U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   Form 10-KSB
(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, 2000

   | | 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                        American
        value per share                         Stock Exchange
     -----------------------                   ----------------

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

      Indicate whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes |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. $1,497,000

      As of June 29, 2000, 8,351,451 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 $16,202,000 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 2000 annual meeting of
stockholders, which will be filed within 120 days of the registrant's fiscal
year ended March 31, 2000.

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 also
used to provide access for patients undergoing hemodialysis treatments. The
Company develops layered, microporous small bore vascular grafts. The Company
has developed a vascular access graft, called the VascuLink Vascular Access
Graft and is developing (i) a peripheral graft, called the MyoLink Peripheral
Graft, and (ii) a coronary artery bypass graft, called the CardioPass Coronary
Artery Bypass Graft.

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

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

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

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

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

      The Company was founded in 1993 as a subsidiary of PMI. In June 1996, PMI
distributed all of the shares of CardioTech's common stock, par value $.01 per
share, that PMI owned to PMI stockholders of record


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<PAGE>

as of June 3, 1996. The Company is headquartered in Woburn, Massachusetts and
also has production facilities in Lawrenceville, New Jersey and Wrexham, Brymbo
U.K.

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

Product in Distribution
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 polytetrafluoroethylene ("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 through the graft in order to allow for tissue in-growth
into the graft.

      The Company believes that the Vasculink Vascular Access Graft it is
marketing in Europe 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 estimates 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.

      In September 1999 the Company introduced the VascuLink graft during the
European Society for Vascular Surgery meeting in Copenhagen. CardioTech has
appointed distributors in France, Spain, Italy, Holland, Belgium, Germany,
Austria, Switzerland, Denmark, Sweden, U.K., Greece, Turkey and Australia.

      In March 2000, CardioTech announced that its VascuLink Vascular Access
Graft was granted Millenium Product Status by the U.K. Design Council. Millenium
Products come from a personal challenge by British Prime Minister, Mr. Tony
Blair to "demonstrate that the U.K. can lead the world by creating products that
exemplify our strengths in innovation and design."


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<PAGE>

Product Under Clinical Trial
MyoLink Peripheral Graft

      In the United States, an estimated 16 million people suffer from diabetes,
which is often further complicated by atherosclerosis, or the blockage of
arteries. Eventually, many atherosclerosis patients require vascular grafts to
bypass severely occluded leg arteries, which impede circulation to the lower
extremities and can ultimately lead to amputation. Lack of adequate circulation
to the lower limbs and toes results in approximately 54,000 amputations yearly
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 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."

      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 was funded by a loan of (pound)360,000
($575,000) 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. Freemedic also agreed to extend the term of
the note to a term as yet to be determined. As of March 31, 2000, the entire
loan balance is classified as current. The loan, plus accrued interest, is
convertible under certain conditions (including the price of the Company's stock
of at least $3.70 for 7 trading days), 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 Dresdner Kleinwort Benson Private Equity Partners LLP ("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 DKB loan, or if
CardioTech winds up, makes an assignment for the benefit of it's 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, 2000, the
outstanding principal balance of the loan was (GBP) (pound)360,000 ($575,000).
(See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources).


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<PAGE>

Product in Pre-clinical Development
CardioPass Coronary Artery Bypass Graft

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

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

      The Company is developing the CardioPass Coronary Artery Bypass Graft to
be a synthetic graft of 3mm in diameter specifically designed for use in CABG
surgery. If successfully developed, the Company believes that the CardioPass
Graft may be used initially to provide an alternative to patients with
insufficient or inadequate native vessels for use in bypass surgery as a result
of repeat procedures, trauma, disease or other factors. The Company believes,
however, that the CardioPass Graft may ultimately be used as a substitute for
native saphenous veins, thus avoiding the trauma and expense associated with the
surgical harvesting of the vein.

      The Company believes that approximately 700,000 CABG procedures were
performed worldwide, of which nearly 500,000 were performed in the United States
during 1999. The Company believes that approximately 20% of these CABG
procedures were performed on patients who had previously undergone bypass
surgery, and that the number of repeat procedures will continue to increase as a
percentage of procedures performed. Currently, approximately 70% of CABG
procedures are performed utilizing the saphenous vein. The CardioPass Coronary
Artery Bypass Graft is in pre-clinical development.

      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.

Biomaterials

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

      CardioTech also manufactures and sells, through its wholly owned
subsidiary, CardioTech Acquisition Corp, 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


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<PAGE>

bacterial resistance, clot resistance and biocompatibility. When hydrated,
HydroThane has elastic properties similar to living tissue.

      In July 1999, CardioTech, through its wholly owned subsidiary, CardioTech
Acquisition Corp, acquired the assets of Tyndale -Plains-Hunter, Ltd. (TPH) of
Lawrenceville, N.J., a manufacturer of specialty hydrophilic polyurethanes.
TPH's common stock was acquired in consideration of $350,000 cash, 446,153
shares of CardioTech common stock valued at $725,000, and assumption of
approximately $178,000 of liabilities. TPH polymers are primarily sold to
customers as part of an exclusive arrangement. Customers are supplied tailored,
patented hydrophilic polyurethanes in exchange for multi-year, royalty-bearing
exclusive supply contracts. TPH owns 29 patents in the field of hydrophilic
polyurethanes.

      During the fiscal year ended March 31, 2000, 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.

      Revenues were approximately $1,497,000 and $1,083,000 for the years ended
March 31, 2000 and 1999, respectively. For the years ended March 31, 2000 and
1999, 40% and 74% of revenues, respectively, were generated from royalties from
Bard Access Systems, Inc. and grants from 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, as well as early-stage
distribution of the Vasculink Vascular Access Graft in Europe. CardioTech
currently has the ability to produce quantities of vascular grafts sufficient to
support its current needs. However, CardioTech may need to acquire additional
manufacturing facilities and improve its manufacturing technology 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
larger commercial quantities in compliance with regulatory requirements and at
acceptable costs. Production in larger commercial quantities will require
CardioTech to expand its manufacturing capabilities significantly and to hire
and train additional personnel.

