<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                  FORM 10-K/A
                                AMENDMENT NO. 1
               ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended March 31, 1998

                         Commission File No.  0-28034
                         ----------------------------

                        CARDIOTECH INTERNATIONAL, INC.
                        ------------------------------
            (Exact name of registrant as specified in its charter)


          Massachusetts                                       04-3186647
   State or other jurisdiction of                          (I.R.S. Employer
   incorporation or organization                          Identification No.)

  78E Olympia Avenue, Woburn, Massachusetts                          01801
  (Address of principal executive offices)                         (Zip Code)

  Registrant's telephone number, including area code          (781) 933-4772

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                     COMMON STOCK, $.01 PAR VALUE PER SHARE
                                (TITLE OF CLASS)
                                        
       SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:  NONE
                                        
     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.             Yes  X   No
                                                      -----------

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K . [ ]

     As of June 25, 1998, 4,272,916 shares of the registrant's Common Stock were
outstanding, and the aggregate market value of the registrant's Common Stock
held by nonaffiliates of the registrant(without admitting that any person whose
shares are not included are affiliates) was $8,131,112, based on the last sale
price as reported on the American Stock Exchange on such date.
<PAGE>
 
                         CARDIOTECH INTERNATIONAL, INC.
                                        

                                        
                                        

     Part I, Items 1. and 2. to the CardioTech International, Inc. Annual Report
on Form 10-K, filed with the Securities and Exchange Commission on June 29, 1998
for the fiscal year ended March 31, 1998, are hereby deleted and replaced with
Part I, Items 1. and 2. included in this Amendment No. 1.


                                      -1-
<PAGE>
 
                         CARDIOTECH INTERNATIONAL, INC.

                                     PART I
                                        
ITEM 1.  BUSINESS

GENERAL

     CardioTech 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 and are used to provide access for patients undergoing
hemodialysis treatments.  The Company is developing three types of layered,
microporous small bore vascular grafts: (i) a vascular access graft, called the
VascuLink Access Graft; (ii) a peripheral graft, called the MyoLink Peripheral
Graft, and (iii) a coronary artery bypass graft, called the CardioPass Coronary
Artery Bypass Graft.

     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.

     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 designed to replicate the physical
characteristics of human blood vessels.

     Additionally, through its CT 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 and ChronoFilm.

     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., certain polyurethane patents relating to the
Chronoflex technology (the "Joint Technology").  PMI has granted to CardioTech a
non-exclusive, perpetual, worldwide, royalty-free sublicense of the Joint
Technology for use in the Implantable Devices and Materials Field.


                                      -2-
<PAGE>
 
     The Company was founded in 1993 as a subsidiary of PMI. In June 1996, PMI
distributed (the "Spin Off") all of the shares of CardioTech's Common Stock that
PMI owned to PMI stockholders of record as of June 3, 1996.  The Company is
headquartered in Woburn, Massachusetts and also has production facilities in
Brymbo, Wrexham, U.K.

     ChronoFlex and ChronoFilm are registered trademarks of PMI. ChronoThane,
ChronoPrene, HydroThane, PolyBlend and PolyWeld are tradenames of CardioTech.
DuraGraft, VascuLink, MyoLink, CardioPass are trademarks of CardioTech.

PRODUCTS IN DEVELOPMENT

VASCULINK VASCULAR ACCESS GRAFT

     Patients suffering from end-stage renal disease may be required to undergo
hemodialysis.  The majority of these patients require long-term vascular access
to facilitate treatment.  A point of access for dialysis needles may be created
by connecting an artery and a vein in the patient's arm.  However, because
kidney dialysis therapy typically requires patients to undergo hemodialysis
treatment three times per week, these natural shunts often become unusable over
time.  Other methods of vascular access for kidney dialysis, such as
transcutaneous catheters, are only designed for temporary use.

     A synthetic graft is implanted in hemodialysis patients to provide routine
vascular access.  The vast majority of these synthetic grafts are presently made
of polytetafluoroethylene ("ePTFE").  The use of ePTFE grafts is often
accompanied by excessive bleeding when the dialysis needle is withdrawn,
requiring a nurse to apply pressure to help stop the bleeding and requiring the
patient to remain in the treatment area until the bleeding has stopped.  In
addition, to limit the risk of graft infection following implant, at least a
four to six week healing period following implantation is required before
initiating dialysis in order to allow for tissue in-growth into the graft.

     The Company believes that the VascuLink Graft that it is developing may
offer advantages over currently used synthetic grafts because of its needle-
hole-sealing-capability.  The Company believes that this characteristic will be
effective in sealing puncture sites in its grafts with minimal compression time
and bleeding as compared with ePTFE grafts and, as a result, will reduce
dialysis procedure and administrative time per patient and their associated
costs.  In addition, the Company believes, based on animal studies, that
patients who receive the VascuLink Graft will be able to be dialized in a
shorter period of time than four to six weeks.

