,  its  Chairman,  and Fred E.
Klimpl, its Vice Chairman.  The loss or unavailability of its executive officers
or other senior  management  or the  inability to attract,  assimilate or retain
such  personnel  in the  future  could  have a  material  adverse  effect on the
Company's business, financial condition and results of operations.

Dependence on Single Manufacturing Facility

     The Company's current laminate manufacturing  operations are centralized in
one building in  Hauppauge,  New York,  although  the joint  venture in Montreal
plans to build an  additional  larger plant in Montreal and the joint venture in
Taiwan  plans to build a third  plant.  See Item 1.  "Description  of Business -
Joint  Ventures".  Because  currently  the  Company  does not  operate  multiple
facilities in different  geographic  areas,  the ability to service large orders
may be affected. Further, a disruption of the Company's manufacturing operations
resulting  from  sustained  process  abnormalities,   human  error,   government
intervention or a natural disaster such as fire, earthquake or flood could cause
the Company to cease or limit its manufacturing operations and consequently have
a material  adverse effect on the Company's  business,  financial  condition and
results of operations.

Uncertainty of Production Quality and Production Costs; Process Disruption

     The  Company  has  limited   experience  in  producing   laminates  on  its
production-scale  modules.  The Company  recently  added  production  modules to
increase production levels and achieve economies of scale. This expansion is the
first production-scale  expansion undertaken by the Company, and consequently no
assurances can be made that the Company's  production  facilities  will meet the
Company's  production targets in a timely way or that the resultant product will
meet the high  commercial  standard  needed for successful  market  penetration.
Furthermore,  the  expanded  production  facilities  may not be able to  provide
adequate  efficiencies  or  produce  high  yields.  In  addition,  the  costs of
production  may not be as low as management  expects,  in which case the Company
may not achieve  profitable  operations.  The Company's business involves highly
complex  manufacturing  processes  which  are  subject  to  disruption.  Process
disruptions have occurred, resulting in delays in product shipments.

Process disruptions were due to:

o    machine breakdowns;


                                       10
<PAGE>



o    lack of adequate interior atmospheric control of temperature and humidity;

o    electric utility power failures;

o    problems of breaking in an expanded workforce;

o    contamination  principally  generated during  installation of equipment and
     development of processes;

o    defective incoming copper foil.

     No assurance  can be given that  disruptions  will not occur in the future.
The loss of revenue and  earnings to the Company  from such a  disruption  could
have a materially adverse effect on its results of operations.

Dependence on Significant Customers

     Due to current  productive  capacity,  the  Company has been  focusing  its
efforts on a growing number of select accounts.  However, during 1998, Teradyne,
Inc. and HADCO Corporation  accounted for 48% and 37%,  respectively,  of sales.
Loss of these  customers  could have a material  adverse effect on the Company's
business.

Technological Change

     The Company's  laminates are used in the electronic  printed  circuit board
industry which could encounter  competition  from new technologies in the future
and reduce the number of circuit  boards  required in  electronic  equipment  or
render existing interconnect technology less competitive or obsolete.

Availability of Materials; Price Fluctuations of Raw Materials;  Dependence Upon
Third-Party Supplier

     Raw materials used by the Company to produce laminates are purchased by the
Company  and in  certain  circumstances  the  Company  bears  the  risk of price
fluctuations.  In  addition,  shortages  of and  defects  in  certain  types  of
materials have occurred in the past and may occur in the future. During 1997 the
Company experienced defects in incoming copper foil used to make laminates.  The
Company  has  obtained  an  alternate  source  of supply  and also has  explored
solutions  with  the  previous  supplier.  Future  shortages,  defects  or price
fluctuations  in raw  materials  could  have a  material  adverse  effect on the
Company's  business,  financial  condition and results of  operations.  Advanced
Glassfiber  Yarns  LLC,  a major  fiberglass  manufacturer,  has  developed  and
continues  to develop  products  to meet the  Company's  processing  and product
requirements.  Should this  manufacturer  not continue  supplying  the Company's
quality and quantity needs,  the Company would have to secure another  supplier.
Such event  could have a material  adverse  effect on the  Company's  ability to
supply  customers  and could  reduce  expected  sales and  increase the costs of
manufacture.  No assurances can be given that an alternative supplier could meet
the Company's quality and quantity needs on satisfactory terms.

Patents and Intellectual Property Protection

     The Company  believes that its patent estate and its know-how are important
for the protection of its technology. The Company can give no assurance that any
patents  issued  to  the  Company  will  not  be   challenged,   invalidated  or
circumvented  or that such  patents  will provide  substantial  protection  with
respect to the Company's product,  process or competitive position. In addition,
certain  proprietary  information which is considered to be of substantial value
is not  covered by patents  and,  along with the  Company's  other  intellectual
property,  is subject to  misappropriation  or  obsolescence.  In addition,  the
Company  granted  certain  immunities  on its  product  patents  to AMP and Akzo
Electronics  Products NV which are potential  competitors  of the Company,.  The
Company,  under  a  license,  granted  HT  Troplast  AG  ("HT"),  a  significant
stockholder  of  the  Company,   the  exclusive  right  to  produce  and  market
Compositech's  laminates in Europe, the countries of the former Soviet Union and
Turkey. Although HT exited the laminate business, the license



                                       11
<PAGE>


remains in effect.  Pursuant to the agreement,  the Company is obligated to sell
only through HT in such territories.

Environmental Compliance

     The Company  uses copper and  chemicals  in its  manufacturing  process and
limited  amounts of solvents  for the sole  purpose of cleaning  its  equipment.
Although  the  Company  believes  that its  facility  complies  in all  material
respects with existing  environmental laws and regulations,  No assurance can be
given that violations  will not occur. In the event of any future  violations of
environmental law and regulations,  the Company could be held liable for damages
and for the cost of remedial  actions.  In  addition,  environmental  laws could
become  more  stringent  over  time,   imposing  greater  compliance  costs  and
increasing risks and penalties associated with a violation.

Control by Existing Stockholders

     As at December 31, 1998, officers,  directors and certain other significant
stockholders  of the Company owned  approximately  51% of the  Company's  Common
Stock  and  voting  preferred  stock,   including  stock  options  and  warrants
exercisable within 60 days. It is expected that these stockholders will continue
to control the  management  and  policies  of the  Company,  including,  without
limitation, the power to elect and remove a majority of directors of the Company
and the power to approve any action requiring common  stockholder  approval.  In
addition,  some  of  these  officers,  directors  and  other  stockholders,   in
connection  with  certain  outstanding  loans,  have a security  interest in the
Company's  manufacturing  equipment and all of the Company's  patents and patent
applications or in the Company's U.S. patents and patent applications.

Quotation of the Common Stock on The Nasdaq SmallCap MarketSM;  Possible Loss of
Quotation of the Common Stock

     The Common Stock is quoted on The Nasdaq SmallCap MarketSM. The Company can
give no  assurance  that the  Company  will  continue  to meet  the  maintenance
criteria  for  continued  listing  of the Common  Stock on The  Nasdaq  SmallCap
MarketSM.  The minimum listing  requirements  for The Nasdaq  SmallCap  MarketSM
include, among other criteria:

o    net tangible assets of at least $2.0 million,  or market  capitalization of
     $35 million, or net income of $500,000 (in the latest fiscal year or two of
     the last three fiscal years);

o    a minimum bid price per share of $1.00;

o    a market value of the public float of $1.0 million;

o    300 round lot shareholders; and

o    two market makers.

     Furthermore,  The Nasdaq SmallCap MarketSM listing and maintenance criteria
may become more  stringent  over time and thus more difficult for the Company to
meet. Failure to meet the maintenance  criteria may result in the discontinuance
of the inclusion of the Common Stock in The Nasdaq  SmallCap  MarketSM.  In such
event,  trading,  if any, in the Common  Stock may  continue to be  conducted in
non-Nasdaq  over-the-counter markets and investors may find it more difficult to
dispose  of, or to obtain  accurate  quotations  as to the price of,  the Common
Stock.  The Common  Stock would then be subject to the risk that it could become
characterized  as low-priced  or "penny  stock,"  which  characterization  could
severely affect the ability of stockholders to sell their Common Stock.


                                       12
<PAGE>


Penny Stock Regulation

     Broker-dealer  practices in connection with  transactions in "penny stocks"
are  regulated  by certain  penny  stock  rules  adopted by the  Securities  and
Exchange  Commission.  Penny stocks generally are equity securities with a price
of less than  $5.00  (other  than  securities  registered  on  certain  national
securities exchanges or quoted on the Nasdaq system, provided that current price
and volume  information  with  respect to  transactions  in such  securities  is
provided  by  the  exchange  or  system).   The  penny  stock  rules  require  a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules,  to deliver a  standardized  risk  disclosure  document that provides
information  about  penny  stocks and the risks in the penny stock  market.  The
broker-dealer  also  must  provide  the  customer  with  current  bid and  offer
quotations for the penny stock,  the compensation of the  broker-dealer  and its
salesperson  in the  transaction,  and monthly  account  statements  showing the
market value of each penny stock held in the  customer's  account.  In addition,
the penny stock rules  generally  require that prior to a transaction in a penny
stock the  broker-dealer  make a special  written  determination  that the penny
stock is a suitable  investment  for the purchaser  and receive the  purchaser's
written agreement to the transaction. These disclosure requirements may have the
effect of reducing the level of trading  activity in the secondary  market for a
stock that becomes subject to the penny stock rules. If the Common Stock becomes
subject to the penny stock rules,  investors may find it more  difficult to sell
their Common Stock.

Certain Restrictive Charter and Bylaw Provisions

     The Company's  Certificate of  Incorporation  and Bylaws allow the Board of
Directors,  without approval of the  stockholders,  to issue shares of preferred
stock and to fix the rights and preferences of the preferred stock. The Board of
Directors can also prohibit  stockholders  of the Company from calling a special
meeting  unless  requested  by at least a  majority  of the  outstanding  voting
shares.  The certificate does not provide for cumulative  voting for election of
directors. In addition, the Bylaws of the Company provide that while the removal
of a director or the entire board of directors,  with or without  cause,  may be
accomplished  by the  holders of the  majority of shares  entitled to vote,  any
director  designated by HT, may only so be removed for cause.  These  provisions
could have the  effect of  deterring  unsolicited  takeovers  or other  business
combinations  or delaying or preventing  changes in control or management of the
Company.  This may prevent  transactions in which  stockholders  might otherwise
receive a  premium  for the  securities  over  then-current  market  prices.  In
addition,  these  provisions  may limit the ability of  stockholders  to approve
transactions that they may deem to be in their best interests.

Item 2.  Description of Property

     The Company  occupies  approximately  33,000  square feet of leased  office
space and  manufacturing  facilities in Hauppauge,  New York. The lease for such
space has a five-year term expiring  August 31, 2000,  with a renewal option for
an additional five years.

Item 3.  Legal Proceedings

     No legal proceedings are currently pending against the Company.

Item 4.  Submission of Matters to a Vote Of Security Holders

     No matters  were  submitted  to a vote of the  Company's  security  holders
during the fourth quarter of the Company's fiscal year.


                                       13
<PAGE>


Item 4A.  Directors, Executive Officers, Promoters and Control Persons

     The  following  table lists the Company's  current  directors and executive
officers.

     Name                             Age    Position(s) With the Company
     ----                             ---    ----------------------------
     Jonas Medney                     70     Director, Chairman
     Fred E. Klimpl                   64     Director, Vice-Chairman
     Christopher F. Johnson           55     Director, President and Chief
                                             Executive Officer
     Samuel S. Gross                  72     Director, Executive Vice President,
                                             Secretary, Treasurer and Chief
                                             Financial Officer
     Willard T. Jackson(1)(2)         71     Director
     Pierre Laflamme                  52     Director
     Robert W. Middleton (2)          60     Director
     Heinz-Gerd Reinkemeyer (1)       61     Director
     James W. Taylor (1) (2)          80     Director

----------
(1)  Member of Compensation Committee

(2)  Member of Audit Committee

     The following table lists other management personnel:

     Name                             Age    Position(s) With the Company
     ----                             ---    ----------------------------
     Richard E. DePoto                41     Vice President, Manufacturing
                                             Operations
     Richard Lucier                   65     Vice President, Sales
     Ralph W. Segalowitz              40     Vice President, Engineering
     Kenneth J. Thompson              41     Controller
     Lucille Mavrokefalos             46     Director of Administration and
                                             Assistant Secretary

Management and Directors

     Jonas Medney, Director and Chairman, has over 40 years of experience in the
composites industry and has more than 50 patents. Mr. Medney has been a director
and Chairman of the Company since its  inception in 1984.  He co-founded  Lamtex
Industries,  a public company which was a pioneer in filament-wound  composites,
which  was  acquired  by  Koppers  Company  in 1963.  He  co-founded  Fiberglass
Resources  Corporation,  a  manufacturer  of  filament  wound  epoxy  pipes  and
conduits, with Mr. Klimpl. This company was acquired by Koch Industries in 1983.
Mr.  Medney is a graduate of the  Massachusetts  Institute of  Technology  (B.S.
Mechanical Engineering).

