V I TECHNOLOGIES INC, 424B4, 1998-06-11

V I TECHNOLOGIES INC
424B4, 1998-06-11
BIOLOGICAL PRODUCTS, (NO DIAGNOSTIC SUBSTANCES)

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<PAGE>

PROSPECTUS

3,000,000 SHARES

LOGO VITEX

COMMON STOCK

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All of the shares of common stock, $0.01 par value per share (the "Common
Stock"), offered are being sold by V.I. Technologies, Inc. ("VITEX" or the
"Company").

Prior to this offering, there has been no public market for the Common Stock
of the Company. See "Underwriting" for a discussion of the factors considered
in determining the initial public offering price. The Common Stock has been
approved for quotation on the Nasdaq National Market under the symbol "VITX."

Contemporaneously with this offering, subject to certain conditions, Pall
Corporation ("Pall") has agreed to purchase 448,028 shares of Common Stock
directly from the Company in a private placement at the initial public
offering price of $12.00 per share, net of underwriting discounts and
commissions, for an aggregate purchase price of $5,000,000 (the "Pall Private
Placement"). See "Business--Strategic Collaborations."

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

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 OF THIS PROSPECTUS.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.......................... $12.00 $0.84 $11.16
Total(3)........................... $36,000,000 $2,520,000 $33,480,000
</TABLE>
- -------------------------------------------------------------------------------
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated to be
$850,000.
(3) The Company has granted the Underwriters an option, exercisable within 30
days of the date hereof, to purchase an aggregate of up to 450,000
additional shares at the Price to Public less Underwriting Discounts and
Commissions to cover over-allotments, if any. If all such additional
shares are purchased, the total Price to Public, Underwriting Discounts
and Commissions and Proceeds to Company will be $41,400,000, $2,898,000
and $38,502,000, respectively. See "Underwriting."

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The Common Stock is offered by the several Underwriters named herein when,
as and if received and accepted by them, and subject to their right to reject
orders in whole or in part and subject to certain other conditions. It is
expected that delivery of certificates for the shares will be made at the
offices of Cowen & Company, New York, New York on or about June 15, 1998.

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COWEN & COMPANY SBC WARBURG DILLON READ INC.

June 10, 1998
<PAGE>

The VITEX logo appears in the upper left-hand corner of the page. Immediately
below the VITEX logo appears the phrase: "A LEADING DEVELOPER OF VIRALLY
INACTIVATED BLOOD PRODUCTS." In the upper right-hand corner of the page, the
following bulleted text appears: "Blood safety remains a worldwide concern."
Immediately below this appears the following bulleted text: "Most currently
available blood products, including red blood cells, platelets and plasma, are
not virally inactivated, representing a significant market opportunity". In the
left column of the page, the following bulleted text appears: "VITEX is
developing a diversified portfolio of proprietary, virally inactivated blood
products and systems." Immediately below this appears the following bulleted
text: "VITEX has received FDA approval to market VIPLAS/SD, its virally
inactivated transfusion plasma product." A diagram appears in the right column
of the page, entitled "VITEX'S BLOOD PRODUCT PORTFOLIO," which consists of the
-------------------------------
following: Four ellipses appear at the four corners of the diagram, each
connected by a dark line to a large circle in the center of the diagram
containing the VITEX logo. The ellipse in the upper left-hand corner contains
the phrase "Virally Inactivated Red Blood Cells and Platelets." The ellipse in
the upper right-hand corner contains the phrase "Plasma Derivatives." The
ellipse in the lower right-hand corner contains the phrase "Virally Inactivated
Transfusion Plasma." The ellipse in the lower left-hand corner contains the
phrase "Virally Inactivated Wound Care Products." A diagram appears in the lower
left-hand corner of the page, entitled "VITEX'S STRATEGIC COLLABORATORS," which
-------------------------------
consists of the following: Four ellipses appear at the four corners of the
diagram, each connected by a dark line to a large circle in the center of the
diagram containing the VITEX logo. The ellipse in the upper left-hand corner
contains the word "Pall." The ellipse in the upper right-hand corner contains
the word "Bayer" as part of the Bayer logo. The ellipse in the lower right-hand
corner contains the phrase "American Red Cross" as part of the American Red
Cross logo. The ellipse in the lower left-hand corner contains the phrase
"United States Surgical Corporation" as part of the United States Surgical
Corporation logo. In the lower right-hand corner of the page, the following
bulleted text appears: "VITEX has established strategic collaborations for the
sale, marketing and distribution of blood products and systems." Immediately
below this appears the following bulleted text: "VITEX currently produces
commercial quantities of plasma fractions at its FDA-licensed facility, and in
May 1998 VITEX received FDA approval to manufacture VIPLAS/SD."

ON MAY 6, 1998, THE COMPANY RECEIVED FDA APPROVAL TO MARKET VIPLAS/SD, ITS
VIRALLY INACTIVATED TRANSFUSION PLASMA PRODUCT. THE COMPANY'S OTHER VIRALLY
INACTIVATED BLOOD PRODUCTS ARE UNDER DEVELOPMENT AND HAVE NOT BEEN APPROVED BY
THE UNITED STATES FOOD AND DRUG ADMINISTRATION (THE "FDA") FOR MARKETING IN
THE UNITED STATES OR BY REGULATORY AUTHORITIES IN OTHER COUNTRIES. THERE CAN
BE NO ASSURANCE THAT ANY OF THESE PRODUCTS WILL BE APPROVED FOR MARKETING BY
THE FDA OR NON-U.S. REGULATORY AUTHORITIES.

The Company's logo, VITEX, VIPLAS/SD and VIGuard are trademarks of the
Company. Trade names and trademarks of other companies appearing in the
Prospectus are the property of their respective holders.

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

Certain persons participating in this offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock,
including stabilizing, the purchase of Common Stock to cover syndicate short
positions and the imposition of penalty bids. For a description of these
activities, see "Underwriting."
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and Financial Statements and
notes thereto appearing elsewhere in this Prospectus. Except as set forth in
the Financial Statements or as otherwise indicated herein, information in this
Prospectus: (i) reflects a 1-for-2.795 reverse split of the Company's
outstanding Common Stock effected in February 1998; (ii) reflects the purchase
of 448,028 shares of Common Stock by Pall in the Pall Private Placement at the
initial public offering price of $12.00 per share net of underwriting discounts
and commissions; and (iii) assumes that the Underwriters' over-allotment option
is not exercised.

THE COMPANY

VITEX is a leading developer of a broad portfolio of blood products and
systems using its proprietary viral inactivation technologies. The Company's
technologies are intended to address the risks of viral contamination in blood
products, including plasma, plasma derivatives, red blood cells and platelets.
Viral inactivation processes have the potential to eliminate viruses that are
enveloped by lipid membranes such as hepatitis B virus ("HBV"), hepatitis C
virus ("HCV") and HIV and non-enveloped viruses such as hepatitis A virus and
parvovirus and other known and unknown pathogens. The first of the Company's
virally inactivated products, VIPLAS/SD, was approved for marketing by the FDA
on May 6, 1998, and the Company expects to commence commercialization of this
product by the third quarter of 1998. VIPLAS/SD uses the Company's proprietary
solvent/detergent ("S/D") viral inactivation technology to inactivate enveloped
viruses. VIPLAS/SD, a pooled transfusion plasma, will be the first virally
inactivated blood component introduced in the United States. The Company's
other virally inactivated blood products are all under development and include:
(i) Universal VIPLAS/SD, a product intended to provide the same benefits as
VIPLAS/SD without the need for matching donor and recipient blood types; (ii)
Universal VIPLAS/SD UVC, a product intended to inactivate enveloped and non-
enveloped viruses; (iii) VIGuard Fibrin Sealant, a wound care product that is
currently in Phase III clinical trials for two indications; (iv) VIGuard
Albumin Solder, a wound care product with superior bonding strength for certain
applications as compared to fibrin sealants; and (v) VIGuard RBCC and PC
systems designed to broadly inactivate viruses and other pathogens in red blood
cell and platelet concentrates. Plasma fractions, which the Company has
produced since 1995, are sold principally to Bayer Corporation under a multi-
year agreement.

VITEX's predecessor was formed more than 15 years ago by New York Blood
Center, Inc. (the "NYBC"), a world leader in research and development in the
fields of hematology and transfusion medicine. The S/D viral inactivation
process was developed by a scientific team led by the Company's Executive Vice
President and Chief Scientific Officer while they were at the NYBC. The first
plasma derivative product using the patented S/D process was commercialized in
1985, and, since then, the S/D process has been adopted by most plasma
fractionators worldwide. The Company has an exclusive license to use the S/D
process for producing its VIPLAS/SD line of products in North America. A Swiss
blood products manufacturer, which had exclusive rights from the NYBC to the
S/D process for transfusion plasma in Europe, has sold a product virtually
identical to the Company's VIPLAS/SD product since 1991 without a single
reported incidence of viral transmission. In addition to the S/D process, VITEX
is developing other proprietary viral inactivation technologies, including
ultraviolet light and light-activated compounds and quenchers, which are
intended to inactivate both enveloped and non-enveloped viruses while
maintaining the viability of blood components.

VITEX's mission is to enable the global availability of safe blood products
using the Company's proprietary viral inactivation systems. To achieve this
objective, the Company intends to: (i) expand its technological leadership;
(ii) build a broad product portfolio; (iii) leverage existing manufacturing
capabilities and regulatory expertise; and (iv) establish strategic
collaborations for sales, marketing, distribution and development.

VITEX believes that establishing sales, marketing and distribution
collaborations can accelerate the commercialization of the Company's products.
The Company's strategic collaborations include agreements with: (i) Bayer
Corporation to supply blood plasma fractions, which Bayer further processes
into virally inactivated plasma derivatives; (ii) the American National Red
Cross to distribute VIPLAS/SD, intended to be marketed under the brand name
PLAS+(R)SD; (iii) United States Surgical Corporation to develop and distribute
VIGuard Fibrin Sealant; and (iv) Pall Corporation to develop and distribute
systems for viral inactivation of red blood cell and platelet concentrates.

3
<PAGE>

THE OFFERING

<TABLE>
<C> <S>
Common Stock offered hereby........................ 3,000,000 shares
Common Stock to be outstanding after the offering.. 11,939,152 shares(1)
Use of proceeds.................................... For costs associated with
the commercialization of
VIPLAS/SD, clinical
trials, research and
development, capital
investments and other
general corporate
purposes.
Nasdaq National Market symbol...................... VITX
</TABLE>

SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------- ----------------
1995 1996 1997 1997 1998
-------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues(2):
Processing and products...... $ 438 $14,899 $15,843 $3,442 $ 3,713
Licensing fee................ -- 3,000 -- -- --
Research and development
funding..................... -- 954 1,224 255 374
-------- -------- -------- ------- -------
Total revenues.............. 438 18,853 17,067 3,697 4,087
-------- -------- -------- ------- -------
Costs and expenses(3):
Costs related to processing
and products................ 284 9,139 10,346 2,303 2,489
Facility costs............... 6,740 1,449 5,980 1,003 2,356
Research and development..... 2,777 5,321 7,136 1,560 2,167
Marketing and sales.......... -- -- 1,075 -- 88
General and administrative... 1,330 2,478 3,278 736 747
Special charge related to
processing and
products(4)................. -- 4,100 -- -- --
Charge related to research
collaboration(5)............ -- -- -- -- 2,202
-------- -------- -------- ------- -------
Total operating costs and
expenses................... 11,131 22,487 27,815 5,602 10,049
-------- -------- -------- ------- -------
Loss from operations.......... (10,693) (3,634) (10,748) (1,905) (5,962)
Interest expense, net......... (146) (491) (952) (95) (422)
-------- -------- -------- ------- -------
Net loss...................... ($10,839) ($ 4,125) ($11,700) ($2,000) ($6,384)
======== ======== ======== ======= =======
Basic and diluted net loss
per share(6)................. ($3.64) ($0.84) ($1.62) ($ 0.33) ($ 0.78)
Weighted average common
shares used in computing
basic and diluted net loss
per share(6)................. 2,982 4,897 7,241 6,043 8,146
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------
ACTUAL AS ADJUSTED(7)
------- --------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 4,716 $42,346
Working capital (deficit)............................. (3,253) 34,377
Total assets.......................................... 38,205 75,835
Long-term obligations, less current portion........... 14,441 14,441
Accumulated deficit................................... (33,048) (33,048)
Total stockholders' equity............................ 11,263 48,893
</TABLE>
- --------
(1) Includes 448,028 shares of Common Stock purchased by Pall in the Pall
Private Placement. Excludes 1,551,833 shares of Common Stock issuable upon
exercise of outstanding options as of March 31, 1998 at a weighted average
exercise price of $6.63 per share and 35,939 shares of Common Stock
issuable upon exercise of outstanding warrants at a weighted average
exercise price of $0.30 per share. See "Capitalization," "Dilution" and
"Description of Capital Stock."
(2) Includes related party amounts of $705,000 in 1996, $104,000 in 1997 and
$30,000 and $24,000 for the three months ended March 31, 1997 and 1998.
(3) Includes related party amounts of $853,000 in 1995, $817,000 in 1996,
$784,000 in 1997 and $175,000 and $277,000 for the three months ended March
31, 1997 and 1998.
(4) See note 6 to the Company's Financial Statements.
(5) See note 17 to the Company's Financial Statements.
(6) See note 2 to the Company's Financial Statements.
(7) As adjusted to give effect to the sale of 3,000,000 shares of Common Stock
offered hereby at the initial public offering price of $12.00 per share,
the sale of 448,028 shares of Common Stock pursuant to the Pall Private
Placement and the application of the net proceeds therefrom. See "Use of
Proceeds" and "Capitalization."

4
<PAGE>

RISK FACTORS

This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain
factors, including those set forth in the following risk factors and elsewhere
in this Prospectus. In evaluating the Company's business, prospective
investors should carefully consider the following factors in addition to the
other information presented in this Prospectus.

DEPENDENCE ON NEW PRODUCTS AND SYSTEMS IN DEVELOPMENT STAGE

The success of the Company's business will depend on the development and
commercialization of its virally inactivated products and viral inactivation
systems. On May 6, 1998, the Company received FDA approval to market its
pooled virally inactivated transfusion plasma product, VIPLAS/SD. The
Company's other virally inactivated blood products are under development and
have not been approved by the FDA for marketing in the United States or by
regulatory authorities in other countries. There can be no assurance that
these products and systems will be successfully developed and, if developed,
that they will generate revenues and profits. Successful commercialization of
the Company's products and systems under development depends, in significant
part, on the Company's ability to: (i) complete their development in a timely
fashion; (ii) obtain and maintain patents or other proprietary protections;
(iii) obtain required regulatory approvals; (iv) implement efficient,
commercial-scale manufacturing processes; (v) gain early entry into relevant
markets; (vi) establish sales, marketing, distribution and development
collaborations; and (vii) demonstrate the competitiveness of the Company's
products and systems.

DEPENDENCE ON MARKET ACCEPTANCE

Market acceptance of the Company's products and systems will largely depend
on the Company's ability to demonstrate their safety, efficacy and cost-
effectiveness. The Company will need to convince patients, doctors, health
care providers, blood centers and other participants in the blood products
market to pay for the incremental cost of the Company's virally inactivated
plasma and, if successfully developed and approved for marketing, the
Company's other virally inactivated blood products, as compared to widely used
corresponding blood products that have not been virally inactivated. There are
few blood product distribution channels in the United States; the American
National Red Cross (the "Red Cross") collects and distributes approximately
45% of donated blood, another 45% is collected and distributed by various
blood centers and the remaining 10% is collected by hospitals. The exclusive
Distribution Agreement between the Company and the Red Cross provides that the
Red Cross will use its best efforts to ensure availability of the Company's
virally inactivated plasma products to all potential customers, including Red
Cross blood centers and non-Red Cross blood centers. The failure of the Red
Cross to successfully market the Company's virally inactivated plasma to
hospitals and blood centers could delay the distribution and commercialization
of the Company's virally inactivated plasma and increase operating and
administrative costs to the Company as the Company attempts to establish
alternative means of distribution for its virally inactivated plasma, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company has also entered into
mutually exclusive distribution agreements with U.S. Surgical for its VIGuard
Fibrin Sealant and with Pall for systems incorporating the Company's viral
inactivation technology for red blood cells and platelets. Any failure of
these collaborators to successfully market and sell the Company's products
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "--Potential Litigation," "--Reliance
on Strategic Collaborators and Distribution Agreements," "Business--Strategic
Collaborations--American National Red Cross" and "--Sales, Marketing and
Distribution."

POTENTIAL LITIGATION

5
<PAGE>

has occurred or that any formal complaint ultimately will be filed. The
Company believes that the primary focus of the CID relates to the Company's
VIPLAS/SD product and to the Supply, Manufacturing and Distribution
Collaboration Agreement between VITEX and the Red Cross (the "Distribution
Agreement"). The Company intends to cooperate fully with the Justice
Department inquiry, and is in the process of preparing a response to the CID.

Prior to entering into the Distribution Agreement, the Company had
discussions with several parties, including the U.S. Department of Defense,
regarding the sale or distribution of VIPLAS/SD. In particular, the Company
had signed a letter of intent with a blood center trade organization relating
to a potential agreement covering the Company's virally inactivated plasma
products. The letter of intent with this trade organization was terminated
prior to the execution of the Distribution Agreement. During prior
negotiations between the Company and this trade organization surrounding
distribution alternatives for VIPLAS/SD, this trade organization had
threatened to assert claims against the Company and the Red Cross relating to
the Distribution Agreement.

The Company believes that based upon the advice of Gibbons, Del Deo, Dolan,
Griffinger & Vecchione, the law firm representing the Company in this matter,
the terms of the Distribution Agreement do not violate the federal antitrust
laws. Notwithstanding the foregoing, there can be no assurance that the
Justice Department's investigation will not result in litigation against the
Company with respect to the Distribution Agreement, or that this trade
organization or other parties with which the Company had discussions will not
assert claims against the Company with respect to the Distribution Agreement,
or that the Company will prevail in any such litigation, if commenced. Any
material change in the plan of acquisition of plasma for VIPLAS/SD or the plan
of distribution for VIPLAS/SD or other products covered by the Distribution
Agreement resulting from such litigation or investigation could result in,
among other things, increased operating and administrative costs to the
Company, delays in the planned distribution of products, and delays in the
receipt of necessary regulatory approvals for the sale and distribution of
products, any of which events could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Strategic Collaborations."

LIMITED PRODUCT REVENUES; UNCERTAINTY OF FUTURE PROFITABILITY

Since its inception, all of the Company's processing and product revenues
have been attributable to sales of plasma fractions, substantially all of
which are virally inactivated by the Company's customers. In 1997,
approximately 85% of the Company's processing and product revenues were
realized under the Company's Processing Agreement with Bayer. There can be no
assurance that the Company will be able to successfully market VIPLAS/SD,
complete the development of and successfully market its other virally
inactivated products and related systems, fund operating expenses, including
increasing research and development expenses, with future product revenues or
achieve profitability. Moreover, the Company's results may fluctuate from
quarter to quarter due to manufacturing constraints, market demand, timing of
research and development expenses, regulatory approvals, upfront fees and
milestone payments from strategic collaborators, and new products introduced
by the Company. As of March 31, 1998, the Company had an accumulated deficit
of $33.0 million. See "--Reliance on Strategic Collaborators" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

NEED FOR ADDITIONAL FUNDS

Since its inception, the Company's sources of funds have included private
placements of equity and debt securities, capital lease financings, payments
from collaborators and revenues from its plasma fractionation business. The
Company's cash requirements may vary materially from those now anticipated as
a result of additional research and development expenditures, results of pre-
clinical studies and clinical trials, regulatory requirements, competitive
pressures and technological advances. In addition, the Company may require
substantial funds for its long-term product development, manufacturing and
operating expenses. Currently, the Company receives a substantial amount of
revenue from its strategic collaborators to fund research and development and
other expenses related to building its product portfolio. There can be no
assurance that the Company will be able to maintain these strategic
collaborators or secure new collaborators to help fund research and
development and to commercialize the Company's products. Under existing
agreements with various lenders, the Company has granted mortgages on its
manufacturing facility and security interests in substantially all of its
machinery, equipment and other tangible assets. The existence of these
encumbrances could impair the

6
<PAGE>

Company's ability to obtain debt financing in the future. The Company may seek
to raise funds in the public or private equity or debt capital markets. In the
event that the Company is unable to generate sufficient income from operations
or obtain additional financing as required, its operations and research and
development efforts will need to be curtailed or discontinued. Such an event
would limit the Company's ability to develop its products and systems and
achieve regulatory milestones with its collaborators and would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."

GOVERNMENT REGULATION

All of the Company's products are subject to extensive regulations by the
federal government, principally the FDA, and state, local and non-U.S.
governments. Such regulations govern, among other things, the development,
testing, manufacturing, labeling, storage, pre-market clearance or approval,
advertising, promotion, sale and distribution of such products. The process of
obtaining regulatory approvals is generally lengthy, expensive and uncertain.
Satisfaction of pre-market approval or other regulatory requirements of the
FDA, or similar requirements of non-U.S. regulatory agencies, typically takes
several years, depending upon the type, complexity, novelty and intended
purpose of the product. There can be no assurance that the FDA or any other
regulatory agency will grant approval for any of the Company's products under
development on a timely basis, if at all.

The regulatory process includes pre-clinical studies and clinical trials of
each product to establish its safety and efficacy, and may include post-
marketing studies requiring expenditure of substantial resources. The results
from pre-clinical studies and early clinical trials conducted by the Company
may not be predictive of results obtained in later clinical trials, and there
can be no assurance that clinical trials conducted by the Company will
demonstrate sufficient safety and efficacy to obtain the requisite marketing
approvals. The rate of completion of the Company's clinical trials may be
delayed by many factors, including slower than anticipated patient enrollment
or adverse events occurring during the clinical trials. Data obtained from
pre-clinical and clinical activities are susceptible to varying
interpretations, which could delay, limit or prevent regulatory approval. In
addition, delays or rejections may be encountered based upon many factors,
including changes in regulatory policy during the period of product
development. The Company's clinical development plan for its cellular products
assumes that only data from in vitro studies, not from clinical trials, will
be required to demonstrate efficacy in inactivating viruses and that clinical
trials for these products will instead focus on demonstrating therapeutic
efficacy, safety and tolerability of blood components treated with the system.
Although the Company has had discussions with the FDA concerning the Company's
proposed clinical plan for these products, there can be no assurance that this
plan of demonstrating safety and efficacy will ultimately be acceptable to the
FDA or that the FDA will continue to believe that this clinical plan is
appropriate. No assurance can be given that any of the Company's development
programs will be successfully completed or that any further investigational
new drug ("IND") applications will become effective, that clinical trials will
commence as planned, that required United States or non-U.S. regulatory
approvals will be obtained on a timely basis, if at all, or that any products
for which approval is obtained will be commercially successful. As a result of
FDA reviews or complications that may arise in any phase of the clinical trial
program, there can be no assurance that the proposed schedules for IND and
clinical protocol submissions to the FDA, initiations of studies and
completions of clinical trials can be maintained. Any delays in the Company's
clinical trials or failures to obtain required regulatory approvals would have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Products and Product Development" and
"--Government Regulation."

If regulatory approval of a product is granted, such approval may impose
limitations on the indicated uses for which the product may be marketed.
Although the Company believes that the S/D process can inactivate unknown, as
well as known, enveloped viruses, the Company would be unable to make any
label claims for inactivating an unknown virus in the absence of specific data
for that virus. Further, even if regulatory approval is obtained, later
discovery of previously unknown problems with a product may result in
restrictions on the product, including withdrawal of the product from the
market. The policies of the FDA and non-U.S. regulatory authorities may
change, and additional regulations may be promulgated, which could prevent or
delay regulatory

7
<PAGE>

approval of the Company's products and systems under development or result in
restrictions on the marketing of such products and systems. If the Company
fails to comply with FDA requirements following marketing approval, the FDA
can mandate product recalls, impose fines, suspend or withdraw regulatory
approvals or pursue criminal prosecution. The occurrence of any of these FDA
actions could have a material adverse effect on the Company's business,
financial condition and results of operations. "See "Business--Manufacturing
and Supply."

Among the conditions for FDA approval of a pharmaceutical, biologic or
device is the requirement that the manufacturer's quality control and
manufacturing procedures conform to current Good Manufacturing Practices
("cGMP"), which must be followed at all times. In particular, until the
Company achieves commercial production levels of its VIPLAS/SD product, the
test results for each lot of this product will be subject to FDA review prior
to release for its intended use. The FDA enforces cGMP requirements through
periodic inspections. There can be no assurance that the FDA will determine
that the facilities and manufacturing procedures of the Company or any third-
party manufacturer of the Company's existing or future products will conform
to cGMP requirements.

Interstate commerce of certain blood and blood products will require FDA
approval of license supplements by the Company's customers. FDA delays in
approving such supplements may deter some blood centers from using the
Company's products. The regulatory impact on potential customers could have a
material adverse effect on the Company's business, financial condition and
results of operations.

RISK OF RELIANCE ON MANUFACTURING FACILITY AND EQUIPMENT

The Company has a single manufacturing facility. Any catastrophic event that
interrupts production at this facility would have a material adverse effect on
the Company's business, financial condition and results of operations. The
Company is currently producing plasma fractions at its manufacturing facility
near capacity. The Company experienced a malfunction in its fractionation
equipment in August 1996 that resulted in the Company incurring expenses of
$5.1 million, consisting of $4.1 million in replacement costs of Bayer's
plasma and $1.0 million of unrecoverable processing costs. There can be no
assurance that the Company's fractionation equipment will not malfunction in
the future, resulting in additional unanticipated costs. In addition, to
achieve the level of production of VIPLAS/SD required under the Company's
agreement with the Red Cross, the Company will have to operate its single,
highly customized filling machine at full capacity for an extended period
without interruption. Any significant damage to, or malfunction of, this
filling machine that cannot be repaired would require the Company to replace
the machine. The construction of a replacement machine could take as long as
18 months. While the Company has casualty insurance which it believes to be
consistent with industry standards, any extended interruption in the
production of plasma fractions or VIPLAS/SD would have a material adverse
effect on the Company's business, financial condition and results of
operations.

RELIANCE ON STRATEGIC COLLABORATORS AND DISTRIBUTION AGREEMENTS

The Company is dependent on strategic collaborators for sales, marketing and
distribution support and for the development of certain products and product
candidates. The Company has entered into: (i) an agreement with Bayer to
process plasma fractions from plasma supplied by Bayer; (ii) an agreement with
the Red Cross for the distribution of the Company's virally inactivated
plasma; (iii) an agreement with U.S. Surgical for the sale, marketing and
distribution of the Company's virally inactivated fibrin sealant, if and when
approved for marketing; and (iv) an agreement with Pall for the development,
sale, marketing and distribution of any system incorporating the Company's
viral inactivation technology for red blood cell and platelet concentrates.
Among its various obligations under these agreements, the Company has granted
Bayer a mortgage on its manufacturing facility, which Bayer has subordinated
to a subsequent mortgage granted by the Company to The Chase Manhattan Bank,
and a security interest in substantially all of the personal property of the
Company that is necessary or useful to the processing and fractionation of
Bayer supplied plasma as a means of securing the performance of the Company's
obligations under the agreement. The Company does not plan on building its own
sales force and, therefore, the success of the Company depends upon its
ability to develop and deliver products to Bayer, the Red Cross, U.S.
Surgical, Pall and, potentially other strategic collaborators. The Company's
collaborators may be unable to satisfy minimum purchase requirements or
achieve projected sales levels under the Company's collaborative agreements
which could result in the termination of such agreements,

8
<PAGE>

causing a material adverse effect on the Company's business, financial
condition and results of operations. In addition, the Company may need to seek
new collaborators or alliances to sell and distribute future products or to
establish its own direct commercialization capabilities. Securing new
corporate collaborators is a time-consuming process, and there is no guarantee
that the negotiations with new collaborators will yield positive results.
There can be no assurance that if the Company finds additional corporate
collaborators to assist in the commercialization of existing or new product
candidates, the terms of the arrangements will be favorable to the Company. In
addition, there can be no assurance that the Company's strategic collaborators
will not decide to distribute other products that compete directly with the
Company's products or new products developed by competitors that may prove to
be more effective, cost-efficient alternatives to the Company's products. Each
of the Company's collaborative agreements require the Company to meet certain
research and development and commercialization milestones. In the case of each
of these agreements, failure of the Company to achieve one or more of these
milestones on a timely basis, could have a material adverse effect on the
Company's receipt of funding and revenues under the agreement and the
continuation of the agreement. The failure to maintain existing strategic
alliances for whatever reason and to secure new alliances would delay the
commercialization of existing and future products and could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Strategic Collaborations."

COMPETING TECHNOLOGIES AND RAPID TECHNOLOGICAL CHANGE

The fields of transfusion medicine and therapeutic use of blood products is
characterized by rapid technological change. Accordingly, the Company's
success will depend, in part, on its ability to respond quickly to such change
through the development and introduction of new products and systems. Product
and system development involves a high degree of risk, and there can be no
assurance that the Company's product and system development efforts will
result in any commercial successes. Technological developments by others may
result in the Company's products becoming obsolete or non-competitive before
the Company is able to generate any significant revenue. Any such occurrence
would have a material adverse effect on the Company's business, financial
condition and results of operations.

The Company expects that all of its products and systems will encounter
significant competition. Any such product or system, once approved for
marketing, would compete with current approaches to blood safety, including
screening and autologous (i.e., self) donations, as well as with future
products and systems developed by medical technology, biopharmaceutical and
hospital supply companies, national and regional blood centers, or certain
governmental organizations and agencies. Many companies and organizations that
may be competitors or potential competitors have substantially greater
financial and other resources than the Company and may have more experience in
conducting pre-clinical studies and clinical trials and other regulatory
approval procedures. The Company's failure to achieve competitiveness of any
of its products may have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Competition."

DEPENDENCE ON KEY EMPLOYEES

The Company's success is dependent upon its ability to retain its scientific
staff and, in particular, Dr. Bernard Horowitz, Executive Vice President and
Chief Scientific Officer of the Company. Dr. Horowitz, a leader in the field
of viral inactivation, leads the group of scientists who were inventors of
most of the Company's core technologies. Although the Company maintains key
man insurance on Dr. Horowitz, the loss of Dr. Horowitz could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company's competitive position in the blood products industry
depends on its continued ability to recruit and retain qualified scientific,
managerial and technical employees. Such employees are not easy to recruit and
retain. Failure to recruit and retain qualified employees could have a
material adverse effect on the Company's business, financial condition and
results of operation. See "Management."

SOLE SOURCE SUPPLIERS

The Company currently obtains from a single supplier the customized bags for
the packaging of its VIPLAS/SD product and has entered into an agreement with
an additional supplier of these bags which provides that the additional
supplier will provide such bags if the existing supplier is unable to do so.
While the Company

9
<PAGE>

has identified several sources for a key component of one of its proposed
wound care products, it is currently negotiating an agreement with only a
single supplier of this component. Establishing or utilizing additional or
replacement suppliers for any of the components in the Company's products, if
required, may not be accomplished quickly and could involve significant
additional costs. In addition, because the FDA approval process requires
manufacturers to specify their proposed suppliers of active ingredients and
certain packaging materials in their applications, FDA approval of any new
supplier would be required if active ingredients or such packaging materials
were no longer available from the specified supplier. The qualification of a
new supplier could delay the Company's development and marketing efforts. Any
failure by the Company to obtain any of the components used to manufacture the
Company's products and systems from alternative suppliers, if required, or any
delay in qualifying a new supplier, could limit the Company's ability to
manufacture its products and systems and would have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business--Manufacturing and Supply" and "--Government Regulation."

PRODUCT LIABILITY EXPOSURE

The Company's operations will expose it to the risk of product liability
claims. There can be no assurance that the Company will not experience losses
due to any such claims. The Company maintains product liability insurance
coverage, but there can be no assurance that the Company's product liability
insurance will continue to be available to the Company on a cost-effective
basis and that such insurance will be adequate to cover any or all potential
claims. In the event that a claim is brought against the Company, liability
for damages beyond the extent of coverage under the insurance policy combined
with the expense of litigating such claim could have a material adverse effect
upon the Company's business, financial condition and results of operations.

UNCERTAINTY OF PROPRIETARY TECHNOLOGIES AND PATENTS

The Company's success depends, in part, on its ability to obtain and
maintain patents, to protect its trade secrets, to operate without infringing
upon the proprietary rights of others and to prevent others from infringing on
the proprietary rights of the Company. The Company has exclusive licenses to
patents and patent applications covering critical components of its viral
inactivation technologies. There can be no assurance that any patents owned by
or licensed to the Company will afford protection against competitors or that
any pending patent applications now or hereafter filed by or licensed to the
Company will result in patents being issued. In addition, the laws of certain
non-U.S. countries do not protect the Company's intellectual property rights
to the same extent as do the laws of the United States. Medical technology
patents involve complex legal and factual questions and, therefore, their
enforceability cannot be predicted with certainty. There can be no assurance
that any of the Company's patents or patent applications, if issued, will not
be challenged, invalidated or circumvented, or that the rights granted
thereunder will provide proprietary protection or competitive advantages to
the Company against competitors with similar technology. Furthermore, there
can be no assurance that the Company's competitors will not obtain patent
protection or other intellectual property rights that would limit the
Company's ability to use its technology or commercialize products that may be
developed. Because of the extensive time required for development, testing and
regulatory review of a potential product, it is possible that, before any of
the Company's products can be commercialized, any related patent may expire or
remain in existence for only a short period following commercialization, thus
reducing any value of the patent, and, consequently, adversely affecting the
Company's business, financial condition and results of operations. Because
patent applications in the United States are maintained in secrecy until
patents issue and because publication of discoveries in the scientific or
patent literature lag behind actual discoveries, the Company cannot be certain
that it was the first to make the inventions covered by each of its issued or
pending patent applications. There can be no assurance that the Company's
planned or potential products will not be covered by third-party patents or
other intellectual property rights, in which case continued development and
marketing of such products would require a license under such patents or other
intellectual property rights. There can be no assurance that such required
licenses will be available to the Company on acceptable terms, if at all. If
the Company does not obtain such licenses, it could encounter delays in
product introductions while it attempts to design around such patents, or
could be completely blocked from developing, manufacturing or selling products
requiring such licenses. Litigation may be necessary to defend against or
assert such claims of infringement, to enforce patents issued to

10
<PAGE>

the Company, to protect trade secrets or know-how owned by the Company or to
determine the scope and validity of the proprietary rights of others. In
addition, interference proceedings declared by the United States Patent and
Trademark Office may be necessary to determine the priority of inventions with
respect to patent applications of the Company. Litigation or interference
proceedings could result in substantial costs to and diversion of management
focus, and could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Patents,
Licenses and Proprietary Rights."