     The Company believes that approximately 185,000 patients in the United
States undergo kidney dialysis each year, of which approximately 140,000 undergo
vascular access surgeries using either natural vessel grafts or synthetic access
grafts.  The Company estimates that of these patients, approximately 55,000 are
implanted with synthetic grafts.  The Company believes that a comparable market
exists overseas.

     The Company is currently conducting clinical trials of the VascuLink Graft
in Holland, France and Sweden with patients undergoing routine hemodialysis
treatment.  The Company's clinical trials will compare patency and complication
rates of the Company's VascuLink Graft with ePTFE grafts. The clinical trial in
Holland began in November 1996 at one site, the clinical trial in France began
in June 1997 at three sites and the clinical trial in Sweden began during the
first three months of 1998 at two

                                      -3-
<PAGE>
 
sites. The clinical trials in Holland, France and Sweden involve an aggregate of
up to 60 patients. There can be no assurance that the Company's clinical trials
will be successful.

MYOLINK PERIPHERAL GRAFT

     In the United States, an estimated 16 million people suffer from diabetes,
which is often further complicated by atherosclerosis, or the blockage of
arteries.  Eventually, many atherosclerosis patients require vascular grafts to
bypass severely occluded leg arteries, which impede circulation to the lower
extremities and can ultimately lead to amputation.  Lack of adequate circulation
to the lower limbs and toes results in approximately 54,000 yearly amputations
in the United States alone.  Current techniques of surgical intervention rely on
autologous saphenous veins from the leg for use as substitute vessels.

     However in over 40% of all atherosclerosis patients, the saphenous veins
are deemed unsuitable, making it necessary to use a vein constructed from
artificial materials.  The Company is designing the MyoLink Peripheral Graft
that it is developing to be suitable for providing needed circulation from the
upper thigh, across the knee and into the mid calf.  In order to accommodate the
bend at the knee, CardioTech has designed the MyoLink graft to be "non-kinking."
Further, CardioTech believes that it has the expertise and capability to
manufacture a graft that tapers from an inside diameter of approximately 6mm for
the portion above the knee to an inside diameter of approximately 4mm for the
portion below the knee, roughly the same dimensions as the natural artery.  The
Company is currently conducting pre-clinical development studies of the MyoLink
Graft at its Brymbo, Wrexham, UK facility.

     On April 1, 1998, the Company, through its wholly owned subsidiary ,
CardioTech International, Ltd. ("CTI Ltd."), entered into a two year research
collaborative with The Royal Free Hospital School of Medicine (University of
London) ("Royal"), which relates to the investigation and clinical trials of the
MyoLink graft and the clinical evaluation of endothelial cell-seeding of
peripheral vascular grafts. This research, if successfully commercialized may
result in the payment of royalties to the Royal Free Hospital. The research is
being funded by a loan of (Pounds)252,942 (or $429,875 as of September 30, 1998)
(the "Loan") from Freemedic PLC, a subsidiary of Royal (together with Royal,
"Freemedic"), to CTI, Ltd. The Loan, plus accrued interest, is convertible under
certain conditions, at either the Company's or Freemedic's option, into Common
Stock of the Company at a conversion price of $3.70 per share. Freemedic may
terminate the collaboration at any time upon a material breach by the Company of
any obligation under the collaboration agreement or upon any event of default
under the Loan agreement.

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.  Cryopreserved saphenous veins are available, but these veins often
deteriorate due to attack by the body's immune system.


                                      -4-
<PAGE>
 
     The Company is developing the CardioPass Coronary Artery Bypass Graft to be
a synthetic graft of 3mm 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 in 1995, approximately 700,000 CABG procedures
were performed worldwide, of  which nearly 500,000 were performed in the United
States.  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 percentage of
procedures performed.  Currently, approximately 70% of CABG procedures are
performed utilizing the saphenous vein.

     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.  The CardioPass Coronary Artery Bypass Graft is currently in pre-
clinical development.  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.

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.  In 1992, PMI
entered into a long term development and materials supply agreement with Bard
Access Systems, Inc. pursuant to which Bard purchases several formulations of
ChronoFlex for use in the manufacture of a line of catheters and implantable
vascular access ports that are used to deliver doses of pharmaceuticals over an
extended period of time or to deliver chemotherapy agents to specific organs.
PMI assigned this agreement to CardioTech prior to the Spin Off.

     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.

     During the fiscal year ended March 31, 1998, the Company was the recipient
of two Small Business Innovation Research grants awarded by National Institutes
of Health ("NIH") to support the Company's research and development programs.