      The 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

      As a result of the award of the CE Mark, CardioTech has begun to market
its vascular access graft products through targeted distributors throughout the
EC countries. Pursuant to this strategy, the Company has retained firms to
distribute its VascuLink Vascular Access Graft. Implementation of this strategy
will depend on many factors, including the effectiveness of the Company's
distributors, the market potential for CardioTech's


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products, and CardioTech's financial resources. The distribution network
provides access to nearly 90% of the European Community market.

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 clinical trials in
the United States. Additionally, Thoratec is selling vascular grafts through
Guidant, a large medical device company.

      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, 2000 and 1999 were $ 2,080,000 and $2,142,000,
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.


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      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 was awarded the CE Mark for its Vasculink Vascular Access
Graft in November 1998. Accordingly, the Company has begun to sell the VascuLink
Vascular Access Graft in Europe. 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 June 29, 2000, the Company has 15 full-time employees. Of these
full-time employees, 2 are in research and development, 6 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.

Item 2. Description of Property

      CardioTech leases a total of approximately 24,000 square feet in Woburn,
Massachusetts, Lawrenceville, New Jersey, and Brymbo, Wrexham, United Kingdom.
CardioTech believes that its current facilities are adequate for the next
several years.


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<PAGE>

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, 2000.


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<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, 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


Fiscal Year Ended March 31, 2000          High        Low
                                          ----        ---

June 30                                   1 9/16      1
September 30                              1 1/8       9/16
December 31                               7/8         1/4
March 31                                  7           5/16

      As of June 29, 2000, there were approximately 360 stockholders of record
and 2,900 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, 2000 vs. March 31, 1999

Revenue

      Revenue consists of revenues from the sale of medical grade polyurethanes,
research grants from the National Institute of Health (NIH) and royalties from
Bard Access Systems. Revenue for the fiscal year ended March 31, 2000 was
$1,497,000 compared to $1,083,000 for the fiscal year ended March 31, 1999, an
increase of $414,000, or 38%. This increase was primarily generated by an
increase in sales of biomaterials of $221,000, license and royalty income of
$148,000, and research grant income of $41,000 from NIH Small Business
Technology Transfer (STTR) grants.

Operating Expenses

Research and Development Expenses


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<PAGE>

      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, 2000 was $2,281,000, compared to $2,284,000 for the fiscal year
ended March 31, 1999, a decrease of $3,000, or .1%. This was principally the
result of completion of clinical trials for the Vascular Access Graft as well as
an increase in production efficiency for biomaterials. These reductions were
partially offset by the addition of production costs for the new TPH
BioMaterials product line.

Selling, General and Administrative Expense

      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, 2000 was $2,875,000, compared to $1,313,000 for the
fiscal year ended March 31, 1999 an increase of $1,562,000 or 119%. Included in
fiscal 2000 selling, general and administrative expense is a non-cash charge of
$1,136,000 representing the value of options granted to a consulting firm. The
value of the options was determined using the Black Scholes valuation model.
Excluding the charge for the options granted to consultants, selling, general
and administrative expense increased $426,000 or 32% in fiscal 2000 as compared
to fiscal 1999. This increase is primarily due to marketing costs of the
vascular graft of $203,000, higher depreciation and amortization of $74,000,
outside consultants of $72,000 and salary and benefits costs of $210,000. These
costs were offset by lower legal and professional fees of $21,000, and building
costs of $52,000.

Interest Expense, net

      Interest expense, net for the fiscal year ended March 31, 2000 was net
expense of $155,000 compared to net expense of $111,000 for the fiscal year
ended March 31, 1999, an increase in net expense of $44,000. The increase
primarily resulted from interest expense of $211,000 on the senior notes and the
Freemedic loan. Interest expense for the fiscal year ended March 31, 2000 was
offset by interest income of $56,000 earned on excess cash during the period.
Interest income in fiscal 2000 decreased by $45,000 or 45% when compared to
fiscal 1999 due primarily to a reduction in available funds to invest in
interest bearing accounts.

Net Loss

      Net loss for the fiscal year ended March 31, 2000 was $3,814,000 compared
to $2,625,000 for the fiscal year ended March 31, 1999, an increase in net loss
of $1,189,000 or 45%. Approximately $1,136,000 of this increase was due to a
non-cash charge for options granted to a consultant. Excluding the non-cash
charge for options granted to the consultants, the Company's net loss in fiscal
2000, increased $53,000 or 2% when compared to the Company's net loss in fiscal
1999. This increase in net loss is primarily attributable to the marketing
campaign for the Vascular Access Graft in Europe as well as the ramp up of
production costs as previously described. Net loss per share for the fiscal year
ended March 31, 2000 was $0.58 as compared to $0.55 per share for the fiscal
year ended March 31, 1999.


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<PAGE>

Liquidity and Capital Resources

            The Company recognized a net decrease in cash and cash equivalents
for the year ended March 31, 2000 of $599,000. Operating activities used cash of
$2,322,000 during the fiscal year ended March 31, 2000, compared to $2,119,000
for the fiscal year ended March 31, 1999. The principal uses of cash for
operating activities for the fiscal year ended March 31, 2000, were to fund a
net loss of $3,814,000, offset by a non-cash consulting expense of $1,136,000,
and also offset in part by increases in accounts payable of $125,000. Investing
activities used cash of $418,000 for the year ended March 31, 2000, as compared
to $367,000 for the year ended March 31, 1999, and is primarily attributable to
the acquisition of Tyndale Plains-Hunter, Ltd. Financing activities provided
cash of $2,136,000 for the year ended March 31, 2000, as compared to $2,666,000
for the year ended March 31, 1999, and is primarily attributable to cash
proceeds received on the issuance of common stock related to the exercise of
outstanding warrants. Cash and cash equivalents amounted to $1,793,000 at March
31, 2000 as compared to $2,392,000 at March 31, 1999, a decrease of $599,000 or
25%.

