U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   Form 10-KSB

                               (Amendment No. 1)


(Mark One)

[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934 For the fiscal year ended March 31, 1999

[ ]  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)

              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)

                    Issuer's telephone number (781) 933-4772

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

      Title of each class              Name of each exchange on which registered
      -------------------              -----------------------------------------
Common Stock, $.01 par value per share           American Stock Exchange

     Securities registered pursuant to Section 12 (g) of the Act:

                             ----------------------

     Indicate  whether the issuer (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_X_ No ___

     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. [ ]

     State issuer's revenues for its most recent fiscal year. $1,083,000

     As of June 24, 1999, 6,138,916 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  $8,042,000  based  on the last  sale  price  as  reported  by the
American Stock Exchange on such date.

                       DOCUMENTS INCORPORATED BY REFERENCE

     The  registrant  hereby  incorporates  by  reference  into Part III of this
report  portions  of  its  proxy  statement  for  the  1999  annual  meeting  of
stockholders,  which will be filed  within 120 days of the  registrant's  fiscal
year ended March 31, 1999.

Transitional Small Business Disclosure Format (check one):
Yes__  No  _X_.

<PAGE>


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 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 Vascular Access Graft; (ii) a
peripheral  graft,  called the MyoLink  Peripheral  Graft,  and (iii) a coronary
artery bypass graft, called the CardioPass(TM) 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 and are designed to replicate the physical
characteristics of human blood vessels.

     Additionally,   through  its  CT  Biomaterials(TM)  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., 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.

     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, par
value $.01 per share (the "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 Wrexham, Brymbo U.K.

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     ChronoFilm is a registered  trademark of PMI.  ChronoFlex,  is a registered
trademark of CardioTech  International.  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  Vascular  Access  Graft 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  Vascular Access Graft will be
able to be dialyzed 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
Vascular  Access Graft in Holland,  France and Sweden with  patients  undergoing
routine hemodialysis  treatment.  The Company's clinical trials compared patency
and  complication  rates of the Company's  Vasculink  Vascular Access 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 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.  The Company  received CE marking for the VascuLink  Vascular Access
Graft in November 1998 and has begun to market this product in Europe.

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

                                       2

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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.   The  Company  is  currently   conducting
pre-clinical development studies of the MyoLink Graft at its Wrexham, Brymbo, UK
facility.

     On April 1,  1998,  the  Company,  through  its  wholly  owned  subsidiary,
CardioTech  International,  Ltd.  ("CTI"),  entered  into  a two  year  research
collaborative  with The Royal Free Hospital  School of Medicine  (University  of
London) ("Royal Free Hospital"), which relates to the investigation and clinical
trials  of  the  MyoLink  graft  and  the  clinical  evaluation  of  endothelial
cell-seeding of peripheral vascular grafts. The Company may license the right to
sell the technology  relating to the endothelial  cell-seeding of the peripheral
vascular grafts from Royal.  The research is funded by a loan of  (pound)253,000
($420,000)  from  Freemedic  PLC  ("Freemedic"),  a  subsidiary  of  Royal  Free
Hospital,  to CTI. The loan accrues interest at the rate of 15% per annum and is
due and  payable  on  April  1,  2000.  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.  The loan is  secured  by a  pledge  of all of the  assets  of CTI and is
guaranteed by the Company. 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.  CardioTech is
also  indebted  to DKB.  See Note I to the Notes to the  Consolidated  Financial
Statements.  If DKB  foreclosed  on the CTI stock  pledged  to it to secure  the
Freemedic  loan, or if CardioTech  winds up, makes an assignment for the benefit
of it creditors,  goes into liquidation or an administrator is appointed for its
assets,  then,  such actions  would be a default  under the  Freemedic  loan and
Freemedic would be entitled to immediate  repayment of the Freemedic loan. As of
March 31, 1999, the outstanding  principal  balance of the loan was (GBP)266,000
($428,000). See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquity and Capital Resources.

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.

     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.

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     The Company believes that based on studies performed 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. 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. The
CardioPass Coronary Artery Bypass Graft is in pre-clinical development.

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 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.  This agreement expires on November 10,
2000. 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, 1999,  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.

     Research revenues related to biomaterials were approximately $1,083,000 and
$873,000  for the years  ended March 31,  1999 and 1998,  respectively.  For the
years  ended  March  31,  1999  and  1998,  74%  and 78% of  research  revenues,
respectively, were generated from Bard Access Systems, Inc. and the NIH.

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,
as well as early-stage  distribution  of the Vasculink  Vascular Access Graft in
Europe.  However,  CardioTech may need to acquire  manufacturing  facilities and
improve  its  manufacturing  technology  in order to meet  the  volume  and cost
requirements for later

                                       4

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clinical trials and will require additional manufacturing facilities in order to
undertake large scale 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  once  regulatory
approvals are obtained  either  through a small  targeted  direct sales group or
through licensing arrangements with large medical device companies.  Pursuant to
this  strategy,  the Company has retained six firms to distribute  its VascuLink
Vascular Access Graft in Spain, Italy,  Germany,  France, Sweden and the Benelux
countries.  Implementation  of  this  strategy  will  depend  on  many  factors,
including the effectiveness of the Company's distributors,  the market potential
for  CardioTech's   products,   and  CardioTech's   financial   resources.   The
distribution network provides access to 80% of the European market. There can be
no assurance that CardioTech will be able to successfully market its products.

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,
Impra, Inc., and Thoratec  Corporation.  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. Thoratec has developed
a small bore  polyurethane  vascular access graft and has begun limited clinical
trials in the United States and foreign  countries.  Additionally,  Thoratec has
begun to sell its  product  in Japan and has  affixed  a CE Mark  (the  approval
marking of the  European  Community)  on its product,  which  enables it to sell
product  throughout  Europe.  The Joint  Technology may be licensed or otherwise
made available to competitors of CardioTech.

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     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 (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  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 years ended March 31, 1999, and 1998 were  $2,284,000,  and  $1,452,000,
respectively.

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 conducting  clinical trials of the Vasculink Vascular Access
Graft in the  Holland,  France  and  Sweden  with  patients  undergoing  routine
hemodialysis treatment. The results of these clinical trials have been placed in
the Company's  technical  file that was 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  was  awarded  the CE Mark in November  1998 as a result of a
review  conducted  by Lloyds.  Accordingly,  the  Company  has begun to sell the
Vasculink Vascular Access Graft in Europe.

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     There  can be no  assurance  that  the  Company  will be  able to  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.

     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.

Employees

     As of May 21  1999,  the  Company  has 15  full-time  employees.  Of  these
full-time employees,  4 are in research and development,  4 are in manufacturing
and production, and 7 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 Year 2000 Issue refers to potential  problems with computer  systems or
any equipment  with computer chips or software that use dates where the date has
been stored as just two digits (e.g., 97 for 1997.) On January 1, 2000, any date
recording  mechanism  incorporating the date sensitive  software which uses only
two digits to represent  the year may recognize a date using 00 as the year 1900
rather  than  the  year  2000.   This  could  result  in  a  system  failure  or
miscalculations  causing  disruptions  of  operations,  including,  among  other
things, a temporary inability to process transactions,  send invoices, or engage
in similar business activities.  To address the Year 2000 issue,  CardioTech has
implemented  a program  with respect to its 1) internal  information  technology
systems,  2) non-information  technology  systems,  and 3) external suppliers of
goods and services.

     CardioTech  has completed a review of its internal  information  systems to
determine the extent of any Year 2000 problem. Based on this review,  CardioTech
does not currently  believe that it has material exposure to the Year 2000 issue
with respect to its own information  systems,  since its core existing  business
information systems correctly define the year 2000. Additionally, CardioTech has
completed an evaluation of its internal  non-information  systems and expects to
have its remediation  and testing phases for these systems  completed by the end
of September 1999.

     CardioTech is contacting its major customers and suppliers  regarding their
Year 2000  problems.  To date,  CardioTech is unaware of any problems that would
materially  adversely  affect its  operations or financial  condition.  However,
CardioTech cannot assure its stockholders:

                                       7

<PAGE>


     o    that it will be able to identify third party year 2000 problems;

     o    that third  party year 2000  problems  will be  corrected  on a timely
          basis; or

     o    that a failure by such  entities  to correct a Year 2000  problem or a
          correction  which  is  incompatible  with  the  Company's  information
          systems  would not have a  material  adverse  effect on the  Company's
          operations or financial condition.

     In addressing Year 2000 issues,  CardioTech estimates that total costs will
be approximately  $17,000.  To date,  $5,000 of such expenses have been incurred
and expensed.  Total costs  consist  primarily of external  consulting  fees and
personal  computer  replacements.  The estimated costs are based on management's
current assessment and could change in the future. CardioTech cannot assure that
actual Year 2000 costs incurred will be equal to or less than those estimated at
this time.

     Although  CardioTech  believes that its primary IT system correctly defines
the  Year  2000,   prudent  business  practices  call  for  the  development  of
contingency  plans.  CardioTech's  contingency plans will include strategies for
dealing  with  Year  2000  related  system  failures  or  malfunctions   due  to
CardioTech's  internal  systems or from  external  parties.  A Year 2000 systems
failure,  either  internal  or  that  of an  external  provider,  could  prevent
CardioTech  from  being  able to  continue  its  operations,  or  could  disrupt
financial and management controls and reporting systems.  The Company expects to
complete its contingency plans by September 30, 1999.

     CardioTech  does not expect the Year 2000 issue to have a material  adverse
effect on its results of  operations  or  financial  position.  However,  if not
effectively remediated,  negative effects from Year 2000 issues, including those
related  to  internal  systems,  vendors,  or  customers,  could have a material
adverse effect on  CardioTech's  operations or financial  condition.  CardioTech
cannot assure its  stockholders  that even if all planned actions are completed,
it will not experience some adverse effects from Year 2000 related issues.

Item 2.  Description of Property

     CardioTech  leases a total of  approximately  19,000 square feet in Woburn,
Massachusetts and Brymbo, Wrexham, United Kingdom.  CardioTech believes that its
current facilities are adequate for the next several years.

Item 3.  Legal Proceedings

     The Company is not a party to any legal proceedings.

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

     No matters  were  submitted  to a vote of security  holders of the Company,
through  solicitations  of proxies or otherwise,  during the last quarter of the
fiscal year ended March 31, 1999.

                                       8

<PAGE>


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, 1998                     High              Low
                                                     ----              ---

June 30                                             2 3/16            1 1/2
September 30                                        4 9/16            1 1/2
December 31                                         4 9/16            2 1/4
March 31                                            2 3/4             1 1/2

Fiscal Year Ended March 31, 1999                     High              Low
                                                     ----              ---

June 30                                             2 7/8             1 11/16
September 30                                        2                 1 1/8
December 31                                         2 1/8             1
March 31                                            2                 1 1/8

     As of June 24, 1999,  there were  approximately  496 stockholders of record
and 2,752 additional beneficial stockholders  (stockholders holding common stock
in brokerage accounts). 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.  The  Company's  loan  agreement  with DKB  prohibits  the Company  from
declaring or paying any dividends on its common stock.

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

Results of Operations

Year Ended March 31, 1999 vs. March 31, 1998

Revenue

     Research  revenue  consists  of  revenue  from  the sale of  medical  grade
polyurethanes,  research grants from the National  Institute of Health (NIH) and
royalties from Bard Access Systems.  Research  revenue for the fiscal year ended
March 31, 1999 were  $1,083,000  compared to $873,000  for the fiscal year ended
March 31, 1998,  an increase of $210,000,  or 24%.  This  increase was primarily
generated by an increase in sales of research biomaterials of $80,000,  research
grant  income of $77,000  from NIH Small  Business  Technology  Transfer  (STTR)
grants, and an increase of $45,000 in royalty income from Bard Access Systems.

