================================================================================

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ----------------------

                                   FORM 10-QSB

          (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 1998

                                       OR

          ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

    For the transition period from _____________________to___________________

                         Commission File Number 0-20701

                                COMPOSITECH LTD.
             (Exact Name of Registrant as specified 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)

       Registrant's telephone number, including area code: (516) 436-5200

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


     Indicate the number of shares  outstanding of each of the issuer's  classes
of Common Stock as of August 13, 1998:

         Common Stock $.01 par value                        12,457,706
         ---------------------------                        ----------
                  Class                                   Number of shares

================================================================================



<PAGE>


                                COMPOSITECH LTD.


                                      Index

Part I - Financial Information                                              Page
------------------------------                                              ----

Item 1.  Financial Statements

         Balance Sheets as of June 30, 1998 (unaudited)
           and December 31, 1997...............................................2

         Statements of Operations (unaudited) for the three-month and 
           six-month periods ended June 30, 1998 and 1997......................3

         Statements of Cash Flows (unaudited) for the six-month periods
           ended June 30, 1998 and 1997........................................4

         Notes to Financial Statements (unaudited).............................5

Item 2.  Management's Discussion and Analysis of Financial
             Condition and Results of Operations...............................8

Part II - Other Information
---------------------------

Item 2.  Changes in Securities................................................12

Item 4.  Submission of Matters to a Vote of Security Holders..................13

Item 6.  Exhibits and Reports on Form 8-K.....................................13

Signature.....................................................................14


<PAGE>

                                COMPOSITECH LTD.
                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                June 30        December 31
                                                                                                  1998            1997
                                                                                              ------------    ------------
ASSETS                                                                                        ( unaudited )
<S>                                                                                           <C>             <C>
Current assets:
  Cash and cash equivalents                                                                   $  1,752,185    $    624,254
  Short-term investments
  Accounts receivable trade - net                                                                   31,029          44,725
  Accounts receivable from joint venture                                                           129,724         201,382
  Inventories                                                                                      370,497         401,922
  Prepaid expenses and other                                                                       102,095          97,371
                                                                                              ------------    ------------
        Total current assets                                                                     2,385,530       1,369,654

Property and equipment at cost - net                                                             5,015,761       5,276,672
Investment in joint venture - net of accumulated amortization of $12,750 (1998)                  5,671,545       5,631,561
Advance payments on construction-in-progress                                                       683,485         274,253
Deferred debt expense - net of accumulated amortization of $154,858                                                458,953
Other assets and other deferred charges, net of accumulated amortization
       of $12,520 (1998) and $6,846 (1997)                                                         137,051         134,796
                                                                                              ------------    ------------
Total assets                                                                                  $ 13,893,372    $ 13,145,889
                                                                                              ============    ============

LIABILITIES AND STOCKHOLDERS'  EQUITY
Current liabilities:
  Accounts payable                                                                            $    310,009    $    609,278
  Deferred salaries - $697,943 (1998)  and $ 1,500 (1997) to  officers                             915,591         192,571
  Accrued interest - all (1998) and $ 916 (1997)  to stockholders                                  181,684          26,017
  Other accrued liabilities                                                                        447,515         370,707
  Current maturities of  long-term debt - directors/stockholders                                 1,595,000
                                                                                              ------------    ------------
        Total current liabilities                                                                3,449,799       1,198,573

Non-current liabilities:
  Notes payable to directors/stockholders                                                                        1,595,000
  5% Convertible debentures, net of unamortized discount of $67,650                                              5,762,350
  Deferred salaries - officers                                                                                     551,558
  Accrued interest - directors/stockholders                                                                        100,159
  Capital lease obligations                                                                         28,011          49,047
  Other liabilities                                                                                 37,500          37,500
                                                                                              ------------    ------------
        Total non-current liabilities                                                               65,511       8,095,614

Deferred licensing income                                                                          877,808

7% Series B convertible  preferred stock, par value $0.01; stated value $10,000
  per share; authorized, issued and outstanding shares - 220, net of unamortized 
  discount of $62,857                                                                            2,137,143