      CardioTech's future growth will depend on its ability to raise capital to
support research and development activities and to market and sell its vascular
graft technology. Through March 31, 2000, CardioTech began to generate revenues
from the sale of vascular grafts and continued to generate revenues relating to
biomaterial sales and the NIH research. Since March 31, 1999, the Company began
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 $2,000,000, the loan from
Freemedic in the amount of (GBP) (pound)360,000, (approximately $575,000), 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 $3,233,000
in cash as of March 31, 2000 (See Note I and J to the Notes to Consolidated
Financial Statements.) The Company anticipates that operating losses will
continue to be incurred 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, 2000, CardioTech was conducting its operations with
approximately $1,793,000 in cash. CardioTech estimates such amount combined with
its cash flow from operations will be sufficient to fund its working capital and
research and development activities in the next twelve months. Future
expenditures for product development, especially relating to outside testing and
clinical trials, are discretionary and, accordingly, can be adjusted based on
the availability of cash.


                                       11
<PAGE>

       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 September 24, 1999, the Company issued a 7% Convertible Senior Note in
the amount of $340,000 to Dresdner Kleinwort Benson Private Equity Partners LP,
on terms similar to and as an amendment to the Note Purchase Agreement, as
amended, dated March 31, 1998.

      During the fiscal year ended March 31, 2000, warrants to purchase 969,000
shares of the Company's common stock were exercised, resulting in cash proceeds
of approximately $1,451,000 to CardioTech. Subsequent to March 31, 2000,
warrants to purchase an additional 54,500 shares of the Company's common stock
were exercised resulting in additional cash proceeds of $85,000. On March 1,
2000, in connection with the exercise of the warrants, CardioTech granted to
Fechtor, Detwiler & Co., Inc. and certain of its employees, warrants to purchase
an additional 200,000 shares of the Company's common stock at an exercise price
of $1.88 per share (the closing price of the shares on the date of the
agreement). The warrants have an expiration date of March 5, 2005.

      On July 16, 1999, CardioTech completed the acquisition of Tyndale
Plains-Hunter, Ltd. ("TPH"), a New Jersey corporation, pursuant to an Agreement
and Plan of Merger, dated as of May 25, 1999 (the "Merger Agreement"), by and
among CardioTech; CardioTech Acquisition Corp. ("Acquisition Sub"), a Delaware
corporation and a wholly-owned subsidiary of CardioTech; and TPH. TPH
manufactures hydrophilic polyurethanes, which are used to provide permanent
lubricity to the surface of medical devices, improve blood compatibility and act
as drug delivery systems. The hydrophilic polyurethanes manufactured by TPH are
also used in personal care products including hair and skin creams. CardioTech
intends to continue to use the assets and technology of TPH to manufacture
hydrophilic polyurethanes and incorporate such technologies into the Company's
medical devices.

      TPH merged with and into Acquisition Sub (the "Merger"), with Acquisition
Sub surviving the Merger and remaining a wholly owned subsidiary of CardioTech.
Each share of TPH common stock was (i) converted into the right to receive 0.24
of a share of CardioTech common stock and (ii) exchanged for additional cash
consideration. The purchase price paid by CardioTech consisted of 446,153 shares
of the Company's common stock (valued at $1.625 per share per the closing price
on the date of the signing of the letter of intent) and cash of $350,000.
Approximately $100,000 of the cash consideration was placed into escrow pursuant
to terms of the Merger Agreement. In November 1999, $50,000 was released from
escrow and distributed to shareholders. The remaining $50,000 will be
distributed from the escrow account on August 15, 2000 if no indemnifiable loss
claims are delivered by the Company before that date. In connection with this
transaction, the Company assumed liabilities of approximately $178,000 and
incurred acquisition costs of approximately $78,000. The excess of the purchase
price over the net assets is approximately $1,082,000 and has been allocated to
goodwill. The transaction has been recorded in accordance with the purchase
method of accounting. At March 31, 2000, other assets include goodwill of
$920,000, which is net of amortization of $162,000 for the year ended March 31,
2000. The consolidated statements of operations and cash flows for the year
ended March 31, 2000 include the results of operations and cash flows of the
acquired business from June 30, 1999 through March 31, 2000.


                                       12
<PAGE>

Recent Accounting Pronouncements

      In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No.
133"). SFAS No. 133 requires companies to recognize all derivative contracts as
either assets or liabilities in the balance sheet and to measure them at fair
value. If certain conditions are met, a derivative may be specifically
designated as a hedge, the objective of which is to match the timing of a gain
or loss recognition on the hedging derivative with the recognition of (i) the
changes in the fair value of the hedged assets or liability or (ii) the earning
effect of the hedged forecasted transaction. For a derivative not designated as
a hedging instrument, the gain or loss is recognized in income in the period of
change. SFAS No. 133, as amended by SFAS No. 137, is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000.

      Historically, the Company has not entered into derivative contracts either
to hedge existing risks or for speculative purposes. Accordingly, the Company
does not expect adoption of the new standard to affect its 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 such as (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 ability to manufacture grafts that taper, (iv) HydroThane's bacterial
resistance, clot resistance, and biocompatibility, (v) the sufficiency of the
Company's liquidity and capital and the steps that would be taken in the event
funding is not available. Such statements are based on management's current
expectations and are subject to a number of factors and uncertainties that could
cause actual results to differ materially from the forward-looking statements.
The Company cautions investors that there can be no assurance that actual
results or business conditions will not differ materially from those projected
or suggested in such forward-looking statements as a result of various factors.


                                       13
<PAGE>

Item 7. Financial Statements                                            Page

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

Report of Independent Certified Public Accountants                     F-1

Report of Independent Accountants                                      F-2

Consolidated Balance Sheet at March 31, 2000                           F-3

Consolidated Statements of Operations for the years ended
   March 31, 2000 and 1999                                             F-4

Consolidated  Statements of Stockholders' Equity (Deficit) for
   the years ended March 31, 2000 and 1999                             F-5

Consolidated Statements of Cash Flows for the years ended
   March 31, 2000 and 1999                                             F-6

Notes to Consolidated Financial Statements                             F-7 - F20

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

      On December 1, 1999, CardioTech International, Inc. (the "Company"), with
the approval of the Company's Audit Committee and Board of Directors, dismissed
its independent accountants, PricewaterhouseCoopers LLP ("PWC"). During the
years ended March 31, 1999 and 1998, and the subsequent interim period through
December 1, 1999 (the date of PWC's dismissal as the Company's independent
accountants), (i) there were no disagreements with PWC on any matters of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
PWC, would have caused PWC to make a reference to the subject matter of the
disagreements in connection with its reports in the financial statements for
such years and (ii) there were no "reportable events" as described in Items
304(a)(1)(iv) of Regulation S-K. The independent accountant's report of PWC on
the Company's consolidated financial statements for the year ended March 31,
1998 contained no adverse opinion or disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or accounting principles.
The independent accountant's report of PWC on the Company's consolidated
financial statements for the year ended March 31, 1999 contained no adverse
opinion or disclaimer of opinion and were not qualified or modified as to audit
scope or accounting principles. However, the independent accountant's report of
PWC on the Company's consolidated financial statements for the year ended March
31, 1999 was modified as to a going concern uncertainty to which the Company
concurred without objection.