     Fred E. Klimpl, Director and Vice-Chairman, has over 35 years of experience
in the  composites  industry  and has over 25  patents.  Mr.  Klimpl  has been a
director of the Company since its inception in 1984.  He was  co-inventor  and a
key manager in the  development  and  marketing  of the  fiberglass  underground
gasoline tank program for  Owens-Corning  Fiberglas  Corp.  He was  subsequently
responsible  for the start-up and  marketing of a fiberglass  pipe  business for
Ciba-Geigy  Corporation.  Mr.  Klimpl is a graduate of Lowell  University  (B.S.
Textile  Engineering)  and Stevens  Institute  of  Technology  (M.S.  Industrial
Management).

     Christopher F. Johnson,  Director,  President and Chief Executive  Officer,
joined  Compositech Ltd. in June of 1998 as president and CEO following a career
spanning thirty years with suppliers of specialty  materials for printed circuit
fabrication.  Prior to joining Compositech,  he was a vice president and general
manager for Dexter Electronic Materials,  a division of Dexter Corporation where
he was employed  from 1993 to 1998.  Before  that,  he held  worldwide  business
management positions with Hercules



                                       14
<PAGE>


Incorporated and sales and marketing positions with DuPont. Mr. Johnson has been
active in The Institute for  Interconnecting  and Packaging  Electronic Circuits
(IPC) serving on the Suppliers  Council Steering  Committee and a participant in
the  Technical/Marketing  Research  Council  (TMRC) of the IPC. Mr. Johnson is a
graduate  of  Purdue  University  with a BS in  Industrial  Education.  He  also
completed  intensive  senior  management  programs at Northwestern  University's
Kellogg  School of Business and the  University of  Virginia's  Darden School of
Business.

     Samuel S. Gross, Director, Executive Vice President,  Secretary,  Treasurer
and Chief  Financial  Officer,  is a certified  public  accountant  and has been
Executive  Vice President and Treasurer of the Company since 1990. He had been a
consultant to the Company and a director since 1987. He was previously a partner
at Ernst & Young  LLP  where he was  responsible  for the  Fiberglass  Resources
Corporation  account.  Mr. Gross was  affiliated  with Ernst & Young LLP and its
predecessors  for 39 years.  He is a  director  of the  National  Mental  Health
Association,  Honorary Director and former Chairman of the Board of Directors of
the Mental Health Association in New York State, Inc., and a director and former
president of Long Island Transportation Management, Inc. Mr. Gross is a graduate
of City College of New York (B.B.A.).

     Richard E. DePoto, Vice President,  Manufacturing Operations, has been with
the  Company  since  1997.  From 1981 to 1997 he was with AMP  Circuits  and its
predecessor  companies at its  Riverhead  printed  circuit  board  manufacturing
plant.  He held various  engineering  positions  and most  recently  Director of
Manufacturing  and  Manufacturing  Engineering.  He is a  graduate  of the State
University of New York at Stony Brook (B.S. Engineering/Chemistry).

     Richard  Lucier,  Vice  President,  Sales,  has been with the Company since
1992. He was Corporate Accounts Manager with Polyclad  Laminates,  Inc. (Cookson
Group) from 1989 to 1992 and Senior Vice President with Fortin-Westinghouse from
1980 to 1989.  Prior to that time,  he was employed at  Honeywell,  Raytheon and
GTE. He is a graduate of Northeastern University (B.S. Mechanical Engineering).

     Ralph W. Segalowitz, Vice President, Engineering, has been with the Company
since 1990.  From 1985 to 1990, he was with Robotic Vision  Systems Inc.,  where
his  final  position  was  as  a  project  manager   responsible  for  automated
manufacturing  systems.  From  1981 to  1985,  he was a  product  engineer  with
Databit, Inc., a manufacturer of data transmission  equipment.  He is a graduate
of the State University of New York at Stony Brook (B.S. Mechanical  Engineering
and M.S. in Industrial Management).

     Kenneth J. Thompson, Controller, has been with the Company since 1996. From
1995 to 1996 he was Controller of Cameron Engineering, P.C. From 1991 to 1995 he
was with Loveshaw Corporation, most recently as Vice President, Finance. He is a
graduate of Adelphi University (B.B.A. Accounting).

     Lucille  Mavrokefalos,  Director of Administration and Assistant  Secretary
has been with the Company in various positions since 1988.

     Board of  Directors.  The Board of  Directors  consists of Messrs.  Medney,
Klimpl, Johnson and Gross and five outside directors: Willard T. Jackson, Pierre
Laflamme, Robert W. Middleton, Heinz-Gerd Reinkemeyer and James W. Taylor.

     Willard  T.  Jackson,  private  investor,  retired  in 1988 as a partner of
Brundage,  Story and Rose,  a New York  investment  counseling  firm in which he
became a partner in 1969. He has been a director since January 1988. Mr. Jackson
is a graduate of Middlebury College (A.B.) and Columbia University (M.B.A.).  He
is a trustee emeritus of Middlebury College.

     Pierre  Laflamme was elected a director in October  1997.  He has been Vice
President  Development,  High  Technology at Societe  generale de financement du
Quebec since May 1997. From 1985



                                       15
<PAGE>


to May 1997, he was with the Solidarity Fund in Montreal,  Canada, most recently
as Senior Vice President,  Economic Development and Strategic Investments.  From
1994 to 1996,  he was on loan as Deputy  Minister  at  Executive  Council of the
Province of Quebec.  He is a graduate of the Universite de Sherbrooke (B.A.) and
the Universite de Montreal (B.A. Architecture).  Mr. Laflamme is the designee of
the Quebec  Investors to the Board pursuant to terms of agreements in connection
with the joint venture in the greater Montreal area.

     Robert W.  Middleton  was elected as a director in March 1996 and has acted
as an investment  banker to the Company in its prior financings and with respect
to the Company's initial public offering.  He has been Chairman of The Middleton
Group,  LLC, a firm of  investment  bankers  associated  with  Gemini  Financial
Corporation,  since October 1998. He was Managing  Director-Corporate Finance of
Trautman & Company, Inc., an investment banking firm, from 1993 to October 1998.
From  1985 to  October  1993,  Mr.  Middleton  was,  successively,  Director  of
Corporate  Finance of Barclay  Investments,  Inc.,  and a Vice President at C.L.
King & Associates,  Inc. Prior to that time, he was associated with Fahnestock &
Company from 1983 to 1985 and was a general partner from 1984-1985. From 1974 to
1983, Mr. Middleton held various positions with Burgess & Leith, Inc., including
Senior Vice  President  and  Director,  while serving as Manager of the New York
office.  He attended  Princeton  University.  Mr.  Middleton  is the designee of
Trautman &  Company,  Inc.  to the Board  pursuant  to the terms of a  financing
agreement.

     Heinz-Gerd Reinkemeyer has been a director since 1990. He had been Director
of the Industrial  Plastics Division of HT, a German manufacturer and subsidiary
of the Rutgers Group, which is an affiliate of the Veba Group.  Currently, he is
a consultant for the Rutgers Group.  Mr.  Reinkemeyer has a degree in mechanical
engineering  and from 1961 he had been with Dynamit  Nobel,  a  manufacturer  of
laminates,  until it was acquired by HT in 1988. Mr. Reinkemeyer is the designee
of HT to the Board.

     James W. Taylor has been a director since 1987. He is Chairman of the Board
of Reuter  Manufacturing Inc., where he was President from 1992 to 1998. He is a
certified  management  consultant.  He was a  director  from  1967 to  1973  and
President from 1970 to 1973 of the  international  management  consulting  firm,
Booz Allen & Hamilton. Mr. Taylor was President and a director of Bradford Trust
from 1973 to 1975.  He has served as a director  of Insilco  Corporation,  Times
Fiber Communications,  Inc., The Enterprise Companies, Techalloy, Inc., Amphenol
Inc. and Knogo Corporation.  He is a life trustee of Carnegie Mellon University.
He was a trustee of Beaver  College and was a vice president and director of the
Association  of  Consulting   Management  Engineers  and  of  the  Institute  of
Management Consultants. He holds a B.S. from Carnegie Mellon University.



                                       16
<PAGE>


                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

     The Company's Common Stock and Redeemable Warrants are traded on the Nasdaq
SmallCapSM Market under the symbols "CTEK" and "CTEKW", respectively.

     The  following  sets forth the range of the high and low bid prices for the
Common Stock, as reported on the Nasdaq SmallCap Market :

                                                    1997
                                                    ----
                                              High         Low
                                              ----         ---
                   First quarter             6 3/8        4 2/3
                   Second quarter            5 3/8        4 1/4
                   Third quarter               7          4 3/8
                   Fourth quarter            4 1/2        1 1/2

                                                    1998
                                                    ----
                                              High         Low
                                              ----         ---
                   First quarter            2 19/32       1 3/8
                   Second quarter            2 5/8        1 5/8
                   Third quarter             1 7/8          1
                   Fourth quarter            1 3/4          1

     There were approximately 191 holders of record of shares of Common Stock as
of March 22, 1999.

     The Company has never paid cash dividends on its Common Stock.  The Company
does not intend to pay cash  dividends  on its Common  Stock in the  foreseeable
future.

     The following presents information  concerning  securities issuances of the
Company during the last fiscal year not previously  reported by the Company in a
quarterly  report  on Form  10-QSB.  See also  Notes 4, 5, 6, 7, 8 and 15 to the
Financial  Statements.  The  sales  of all  such  securities  were  exempt  from
registration  under the Securities Act of 1933, as amended,  pursuant to Section
4(2) thereof, as transactions not involving a public offering.

     In April 1998, the Company issued a warrant,  to purchase  75,000 shares of
Common Stock at $2.6125 per share until April 23,  2003,  to Trautman & Company,
Inc.  (the  "Placement  Agent") as  compensation  in  connection  with the final
conversion of the Company's Debentures.

     Effective May 29, 1998, the Company issued a warrant,  to purchase  125,000
shares  of its  Common  Stock at $2.50  per share  until  May 29,  2003,  to the
Placement Agent, as  consideration in connection with the Company's  offering of
Series B Stock.  In October  1998,  this  warrant was  exercised  with notes for
$312,500  due in December  1999,  and the  Company  issued the  Placement  Agent
125,000 shares of Common Stock.

     In November and  December  1998,  the Company  sold  313,066  shares of its
Common Stock,  and warrants to purchase  78,267 shares of Common Stock at $1.125
per share,  exercisable until February 15,2001, to certain accredited  investors
in a private  placement,  realizing  $297,525,  net of expenses.  In the private
placement,  the Company also sold 166,667 shares of its Common Stock,  realizing
$138,000 net of expenses and issued a stock purchase option to purchase  600,000
shares of the Company's  Common Stock for $0.90 per share (the  "Option"),  in a
negotiated transaction with an accredited investor. In connection



                                       17
<PAGE>


with the private  placement,  the Placement Agent received  warrants to purchase
239,867 shares of the Company's Common Stock for $1.125 per share until February
15,2001.  In March 1999, the Option was exercised and the Company issued 600,000
shares of its Common Stock for aggregate proceeds of $540,000.

     In December  1998,  the Company issued 39,678 shares of its Common Stock to
each of the Placement Agent and a consultant for advisory  services  rendered in
connection with a credit facility with Credit Bancorp.

