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

                     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 September 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 November 16, 1998:

     Common Stock $.01 par value                                   12,682,706
     ---------------------------                                   ----------
               Class                                            Number of shares

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



<PAGE>



                                COMPOSITECH LTD.


                                      Index

<TABLE>
<CAPTION>
Part I - Financial Information                                                                         Page
                                                                                                       ----
<S>                                                                                                    <C>
Item 1.  Financial Statements

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

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

         Statements of Cash Flows (unaudited) for the nine-month periods
           ended September 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 6.  Exhibits and Reports on Form 8-K ..........................................................   12

Signature ..........................................................................................   13
</TABLE>


<PAGE>


                                COMPOSITECH LTD.
                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                         Sept. 30       December 31
                                                                                                           1998            1997
                                                                                                       ------------    ------------
                                                                                                       (unaudited)
<S>                                                                                                    <C>             <C>         
ASSETS
Current assets:
  Cash and cash equivalents                                                                            $    373,700    $    624,254
  Accounts receivable trade - net                                                                            52,232          44,725
  Accounts receivable from joint venture                                                                     97,618         201,382
  Inventories                                                                                               329,053         401,922
  Prepaid expenses and other                                                                                144,571          97,371
                                                                                                       ------------    ------------
        Total current assets                                                                                997,174       1,369,654

Property and equipment at cost - net                                                                      5,760,504       5,276,672
Investment in joint ventures - net of accumulated amortization of $17,250 (1998)                          6,156,732       5,631,561
Advance payments on construction-in-progress                                                                 16,753         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 $15,602 (1998) and $6,846 (1997)                                                                  142,331         134,796
                                                                                                       ------------    ------------
Total assets                                                                                           $ 13,073,494    $ 13,145,889
                                                                                                       ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                                                                     $    447,131    $    609,278
  Deferred salaries - $766,020 (1998)  and $ 1,500 (1997) to  officers                                      973,593         192,571
  Accrued interest - all (1998) and $ 916 (1997)  to stockholders                                           217,536          26,017
  Other accrued liabilities                                                                                 441,658         370,707
                                                                                                       ------------    ------------
        Total current liabilities                                                                         2,079,918       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                                                       5,762,350
  Deferred salaries - officers                                                                                              551,558
  Accrued interest - directors/stockholders                                                                                 100,159
  Capital lease obligations                                                                                  21,034          49,047
  Other liabilities                                                                                          37,500          37,500
                                                                                                       ------------    ------------
        Total non-current liabilities                                                                     1,653,534       8,095,614

Deferred licensing income                                                                                   813,581

Advance payments on sales of common stock                                                                   500,000

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 - 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                                                                             36,602,778      30,075,100
  Deficit                                                                                               (32,603,877)    (28,143,560)
                                                                                                       ------------    ------------
    Total stockholders' equity                                                                            5,826,461       3,851,702
                                                                                                       ------------    ------------
Total liabilities and stockholders' equity                                                             $ 13,073,494    $ 13,145,889
                                                                                                       ============    ============
</TABLE>


See accompanying notes.



                                       2
<PAGE>


                                COMPOSITECH LTD.
                            STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                      Three Months Ended                   Nine Months Ended
                                                                         September 30                         September 30
                                                                 ------------------------------      ------------------------------
                                                                     1998              1997             1998               1997
                                                                 ------------      ------------      ------------      ------------
<S>                                                              <C>               <C>               <C>               <C>         
Revenues:
  Sales                                                          $    136,830      $    115,999      $    298,983      $    411,467
  Licensing income                                                     16,280                              47,856
                                                                 ------------      ------------      ------------      ------------
       Total revenues                                                 153,110           115,999           346,839           411,467

Costs and expenses:
  Manufacturing expenses                                            1,318,667         1,485,353         3,334,231         3,640,969
  Selling, general and administrative                                 310,323           384,451           933,337         1,176,440
  Research and development                                             41,146            12,765           107,056            58,970
                                                                 ------------      ------------      ------------      ------------

      Total operating expenses                                      1,670,136         1,882,569         4,374,624         4,876,379
                                                                 ------------      ------------      ------------      ------------

(Loss) from operations                                             (1,517,026)       (1,766,570)       (4,027,785)       (4,464,912)