The Company may rely, in certain circumstances, on trade secrets to protect
its technology. However, trade secrets are difficult to protect. The Company
seeks to protect its proprietary technology, in part, by confidentiality
agreements with its employees and certain contractors. There can be no
assurance that these agreements will not be breached, that the Company will
have adequate remedies for any breach, or that the Company's trade secrets
will not otherwise become known or be independently discovered by competitors.
Failure of the Company to protect trade secrets could have a material adverse
effect on the Company's business, financial condition or results of
operations. To the extent that the Company's employees or its consultants or
contractors use intellectual property owned by others in their work for the
Company, disputes may also arise as to the rights in related or resulting
know-how and inventions. Litigation proceedings regarding such disputes could
result in substantial costs and diversion of the Company's resources.

ENVIRONMENTAL REGULATION; USE OF HAZARDOUS SUBSTANCES

The Company is subject to federal, state and local laws, rules, regulations
and policies governing the use, generation, manufacture, storage, air
emission, effluent discharge, handling and disposal of certain materials,
biological specimens and wastes. There can be no assurance that the Company
will not be required to incur significant costs to comply with environmental
and health and safety regulations in the future. The Company will be required
to obtain an amendment to a permit from regulatory authorities to increase the
volume of permitted discharge from the manufacture of VIPLAS/SD. Although the
Company has submitted an application to obtain this amendment and is actively
pursuing it, there can be no assurance that such amendment will be obtained in
a timely manner, if at all. The Company's research and development involves
the controlled use of hazardous materials, including certain hazardous
chemicals and radioactive materials. Although the Company believes that its
safety procedures for handling and disposing of such materials comply with the
standards prescribed by state and federal regulations, the risk of accidental
contamination or injury from these materials cannot be eliminated. In the
event of such an accident, the Company could be held liable for any damages
that result and any such liability could exceed the resources of the Company.

UNCERTAINTY RELATING TO THIRD-PARTY REIMBURSEMENT; COST CONTAINMENT

Successful commercialization of the Company's products is, in part,
dependent on the reimbursement policies of third-party payors for the costs of
the Company's products. Failure by doctors, hospitals and other users of the
Company's products or systems to obtain reimbursement from managed care
organizations ("MCOs"), private health insurers, government authorities and
other medical cost reimbursement channels could adversely affect the Company's
ability to sell its products and systems. There are widespread public and
private efforts to control health care costs, and it is unlikely that these
efforts will be abandoned in the near future. The inevitable continuation to
limit or reduce health care costs could lead third-party payors to refuse or
limit reimbursement for the Company's products, which the Company expects will
be priced at a premium to corresponding widely used blood products that have
not been virally inactivated. Inadequate reimbursement for the Company's
products and systems could have a material adverse effect on the demand for
the Company's products and systems, which in turn could cause the Company to
reduce the prices of such products and systems below levels at which they
would generate profitability. These potential reimbursement trends would have
a material adverse effect on the Company's business, financial condition and
results of operations of the Company.

CONTROL BY EXISTING STOCKHOLDERS

Upon the closing of this offering and the Pall Private Placement, the
Company's current Directors and executive officers and their respective
affiliates will beneficially own approximately 74.0% of the outstanding Common
Stock of the Company. As a result, these stockholders will be able to exercise
significant influence

11
<PAGE>

over all matters requiring stockholder approval, including the election of
Directors and approval of significant corporate transactions. Such
concentration of ownership may also have the effect on delaying, preventing or
deterring a change in control of the Company. See "Principal Stockholders" and
"Description of Capital Stock--Anti-Takeover Measures."

ANTI-TAKEOVER MEASURES

The Company's Amended and Restated Certificate of Incorporation (the
"Restated Certificate") authorizes the Board of Directors to issue up to
1,000,000 shares of Preferred Stock and to determine the price, rights,
preferences and privileges, including voting rights, of those shares without
any further vote or action by the stockholders. The rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights
of the holders of any Preferred Stock that may be issued in the future. The
Restated Certificate and the Amended and Restated By-laws (the "By-laws"),
among other things, provide for a classified Board of Directors, require that
stockholder actions occur at duly called meetings of the stockholders, limit
who may call special meetings of stockholders, do not permit cumulative voting
in the election of Directors and require advance notice of stockholder
proposals and Director nominations. These provisions contained in the
Company's Restated Certificate and By-laws and certain applicable provisions
of Delaware law could serve to depress the Company's stock price. In addition,
these and other provisions could have the effect of making it more difficult
for a third party to acquire a majority of the outstanding voting stock of the
Company, discourage a hostile bid or delay, prevent or deter a merger,
acquisition or tender offer in which the Company's stockholders could receive
a premium for their shares, or a proxy contest for control of the Company or
other change in the Company's management. See "Management" and "Description of
Capital Stock."

SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS

Sales of substantial amounts of Common Stock in the public market following
this offering could adversely affect the market price of the Common Stock.
Upon the closing of this offering and the Pall Private Placement, the Company
will have outstanding an aggregate of 11,939,152 shares of Common Stock. Of
these shares, all of the shares sold in this offering will be freely tradeable
without restriction or further registration under the Securities Act of 1933,
as amended (the "Securities Act"), unless such shares are held by "affiliates"
of the Company as that term is defined in Rule 144 under the Securities Act
("Affiliates"), in which case they will be subject to the volume, manner of
sale and other conditions of Rule 144. The remaining 8,491,124 shares of
Common Stock held by existing stockholders and the 448,028 shares to be sold
pursuant to the Pall Private Placement (the "Restricted Shares") are
"restricted securities" as that term is defined in Rule 144. Restricted Shares
may be sold in the public market only if registered or if they qualify for an
exemption from registration under Rule 144 or Rule 701 promulgated under the
Securities Act. As a result of contractual restrictions and the provisions of
Rule 144 and Rule 701, additional shares will be available for sale in the
public market as follows: (i) no Restricted Shares will be eligible for
immediate sale on the date of this Prospectus; (ii) 91,141 Restricted Shares
and 274,597 shares of Common Stock issuable upon exercise of currently
outstanding options will be eligible for sale 90 days after the completion of
the offering; (iii) an additional 7,887,159 Restricted Shares and 138,193
shares of Common Stock issuable upon exercise of currently outstanding options
will be eligible for sale upon expiration of certain lock-up agreements 180
days after the date of this Prospectus; and (iv) the remainder of the
Restricted Shares and 35,938 shares of Common Stock issuable upon exercise of
currently outstanding warrants will be eligible for sale from time to time
thereafter upon expiration of their respective one-year holding periods, or in
the case of 477,042 Restricted Shares, upon the expiration of certain lock-up
agreements 360 days after the date of this Prospectus. Pursuant to an
agreement between the Company and the holders (or their permitted transferees)
of approximately 8,344,074 shares of Common Stock (plus 448,028 shares sold
pursuant to the Pall Private Placement), these holders are entitled to certain
rights with respect to the registration of such shares under the Securities
Act. See "Description of Capital Stock" and "Shares Eligible for Future Sale."

NO PRIOR PUBLIC MARKET; POSSIBLE SHARE PRICE VOLATILITY

Prior to this offering, there has been no public market for the Common Stock
of the Company, and there can be no assurance that an active trading market
will develop or be sustained. The initial public offering price for the Common
Stock to be sold in this offering will be determined by agreement between the
Company and

12
<PAGE>

the Underwriters and may bear no relationship to the price at which the Common
Stock will trade after the closing of this offering. The market price of the
shares of Common Stock, like that of the common stock of many other companies
in similar industries, is likely to be highly volatile. Factors such as the
announcements of research and development milestones or introduction of new
products by the Company or its competitors, governmental regulation, health
care legislation, developments in patent or other proprietary rights of the
Company or its competitors, including litigation, fluctuations in the
Company's operating results and market conditions for health care stocks in
general could have a significant impact on the future price of the Common
Stock. In addition, the stock market has from time to time experienced extreme
price and volume fluctuations, which may be unrelated to the operating
performance of particular companies. In the past, securities class action
litigation has often been instituted following periods of volatility in the
market price for a company's securities. Such litigation could result in
substantial costs and a diversion of management attention and resources, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Underwriting."

DILUTION; ABSENCE OF DIVIDENDS

Purchasers of the Common Stock offered hereby will suffer immediate and
substantial dilution in net tangible book value per share. Such purchasers
will experience additional dilution upon the exercise of outstanding stock
options and warrants. Future capital funding transactions may also result in
dilution to purchasers in this offering. The Company has never paid any cash
dividends and does not intend to pay any cash dividends in the foreseeable
future. Under the Credit Agreement covering the Company's bank term loan, the
Company is restricted from paying dividends without the prior written consent
of the creditor. See "Dividend Policy" and "Dilution."

13
<PAGE>

THE COMPANY

V.I. Technologies, Inc. ("VITEX" or the "Company"), formerly Melville
Biologics, Inc., was incorporated in Delaware in December 1992. Effective
January 1, 1995, pursuant to a transfer agreement dated December 9, 1994 and
amended February 7, 1995 (the "Transfer Agreement"), the Company received
substantially all of the assets of the NYBC relating to its plasma
fractionation business, including title to the real property, building and
fixtures of the NYBC and certain other specified tangible and intangible
assets, as well as various contracts and the assumption of certain obligations
of the NYBC related to such assets and contracts. In exchange for these
assets, the NYBC received all of the issued and outstanding Common Stock of
the Company. The Company's principal executive offices are located at 155
Duryea Road, Melville, New York 11747 and its telephone number is (516) 752-
7314.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 3,000,000 shares of
Common Stock offered hereby are estimated to be $32,630,000 ($37,652,000 if
the Underwriters' over-allotment option is exercised in full) at the initial
public offering price of $12.00 per share and after deducting the
Underwriters' discounts and commissions and estimated offering expenses
payable by the Company.

The Company intends to use the net proceeds to fund costs associated with
the commercialization of VIPLAS/SD (approximately $9,000,000), clinical trials
(approximately $3,000,000), research and development (approximately
$8,000,000) and for capital investments (approximately $12,000,000, including
the possible addition of a new pooling room and filling machine for VIPLAS/SD
and the expansion of the manufacturing facility for VIGuard Fibrin Sealant)
and other general corporate purposes (approximately $1,000,000). The Company
anticipates that the net proceeds of this offering will be sufficient to
finance its operations until the Company achieves positive cash flow from
operations, which is currently anticipated to occur during the fourth quarter
of 1999, assuming the timely and successful commercialization of VIPLAS/SD and
that the Red Cross, the exclusive distributor of VIPLAS/SD, meets the minimum
sales requirements for VIPLAS/SD. This estimate is based on certain
assumptions discussed in "Risk Factors--Need for Additional Funds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." Although the Company may use a
portion of the net proceeds to acquire complementary businesses, technologies
or products, no material transactions of this nature are currently planned or
being negotiated.

The cost, timing and amount of funds required for such uses by the Company
cannot be precisely determined and will be based on, among other things, the
receipt of regulatory approvals, the progress of the Company's research and
development and product and system commercialization programs, determinations
as to the commercial potential and the terms of any collaborative arrangements
entered into by the Company for the development, licensing and manufacture of
its products and other factors, many of which are beyond the control of the
Company. Pending the application to such uses, the net proceeds will be
invested in short-term, interest-bearing, investment-grade securities. The
Company intends to invest and use the net proceeds so as not to be considered
an investment company under the Investment Company Act of 1940, as amended.

DIVIDEND POLICY

The Company intends to retain earnings, if any, for use in its business and
therefore does not anticipate paying any cash dividends. The payment of any
future cash dividends will be determined by the Board of Directors in light of
conditions then existing, including the Company's financial condition and
requirements, future prospects, restrictions in financing agreements, business
conditions and other factors deemed relevant by the Board of Directors. Under
the credit agreement covering the Company's bank term loan, the Company is
restricted from paying certain dividends without the prior written consent of
the creditor.

14
<PAGE>

CAPITALIZATION

The following table sets forth as of March 31, 1998, the actual
capitalization of the Company and the capitalization as adjusted to reflect:
(i) the sale of the 3,000,000 shares of Common Stock offered hereby at the
initial public offering price of $12.00 per share, after deducting the
underwriting discounts and commissions and estimated offering expenses payable
by the Company and the application of the estimated net proceeds as set forth
in "Use of Proceeds"; (ii) the sale of 448,028 shares of Common Stock in the
Pall Private Placement at the initial public offering price of $12.00 per
share, net of underwriting discounts and commissions; and (iii) an increase in
the number of shares of authorized but undesignated Preferred Stock to
1,000,000 shares. This table should be read in conjunction with the Company's
Financial Statements and notes thereto appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------
ACTUAL AS ADJUSTED
---------- -------------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Cash and cash equivalents.......................... $ 4,716 $ 42,346
========== ==========
Long-term debt, less current portion(1)............ $ 7,391 $ 7,391
Capital lease obligations, less current
portion(2)........................................ 4,387 4,387
Advances from customer, less current portion(3).... 2,663 2,663
Stockholders' equity(4):
Preferred stock, par value $.01 per share; 500
shares authorized; no shares issued and
outstanding, actual; 1,000,000 shares
authorized,
as adjusted..................................... -- --
Common stock, par value $.01 per share;
30,000,000 shares authorized; 8,491,124 shares
issued and outstanding, actual; 11,939,152
shares issued and outstanding, as adjusted...... 85 119
Additional paid-in capital....................... 44,476 82,072
Note receivable from stockholder................. (250) (250)
Accumulated deficit.............................. (33,048) (33,048)
---------- ----------
Total stockholders' equity..................... 11,263 48,893
---------- ----------
Total capitalization......................... $ 25,704 $ 63,334
========== ==========
</TABLE>

- --------
(1) See note 7 to the Company's Financial Statements.

(2) See note 15 to the Company's Financial Statements.

(3) See note 11 to the Company's Financial Statements.

(4) Includes 448,028 shares of Common Stock purchased by Pall in the Pall
Private Placement. Excludes 1,551,833 shares of Common Stock issuable upon
exercise of outstanding options as of March 31, 1998 at a weighted average
exercise price of $6.63 per share and 35,939 shares of Common Stock issuable
upon exercise of outstanding warrants at a weighted average exercise price
of $0.30 per share. See "Dilution" and "Description of Capital Stock."

15
<PAGE>

DILUTION

The net tangible book value of the Company as of March 31, 1998 was
$11,263,000 or $1.33 per share. Net tangible book value per share represents
the amount of the Company's stockholders' equity, less intangible assets,
divided by 8,491,124, the number of shares of Common Stock outstanding as of
March 31, 1998.

Net tangible book value dilution per share represents the difference between
the amount per share paid by purchasers of shares of Common Stock in this
offering and the pro forma net tangible book value per share of Common Stock
immediately after completion of this offering. After giving effect to: (i) the
Pall Private Placement; and (ii) the sale of 3,000,000 shares of Common Stock
in this offering at the initial public offering price of $12.00 per share and
after deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company and the application of the estimated net
proceeds therefrom, the pro forma net tangible book value of the Company as of
March 31, 1998 would have been $48,893,000, or $4.10 per share. This
represents an immediate increase in net tangible book value of $2.77 per share
to existing stockholders and an immediate dilution in net tangible book value
of $7.90 per share to purchasers of Common Stock in this offering, as
illustrated in the following table:

<TABLE>
<S> <C> <C>
Initial public offering price per share........................ $12.00
Net tangible book value per share of Common Stock at March
31, 1998.................................................... $1.33
Increase per share of Common Stock attributable to new
investors................................................... 2.77
-----
Pro forma net tangible book value per share of Common Stock
after the offering............................................ 4.10
------
Pro forma dilution per share to new investors.................. $ 7.90
======
</TABLE>

Utilizing the foregoing assumptions, the following table summarizes the
total consideration paid to the Company and the average price per share paid
by the existing stockholders and by purchasers of shares of Common Stock in
this offering:

<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders... 8,939,152 74.9% $50,697,000 58.5% $ 5.67
New Investors........... 3,000,000 25.1% 36,000,000 41.5% 12.00
---------- ---- ----------- ----
Total................. 11,939,152 100% $86,697,000 100%
========== ==== =========== ====
</TABLE>

The above information excludes 1,551,833 shares of Common Stock issuable
upon exercise of outstanding options as of March 31, 1998 at a weighted
average exercise price of $6.63 per share and 35,939 shares of Common Stock
issuable upon exercise of outstanding warrants at a weighted average exercise
price of $0.30 per share. To the extent that other options and warrants are
exercised, there may be further dilution to new investors. See "Management--
Stock Plans" and "Description of Capital Stock--Stock Purchase Warrants."

16
<PAGE>

SELECTED FINANCIAL DATA

The following selected financial data as of December 31, 1995, 1996 and 1997
and for the years then ended are derived from the Company's Financial
Statements which have been audited by KPMG Peat Marwick LLP, independent
certified public accountants. The Financial Statements as of December 31, 1996
and 1997 and for each of the years in the three-year period ended December 31,
1997, and the report thereon, are included elsewhere in the Prospectus. The
selected financial data, as of March 31, 1998 and for the three months ended
March 31, 1997 and 1998, have been derived from unaudited financial statements
of the Company that, in the opinion of management, include all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation
as of and for such periods. The results of operations for the three months
ended March 31, 1998 are not necessarily indicative of the results of
operations to be expected for the entire fiscal year. The data set forth below
should be read in conjunction with the Company's Financial Statements and
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------- ----------------
1995 1996 1997 1997 1998
-------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER (UNAUDITED)
SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues(1):
Processing and products...... $ 438 $14,899 $15,843 $3,442 $ 3,713
Licensing fee................ -- 3,000 -- -- --
Research and development
funding..................... -- 954 1,224 255 374
-------- -------- -------- ------- -------
Total revenues.............. 438 18,853 17,067 3,697 4,087
-------- -------- -------- ------- -------
Costs and expenses(2):
Costs related to processing
and products................ 284 9,139 10,346 2,303 2,489
Facility costs............... 6,740 1,449 5,980 1,003 2,356
Research and development..... 2,777 5,321 7,136 1,560 2,167
Marketing and sales.......... -- -- 1,075 -- 88
General and administrative... 1,330 2,478 3,278 736 747
Special charge related to
processing and
products(3)................. -- 4,100 -- -- --
Charge related to research
collaboration(4)............ -- -- -- -- 2,202
-------- -------- -------- ------- -------
Total expenses.............. 11,131 22,487 27,815 5,602 10,049
-------- -------- -------- ------- -------
Loss from operations.......... (10,693) (3,634) (10,748) (1,905) (5,962)
Interest expense, net......... (146) (491) (952) (95) (422)
-------- -------- -------- ------- -------
Net loss...................... ($10,839) ($ 4,125) ($11,700) ($2,000) ($6,384)
======== ======== ======== ======= =======
Basic and diluted net loss
per share(5)................. ($3.64) ($0.84) ($1.62) ($0.33) ($0.78)
Weighted average common
shares used in computing
basic and diluted net loss
per share(5)................. 2,982 4,897 7,241 6,043 8,146
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- MARCH 31,
1995 1996 1997 1998
-------- -------- -------- -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 3,310 $ 4,752 $ 5,250 $ 4,716
Working capital (deficit).......... (1,594) (4,314) (2,775) (3,253)
Total assets....................... 23,242 37,626 38,167 38,205
Long-term obligations, less current
portion........................... 8,488 12,681 15,319 14,441
Accumulated deficit................ (10,834) (14,964) (26,664) (33,048)
Stockholders' equity............... 8,632 8,905 11,678 11,263
</TABLE>
- --------
(1) Includes related party amounts of $705,000 in 1996, $104,000 in 1997 and
$30,000 and $24,000 for the three months ended March 31, 1997 and 1998.
(2) Includes related party amounts of $853,000 in 1995, $817,000 in 1996,
$784,000 in 1997 and $175,000 and $277,000 for the three months ended
March 31, 1997 and 1998.
(3) See note 6 to the Company's Financial Statements.
(4) See note 17 to the Company's Financial Statements.
(5) See note 2 to the Company's Financial Statements.

17
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with "Selected
Financial Data" and the Company's Financial Statements and notes thereto
included elsewhere in this Prospectus. This Prospectus contains forward-
looking statements that involve risks and uncertainties. The Company's actual
results could differ significantly from those discussed in these forward-
looking statements as a result of certain factors, including those set forth
under "Risk Factors" and elsewhere in this Prospectus. Recently issued
accounting standards may affect the disclosures in the Company's Financial
Statements in the future. See note 2 to the Company's Financial Statements.

OVERVIEW

VITEX's predecessor, Melville Biologics, Inc., was formed more than 15 years
ago by the NYBC, a world leader in research and development in the fields of
hematology and transfusion medicine, to process plasma fractions and
derivatives, and to facilitate its research efforts. Effective January 1,
1995, pursuant to the Transfer Agreement, the NYBC transferred to the Company
substantially all of the assets of the predecessor Company, including a cGMP
manufacturing facility used primarily to produce plasma fractions and related
operating and product licenses. The Company also received certain rights to a
portfolio of patents and patent applications covering viral inactivation
technologies relating to blood components and other blood products. In
addition, several NYBC scientists who were inventors of most of VITEX's core
technologies, including Dr. Bernard Horowitz, the Company's Executive Vice
President and Chief Scientific Officer, became employees of the Company and
are continuing their research efforts at VITEX. Since its inception in 1995,
VITEX has devoted significant resources to constructing, expanding and
validating its production facility in anticipation of the Company receiving
FDA marketing approval of its first virally inactivated product, VIPLAS/SD
which approval was received on May 6, 1998. In addition, the Company continues
to operate its plasma fractionation business.

The Company believes that it can accelerate the commercialization and
development of selected products and systems through strategic collaborations.
The Company has established commercial and development relationships with
Bayer, the Red Cross, U.S. Surgical and Pall, each of which has made an
upfront financial commitment to the Company. See "Business--Strategic
Collaborations".

To date, the Company has derived substantially all of its revenues under its
Processing Agreement with Bayer totalling $14.9 million in 1996 and $13.4
million in 1997. The Company anticipates that its principal sources of revenue
over the next several years will be derived from Bayer and the Red Cross.
VITEX's financial performance may vary based on the achievement of research
and development milestones, the timing of new product introductions and the
market acceptance of its virally inactivated products and viral inactivation
systems.

To date, the majority of the Company's expenditures has been for capital
investments and facility costs related to the production of plasma fractions
and VIPLAS/SD production facilities. In addition, the Company invests
substantial resources in research and development. The Company expects that
its research and development expenses will continue to increase significantly.
Further, the Company anticipates an increase in marketing costs related to the
Company's obligations under the Red Cross agreement and the commercialization
of VIPLAS/SD. The Company has incurred losses since its inception and had an
accumulated deficit of $33.0 million at March 31, 1998.

RESULTS OF OPERATIONS

Quarters Ended March 31, 1997 and 1998

Total revenues increased from $3.7 million for the quarter ended March 31,
1997 to $4.1 million for the quarter ended March 31, 1998, an increase of $0.4
million. The increase was due principally to an increase in processing and
products revenue of $0.3 million, resulting from an increase in processing
volume offset partially by a decrease in unit pricing under the Processing
Agreement with Bayer.

18
<PAGE>

Costs related to processing and products increased from $2.3 million for the
quarter ended March 31, 1997 to $2.5 million for the quarter ended March 31,
1998, an increase of $0.2 million. The gross margin in each quarter was
approximately 33%. The Company anticipates that its gross margin may decrease
in 1998 as compared to 1997 due to decreased unit pricing under the Processing
Agreement with Bayer, and costs associated with the commercial production of
VIPLAS/SD.

Facility costs increased from $1.0 million for the quarter ended March 31,
1997 to $2.4 million for the quarter ended March 31, 1998, an increase of $1.4
million. In 1998, such costs include manufacturing costs associated with the
production ramp-up of VIPLAS/SD in anticipation of FDA marketing approval. In
1997, such costs included employee wages and related benefits, materials and
other supplies associated with product test runs, equipment maintenance, and
internal validation and quality control procedures, and supplies used in
testing new machinery associated with VIPLAS/SD production in anticipation of
FDA marketing approval. The Company anticipates recognizing additional
facility costs in the future related to the production of VIGuard Fibrin
Sealant and additional products and systems.

Research and development costs increased from $1.6 million for the quarter
ended March 31, 1997 to $2.2 million for the quarter ended March 31, 1998, an
increase of $0.6 million. The increase is due principally to the expanded
activities in the Company's VIGuard RBCC and VIGuard PC programs, expanded
clinical trials for VIGuard Fibrin Sealant and additional development
activities. The Company expects that its research and development expenses
will continue to increase.

Marketing and sales costs increased from zero for the quarter ended March
31, 1997 to $88,000 for the quarter ended March 31, 1998, an increase of
$88,000. The increase represents costs associated with certain pre-marketing
activities in connection with the anticipated commercial introduction of
VIPLAS/SD. The Company and the Red Cross have each committed to spend at least
certain minimum amounts for marketing VIPLAS/SD in 1998 and 1999. The Company
is obligated to spend $2.0 million during the two-year period ending December
31, 1999. The Company expects that its marketing and sales expenses will
increase significantly in connection with the commercialization of VIPLAS/SD.

General and administrative costs were essentially unchanged, increasing from
$736,000 for the quarter ended March 31, 1997 to $748,000 for the quarter
ended March 31, 1998, an increase of $12,000. The Company anticipates that
general and administrative expenses will increase as additional personnel are
hired to support the expansion of the Company's operations.

Charge related to research collaboration for the quarter ended March 31,
1998 represents a one-time charge recorded by the Company in connection with
the Company and Pall entering into a series of agreements on February 19, 1998
(the "Pall Agreements") providing for, among other things, a collaboration on
the development and marketing of systems employing the Company's LAC and
Quencher viral inactivation technologies for red blood cell and platelet
concentrates. Upon execution of the Pall Agreements, Pall made a $4 million
equity investment for 477,042 shares at $8.39 per share. Accordingly, during
the quarter ended March 31, 1998, the Company recorded a one-time charge to
operations and an increase to stockholders' equity of $2.2 million
representing the difference between the purchase price paid by Pall and the
estimated fair value of the Common Stock on the date of the purchase.

Interest expense, net increased from $0.1 million for the quarter ended
March 31, 1997 to $0.4 million for the quarter ended March 31, 1998, an
increase of $0.3 million. The increase is due principally to the increase in
interest expense of $0.3 million related to additional debt financings.

The Company's net loss increased from $2.0 million for the quarter ended
March 31, 1997 to $6.4 million for the quarter ended March 31, 1998, an
increase of $4.4 million. The increase in net loss resulted from the increase
in expenses associated with the expansion of the Company's operations,
principally research and development, activities associated with the launch of
VIPLAS/SD and the $2.2 million one-time charge related to the Pall Agreements.

19
<PAGE>

Years Ended December 31, 1996 and 1997

Total revenues decreased from $18.9 million in 1996 to $17.1 million in
1997, a decrease of $1.8 million. This decrease was due principally to the
receipt by the Company in 1996 of a one-time licensing fee of $3.0 million
which was partially offset by increases in processing and product revenues of
$0.9 million and research and development funding of $0.3 million in 1997. The
increase in processing and product revenues reflects an increase in processing
volume offset partially by a decrease in unit pricing under the Processing
Agreement with Bayer. This Processing Agreement provides for further increases
in processing volume during the next several years which will be partially
offset by decreases in unit pricing.

Costs related to processing and products increased from $9.1 million in 1996
to $10.3 million in 1997, an increase of $1.2 million. The gross margin
decreased from 38.7% in 1996 to 34.7% in 1997. The gross margin in 1996
reflects unrecovered processing costs of $1.0 million incurred by the Company
in processing Bayer's plasma during an equipment malfunction, which costs were
not recoverable from Bayer under the Processing Agreement. Exclusive of this
$1.0 million charge, the gross margin was 45.4% in 1996. The decrease in gross
margin in 1997 was due to a decrease in unit pricing under the Processing
Agreement with Bayer, increased maintenance costs related to scheduled
servicing of the Company's plasma fractionation assets and increased materials
costs in 1997. The Company anticipates that its gross margin may decrease in
1998 as compared to 1997 due to decreased unit pricing under the Processing
Agreement with Bayer and costs associated with the anticipated commercial
introduction of VIPLAS/SD. Total costs and expenses in 1996 include a special
charge related to processing and products of $4.1 million relating to the
fractionation equipment malfunction and reflecting the replacement cost of
Bayer's plasma of $4.1 million. The $4.1 million represented the agreed-upon
fair market value of the plasma which had been provided to the Company by
Bayer, and which was being processed during the period of the equipment
malfunction. The Company agreed to reimburse Bayer for the cost of this plasma
in monthly installments of $170,834 over a two-year period that commenced July
1, 1997. Amounts due to Bayer are payable under a Settlement Agreement and
were $3.1 million at December 31, 1997. See note 6 to the Company's Financial
Statements.

Facility costs increased from $1.4 million in 1996 to $6.0 million in 1997,
an increase of $4.5 million. The increase represents costs associated with
VIPLAS/SD production in anticipation of FDA marketing approval. The Company
anticipates recognizing additional facility costs in the future related to the
production of VIGuard Fibrin Sealant and additional products and systems. Such
costs include employee wages and related benefits, materials and other
supplies associated with product test runs, equipment maintenance, and
internal validation and quality control procedures, consulting fees, and
supplies use in testing new machinery.

Research and development costs increased from $5.3 million in 1996 to $7.1
million in 1997, an increase of $1.8 million. The increase is due principally
to the expanded activities in the Company's VIGuard RBCC and VIGuard PC
programs, expanded clinical trials for VIGuard Fibrin Sealant and additional
development activities. The Company expects that its research and development
expenses will continue to increase significantly.

Marketing and sales costs increased from zero to $1.0 million in 1997, an
increase of $1.0 million. The increase represents costs associated with the
initiation of market research activities, education and other pre-marketing
activities in connection with the anticipated commercial introduction of
VIPLAS/SD. The Company and the Red Cross have each committed to spend at least
certain minimum amounts for marketing VIPLAS/SD in 1998 and 1999 if the
Company receives FDA marketing approval for this product. The Company is
obligated to spend $2.0 million during the two-year period ending December 31,
1999. The Company expects that its marketing and sales expenses will increase
significantly in connection with the commercialization of VIPLAS/SD.

General and administrative costs increased from $2.5 million in 1996 to $3.3
million in 1997, an increase of $0.8 million. The increase is principally due
to expenses recorded of $0.7 million in connection with a severance
arrangement with the Company's former President and Chief Executive Officer.
In addition, costs of $0.2 million were expensed in connection with the
refinancing of the Company's debt. The Company anticipates that general and
administrative expenses will continue to increase as additional personnel are
hired to support the expansion of the Company's operations.

20
<PAGE>

Interest expense increased from $0.6 million in 1996 to $1.3 million in
1997, an increase of $0.7 million. The increase in interest expense in 1997 is
related to additional debt financings.

Interest income increased from $0.1 million in 1996 to $0.4 million in 1997,
an increase of $0.2 million. The increase in interest income related to a
higher average cash balance related to the proceeds received from the
Company's equity and debt financings.

The Company's net loss increased from $4.1 million in 1996 to $11.7 million
in 1997, an increase of $7.6 million. The increase in net loss resulted from
the increase in expenses associated with the expansion of the Company's
operations, principally research and development, and activities associated
with the launch of VIPLAS/SD.

Years Ended December 31, 1995 and 1996

Total revenues increased from $0.4 million in 1995 to $18.9 million in 1996,
an increase of $18.4 million, of which $14.5 million related to plasma
processing for Bayer, which commenced in November 1995. Of this increase, $3.0
million related to a one-time licensing fee received from U.S. Surgical.

Costs of processing and products increased from $0.3 million in 1995 to $9.1
million in 1996, an increase of $8.8 million which related to a full year of
processing plasma for Bayer. Costs of processing and products in 1996 reflects
unrecovered processing costs of $1.0 million incurred by the Company in
processing Bayer's plasma during an equipment malfunction, which costs were
not recoverable from Bayer under the Processing Agreement. Total costs and
expenses in 1996 included a special charge related to processing and products
of $4.1 million relating to the fractionation equipment malfunction and
reflecting the replacement cost of Bayer's plasma of $4.1 million. The $4.1
million represented the agreed-upon fair market value of the plasma which had
been provided to the Company by Bayer, and which was being processed during
the period of the equipment malfunction. The Company agreed to reimburse Bayer
for the cost of this plasma in monthly installments of $170,834 over a two-
year period that commenced July 1, 1997. See note 6 to the Company's financial
statements.

Facility costs decreased from $6.7 million in 1995 to $1.4 million in 1996,
a decrease of $5.3 million. The facility costs in 1995 represent costs
associated with the start-up of the production of plasma fractions. The
facility costs in 1996 represent costs associated with the start-up of
VIPLAS/SD production in anticipation of FDA marketing approval.

Research and development costs increased from $2.8 million in 1995 to $5.3
million in 1996, an increase of $2.5 million. The increase is due principally
to the initiation of clinical trials for VIGuard Fibrin Sealant, the transfer
of certain research and development personnel from the NYBC to the Company and
the hiring of additional research and development personnel associated with
expansion of the Company's operations.

General and administrative costs increased from $1.3 million in 1995 to $2.5
million in 1996, an increase of $1.1 million. The increase is due principally
to additional personnel associated with the expansion of the Company's
operations.

Interest expense increased from $0.2 million in 1995 to $0.6 million in
1996, an increase of $0.4 million. The increase in interest expense of $0.4
million in 1996 is related to additional debt financings.

The Company's net loss decreased from $10.8 million in 1995 to $4.1 million
in 1996, a decrease of $6.7 million. The decrease in net loss resulted from
the increase in processing and products revenues of $14.5 million related to
plasma processing for Bayer, which commenced in November 1995, and a one-time
licensing fee of $3.0 million received from U.S. Surgical. The increase in
revenues was offset by the increase in expenses associated with the expansion
of the Company's operations of $5.1 million and a charge of $5.1 million
related to processing of Bayer's plasma.

21
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

The Company has funded its operations since inception primarily through
$27.1 million of private placements of common equity securities, $21.5 million
of debt and lease financings, $31.6 million of revenues derived under its
Processing Agreement with Bayer and $4.2 million of upfront and development
fees from U.S. Surgical. Over the term of the Processing Agreement with Bayer,
which expires in December 2001, aggregate revenues to the Company will be
approximately $100 million, subject to compliance by the Company of its
performance obligations under the agreement. In addition, the Company receives
research and development funding, under a collaboration agreement from U.S.
Surgical, related to the direct costs associated with clinical and regulatory
activities for the development of VIGuard Fibrin Sealant. At March 31, 1998,
the Company had cash and cash equivalents of $4.7 million.

The Company intends to use approximately $12,000,000 of the net proceeds
from this offering for capital investments, including the addition of a new
pooling room and filling machine for the manufacture of VIPLAS/SD if the Red
Cross's demand for that product exceeds its minimum purchase requirements
under the Company's agreement with the Red Cross, and additional capital
investments in the Company's manufacturing facility to enable it to produce
sufficient commercial quantities of VIGuard Fibrin Sealant to meet the
anticipated demand for that product.