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 - 567,661 (1998)
    and 614,161 (1997)                                                                           1,702,983       1,842,483
  Common stock, par value $.01 per share; authorized shares - 25,000,000,
    issued and outstanding shares -  12,457,706 (1998) and 7,767,921 (1997)                        124,577          77,679
  Additional paid-in capital                                                                    36,704,990      30,075,100
  Deficit                                                                                      (31,169,439)    (28,143,560)
                                                                                              ------------    ------------
    Total stockholders' equity                                                                   7,363,111       3,851,702
                                                                                              ------------    ------------
Total liabilities and stockholders' equity                                                    $ 13,893,372    $ 13,145,889
                                                                                              ============    ============
</TABLE>

See accompanying notes.


                                       2
<PAGE>

                                COMPOSITECH LTD.
                            STATEMENTS OF OPERATIONS
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                            Three Months Ended              Six Months Ended
                                                                                  June 30                       June 30
                                                                       ----------------------------    ---------------------------- 
                                                                           1998            1997            1998            1997
                                                                       ------------    ------------    ------------    ------------
<S>                                                                    <C>             <C>             <C>             <C>         
Revenues:
  Sales                                                                $     75,752    $    143,469    $    162,153    $    295,468
  Licensing income                                                           18,660                          31,576
                                                                       ------------    ------------    ------------    ------------
       Total revenues                                                        94,412         143,469         193,729         295,468

Costs and expenses:
  Manufacturing expenses                                                  1,055,002       1,389,893       2,015,564       2,155,616
  Selling, general and administrative                                       330,762         369,498         623,014         791,989
  Research and development                                                   25,297          23,197          65,910          46,205
                                                                       ------------    ------------    ------------    ------------

      Total operating expenses                                            1,411,061       1,782,588       2,704,488       2,993,810
                                                                       ------------    ------------    ------------    ------------

(Loss) from operations                                                   (1,316,649)     (1,639,119)     (2,510,759)     (2,698,342)

Other income (expenses):
  Interest income                                                            14,178          13,245          30,960          38,833
  Interest expense
     ( net of interest capitalized of $82,000 (1997))                       (51,681)         22,294        (147,160)        (18,683)
  Amortization of debt discount and expenses                               (189,471)       (121,202)       (497,603)       (121,202)
  Loss on disposal of property and equipment                                    (86)                         (8,360)
  Other income (expense)                                                      5,450           6,242          55,796           8,460
                                                                       ------------    ------------    ------------    ------------
                                                                           (221,610)        (79,421)       (566,367)        (92,592)
                                                                       ------------    ------------    ------------    ------------

(Loss) from operations before equity in income (loss) of joint venture   (1,538,259)     (1,718,540)     (3,077,126)     (2,790,934)

Equity in income (loss) of joint venture                                     10,368                          51,247
                                                                       ------------    ------------    ------------    ------------
   Net (loss)                                                            (1,527,891)     (1,718,540)     (3,025,879)     (2,790,934)

Preferred Stock dividend accrued, including amortization of
discount on 7% Series B convertible preferred stock of $251,429             265,118                         265,118
                                                                       ------------    ------------    ------------    ------------
   (Loss) available for common stockholders                            ($ 1,793,009)   ($ 1,718,540)   ($ 3,290,997)   ($ 2,790,934)
                                                                       ============    ============    ============    ============


Shares used in computing (loss) per common share                         12,322,638       6,144,379      10,906,495       6,136,315
                                                                       ============    ============    ============    ============


(Loss) per common share - basic                                        ($      0.15)   ($      0.28)   ($      0.30)   ($      0.45)
                                                                       ============    ============    ============    ============

(Loss) per common share - diluted                                      ($      0.11)   ($      0.26)   ($      0.23)   ($      0.43)
                                                                       ============    ============    ============    ============
</TABLE>

See accompanying notes.



