U.S. SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

Form 10-KSB

|(Mark One)                                                    |                                                                                     
|------------------------------------------------------------- | ------------------------------------------------------------------------------------
|ý                                                             | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the fiscal year ended March 31, 2003                     
|o                                                             | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  
|For the transition period
from                             to

Commission File No.0-28034

CardioTech International, Inc.(Name of small business issuer in its charter)

MassachusettsState or other jurisdiction of
incorporation or organization

04-3186647(I.R.S. Employer
Identification No.)78E Olympia Avenue, Woburn, Massachusetts(Address of principal executive offices)

01801(Zip Code)


Issuer's
telephone number(781) 933-4772

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

Title of each classCommon Stock, $.01 par value per share

Name of each exchange on which registeredAmerican Stock Exchange


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

Indicate whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

Check
if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this
Form 10-KSB. o

State
issuer's revenues for its most recent fiscal year. $3,394,000

As
of June 12, 2003, 14,049,235 shares of the registrant's Common Stock were outstanding, and the aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant (without admitting that such person whose shares are not included in such calculation is an affiliate) was approximately $39,759,000 based on the last sale
price as reported by the American Stock Exchange on such date.

Transitional
Small Business Disclosure Format (check one): Yeso    Noý

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PART I

Item 1. Description of Business

General

CardioTech International, Inc. ("CardioTech" or the "Company") is using its proprietary manufacturing technology to develop and manufacture small bore
vascular grafts, or synthetic blood vessels, made of ChronoFlex, a family of polyurethanes that has been demonstrated to be biocompatible and non-toxic. Vascular grafts are used to
replace, bypass or provide a new lining or arterial wall for occluded, damaged, dilated or severely diseased arteries. The Company developed a vascular access graft tradenamed VascuLink Vascular
Access Graft and was developing a peripheral graft tradenamed MyoLink Peripheral Graft. The Company sold the VascuLink and MyoLink products to Nervation Ltd in connection with the disposition
of the Company's UK subsidiary, CardioTech International, Ltd ("CTL"). The Company is currently developing a layered microporous coronary artery bypass graft tradenamed
CardioPass.

On
May 4, 2001, the Company completed the acquisition of all the shares of CMED Catheter and Disposables Technology, Inc., a Minnesota corporation ("CDT"), from Colorado
Medtech, Inc., a Colorado corporation ("Medtech") pursuant to an Acquisition Agreement dated as of April 30, 2001, by and among CardioTech, CDT and Medtech.

CDT
is an original equipment manufacturer; supplier of specialized disposable medical devices to medical device companies from concept to finished packaged, sterile product; and uses its
experience in the design, development, prototyping and manufacturing to provide turnkey contract services. Some devices designed, developed and manufactured for customers by CDT include sensing,
balloon, and drug delivery catheters; disposable endoscopes; and in-vitro diagnostic and surgical disposables.

Additionally,
through its Biomaterials division, the Company develops, manufactures and markets polyurethane-based biomaterials for use in both acute and chronically implanted devices
such as stents, artificial hearts, and vascular ports. These premium biomaterials are sold under the tradenames: ChronoFlex, ChronoThane, HydroThane, ChronoFilm, HydroMed and Hydroslip.

CardioTech
owns a number of patents relating to its vascular graft manufacturing technology. In addition, PolyMedica Corporation ("PMI") has granted to CardioTech an exclusive,
perpetual, worldwide, royalty-free license for the use of one polyurethane patent and related technology in the field consisting of the development, manufacture and sale of implantable
medical devices and biodurable polymer material to third parties for the use in medical applications (the "Implantable Device and Materials Field"). PMI also owns, jointly with
Thermedics, Inc., the ChronoFlex polyurethane patents relating to the ChronoFlex technology ("Joint Technology".) PMI has granted to CardioTech a non-exclusive, perpetual,
worldwide, royalty-free sublicense of these patents for use in the Implantable Devices and Materials Field.

ChronoFilm
is a registered trademark of PMI. ChronoFlex, is a registered trademark of CardioTech. ChronoThane, ChronoPrene, HydroThane, PolyBlend and PolyWeld are tradenames of
CardioTech. DuraGraft and CardioPass are trademarks of CardioTech.

On
April 7, 2003, the Company merged with Gish Biomedical, Inc., a California corporation ("Gish"), with its corporate headquarters in Rancho Santa Margarita, California.
Each outstanding share of Gish common stock was converted into 1.3422 shares of CardioTech common stock. CardioTech issued 4,901,817 shares to holders of Gish stock, which equals approximately 35% of
the total shares outstanding. Gish specializes in the manufacture and sale of products used in open-heart surgery, vascular access and orthopedic surgery. Gish is registered as a medical
device manufacturer with FDA, the European Union and state agencies, such as the California Department of Health Services.

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The
Company was founded in 1993 as a subsidiary of PMI. In June 1996, PMI distributed all of the shares of CardioTech's common stock, par value $.01 per share, that PMI owned to
PMI stockholders of record as of June 3, 1996. The Company is headquartered in Woburn, Massachusetts, operates contract research and development services and outsourced manufacturing from its
CDT facility in Plymouth, Minnesota; and manufactures and sells products used in open heart surgery, vascular access and orthopedic surgery from its Gish facility in Rancho Santa Margarita,
California.

Medical Background

Blood is pumped from the heart throughout the body via arteries. Blood is returned to the heart at relatively low pressure via veins, which have thinner walls
than arteries and have check valves which force blood to move in one direction. Because a specific area of the body is often supplied by a single main artery, rupture, severe narrowing or occlusion of
the artery supplying blood to that area is likely to cause an undesirable or catastrophic medical outcome.

Vascular
grafts are used to replace or bypass occluded, damaged, dilated or severely diseased arteries and are sometimes used to provide access to the bloodstream for patients undergoing
hemodialysis treatments. Existing small bore graft technologies suffer from a variety of disadvantages in the treatment of certain medical conditions, depending upon the need for biodurability,
compliance (elasticity) and other characteristics necessary for long-term interface with the human body.

Product in Pre-clinical Development

CardioPass Coronary Artery Bypass Graft

Coronary artery bypass graft ("CABG") surgery is performed to treat the impairment of blood flow to portions of the heart. CABG surgery involves the addition of
one or more new vessels to the heart to re-route blood around blocked coronary arteries.

Autogenous
grafts (using the patient's own saphenous vein or mammary artery) have been successfully used in CABG procedures for a number of years and have shown a relatively high patency
rate (80% to 90% for saphenous veins and over 90% for mammary arteries one year after surgery) with no risk of tissue rejection. However, the surgical harvesting of vessels for autogenous grafts
involves significant trauma and expense. In addition, not all patients requiring CABG surgery have sufficient native vessels as a result of previous bypass surgeries, or their vessels may be of
inferior quality due to trauma or disease. Cryo-preserved saphenous veins are available, but these veins often deteriorate due to attack by the body's immune system.

CardioTech
is developing its grafts using specialized ChronoFlex polyurethane materials that it believes will provide significantly improved performance in the treatment of arterial
disorders. The grafts have three layers, similar to natural arteries and are designed to replicate the physical characteristics of human blood vessels.

The
Company is developing the CardioPass Coronary Artery Bypass Graft to be a synthetic graft of 4mm in diameter specifically designed for use in CABG surgery. If successfully developed,
the Company believes that the CardioPass Graft may be used initially to provide an alternative to patients with insufficient or inadequate native vessels for use in bypass surgery as a result of
repeat procedures, trauma, disease or other factors. The Company believes, however, that the CardioPass Graft may ultimately be used as a substitute for native saphenous veins, thus avoiding the
trauma and expense associated with the surgical harvesting of the vein.

The
Company believes that approximately 700,000 CABG procedures were performed worldwide, of which nearly 500,000 were performed in the United States during 1999. The Company believes
that approximately 20% of these CABG procedures were performed on patients who had previously undergone bypass surgery, and that the number of repeat procedures will continue to increase as a

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percentage
of procedures performed. Currently, approximately 70% of CABG procedures are performed utilizing the saphenous vein. The CardioPass Coronary Artery Bypass Graft is in clinical trial
development. In April 2003, the Company announced that it is has completed preparations of a human clinical trial for its CardioPass coronary artery bypass graft. The trial is scheduled to be
initially conducted in Brazil, and will involve several clinical institutions. The Company is now entering the patient-recruitment phase, and expects to perform the first human implant within three
months.

The
Company estimates that approximately 100,000 patients are diagnosed by their physicians as having native vessels that are inadequate for use in bypass surgery. If the CardioPass
Graft is successfully developed, the Company believes that the graft may initially be used for these patients. The Company also believes that if long-term clinical results are acceptable
to clinicians (generally, greater than 50% patency five years after implant), the graft may ultimately be used as a direct substitute for autogenous saphenous veins.

Gish Biomedical Products

Custom Cardiovascular Tubing Systems

During open-heart surgery, the patient's blood is diverted from the heart through sterile plastic tubing and various other devices to an oxygenator
device, which oxygenates the blood before it is returned to the patient. Each hospital performing open-heart surgery specifies the components to be included in its custom tubing sets,
based on the particular needs of its surgical team. The complexity of the sets varies from simple tubing systems to all-inclusive operating
packs. The packs usually include blood filters, gas filters, reservoirs used to collect blood lost during surgery and other components. Gish produces custom tubing sets using clear MediflexTM tubing.
Such components are assembled in the Gish clean room, sterilized and then shipped either to the hospital or to one of Gish's specialty distributors which service such hospitals. Gish also assembles
custom tubing sets for several competitive medical device manufacturers under private label agreements.

Arterial Filters

The arterial filter is the last device the blood passes through in the cardiovascular bypass circuit as it is being returned to the patient. The purpose of the
filter is to remove gaseous micro emboli and debris, which are generated by the oxygenation system, from the patient's blood.

Gish
introduced its first arterial filters in 1985. Gish's first design contained a safety bypass loop incorporated into the filter housing. Gish received FDA approval to market an
improved design which became available for sale during the second quarter of fiscal 1994.

Cardiotomy Reservoirs

Cardiac suction is a technique employed in open-heart surgery to recover shed blood in the chest cavity and return it to the patient. The use of this
technique reduces the requirements for whole blood replacement from donor sources, thereby reducing the risk of blood compatibility problems and blood-borne viral diseases such as AIDS and hepatitis.

Gish's
cardiotomy reservoir systems consist of a polycarbonate reservoir, defoaming and filtration cartridge, and mounting bracket. This enables the perfusion team to recover high
volumes of shed blood, then defoam and filter it prior to returning it to the patient's circulatory system.

In
addition to the cardiotomy reservoirs' use in the operating room, Gish has developed several systems which allow the cardiotomy reservoir to be used as a pleural drainage or
autotransfusion system during recovery.

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Vision(TM) Oxygenator

An oxygenator enables gas exchange of oxygen and carbon dioxide and also regulates the temperature of the patient's blood.

As
a life sustaining device used during open-heart surgery, the oxygenator is a key component of the bypass circuit. Vision is assembled in Gish's clean room using state of
the art equipment and biocompatible materials, and then each unit is leak tested before shipment.

Vision's
gas transfer performance is excellent, dependable and capable of maintaining the oxygen demands of patients of all sizes for periods of up to six hours.

Vision's
unique air separation channel utilizes an arterial outlet pressure gradient and the natural buoyancy of air to minimize the passage of gaseous emboli towards the patient.
Unwanted emboli are safely purged for safe venting back to the reservoir. Through studies at an independent testing facility, Vision's air handling abilities were proven superior to competitive
devices.

Vision
also eliminates common difficulties associated with other oxygenators. The blood ports are oriented on one side, gas and water on the other to reduce contamination. Different
sized gas inlet and outlet ports resolve any gas line confusion. Angled water ports allow Vision's heat exchanger to drain, minimizing the creation of water puddles on the floor. During long pump
runs, a fluid dam and evacuation port divert condensation away from the gas scavenge port. Finally, a protective rib below the blood inlet port prevents any contact between the port and the floor.

Gish's
Vision oxygenator was sold in selected accounts both domestically and internationally for the first half of fiscal 1998. Gish made its full market release of this product for sale
in January 1998. Gish believes that the Vision oxygenator's superior air handling capabilities provides Gish with a competitive advantage in the oxygenator market place.

Venous Reservoirs

A venous reservoir is a device used to pool, filter and defoam blood prior to its introduction to the oxygenator. Gish offers a variety of venous reservoirs,
including some which incorporate the capacity for autologous transfusion post surgically. Gish also has several products which incorporate the functions of cardiotomy, venous reservoir, post surgical
blood collection and blood reinfusion devices. This functional bundling is usually cost effective for the hospital.

CAPVRF44

Gish's CAPVRF44 hardshell venous reservoir combines a 360(0) rotational, top-entry 1/2" inlet for unrestricted venous drainage and a
high performance cardiotomy compartment with six sucker inlet ports to handle all of the blood coming from the surgical field. Gish has incorporated the advantages of the depth filter in its
cardiotomies into the CAPVRF44 for reduced hold-up volumes, making more blood available to the patient. With an operating capacity of 4400 ml, the CAPVRF44 also has the capacity to handle
high blood volume procedures such as valve replacements and second surgeries.

The
CAPVRF44 is a perioperative device, capable of operating in both the Operating Room and Recovery Room. Following surgery, through a simple conversion process, the CAPVRF44 collects
blood shed from the chest cavity and removes unwanted debris before the filtered blood is reinfused back into the patient. Blood recovery and autotransfusion through the CAPVRF44's closed system
limits hospital staff exposure to potential blood infections. Recovered blood may be reinfused continuously, intermittently, or not at all, in support of all patients' religious beliefs, including
Jehovah's Witnesses. The CAPVRF44's dual role means fewer homologous blood products are needed, further reducing surgical costs and improving patient safety.

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With
an estimated 80% of the market using hardshell reservoirs, the combination of the Vision oxygenator and the hardshell CAPVRF44 reservoir provides Gish with the products to
effectively meet the needs of the 400,000 open-heart procedures performed in the U.S. and the 600,000 procedures performed worldwide annually.

Cardioplegia Delivery Systems

Cardioplegia encompasses several techniques employed in open-heart surgery to preserve, protect and manage the heart tissue. The technique typically
involves the use of a chilled solution which is infused into the heart through the coronary arteries to cool the heart and reduce heart activity and metabolism. However, there are many different
techniques utilized, depending on the physician and patient needs. The use of these techniques significantly reduces damage to heart tissue during surgery, enhances restoration of heart function and
helps return the patient to a normal heartbeat when the surgical procedure is complete.

Gish
has developed a complete line of cardioplegia delivery systems, including a new cardioplegia device. On April 10, 2002, the FDA granted Gish clearance to sell the device in
the United States of
America. Additionally, the new cardioplegia device is CE marked, allowing sale in Europe. Multiple systems are required for this technique due to varying physician preferences. Gish's original
offerings for this procedure were a series of reservoirs with a recirculation valve (CPS) and a series of cooling coils (CCS series). Gish has since developed a line of cardioplegia systems and heat
exchangers designed to utilize a blood and potassium mixture and allow the surgeon to quickly change the temperature delivered to the patient.

Oxygen Saturation Monitor

In February 1992, Gish introduced a digital blood saturation monitor for open-heart surgery, the StatSatTM. The StatSat is an electronic device
which measures the oxygen content of the patient's blood during surgery. These readings are taken continuously and the StatSatTM plots the course of the blood oxygen saturation during the surgery.
Although the StatSat is reusable, it uses a disposable sensor for each surgery.

Critical Care Central Venous Access Catheters and Ports

Gish's HemedTM central venous access catheter systems have applications in hyper-alimentation, chemotherapy, and long-term vascular access. These
long-term indwelling catheters are surgically implanted to provide direct access to the central venous system for high protein intravenous solutions needed by patients having nonfunctional
digestive systems and for rapid dilution and dispersion of highly concentrated drug administration in chemotherapy for cancer.

The
product line includes sterile single, dual and triple lumen catheters and accessories sold in kits. The triple lumen catheter which permit three substances to be administered through
the same catheter was introduced during fiscal 1997. In 1993, Gish introduced an enhancement to its Hemed catheter line, the CathCapTM. The CathCap reduces the risk of infection at the injection site
by continually bathing the injection cap in an antimicrobial solution between injections.