The Company anticipates that under its strategic collaborations, it will,
subject to the fulfillment of its obligations, receive substantial funds in
the form of processing and product revenues, royalties, milestone payments and
equity investments. No assurance can be given that the Company will be able to
perform its obligations under these arrangements or that the Company's
strategic collaborators will make any such payments. The failure of the
Company to receive any such funds would have a material adverse effect on its
business, financial condition and results of operations.

Under the Company's license agreements with the NYBC, in order to maintain
its exclusive licenses, the Company is required to pay aggregate minimum
royalties of $920,000 in 1998, $1,500,000 in 1999, $2,000,000 in 2000 and
$2,300,000 in each year thereafter. The Company is also required under the
licenses to make specified payments to the NYBC to maintain its exclusive
licenses if certain research and development milestones are not met by the
Company. Other than the minimum royalty payments set forth above and the
payments which will be required if certain research and development milestones
are not met by the Company, the Company is not required to make any other
minimum payments to the NYBC during 1998, 1999 or 2000. See note 10 to the
Company's Financial Statements.

The Red Cross is required to purchase stated minimum quantities of VIPLAS/SD
to maintain its exclusive rights. Under the initial Red Cross purchase order,
revenues totaling $27.0 million are anticipated within the nine-month period
following FDA marketing approval, and based on minimum purchase requirements
by the Red Cross to maintain exclusive rights to VIPLAS/SD. The Company is
obligated, under certain supply agreements, to purchase minimum quantities of
certain raw materials totaling $0.8 million. The Company is required to spend
$2.0 million for marketing VIPLAS/SD through December 31, 1999.

U.S. Surgical has agreed to fund all future direct clinical and regulatory
costs associated with the development and regulatory approval of VIGuard
Fibrin Sealant. Total fundings by U.S. Surgical of $2.0 million are
anticipated over the next two years. In addition, for improvements and
enhancements to VIGuard Fibrin Sealant, U.S. Surgical has agreed to pay a
portion of agreed upon research and development costs. Under its collaboration
with Pall, the parties have agreed to share research, development, clinical
and regulatory responsibilities and will equally share profits and joint
expenses from operations, after each party is reimbursed for its cost of
goods. The agreements provide that Pall will purchase up to an aggregate of
$26.0 million of VITEX Common Stock in installments, with $17.0 million of
such obligations tied to the achievement of specified development milestones.
Upon execution of the Pall agreements, Pall made a $4.0 million equity
investment and will make a $5.0 million equity investment contemporaneously
with the closing of the public offering contemplated by this Prospectus, net
of underwriting discounts and commissions. Thereafter, all milestone payments
by Pall will be in the form of Common Stock equity investments at the
prevailing market price per share.

22
<PAGE>

Net cash provided by (used in) operating activities was ($8.2) million, $1.0
million and ($9.7) million, for 1995, 1996 and 1997, respectively. Net cash
used in operating activities was $3.4 million for the three months ended March
31, 1998. The use of cash resulted primarily from net losses of the Company's
operations; in 1996, the Company generated positive cash flows from
operations.

Net cash used in investing activities from inception through March 31, 1998
totaled $17.9 million related principally to manufacturing facility
renovations. The Company anticipates that capital expenditures and
improvements will be required in future periods for the expansion of the
Company's manufacturing capabilities and development of future products.

Net cash provided by financing activities from inception through March 31,
1998 totaled $42.6 million related principally to private placements of equity
securities, debt and lease financings.

In December 1997, the Company entered into a credit agreement with a bank
providing for a term loan in the principal amount of $10.8 million. The
proceeds under this term loan were used to repay the outstanding balance of
existing term loans aggregating $10.5 million. This loan bears interest at the
Company's option at LIBOR plus 2.75% to 1.75%, or the base rate of the bank,
as defined, plus margins of up to 0.5% as determined based on defined earnings
ratios. The Company is currently using one-month LIBOR plus 2.75%. One month
LIBOR at March 31, 1998 was 5.7%. Under this loan, interest is payable monthly
and the principal balance is payable in 16 equal consecutive quarterly
installments of $0.7 million commencing March 31, 1998 and continuing until
maturity on December 31, 2001. The credit agreement contains default
provisions, including financial covenants which provide restrictions on
capital investments, the payment of cash dividends and, among other things,
requires the Company to maintain minimum cash balances of $2.0 million and
leverage and coverage ratios, as defined. The Company is currently in
compliance with such covenants.

The Red Cross made a $3.0 million non-interest bearing, unsecured loan to
the Company to be used to fund improvements to the Company's manufacturing
facility. Approximately $988,000 was advanced by the Red Cross prior to the
formation of the Company, and assumed by the Company pursuant to the Transfer
Agreement discussed in note 1 to the Company's Financial Statements,
$1,012,000 was advanced in 1996, and $1,000,000 was advanced in 1997. The
advance amortizes at a rate of 15% per year ($450,000) over a five-year period
following FDA marketing approval of VIPLAS/SD, with a balloon payment due in
year five. Amounts outstanding under this advance were $3,000,000 and
$2,000,000 at December 31, 1997 and 1996, respectively. The advance had not
been discounted as the ultimate repayment terms of the advance could not be
determined at the time of the advances because repayment is subject to FDA
marketing approval of VIPLAS/SD. The Company received FDA marketing approval
of VIPLAS/SD on May 6, 1998. As a result, the non-interest bearing advance has
been discounted to fair value based on current interest rates and a gain of
approximately $750,000 will be recorded in the second quarter of fiscal 1998.

The outstanding loan balance payable to Bayer under the Settlement
Agreement, which amounted to $2.6 million at March 31, 1998, is subject to
interest at the prime rate, as defined, plus 2.0% over the first 12 months of
the agreement and increasing to 3.0% over the second twelve month period. The
prime rate was 8.5% at March 31, 1998. See note 6 to the Company's Financial
Statements.

Under the Company's capital and operating leases, annual minimum rental
payments and related interest expense over the next four years is $6.7
million. The Company will receive $0.5 million from the lessor of the
Company's capital lease, as a result of FDA marketing approval of VIPLAS/SD.

At December 31, 1997, the Company had net operating loss carryforwards for
federal and state income tax reporting purposes of approximately $15.8 million
and has available research and development credit carryforwards for federal
income tax reporting purposes of approximately $0.4 million, which are
available to offset future taxable income, if any. These carryforwards expire
beginning in 2010. The Company's ability to use such net operating loss and
research and development credit carryforwards is limited by change in control
provisions under Section 382 of the Internal Revenue Code. See note 12 to the
Company's Financial Statements.

23
<PAGE>

The Company expects to incur substantial additional costs, including costs
related to increased marketing activities, increased research and development,
seeking regulatory approvals and conducting additional clinical trials,
capital equipment and other costs associated with the Company's manufacturing
capabilities. The Company believes that the proceeds from this offering,
together with existing funds and funds expected to be generated from
operations will be sufficient to meet its projected working capital and other
cash requirements until the Company achieves positive cash flows from
operations.

There can be no assurance that the Company will be able to generate
sufficient income through operations or that additional financing, if at all
available, can be obtained on terms reasonable to the Company. In the event
the Company is unable to generate sufficient income from operations and/or
obtain additional financing as required, its operations and research and
development efforts will need to be curtailed or discontinued. Such an event
would limit the Company's ability to develop its technology and achieve
regulatory milestones with its corporate partners.

YEAR 2000

VITEX is aware of challenges associated with the inability of certain
computer systems to properly format information after December 31, 1999 (the
"Year 2000 Challenge"). The Company is modifying its computer systems to
address the Year 2000 Challenge and does not expect that the cost of modifying
such systems will be material. The Company believes it will fully remediate
any of its Year 2000 Challenges in advance of the year 2000 and does not
anticipate any material disruption in its operations as the result of any
failure by the Company to fully remediate such challenges. The Company does
not have any information concerning the status of Year 2000 Challenges of its
suppliers and customers.

24
<PAGE>

BUSINESS

OVERVIEW

VITEX is a leading developer of a broad portfolio of blood products and
systems using its proprietary viral inactivation technologies. The Company's
technologies are intended to address the risks of viral contamination in blood
products, including plasma, plasma derivatives, red blood cells and platelets.
Viral inactivation processes have the potential to eliminate viruses that are
enveloped by lipid membranes such as HBV, HCV and HIV and non-enveloped
viruses such as hepatitis A virus and parvovirus and other known and unknown
pathogens. The first of the Company's virally inactivated products, VIPLAS/SD,
was approved for marketing by the FDA on May 6, 1998, and the Company expects
to commence commercialization of this product by the third quarter of 1998.
VIPLAS/SD uses the Company's S/D viral inactivation technology to inactivate
enveloped viruses. VIPLAS/SD, a pooled transfusion plasma, will be the first
virally inactivated blood component introduced in the United States. The
Company's other virally inactivated blood products are all under development
and include: (i) Universal VIPLAS/SD, a product intended to provide the same
benefits as VIPLAS/SD without the need for matching donor and recipient blood
types; (ii) Universal VIPLAS/SD UVC, a product intended to inactivate
enveloped and non-enveloped viruses; (iii) VIGuard Fibrin Sealant, a wound
care product that is currently in Phase III clinical trials for two
indications; (iv) VIGuard Albumin Solder, a wound care product with superior
bonding strength for certain applications as compared to fibrin sealants; and
(v) VIGuard RBCC and PC systems designed to broadly inactivate viruses and
other pathogens in red blood cell and platelet concentrates. Plasma fractions,
which the Company has produced since 1995, are sold principally to Bayer under
a multi-year agreement.

VITEX's predecessor was formed more than 15 years ago by the NYBC, a world
leader in hematology and transfusion medicine. The S/D viral inactivation
process was developed by a scientific team led by the Company's Executive Vice
President and Chief Scientific Officer while they were at the NYBC. The first
plasma derivative product using the patented S/D process was commercialized in
1985, and, since then, the S/D process has been adopted by most plasma
fractionators worldwide. The Company has an exclusive license to use the S/D
process for producing its VIPLAS/SD line of products in North America. A Swiss
blood products manufacturer, which had exclusive rights from the NYBC to the
S/D process for transfusion plasma in Europe, has sold virally inactivated
transfusion plasma since 1991 without a single reported incidence of viral
transmission. In addition to the S/D process, VITEX is developing other
proprietary viral inactivation technologies, including ultraviolet light and
light-activated compounds and quenchers, which are intended to inactivate both
enveloped and non-enveloped viruses while maintaining the viability of blood
components.

VITEX believes that establishing sales, marketing and distribution
collaborations can accelerate the commercialization of the Company's products.
The Company's strategic collaborations include agreements with: (i) Bayer to
supply blood plasma fractions, which Bayer further processes into virally
inactivated plasma derivatives; (ii) the Red Cross to distribute VIPLAS/SD,
intended to be marketed under the brand name PLAS+(R)SD; (iii) U.S. Surgical
to develop and distribute VIGuard Fibrin Sealant; and (iv) Pall to develop and
distribute systems for the viral inactivation of red blood cell and platelet
concentrates.

25
<PAGE>

BACKGROUND

Whole blood contains important therapeutic components, including red blood
cells, platelets and plasma. Each of these components can be transfused
directly into patients. Plasma may also be fractionated into plasma fractions,
which in turn can be purified into protein products, referred to as plasma
derivatives. The worldwide blood products market is characterized by two
distinct segments, the blood components segment and the plasma derivatives
segment, as illustrated by the following diagram:

Therapeutic
Blood
Products

Blood Plasma
Components Derivatives

Red Clotting Immuno-
Blood Platelets Transfusion Albumin Factors globulins
Cells Plasma

THE BLOOD COMPONENTS SEGMENT

Blood Components. Each of the components of blood serves specific functions.
Red blood cells, which transport oxygen and carbon dioxide throughout the
body, are frequently administered to patients who have anemia, trauma,
surgical bleeding or genetic disorders and account for the majority of
transfusions. Platelets, which initiate blood clotting and facilitate the
repair of damaged blood vessels, are often used to treat cancer patients
following chemotherapy and patients who lose large volumes of blood as a
result of trauma or during surgery. Plasma is the liquid part of the blood
that contains a large number of proteins, several of which have important
therapeutic applications, including blood volume expansion, mediating and
controlling blood clotting and providing immune protection. White blood cells,
an additional component of blood, are comprised of many different types of
cells that form part of the body's immune system and are active in wound
repair. White blood cells are rarely transfused because of the potential for
an adverse immune response by the recipient.

Collection and Processing. The participants in the blood components segment
collect and process whole blood from donors and endeavor to provide adequate
quantities of safe whole blood and blood components in compliance with
emerging FDA regulations. Whole blood is collected from volunteer donors at
either mobile or fixed collection sites. Approximately 35 million whole blood
donations occur in North America, western Europe and Japan annually. In the
United States, approximately 45% of donated blood is collected by the Red
Cross, another 45% is collected by independent community blood centers and the
remaining 10% is collected by hospitals.

26
<PAGE>

Whole blood is usually separated by blood banks into red blood cells,
platelets and plasma to optimize transfusion therapy and to efficiently
allocate the limited available blood supply. These blood components are then
distributed by blood collection centers to hospitals for storage and
subsequent transfusion. Red blood cells and platelets each have a very short
shelf life, of 42 and 5 days, respectively. Plasma can be frozen and stored
for up to one year after being collected in the form of FFP.

Transfusions. The Company projects that approximately 30% to 40% of the
United States population will receive a transfusion at some point during their
lifetime. Transfusions containing one or more blood components are often
required to treat diseases or disorders and to replace blood loss resulting
from trauma or during surgery. In the United States, over 11.3 million units
of red blood cells are transfused annually, while annual platelet and plasma
transfusions account for approximately 8.0 million units and 2.7 million
units, respectively. A "unit" of a blood component is the amount of that
component separated from whole blood drawn from a single donor during a single
donation. The average unit price paid by hospitals for red blood cells,
platelets and plasma is estimated to be approximately $85, $50 and $50,
respectively, and varies depending on geographic and other factors. More than
a single unit can be drawn from a donor by a process called apheresis
(collection). For example, 6-8 units of platelets can be drawn from a single
donor by plateletpheresis. The price paid by hospitals for one
plateletpheresis unit can be as high as $600.

THE PLASMA DERIVATIVES SEGMENT

Plasma Derivatives. Plasma contains a large number of proteins, several of
which are well-characterized and have FDA-approved therapeutic applications.
These proteins are separated and purified into plasma derivatives through a
combination of fractionation procedures and modern chromatographic techniques.
Currently marketed plasma derivatives include: albumin, a volume expander and
the most abundant blood protein, the clotting agents Factor VIII and Factor IX
and immunoglobulins or antibodies. Other plasma derivatives, approved for
marketing or under development, include fibrin sealants, approved for use in
certain non-U.S. countries, and albumin solders, wound care products for
reconnecting and sealing wounds and surgical incisions.

Collection and Processing. Approximately 80% of plasma used for
fractionation in North America is collected from paid donors by
plasmapheresis. After plasma is collected from donors, it is frozen and
shipped to large processing facilities where fractionators purify, virally
inactivate, sterile fill and package protein products. Plasma derivatives are
then sold to hospitals where they are administered to patients. Four plasma
fractionators, Bayer, Centeon L.L.C., Alpha Therapeutics, a subsidiary of the
Japanese Green Cross, and Baxter Corporation, currently account for almost 50%
of the worldwide plasma derivatives market. These plasma fractionators are
currently operating at or near manufacturing capacity. The large capital costs
involved in establishing fractionation capacity and the regulatory approvals
necessary to manufacture and sell fractionated products may tend to restrict
the entry of new participants into the market.

Applications. Plasma derivatives have widespread therapeutic applications.
Albumin is frequently used as a volume expander to treat high volume blood
loss which occurs during surgical procedures. Factor VIII and Factor IX
concentrates are routinely administered to patients with hemophilia.
Immunoglobulins, including formulations for intravenous administration, have
been embraced for the prevention and treatment of viral infections in
immunocompromised patients and in treating certain autoimmune disorders. The
market for plasma derivatives delivered to hospitals in 1994 was approximately
$1.1 billion in the United States and approximately $4.6 billion worldwide.

CHALLENGES FACING THE BLOOD PRODUCTS MARKET

Safety of the Blood Supply. Despite the many benefits that blood products
provide, and recent improvements in testing and processing of blood, concerns
remain over the presence of viruses, bacteria and parasites in donated blood.
Viruses such as HBV, HCV, HIV, cytomegalovirus ("CMV") and human T-cell
lymphotropic virus ("HTLV") can present life-threatening risks. In addition,
bacteria and many other agents can transmit disease during transfusion,
including the bacteria which can cause sepsis or other systemic infections
which can result in serious illness or even death. The parasites that cause
malaria and Chagas' disease may also be transmitted by transfusions.

27
<PAGE>

The risk of transmission of any of these pathogens from an infected donor is
compounded by a number of factors, including: (i) dividing a unit of infected
blood into its components which may expose several patients to the pathogen;
(ii) deriving therapeutic quantities of blood components from typically two to
eight donor units, any one of which may contain pathogens; and (iii)
administering frequent transfusions to certain patient populations, such as
patients with cancer, suppressed immune systems, congenital anemias and kidney
and liver disorders, experience a heightened risk of infection due to multiple
transfusions. The following table illustrates the current risks of exposure to
the major, identified pathogenic viruses in transfused blood.

Risks of Viral Infection from Blood Transfusions

<TABLE>
<CAPTION>
Average Single
Transfusion(1) Multiple Transfusions(2)
Virus (5 donors) (100 donors)
----- --------------- ------------------------
<S> <C> <C>
HBV 1:12,600 1:630
HCV 1:20,600 1:1,030
HIV 1:98,600 1:4,930
HTLV (I&II) 1:128,200 1:6,410
Aggregate Risk 1:6,800 1:340
</TABLE>
- ------------------
(1) Such as patients who have had surgery or trauma.
(2) Such as patients who have cancer, liver disease and sickle cell anemia.

Emerging and unidentified pathogens also present a threat to the blood
supply, illustrated by the recent history of HIV contamination. It is
estimated that HIV was present in the blood supply for at least seven years
before it was identified as the causative agent of AIDS and at least eight
years before a test was commercially available to detect the presence of HIV
antibodies in donated blood. During those years, many transfusion recipients
were infected with HIV, including approximately 70% of patients with severe
hemophilia. Moreover, most tests to detect viruses are antibody tests, which
detect an immune response to the virus, rather than the virus itself. As a
result, these tests fail to detect virus when performed during the
"infectivity window" early in the course of an infection before antibodies
appear in detectable quantities.

In the 1980's, the safety of the blood supply became a fundamental concern
with the identification of HIV contamination. As a result, the FDA began to
regulate blood banks and collection agencies in a more stringent manner and
currently all blood collection institutions in the United States are facing
intense scrutiny from the FDA. Consequently, blood centers and hospital blood
banks are focusing additional resources on improving safety. Despite these
efforts, contamination of the blood supply continues to be a serious medical
challenge.

Product Consistency. Unlike pharmaceutical products, blood components vary
in their consistency, creating uncertainty as to proper dosing. This occurs as
a result of: (i) the variability of component concentrations among donors;
(ii) the impracticality of selecting donors with the optimal blood component
profile; and (iii) the imprecisions in the processes for collecting and
separating red blood cells, platelets and plasma. Large plasma fractionators
achieve high consistency by processing plasma from multiple donors in a single
batch and through processing under controlled conditions. Consistency is
confirmed through extensive testing of processed product.

APPROACHES TO THE SAFETY OF THE BLOOD SUPPLY

There are several approaches to improving blood safety currently available
and under development, including the following:

Screening. The screening of blood and blood components for known pathogens
is universally accepted. However, there are many reasons why screening cannot
ensure a safe blood supply, including the following: (i) failure of tests
during the infectivity window; (ii) limitations of test sensitivity where
tests cannot detect a small quantity of virus or antibody; (iii) limitations
of test specificity where tests fail to detect certain viral variants; (iv)
the presence of new viruses that have not been identified and for which no
test exists; (v) the presence of identified viruses for which no test is
available; and (vi) human error.

28
<PAGE>

Donation Strategies. Autologous donation avoids the risk of receiving
contaminated donor blood, but is impractical for most patients. Apheresis
provides a minimal decrease in viral risk. Quarantining of blood seeks to
address the problems associated with the infectivity window by storing a
donor's blood for three to six months after which time the donor must return
for additional testing. However, quarantining depends on the donor's timely
return for additional testing, cannot be applied to red blood cells or
platelets because of their limited shelf life and is subject to limitations
associated with blood screening.

Blood Substitutes. Several companies are developing synthetic "blood
substitutes." For example, intravascular oxygen carriers may provide safe and
efficient alternatives to donor allogenic blood transfusion used for oxygen
transport during elective surgery and possibly in other medical indications.
However, blood substitutes remain in development and may be less effective in
certain indications than the blood components they are intended to replace,
and may be missing important blood factors, including those utilized for blood
clotting, immune surveillance and wound healing.

Viral Inactivation. Viral inactivation has been used successfully for plasma
derivatives worldwide since the mid-1980's and for the treatment of
transfusion plasma in Europe for several years. Viral inactivation has the
potential to inactivate both known and unknown viruses. Viral inactivation for
cellular blood components, such as red blood cells, is still under
development.

29
<PAGE>

THE VITEX ADVANTAGE

In the mid-1980's, Dr. Bernard Horowitz, the Company's Executive Vice
President and Chief Scientific Officer, led a team of researchers in the
development of the solvent/detergent viral inactivation process (the "S/D
process") that destroys the lipid shell or envelope that protects most human
pathogenic viruses found in the blood supply and inactivates all such viruses.
In 1985, the first plasma derivative product using the patented S/D process
was commercialized. Since then, the S/D process has been adopted by most
plasma fractionators worldwide. In 1991, a Swiss blood products manufacturer,
which had exclusive rights from the NYBC to the S/D process for transfusion
plasma in Europe, commercially introduced virally inactivated transfusion
plasma. VIPLAS/SD, the Company's virally inactivated plasma product was
approved for marketing by the FDA on May 6, 1998. Dr. Horowitz and his
scientific team are continuing their research at VITEX into the development of
a suite of viral inactivation technologies, designed to be used separately or
in combination, on all blood products including plasma, plasma derivatives,
red blood cells and platelets.

THE VITEX STRATEGY

VITEX's mission is to enable the global availability of safe blood products
through the use of the Company's proprietary viral inactivation systems. The
Company's approach to achieving this mission includes: (i) the development and
commercialization of a portfolio of proprietary products; and (ii) the
application of its technologies to develop viral inactivation processes and
systems. The Company intends to implement this approach through the following
strategies:

Expand Technological Leadership. VITEX believes that its scientific team has
developed the leading portfolio of viral inactivation technologies. The
Company intends to enhance this leadership position through continued
investment in these technologies. The Company believes that its technological
expertise and experience will enable it to develop a broad range of virally
inactivated blood products and viral inactivation systems.

Build a Broad Product Portfolio. VITEX will continue to develop its
diversified portfolio of proprietary products and viral inactivation systems.
The Company believes that this portfolio will address the broad product
requirements of its intended markets and provide the Company with multiple
sources of revenue.

Leverage Existing Manufacturing Capabilities and Regulatory Expertise. VITEX
is an integrated operating company engaged in the fractionation of blood
plasma. The Company will continue to invest in its manufacturing facility to
improve the quality and efficiency of manufacturing processes for its plasma
fractionation business and leverage such manufacturing expertise for virally
inactivated products and systems. The Company's managers are highly
experienced in the licensing and manufacturing of blood products and
pharmaceuticals. The Company believes that its existing manufacturing
capabilities and regulatory expertise should expedite the development of new
virally inactivated products and viral inactivation systems.

Capitalize on Corporate Collaborations. VITEX believes that it can
accelerate the commercialization of its products by establishing sales,
marketing and distribution collaborations, rather than by establishing its own
sales force. The Company has entered into collaborations with Bayer, the Red
Cross, U.S. Surgical and Pall for the sales, marketing and distribution of the
Company's products and systems. As part of these agreements, the Company is
collaborating with U.S. Surgical and Pall for the development of certain of
the Company's products and systems. VITEX may seek to establish additional
collaborations in other areas of strategic focus.

30
<PAGE>

PRODUCTS AND PRODUCT DEVELOPMENT

VITEX has developed and is further developing a comprehensive portfolio of
blood products and systems using its proprietary viral inactivation
technologies. In addition to S/D technology, which inactivates lipid-
enveloped viruses in protein solutions, the Company is developing several
other viral inactivation technologies. These additional technologies include
an irradiation technology that uses short wavelength ultraviolet light ("UVC")
to inactivate both enveloped and non-enveloped viruses in protein solutions,
photodynamic technology that uses light-activated compounds ("LAC") to
inactivate viruses in red blood cell and platelet concentrates, and quencher
("Quencher") technology that utilizes antioxidants to prevent damage to the
therapeutic proteins in blood derivatives and to cells from use of UVC and LAC
technologies. The following table identifies the Company's principal products
and product development programs within its major market segments:

<TABLE>
<CAPTION>
VIRAL
VITEX INACTIVATION THERAPEUTIC DEVELOPMENT
MARKET PRODUCT TECHNOLOGY INDICATION COLLABORATOR STATUS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Plasma Derivatives VITEX Plasma S/D(1) Expanding blood Bayer Commercialization
Fractions volume, treating commenced
infections and November 1995
diseases

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

Transfusion Plasma VIPLAS/SD S/D Controlling bleeding Red Cross(2) PLA and ELA
approved by FDA
on May 6, 1998
Universal VIPLAS/SD S/D Controlling bleeding, Red Cross(3) Research and
with no need for development;
blood typing IND filing
anticipated
first half 1999
Universal VIPLAS/SD S/D; UVC; Controlling bleeding, Red Cross(3) Research and
UVC Quenchers with no need for development
blood typing

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

Wound Care VIGuard S/D; UVC; Tissue sealant, U.S. Surgical Phase III clinical
Fibrin Sealant Quenchers controlling bleeding trials; BLA filing
and wound care anticipated
first half 1999
VIGuard UVC; Quenchers; Adhesive for use Unpartnered Pre-clinical studies
Albumin Solder Pasteurization as suture
replacement

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

Red Blood Cell VIGuard RBCC LAC; Quenchers Treatment for anemia Pall Pre-clinical studies
Concentrates/ and genetic disorders
Platelet
Concentrates
VIGuard PC LAC; Quenchers Treatment for Pall Research and
chemotherapy patients development
and patients with
acute bleeding
</TABLE>
(1) S/D technology is used by the Company's customers under non-exclusive
licenses from the NYBC to virally inactivate certain plasma derivatives
manufactured from fractions supplied to them by the Company.
(2) Subject to FDA approval, the Red Cross intends to distribute this product
under the name PLAS+(R)SD.
(3) The Red Cross has a right of first refusal to distribute these products.

31
<PAGE>

PLASMA DERIVATIVES

VITEX Plasma Fractions. VITEX is currently producing and selling commercial
quantities of its VITEX Plasma Fractions, principally to Bayer, one of the
four major providers of plasma derivatives worldwide. Bayer purifies and
virally inactivates certain of these fractions using S/D technology and
packages these plasma fractions as final plasma derivatives products. Because
most blood products processors have been licensed by the NYBC to use S/D
technology in the manufacture of virally inactivated plasma derivatives, the
Company's strategy has been to be a supplier to, rather than a competitor of,
these plasma fractionators. The Company's Processing Agreement with Bayer is
structured as a multi-year, "take-or-pay" supply agreement. See "--Strategic
Collaborations--Bayer Corporation."

Plasma Derivatives Market. The principal products derived from plasma are
albumin, Factor VIII and Factor IX and immunoglobulins. The market for plasma
derivatives was estimated to be approximately $1.1 billion in the United
States and approximately $4.6 billion worldwide in 1994. The Company believes
that worldwide demand for plasma derivatives is increasing at a rate of 10-20%
annually, due primarily to an aging population requiring more medical care,
the discovery of new clinical applications for existing products derived from
plasma, and the development of new products such as fibrin sealants and other
bioadhesives. While the demand for plasma derivatives is increasing, each of
the four major fractionators, Bayer, Centeon, Alpha Therapeutics and Baxter,
is currently operating at or near manufacturing capacity. Because of the
substantial capital expenditures and time associated with the construction,
validation and licensing of fractionation facilities, the Company believes
that demand for its fractionation capacity will remain high for the
foreseeable future.

The NYBC commercialized plasma fractions and derivatives from 1970 through
1993. Following its spinoff from the NYBC in 1995, the Company began
processing plasma fractions and has since expanded this business. The NYBC
received an Establishment License from the FDA for a new manufacturing
facility in 1980. See "Business--Manufacturing and Supply." The NYBC received
product licenses from the FDA for the manufacture of albumin, Factor VIII and
immunoglobulins. All FDA approvals originally granted to the NYBC were
assigned to the Company at the time of its formation.

TRANSFUSION PLASMA

VIPLAS/SD. VIPLAS/SD was approved for marketing by the FDA on May 6, 1998.
VIPLAS/SD is intended to serve as a virally inactivated substitute for FFP.
While virally inactivated plasma fractions have been commercially available
since 1985, VIPLAS/SD will be the first virally inactivated blood component,
as opposed to virally inactivated plasma fractions, marketed in the United
States. VIPLAS/SD is a transfusion plasma treated with the S/D viral
inactivation process which the Company believes will eliminate the
transmission of HIV, HBV, HCV and all other enveloped viruses transmitted via
plasma transfusions, which present the most significant viral risks from blood
transfusions. VIPLAS/SD will be a fully manufactured and quality controlled
product, filled in standardized doses, filter-sterilized to eliminate all
bacteria and parasites, and with a uniform content of coagulation factors and
other plasma proteins. Its labeled uses are the same as those for FFP and
include the treatment of certain coagulation factor deficits and thrombotic
thrombocytopenic purpura, a disease characterized in part by a low platelet
count. VITEX holds an exclusive license in North America and a non-exclusive
license in the rest of the world excluding Europe from the NYBC to apply the
proprietary S/D process to the viral inactivation of plasma. In addition,
under the agreement with the Red Cross, the Red Cross will act as the mutually
exclusive distributor of VIPLAS/SD in North America, provided that the Red
Cross purchases from the Company certain stated minimum quantities of
VIPLAS/SD. See "--Strategic Collaborations--American National Red Cross."

Transfusion Plasma Market. FFP is the component of blood used primarily in
the treatment of certain coagulation factor deficits. FFP is a source of all
blood clotting factors except platelets and is used to control bleeding in
patients who require clotting factors, such as patients undergoing surgical
transplant or other extensive medical procedures and patients with chronic
liver disease or certain genetic clotting factor deficiencies. The production
of FFP in 1995 is estimated to have been 2.7 million units in North America,
2.7 million units in western Europe and 5.2 million units in Japan. The
average unit selling price for FFP in North America is currently estimated by
the Company to be $50. The FFP market is currently served by the Red Cross and
by more than 100 independent blood centers in the United States.

32
<PAGE>

Universal VIPLAS/SD. Universal VIPLAS/SD is a product under development by
the Company which is intended to replace VIPLAS/SD. In addition to having the
same characteristics and benefits as VIPLAS/SD, Universal VIPLAS/SD would
eliminate the need for matching donor and recipient blood types. Universal
VIPLAS/SD is prepared using patented technology, exclusively licensed from the
NYBC, which binds and removes specific antibody present in donor plasma that
would otherwise cause an immune response in the recipient. VITEX has
established the feasibility of this approach and has initiated pre-clinical
studies. The Company expects to file an IND application for Universal
VIPLAS/SD in the first half of 1999.

Universal VIPLAS/SD UVC. Universal VIPLAS/SD UVC adds a second method of
viral inactivation, UVC treatment, in the presence of the Company's
proprietary Quenchers, to Universal VIPLAS/SD. In addition to inactivating
enveloped viruses, UVC also inactivates known non-enveloped viruses and may
offer added protection against other non-enveloped viruses that might
contaminate the blood supply in the future. Although the presence of
antibodies protects against known non-enveloped viruses, S/D and UVC
technologies used in combination provide a higher margin of blood product
safety than S/D technology alone. Additionally, the Company is evaluating UV
equipment designs with the goal of simultaneously maximizing virus
inactivation, protein recovery and throughput. Universal VIPLAS/SD UVC is at
an early stage of development and, consequently, there can be no assurance
that the Company will be able to successfully develop, secure approval for or
commercialize this product.

WOUND CARE PRODUCTS

VITEX is developing two virally inactivated wound care products for surgical
applications, VIGuard Fibrin Sealant and VIGuard Albumin Solder. While fibrin
sealants--also known as fibrin glues--have generally been available for use
outside of the United States, they have not yet been approved for use in the
United States. The Company's approach to viral inactivation of its VIGuard
Fibrin Sealant is based on the use of its proprietary double viral
inactivation system which utilizes the Company's S/D and UVC technologies.
VIGuard Albumin Solder, derived from pasteurized albumin, is also treated by
the Company's UVC technology.

VIGuard Fibrin Sealant. The Company is developing its VIGuard Fibrin Sealant
for use during surgical procedures to augment or replace sutures or staples
for wound closure. The Company expects that VIGuard Fibrin Sealant will be the
first available doubly virally inactivated fibrin sealant in the United
States. Fibrin sealants are created by combining the two principal clotting
factors found in blood, fibrinogen and thrombin, whose natural function is to
halt bleeding and seal tissues. Fibrin sealants are biodegradable, and their
use does not generally elicit an immune response frequently associated with
non-biological glues.

Fibrin Sealant Market. In Europe and Japan where fibrin sealants are
licensed, these products have been shown to reduce the loss of blood or other
important bodily fluids and to produce less scarring when used as a tissue
adhesive as compared to conventional sutures. The Company estimates that the
market for fibrin sealants in Europe and Japan was $150 million and $200
million, respectively, in 1997. It is estimated that the U.S. market for
fibrin sealants will be in excess of $350 million within five years following
the introduction of fibrin sealants in the U.S.

Regulatory Status. VITEX submitted an IND application and commenced clinical
trials for VIGuard Fibrin Sealant in late 1995. Initial Phase II trials were
designed to evaluate the safety and efficacy of VIGuard Fibrin Sealant in
patients who have undergone modified radical mastectomy or lumpectomy in the
treatment of breast cancer. Eighty patients at five clinical sites
participated in the mastectomy/lumpectomy trial which was completed in late
1996. VITEX, in collaboration with U.S. Surgical, commenced two Phase III
trials at more than 20 sites in late 1997, one of which is a continuation of
the evaluation of VIGuard Fibrin Sealant following breast cancer surgery and
the other evaluates VIGuard Fibrin Sealant's ability to reduce blood loss
following carotid artery surgery. The Company is constructing a manufacturing
area within its facility to permit the production, subject to FDA approval, of
commercial quantities of VIGuard Fibrin Sealant. The Company expects to submit
a PLA for VIGuard Fibrin Sealant in the first half of 1999.