                                       9

<PAGE>


Operating Expense

Research and Development

     Research and development  expense consists primarily of  employment-related
costs for scientific  staff,  facility costs,  pre-clinical and clinical testing
costs, costs related to on-going development efforts, and NIH grant expenses. To
date, all of the Company's research and development expense have been charged to
operations  as incurred.  Research and  development  expense for the fiscal year
ended March 31, 1999 was $2,284,000,  compared to $1,452,000 for the fiscal year
ended March 31, 1998, an increase of $832,000,  or 57%. This was principally the
result of increased costs for travel of $38,000,  outside clinical,  consulting,
and  regulatory  services of  $425,000,  and  salaries  and benefits of $300,000
associated  with the clinical  trials of the Vasculink  Vascular Access Graft in
Europe.

Selling, General and Administrative

     Selling,   general  and   administrative   expense  consists  primarily  of
employment related costs for executive,  selling and  administrative  personnel,
professional  fees,  consulting fees, system support costs and other general and
administrative  expenses.  Selling,  general and administrative  expense for the
fiscal year ended March 31, 1999 was $1,313,000,  compared to $1,305,000 for the
fiscal year ended March 31, 1998 an increase of $8,000 or 1%. This  increase was
primarily due to higher salary and benefits  costs of $96,000.  These costs were
offset by lower  insurance  costs of  $13,000,  legal fees of $34,000 and public
reporting costs of $51,000.

Other Income and Expense, net

     Other income and expense,  net for the fiscal year ended March 31, 1999 was
expense of  $111,000  as compared to income of $75,000 for the fiscal year ended
March 31, 1998,  an increase in net expense of  $186,000.  The increase in other
expense primarily resulted from interest expense of $212,000 on the senior notes
and the  Freemedic  loan.  Interest  expense for the fiscal year ended March 31,
1999 was partially  offset by interest  income of $101,000 earned on excess cash
during the period.

Net Loss

     Net loss for the fiscal year ended March 31, 1999 was  $2,625,000  compared
to $1,809,000  for the fiscal year ended March 31, 1998, an increase in net loss
of  $816,000  or 45%.  The  increase in net loss is  primarily  attributable  to
continued  significant  investment  in research and  development  activities  as
previously  described.  Net loss per share for the fiscal  year ended  March 31,
1999 was $0.55 as  compared  to $0.42 per share for the fiscal  year ended March
31, 1998, an increase in net loss per share of $0.13 per share or 31%.


Liquidity and Capital Resources

     The Company  recognized a net increase in cash and cash equivalents for the
year  ended  March  31,  1999 of  $165,000.  Operating  activities  used cash of
$2,119,000  during the fiscal year ended March 31, 1999,  compared to $1,585,000
for the  fiscal  year  ended  March 31,  1998.  The  principal  uses of cash for
operating  activities  for the fiscal year ended March 31, 1999,  were to fund a
net loss of  $2,625,000,  offset in part by  increases  in  accounts  payable of
$356,000.  Investing  activities  used cash of $367,000 for the year ended March
31,  1999,  as compared to $29,000  for the year ended  March 31,  1998,  and is
primarily  attributable  to the purchase of equipment  used in  development  and
production activities.  Financing activities provided cash of $2,666,000 for the
year ended March 31, 1999,  as compared to  $1,500,000  for the year ended March
31, 1998, and is attributable  to net cash proceeds  received on the issuance of
convertible  senior  notes,  convertible  preferred  stock,  and  common  stock,
respectively. Cash and cash equivalents amounted to $2,392,000 at March 31, 1999
as compared to $2,227,000 at March 31, 1998, an increase of $165,000 or 7%.

                                       10

<PAGE>


     CardioTech's  future  growth will depend on its ability to raise capital to
support research and development  activities and to  commercialize  its vascular
graft technology.  Through March 31, 1999, CardioTech has not generated revenues
from the sale of vascular  grafts,  although it has  received a minor  amount of
research  revenues  relating to its other  biomaterial sales and from the NIH to
support  graft  research.  Since March 31, 1999,  the Company has begun  limited
distribution  and  commercial  sales of its Vasculink  Vascular  Access Graft in
Europe. The Company has distributors in Spain, Italy, Germany,  France,  Sweden,
and the Benelux countries.

     Since the Company's  inception,  funding has come from PMI of approximately
$4,000,000,  senior notes in the principle  amount of $1,660,000,  the loan from
Freemedic in the amount of (GBP)253,000,  (approximately  $420,000), the sale of
$500,000 in preferred  stock;  and the sale of 1,866,000  units,  with each unit
consisting  of one  share of the  Company's  common  stock  and one  warrant  to
purchase an additional share of common stock, netting  approximately  $1,782,000
in cash (See Note I and J to the Notes to  Consolidated  Financial  Statements.)
The Company  anticipates  that  operating  losses  will  continue to be incurred
unless and until  product  sales and/or  royalty  payments  generate  sufficient
revenue to fund its continuing operations.

     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,
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,  1999,  CardioTech  was  conducting  its  operations  with
approximately  $2,392,000  in cash.  CardioTech  estimates  such  amount will be
sufficient to fund its working capital and research and  development  activities
in the near  term.  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.

     As discussed in Note A of the Consolidated Financial Statements, CardioTech
will seek to obtain  additional  funds through  public or private equity or debt
financing,  collaborative  arrangements,  or from other sources. There can be no
assurance  that  additional  financing will be available at all or on acceptable
terms to permit  successful  commercialization  of  CardioTech's  technology and
products.  If adequate  funds are not  available,  CardioTech may be required to
curtail  significantly one or more of its research and development  programs, or
obtain funds through arrangements with collaborative partners or others that may
require CardioTech to relinquish rights to certain of its technologies,  product
candidates or products.

     On March 31, 1998, the Company  issued  $1,660,000,  7% Convertible  Senior
Notes (the "Senior  Notes") with a maturity  date of March 20, 2003 to Dresdner,
Kleinwort  Benson  Private  Partner LP  ("DKB")  (See Note I to the Notes to the
Consolidated Financial Statements.)

On  April  1,  1998  the   Company's   wholly   owned   subsidiary,   CardioTech
International,  Ltd.  ("CTI"),  signed a collaborative  research and development
agreement  with  the  Royal  Free  Hospital  School  of  Medicine  ("Royal  Free
Hospital"). (See Note I to the Notes to the Consolidated Financial Statements.)

                                       11

<PAGE>


Preferred Stock


     On  November  12,  1998,  the  Company  issued  500,000  shares of Series A
convertible  preferred stock  ("Preferred  Stock") to DKB, on substantially  the
same terms as the Senior Notes, in consideration of an additional $500,000. (See
Note I to the Notes to the Consolidated Financial Statements.)


     On December 22, 1998, the Company completed a private offering of 1,866,000
units at a price of $1.25 per unit. (See Note I to the Notes to the Consolidated
Financial  Statements.)


     On May 25, 1999, the Company agreed to acquire,  subject to the approval of
the Tyndale Plains-Hunter  shareholders and other conditions  precedent,  all of
the common stock of Tyndale Plains-Hunter,  Ltd., in exchange for 446,153 shares
of CardioTech's  common stock and $350,000 in cash.  Tyndale  Plains-Hunter is a
maker of specialty polyurethanes for the medical and cosmetics industries. There
can be no assurance that  CardioTech  will be able to complete the  acquisition,
that the  terms of the  acquisition  will be  favorable  to  CardioTech  or that
CardioTech will be able to successfully integrate Tyndale Plains-Hunter into its
operations.


Going Concern Opinion and Possible AMEX Delisting

     The common stock is listed on the American Stock Exchange, or the AMEX, and
CardioTech  is  subject  to the AMEX's  maintenance  requirements.  CardioTech's
failure to meet the AMEX's maintenance requirements may result in a delisting of
the common stock. CardioTech cannot assure you that its common stock will not be
delisted by the AMEX. The  determination  by the 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 a company which:

     (1) 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

     (2) has sustained losses which are so substantial to its overall operations
or its existing financial  resources,  or 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 March 31, 1999, CardioTech had stockholders' deficit of $117,000, and
losses in its last three fiscal  years.  If CardioTech is unable to increase its
stockholders' equity and its net losses continue,  CardioTech's common stock may
be  delisted.  CardioTech's  future  financing  activities  may not  provide the
Company with sufficient  stockholders' equity to avoid being delisted.  Further,
CardioTech has received a "going concern"  opinion from its  independent  public
accountants.  This  "going  concern"  opinion  may  be  considered  by  AMEX  in
determining whether it will delist CardioTech's common stock. If CardioTech were
to  receive a  notification  from  AMEX  indicating  that  AMEX was  considering
delisting  CardioTech's common stock,  CardioTech would then have an opportunity
to respond to AMEX and to set forth a plan as to why it should not be  delisted.
There can be no assurance that CardioTech will be able to avoid delisting.

     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.

     CardioTech's  receipt of the "going concern" opinion is a default condition
pursuant to the Senior Note and Preferred  Stock agreement with DKB. On June 25,
1999,  DKB waived  this  default  and any  additional  interest  due as a result
thereof. However, if CardioTech's common stock were to be delisted by AMEX, this
would also  constitute a default  condition  under the Senior Note and Preferred
Stock  agreement  with DKB.  DKB may give notice to  CardioTech  of this default
condition,  whereupon  CardioTech  would  have 25 days to cure the  default.  If
CardioTech  was  unable  to  cure  the  default  condition  resulting  from  its
delisting,  then an event of default  would  occur and DKB would be  entitled to
demand immediate payment of the Senior Notes. Further, upon the occurrence of an
event of default, the interest rate on the Senior Notes and the dividend rate on
the Preferred Stock would each increase to 13% per annum. The principal  balance
of Senior Notes outstanding as of March 31, 1999 was $1,779,000.

                                       12

<PAGE>



     The Company has pledged a life insurance  policy on the life of Dr. Michael
Szycher and all of the common stock of the  Company's  wholly owned  subsidiary,
CardioTech  International,  Ltd. ("CTI"),  to secure the repayment of the Senior
Notes.  Upon the occurrence of an event of default,  DKB would have the right to
foreclose on this  collateral.  If DKB foreclosed on the CTI stock pledged to it
or if CardioTech winds up, makes an assignment for the benefit of its creditors,
goes into  liquidation or an  administrator  is appointed for its assets,  then,
such actions would be a default under the Freemedic loan and Freemedic  would be
entitled  to  immediate  repayment  of the  loan.  As of  March  31,  1999,  the
outstanding principal balance of the Freemedic loan was (GBP)266,000 ($428,000).


Recent Accounting Pronouncements

     The Company has adopted Statement of Financial  Accounting  Standards (SFAS
No.  130)  "Reporting  Comprehensive  Income"  in fiscal  1999.  This  statement
establishes standards for reporting and displaying  comprehensive income and its
components   (revenue,   expenses,   gains,   and  losses)  in  a  full  set  of
general-purpose financial statements. This statement requires the display of the
comprehensive income (loss) and its components in the financial  statements.  In
the Company's case,  comprehensive  loss includes net loss, and foreign currency
translation  adjustments.  The  adoption of this  Statement  has had no material
effect on its financial statements.

     The Company has also adopted  Statement of Financial  Accounting  Standards
(SFAS No.  131.)  "Disclosures  About  Segments  of an  Enterprise  and  Related
information" in fiscal 1999. This Statement  establishes standards for reporting
information about operating segments and related  disclosures about its products
and services, geographic areas, and major customers. The Company is organized as
a single operating segment,  whereby the chief operating decision maker assesses
the  performance  of and  allocates  resources to the  business as a whole.  The
adoption of this  Statement did not affect the Company's  results of operations,
liquidity  or  financial   position  but  resulted  in  revised  and  additional
disclosures. (See Note K of the Notes to the Consolidated Financial Statements.)