Gish
has enhanced the Hemed line with the VasPort(R) Implantable Ports and the VasTack(R) Needle Support System. The VasPort consists of a silicone catheter with an implantable injection
port, allowing vascular access through small needle sticks with the skin acting as a natural barrier to infection. This access method eliminates the need for a cumbersome external catheter. Gish
introduced a detachable port/catheter system in fiscal 1994. Gish also introduced a dual VasPort in July 1996 to meet the needs of patients requiring multiple infusions. The VasTack consists of
a specially designed needle and positioning system for use with the VasPort. The needle extends the life of the implanted injection port and the positioning system gives the nursing staff a sure, safe
method for accessing the VasPort.

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The Hemed VasPort and VasTack are alternative vascular access products used for extended long-term infusion management and are designed to complement the Hemed catheter
lines. The VasPort is a device implanted entirely under the skin and consists of a small reservoir with a diaphragm and catheter. The VasPort is accessed by the VasTack, a small patented
non-coring needle system, which penetrates the skin and the diaphragm of the VasPort reservoir. Drugs are readily infused through the VasTack, into the reservoir and then into the
catheter. When the infusion is complete the VasTack is removed and the skin acts as a natural barrier against infection. Single and double reservoir VasPorts are available in both titanium and
lightweight engineered plastics.

Orthofuser

The patented OrthofuserTM is designed for post-operative use in orthopedic surgeries such as hip and knee replacements and provides for the safe
recovery and transfusion of the patient's own blood. This product is well suited for orthopedic procedures, as it is portable and incorporates its own internal vacuum source. Salvaging and reusing as
little as 500 cc's of blood post surgically may be enough to avoid the use of donor blood in these types of surgeries.

FDA Clearance for Heparin Coated Products

In 2003 Gish received FDA clearance for its heparin coating to be used in conjunction with Gish's line of heart-lung bypass products. The GBS (Gish
Biocompatible Surfaces) Coating is a heparin based, covalently bound biocompatible coating that will be used to cover the surfaces of Gish disposable products. Heparin coatings are known to inhibit
blood coagulation, decrease the risk of Systemic Inflammatory Response Syndrome, reduce complement activation and platelet adhesion, reduce blood loss and hemolysis, provide stable antithrombotic
activity and reduce thrombus formatiom, as well as decrease leucocyte (white blood cells) activation.

Biomaterials

CardioTech also develops, manufactures and sells a range of polymer-based materials customized for use in the manufacture of certain medical devices to other
medical device manufacturers. CardioTech sells these custom polymers under the tradenames ChronoFilm, ChronoFlex, ChronoThane,
ChronoPrene, HydroThane, PolyBlend and PolyWeld. The Company also provides development services relating to biomaterials to medical device customers.

CardioTech
also manufactures and sells its proprietary HydroThane biomaterials to medical device manufacturers that are evaluating HydroThane for use in their products. HydroThane is a
thermoplastic, water-absorbing, polyurethane elastomer, that possesses properties that CardioTech believes make it well suited for the complex requirements of a variety of catheters. In addition to
its physical properties, CardioTech believes HydroThane exhibits an inherent degree of bacterial resistance, clot resistance and biocompatibility. When hydrated, HydroThane has elastic properties
similar to living tissue.

In
July 1999, CardioTech acquired the assets of Tyndale-Plains-Hunter, Ltd. (TPH), a manufacturer of specialty hydrophilic polyurethanes. TPH's common stock was acquired in
consideration of $350,000 cash, 446,153 shares of CardioTech common stock valued at $725,000, and assumption of approximately $178,000 of liabilities. TPH polymers are primarily sold to customers as
part of an exclusive arrangement. Customers are supplied tailored, patented hydrophilic polyurethanes in exchange for multi-year, royalty-bearing exclusive supply contracts. TPH owns 29
patents in the field of hydrophilic polyurethanes. In October 2000, the Company completed the transfer of TPH's operations from Lawrenceville, NJ to the Company's headquarters in Woburn, MA.

In
October, 2002, the Company developed an advanced water absorbent wound and burn dressing. The dressing is trade named HydroMed, a name meaning "breathable artificial skin." The wound

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dressing
received FDA clearance for marketing on May 31, 2002 as a Class I Exempt device. The HydroMed wound dressing will be marketed by CardioTech.

Revenues
were approximately $3,394,000 and $3,220,000 for the years ended March 31, 2003 and 2002, respectively. For the year ended March 31, 2003, 31% of revenues were
generated from the Biomaterials division located in Woburn, Ma. and 69% of revenues were generated from the Company's wholly-owned subsidiary CDT. For the year ended March 31, 2002, 39% of
revenues were generated from the Biomaterials division and 61% of revenues were generated at CDT.

Manufacturing

CardioTech currently manufactures limited quantities of ChronoFlex and HydroThane for sale to medical device manufacturers. To date, CardioTech's manufacturing
activities with respect to the specialized ChronoFlex materials used in vascular grafts have consisted primarily of manufacturing small quantities of such products for use in clinical trials. The
Company has an agreement with CTL, a
subsidiary of Nervation Ltd., pursuant to which the Company is required to purchase from and CTL has agreed to sell to the Company the vascular grafts it needs, subject to the Company's ability to
obtain another supplier or to obtain "technology transfer." In May 2003, all of the assets CTL were sold to LeMaitre Vascular Inc. By requesting "technology transfer," CardioTech retained the
right to undertake, through its subsidiary, Catheter and Disposables Technology, Inc. ("CDT"), large scale commercial production of vascular grafts, when, and if it elects to do so. This would entail,
among other things, the purchase of specialized extrusion equipment capable of producing the grafts. To achieve profitability, CardioTech's products must be manufactured in larger commercial
quantities in compliance with regulatory requirements and at acceptable costs. Production in larger commercial quantities will require CardioTech to expand its manufacturing capabilities significantly
and to hire and train additional personnel.

The
development and manufacture of CardioTech's products are subject to good laboratory practice ("GLP") and good manufacturing practice ("GMP") requirements prescribed by the Food and
Drug Administration ("FDA") and other standards prescribed by the appropriate regulatory agency in the country of use. There can be no assurance that CardioTech will be able to obtain or manufacture
products in a timely fashion at acceptable quality and prices, that it or any suppliers can comply with GLP or GMP, as applicable, or that it or such suppliers will be able to manufacture an adequate
supply of product. CDT's facility is ISO 9001 and EN 46001 certified and includes a "Class 10,000" clean room.

Competition

Competition in the medical device industry in general is intense and based primarily on scientific and technological factors, the availability of patent and other
protection for technology and products, the ability to commercialize technological developments and the ability to obtain governmental approval for testing, manufacturing and marketing products.

Competition
among products will be based, among other things, on product efficacy, safety, reliability, availability, price and patent position. An important factor will be the timing of
the market introduction of CardioTech's or competitors' products. Accordingly, the relative speed with which CardioTech can develop products, complete the clinical trials and approval processes and
supply commercial quantities of the products to the market is expected to be an important competitive factor. CardioTech's competitive position will also depend upon its ability to attract and retain
qualified personnel, to obtain patent protection or otherwise develop proprietary products or processes, and to secure sufficient capital resources for the often substantial period between
technological conception and commercial sales.

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The
market for medical devices of the type sold by Gish is extremely competitive. Gish believes that product differentiation and performance, client service, reliability, cost and ease
of use are important competitive considerations in the markets in which it competes. Most of Gish's competitors are larger and possess greater financial and other resources than Gish. Gish has
approximately five competitors within each of the hospital markets in which it competes. No one competitor is a dominant force in this market. Gish believes it has achieved its position in the
marketplace for its present principal products by means of superior design, quality, and service, and Gish intends to continue to utilize these means of competing.

Research and Development

CardioTech's research and development efforts are focused on developing its synthetic vascular graft technologies. CardioTech's development decisions are based on
(1) development costs, (2) product need, (3) third-party interest and funding availability, and (4) regulatory considerations. CardioTech believes it will need substantial
additional financing to conduct human clinical trials, and produce coronary artery bypass grafts and other planned products. No assurance can be given, however, that such financing, or other
financing, will be available on terms attractive to CardioTech, if at all. Research and development expenditures, including costs of research grants, for the years ended March 31, 2003 and 2002
were $374,000 and $501,000, respectively.

In
April 2002, the Company concluded a technology transfer and license agreement with Credent Vascular Technologies, Ltd., of Wrexham, U.K. Credent"). Total consideration
paid by Credent to CardioTech for the purchase of the transferred rights to ChronoFlex RC was of $500,000. Credent paid CardioTech $100,000 in fiscal year ended March 31, 2003 and paid $400,000
in May 2003.

Under
terms of the agreement, CardioTech irrevocably granted an exclusive, worldwide license of its intellectual property rights relating to ChronoFlex RC, enabling Credent to
exclusively synthesize ChronoFlex RC biodurable polycarbonate-urethane. Credent will use ChronoFlex RC in the manufacture of its vascular access and peripheral vascular grafts and potentially in
future development products. Credent has licensed back to CardioTech the right to use ChronoFlex RC for the manufacture and marketing of coronary artery bypass grafts.

Government Regulation

CardioTech's research and development activities are also subject to regulation for safety, efficacy and quality by numerous governmental authorities in the
United States. In the United States, the development, manufacturing and marketing of synthetic vascular grafts are subject to regulation for safety and efficacy by the FDA in accordance with the Food,
Drug and Cosmetic Act. Synthetic vascular grafts are subject to rigorous FDA regulation, including pre-clinical and clinical testing. The process of completing clinical trials and
obtaining FDA approvals for a medical device is likely to take a number of years, requires the expenditure of substantial resources and is often subject
to unanticipated delays. There can be no assurance that any product will receive such approval on a timely basis, if at all.

There
can be no assurance that the FDA will approve any of CardioTech's products currently under research for marketing, or if they are approved, that they will be approved on a timely
basis. Furthermore, CardioTech or the FDA may suspend clinical trials at any time upon a determination that the subjects or patients are being exposed to an unacceptable adverse health risk ascribable
to CardioTech's products. If clinical studies are suspended, CardioTech may be unable to continue the development of the investigational products affected.

Gish's
products are also subject to the Federal Food, Drug and Cosmetic Act (the "Act") and regulations issued thereunder. The Act is administered by the FDA, which has authority to
regulate the marketing, manufacturing, labeling, packaging and distribution of products subject to the Act. In

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addition,
there are requirements under other federal laws and under state, local and foreign statutes which apply to the manufacturing and marketing of Gish products. Gish operates a quality system
certified to ISO9001, a standard for quality recognized worldwide. In addition, Gish has been found in compliance with the European Economic Community ("EEC") Medical Device Directive, which
equivocates to portions of the United States FDA Current Good Manufacturing Practices ("CGMP") Quality System Regulations. This allows Gish to export and distribute its products with free movement
within the European Community.

Gish
is registered as a medical device manufacturer with the FDA and state agencies, such as the California Department of Health Services ("CDHS") and files a listing of its products
semi-annually. Gish is inspected periodically by both the FDA and the CDHS for compliance with the FDA's GMP and other requirements including the medical device reporting regulation and
various requirements for labeling and promotion. The FDA Quality System Regulations ("QSR"), which became effective June 1, 1997, no longer limit control to manufacturing and post market
controls, but specify requirements during design (Design Control), manufacturing, and servicing as well. Much of the new QSR is based on the ISO9001 Quality Standard, and is, as such in harmony with
the thrust towards world harmonization of medical device requirements. The FDA's GMP regulation requires, among other things, that (i) the manufacturing process be regulated and controlled by
the use of written procedures, and (ii) the ability to produce devices which meet the manufacturer's specifications be validated by extensive and detailed testing of every aspect of the
process. The medical device reporting regulation requires that the device manufacturer provide information to the FDA on deaths or serious injuries alleged to have been associated with the use of its
marketed devices, as well as product malfunctions that would likely cause or contribute to a death or serious injury if the malfunction were to recur. Changes in existing requirements or
interpretations (on which regulations heavily depend) or adoption of new requirements or policies could adversely affect the ability of Gish to comply with regulatory requirements. Failure to comply
with regulatory requirements could have a material adverse effect on Gish's business.

Gish
believes all of its present products are in compliance in all material respects with all applicable performance standards as well as good manufacturing practices, record keeping and
reporting requirements in the production and distribution of such products. Most of Gish's products have been determined by the FDA to be devices substantially similar to devices marketed by others
prior to May 28, 1976, the effective date of the Amendments, and marketing of them has been authorized pending the classification by the FDA of such products. Gish does not anticipate any
significant difficulty or material cost increases in complying with applicable performance standards if any such products were to be classified in Class II by the FDA. If the FDA were to
classify use of Gish's cardiovascular or catheter products as Class III products, pre-marketing clinical testing and evaluation would be required in order to obtain FDA approval for
the sale of such products.

Regulations
under the Act permit export of products which comply with the laws of the country to which they are exported. Gish relies upon its foreign distributors for the necessary
certifications and compliances in their countries, except in the EEC where the Medical Device Directive prescriptively defines requirements.

Employees

As of May 19, 2003, the Company has 27 full-time employees at its headquarters in Woburn and at CDT. Of these full-time employees,
13 are in research and development, 7 are in manufacturing and production, and 7 are in management, administrative, and marketing positions. None of these employees are covered by a collective
bargaining agreement, and management considers its relations with its employees to be good.

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As
of May 19, 2003, Gish had 117 full-time employees, of whom 7 were engaged in sales and sales management, 96 were engaged in manufacturing and the remainder in
marketing, research and development, administrative and executive positions. Gish believes that its relationship with its employees is good. None of Gish's employees are represented by a labor union.

Gish International Operations

Gish's sales to foreign customers are primarily in Europe and Asia. All international transactions are conducted in U.S. dollars, thus reducing the risk from
currency fluctuations. Gish does not have any facilities, property or other assets, except sales representative supplies, located in any geographic area other than California, where its offices,
manufacturing and warehousing premises are located.

10

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Item 2. Description of Property

CardioTech leases a total of approximately 16,000 square feet in Woburn, Massachusetts on a five year lease expiring August 30, 2003. CardioTech also
leased an additional 11,000 square feet in Plymouth, Minnesota for CDT on a three year lease with an option to extend for an additional three years. CardioTech has lease commitments on its facilities
of $156,000 and $7,000 for the years ended March 31, 2004 and 2005 respectively. Management is negotiating with its current landlord regarding the Woburn, Massachusetts facility.

Gish's
office and manufacturing facilities are located in Rancho Santa Margarita, California in a building containing approximately 52,000 square feet of space under a lease which
expires in February 2011. Within this facility, Gish has constructed a clean room for the assembly of its products. Gish's finished goods storage facility is located in Irvine, California in a
building containing approximately 23,000 square feet of space under a lease which expires in January 2006.

Item 3. Legal Proceedings

The Company and Gish are not parties to any legal proceedings.

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

A joint proxy statement/prospectus dated January 30, 2003 was mailed to CardioTech stockholders and Gish shareholders on or about February 4, 2003.
At the special meeting on March 5, 2003 stockholders of CardioTech approved the issuance of shares of CardioTech common stock in the merger with Gish. Shareholders of Gish approved the merger
agreement and the merger. The CardioTech stockholders voted as follows: 4,857,602, 52% of total shares outstanding for the stock issuance, and 106,395, 1.1% of the total shares outstanding voted
against.

11

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PART II

Item 5. Market Information for Common Equity and Related Stockholder Matters

The common stock trades on the American Stock Exchange under the symbol "CTE." The following table sets forth the high and low sales prices of the common stock
for each of the last two fiscal years, as reported on the American Stock Exchange.

Fiscal Year Ended March 31, 2002

High

LowJune 30

$
1.43

$
0.85September 30

$
2.20

$
1.00December 31

$
3.50

$
1.30March 31

$
2.20

$
1.21


Fiscal Year Ended March 31, 2003

High

LowJune 30

$
1.83

$
1.12September 30

$
1.70

$
1.35December 31

$
1.60

$
1.29March 31

$
1.44

$
1.03


As
of March 31, 2003, there were approximately 411 stockholders of record and 3,771 additional beneficial stockholders (stockholders holding common stock in brokerage accounts).
The last sale price as reported by the American Stock Exchange on June 12, 2003, was $2.83. The Company has never paid a cash dividend on its common stock and does not anticipate the payment of
cash dividends in the foreseeable future.