VIGuard Albumin Solder. Albumin solder is a solution of highly concentrated
human albumin formulated to solidify and bond tissue when exposed to laser
light. Prior to soldering, the albumin remains at the site of

33
<PAGE>

application because of its high viscosity; exposure to the laser light causes
the albumin to denature and bond. The Company's VIGuard Albumin Solder is
based on FDA licensed processes for the manufacture of normal serum albumin,
which includes pasteurization. After pasteurization, VIGuard Albumin Solder is
treated with the Company's proprietary UVC technology. A patent covering this
unique formulation has been issued to VITEX and The Childrens Hospital in
Boston, VITEX's research collaborator in this area. The bonding strength of
this product has been shown to be higher than fibrin sealant.

Albumin Solder Market. The principal market opportunities for albumin solder
are in the joining of arteries, veins and similar body tissues (i.e.,
anastomosis) in cardiovascular, vascular and urological surgery. Suturing
these vessels can be extremely time consuming and any method which reduces or
eliminates the need for sutures is likely to be embraced. In addition to
having many of the same advantages described above for fibrin sealants, the
higher bond strength of albumin solder may permit sutureless anastomosis in
open and minimally invasive surgical procedures.

Regulatory Status. Pre-clinical studies of VIGuard Albumin Solder have
demonstrated its potential to reduce operating times while achieving complete,
leak-free closure in anastomosis. In limited pre-clinical studies, surgical
wounds were repaired with VIGuard Albumin Solder twice as quickly as compared
with sutures alone. In hypospadia (i.e., urinary duct) repair, albumin solder
performed better than sutures as measured by a lower incidence of duct leakage
following treatment. In a study of carotid artery anastomosis in dogs, the
burst pressure for repaired arteries was equivalent to that for sutured
arteries initially following surgery and 21 days thereafter.

RED BLOOD CELL CONCENTRATES/PLATELET CONCENTRATES

The Company is developing virally inactivated red blood cell concentrates
("RBCC") and platelet concentrates ("PC") based on the use of LAC that respond
to specific wavelengths of light. These viral inactivation procedures, which
are performed in combination with the Company's Quenchers, are designed to
leave unaffected the structure, function and circulatory persistence of the
treated cells, thus preserving the biological characteristics of these blood
components. These results contrast substantially with published data on blood
substitutes (e.g., hemoglobin solutions and platelet membranes) whose
functional properties do not match those of intact red blood cells and
platelets. The Company has entered into an agreement with Pall regarding the
development and distribution of systems for the viral inactivation of RBCC and
PC. See "--Strategic Collaborations--Pall Corporation."

VIGuard Red Blood Cell Concentrates. The majority of blood products
transfusions involve red blood cells. Red blood cells deliver oxygen to and
remove carbon dioxide from tissues. Red blood cells are used in the care of
patients with trauma, anemia and certain genetic disorders. The current
worldwide market for RBCC is estimated at approximately $3.0 billion. In the
United States alone, homologous RBCC transfusions exceed 11 million units
annually, with an estimated market value of $1.0 billion. The Company's lead
light-activated compound, Pc4, is being compared with other compounds
available to VITEX in both laboratory and pre-clinical studies. Pc4 has been
shown to inactivate HIV and the bovine virus used as a model for HCV, as well
as the parasites that cause Chagas' disease and malaria. In addition, Pc4-
treated red blood cells have exhibited an acceptable recovery and circulatory
survival during pre-clinical studies. VITEX expects to file an IND application
for VIGuard RBCC in the first half of 1999.

VIGuard Platelet Concentrates. Platelets initiate blood clotting and promote
wound healing through the delivery of growth factors to the site of injury.
The current annual market for PC is estimated at $1.4 billion worldwide and
over $500 million in the United States. The Company is synthesizing new
compounds and evaluating these compounds using VITEX's screening tests. For
PC, the Company utilizes a LAC which triggers a unique chemical reaction
which, in turn, maximizes damage to viral nucleic acids. This product is at an
early stage of development, and there can be no assurance that any platelet
viral inactivation system will be commercialized by the Company in the near
future, if at all.

VIRAL INACTIVATION TECHNOLOGY PLATFORM

The Company's products are based on a portfolio of technologies which are
designed to be used either individually or in combination. Members of the
Company's scientific team developed the core VITEX viral

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inactivation technologies while working at the NYBC. The NYBC subsequently
licensed these technologies to the Company. In addition, the Company continues
to make substantial investments in research and development to enhance the
value of its technology platform and has filed several patent applications as
a result of these activities. The technologies being developed by the Company
are described below:

The Solvent/Detergent ("S/D") Technology. Most pathogenic viruses found in
blood, including HBV, HCV and HIV, are protected by a lipid shell or envelope.
The Company's scientific team, led by Dr. Bernard Horowitz, the Company's
Executive Vice President and Chief Scientific Officer, developed the S/D
process while at the NYBC. The S/D process involves the addition of a chemical
solvent (a di- or trialkyl phosphate) and a detergent into pools of plasma or
plasma fractions. The solvent dissolves the lipid shell of the virus, after
which the virus can no longer bind to and infect plasma cells. The detergent
serves to enhance the contact between solvent and virus. The process is
completed by removing the S/D reagents, typically by extraction with vegetable
oil and hydrophobic chromatography, and sterile filtering to remove bacteria,
parasites and all undesirable blood leukocytes.

The S/D process was first applied to plasma derivatives in 1985 for use in
patients with hemophilia. This process has become the most widely used method
for the inactivation of lipid enveloped viruses around the world and currently
is used, under license from the NYBC, by more than 50 plasma fractionators.
Since 1985, it is estimated that more than 9 million doses of S/D-treated
Factors VIII and IX, and a total of over 15 million doses of all S/D-treated
products, have been administered without a single reported case of HBV, HCV or
HIV transmission.

Research into the application of the S/D process to transfusion plasma began
in the late 1980's and, in 1991, a Swiss blood products manufacturer which had
exclusive rights from NYBC to the S/D process for transfusion plasma in
Europe, introduced its transfusion plasma product. Since that time, more than
3 million units of S/D-treated plasma have been transfused in Europe without a
single reported case of virus transmission. Moreover, experience in Europe has
demonstrated that plasma for transfusion, when treated with the S/D process,
retains blood protein structure and function with minimal loss of essential
protein components and can be implemented cost-effectively.

Ultraviolet C Light ("UVC") Technology. VITEX's proprietary UVC viral
inactivation process has been shown to inactivate both enveloped and non-
enveloped viruses. Viral inactivation occurs because viral nucleic acids are
modified directly when they absorb ultraviolet light energy. Specificity
results from differential absorption of UVC by nucleic acids and proteins and
the much larger target size presented by nucleic acids. Quenchers added to
plasma or plasma derivatives prior to treatment serve as a source of
antioxident, preventing oxidative damage to therapeutic proteins without
interfering with viral inactivation.

Initial research and development of the UVC technology was conducted by the
Company's scientists at the NYBC and is being continued at VITEX. The research
and development effort includes the development of an irradiator which
controls UVC intensity and provides a fluid path for the plasma or plasma
derivative being treated. The Company is currently conducting Phase III
clinical trials of a product which employs S/D and UVC technologies. The
Company intends to file a PLA for this product in the first half of 1999.

Light-Activated Compound ("LAC") Technology. VITEX is developing LAC
technology for viral inactivation of RBCC and PC. LAC technology is based on
the use of specific wavelengths of light and photosensitizers to initiate a
series of reactions leading to the inactivation of viruses. In addition, LAC
technology has been shown to inactivate parasites and bacteria in pre-clinical
studies.

VITEX researchers have shown that many factors regulate the degree of viral
inactivation and associated cellular damage using LAC technology. These
factors include the selection of the specific photosensitizer, the addition of
specific Quenchers, the selection of light at the appropriate wavelength, the
intensity of the light source and the formulation of the photosensitizer. The
Company has available to it a wide variety of light-activated compounds for
the treatment of RBCC and PC. RBCC are generally able to repair oxidative
damage that typically accompanies the use of LAC. One such class of LACs, the
Company's proprietary phthalocyanines,

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is particularly suited to the treatment of RBCC since the wavelengths of light
used to activate these photosensitizers are not absorbed by red blood cells.
Phthalocyanines cannot be used for the treatment of platelets because they
cause damage to platelets. Other LACs, like those in the NG/LAC series the
Company is creating, are better suited to the treatment of platelets. Although
at an early stage of development, NG/LAC are designed to bind strongly to
viral nucleic acids, damaging them more efficiently than other LACs. NG/LAC
cannot be used with red blood cells because red blood cells absorb the light
that activates NG/LAC.

Quencher Technology. Treatment with UVC or LAC generates reactive oxygen
species ("ROS") which can damage proteins and cells. VITEX has shown in pre-
clinical studies that inclusion of chemical antioxidants during viral
inactivation quench or react readily with ROS to reduce damage to proteins and
cells without interfering with inactivation of viruses and other pathogens. As
examples, under equally virucidal conditions, with the inclusion of Quenchers,
the yield of biologically active UVC-treated Factor VIII, the in vivo survival
of LAC-treated red cells and the yield of biologically active LAC-treated
platelets each improved 2.5 times. The Company's Quenchers include rutin (a
naturally occurring flavonoid found in many fruits and vegetables), mannitol
(a sugar), cysteine (a naturally occurring amino acid), and vitamin E.

STRATEGIC COLLABORATIONS

VITEX believes that it can efficiently accelerate the commercialization of
its products by collaborating with sales, marketing and distribution partners,
rather than by establishing its own sales force. The Company has entered into
collaborations with Bayer, the Red Cross, U.S. Surgical and Pall, for the
sales, marketing and distribution of the Company's products and systems. As
part of these agreements, the Company is collaborating with U.S. Surgical and
Pall for the development of certain of the Company's products and systems.
VITEX may seek to establish additional collaborations with partners in other
areas of strategic focus. The terms of the Company's strategic collaborations
are described below:

Bayer Corporation. The Company, as one of many non-exclusive licensees of
S/D technology for viral inactivation of plasma fractions, does not itself use
the S/D technology to virally inactivate plasma fractions. Rather than
competing with existing suppliers of virally inactivated plasma fractions, the
Company has decided to participate in the market for virally-inactivated
plasma fractions by providing plasma fractions to other parties for viral
inactivation by such other parties. In February 1995, the Company entered into
an Agreement for Custom Processing (the "Processing Agreement") with Bayer,
one of the largest processors of blood plasma, to supply VITEX Plasma
Fractions to Bayer. This Processing Agreement was amended in January 1996 and
December 1997 to, among other things, extend the term through 2001 and
increase the volume of plasma fractionated under this agreement through 1999.
The term of the agreement is automatically extended for two additional one-
year periods unless Bayer notifies VITEX within certain specified periods that
it does not desire to extend the agreement for either one-year period. Through
its initial term ending in December 2001, the contract provides for revenues
to VITEX of approximately $100 million, subject to the Company meeting certain
performance obligations. Cumulative revenues to VITEX, including the amounts
paid during the initial term, will be approximately $140 million if the
arrangement is extended as permitted by the contract, although there can be no
assurance that any such extension will occur. The Company received $13.9
million in revenues from Bayer in 1997 under this agreement. Under this
agreement, Bayer is obligated to provide the Company with a specified quantity
of plasma annually during the term of the agreement and the Company is
obligated to return plasma fractions to Bayer within certain specified
periods. The agreement is structured as a take-or-pay arrangement under which
Bayer is obligated to pay VITEX a fixed fee per liter of fractionated plasma
whether or not Bayer fulfills its obligation to supply plasma to the Company.
Certain of the plasma fractions supplied to Bayer are virally inactivated by
Bayer using the S/D technology licensed to Bayer by the NYBC. In the event
that VITEX does not provide fractions as required under the agreement, or upon
the occurrence of other events of default, Bayer has certain rights to take
over and operate the fractionation portion of the Company's production
facility. As security for the performance of the Company's obligations under
the Bayer agreement, the Company granted Bayer a mortgage on the Company's
manufacturing facility, which Bayer has subordinated to a subsequent mortgage
granted by the Company to The Chase Manhattan Bank, and a security interest in
substantially all of the personal property of the Company that is necessary or
useful to the processing and fractionation of Bayer

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supplied plasma. The Company may terminate the agreement upon written notice
of a material breach of the agreement and failure to cure by Bayer. Bayer may
terminate the agreement in certain circumstances including a material breach
of the agreement and failure to cure by the Company and an event of default
under the Company's credit agreement with its institutional lender.

American National Red Cross. In December 1997, the Company entered into a
supply, manufacturing and distribution agreement with the Red Cross over a
term of 57 months, for the Red Cross to become the exclusive distributor of
the Company's VIPLAS/SD in North America following receipt by the Company of
marketing approval by the FDA. The Red Cross intends to market VIPLAS/SD under
its proposed brand name, PLAS+(R)SD. The Red Cross is the largest supplier of
transfusion plasma to hospitals in the United States, currently providing
about 45% of the transfusion plasma used annually. Under the agreement, the
Red Cross is required to purchase stated minimum quantities of VIPLAS/SD to
maintain its exclusive rights. Once the Red Cross places its annual purchase
order with VITEX, it is obligated to supply VITEX with a sufficient quantity
of plasma to enable VITEX to fulfill the order. The Red Cross must pay for the
amount of VIPLAS/SD specified in the purchase order even if it is unable to
supply sufficient quantities of plasma. The Red Cross must purchase all of its
virally-inactivated plasma from the Company unless an FDA approved product has
been independently shown to be safer than the VIPLAS/SD. The Company, in turn,
is obligated to offer any excess capacity that it has to produce VIPLAS/SD
above the stated minimum purchase requirements to the Red Cross before selling
VIPLAS/SD to any other party. Under the agreement, the Red Cross is required
to pay to the Company a fixed price per unit of VIPLAS/SD, plus a royalty
equal to a portion of the amount by which the average selling price of the Red
Cross exceeds a stated amount. The Company has granted to the Red Cross a
right of first refusal to acquire exclusive distribution rights to any
subsequent generation of viral inactivation plasma products that are developed
during the term of the agreement. The Company and the Red Cross have each
committed to spend minimum amounts for marketing VIPLAS/SD in 1998 and 1999.
Additionally, a joint marketing committee will coordinate all marketing
activities for VIPLAS/SD. The exclusive distribution agreement between the
Company and the Red Cross provides that the Red Cross will use its best
efforts to ensure availability of the Company's virally inactivated plasma
products to all potential customers, including Red Cross blood centers and
non-Red Cross blood centers. This agreement replaces the previous
collaboration agreement among the Red Cross, the NYBC and the Company. Under
the original agreement, the Red Cross made a $3.0 million non-interest
bearing, unsecured loan to the Company to be used to fund improvements to the
Company's manufacturing facility. Under the original agreement, as amended,
the loan amortizes at the rate of 15% per year following receipt of marketing
approval of VIPLAS/SD with a balloon payment due in year five. Each of the
Company and Red Cross has the right to terminate the agreement upon written
notice in certain circumstances, including a material breach of the agreement
which is not cured by the other party.

United States Surgical Corporation. In September 1996, the Company and U.S.
Surgical entered into an exclusive worldwide distribution agreement, which was
amended in October 1996, regarding VIGuard Fibrin Sealant for an initial
period of 15 years. Upon entering into the agreement, U.S. Surgical paid a
$3.0 million up front fee to the Company. U.S. Surgical has agreed to fund all
direct clinical and regulatory costs associated with the development and
regulatory approval of VIGuard Fibrin Sealant after the initial Phase II trial
conducted by the Company. In addition, U.S. Surgical has agreed, subject to
termination upon notice, to pay a substantial portion of agreed upon research
and development costs associated with any improvements or, in return for
exclusive rights, enhancements to VIGuard Fibrin Sealant. Pursuant to this
agreement, the Company granted U.S. Surgical the mutually exclusive worldwide
right, until October 2011, to seek, in its own name as permitted by law,
necessary government approvals for and to use, market, distribute and sell
fibrin sealants, and any improvements thereto which improve the storage or
reconstitution time of such products, for use in in vivo human and veterinary
medical applications. This mutually exclusive distribution agreement further
provides U.S. Surgical with a first option to obtain exclusive distribution
rights on any enhanced products developed by the Company as well as certain
other wound care products developed in the future. U.S. Surgical must achieve
certain minimum sales of the products to maintain its exclusive rights under
the agreement. Under the agreement, the Company agrees to supply U.S.
Surgical's forecasted demand for the products and if it is unable to supply an
agreed upon level in excess of such forecasted demand, for a stated period,
U.S. Surgical has an option to

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make arrangements to have the excess demand for such products produced by
third-party manufacturers. Either the Company or U.S. Surgical may terminate
the agreement upon written notice in certain circumstances, including a breach
of the agreement by the other party which is not cured. U.S. Surgical may also
terminate the agreement for any reason upon nine months' notice to the
Company.

Pall Corporation. In February 1998, the Company and Pall entered into a
series of agreements (the "Pall Agreements") providing for, among other
things, a collaboration on the development and marketing of systems employing
the Company's LAC and Quencher viral inactivation technologies for RBCC and
PC, or red blood cell and platelet concentrates. Pall is a leading
manufacturer and supplier of filtration products, including those relating to
the collection, preservation, processing, manipulation, storage and treatment
of blood and blood components. VITEX will continue to develop its proprietary
LAC and Quencher viral inactivation technologies in collaboration with Pall's
proprietary filtration and processing technologies for pathogen removal in the
treatment of red blood cell and platelet concentrates. Under the Pall
Agreements, Pall receives exclusive worldwide distribution rights to any
system incorporating any VITEX viral inactivation technology for red blood
cells and platelets. The parties have also agreed to share research,
development, clinical and regulatory responsibilities and will equally share
profits and joint expenses from operations after each party is reimbursed for
its cost of goods. Upon execution of the Pall Agreements in February 1998,
Pall acquired 477,042 shares of the Common Stock for $4.0 million or $8.39 per
share. Pursuant to the terms of the Pall Agreements, Pall has agreed to make a
$5.0 million investment contemporaneously with the closing of the public
offering contemplated by this Prospectus. In addition, the Pall Agreements
provide that Pall will purchase up to $17.0 million worth of VITEX Common
Stock in installments tied to the achievement of specified development
milestones in the development of VIGuard RBCC and VIGuard PC. Such equity
investments by Pall will be made at the prevailing market price per share.
Pursuant to the Pall Agreements, certain existing stockholders of the Company
have agreed to vote their shares to elect to the Board of Directors of the
Company a nominee designated by Pall. Certain of the Pall Agreements may be
terminated in certain circumstances including an event of default by either
party which, in the case of VITEX, includes the termination for any reason of
Dr. Bernard Horowitz's employment with the Company.

MANUFACTURING AND SUPPLY

The Company currently produces all of its plasma fractions in its 92,000
square foot facility. The Company intends to produce VIPLAS/SD, and when and
if approved for marketing by the FDA, VIGuard Fibrin Sealant and VIGuard
Albumin Solder, in its existing manufacturing facility. The Company is
currently fractionating plasma at its manufacturing facility near capacity and
has no plans to increase its plasma fractionation capacity. The Company's
manufacturing facility has sufficient capacity to meet the minimum purchase
requirements of the Red Cross for VIPLAS/SD under its agreement with the Red
Cross. The Company intends to increase its production capacity of VIPLAS/SD
through the addition of a new pooling room and filling machine if demand for
VIPLAS/SD exceeds such minimum purchase requirements. The Company has begun
making the necessary capital investments in its manufacturing facility to
enable it to produce sufficient commercial quantities of VIGuard Fibrin
Sealant to meet the anticipated initial demand for this product and to produce
products being placed into clinical testing. Through its collaboration with
Pall, the Company will cooperate in the development of red blood cell and
platelet concentrate viral inactivation systems and intends to contract with
third parties for the manufacture of these systems.

In May 1998, the FDA approved the Company's Establishment License
Application for the manufacture of VIPLAS/SD at the Company's manufacturing
facility. Renovations to the Company's facility to accommodate production of
VIGuard Fibrin Sealant have been initiated and are expected to be completed in
the first half of 1999.

The Company's manufacturing processes are subject to extensive regulation by
the FDA, including the FDA's current Good Manufacturing Practice ("cGMP")
requirements. Failure to comply with such requirements would materially impair
the Company's ability to maintain commercial-scale production of its plasma
fractions or achieve and maintain commercial-scale production of any future
products. If the Company is unable to achieve

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full scale production capability for any product, acceptance by the market of
such product would be impaired and any such impairment in market acceptance
would have a material adverse effect on the Company's business, financial
condition and results of operations.

The Company purchases certain key components for the manufacture of its
products from a limited number of outside suppliers and intends to continue
purchasing components from outside suppliers for its future products. The
Company currently obtains from a single supplier the customized bags for the
packaging of its VIPLAS/SD product. However, the Company has entered into an
agreement with an additional supplier of these bags which provides that the
additional supplier will provide such bags if the existing supplier is unable
to do so. Further, while the Company has identified several sources for a key
component of one of its proposed wound care products, it is currently
negotiating an agreement with only a single supplier of this component.
Establishing or utilizing additional or replacement suppliers for any such
components, if required, may not be accomplished quickly and could involve
significant additional costs. Any failure by the Company to obtain any
components used to manufacture its products from alternative suppliers, if
required, could limit the Company's ability to manufacture its products and
could have a material adverse effect on the Company's business, financial
condition and results of operations. Moreover, the inclusion of components
manufactured by others could require the Company to seek approvals from
government regulatory authorities, which could result in delays in product
delivery. There can be no assurance that the Company would receive any such
regulatory approvals. Any such delay would have a material adverse effect on
the Company's business, financial condition and results of operations.

The Company owns its Melville, New York facility subject to an arrangement
with the Suffolk County (New York) Industrial Development Agency for certain
economic benefits. See note 13 to the Company's Financial Statements. The
Company leases 12,000 square feet of laboratory space from Columbia University
to support its research and development activities.

SALES, MARKETING AND DISTRIBUTION

VITEX believes that it can accelerate the commercialization of its products
by collaborating with sales, marketing and distribution partners, rather than
by establishing its own sales force. The Company has entered into
collaborations with Bayer, Red Cross, U.S. Surgical and Pall, for the sales,
marketing and distribution of the Company's products and systems. As part of
these agreements, the Company is also collaborating with U.S. Surgical and
Pall for the development of certain of the Company's products and systems.
VITEX may seek to establish additional collaborations in other areas of
strategic focus.

In December 1997, the Company contracted with the Red Cross for the Red
Cross to become the exclusive distributor of the Company's VIPLAS/SD in North
America, to be marketed under the brand name PLAS+(R)SD by the Red Cross. The
Company and the Red Cross have each committed to spend certain minimums for
marketing VIPLAS/SD in 1998 and 1999. Additionally, a joint marketing
committee will coordinate all marketing activities for VIPLAS/SD. The Company
has entered into a distribution agreement with U.S. Surgical pursuant to which
the Company has granted U.S. Surgical the exclusive worldwide rights to market
and distribute its VIGuard Fibrin Sealant, subject to U.S. Surgical achieving
stated minimum sales requirements for such products. Under the terms of the
Pall Agreements, Pall agreed to, among other things, collaborate on the
development and marketing of systems employing the Company's viral
inactivation technologies for RBCC and PC. Under the Pall Agreements, among
other things, Pall receives exclusive worldwide distribution rights to any
systems incorporating any VITEX viral inactivation technology for red blood
cells and platelets.

The Company believes that market acceptance of the Company's products and
systems will depend, in part, on the Company's ability to provide acceptable
evidence of the safety, efficacy and cost-effectiveness of its products and
systems, as well as the ability of blood centers and hospitals to obtain
adequate reimbursement for such products. The Company believes that market
acceptance of its products and systems will also depend upon the extent to
which physicians, patients and health care payors perceive that the benefits
of using the Company's products and systems justify the additional costs and
processing requirements. There can be no assurance that

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the Company's products and systems will gain any significant degree of market
acceptance among blood centers, physicians, patients and health care payors,
even if clinical trials demonstrate safety and efficacy and necessary
regulatory approvals and health care reimbursement approvals are obtained.
There can be no assurance that the Company's strategic collaborators will
market the Company's products successfully or that any third-party
collaboration will be on terms favorable to the Company. If a collaborator
with the Company does not market a product successfully, the Company's
business would be materially adversely affected. There can be no assurance
that the Company's collaborators will be successful in gaining market
acceptance for any products that the Company may develop and a failure to do
so would result in a material adverse affect on the Company's business,
results of operations and financial condition.

PATENTS, LICENSES AND PROPRIETARY RIGHTS

The Company's success depends in part on its ability to maintain licensed
patent rights, obtain patents, protect trade secrets, operate without
infringing upon the proprietary rights of others and prevent others from
infringing on the proprietary rights of the Company. The Company's policy is
to seek to protect its proprietary position by, among other methods, filing
United States and foreign patent applications related to its proprietary
technology, inventions and improvements that are important to the development
of its business. The Company believes that the protection of its proprietary
technologies may create competitive barriers to entry into the viral
inactivation market. The Company intends to continue to pursue its patent
filing strategy and to vigorously defend its intellectual property position
against infringement.

In connection with its spinoff from the NYBC, the Company became the
licensee of a substantial portfolio of patents and patent applications held by
the NYBC. The Company is a nonexclusive worldwide licensee under 12 issued
United States patents which expire at various times from 2000 to 2009, 26
issued foreign counterpart patents and three pending foreign counterpart
patent applications held by the NYBC for use of the S/D process in treating
plasma derivatives. The Company is a nonexclusive worldwide licensee under two
issued United States patents which expire in 2010 and 2014, five pending
United States patent applications, four issued foreign counterpart patents and
20 pending foreign counterpart patent applications held by the NYBC for use of
UVC technology in treating plasma derivatives. The Company is the exclusive
licensee for the U.S., Canada and Mexico and a non-exclusive licensee outside
of the United States, Canada, Mexico and Europe under 14 issued United States
patents which expire at various times from 2000 to 2014, five pending United
States patent applications, 17 issued foreign counterpart patents and 15
pending foreign counterpart patent applications held by the NYBC for use of
the S/D process and UVC technology in treating transfusion plasma products.
The Company is the exclusive worldwide licensee under two issued United States
patents which expire in 2010 and 2014, five pending United States patent
applications, four issued foreign counterpart patents and 20 pending foreign
counterpart patent applications held by the NYBC for use of UVC technology in
treating fibrin sealant/thrombin products and for the manufacture and use of
fibrin sealant, fibrinogen and thrombin and the nonexclusive worldwide
licensee under 12 issued United States patents which expire at various times
from 2000 to 2009, 26 issued foreign counterpart patents and three pending
foreign counterpart patent applications held by the NYBC for use of the S/D
process in treating fibrin sealant/thrombin products. Finally, the Company is
the exclusive worldwide licensee under four issued United States patents which
expire at various times from 2010 to 2015, 11 pending United States patent
applications, four issued foreign counterpart patents and 33 pending foreign
counterpart patent applications held by the NYBC for use of light and certain
compounds in virally inactivating cellular products. The rights referred to
above are granted to the Company by five license agreements between the
Company and the NYBC. The NYBC has the right to terminate any of these
licenses if the Company breaches the respective license and fails to cure such
breach, fails to produce and market the relevant products within specified
time frames or fails to conform to government regulations in the production of
the relevant products. For exclusive licenses, the NYBC has the right to
terminate the license if certain minimum payments and/or minimum royalties are
not paid by the Company. If any of the licenses between the Company and the
NYBC were terminated it would have an adverse effect upon the Company's
business, results of operations and financial condition. See "Risk Factors--
Uncertainty of Proprietary Technologies and Patents."

In addition to being a licensee to patents and patent applications held by
the NYBC, the Company is developing its own technologies and products and
pursuing patent protection for such technologies and products.

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The Company has one pending United States patent application and is the co-
owner of one issued United States patent.

Proprietary rights relating to the Company's planned and potential products
will be protected from unauthorized use by third parties only to the extent
that they are covered by valid and enforceable patents or are effectively
maintained as trade secrets. There can be no assurance that any patents owned
by, or licensed to, the Company will afford protection against competitors or
that any pending patent applications now or hereafter filed by, or licensed,
to the Company will result in patents being issued. In addition, the laws of
certain foreign countries do not protect the Company's intellectual property
rights to the same extent as do the laws of the United States. The patent
positions of biopharmaceutical companies involve complex legal and factual
questions and, therefore, their enforceability cannot be predicted with
certainty. There can be no assurance that any of the Company's owned or
licensed patents or patent applications, if issued, will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will
provide proprietary protection or competitive advantages to the Company
against competitors with similar technology. Furthermore, there can be no
assurance that others will not independently develop similar technologies or
duplicate any technology developed by the Company.

Because patent applications in the United States are maintained in secrecy
until patents issue, and since publication of discoveries in the scientific or
patent literature often lag behind actual discoveries, the Company cannot be
certain that it or its licensors were the first to make the inventions covered
by each of its issued, licensed or pending patent applications or that it or
its licensors were the first to file for protection of inventions set forth in
such patent applications. There can be no assurance that the Company's planned
or potential products will not be covered by third-party patents or other
intellectual property rights, in which case continued development and
marketing of such products would require a license under such patents or other
intellectual property rights. There can be no assurance that such required
licenses will be available to the Company on acceptable terms, if at all. If
the Company does not obtain such licenses, it could encounter delays in
product introductions while it attempts to design around such patents or could
find that the development, manufacture or sale of products requiring such
licenses is foreclosed.

COMPETITION

The Company's products and products under development will compete with
current approaches to enhance blood safety, as well as with future products
under development by others, including medical technology, biotechnology,
pharmaceutical and hospital supply companies, national and regional blood
centers, governmental organizations and agencies, academic institutions and
other agencies. The industries in which the Company competes are characterized
by rapid and significant technological changes. Accordingly, the Company's
success will depend in part on its ability to respond quickly to medical and
technological changes through the development and introduction of new
products. Many companies and organizations that may be competitors or
potential competitors of the Company have substantially greater financial and
other resources than the Company and may have greater experience in pre-
clinical studies, clinical trials and other regulatory approval procedures. In
addition, other technologies or products may be developed that have an
entirely different approach or means of accomplishing the intended purposes of
the Company's products, or that might render the Company's technology and
products uncompetitive or obsolete. Furthermore, there can be no assurance
that the Company's competitors will not obtain patent protection or other
intellectual property rights that would limit the Company's ability to use the
Company's technology or commercialize products that may be developed.

For VITEX Plasma Fractions, which are currently in production, the Company
faces competition from other large plasma fractionators. Additional
competition in the market for plasma derivatives may come from producers of
recombinant blood products. Competition in this area may have a material
adverse effect on the Company's business, financial condition and results of
operations.

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Competition with VIPLAS/SD and the Company's products under development may
come from alternative approaches to the problem of improving the safety of
blood and blood products and from alternative viral inactivation technologies.
The alternative approaches to achieving safer blood component products include
apheresis blood collection systems, the use of blood substitutes, blood
salvage systems, blood cell stimulants, leukocyte filters and reduction
systems and improved blood testing. All of these approaches are currently
available, and each has gained some degree of market acceptance.

In the area of viral inactivation of blood and blood components, several
companies are developing technologies which are, or in the future may be, the
basis for products that will directly compete with or reduce the market
opportunity for VIPLAS/SD and the Company's viral inactivation products which
are under development. In the plasma market, treatment with methylene blue is
used commercially in Europe for pathogen inactivation. Because the Company's
S/D process involves pooling plasma, there may be an increased risk of
transmission of pathogens not inactivated by the process, as compared with
processes, such as treatment with methylene blue, which do not require
pooling. In addition to methylene blue, other viral inactivation methods which
may compete with the Company's S/D, UVC and LACs include patented viral
inactivation compounds, including psoralens, developed by Cerus Corporation.
Additionally, ozone sterinetics technology under development may compete with
the Company's viral inactivation technology. The Company believes that the
primary competitive factors in the market for viral inactivation systems will
include the breadth and effectiveness of viral inactivation processes, ease of
use, the scope and enforceability of patent or other proprietary rights,
product price, product supply and marketing and sales capability. In addition,
the length of time required for products to be developed and to receive
regulatory and, in some cases, reimbursement approval is an important
competitive factor. The Company believes it competes favorably with respect to
these factors, although there can be no assurance that it will be able to
continue to do so. Any failure by the Company to compete effectively with
these alternative products and technologies would have a material adverse
effect on the Company's business, financial condition and results of
operations.

The Company's wound care products will compete with existing wound care
techniques, such as sutures and synthetic glues, which do not carry the risk
of viral contamination. The Company may face competition from many other
companies seeking to develop and market fibrin sealants. The Company believes
several other companies are developing competitive wound care products,
including synthetic glues and other alternatives to sutures. There can be no
assurance that any of these alternative viral inactivation systems or wound
care products will not achieve widespread acceptance. For the Company's
products to gain market acceptance, the Company may need to demonstrate that
its products are superior in performance, safer or more cost-effective than
other existing or future technologies or products.

GOVERNMENT REGULATION

The Company and its products are comprehensively regulated by the FDA and,
in some instances, by state and local governments, and by foreign regulatory
authorities. The FDA regulates drugs, medical devices and biologics under the
Federal Food, Drug and Cosmetic Act and other laws, including, in the case of
biologics, the Public Health Service Act. These laws and implementing
regulations govern, among other things, the development, testing,
manufacturing, record keeping, storage, labeling, advertising, promotion and
premarket approval of such products.

The PLA for the Company's VITEX Plasma Fractions was approved initially by
the FDA in 1970 and amended from time to time thereafter. The Company believes
that its VIGuard Fibrin Sealant, like VITEX Plasma Fractions and VIPLAS/SD,
will be regulated by the FDA as biologics. The Company anticipates that its
VIGuard Albumin Solder may be regulated as a medical device. However, despite
the Company's expectations of how a given product will be regulated, it is
possible that the FDA will decide to regulate any one or more of the Company's
products as biologics, as medical devices, as "combination products,"
including drugs or biologics and one or more medical devices, or as drugs or
biologics with one or more medical devices requiring separate approval or
clearance. Whether the FDA regulates the Company's products as biologics or as
one or more of the other alternatives, it is likely that the FDA's Center for
Biologics Evaluation and Review will be principally responsible for regulating
the Company's products.

42
<PAGE>

Before a new drug may be marketed in the United States, the FDA must approve
an NDA for the product. Before a biologic may be marketed in the United
States, the FDA must approve either a Biologics License Application ("BLA")
covering both the product and the facility or a PLA for the product and an
Establishment License Application ("ELA") for the facility at which the
product is manufactured. Before a medical device may be marketed in the United
States, the FDA must clear a pre-market notification (a "510(k)") or approve a
pre-market application ("PMA") for the product. Before a combination product
may be marketed in the United States, it must have an approved NDA, BLA (or
PLA/ELA) or PMA, depending on which statutory authority the FDA elects to use.