      The registrant requested that PWC furnish it with a letter addressed to
the Security and Exchange Commission stating whether or not it agreed with the
above statements. A copy of such letter dated December 7, 1999 was filed as
Exhibit 16 to Form 8K.

      On December 6, 1999, the Company appointed, with the approval of the
Company's Audit Committee and Board of Directors, the firm of BDO Seidman, LLP
as its independent accountants.


                                       14
<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 September 13, 2000 and to be filed with the Securities and Exchange
Commission not later than August 3, 2000, 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 September 13, 2000 and to be filed with the
Securities and Exchange Commission not later than August 3, 2000, 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 September 13, 2000 and to be filed with the
Securities and Exchange Commission not later than August 3, 2000, 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 September 13, 2000 and to
be filed with the Securities and Exchange Commission not later than August 3,
2000, 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 14

      (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.

      2.1   Agreement and Plan of Merger dated as of May 25, 1999, by and among
            CardioTech International, Inc., CardioTech Acquisition Corp. and
            Tyndale Plains-Hunter, Ltd.


                                       15
<PAGE>

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

      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 3.2
            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 10.3 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.


                                       16
<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.


                                       17
<PAGE>

      10.21 Form of Warrant Agreement by and among CardioTech, Fechtor,
            Detwiler, & Co., Inc. and certain Fechtor, Detwiler, & Co., Inc.
            employees on March 15, 2000.

      21    Subsidiaries of CardioTech

      23    Consent of BDO Seidman, LLP, Independent Certified Public
            Accountants

      23.2  Consent of PricewaterhouseCoopers LLP

      27    Financial Data Schedule

(b)         Reports on Form 8-K:

            Current Report on Form 8-K dated January 13, 2000 related to
            resignation of board members.

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


                                       18
<PAGE>

               Report of Independent Certified Public Accountants

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

We have audited the accompanying consolidated balance sheet of CardioTech
International, Inc. and subsidiaries as of March 31, 2000, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the financial position of CardioTech
International, Inc. and subsidiaries at March 31, 2000, and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.

                                                            BDO Seidman, LLP

Boston, Massachusetts
July 11, 2000


                                      F-1

<PAGE>

                        Report of Independent Accountants

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

In our opinion, the accompanying consolidated statements of operations,
stockholders' deficit, and cash flows present fairly, in all material respects
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-2
<PAGE>

                   CARDIOTECH INTERNATIONAL, INC.
                     CONSOLIDATED BALANCE SHEET

                                                                March 31, 2000
                                                               ----------------
ASSETS

Current Assets:
  Cash and cash equivalents                                    $   1,793,000
  Accounts receivable -- trade                                       102,000
  Accounts receivable -- other                                       343,000
  Inventory                                                          135,000
  Prepaid expenses                                                    53,000
                                                                -------------
    Total Current Assets                                           2,426,000

Property and equipment, net                                          535,000
Other non-current assets                                           1,203,000
                                                                -------------

Total Assets                                                   $   4,164,000
                                                                =============



LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Accounts payable                                             $     654,000
  Accrued expenses                                                   608,000
  15% convertible subordinated notes due 2000                        575,000
                                                                -------------
    Total Current Liabilities                                      1,837,000

Long-term Obligations:
  7% convertible senior notes due 2003                             2,259,000
                                                                -------------

    Total Liabilities                                              4,096,000
                                                                -------------

Commitments and contigencies

Stockholders' Equity:
  Common stock, $.01 par value, 20,000,000 shares
      authorized, 8,099,067 issued and outstanding                    81,000
  Additional paid-in capital                                      14,092,000
  Accumulated deficit                                            (13,931,000)
  Notes receivable from officers                                    (150,000)
  Accumulated other comprehensive loss                               (24,000)
                                                                -------------
    Total Stockholders' Equity                                        68,000
                                                                -------------

    Total Liabilities and Stockholders' Equity                 $   4,164,000
                                                                =============

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


                                      F-3

<PAGE>

                         CARDIOTECH INTERNATIONAL, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                           For the Years Ended March 31,
                                                           2000                   1999
                                                   -------------------     ------------------
<S>                                                <C>                     <C>
Revenue (Including product sales of $493,000 and
$262,000, respectively)                              $       1,497,000      $      1,083,000
                                                      -----------------      ----------------

Operating Expenses
 Cost of Materials                                             201,000               142,000
 Research and development                                    2,080,000             2,142,000
 Selling, general and administrative                         2,875,000             1,313,000
                                                      -----------------      ----------------

Total Operating Expenses                                     5,156,000             3,597,000
                                                      -----------------      ----------------

Loss from Operations                                        (3,659,000)           (2,514,000)
                                                      -----------------      ----------------

Interest Income and Expense
 Interest expense                                             (211,000)             (212,000)
 Interest income                                                56,000               101,000
                                                      -----------------      ----------------
Interest Expense, Net                                         (155,000)             (111,000)
                                                      -----------------      ----------------

Net Loss                                             $      (3,814,000)     $     (2,625,000)
                                                      =================      ================

Other Comprehensive Income (Loss):
Foreign currency translation adjustment                        (12,000)              (12,000)
                                                      -----------------      ----------------

Comprehensive loss                                   $      (3,826,000)     $     (2,637,000)
                                                      =================      ================