Item 6. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

Overview

     The  Company was founded in 1984 to develop  copper-clad  fiberglass  epoxy
laminates used to manufacture printed circuit boards required by the electronics
industry.  The Company has developed and is moving to  commercialize  its unique
nonwoven  copper-clad  fiberglass  reinforced  epoxy  laminates.  As part of its
development  program,  the Company  patented the  laminate,  the process used to
manufacture  the laminate and the equipment to produce the laminates.  The first
prototype  equipment was designed and assembled to produce 24" x 24"  laminates.
In 1995,  initial  production  scale  prototype  equipment  to produce 36" x 48"
laminates was completed.  In 1997,  the Company  completed the  installation  of
advanced  36" x 48"  production  equipment  purchased  with the  proceeds of the
Company's  Initial  Public  Offering in July 1996. In 1998 and  continuing  into
1999,  the Company  completed  the  installation  of a second phase of 36" x 48"
production  equipment  purchased  with the  proceeds of the  Debentures  and the
Series B Stock.

     During  1997 and 1998,  the  Company  produced  and sold its  laminates  in
limited  quantities  through a highly  focused  sales effort to gain  production
experience  and product  performance  data.  However,  this highly focused sales
effort left the Company  vulnerable  to order  volatility.  Throughout  1997 and
1998, the Company worked on adjusting and enhancing its production equipment and
its  manufacturing  processes.  Production  ramp up issues,  coupled  with order
volatility, led to a much slower than expected expansion in production capacity.
The Company  continues to work on and is making  progress on solving issues with
incoming raw materials and contamination which affect finished goods' yields and
production efficiencies.

     In June 1998, the Company  elected  Christopher F. Johnson as president and
chief  executive  officer.  The Company has  significantly  increased  its sales
activities  through  the  use of  sales  representatives  and  delivered  sample
quantities  to 48  qualified  new customer  opportunities  in the second half of
1998.  The  Company's  sales  focus is on the high layer  count,  high  density,
multilayer and backplane market segments.  The Company's  internal focus,  which
had been on technology  development in the past, has been reoriented to customer
satisfaction as the Company ramps up production capabilities to meet anticipated
customer demand. A major initiative to reach a long term supply agreement with a
significant printed wiring board fabricator is in progress and additional supply
agreements  are being  pursued.  The Company is also pursuing  discussions  with
potential  industrial  partners  to  accelerate  the  commercialization  of  the
Company's products worldwide.

     The  production-scale  expansion described above is the first undertaken by
the Company,  and  consequently  no  assurances  can be made that the  Company's
production facilities will meet the Company's production targets in a timely way
or that the resultant product will meet the high commercial  standard needed for
successful market penetration.  Furthermore,  the expanded production facilities
may not be able to provide  adequate  efficiencies  and produce high yields.  In
addition,  the costs of production may not be as low as management  expects,  in
which case the Company  may not achieve  profitable  operations.  The  Company's
business involves highly complex manufacturing processes which are subject



                                       18
<PAGE>


to disruption.  No assurance can be given that disruptions will not occur in the
future.  The loss of revenue and  earnings to the Company from such a disruption
could have a materially adverse effect on its results of operations.

     In October 1997, the Company entered into a 50/50 joint venture with Quebec
Investors  for the  establishment  of a plant in the  greater  Montreal  area to
manufacture Compositech's laminates. The plant is planned to start production in
2000. See "Item 1 Joint Ventures". The Company's investment in the joint venture
was funded by the Quebec Investors  purchasing 1,066,192 shares of the Company's
Common Stock.

     In  February  1998,  the  Company  entered  into joint  venture and license
agreements  with  a  Taiwanese  investor  group  to  manufacture   Compositech's
laminates in Taiwan.  See "Item 1 - Joint  Ventures".  The Company would have an
approximate  10%  interest in the joint  venture and  receive  license  fees and
royalties. The plant is planned to start production in 2000.

Results of Operations - Years Ended December 31, 1998 and 1997

     Sales of laminates decreased to $350,112 in 1998 from $507,403 in 1997. The
decrease  resulted from the  continued  delay in or  cancellation  of customers'
programs for which Compositech's laminates were qualified or were in the process
of being  qualified and from delays in testing and  qualification  programs from
potential major customers.

     Licensing income for 1998, relating to the Taiwanese joint venture, totaled
$64,284, net of expenses. There was no licensing income in 1997.

     Research  and  development  expenses  increased  to  $282,756  in 1998 from
$76,720 in 1997,  reflecting the Company's development efforts on new processes.
Manufacturing expenses decreased to $4,248,421 for 1998 from $4,953,123 in 1997,
reflecting the reduced level of unit direct  manufacturing  costs as compared to
the same period last year,  partially  offset by higher  levels of  expenditures
related to process  adjustments and  enhancements and the costs of upgrading the
supervisory workforce.

     Selling,  general and  administrative  expenses  decreased to $1,254,739 in
1998 from  $1,519,763  in 1997.  Decreases  in legal and  professional  fees and
patent/trademark  expenses were partially  offset by increased  advertising  and
promotion  expenses  and costs  incurred in relation to the  recruitment  of the
Company's new president and chief executive officer during the second quarter of
1998. During 1998 and 1997,  approximately $389,000 and $107,000,  respectively,
of selling,  general and  administrative  expenses were charged to the Company's
Canadian  joint  venture,  in  accordance  with the  joint  venture  agreements,
pursuant to which the Company and its joint  venture  partners  are  planning to
establish a plant in the greater  Montreal  area to  manufacture  the  Company's
laminates.

     Interest  income  decreased  to  $49,335  in 1998  from  $96,201  in  1997,
reflecting  the decrease in the average  monthly  balances of the Company's cash
balances.  Interest expense (net of interest capitalized)  decreased to $131,693
in 1998 from  $229,385 in 1997.  The decrease is due to  reductions in the prime
interest  rate,  which is the basis for some of the  Company's  long term  loans
payable, as well as the conversion of the balance of the Debentures,  which were
issued in May 1997, but not fully converted until April of 1998. Amortization of
debt  discount and expenses  decreased to $497,603 for 1998 from  $1,326,218  in
1997,  reflecting the  amortization  of costs  associated  with the  Debentures,
including  accelerated  amortization as a result of debenture  conversions  that
concluded  during the second quarter of 1998. Other income increased to $112,415
in 1998 from  $5,147 in 1997.  The  increases  reflect  the  receipt  of refunds
related to property taxes and sales taxes applicable to prior periods as well as
adjustments of prior period professional fees.



                                       19
<PAGE>


     The equity in the  operations of the Canadian  joint  venture  increased to
$36,831 in 1998 from ($63,722) in 1997,  representing the Company's 50% share of
the net profit (loss) of the joint venture which was formed in October 1997. The
profit  resulted from interest income recorded by the joint venture on its short
term cash investments in excess of administrative and marketing costs incurred.

     The  foregoing  resulted in the Company  having a net loss of $5,810,595 in
1998 as compared with a net loss of $7,569,793 in 1997.  The decreased  loss was
primarily attributable to the decreased level of direct manufacturing costs, the
reduction in selling and general and  administrative  expenses and the reduction
in the amortization of debt discount and expenses relative to the Debentures,  a
non-cash item.

Liquidity and Capital Resources

     Prior to its initial public  offering in 1996, the Company had financed its
operations  through  private  placements of debt and equity  securities and from
income from a patent  immunity  agreement.  Some of this financing had come from
officers  and  directors of the  Company.  The Company has incurred  significant
losses and has substantial negative cash flow since its inception. The Company's
independent  auditors  have  included an  explanatory  paragraph in their report
covering the December 31, 1998 financial statements, which expresses substantial
doubt about the Company's  ability to continue as a going  concern.  The Company
expects  significant  operating  losses to continue in 1999.  As of December 31,
1998,  the  Company  had  approximately  $102,000  of  available  cash  and cash
equivalents.  During  January  through March 1999, in connection  with a private
placement,  the Company  received net proceeds  aggregating  approximately  $1.4
million through the sale of 1,077,068 shares of its Common Stock. In March 1999,
the Company  closed on the first tranche of $500,000 of a $1.5 million term note
series,  due in six months,  convertible  at maturity  into Common  Stock at the
Company's option.  At March 26, 1999, the Company had approximately  $650,000 of
cash and cash equivalents;  however, the Company will require additional funding
to cover current operations,  which require approximately $400,000 a month based
on current  levels of production and sales,  until revenues from  operations are
sufficient.

     Net cash and cash  equivalents  used in operating  activities  decreased to
$3,505,961  for 1998 from  $5,925,165  for 1997. The net licensing fees received
from the  Taiwan  joint  venture of  $930,000  was the  primary  source of funds
provided by operating  activities  for 1998,  with  $777,249  deferred to future
periods for financial reporting purposes.  Decreases in accounts receivable from
joint  venture and in  inventories  as well as increases  in deferred  salaries,
accrued  interest  and  accounts  payable  accounted  for  the  balance  of  the
significant 1998 sources of cash.

     Net cash and cash  equivalents  used in investing  activities  decreased to
$1,190,988 for 1998 from $5,384,809 for 1997. Capital expenditures for equipment
and  advance  payments  for  equipment  decreased  to  $694,297  for  1998  from
$1,953,782  for 1997.  The  decrease  is  attributable  to the  reduced  rate of
purchases of production  equipment that constituted a significant portion of the
production  expansion  program  that  concluded  in the  second  half  of  1997.
Investments in joint ventures decreased to $467,487 for 1998 from $5,695,283 for
1997,  reflecting the 1998 Taiwan and 1997 Montreal  joint venture  investments.
Maturities of short term U.S.  Government  securities  during 1997 accounted for
$2,384,700 of the funds provided by investing activities.

     Cash flows from financing  activities decreased to $4,174,981 for 1998 from
$11,261.144  for 1997.  The  significant  sources of funds provided by financing
activities  during 1998, net of expenses,  were: (i) the sale of Common Stock to
the Taiwanese joint venture,  totaling  $952,500 ; (ii) the sale of the Series B
Stock  which  provided  $1,900,000  ; (iii) the sale of Common  Stock  through a
private placement during November and December of 1998, totaling $435,525 ; (iv)
the advance received from the



                                       20
<PAGE>


Taiwanese  joint venture on the second half of their stock purchase  obligation,
totaling $500,000 and (v) the loan through an insured credit facility,  totaling
$395,025. The principal financing activities in the 1997 period were the sale of
the  Company's  Common Stock to the Canadian  joint  venture  partners  totaling
$5,351,763 net of expenses,  net proceeds from the issuance of the Debentures of
$5,891,189  and net  proceeds  from the  exercise of  outstanding  common  stock
warrants in the amount of $47,420.

     The Company is negotiating for additional funding.  Such additional funding
may be raised  through  sources  including  license fees,  sales of equipment in
connection  with licensing  operations,  joint  ventures or other  collaborative
relationships,  as well as equity or debt  financing.  No assurance can be given
that funding will be sufficient  and  available or, if it is available,  that it
will be available on acceptable  terms.  If adequate  funds are not available to
satisfy either short-term or long-term capital requirements,  the Company may be
required to limit its operations  significantly.  No assurance can be given that
the  Company  will  successfully  complete  expansion  and  enhancement  of  its
production  equipment,  achieve  broad  commercial  acceptance of its product or
generate sufficient revenues to achieve profitable operations.  No assurance can
be  given  that  management  has  identified  and made  appropriate  assumptions
regarding all factors that may affect the Company's business in the future.

Year 2000

     The  Company  recognizes  the need to  ensure  its  operations  will not be
adversely  impacted by the  inability of the  Company's  systems to process data
having dates on or after January 1, 2000 ("Year 2000"). Processing errors due to
software  failure  arising  from  calculations  using  the  Year  2000  date are
recognized as a risk. The Company is currently  assessing the risk, with respect
to the availability  and integrity of its financial  systems and the reliability
of its financial systems and the reliability of its operating systems, and is in
the  process of  communicating  with  third  parties  (e.g.  major  vendors  and
customers) with whom it conducts  business to assess whether they are or will be
Year 2000 compliant.  To date, the Company has received favorable responses from
most of the third parties it communicated with,  indicating that their companies
are either Year 2000  compliant or plan to be  compliant  within  calendar  year
1999.