                                       3
<PAGE>

                                COMPOSITECH LTD.
                            STATEMENTS OF CASH FLOWS
                                  (unaudited)
<TABLE>
<CAPTION>
                                                                                          Six Months Ended
                                                                                              June 30
                                                                                     --------------------------
                                                                                        1998           1997
                                                                                     -----------    -----------
<S>                                                                                  <C>            <C>
Cash Flows from Operating Activities
Net (loss)                                                                           ($3,025,879)   ($2,790,934)
Adjustments to reconcile net (loss) to net cash and
  cash equivalents used in operating activities:
    Depreciation and amortization, including capital leases                              349,432        195,224
    Loss on disposal of property and equipment                                             8,360        121,202
    Amortization of debt discount and expenses                                           526,603
    Equity in net income of joint venture                                                (51,247)
    Changes in operating assets and liabilities:
       Accounts receivable trade - net                                                    13,696         42,368
       Accounts receivable from joint venture                                             71,658
       Inventories                                                                        31,425       (141,926)
       Prepaid expenses and other                                                         (4,724)       (15,203)
       Other assets and other deferred charges                                                          (94,314)
       Accounts payable                                                                 (299,269)       188,354
       Deferred salaries                                                                 171,462
       Accrued interest                                                                   55,508          6,666
       Deferred licensing income                                                         877,808
       Other accrued liabilities                                                          63,498        133,850
                                                                                     -----------    -----------
          Net cash and cash equivalents (used) in operating activities                (1,211,669)    (2,354,713)

Cash Flows from Investing Activities
Purchase of property and equipment - net                                                 (78,457)    (1,305,096)
Advance payments on construction-in-progress                                            (409,232)        89,212
Investment in joint venture                                                               (1,487)
Patent costs deferred                                                                     (7,929)       (94,536)
Short term investments - maturities                                                                   2,384,700
                                                                                     -----------    -----------
          Net cash and cash equivalents provided by (used in) investing activities      (497,105)     1,074,280

Cash Flows from Financing Activities
Net proceeds from issuance of common stock                                               958,120
Net proceeds from notes payable
Net proceeds from issuance of 5% convertible debentures                                               2,022,231
Net proceeds from issuance of 7% Series B convertible preferred stock                  1,900,000
Payment received on notes receivable
Payment of capital lease obligations                                                     (21,415)        (4,141)
Payment of notes payable

                                                                                     -----------    -----------
        Net cash and cash equivalents provided by financing activities                 2,836,705      2,018,090
                                                                                     -----------    -----------
        Increase in cash and cash equivalents                                          1,127,931        737,657
        Cash and cash equivalents at beginning of period                                 624,254        673,084
                                                                                     -----------    -----------
        Cash and cash equivalents at end of period                                   $ 1,752,185    $ 1,410,741
                                                                                     ===========    ===========

Supplemental disclosures of cash flow information 
Noncash financing activities:
  Capital lease obligations for property and equipment acquisitions                                 $    91,336
                                                                                                    ===========
  Preferred Stock dividend accrued, including amortization of discount
    on 7% Series B convertible preferred stock of $251,429                           $   265,118
                                                                                     ===========
Cash paid for:
  Interest                                                                           $    92,390    $    94,018
                                                                                     ===========    ===========
</TABLE>


See accompanying notes.


                                       4
<PAGE>

                                COMPOSITECH LTD.


                          Notes to Financial Statements
                                   (Unaudited)

                                  June 30, 1998


Note 1 - Basis of Presentation and Significant Accounting Policies

     The  accompanying  unaudited  financial  statements  have been  prepared in
accordance with generally accepted  accounting  principles for interim financial
information  and  with  the  instructions  to  Form  10-QSB  and  Article  10 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial  statements.  These financial statements should be read in conjunction
with the financial statements and notes thereto included in the Annual Report on
Form  10-KSB for the year ended  December  31,  1997 of  Compositech  Ltd.  (the
"Company"). In the opinion of management,  all adjustments (consisting of normal
recurring  accruals)  considered  necessary  for a fair  presentation  have been
included. Operating results for the six-month period ended June 30, 1998 are not
necessarily  indicative  of the results  that may be expected for the year ended
December 31, 1998.