Net loss per common share basic and diluted          $           (0.58)     $          (0.55)
                                                      =================      ================

Shares used in computing net loss per common share,
basic and diluted                                            6,541,545             4,814,823
                                                      =================      ================
</TABLE>

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


                                      F-4
<PAGE>

                         CardioTech International, Inc.
                   Statement of Stockholders' Equity (Deficit)
                   For the Years Ended March 31, 2000 and 1999

<TABLE>
<CAPTION>
                                                        Common Stock
                                                   ---------------------   Additional
                                                         Number of           Paid-In       Accumulated
                                                     Shares       Amount     Capital         Deficit
                                                   ----------------------------------------------------
<S>                                                 <C>         <C>        <C>              <C>
Balance at March 31, 1998                           4,272,916   $ 43,000   $  8,232,000   $ (7,495,000)

    Private placement of common stock, net
    of issuance costs                               1,866,000     18,000      1,919,000
    Note receivable from officer
    Net loss                                                                                (2,625,000)
    Effect of cumulative translation
    adjustment                                                                                   3,000
                                                    ---------   --------   ------------    -----------

Balance at March 31, 1999                           6,138,916     61,000     10,151,000    (10,117,000)

    Conversion of convertible preferred               353,123      4,000        496,000
    shares to common stock
    Issuance of common stock in connection
    with purchase of a business                       446,153      4,000        721,000
    Exercise of stock options                         191,875      2,000        129,000
    Exercise of stock warrants                        969,000     10,000      1,459,000
    Fair value of options granted to consultant                               1,136,000
    Payment of officer note
    Net loss                                                                                (3,814,000)
    Effect of cumulative translation
    adjustment
                                                    ---------   --------   ------------    -----------

Balance at March 31, 2000                           8,099,067   $ 81,000   $ 14,092,000    (13,931,000)
                                                   ==========   ========   ============  =============

<CAPTION>
                                                 Notes                                 Total
                                               Receivable        Accumulated       Stockholders'
                                                 from        Other Comprehensive      Equity
                                               Officers        Income (Loss)        (Deficit)
                                              ---------------------------------------------------
<S>                                           <C>            <C>                   <C>
Balance at March 31, 1998                  $                $     3,000           $    783,000

    Private placement of common stock, net
    of issuance costs                                                                 1,937,000
    Note receivable from officer              (200,000)                                (200,000)
    Net loss                                                                         (2,625,000)
    Effect of cumulative translation
    adjustment                                                  (15,000)                (12,000)
                                              --------           ------               ---------

Balance at March 31, 1999                     (200,000)         (12,000)               (117,000)

    Conversion of convertible preferred                                                 500,000
    shares to common stock
    Issuance of common stock in connection
    with purchase of a business                                                         725,000
    Exercise of stock options                                                           131,000
    Exercise of stock warrants                                                        1,469,000
    Fair value of options granted to
    consultant                                                                        1,136,000
    Payment of officer note                     50,000                                   50,000
    Net loss                                                                         (3,814,000)
    Effect of cumulative translation
    adjustment                                                  (12,000)                (12,000)
                                              --------           ------               ---------

Balance at March 31, 2000                  $  (150,000)     $   (24,000)          $      68,000
                                            ==========       ==========            ============
</TABLE>

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


                                      F-5
<PAGE>

                         CARDIOTECH INTERNATIONAL, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                              For the Years Ended March 31,
                                                                2000                 1999
                                                           --------------       ---------------
<S>                                                       <C>                  <C>
Cash flows from operating activities:
 Net Loss                                                 $    (3,814,000)     $     (2,625,000)
 Adjustments to reconcile net loss to net
  cash flows used by operating activities:
  Fair value of options granted to consultant                   1,136,000                    --
  Interest paid by issuance of convertible senior notes           140,000               119,000
  Loss on disposal of property and equipment                           --                 1,000
  Depreciation and amortization                                   353,000               118,000
  Changes in assets and liabilities:
   Accounts receivable                                            (71,000)               (1,000)
   Inventory                                                     (112,000)                   --
   Prepaid expenses                                                 3,000               (30,000)
   Other assets                                                   (71,000)              (40,000)
   Accounts payable                                               125,000               356,000
   Accrued expenses                                               (11,000)              (17,000)
                                                          ---------------      ----------------
  Net cash used by operating activities                        (2,322,000)           (2,119,000)
                                                          ---------------      ----------------

Cash flows from investing activities:
  Purchase of property and equipment                              (91,000)             (367,000)
  Acquisition of Tyndale Plains-Hunter, net                      (327,000)                   --
                                                          ---------------      ----------------
  Net cash used by investing activities                          (418,000)             (367,000)
                                                          ---------------      ----------------

Cash flows from financing activities:
 Net proceeds from issuance of convertible senior notes           486,000               429,000
 Net proceeds from issuance of preferred stock                         --               455,000
 Net proceeds from issuance of common stock                     1,600,000             1,782,000
 Net proceeds from repayment of officer notes                      50,000                    --
                                                          ---------------      ----------------
  Net cash provided by financing activities                     2,136,000             2,666,000
                                                          ---------------      ----------------
  Effect of exchange rate changes on cash
  and cash equivalents                                              5,000               (15,000)
                                                          ---------------      ----------------

  Net increase (decrease) in cash and cash equivalents           (599,000)              165,000

  Cash and cash equivalents at beginning of year               2,392,000             2,227,000
                                                          ---------------      ----------------

  Cash and cash equivalents at end of year                $     1,793,000      $      2,392,000
                                                          ===============      ================

Supplemental Disclosure of Cash Flow Information:

 Common stock issued in connection with acquisition      $        725,000      $             --
 Conversion of preferred stock                                    500,000                    --
 Issuance of notes receivable from officers                            --              (200,000)
</TABLE>

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


                                      F-6

<PAGE>

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

Nature of Business:

      CardioTech International, Inc. (including its subsidiaries, collectively
"CardioTech" or the "Company") is using its proprietary technology to develop
and manufacture small bore vascular grafts, or synthetic blood vessels, made of
ChronoFlex, a family of polyurethanes that 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,
New Jersey, and the United Kingdom.