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

Results of Operations

Year Ended March 31, 2003 vs. March 31, 2002

Revenue for the year ended March 31, 2003 was $3,394,000 as compared to $3,220,000 for the comparable prior year period, an increase of $174,000 or 5%.
This increase is attributable primarily to increases in product sales and royalty revenue, offset by decreases in research grants and contracts. Biomaterial product sales were $539,000 for the year
ended March 31, 2003 as compared to $587,000 for the comparable prior year period, a decrease of $48,000 or 8%. The Company continues to focus its efforts on growing revenues from its CDT
subsidiary; accordingly, the Company will experience minimal, if any, near term growth from its current biomaterials business. Product sales from CDT, the wholly owned outsourced research and
development and manufacturing subsidiary, were $2,343,000 for the year ended March 31, 2003 as compared to $1,962,000 for the comparable prior year period, an increase of $381,000 or 19%. The
manufacturing revenue for fiscal 2003 was $717,000 compared to $601,000 for fiscal 2002, a 19% increase in the amount of outsourced manufacturing performed for customers who were initially contract
research and development customers. The contract research and development revenue for fiscal 2003 was $1,626,000 compared to $1,361,000 for fiscal 2002, an increase of 19%. This is consistent with
Company's strategy to take customers from the research and development projects for which we are initially contracted and perform the manufacturing of resultant products for these customers. Royalty
revenue for the year ended March 31, 2003 was $426,000 as compared to $392,000 for the comparable prior year period, an increase of $34,000 or 9%. The increase is primarily the result of
$100,000 of royalties received in fiscal 2003 in connection with a technology transfer and license agreement (See Note N of the Consolidated Financial Statements) offset by a $65,000 decrease
due to the cancellation of an exclusivity contract. Research grants and contracts revenue for the year ended March 31, 2003 was $88,000 as compared to $278,000 for the comparable prior year
period, a decrease of $190,000 or 68%. The decrease is primarily attributable to

12

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the
completion of one grant and management's decision to focus on continued growth opportunities within our CDT subsidiary and the evaluation of other strategic acquisition opportunities. During
fiscal 2003, four customers accounted for 53% of total revenue and during fiscal 2002, these same four customers accounted for 29% of total revenue.

Cost
of product sales for the year ended March 31, 2003 was $2,062,000, as compared to $1,726,000 for the comparable prior year period, an increase of $336,000, or 19%. The
increase in cost of product sales is primarily attributable to the increase in sales of CDT products. Overall gross margins on product sales was approximately 38% for the year ended March 31,
2003 as compared to gross margins of 41% for the comparable prior year period. Our CDT subsidiary realized gross margin of 41% for the year ended March 31, 2003 as compared to 41% for the
comparable prior year period. Cost of research grants and contracts for the year ended March 31, 2003 was $61,000 as compared to $228,000 for the comparable prior year period, a decrease of
$167,000, or 73%. The decrease is primarily attributable to a decrease in research grants.

Research
and development expense for the year ended March 31, 2003 was $313,000, as compared to $273,000 for the comparable prior year period, an increase of $40,000, or 15%. The
increased spending is attributable to consultant costs for CABG pre-clinical trial preparation.

Selling,
general and administrative expense for the year ended March 31, 2003 was $1,965,000, as compared to $3,070,000 for the comparable prior year period, a decrease of
$1,105,000, or 36%. This decrease is primarily attributable to the inclusion of approximately $729,000 of non-cash stock based compensation charges related to the fair value of options
granted to consultants in the year ended March 31, 2002. Additionally, approximately $350,000 of goodwill amortization was included in selling, general and administrative expenses for the year
ended March 31, 2002. We did not incur any such charges in the year ended March 31, 2003.

The
Company had no interest expense for the year ended March 31, 2003 as compared to $23,000 for the comparable prior year period, a decrease of $23,000. The decrease in interest
expense is attributable to the elimination of all debt as a result of Dresdner Kleinwort Benson's conversion of its remaining $398,000 long-term debt into 433,094 shares of the Company's
common stock in February 2002. Interest income for the year ended March 31, 2003 was $44,000 as compared to $114,000 for the comparable prior year period, a decrease of $70,000, or 61%.
The decrease in interest income is attributable to both lower interest rates and lower excess cash held in money market funds.

For
the year ended March 31, 2003 we recorded a net loss of $963,000 as compared to $1,971,000 for the comparable prior year period, a decrease in net loss of $1,008,000, or 51%.
The decrease in net loss is primarily attributable to the increase in overall revenues and decreases in selling, general and administrative expenses. Basic and diluted net loss per share for the year
ended March 31, 2003 was $0.11 per share as compared to basic and diluted net loss per share of $0.23 per share for the comparable prior year period, a decrease in net loss per share of $0.12,
or 52%.

Liquidity and Capital Resources

The Company used total cash of $1,154,000 during the year ended March 31, 2003 as compared to the use of $1,017,000 for the comparable prior year period.
For the year ended March 31, 2003, the Company's use of funds for operating activities resulted primarily from a net loss of $963,000, an increase of $262,000 in accounts receivable, an
increase of $46,000 in inventory, offset by an increase in accrued expenses of $136,000; an increase of $125,000 in accounts payable, an increase of $40,000 in deferred revenues, and depreciation and
amortization of $220,000. Investing activities used cash of $493,000 for the year ended March 31, 2003 as compared to a use of cash of $790,000 for the comparable prior year period. The use of
cash for investing activities for the year ended March 31, 2003 is primarily attributable to the increase of $421,000 in long-term prepaid expenses and the $72,000 purchase of
equipment. The increase in other non current assets is attributable to the transactions,

13

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primarily
legal and accounting fees, associated with the acquisition of Gish Biomedical, Inc. For the year ended March 31, 2002, the use of cash was primarily attributable to the
purchase of Catheter Disposables Technology, Inc. ("CDT"), which used cash of $1,454,000, including acquisition costs of $154,000. Financing activities provided cash of $14,000 for the year
ended March 31, 2003 as compared to $171,000 of cash for the comparable prior year period. Cash of $71,000 was provided by the exercise of stock options and $60,000 from repayment of note
receivable. The Company used $117,000 of cash to repurchase its common stock in the open market.

On
May 4, 2001, the Company completed the acquisition of all the shares of CMED Catheter and Disposables Technology, Inc., a Minnesota corporation ("CDT"), from Colorado
Medtech, Inc., a Colorado corporation ("Medtech") pursuant to an Acquisition Agreement dated as of April 30, 2001, by and among the Company, CDT and Medtech.

CDT
is an original equipment manufacturer; supplier of specialized disposable medical devices to medical device companies from concept to finished packaged, sterile product; and uses its
experience in the design, development, prototyping and manufacturing to provide turnkey contract services. CDT's facility is ISO 9001 and EN 46001 certified and includes a "Class 10,000" clean
room.

The
consideration paid by the Company to Medtech was $1,300,000 in a cash payment, $130,000 of which was placed into escrow pursuant to the terms of the agreement. The cash consideration
used in the purchase came from the Company's working capital. In connection with the transaction, the Company acquired net assets of CDT having a book value of approximately $375,000. Additionally,
the Company incurred transaction costs of approximately $154,000. The acquisition has been accounted for in accordance with the purchase method of accounting. Accordingly, the Company has allocated
the excess purchase price over net assets acquired at their fair market value to identifiable intangible assets and goodwill. Operations of CDT are included in the Company's operations from
May 1, 2001, the effective date of the acquisition for accounting purposes.

During
the fiscal year ended March 31, 2003, stock options for 69,665 shares of the Company's common stock were exercised, resulting in cash proceeds of approximately $71,000 to
the Company. No warrants were exercised during fiscal 2003.

During
fiscal 2003, the Company made open market purchases of 75,500 shares of the Company's common stock at an aggregate cost of approximately $117,000. Accordingly, total shares held
in treasury as of March 31, 2003 is 101,377 at an approximate cost of $165,000.

In
December 2000, Gish entered into a $2,000,000 three-year revolving line of credit agreement. In February 2002, the revolving line of credit agreement was
amended to extend the agreement for an additional year and increase the line to $4,000,000. Advances, based on eligible receivables, are secured by the operating assets of Gish and bear interest at
prime (4.25% at March 31, 2003) plus 2%. The agreement also includes various restrictive loan covenants, including a requirement for Gish to maintain a minimum net worth of $7,000,000, and to
achieve net income on a rolling three-month basis, effective March 2003. At March 31, 2003, Gish had borrowed $1,204,000 under the revolving line of credit and, would have been entitled
to borrow an additional $1,104,000.

The
Company's future growth will depend upon its ability to raise capital to support research and development activities and to market and sell its vascular graft technology,
specifically the coronary artery bypass graft, when, and if developed. Through March 31, 2003, the Company continued to generate revenues from the sale of biomaterials and royalties earned on
biomaterials; and the performance of outsourced research and development contracts and manufacture of specialized disposable medical devices to medical device companies.

CardioTech
will require substantial funds for further research and development, future pre-clinical and clinical trials, regulatory approvals, establishment of
commercial-scale manufacturing capabilities, and the marketing of its products. CardioTech's capital requirements depend on numerous factors,

14

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including
but not limited to, the progress of its research and development programs; the progress of pre-clinical and clinical testing; the time and costs involved in obtaining regulatory
approvals; the cost of filing, prosecuting, defending and enforcing any intellectual property rights; competing technological and market developments; changes in CardioTech's development of
commercialization activities and arrangements; and the purchase of additional facilities and capital equipment.

As
of March 31, 2003, CardioTech was conducting its operations with approximately $2,939,000 in cash and cash equivalents. CardioTech believes its current cash position will be
sufficient to fund its working capital and research and development activities for at least the next twelve months. Additionally, as of
March 31, 2003, Gish was conducting its operations with approximately $421,000 in cash and the availability of $1,104,000 on its revolving line of credit. CardioTech believes Gish's current
cash position and availability under its revolving line of credit will be sufficient to fund its working capital and research and development activities for at least the next twelve months. Future
expenditures for product development, especially relating to outside testing and clinical trials, are discretionary and, accordingly, can be adjusted based on the availability of cash.

In
April 2002, the Company concluded a technology transfer and license agreement with Credent Vascular Technologies, Ltd., of Wrexham, U.K. (``Credent") Total consideration
paid by Credent to CardioTech for the purchase of the transferred rights to ChronoFlex RC was $500,000.

On
February 6, 2002, DKB elected to convert the Note having an outstanding principal and interest balance outstanding on the date of conversion of approximately $398,000. The Note
was converted into 433,094 shares of the Company's common stock at a conversion price of $0.91875.

The
Company leases facilities in Woburn, Massachusetts and Plymouth, Minnesota. The Woburn facility lease expires in August 2003 and the Plymouth facility lease expires in
April 2004.

We
summarized below our contractual cash obligations as of March 31, 2003:

|                                   |  | Payments Due By Period
|---------------------------------- |  | ----------------------
|
|Operating Lease                    |  | $                     
|                                   |  |                       
|Total contractual cash obligations |  | $                     
|                                   |  |                       

Recent Accounting Pronouncements

Effective April 1, 2002, the Company adopted the provisions of Statements of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other
Intangible Assets." This statement affects the Company's treatment of goodwill and other intangible assets. The statement requires that goodwill existing at the date of adoption be reviewed for
possible impairment and that impairment tests be periodically repeated, with impaired assets written down to fair value. Additionally, existing goodwill and intangible assets must be assessed and
classified within the statement's criteria. Intangible assets with finite useful lives of five years continue to be amortized over those periods. Amortization of goodwill and intangible assets with
indeterminable lives ceased on April 1, 2002.

The
Company completed the first step of the transitional goodwill impairment test during the six months ended September 30, 2002 as of the beginning of fiscal year 2003, as
required by SFAS No. 142. The Company utilized a third party independent valuation to determine the fair value of each of the reporting units based on a discounted cash flow income approach.
Based on the results of the first step of the transitional goodwill impairment test, the Company has determined that the fair value of each of the reporting units exceeded their carrying amounts and,
therefore, no goodwill impairment existed as of April 1, 2002. As a result, the second step of the transitional goodwill impairment test was not required to be completed. As of March 31,
2003, the Company reassessed the fair value of the

15

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reporting
units as part of its annual test of impairment and concluded no goodwill impairment existed as of that date. The Company will be required to continue to perform a goodwill impairment test on
an annual basis and the next test is scheduled during the fourth quarter ending March 31, 2004.

The
Company did not record expense related to the amortization of goodwill during the year ended March 31, 2003. The Company recorded expense related to the amortization of
goodwill of $350,000 during the year ended March 31, 2002. The Company has determined that, other than goodwill, all of its intangible assets have finite lives and, therefore, the Company has
continued to amortize its intangible assets. The Company recorded expenses related to the amortization of its intangible assets of $82,000 for the year ended March 31, 2003, and $76,000 for the
year ended March 31, 2002.

In
August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and reporting obligations
associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to (a) all entities and (b) legal obligations associated
with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset, except for certain
obligations of lessees. The Company does not anticipate that the adoption of SFAS No. 143 will have a material impact on its financial statements.

In
October 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS
No. 144 addresses the financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," but retains SFAS No. 121's fundamental provisions for (a) recognition/measurement of
impairment of long-lived assets to be held and used and (b) measurement of long-lived assets to be disposed of by sale. SFAS No. 144 also supersedes the
accounting/reporting provisions of Accounting Principles Board (APB) Opinion No. 30, "Reporting the Results of OperationsReporting the Effects of Disposal of a Segment of a
Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for segments of a business to be disposed of but retains APB No. 30's requirement to report discontinued
operations separately from continuing operations and extends that reporting to a component of an entity that either has been disposed of or is classified as held for sale. SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years. The Company believes that no indication of impairment exists as of March 31,
2003.

In
July 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal Activities." SFAS No. 146 addresses the accounting for costs associated with
restructuring and other disposal activities. This statement supersedes Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity." This statement will be effective for disposal activities initiated after December 31, 2002, and the Company will adopt this statement for any
costs relating to restructuring or disposal activities initiated after the effective date.

In
November 2002, the FASB issued FIN 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness
of Others." FIN 45 requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligation it assumes under the guarantee. The
disclosure provisions of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. The provisions for initial recognition and measurement are
effective on a prospective basis for guarantees that are issued or modified after December 31, 2002, irrespective of a guarantor's year-end. The Company is currently evaluating the
requirements and impact, if any, of FIN 45 on its consolidated results of operations and financial position.

16

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In
January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest Entities," to expand upon and strengthen existing
accounting guidance that addresses when a company should include in its financial statements the assets, liabilities and activities of another entity. Until now, a company generally has included
another entity in its consolidated financial statements only if it controlled the entity through voting interests. FIN 46 changes that guidance by requiring a variable interest entity, as defined, to
be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or is entitled to receive a majority of the entity's residual
returns or both. FIN 46 also requires disclosure about variable interest entities that the company is not required to consolidate but in which it has a significant variable interest. The consolidation
requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003 and to older entities in the first fiscal year or interim period beginning after
June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established.
The Company is currently evaluating the requirements and impact, if any, of FIN 46 on its consolidated results of operations and financial position.

In
December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based CompensationTransition Disclosure, An Amendment of FASB
Statement No. 123." SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require more prominent and more frequent disclosure in financial statements
regarding the effects of stock-based compensation. The provisions of SFAS No. 148 are effective for fiscal and interim periods ending after December 15, 2002. The Company will continue
to apply APB No. 25 as the method used to account for stock-based employee compensation arrangements, where applicable, but has adopted the disclosure requirements of SFAS No. 148.

On
May 15, 2003, the FASB issued Statement of Financial Accounting Standards No. 150,Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. This Statement establishes standards for classifying and measuring as liabilities certain financial instruments that embody
obligations of the issuer and have characteristics of both liabilities and equity. Statement 150 represents a significant change in practice in the accounting for a number of financial instruments,
including mandatorily redeemable equity instruments and certain equity derivatives that frequently are used in connection with share repurchase programs. The provisions of SFAS No. 150 are
effective for public companies for all financial instruments created or modified after May 31, 2003, and to other instruments at the beginning of the first interim period beginning after
June 15, 2003 (July 1, 2003 for calendar quarter companies). The adoption of SFAS No. 150 is not expected to have a material impact on the Company's financial position or results
of its operations.

Critical Accounting Policies

Our significant accounting policies are summarized in Note A to our consolidated financial statements. However, certain of our accounting policies require
the application of significant judgment by our management, and such judgments are reflected in the amounts reported in our consolidated financial statements. In applying these policies, our management
uses its judgment to determine the appropriate assumptions to be used in the determination of estimates. Those estimates are based on our historical experience, terms of existing contracts, our
observance of market trends, information provided by our strategic partners and information available from other outside sources, as appropriate. Actual results may differ significantly from the
estimates contained in our consolidated financial statements. Our critical accounting policies are as follows:



17

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Forward Looking Statements

The Company believes that this Form 10-KSB contains forward-looking statements that are subject to certain risks and uncertainties. These
forward- looking statements include statements such as (i) the expected performance of its grafts, (ii) the expected size of the market for the Company's products in development,
(iii) HydroThane's bacterial resistance, clot resistance, and biocompatibility, and (iv) the sufficiency of the Company's liquidity and capital and the steps that would be taken in the
event funding is not available. Such statements are based on management's current expectations and are subject to a number of factors and uncertainties that could cause actual results to differ
materially from the forward-looking statements. The Company cautions investors that there can be no assurance that actual results or business conditions will not differ materially from those projected
or suggested in such forward-looking statements as a result of various factors.