Other income (expenses):
  Interest income                                                      16,972            35,397            47,932            74,230
  Interest expense
     (net of interest capitalized of $66,000
     (1998) and $82,000 (1997) )                                       21,909           (89,291)         (125,251)         (107,974)
  Amortization of debt discount and expenses                                           (911,263)         (497,603)       (1,032,465)
  Loss on disposal of property and equipment                                             (9,613)           (8,360)           (9,613)
  Other income (expense)                                               20,020            (3,308)           75,816             5,152
                                                                 ------------      ------------      ------------      ------------
                                                                       58,901          (978,078)         (507,466)       (1,070,670)
                                                                 ------------      ------------      ------------      ------------
(Loss)from operations before equity in income
(loss) of joint venture                                            (1,458,125)       (2,744,648)       (4,535,251)       (5,535,582)

Equity in income of joint venture                                      23,687                              74,934
                                                                 ------------      ------------      ------------      ------------
   Net (loss)                                                      (1,434,438)       (2,744,648)       (4,460,317)       (5,535,582)

Preferred Stock dividends accrued, including
amortization of discount on 7% Series B convertible
preferred stock of $62,857 and $314,286, respectively                 102,212                             367,330
                                                                 ------------      ------------      ------------      ------------
   (Loss) available for common stockholders                      ($ 1,536,650)     ($ 2,744,648)     ($ 4,827,647)     ($ 5,535,582)
                                                                 ============      ============      ============      ============


Shares used in computing (loss) per common share                   12,741,533         6,465,141        10,916,633         6,462,406
                                                                 ============      ============      ============      ============


(Loss) per common share - basic                                        ($0.12)           ($0.42)           ($0.44)           ($0.86)
                                                                 ============      ============      ============      ============

(Loss) per common share - diluted                                      ($0.11)           ($0.27)           ($0.36)           ($0.69)
                                                                 ============      ============      ============      ============
</TABLE>


See accompanying notes.



                                       3
<PAGE>


                                COMPOSITECH LTD.
                            STATEMENTS OF CASH FLOWS
                                  (unaudited)


<TABLE>
<CAPTION>
                                                                                                           Nine Months Ended
                                                                                                              September 30
                                                                                                     ------------------------------
                                                                                                        1998               1997
                                                                                                     -----------        -----------
Cash Flows from Operating Activities
<S>                                                                                                  <C>                <C>         
Net (loss)                                                                                           ($4,460,317)       ($5,535,582)
Adjustments to reconcile net (loss) to net cash and
  cash equivalents used in operating activities:
    Depreciation and amortization, including capital leases                                              524,900            325,104
    Loss on disposal of property and equipment                                                             8,360              9,613
    Amortization of debt discount and expenses                                                           497,603          1,032,465
    Equity in net income of joint venture                                                                (74,934)
    Changes in operating assets and liabilities:
       Accounts receivable trade - net                                                                    (7,507)            55,012
       Accounts receivable from joint venture                                                            103,764
       Inventories                                                                                        72,869           (229,604)
       Prepaid expenses and other                                                                        (47,200)          (200,034)
       Other assets and other deferred charges                                                            (8,362)           (95,180)
       Accounts payable                                                                                 (162,147)           (87,053)
       Deferred salaries                                                                                 229,464
       Accrued interest                                                                                   91,360             31,007
       Deferred licensing income                                                                         813,581
       Other accrued liabilities                                                                          22,183            168,260
                                                                                                     -----------        -----------
          Net cash and cash equivalents (used) in operating activities                                (2,396,383)        (4,525,992)

Cash Flows from Investing Activities
Purchase of property and equipment - net                                                                (991,086)        (1,638,450)
Advance payments on construction-in-progress                                                             257,500           (122,541)
Investment in joint ventures                                                                            (467,487)
Patent costs deferred                                                                                     (7,929)          (111,383)
Short term investments - maturities                                                                                       2,384,700
                                                                                                     -----------        -----------
          Net cash and cash equivalents provided by (used in) investing activities                    (1,209,002)           512,326

Cash Flows from Financing Activities
Net proceeds from issuance of common stock                                                               958,120             47,520
Net proceeds from issuance of 5% convertible debentures                                                   29,000          5,891,189
Net proceeds from issuance of 7% Series B convertible preferred stock                                  1,900,000
Advance payment on stock issuance                                                                        500,000
Payment of capital lease obligations                                                                     (32,289)           (24,169)
                                                                                                     -----------        -----------
        Net cash and cash equivalents provided by financing activities                                 3,354,831          5,914,540
                                                                                                     -----------        -----------
        Increase (decrease) in cash and cash equivalents                                                (250,554)         1,900,874
        Cash and cash equivalents at beginning of period                                                 624,254            673,084
                                                                                                     -----------        -----------
        Cash and cash equivalents at end of period                                                   $   373,700        $ 2,573,958
                                                                                                     ===========        ===========