Despite the multiplicity of statutory and regulatory possibilities, the
steps required before approval are essentially the same whether the product is
ultimately regulated as a drug, a biologic, a medical device, a combination
product or some combination thereof. The steps required before a drug,
biologic or medical device may be approved for marketing in the United States
pursuant to an NDA, BLA (or PLA/ELA) or PMA, respectively, generally include:
(i) pre-clinical studies; (ii) submission to the FDA of an IND, for drugs or
biologics, or an investigational device exemption ("IDE"), for medical
devices, for clinical trials, which must become effective before human
clinical trials may begin; (iii) appropriate tests to show the product's
safety; (iv) adequate and well-controlled human clinical trials to establish
the product's efficacy for its intended indications; (v) submission to the FDA
of an NDA, BLA (or PLA/ELA) or PMA, as appropriate and (vi) FDA review of the
NDA, BLA (or PLA/ELA) or PMA in order to determine, among other things,
whether the product is safe and effective for its intended uses. In addition,
the FDA inspects the facilities at which the product is manufactured and will
not approve the product unless compliance with cGMP requirements is
satisfactory. The steps required before a medical device may be cleared for
marketing in the United States pursuant to a 510(k) are generally the same,
except that instead of conducting tests to demonstrate safety and efficacy,
data, including clinical data if necessary, must be obtained to show that the
product is substantially equivalent to a legally marketed device, and the FDA
must make a determination of substantial equivalence rather than a
determination that the product is safe and effective.

The Company believes that, in deciding whether a viral inactivation system
is safe and effective, the FDA is likely to take into account whether it
adversely affects the therapeutic efficacy of blood components as compared to
the therapeutic efficacy of blood components not treated with the system, and
that the FDA will evaluate the system's safety and other risks against the
benefits of using the system in a blood supply that has become safer in recent
years.

There can be no assurance that the means employed by the Company of
demonstrating safety and efficacy will ultimately be acceptable to the FDA.
Moreover, even if the FDA considers these means of demonstrating safety and
efficacy to be acceptable in principle, there can be no assurance that the FDA
will find the data submitted sufficient to demonstrate safety and efficacy.

Even if regulatory approval or clearance is granted, it could include
significant limitations on the indicated use for which a product could be
marketed. The testing and approval/clearance process requires substantial
time, effort and financial resources, and is generally lengthy, expensive and
uncertain. The approval process is affected by a number of factors, including
the availability of alternative treatments and the risks and benefits
demonstrated in clinical trials. Additional animal studies or clinical trials
may be requested during the FDA review period and may delay marketing
approval. After FDA approval for the initial indications, further clinical
trials may be necessary to obtain approval for the use of the product for
additional indications. The FDA may also require post-marketing testing to
monitor for adverse effects which can involve significant expense. Later
discovery of previously unknown problems with a product may result in
labelling changes and other restrictions on the product, including withdrawal
of the product from the market. In addition, the policies of the FDA may
change, and additional regulations may be promulgated which could prevent or
delay regulatory approval of the Company's planned products. There can be no
assurance that any approval or clearance will be granted on a timely basis, if
at all. Any failure to obtain or delay in obtaining such approvals or
clearances, and any significant limitation on their indicated uses, could have
a material adverse effect on the Company's business, financial condition and
results of operations.

43
<PAGE>

A drug, biologic or medical device, its manufacturer, and the holder of the
NDA, BLA (or PLA/ELA), PMA or 510(k) for a product are subject to
comprehensive regulatory oversight, both before and after approval or
clearance is obtained. Violations of regulatory requirements at any stage,
including during the preclinical and clinical trial process, during the
approval/clearance process or after the product is approved/cleared for
marketing, could result in various adverse consequences, including the FDA's
requiring that a clinical trial be suspended or halted, the FDA's delay in
approving/clearing or refusing to approve/clear a product, withdrawal of an
approved/cleared product from the market and the imposition of criminal
penalties. For example, the holder of an NDA, BLA (or PLA/ELA), PMA or 510(k)
is required to report certain adverse reactions to the FDA, and must comply
with certain requirements concerning advertising and promotional labeling for
the product. Also, quality control and manufacturing procedures must continue
to conform to cGMP regulations after approval or clearance, and the FDA
periodically inspects manufacturing facilities to assess compliance with cGMP.
In particular, until the Company achieves commercial production levels of its
VIPLAS/SD product, the test results for each lot of this product will be
subject to FDA review prior to release for its intended use. Accordingly,
manufacturers must continue to expend time, monies and efforts on regulatory
compliance, including cGMP compliance. In addition, new government
requirements may be established that could delay or prevent regulatory
approval or clearance of the Company's products under development or otherwise
alter the applicable law. There can be no assurance that the FDA will
determine that the facilities and manufacturing procedures of the Company or
any other third-party manufacturer of the Company's planned products will
conform to cGMP requirements.

In addition to the regulatory requirements applicable to the Company and its
products, there are also regulatory requirements applicable to the Company's
prospective customers, which are primarily entities that ship blood and blood
products in interstate commerce. Such entities are regulated by the FDA
pursuant to the Food, Drug and Cosmetic Act and the Public Health Service Act
and implementing regulations. Blood centers and others that ship blood and
blood products interstate will likely be required to obtain approved license
supplements from the FDA before shipping products processed with the Company's
viral inactivation systems. This requirement and/or FDA delays in approving
such supplements may deter some blood centers from using the Company's
products, and blood centers that do submit supplements may face disapproval or
delays in approval that could provide further disincentives to use of the
systems. The regulatory impact on potential customers could have a material
adverse effect on the Company's business, financial condition and results of
operations.

The Company is subject to federal, state and local laws, rules, regulations
and policies governing the use, generation, manufacture, storage, air
emission, effluent discharge, handling and disposal of certain materials,
biological specimens and wastes. The Company will be required to obtain a
permit amendment from regulatory authorities to increase the volume of
permitted discharge from the manufacture of VIPLAS/SD. Although the Company
has submitted an application to obtain this permit amendment and is actively
pursuing it, there can be no assurance that such permit amendment will be
obtained in a timely manner, if at all. There can be no assurance that the
Company will not be required to incur significant costs to comply with
environmental and health and safety regulations in the future. The Company's
research and development involves the controlled use of hazardous materials,
including certain hazardous chemicals, viruses and radioactive materials.
Although the Company believes that its safety procedures for handling and
disposing of such materials comply with the standard prescribed by state and
federal regulations, the risk of accidental contamination or injury from these
materials cannot be eliminated. In the event of such an accident, the Company
could be held liable for any damages that result and any such liability could
exceed the resources of the Company.

HEALTH CARE REIMBURSEMENT

The Company's ability to commercialize successfully its products is
dependent in part on the extent to which appropriate levels of reimbursement
for the Company's products and related treatments are obtained from government
authorities, private health insurers and other organizations, such as managed
care organizations ("MCOs"). Third-party payors are increasingly challenging
the pricing of medical products and services. The trend toward managed care
health in the U.S., the growth of MCOs and legislative proposals to reform
health care and government insurance programs could significantly influence
the purchase of medical products and

44
<PAGE>

services, resulting in lower prices and reduced demand for the Company's
products. Such cost containment measures and health care reform could affect
the Company's ability to sell its products, which the Company expects will be
priced at a premium to corresponding widely used blood products that are not
virally inactivated and may have a material adverse effect on the Company.
Significant uncertainty exists about the reimbursement status of newly
approved medical products and services. There can be no assurance that
reimbursement in the United States or foreign countries will be available for
any of the Company's products, that any reimbursement granted will be
maintained or that limits on reimbursement available from third-party payors
will not reduce the demand for, or negatively affect the price of, the
Company's products. The unavailability or inadequacy of third-party
reimbursement for the Company's products would have a material adverse effect
on the Company.

EMPLOYEES

The Company has approximately 265 permanent employees, including 5 M.D.s and
20 Ph.D.s. Forty of the Company's employees are engaged in research and
development and 190 in manufacturing. The Company regularly employs the
services of outside consultants with respect to regulatory, scientific, and
certain administrative and commercial matters. The Company expects to continue
to require the services of such outside consultants. The Company believes that
relations with its employees are good. No employee is represented by a union.

LEGAL PROCEEDINGS

There are no material legal proceedings pending against the Company or its
properties or to which the Company is party.

The Company is aware that in the course of ongoing litigation between the
NYBC and a third party, the third party has asserted claims against the NYBC
based on breach of a contract that was executed in 1988 by those parties and
rights under which were assigned to the Company in 1995. The third party has
claimed that it is entitled to payments from the NYBC based on improvements in
albumin throughput yields attributable to certain filtration technology
licensed to the NYBC by the third party. The Company understands that the NYBC
believes it has meritorious defenses against this third party's claims and, in
any event, as part of the assignment of NYBC's rights under the disputed
contract by the NYBC to the Company, the Company assumed no responsibility for
pre-existing contract liabilities. However, there can be no assurance that the
third party will not assert claims against the Company under that contract
which are similar in nature to the claims being asserted against the NYBC. No
such claims have been asserted to date. The Company believes that it would
have meritorious defenses against any such claims.

On March 23, 1998, the Company received a Civil Investigative Demand ("CID")
from the Antitrust Division of the U.S. Department of Justice (the "Justice
Department") as part of the Justice Department's investigation into possible
antitrust violations in the sale, marketing and distribution of blood
products. A CID is a formal request for information and a customary initial
step of any Justice Department investigation. The Justice Department is
permitted to issue a CID to anyone whom the Justice Department believes may
have information relevant to an investigation. Therefore, the receipt of a CID
does not mean that the recipient is the target of an investigation, nor does
it presuppose that there is a probable cause to believe that a violation of
the antitrust laws has occurred or that any formal complaint ultimately will
be filed. The Company believes that the primary focus of the CID relates to
the Company's VIPLAS/SD product and to the Supply, Manufacturing and
Distribution Collaboration Agreement between VITEX and the Red Cross. The
Company intends to cooperate fully with the Justice Department inquiry, and is
in the process of preparing a response to the CID.

45
<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table provides information regarding Directors and executive
officers of the Company as of February 26, 1998:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
David Tendler........... 60 Chairman of the Board of Directors
John R. Barr............ 41 President, Chief Executive Officer and Director
Bernard Horowitz,
Ph.D. ................. 53 Executive Vice President, Chief Scientific Officer and Director
Richard A. Charpie(2)... 45 Director
Jeremy Hayward-
Surry(2)............... 55 Director
Irwin Lerner(1)......... 67 Director
Peter D. Parker(1)...... 47 Director
Damion E. Wicker,
M.D.(1) ............... 37 Director
Joanne M. Leonard....... 34 Vice President, Chief Financial Officer and Treasurer
</TABLE>
- ------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee

DAVID TENDLER has served as a Director and Chairman of the Company since
December 1994. In 1985, Mr. Tendler founded his own international consulting
firm, Tendler Beretz LLC, and has since remained as President and Chief
Executive Officer. In 1981, he was named Chairman and CEO of Phibro
Corporation, which subsequently acquired Salomon Brothers--at which point Mr.
Tendler became Co-Chairman and CEO of Phibro-Salomon. He joined Philipp
Brothers (the predecessor to Englehard Minerals & Chemicals Corp./Phibro
Corp.) in 1960, managed Far Eastern operations for more than seven years, and
was promoted to President of Phibro in 1975. He remains active in the private
equity and consulting businesses, and in various charitable organizations,
including service as a Director of BioTechnology General Corporation and a
member of the Board of Trustees and the Executive Committee of the NYBC. Mr.
Tendler has a B.B.A. from the City University of New York.

JOHN R. BARR joined the Company as President, Chief Executive Officer and a
Director in November 1997. Previously, Mr. Barr served as President of North
American Operations at Haemonetics Corporation from 1995 to 1997 where he had
responsibility for Haemonetics' blood bank, commercial plasma and blood bank
services businesses. He also managed the global manufacturing and North
American research and development functions and served as a member of the
Board of Directors of Haemonetics. Prior to joining Haemonetics in 1990, he
held various positions at Baxter Healthcare Corporation. Mr. Barr has an
undergraduate degree in Biomedical Engineering from the University of
Pennsylvania and an M.M. from the Kellogg School of Management at Northwestern
University.

BERNARD HOROWITZ, PH.D. joined the Company as Executive Vice President,
Chief Scientific Officer and a Director in February 1995. Prior to joining the
Company, Dr. Horowitz was the NYBC's Vice President for Commercial Development
and a Laboratory Head in the NYBC's Lindsley F. Kimball Research Institute. He
is internationally recognized for his research on blood viral safety and the
preparation and characterization of new therapeutics from blood protein
solutions and he holds several U.S. and non-U.S. patents for these processes.
He has extensive experience from his positions at the NYBC and the Company
with the regulatory process including product license and establishment
license applications and administration. Dr. Horowitz has authored over 60
scientific publications and reviews on a wide range of subjects including:
virus inactivation of blood proteins and blood cells, HBV detection,
hemoglobin as a blood substitute and leukocyte interferon as an antiviral and
anticancer agent. Additionally, he has served as a scientific consultant to
the National Institutes of Health, the Food and Drug Administration, the
National Hemophilia Foundation and the International Association of Biological
Standardization. Dr. Horowitz received his B.S. in Biology from the University
of Chicago and his Ph.D. from Cornell University Medical College.

46
<PAGE>

RICHARD A. CHARPIE has served as a Director of the Company since November
1995. Mr. Charpie served as the Chief Executive Officer of the Company from
August 1997 to November 1997. He was the Vice President of the Company from
November 1997 until January 1998. Mr. Charpie has been the Managing General
Partner of Ampersand Ventures and all of its affiliated partnerships
("Ampersand") since he founded Ampersand in 1988 as a spin-off of the venture
capital group of PaineWebber Incorporated. Currently, Mr. Charpie serves as a
director of AutoCyte, Inc. and of several privately-held companies. Mr.
Charpie holds an M.S. in Physics and a Ph.D. in Applied Economics and Finance,
both from The Massachusetts Institute of Technology.

JEREMY HAYWARD-SURRY has served as a Director of the Company since December
1997. He has been the President of Pall Corporation since July 1994 and a
member of its Board of Directors since April 1993. Mr. Hayward-Surry was also
the Treasurer and Chief Financial Officer of Pall from August 1992 until
December 1997 and Executive Vice President of Pall from 1992 to July 1994. Mr.
Hayward-Surry is a Fellow of the Institute of Chartered Accountants in England
and Wales.

IRWIN LERNER has served as a Director of the Company since September 1996.
He is the former Chairman of the Board of Directors, Chairman of the Executive
Committee, President and Chief Executive Officer of Hoffmann-LaRoche Inc.,
having retired in September 1993 after being an employee of the company for
over 31 years. Mr. Lerner is the Chairman of the Board of Medarex, Inc. and
serves on the boards of Humana Inc., Public Service Enterprise Group, Covance
Inc. and Axys Pharmaceuticals. He has been a member of the Board of Project
Hope and has chaired the New Jersey Governor's Council for a Drug-Free
Workplace. He served for twelve years on the Board of Pharmaceutical
Manufacturers Association (now PhRMA), including chairing the Association's
FDA Issues Committee and the PMA Foundation. Mr. Lerner has served on the
Boards of the National Committee for Quality Health Care, the Partnership for
New Jersey and the Center for Advanced Biotechnology and Medicine of Rutgers
University. He received his B.S. and M.B.A. degrees from Rutgers University,
where he is currently the Distinguished Executive-in-Residence at the Graduate
School of Management.

PETER D. PARKER has served as a Director of the Company since November 1995.
After fourteen years at AMAX, a metals company, Mr. Parker joined Ampersand in
1989 to lead its first specialty materials venture capital partnership,
Ampersand Specialty Materials Ventures Limited Partnership and is a General
Partner of Ampersand. He currently serves as a director of MicroPack
Corporation and Pentose Pharmaceuticals, and as the Chairman of Advanced
Chemistry and Technology, Inc., Novel Experimental Technology, Alexis
Corporation and Nanodyne, Inc. He holds an M.S. in Chemical Metallurgy from
Columbia University.

DAMION E. WICKER, M.D. has served as a Director of the Company since May
1997. Dr. Wicker is a General Partner of Chase Capital Partners. Previously,
Dr. Wicker was President of Adams Scientific since July 1991, and, prior to
that, held positions with MBW Venture Partners and Alexon, Inc. Dr. Wicker was
also a Commonwealth Fund Medical Fellow for the National Institute of Health.
He currently is a Director of Landec Corporation and several privately-held
health care companies. Dr. Wicker received a B.S. with Honors from The
Massachusetts Institute of Technology, an M.D. from Johns Hopkins University
and holds an M.B.A. from The Wharton School of the University of Pennsylvania.

JOANNE M. LEONARD joined the Company as Vice President, Chief Financial
Officer and Treasurer in August 1995. Ms. Leonard is also the Secretary of the
Company. From 1985 until 1992, she was employed by KPMG Peat Marwick LLP, most
recently as a Senior Audit Manager. In 1992, Ms. Leonard joined Immunomedics,
Inc., a public biopharmaceutical company as the Corporate Controller. In 1994,
Ms. Leonard was among the first employees at a biotechnology start-up company,
M6 Pharmaceuticals, Inc., where she served as the Corporate Controller. Ms.
Leonard is a Certified Public Accountant. Ms. Leonard holds a B.S. in
Accounting and Finance from Montclair State University.

47
<PAGE>

SCIENTIFIC ADVISORY BOARD

VITEX's management is also supported from a technical and clinical
perspective by the Company's Scientific Advisory Board ("SAB"). The members of
the Company's SAB are valuable resources in identifying commercially promising
applications on the Company's core viral inactivation technology. The members
of the Company's SAB include:

BARBARA ALVING, M.D. is Professor of Medicine of Hematology and Oncology at
the Washington Hospital Center. She was formerly Chief of Hematology at Walter
Reed Army Medical Center in Washington and served as the Medical Review
Officer at the FDA Office of Blood and Blood Products. Dr. Alving has received
several awards, including a Commendable Service Award from the FDA for her
work on hypotensive agents in albumin products and a Meritorious Service Medal
for achievement as a research investigator and a Member of the WRAIR
Director's Peer Review Steering Committee. She is a member of several
professional societies and has served as a Member of the Hematology Study
Section for the NIH, Member of the Blood Products Advisory Committee of the
FDA and Chairman of the American Heart Association's Council on Thrombosis.
She has authored over 30 articles published in the field of hematology and
fibrin sealant. Dr. Alving received her B.S. from Purdue University, a Ph.D.
from Strasbourg University and an M.D. from Georgetown University School of
Medicine.

MORRIS A. BLAJCHMAN, M.D., F.R.C.P. is Chief of Service in Hematology,
Research Director of the Blood Products Laboratory and Professor in the
Departments of Pathology and Medicine at McMaster University. Additionally, he
serves as Medical Director of the Hamilton Centre of the Canadian Red Cross.
Formerly he was the President of the Canadian Society for Transfusion Medicine
and Founding Editor and Editor-in-Chief of Transfusion Medicine Reviews. He
has published over 200 articles on a wide variety of transfusion-related
topics. Dr. Blajchman received an M.D.C.M. degree from McGill University.

RICHARD A. CLARK, M.D. is Chairman and Professor of Dermatology at the
School of Medicine, State University of New York at Stony Brook. He is
President-Elect of the Wound Healing Society, President of the Dermatology
Section of the New York Academy of Medicine, an Associate Editor of the
Journal of Cell Biochemistry and a member of the Scientific Board of the
Eczema Association. In addition, he is a member of the NIAMS Special Grants
Review Committee. His principal research interests are in granulation tissue
induction in cutaneous wound repair and in the pathobiology of fibrin in
chronic venous ulcers. He has authored over 60 articles published in refereed
journals. Dr. Clark received his B.S. from The Massachusetts Institute of
Technology and an M.D. from the University of Rochester School of Medicine and
Dentistry.

NICHOLAS E. GEACINTOV, PH.D. is Professor of Chemistry at New York
University. Formerly he was the President of the American Society for
Photobiology. Additionally, he is a Fellow of the American Physical Society,
ad hoc reviewer for NIH, DOE, NSF, American Chemical Society, Foreign Member
of the Russian Academy of Sciences and serves on the Editorial Board of
Chemical Research Toxicology. He is a member of numerous professional
societies, including the American Chemical Society, American Society of
Photobiology, Biophysical Society and the American Association for Cancer
Research. His principal research interests include the structure and function
of nucleic acids and the influence of light and reactive compounds on nucleic
acid structure. He has authored over 200 publications. Dr. Geacintov received
his B.S. and M.S. degrees as well a Ph.D. in Physical Chemistry from Syracuse
University.

JAY A. LEVY, M.D. is Professor-in-Residence in the Department of Medicine
and a Research Associate in the Cancer Research Institute at the University of
California School of Medicine at San Francisco. Additionally, he is a Fellow
of the American Association for the Advancement of Science, the Editor of the
journal AIDS and a member of 12 journal editorial boards. He has served on
numerous national committees focused on cancer and AIDS research. His honors
include a Fulbright Award, a Research Cancer Development Award, the Murray
Thelin Award from the National Hemophilia Foundation and the Award of
Distinction from the American Foundation for AIDS Research. His principal
research interest is the biology of the AIDS virus. He has authored over 350
publications. Dr. Levy received a B.A. from Wesleyan University and an M.D.
from Columbia University College of Physicians and Surgeons.

48
<PAGE>

DIX P. POPPAS, M.D. is the Director of the Division of Pediatric Urology and
Reconstructive Surgery and Assistant Professor of Pediatric Urology at New
York Hospital/Cornell University Medical Center. Additionally, he is the
Rodgers Foundation Lecturer in Pediatric Urology. He is a member of numerous
professional societies, including the American Urologic Association, the
Society of Urology and Engineering and the Wound Healing Society, and he is a
regular reviewer for the Journal of Urology and Lasers in Surgery and
Medicine. In addition to his active practice as a urologic surgeon, his
principal research interest is in improvements in wound closure and in wound
healing. He has authored over 35 scientific articles and three patent
applications, of which two have been awarded thus far. He received his B.S.
from Virginia Commonwealth University and his M.D. from Eastern Virginia
Medical School.

CLASSIFICATION OF THE BOARD OF DIRECTORS

The Company's Restated Certificate, to be filed concurrently with the
closing of this offering, provides for a Board of Directors consisting of
three classes, with each class being as nearly equal in number as possible. At
each annual meeting of the Company's stockholders the term of one class
expires and their successors are elected for a term of three years. The
Company has designated three Class I Directors (Messrs. Barr, Charpie and
Lerner), three Class II Directors (Messrs. Hayward-Surry and Parker and Dr.
Wicker) and two Class III Directors (Dr. Horowitz and Mr. Tendler). These
Class I, Class II and Class III Directors will serve until the annual meeting
of stockholders to be held in 1999, 2000 and 2001, respectively, and until
their respective successors are duly elected and qualified, or until their
earlier resignation or removal. The Restated Certificate provides that
Directors may be removed only for cause by a majority of stockholders. See
"Description of Capital Stock--Anti-Takeover Measures." There are no family
relationships among any of the Directors or executive officers.

BOARD COMMITTEES

The Company has standing Audit and Compensation Committees of the Board of
Directors. The Audit Committee consists of Mr. Charpie and Mr. Hayward-Surry.
The primary function of the Audit Committee is to assist the Board of
Directors in the discharge of its duties and responsibilities by providing the
Board with an independent review of the financial health of the Company and of
the reliability of the Company's financial controls and financial reporting
systems. The Audit Committee reviews the general scope of the Company's annual
audit, the fee charged by the Company's independent accountants and other
matters relating to internal control systems.

The Compensation Committee of the Board of Directors determines the
compensation to be paid to all executive officers of the Company, including
the Chief Executive Officer. The Compensation Committee's duties include the
administration of the Company's 1998 Equity Incentive Plan (the "1998 Equity
Plan"). The Compensation Committee is currently composed of Messrs. Lerner and
Parker and Dr. Wicker.

DIRECTOR COMPENSATION

Mr. Tendler receives $40,000 a year for his services as Chairman of the
Company's Board of Directors. Mr. Lerner receives $1,000 for each meeting of
the Board or of any committee of the Board which he attends. All members of
the Company's Board receive reimbursement of expenses associated with their
attendance of meetings of the Board or of any committee thereof of which they
are a member.

In February 1998, the Board of Directors and the stockholders of the Company
adopted the 1998 Director Stock Option Plan (the "1998 Director Plan"). All of
the Directors who are not employees of the Company (the "Eligible Directors")
are currently eligible to participate in the 1998 Director Plan. There are
89,445 shares of Common Stock reserved for issuance under the 1998 Director
Plan. Each Eligible Director will receive an annual option to purchase 1,788
shares of Common Stock (the "Option"). Each Option becomes fully exercisable
on the first anniversary of the date of grant, provided that the optionholder
is still a Director of the Company at the opening of business on such date.
The 1998 Director Plan has a term of ten years. The exercise price for the
Options is equal to the last sale price for the Common Stock on the business
day immediately preceding the date of grant, as reported on the Nasdaq
National Market. The exercise price may be paid in cash or if the option
agreement so provides, in shares of Common Stock, or a combination of both.

49
<PAGE>

ARRANGEMENTS REGARDING THE ELECTION OF DIRECTORS

Certain stockholders of the Company, who will hold in the aggregate
approximately 74% of the outstanding shares of the Company's Common Stock
after this offering, have agreed to vote their shares for the election of a
nominee designated by Pall. Mr. Hayward-Surry is the designee of Pall under
this agreement. This agreement terminates upon the termination of the Joint
Development, Marketing and Distribution Agreement between the Company and Pall
or upon a breach of an agreement by Pall not to acquire, by means of open
market purchases, 20% or more of the shares of Common Stock.

Pursuant to the terms of Dr. Horowitz' employment agreement with the
Company, the Company agrees to use its best efforts to cause Dr. Horowitz to
be a member of the Company's Board of Directors throughout the term of the
agreement.

EXECUTIVE COMPENSATION

The following table summarizes the compensation paid to or earned during the
fiscal year ended December 31, 1997 by all persons who served as the Company's
Chief Executive Officer during any part of such year and by all of the other
executive officers of the Company whose salary and bonus for the fiscal year
ended December 31, 1997 exceeded $100,000 (the "Named Executive Officers"):

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------- ------------
SECURITIES
NAME AND 1997 PRINCIPAL UNDERLYING ALL OTHER
POSITION SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION ($)
- ----------------------- ---------- --------- ------------ ----------------
<S> <C> <C> <C> <C>
John R. Barr(1)............. 16,154 -- 367,621 6,635(2)
President and Chief
Executive Officer
Richard A. Charpie(3)....... 100,000 -- -- --
Bernard Horowitz, Ph.D...... 182,262 36,960 125,223 --
Executive Vice President
and Chief Scientific
Officer
Joanne M. Leonard........... 144,709 23,186 7,155(4) --
Vice President, Chief
Financial Officer and
Treasurer
Thomas R. Ostermueller(5)... 215,914 59,063 -- 270,688(6)
</TABLE>
- ----------------
(1) Mr. Barr became President and Chief Executive Officer of the Company in
November 1997. His current annual salary is $280,000.
(2) Consists of reimbursement of relocation expenses.
(3) Mr. Charpie served as President and Chief Executive Officer of the Company
from August 1997 to November 1997 and as Vice President of the Company
from November 1997 until January 1998.
(4) Does not include the grant to Ms. Leonard in January 1998 of options to
purchase 21,467 shares of Common Stock.
(5) Mr. Ostermueller served as President and Chief Executive Officer of the
Company from February 1995 to October 1997.
(6) Represents a severance payment made to Mr. Ostermueller of $270,000, and a
premium of $688 paid by the Company for term life insurance.

50
<PAGE>

1997 OPTION GRANTS

The following table contains certain information regarding stock option
grants during the fiscal year ended December 31, 1997 to the Named Executive
Officers. No options were granted to Messrs. Ostermueller or Charpie during
the fiscal year ended December 31, 1997.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE AT
----------------------------------------------------- ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK
SECURITIES TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE OR FOR OPTION TERM(2)
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION -------------------
NAME GRANTED (#)(1) FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
- ---- -------------- --------------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
John R. Barr............ 367,621 54.2% 8.39 11/24/07 1,943,129 4,904,087
Bernard Horowitz,
Ph.D................... 125,223 18.5% 8.39 12/12/07 661,891 1,670,487
Joanne M. Leonard....... 7,155(3) 1.1% 2.80 1/24/07 12,621 31,854
</TABLE>
- ------------------
(1) Each of the options shown vest in equal annual installments over a four-
year period and have a ten-year term.
(2) Amounts represent hypothetical gains that could be achieved for the
options if they are exercised at the end of the option term. Those gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the option was granted through the
expiration date. Actual gains, if any, on the stock option exercises will
depend on the future performance of the Common Stock, the optionee's
continued employment through the option period, and the date on which the
options are exercised.
(3) Does not include a grant to Ms. Leonard in January 1998 of options to
purchase 21,467 shares of Common Stock.

OPTION EXERCISES AND YEAR-END OPTION VALUES

The following table provides information about the number of shares issued
upon option exercises by the Named Executive Officers during the year ended
December 31, 1997 and the value realized by the Named Executive Officers. The
table also provides information about the number and value of options held by
the Named Executive Officers at December 31, 1997. Mr. Charpie did not hold
any options as of December 31, 1997.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED ON FISCAL YEAR-END (#) FISCAL YEAR-END ($)(1)
EXERCISE VALUE ------------------------- -------------------------
NAME (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John R. Barr............ - - - 367,621 - 2,062,354
Bernard Horowitz,
Ph.D................... - - 111,806 237,031 1,252,787 1,955,931
Joanne M. Leonard....... - - 13,417 20,573(2) 150,338 230,520
Thomas R. Ostermueller.. 12,523 70,004 127,237 -- 1,425,691 --
</TABLE>
- ------------------
(1) For purposes of determining the values of the options held by Named
Executive Officers, the Company has assumed that Common Stock had a value
of $14.00 per share at December 31, 1997. The option value is based on the
difference between the fair market value of the shares at that date and
the option exercise price per share, multiplied by the number of shares of
Common Stock subject to the option.
(2) Does not include a grant to Ms. Leonard in January 1998 of options to
purchase 21,467 shares of Common Stock.

51
<PAGE>

EMPLOYMENT AGREEMENTS

Mr. Barr is a party to a letter agreement with the Company, dated November
10, 1997, pursuant to which he serves as President and Chief Executive
Officer. Under this agreement, Mr. Barr is entitled to annual base
compensation of $280,000, subject to increase by the Board, and is also
entitled to a performance bonus based upon the achievement of financial and
other performance goals. Mr. Barr is guaranteed a bonus of $45,000 in 1998.
Pursuant to the letter agreement, Mr. Barr was also granted options to
purchase 367,621 shares of the Company's Common Stock at an exercise price of
$8.39 per share.

Dr. Horowitz is a party to an employment agreement with the Company which
was entered into on January 15, 1998. Pursuant to this agreement, the Company
agreed to employ Dr. Horowitz as Executive Vice President and Chief Scientific
Officer for a four-year term commencing February 1, 1995, with automatic one-
year renewals thereafter unless either party terminates the agreement. Under
the terms of this agreement, Dr. Horowitz: (i) is entitled to an annual salary
of $170,000 subject to increase by the Board; (ii) was entitled to a grant of
stock options for 223,613 shares of Common Stock at an exercise price of $2.80
per share vesting in equal annual installments over a four year period
commencing February 1, 1995 (the "1995 Grant"); (iii) was entitled to a grant
of stock options for 125,224 shares of Common Stock at an exercise price of
$8.39 per share vesting in equal annual installments over a four-year period
commencing December 12, 1997 (the "1997 Grant"); and (iv) is entitled to
benefits and bonuses at the discretion of the Board, including an annual bonus
based on the performance of the Company targeted at 25% of Dr. Horowitz'
annual salary. The Company also agrees to use its best efforts to cause Dr.
Horowitz to be a member of its Board of Directors throughout the term of the
agreement. If Dr. Horowitz is terminated by the Company without cause, or if
Dr. Horowitz voluntarily terminates his employment with the Company for good
reason, the agreement provides that Dr. Horowitz will be entitled to receive
his base salary for an additional year following such termination of
employment and any vested benefits, and his stock options from the 1995 Grant
will vest in full and from the 1997 Grant will vest to include the amount of
options that would have vested at the next annual vesting anniversary
following the date of termination of employment.

Ms. Leonard, the Company's Vice President, Chief Financial Officer and
Treasurer, entered into an agreement with the Company effective as of December
23, 1997. The agreement provides that if Ms. Leonard decides to terminate her
employment with the Company prior to or more than 60 days after the closing of
a qualified initial public offering, then Ms. Leonard is entitled, at a
minimum, to her base salary and health benefits for a period of six months
following such termination of employment and accelerated vesting with respect
to the next two tranches of her existing options at the time of termination of
employment. The offering contemplated by this Prospectus is expected to
constitute a qualified initial public offering under this agreement. If Ms.
Leonard decides to terminate her employment with the Company within 60 days
following completion of a qualified initial public offering, then Ms. Leonard
is entitled to the same severance amounts as before and is also eligible to
receive additional stock options and bonuses.

Mr. Ostermueller, the Company's former President and Chief Executive
Officer, entered into an employment agreement with the Company in 1995 which
provided a base salary of $262,500, and provided an automobile allowance and
additional life insurance of $262,500. The agreement was terminated effective
October 5, 1997 pursuant to a letter agreement the terms of which entitled Mr.
Ostermueller to receive a one-time termination payment of $270,000, the
accelerated vesting of stock options for 27,951 shares of Common Stock,
outplacement support, and medical and insurance benefits through October 5,
1998.

STOCK PLANS

1998 Equity Incentive Plan. The Company's 1998 Equity Incentive Plan was
originally adopted in October 1995, and was amended and restated in January
1996 and in January 1998 (as amended and restated, the "1998 Equity Plan").
The 1998 Equity Plan is designed to provide the Company flexibility in
awarding equity incentives by providing for multiple types of incentives that
may be awarded. The purpose of the 1998 Equity Plan is to attract and retain
key personnel of the Company and to enable them to participate in the long-
term growth of the Company. The 1998 Equity Plan provides for the grant of
stock options (incentive and

52
<PAGE>

nonstatutory), stock appreciation rights, performance shares, restricted stock
or stock units for the purchase of an aggregate of 2,146,690 shares of Common
Stock, subject to adjustment for stock-splits and similar capital changes.
Awards under the 1998 Equity Plan can be granted to officers, employees,
directors and other individuals as determined by the committee of the Board of
Directors which administers the 1998 Equity Plan, each of whose members is a
"non-employee director" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Compensation
Committee of the Board of Directors administers the 1998 Equity Plan. The
Compensation Committee selects the participants and establishes the terms and
conditions of each option or other equity right granted under the 1998 Equity
Plan, including the exercise price, the number of shares subject to options or
other equity rights and the time at which such options become exercisable. The
exercise price of all "incentive stock options" within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code") granted
under the 1998 Equity Plan must be at least equal to 100% of the fair market
value of the option shares on the date of grant. The term of any incentive
stock option granted under the 1998 Equity Plan may not exceed ten years.