18

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Item 7. Financial Statements

The following documents are filed as part of this report on Form 10-KSB

PageReport of Ernst & Young LLP, Independent Auditors

F-1Consolidated Balance Sheet at March 31, 2003

F-2Consolidated Statements of Operations for the years ended March 31, 2003 and 2002

F-3Consolidated Statements of Stockholders' Equity for the years ended March 31, 2003 and 2002

F-4Consolidated Statements of Cash Flows for the years ended March 31, 2003 and 2002

F-5F-6Notes to Consolidated Financial Statements

F-7F-25


Item 8. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

The consolidated financial statements of CardioTech appearing in CardioTech's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 2002, have been incorporated by reference herein, have been audited by Arthur Andersen LLP independent public accountants, as indicted in their report with respect thereto. Effective
August 31, 2002, Arthur Andersen LLP relinquished its license to practice in front of the SEC. Under these circumstances, Rule 437(a) under the Securities Act permits any filings under
the 1933 and 1934 Act to be filed without a written consent from Arthur Andersen LLP. The absence of such consent may limit your recovery on certain claims. In
particular, and without limitation, you will not be able to assert claims against Arthur Andersen, LLP under Section 11 of the Securities Act for any untrue statement of material fact contained
in CardioTech's consolidated financial statements that appeared in its Annual Report on Form 10-KSB for the fiscal year ended March 31, 2002 or any omissions to state a
material fact required to be stated therein. In addition, the ability of Arthur Andersen LLP to satisfy any claims (including claims arising from Arthur Andersen's provision of auditing and other
services to CardioTech) may be limited as a practical matter due to the fact that Arthur Andersen LLP had ceased operations.

On
August 5, 2002, the Company appointed, with the approval of the Company's Audit Committee and Board of Directors, Ernst & Young LLP as its independent auditors.

19

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PART III

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

DIRECTORS AND EXECUTIVE OFFICERS

CardioTech's board of directors is currently comprised of four directors. The directors and executive officers, their ages and positions at CardioTech as well as
certain biographical information of these individuals, are set forth below. The ages of the individuals are provided as of March 31, 2003.

|NAME                |  | AGE |  | POSITION(S)                                                            
|------------------- |  | --- |  | -----------------------------------------------------------------------
|Dr. Michael Szycher |  | 64  |  | Chairman of the Board, President, Chief Executive Officer and Treasurer
|Thomas Lovett       |  | 48  |  | Vice President of Finance                                              
|Michael Adams       |  | 44  |  | Director                                                               
|Anthony J. Armini   |  | 64  |  | Director                                                               
|Michael Barretti    |  | 57  |  | Director                                                               

Dr. Michael
Szycher has been Chairman of the Board, President, Chief Executive Officer and Treasurer of CardioTech since June 1996. From October 1989 until joining
CardioTech in June 1996, Dr. Szycher served as Chairman of PolyMedica Industries, Inc. ("PMI") and Chief Executive Officer of PMI from November 1990 to June 1996,
and as a director of PMI from its inception until June 1996. Dr. Szycher is a recognized international authority on polyurethanes and blood compatible polymers. Author of over eighty
original research articles. Pivotal force in the creation of the Medical Plastics Division of the SPE. He is the Editor of five books, "Biocompatible Polymers, Metals and Composites;" "Synthetic
Biomedical Polymers;" "Blood Compatible Materials and Devices: Perspectives Towards the 21st Century;" High Performance Biomaterials: A Comprehensive Guide to Medical/Pharmaceutical Applications;" and
"Szycher's Dictionary of Biomaterials and Medical Devices.", and the acclaimed "Szycher's Dictionary of Medical Devices". He is also Editor-In-Chief of the quarterly Journal of
Biomaterials Applications.

Mr. Tom
Lovett has been the Corporate Controller of CardioTech since August 2000 and Vice President of Finance since May 2003. From 1992 until joining CardioTech,
Mr. Lovett served in the capacities of Controller and Cost Accounting Manager at Cynosure, Inc. Additionally, Mr. Lovett served in a number of capacities, including Cost
Accounting Manager, for Candela Laser Company from 1983 to 1992. Mr. Lovett holds a BS degree in Accounting from Northeastern University.

Mr. Michael
Adams has been a director of CardioTech since May 1999. He is also the Vice President of PLC Systems, Inc. Prior to joining PLC Systems in
September 2000, Mr. Adams was Vice President of
Assurance Medical, Inc., ("Assurance Medical"). Prior to joining Assurance Medical in June 1999, Mr. Adams was the Chief Operating Officer and Vice President of Regulatory Affairs
and Quality Assurance of CardioTech from June 1998 to May 1999. From November 1994 through June 1998, Mr. Adams served as the Vice President of Cytyc Corporation.

Dr. Anthony
J. Armini has been a director of CardioTech since August of 2000. Dr. Armini has been the President, Chief Executive Officer, and Chairman of the Board of
Directors of Implant Science Corporation since 1984. From 1972 to 1984, prior to founding Implant Sciences, Dr. Armini was Executive Vice President at Spire Corporation. From 1967 to 1972,
Dr. Armini was a Senior Scientist at McDonnell Douglas Corporation. Dr. Armini received his Ph.D. in nuclear physics from the University of California, Los Angeles in 1967.
Dr. Armini is the author of eleven patents, fifteen patents pending and fourteen publications in the field of implant technology. Dr. Armini has over thirty years of experience working
with cyclotrons and linear accelerators, the production and characterization

20

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of
radioisotopes, and fifteen years experience with ion implantation in the medical and semiconductor fields.

Mr. Michael
Barretti has been a director of CardioTech since January 1998. He is also the President of Cool Laser Optics, Inc., a company which commercializes
optical technology specific to the medical laser industry, since July 1996. From September 1994 to July 1996, Mr. Barretti was Vice President of Marketing for
Cynosure, Inc., a manufacturer of medical and scientific lasers. From June 1987 to September 1994, Mr. Barretti was a principal and served as Chief Executive Officer of
NorthFleet Management Group, a marketing management firm serving the international medical device industry. From January 1991 to May 1994, Mr. Barretti also acted as President of
Derma-Lase, Inc., the U.S. subsidiary of a Glasgow, Scotland supplier of solid state laser technologies to the medical field. Mr. Barretti has been a director of CardioTech
since January 1998.

Committees; Attendance

Meeting Attendance.During the fiscal year ended March 31, 2003, there were five (5) meetings of the Board. The
various committees of the Board also met a total of six (6) times during fiscal 2003. Each director attended in excess of 75% of the total number of meetings of the Board and of committees of
the Board on which he served during fiscal 2003. In addition, from time to time, the members of the Board and its committees acted by unanimous written consent pursuant to Massachusetts law.

On
September 3, 2002, Mr. Robert Detwiler resigned as a member of the Board for personal reasons and indicated no disagreements or disputes with management or the Board of
Directors. The Company
nominated William E. Cohn, M.D., Associate Professor of Surgery at Harvard Medical School and Staff Cardiothoracic Surgeon at Beth Israel Deaconess Medical Center in Boston, to fill the vacated board
seat. Pending approval by the shareholders of the Company at the next annual shareholder's meeting.

Audit Committee.The Board has designated from among its members an Audit Committee, which consists of Mr. Michael
Barretti, Mr. Anthony Armini and Mr. Michael Adams. Mr. Barretti, Mr. Armini and Mr. Adams are independent members. The Audit Committee has the responsibility to
ascertain that the Company's financial statements reflect fairly the financial condition and operating results of the Company and to appraise the soundness, adequacy and application of accounting and
operating controls. The Audit Committee recommends the independent auditors to the Board, reviews the scope of the audit functions of the independent auditors and reviews the audit reports. The Audit
Committee held a meeting each quarter during fiscal 2003. The responsibilities of the Audit Committee are outlined in a written charter, which was included as Annex A of the Proxy Statement for the
2001 shareholder meeting.

Compensation and Stock Option Committee.The Compensation and Stock Option Committee, which met two (2) times during
fiscal 2003, has two members, Mr. Barretti (Chairman) and Mr. Adams. The Compensation and Stock Option Committee reviews, approves and makes recommendations on the Company's compensation
policies, practices and procedures to ensure that legal and fiduciary responsibilities of the Board are carried out and that such policies, practices and procedures contribute to the success of the
Company. The Compensation and Stock Option Committee administers the 1996 Plan.

Nominating Committee.The Nominating Committee, which was established in
March 1998 and did not meet in fiscal 2003, has three members, Dr. Szycher, Mr. Barretti and Mr. Adams. The Nominating Committee nominates individuals to serve on the
Board. The Nominating Committee considers nominees recommended by Stockholders.

21

---

Directors' Compensation

The Company's policy is to pay $750 per diem compensation to members of the Board for attendance at Board meetings or committee meetings. All
non-employee directors are reimbursed for travel and other related expenses incurred in attending meetings of the Board.

Directors
are eligible to participate in the 1996 Plan. In 2002, cardioTech granted each director an option to purchase 27,370 (.003 of outstanding shares) shares of CardioTech Common
Stock. Such
options were granted at an exercise price equal to the fair market value of the Common Stock on the grant date and fully vest following one year of service after the date of grant.

22

---



Item 10. Executive Compensation

The annual and long-term remuneration paid to or accrued for the Chief Executive Officer of the Company for services rendered during the years ended
March 31, 2003 and 2002 was as follows:

Summary Compensation Table

|                                                       |  |           |  |    |                 |  |   | Long Term
Compensation
Securities
Underlying
Options(2) |  |          
|------------------------------------------------------ |  | --------- |  | -- | --------------- |  | - | ------------------------------------------------------- |  | ---------
|
|
|
|Michael Szycher, Ph.D, MBA
Chairman, CEO and Treasurer |  | 2003
2002 |  | $$ | 326,737
261,777 |  | $ | 35,000
                                                |  | 0
625,000

---

Option Grants in Last Fiscal Year

The following table sets forth information regarding each stock option granted during the fiscal year ended March 31, 2003 to each of the named executive
officers.

|Name                   |  | Number of
Securities
Underlying
Options
Granted (#) |  | Percent of Total
Options Granted to
Employees in
Fiscal Year |   | Exercise Price Per Share |  | Expiration
Date | 
|---------------------- |  | --------------------------------------------------- |  | ------------------------------------------------------------ | - | ------------------------ |  | --------------- | 
|Michael Szycher, Ph.D. |  | 0                                                   |  | 0                                                            | % |                          |  |                 | 

---

23

---

Aggregated Option Exercises in Last Fiscal year and Fiscal Year-End Option Values

The following table provides information regarding the number of shares of Common Stock covered by both exercisable and unexercisable stock options held by each
of the named executive officers as of March 31, 2003 and the values of "in-the-money" options, which values represent the positive spread between the exercise price of
any such option and the fiscal year-end value of the Common Stock. No such options were exercised by the named executive officers during the 2003 fiscal year.

|                       |  | Number of Securities
Underlying Unexercised Options/SARs at Year-End |  |        |  |  
|---------------------- |  | -------------------------------------------------------------------- |  | ------ |  | -
|
|
|
|Michael Szycher, Ph.D. |  | 1,550,913                                                            |  | 62,500 |  | $

---

Item 11. Security Ownership of Certain Beneficial Owners and Management

The following table presents, as of March 31, 2003, certain information known to CardioTech regarding the beneficial ownership of CardioTech common stock
by:



Beneficial
ownership has been determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934. Under this rule, certain shares may be deemed to be
beneficially owned by more than one person, if, for example, persons share the power to vote or the power to dispose of the shares. In addition, shares are deemed to be beneficially owned by a person
if the person has the right to acquire shares, for example, upon exercise of an option or warrant, within 60 days of March 31, 2003. In computing the percentage ownership of any person,
the amount of shares is deemed to include the amount of shares beneficially owned by such person, and only such person, by
reason of such acquisition rights. As a result, the percentage of outstanding shares of any person as shown in the following table does not necessarily reflect the person's actual voting power at any
particular date.

The
percentage of beneficial ownership for the following table is based on 9,126,889 shares of CardioTech common stock outstanding as of March 31, 2003. To CardioTech's knowledge,
except as otherwise indicated in the footnotes to this table and pursuant to applicable community property laws,

24

---

the
persons named in the table have sole voting and investment power with respect to all shares of common stock.

|Name *                                                               |  | Shares Beneficially Owned |  | Percent of Class(1) |  
|-------------------------------------------------------------------- |  | ------------------------- |  | ------------------- | -
|Michael Szycher, Ph.D., MBA(1)
78-E Olympia Avenue,
Woburn, MA 01801 |  | 1,860,548                 |  | 20.4                | %
|Michael L. Barretti (2)                                              |  | 343,376                   |  | 3.8                 | %
|Michael Adams (3)                                                    |  | 298,682                   |  | 3.3                 | %
|Anthony Armini, Ph.D. (4)                                            |  | 87,113                    |  | 1.0                 | %
|All executive officers and directors as a group (4 persons)(5)       |  | 2,589,719                 |  | 28.4                | %

---

Item 12. Certain Relationships and Related Transactions

The Company has entered into an employment agreement (the "Employment Agreement") with Dr. Michael Szycher, pursuant to which said individual serves as
Chief Executive Officer of the Company. Pursuant to the terms of the Employment Agreement, Dr. Szycher is to receive an annual base salary of Three Hundred and Twenty Five Thousand ($325,000)
dollars. Dr. Szycher's salary will be reviewed annually by the Board. Additionally, Dr. Szycher may also be entitled to receive an annual bonus payment in an amount, if any, to be
determined by the Compensation and Stock Option Committee of the Board.

The
initial term of the Employment Agreement by and between the Company and Dr. Szycher is set to expire on December 31, 2004. After such time, the term of the Employment
Agreement will be deemed to continue on a month-to-month basis if not expressly extended while Dr. Szycher remains employed by the Company. Dr. Szycher and
CardioTech each have the right to terminate the Employment Agreement at any time, with or without cause (as defined in the Employment Agreement), upon thirty (30) days prior written notice. In
the event that CardioTech terminates the applicable Employment Agreement without cause, or Dr. Szycher terminates his employment for good reason following a change in control (as such terms are
defined in the Employment Agreement) or CardioTech fails to renew the Employment Agreement within two (2) years following the occurrence of a change in control, Dr. Szycher will be
entitled to receive severance equal to 2.99 times his annual base salary at termination. In such event, Dr. Szycher will be bound by a noncompete covenant for one (1) year following
termination of his employment.

25

---

Substantially
all of the stock options granted pursuant to the 1996 Plan provide for the acceleration of the vesting of the shares of Common Stock subject to such options in connection
with certain changes in control of the Company.

Compensation Committee Interlocks and Insider Participation

Other than Mr. Adams, no person serving on the Compensation and Stock Option Committee at any time during Fiscal Year 2003 was a present or former officer
or employee of the Company or any of its subsidiaries. During Fiscal Year 2003, other than Dr. Szycher, no executive officer of the Company served as a member of the board of directors or
compensation and stock option committee (or other board committee performing equivalent functions) of another entity, one of whose executive officers served on the Company's Board or Compensation and
Stock Option Committee.