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  regarding i) the expected  performance of
its grafts,  including  their  needle-hole-sealing-capability,  ii) the expected
size of the market for the Company's products in development, iii) the Company's
ablility  to  manufacture   grafts  that  taper,  iv)   HydroThane's   bacterial
resistance,  clot  resistance and  biocompatibility,  v) the Company's Year 2000
Readiness,  vi) the cost to the Company to address  Year 2000  issues,  vii) the
sufficiency of the Company's liquidity and capital. 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, including but not limited to the following:

Possible Amex Delisting.

     See "Going Concern Opinion and Possible Amex Delisting" on page 12.


Early Stage of Development of Vascular Grafts.

     CardioTech  primarily develops and markets  implantable  synthetic vascular
grafts.  Presently,  CardioTech  is  conducting  clinical  testing  of its first
product in development,  the VascuLink Vascular Access Graft. CardioTech has not
begun to market this  technology  in the United States and has not generated any
revenue from the use of this technology. CardioTech recently received government
authority  to sell its  VascuLink  Vascular  Access Graft in Europe and has just
begun to market this product there. CardioTech cannot assure you that any of its
products in development:

                                       13

<PAGE>


     will be successfully developed;
     will meet applicable regulatory standards, if developed;
     will obtain required regulatory approvals;
     will be producible in commercial quantities at reasonable costs; or
     will be successfully marketed.

     To succeed in this market, CardioTech will have to complete the development
of  polyurethane-based  vascular grafts which (1) will be safe and effective and
(2) will have benefits not available in human vein grafts or presently available
synthetic  vascular  grafts.  CardioTech  cannot  assure  you  that  it  will be
successful  in doing this.  CardioTech's  products in  development  will require
significant  additional  investment,  research,  development,  pre-clinical  and
clinical testing and regulatory approval prior to commercialization.  CardioTech
will have to commit substantial additional resources to complete the development
of its synthetic grafts.

History of Operating Losses and Accumulated Deficit.

     CardioTech cannot assure you that it will ever be profitable. For the years
ended March 31, 1999, and 1998, CardioTech had net losses attributable to common
stockholders of $2,625,000,  and $1,809,000,  respectively;  and as of March 31,
1999,  CardioTech had an accumulated deficit of $10,117,000.  CardioTech expects
to incur  additional  operating  losses  over the next  several  years  from the
development, testing and manufacturing of its vascular graft technology as it:

     engages in additional research and development;
     conducts additional animal testing;
     continues clinical trials;
     and seeks regulatory approvals

     CardioTech  expects its cumulative  deficit to increase for the foreseeable
future as it expands its efforts in the areas indicated above.

     CardioTech's ability to become profitable is dependent, in large part, on:

     completing product development and commercialization;
     obtaining regulatory approvals for its products; and
     making the transition  from research and development to  manufacturing  and
     marketing.

     CardioTech  cannot  assure you that it will be able to achieve any of these
objectives. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in this Form 10-KSB.

Proposed Acquisition

CardioTech has entered into an agreement to purchase all of the stock of Tyndale
Plains-Hunter,  a maker of specialty polyurethanes for the medical and cosmetics
industries.  CardioTech  anticipates that it will pay $350,000 in cash and issue
446,153 shares of its common stock.  The purchase will be subject to a number of
conditions,  including both parties'  completion of their due diligence  review.
There  can be no  assurance  that  CardioTech  will  be  able  to  complete  the
acquisition,  that the terms of the acquisition  will be favorable to CardioTech
or that CardioTech will be able to successfully  integrate Tyndale Plains-Hunter
into its operations.

Absence of Revenue from Vascular Grafts.

     CardioTech's   future  growth  will  largely   depend  on  its  ability  to
commercialize its vascular graft  technology.  CardioTech cannot assure you that
it will be able to accomplish  this goal. To date,  CardioTech has not generated
any  revenue  from the sale of vascular  grafts in Europe and cannot  assure you
that it will  be  successful  in  selling  this  product  there.  CardioTech  is
currently in the initial stages of  introducing  its VascuLink  Vascular  Access
Graft for sale.  CardioTech  cannot  assure you that it will be able to generate
sufficient  revenue  from  product  sales,  sales of  materials  or  development
services to fund its continuing operations.

                                       14

<PAGE>


Limited Revenue From Other Activities.

     CardioTech is also engaged in the development of other uses for its premium
polymer-based    materials   in   collaboration   with   other    medical-device
manufacturers.  Although  such  activities  may generate  revenues  from medical
device  manufacturers  for  development  services  performed by CardioTech or in
connection with the sale of materials, CardioTech's primary focus will be on its
vascular graft technology.  Accordingly,  CardioTech  expects that revenues from
these other sources will be relatively small in the short term.

Access to Capital and Additional Financing Requirements.

     CardioTech's  future  growth  also  will  depend  on its  ability  to raise
additional   capital  to  support  its  research  and  development   activities.
PolyMedica  provided  approximately  $4.0 million in funding to CardioTech  from
1991 through June 1996. In addition,  CardioTech raised approximately $2,590,000
through  the sale of (1)  senior  notes  and  preferred  stock  to DKB;  and (2)
convertible notes to Freemedic. CardioTech also raised an additional $2,332,500,
including  $200,000 in promissory notes from  CardioTech's  executive  officers,
through a unit offering private placement which terminated on December 22, 1998.
The majority of these funds is being  expended  for  research  and  development.
CardioTech cannot assure you that it will be able to raise sufficient additional
funds to adequately support its research and development efforts.

     As of  March  31,  1999,  CardioTech  had  cash  and  cash  equivalents  of
approximately  $2,392,000,  which  CardioTech  expects  to  consume at a rate of
approximately  $150,000 per month.  Accordingly,  such cash and cash equivalents
should be adequate to maintain  CardioTech's  currently planned operations until
approximately May 2000.  CardioTech will need additional funding to complete the
clinical trials for, and market,  its VascuLink  Vascular Access Graft in Europe
and to begin  clinical  trials in the United  States.  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 will seek to obtain additional funds for these purposes through:

     public or private equity or debt financing;
     collaborative arrangements; or
     from other sources.

     CardioTech  cannot  assure  you  that it will be able to  raise  sufficient
additional   funding  at  all  or  on  acceptable  terms  to  permit  successful
commercialization of CardioTech's  technology and products. If CardioTech cannot
raise adequate additional funds, it may be required to curtail significantly one
or more of its  research  or  development  programs,  or  obtain  funds  through
arrangements with  collaborative  partners or others that may require CardioTech
to  relinquish  rights to certain of its  technologies,  product  candidates  or
products.


Registration Rights and Dilution

     Dresdner  Kleinwort  Benson and Freemedic PLC have certain  rights to cause
CardioTech to register  under the  Securities Act of 1933 (the "Act") the Common
Stock  underlying  the DKB  convertible  notes and  preferred  stock  (currently
1,389,065.9  shares) and the Freemedic PLC convertible notes (currently  115,676
shares).  Additionally,  John Hancock Mutual Life Insurance  Company has certain
registration  rights with regard to 403,403  shares of common  stock  underlying
warrants,  which  CardioTech  issued to John Hancock.  If these security holders
require  CardioTech to register the common stock underlying their securities and
sell the common stock in the public market, or if they sell such common stock in
the public  market  under Rule 144,  the market  price of our common stock could
fall.


                                       15

<PAGE>


Possible Volatility of Stock Price.

     CardioTech  cannot  assure you of the prices at which its common stock will
trade. The market prices for securities of emerging companies  historically have
been highly volatile. The following factors may have a significant impact on the
market price of the common stock:

     announcements  of technological  innovations or new commercial  products by
     CardioTech or its competitors;
     regulatory developments;
     disputes concerning patent or proprietary rights;
     publicity  regarding  actual  or  potential  medical  results  relating  to
     products under development by CardioTech or its competitors;
     public concern as to the safety of CardioTech's products; and
     economic  and  other  external   factors,   as  well  as   period-to-period
     fluctuations in financial results.

Limited Rights in Technology; Uncertainty of Patents and Proprietary Rights.

     CardioTech  owns two U.S.  patents  and four  patents in  various  European
countries  relating to vascular  graft  manufacturing  technology.  In addition,
PolyMedica granted CardioTech a perpetual,  worldwide,  royalty-free  license to
use certain proprietary polyurethane technologies (the "Biomaterial Technology")
in the field  consisting of  development,  manufacture  and sale of  implantable
medical  devices and  biodurable  polymer  materials to third parties for use in
medical applications (the "Implantable  Devices and Materials Field").  However,
PolyMedica and CardioTech each have rights to use the Biomaterials Technology to
fabricate medical products (other than implantable  medical devices)  themselves
or in joint  ventures with third parties.  In addition,  PolyMedica has retained
the  rights  to make  sales  of  certain  formulations  of  ChronoFlex  and such
materials for non-medical applications. As a result, PolyMedica may compete with
CardioTech  if  CardioTech   decides  to   commercialize   applications  of  the
Biomaterials  Technology in fields other than those in which it has been granted
an exclusive license. Also, Thermedics,  Inc., as joint owner with PolyMedica of
a patent and patent applications relating to certain polyurethane technology, is
free to use such rights or license  them to others in any field,  including  the
Implantable Devices and Materials Field.

     CardioTech's   success  will  depend,  in  large  part,  on  the  following
abilities:

     to maintain it's existing patents;
     to obtain new patents;
     to maintain trade secret protection; and
     to  operate  without  infringing  on the  proprietary  rights  of third
     parties or having third parties circumvent CardioTech's rights.

     PolyMedica has filed and obtained U.S. and foreign patents covering aspects
of the Biomaterials Technology. CardioTech cannot assure you, however:

     that any of  CardioTech's  or  PolyMedica's  existing  patents  will not be
     challenged  or future  patent  applications  will result in the issuance of
     patents;

     that  CardioTech  will develop  additional  proprietary  products  that are
     patentable;

     that any additional  patents issued to CardioTech  will provide  CardioTech
     with any  competitive  advantages  or will not be  challenged  by any third
     parties; or

     that the patents of others will not impede the ability of  CardioTech to do
     business, or

     that third parties will not be able to circumvent  CardioTech's patents and
     licensed technology.

                                       16

<PAGE>


     Furthermore,   CardioTech   cannot   assure  you  that   others   will  not
independently  develop or  duplicate  similar  technology  or  products,  or, if
patents are issued or licensed to  CardioTech,  design around the patents issued
or licensed to CardioTech.

     CardioTech  might  have to obtain  licenses  from  third  parties  to avoid
infringing  patents or other  proprietary  rights.  CardioTech cannot assure you
that any licenses required under any such patents or proprietary rights would be
made available, if at all, on terms acceptable to CardioTech. If CardioTech does
not obtain such licenses, it could encounter delays in product introductions, or
could find that the development,  manufacture or sale of products requiring such
licenses could be prohibited.  In addition,  CardioTech could incur  substantial
costs in defending itself in suits brought against it with respect to patents it
might infringe or in filing suits against  others to have such patents  declared
invalid.

     Some of  CardioTech's  know-how and technology  may not be  patentable.  To
protect its rights,  CardioTech  requires employees,  consultants,  advisors and
collaborators to enter into confidentiality agreements. CardioTech cannot assure
you,  however,  that these agreements will protect  CardioTech's  trade secrets,
know-how or other  proprietary  information in the event of any unauthorized use
or  disclosure.  Further,  CardioTech's  business may be  adversely  affected by
competitors who  independently  develop  competing  technologies,  especially if
CardioTech obtains no, or only narrow, patent protection.