     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 Fidelity  Venture  Capital Corp. of Taiwan  ("Fidelity") to establish a joint
venture to  manufacture  the  Company's  laminates in Taiwan  ("Taiwanese  joint
venture"). The Company received $1 million as a license down payment and it will
receive  additional  up-front  license payments of $1 million and, will in turn,
invest  approximately  $500,000 in the joint  venture,  upon the  achievement of
certain   milestones.   As  part  of  the  transaction,   the  Company  received
approximately  $950,000,  net of expenses, in a private placement from the joint
venture,  and issued  610,868  shares of the Company's  common stock,  par value
$0.01 (the "Common Stock"),  including  commissions and will 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 the science park where it is
proposed to be located.  The Company will receive an approximate 10% interest in
the joint  venture  and royalty  payments  based on sales.  A related  letter of
intent with Fidelity  provides for entering into a contract with the Company for
it to supply  the joint  venture  with the  requisite  manufacturing  equipment.
Licensing  income of $18,660 in the three months ended June 30, 1998 and $31,576
in the six months ended June 30, 1998 relates to the Taiwanese joint venture.

     On May 29, 1998,  the Company  issued 220 shares of 7% Series B convertible
preferred stock, par value $0.01 (the "Series B Preferred Stock") at $10,000 per
share in a private  placement,  raising gross proceeds of $2.2 million.  The net
proceeds of  approximately  $1.9  million  will be used for working  capital and
equipment.

     Holders of the Series B  Preferred  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  Preferred  Stock  shall be 


                                       5
<PAGE>

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
Company's Series A Convertible  Preferred Stock,  $3.00 par value (the "Series A
Preferred Stock"),  or Common Stock. The holders of the Series B Preferred 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 Preferred  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 Preferred
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 Preferred 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 Preferred Stock was converted
into Common Stock at the then existing conversion price.

     In addition to a cash  commission,  the Company issued warrants 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
Preferred 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 is being amortized over the period from issuance to July 9, 1998, the date
on which the Series B  Preferred  Stock  first  became  convertible.  Management
believes that the proceeds  received  from the Series B Preferred  Stock and the
discount  offered  on  conversion  of the  Series  B  Preferred  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.

     Reclassifications Certain reclassifications have been made to the financial
statements for the three months and six months ended June 30, 1997 to conform to
presentations for the three months and six months ended June 30, 1998.


                                       6
<PAGE>

Note 2 - Common Stock Issuances and Stock Options

     In the six months  ended June 30,  1998,  the  Company  granted to selected
officers,  directors,  key employees and consultants options to purchase 630,500
shares of Common  Stock at prices  ranging  from  $1.375  per share to $2.00 per
share, the market value of the Common Stock at the date of grant.

     In the six  months  ended  June 30,  1998,  46,500  shares of the  Series A
Preferred  Stock were  converted  at the  existing  conversion  rate into 23,250
shares of Common Stock,  resulting in a decrease in Series A Preferred  Stock of
$139,500,  an  increase in Common  Stock of $233 and an  increase in  additional
paid-in capital of $139,267.

     During April 1998,  the remaining  balance of $2,680,000  face amount of 5%
Convertible  Debentures  were converted  into 1,873,420  shares of Common Stock,
resulting in increases in Common Stock of $18,734 and additional paid-in capital
of $2,661,266.

Note 3 - Subsequent Events

     During July 1998, the Company  received  $500,000 from the Taiwanese  joint
venture  as  an  advance  on  the  purchase  of  Common  Stock  and   reinvested
substantially all the proceeds as part of its investment in the joint venture.


                                       7
<PAGE>

Item 2.

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

     This Quarterly  Report on Form 10-QSB contains  forward-looking  statements
within the meaning of Section 27A of the  Securities Act of 1933, as amended and
Section 21E of the Securities  Exchange Act of 1934, as amended.  Actual results
could differ materially from those projected in the  forward-looking  statements
as a result of a number of  important  factors.  For a  discussion  of important
factors that could affect the Company's results,  in addition to the discussions
below,  please refer to the Company's  Annual Report on Form 10-KSB for the year
ended  December  31, 1997 and its  Registration  Statement  on Form S-3 declared
effective by the Securities and Exchange Commission on July 8, 1998 and the risk
factors listed therein.

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.  As part of its development  program,  the Company developed processes
and  machinery to  manufacture  its unique  laminates,  designed  and  assembled
prototype  equipment to produce 24" x 24" laminates and designed,  assembled and
in 1995 started up an initial  production module to produce 36" x 48" laminates.
In 1997, the Company completed the installation of advanced production equipment
bought with the proceeds of the Company's  Initial Public Offering in July 1996.
This  initial  production-scale  expansion  signified  the end of the  Company's
development stage.