1998 Employee Stock Purchase Plan. In February 1998, the Company adopted the
Company's 1998 Employee Stock Purchase Plan (the "1998 Purchase Plan") under
which employees may purchase shares of Common Stock at a discount from fair
market value. There are 89,445 shares of Common Stock reserved for issuance
under the 1998 Purchase Plan. To date, no shares of Common Stock have been
issued under the 1998 Purchase Plan. The 1998 Purchase Plan is intended to
qualify as an employee stock purchase plan within the meaning of Section 423
of the Code. Rights to purchase Common Stock under the 1998 Purchase Plan are
granted at the discretion of the Compensation Committee, which determines the
frequency and duration of individual offerings under the 1998 Purchase Plan
and the dates when stock may be purchased. Eligible employees participate
voluntarily and may withdraw from any offering at any time before stock is
purchased. Participation terminates automatically upon termination of
employment. The purchase price per share of Common Stock in an offering is 85%
of the lesser of its fair market value at the beginning of the offering period
or on the applicable exercise date and may be paid through payroll deductions,
periodic lump sum payments or a combination of both. The 1998 Purchase Plan
terminates in January 2008.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee is composed of Messrs. Lerner and Parker and Dr.
Wicker. Mr. Parker is a General Partner of the Ampersand Funds. Dr. Wicker is
a General Partner of Chase Capital Partners. See "Certain Transactions."

53
<PAGE>

CERTAIN TRANSACTIONS

The Company is a party to several license agreements with the NYBC relating
to blood fractionation and viral inactivation technology which grant various
exclusive and non-exclusive licenses to such technology. The Company and the
NYBC have also entered into an Omnibus Agreement which allocates various
rights and obligations under license agreements that the NYBC has entered into
with third parties relating to blood fractionation and other technology. In
the years ended December 31, 1995, 1996 and 1997, and for the three months
ended March 31, 1998 the Company made payments to the NYBC of $853,000,
$817,000, $484,000 and $277,000, respectively, of which $180,000 in 1996,
$300,000 in 1997 and $225,000 for the three months ended March 31, 1998
represented royalty payments made under certain license agreements. The
Company did not make any such royalty payments to the NYBC in the year ended
December 31, 1995. In January 1998, the Company issued 35,778 shares of its
Common stock to the NYBC in satisfaction of $300,000 of royalty obligations
due in August and November 1997 under one of the license agreements. See note
10 to the Company's financial statements.

Concurrently with the execution of a Joint Development, Marketing and
Distribution Agreement between the Company and Pall in February 1998, the
Company and Pall entered into a Stock Purchase Agreement pursuant to which
Pall purchased 477,042 shares of Common Stock for an aggregate purchase price
of $4,000,000. In addition, Pall has agreed to invest $5,000,000 in Common
Stock in a private placement concurrently with the closing of this offering at
a price per share equal to the price for which shares of Common Stock are sold
in this offering, net of underwriting discounts and commissions. Pall is
additionally obligated to invest an aggregate of $17,000,000 in Common Stock
in installments at the then public trading prices of the Common Stock upon the
achievement of various development milestones for the development of VIGuard
RBCC and VIGuard PC. Mr. Hayward-Surry, a member of the Company's Board of
Directors, is President of Pall Corporation. See "Management--Arrangements
Regarding the Election of Directors."

In April 1997, the Company sold 1,797,893 shares of Common Stock at a
purchase price of $8.39 per share to CB Capital Investors, L.P. and issued a
contingent stock purchase warrant to CB Capital Investors, L.P. to purchase 1%
of the fully diluted equity of the Company for every $1,000,000 in subsequent
private equity capital raised, subject to a cap of 5%, for a purchase price of
$0.028 per share. This warrant will terminate upon the closing of this
offering. In December 1997, the Chase Manhattan Bank, an affiliate of CB
Capital Investors, L.P. made a term loan in the principal amount of
$10,750,000 to the Company. The principal of this loan is repayable in 16
consecutive quarterly installments commencing on March 31, 1998. The unpaid
principal on the loan accrues interest, at the Company's option at either
LIBOR plus 2.75% to 1.75% or the base rate of the bank, as defined, plus
margins of up to 0.5%. See note 7 to the Company's Financial Statements. Dr.
Wicker, a member of the Company's Board of Directors, is a General Partner of
Chase Capital Partners, an affiliate of CB Capital Investors, L.P. and the
Chase Manhattan Bank.

Dr. Bernard Horowitz, the Company's Executive Vice President and Chief
Scientific Officer, is one of the inventors named in the patents covering
viral inactivation technologies owned by the NYBC and licensed to the Company.
Under the terms of arrangements with the NYBC, Dr. Horowitz will receive a
percentage of the royalty payments made by the Company to the NYBC based on
sales of the Company's products and systems employing the licensed S/D, UVC or
LAC technologies.

Mr. Richard A. Charpie, a Director of the Company and the Managing General
Partner of the Ampersand Funds, served as Chief Executive Officer of the
Company from August 1997 through November 23, 1997 and as a Vice President of
the Company from November 24, 1997 through January 23, 1998. Ampersand
received aggregate compensation on behalf of Mr. Charpie from the Company in
the amount of $100,000 for Mr. Charpie's services. Ampersand was paid an
additional $50,000 for the services of other Ampersand employees provided to
the Company during the period when Mr. Charpie served as Chief Executive
Officer and Vice President of the Company.

54
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of March 31, 1998 by: (i) each person known
by the Company to own beneficially five percent or more of the Common Stock;
(ii) each Director of the Company; (iii) each Named Executive Officer; and
(iv) all Directors and executive officers of the Company as a group. Unless
otherwise indicated in the footnotes, each stockholder has sole voting and
investment power with respect to the shares listed in the table.

<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
SHARES --------------------
BENEFICIALLY BEFORE AFTER
BENEFICIAL OWNER OWNED(1) OFFERING OFFERING(2)
- ---------------- ------------ -------- -----------
<S> <C> <C> <C>
5% STOCKHOLDERS
New York Blood Center, Inc.(3)............. 3,434,704 40.5% 28.8%
310 East 67th Street
New York, NY 10021-6295
Ampersand Funds(4)......................... 2,630,858 31.0% 22.0%
c/o Ampersand Ventures
55 William Street, Suite 240
Wellesley, MA 02181
CB Capital Investors, L.P.(5).............. 1,801,470 21.2% 15.1%
c/o Chase Capital Partners
380 Madison Avenue, 12th Floor
New York, NY 10017
Pall Corporation(6)........................ 477,042 5.6% 7.7%
2200 Northern Boulevard
East Hills, NY 11548
OTHER DIRECTORS
David Tendler(7)........................... 3,434,704 40.5% 28.8%
Richard A. Charpie(8)...................... 2,630,858 31.0% 22.0%
Jeremy Hayward-Surry(9).................... -- -- --
Irwin Lerner............................... 11,180 * *
Peter D. Parker(10)........................ 2,630,858 31.0% 22.0%
Damion E. Wicker, M.D.(11)................. 1,801,470 21.2% 15.1%
NAMED EXECUTIVE OFFICERS
John R. Barr............................... -- -- --
Thomas R. Ostermueller(12)................. 139,768 1.6% 1.2%
Bernard Horowitz, Ph.D.(13)................ 167,710 1.9% 1.4%
Joanne M. Leonard(14)...................... 15,205 * *
All directors and executive officers as a
group (9 persons)(15)..................... 8,061,128 93.4% 66.7%
</TABLE>
- ----------------
* Indicates less than 1%
(1) Except as indicated by footnote, the persons named in the table above have
sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them. Share ownership information
includes shares of Common Stock issuable pursuant to outstanding options
that may be exercised within 60 days after March 31, 1998. See
"Management--Stock Plans--1998 Equity Incentive Plan."
(2) The number of shares of Common Stock deemed outstanding after this
offering includes 3,000,000 shares of Common Stock which are being offered
for sale by the Company in this offering and 448,028 shares being sold in
the Pall Private Placement.
(3) Mr. Tendler, a director of the Company, is a member of the Board of
Trustees and Executive Committee of the NYBC. In addition to Mr. Tendler,
the members of the Board of Trustees of the NYBC are Ted Athanassiades,
Andrew G. Bodnar, M.D., J.D., William W. Crouse, Jesse R. Gottlieb, Mrs.
David Granger, Edward D. Miller, Howard P. Milstein, John R. Mullen, Donal
C. O'Brien, Jr., Esq., Samuel Posner, Rodman C. Rockefeller, Lewis Rudin,
Alan D. Schwartz, Norman C. Selby, David A. Silverman, M.D., Howard Sloan,
William I. Spencer and Morton Spivack, M.D.

55
<PAGE>

(4) Consists of 1,087,281 shares held by Ampersand Specialty Materials and
Chemicals III Limited Partnership ("ASMC III"), 17,679 shares held by
Ampersand Specialty Materials and Chemicals III Companion Fund L.P. ("ASMC
III CF"), 1,052,343 shares held by Ampersand Specialty Materials and
Chemicals II Limited Partnership ("ASMC II"), 331,488 shares held by
Laboratory Partners I Limited Partnership ("Lab Partners") and 142,066
shares held by Laboratory Partners Companion Fund Limited Partnership
("Lab Partners CF"). Mr. Charpie and Mr. Parker, directors of the Company,
are the Managing General Partner and a General Partner, respectively, of
the Ampersand Funds. ASMC-III MCLP LLP is the general partner of ASMC-III
Management Company L.P., which itself is the general partner of both ASMC
III and ASMC III CF and has voting and investment control over the shares
held by those two entities. ASMC-II MCLP LLP is the general partner of
ASMC-II Management Company L.P., which itself is the general partner of
ASMC II and has voting and investment control over the shares held by ASMC
II. Ampersand Lab Partners MCLP LLP is the general partner of Ampersand
Lab Partners Management Company L.P., which itself is the general partner
of both Lab Partners and Lab Partners CF and has voting and investment
control over the shares held by those two entities. The general partners
of ASMC-III MCLP LLP, who share voting and investment control over the
shares controlled by ASMC-III MCLP LLP, are Richard A. Charpie, Peter D.
Parker, Stuart A. Auerbach and Charles D. Yie. The same individuals and
Robert A. Charpie are the general partners of ASMC-II MCLP LLP, who share
voting and investment control over the shares controlled by ASMC-II MCLP
LLP, and are the general partners of Ampersand Lab Partners MCLP LLP, who
share voting and investment control over the shares controlled by
Ampersand Lab Partners MCLP LLP.
(5) Dr. Wicker, a director of the Company, is a General Partner of Chase
Capital Partners, which is a limited partner of CB Capital Investors, L.P.
CB Capital Investors, Inc., a wholly-owned subsidiary of Chase Manhattan
Bank, is the general partner of CB Capital Investors, L.P. The Chase
Manhattan Bank is a wholly-owned subsidiary of Chase Manhattan
Corporation. The key officers and the directors of CB Capital Investors,
Inc. are Jeffrey Walker (Chief Executive Officer and Director), Don
Hofmann (President and Director) and Mitchell Blutt (Director).
(6) Mr. Hayward-Surry, a director of the Company, is the President and a
director of Pall Corporation. As disclosed in the Definitive Proxy
Statement filed by Pall with the Securities and Exchange Commission (the
"Commission") via EDGAR on October 17, 1997 and in the Quarterly Report on
Form 10Q filed by Pall with the Commission via EDGAR on March 13, 1998,
the executive officers of Pall are Jeremy Hayward-Surry (President), Eric
Krasnoff (Chief Executive Officer), Derek T.D. Williams (Executive Vice
President and Chief Operating Officer) and John Adamovich, Jr. (Treasurer
and Chief Financial Officer) and the directors of Pall are Abraham Appel,
Ulric Haynes, Jr., Jeremy Hayward-Surry, Eric Krasnoff, Edwin W. Martin,
Jr., David B. Pall, Katharine L. Plourde, Chesterfield F. Seibert, Heywood
Shelley, Alan B. Slifka, James D. Watson and Derek T.D. Williams.
(7) Consists of the shares held by the NYBC. Mr. Tendler may be considered the
beneficial owner of the shares held by the NYBC. Mr. Tendler disclaims
beneficial ownership of such shares.
(8) Consists solely of shares described in note (4). Mr. Charpie may be
considered the beneficial owner of the shares described in note (4). Mr.
Charpie disclaims beneficial ownership of such shares except to the extent
of his pecuniary interest therein.
(9) Excludes the shares held by Pall Corporation.
(10) Consists solely of shares described in note (4). Mr. Parker may be
considered the beneficial owner of the shares described in note (4). Mr.
Parker disclaims beneficial ownership of such shares except to the extent
of his pecuniary interest therein.
(11) Consists solely of shares held by CB Capital Investors, L.P. Dr. Wicker
may be considered the beneficial owner of the shares held by CB Capital
Investors, L.P. Dr. Wicker disclaims beneficial ownership of such shares
except to the extent of his pecuniary interest therein.
(12) Includes 50,323 shares that may be acquired within 60 days of March 31,
1998.
(13) Includes 122,988 shares that may be acquired within 60 days of March 31,
1998 upon the exercise of outstanding stock options.
(14) Consists of 15,205 shares that may be acquired within 60 days of March
31, 1998 upon the exercise of outstanding stock options.
(15) Includes 138,193 shares that may be acquired within 60 days of March 31,
1998 upon the exercise of outstanding stock options.

56
<PAGE>

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company currently consists of 40,000,000
shares of Common Stock, $0.01 par value per share, and 500 shares of Preferred
Stock, $0.01 par value per share. Upon the closing of this offering, the
authorized capital stock of the Company will consist of 29,000,000 shares of
Common Stock and 1,000,000 shares of Preferred Stock after giving effect to
the amendment and restatement of the Company's Certificate of Incorporation
(the "Restated Certificate"). Prior to this offering, there were outstanding
an aggregate of 8,491,124 shares of Common Stock. As of the date of this
Prospectus, the Company had 19 stockholders. Upon the closing of this offering
and the Pall Private Placement, the Company will have 11,939,152 shares of
Common Stock outstanding.

The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and
qualified in its entirety by: (i) the provisions of the Company's Restated
Certificate and Amended and Restated By-laws (the "By-laws") (each as filed
and effective, respectively, on or before the closing of this offering and
included as exhibits to the Registration Statement); and (ii) the provisions
of applicable law.

COMMON STOCK

Holders of Common Stock are entitled to one vote per share on matters to be
voted upon by the stockholders. There are no cumulative voting rights. Holders
of Common Stock are entitled to receive dividends if, as and when declared by
the Board of Directors out of funds legally available therefor. See "Dividend
Policy." Upon the liquidation, dissolution or winding up of the Company,
holders of Common Stock are entitled to share ratably in the assets of the
Company available for distribution to its stockholders, subject to the
preferential rights of any then outstanding shares of Preferred Stock. No
shares of Preferred Stock will be outstanding immediately following the
closing of this offering. The Common Stock outstanding upon the effective date
of the Registration Statement, and the shares offered by the Company hereby,
upon issuance and sale, will be fully paid and nonassessable.

PREFERRED STOCK

The Company is currently authorized to issue 500 shares of Preferred Stock.
Upon consummation of the offering, the Company's Board of Directors will have
the authority to issue up to 1,000,000 shares of Preferred Stock in one or
more series and to fix the relative rights, preferences, privileges,
qualifications, limitations and restrictions thereof, including dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences, sinking fund terms and the number
of shares constituting any series or the designation of such series, without
further vote or action by the stockholders. The Company believes that the
power to issue Preferred Stock will provide flexibility in connection with
possible corporate transactions. The issuance of Preferred Stock could
adversely affect the voting power of the holders of Common Stock and restrict
their rights to receive payment upon liquidation and could have the effect of
delaying, deferring or preventing a change of control of the Company. See
"Description of Capital Stock--Anti-Takeover Measures." The Company has no
present plans to issue any shares of Preferred Stock.

STOCK PURCHASE WARRANTS

In connection with the sale of Common Stock to CB Capital Investors, L.P. in
a private placement on April 29, 1997, the Company issued a warrant to
purchase shares of Common Stock constituting 1% of the Company's fully diluted
equity for every $1,000,000 in subsequent private equity capital raised,
subject to a cap of 5% to CB Capital Investors, L.P. at an exercise price of
$0.028 per share. No such equity capital has been raised prior to this
offering, and this warrant expires upon the consummation of this offering.

57
<PAGE>

In connection with the sale of Common Stock to CB Capital Investors, L.P. on
April 29, 1997, the Company issued a warrant to purchase 32,361 shares of
Common Stock to Bear, Stearns & Co. Inc., the placement agent. This warrant
has an exercise price of $0.028 per share, is exercisable on or after April
29, 1998, will expire after April 29, 2002, and will be automatically
exercised upon the consummation of this offering. The warrant also grants the
holder registration rights with respect to the shares of Common Stock issued
upon the exercise of the warrant.

In connection with the execution of a lease with The Trustees of Columbia
University in the City of New York ("TCU") on June 21, 1996, the Company
issued warrants to purchase 3,577 shares of Common Stock to TCU as additional
consideration under the lease. This warrant has an exercise price of $2.80 per
share, and is exercisable at any time during the term of the lease, including
renewal periods (June 21, 1996 to October 31, 2001 or to October 31, 2006 if
the longest possible renewal period under the lease is exercised). The warrant
also grants the holder registration rights with respect to the shares of
Common Stock issued upon the exercise of the warrant.

ANTI-TAKEOVER MEASURES

In addition to the Board of Directors' ability to issue shares of Preferred
Stock, the Restated Certificate and the By-laws contain several other
provisions that are commonly considered to discourage unsolicited takeover
bids. The Restated Certificate includes a provision classifying the Board of
Directors into three classes with staggered three-year terms and a provision
prohibiting stockholder action by written consent except as otherwise provided
by law. Under the Restated Certificate and By-laws, the Board of Directors may
enlarge the size of the Board and fill any vacancies on the Board. The
Restated Certificate requires the approval of the holders of at least 66 2/3%
of the outstanding capital stock of the Company prior to the Company entering
into certain transactions with entities that own 5% or more of the Company's
Common Stock, such as: (i) the merger of the Company with or into such entity;
(ii) the sale or disposition of all or substantially all of the Company's
assets to such entity; (iii) the issuance or transfer by the Company of its
securities having a market value in excess of $500,000 to such entity; and
(iv) engaging in any other business combination transaction with such entity.
The prohibitions described in the preceding sentence do not apply to
transactions approved by a majority of the Board of Directors provided the
Directors voting in favor of such resolution include a majority of the persons
who were Directors prior to the time such entity became a 5% stockholder of
the Company. Further, provisions of the By-laws and the Restated Certificate
provide that the stockholders may amend the By-laws or certain provisions of
the Restated Certificate only with the affirmative vote of 66 2/3% of the
Company's capital stock. The By-laws provide that nominations for Directors
may not be made by stockholders at any annual or special meeting unless the
stockholder intending to make a nomination notifies the Company of its
intention a specified period in advance and furnishes certain information. The
By-laws also provide that special meetings of the Company's stockholders may
be called only by the President or the Board of Directors and require advance
notice of business to be brought by a stockholder before the annual meeting.

Upon the consummation of this offering, the Company will be subject to the
provisions of Section 203 of the Delaware General Corporation Law, a law
regulating corporate takeovers (the "Anti-Takeover Law"). In certain
circumstances, the Anti-Takeover Law prevents certain Delaware corporations,
including those whose securities are listed on the Nasdaq National Market,
from engaging in a "business combination" (which includes a merger or sale of
more than ten percent of the corporation's assets) with an "interested
stockholder" (a stockholder who owns 15% or more of the corporation's
outstanding voting stock) for three years following the date on which such
stockholder became an "interested stockholder" subject to certain exceptions,
unless the transaction is approved by the board of directors and the holders
of at least 66 2/3% of the outstanding voting stock of the corporation
(excluding shares held by the interested stockholder). The statutory ban does
not apply if, upon consummation of the transaction in which any person becomes
an interested stockholder, the interested stockholder owns at least 85% of the
outstanding voting stock of the corporation (excluding shares held by persons
who are both Directors and officers or by certain employee stock plans). A
Delaware corporation subject to the Anti-Takeover Law may "opt out" of the
Anti-Takeover Law with an express provision either in its certificate of
incorporation or by-laws resulting from a stockholders' amendment approved by
at least a majority

58
<PAGE>

of the outstanding voting shares; such an amendment is effective following
expiration of twelve months from adoption. The Company has not "opted out" of
the Anti-Takeover Law.

The foregoing provisions of the Restated Certificate and By-laws and
Delaware law could have the effect of discouraging others from attempting
hostile takeovers of the Company and, as a consequence, they may also inhibit
temporary fluctuations in the market price of the Common Stock that might
result from actual or rumored hostile takeover attempts. Such provisions may
also have the effect of preventing changes in the management of the Company.
It is possible that such provisions could make it more difficult to accomplish
transactions which stockholders may otherwise deem to be in their best
interests.

TRANSFER AGENT

The transfer agent and registrar for the Common Stock is The American Stock
Transfer and Trust Company. Its telephone number is (212) 936-5100.

59
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering and the Pall Private Placement, the Company
will have 11,939,152 shares of Common Stock outstanding, assuming no exercise
of any of the outstanding options and warrants to purchase Common Stock. Of
these shares, the 3,000,000 shares sold in this offering will be freely
tradable without restriction or further registration under the Securities Act,
except for shares purchased by "affiliates" of the Company as that term is
defined in Rule 144 under the Securities Act.

The remaining 8,939,152 outstanding shares of Common Stock, which includes
the 448,028 shares to be sold in the Pall Private Placement, are deemed
"Restricted Shares" under Rule 144 and may not be resold except pursuant to an
effective registration statement or an applicable exemption from registration,
including Rule 144. None of these Restricted Shares will be eligible for sale
in the public market immediately after this offering pursuant to Rule 144(k).
Approximately 91,141 Restricted Shares and 274,597 additional shares issuable
upon the exercise of options will be eligible for sale in the public market
pursuant to Rule 144 or Rule 701 under the Securities Act beginning 90 days
after the effective date of this offering. Beginning 180 days after the
effective date of this offering, an additional 7,887,159 Restricted Shares and
144,901 additional shares issuable upon the exercise of options will be
eligible for sale pursuant to Rule 144 or Rule 701 when the agreements between
such holders and the Underwriters not to sell such Restricted Shares expire.
See "Underwriting." The remaining Restricted Shares will become eligible from
time to time thereafter upon the expiration of the minimum one-year holding
period under Rule 144 from the date such Restricted Shares were acquired, or
in the case of 477,042 Restricted Shares, upon the expiration of certain lock-
up agreements 360 days after the date of this Prospectus.

In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially
owned Restricted Shares for at least one year from the later of the date such
Restricted Shares were acquired from the Company and (if applicable) the date
they were acquired from an affiliate, is entitled to sell within any three-
month period a number of shares that does not exceed the greater of 1% of the
then outstanding shares of the Common Stock (119,077 shares based on the
number of shares to be outstanding after this offering) or the average weekly
trading volume in the public market during the four calendar weeks preceding
such sale. Sales under Rule 144 are also subject to certain requirements as to
the manner and notice of sale and the availability of public information
concerning the Company. Affiliates may sell shares not constituting Restricted
Shares in accordance with the foregoing volume limitations and other
restrictions, but without regard to the one-year holding period. Restricted
Shares held by affiliates of the Company eligible for sale in the public
market under Rule 144 are subject to the foregoing volume limitations and
other restrictions.

Further, under Rule 144(k), if a period of at least two years has elapsed
between the later of the date Restricted Shares were acquired from the Company
or an affiliate of the Company, a holder of such Restricted Shares who is not
an affiliate of the Company at the time of the sale and has not been an
affiliate of the Company for at least three months prior to the sale would be
entitled to sell the shares immediately without regard to the volume
limitations and other conditions described above.

The Company intends to file registration statements under the Securities Act
to register 1,999,644 shares of Common Stock issuable under the 1998 Equity
Plan, 89,445 shares issuable under the 1998 Purchase Plan and 89,445 shares
issuable under the 1998 Director Plan. See "Management--Stock Plans --1998
Equity Incentive Plan." These registration statements are expected to be filed
as soon as practicable after the date of this Prospectus and are expected to
become effective immediately upon filing. Shares covered by the registration
statements will be eligible for sale in the public market after the effective
dates of such registration statements.

Rule 701 under the Securities Act provides an exemption from the
registration requirements of the Act for offers and sales of securities issued
pursuant to certain compensatory benefit plans or written contracts of a
company not subject to the reporting requirements of Sections 13 or 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Any
employee, officer or director of or consultant to the Company who acquired
shares of Common Stock pursuant to the Equity Plan or any other written
compensatory plan or contract is entitled to rely on the resale provisions of
Rule 701, which permit non-affiliates to sell such shares

60
<PAGE>

without having to comply with the public information, holding period, volume
limitation, or notice requirements of Rule 144 and permit affiliates to sell
their Rule 701 shares without having to comply with the holding period
requirements of Rule 144 commencing, in each case, 90 days after the date of
this Prospectus.

Rule 144A permits unlimited resales of Restricted Shares under certain
circumstances to Qualified Institutional Buyers, which are generally defined
as institutions with over $100 million invested in securities. Rule 144A
allows holders of Restricted Shares to sell their shares to such institutional
buyers without regard to any volume or other restrictions.

Prior to this offering, there has been no market for the Common Stock and no
prediction can be made as to the effect, if any, that market sales of the
Restricted Shares or the availability of such Restricted Shares for sale will
have on the market price of the Common Stock. Nevertheless, sales of
substantial amounts of Common Stock in the public market may have an adverse
impact on such market price.

REGISTRATION RIGHTS

The holders of an aggregate of: (i) 8,380,012 shares of Common Stock which
are outstanding or which are issuable upon exercise of certain outstanding
warrants; and (ii) the shares which may hereafter be sold to Pall under the
Pall Agreements (together the "Registrable Shares") are entitled to certain
rights with respect to registration of the resales of Registrable Shares under
the Securities Act beginning at the end of the lock-up period. If the Company
proposes to register any of its securities under the Securities Act, either
for its own account or for the account of other security holders, the holders
of 8,344,074 of the Registrable Shares are entitled to notice of such
registration and are entitled to have the Company use its commercially
reasonable efforts to include such Registrable Shares in the registration. The
rights are subject to certain conditions and limitations, among them, the
right of the underwriters of a registered offering to limit the number of
shares included in such registration. The holders of these rights may also
require the Company to file at its expense registration statements under the
Securities Act with respect to their Registrable Shares and, subject to
certain conditions and limitations, the Company is required to use its
commercially reasonable efforts to effect such registrations. Furthermore,
such holders may, subject to certain conditions and limitations, require the
Company to file additional registration statements on Form S-3 with respect to
such Registrable Shares at times when the Company is eligible to use such Form
(at least one year from the date of this Prospectus). The holders of 32,361 of
the Registrable Shares are entitled to notice of a registration and are
entitled to have the Company use its commercially reasonable efforts to
include such Registrable Shares in the registration in the event that the
Company proposes to register its securities for its own account or for the
account of securityholders who are exercising registration rights granted to
them by the Company after April 29, 1997. These rights are subject to certain
conditions and limitations, among them, the right of the underwriters of a
registered offering to limit the number of shares included in such
registration. These holders do not have any demand registration rights. The
holders of 3,577 of the Registrable Shares are entitled to notice of a
registration and are entitled to have the Company include such Registrable
Shares in the registration in the event that the Company proposes to register
any of its securities, either for its own account or for the account of other
security holders. These rights are subject to certain conditions and
limitations, including the right of underwriters of a registered offering to
limit the number of shares included in such registration. These holders do not
have any demand registration rights.

61
<PAGE>

UNDERWRITING

Subject to the terms and conditions set forth in the Underwriting Agreement,
the Underwriters named below (the "Underwriters"), through their
representatives, Cowen & Company and SBC Warburg Dillon Read Inc. (the
"Representatives"), have severally agreed to purchase from the Company, the
following respective number of shares of Common Stock set forth opposite the
name of such Underwriter below:

<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER OF COMMON STOCK
----------- ----------------
<S> <C>
Cowen & Company............................................. 960,000
SBC Warburg Dillon Read Inc. ............................... 640,000
BT Alex.Brown Incorporated.................................. 80,000
CIBC Oppenheimer Corp. ..................................... 80,000
Donaldson, Lufkin & Jenrette Securities Corporation......... 80,000
A.G. Edwards & Sons, Inc. .................................. 80,000
Furman Selz................................................. 80,000
Hambrecht & Quist LLC....................................... 80,000
Lehman Brothers Inc. ....................................... 80,000
Morgan Stanley & Co. Incorporated........................... 80,000
NationsBanc Montgomery Securities LLC....................... 80,000
Prudential Securities Incorporated.......................... 80,000
Smith Barney Inc. .......................................... 80,000
J.C. Bradford & Co. ........................................ 40,000
Crowell, Weedon & Co. ...................................... 40,000
Friedman, Billings, Ramsey & Co., Inc. ..................... 40,000
Gerard Klauer Mattison & Co., LLC........................... 40,000
Edward D. Jones & Co., LLC.................................. 40,000
Ladenburg Thalmann & Co. Inc. .............................. 40,000
McDonald & Company Securities, Inc. ........................ 40,000
Parker/Hunter Incorporated.................................. 40,000
Pennsylvania Merchant Group................................. 40,000
Piper Jaffray Inc. ......................................... 40,000
Raymond James & Associates, Inc. ........................... 40,000
Suntrust Equitable Securities Corporation................... 40,000
Sutro & Co. Incorporated.................................... 40,000
---------
Total..................................................... 3,000,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company and its counsel and
independent auditors, and that the Underwriters are committed to purchase all
shares of Common Stock offered hereby (other than those covered by the over-
allotment option described below) if any such shares are purchased.

The Underwriters propose to offer the shares of Common Stock directly to the
public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $0.47 per share. The Underwriters may allow, and such dealers may
re-allow, a concession not in excess of $0.10 per share to certain other
brokers and dealers. After the shares of Common Stock are released for sale to
the public, the offering price and other selling terms may from time to time
be varied by the Representatives.

The Company has granted to the Underwriters an option, exercisable for up to
30 days after the date of this Prospectus, to purchase up to an aggregate of
450,000 additional shares of Common Stock to cover over-

62
<PAGE>

allotments, if any. If the Underwriters exercise the over-allotment option,
the Underwriters have severally agreed, subject to certain conditions, to
purchase approximately the same percentage thereof that the number of shares
of Common Stock to be purchased by each of them as shown in the foregoing
table bears to the total number of shares of Common Stock offered hereby. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of shares of Common Stock offered hereby.

At the request of the Company, the Underwriters have reserved for sale, at
the initial public offering price, up to 100,000 shares of Common Stock to be
offered and sold hereby by the Company to certain directors, employees,
consultants, business associates and related persons of the Company. The
number of shares of Common Stock available for sale to the general public will
be reduced to the extent such persons purchase such reserved shares. Any
reserved shares which are not so purchased will be offered by the Underwriters
to the general public on the same terms as the other shares of Common Stock
offered hereby. Certain individuals purchasing reserved shares may be required
to agree not to sell, offer or otherwise dispose of any shares of Common Stock
for a period of three months after the date of this Prospectus.

The Company, the Company's officers, all directors who own shares of Common
Stock and certain other stockholders and optionholders of the Company have
agreed that for a period of 180 days following the date of this Prospectus,
without the prior consent of Cowen & Company, they will not, directly or
indirectly, offer, sell, assign, transfer, encumber, pledge, contract to sell,
grant an option to purchase or otherwise dispose of, other than by operation
of law, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for shares of Common Stock, including without
limitation, options, warrants and the like which are owned either of record or
beneficially or which are acquired on or prior to the date of this Prospectus
or which are received upon the exercise of options and warrants. Cowen &
Company has advised the Company that it has no present intention of releasing
any of the Company's stockholders or optionholders from such lock-up
agreements until the expiration of the 180-day period. In the case of 477,042
shares of Common Stock, the holder of such shares has agreed that for a period
of 360 days following the date of this Prospectus, the holder will not,
directly or indirectly, offer, sell, assign, transfer, encumber, pledge,
contract to sell, grant an option to purchase or otherwise dispose of, other
than by operation of law, such shares or securities convertible into or
exchangeable or exercisable for such shares of Common Stock, including,
without limitation, options, warrants and the like.

The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended, and to contribute to payments the Underwriters may be required to
make in respect thereof.

The Representatives have advised the Company that the Underwriters do not
intend to confirm sales in excess of 5% of the shares of Common Stock offered
hereby to any account over which they exercise discretionary authority.

Until the distribution of Common Stock is completed, rules of the Securities
and Exchange Commission may limit the ability of the Underwriters and certain
selling group members to bid for and purchase the Common Stock. As an
exception to these rules, the Representatives are permitted to engage in
certain transactions that stabilize the price of the Common Stock. Such
transactions consist of bids or purchases for the purpose of pegging, fixing
or maintaining the price of the Common Stock.

If the Underwriters create a short position in the Common Stock in
connection with this offering, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the Representatives
may reduce that short position by purchasing Common Stock in the open market.
The Representatives may also elect to reduce any short position by exercising
all or part of the over-allotment option described above.

The Representatives may impose a penalty bid on certain Underwriters and
selling group members. This means that if the Representatives purchase Common
Stock in the open market to reduce the Underwriters' short position or to
stabilize the price of the Common Stock, they may reclaim the amount of the
selling concession from the Underwriters and selling group members who sold
those shares of Common Stock as part of this offering.

63
<PAGE>

In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of a security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it
were to discourage resales of the security.

Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the Representatives will engage in such transactions or
that such transactions, once commenced, will not be discontinued without
notice.

Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price was determined by
negotiations between the Company and the Representatives. Among the factors
considered in such negotiations were prevailing market conditions, the results
of operations of the Company in recent periods, the market capitalizations and
stages of development of other companies that the Company and the
Representatives believe to be comparable to the Company, estimates of the
business potential of the Company, the present state of the Company's
development and other factors deemed relevant.

LEGAL MATTERS

The validity of the shares of Common Stock sold in this offering is being
passed upon for the Company by Palmer & Dodge LLP, Boston, Massachusetts.
Certain legal matters in connection with this offering will be passed upon for
the Underwriters by Brown & Wood LLP, New York, New York.

EXPERTS

The financial statements of the Company as of December 31, 1997 and 1996 and
for each of the years in the three-year period ended December 31, 1997,
included herein and in the Registration Statement in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.

The statements in the Prospectus under the captions "Risk Factors--
Uncertainty of Proprietary Technologies and Patents" and "Business--Patents,
Licenses and Proprietary Rights" have been reviewed and approved by Amster,
Rothstein & Ebenstein, New York, New York, as experts on such matters, and are
included in this Prospectus in reliance on that review and approval.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"SEC") a Registration Statement on Form S-1 (together with all amendments and
exhibits, the "Registration Statement") under the Securities Act. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules to the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the SEC. For further information with respect to the Company
and the Common Stock offered hereby, reference is made to the Registration
Statement and to its exhibits and schedules. Statements in this Prospectus as
to the contents of any contract or other document are not necessarily
complete; and reference is made in each instance to the copy of the contract
or other document filed as an exhibit to the Registration Statement. Each
statement is qualified in all respects by this reference to the exhibit. The
Registration Statement, including exhibits, may be inspected and copied
without charge at the SEC's principal office located at 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549 and at the regional offices of
the SEC located at Seven World Trade Center, Suite 1300, New York, New York
10048 and the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material may be obtained by mail from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549, upon the payment of prescribed fees.
The Commission also maintains a web site at http://www.sec.gov that contains
reports, proxy and information statements, as well as other information
regarding registrants that file electronically with the SEC.