Technological Change and Competition.

     The  medical   device   industry  is  subject  to  rapid  and   substantial
technological change.  Several companies currently sell synthetic graft products
for certain  specific  applications  in the United States and worldwide and have
done so for many years.  Although CardioTech believes that the attributes of its
polyurethane-based grafts will allow its products to compete effectively,  these
companies can be expected to defend their market positions vigorously. Moreover,
while CardioTech is aware of only two competitors developing  polyurethane-based
vascular  grafts  currently,  potential  competitors of CardioTech in the United
States and abroad are numerous and include, among others:

     both large and small synthetic materials companies;
     medical device firms;
     universities; and
     other research institutions.

     CardioTech  cannot  assure  you that  its  potential  competitors  will not
succeed in developing technologies and products that are more effective than any
that are  being  developed  by  CardioTech  or that  would  render  CardioTech's
technologies and products  obsolete or  noncompetitive.  Many of these potential
competitors have  substantially  greater  financial and technical  resources and
production and marketing capabilities than CardioTech.

     Additionally,  many of CardioTech's  competitors have significantly greater
experience  than  CardioTech  in  conducting  pre-clinical  testing and clinical
trials of medical  devices and obtaining FDA and other  regulatory  approvals of
products  for use in health care.  Moreover,  Thoratec  Corporation,  one of the
Company's  competitors,  has developed a polyurethane  vascular access graft and
has begun limited clinical trials in the United States and foreign countries. In
addition,  Thoratec  Corporation  has begun to sell its product in Japan and has
affixed  a CE Mark (the  approval  marking  of the  European  Community)  on its
product,  which enables it to sell the product throughout  Europe.  Accordingly,
CardioTech's competitors may succeed in obtaining FDA approval for products more
rapidly than CardioTech. If CardioTech commences significant commercial sales of
its  vascular  graft  products,  it  will  also be  competing  with  respect  to
manufacturing  efficiency  and  marketing  capabilities,  areas  in which it has
limited experience.

                                       17

<PAGE>


Attraction and Retention of Key Employees and Scientific Collaborators.

     CardioTech is highly  dependent on the principal  members of its management
and scientific  staff,  the loss of whose services could have a material adverse
effect on CardioTech. Furthermore, recruiting and retaining qualified scientific
personnel to perform  research and  development  work in the future will also be
critical to CardioTech's  success.  CardioTech cannot assure you that it will be
able to attract  and retain  skilled and  experienced  scientific  personnel  on
acceptable terms given the Company's  financial  resources and competition among
numerous  medical  device  companies,   universities  and  non-profit   research
institutions for experienced  scientists.  CardioTech's  anticipated  growth and
expansion  into areas and  activities  requiring  additional  expertise  such as
clinical testing, governmental approvals, production and marketing, are expected
to place increased demands on CardioTech's resources. These demands are expected
to require the  addition of new  management  personnel  and the  development  of
additional  expertise by existing management  personnel.  The failure to acquire
such services or to develop such expertise  could  materially  adversely  affect
CardioTech's business.

Limited Manufacturing Capability.

     The development and manufacture of CardioTech's products are subject to:

     (1)  the  Quality  System  Requirements  and  other  relevant  requirements
          prescribed by the FDA; or

     (2)  other standards prescribed by the appropriate regulatory agency in the
          country of use.

     Although  CardioTech  currently  has the ability to produce  quantities  of
synthetic  vascular grafts sufficient to support its current needs and its needs
for  early-stage  clinical  trials,  as well as early-stage  distribution of the
Vasculink  Vascular  Access Graft in Europe,  it may need to acquire  additional
manufacturing  facilities and improve its  manufacturing  technology to meet the
volume and cost requirements for later clinical trials.  CardioTech will require
additional  manufacturing  facilities  to  undertake  commercial  production  of
vascular grafts if it elects to do so. CardioTech cannot assure you:

     that it will be able to obtain or  manufacture  such  products  in a timely
     fashion at acceptable quality and prices;
     that it or its suppliers can comply with the Quality System Requirements or
     other relevant  requirements  prescribed by the FDA or appropriate  foreign
     regulatory agencies;
     or that it or its suppliers will be able to manufacture an adequate  supply
     of product.

Absence of Sales and Marketing Experience.

     CardioTech expects to market its vascular grafts either through independent
distributors/sales  agents or co-marketing  arrangements with third parties.  To
date,  CardioTech has had no experience in sales,  marketing or  distribution of
vascular grafts or other implantable devices. In order to market vascular grafts
directly,  CardioTech  would need to develop a  marketing  and sales  staff with
technical expertise. CardioTech cannot assure you:

     that it will be able to build such a marketing staff or sales force;
     that the cost of  establishing  such a marketing  staff or sales force will
     not exceed any product revenue; or
     that CardioTech's direct sales and marketing efforts will be successful.

                                       18

<PAGE>


     In addition,  if  CardioTech  succeeds in bringing one or more  products to
market,  it may compete with other  companies  that currently have extensive and
well-funded  marketing and sales  operations.  CardioTech cannot assure you that
its marketing and sales  efforts would compete  successfully  against such other
companies. To the extent CardioTech enters into co-marketing  arrangements,  any
revenue received by CardioTech will be dependent on the efforts of third parties
and CardioTech cannot assure you that such efforts will be successful.

Extensive Government Regulation.

     The production and marketing of CardioTech's  products and ongoing research
and  development  activities  are subject to  extensive  regulation  by numerous
governmental authorities in Europe, the United States and other countries. Prior
to marketing any synthetic  vascular  grafts  developed by CardioTech in Europe,
CardioTech  must  affix a CE  Mark,  or  mark  of  approval  from  the  European
Community,  to its  product.  The  CE  Mark  denotes  conformity  with  European
standards and allows certified medical devices to be placed on the market in all
European countries. In order to obtain a CE Mark, CardioTech must meet:

     the essential safety  requirements of the European Medical Device Directive
     ("EMDD");

     maintain a technical file  consisting of all research data and  information
     about the medical device;

     adopt a conformity route for its product; and

     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 November 1998,  CardioTech was awarded the right to affix the CE Mark to
its VascuLink  Vascular Access Graft. As a result of this award,  CardioTech has
begun to market this product in Europe.  CardioTech  cannot assure you, however,
that it will be able maintain  regulatory  approval or clearance for the sale of
this product in Europe.  Additionally,  CardioTech  cannot  assure you that with
regard to its other products,  a Notified Body will determine that  CardioTech's
technical file satisfies the requirements of the EMDD or that its products other
than the VascuLink Vascular Access Graft meet the essential safety  requirements
of the EMDD. As a result, CardioTech cannot assure you that it will be able to

     affix a CE Mark to its other implantable products;
     sell such other products in Europe; or
     maintain regulatory approval or clearance for its other products in Europe.

     Failure to obtain CE Marking or maintain  regulatory  approval or clearance
for its products could have a material adverse effect on CardioTech's  business,
financial condition and results of operations.

     Furthermore,  prior to marketing any synthetic vascular grafts developed by
CardioTech in the United States, such products may undergo rigorous pre-clinical
testing and clinical trials, as well as an extensive regulatory approval process
mandated  by the  FDA.  FDA  approval  may  take  many  years  and  require  the
expenditure of substantial resources. In addition,  modifications to regulations
and changes in  interpretation of regulations occur regularly and can materially
and  adversely  affect the timing and cost of the sale of  CardioTech's  product
introductions.

                                       19

<PAGE>


     CardioTech   has  limited   experience  in  conducting   and  managing  the
pre-clinical  and  clinical  trials  necessary to obtain  government  approvals.
CardioTech  cannot assure you that the results of such  clinical  trials will be
consistent with the results obtained in pre-clinical studies or that the results
obtained  in later  phases of  clinical  trials  will be  consistent  with those
obtained  in  earlier   phases.   CardioTech   also   cannot   assure  you  that
polyurethane-based  synthetic vascular grafts or other implantable products will
be shown to be safe  and  effective  or that  regulatory  approval  for any such
product  will be  obtained on a timely  basis,  if at all.  Delays in  obtaining
regulatory  approvals would adversely affect the marketing of products developed
by CardioTech and CardioTech's ability to receive product revenue or royalties.

     CardioTech's  activities  relating  to the  development  of  uses  for  its
polymer-based  materials and implantable  medical devices in collaboration  with
other  medical-device  manufacturers may also be subject to regulatory  approval
processes similar to those described above relating to vascular grafts.

Quarterly Fluctuations.

     CardioTech's  quarterly  operating results are likely to vary significantly
depending on factors such as the results of pre-clinical or clinical trials and,
if CardioTech is able to commercialize  its vascular graft products,  the timing
of significant orders for vascular grafts. CardioTech's expense levels are based
in part on its  expectations as to future  revenue.  If revenue levels are below
expectations, operating results will be adversely affected.

Health Care Reimbursement.

     CardioTech's  ability to commercialize  vascular grafts  successfully  will
depend  in  part on the  extent  to  which  reimbursement  for the  cost of such
products  and  related  treatment  will  be  available  from  government  health
administration   authorities,   private  health  coverage   insurers  and  other
organizations.  Third-party  payers are  increasingly  challenging  the price of
medical  products  and  services.  Significant  uncertainty  exists  as  to  the
reimbursement  status of newly  approved  health care  products,  and CardioTech
cannot  assure you that  adequate  third-party  coverage  will be  available  to
maintain price levels sufficient for an appropriate  return on its investment in
product development.

Product Liability.

     The testing,  marketing  and sale of human  healthcare  products  entail an
inherent risk of allegations or product liability,  and CardioTech cannot assure
you that substantial  product  liability claims will not be asserted against it.
CardioTech currently has limited product liability insurance.  CardioTech cannot
assure you that a product liability claim would not materially  adversely affect
its business or financial condition.

Absence of Dividends.

     CardioTech  has never paid cash  dividends on its common stock and does not
anticipate  paying any cash dividends in the  foreseeable  future.  CardioTech's
loan  agreement  with DKB  currently  prohibits  the  payment of cash  dividends
without DKB's prior written consent.

                                       20

<PAGE>


Item 7. Financial Statements                                           Page
                                                                       ----

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

Report of Independent Accountants                                      F-1

Consolidated Balance Sheet at March  31, 1999                          F-2

Consolidated Statements of Operations for the two years
ended March 31, 1999 and 1998                                          F-3

Consolidated  Statements of Stockholders' Equity for the two years
ended March 31, 1999 and 1998                                          F-4


Consolidated Statements of Cash Flows for the two years ended
March 31, 1999 and 1998                                                F-5


Notes to Consolidated Financial Statements                             F-6 - F18


All schedules have been omitted  because they are  inapplicable  or the required
information is included in the notes to the consolidated financial statements.


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

         There  have  been  no  changes  in  accounts  or   disagreements   with
accountants on accounting and financial disclosure matters.

                                       21

<PAGE>


PART III

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

     The  information  required  by this item will be set forth in the  sections
entitled  "Management" and "Section 16(a) Beneficial Ownership,  Reporting,  and
Compliance" in the Proxy  Statement for the Annual Meeting of Stockholders to be
held on  August  12,  1999 and to be  filed  with the  Securities  and  Exchange
Commission  not later than July 29,  1999,  and is  incorporated  herein by this
reference.

Item 10. Executive Compensation

     The  information  required by this item will be set forth under the section
entitled "Executive  Compensation" in the Proxy Statement for the Annual Meeting
of  Stockholders  to be held  on  August  12,  1999  and to be  filed  with  the
Securities  and  Exchange  Commission  not  later  than  July 29,  1999,  and is
incorporated herein by this reference.