                                      -5-
<PAGE>
 
     Research revenues related to biomaterials were approximately $278,343,
$872,521 and $570,676 for the three months ended June 30, 1998 and the years
ended March 31, 1998 and 1997, respectively.  For the year ended March 31, 1998,
26% and 56% of research revenues were generated from Bard Access Systems, Inc.
and the NIH, respectively.  For the three months ended June 30, 1998, 22.5% and
48.9% of research revenues were generated from Bard Access Systems, Inc. and the
NIH, respectively.

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.  CardioTech currently
has the ability to produce quantities of vascular grafts sufficient to support
its current testing needs.  CardioTech also has the ability to produce
quantities of vascular grafts sufficient to support its needs for early-stage
clinical trials.  However, CardioTech may need to acquire manufacturing
facilities and improve its manufacturing technology in order to meet the volume
and cost requirements for later clinical trials and will require additional
manufacturing facilities in order to undertake commercial production of vascular
grafts, if it elects to do so.  To achieve profitability, CardioTech's products
must be manufactured in commercial quantities in compliance with regulatory
requirements and at acceptable costs.  Production in commercial quantities will
require CardioTech to expand its manufacturing capabilities significantly and to
hire and train additional personnel.  CardioTech has no experience in large-
scale manufacturing, and there can be no assurance that CardioTech will be able
to make the transition to commercial production successfully.

     The Company's manufacturing operations in the United Kingdom currently hold
an ISO 9001 Certificate of  Registration from National Quality Assurance, Ltd.
This internationally recognized endorsement of ongoing quality management
represents the highest level of certification available.

     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.

MARKETING

     CardioTech plans to market its vascular graft products for which it obtains
regulatory approvals either through a small targeted direct sales group or
through licensing arrangements with large medical device companies.
Implementation of this strategy will depend on many factors, including the
market potential for CardioTech's products and financial resources.  There can
be no assurance that CardioTech will be able to successfully market its
products.


                                      -6-
<PAGE>
 
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.

     CardioTech will compete with products offered by W.L. Gore and Associates
("W.L. Gore"), Impra, Inc. ("Impra"), Corvita Corporation ("Corvita") and
Thoratec Corporation ("Thoratec").  CardioTech believes that W.L. Gore and
Impra, whose synthetic graft products have been sold in the United States and
worldwide for many years, sell approximately 90% of the intermediate diameter
peripheral synthetic vascular grafts and vascular access grafts used throughout
the world.  While CardioTech believes that the attributes of its vascular grafts
will allow it to compete effectively, both W.L. Gore and Impra can be expected
to defend their market positions vigorously, and both have substantially greater
financial, technical and other resources than CardioTech.  Corvita is developing
a broad range of polyurethane based synthetic vascular grafts, including
vascular access grafts and has commenced clinical trials of certain of its
synthetic vascular graft products in both the United States and Europe.
Thoratec has developed a small bore polyurethane vascular access graft and has
begun limited clinical trials in the United States and foreign countries.  In
addition, Thoratec has begun to sell its product in Japan and has affixed a CE
Mark on its product which enables it to sell the product throughout Europe.
Furthermore, the Joint Technology may be licensed or otherwise made available to
competitors of CardioTech.

     Competition among these 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 competitive 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 availability 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.

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 (i) development costs, (ii) product need, (iii) third-party interest
and funding availability and (iv) regulatory considerations.  CardioTech
believes it will need substantial additional financing to conduct human clinical
trials, and produce vascular access graft 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 for the three months ended June 30, 1998 and for the
years ended March 31, 1998, 1997 and 1996 were $485,412, $1,638,381, $1,031,605
and $910,676, respectively.


                                      -7-
<PAGE>
 
GOVERNMENT REGULATION

     The sale of medical products throughout Europe is extensively regulated by
European Community Law.  The Company believes that the sale of its products in
European nations will be subject to the requirements of the newly adopted
European Medical Device Directive ("EMDD") which provides that medical devices
may not be sold in any European country unless the medical device displays a CE
Mark.  The CE Mark denotes conformity with European standards for safety and
allows certified medical devices to be placed on the market in all European
countries.

     In order to obtain a CE Mark, a manufacturer of medical devices must meet
(i) the essential safety requirements of the EMDD, (ii) maintain a technical
file consisting of all research data and information about the medical device,
(iii) adopt a conformity route for its product and (iv) choose a Notified Body,
an independent third party, who will be responsible for reviewing the
manufacturer's technical file to verify that the manufacturer has addressed the
requirements of the EMDD and has satisfied certain clinical trial requirements.
In addition, a manufacturer must obtain ISO 9001 certification, a certification
that a manufacturer's procedures and manufacturing facilities comply with
standards for quality assurance and manufacturing process control.  Once a
Notified Body has concluded (i) that it has reviewed the manufacturer's
technical file and that the manufacturer has addressed the essential
requirements of the EMDD and (ii) that the manufacturer is ISO 9001 compliant,
the manufacturer may declare that its products are in conformity with the EMDD
and affix a CE Mark to its medical device.