The Company intends to furnish its stockholders with annual reports
containing audited financial statements and quarterly reports for the first
three quarters of each fiscal year containing interim unaudited financial
information.

64
<PAGE>

V.I. TECHNOLOGIES, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors............................................ F-2
Balance Sheets as of December 31, 1996 and 1997 and as of March 31, 1998
(unaudited).............................................................. F-3
Statements of Operations for the years ended December 31, 1995, 1996 and
1997 and the three
months ended March 31, 1997 (unaudited) and March 31, 1998 (unaudited)... F-4
Statements of Cash Flows for the years ended December 31, 1995, 1996 and
1997 and the three months ended March 31, 1997 (unaudited) and March 31,
1998 (unaudited)......................................................... F-5
Statements of Stockholders' Equity for the years ended December 31, 1995,
1996 and 1997 and the three months ended March 31, 1998 (unaudited)...... F-6
Notes to Financial Statements............................................. F-7
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
V.I. Technologies, Inc.:

We have audited the accompanying balance sheets of V.I. Technologies, Inc.
as of December 31, 1996 and 1997, and the related statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1997. 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 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 audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of V.I. Technologies, Inc. as
of December 31, 1996 and 1997, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1997,
in conformity with generally accepted accounting principles.

KPMG PEAT MARWICK LLP

Jericho, New York
February 2, 1998, except as
to notes 8 and 16, which
are as of April 7, 1998 and
notes 1, 11 and 17, which
are as of May 6, 1998

F-2
<PAGE>

V.I. TECHNOLOGIES, INC.
BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------------- 1998
1996 1997 (UNAUDITED)
------------ ------------ -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............ $ 4,752,363 $ 5,250,019 $ 4,716,017
Trade receivables.................... 1,249,127 1,355,573 1,486,022
Other receivables.................... 1,967,713 894,947 1,232,635
Due from related parties, net........ -- -- 47,427
Inventory............................ 441,487 574,957 1,388,696
Prepaid expenses and other current
assets.............................. 468,670 320,815 378,252
------------ ------------ -----------
Total current assets............... 8,879,360 8,396,311 9,249,049
Property, plant and equipment, net.... 27,891,918 29,049,897 28,275,552
Other assets, net..................... 854,872 720,593 680,295
------------ ------------ -----------
$ 37,626,150 $ 38,166,801 $38,204,896
============ ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.... $ 3,500,000 $ 2,687,500 $ 2,687,500
Current portion of capital lease
obligations......................... 183,406 964,055 964,055
Current portion of advances from
customer............................ -- 337,500 337,500
Deferred revenue..................... -- -- 711,972
Accounts payable and accrued
expenses............................ 9,507,545 6,814,016 7,801,277
Due to related parties, net.......... 2,168 367,763 --
------------ ------------ -----------
Total current liabilities.......... 13,193,119 11,170,834 12,502,304
------------ ------------ -----------
Notes payable......................... 2,847,167 -- --
Long-term debt, less current portion.. 9,000,000 8,062,500 7,390,625
Capital lease obligations, less
current portion...................... 1,680,504 4,592,588 4,386,693
Advances from customer, less current
portion.............................. 2,000,000 2,662,500 2,662,500
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01 per
share; authorized
500 shares; no shares issued and
outstanding......................... -- -- --
Common stock, par value $.01 per
share; authorized
30,000,000 shares; issued and
outstanding 6,042,307
in 1996, 7,852,723 in 1997 and
8,491,124 at March 31, 1998......... 60,423 78,527 84,909
Additional paid-in-capital........... 23,808,827 38,298,387 44,476,346
Note receivable from stockholder..... -- (35,000) (250,000)
Accumulated deficit.................. (14,963,890) (26,663,535) (33,048,481)
------------ ------------ -----------
Total stockholders' equity......... 8,905,360 11,678,379 11,262,774
------------ ------------ -----------
$ 37,626,150 $ 38,166,801 $38,204,896
============ ============ ===========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-3
<PAGE>

V.I. TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------- ------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES, INCLUDING
RELATED PARTY AMOUNTS
OF $705,000 IN 1996,
$104,000 IN 1997 AND
$30,000 AND $24,000 FOR
THE THREE MONTHS ENDED
MARCH 31, 1997 AND
1998:
Processing and
products.............. $ 437,664 $14,898,914 $15,843,046 $ 3,442,467 $ 3,713,038
Licensing fee.......... -- 3,000,000 -- -- --
Research and
development funding... -- 954,050 1,223,736 255,000 374,000
------------ ------------ ------------ ----------- -----------
Total revenues....... 437,664 18,852,964 17,066,782 3,697,467 4,087,038
------------ ------------ ------------ ----------- -----------
COSTS AND EXPENSES,
INCLUDING RELATED PARTY
AMOUNTS OF $853,000 IN
1995, $817,000 IN 1996,
$784,000 IN 1997 AND
$175,000 AND $277,000
FOR THE THREE MONTHS
ENDED MARCH 31, 1997
AND 1998:
Costs related to
processing and
products.............. 284,482 9,139,030 10,345,515 2,302,533 2,488,526
Facility costs......... 6,740,201 1,449,242 5,980,295 1,003,153 2,355,653
Research and
development........... 2,776,531 5,321,039 7,135,969 1,559,994 2,167,420
Marketing and sales.... -- -- 1,074,466 -- 88,316
General and
administrative........ 1,329,796 2,477,405 3,278,265 736,342 748,309
Special charge related
to processing and
products.............. -- 4,100,000 -- -- --
Charge related to
research
collaboration......... -- -- -- -- 2,202,000
------------ ------------ ------------ ----------- -----------
Total operating costs
and expenses........ 11,131,010 22,486,716 27,814,510 5,602,022 10,050,224
------------ ------------ ------------ ----------- -----------
Loss from operations.... (10,693,346) (3,633,752) (10,747,728) (1,904,555) (5,963,186)
INTEREST:
Income................. 94,374 125,795 366,167 34,694 52,114
Expense................ (239,733) (617,228) (1,318,084) (129,758) (473,874)
------------ ------------ ------------ ----------- -----------
Interest expense,
net................. (145,359) (491,433) (951,917) (95,064) (421,760)
------------ ------------ ------------ ----------- -----------
Net loss................ ($10,838,705) ($ 4,125,185) ($11,699,645) ($1,999,619) ($6,384,946)
============ ============ ============ =========== ===========
Basic and diluted net
loss per share......... ($3.64) ($0.84) ($1.62) ($0.33) ($0.78)
============ ============ ============ =========== ===========
Weighted average common
shares used in
computing
basic and diluted net
loss per share......... 2,981,515 4,897,271 7,240,903 6,042,307 8,145,913
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-4
<PAGE>

V. I. TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- ------------------------
1995 1996 1997 1997 1998
------------ ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows provided by
(used in) operating
activities:
Net loss............... ($10,838,705) ($4,125,185) ($11,699,645) ($1,999,619) ($6,384,946)
Adjustments to
reconcile net loss to
net cash provided by
(used in) operating
activities:
Depreciation and
amortization......... 1,942,578 2,308,964 2,985,572 681,973 954,844
Processing reserve.... -- 4,100,000 -- -- --
Debt refinancing
costs................ -- -- 190,385 -- --
Compensation expense
in connection with
issuance of stock
options.............. -- -- 381,250 -- --
Charge related to
research
collaboration........ -- -- -- -- 2,202,000
Changes in operating
accounts:
Trade receivables..... (437,664) (811,463) (106,446) 14,131 (130,449)
Other receivables..... -- (1,736,234) 1,072,766 828,434 (337,688)
Due from related
parties, net......... -- -- -- -- (47,427)
Inventory............. (234,534) 117,047 (133,470) (183,063) (813,739)
Prepaid expenses and
other current
assets............... (80,744) (246,926) 147,855 (31,905) (57,437)
Deferred revenue...... -- -- -- -- 711,972
Accounts payable and
accrued expenses..... 1,474,510 1,463,268 (2,910,566) (546,339) 537,696
Due to related
parties, net......... -- (75,737) 365,595 201,338 --
------------ ----------- ------------ ----------- -----------
NET CASH PROVIDED BY
(USED IN) OPERATING
ACTIVITIES............. (8,174,559) 993,734 (9,706,704) (1,035,050) (3,365,174)
------------ ----------- ------------ ----------- -----------
Cash flows used in
investing activities:
Additions to property,
plant and equipment... (4,140,833) (9,402,114) (3,858,031) (1,808,640) (140,198)
Other investing
activities............ -- (277,032) (124,589) -- --
------------ ----------- ------------ ----------- -----------
NET CASH USED IN
INVESTING ACTIVITIES... (4,140,833) (9,679,146) (3,982,620) (1,808,640) (140,198)
------------ ----------- ------------ ----------- -----------
Cash flows provided by
financing activities:
Proceeds from issuance
of common stock, net
of issuance costs..... 5,000,000 4,025,000 14,091,414 -- 4,136,000
Costs in connection
with proposed initial
public offering....... -- -- -- -- (286,860)
Proceeds from issuance
of long-term debt..... 10,000,000 5,000,000 10,750,000 -- --
Proceeds from issuance
of notes payable...... 256,000 2,847,167 1,472,797 554,201 --
Advances from
customer.............. -- 1,012,000 1,000,000 1,000,000 --
Principal repayment of
long-term debt........ -- (2,500,000) (12,500,000) (250,000) (671,875)
Principal repayment of
capital lease
obligations........... -- -- (627,231) -- (205,895)
Principal repayment of
note payable.......... -- (256,000) -- -- --
------------ ----------- ------------ ----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES... 15,256,000 10,128,167 14,186,980 1,304,201 2,971,370
------------ ----------- ------------ ----------- -----------
Net increase in cash and
cash equivalents....... 2,940,608 1,442,755 497,656 (1,539,489) (534,002)
Cash and cash
equivalents, beginning
of year................ 369,000 3,309,608 4,752,363 4,752,363 5,250,019
------------ ----------- ------------ ----------- -----------
CASH AND CASH
EQUIVALENTS, END OF
YEAR................... $ 3,309,608 $ 4,752,363 $ 5,250,019 $ 3,212,874 $ 4,716,017
============ =========== ============ =========== ===========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-5
<PAGE>

V.I. TECHNOLOGIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND THREE
MONTHS ENDED MARCH 31, 1998 (UNAUDITED)

<TABLE>
<CAPTION>
NOTE
COMMON STOCK ADDITIONAL RECEIVABLE
----------------- PAID-IN FROM ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCKHOLDER DEFICIT EQUITY
--------- ------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1995, effective date of
spinoff from New York
Blood Center........... 35 $ -- $14,471,000 $ -- $ -- $ 14,471,000
Exchange of 35 shares of
common stock no par
value, held by New York
Blood Center for 35
shares of common stock,
$.01 par value......... -- -- -- -- -- --
Dividend to New York
Blood Center of 26,833
shares per share of
common stock........... 2,683,327 26,833 (26,833) -- -- --
Issuance of shares of
common stock in
connection with a
private placement...... 1,788,909 17,889 4,982,111 -- -- 5,000,000
Net loss................ -- -- -- -- (10,838,705) (10,838,705)
--------- ------- ----------- --------- ------------ ------------
BALANCE AT DECEMBER 31,
1995................... 4,472,271 44,722 19,426,278 -- (10,838,705) 8,632,295
Issuance of shares of
common stock in
connection with a loan
agreement.............. 129,964 1,300 361,950 -- -- 363,250
Issuance of shares of
common stock upon
exercise of stock
options and warrants... 1,440,072 14,401 4,010,599 -- -- 4,025,000
Issuance of warrant to
purchase 3,577 shares
of common stock in
connection with a lease
agreement.............. -- -- 10,000 -- -- 10,000
Net loss................ -- -- -- -- (4,125,185) (4,125,185)
--------- ------- ----------- --------- ------------ ------------
BALANCE AT DECEMBER 31,
1996................... 6,042,307 60,423 23,808,827 -- (14,963,890) 8,905,360
Issuance of shares of
common stock in
connection with a
private placement, net
of issuance costs of
$859,000............... 1,797,894 17,979 14,073,435 -- -- 14,091,414
Compensation expense in
connection with
issuance of stock
options................ -- -- 381,250 -- -- 381,250
Issuance of shares of
common stock upon
exercise of stock
options................ 12,522 125 34,875 (35,000) -- --
Net loss................ -- -- -- -- (11,699,645) (11,699,645)
--------- ------- ----------- --------- ------------ ------------
BALANCE AT DECEMBER 31,
1997................... 7,852,723 78,527 38,298,387 (35,000) (26,663,535) 11,678,379
Issuance of shares of
common stock in
connection with a
private placement...... 477,042 4,770 6,197,230 -- -- 6,202,000
Issuance of shares of
common stock to New
York Blood Center in
satisfaction of
obligation............. 35,778 357 299,643 -- -- 300,000
Costs in connection with
proposed initial public
offering............... -- -- (668,659) -- -- (668,659)
Issuance of shares of
common stock upon
exercise of stock
options................ 125,581 1,255 349,745 (215,000) -- 136,000
Net loss................ -- -- -- -- ($6,384,946) ($6,384,946)
--------- ------- ----------- --------- ------------ ------------
BALANCE AT MARCH 31,
1998 (UNAUDITED)....... 8,491,124 $84,909 $44,476,346 ($250,000) ($33,048,481) $ 11,262,774
========= ======= =========== ========= ============ ============
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-6
<PAGE>

V.I. TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND PERTAINING TO MARCH 31, 1998
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)

1. ORGANIZATION AND BUSINESS OVERVIEW

V.I. Technologies, Inc. ("VITEX" or the "Company"), formerly Melville
Biologics, Inc., was incorporated in Delaware in December 31, 1992. Effective
January 1, 1995, pursuant to a transfer agreement dated December 9, 1994 and
amended February 7, 1995 (the "Transfer Agreement"), the Company received
substantially all of the assets of New York Blood Center, Inc. (the "NYBC")
relating to the plasma fractionation business, including title to the real
property, building and fixtures of the NYBC's fractionation facility and
certain other specified tangible and intangible assets, as well as various
contracts and the assumption of certain obligations of the NYBC related to
such assets and contracts. In exchange for these assets the NYBC received all
of the issued and outstanding common stock of the Company. The transaction was
accounted for utilizing the historical cost basis of the acquired assets and
liabilities (with the exception of property, plant and equipment which was
recorded at the historical net book value).

On October 26, 1995, the Company sold 1,788,909 shares of its common stock
to affiliates of Ampersand Ventures ("Ampersand") in connection with a private
placement, and in September 1996, Ampersand and the NYBC made additional
equity investments (see note 8). Further, on April 29, 1997, the Company sold
1,797,894 shares of its common stock to CB Capital Investors, L.P. ("CBC")
(see note 8). As a result of these transactions, the NYBC owns 43.3%,
Ampersand owns 33.5% and CBC owns 22.9% of the outstanding shares of common
stock of the Company at December 31, 1997 (see note 8).

The Company is a leading developer of viral inactivation technologies for
blood products and is currently processing plasma fractions for certain
customers in its production facility. On May 6, 1998, the Company received
marketing approval for its first virally inactivated blood product, VIPLAS/SD,
from the United States Food and Drug Administration (the "FDA"). The Company's
plasma fractionation business provides plasma fractions principally to Bayer
Corporation ("Bayer") under a multi-year agreement (see note 6).

The Company's operations encompass all the risks inherent in developing and
expanding a new business enterprise, including: (i) market acceptance of the
Company's products and dependence on new product development; (ii) uncertainty
regarding the timing and amount of future revenues; (iii) obtaining future
capital; (iv) the uncertainty regarding approval under, and ongoing compliance
with, government regulations; (v) dependence on manufacturing and equipment;
(vi) reliance on strategic collaborators; (vii) the ability to obtain,
maintain and defend patents and to avoid infringement of patents issued to
competitors; (viii) a business environment characterized by intense
competition and rapid technological change; and (ix) the need to retain and
recruit key personnel. In addition, the Company will be required to generate
sufficient income through operations or obtain additional financing to meet
its short- and long-term liquidity requirements. There can be no assurance
that the Company will be able to generate sufficient income through operations
or that additional financing, if at all available, can be obtained on terms
reasonable to the Company. In the event the Company is unable to generate
sufficient income from operations or obtain additional financing as required,
its operations and research and development efforts will need to be curtailed
or discontinued. Such an event would limit the Company's ability to develop
its technology and achieve regulatory milestones with its corporate partners.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash Equivalents

The Company considers all highly liquid investments with maturities of three
months or less at the time of purchase to be cash equivalents. Cash
equivalents consist primarily of U.S. Government securities and are carried at
cost which approximates market value.

F-7
<PAGE>

Concentration of Credit Risk

The Company invests its cash in U.S. Government securities to ensure safety
and liquidity. The Company's plasma fractionation processing revenues are
principally derived from Bayer. The Company does not require collateral or
other security to ensure collection.

Inventory

Costs incurred in connection with plasma fractionation processing services
are included in inventories and expensed upon recognition of related revenues.
Such costs include direct labor and processing overheads. Supplies used in
processing are stated at the lower of cost, as determined using the average
cost method, or net realizable value.

Plant and Equipment

Plant and equipment are stated at cost and are depreciated on a straight-
line basis over the estimated useful lives of the respective assets, which
approximates seven to 20 years for building and manufacturing equipment, and
approximates three to five years for all other tangible assets.

Facility Costs

Costs incurred in starting-up and expanding facilities are included in
facility costs in the accompanying statements of operations and expensed as
incurred. Such costs include employee wages and related benefits, materials
and other supplies associated with product test runs, equipment maintenance,
and internal validation and quality control procedures, consulting fees, and
supplies used in testing new machinery.

Research and Development

All research and development costs are charged to operations as incurred.
Research and development costs include all costs associated with patents,
which are expensed as incurred.

Revenue Recognition

Revenue from plasma fractionation processing services is recognized in the
period in which the related services have been rendered and upon satisfaction
of certain quality control requirements. Revenue recognized in the
accompanying statements of operations is not subject to repayment or future
performance obligations. Plasma fractionation processing services with Bayer
commenced in November 1995. Revenue from research and development grants is
recognized in the period in which the eligible costs are incurred by the
Company.

Other Assets

Other assets include organization costs, principally legal fees, which are
amortized on a straight-line basis over a five-year period. In addition, other
assets include certain costs of financing which are being amortized on a
straight-line basis over the respective terms of the financing agreements.
Accumulated amortization at December 31, 1996 and 1997 was $240,412 and
$281,775, respectively, and at March 31, 1998 was $322,075.

Income Taxes

Deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the amounts of existing
assets and liabilities carried on the financial statements and their
respective tax bases and the benefits arising from the realization of
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using tax rates in effect for the year in which those
temporary differences are expected to be recovered or settled. A valuation
allowance is established when necessary to reduce deferred tax assets to the
amount expected to be realized.

Stock-Based Compensation

Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and

F-8
<PAGE>

V.I. TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND PERTAINING TO MARCH 31, 1998
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
related interpretations. As such, compensation expense would be recorded on
the date of grant only if the current market price of the underlying stock
exceeded the exercise price. On January 1, 1996, the Company adopted SFAS No.
123, Accounting for Stock-Based Compensation, which permits entities to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS No. 123 also allows entities
to continue to apply the provisions of APB Opinion No. 25 and provide pro
forma net income or loss and pro forma earnings or loss per share disclosures
for employee stock option grants made in 1995 and future years as if the fair
value-based method defined in SFAS No. 123 had been applied. The Company has
elected to continue to apply the provisions of APB Opinion No. 25 and provide
the pro forma disclosure of SFAS No. 123 (see note 9).

Net Loss Per Share

At December 31, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 128, Earnings per Share. Basic net loss per
share is computed by dividing the net loss by the weighted average number of
common shares outstanding. Diluted net loss per share is the same as basic net
loss per share since the inclusion of potential common stock equivalents
(stock options and warrants) in the computation would be anti-dilutive.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Interim Financial Information (Unaudited)

The financial statements as of March 31, 1998 and for the three month
periods ended March 31, 1997 and 1998 include all adjustments (consisting only
of normal recurring adjustments) which management considers necessary for a
fair statement of the financial position at such dates and the operating
results and cash flows for the periods. Results for interim periods are not
necessarily indicative of results for the entire year or any future periods.

Impairment of Long-Lived Assets

The Company periodically assesses whether any events or changes in
circumstances have occurred that would indicate that the carrying amount of a
long-lived asset may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets.

Fair Value of Financial Instruments

The fair value of the Company's long-term debt and capital lease obligations
approximates the debt's carrying value as the stated interest rates
approximates current market rates available to the Company. For all other
financial instruments, the carrying value approximates fair value due to the
short maturity of those instruments.

New Reporting Pronouncements

The Company will implement the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income, SFAS
No. 131, Disclosures about Segments of an Enterprise and Related Information,
and SFAS No. 132, Employers' Disclosures about Pensions and Other Post-
retirement Benefits which require the Company to report and display certain
information related to comprehensive income, operating segments, and employee
benefit plans, respectively, as required in 1998. Adoption of these statements
will not impact the Company's financial position or results of operations.

F-9
<PAGE>

Supplemental Disclosure of Cash Flow Information

Information on cash paid for interest and non-cash investing and financing
activities are as follows:

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------- -----------------
1995 1996 1997 1997 1998
---------- ---------- ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash paid during the year
for interest.............. $ 259,000 $ 924,000 $1,511,000 $451,000 $411,000
========== ========== ========== ======== ========
Non-cash investing and
financing activities:
Note receivable from
stockholder.............. $ -- $ -- $ 35,000 $ -- $215,000
========== ========== ========== ======== ========
Conversion of notes
payable to capital lease
obligations.............. $ -- $1,864,000 $2,847,000 $ -- $ --
========== ========== ========== ======== ========
Debt financing costs
included in accounts
payable and accrued
expenses................. $ -- $ -- $ 170,000 $ -- $ --
========== ========== ========== ======== ========
Reimbursable construction
costs included in other
receivables and accounts
payable and accrued
expenses................. $ -- $ 231,000 $ -- $ -- $ --
========== ========== ========== ======== ========
Capital improvements and
equipment costs included
in property, plant and
equipment and accounts
payable and accrued
expenses................. $1,239,000 $ 425,000 $ 47,000 $ -- $ --
========== ========== ========== ======== ========
Costs in connection with
proposed initial public
offering included in
accounts payable and
accrued expenses......... $ -- $ -- $ -- $ -- $382,000
========== ========== ========== ======== ========
Issuance of common stock
to New York Blood Center
in satisfaction of
obligation............... $ -- $ -- $ -- $ -- $300,000
========== ========== ========== ======== ========
</TABLE>

Reclassification

Certain amounts contained in the 1996 financial statements have been
reclassified to conform to the 1997 presentation.

3. INVENTORY

Inventory consists of the following components (see note 7):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1996 1997 1998
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Processing costs............................... $242,986 $210,572 $ 916,808
Supplies used in processing.................... 198,501 364,385 471,888
-------- -------- ----------
$441,487 $574,957 $1,388,696
======== ======== ==========
</TABLE>

Processing costs of $382,000 associated with VIPLAS/SD have been fully
reserved as of December 31, 1997. At March 31, 1998 processing costs
associated with VIPLAS/SD were $587,000, net of a reserve of $172,000.

F-10
<PAGE>

4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following components (see note
7):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Land................................ $ 638,000 $ 638,000 $ 638,000
Building and related improvements... 13,254,197 21,572,842 21,592,806
Manufacturing and laboratory
equipment.......................... 6,771,110 12,897,472 12,977,244
Office furniture and equipment...... 331,546 581,138 621,600
Construction in progress............ 10,789,531 -- --
----------- ----------- -----------
31,784,384 35,689,452 35,829,650
Accumulated depreciation and
amortization....................... (3,892,466) (6,639,555) (7,554,098)
----------- ----------- -----------
$27,891,918 $29,049,897 $28,275,552
=========== =========== ===========

Interest capitalized in connection with construction activities totaled
$128,000, $306,000 and $370,000 in 1995, 1996 and 1997, respectively.

The cost of manufacturing equipment held under a capital lease (see note 15)
amounted to $1,863,910 in 1996, and $6,183,874 in 1997 and at March 31, 1998,
and accumulated depreciation relating to such equipment amounted to $206,129
in 1997 and $309,194 at March 31, 1998.

5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following components:

<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Trade accounts payable.............. $ 1,755,933 $ 2,503,169 $ 3,816,693
Accrued construction costs.......... 1,973,681 47,037 --
Reserve for processing costs payable
to Bayer Corporation (see note 6).. 4,712,420 3,075,063 2,511,646
Accrued employee compensation....... 786,766 788,054 1,024,424
Other............................... 278,745 400,693 448,514
----------- ----------- -----------
$ 9,507,545 $ 6,814,016 $ 7,801,277
=========== =========== ===========
</TABLE>

6. PLASMA FRACTIONATION PROCESSING REVENUES

On February 7, 1995, the Company entered into an Agreement for Custom
Processing (the "Processing Agreement") with Bayer (formerly Miles Inc.), a
world leader in the manufacturing and marketing of plasma products, whereby
the Company fractionates plasma for Bayer in return for a contracted fee (the
"Base Processing Fee"). Under the Processing Agreement, as amended on January
24, 1996, and December 22, 1997, Bayer contracted for an initial term through
December 31, 2001 at minimum production volumes, as defined.

F-11
<PAGE>

V.I. TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND PERTAINING TO MARCH 31, 1998
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
Bayer also has two one-year options to extend the term under essentially the
same terms and conditions. The Processing Agreement provides for declining
unit prices in 1997 and 1998, and increases thereafter based on increases in
the consumer price index. The Processing Agreement also provides for increases
in minimum production volumes until 1999. Processing revenues received from
Bayer represented 100% of total revenues in 1995, 79% in 1996, and 84% in
1997, respectively, and represented 93% and 89%, respectively, during the
three month periods ended March 31, 1997 and 1998. The percentage of trade
receivables due from Bayer as a percentage of total trade receivables was 100%
and 66% at December 31, 1996 and 1997, respectively and 78% at March 31, 1998.

The Processing Agreement contains defined default provisions and, in the
case of a continuing event of default, Bayer may: (i) terminate the Processing
Agreement; (ii) suspend its obligations under the Processing Agreement; or
(iii) take over the operation of fractionating its plasma. In the event of
such a takeover, Bayer continues to be responsible for payment to the Company
at the Base Processing Fee in effect for all volumes of plasma actually
processed, subject to the requirement that Bayer use its best efforts to
achieve the minimum production volumes specified in the Processing Agreement,
deducting therefrom all reasonable expenses paid related to the processing
operation. The Company is currently in compliance with its obligations under
the Processing Agreement.

The Company and Bayer executed, concurrently with the execution of the
Processing Agreement, a Reimbursement and Security Agreement (the
"Reimbursement Agreement"), a Mortgage, a Lease Agreement and a Sublease
Agreement. Under the Reimbursement Agreement, the Company agreed to reimburse
Bayer for any amounts paid or incurred by Bayer under its guarantee of a
$10,000,000 term loan made to the Company by a bank (see note 7). The Company
repaid the outstanding loan balance of $6,250,000 under the Bayer Term Loan on
December 22, 1997 in connection with the refinancing of the Company's long-
term debt (see note 7). At that time, Bayer was released from its guarantee
obligations relative to the Bayer Term Loan, and the Reimbursement Agreement
was superseded by a Security Agreement (the "Security Agreement") and the
Mortgage, Lease Agreement and Sublease Agreement were amended. The Security
Agreement and amended Mortgage secure certain obligations of the Company to
Bayer, including Bayer's march-in rights relating to the Processing Agreement.
The Security Agreement provides a priority security interest in all of the
equipment and other personal property owned by the Company involved in the
Company's plasma fractionation operation (the "Bayer Collateral"). The amended
Mortgage provides a subordinated security interest in the Company's real
property, building, fixtures and equipment as defined. Relative to the
Security Agreement and the amended Mortgage, Bayer entered into an
Intercreditor Agreement with the Company and the bank which refinanced the
Company's long-term debt which, among other things, defines each party's
rights in the event that the Company fails to comply with certain default
provisions contained in the Processing Agreement and the Credit Agreement (see
note 7). Under the Lease Agreement, as amended, the Company leases to Bayer
the real property, building, fixtures and equipment, as defined, (collectively
the "Leased Property"). The Lease remains in effect over the term of the
Processing Agreement and includes the period of any Bayer march-in rights (at
a yearly base rent payment of $1). Under the Sublease Agreement, as amended,
Bayer subleases the Leased Property to the Company. The Leased Property is
included in property, plant and equipment on the accompanying balance sheets.

In August 1996, an equipment malfunction was discovered during plasma
processing for Bayer. It was subsequently determined that material processed
during a five-week period preceding the discovery of the malfunction may have
been adulterated as a result of this malfunction resulting in the leakage of a
cooling agent into the plasma product. The Company's technical evaluation of
this material indicated that: (i) the majority of the material was not
adulterated (the "Unadulterated Material"); and (ii) much of the remaining
material on

F-12
<PAGE>

V.I. TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND PERTAINING TO MARCH 31, 1998
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
hold that was adulterated may be rendered suitable for sale by reprocessing
under the Company's current product license (the "Rework Material"). The
Company forwarded this analysis, along with all other available information
about the equipment malfunction, to the FDA. In March 1997, the FDA approved
the release of the Unadulterated Material for sale. Concurrently, the FDA
approved the Company's plan to reprocess, where possible, the Rework Material.
Bayer stated that it would not accept any of the Unadulterated Material or the
Rework Material and the Company challenged Bayer's position. Notwithstanding
the FDA's approval of the Company's plan to reprocess the Rework Material,
Bayer would not change its position. In July 1997, the Company entered into a
Settlement Agreement with Bayer under which the Company agreed to reimburse
Bayer for the cost of the plasma totaling $4.1 million, and recorded a special
charge in this amount in the accompanying 1996 statement of operations.
Further, the Company's unrecovered processing costs of $1.0 million incurred
during the initial processing of the plasma are included in costs related to
processing and products in the 1996 statement of operations. The Company is
making monthly installments of $170,834 over a two-year period that commenced
July 1, 1997. The outstanding balance is subject to interest at the prime
rate, as defined plus two percent over the first 12 months of the agreement
and increasing to plus three percent over the second 12 month period (the
prime rate was 8.5% at December 31, 1997). In response to this incident, the
Company made certain modifications to its procedures, designed to minimize the
risk of loss associated with an equipment failure, however there can be no
assurance that such equipment malfunction will not occur in the future.
Amounts payable to Bayer under the Settlement Agreement were $3,075,063 at
December 31, 1997 and $2,511,646 at March 31, 1998.

As a potential avenue for recovery, the Company has filed a claim for the
loss under its property insurance policy with a third-party insurance carrier.
The insurance carrier has denied coverage, and on November 26, 1996 commenced
a legal proceeding seeking a determination that the loss is not covered by the
insurance policy. Thereafter, the Company filed an answer and counterclaim to
this action. Subsequently, each party filed motions for summary judgement. By
opinion dated January 8, 1998, the Court ruled in favor of the insurance
company and against the Company finding that the loss was not covered by the
insurance policy. The Company intends to appeal the decision of the Court. The
final outcome of the litigation with the insurance company is uncertain. The
proceeds obtained, if any, as a result of the Company's insurance claim will
be recorded at such future date.

7. LONG-TERM DEBT

On December 22, 1997, the Company entered into a credit agreement (the
"Credit Agreement") with a bank providing for a term loan in the principal
amount of $10,750,000 (the "New Term Loan"). The proceeds under the New Term
Loan were used to repay the outstanding balance of existing term loans
aggregating $10,500,000 previously provided by other banks (and guaranteed by
Bayer and Ampersand), and related expenses associated with executing the New
Term Loan. At that time, Bayer was released from its obligations relative to
the Bayer Term Loan and Ampersand was released from its guarantee obligations
relative to a Letter of Credit arranged for by Ampersand. The New Term Loan
bears interest at the Company's option at either LIBOR plus 2.75% to 1.75% or
the base rate of the bank, as defined, plus margins of up to 0.5%, as
determined based on defined earnings ratios. The Company is currently using
one-month LIBOR plus 2.75% (one month LIBOR at December 31, 1997 was 6.0% and
at March 31, 1998 was 5.7%). Under the New Term Loan, interest is payable
monthly and the principal balance is payable in sixteen equal consecutive
quarterly installments of $671,875 commencing March 31, 1998 and continuing
until maturity on December 31, 2001. The Credit Agreement contains default
provisions, including financial covenants which provide restrictions on
capital investments and the payment of cash dividends and, among other things,
requires the Company to maintain minimum cash balances of $2,000,000 and
leverage and coverage ratios, as defined. The Company is currently in
compliance with these covenants.

F-13
<PAGE>

Under the New Term Loan, the Company granted the bank a mortgage upon, and
security interest in, substantially all of the property owned by the Company,
including the real property, building and fixtures, equipment, inventory,
accounts receivable, cash and certain intangible assets, subject to Bayer's
security interest in the Bayer Collateral (see note 6) and the security
interests of a third party under a Master Equipment Lease Agreement (see note
15). Relative to the Mortgage and Security Agreement, the bank entered into an
Intercreditor Agreement with the Company and Bayer which, amongst other
things, defines each parties rights in the event the Company fails to comply
with certain covenants contained in the Processing Agreement and the Credit
Agreement (see note 6). Amounts outstanding under the Term Loan are
$10,750,000 at December 31, 1997 and $10,078,125 at March 31, 1998.

On June 21, 1996, the Company entered into a term loan facility (the
"Ampersand Term Loan") with a bank in the amount of $5,000,000 to be used for
facility and equipment renovations and working capital needs. The bank
received an up-front fee of $30,000 of which $20,000 was paid in cash and the
balance paid pursuant to the terms of a Subscription Agreement (see note 8),
whereby the Company issued 3,577 shares of common stock to an affiliate of the
bank. The Company repaid the outstanding balance of $4,250,000 under the
Ampersand Term Loan on December 22, 1997 in connection with the refinancing of
the Company's long-term debt, as further discussed above. The Ampersand Term
Loan was secured by a Letter of Credit arranged for by Ampersand, under which
the Company granted Ampersand a security interest in certain real and personal
property of the Company. In connection with the repayment of the Ampersand
Term Loan, Ampersand was released from its obligations relative to the Letter
of Credit, and the security interests previously provided by the Company to
Ampersand under its guarantee were terminated. Under the terms of a
Subscription Agreement dated June 21, 1996, the Company issued 126,387 shares
of common stock to Ampersand in connection with the Letter of Credit provided.
(see note 8). The fair market value of the shares issued to the affiliate of
the bank and Ampersand was being amortized on a straight-line basis over the
original term of the Ampersand Term Loan. The unamortized debt financing costs
were expensed in connection with the repayment of the Ampersand Term Loan
totaled $190,385 and are included in general and administrative expenses in
the accompanying 1997 Statement of Operations.