     During  1997,  the  Company  produced  and sold its  laminates  in  limited
quantities  for  qualification  and  use  in  production  by its  customers  and
completed  installation of production  modules to achieve higher quantity levels
and economies of scale.  Throughout  1997 and continuing  into 1998, the Company
worked on adjusting and enhancing its production equipment and its manufacturing
processes.  The Company also worked on and continues to work on solving problems
with incoming raw materials and interior environment, which affect manufacturing
yields. The Company also added  manufacturing  management and initially expanded
its workforce to meet anticipated increases in sales levels. Starting at the end
of 1997, however, the workforce was scaled back when the anticipated increase in
sales did not occur in accordance with management's expectations. This continued
until May of 1998, when the workforce was increased to meet the  requirements of
expected larger orders.  The Company recorded bookings of approximately  $82,000
in June 1998, most of which was shipped in July 1998,  bookings of approximately
$68,000  in July 1998 and had a backlog of  approximately  $65,000 at the end of
July 1998.

     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 to
disruption.  There can be no assurance  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. 



                                       8
<PAGE>

Results of Operations

     Sales of laminates decreased to $75,752 for the three months ended June 30,
1998 from  $143,469  for the three months ended June 30,1997 and to $162,153 for
the six months  ended June 30, 1998 from  $295,468 for the six months ended June
30, 1997. Sales in the first quarter of 1998 were $86,401. The decreases are the
result of the continued  delay in or  cancellation  of  customers'  programs for
which  Compositech's  laminates  were  qualified or were in the process of being
qualified.  Sales  for July  1998  were  approximately  $66,000  and there was a
backlog of approximately $65,000 at the end of July 1998.

     Licensing income, relating to the Taiwanese joint venture, net of expenses,
for the three months ended March 31, 1998 totaled $18,660 and for the six months
ended June 30, 1998 totaled $31,576.  There was no licensing income in the three
months and six months ended June 30, 1997.

     Research and development expenses increased to $25,297 for the three months
ended June 30, 1998 from $23,197 for the three months ended June 30, 1997 and to
$65,910 for the six months  ended June 30, 1998 from  $46,205 for the six months
ended  June 30,  1997,  reflecting  the  Company's  development  efforts  on new
processes.  Manufacturing  expenses  decreased to $1,055,002 for the three month
period ended June 30, 1998 from  $1,389,893  for the three months ended June 30,
1997 and to  $2,015,564  for the six months ended June 30, 1998 from  $2,155,616
for the six  months  ended  June  30,  1997,  reflecting  the  reduced  level of
manufacturing  and sales  activity in the second  quarter of 1998 as compared to
the same period last year,  partially  offset by higher  levels of  expenditures
related  to  product  development,  process  adjustments  and  enhancements  and
problems with incoming raw materials and interior environment.

     Selling,  general and administrative expenses decreased to $330,762 for the
three months  ended June 30, 1998 from  $369,498 for the three months ended June
30, 1997 and to $623,014  for the six months  ended June 30, 1998 from  $791,989
for the six months ended June 30, 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 first half of
1998,  approximately  $214,000 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 expense (net of interest capitalized) increased to $51,681 for the
three months ended June 30, 1998 from  ($22,294) for the three months ended June
30, 1997 and to $147,160 for the six months ended June 30, 1998 from $18,683 for
the six months  ended June 30,  1997.  The  increased  expense is related to the
borrowing cost of the 5% convertible  debentures,  which did not begin until May
1997 as well as a reduction  in the amount of  capitalized  interest,  since the
Company has completed its initial  production  expansion phase.  Amortization of
debt discount and expenses increased to $189,471 for the three months ended June
30, 1998 from  $121,202 for the three months ended June 30, 1997 and to $497,603
for the six months  ended June 30, 1998 from  $121,202  for the six months ended
June 30, 1997,  reflecting  the  amortization  of costs  associated  with the 5%
convertible  debentures,  including  accelerated  amortization  as a  result  of
debenture  conversions  that concluded  during the second quarter of 1998. Other
income


                                       9
<PAGE>

decreased to $5,450 for the three months ended June 30, 1998 from $6,242 for the
three  months  ended June 30, 1997 and  increased  to $55,796 for the six months
ended June 30,  1998 from  $8,460 for the six months  ended June 30,  1997.  The
increase in the six month  period  reflects the receipt of a property tax refund
applicable to prior periods as well as adjustments of prior period  professional
fees.