     The Company's information technology ("IT") systems consists of a series of
personal  computers,  linked via a network,  which process data using  purchased
software programs produced and maintained by large software vendors. The Company
believes its exposure to any material  Year 2000  problems is  relatively  small
because its  financial  and  operating  software  systems have been produced and
maintained by large software vendors, who have made updates available or updated
versions  available  that  are Year  2000  compliant,  at a  nominal  cost.  The
Company's  IT  equipment  is  being  presently   evaluated  for  its  Year  2000
capabilities  and  repair  or  renovation,  if  necessary,  is  scheduled  to be
completed  prior to the end of the third  quarter of 1999.  The vast majority of
the Company's production related non-IT systems use processors that have no date
related  functionality,  and accordingly,  have no Year 2000 issues. The cost of
the  Company's  Year  2000  initiatives  has not been or is not  expected  to be
material to the Company's results of operations or financial position.

Risks to the Company

     No assurance  can be given that the  Company's  systems or systems of other
companies on which the Company's  operations  rely will be converted on a timely
basis and will not have a material  effect on the Company.  The  Company's  most
reasonably  likely  worst-case  scenario,  given  current  uncertainties,  would
involve minor disturbances in the supply of ancillary supplies and repair parts,
which  would not have a  material  effect on the  results or  operations  of the
Company.  Of course,  lack of readiness by electrical,  gas and water utilities,
financial  institutions  or other  providers  of  general  infrastructure  could
provide significant  impediments to the Company's ability to carry on its normal
operations.

Contingency Plan

     Although the Company has not yet  established a  comprehensive  contingency
plan to address



                                       21
<PAGE>


Year 2000  risks  with its IT  systems  and with  third  parties  upon which the
Company is dependent,  the Company's Year 2000 compliance program is ongoing and
its ultimate  scope, as well as the  consideration  of contingency  plans,  will
continue to be evaluated as new information becomes available.

     Statements made herein about the  implementation of the Company's Year 2000
program,  the costs expected to be associated  with that program and the results
that the  Company  expects to achieve  constitute  forward-looking  information.
Accordingly,  no assurance can be given that the Company's systems or systems of
other  companies on which the Company's  operations  rely will be converted on a
timely basis and will not have a material effect on the Company.

Item 7.  Financial Statements

     The required Financial  Statements and the notes thereto are contained in a
separate  section of this report beginning with the page following the signature
page.

Item  8.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
          Financial Disclosure

     None.


                                       22
<PAGE>


                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        with Section 16(a) of the Exchange Act

     The information  called for by Item 9 with respect to Executive Officers of
the issuer appears as Item 4A under Part I of this Report.

     Other  information  required  by this  item is  included  in the  Company's
definitive  Proxy Statement to be filed in connection with the Company's  Annual
Meeting  of  Stockholders,  and  such  information  is  incorporated  herein  by
reference.

Item 10.  Executive Compensation

     The  information  required  by  this  item  is  included  in the  Company's
definitive  Proxy Statement to be filed in connection with the Company's  Annual
Meeting  of  Stockholders,  and  such  information  is  incorporated  herein  by
reference.

Item 11.  Security Ownership of Certain Beneficial Owners and Management

     The  information  required  by  this  item  is  included  in the  Company's
definitive  Proxy Statement to be filed in connection with the Company's  Annual
Meeting  of  Stockholders,  and  such  information  is  incorporated  herein  by
reference.

Item 12.  Certain Relationships and Related Transactions

     The  information  required  by  this  item  is  included  in the  Company's
definitive  Proxy Statement to be filed in connection with the Company's  Annual
Meeting  of  Stockholders,  and  such  information  is  incorporated  herein  by
reference.


                                       23
<PAGE>


Item 13. Exhibits and Reports on Form 8K

     (a)  Exhibits:

<TABLE>
<CAPTION>
Exhibit Number                                               Exhibit                                                Note Number
---------------------------------------------------------------------------------------------------------------------------------
<S>            <C>                                                                                                      <C>
      3.1      Restated Certificate of Incorporation of the Company.                                                    (3)

      3.2      Amendment to the Restated Certificate of Incorporation of the Company                                    (1)

      3.3      By-Laws, As Amended, of the Company.                                                                     (2)

      3.4      Certificate of Designations for 7% Series B Convertible Preferred Stock dated as of May 29, 1998         (8)

      4.1      Specimen Common Stock Certificate.                                                                       (2)

      4.2      Specimen Warrant Certificate.                                                                            (2)

      4.3      Representative's Unit Purchase Option dated as of July 9, 1996.                                          (2)

      4.4      Warrant Agreement dated as of July 9, 1996 between the Company and Continental Stock Transfer &

               Trust Company.                                                                                           (2)

      4.5      Form of 10% Secured Note.                                                                                (2)

    4.5.1      Security Agreement dated August 3, 1995 among the Company and certain secured parties.                   (2)

      4.6      Form of Secured Note.                                                                                    (2)

    4.6.1      Security and Intercreditor Agreement dated as of October 30, 1992 among the Company and certain
               secured parties covering listed patent collateral.                                                       (2)

      4.7      Notes issued by the Company between May 28, 1992 and February 16, 1993 in the aggregate amount of

               $550,000 payable to Willard Jackson.                                                                     (2)

      4.8      Form of agreements between the Company and certain officers, directors and stockholder/creditors to

               defer maturity of Secured Notes, 10% Secured Notes, and certain other notes.                             (1)

     10.1      Lease Agreement dated August 29, 1990 between the Company and Ricefield Number Six.                      (2)

   10.1.1      First Amendment of Lease dated June 30, 1995 between the Company and Ricefield Number Six.               (2)

     10.2      Patent Immunity Agreement dated March 15, 1994, among the Company and AKZO Electronic Products B.V.
               and AMP Incorporated.                                                                                    (2)

     10.3      Stock Purchase Agreement dated as of June 22, 1990, between the Company and HT Troplast AG.              (2)

   10.3.1      Amendment No. 1 to Stock Purchase Agreement dated June 22, 1990 between the Company and HT Troplast
               AG (Amendment No. 1 dated January 10, 1996).                                                             (2)

     10.4      Technical Cooperation Agreement between the Company and HT Troplast AG dated as of June 22, 1990.        (2)

     10.5      License Agreement between the Company and HT Troplast AG dated as of June 22, 1990.                      (2)

   10.5.1      Amendment to the License Agreement dated May 18, 1994 between the Company and HT Troplast AG.            (2)

     10.6      Consent to the transfer of rights of Huls Troisdorf AG in respect of the Company to Mora
               Beteiligungs AG (now HT Troplast AG) dated February 4, 1994.                                             (2)

   10.6.1      Acknowledgment of assumption of obligations of Huls Troisdorf AG in respect of the Company by
               HT Troplast AG dated August 19, 1994.                                                                    (2)

     10.7      Form of Warrants issued on May 28, 1992.                                                                 (2)

     10.8      Form of Warrants issued on November 16, 1993.                                                            (2)

     10.9      Form of Subscription Agreement for Series A Convertible Preferred Stock issued in 1994.                  (2)

    10.10      Form of Warrants issued or amended between August 3, 1995 and March 12, 1996.                            (2)

    10.11      Common Stock Purchase  Agreement  between the Company and Win Win Venture Capital Corporation dated
               as of April 1, 1996.                                                                                     (2)

    10.12      Agreements to defer salary between the Company and certain employees of the Company.                     (2)
</TABLE>



                                       24
<PAGE>


<TABLE>
<CAPTION>
Exhibit Number                                               Exhibit                                                Note Number
---------------------------------------------------------------------------------------------------------------------------------
<S>            <C>                                                                                                      <C>
   *10.13      Nonqualified Stock Option Plan dated April 12, 1988.                                                     (2)

   *10.14      Stock Award Plan.                                                                                        (2)

 *10.14.1      Compositech Ltd. Amended and Restated Stock Award Plan.                                                  (9)

   *10.15      Employment Agreement dated as of January 1, 1996 between the Company and Samuel S. Gross.                (2)

   *10.16      Employment Agreement dated as of January 1, 1996 between the Company and Fred E. Klimpl.                 (2)

   *10.17      Employment Agreement dated as of January 1, 1996 between the Company and Jonas Medney.                   (2)

   *10.18      Common Stock Purchase Agreement between the Company and Win Win Venture Capital Corporation dated
               as of June 26, 1996.                                                                                     (2)

    10.19      Form of Securities Purchase Agreement between the Company and certain investors.                         (5)

    10.20      Form of 5% Convertible Debenture between the Company and certain investors.                              (5)

    10.21      Form of Registration Rights Agreement between the Company and certain investors.                         (5)

    10.22      Form of Security Agreement between the Company and certain investors.                                    (5)

    10.23      Form of License Security Agreement between the Company and certain investors.                            (5)

    10.24      Technology Licensing Agreement dated October 16, 1997, by and between the Company and Lamines CTEK       (6)
               Inc.

    10.25      Subscription Agreement dated October 16, 1997, by and among: Societe Innovatech du Grand Montreal,      (6)
               Industries Devma Inc. (a subsidiary of Societe generale de financement du Quebec), Fonds de
               solidarite des travailleurs du Quebec (F.T.Q.), Fonds regional de solidarite Ile de Montreal and
               the Company.

    10.26      Registration Rights Agreement dated October 16, 1997, by and among: Societe Innovatech du Grand          (6)
               Montreal, Industries Devma Inc., Fonds de solidarite des travailleurs du Quebec (F.T.Q.),
               Fonds regional de solidarite Ile de Montreal and the Company.

    10.27      Subscription Agreement dated October 16, 1997, by and between the Company and Lamines CTEK Inc.          (6)

    10.28      Shareholders Agreement dated October 16, 1997, among the Shareholders of Lamines CTEK Inc.               (6)

    10.29      Stock Exchange Agreement dated October 16, 1997, by and among: Societe Innovatech du Grand               (6)
               Montreal, Industries Devma  Inc., Fonds de solidarite des travailleurs du Quebec (F.T.Q.),
               Fonds regional de solidarite Ile de Montreal and the Company.

    10.30      Sales Agency and Marketing Agreement dated October 16, 1997, by and between Lamines CTEK Inc. and        (6)
               the Company.

    10.31      Agreement with respect to electing a nominee of the Quebec Investors to the Board of Directors of        (6)
               Compositech Ltd. dated October 16, 1997, by and among: Societe Innovatech du Grand Montreal,
               Industries Devma Inc., Fonds de solidarite des travailleurs du Quebec (F.T.Q.), Fonds regional de
               solidarite Ile de Montreal and the Company and certain of its principal shareholders.

    10.32      Agreement to Form a Joint Venture by and between the Company and Fidelity Venture Capital Corp. and      (7)
               Fidelity Investors, dated February 9, 1998.

    10.33      Patent, Information and Trademark Agreement by and between the Company and Compositech Taiwan (or        (7)
               Compositech Technologies, Inc.). Portions of the Exhibit have been omitted pursuant to a request
               for confidential treatment.

  10.33.1      Patent, Information and Trademark Agreement - Amendment No. 1 by and  between the Company and            (7)
               Compositech Taiwan (or Compositech Technologies, Inc.).

    10.34      Purchase Agreement by and between the Company and Compositech Taiwan (or Compositech Technologies,       (7)
               Inc.).

    10.35      Convertible Preferred Stock Purchase Agreement dated as of May 29, 1998, between the Company and         (8)
               JNC Opportunity Fund Ltd.
</TABLE>



                                       25
<PAGE>


<TABLE>
<CAPTION>
Exhibit Number                                               Exhibit                                                Note Number
---------------------------------------------------------------------------------------------------------------------------------
<S>            <C>                                                                                                      <C>
    10.36      Registration Rights Agreement dated as of May 29, 1998, between the Company and JNC Opportunity          (8)
               Fund Ltd.

    10.37      Bridge Note Purchase Agreement dated March 16, 1999 between the Company and SovCap Equity Partners,      (1)
               Ltd.

    10.38      Bridge Note dated March 16, 1999 between the Company and SovCap Equity Partners, Ltd.                    (1)

    10.39      Attached Repricing Warrant dated March 16, 1999 between the Company and SovCap Equity Partners, Ltd.     (1)

    10.40      Common Stock Purchase Warrant dated March 16, 1999 between the Company and SovCap Equity Partners,       (1)
               Ltd.

    10.41      Registration Rights Agreement dated March 16, 1999 between the Company and SovCap Equity Partners,       (1)
               Ltd.

    10.42      Placement Agency Agreement dated March 16, 1999 between the Company and Sovereign Capital Advisors       (1)
               LLC.