A. Summary of Significant Accounting Policies:

Basis of Presentation

      CardioTech was incorporated in March 1993. CardioTech and CardioTech
International, Ltd. ("CTI") were spun off of PolyMedica Industries, Inc. ("PMI")
in June 1996. CardioTech Acquisition Corp was incorporated in April 1999.

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

Uses of Estimates

      The preparation of financial statements in conformity with 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. Cash
equivalents represent a deposit in a money market account of $1,341,000.

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.

Revenue and License and Royalties

      Revenue is generated in connection with the development and sale of
ChronoFlex and other proprietary biomaterials for use in medical devices as well
as sales of Vascular Access Grafts. The Company also receives


                                      F-7
<PAGE>

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

license and royalty fees for the use of its proprietary biomaterials. 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 years ended March 31, 2000 and 1999 the Company earned 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 in accordance with the grant
either ratably over the term of the grant or 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.

Inventory

      Inventory is stated at the lower of cost (determined on a first-in,
first-out basis) or market, and is made up of Raw Materials, Work in Process,
and Finished Goods of $53,000, $17,000, and $65,000, respectively.

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 are
based upon the weighted average number of common shares outstanding during the
period plus additional weighted average common equivalent shares outstanding
during the period. Common equivalent shares 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 debt, and
convertible Preferred Stock using the "If Converted" method.


                                      F-8
<PAGE>

                 CARDIOTECH INTERNATIONAL, INC. AND SUBSIDIARIES
                   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.

Goodwill

      Goodwill costs related to the purchase of Tyndale Plains-Hunter are
capitalized and amortized on a straight-line basis over a five-year period.

Long-Lived Assets

      The Company follows the provisions of Statements of Financial Accounting
Standards No. 121 ("SFAS No. 121"), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," which establishes
accounting standards for the impairment of long-lived assets and certain
identifiable intangibles to be held and used and for long-lived assets and
certain identifiable intangible to be disposed of.

      The Company reviews the carrying values of its long-lived, identifiable
intangible assets and goodwill for possible impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets may not
be recoverable. Any long-lived assets held for disposal are reported at the
lower of their carrying amounts or fair value less cost to sell.

Recent Accounting Pronouncements

      In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No.
133"). SFAS No. 133 requires companies to recognize all derivative contracts as
either assets or liabilities in the balance sheet and to measure them at fair
value. If certain conditions are met, a derivative may be specifically
designated as a hedge, the objective of which is to match the timing of a gain
or loss recognition on the hedging derivative with the recognition of (i) the
changes in the fair value of the hedged assets or liability or (ii) the earning
effect of the hedged forecasted transaction. For a derivative not designated as
a hedging instrument, the gain or loss is recognized in income in the period of
change. SFAS No. 133, as amended by SFAS No. 137, is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000.

      Historically, the Company has not entered into derivative contracts either
to hedge existing risks or for speculative purposes. Accordingly, the Company
does not expect adoption of the new standard to affect its financial statements.


                                      F-9
<PAGE>

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

B. Related Party Transactions

   In December 1998, certain executive officers of the Company purchased in the
aggregate 160,000 units during a private placement offering of the Company's
common stock. A note issued by each officer to the Company funded the purchase
of the units, valued at $200,000. The terms of the note provide for each
executive 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' equity section of the consolidated balance sheet.
In March 2000, one $50,000 promissory note, plus accrued interest of $2,700, was
paid in full resulting in a remaining principal balance of $150,000.

C. License Agreement

      Polymedica Corporation ("PMI") has granted to CardioTech an exclusive,
perpetual, worldwide, royalty-free license for CardioTech to use all of the
necessary patent and other intellectual property owned by PMI in the implantable
devices and materials field (collectively, "PMI Licensed Technology"). PMI, at
its own expense, will file patents 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 patents or other applications for the protection of all new inventions
formulated, made, or conceived by CardioTech during the term of the license that
related to 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.

D. Property and Equipment:

      Property and equipment at March 31, 2000 consists of the following:

      Laboratory equipment                                    $    684,000
      Furniture, fixtures and office equipment                     154,000
      Leasehold improvements                                       114,000
                                                                -----------
                                                                   952,000
      Less accumulated depreciation                               (417,000)
                                                                 -----------

                                                              $    535,000
                                                                ===========

      Depreciation expense for property and equipment for the fiscal years ended
      March 31, 2000, and 1999 was approximately $136,000, and $81,000,
      respectively. During fiscal year 1999, the Company wrote off $37,000 of
      fully depreciated assets.

E. Accrued Expenses:

      Accrued Expense at March 31, 2000 consists of the following:


                                      F-10
<PAGE>

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

      Legal and professional fees                         $      68,000
      Salaries and benefits                                      69,000
      Research and development                                  284,000
      Accrued interest                                          127,000
      Other                                                      60,000
                                                           ------------

                                                          $     608,000
                                                           ============


                                      F-11
<PAGE>

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

F. Income Taxes:

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

                                                        2000           1999
                                                    -----------     ------------

      United States                                $(2,740,000)    $ (1,712,000)
      Foreign                                       (1,074,000)        (913,000)
                                                    -----------     ------------

                                                   $(3,814,000)    $ (2,625,000)
                                                    ===========     ============

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

                                                        2000           1999
                                                      --------       --------

      Expected federal tax rate                        -34.00%        -34.00%
      State income taxes, net of federal tax benefit    -4.50%         -4.10%
      Change in valuation allowance                     36.50%         35.10%
      Other                                             -0.80%          0.20%
      Foreign tax rate differential                      2.80%          2.80%

      Effective tax rate                                 0.00%          0.00%

      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, 2000:

      Deferred Tax Assets:

      Net operating loss carryforwards                          $   3,704,000
      Tax credits                                                      30,000
      Other                                                             6,000

                                                                 ------------
                                                                $   3,740,000
                                                                 ============

      Deferred Tax Liability:

      Depreciation                                              $      25,000
                                                                 ------------

      Valuation Allowance                                          (3,715,000)

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


                                      F-12
<PAGE>

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

      As of March 31, 2000, the Company had Federal net operating loss
carryforwards of approximately $6,840,000 available to offset future taxable
income that begin to expire in 2010. The Company has Foreign net operating loss
carryforwards of approximately $3,200,000.

