NORTHFIELD LABORATORIES INC /DE/, 10-K405, 2000-08-18

NORTHFIELD LABORATORIES INC /DE/
10-K405, 2000-08-18
BIOLOGICAL PRODUCTS, (NO DIAGNOSTIC SUBSTANCES)

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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FOR ANNUAL AND TRANSITION
REPORTS PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

<TABLE>
<S> <C>
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended May 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
</TABLE>

COMMISSION FILE NUMBER 0-24050

NORTHFIELD LABORATORIES INC.
(Exact Name of Registrant as Specified in Its Charter)

<TABLE>
<S> <C>
DELAWARE 36-3378733
(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
1560 SHERMAN AVENUE, SUITE 1000, EVANSTON, ILLINOIS 60201-4800
(Address of Principal Executive Offices) (Zip Code)
(847) 864-3500
(Registrant's Telephone Number, Including Area Code)
</TABLE>

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

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

COMMON STOCK, PAR VALUE $.01 PER SHARE

Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in the definitive proxy or information
statement incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

As of August 11, 2000, 14,242,375 shares of the Registrant's common stock,
par value $.01 per share, were outstanding. On that date, the aggregate market
value of voting stock (based upon the closing price of the Registrant's common
stock on August 11, 2000) held by non-affiliates of the Registrant was
$178,958,665 (10,886,888 shares at $16.438 per share).

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for its 2000 Annual Meeting
are incorporated by reference into Part III of this Form 10-K. The Registrant
maintains an Internet web site at www.northfieldlabs.com. None of the
information contained on this web site is incorporated by reference into this
Form 10-K or into any other document filed by the Registrant with the Securities
and Exchange Commission.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This Annual Report contains forward-looking statements concerning, among
other things, our prospects, clinical and regulatory developments affecting our
potential product and our business strategies. These forward-looking statements
are identified by the use of such terms as "intends," "expects," "plans,"
"estimates," "anticipates," "should" and "believes" and are in certain cases
followed by a cross reference to "Risk Factors."

These forward-looking statements involve risks and uncertainties. Actual
results may differ materially from those predicted by the forward-looking
statements because of various factors and possible events, including those
discussed under "Risk Factors." Because these forward-looking statements involve
risks and uncertainties, actual results may differ significantly from those
predicted in these forward-looking statements. You should not place a lot of
weight on these statements. These statements speak only as of the date of this
document or, in the case of any document incorporated by reference, the date of
that document.

All subsequent written and oral forward-looking statements attributable to
Northfield or any person acting on our behalf are qualified by the cautionary
statements in this section. We will have no obligation to revise these
forward-looking statements.
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PART I

ITEM 1. DESCRIPTION OF BUSINESS.

Northfield Laboratories Inc. believes it is a leader in the development of
a safe and effective alternative to transfused blood for use in the treatment of
acute blood loss. Our PolyHeme(TM) blood substitute product is a solution of
chemically modified hemoglobin derived from human blood. Clinical studies to
date indicate that PolyHeme carries as much oxygen, and loads and unloads oxygen
in the same manner, as transfused blood. Infusion of PolyHeme also restores
blood volume. Therefore, PolyHeme should be effective as an oxygen-carrying
resuscitative fluid in the treatment of hemorrhagic shock resulting from
extensive blood loss. Our method of manufacturing PolyHeme is designed to
eliminate the risk of transmission of diseases such as AIDS or hepatitis.
Clinical studies to date indicate that PolyHeme is universally compatible and
accordingly should not require blood typing prior to infusion. Therefore,
PolyHeme should be available for immediate use in emergency situations. In
addition, PolyHeme has an extended shelf life compared to blood.

We are presently conducting clinical trials of PolyHeme at multiple
locations in the United States. Our clinical trials include the infusion of
PolyHeme in trauma and emergency surgical applications as well as in elective
surgical procedures. The observations in the trials continue to demonstrate the
potential clinical utility of PolyHeme in the treatment of urgent blood loss.
Both our trauma trials and elective surgery trials involve high dosage and rapid
infusion of PolyHeme in situations that are life-threatening and where massive
blood loss routinely occurs. We believe that this application addresses the
largest worldwide clinical need and has the greatest market opportunity. We
believe we are the only company in our field with an oxygen-carrying blood
substitute being rapidly infused at high dosage -- as much as 20 units (1000
grams) or twice the blood volume of the average adult.