26

---



Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 10-KSB

(a)   The
following are filed as part of this Form 10-KSB:



|Exhibit Number: |  |                                                                                                                                                                                                                                                                                        
|--------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1             |  | Agreement and plan of merger and reorganization by and among Cardiotech International, Inc., Gish Acquisition Corp. and Gish Biomedical, Inc., incorporated by reference to Annex A of CardioTech's Registration
Statement on Form S-4 filed on December 23, 2002.                     
|2.2             |  | Amendment No. 1 to Agreement and Plan of Merger and Reorganization by and among CardioTech International, Inc., Gish Acquisition Corp. and Gish Biomedical Inc., incorporated by reference to Exhibit 2.2 to CardioTech's Registration Statement
on Form S-4 filed on January 16, 2003.
|3.1             |  | Articles of Incorporation of CardioTech International, Inc., incorporated by reference to Exhibit 3.1 of CardioTech's Registration Statement on Form 10 filed on May 10, 1996.                                                                                                         
|3.1.1           |  | Certificate of Vote of Directors Establishing a Class or Series of Stock for Series A Preferred Stock was filed as Exhibit 3.1 to CardioTech's Form 10-Q for the quarter ended September 30, 1998, filed on November 16, 1998, and is incorporated herein
by reference.                
|3.1.2           |  | Certificate of Correction dated December 11, 1998 was filed as Exhibit 3.1 to CardioTech's Form 10-Q for the quarter ended December 31, 1998, filed on February 16, 1999, and is incorporated herein by reference.                                                                     
|3.2             |  | Bylaws of CardioTech International, Inc., incorporated by reference to Exhibit 3.2 of CardioTech's Registration Statement on Form 10 filed on May 10, 1996.                                                                                                                            
|10.2            |  | Tax Matters Agreement between PMI and CardioTech, dated May 13, 1996, was filed as Exhibit 10.2 of the Form 10 and is incorporated herein by reference.                                                                                                                                
|10.3            |  | Amended and Restated License Agreement between PMI and CardioTech, dated May 13, 1996, was filed as Exhibit 10.4 of the Form 10 and is incorporated herein by reference.                                                                                                               
|10.4            |  | CardioTech 1996 Employee, Director and Consultant Stock Option Plan, as amended, was filed as Exhibit 10.4 to CardioTech's Form 10-K for the year ended March 31, 1998, filed on June 29, 1998, and in incorporated herein by reference.                                               
|10.5            |  | Employment Agreement of Michael Szycher, dated March 26, 1998, was filed as Exhibit 10.5 to CardioTech's Form 10-K for the year ended March 31, 1998, filed on June 29, 1998, and in incorporated herein by reference.                                                                 
|10.10           |  | Development, Supply and License Agreement between PMI and Bard Access Systems, dated November 11, 1992, was filed as Exhibit 10.10 of the Form 10 and is incorporated herein by reference.                                                                                             
|10.11           |  | Lease Agreement between CardioTech and Cummings Properties Management, Inc., dated June 26, 1998, was filed as Exhibit 10.11 to CardioTech's Form 10-K for the year ended March 31, 1998, filed on June 29, 1998, and in incorporated herein by
reference.                             
|                |  |                                                                                                                                                                                                                                                                                        

27

---

|10.15   |  | Note Purchase Agreement dated as of March 31, 1998 between CardioTech and Dresdner Kleinwort Benson Private Equity Partners, LP ("Kleinwort Benson") was filed as Exhibit 99.1 to CardioTech's Form 8-K filed with the Securities and Exchange Commission
(the "Commission") on April 15, 1998 and is incorporated herein by reference.
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.15.1 |  | Amendment, dated as of November 12, 1998, to Note Purchase Agreement and Registration Rights Agreement was filed as Exhibit 10.1 to CardioTech's Form 10-Q for the quarter ended September 30, 1998, filed on November 16, 1998 and is incorporated herein
by reference.                                                               
|10.18   |  | Form of Unit Purchase Agreement between CardioTech and certain individuals was filed as Exhibit 99.1 to CardioTech's Form S-3, filed with the Securities and Exchange Commission on February 12, 1999, and is incorporated herein by
reference.                                                                                        
|10.19   |  | Form of Warrant to Purchase Shares of Common Stock of CardioTech issued to certain individuals was filed as Exhibit 99.2 to CardioTech's Form S-3, filed with the Securities and Exchange Commission on February 12, 1999, and is incorporated herein by
reference.                                                                    
|21      |  | Subsidiaries of CardioTech                                                                                                                                                                                                                                                                                                             
|23.1    |  | Consent of Ernst & Young LLP, Independent Auditors                                                                                                                                                                                                                                                                                     
|23.2    |  | Consent of Ernst & Young LLP, Independent Auditors                                                                                                                                                                                                                                                                                     
|99      |  | Gish Financial Statements                                                                                                                                                                                                                                                                                                              

(b)   Reports
on Form 8-K: Form 8-K, filed on April 7, 2003

ITEM 14. CONTROLS AND PROCEDURES

(a)Evaluation of disclosure controls and procedures.Based on their evaluation of the Company's disclosure
controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934) as of a date within 90 days of the filing date of this Annual Report on Form 10-KSB, the
Company's chief executive officer and chief financial officer have concluded that the Company's disclosure controls and procedures are designed to ensure that information required to be disclosed by
the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and are
operating in an effective manner.

(b)Changes in internal controls.There were no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to the date of their most recent evaluation.

Copies
of these exhibits are available for a reasonable fee upon written request to the Company at its corporate headquarters: CardioTech International, Inc., 78-E
Olympia Avenue, Woburn, MA 01801. ATTN: Thomas F. Lovett.

28

---



Report of Independent Auditors

To
the Board of Directors and Stockholders of CardioTech International, Inc.:

We
have audited the accompanying consolidated balance sheet of CardioTech International, Inc. as of March 31, 2003, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The financial statements of CardioTech International, Inc. as of March 31, 2002, were audited by other auditors who have ceased operations and
whose report dated May 15, 2002, expressed an unqualified opinion on those statements.

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

In
our opinion, the fiscal 2003 financial statements referred to above present fairly, in all material respects, the consolidated financial position of CardioTech
International, Inc. at March 31, 2003, and consolidated the results of its operations and its cash flows for the year ended March 31, 2003, in conformity with accounting
principles generally accepted in the United States.

|                                   |  | Ernst & Young LLP
|---------------------------------- |  | -----------------
|Boston, Massachusetts
May 16, 2003 |  |                  

F-1

---



CARDIOTECH INTERNATIONAL, INC.        CONSOLIDATED BALANCE SHEET

|                                                                           |                                                                                                        | MARCH 31,
2003                             |          
|-------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ---------
|ASSETS                                                                     |                                                                                                        |                                            |          
|Current Assets:                                                            |                                                                                                        |                                            |          
|                                                                           | Cash and cash equivalents                                                                              |                                            | $        
|                                                                           | Accounts receivabletrade, net of bad debt allowance of $92,000                                        |                                            |          
|                                                                           | Accounts receivableother                                                                              |                                            |          
|                                                                           | Note receivablerelated party                                                                          |                                            |          
|                                                                           | Inventory                                                                                              |                                            |          
|                                                                           | Prepaid expenses                                                                                       |                                            |          
|                                                                           |                                                                                                        |                                            |          
|                                                                           |                                                                                                        | Total Current Assets                       |          
|Property and equipment, net                                                |                                                                                                        |                                            | 298,000  
|Amortizable intangible assets, net                                         |                                                                                                        |                                            | 254,000  
|Goodwill                                                                   |                                                                                                        |                                            | 1,085,000
|Other non-current assets (including prepaid transaction costs of $421,000) |                                                                                                        |                                            | 461,000  
|                                                                           |                                                                                                        |                                            |          
|                                                                           |                                                                                                        | Total Assets                               |          
|                                                                           |                                                                                                        |                                            |          
|LIABILITIES AND STOCKHOLDERS' EQUITY                                       |                                                                                                        |                                            |          
|Current Liabilities:                                                       |                                                                                                        |                                            |          
|                                                                           | Accounts payable                                                                                       |                                            | $        
|                                                                           | Accrued expenses                                                                                       |                                            |          
|                                                                           | Deferred revenue                                                                                       |                                            |          
|                                                                           |                                                                                                        |                                            |          
|                                                                           |                                                                                                        | Total Current Liabilities                  |          
|                                                                           |                                                                                                        |                                            |          
|Commitments and contingencies (Note H)                                     |                                                                                                        |                                            |          
|Stockholders' Equity:                                                      |                                                                                                        |                                            |          
|                                                                           | Common stock, $.01 par value, 50,000,000 shares authorized, 9,228,266 issued and 9,126,889 outstanding |                                            |          
|                                                                           | Additional paid-in capital                                                                             |                                            |          
|                                                                           | Accumulated deficit                                                                                    |                                            |          
|                                                                           | Subscriptions receivable from related parties                                                          |                                            |          
|                                                                           |                                                                                                        |                                            |          
|                                                                           |                                                                                                        |                                            | 4,922,000
|                                                                           | Less: treasury stock, 101,377 shares at cost                                                           |                                            |          
|                                                                           |                                                                                                        |                                            |          
|                                                                           |                                                                                                        | Total Stockholders' Equity                 |          
|                                                                           |                                                                                                        |                                            |          
|                                                                           |                                                                                                        | Total Liabilities and Stockholders' Equity |          
|                                                                           |                                                                                                        |                                            |          

The
accompanying notes are an integral part of these consolidated financial statements.

F-2

---



CARDIOTECH INTERNATIONAL, INC.        CONSOLIDATED STATEMENTS OF OPERATIONS

|                                             |                                       | For the Years Ended March 31, |           
|-------------------------------------------- | ------------------------------------- | ----------------------------- | ----------
|
|Revenue:                                     |                                       |                               |           
|                                             | Product sales                         |                               | $         
|                                             | Research grants and contracts         |                               |           
|                                             | Royalties                             |                               |           
|                                             |                                       |                               |           
|                                             |                                       |                               | 3,394,000 
|                                             |                                       |                               |           
|Operating Expenses:                          |                                       |                               |           
|                                             | Cost of product sales                 |                               |           
|                                             | Cost of research grants and contracts |                               |           
|                                             | Research and development              |                               |           
|                                             | Selling, general and administrative   |                               |           
|                                             |                                       |                               |           
|                                             |                                       |                               | 4,401,000 
|                                             |                                       |                               |           
|Loss from operations                         |                                       |                               | (1,007,000
|                                             |                                       |                               |           
|Other Income (Expense):                      |                                       |                               |           
|                                             | Interest expense                      |                               |           
|                                             | Interest income                       |                               |           
|                                             | Other income                          |                               |           
|                                             |                                       |                               |           
|Other income (expense), net                  |                                       |                               | 44,000    
|                                             |                                       |                               |           
|Net loss                                     |                                       | $                             | (963,000  
|                                             |                                       |                               |           
|Net loss per share:                          |                                       |                               |           
|                                             | Basic                                 |                               | $         
|                                             |                                       |                               |           
|                                             | Diluted                               |                               | $         
|                                             |                                       |                               |           
|Shares used in computing net loss per share: |                                       |                               |           
|                                             | Basic                                 |                               |           
|                                             |                                       |                               |           
|                                             | Diluted                               |                               |           
|                                             |                                       |                               |           

The
accompanying notes are an integral part of these consolidated financial statements.

F-3

---



CARDIOTECH INTERNATIONAL, INC.        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY        For the Years Ended March 31, 2003 and 2002

|                                                                       |  | Common Stock |  |   |        |  |   |            |  |   |             |   |  
|---------------------------------------------------------------------- |  | ------------ |  | - | ------ |  | - | ---------- |  | - | ----------- | - | -
|
|
|Balance at April 1, 2001                                               |  | 8,517,930    |  | $ | 85,000 |  | $ | 14,680,000 |  | $ | (8,226,000  | ) | $
|Conversion of convertible notes to common stock                        |  | 433,094      |  |   | 4,000  |  |   | 394,000    |  |   |            |   |  
|Issuance of common stock in connection with exercise of stock options  |  | 84,377       |  |   | 1,000  |  |   | 71,000     |  |   |            |   |  
|Issuance of common stock in connection with exercise of stock warrants |  | 63,200       |  |   | 1,000  |  |   | 87,000     |  |   |            |   |  
|Fair value of options granted to consultant                            |  |             |  |   |       |  |   | 786,000    |  |   |            |   |  
|Payment of officers and consultant note                                |  |             |  |   |       |  |   |           |  |   |            |   |  
|Sale of common stock to related party                                  |  | 60,000       |  |   |       |  |   | 60,000     |  |   |            |   |  
|Treasury stock, at cost                                                |  |             |  |   |       |  |   |           |  |   |            |   |  
|Net loss                                                               |  |             |  |   |       |  |   |           |  |   | (1,971,000  | ) |  
|                                                                       |  |              |  |   |        |  |   |            |  |   |             |   |  
|Balance at March 31, 2002                                              |  | 9,158,601    |  |   | 91,000 |  |   | 16,078,000 |  |   | (10,197,000 | ) |  
|Issuance of common stock in connection with exercise of stock options  |  | 69,665       |  |   | 1,000  |  |   | 71,000     |  |   |            |   |  
|Fair value of options granted to consultants                           |  |             |  |   |       |  |   | 19,000     |  |   |            |   |  
|Interest due on Officer's notes                                        |  |             |  |   |       |  |   |           |  |   |            |   |  
|Payment of note receivable from related party                          |  |             |  |   |       |  |   |           |  |   |            |   |  
|Write-off of note receivable                                           |  |             |  |   |       |  |   |           |  |   |            |   |  
|Purchase of stock for treasury, at cost                                |  |             |  |   |       |  |   |           |  |   |            |   |  
|Net loss                                                               |  |             |  |   |       |  |   |           |  |   | (963,000    | ) |  
|                                                                       |  |              |  |   |        |  |   |            |  |   |             |   |  
|Balance at March 31, 2003                                              |  | 9,228,266    |  | $ | 92,000 |  | $ | 16,168,000 |  | $ | (11,160,000 | ) | $
|                                                                       |  |              |  |   |        |  |   |            |  |   |             |   |  

The accompanying notes are an integral part of these consolidated financial statements

F-4

---



CARDIOTECH INTERNATIONAL, INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                      |                                                                             | For the Years Ended March 31,                          |                          
|------------------------------------- | --------------------------------------------------------------------------- | ------------------------------------------------------ | -------------------------
|
|Cash flows from operating activities: |                                                                             |                                                        |                          
|                                      | Net loss                                                                    |                                                        | $                        
|                                      | Adjustments to reconcile net loss to net cash used in operating activities: |                                                        |                          
|                                      |                                                                             | Fair value ascribed to options granted to nonemployees |                          
|                                      |                                                                             | Noncash interest expense on convertible notes payable  |                          
|                                      |                                                                             | Depreciation and amortization                          |                          
|                                      |                                                                             | Loss on disposal of fixed assets                       |                          
|                                      |                                                                             | Interest on officer's notes                            |                          
|                                      |                                                                             | Provision for doubtful accounts                        |                          
|                                      |                                                                             | Excess and obsolescence reserve                        |                          
|                                      |                                                                             | Changes in current assets and liabilities:             |                          
|                                      |                                                                             |                                                        | Accounts receivabletrade
|                                      |                                                                             |                                                        | Accounts receivableother
|                                      |                                                                             |                                                        | Inventory                
|                                      |                                                                             |                                                        | Prepaid expenses         
|                                      |                                                                             |                                                        | Accounts payable         
|                                      |                                                                             |                                                        | Accrued expenses         
|                                      |                                                                             |                                                        | Deferred revenue         
|                                      |                                                                             |                                                        |                          
|                                      |                                                                             | Net cash used in operating activities                  |                          
|                                      |                                                                             |                                                        |                          
|Cash flows from investing activities: |                                                                             |                                                        |                          
|                                      | Purchase of property and equipment                                          |                                                        |                          
|                                      | Release of cash held in escrow                                              |                                                        |                          
|                                      | Cash paid for acquisition of CDT, net                                       |                                                        |                          
|                                      | Increase in other non current assets                                        |                                                        |                          
|                                      |                                                                             |                                                        |                          
|                                      |                                                                             | Net cash used in investing activities                  |                          
|                                      |                                                                             |                                                        |                          
|Cash flows from financing activities: |                                                                             |                                                        |                          
|                                      | Net proceeds from issuance of common stock, options and warrants            |                                                        |                          
|                                      | Purchase of treasury stock                                                  |                                                        |                          
|                                      | Receipt of subscription receivable                                          |                                                        |                          
|                                      | Proceeds from repayment of note receivable                                  |                                                        |                          
|                                      |                                                                             |                                                        |                          
|                                      |                                                                             | Net cash provided by financing activities              |                          
|                                      |                                                                             |                                                        |                          
|                                      | Net decrease in cash and cash equivalents                                   |                                                        |                          
|                                      | Cash and cash equivalents at beginning of year                              |                                                        |                          
|                                      |                                                                             |                                                        |                          
|                                      | Cash and cash equivalents at end of year                                    |                                                        | $                        
|                                      |                                                                             |                                                        |                          

The
accompanying notes are an integral part of these consolidated financial statements.