G. Major Customers

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

                                                2000                   1999
                                            -------------         ------------

      Customer A                                     41%                  52%
      Customer B                                                          21%

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:

      2001                                                $      263,000
      2002                                                       263,000
      2003                                                       226,000
      2004                                                       154,000
                                                           -------------

                                                          $      906,000
                                                           =============

      Rent expense for operating leases was $240,000, and $215,000 for the years
ended March 31, 2000 and 1999, 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.

      On September 24, 1999, the Company issued a 7% Convertible Senior Note
("the Note") in the amount of $340,000 to DKB, on terms similar to and as an
amendment to the Note Purchase Agreement, as amended, dated March 31, 1998.

      For the year ended March 31, 2000, accrued interest on the Senior Notes
amounted to $140,000. 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, 2000 was $2,259,000.


                                      F-13
<PAGE>

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

      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 into 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. As long as the Senior Notes 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.

      Furthermore, as long as DKB holds Senior Notes 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 the 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 one or a series of
related transactions 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.

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 was included in the audit opinion on the financial statements for the
period ending March 31,1999, 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. On July 11, 2000 the Company received an extension of this waiver
through the earlier of a new audit opinion or July 15, 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, CTI, to secure the repayment of the Senior Notes.


                                      F-14
<PAGE>

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

15% Convertible Loan

      On April 1, 1998, the Company's wholly-owned subsidiary, 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 (pound)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 was due and payable on April 1, 2000.

      The Convertible loan was 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 was
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.

      In March 2000, CardioTech and Freemedic PLC entered into a new agreement
whereby Freemedic released (pound)107,000 ($171,000) to CTI for working capital
needs and paid outstanding invoices to the Royal Free Hospital School of
Medicine related to the research and development. This agreement is under the
same terms as the previous agreement and brings the total loan balance to
(pound)360,000 ($575,000) at March 31, 2000. Freemedic also agreed to extend the
term of the note to a term as yet to be determined. As of March 31, 2000, the
entire loan balance is classified as current.

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 was a result of the Company meeting certain milestones pursuant to the
terms of the Senior Notes.

      On March 31, 2000, all of the 500,000 shares of Preferred Stock were
converted into 353,123 shares of the Company's common stock at a price of
$1.5842.


                                      F-15
<PAGE>

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

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.

      During the fiscal year ended March 31, 2000, warrants representing 969,000
shares of the Company's common stock were exercised, resulting in cash proceeds
of approximately $1,469,000 to CardioTech. Subsequent to March 31, 2000, an
additional 54,500 shares of common stock pursuant to the warrants were exercised
resulting in additional cash proceeds of $85,000. In connection with the
exercise of the warrants, the Company, granted to the placement agent and
certain of its employees, warrants to purchase an additional 200,000 shares of
the Company's common stock at an exercise price of $1.88 per share (the closing
price of the shares on the date of the agreement). The warrants have an
expiration date of March 5, 2005. In connection with the purchase of Tyndale
Plains-Hunter, Ltd. (See Note K), the Company issued 446,153 shares of common
stock. In connection with the exercise of stock options, the Company issued
191,875 shares of common stock, resulting in cash proceeds of $131,000.

      The principal balance of the promissory notes issued by the Company's
executives for shares of the Company's stock 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 $9,000 was accrued as of March
31, 2000. In March 2000, one $50,000 promissory note and accrued interest of
$2,700 was paid in full, resulting in a remaining principal balance of $150,000.

      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 were exercisable beginning on June 19,
1996 and expired on January 31, 2000.

      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 3,732,000 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. This registration statement provided 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. Acquisitions

      On July 16, 1999, CardioTech completed the acquisition of Tyndale
Plains-Hunter, Ltd. ("TPH"), a New Jersey corporation, pursuant to an Agreement
and Plan of Merger, dated as of May 25, 1999 (the "Merger Agreement"), by and
among CardioTech; CardioTech Acquisition Corp. ("Acquisition Sub"), a Delaware


                                      F-16
<PAGE>

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

corporation and a wholly-owned subsidiary of CardioTech; and TPH. TPH
manufactures hydrophilic polyurethanes, which are used to provide permanent
lubricity to the surface of medical devices, improve blood compatibility and act
as drug delivery systems. The hydrophilic polyurethanes manufactured by TPH are
also used in personal care products including hair and skin creams. CardioTech
intends to continue to use the assets and technology of TPH to manufacture
hydrophilic polyurethanes and incorporate such technologies into the Company's
medical devices.

      TPH merged with and into Acquisition Sub (the "Merger"), with Acquisition
Sub surviving the Merger and remaining a wholly-owned subsidiary of CardioTech.
Each share of TPH common stock was (i) converted into the right to receive 0.24
of a share of CardioTech common stock and (ii) exchanged for additional cash
consideration. The purchase price paid by CardioTech consisted of 446,153 shares
of the Company's common stock valued at $725,000 ($1.625 per share) and cash of
$350,000. Approximately $100,000 of the cash consideration was placed into
escrow pursuant to terms of the Merger Agreement. In connection with this
transaction, the Company assumed liabilities of approximately $178,000 and
incurred acquisition costs of approximately $78,000. The excess of the purchase
price over the net assets is approximately $1,082,000 and has been allocated to
goodwill. The transaction has been recorded in accordance with the purchase
method of accounting. At March 31, 2000, other assets include goodwill of
$920,000, which is net of amortization of $162,000 for the year ended March 31,
2000. The consolidated statements of operations and cash flows for the year
ended March 31, 2000 include the results of operations and cash flows of the
acquired business from June 30, 1999 through March 31, 2000.