Supplemental disclosures of cash flow information
Noncash financing activities:
  Capital lease obligations for property and equipment acquisitions                                                     $    91,336
                                                                                                                        ===========
  Preferred Stock dividends accrued, including amortization of discount
    on 7% Series B convertible preferred stock of $314,286                                           $   367,330
                                                                                                     ===========
Cash paid for:
  Interest                                                                                           $   100,628        $   164,324
                                                                                                     ===========        ===========
</TABLE>


See accompanying notes.


                                       4
<PAGE>


                                COMPOSITECH LTD.

                          Notes to Financial Statements
                                   (Unaudited)

                               September 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 nine-month period ended September 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.  The Company received
$1 million as a license  down payment and it will  receive  additional  up-front
license  payments of $1 million 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 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  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  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 $16,280 in the three months ended
September  30,  1998 and  $47,856 in the nine months  ended  September  30, 1998
relates to the 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 are being used for working  capital and
equipment.



                                       5
<PAGE>


     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 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 was amortized  over the period from issuance to July 8, 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 nine  months  ended  September  30,  1997 to  conform  to
presentations for the three months and nine months ended September 30, 1998.


                                       6
<PAGE>


Note 2 - Common Stock Issuances and Stock Options

     In the nine  months  ended  September  30,  1998,  the  Company  granted to
selected officers,  directors, key employees and consultants options to purchase
814,100  shares of Common  Stock at prices  ranging  from  $1.1875  to $2.00 per
share, the market value of the Common Stock at the date of grant.

     In the nine months ended September 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

     In  October  1998,  the  Company  obtained  extensions  of the due dates to
January 2, 2000 of the $1,595,000 of notes payable to directors/stockholders.

     On November 13, 1998,  the Company sold 100,000 shares of Common Stock in a
private placement,  realizing $103,500,  net of expenses. In connection with the
private  placement,  the Company  issued  warrants to purchase  75,000 shares of
Common  Stock at $1.125 per  share,  the  market  price on the date of  closing,
exercisable  until November 13, 2000. The Company is negotiating  for additional
financing.


                                       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 has developed and is rapidly moving to commercialization of its
unique  nonwoven  copper-clad  fiberglass  reinforced  epoxy  laminates  used to
manufacture printed circuit boards required by the electronics industry. 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.

     During 1997 and early 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. This highly focused sales effort left
the Company vulnerable to order volatility.  Throughout 1997 and early 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  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 22 qualified new customer  opportunities in the third quarter. The
Company's  sales  focus  is  clearly  on the high  layer  count,  high  density,
multilayer and backplane market segments.  The Company's  internal focus,  which
had  been  appropriately  on  technology  development  in  the  past,  has  been
reoriented to customer  satisfaction  as the Company ramps up production to meet
customer demand.  Previously  purchased equipment is being installed and will be
operational  in the  fourth  quarter.  A major  initiative  to reach a long term
supply  agreement  with  a  significant   printed  wiring  board  fabricator  is
progressing 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.


                                       8
<PAGE>



     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.

Results of Operations

     Sales of  laminates  increased  to  $136,830  for the  three  months  ended
September 30, 1998 from  $115,999 for the three months ended  September 30, 1997
and  decreased  to $298,983 for the nine months  ended  September  30, 1998 from
$411,467  for the nine months  ended  September  30,  1997.  The increase in the
three-month  period was principally due to large additional  orders from a major
customer  as  part  of  their  program  of   production   testing  and  customer
qualification of Compositech laminates. The decrease in the nine-month period is
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.

     Licensing income, relating to the Taiwanese joint venture, net of expenses,
for the three months ended  September 30, 1998 totaled  $16,280 and for the nine
months ended September 30, 1998 totaled  $47,856.  There was no licensing income
in 1997.

     Research and development expenses increased to $41,146 for the three months
ended  September 30, 1998 from $12,765 for the three months ended  September 30,
1997 and to $107,056 for the nine months ended  September  30, 1998 from $58,970
for  the  nine  months  ended  September  30,  1997,  reflecting  the  Company's
development  efforts  on new  processes.  Manufacturing  expenses  decreased  to
$1,318,667 for the three months ended September 30, 1998 from $1,485,353 for the
three  months ended  September  30, 1997 and to  $3,334,231  for the nine months
ended September 30, 1998 from $3,640,969 for the nine months ended September 30,
1997,  reflecting the reduced level of direct  manufacturing  costs in the third
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  the  costs  of  upgrading  the  supervisory
workforce.