F-5

---

CARDIOTECH INTERNATIONAL, INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

Supplemental Disclosure of Cash Flow Information:

|                                                                               |  | For the Years Ended March 31,
|------------------------------------------------------------------------------ |  | -----------------------------
|
|Conversion of convertible notes payable and accrued interest into common stock |  |                             
|Income taxes paid                                                              |  |                             

On
May 4, 2001, the Company completed the acquisition of all the shares of CMED Catheter and Disposables Technology, Inc. pursuant to an Acquisition Agreement dated as of April 30, 2001,
as follows:

|Fair value of assets acquired, excluding cash |  | $ | 2,019,000  |  
|--------------------------------------------- |  | - | ---------- | -
|Cash paid for acquisition                     |  |   | (1,454,000 | )
|                                              |  |   |           
|Liabilities assumed                           |  | $ | 565,000    |  
|                                              |  |   |           

The
accompanying notes are an integral part of these consolidated financial statements.

F-6

---



CARDIOTECH INTERNATIONAL, INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Nature of Business

CardioTech International, Inc. (including its subsidiaries, collectively "CardioTech" or the "Company") is using its proprietary technology to develop and
manufacture small bore vascular grafts, or synthetic blood vessels, made of ChronoFlex, a family of polyurethanes, that has been demonstrated to be biocompatible and non-toxic. The Company
is headquartered in Woburn, Massachusetts, where it also operates its manufacturing and laboratory facilities.

A.    Summary of Significant Accounting Policies

Basis of Presentation

CardioTech was incorporated in March 1993. CardioTech and CardioTech International, Ltd. ("CTL") were spun off of PolyMedica
Industries, Inc. ("PMI") in June 1996. CardioTech Acquisition Corp, a wholly-owned subsidiary of the Company, was incorporated in April 1999. CTL was sold in November 2000.

The
consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated.

Uses of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates and such differences may be material to the financial
statements.

Uncertainties

The Company is subject to risks common to companies in the medical device industry, including, but not limited to, development of new technology innovations by
competitors of the Company, dependence on key personnel, protection of proprietary technology, and compliance with FDA government regulations.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, demand deposits and short-term investments with original maturities of three months or less. Cash
equivalents represent a deposit in a money market account.

Accounts ReceivableOther

Accounts ReceivableOther principally consists of revenue receivable from research and development work completed on National Institute of Health
Small Business Innovative Research Grants and royalty income receivable.

Revenue RecognitionProduct, Research and Royalty Revenue

The Company recognizes revenue in accordance with Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." Product revenue
is recognized in the period when persuasive evidence of an arrangement with a customer exists, the product is shipped, title has been transferred to the customer, the price is fixed and determinable,
and collection is considered probable.

F-7

---

Product
revenue is generated in connection with the sale of ChronoFlex and other proprietary biomaterials for use in medical devices. Contracted development fees from corporate partners are recognized
upon completion of service or the attainment of technical benchmarks, as appropriate. These amounts are recorded as research contract revenues.

The
Company also receives royalties for the use of its proprietary biomaterials. CardioTech recognizes these royalties as revenue in accordance with the terms of the contracts.

During
the years ended March 31, 2003 and 2002, the Company earned revenue from a Small Business Innovation Research (SBIR) grant awarded by the National Institute of Health to
support the Company's research and development programs. This Research Grant revenue is recognized over the term of the grant on a percentage of completion basis determined by estimates of costs
incurred as compared to total budgeted costs.

Shipping and Handling Costs

Shipping and handling costs are recorded in cost of sales as incurred.

Research and Development Expense

Research and development expense consists primarily of salaries and is charged to expense as incurred.

Reporting Comprehensive Income (Loss)

SFAS No. 130, "Reporting Comprehensive Income (Loss)," establishes standards for the reporting and display of comprehensive income and its components in
the consolidated financial statements. Comprehensive income (loss) is the total of net income (loss) and all other non owner changes in equity including such items as unrealized holding gains (losses)
on securities classified as available-for-sale, foreign currency translation adjustments and minimum pension liability adjustments. During the years ended March 31, 2003
and 2002, the Company's only item of comprehensive income was its net loss.

Basic and Diluted Earnings Per Share

The Company follows SFAS No. 128, "Earnings Per Share," where basic earnings per share is computed by dividing net income (loss) by the weighted average
number of common shares outstanding during the period. Diluted earnings per share are based upon the weighted average number of common shares outstanding during the period plus additional weighted
average common equivalent shares outstanding during the period.

Common
equivalent shares result from the assumed exercise of outstanding stock options and warrants, the proceeds of which are then assumed to have been used to repurchase outstanding
common stock using the treasury stock method. Common equivalent shares also result from the assumed conversion of convertible debt using the "If Converted" method. In addition, the numerator is
adjusted for any changes in income or loss that would result from the assumed conversion of potential shares.

Property and Equipment

Property and equipment are stated at cost. Equipment is depreciated using the straight-line method over the estimated useful lives of the assets,
ranging from three to seven years, and leasehold

F-8

---

improvements
are amortized using the straight-line method over the shorter of the estimated life of the asset or the remaining term of the lease. Expenditures for repairs and maintenance
are charged to expense as incurred.

Inventory

Inventory is stated at the lower of cost (determined on a first-in, first-out basis) or market, and is made up of Raw Materials, Work in
Process, and Finished Goods of $99,000, $60,000, and $21,000, respectively.

Income Taxes

The Company follows SFAS No. 109, "Accounting for Income Taxes," where deferred tax assets and liabilities are recognized based on temporary differences
between the financial statements and tax basis of assets and liabilities using currently enacted tax rates. A valuation reserve against the net deferred assets is recorded, if, based upon the weight
of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

Intangible Assets and Impairment of Long-Lived Assets:

The Company evaluates its long-lived assets, which include property and leasehold improvements and finite-lived intangible assets for
impairment as events and circumstances indicate that the carrying amount may not be recoverable and at a minimum at each balance sheet date. The Company evaluates the realizability of its
long-lived assets based on profitability and undiscounted cash flow expectations for the related asset or subsidiary. Property and leasehold improvements and amortizable intangibles are
subject to SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." Non-amortizable intangibles, such as goodwill, are subject to SFAS
No. 142 "Goodwill and Other Intangible Assets." Management believes that as of the balance sheet date presented none of the Company's long-lived assets were impaired.

In
June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 142, "Goodwill and Other Intangible Assets." This statement superceded Accounting Principles
Board Opinion No. 17 ("APB 17"), "Intangible Assets," and applies to goodwill and intangible assets acquired after June 30, 2001, as well as goodwill and intangible assets previously
acquired. SFAS No. 142 requires that goodwill and intangible assets with indefinite lives no longer be amortized but instead be tested for impairment at least annually, or when events indicate
that there may be impairment. In connection with the SFAS No. 142 transitional goodwill impairment evaluation, CardioTech is required to perform an assessment of whether there is an indication
that goodwill is impaired as of the date of adoption. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. CardioTech adopted SFAS No. 142 in the fiscal
quarter ended June 30, 2002 The Company completed the first step of the traditional goodwill impairment test during the first quarter of fiscal 2003, based on the amount of goodwill as of the
beginning of fiscal year 2003, as required by SFAS No. 142. The Company utilized a third party independent valuation to determine the fair value of each of the reporting units based on a
discounted cash flow income approach. Based on the results of the first step of the transitional goodwill impairment test, the Company has determined that the fair value of each of reporting units
exceeded the carrying amounts and, therefore, no goodwill impairment existed as of April 1, 2002. As a result, the second step of the transitional goodwill impairment test is not required to be
completed. As of March 31, 2003, we are not aware of any events that would cause us to conclude the impairment indicators exist. The Company will be required to continue to perform a goodwill
impairment test on an annual basis and the next test is scheduled during the quarter ending September 30, 2003.

F-9

---

In
October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses the financial
accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," but retains SFAS No. 121's fundamental provisions for (a) recognition/measurement of impairment of long-lived
assets to be held and used and (b) measurement of long-lived assets to be disposed of by sales. The Company adopted SFAS No. 144 in fiscal 2003. SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years. The Company believes that no indication of impairment exists as of March 31,
2003.

As
of March 31, 2003, CardioTech had unamortized goodwill of $1,085,000 and unamortized identifiable intangible assets of $254,000. Amortization expense related to other
identifiable intangible assets that will continue to be amortized in the future is approximately $82,000 for the fiscal year ended March 31, 2003. Under this statement goodwill, as well as
certain other intangible assets, determined to have an indefinite life, will no longer be amortized, instead these assets will be reviewed for impairment on a periodic basis.

2003

2002Reported net loss

$
(963,000
)
$
(1,971,000
)Add back: goodwill amortization





350,000Adjusted net loss


(963,000
)

(1,621,000
)Net loss per common share:Basic

$
(0.11
)
$
(0.19
)Diluted

$
(0.11
)
$
(0.19
)Shares used in computing net loss per common share:Basic


9,129,454


8,620,956Diluted


9,129,454


8,620,956


The
estimated amortization expense related to other identifiable intangible assets for the next five years is as follows:

Year2004

$
82,0002005


82,0002006


82,0002007


8,0002008





Stock Based Compensation

The Company accounts for stock options granted to employees in accordance with APB Opinion No. 25,Accounting for Stock Issued to
Employees, and related interpretations rather than the alternative fair value accounting provided for under Statement of Financial Standards No. 123, Accounting for Stock-Based Compensation
("SFAS 123"), which requires the use of option valuation models that were not developed for use in
valuing employee stock options. The Company also has issued options to non-employees for services provided to the Company. Such options have been accounted for at fair

F-10

---

value
in accordance with the provisions of SFAS 123 and the Emerging Issues Task Force consensus in Issue No. 96-18,Accounting for Equity Instruments
That are Issued to Other Than Employees for Acquiring, or in Conjunction With Selling Goods or Services. Such compensation expense is recognized based on the vested portion of
the compensation cost at the respective balance sheet dates.

Had
compensation cost for the Company's stock option grants been determined consistent with SFAS 123, the Company's net loss and net loss per share would approximate the pro forma
amounts below:

Year ended March 31,2003

2002Net loss as reported

$
(963,000
)
$
(1,971,000
)Add: Stock-based employee compensation expense determined under fair value based method for all employee awards


(841,000
)

(950,000
)Proforma net loss

$
(1,804,000
)
$
(2,921,000
)Basic and diluted loss per share:As reported

$
(0.11
)
$
(0.23
)Pro forma

$
(0.20
)
$
(0.34
)


The
effects of applying SFAS 123 in this pro forma disclosure are not indicative of future amounts. SFAS 123 does not apply to awards made prior to 1995. Additional awards
in future years are anticipated.

The
fair value of each option granted during the fiscal years 2003 and 2002 is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted
average assumptions:

2002

2003Dividend yield


None


NoneExpected volatility


80.0%


80.0
%Risk-free interest rate


3.94%5.21%


4.9
%Expected life


10 years


10 yearsFair value of options granted

$
1.34

$
0.92


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

F-11

---

Fair Value of Financial Instruments

The Company's financial instruments consist of cash and cash equivalents, trade receivables, accounts payable and accrued expenses. The carrying value of these
financial instruments approximates fair value due to their short term to maturity. Financial instruments that potentially subject the Company to a concentration of credit risk principally consist of
cash and cash equivalents and trade receivables.

All
of the Company's cash equivalents are maintained by major financial institutions.

The
Company performs ongoing credit evaluations of the financial condition of its customers and generally does not require collateral. The Company's subsidiary CDT requires new customers
to pay a deposit prior to any work being performed, which is recorded as a current liability. Although the Company is directly affected by the overall financial condition of the healthcare industry,
management does not believe significant credit risk exists at March 31, 2003. The Company maintains an allowance for doubtful accounts based on accounts past due according to contractual terms
and historical collection experience. Actual losses when incurred are charged to the allowance. The Company's losses related to collection of trade accounts receivables have consistently been within
management's expectations.

Recent Accounting Pronouncements

In November 2002, the FASB issued FIN 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." FIN 45 requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligation it
assumes under the guarantee. The disclosure provisions of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. The provisions for initial
recognition and measurement are effective on a prospective basis for guarantees that are issued or modified after December 31, 2002, irrespective of a guarantor's year-end. The
Company is currently evaluating the requirements and impact, if any, of FIN 45 on its consolidated results of operations and financial position.

In
January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest Entities," to expand upon and strengthen existing
accounting guidance that addresses when a company should include in its financial statements the assets, liabilities and activities of another entity. Until now, a company
generally has included another entity in its consolidated financial statements only if it controlled the entity through voting interests. FIN 46 changes that guidance by requiring a variable interest
entity, as defined, to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or is entitled to receive a majority of
the entity's residual returns or both. FIN 46 also requires disclosure about variable interest entities that the company is not required to consolidate but in which it has a significant variable
interest. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003 and to older entities in the first fiscal year or interim
period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest
entity was established. The Company is currently evaluating the requirements and impact, if any, of FIN 46 on its consolidated results of operations and financial position.

In
June 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 146,Accounting for Costs Associated with Exit or Disposal
Activities, which addresses accounting for restructuring and similar costs. SFAS No. 146 supersedes previous accounting guidance, principally Emerging Issues Task Force
Issue ("EITF") No. 94-3. SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under
EITF No. 94-3, a liability for an exit cost was recognized at the date of the commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be
measured and recorded at fair value.

F-12

---

We
will adopt the provisions of SFAS No. 146 for any restructuring activities initiated after December 31, 2002. Adoption of the provisions of SFAS No. 146 may affect the timing
of recognizing future restructuring costs as well as the amounts recognized.

In
December 2002, the FASB issued SFAS No. 148,Accounting for Stock-Based CompensationTransition Disclosure, An Amendment of FASB
Statement No. 123. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require more prominent and more frequent disclosure in financial statements
regarding the effects of stock-based compensation. The provisions of SFAS No. 148 are effective for fiscal and interim periods ending after December 15, 2002. The Company will continue
to apply APB No. 25 as the method used to account for stock-based employee compensation arrangements, where applicable, but has adopted the disclosure requirements of SFAS No. 148.

On
May 15, 2003, the FASB issued Statement of Financial Accounting Standards No. 150,Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. This Statement establishes standards for classifying and measuring as liabilities certain financial instruments that embody
obligations of the issuer and have characteristics of both liabilities and equity. Statement 150 represents a significant change in practice in the accounting for a number of financial instruments,
including mandatorily redeemable equity instruments and certain equity derivatives that frequently are used in connection with share repurchase programs. The provisions of SFAS No. 150 are
effective for public companies for all financial instruments created or modified after May 31, 2003, and to other instruments at the beginning of the first interim period beginning after
June 15, 2003 (July 1, 2003 for
calendar quarter companies. The adoption of SFAS No. 150 is not expected to have a material impact on the Company's financial position or results of its operations.

B.    Related Party Transactions

In December 1998, certain executive officers of the Company purchased, in the aggregate, 160,000 units during a private placement offering of the Company's
common stock. A note issued by each officer to the Company funded the purchase of the units valued at $200,000. The terms of the note provide for each executive is to repay the Company with interest
at 4.25% per annum, within five years. The promissory notes, which are full recourse against the maker personally with respect to any amount due under the promissory notes, are secured by the common
stock and warrants underlying the units. The principal balance due is included as Subscriptions receivable from related parties in Stockholders' Equity of the consolidated balance sheet. As of
March 31, 2003, the principal balance outstanding was $150,000.

SFAS
No. 57, "Related Party Disclosures," specifies the nature of information that should be disclosed in financial statements regarding related party transactions. Implant
Sciences Corporation ("Implant"), a public company, is a related party with the Company by virtue of its significant business relationships.

In
March 2000, Implant entered into a $250,000 joint research agreement with the Company for the purpose of having the Company develop a proprietary porous polymer biocompatible
coating technology as a platform for Implant's proprietary radioactive brachytherapy technology. During fiscal 2001, the Company was paid $50,000 by Implant pursuant to the aforementioned agreement.
The joint research and development agreement provides for the Company to develop the polyurethane coating instrumental in the development of a polyurethane coated drug-eluting stent and
for the Company to grant Implant a perpetual worldwide exclusive license to use, sublicense and otherwise deal in any technology developed by the Company in connection with the development of the
stents. In consideration of the research, development and technology transfer, Implant will pay the Company $150,000 in cash pursuant to a milestone schedule. In addition, Implant will purchase
100,000 shares of

F-13

---

CardioTech's
common stock at a price of $1.00 per share upon the achievement of certain milestones related to the research and development. As of March 31, 2002, Implant was obligated to
purchase 60,000 shares of the Company's common stock at $1.00 per share. Accordingly, the Company recorded a subscription receivable of $60,000 in stockholders' equity at March 31, 2002. On
April 6, 2003, Implant paid CardioTech $60,000 and received a stock certificate for 60,000 shares of CardioTech common stock. The owner of the technology used in connection with the stent is
CardioTech, however such technology will be transferred to Implant pursuant to a technology license. The developed technology represents a "platform" in the sense that the polyurethane developed by
CardioTech and utilized to cover the stent will be the medium in which specific anti-restenosis drugs will be implanted and therefore becomes the key technological component of this
drug-eluting stent. The research and development agreement provides for 6 phases including the design of equipment necessary to produce prototypes of the stent, development of a series of
prototypes, production of a limited number of prototypes and the delivery of prototypes to Implant. The material deadline is therefore the delivery of an operative prototype. Implant is obligated to
pay the entire $250,000 if all milestone conditions are met. Through March 31, 2003 Implant has made cash payments of $175,000 to CardioTech.