     The equity in the profit of the  Canadian  joint  venture  during the first
half of 1998,  totaling  $51,247,  represents the Company's 50% share of the net
profit 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
investments in excess of administrative and marketing costs incurred.

     The foregoing  resulted in the Company  having a net loss of $1,527,891 for
the three  months ended June 30, 1998  compared  with  $1,718,540  for the three
months  ended June 30, 1997 and  $3,025,879  for the six month period ended June
30, 1998 compared with  $2,790,934 for the six month period ended June 30, 1997.
The  decreased  loss in the  three  month  period  ended  June 30 was  primarily
attributable to the decreased  level of  manufacturing  expenses  related to the
decrease in sales revenue which  exceeded the increases in interest  expense and
amortization of debt discount.  The increased loss in the six month period ended
June 30 was  attributable  primarily to the  amortization  of debt  discount and
expenses relative to the Debentures,  a non-cash item, and the decrease in sales
revenues and related expenses.

Liquidity and Capital Resources

     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,  1997
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 1998.  As of June 30,  1998,  the Company had
approximately  $1,752,000 of available cash  resources.  In January and February
1998, in connection with the Taiwanese joint venture,  the Company  received net
proceeds  aggregating  approximately  $1.9 million from the receipt of a license
fee  down  payment  and the  issuance  of stock  and  anticipates  receiving  an
additional  $1,190,000  in the third  quarter  of 1998,  net of  expenses,  from
license  fees  and  stock   issuances.   In  July  1998,  the  Company  invested
approximately  $466,000 in the Taiwanese  joint venture,  in accordance with the
terms of the joint venture agreements. In May of 1998, the Company concluded its
sale of Series B Preferred  Stock,  realizing  approximately  $1,900,000,  after
expenses.

     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.  In
addition, the Series B Preferred Stock is subject to 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  (currently  Nasdaq  SmallCap).  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. There can be no assurance 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.  There can 


                                       10
<PAGE>

be no assurance  that the Company will  successfully  complete  expansion of its
production  equipment,  achieve  broad  commercial  acceptance of its product or
generate sufficient revenues to achieve profitable  operations.  There can be no
assurance  that  management  has  identified  and made  appropriate  assumptions
regarding all factors that may affect the Company's business in the future.

     Included in current  maturities  of  long-term  debt is  $1,595,000  due to
directors/stockholders. The Company intents to renegotiate the due date of these
loans.

     Based on a  preliminary  review of Year 2000 issues,  the Company  believes
that the impact will not be material to the  Company's  business,  operations or
financial  condition.  The Company is also assessing how it could be affected by
the failure of third parties (e.g.  vendors and customers) to mitigate their own
Year 2000 issues.

Six Months Ended June 30, 1998 Compared with Six Months Ended June 30, 1997

     Net cash and cash  equivalents  used in operating  activities  decreased to
$1,211,669  for the six months ended June 30, 1998 from  $2,354,713  for the six
months ended June 30, 1997.  The  licensing  fees received from the Taiwan joint
venture were the primary  source of funds  provided by operating  activities for
the six months ended June 30, 1998, with $877,808 deferred to future periods for
financial reporting purposes.  Decreases in accounts receivable and inventory as
well as increases in deferred salaries, accrued interest and accrued liabilities
for this same period were partially offset by a decrease in accounts payable.

     Net cash and cash equivalents used in investing activity for the six months
ended  June 30,  1998  amounted  to  $497,105,  compared  with net cash and cash
equivalents  provided by investing  activities of $1,074,280  for the six months
ended June 30, 1997. Capital expenditures for equipment and advance payments for
equipment  decreased to $487,689  for the six months  ended June 30, 1998,  from
$1,215,084 for the six months ended June 30, 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.  Maturities of short term U.S. Government securities during
the six months ended June 30, 1997 accounted for $2,384,700 of funds provided by
investing activities.