Item 11.  Security Ownership of Certain Beneficial Owners and Management

     The  information  required  by this item will be set forth in the  sections
entitled  "Share  Ownership" in the Proxy  Statement  for the Annual  Meeting of
Stockholders  to be held on August 12, 1999 and to be filed with the  Securities
and Exchange Commission not later than July 29, 1999, and is incorporated herein
by this reference.

Item 12.  Certain Relationships and Related Transactions

     The  information  required  by this item  will be set forth in the  section
entitled "Certain Relationships and Related Transactions" in the Proxy Statement
for the Annual Meeting of  Stockholders  to be held on August 12, 1999 and to be
filed with the Securities and Exchange  Commission not later than July 29, 1999,
and is incorporated herein by this reference.

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

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

     (1)  Financial  Statements:  For a list of financial  statements  which are
          filed as part of this Form 10-KSB, See Page 23

     (2)  Financial Statement Schedules:  All schedules are omitted because they
          are  not  applicable,   or  not  required,  or  because  the  required
          information is included in the Financial Statements as notes thereto.

     (3)  Exhibits

     Exhibit Number:

     2         Plan and Agreement of  Distribution  between PMI and  CardioTech,
               dated May 13, 1996 was filed as Exhibit 2 to CardioTech's Form 10
               filed on March 20,  1996,  as  amended  (the "Form  10"),  and is
               incorporated herein by reference.

     3.1       Articles of  Incorporation  were filed as Exhibit 3.1 of the Form
               10 and are incorporated herein by reference.

                                       22

<PAGE>


     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  were  filed  as  Exhibit  3.2 of  the  Form  10  and  are
               incorporated herein by reference.

     10.1      Amended and Restated Common Stock Subscription  Agreement between
               PMI and CardioTech,  dated May 9, 1996, was filed as Exhibit 10.1
               of the Form 10 and is incorporated herein by reference.

     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.

     10.6      Employment  Agreement of Alan Edwards,  dated March 24, 1998, was
               filed as  Exhibit  10.6 to  CardioTech's  Form  10-K for the year
               ended March 31, 1998, filed on June 29, 1998, and in incorporated
               herein by reference.

     10.7      Service  Agreement of Alan  Edwards,  dated March 24,  1998,  was
               filed as  Exhibit  10.7 to  CardioTech's  Form  10-K for the year
               ended March 31, 1998, filed on June 29, 1998, and in incorporated
               herein by reference.

     10.8      Warrant   issued  by  CardioTech  to  John  Hancock  Mutual  Life
               Insurance Company was filed as Exhibit 10.8 of the Form 10 and is
               incorporated herein by reference.

     10.9      Letter Agreement between CardioTech, PMI, and John Hancock Mutual
               Life  Insurance  Company was filed as Exhibit 10.9 of the Form 10
               and is 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.

                                       23

<PAGE>


     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.

     10.12     Loan and Option  Agreement  dated as of March 31,  1998 and among
               CardioTech,  CardioTech  International  Ltd. ("CTI,  Ltd."),  the
               Royal Free Hospital  School of Medicine  ("Royal Free  Hospital")
               and  Freemedic PLC  ("Freemedic"),  was filed as Exhibit 10.12 to
               CardioTech's  Form 10-K for the year ended March 31, 1998,  filed
               on June 29, 1998, and in incorporated herein by reference.

     10.13     CTI, Ltd. and Royal free Hospital  Research  Agreement in respect
               of the Development of Vascular  Grafts,  dated April 1, 1998, was
               filed as  Exhibit  10.13 to  CardioTech's  Form 10-K for the year
               ended March 31, 1998, filed on June 29, 1998, and in incorporated
               herein by reference.

     10.14     Freemedic and CTI, Ltd. License  Agreement,  dated as of April 1,
               1998,  was filed as Exhibit 10.14 to  CardioTech's  Form 10-K for
               the year ended March 31,  1998,  filed on June 29,  1998,  and in
               incorporated herein by reference.

     10.15     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.

     10.16     7%  Convertible  Senior Note dated as of March 31,  1998  between
               CardioTech  and  Kleinwort  Benson was filed as  Exhibit  99.2 to
               CardioTech's Form 8-K filed with the Commission on April 15, 1998
               and is incorporated herein by reference.

     10.17     John E. Mattern Employment  Agreement dated November 11, 1998 was
               filed as Exhibit 10. 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.

     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.

     10.20     Form of  Warrant  Agreement  by and  among  CardioTech,  Fechtor,
               Detwiler, & Co., Inc. and certain Fechtor,  Detwiler, & Co., Inc.
               employees  was filed as Exhibit  99.3 to  CardioTech's  Form S-3,
               filed with the Securities and Exchange Commission on February 12,
               1999, and is incorporated herein by reference.

                                       24

<PAGE>


     21        Subsidiaries of CardioTech


     23        Consent of PricewaterhouseCoopers LLP


     27        Financial Data Schedule


(b)  Reports on Form 8-K: None


                                       25

<PAGE>


                        Report of Independent Accountants

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

In our opinion,  the  accompanying  consolidated  balance  sheet and the related
consolidated  statements of operations,  stockholders'  deficit,  and cash flows
present fairly, in all material  respects,  the financial position of CardioTech
International,  Inc. (the  "Company") at March 31, 1999,  and the results of its
operations  and its cash  flows  for each of the two years in the  period  ended
March 31, 1999, in conformity  with generally  accepted  accounting  principles.
These financial  statements are the responsibility of the Company's  management;
our responsibility is to express an opinion on these financial  statements based
on our audits.  We conducted our audits of these  statements in accordance  with
generally  accepted auditing  standards,  which 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,
assessing the  accounting  principles  used and  significant  estimates  made by
management,  and evaluating the overall  financial  statement  presentation.  We
believe  that our audits  provide a reasonable  basis for the opinion  expressed
above.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note A to the
financial  statements,  the Company's  recurring  losses from  operations  raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these  matters are also  described  in Note A. The  financial
statements do not included any adjustments that might result from the outcome of
this uncertainty.


                                                      PricewaterhouseCoopers LLP


Boston, Massachusetts
May 25, 1999, except as to the information  presented in the fourth paragraph of
Note I, for which the date is June 25, 1999


                                      F-1

<PAGE>


                         CARDIOTECH INTERNATIONAL, INC.
                           CONSOLIDATED BALANCE SHEET

                                                                     March 31,
                                                                       1999
                                                                   ------------
ASSETS

Current Assets:
  Cash and Cash Equivalents                                        $  2,392,000
  Accounts Receivable - Trade                                            96,000
  Accounts Receivable - Other                                           292,000
  Prepaid Expenses and Other Current Assets                              56,000
                                                                   ------------
    Total Current Assets                                              2,836,000

Property and Equipment, net                                             477,000
Other Assets                                                            214,000
                                                                   ------------

Total Assets                                                       $  3,527,000
                                                                   ============


LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT


Current Liabilities:
  Accounts Payable                                                 $    518,000
  Accrued Expenses                                                      418,000
                                                                   ------------
    Total Current Liabilities                                           936,000

Long Term Obligations (Note I):
7% Convertible Senior Notes due 2003                                  1,779,000
Convertible Loan due 2000                                               429,000
                                                                   ------------
                                                                      2,208,000
                                                                   ------------
    Total Liabilities                                                 3,144,000


Series A Convertible Preferred Stock, $.01 par value, 5,000,000
     shares authorized, 500,000 issued and outstanding,
     at liquidation value                                               500,000


Commitments and Contingencies (Note H)                                     --

Stockholders' Deficit:

  Common Stock, $.01 par value, 20,000,000 shares
     authorized, 6,138,916 shares issued and outstanding
     at March 31, 1999                                                   61,000

  Additional Paid-In Capital                                         10,151,000
  Accumulated Deficit                                               (10,117,000)
  Notes Receivable From Officers                                       (200,000)
  Cumulative Translation Adjustment                                     (12,000)
                                                                   ------------
Total Stockholders' Deficit                                            (117,000)
                                                                   ------------


Total Liabilities, Convertible Preferred Stock and
  Stockholders' Deficit                                            $  3,527,000
                                                                   ============


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

                                      F-2

<PAGE>


                         CARDIOTECH INTERNATIONAL, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                       Years Ended March 31,
                                                       1999            1998
                                                    -----------     -----------

Research Revenue                                    $ 1,083,000     $   873,000

Operating Expense:
   Research and Development                           2,284,000       1,452,000
   Selling, General and Administrative                1,313,000       1,305,000
                                                    -----------     -----------
Total Operating Expense                               3,597,000       2,757,000

Loss from Operations                                $(2,514,000)    $(1,884,000)
                                                    ===========     ===========

Other Income and Expense:
   Interest Expense                                    (212,000)           --
   Interest Income                                      101,000          75,000
                                                    -----------     -----------
                                                       (111,000)         75,000
                                                    -----------     -----------

Net Loss                                            $(2,625,000)    $(1,809,000)
                                                    ===========     ===========

Other comprehensive income:
Foreign currency translation adjustments                 12,000           3,000
                                                    -----------     -----------
Comprehensive loss                                  $(2,613,000)    $(1,806,000)
                                                    ===========     ===========


Net loss per common share basic and diluted         $     (0.55)    $     (0.42)
                                                    ===========     ===========

Shares used in computing Net Loss per
common share, basic and diluted                       4,814,823       4,272,916


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

                                      F-3

<PAGE>


                         CardioTech International, Inc.
                   Statement of Stockholders' Equity (Deficit)
                  For the Years Ended March 31, 1999, and 1998

<TABLE>
<CAPTION>
                                                            Additional                      Notes       Cumulative     Stockholders'
                                      Common Stock           Paid In      Accumulated     Receivable    Translation       Equity
                                   Shares       Amount       Capital        Deficit     from Officers    Adjustment      (Deficit)
                                ----------------------------------------------------------------------------------------------------
<S>                              <C>         <C>          <C>            <C>             <C>             <C>           <C>
Balance at April 1, 1997         4,272,916   $   43,000   $  8,232,000   $ (5,686,000)             --    $    9,000    $  2,598,000

     Effect of Cumulative
     Translation Adjustment             --           --             --             --              --        (6,000)         (6,000)

     Net Loss                           --           --             --     (1,809,000)             --            --      (1,809,000)

                                ----------   ----------   ------------   ------------    ------------    ----------    ------------
Balance at March 31, 1998        4,272,916   $   43,000   $  8,232,000   $ (7,495,000)   $         --    $    3,000    $    783,000
                                ==========   ==========   ============   ============    ============    ==========    ============

     Issuance of Common Stock
     Private Placement net of
     issuance costs              1,866,000       18,000      1,919,000             --              --            --       1,937,000

     Notes Receivable from
     Officers                           --           --             --             --        (200,000)           --        (200,000)

     Effect of Cumulative
     Translation Adjustment             --           --             --          3,000              --       (15,000)        (12,000)

     Net Loss                           --           --             --     (2,625,000)             --            --      (2,625,000)

                                ----------   ----------   ------------   ------------    ------------    ----------    ------------
Balance at March 31, 1999        6,138,916   $   61,000   $ 10,151,000   $(10,117,000)   $   (200,000)   $  (12,000)   $   (117,000)
                                ==========   ==========   ============   ============    ============    ==========    ============
</TABLE>