Certain
of the Company's directors hold positions as directors of Implant. The chief executive officer and chairman of the board of directors is also a director of Implant. The chief
executive officer and chairman of the board of directors of Implant is also one of the Company's directors. On October 10, 2001, the Company provided Implant a $500,000 line of credit facility.
The line of Credit provides for funding at the discretion of Implant, is subject to a security agreement providing a second lien on substantially all of Implant's assets, and provides for a $15,000
commitment fee which was paid in February 2002. The Company and Implant mutually agreed to terminate the Line of Credit on March 29, 2002. There were no borrowings on this line of credit
from inception through its termination on March 29, 2002.

The
Company advanced $10,000 to an outside business consultant on April 26, 2002. On June 25, 2003 the advance was converted to a demand note bearing interest at 1.31%.

C.    License Agreements

Polymedica Corporation (NASDAQ:"PLMD") has granted to CardioTech an exclusive, perpetual, worldwide, royalty-free license for CardioTech to use all of
the necessary patent and other intellectual property owned by PLMD in the implantable devices and materials field (collectively, "PLMD Licensed Technology"). CardioTech, at its own expense, will file
patents or other applications for the protection of all new inventions formulated, made, or conceived by CardioTech during the term of the license that related to PLMD Licensed Technology and all such
inventions shall be exclusively licensed to PLMD for use by PLMD in fields other than the implantable devices and materials field. There are no financial commitments of CardioTech related to this
license.

D.    Property and Equipment

Property and equipment at March 31, 2003 consists of the following:

Laboratory equipment

$
592,000Furniture, fixtures and office equipment


154,000Leasehold improvements


254,0001,000,000Less accumulated depreciation and amortization


(702,000
)$
298,000


F-14

---

Depreciation
expense for property and equipment for the fiscal years ended March 31, 2003 and 2002 was approximately $138,000 and $162,000, respectively.

E.    Accrued Expenses

Accrued expenses at March 31, 2003 consist of the following:

Legal and professional fees

$
256,000Salaries and benefits


128,000Research and development


107,000$
491,000


F.     Income Taxes

Reconciliation between the Company's effective tax rate and the United States statutory rate is as follows:

2003

2002Expected federal tax rate

34.0
%
34.0
%State income taxes, net of federal tax benefit

3.7
%
3.9
%Non deductible expenses

(3.2
)%
(7.5
)%Change in valuation allowance

(34.5
)%
(30.4
)%Effective tax rate

0.0
%
0.0
%


A
valuation allowance has been recorded to offset the related deferred tax assets due to uncertainty of realizing the benefit of this asset. The following is a summary of the significant
components of the Company's deferred tax assets and liabilities as of March 31, 2003:

Deferred Tax Assets:Net operating loss carryforwards

$
2,131,000Stock options exercised


Tax credits


97,000Other


126,000Depreciation


9,000Deferred tax assets before valuation allowance


2,363,000Valuation allowance


(2,363,000
)Net deferred tax asset

$



As
of March 31, 2003, the Company had federal and state net operating loss carryforwards of approximately $5,400,000 and $5,000,000, respectively, available to offset future
taxable income that begin to expire in 2019 through 2024.

G.    Concentration of Credit Risk and Major Customers

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and trade
accounts receivable. The Company maintains cash and cash equivalents with high credit, quality financial institutions. To manage accounts receivable credit risk, the Company continuously evaluates the
creditworthiness of its customers and maintains allowances for potential credit losses.

F-15

---

Customers
comprising more than 10% of CardioTech's total revenues for the years ended March 31 are shown as follows:

2003

2002Customer A

20
%
5
%Customer B

13
%
1
%Customer C

12
%
11
%Customer D

8
%
12
%


Customers
comprising more than 10% of CardioTech's total accounts receivable as of March 31 are shown as follows:

2003Customer A

34
%Customer B

21
%Customer C

5
%Customer D

4
%


H.    Lease Commitments

The Company leases offices, laboratory and manufacturing space under non-cancelable operating leases. Future minimum lease payments are as follows for
the years ending March 31:

2004

$
157,0002005


6,000$
163,000


Rent
expense for operating leases was $330,000 for each of the years ended March 31, 2003 and 2002.

I.     Long-Term Obligations



On March 31, 1998, the Company issued $1,660,000 of 7% Convertible Senior Notes (the "Senior Notes") with a maturity date of March 20, 2003 to
Dresdner Kleinwort Benson Private Partners LP ("DKB"). The Senior Notes and accrued interest were repaid in connection with proceeds related to the disposition of the Company's UK subsidiary.

On
September 24, 1999, the Company issued a 7% Convertible Senior Note (the "Note") in the amount of $340,000 to DKB, on terms similar to and as an amendment to the Note Purchase
Agreement, as amended, dated March 31, 1998. On February 6, 2002, DKB elected to convert the Note having an outstanding principal and interest balance outstanding on the date of
conversion of approximately $398,000. The Note was converted into 433,094 shares of the Company's common stock at a conversion price of $0.91875.

As
of March 31, 2002, the Company had no obligations outstanding to DKB.

J.     Stockholders' Equity



On December 22, 1998, the Company completed a private offering of 1,866,000 units at a price of $1.25 per unit. Each unit consisted of one share of the
Company's common stock, (the "Units"), and

F-16

---

one
warrant to purchase one share of the Company's common stock. Each warrant expires on December 15, 2003 and is exercisable at $1.50 per share. In connection with this offering, the Company's
executive officers purchased 160,000 units in exchange for promissory notes having a principal balance of $200,000. The Company received net proceeds of $1,782,000, net of placement agent fees of
$128,000, promissory notes of $200,000, and related offerings costs of $223,000. In addition to these fees, the Company issued to the placement agent a warrant to purchase 170,600 shares of the
Company's common stock at an exercise price of $1.475 per share. The warrants are exercisable at any time and from time to time after the grant date and prior to December 15, 2003.

The
principal balance of the promissory notes issued by the Company's executives is payable on December 15, 2003 and classified as Subscription receivable from related parties in
Stockholders' Equity in the consolidated balance sheet. The promissory notes bear interest at 4.25% per annum and are payable annually in arrears. The promissory notes, which are with full recourse
against the maker personally with respect to any amount due under this note, are secured by the common stock and warrants underlying the Units. Interest in the amount of $28,000 was accrued as of
March 31, 2003. As of March 31, 2003, the principal balance outstanding is $150,000, net of provision for the uncollectible note of $280,000.

During
the fiscal year ended March 31, 2000, warrants representing 969,000 shares of the Company's common stock were exercised, resulting in cash proceeds of $1,469,000 to
CardioTech. In connection with the exercise of the warrants, the Company granted to the placement agent and certain of its employees, warrants to purchase an additional 200,000 shares of the Company's
common stock at an exercise price of $1.88 per share (the closing price of the shares on the date of the agreement). The warrants have an expiration date of March 5, 2005.

During
the fiscal year ended March 31, 2001, warrants representing 97,000 shares of the Company's common stock were exercised, resulting in cash proceeds of $145,000 to
CardioTech. In connection with the exercise of stock options, the Company issued 24,750 shares of common stock, resulting in cash proceeds of $19,000. The Company also issued stock as a result of the
exercise of options by a director for 30,000 shares of the Company's common stock, in exchange for a promissory note payable on April 30, 2001 in the principal amount of $15,000 and bearing
interest at the rate of 4.54% per annum. During fiscal 2002, the Company received payment in full of all principal and interest in the approximate amount of $16,000. As of March 31, 2002, there
was no principal and accrued interest balance outstanding.

During
the fiscal year ended March 31, 2002, warrants representing 63,200 shares of the Company's common stock were exercised, resulting in cash proceeds of approximately $87,000
to CardioTech. In connection with the exercise of stock options, the Company issued 84,377 shares of common stock, resulting in cash proceeds of $72,000.

During
the fiscal year ended March 31, 2003, stock options representing 69,665 shares of the Company's common stock were exercised, resulting in cash proceeds of approximately
$71,000 to CardioTech. No warrants were exercised during fiscal 2003.

F-17

---





In April 2000, the Company issued 67,113 shares of the Company's common stock to PolyBioMed Ltd., having a fair market value of $79,000 on the date
of issuance, in consideration of a technology license agreement. In May 2000, the Company also loaned PolyBioMed Ltd $40,000. In June 2000, PolyBioMed Ltd. delivered to the
Company 20,822 shares of the originally issued common stock at a cost of $40,000 in repayment of the loan, which has been recorded as treasury stock as of March 31, 2001. During fiscal 2002,
the Company made open market purchases of 5,000 shares of the Company's common stock at a cost of approximately $8,000. During fiscal 2003, the Company made open market purchases of 75,500 shares at a
cost of approximately $117,000. Accordingly, total shares held in treasury as of March 31, 2003 are 101,377 at an approximate cost of $165,000.

On
February 6, 2002, DKB elected to convert a 7% Convertible Senior Note having an outstanding principal and interest balance outstanding on the date of conversion of
approximately $398,000. The Note was converted into 433,094 shares of the Company's common stock at a conversion price of $0.91875 (See Note I).

K.    Acquisitions

On May 4, 2001, the Company completed the acquisition of all the shares of CMED Catheter and Disposables Technology, Inc., a Minnesota corporation
("CDT"), from Colorado Medtech, Inc., a Colorado corporation ("Medtech"), pursuant to an Acquisition Agreement dated as of April 30, 2001, by and among CardioTech, CDT and Medtech.

CDT
is an original equipment manufacturer; supplier of specialized disposable medical devices to medical device companies from concept to finished packaged, sterile product; and uses its
experience in the design, development, prototyping and manufacturing to provide turnkey contract services. CDT's facility is ISO 9001 and EN 46001 certified and includes a "Class 10,000" clean
room.

The
consideration paid by CardioTech to Medtech was $1,300,000 in a cash payment, $130,000 of which was placed into escrow pursuant to the terms of the agreement. The cash consideration
used in the purchase came from CardioTech's working capital. In connection with the transaction, CardioTech acquired net assets of CDT having a book value of approximately $375,000. Additionally, the
Company
incurred transaction costs of approximately $154,000. The acquisition was accounted for in accordance with the purchase method of accounting. The excess of purchase price over the fair value of the
net assets acquired was approximately $1,144,000 and was recorded as goodwill and other intangible assets, which is being amortized on a straight-line basis over five years.

Operations
of CDT are included in CardioTech's operations from the date of the acquisition. The unaudited pro forma results of operations of the Company and acquired business for the
years ended March 31, 2002 assuming the acquisition had occurred on April 1, 2000 are as follows:

2002Revenues

$
3,420,000Net loss

$
(1,973,000
)Loss per sharebasic

$
(0.22
)Loss per sharediluted

$
(0.22
)




On April 7, 2003 the Company consumated a merger with Gish Biomedical, Inc. ("Gish"). Gish stockholders received 1.3422 shares of CardioTech common
stock for each share of Gish common stock

F-18

---

that
they owned. Holders of options to purchase Gish common stock will receive options to purchase 1.3422 shares of CardioTech common stock for every share of Gish common stock that they could
purchase under the Gish option, at an exercise price per share equal to the exercise price of the Gish option divided by 1.3422. 4,901,817 shares of CardioTech common stock was issued to the Gish
stockholders, representing approximately 35% of the total shares outstanding as of March 31, 2003.

Gish,
a California corporation, was founded in 1976 to design, produce and market innovative specialty surgical devices. All of Gish's products are single use disposable products or have
a disposable component. Gish's primary markets include products for use in cardiac surgery, myocardial management, infusion therapy, and post operative blood salvage. The Gish subsidiary will continue
to conduct its business in the Rancho Santa Margarita facility.

Total
purchase price, net of cash acquired, was $8,596,000. The value of the common stock issued was determined based on the average market price of CardioTech's common stock over a
25 day period before and after the terms of the acquisition were agreed to and announced. The purchase price includes the fair market value of stock options issued based on a Black Scholes
calculation using the same assumptions disclosed in Note L,Stock Compensation. There are no contingent payments or commitments outstanding. No
major restructuring of personnel or operations are contemplated. The former president of Gish Biomedical, Inc., resigned as president of Gish on April 30, 2003 and per his contract,
CardioTech agreed to pay him $360,000 over the next nineteen months. This amount will be recorded as a compensation charge in the first quarter of fiscal 2004.

The
following table summarizes the estimated fair values of the assets and liabilities assumed of the date of acquisition. CardioTech is in the process of obtaining third-party
valuations of tangible and intangible assets, thus, the allocation of the purchase price is subject to completion.

As of
April 1, 2003UnauditedCurrent Assets

$
7,218,000Property and Equipment


2,257,000Amortizable Intangible Assets


440,000Goodwill and Non Amortizable Assets


1,312,000Other Non Current Assets


343,000Total Asset Acquired


11,571,000Current Liabilities


2,818,000Long Term Liabilites


122,000Total Liabilities Assumed


2,940,000Net Assets Acquired

$
8,631,000


The
following unaudited pro forma combined condensed consolidated financial statements have been prepared to give effect to the merger of CardioTech and Gish using the purchase method of
accounting and the assumptions and adjustments described in the accompanying notes to unaudited pro forma combined condensed consolidated financial statements.

The
fiscal years of CardioTech and Gish end on March 31 and June 30, respectively. The CardioTech and the Gish balance sheets as of March 31, 2003 have been combined
as if the merger had occurred on March 31, 2003. For purposes of the pro forma information, the CardioTech and the Gish statements of operations for the year ended March 31, 2003 and the
twelve months ended March 31, 2003, respectively have been combined giving effect to the merger as if it had occurred on April 1, 2002 (the fiscal year ended March 31, 2002). The
unaudited pro forma combined condensed consolidated financial statements are presented for illustrative purposes only and are not necessarily

F-19

---

indicative
of the financial position or results of operations that would have actually been reported had the merger occurred on April 1, 2002 for the year ended March 31, 2003, nor is it
necessarily indicative of the future financial position or results of operations. As mentioned above, CardioTech is in the process of obtaining a third party valuation of certain tangible and
intangible assets, thus, the allocations of the purchase price is subject to completion. Because the unaudited pro forma combined condensed consolidated financial statements are based upon preliminary
estimates, the pro forma adjustments may differ materially based upon the final allocation.