      The unaudited pro forma results of operations of the Company and acquired
business for the years ended March 31, 2000 and 1999, assuming the acquisition
had occurred on April 1, 1998, and after giving effect to certain pro forma
adjustments, are as follows:

                                                2000               1999
                                            -------------      -------------

      Revenues                             $   1,638,000      $   1,700,000
                                            =============      =============

      Net loss                             $  (3,849,000)     $  (2,188,000)
                                            =============      =============

      Loss per share                       $       (0.59)     $       (0.42)
                                            =============      =============


L. 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.


                                      F-17
<PAGE>

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

                                                2000              1999
                                            -------------     -------------
      Net Sales:
         Domestic                          $   1,430,000     $   1,027,000
         Europe                                   67,000            56,000
                                            -------------     -------------

                                           $   1,497,000     $   1,083,000
                                            =============     =============

      Net Loss:
         Domestic                          $  (2,740,000)    $  (1,712,000)
         Europe                               (1,074,000)         (913,000)
                                            -------------     -------------

                                           $  (3,814,000)    $  (2,625,000)
                                            =============     =============

      Total Assets:
         Domestic                          $   3,713,000     $   2,741,000
         Europe                                  451,000           786,000
                                            -------------     -------------

                                           $   4,164,000     $   3,527,000
                                            =============     =============

      Long Lived Assets, net:
         Domestic                          $   1,442,000     $     504,000
         Europe                                  296,000           186,000

                                            -------------     -------------
                                           $   1,738,000     $     690,000
                                            =============     =============

M. Supplemental Disclosures for Stock-Based Compensation:

      CardioTech's 1996 Employee, Director and Consultants Stock Option Plan
(the "Plan") was approved by CardioTech's Board of Directors and Stockholders in
March 1996. A total of 3,000,000 shares have been reserved for issuance under
the Plan. Under the terms of the Plan the exercise price of Incentive Stock
Options issued under the Plan must be equal to the fair market value of the
common stock at the date of grant. In the event that Non Qualified Options are
granted under the Plan the exercise price may be less than the fair market value
of the at the time of the grant (but not less than par value). During fiscal
2000, the Company issued options to a consulting firm to purchase 700,000 shares
of common stock which were valued using the Black Scholes Model. The fair value
of the options granted of $1,136,000 was recorded as consulting expense and is
included in Selling, general and administrative expense in the Consolidated
Statements of Operations.


                                      F-18
<PAGE>

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

      Activity under the Plans for the years ended March 31, 2000 and 1999 are
as follows:

                                                Number       Weighted average
                                              of Shares       exercise price
                                             ----------       -------------
      Outstanding March 31, 1998                956,022          $   1.98
        Granted                                 596,896              1.53
        Cancelled                               (49,529)             1.88
        Exercised                                    --
                                             ----------          --------
      Outstanding March 31, 1999              1,503,389          $   1.81
                                             ==========          ========
        Granted                               1,266,414              2.13
        Cancelled                              (196,500)             2.01
        Exercised                              (191,875)             1.31
                                             ----------          --------
      Outstanding March 31, 2000              2,381,428          $   2.06
                                             ==========          ========

      Summarized information about stock options outstanding at March 31, 2000
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>
$0.50 - $0.88       417,287           9.5       $0.62            128,912          $0.71
-------------------------------------------------------------------------------------------
$1.06 - $1.69       200,938           8.9       $1.31             80,615          $1.27
-------------------------------------------------------------------------------------------
$1.75 - $2.40     1,229,326           7.5       $2.00          1,135,450          $2.01
-------------------------------------------------------------------------------------------
$2.56 - $3.38       133,877           9.8       $3.12             44,610          $2.98
-------------------------------------------------------------------------------------------
        $3.80       400,000           9.9       $3.80            400,000          $3.80
-------------------------------------------------------------------------------------------

$0.50 - $3.80     2,381,428           8.5       $2.06          1,789,587          $2.30
-------------------------------------------------------------------------------------------
</TABLE>

      Options exercisable at March 31, 2000 and March 31, 1999 were 1,789,587
and 847,345 respectively.

      The fair value of each option granted during the fiscal years 2000 and
1999 is estimated on the date of grant using the Black-Scholes option-pricing
model with the following assumptions:

                                                 2000            1999
                                              ------------    ------------
      Dividend Yield                             None            None
      Expected volatility                          46.0%           85.0%
      Risk-free interest rate                       5.5%            5.4%
      Expected life                              2 to 10               4

      Weighted average fair value of options granted during:

      2000                                                        $ 1.28
      1999                                                        $ 1.31


                                      F-19
<PAGE>
                CARDIOTECH INTERNATIONAL, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      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.

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

                                                 Net Loss per fully
                                          Net Loss         diluted share
                                         -----------       ------------
      As reported:
      2000                            $  (3,814,000)     $       (0.58)
      1999                               (2,625,000)             (0.55)
      Pro forma:
      2000                               (4,314,000)             (0.66)
      1999                               (3,231,000)             (0.67)

      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.

N. 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,

                                                 2000               1999
                                              -----------        ----------
      Numerator:
        Net loss                            $ (3,814,000)      $  (2,625,000)

      Denominator:
        Common shares outstanding              6,541,545           4,814,823

      Basic and Diluted EPS                 $      (0.58)      $       (0.55)

      Convertible Debt, Convertible Preferred Stock, Common Stock Warrants to
purchase 1,097,000 shares, and 2,121,100, respectively, and Options to purchase
2,381,428 and 1,503,389, respectively shares of common stock outstanding during
the periods ended March 31, 2000 and March 31, 1999, respectively, were excluded
from the calculation of diluted earnings per share because the effect of their
inclusion would have been anti-dilutive.

O. Subsequent Events

      Subsequent to year end, the Company received approximately $14,000 from
the exercise of options and $85,000 from the exercise of common stock warrants.


                                      F-20
<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:  July 14, 2000         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:  July 14, 2000         /s/ Michael Szycher
                              -------------------------------
                              Michael Szycher
                              Chairman, Chief Executive Officer
                              (Principal Executive Officer)

Dated:  July 14, 2000         /s/ Michael F. Adams
                              -------------------------------
                              Michael F. Adams
                              Director

Dated:  July 14, 2000         /s/ Michael Barretti
                              -------------------------------
                              Michael Barretti
                              Director

Dated:  July 14, 2000         /s/ Pam McCarthy
                              -------------------------------
                              Pam McCarthy
                              Controller
                             (Principal Accounting Officer)