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

                                      F-4

<PAGE>


                         CARDIOTECH INTERNATIONAL, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                            Years Ended March 31,
                                                             1999           1998
                                                         -----------    -----------
<S>                                                      <C>            <C>
Cash Flows from Operating Activities:
Net Loss                                                 $(2,625,000)   $(1,809,000)
Adjustments to reconcile Net Loss to Net
 Cash Flows used by Operating
 Activities:
 Interest paid by Issuance of Convertible Senior Notes       119,000             --
 Loss on Disposal of Property and Equipment                    1,000
 Depreciation and Amortization                               118,000         72,000
 Changes in Assets and Liabilities:
   Accounts Receivable                                        (1,000)      (285,000)
   Prepaid Expenses and Other Current Assets                 (30,000)        61,000
   Increase in Other Assets                                  (40,000)       (36,000)
   Accounts Payable                                          356,000        111,000
   Accrued Expenses                                          (17,000)       301,000
                                                         -----------    -----------
  Net Cash Flows used by Operating Activities             (2,119,000)    (1,585,000)
                                                         ===========    ===========

Cash Flows from Investing Activities:
Purchase of Property and Equipment                          (367,000)       (29,000)
                                                         -----------    -----------
Net Cash Flows used by Investing Activities                 (367,000)       (29,000)
                                                         ===========    ===========

Cash flows from Financing Activities:
Net Proceeds from Issuance of Convertible Senior Notes       429,000      1,500,000
Net Proceeds from Issuance of Preferred Stock                455,000             --
Net Proceeds from Issuance of Common Stock                 1,782,000             --
                                                         -----------    -----------

Net Cash Flows provided by Financing Activities            2,666,000      1,500,000
                                                         -----------    -----------

Effect of Exchange Rate Changes on Cash                      (15,000)        (5,000)

Net Increase in Cash and Cash Equivalents                    165,000       (119,000)

Cash and Cash Equivalents at Beginning of year             2,227,000      2,346,000
                                                         -----------    -----------

Cash and Cash Equivalents at End of Year                 $ 2,392,000    $ 2,227,000
                                                         ===========    ===========

Supplemental Disclosure of Cash Flow Information:

   Issuance of Notes Receivable from Officers            $  (200,000)   $        --
</TABLE>


The  accompanying  notes  are in  integral  part of the  consolidated  financial
statements.

                                      F-5

<PAGE>


                  CARDIOTECH INTERNATIONAL, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


A.   Nature of Business:

     CardioTech  International,  Inc.  (including its  subsidiary,  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  have  been  demonstrated  to be
biocompatible  and non-toxic.  The Company is headquartered in Massachusetts and
operates from  manufacturing and laboratory  facilities located in Massachusetts
and the United Kingdom.


     The  accompanying  financial  statements  for the year ended March 31, 1999
have been prepared  assuming that the Company will continue as a going  concern,
which  contemplates  continuity  of  operations,  realization  of assets and the
satisfaction  of liabilities  and  commitments in the normal course of business.
However, the Company has incurred recurring losses from operations  (including a
net loss of  approximately  $2.6 million for the year ended March 31, 1999); and
expects that  additional  sources of financing may be required  before May 2000.
These  circumstances  raise  substantial  doubt about the  Company's  ability to
continue  as a going  concern.  These  financial  statements  do not include any
adjustments that might result from the outcome of this uncertainty.

     Management's  plans include the sale of additional  equity securities under
appropriate  market  conditions  and other  business  transactions,  which would
generate   sufficient   resources  to  assure   continuation  of  the  Company's
operations.  However, there can be no assurance that the Company will be able to
obtain sufficient resources to assure continuation of the Company's operations.


     CardioTech's  future  growth will depend on its ability to raise capital to
support research and development  activities and to  commercialize  its vascular
graft technology.  Through March 31, 1999, CardioTech has not generated revenues
from the sale of vascular  grafts,  although it has  received a minor  amount of
research  revenues  relating to its other  biomaterial sales and from the NIH to
support graft research. Since March 31, 1999, the Company has begun distribution
and  commercial  sales of its  Vasculink  Vascular  Access Graft in Europe.  The
Company has  distributors in Spain,  Italy,  Germany,  France,  Sweden,  and the
Benelux countries.


     Since the Company's  inception,  funding has come from PMI of approximately
$4,000,000, 7% convertible senior notes in the principle amount of $1,660,000, a
10%   convertible   loan  from   Freemedic   in  the  amount  of   (GBP)253,000,
(approximately  $420,000), the sale of $500,000 in Series A preferred stock; and
the sale of  1,866,000  units,  with  each unit  consisting  of one share of the
Company's common stock and one warrant to purchase an additional share of common
stock, netting  approximately  $1,783,000 in cash (See Note I and J to the Notes
to Consolidated  Financial  Statements.) The Company  anticipates that operating
losses will  continue  to be  incurred  unless and until  product  sales  and/or
royalty payments generate sufficient revenue to fund its continuing operations.


     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,
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.

                                      F-6

<PAGE>


                  CARDIOTECH INTERNATIONAL, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     As of March  31,  1999,  CardioTech  was  conducting  its  operations  with
approximately  $2,392,000  in cash.  CardioTech  estimates  such  amount will be
sufficient to fund its working capital and research and  development  activities
in the near term. However,  CardioTech may increase its spending level depending
on the Company's ability to raise additional  capital.  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.

     CardioTech will seek to obtain  additional  funds through public or private
equity or debt  financing,  collaborative  arrangements,  or from other sources.
There can be no assurance that additional  financing will be available at all or
on  acceptable  terms to permit  successful  commercialization  of  CardioTech's
technology and products. If adequate funds are not available,  CardioTech may be
required to curtail  significantly  one or more of its research and  development
programs,  or obtain funds through  arrangements with collaborative  partners or
others  that may  require  CardioTech  to  relinquish  rights to  certain of its
technologies, product candidates or products.

B.   Summary of Significant Accounting Policies:

Basis of Presentation

     CardioTech was  incorporated in March 1993.  CardioTech and CardioTech Ltd.
were spun off of PolyMedica Industries, Inc. ("PMI) in June 1996.

     The consolidated  financial  statements include the accounts of the Company
and it's wholly owned  subsidiary.  All significant  inter-company  balances and
transactions have been eliminated.

Uses of Estimates

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

Accounts Receivable - Other

     Accounts  Receivable - Other principally consist of revenue receivable from
research and  development  work completed on National  Institute of Health Small
Business Innovative Research Grants, and Royalty Income Receivable.

                                      F-7

<PAGE>


                  CARDIOTECH INTERNATIONAL, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Research Revenue

     Research  Revenue is generated in connection  with the development and sale
of ChronoFlex and other proprietary biomaterials for use in medical devices. The
Company has also  received  royalty  fees from Bard Access  Systems.  CardioTech
recognizes  these fees as revenue in accordance with the terms of the contracts.
Contracted   development  fees  from  corporate  partners  are  recognized  upon
completion of service or the attainment of technical benchmarks, as appropriate.


     During the year ended March 31, 1999,  the Company  earns  revenue from two
Small  Business  Innovation  Research  (SBIR)  grants,  awarded by the  National
Institute of Health to support the Company's research and development  programs.
Revenue from these grants is recognized on a percentage of completion basis.


Research and Development Expense

     Research and development expense is charged to expense as incurred.

Foreign Currency Translation

     In  accordance  with  Statement  of Financial  Accounting  Standard No. 52,
"Foreign Currency  Translation," assets and liabilities of the Company's foreign
subsidiary  are translated  into US dollars using current  exchange rates at the
balance sheet date and revenues and expenses are translated at average  exchange
rates prevailing during the period.  The resulting  translation  adjustments are
recorded in a separate  component of Stockholders'  Equity/Deficit.  Transaction
gains and losses are recorded in the Consolidated Statements of Operations.

Equipment and Leasehold Improvements

     Equipment  and  Leasehold  improvements  are stated at cost.  Equipment  is
depreciated  using the  straight-line  method over the estimated useful lives of
the assets,  ranging from five to seven years,  and leasehold  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.  When  assets are  retired or
disposed of, the cost and accumulated  depreciation  thereon is removed from the
accounts and related gains and losses are included in operations.

Basic and Diluted Earnings Per Share

     Basic  earnings  per share are based upon the  weighted  average  number of
common shares outstanding during the period. Diluted earnings per share is based
upon the weighted average number of common shares  outstanding during the period
plus  additional  weighted  average common  equivalent  shares issued during the
period.  Common  equivalent  shares have been excluded from the  computation  of
diluted  loss per share for all periods  presented,  as their  effect would have
been anti-dilutive.


     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 and convertible Preferred Stock using the "If Converted" method.


                                      F-8

<PAGE>


                  CARDIOTECH INTERNATIONAL, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Income Taxes

     Deferred  tax assets and  liabilities  are  recognized  based on  temporary
differences  between  the  financial  statements  and tax  basis of  assets  and
liabilities  using  enacted  tax rates  expected  to be in effect  when they are
realized.  A valuation reserve against the net deferred assets is recorded,  if,
based upon weighed available  evidence,  it is more likely than not that some or
all of the deferred tax assets will not be realized.

Debt Issuance Cost

     The costs related to the issuance of debt are  capitalized and amortized to
interest expense on a straight line basis over the life of the debt.

Recent Accounting Pronouncements

     The Company has adopted Statement of Financial  Accounting  Standards (SFAS
No.  130)  "Reporting  Comprehensive  Income"  in fiscal  1999.  This  statement
establishes standards for reporting and displaying  comprehensive income and its
components   (revenue,   expenses,   gains,   and  losses)  in  a  full  set  of
general-purpose financial statements. This statement requires the display of the
comprehensive income (loss) and its components in the financial  statements.  In
the Company's case,  comprehensive  loss includes net loss, and foreign currency
translation  adjustments.  The  adoption of this  Statement  has had no material
effect on its financial statements.

     The Company has also adopted  Statement of Financial  Accounting  Standards
(SFAS No.  131.)  "Disclosures  About  Segments  of an  Enterprise  and  Related
information" in fiscal 1999. This Statement  establishes standards for reporting
information about operating segments and related  disclosures about its products
and services, geographic areas, and major customers. The Company is organized as
a single operating segment,  whereby the chief operating decision maker assesses
the  performance  of and  allocates  resources to the  business as a whole.  The
adoption of this  Statement did not affect the Company's  results of operations,
liquidity  or  financial   position  but  resulted  in  revised  and  additional
disclosures (See Note K.)

Financial Statement Presentation

     The prior year's  financial  statements  have been  reclassified to conform
with the current years' presentation.

C.   License Agreement

     PMI  has  granted  to  CardioTech  an  exclusive,  perpetual,   world-wide,
royalty-free license for CardioTech to use all of the necessary patent and other
intellectual  property  owned by PMI in the  implantable  devices and  materials
field (collectively,  "PMI Licensed Technology").  PMI, at its own expense, will
file  patent or other  applications  for the  protection  of all new  inventions
formulated, made or conceived by PMI during the term of the license that related
to PMI  Licensed  Technology  and  all  such  inventions  will  be  part  of the
technology  licensed to CardioTech.  CardioTech,  at its own expense,  will file
patent  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 PMI Licensed  Technology and all such inventions shall be exclusively
licensed to PMI for use by PMI in fields other than the implantable  devices and
materials field.

                                      F-9

<PAGE>


                  CARDIOTECH INTERNATIONAL, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


D.   Property and Equipment:

     Property and equipment at March 31, 1999 consist of the following:



     Laboratory equipment                                        $ 531,000
     Furniture, fixtures and office equipment                      104,000
     Leasehold improvements                                        114,000
                                                                 ---------
                                                                   749,000
     Less accumulated depreciation                                (272,000)
                                                                 ---------

                                                                 $ 477,000
                                                                 =========

     Depreciation  expense for property and equipment for the fiscal years ended
     March  31,  1999,  and  1998  was  approximately   $81,000,   and  $72,000,
     respectively.  During  fiscal year 1999,  the Company  wrote off $37,000 of
     fully depreciated assets.