UNAUDITED PRO FORMA COMBINED CONDENSED
CONSOLIDATED BALANCE SHEET
Fiscal Year Ending March 31, 2003

|                                     |                                                                           | CardioTech
International, Inc.
31-Mar-2003 |                            | Gish
Biomedical, Inc.
31-Mar-2003 |             | Pro Forma
Adjustments
& Eliminations |           | Pro Forma
Balance sheet
Combined |          
|------------------------------------ | ------------------------------------------------------------------------- | ------------------------------------------ | -------------------------- | --------------------------------- | ----------- | ------------------------------------ | --------- | -------------------------------- | ---------
|ASSETS                               |                                                                           |                                            |                            |                                   |             |                                      |           |                                  |          
|                                     | Total current assets                                                      |                                            | $                          | 3,800,000                         |             | $                                    | 7,218,000 |                                  |          
|                                     | Property and equipment, net                                               |                                            |                            | 298,000                           |             |                                      | 2,257,000 |                                  |          
|                                     | Amortizable intangible assets, net                                        |                                            |                            | 254,000                           |             |                                      |          |                                  |          
|                                     | Goodwill, net                                                             |                                            |                            | 1,085,000                         |             |                                      |          |                                  |          
|                                     | Other non-current assets, including prepaid transaction costs of $421,000 |                                            |                            | 461,000                           |             |                                      | 729,000   |                                  |          
|                                     |                                                                           |                                            |                            |                                   |             |                                      |           |                                  |          
|                                     |                                                                           | Total assets                               |                            | $                                 | 5,898,000   |                                      | $         | 10,204,000                       |          
|                                     |                                                                           |                                            |                            |                                   |             |                                      |           |                                  |          
|LIABILITIES AND SHAREHOLDERS' EQUITY |                                                                           |                                            |                            |                                   |             |                                      |           |                                  |          
|                                     | Total liabilities                                                         |                                            | $                          | 1,141,000                         |             | $                                    | 2,940,000 |                                  | $        
|                                     |                                                                           |                                            |                            |                                   |             |                                      |           |                                  |          
|                                     | Shareholders' equity                                                      |                                            |                            |                                   |             |                                      |           |                                  |          
|                                     |                                                                           | Common stock                               |                            |                                   | 92,000      |                                      |           |                                 |          
|                                     |                                                                           | Additional paid-in capital                 |                            |                                   | 16,167,000  |                                      |           | 10,554,000                       |          
|                                     |                                                                           | Accumulated deficit                        |                            |                                   | (11,159,000 | )                                    |           | (3,290,000                       | )        
|                                     |                                                                           | Treasury stock                             |                            |                                   | (165,000    | )                                    |           |                                 |          
|                                     |                                                                           | Subscription receivable                    |                            |                                   | (178,000    | )                                    |           |                                 |          
|                                     |                                                                           |                                            |                            |                                   |             |                                      |           |                                  |          
|                                     |                                                                           |                                            | Total shareholders' equity |                                   |             | 4,757,000                            |           |                                  | 7,264,000
|                                     |                                                                           |                                            |                            |                                   |             |                                      |           |                                  |          
|                                     |                                                                           | Total liabilities and shareholders' equity |                            | $                                 | 5,898,000   |                                      | $         | 10,204,000                       |          
|                                     |                                                                           |                                            |                            |                                   |             |                                      |           |                                  |          

F-20

---

Notes to Unaudited Proforma Combined Condensed Consolidated Balance Sheet for Fiscal Year Ending March 31, 2003:

|(1) Purchase Price Allocation                                                                       |                                                                      |                                         |            |            
|--------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------- | --------------------------------------- | ---------- | -----------
|                                                                                                    | Fair market value of shares issued                                   |                                         | $          | 7,413,000  
|                                                                                                    | Fair market value of stock options issued                            |                                         |            | 797,000    
|                                                                                                    | Acquisition costs                                                    |                                         |            | 807,000    
|                                                                                                    |                                                                      |                                         |           
|                                                                                                    |                                                                      | Total purchase price                    |            |            
|                                                                                                    | Less cash acquired                                                   |                                         |            | (421,000   
|                                                                                                    |                                                                      |                                         |           
|                                                                                                    |                                                                      | Total purchase price less cash acquired |            | $          
|                                                                                                    |                                                                      |                                         |           
|                                                                                                    | Net tangible assets, net of cash acquired                            |                                         | $          | 6,844,000  
|                                                                                                    | Goodwill and non amortizable intangibles                             |                                         |            | 1,312,000  
|                                                                                                    | Amortizable intangibles                                              |                                         |            | 440,000    
|                                                                                                    |                                                                      |                                         |           
|                                                                                                    |                                                                      | $                                       | 8,596,000  |            
|                                                                                                    |                                                                      |                                         |           
|(2) Record par value of stock to be issued to Gish shareholders, refer to calculation in (5) below. |                                                                      |                                         |            |            
|(3) Additional paid-in capital (APIC)                                                               |                                                                      |                                         |            |            
|                                                                                                    | Eliminate Gish APIC                                                  |                                         | $          | (10,555,000
|                                                                                                    | Add APIC for new shares issed to Gish, refer to (5) for calculation. |                                         |            | 7,364,000  
|                                                                                                    | Add APIC related to fair market value of new options issued to Gish  |                                         |            | 797,000    
|                                                                                                    |                                                                      |                                         |           
|                                                                                                    |                                                                      | $                                       | (2,394,000 | )          
|                                                                                                    |                                                                      |                                         |           
|(4) Eliminate Gish accumulated deficit                                                              |                                                                      |                                         |            |            
|(5) Fair value of shares issued                                                                     |                                                                      |                                         |            |            
|                                                                                                    | Shares issued to Gish                                                |                                         | $          | 4,901,817  
|                                                                                                    | Average price                                                        |                                         |            | 1.5122     
|                                                                                                    |                                                                      |                                         |           
|                                                                                                    | Common stock value                                                   |                                         | $          | 7,413,000  
|                                                                                                    |                                                                      |                                         |           
|                                                                                                    | Common stock par value                                               |                                         | $          | 49,000     
|                                                                                                    | Common stock APIC                                                    |                                         |            | 7,364,000  
|                                                                                                    |                                                                      |                                         |           
|                                                                                                    |                                                                      | $                                       | 7,413,000  |            
|                                                                                                    |                                                                      |                                         |           
|(6) Acquisition costs included in purchase price.                                                   |                                                                      |                                         |            |            

F-21

---

UNAUDITED PRO FORMA COMBINED CONDENSED
CONSOLIDATED STATEMENT OF INCOME
For the Year Ended March 31, 2003

|                                                   |         | CardioTech
International, Inc.
Year Ended
31-Mar-2003 |            | Gish
Biomedical, Inc.
Year Ended
31-Mar-2003 |   | Pro Forma
Adjustments
& Eliminations |           | Pro Forma
Statement of
Income |        
|-------------------------------------------------- | ------- | ----------------------------------------------------- | ---------- | -------------------------------------------- | - | ------------------------------------ | --------- | ----------------------------- | -------
|Net sales                                          |         | $                                                     | 3,394,000  |                                              | $ | 17,584,000                           |           |                               |        
|Cost of sales                                      |         |                                                       | 2,123,000  |                                              |   | 13,144,000                           |           |                               |        
|                                                   |         |                                                       |            |                                              |   |                                      |           |                               |        
|Gross profit                                       |         |                                                       | 1,271,000  |                                              |   | 4,440,000                            |           |                               |       
|Total operating expenses                           |         |                                                       | 2,278,000  |                                              |   | 5,061,000                            | (1)       |                               | 63,000 
|Operating loss                                     |         |                                                       | (1,007,000 | )                                            |   | (621,000                             | )         |                               | (63,000
|                                                   |         |                                                       |            |                                              |   |                                      |           |                               |        
|Net loss                                           |         | $                                                     | (963,000   | )                                            | $ | (708,000                             | )         | $                             | (63,000
|                                                   |         |                                                       |            |                                              |   |                                      |           |                               |        
|Net loss per common share:                         |         |                                                       |            |                                              |   |                                      |           |                               |        
|                                                   | Basic   |                                                       | $          | (0.11                                        | ) | $                                    | (0.14     | )(3)                          |        
|                                                   |         |                                                       |            |                                              |   |                                      |           |                               |        
|                                                   | Diluted |                                                       | $          | (0.11                                        | ) | $                                    | (0.14     | )(3)                          |        
|                                                   |         |                                                       |            |                                              |   |                                      |           |                               |        
|Shares used in computing net loss per common share |         |                                                       |            |                                              |   |                                      |           |                               |        
|                                                   | Basic   |                                                       |            | 9,129,454                                    |   |                                      | 4,901,817 | (2)                           |        
|                                                   |         |                                                       |            |                                              |   |                                      |           |                               |        
|                                                   | Diluted |                                                       |            | 9,129,454                                    |   |                                      | 4,901,817 | (2)                           |        
|                                                   |         |                                                       |            |                                              |   |                                      |           |                               |        

$
440,000

intangible asset value84

7 year life5,238

monthly expense× 12

months$
62,856

YTD expense


3,652,145

Gish outstanding shares 4/7/031.3422

exchange rate4,901,909(92
)
fractional shares paid in cash4,901,817

CTE shares issued to Gish shareholders


F-22

---

L.    Enterprise and Related Geographic Information

In accordance with SFAS 131, "Disclosures about Segments of an Enterprise and Related Information", the Company managed its business in fiscal 2003 on the
basis of two reportable operating segments: Biomaterials and Outsourced R&D and Manufacturing.

2003

2002Net sales:Biomaterials

$
1,051,000

$
1,258,000CDTOutsourced R&D and Manufacturing


2,343,000


1,962,000$
3,394,000

$
3,220,000Net income (loss):Biomaterials

$
(1,291,000
)
$
(1,963,000
)CDTOutsourced R&D and Manufacturing


328,000


(8,000
)$
(963,000
)
$
(1,971,000
)Total assets:Biomaterials

$
3,732,000

$
4,902,000CDTOutsourced R&D and Manufacturing


2,166,000


1,653,000$
5,898,000

$
6,555,000Long-lived assets, net:Biomaterials

$
487,000

$
487,000CDTOutsourced R&D and Manufacturing


852,000


934,000$
1,339,000

$
1,421,000


M.   Supplemental Disclosures for Stock-Based Compensation

CardioTech's 1996 Employee, Director and Consultants Stock Option Plan (the "Plan") was approved by CardioTech's Board of Directors and Stockholders in
March 1996. A total of 7,000,000 shares have been reserved for issuance under the Plan. Under the terms of the Plan the exercise price of Incentive Stock Options issued under the Plan must be
equal to the fair market value of the common stock at the date of grant. In the event that Non Qualified Options are granted under the Plan, the exercise price may be less than the fair market value
of the common stock at the time of the grant (but not less than par value). During fiscal 2003, the Company issued options to a consultant to purchase 35,000 shares of the Company's common stock,
which were valued using the Black Scholes option pricing model. These options vest over a 24 month period. The fair value of the options granted of $30,100 is being expensed to consulting
expense, included in selling, general and administrative expense in the Consolidated Statements of Operations, over the vesting period. During fiscal 2002, the Company issued options to consultants to
purchase 725,000 shares of the Company's common stock, which were valued using the Black Scholes option pricing model. These options were vested immediately upon grant. The fair value of the options
granted of $729,000 was recorded as consulting expense and is included in selling, general and administrative expense in the Consolidated Statements of Operations for the year ended March 31,
2002.

F-23

---

Activity
under the Plans for the years ended March 31, 2003 and 2002 is as follows:

Number
of Options

Weighted average
exercise priceOutstanding April 1, 2001

2,333,245

$
1.86Granted

2,376,588


1.43Cancelled

(149,060
)

1.93Exercised

(84,377
)

0.76Outstanding March 31, 2002

4,476,396


1.66Granted

182,119


1.58Cancelled

(215,628
)

1.55Exercised

(69,665
)

1.02Outstanding March 31, 2003

4,373,222

$
1.67


Weighted
average fair value of the options granted in fiscal 2003 was $1.34.

Summarized
information about stock options outstanding at March 31, 2003 is as follows:

|            |  |           |  |     |  |   |      | Exercisable
|----------- |  | --------- |  | --- |  | - | ---- | -----------
|
|
|$0.50$0.88 |  | 846,988   |  | 7.1 |  | $ | 0.69 |            
|$1.01$1.95 |  | 2,759,395 |  | 7.5 |  | $ | 1.54 |            
|$2.06$2.25 |  | 203,875   |  | 7.5 |  | $ | 2.18 |            
|$3.06$3.80 |  | 562,964   |  | 6.9 |  | $ | 3.59 |            
|            |  |           |  |     |  |   |      |            
|$0.50$3.80 |  | 4,373,222 |  | 7.4 |  | $ | 1.67 |            
|            |  |           |  |     |  |   |      |            

The
Executive Compensation Structure that The Compensation Committee approved provides an anti-dilution provision for Michael Szycher. This provision ensures that Michael
Szycher's percentage of ownership (20.8%) will be the same after the Gish transaction as it was before. Upon completetion of the Gish transaction, Michael Szycher was granted a stock option for
1,017,330 shares at an exercise price of $0.92.

Options
exercisable at March 31, 2003 and March 31, 2002 were 3,919,236 and 3,720,651, respectively.

N.    Intangible Assets

Intangible
assets consist of the following at March 31:

Estimated
Useful Life

2003Customer intangibles

5 years

$
412,000LessAccumulated amortization




(158,000
)Customer intangibles, net



$
254,000Goodwill



$
1,814,000LessAccumulated amortization




(729,000
)Goodwill, net



$
1,085,000


F-24

---

O.    Other Agreements

In April 2002, the Company concluded a technology transfer and license agreement with Credent Vascular Technologies, Ltd., of Wrexham, U.K.
("Credent"). Total consideration paid by Credent to CardioTech for the purchase of the transferred rights to ChronoFlex RC was $500,000. Under terms of the agreement, CardioTech irrevocably granted an
exclusive, worldwide license of its intellectual property rights relating to ChronoFlex RC, enabling Credent to exclusively synthesize ChronoFlex RC biodurable polycarbonate-urethane. Credent will use
ChronoFlex RC in the manufacture of its vascular access and peripheral vascular grafts and potentially in future development products. Credent has licensed back to CardioTech the right to use
ChronoFlex RC for the manufacture and marketing of coronary artery bypass grafts.

P.     Valuation and Qualifying Accounts

|Description                |                                | Balance at
Beginning of Period  |       | Charged to Costs and
Expenses |        | Other  |   | Write-Offs |        | Balance at End
of Period
|-------------------------- | ------------------------------ | ------------------------------- | ----- | ----------------------------- | ------ | ------ | - | ---------- | ------ | ------------------------
|Year Ended March 31, 2003: |                                |                                 |       |                               |        |        |   |            |        |                         
|                           | Deducted from assets accounts: |                                 |       |                               |        |        |   |            |        |                         
|                           |                                | Allowance for doubtful accounts |       | $                             | 70,000 |        | $ | 33,000     |        |                         
|                           |                                |                                 |       |                               |        |        |   |            |        |                         
|                           |                                | Excess and obsolescence reserve |       |                               | 15,000 |        |   |           |        |                         
|                           |                                |                                 |       |                               |        |        |   |            |        |                         
|                           |                                |                                 | Total |                               | $      | 85,000 |   | $          | 33,000 |                         
|                           |                                |                                 |       |                               |        |        |   |            |        |                         
|Year Ended March 31, 2002: |                                |                                 |       |                               |        |        |   |            |        |                         
|                           | Deducted from asset accounts:  |                                 |       |                               |        |        |   |            |        |                         
|                           |                                | Allowance for doubtful accounts |       | $                             | 12,000 |        | $ | 13,000     |        | $                       
|                           |                                |                                 |       |                               |        |        |   |            |        |                         
|                           |                                | Excess and obsolescence reserve |       |                               |       |        |   | 15,000     |        |                         
|                           |                                |                                 |       |                               |        |        |   |            |        |                         
|                           |                                |                                 | Total |                               | $      | 12,000 |   | $          | 73,000 |                         
|                           |                                |                                 |       |                               |        |        |   |            |        |                         

F-25

---

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

|Dated: June 26, 2003 |  | CardioTech International, Inc.
|-------------------- |  | ------------------------------
|                     |  | By:                           

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

|Dated: June 26, 2003 |  | /s/MICHAEL SZYCHERMichael Szycher
Chairman, Chief Executive Officer
(Principal Executive Officer) |  | 
|-------------------- |  | ------------------------------------------------------------------------------------------------- |  | 
|Dated: June 26, 2003 |  | /s/MICHAEL F. ADAMSMichael F. Adams
Director                                                      |  | 
|Dated: June 26, 2003 |  | /s/MICHAEL BARRETTIMichael Barretti
Director                                                      |  | 
|Dated: June 26, 2003 |  | /s/ANTHONY J. ARMINIAnthony J. Armini
Director                                                    |  | 
|Dated: June 26, 2003 |  | /s/THOMAS F. LOVETTThomas F. Lovett
VP of Finance
(Principal Accounting Officer)                  |  | 

---

CERTIFICATION

I,
Thomas F. Lovett, hereby certify that:

1.     I
have reviewed the Annual Report on Form 10-KSB of CardioTech International, Inc. (the "Registrant");

2.     Based
on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.     Based
on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial
condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this annual report;

4.     The
Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the Registrant and have:



5.     The
Registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's
board of directors (or persons performing the equivalent functions):



6.     The
Registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

|Date: June 19, 2003                                                                    |  | 
|-------------------------------------------------------------------------------------- |  | 
|/s/THOMAS F. LOVETTThomas F. Lovett
Vice President of Finance, chief financial officer |  | 

---

CERTIFICATION

I,
Michael Szycher, hereby certify that:

1.     I
have reviewed the Annual Report on Form 10-KSB of CardioTech International, Inc. (the "Registrant");

2.     Based
on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.     Based
on my knowledge, the financial statements, and other financial information included in this Annual Report, fairly present in all material respects the financial
condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this annual report;

4.     The
Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the Registrant and have:



5.     The
Registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's
board of directors (or persons performing the equivalent functions):



6.     The
Registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

|Date: June 19, 2003                                                 |  | 
|------------------------------------------------------------------- |  | 
|/s/MICHAEL SZYCHER, JR.Michael Szycher, Jr.
Chief Executive Officer |  | 

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