    10.43      Sovereign Warrant Agreement dated March 16, 1999 between the Company and Sovereign Capital Advisors      (1)
               LLC.

    10.44      Sovereign Warrant Certificate dated March 16, 1999 between the Company and Sovereign Capital             (1)
               Advisors LLC.

     23.1      Consent of Ernst & Young LLP                                                                             (1)

     27.1      Financial Data Schedules (Edgar version only)                                                            (1)
</TABLE>

----------
*    Management contract, compensatory plan or arrangement.

(1)  Filed herewith.

(2)  Incorporated  by reference to a previously  filed  Exhibit to the Company's
     Registration Statement on Form SB-2, Reg. No. 333-3564-NY.

(3)  Incorporated  by reference to a previously  filed  Exhibit to the Company's
     Form 10-KSB for the year ended December 31, 1996.

(4)  Incorporated  by reference to a previously  filed  Exhibit to the Company's
     Form 10-QSB for the quarterly period ended June 30, 1997.

(5)  Incorporated  by reference to a previously  filed  Exhibit to the Company's
     Registration Statement on Form S-3, Reg. No. 333-32241-NY filed on July 28,
     1997.

(6)  Incorporated  by reference to a previously  filed  Exhibit to the Company's
     Form 8-K dated October 27, 1997.

(7)  Incorporated  by reference to a previously  filed  Exhibit to the Company's
     Form 10-KSB for the year ended December 31, 1997.

(8)  Incorporated  by reference to a previously  filed  Exhibit to the Company's
     Form 8-K dated May 29, 1998.

(9)  Incorporated  by reference to a previously  filed  Exhibit to the Company's
     Form 10-QSB for the quarterly period ended June 30, 1998.

     (b)  Form 8-K Reports:

                                                                     Financial
                                                                     Statements
     Date of Report                   Item Reported                    Filed
     --------------  ---------------------------------------------   -----------
      May 29, 1998   Item 5 - Other Events                              No
                     (Announcing sale of 7% Series B Convertible
                     Preferred Stock.)


                                       26
<PAGE>


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

                                                     COMPOSITECH LTD.

Date:  March 31, 1999                                By:  /S/ Jonas Medney
                                                        ------------------------
                                                              Jonas Medney
                                                              Chairman

     In  accordance  with the Exchange Act, this report has been signed below by
the following  persons on behalf of the Company and in the capacities and on the
dates indicated.


        /S/ Jonas Medney                                         March 31, 1999
------------------------------------
Jonas Medney
Chairman of the Board, Director

         /S/ Fred E. Klimpl                                      March 31, 1999
------------------------------------
Fred E. Klimpl
Vice Chairman, Director

        /S/ Christopher F. Johnson                               March 31, 1999
------------------------------------
Christopher F. Johnson
President; Chief Executive Officer; Director
(Principal Executive Officer)

         /S/ Samuel S. Gross                                     March 31, 1999
------------------------------------
Samuel S. Gross
Executive Vice President, Secretary,
Treasurer and Director
(Principal Financial and Accounting Officer)

         /S/ Willard T. Jackson                                  March 31, 1999
------------------------------------
Willard T. Jackson, Director

       /S/ Pierre Laflamme                                       March 31, 1999
------------------------------------
Pierre Laflamme, Director

      /S/ Robert W. Middleton                                    March 31, 1999
------------------------------------
Robert W. Middleton, Director

      /S/ Heinz-Gerd Reinkemeyer                                 March 31, 1999
------------------------------------
Heinz-Gerd Reinkemeyer, Director

      /S/ James W. Taylor                                        March 31, 1999
------------------------------------
James W. Taylor, Director



                                       27
<PAGE>


                          Index to Financial Statements

                                                                           Pages
                                                                           -----

Report of Independent Auditors.............................................  F2

Balance Sheets as of December 31, 1998 and 1997............................  F3

Statements of Operations for the years ended
 December 31, 1998 and 1997................................................  F4

Statements of Stockholders' Equity for the years
  ended December 31, 1998 and 1997.........................................  F5

Statements of Cash Flows for the years ended
 December 31, 1998 and 1997................................................  F6

Notes to Financial Statements..............................................  F7


                                      F-1
<PAGE>


                         Report of Independent Auditors

The Board of Directors and Stockholders
Compositech Ltd.

We have  audited  the  accompanying  balance  sheets of  Compositech  Ltd.  (the
"Company")  as of December  31, 1998 and 1997,  and the  related  statements  of
operations, stockholders' equity, and cash flows for the years then ended. These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial  position of Compositech Ltd. at December
31, 1998 and 1997,  and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.

As discussed  in Note 1 to the  financial  statements,  the  Company's  existing
working  capital is  insufficient  to cover  continuing  operating  expenses and
expenditures  for  additional  production  equipment.   These  conditions  raise
substantial  doubt about the Company's  ability to continue as a going  concern.
Management's  plans  as 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/ Ernst & Young LLP

Melville, New York
February 12, 1999, except for Note 15
 as to which the date is March 26, 1999



                                      F-2
<PAGE>


                                COMPOSITECH LTD.
                                 BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                                   December 31         December 31
                                                                                                       1998                1997
                                                                                                   ------------        ------------
<S>                                                                                                <C>                 <C>
ASSETS
Current assets:
  Cash and cash equivalents                                                                        $    102,286        $    624,254
  Accounts receivable trade - net                                                                        27,273              44,725
  Accounts receivable from joint venture                                                                103,696             201,382
  Inventories                                                                                           254,784             401,922
  Prepaid expenses and other                                                                            165,827              97,371
                                                                                                   ------------        ------------
        Total current assets                                                                            653,866           1,369,654

Property and equipment at cost - net                                                                  5,721,215           5,276,672
Investment in joint ventures - net of accumulated amortization of $21,750 (1998)                      5,562,090           5,631,561
Advance payments on construction-in-progress                                                             16,753             274,253
Deferred debt expense - net of accumulated amortization of $154,858 (1997)                              133,728             458,953
Other assets and other deferred charges, net of accumulated amortization
    of $19,256 (1998) and $6,847 (1997)                                                                 151,110             134,796
                                                                                                   ------------        ------------
Total assets                                                                                       $ 12,238,762        $ 13,145,889
                                                                                                   ============        ============

LIABILITIES AND STOCKHOLDERS'  EQUITY
Current liabilities:
  Accounts payable                                                                                 $    637,861        $    609,278
  Deferred salaries - $1,500 (1997) to  officers                                                        194,739             192,571
  Accrued interest - all (1998) and $916 (1997)  to stockholders                                          5,880              26,017
  Other accrued liabilities                                                                             413,982             370,707
  Deferred licensing income                                                                              64,248
  Loan payable                                                                                          438,917
                                                                                                   ------------        ------------
        Total current liabilities                                                                     1,755,627           1,198,573

Non-current liabilities:
  Notes payable to directors/stockholders                                                             1,595,000           1,595,000
  5% Convertible debentures, net of unamortized discount of $67,650 (1997)                                                5,762,350
  Deferred salaries - officers                                                                          814,481             551,558
  Accrued interest - directors/stockholders                                                             248,948             100,159
  Capital lease obligations                                                                               9,235              49,047
  Deferred licensing income                                                                             713,001
  Advances received on sale of common stock                                                             500,000
  Other liabilities                                                                                                          37,500
                                                                                                   ------------        ------------
        Total non-current liabilities                                                                 3,880,665           8,095,614


7% Series B convertible  preferred stock, par value $0.01; stated value $10,000
    per share; authorized, issued and outstanding shares - 220                                        2,200,000

Commitments

Stockholders'  equity :
  Undesignated  preferred stock;  authorized  3,999,780 shares,  none issued and outstanding  
  Series A convertible  preferred stock, par value $3.00 per share; authorized shares - 714,161,
    issued and outstanding shares - 550,995 (1998) and 614,161 (1997)                                 1,652,985           1,842,483
  Common stock, par value $.01 per share; authorized shares - 50,000,000,
    issued and outstanding shares - 13,150,128 (1998) and 7,767,921 (1997)                              131,502              77,679
  Additional paid-in capital                                                                         37,436,677          30,075,100
  Cumulative foreign currency translation adjustment                                                   (552,039)
  Deficit                                                                                           (33,954,155)        (28,143,560)
                                                                                                   ------------        ------------
                                                                                                      4,714,970           3,851,702
  Less notes receivable received for issuance of common stock                                          (312,500)
                                                                                                   ------------        ------------
    Total stockholders' equity                                                                        4,402,470           3,851,702
                                                                                                   ------------        ------------
Total liabilities and stockholders' equity                                                         $ 12,238,762        $ 13,145,889
                                                                                                   ============        ============
</TABLE>

See accompanying notes.


                                      F-3
<PAGE>


                                COMPOSITECH LTD.
                            STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                                                              Year ended
                                                                                                              December 31
                                                                                                  ---------------------------------
                                                                                                      1998                 1997
                                                                                                  ------------         ------------
<S>                                                                                               <C>                  <C>
Revenues:
  Sales                                                                                           $    350,112         $    507,403
  Licensing                                                                                             64,284
                                                                                                  ------------         ------------
       Total revenues                                                                                  414,396              507,403

Costs and expenses:
  Manufacturing                                                                                      4,248,421            4,953,123
  Selling, general and administrative                                                                1,254,739            1,519,763
  Research and development                                                                             282,756               76,720
                                                                                                  ------------         ------------

      Total operating expenses                                                                       5,785,916            6,549,606
                                                                                                  ------------         ------------

(Loss) from operations                                                                              (5,371,520)          (6,042,203)

Other income (expenses):
  Interest income                                                                                       49,335               96,201
  Interest expense
     (net of interest capitalized of $101,000 (1998) and $107,000 (1997))                             (131,693)            (229,385)
  Amortization of debt discount and expenses                                                          (497,603)          (1,326,218)
  Loss on disposal of property and equipment                                                            (8,360)              (9,613)
  Other income - net                                                                                   112,415                5,147
                                                                                                  ------------         ------------
                                                                                                      (475,906)          (1,463,868)

                                                                                                  ------------         ------------
 (Loss) from operations before equity in operations of joint venture                                (5,847,426)          (7,506,071)

Equity in operations of joint venture                                                                   36,831              (63,722)
                                                                                                  ------------         ------------
   Net (loss)                                                                                       (5,810,595)          (7,569,793)

Preferred stock dividends, including amortization of discount on 7%
      Series B convertible preferred stock of $314,286                                                 406,686
                                                                                                  ------------         ------------
   (Loss) attributable to common stockholders                                                     ($ 6,217,281)        ($ 7,569,793)
                                                                                                  ============         ============

(Loss) per common share - basic and diluted                                                       ($      0.54)        ($      1.18)
                                                                                                  ============         ============

Shares used in computing (loss) per common share                                                    11,612,001            6,389,750
                                                                                                  ============         ============
</TABLE>


See accompanying notes.