E.   Accrued Expenses:

     Accrued Expenses at March 31, 1999 consist of:


     Legal and Professional Fee                                    $ 83,000
     Salaries and Benefits                                           30,000
     Research & Development                                         166,000
     Other                                                          139,000
                                                                   --------
                                                                   $418,000
                                                                   ========

F.   Income Taxes:

Loss before income taxes was generated as follows in the years ended March 31,:

                                             1999                 1998
                                          -----------          -----------

     United States                        $(1,712,000)         $(1,112,000)

     Foreign                                 (913,000)            (697,000)
                                          -----------          -----------
                                          $(2,625,000)         $(1,809,000)
                                          ===========          ===========

     A  reconciliation  between the Company's  effective tax rate for continuing
operations and the United States statutory rate is as follows:

                                                           1999        1998


     Expected Federal Tax Rate                           (34.00)%    (34.00)%
     State income taxes, net of federal tax benefit        (4.1%)      (3.9%)
     Change in Valuation Allowance                         35.1%       37.3%
     Meals & Entertainment and Other  Permanent Items       0.2%        0.2%
     Foreign Tax Rate Differential                          2.8%        0.4%


     Effective Tax Rate                                    0.00%       0.00%

                                      F-10

<PAGE>


                  CARDIOTECH INTERNATIONAL, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     A valuation  allowance has been recorded to offset the related deferred tax
assets  due to  uncertainty  of  realizing  the  benefit  of these  assets.  The
following is a summary of the significant  components of the Company's  deferred
tax assets and liabilities as of March 31, 1999.

     Deferred Tax Assets:

        Net Operating Loss                                     $ 2,339,000
        Tax Credits                                                  4,000
        Other                                                        6,000
                                                               -----------
                                                               $ 2,349,000
                                                               -----------


     Deferred Tax Liability

     Depreciation                                              $    26,000
                                                               -----------

     Valuation Allowance                                        (2,323,000)
                                                               -----------

     Net Deferred Tax Asset                                    $       -0-
                                                               ===========

     As of March 31,  1999,  the Company had  Federal net  operating  loss carry
forwards of approximately  $4,273,000  available to offset future taxable income
which begin to expire in 2010.  The Company has Foreign net operating loss carry
forwards of approximately $2,100,000.

G.   Major Customers:

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

                                                      1999            1998
                                                      ----            ----

     Customer A                                         13%             26%
     Customer B                                         11%             56%

H.   Lease Commitments:

     The  Company  leases  offices,  laboratory  and  manufacturing  space under
non-cancelable operating leases. Future minimum lease payments are as follows:

     Year ending March 31:
     2000                                                       $   215,000
     2001                                                           221,000
     2002                                                           221,000
     2003                                                           221,000
     2004                                                           108,000
                                                                -----------
                                                                $   986,000
                                                                ===========

                                      F-11

<PAGE>


                  CARDIOTECH INTERNATIONAL, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     Rent expense for operating leases was $215,000,  and $194,000 for the years
ended March 31, 1999, and 1998 respectively.

I.   Long Term Obligations:

7% Convertible Senior Notes due 2003

     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").  Interest accrues annually and is
payable  quarterly in cash and/or  additional Senior Notes at the option of DKB.
As of March 31, 1999, accrued interest on the Senior Notes amounted to $119,000.
This accrued interest was converted into additional senior notes at the election
of DKB. The principal  balance of Senior Notes  outstanding as of March 31, 1999
was $1,779,000.

     The Senior  Notes rank senior to all other  securities  of the Company upon
liquidation. At any time prior to maturity, DKB may convert the Senior Notes, in
whole or in part,  plus accrued  interest  into common stock of the Company at a
conversion price of $1.995, which is subject to adjustment in certain events. As
a result of the private  placement  of the Units,  as  described  in Note J, the
conversion price was adjusted to $1.676 per share.

     Prior to  maturity,  the Senior  Notes are  redeemable  by the Company at a
premium,  which ranges from 105% to 100% of principal.  Should the Company elect
to redeem  the Senior  Notes in the first  year,  DKB may elect to  convert  the
Senior  Notes to shares  of  common  stock at a  conversion  price  equal to .87
(increasing  each of the following  years) times the lower of (i) the conversion
price or (ii) the market price. Upon the occurrence of a change of control,  DKB
may  require  the  Company  to  repurchase  the  Senior  Notes at a  premium  in
accordance  with the formula in the preceding two  sentences.  At maturity,  and
under certain  conditions,  the Company may repay the Senior Notes, plus accrued
interest,  by  converting  them,  in whole or in part,  into common stock of the
Company at the conversion price.


     In connection with the Senior Notes,  DKB has certain Board  representation
rights. In addition, certain financial and other covenants exist, including, but
not  limited  to,  maintenance  of  working  capital  and  positive  net  worth,
maintenance  of  share  listing  on  the  AMEX  (or  other  acceptable  national
exchange),  and receipt of an unqualified  audit opinion without a going concern
emphasis of matter paragraph from independent public accountants. Since a "going
concern"  paragraph has been  included in the audit  opinion on these  financial
statements, DKB may have demanded immediate payment of the amounts due under the
Senior  Notes and  Preferred  Stock  (See Note J),  plus  accrued  interest  and
dividends.  In  addition,  actions  taken by DKB may have  resulted in a default
under the loan agreement with Freemedic PLC  (Freemedic).  However,  on June 25,
1999,  the  Company  received  a waiver of the  default  relating  to the "going
concern" paragraph through the earlier of a new audit opinion or June 30, 2000.

     The Company has  pledged a life  insurance  policy on the life of the Chief
Executive  Officer and all of the common  stock of the  Company's  wholly  owned
subsidiary,  CardioTech International,  Ltd. ("CTI"), to secure the repayment of
the Senior Notes.


                                      F-12

<PAGE>


                  CARDIOTECH INTERNATIONAL, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Convertible Loan due 2000


     On April 1, 1998,  the  Company's  wholly  owned  subsidiary,  Cardio  Tech
International,  Ltd.  ("CTI"),  signed a collaborative  research and development
agreement  with  the  Royal  Free  Hospital  School  of  Medicine  ("Royal  Free
Hospital").  This research and  development is funded by a loan of  (GBP)253,000
($420,000)  from  Freemedic  PLC ("  Freemedic")  a subsidiary of the Royal Free
Hospital,  to CTI. The loan  accrues  interest at a rate of 15% per annum and is
due and payable on April 1, 2000.


     The  Convertible  loan is  convertible,  at  Freemedic's  option,  into the
Company's  common stock at a  conversion  price of $3.70 per share from April 1,
1998 until March 20, 2000. During this same period, the convertible loan is also
convertible  at the Company's  option into common stock of the Company at $3.70,
provided  that the market price for the Company's  common stock  exceeds  $3.70,
from the day that the  Company  gives  notice  of such  conversion  until  seven
business days thereafter. The Convertible loan is secured by a pledge of all the
assets of CTI and is guaranteed by the Company.

J.   Convertible Preferred Stock and Stockholders' Equity

     Convertible Preferred Stock

     On  November  12,  1998,  the  Company  issued  500,000  shares of Series A
Convertible Preferred Stock (the "Preferred Stock") to DKB, on substantially the
same terms as the Senior Notes, in consideration  for $500,000.  This additional
financing  of cash  was a  result  of the  Company  meeting  certain  milestones
pursuant to the terms of the Senior Notes.

     The Preferred Stock accrues dividends at the rate of 10% per annum, payable
quarterly in arrears and in priority to the common stock or any other  preferred
stock. At the option of DKB, accrued  dividends can be paid in cash or converted
in  additional  shares  of the  Preferred  Stock.  The  principal  amount of the
Preferred Stock, plus accrued and unpaid  dividends,  is convertible into shares
of the  Company's  common stock at a price of $1.818 per share.  The  conversion
price is  subject to  anti-dilution  adjustments.  As a result of the  Company's
issuance of the Units as described below, the conversion price has been adjusted
to $1.5842 per share. As of March 31, 1999,  accrued  dividends of the Preferred
Stock were $19,000.  There were no payments or conversions of accrued  dividends
during fiscal 1999.  The Preferred  Stock has a liquidation  preference of $1.00
per share.  The holders of shares of the Preferred Stock are not entitled to any
voting rights.

     Prior to November 12, 2000,  CardioTech  may redeem the Preferred  Stock in
cash  at a  premium  equal  to  104%  of its  original  principal  balance  plus
accumulated  and unpaid  dividends.  After  November  12, 2000,  the  redemption
premium to be paid by the Company is reduced by one  percent  (1%) per annum for
each of the subsequent  years. In the event a change of control occurs,  DKB may
require  redemption  of the Preferred  Stock.  A change of control of CardioTech
will occur if CardioTech's  Board of Directors  approves a third-party's  tender
offer for (i) more than 50% of the  common  stock or (ii)  assets of  CardioTech
that  represent  more than 50% of its  consolidated  earning  power. A change of
control of CardioTech  will also occur if CardioTech  (i) sells more than 30% of
its assets,  (ii) terminates Michael Szycher as its Chief Executive Officer,  or
(iii)  sells its  strategic  assets so that it is no longer  able to pursue  its
current business as defined per the terms of the Preferred Stock agreement

     If the Company  elects to redeem the Preferred  Stock,  a change in control
occurs,  or a third  party  commences  a hostile  tender  offer to  acquire  the
Company,  then DKB may convert the Preferred  Stock into shares of the Company's
common stock. On or prior to March 31, 2000, DKB may convert the Preferred Stock
at an adjusted  conversion  price that is equal to .87  (increasing to .89, .93,
 .96, and 1.00 on April 1, 2000,  2001,  2002, and 2003  respectively)  times the
lesser of (i) the  conversion  price or (ii) the market  price.  As of March 31,
1999,  management  does not  intend  to  redeem  the  Preferred  Stock  prior to
maturity.

                                      F-13

<PAGE>


                  CARDIOTECH INTERNATIONAL, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     The terms of the Preferred Stock provide for certain  material  obligations
to DKB as defined, including the payment of interest and principal due under the
Senior  Notes and other  outstanding  loans;  the  payment of  dividends  on the
Preferred  Stock;  the  redemption or  conversion,  upon DKB's  request,  of the
Preferred  Stock;  and  adherence to the  covenants  set forth in the  Company's
agreements  with  DKB.  In the  event of a  default  in the  Company's  material
obligations to DKB, the dividend rate may be increased to 13% per annum.

     In addition,  DKB has Board  representation  rights.  As long as the Senior
Notes and the  Preferred  Stock are  outstanding,  CardioTech  must nominate one
representative  of DKB for  election  to  CardioTech's  Board of  Directors.  If
elected,  the DKB  Director  must  also be a member of  CardioTech's  Executive,
Compensation and Nominating Committees.  The failure of CardioTech to nominate a
representative  of DKB,  or the  failure of each of  CardioTech's  officers  and
directors  who  hold  common  stock  to vote in  favor  of such  representative,
constitutes  an event of default under the Notes and will result in the dividend
rate on the Preferred Stock increasing to 13%.