On February 7, 1995, the Company entered into a term loan facility (the
"Bayer Term Loan") with a bank in the amount of $10,000,000 to be used for
facility and equipment renovations and working capital needs. The Company
repaid the outstanding balance of $6,250,000 under the Bayer Term Loan on
December 22, 1997 in connection with the refinancing of the Company's long-
term debt, as further discussed above. All amounts payable by the Company
under the Bayer Term Loan were guaranteed by Bayer (see note 6). Under the
guarantee, Bayer had a security interest in the Company's real and personal
property to the extent of its guarantee and had agreed to subordinate a
portion of its security interest to facilitate the Company's ability to secure
additional financing. In connection with the repayment of the Bayer Term Loan,
Bayer was released from its guarantee obligations (see note 6).

8. STOCKHOLDERS' EQUITY

Pursuant to the Transfer Agreement between the Company and the NYBC (see
note 1), the Company issued to the NYBC 35 shares of no par value common
stock, representing all shares of common stock then issued and outstanding. On
October 26, 1995, these shares were exchanged for 35 shares of common stock,
$.01 par value.

On October 26, 1995, the Company's Certificate of Incorporation was amended
to increase the number of shares of common stock authorized from 500 shares to
19,625,000 shares. Effective upon the filing of the amended certificate, the
Board of Directors approved a dividend of 26,833 shares to be paid on each
share of common stock then outstanding. Further, a Warrant to purchase 715,563
shares of common stock at an exercise price of $2.80 per share was issued to
the NYBC in connection with the Company's recapitalization. This

F-14
<PAGE>

V.I. TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND PERTAINING TO MARCH 31, 1998
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
Warrant was exercised by the NYBC in September 1996. The Company's Certificate
of Incorporation was further amended on June 10, 1996 to increase the number
of shares of common stock authorized from 19,625,000 to 20,000,000 shares in
connection with the Ampersand Term Loan, and amended on April 29, 1997 to
increase the number of shares of common stock authorized from 20,000,000 to
30,000,000 shares in connection with the CBC investment, and was further
amended on February 18, 1998 to increase the number of shares of common stock
authorized from 30,000,000 to 40,000,000 shares in connection with a
collaboration with Pall Corporation ("Pall") (see note 17). The Company is
required to reserve 2,504,472 shares of common stock in connection with future
sales under the Pall collaboration (see note 10).

Also on October 26, 1995, the Company completed a $5,000,000 private
placement of 1,788,909 shares of common stock, par value $.01 per share, to
Ampersand. Both the NYBC and Ampersand have certain registration rights as
defined in the Common Stock Purchase Agreement. In connection with the private
placement, Ampersand also received a Warrant to purchase an additional 715,563
shares of common stock at $2.80 per share which it exercised in September
1996.

On June 21, 1996, in connection with a term loan facility in which the
Company borrowed $5,000,000 from a bank, Ampersand was issued 126,387 shares
of common stock, par value $.01 per share, as consideration for providing a
Letter of Credit, and an affiliate of the bank was issued 3,577 shares of
common stock, par value $.01 per share, as part of an up front fee for
providing the loan (see note 7). The fair market value of these equity
instruments was estimated at $2.80 per share and amortized on a straight-line
basis over the term of the related term loan facility. Further, on June 21,
1996, in connection with a Lease Agreement for occupancy of laboratory and
office space, the owner received a Warrant to purchase 3,577 shares of the
Company's common stock at $2.80 per share, subject to adjustment as defined in
the Warrant Agreement. The Warrant is exercisable at any time during the term
of the Lease Agreement. In addition, the owner has certain registration
rights, as defined (see note 15). The fair market value of this equity
instrument was estimated at $2.80 per share, is recorded in other assets in
the accompanying financial statements and is being amortized on a straight-
line basis over the term of the Lease Agreement.

On April 29, 1997, the Company completed a $14,950,000 private placement of
1,797,894 shares of common stock, par value $.01 per share, to CBC, less
issuance costs of $858,586, including a cash payment of $627,900 to a private
placement agent. CBC is entitled to certain anti-dilution protection, voting
rights, registration rights and board representation. In addition, the Company
issued a contingent stock purchase warrant exercisable into 1% of the
Company's fully diluted shares for every $1,000,000 in subsequent private
equity capital raised, after giving effect to such financing, subject to a cap
of 5% of the fully diluted equity of the Company. The contingent warrant has
an exercise price of $0.028 per share. The contingent warrant terminates upon
an initial public offering of the Company's common stock. In addition, the
Company issued a warrant to purchase 32,361 shares of common stock to a
private placement agent with an estimated fair market value of $270,000. This
warrant has an exercise price of $0.028 per share, is exercisable after April
28, 1998, will expire after April 29, 2002, and will be automatically
exercised upon consummation of an initial public offering of the Company's
common stock. The warrant also grants the holder certain registration rights.

In October 1997, the NYBC and the Company agreed to amend a license
agreement whereby the NYBC would receive common stock of the Company in lieu
of cash payable to the NYBC in connection with certain royalty payments due
under the license agreement totaling $300,000 (see note 10). The amendment was
approved by the Company's Board of Directors in January 1998, and pursuant to
a Stock Purchase Agreement dated January 23, 1998, the Company issued 35,778
shares of common stock, par value $.01 per share to the NYBC. The balance
payable to the NYBC of $300,000 is included in accounts payable and accrued
expenses in the 1997 accompanying balance sheet.

F-15
<PAGE>

The Company's Certificate of Incorporation was amended on February 18, 1998
to increase the number of shares of preferred stock authorized from 500 shares
to 1,000,000 shares. The preferred stock may be issued from time to time in
one or more series, with such designations, rights and preferences as shall be
determined by the Board of Directors. No preferred stock was outstanding as of
December 31, 1997.

9. STOCK OPTION PLAN

The Company's 1995 Equity Incentive Plan was originally adopted in October
1995 and was amended and restated in February 1998, as the 1998 Equity
Incentive Plan (the "1998 Equity Plan"). An amendment in November 1997
increased the shares of common stock reserved for issuance from 1,118,067 to
1,788,908. The amendment in February 1998 increased the shares of common stock
reserved from 1,788,908 to 2,146,690. The 1998 Equity Plan, permits the
granting of both incentive stock options and nonstatutory stock options. The
option price of the shares for incentive stock options cannot be less than the
fair market value of such stock at the date of grant. Options are exercisable
over a period determined by the Board of Directors, but not longer than ten
years after the grant date. All stock options issued to-date have been granted
at the fair market value of the stock on the respective grant dates.

The per share weighted-average fair value of stock options granted during
1995 and 1996 was $1.12, in 1997 was $3.94 and for the three month period
ended March 31, 1998 was $5.57 on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions: no
volatility, expected dividend yield of 0%, risk-free interest rate of 5.5% in
1995 and 1996 and 6.0% in 1997 and for the three month period ended March 31,
1998, and an expected life of ten years.

The Company applied APB Opinion No. 25 in accounting for its stock option
plan and, accordingly, no compensation cost has been recognized for its stock
options in the financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under
SFAS No. 123, which is then reflected over the four year vesting period, the
Company's net loss would have been increased to the pro forma amounts
indicated below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------- THREE MONTHS ENDED
1995 1996 1997 MARCH 31, 1998
------------ ----------- ------------ ------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net loss:
As reported............ ($10,838,705) ($4,125,185) ($11,699,645) ($6,384,946)
Pro forma.............. ($11,049,667) ($4,265,743) ($11,974,787) ($6,453,732)
Basic and diluted net
loss per share:
As reported............ ($3.64) ($0.84) ($1.62) ($0.78)
Pro forma.............. ($3.71) ($0.87) ($1.65) ($0.78)
</TABLE>

There were no options granted prior to 1995 and, therefore, the full impact
of calculating compensation cost of stock options under SFAS No. 123 is
reflected in the pro forma net loss amounts presented above.

Because the determination of the fair value of all options granted after the
Company becomes a public entity will include an expected volatility factor,
additional option grants are expected to be made subsequent to March 31, 1998
and options vest over a four-year period, the pro forma effects of applying
the fair value method may be material to reported net income in future years.

F-16
<PAGE>

Stock option activity during the periods indicated is as follows:

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31, 1998
--------------------------------------------------------- --------------------
1995 1996 1997 (UNAUDITED)
----------------- ------------------ -------------------- --------------------
WEIGHTED- WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
------- --------- ------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, beginning of
year................... -- $ -- 677,280 $2.80 812,880 $2.80 1,373,300 $ 5.05
Granted................. 677,280 2.80 165,832 2.80 678,487 7.85 304,114 11.18
Exercised............... -- -- (8,944) 2.80 (12,522) 2.80 (125,581) 2.80
Forfeited............... -- -- (21,288) 2.80 (105,545) 7.01 -- --
------- ------- --------- ---------
Balance, end of year.... 677,280 2.80 812,880 2.80 1,373,300 5.05 1,551,833 6.63
======= ======= ========= =========
Exercisable............. -- -- 164,713 2.80 385,957 2.82 385,823 2.82
======= ======= ========= =========
Available for future
grant.................. 440,787 296,243 394,141 447,811
======= ======= ========= =========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1997 MARCH 31, 1998
------------------------------------------------------- -------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------- --------------------- --------------------------------- ---------------------
WEIGHTED- WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED- AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ---------------- ----------- ----------- --------- ----------- --------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$2.80........... 763,103 8.3 $2.80 384,168 $2.80 637,522 6.72 $2.80 384,034 $2.80
$8.39........... 610,197 10.0 8.39 1,789 8.39 610,197 9.08 8.39 1,789 8.39
$11.18.......... -- -- -- -- -- 304,114 9.10 11.18 -- --
--------- ------- --------- -------
1,373,300 385,957 1,551,833 385,823
========= ======= ========= =======
</TABLE>

Stock options issued in 1995 and 1996 have been granted at $2.80 per share
pursuant to the 1998 Equity Plan, and in 1997 have been granted at exercise
prices ranging from $2.80 to $8.39 per share, the fair market value of the
stock on the respective grant dates. In January 1998, options for 304,114
shares were granted pursuant to the 1998 Equity Plan at $11.18 per share, the
fair market value of the stock on the respective grant dates.

Pursuant to a Letter Agreement dated October 1997, between the Company and
its former President and Chief Executive Officer, the former President was
entitled to receive a one-time termination payment of $270,000, and
outplacement support and health benefits through October 5, 1998. In addition,
the former President was entitled to the accelerated vesting of stock options
for 27,951 shares of common stock and the extension of the stock option
exercise period from ninety days to one year, expiring October 5, 1998.
Accordingly, in connection with such stock option amendments, the Company
recorded compensation expense totaling $381,250, representing the difference
between the estimated fair market value of the common stock on the date the
stock option amendments were effective and the exercise price. Compensation
expense was recorded as a one-time charge to operations and an increase to
stockholders' equity. Additional expenses totaling $320,000 were recorded in
connection with the Letter Agreement and are included in general and
administrative expenses in the accompanying 1997 Statement of Operations. At
December 31, 1997 and for the three month period ended March 31, 1998, stock
options for 12,522 and 76,923 shares, respectively were exercised and the
exercise price is payable to the Company under a one-year loan arrangement
with interest payable to the Company at 6.0% per annum.

F-17
<PAGE>

10. RELATED-PARTY TRANSACTIONS

The NYBC is the largest independent blood collection, processing and
distribution entity in the United States, providing blood products and related
services throughout the New York metropolitan region. In addition, the NYBC
conducts research in the fields of hematology and transfusion medicine. The
NYBC is a not-for-profit corporation. In 1996 and 1997, the NYBC sponsored
certain scientific research at the Company, and such NYBC payments of $705,000
and $104,000, respectively, are included in research and development funding
in the accompanying 1996 and 1997 statements of operations.

License Agreements

The Company has entered into various license agreements with the NYBC. Under
these agreements, the Company has been granted exclusive and non-exclusive
worldwide licenses under the NYBC know-how and patents relating to viral
inactivation and other technologies. Under certain of these licenses, the
Company may grant sublicenses. The Company also has rights of first
negotiation for the license to any NYBC improvements not otherwise exclusively
licensed in the field of viral inactivation for use with certain products, as
defined.

Under the license agreements, the Company is required to pay royalties to
the NYBC on the Company's revenues derived from the use of these licenses, as
defined. The Company is required to pay aggregate minimum royalties to
maintain its exclusive licenses of $920,000 in 1998, $1,500,000 in 1999,
$2,000,000 in 2000 and $2,300,000 in each year thereafter. Minimum royalties
of $600,000 were payable to the NYBC in 1997, of which $300,000 was paid in
cash and the balance paid pursuant to a Stock Purchase Agreement, whereby the
Company issued 35,778 shares of common stock to the NYBC (see note 8). For the
three month period ended March 31, 1998, the Company paid the NYBC minimum
royalties of $225,000. The Company also is required to meet certain research
and development milestones, as defined, to maintain its exclusive licenses;
the Company can pay to the NYBC $200,000 in 1998 if certain milestones, as
defined, are not met to maintain certain exclusive licenses. The NYBC waived a
milestone payment of $250,000 due in 1996. The Company paid the NYBC $50,000
in 1997, which payment will be credited against future milestone payments due.
The NYBC also extended milestone payment due dates from early 1998 to late
1998. Further, the Company is required to spend a minimum of $500,000 per
annum in 1998, exclusively in the further development, evaluation and
registration of products, as defined. The Company met similar minimum spending
requirements defined for 1996 and 1997. If minimum royalties are not paid or
if any milestone is not met, as defined for a given country, the NYBC may
terminate the license for that country and may terminate other such licenses
if the licenses in all covered countries have been individually terminated.
Other than the minimum royalty payments set forth above and the payments which
will be required if certain research and development milestones are not met by
the Company, the Company is not required to make any other minimum payments to
the NYBC during 1998, 1999 or 2000. The Company and the NYBC have also entered
into an Omnibus Agreement which allocates various rights and obligations under
license agreements that the NYBC has entered into with third parties relating
to fractionation and other technology. The Omnibus Agreement also provides
that the NYBC pay the Company a fee for providing technical support to
licensees of certain of the NYBC technologies.

The NYBC may terminate any license by reasonable notice if the Company fails
to cure a breach, conform to government regulations, or sell products within a
specified number of years, as defined. Upon termination, all rights revert to
the NYBC. The Company is currently in compliance with all such obligations and
covenants.

Other Services

The Company leased, through November 30, 1996, approximately 6,000 square
feet of laboratory space from NYBC. Rental payments made to the NYBC were
$532,000 and $441,000 in 1996 and 1995, respectively. The Company moved its
research and development laboratories and offices in November 1996 to another
location in New York City (see note 16).

F-18
<PAGE>

During 1995, the NYBC provided certain administrative services to the
Company including human resources, accounting and legal support. Payments made
to the NYBC for such services in 1995 totaled $334,000. Effective January 1,
1996, administrative services are no longer being provided by the NYBC.

The Company believes all of its agreements with the NYBC were negotiated at
"arm's length" and that the costs associated with the agreements are deemed to
be at market rates for the related services and licensing arrangements
provided by the NYBC.

During 1997, Ampersand provided certain management advisory services to the
Company, including the provision of an interim Chief Executive Officer. In
1998, amounts payable to Ampersand for such services rendered during 1997
totalled $134,400, and such amount is included in general and administrative
expenses in the accompanying statement of operations for 1997 and in accounts
payable and accrued expenses in the 1997 accompanying balance sheet. Included
in general and administrative expenses for the three months ended March 31,
1998 are amounts payable to Ampersand in the amount of $20,000 for management
advisory services provided in 1998.

11. COLLABORATIONS

American National Red Cross. On December 15, 1997, the Company entered into
a Supply, Manufacturing, and Distribution Agreement with the American National
Red Cross (the "Red Cross") over a term of 57 months for the Red Cross to
become the exclusive distributor of the Company's virally inactivated
transfusion plasma product, VIPLAS/SD, in North America upon marketing
approval by the FDA, to be marketed by the Red Cross under its proposed brand
name PLAS+(R)SD. The Red Cross is the largest supplier of transfusion plasma
to hospitals in the United States, currently providing approximately 45% of
the transfusion plasma used in the United States annually. The Red Cross is
required to purchase stated minimum quantities of VIPLAS/SD to maintain its
exclusive rights. Once the Red Cross places its annual purchase order with the
Company, it is obligated to supply the Company with a sufficient quantity of
plasma to enable the Company to fulfill such order. The Red Cross must pay for
the amount of VIPLAS/SD specified in the purchase order even if it is unable
to supply sufficient quantities of plasma. The Red Cross must purchase all of
its virally inactivated plasma from the Company unless an FDA approved product
has been independently shown to be safer than the VIPLAS/SD. The Company, in
turn, is obligated to offer any excess capacity that it has to produce
VIPLAS/SD above the stated minimum purchase requirements to the Red Cross
before selling VIPLAS/SD to any other party. Under the agreement, the Red
Cross is required to pay to the Company a fixed price per unit of VIPLAS/SD,
plus a royalty equal to a portion of the amount by which the average selling
price of the Red Cross exceeds a stated amount. The Company has granted to the
Red Cross a right of first refusal for exclusive distribution rights to any
subsequent generation of viral inactivation plasma products that are developed
during the term of the agreement. The Company and the Red Cross have each
committed to spend minimum amounts for marketing VIPLAS/SD in 1998 and 1999.
The Company is obligated to spend $2,000,000 during the two-year period ending
December 31, 1999. Additionally, a joint marketing committee will coordinate
all marketing activities for VIPLAS/SD. The exclusive Distribution Agreement
between the Company and the Red Cross provides that the Red Cross will use its
best efforts to insure universal availability of the Company's virally
inactivated plasma products to all potential customers, including both Red
Cross blood centers and non-Red Cross blood centers. This agreement replaces
the previous collaboration agreement among the Red Cross, NYBC and the Company
(the "Original Agreement"). Under the Original Agreement, the Red Cross made a
$3,000,000 non-interest bearing, unsecured loan to the Company to be used to
fund improvements to the Company's manufacturing facility. Approximately
$988,000 was advanced by the Red Cross prior to the formation of the Company,
and assumed by the Company pursuant to the Transfer Agreement (see note 1),
$1,012,000 was advanced in 1996, and $1,000,000 was advanced in 1997. The
advance amortizes at the rate of 15% per year ($450,000)

F-19
<PAGE>

V.I. TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND PERTAINING TO MARCH 31, 1998
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
commencing upon FDA marketing approval of VIPLAS/SD, with a balloon payment
due in year five. Amounts outstanding under this advance were $3,000,000 and
$2,000,000 at December 31, 1997 and 1996, respectively. The advance has not
been discounted since the ultimate repayment terms of the advance could not be
determined at the time of the advances since repayment was subject to FDA
marketing approval of VIPLAS/SD. A portion of the liability has been
classified as short-term advances from customer in the 1997 accompanying
balance sheet based on the anticipated market approval of VIPLAS/SD during
1998. The Company received FDA marketing approval of VIPLAS/SD on May 6, 1998.
As a result, the non-interest bearing advance has been discounted to fair
value based on current interest rates and a gain of approximately $750,000
will be recorded in the second quarter of fiscal 1998. Further, the Company
received payments of $712,000 in 1998 from the Red Cross for VIPLAS/SD
produced by the Company. These payments are included in deferred revenue in
the accompanying balance sheet as of March 31, 1998 and upon market approval
of VIPLAS/SD and release of the product by the FDA, such amounts will be
recorded as revenue.

United States Surgical Corporation. In September 1996, the Company entered
into an Exclusive Distribution Agreement with United States Surgical
Corporation ("U.S. Surgical") regarding VIGuard Fibrin Sealant for a period of
15 years, which was amended in October 1996. U.S. Surgical is primarily
engaged in the development, manufacture and commercialization of surgical
wound products for hospitals throughout the world. In connection with entering
into the agreement, U.S. Surgical paid a $3,000,000 up front fee to the
Company. U.S. Surgical has agreed to fully fund all direct clinical and
regulatory costs associated with the development and regulatory approval of
VIGuard Fibrin Sealant after the initial Phase II trial conducted by the
Company. In addition, U.S. Surgical has agreed, subject to termination upon
notice, to pay a substantial portion of agreed upon research and development
costs for improvements or, in return for exclusive rights, enhancements to
VIGuard Fibrin Sealant. Pursuant to this agreement, the Company granted U.S.
Surgical the mutually exclusive worldwide right, until October 2011, to seek,
in its own name as permitted by law, necessary government approvals for and to
use, market, distribute and sell fibrin sealants, and any improvements
thereto. This exclusive distribution agreement further provides U.S. Surgical
with a first option to obtain exclusive distribution rights on any enhanced
products, new products or new applications, as defined, developed by the
Company. The first option on rights to enhanced products is for a transfer
price to be negotiated in good faith by the parties as well as U.S. Surgical
sharing in specified research and development costs for the enhanced product.
U.S. Surgical must achieve certain minimum sales of the products to maintain
its exclusive rights under the agreement. Under the exclusive distribution
agreement, the Company has agreed to supply U.S. Surgical's forecasted demand
for the products and if it is unable to supply such forecasted demand, plus an
excess of up to 25% over such forecasted demand, U.S. Surgical has an option
to make arrangements to have the excess demand for such products produced by
third-party manufacturers until the later of one year or the Company's supply
of such demand. The NYBC was paid a royalty in connection with the execution
of this agreement, which is included in research and development expense in
the accompanying 1996 statement of operation.

F-20
<PAGE>

12. INCOME TAXES

The Company's deferred tax assets as of December 31, 1996 and 1997,
respectively, are estimated as follows:

<TABLE>
<CAPTION>
1996 1997
----------- ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward.................. $ 2,003,000 $ 6,474,000
Start-up expenditures............................ 2,864,000 2,125,000
Depreciation and amortization.................... 1,005,000 1,603,000
Replacement cost of plasma....................... 1,681,000 1,261,000
Other, net....................................... 246,000 1,495,000
----------- ------------
Total.......................................... 7,799,000 12,958,000
Valuation allowance............................... (7,799,000) (12,958,000)
----------- ------------
Net deferred taxes................................ $ -- $ --
=========== ============
</TABLE>

A valuation allowance for 1996 and 1997 has been applied to offset the
respective deferred tax assets in recognition of the uncertainty that such tax
benefits will be realized. The valuation allowance increased by $6.0 million
in 1995, $1.8 million in 1996 and $5.2 million in 1997, respectively.

At December 31, 1997, the Company has available net operating loss
carryforwards for federal and state income tax reporting purposes of
approximately $15,790,000, and has available research and development credit
carryforwards for federal income tax reporting purposes of approximately
$437,000, which are available to offset future taxable income, if any. These
carryforwards expire beginning in 2010. The Company's ability to use such net
operating loss and research and development credit carryforwards is limited by
change of control provisions under Section 382 of the Internal Revenue Code.

13. INDUSTRIAL DEVELOPMENT AUTHORITY

In order to obtain certain economic development incentives, including sales
tax exemptions, real estate tax abatements and mortgage tax exemptions, the
Company transferred its real property, building and fixtures (the "Property")
to the Suffolk County Industrial Development Agency (the "IDA") and leases
back the Property from the IDA under a Facility Lease Agreement (the "Lease
Agreement") which terminates on March 1, 2007. Further, the Company entered
into a Mortgage, Security Agreement and Fixture Filing whereby the Company and
the IDA mortgaged the Property to Bayer to secure certain obligations of the
Company to Bayer, including Bayer's march-in rights under the Processing
Agreement (see note 7). The Company also entered into a Mortgage, Security
Agreement and Fixture Filing whereby the Company and the IDA mortgaged the
Property to a bank to secure certain obligations of the Company to the bank
(see note 7). Under the Lease Agreement, the Company is responsible for all
expenses associated with the Property and is responsible for annual basic rent
payments of one dollar ($1.00). The Lease Agreement contains an early
termination provision whereby the Company has the option to terminate the
Lease Agreement at any time. Upon termination or expiration of the lease term,
the Company is required to purchase the facility for one dollar ($1.00) plus
all unpaid payments in lieu of real estate taxes. As the substance of the
Lease Agreement was principally to offer certain economic development
incentives and not to transfer ownership of the Property, the Company has not
reflected the transaction as a sale and leaseback, and the Property is
included in property, plant and equipment on the accompanying balance sheets.
The Company also entered into a security agreement with the IDA related to
equipment leased by the Company under a Master Equipment Lease Agreement with
a third party (see note 15). The Company has retained all ownership rights,
including responsibility for all liability associated with the Property and
equipment.

F-21
<PAGE>

14. PROFIT SHARING 401(K) PLAN

Effective January 1, 1995, the Company established a 401(k) Profit Sharing
Plan (the "401(k) Plan") which covers substantially all employees. All
eligible employees may elect to contribute a portion of their wages to the
401(k) Plan, subject to certain limitations. Although the Company does not
match employee contributions at this time, the Company is currently reviewing
its policy.

15. CAPITAL LEASE OBLIGATION

On April 8, 1996, the Company entered into a Master Equipment Lease
Agreement ("the Master Lease") under which the Company borrowed $6,200,000 to
be used for leasing production equipment. The Company utilized the proceeds to
fund progress payments required under various equipment agreements with third
party vendors. The Company was required to pay interest on the notes payable
only until all of the equipment was ready for use at which time the notes
payable were converted to a capital lease obligation. In addition, the lease
facility required an 8.0% security deposit and first and last month's rent to
be paid upon each funding. The security deposit is to be refunded as result of
receipt of FDA marketing approval of VIPLAS/SD. The Master Lease contains
escalating monthly lease payments over a five-year period. The Master Lease
also contains an early purchase option and an option to purchase the equipment
at 15.0% of the equipment cost at the end of the lease term. The effective
interest rate is approximately 16.2% per annum.

Annual minimum rental payments and related interest under the Master Lease
are as follows:

16. COMMITMENTS AND CONTINGENCIES

Lease Agreement

On June 21, 1996, the Company entered into a Lease Agreement for occupancy
of 12,000 square feet of laboratory and office space. The initial term of the
lease is five years with options to renew thereafter, with a three-year early
termination provision. The Lease commenced December 1, 1996. The owner
provided $1,800,000 of construction funding to cover the costs associated with
constructing and equipping the laboratory and offices. Included in other
receivables at December 31, 1996 are reimbursable construction costs of
$1,384,000 incurred by the Company in connection with such leasehold
improvements, which the Company was reimbursed by the owner in 1997. Further,
if the Company elects to terminate the lease at the end of year three, it is
not responsible for a portion of the rental payments in years four and five.
Rental expense in 1996 and 1997 was $107,000 and $415,000, respectively.

Annual minimum rental payments are as follows:

F-22
<PAGE>

V.I. TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND PERTAINING TO MARCH 31, 1998
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
In connection with the Lease, the Company issued to the owner a Warrant to
purchase 3,577 shares of the Company's common stock at $2.80 per share,
subject to adjustment as defined in the Warrant Agreement. The Warrant is
exercisable at any time during the term of the Lease Agreement. In addition,
the Owner has certain registration rights, as defined (see note 8).

Supply Agreements

The Company has entered into certain raw material supply agreements for
initial terms of up to five years following FDA marketing approval of
VIPLAS/SD. Under the agreements, the Company is obligated to purchase minimum
quantities at pricing levels, as defined, totaling $800,000 over the term of
the agreements. The party to one of the supply agreements is an affiliate of
Pall (see note 17).

Employment Arrangements

The Company provides a severance arrangement for its executives and key
employees which includes salary continuance and health benefits for a six-
month period and accelerated vesting of certain options. In certain instances
salary continuance extends up to a one-year period.

Litigation

There are no material legal proceedings pending against the Company or its
properties to which the Company is a party.

The Company is aware that in the course of ongoing litigation between the
NYBC and a third party, the third party has asserted claims against the NYBC
based on breach of a contract that was executed in 1988 by those parties and
rights thereunder were assigned to the Company in 1995. The third party has
claimed that it is entitled to payments from the NYBC based on improvements in
albumin throughput yields attributable to certain filtration technology
licensed to the NYBC by the third party. The Company understands that the NYBC
believes it has meritorious defenses against this third party's claims and, in
any event, as part of the assignment of the NYBC's rights under the disputed
contract by the NYBC to the Company, the Company assumed no responsibility for
pre-existing liabilities under the contract. However, there can be no
assurance that the third party will not assert claims against the Company
under that contract similar in nature to the claims being asserted against the
NYBC. No such claims have been asserted to date. The Company believes that it
would have meritorious defenses against any such claims.

F-23
<PAGE>

Proposed Initial Public Offering of Common Stock and Reverse Stock Split

On January 23, 1998, the Board of Directors authorized the filing of a
registration statement on Form S-1 with the Securities and Exchange Commission
covering an initial public offering of the Company's common stock. In February
1998, the Company amended its Certificate of Incorporation to increase its
authorized common stock to 40,000,000 shares (see note 8). Further, in
February 1998, the Board of Directors authorized and the stockholders approved
a 1-for-2.795 reverse split of the Company's common stock which became
effective on February 23, 1998. All share amounts in these Financial
Statements have been restated to reflect the reverse stock split.

New Stock Plans

In February 1998, the Company adopted the Company's 1998 Employee Stock
Purchase Plan (the "1998 Purchase Plan") under which employees may purchase
shares of common stock at a discount from fair market value. There are 89,445
shares of common stock reserved for issuance under the Purchase Plan. To date,
no shares of common stock have been issued under the 1998 Purchase Plan. The
1998 Purchase Plan is intended to qualify as an employee stock purchase plan
within the meaning of Section 423 of the Internal Revenue Code. Rights to
purchase common stock under the 1998 Purchase Plan are granted at the
discretion of the Compensation Committee of the Board of Directors, which
determines the frequency and duration of individual offerings under the 1998
Purchase Plan and the dates when stock may be purchased. Eligible employees
participate voluntarily and may withdraw from any offering at any time before
stock is purchased. Participation terminates automatically upon termination of
employment. The purchase price per share of common stock to the purchaser
under the 1998 Purchase Plan is 85% of the lesser of the Company's common
stock fair market value at the beginning of the offering period or on the
applicable exercise date and may be paid through payroll deductions, periodic
lump sum payments or both. The 1998 Purchase Plan terminates in February 2008.

In February 1998, the Company adopted and the Board of Directors and the
stockholders of the Company adopted the 1998 Director Stock Option Plan (the
"1998 Director Plan"). All of the Directors who are not employees of the
Company (the "Eligible Directors") are currently eligible to participate in
the 1998 Director Plan. There are 89,445 shares of Common Stock reserved for
issuance under the Director Plan, and to date no shares of common stock have
been issued. Each Eligible Director will receive an annual option to purchase
1,788 shares of common stock (the "Option"). Each Option becomes fully
exercisable on the first anniversary of the date of grant, provided that the
optionholder is still a Director of the Company at the opening of business on
such date. The 1998 Director Plan has a term of ten years. The exercise price
for the Options is equal to the last sale price for the common stock on the
business day immediately preceding the date of grant. The exercise price may
be paid in cash or shares.

New Collaboration

On February 19, 1998, the Company and Pall entered into a series of
agreements (the "Pall Agreements") providing for, among other things, a
collaboration on the development and marketing of systems employing the
Company's LAC and Quencher viral inactivation technologies for red blood cell
and platelet concentrates. Pall is a leading manufacturer and supplier of
filtration components including those relating to the collection,
preservation, processing, manipulation, storage and treatment of blood and
blood products. Under the Pall Agreements, Pall receives exclusive worldwide
distribution rights to all the Company's systems incorporating viral
inactivation technology for red blood cells and platelets. The parties have
also agreed to share research, development, clinical and regulatory
responsibilities and will equally share profits and joint expenses from

F-24
<PAGE>

V.I. TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND PERTAINING TO MARCH 31, 1998
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
operations (after each party is reimbursed for its cost of goods). Upon
execution of the Pall Agreements in February 1998, Pall made a $4,000,000
equity investment representing 477,042 shares at $8.39 per share and has
agreed to make a $5,000,000 equity investment contemporaneously with the
closing of the Company's proposed initial public offering. In addition, the
Pall Agreements provide that Pall will purchase up to $17,000,000 worth of the
Company's common stock in installments tied to the achievement of specified
development milestones. Such equity investments by Pall will be made at the
prevailing market price per share. Pursuant to the Pall Agreements, certain
existing stockholders of the Company have agreed to vote their shares of
common stock of the Company to elect to the Board of Directors of the Company
a nominee designated by Pall. Certain of the Pall Agreements may be terminated
in certain circumstances including an event of default by either party which,
in the case of the Company, includes the termination of the Company's current
Chief Scientific Officer. During the quarter ended March 31, 1998, the Company
recorded a one-time charge to operations and an increase to stockholder's
equity of $ 2.2 million representing the difference between the purchase price
paid by Pall and the estimated fair value of the common stock on the date of
purchase.

FDA Approval of VIPLAS/SD

On May 6, 1998, the Company received approval from the FDA of its
Establishment License Application and Product License Application regarding
the manufacture and sale of VIPLAS/SD.

F-25
<PAGE>

On the inside back cover of the Prospectus six photographs appear. On the top
left is a photograph of the Company's laboratory over the caption "Research
Labs." On the top right is a photograph of a filling machine over the caption
"Customized Filling." In the center are two photographs, the left photograph of
an employee with processing tanks and the right photograph of processing tanks,
both photographs over the caption "Proprietary Processing." On the bottom left
is a photograph of the Company's facility over the caption "FDA-Licensed
Facility." On the bottom right is a photograph of an employee inspecting product
over the caption "Quality Assurance."

<PAGE>

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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS OR BY ANY
OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLIC-
ITATION OF ANY OFFER TO BUY ANY SECURITIES OTHER THAN THE COMMON STOCK OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION
IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION TO SUCH PERSON.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UN-
DER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.

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

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 5
The Company.............................................................. 14
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Dilution................................................................. 16
Selected Financial Data.................................................. 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 25
Management............................................................... 46
Certain Transactions..................................................... 54
Principal Stockholders................................................... 55
Description of Capital Stock............................................. 57
Shares Eligible for Future Sale.......................................... 60
Underwriting............................................................. 62
Legal Matters............................................................ 64
Experts.................................................................. 64
Additional Information................................................... 64
Index to Financial Statements............................................ F-1
</TABLE>

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

UNTIL JULY 5, 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT PAR-
TICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACT-
ING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

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3,000,000 SHARES

LOGO VITEX

COMMON STOCK

-----------------
PROSPECTUS
-----------------

COWEN & COMPANY

SBC WARBURG DILLON READ INC.

JUNE 10, 1998

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