                                      F-4
<PAGE>


<TABLE>
<CAPTION>
                                                                                                                   Cumulative
                                           Series A Convertible                                                      Foreign
                                              Preferred Stock                  Common Stock           Additional     Currency
                                        --------------------------------------------------------       Paid-in      Translation
                                           Shares        Amount            Shares        Amount         Capital      Adjustment
                                        --------------------------------------------------------------------------------------------
<S>                                       <C>          <C>               <C>            <C>           <C>             <C>
Balance at December 31, 1996              684,161      $2,052,483         6,118,939     $ 61,189      $22,558,933

Conversion of Series A
  Convertible Preferred
  Stock to common stock                   (70,000)       (210,000)           35,000          350          209,650
Discount on issuance of
  5% Convertible Debentures                                                                             1,147,940
Issuance of warrants as
  compensation for 5%
  Convertible Debenture financing                                                                          91,070
Exercise of warrants                                                         16,500          165           47,355
Issuance of common stock
  through a private placement,
  net of related costs of $75,154                                         1,066,192       10,662        5,341,101
Issuance of common stock upon
  conversion of 5% Convertible
  Debentures                                                                531,290        5,313          669,687
Services received from stockholder                                                                          9,364
Net (loss) for the year ended
  December 31, 1997
                                        --------------------------------------------------------------------------------------------
Balance at December 31, 1997              614,161       1,842,483         7,767,921       77,679       30,075,100

Conversion of Series A
  Convertible Preferred Stock
  to common stock                         (63,166)       (189,498)           31,583          316          189,182
Issuance of common stock upon
  conversion of 5% Convertible
  Debentures                                                              4,055,667       40,557        5,795,064
Issuance of common stock through
  private placements, net of
  related costs of $83,097                                                1,090,601       10,906        1,377,119
Expenses related to the issuance
  of 7% Series B Convertible
  Preferred Stock through a
  private placement                                                                                      (300,000)
Record and amortize discount
  on 7% Series B Convertible
  Preferred Stock
Dividends declared on 7% Series B
  Convertible Preferred Stock                                                                             (92,400)
Exercise of a warrant for notes
  receivable                                                                125,000        1,250          311,250
Issuance of common stock as
  compensation for loan financing                                            79,356          794           81,362
Foreign currency translation
  adjustment                                                                                                           (552,039)
Net (loss) for the year ended
  December 31, 1998

Comprehensive (loss)
                                        --------------------------------------------------------------------------------------------
Balance at December 31, 1998              550,995      $1,652,985        13,150,128     $131,502      $37,436,677     $(552,039)
                                        ============================================================================================

<CAPTION>


                                                                             Total
                                                            Notes        Stockholders'
                                           Deficit        Receivable         Equity
                                        ---------------------------------------------
<S>                                      <C>               <C>            <C>
Balance at December 31, 1996             $(20,573,767)                    $ 4,098,838

Conversion of Series A
  Convertible Preferred
  Stock to common stock
Discount on issuance of
  5% Convertible Debentures                                                 1,147,940
Issuance of warrants as
  compensation for 5%
  Convertible Debenture financing                                              91,070
Exercise of warrants                                                           47,520
Issuance of common stock
  through a private placement,
  net of related costs of $75,154                                           5,351,763
Issuance of common stock upon
  conversion of 5% Convertible
  Debentures                                                                  675,000
Services received from stockholder                                              9,364
Net (loss) for the year ended
  December 31, 1997                        (7,569,793)                     (7,569,793)
                                        ---------------------------------------------
Balance at December 31, 1997              (28,143,560)                      3,851,702

Conversion of Series A
  Convertible Preferred Stock
  to common stock
Issuance of common stock upon
  conversion of 5% Convertible
  Debentures                                                                5,835,621
Issuance of common stock through
  private placements, net of
  related costs of $83,097                                                  1,388,025
Expenses related to the issuance
  of 7% Series B Convertible
  Preferred Stock through a
  private placement                                                          (300,000)
Record and amortize discount
  on 7% Series B Convertible
  Preferred Stock
Dividends declared on 7% Series B
  Convertible Preferred Stock                                                 (92,400)
Exercise of a warrant for notes
  receivable                                                (312,500)
Issuance of common stock as
  compensation for loan financing                                              82,156
Foreign currency translation
  adjustment                                                                 (552,039)
Net (loss) for the year ended
  December 31, 1998                        (5,810,595)                     (5,810,595)
                                                                          -----------
Comprehensive (loss)                                                       (6,362,634)
                                        ---------------------------------------------
Balance at December 31, 1998             $(33,954,155)     $(312,500)     $ 4,402,470
                                        =============================================
</TABLE>


See accompanying notes.



                                      F-5
<PAGE>


                                COMPOSITECH LTD.
                            STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                                   Year Ended
                                                                                                   December 31
                                                                                       ----------------------------------
                                                                                          1998                   1997
                                                                                       ------------          ------------
<S>                                                                                    <C>                   <C>
Cash Flows from Operating Activities
Net (loss)                                                                             ($ 5,810,595)         ($ 7,569,793)
Adjustments to reconcile net (loss) to net cash and
  cash equivalents used in operating activities:
    Depreciation and amortization, including capital leases                                 533,053               472,279
    Loss on disposal of property and equipment                                                8,360                 9,613
    Amortization of debt discount and expenses                                              497,603             1,326,218
    Equity in net income of joint venture                                                   (36,831)               63,722
    Stockholder services credited to additional paid-in-capital                                                     9,364
    Changes in operating assets and liabilities:
       Accounts receivable trade - net                                                       17,452                21,568
       Accounts receivable from joint venture                                                97,686              (164,494)
       Inventories                                                                          147,138              (183,948)
       Prepaid expenses and other                                                           (68,456)              (30,491)
       Other assets and other deferred charges                                               (7,200)
       Accounts payable                                                                      28,583               (82,485)
       Deferred salaries                                                                    265,091                28,401
       Accrued interest                                                                     128,652                64,360
       Deferred licensing income                                                            777,249
       Other accrued liabilities                                                            (83,746)              110,521
                                                                                       ------------          ------------
          Net cash and cash equivalents (used) in operating activities                   (3,505,961)           (5,925,165)

Cash Flows from Investing Activities
Purchase of property and equipment - net                                                   (694,297)           (1,953,782)
Investment in joint ventures                                                               (467,487)           (5,695,283)
Patent costs deferred                                                                       (29,204)             (120,444)
Short term investments - maturities                                                                             2,384,700
                                                                                       ------------          ------------
          Net cash and cash equivalents (used in) investing activities                   (1,190,988)           (5,384,809)

Cash Flows from Financing Activities
Net proceeds from issuance of common stock                                                1,393,647             5,351,763
Net proceeds from issuance of 5% convertible debentures                                      29,000             5,891,189
Net proceeds from exercise of warrants                                                                             47,520
Net proceeds from issuance of 7% Series B convertible preferred stock                     1,900,000
Net proceeds from loan payable                                                              395,025
Advance received on sale of common stock                                                    500,000
Payment of capital lease obligations                                                        (42,691)              (29,328)
                                                                                       ------------          ------------
        Net cash and cash equivalents provided by financing activities                    4,174,981            11,261,144
                                                                                       ------------          ------------
        (Decrease) in cash and cash equivalents                                            (521,968)              (48,830)
        Cash and cash equivalents at beginning of year                                      624,254               673,084
                                                                                       ------------          ------------
        Cash and cash equivalents at end of year                                       $    102,286          $    624,254
                                                                                       ============          ============

Supplemental disclosures of cash flow information
Noncash financing activities:
  Capital lease obligations for property and equipment acquisitions                                          $     91,336
                                                                                                             ============
  Preferred Stock dividends, including amortization of discount
    on 7% Series B convertible preferred stock of $314,286                             $    406,686
                                                                                       ============
  Issuance of common stock for notes receivable                                        $    312,500
                                                                                       ============

Cash paid for:
  Interest                                                                             $    104,039          $    272,025
                                                                                       ============          ============
</TABLE>


See accompanying notes.


                                      F-6
<PAGE>


                                COMPOSITECH LTD.

                          Notes to Financial Statements

                                December 31, 1998


1.   Organization and Basis of Presentation, and Significant Accounting Policies

Organization and Basis of Presentation

Compositech Ltd. (the "Company"), a Delaware corporation, manufactures laminates
for printed  circuit boards and designs the equipment  used to  manufacture  the
laminates.

The Company requires additional funding from financing or other sources to cover
operating  expenses and planned  expenditures  for  equipment  until  sufficient
revenues are generated to cover such  expenses.  Management  has plans to obtain
additional  funding (see Note 15). The foregoing  conditions  raise  substantial
doubt  about  the  Company's  ability  to  continue  as  a  going  concern.  The
accompanying  financial  statements  do not include any  adjustments  that might
result from the outcome of this uncertainty.

Significant Accounting Policies

Cash and Cash Equivalents

Cash and cash  equivalents  are  comprised  of cash in banks and  highly  liquid
investments with maturities of three months or less.

Inventories

Inventories  include raw  materials,  finished  goods and  inventories  of spare
parts.  Raw materials and finished goods  inventories are stated at the lower of
cost or market based on the first-in,  first-out  method.  Inventories  of spare
parts are stated at the lower of cost or market based on specific item cost.

                                                             December 31
                                                    ----------------------------
                                                      1998                1997
                                                    --------            --------
         Raw Materials                              $122,577            $225,000
         Finished Goods                               86,800             123,000
         Spare Parts                                  45,407              53,922
                                                    --------            --------
              Total                                 $254,784            $401,922
                                                    ========            ========

Patents

The Company has obtained  patents in the United States and  internationally  and
has filed additional patent applications.  Such patent rights are of significant
importance  to  the  Company  to  protect  products,   processes  and  equipment
developed.  Costs incurred in connection with patents are being deferred and are
amortized over the life of the patents  beginning  upon issue.  Costs related to
unsuccessful patent applications will be expensed.



                                      F-7
<PAGE>


Depreciation and Amortization

Equipment,  furniture and fixtures are being  depreciated  on the  straight-line
method over the  estimated  useful lives of the related  assets which range from
five to ten years. Leasehold improvements are being amortized over the lesser of
their useful lives or the remaining term of the lease.

(Loss) Per Share

Basic and diluted loss per share are calculated in accordance with SFAS No. 128,
"Earnings per Share." Loss per share is based on the weighted  average number of
shares of common stock  outstanding.  The conversion of the Series A Convertible
Preferred Stock, par value $3.00 per share (the "Series A Stock"), the 7% Series
B Convertible  Preferred Stock,  par value $0.01 (the "Series B Stock"),  the 5%
Convertible  Debentures (the "Debentures") and outstanding  options and warrants
into common  stock has not been assumed in the  calculation  of diluted loss per
share, as such conversion would be anti-dilutive.

Accounting Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial  statements and accompanying notes.
Actual results could differ from these estimates.

Reclassification

Certain  prior year  amounts  have been  reclassified  or adjusted to conform to
current year financial statement presentation.

2.   Property and Equipment

                                                                December 31
                                                         -----------------------
                                                            1998         1997
                                                         ----------   ----------
     Production equipment                                $5,774,374   $5,195,823
     Laboratory equipment                                   160,535      160,535
     Furniture, fixtures and equipment                      424,464      422,735
     Leasehold improvements                                 469,555      431,037
     Construction-in-progress                               862,099      343,665
     Equipment under capital leases                         212,106      212,106
                                                         ----------   ----------
                                                          7,903,133    6,765,901
     Less accumulated depreciation and amortization       2,181,918    1,489,229
                                                         ==========   ==========
                                                         $5,721,215   $5,276,672
                                                         ==========   ==========


                                      F-8
<PAGE>



3.   Investment in Joint Ventures

Canada

On October 16, 1997,  the Company  formed a 50/50 joint venture with four Quebec
institutional   investors   (collectively,   the  "Quebec  Investors")  for  the
establishment   of  a  plant  in  the  greater   Montreal  area  to  manufacture
Compositech's   laminates.   The  Quebec  Investors  are:  Societe  generale  de
financement du Quebec,  Fonds de solidarite des travailleurs du Quebec (F.T.Q.),
Societe  Innovatech du Grand  Montreal and Fonds  regional de solidarite  Ile de
Montreal.  The project cost is estimated to be approximately  $24.5 million with
an initial  capitalization  by the parties of approximately $11 million with the
balance to be in debt financing.  The Company's $5,426,917 capital investment in
the joint venture was funded by the Quebec Investors purchasing 1,066,192 shares
of the Company's  common stock at $5.09 per share.  The Quebec Investors have an
option to sell their 50% interest in the joint venture to the Company for a like
number of shares and, under certain circumstances,  the Company has an option to
purchase  the  interest  for the same number of shares.  The plant is planned to
start production in late 2000.

The investment in joint venture includes $269,853 in commission and legal costs,
incurred by the Company in connection  with the  negotiation  and preparation of
the various joint venture agreements which is being amortized on a straight line
basis over fifteen years.  Accumulated  amortization as of December 31, 1998 was
$21,750.  The Company  records its  investment  in the joint  venture  using the
equity method of accounting.  During the years ended December 31, 1998 and 1997,
the joint  venture  incurred  net  income  (loss)  of  $73,663  and  ($127,444),
respectively.  The 1998 net profit  was  attributed  to the  excess of  interest
income earned on cash balances over actual costs incurred.