     Selling,  general and administrative expenses decreased to $310,323 for the
three months ended  September  30, 1998 from $384,451 for the three months ended
September 30, 1997 and to $933,337 for the nine months ended  September 30, 1998
from $1,176,440 for the nine months ended September 30, 1997. Decreases in legal
and  professional  fees and  patent/trademark  expenses were 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 the first nine months of 1998,  approximately
$297,000 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



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<PAGE>


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)  decreased to ($21,909) for
the three  months  ended  September  30, 1998 from  $89,291 for the three months
ended  September  30, 1997 and  increased  to $125,251 for the nine months ended
September 30, 1998 from  $107,974 for the nine months ended  September 30, 1997.
The third  quarter of 1998  reflects an  adjustment  of $66,000 for  capitalized
interest on  construction-in-progress.  The increased expense for the nine month
period 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,  as the Company has completed its initial production  expansion phase.
Amortization of debt discount and expenses totaled $911,263 for the three months
ended  September  30, 1997 and  decreased  to $497,603 for the nine months ended
September 30, 1998 from $1,032,465 for the nine months ended September 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 was
$20,020 for the three months ended  September 30, 1998 as compared to an expense
of $3,308 for the three months ended September 30, 1997 and increased to $75,816
for the nine  months  ended  September  30, 1998 from $5,152 for the nine months
ended  September 30, 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.

     The  equity in the profit of the  Canadian  joint  venture  during the nine
months ended September 30, 1998,  totaling $74,934  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 $1,434,438 for
the three months ended September 30, 1998 compared with $2,744,648 for the three
months  ended  September  30,  1997 and  $4,460,317  for the nine  months  ended
September 30, 1998 compared with  $5,535,582 for the nine months ended September
30, 1997.  The decreased  loss in the  three-month  and  nine-month  periods 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

     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 September 30, 1998, the Company had
approximately  $373,700 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 $693,000, net of expenses, in the fourth quarter of 1998 from



                                       10
<PAGE>


license fees and a stock  issuance.  Following the receipt of an advance payment
from the joint  venture  for sales of the  Company's  Common  Stock to the joint
venture, in July 1998, the Company invested  approximately $466,000 in the 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).  On November 13, 1998, the Company sold
100,000 shares of Common Stock in a private placement,  realizing $103,500,  net
of expenses.  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.  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 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.

     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.  vendors and  customers)
with whom it conducts  business to assess  whether they are or will be Year 2000
compliant.

     The  Company's  information  technology  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 systems have been produced and maintained by
large software vendors which are Year 2000 compliant.  However,  there can be no
assurance 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  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.


                                       11
<PAGE>


Nine Months Ended  September 30, 1998 Compared with Nine Months Ended  September
30, 1997

     Net cash and cash  equivalents  used in operating  activities  decreased to
$2,396,383 for the nine months ended  September 30, 1998 from $4,525,992 for the
nine months ended  September  30, 1997.  The  licensing  fees  received from the
Taiwan  joint  venture  were the primary  source of funds  provided by operating
activities for the nine months ended September 30, 1998, with $813,581  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 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 nine
months ended  September 30, 1998 amounted to $1,209,002,  compared with net cash
and cash equivalents  provided by investing  activities of $512,326 for the nine
months ended September 30, 1997. Capital  expenditures for equipment and advance
payments for equipment decreased to $733,586 for the nine months ended September
30, 1998,  from  $1,760.991  for the nine months ended  September 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 nine months ended September 30, 1997 accounted
for $2,384,700 of the funds provided by investing activities.

     Cash flows from financing  activities  decreased to $3,354,831 for the nine
months  ended  September  30, 1998 from  $5,914,540  for the nine  months  ended
September  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 nine months
ended  September 30, 1997 included  $5,891,189 of funds  provided by the sale of
the 5% Convertible Debentures.

Part II - Other Information

Item 6.  Exhibits and Reports on Form 8-K

(a)  Exhibits

         Exhibit Number                       Description
         --------------                       -----------
                11               Loss per Common Share
                27               Financial Data Schedules ( Edgar version only )

(b)  Reports on Form 8-K

     None

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


                                       12
<PAGE>


                                    Signature

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

                                   COMPOSITECH LTD.


Dated: November 16, 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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