     The Company is currently conducting clinical trials of the VascuLink Graft
in the Holland, France and Sweden with patients undergoing routine hemodialysis
treatment.  The results of these clinical trials will be placed in the Company's
technical file that is reviewed by a Notified Body.  The Company has selected
Lloyd's Register Quality Assurance, Ltd. ("Lloyds") to serve as the Company's
Notified Body.  In December 1997, Lloyd's reviewed the Company's operations and
awarded the Company with an ISO 9001 Certification.  This Certification applies
to all of the Company's products that are in development.  In August 1998,
Lloyd's conducted an ongoing review of the Company's operations and again
concluded that the Company's operations were in compliance with ISO 9001.  The
Company anticipates that in mid-November 1998 Lloyds will review the Company's
technical file for the Company's vascular graft to assess if the file meets the
essential requirements of the EMDD.  Upon completion of this review, if Lloyds
concludes that the technical file complies with the essential requirements of
the EMDD, CardioTech will make a declaration of conformity and affix a CE Mark
on the VascuLink Graft, enabling the Company to begin to sell the VascuLink
Graft throughout Europe.

     There can be no assurance that the Company will be able to obtain or
maintain regulatory approval or clearance for its products in Europe.  Failure
to obtain or maintain such approval could have a material adverse effect on the
Company's business, financial condition and results of operations.

     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.


                                      -8-
<PAGE>
 
     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.

EXCHANGE LISTING

     The Company's outstanding stock is currently listed on the AMEX under the
symbol "CTE."  However, there can be no assurance that these shares will not be
delisted by the AMEX. The determination by AMEX to delist a company is not based
on a precise mathematical formula, but rather on a review of all relevant facts
and circumstances in light of the AMEX's policies.  The AMEX will normally
consider delisting securities of a company which (i) has stockholders' equity of
less than $2,000,000 if such company has sustained losses from continuing
operations and/or net losses in two of its three most recent fiscal years; or
(ii) has sustained losses which are so substantial to its overall operations or
its existing financial resources, or if its financial condition has become so
impaired that it appears questionable, in the opinion of the AMEX, as to whether
such company will be able to continue operations and/or meet its obligations as
they mature. As of June 30, 1998 the Company had stockholders' equity of
$314,686, and had losses in all three of its most recent fiscal years. If the
Company is unable to increase its stockholders' equity and its net losses
continue, the Company must be delisted. Failure of the Company to maintain the
listing of its Common Stock on AMEX will constitute an event of default under
the $1,718,608 senior notes issued by the Company to Dresdner Kleinwort Benson
Private Equity Partners, LP ("DKB") and entitle DKB to demand immediate payment
of the senior notes. Upon such a default, actions taken by DKB may result in a
default under the Freemedic Loan. At this time, the Company is unable to repay
such indebtedness.

     Furthermore, delisted securities would probably trade in the over-the-
counter markets. The liquidity of securities traded in the over-the-counter
markets may be impaired, not only in the number of shares that could be bought
or sold, but also through delays in the timing of transactions, reductions in
securities analysts' and media coverage and lower prices.

EMPLOYEES

     As of September 1998, the Company has 12 full-time employees. Of these
full-time employees, 5 are in research and development, 3 are in manufacturing
and production, and 4 are in management, administrative, or marketing positions.
None of the Company's employees is covered by a collective bargaining agreement,
and management considers its relations with its employees to be good.

YEAR 2000 ISSUES

     The Company uses computer software programs for its financial business
systems and administrative functions. The Company believes that its programs are
"Year 2000" compliant, and will be able to appropriately interpret the upcoming
calendar year "2000."  However, there can be no assurance that potential "Year
2000" compliance failures will not have a material adverse affect on the
Company's business, results of operations or financial condition.

ITEM 2.  PROPERTIES

  CardioTech leases a total of approximately 22,000 square feet in Woburn,
Massachusetts and Brymbo, Wrexham, United Kingdom. CardioTech believes that its
current facilities are adequate for the next 5 years, after which the leases
relating to these facilities will expire.


                                      -9-
<PAGE>
 
SIGNATURES

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

                         CardioTech International, Inc.

                         /s/ John E. Mattern
                         -------------------
                         John E. Mattern
                         Chief Operating Officer, 
                         Chief Financial Officer and Clerk

 

Dated: October 22, 1998


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