During 1998 and 1997, $389,000 and $107,000,  respectively,  of selling, general
and  administrative  expenses  were charged to the Canadian  joint  venture,  in
accordance  with  the  joint  venture  agreements.   As  of  December  31,  1998
(unaudited),  the total assets and total  liabilities  of the joint venture were
approximately  $9,835,000  and  $139,000  respectively.  As of December 31, 1997
(unaudited),  the total assets and total  liabilities  of the joint venture were
approximately  $10,980,000  and  $254,000,  respectively.  The  majority  of the
decrease in the net assets during 1998 is related to an  approximate 8% currency
exchange rate decrease.

Taiwan

On February 9, 1998,  the Company  entered into a joint  venture  agreement  and
patent,  information and trademark agreement with a Taiwanese investor group led
by Cheng Xin Venture  Capital Corp.  (formerly  Fidelity  Venture Capital Corp.)
("Cheng  Xin") to  manufacture  the Company's  laminates in Taiwan.  The Company
received  $1 million  as a license  down  payment  and will  receive  additional
up-front  license  payments  of $1  million  upon  the  achievement  of  certain
milestones.  The  Company  has  recorded  the  license  income,  net of expenses
incurred,  as deferred  licensing income which it will amortize over the life of
the contract.  As part of the transaction,  the Company  received  approximately
$952,500,  net of expenses,  in a private placement with the joint venture,  and
issued 610,868 shares of the Company's common stock, including commissions,  and
is to issue a like amount of shares to the joint  venture for  $960,000,  net of
expenses,  within 30 days following  approval of the joint venture  license by a
governmental authority. The Company received an advance payment of $500,000 from
the joint venture  towards the second half of the stock  purchase and reinvested



                                      F-9
<PAGE>


substantially  all the proceeds as part of its  investment in the joint venture.
The  Company is  awaiting  receipt  of the  remaining  balance of  approximately
$460,000, net of expenses, which is related to the approval of the joint venture
license.  The Company  will  receive an  approximate  10%  interest in the joint
venture and royalty  payments  based on sales.  A related  letter of intent with
Cheng Xin  provides  for  entering  into a contract  with the  Company for it to
supply the joint venture with the requisite manufacturing  equipment.  Licensing
income of $64,284  recorded  during the year ended  December 31, 1998 relates to
the joint venture.

4.   Loan Payable

On December 29, 1998,  the Company  borrowed  $438,917  under a credit  facility
through Credit Bancorp,  which was  collateralized  by approximately 1.7 million
shares of the Company's common stock owned by two of the Company's officers. The
loan is due in one  year  and  bears  interest  at the  rate of  6.01%,  payable
quarterly.  A  default  would  occur  if the  Company  fails to  supplement  the
collateral  or  partially  repay the loan in the event the  collateral  falls in
value by 25% or more  from the value as of the loan  date.  The  Company  has an
agreement with the two officers to issue replacement shares to them in the event
of any  liquidation  of the  collateral  by the  lender  and  provide  them with
registration rights, where necessary.

5.   Long-Term Debt

<TABLE>
<CAPTION>
                                                                              December 31
                                                                  -----------------------------------
                                                                     1998                     1997
                                                                  ----------               ----------
<S>                                                               <C>                      <C>
     Notes payable to stockholders due
       January 2, 2000, as amended,
       interest payable semi-annually
       at prime  rate  plus 1 1/2% (9.25% at December 31,
       1998 and 10.0% at December 31, 1997);
       $775,000 collateralized by a second lien on U.S.
       patents and patent applications                            $  850,000               $  850,000

     10% Secured Notes, to stockholders, due
       January 2, 2000, as amended, interest
       payable annually, collateralized by patents,
       patent applications and certain
       production equipment                                          745,000                  745,000

     5% Convertible Debentures, due May 31, 2000,
       interest payable quarterly, net of $ 67,650 (1997)
       of unamortized debt discount, collateralized
       by certain production equipment                                  --                  5,762,350
                                                                  ----------               ----------
                                                                   1,595,000                7,357,350
                                                                  ==========               ==========
</TABLE>

From May 28 through August 5, 1997, the Company issued $6,505,000 of Debentures,
due May 31,  2000,  in a private  placement  for which the Company  received net
proceeds  of  approximately  $5,900,000  after the  payment of  commissions  and
expenses.  Trautman & Company Inc.  (formerly  Trautman Kramer & Company,  Inc.)
(the  "Placement  Agent"),  received  warrants  to  buy  182,140  shares  of the
Company's  common  stock,  at  $6.00  per  share,  as  partial  compensation  in
connection with the sale of Debentures. The value of the warrants were estimated
at $91,070



                                      F-10
<PAGE>


and credited to additional paid-in capital. The debt discount resulting from the
warrants and the related  commissions  and expenses were amortized over the life
of the debentures.

Based on a SEC  pronouncement,  due to the  difference  between  the fair market
value of the common stock on the dates the Debentures were sold and the earliest
discounted  conversion price, the Company recognized deferred financing costs of
$1,147,940  which was  amortized  over the periods  from  issuance to August 26,
1997,  the date on which the  Debentures  first became  convertible.  Management
believes that the proceeds received from the Debentures and the discount offered
on  conversion  of the debt is a fair  representation  of the net  proceeds  the
Company  would  otherwise  expect to receive  from an equity  offering of a like
number of shares after  consideration of all associated  commissions,  costs and
expenses.

During  November and December  1997,  $675,000  face amount of  Debentures  were
converted  into  531,290  shares of common  stock.  During the four months ended
April 30, 1998, the remaining  balance of the Debentures,  with a face amount of
$5,830,000, were converted into 4,055,667 shares of common stock.

Interest  and debt  expense  includes  interest of $219,548  (1998) and $316,171
(1997) ) applicable to related parties.

6.   7% Series B Stock

On May 29, 1998,  the Company  issued 220 shares of 7% Series B Stock at $10,000
per share in a private  placement,  resulting in net  proceeds of  approximately
$1.9 million.

Holders of the Series B Stock are entitled to  dividends on a cumulative  basis,
payable  quarterly in cash or common stock at the option of the Company,  except
under  certain  specified  conditions  which require the payment of dividends in
cash. In the event of any voluntary or  involuntary  liquidation of the Company,
holders of the Series B Stock shall be  entitled to receive the stated  value of
$10,000 per share plus all due but unpaid  dividends  before any distribution or
payments are made to holders of the Series A Stock or common stock.  The holders
of the  Series B Stock do not have  voting  rights  except  in  certain  limited
circumstances  in which their rights,  powers or preferences  could be adversely
affected.

Each share of the Series B Stock is convertible at the option of the holder into
shares of the Company's  common stock from July 8, 1998 through May 29, 2000, at
which time any  remaining  shares will be  automatically  converted  into common
stock.  The conversion  price for each share of the Series B Stock is the lesser
of $3.00  and 87 1/2% of the  average  five  lowest  daily  trade  prices of the
Company's common stock during the 20 trading days preceding the conversion date,
subject to a floor  price of $1.50 per share,  subject  to  decrease  in certain
circumstances.  The  Certificate of  Designations of the Series B Stock provides
for  redemption  in cash at the  Company's  option  at any  time  and  mandatory
redemption at the holder's option under certain circumstances relating to, among
others,  the maintenance of listing of shares of the Company's common stock on a
major exchange. The redemption price would be generally equivalent to the amount
obtained  if the  Series B Stock was  converted  into  common  stock at the then
existing conversion price.



                                      F-11
<PAGE>


In addition to a cash commission,  the Company issued a warrant to the Placement
Agent to  purchase  125,000  shares  of its  common  stock at  $2.50  per  share
exercisable  until  May 29,  2003  as a  finder's  fee in  connection  with  the
foregoing transaction.  The Company has estimated that the value of the warrants
is not material.

Based  on  a  SEC  pronouncement,  a  portion  of  the  proceeds  of  the  issue
representing  the  discounted  conversion  feature as measured by the difference
between  the fair  market  value of the  common  stock on the dates the Series B
Stock was sold and the earliest  discounted  conversion price has been allocated
to additional  paid-in-capital.  The discount  resulting  from the allocation of
proceeds  has been  recorded as an  additional  dividend  of $314,286  which was
amortized  over the period from issuance to July 8, 1998,  the date on which the
Series B Stock first became  convertible.  Management believes that the proceeds
received  from the Series B Stock and the discount  offered on conversion of the
Series B Stock is a fair  representation  of the net proceeds the Company  would
otherwise  expect to receive from an equity  offering of a like number of shares
after consideration of all associated commissions, costs and expenses.

7.   Stockholders' Equity

The  shares of the Series A Stock are  convertible  at any time at the option of
the stockholder into shares of common stock at the rate (subject to antidilution
adjustment)  of one-half share of common stock for each share of Series A Stock.
Each share will  automatically  be converted into shares of common stock (at the
then applicable conversion rate) upon the consummation of an underwritten public
offering  covering the sale of common stock with  aggregate  net proceeds of not
less than  $10,000,000 with a price per share equal to or greater than $9.00 per
share.

The common stock and Series A Stock vote as one class, with each share of common
stock being entitled to one vote.  Each holder of the Series A Stock is entitled
to the number of votes equal to the number of shares of common  stock into which
a share of the preferred  stock could have been  converted as of the record date
for voting.

In the event of any voluntary or involuntary liquidation, dissolution or winding
up of the  Company,  the  holders of the  Series A Stock  shall be  entitled  to
receive up to $3.00 per share, as adjusted,  before any payments are made to the
holders of common  stock.  Each  one-half  share of common  stock  would then be
entitled  to  receive  $3.00,  as  adjusted,  from the  remaining  assets of the
Company.  Any remaining  assets will be distributed to the holders of all shares
of stock on a pro rata basis.

In November  1998 and December  1998,  the Company  sold  479,733  shares of its
common stock in a private placement, realizing $435,525, net of expenses.


                                      F-12
<PAGE>


8.   Warrants and Options

Warrants

In May 1997, Trautman & Company Inc., the placement agent,  received warrants to
buy 182,140 shares of the Company's common stock, at $6.00 per share, as partial
compensation  in connection  with the sale of the  Debentures.  The warrants are
exercisable until May 28, 2002.

In  connection  with the  extension  of the  maturity  date of notes  payable to
stockholders  on September  30, 1997,  the Company  issued  warrants to purchase
30,000 shares of common stock at $5.86 per share.  Management estimates the fair
value of such warrants is nominal.  The warrants are exercisable until September
30, 2002.

In October  1997,  the  Company  issued  warrants  to buy  29,470  shares of the
Company's  common stock,  at $5.09 per share,  as partial  compensation  for the
finder's  fee in  connection  with the  signing of the  Canadian  joint  venture
agreement.  Management estimates the fair value of such warrants is nominal. The
warrants are exercisable until October 16, 2001.

In December  1997, in connection  with  resolving a dispute,  the Company issued
warrants  to buy 36,000  shares of common  stock at $3.00 per share.  Management
estimates  the  fair  value  of such  warrants  is  nominal.  The  warrants  are
exercisable until August 3, 2000.

In September 1997,  warrants to purchase  16,500 shares of the Company's  common
stock were  exercised  at an  exercise  price of $3.00 per share,  resulting  in
proceeds of $ 47,355, net of expenses.

In April 1998,  in  connection  with the final  conversion  of the  Company's 5%
Convertible Debentures, the Company issued warrants to Trautman & Company, Inc.,
the placement  agent, to buy 75,000 shares of common stock at $2.6125 per share.
Management  estimates the fair value of such  warrants is nominal.  The warrants
are exercisable until April 24, 2003.

In October 1998, the Placement  Agent  exercised a warrant to buy 125,000 shares
of common stock at $2.50 per share in exchange for notes receivable, maturing in
December 1999.

During  December  1998,  the Company issued 79,356 shares of its common stock to
certain   shareholders  as  compensation  for  advisory   services  rendered  in
connection with the arrangement of a credit facility.

During November and December 1998, in connection with a private placement of its
common stock,  the Company issued warrants to buy 318,134 shares of common stock
at $1.125 per share.  Management  estimates  the fair value of such  warrants is
nominal.  The warrants are  exercisable  until  February 15, 2001. In connection
with the same private  placement,  the Company issued a stock purchase option to
buy  600,000  shares  of  the  Company's  common  stock  for  $0.90  per  share,
exercisable until March 18, 1999.