     Furthermore, as long as DKB holds Senior Notes and Preferred Stock that are
convertible  into at least 10% of the common stock issuable,  pursuant to all of
the Senior Notes and Preferred Stock,  neither CardioTech nor CTI shall, without
prior written consent of DKB; create any  encumbrances on its properties;  incur
any additional debt, other than then existing debt, in excess of $150,000; merge
into or consolidate with any other company; sell any of its assets for less than
fair  market  value;  make  any  investments  other  than  those  in  which  the
consideration is less than $50,000;  make any capital  expenditures in excess of
$50,000;  make any expenditures  for services in excess of $100,000;  declare or
pay any dividends or certain other specified  distributions to its stockholders;
incur any debt senior to the Senior Notes; amend its Articles of Organization or
By-laws in a manner that would adversely affect the rights of the holders of the
Senior  Notes  or the  Preferred  Stock;  issue  equity  securities  of equal or
superior rank,  other than common stock or the Preferred  Stock;  enter into any
material agreement with provisions conflicting with CardioTech's agreements with
DKB; create any subsidiaries which could not be consolidated with CardioTech for
accounting purposes; or allow CardioTech's  stockholders' equity plus $1,660,000
(the initial amount of the Senior Notes) to be less than $750,000.

Common Stock and Warrants

     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 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. The  promissory  notes bear interest
at 4.25% per annum and are payable  annually in arrears.  The promissory  notes,
which are with  recourse with respect to 25% of the initial  principal  balance,
are secured by the common stock and warrants  underlying the Units.  Interest in
the amount of $3,000 was accrued as of March 31, 1999.

     In connection  with the  transaction in which the Company was spun-off from
Polymedica, the Company issued warrants (the "Hancock Warrants") to John Hancock
Mutual Life  Insurance  Company to purchase up to 255,100 shares of common stock
at $3.70 per share. The Hancock  Warrants are exercisable  beginning on June

                                      F-14

<PAGE>


                  CARDIOTECH INTERNATIONAL, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


19, 1996 and expire on January 31, 2000. As a result of antidilutive provisions,
the Company is  required  to issue  additional  warrants  to John  Hancock  when
additional common shares or common share equivalents are issued to third parties
at a price lower than the exercise  price.  As of March 31,  1999,  the exercise
price of the  Hancock  Warrants  has been  adjusted  to $2.339 per share and the
number of shares subject to the Hancock Warrants was adjusted to 403,403 shares.

The Company filed a  registration  statement on Form S-3 with the Securities and
Exchange  Commission on February 12, 1999, as amended on April 5, 1999,  for the
purposes of registering  3,582,600  shares.  The shares offered pursuant to this
Form S-3 were issued by the Company in connection with the private  placement of
1,866,000  units,  consisting of 1,866,000  shares of the Company's Common Stock
and  warrants to purchase an  additional  1,866,000  shares of Common Stock (See
Note J).  This  registration  statement  will  provide for the  registration  of
1,706,000  shares of the Common Stock and  1,706,000  shares of the Common Stock
underlying the warrants issued to the selling stockholders and 170,600 shares of
the Common Stock underlying the warrants issued to the placement agent."

K.   Enterprise and Related Geographic Information:

     In accordance with SFAS 131,  "Disclosures  about Segments of an Enterprise
and Related  Information",  the Company manages its business on the basis of one
reportable  operating  segment.  Net sales by  geographic  area are presented by
attributing  revenues from external  customers or  distributors  on the basis of
where  the  products  are  sold.  Long  lived  assets  by  geographic  areas and
information  about  products  and  services  are  included  as   enterprise-wide
disclosures.

                                        March 31, 1999       March 31, 1998
     Net Sales:

     Domestic                             1,027,000              861,000
     Europe                                  56,000               12,000
                                         ----------           ----------
     Total                                1,083,000              873,000
                                         ==========           ==========

                                        March 31, 1999       March 31, 1998
     Net Income


     Domestic                            (1,712,000)          (1,112,000)
     Europe                                (913,000)            (697,000)
                                         ----------           ----------
                                         (2,625,000)          (1,809,000)
                                         ==========           ==========


                                        March 31, 1999       March 31, 1998
     Total Assets

     Domestic                             2,741,000            2,999,000
     Europe                                 786,000               40,000
                                         ----------           ----------
     Total                                3,527,000            3,039,000
                                         ==========           ==========

                                        March 31, 1999       March 31, 1998
     Long Lived Assets, net:

     Domestic                               307,000              179,000
     Europe                                 170,000                9,000
                                         ----------           ----------
     Total                                  477,000              188,000
                                         ==========           ==========

                                      F-15

<PAGE>


                  CARDIOTECH INTERNATIONAL, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


L.   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  approximately  1,167,000  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 at the time of the grant (but not less than par value).  On
October 1, 1996,  the  Compensation  Committee  of the Board of Directors of the
Company,  which administers the Plan, repriced stock options to purchase 866,208
shares of common stock, at the fair market value on the date of repricing.


                                                    Number      Weighted average
                                                   of Shares     exercise price
                                                   ---------     --------------
     Outstanding March 31, 1997                      902,022          $1.98
     Granted                                          57,854           2.01
     Cancelled                                       (14,854)          1.94
     Exercised                                            --             --
                                                  ----------          -----
     Outstanding March 31, 1998                      945,022          $1.98
     Granted                                         181,208           1.87
     Cancelled                                       (49,529)          1.88
     Exercised                                            --             --
                                                  ----------          -----
     Outstanding March 31, 1999                    1,076,701          $1.97
                                                  ==========          =====

Summarized  information about stock options  outstanding at March 31, 1999 is as
follows:

<TABLE>
<CAPTION>
                                                                                                    Exercisable
                                                  Weighted                                  -----------------------------
                                                   Average              Weighted                                 Weighted
                              Number of            Remaining             Average                                  Average
    Range of                   Options           Contractural           Exercise            Number of            Exercise
Exercise Prices              Outstanding             Life                 Price              Options               Price
---------------              ------------            ----                 -----              -------               -----
<S>                               <C>                <C>                  <C>                <C>                   <C>
$1.31 - $1.97                     941,993            7.41                 $1.93              768,776               $1.93
-------------------------------------------------------------------------------------------------------------------------
$1.98 - $2.56                     119,708            9.08                 $2.19               63,569               $2.37
-------------------------------------------------------------------------------------------------------------------------
        $4.55                      15,000             2.6                 $4.55               15,000               $4.55
-------------------------------------------------------------------------------------------------------------------------
</TABLE>


Options  exercisable  at March  31,  1999 and March 31,  1998 were  847,345  and
605,447 respectively.

     The fair  value of each  option  granted  during  the  fiscal  year 1999 is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions:

                                                     1999              1998

      Dividend yield                                 None              None
      Expected volatility                            85%               78%
      Risk-free interest rate                        5.4%              6.2%
      Expected life                                  4                 4

                                      F-16

<PAGE>


                  CARDIOTECH INTERNATIONAL, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


      Weighted average fair value of options granted at fair value during:
      1999                                                             $1.31
      1998                                                             $1.67

     Had  compensation  cost for the  Company's  1999 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:

                                                          Net Loss per fully
                                         Net Loss            diluted share
      As reported:
        1999                          $ (2,625,000)         $      (0.55)
        1998                            (1,809,000)                (0.42)

      Pro forma:

        1999                          $ (3,231,000)         $      (0.67)
        1998                          $ (2,159,000)                (0.51)

     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.

     As  permitted  by Statement  of  Financial  Accounting  Standards  No. 123,
"Accounting for Stock-Based Compensation", ("SFAS 123"), the Company applies APB
Opinion No. 25 and related Interpretations in Accounting for the Plan. SFAS 123,
issued in 1995,  defined a fair value method of accounting for stock options and
other equity  instruments.  Under the fair value  method,  compensation  cost is
measured  at the  grant  date  based  on the  fair  value  of the  award  and is
recognized  over the service period,  which is usually the vesting  period.  The
Company  elected to continue to apply the  accounting  provisions of APB Opinion
No. 25 for stock  options.  The required  disclosures  under SFAS 123, as if the
Company had applied the new method of accounting, are made above.

M.   Earnings Per Share

     The following  table  reconciles the numerator and denominator of the basic
and diluted earnings per share computations shown on the Consolidated Statements
of Operations for the years ended March 31,

                                                    1999            1998
     BASIC AND DILUTED EPS
     Numerator:
       Net income (loss)
                                                   $(2,625)        $(1,809)
                                                   -------         -------
     Denominator:
       Common shares outstanding                     4,815           4,273
                                                   -------         -------
     Basic and Diluted EPS
                                                   $ (0.55)        $ (0.42)
                                                   =======         =======

     Convertible  Debt,  Convertible  Preferred  Stock,  and Options to purchase
1,076,701  and 945,022  shares of common  stock  outstanding  during the periods
ended March 31, 1999 and March 31, 1998,  respectively,  were  excluded from the
calculation of diluted  earnings per share because the effect of their inclusion
would have been anti-dilutive.


N.   Related Party Transactions


     On December 15, 1998,  certain executive  officers of the Company purchased
in the  aggregate  200,000  units  during  a  private  placement  offering.  The
purchases,  valued at $200,000,  were funded by a note issued by each officer to
the  Company.  The terms of the note  provide  for each  executive  to repay the
Company  with  interest at 4.25% per annum,  within five years.  The  promissory
notes,  which are with  recourse  with  respect to 25% of the initial  principal
amount,  are secured by the common stock and warrants  underlying the units. The
principal   balance  due  is  shown  as  Notes   Receivable   from  Officers  in
stockholders' deficit on the consolidated balance sheet.

                                      F-17

<PAGE>


                  CARDIOTECH INTERNATIONAL, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



O.   Subsequent Events

     On May 25, 1999, the Company agreed to acquire,  subject to the approval of
the Tyndale Plains-Hunter  shareholders,  and other conditions precedent, all of
the common  stock of  Tyndale  Plains-Hunter,  Ltd.,  through  its wholly  owned
subsidiary,  CardioTech  Acquisition Corp, in exchange for 446,153 shares of the
Company's  common stock,  valued at $1.625 per share,  and $350,000 in cash. The
acquisition is structured as a tax-free  reorganization  under Section 368(a) of
the Internal  Revenue  Code and will be  accounted  for pursuant to the purchase
method of accounting.  The excess of the  consideration  paid over the estimated
fair value of the net assets  acquired  will be recorded as goodwill and will be
amortized  on a  straight-line  basis over its expected  useful life.  Operating
results  for  CardioTech  Acquisition  Corp  will be  included  in  CardioTech's
consolidated  statement of  operations  beginning on the  effective  date of the
acquisition.


     On June 25, 1999,  the Company  received  from DKB a waiver of the default,
through the earlier of a new audit opinion or June 30, 2000, relating to receipt
of an audit opinion without an emphasis of matter going concern paragraph.

                                      F-18

<PAGE>


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 29, 1999                       CardioTech International, Inc.

                                            By:  /s/ Michael Szycher
                                            ------------------------------------
                                            Michael Szycher
                                            Chairman and Chief Executive Officer

     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 29, 1999                       /s/ Michael Szycher
                                            ------------------------------------
                                            Michael Szycher
                                            Chairman, Chief Executive Officer
                                            (Principal Executive Officer)

Dated:  June 29, 1999                       /s/ Michael F. Adams
                                            ------------------------------------
                                            Michael F. Adams
                                            Chief Operating   Officer

Dated:  June 29, 1999                       /s/ Carl Franzblau
                                            ------------------------------------
                                            Carl Franzblau
                                            Director

Dated:  June 29, 1999                       /s/ Jonathan Walker
                                            ------------------------------------
                                            Jonathan Walker
                                            Director

Dated:  June 29, 1999                       /s/ Alan Edwards
                                            ------------------------------------
                                            Alan Edwards
                                            Director


Dated:  June 29, 1999                       /s/ Michael Barretti
                                            ------------------------------------
                                            Michael Barretti
                                            Director

Dated:  June 29, 1999                       /s/ Pam McCarthy
                                            ------------------------------------
                                            Pam McCarthy
                                            Controller