     Cash flows from  financing  activities  increased to $2,836,705 for the six
months  ended June 30, 1998 from  $2,018,090  for the six months  ended June 30,
1997. The significant  sources of funds provided by financing  activities during
the first half of 1998 were the sale of stock to the  Taiwanese  joint  venture,
totaling $952,500, net of expenses, and the sale of the Series B Preferred Stock
which provided $1,900,000,  net of expenses.  The six months ended June 30, 1997
included  $2,022,231  of  funds  provided  by the  sale  of  the 5%  Convertible
Debentures.


                                       11
<PAGE>

Part II - Other Information

Item 2.  Changes in Securities

     (c) Recent Sales of Unregistered Securities.
     --------------------------------------------

     On May 29, 1998, the Company issued 220 shares of Series B Preferred  Stock
in a private placement to an accredited investor, raising gross proceeds of $2.2
million. The net proceeds of approximately $1.9 million will be used for working
capital and equipment.  Holders of the Series B Preferred  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 Preferred 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  Company's  Series A  Preferred  Stock or Common  Stock.  The holders of the
Series B Preferred  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 Preferred  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 Preferred
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 Preferred 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 the Company's  Common
Stock on a major exchange. The redemption price would be generally equivalent to
the amount  obtained if the Series B Preferred  Stock was converted  into Common
Stock at the then existing  conversion price. The sale of the Series B Preferred
Stock was exempt from registration under the Securities Act of 1933, as amended,
pursuant  to Section  4(2)  thereof,  as a  transaction  not  involving a public
offering.



                                       12
<PAGE>

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

     The  Company's  1998 Annual  Meeting of  Stockholders  was held on June 23,
1998. The following actions were taken:

1. Eight  directors  were elected to serve for one-year  terms on the  Company's
Board of Directors, by the following votes:

                                              For             Withheld
                                       ----------------    ----------------
     Jonas Medney                         12,052,432           78,233
     Fred E. Klimpl                       12,052,432           78,233
     Samuel S. Gross                      12,052,432           78,233
     Pierre Laflamme                      12,051,132           79,533
     Willard T. Jackson                   12,052,432           78,233
     Robert W. Middleton                  12,049,882           80,783
     Heinz-Gerd Reinkemeyer               12,052,432           78,233
     James W. Taylor                      12,052,432           78,233

2. The  selection  of Ernst & Young LLP as auditors for the Company for the year
1998 was  ratified  by a vote of  12,004,632  shares in favor and 34,833  shares
opposed. A total of 91,200 shares abstained from voting.

3. The  amendment  of  Compositech's  Amended and  Restated  Stock Award Plan to
increase by 500,000  shares the number of shares of Common Stock  authorized for
issuance  thereunder,  was approved by a vote of 11,683,514  shares in favor and
282,930 shares opposed. A total of 164,221 shares abstained from voting.

Item 6.  Exhibits and Reports on Form 8-K

(a)      Exhibits
         Exhibit Number                     Description
         --------------                     -----------
             10.10                  Compositech Ltd. Amended and Restated
                                        Stock Award Plan

             11                     Loss per Common Share

(b)      Reports on Form 8-K
                                                                   Financial
         Date of Report                Item Reported            Statements Filed
         --------------                -------------            ----------------
           May 29, 1998             Item 5 - Other Events              No
                                  (Announcing sale of 7% 
                                   Series B Convertible
                                    Preferred Stock)

     All other items  required in Part II have been filed  previously or are not
applicable for the quarter ended June 30, 1998.



                                       13
<PAGE>

                                    Signature

     Pursuant to the  requirements  of the  Securities  Exchange Act of 1934, as
amended,  the  registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.

                                      COMPOSITECH LTD.



Dated: August 13, 1998                /s/ Samuel S. Gross                       
                                      ------------------------------------------
                                      Executive Vice President and Treasurer
                                      (Principal Accounting Officer and officer
                                      duly authorized to sign this report on 
                                      behalf of the registrant)




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