                                      F-13
<PAGE>



Stock Option Plan

Under the Company's  1988  non-qualified  stock option plan,  150,000  shares of
common  stock  may be  issued  to  selected  key  employees  and  non-employees,
including directors, providing services to the Company. Under the Company's 1994
Stock Award Plan as amended,  1,675,000  shares of common stock may be issued as
Incentive Stock Options,  non-qualified  options or restricted stock to selected
key employees or to non-employees,  including  directors,  providing services to
the Company.  All options  granted have ten year terms and vest and become fully
exercisable between six months and three years.

The Company has elected to follow  Accounting  Principles  Board Opinion No. 25,
"Accounting   for  Stock   Issued  to   Employees"   ("APB   25")  and   related
Interpretations  in  accounting  for its  employee  stock  options  because,  as
discussed below,  the alternative fair value accounting  provided for under SFAS
No. 123,  "Accounting  for  Stock-Based  Compensation",  requires  use of option
valuation  models  that were not  developed  for use in valuing  employee  stock
options.  Under APB 25,  because the exercise  price of the  Company's  employee
stock  options  equals the market price of the  underlying  stock on the date of
grant, no compensation expense is recognized.

Pro forma information  regarding net loss and loss per share is required by SFAS
No. 123,  which also  requires  that the  information  be  determined  as if the
Company has  accounted  for its employee  stock  options  granted  subsequent to
December 31, 1994 under the fair value method of that statement.  The fair value
for these  options  was  estimated  at the date of grant  using a  Black-Scholes
option pricing model with the following  weighted-average  assumptions  for 1998
and 1997:  risk-free  interest rates of 4.72% and 5.52%;  dividend yields of 0%;
volatility factors of the expected market price of the Company's common stock of
 .827 and .795; and a weighted-average expected life of the option of six years.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded  options which have no vesting  restrictions  and are fully
transferable.  In addition,  option valuation models require the input of highly
subjective  assumptions  including the expected stock price volatility.  Because
the  Company's  employee  stock  options  have   characteristics   significantly
different from those of traded  options,  and because  changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion,  the  existing  models do not  necessarily  provide a  reliable  single
measure of the fair value of its employee stock options.

For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the options' vesting period.

The Company's pro forma information for 1998 and 1997 are as follows:

                                                        1998            1997
                                                    ------------    ------------
     Pro forma net (loss)                           ($6,802,111)    ($7,953,996)
     Pro forma (loss) per share -
         basic and diluted                               ($0.59)         ($1.27)




                                      F-14
<PAGE>


A summary of the Company's stock option activity and related information for the
years ended December 31 follows:

<TABLE>
<CAPTION>
                                                    1998                              1997
                                        ------------------------------    ------------------------------

                                                      Weighted-Average                  Weighted-Average
                                          Options      Exercise Price        Options     Exercise Price
                                        ------------- ----------------    ------------- ----------------
<S>                                        <C>           <C>                   <C>         <C>
     Outstanding-beginning of year           770,490     $    4.16             600,600     $    4.08
     Granted                                 814,100     $    1.57             205,810     $    4.60
     Forfeited                               101,920     $    4.79              35,920     $    5.26
                                        ------------------------------    ------------------------------
     Outstanding - end of year             1,482,670     $    2.70             770,490     $    4.16
                                        ==============================    ==============================

     Exercisable - end of year               611,669     $    3.63             491,528     $    3.94

     Weighted average fair value of
     options granted during the year                     $    1.15                         $    3.32
</TABLE>

A summary of options outstanding as of December 31, 1998 follows:


                                                           Weighted Average
                                                              Remaining
                          Options           Options        Contractual Life
     Exercise Price    Outstanding        Exercisable          (Years)
     --------------    -----------        -----------      ----------------
         $1.188           170,000              --              9.71
          1.375           229,000              --              9.06
          1.844           363,600            13,600            9.48
          2.000            37,500            20,500            9.20
          2.375            49,770            49,770            8.93
          2.500           280,500           280,500            7.00
          4.375             3,000             1,000            8.34
          4.750            11,000             3,666            8.27
          5.000           119,800           119,800            3.88
          5.750           218,500           122,833            7.91
                        =========         =========            ====
                        1,482,670           611,669            8.25
                        =========         =========            ====

Included in the total  outstanding  as of December 31, 1998 are 409,800  options
for directors.

The Company has reserved  10,935,732  shares of common stock for  conversions of
preferred stock and issuances for stock options, warrants, stock purchase option
agreements and stock exchange agreements.


                                      F-15
<PAGE>


9.   Income Taxes

The  Company  accounts  for  income  taxes in  accordance  with  SFAS  No.  109,
"Accounting for Income Taxes".  Under SFAS No. 109, the liability method is used
in  accounting  for income  taxes.  Under this  method,  deferred tax assets and
liabilities are determined based on differences  between financial reporting and
tax bases of assets and liabilities and are measured using the enacted tax rates
and laws that will be in effect when the differences are expected to reverse.

Deferred income taxes reflect the net effects of temporary  differences  between
the carrying amounts of assets and liabilities for financial  reporting purposes
and the amounts used for income tax purposes.

At December 31, 1998, the Company has net operating loss  carryforwards  ("NOL")
of approximately  $31,164,000 for Federal income tax purposes,  expiring at 2003
through 2018.  In addition,  the Company has research and  development  credits,
targeted  job credits  and  alternative  minimum  tax  credits of  approximately
$1,140,000  which  generally  expire  through 2013, to offset future taxes.  The
Internal Revenue Code ("IRC")  includes  provisions  which  significantly  limit
potential use of net operating  losses and tax credits in situations where there
is a change in  ownership,  as  defined,  of more than 50%  during a  three-year
period.  Accordingly,  if a change in ownership  occurs,  the  ultimate  benefit
realized from these  carryovers may be  significantly  reduced in total, and the
amount  that may be  utilized  in any given year may be  significantly  limited.
Additionally,   because   there  is  a  limit  on  the  time  during  which  NOL
carryforwards and tax credits may be applied against future taxable income,  the
Company will not be able to take full  advantage of these NOL's when the Company
generates taxable income.

As of December 31, 1998, the maximum  utilization of the Company's $31.1 million
NOL  has  been  calculated  to  be  approximately  $21.8  million,  due  to  the
aforementioned  limitations.  As the Company has had cumulative losses and there
is no  assurance  of future  taxable  income,  a  valuation  allowance  has been
established to offset  deferred tax assets.  The components of the Company's net
deferred tax are as follows:

                                                            December 31
                                                   ----------------------------
                                                       1998            1997
                                                   ------------    ------------
     Deferred tax assets:
       Deferred salaries                           $    343,000    $    253,000
       Net operating loss carryforwards               7,416,000       8,688,000
       Research and development and other credits     1,140,000       1,121,000
                                                   ------------    ------------
     Total deferred tax assets                        8,899,000      10,062,000
     Less:  valuation allowance                      (8,179,000)     (9,642,000)
                                                   ------------    ------------
     Net deferred tax assets                            720,000         420,000
     Deferred tax liability:
       Tax over book depreciation                      (720,000)       (420,000)
                                                   ============    ============
     Net deferred tax                              $       --      $       --
                                                   ============    ============



                                      F-16
<PAGE>


10.  Commitments

Operating Leases

At December 31, 1998,  future  minimum annual rentals for leases with initial or
remaining terms in excess of one year are as follows:

                  1999                   $203,000
                  2000                    134,000
                  2001                      9,000
                                         --------
                                         $346,000
                                         ========

The Company  leases its plant under a net lease  expiring  August 31, 2000.  The
lease is renewable  for an  additional  five years and requires that the Company
pay real estate taxes as additional rent.

Rent  expense  was  approximately  $247,000 in 1998 and  $283,000  in 1997.  The
foregoing  amounts  include  $38,000 and $79,000,  respectively,  of real estate
taxes paid as additional rent.

Capital Leases

Future minimum lease payments under capital leases for equipment with a net book
value of  approximately  $105,000,  included in property and  equipment  for the
years ending December 31, are as follows:

     1999                                                          $53,688
     2000                                                            9,463
                                                                   -------
     Total payments                                                 63,151
     Less: Amount representing interest                              5,485
                                                                   -------

     Present value of minimum lease  payments                      $57,666
                                                                   =======

11.  Officers' Life Insurance

The Company is the owner and  beneficiary  of insurance  policies of  $2,000,000
each on the lives of two of its officers for an aggregate of $4,000,000.

12.  Dependence on a Major Supplier

Advanced  GlassFiber Yarns LLC (successor to Owens Corning),  a major fiberglass
manufacturer, has developed and continues to develop and supply products to meet
the Company's processing and product requirements.  Should this manufacturer not
continue  supplying the Company's  quality and quantity needs, the Company would
have to rely on other  suppliers,  who are  presently  selling to the Company in
small quantities or going through vendor qualification.  Such event could have a
material adverse effect on the Company's ability to supply customers on a timely
basis and could reduce expected sales and increase the costs of manufacture.  No
assurances can be given that the  alternative  suppliers will meet the Company's
quality and quantity needs on satisfactory terms.


                                      F-17
<PAGE>


13.  Significant Customers

Customers who individually represent 10% or more of net sales for the respective
years are as follows:

                                              Years Ended December 31
                                              -----------------------
                                                 1998       1997
                                                -----       -----
     Teradyne Inc.                              48.2%        4.3%
     HADCO Corporation                          37.4%       74.8%
     Merix Corporation                           2.8%       17.6%


14.  Retirement Plan

The Company established a defined contribution  retirement plan ("the Plan") for
eligible  employees under Section 401(k) of the Internal  Revenue Code effective
January 1, 1998.  Participants can make voluntary  contributions up to a maximum
of 20% of their annual salary. The Company made no matching contributions to the
Plan in 1998.

15.  Financing and Subsequent Events

Subsequent to December 31, 1998, the Company issued  1,387,331  shares of common
stock  upon  the  conversion  of 195  shares  of the  Company's  Series  B Stock
($1,950,000 face amount),  resulting in increases of common stock of $13,873 and
additional  paid-in  capital of  $1,936,127.  The  shares  issued  included  the
applicable 7% dividend, paid in shares of common stock.

During January 1999, the Company authorized  warrants to purchase 400,000 shares
of the Company's  common stock at $1.25 per share, the market price of the stock
on the date of authorization, in exchange for consulting services.

Subsequent to December 31, 1998, the Company sold 1,064,568 shares of its common
stock,  including 600,000 shares of its common stock pursuant to the exercise of
a stock  purchase  option (see Note 8 to the Financial  Statements) in a private
placement,  realizing approximately $1.4 million, net of expenses. In connection
with this private  placement,  the Company issued warrants to buy 505,928 shares
of common stock at prices ranging from $1.125 to $2.125 per share.

In March  1999,  the Company  closed on the first  tranche of $500,000 of a $1.5
million  term note  series,  due in six  months,  payable at maturity in cash or
common stock at the  Company's  option.  In connection  with this  closing,  the
Company  issued  warrants  to buy 125,000  shares of common  stock at $2.372 per
share,  110% of the  closing  bid price of the stock on the date of the  initial
closing.

In addition to the funds mentioned in the preceding paragraph, the Company plans
to obtain  additional  funding from sources  including  license  fees,  sales of
equipment in  connection  with  licensing  operations,  joint  ventures or other
collaborative relationships, as well as equity or debt financing.



                                      F-18
<PAGE>

On March 10, 1999, the Board of Directors authorized the issuance of warrants to
purchase  25,483  shares of the Company's  common stock at $2.50 per share,  the
market price of the stock on the date of authorization,  in consideration of the
deferral of the payment of accrued  interest as of December  31, 1998 to January
2, 2000. In addition, the Company's officers have agreed to extend the repayment
date of their deferred salaries, as of December 31, 1998, to January 2, 2000. As
a result of the foregoing,  accrued interest-directors/stockholders  of $248,948
and  deferred  salaries-officers  of  $814,481  as of  December  31,  1998  were
classified as non current liabilities in the accompanying balance sheet.

At a special  meeting  held on March 26,  1999,  the  stockholders  approved  an
amendment of the Company's  Amended and Restated  Certificate of  Incorporation,
increasing  the number of authorized  shares of common stock of the Company from
25,000,000,  $0.01 par value, to 50,000,000 shares,  $0.01 par value. Holders of
record as of  February  12,  1999 of the  Company's  common  stock and  Series A
Convertible  Preferred  Stock  were  entitled  to notice of, and to vote at, the
meeting.


                                      F-19