BACKGROUND

The principal function of human blood is to transport oxygen throughout the
body. The lack of an adequate supply of oxygen as a result of blood loss can
lead to organ dysfunction or death. The transfusion of human blood is presently
the only effective means of immediately restoring diminished oxygen-carrying
capacity resulting from blood loss. We estimate that approximately 12 million
units of blood were transfused in the United States in 1999, of which
approximately 7.2 million units were administered to patients suffering the
effects of acute blood loss.

The use of donated blood in transfusion therapy, while effective in
restoring an adequate supply of oxygen in the body of the recipient, has several
limitations. Although testing procedures exist to detect the presence of certain
diseases in blood, these procedures cannot eliminate completely the risk of
blood-borne disease. Transfused blood also can be used only in recipients having
a blood type compatible with that of the donor. Delays in treatment, resulting
from the necessity of blood typing prior to transfusion, together with the
limited shelf life of blood and the limited availability of certain blood types,
impose constraints on the immediate availability of compatible blood for
transfusion. There is no commercially available blood substitute which addresses
these problems.

Our scientific research team has been responsible for the original concept,
the early development and evaluation and clinical testing of PolyHeme, and has
authored over 100 publications in the scientific literature relating to human
blood substitute research and development. Members of our scientific research
team have been involved in development of national transfusion policy through
their participation in the activities of the National Heart Lung Blood
Institute, the National Blood Resource Education Panel, the Department of
Defense, the American Association of Blood Banks, the American Blood Commission,
the American College of Surgeons and the American Red Cross.

THE PRODUCT

PolyHeme is a solution of chemically modified hemoglobin derived from human
blood. Hemoglobin is the oxygen-carrying component of the human red blood cell.
We purchase indated and outdated blood from

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The American Red Cross and Blood Centers of America for use as the starting
material for PolyHeme. We use a proprietary process of separation, filtration
and chemical modification to produce PolyHeme. Hemoglobin is first extracted
from red blood cells and filtered to remove impurities. The purified hemoglobin
is next chemically modified using a multi-step process to create a polymerized
form of hemoglobin designed to avoid the undesirable effects historically
associated with hemoglobin-based blood substitutes, including vasoconstriction,
kidney dysfunction, liver dysfunction and gastrointestinal distress. The
modified hemoglobin is then incorporated into a solution which can be
administered as an alternative to transfused blood. One unit of PolyHeme
contains 50 grams of modified hemoglobin, approximately the same amount of
hemoglobin delivered by one unit of transfused blood.

PolyHeme is intended for use in the treatment of acute blood loss. Clinical
studies to date indicate that PolyHeme carries as much oxygen, and loads and
unloads oxygen in the same manner, as transfused blood. Infusion of PolyHeme
also restores blood volume. Therefore, PolyHeme should be effective as an
oxygen-carrying resuscitative fluid in the treatment of hemorrhagic shock
resulting from extensive blood loss.

In addition to its utility as an oxygen carrier and blood volume expander,
we believe PolyHeme will have the following additional benefits:

Impact on Disease Transmission. We believe, and laboratory and clinical
tests have thus far indicated, that the manufacturing process used to produce
PolyHeme greatly reduces the concentration of infectious agents known to be
responsible for the transmission of blood-borne diseases. There are no currently
approved methods in this country to reduce the quantity of such infectious
agents in red cells.

Universal Compatibility. Clinical studies to date indicate that PolyHeme is
universally compatible and accordingly should not require blood typing prior to
use. The benefits of universal compatibility include the ability to use PolyHeme
immediately, the elimination of transfusion reactions due to mistakes in blood
typing, and the reduction of the inventory burden associated with maintaining
sufficient quantities of all blood types.

Extended Shelf Life. We believe PolyHeme has a shelf life well in excess of
the 28 to 42 days currently permitted for blood. We estimate that PolyHeme has a
shelf life in excess of 12 months under refrigerated conditions.

THE MARKET

We estimate that approximately 12 million units of blood were transfused in
the United States in 1999, of which approximately 7.2 million units were
administered to patients suffering the effects of acute blood loss. Patient
charges for the units of blood used in the United States in 1999 for the
treatment of acute blood loss were approximately $2.5 billion. The transfusion
market in the United States consists of two principal segments. The acute blood
loss segment, which comprises approximately 60% of the transfusion market,
includes transfusions required in connection with trauma, surgery and unexpected
blood loss. The chronic blood loss segment represents approximately 40% of the
transfusion market and includes transfusions in connection with general medical
applications and chronic anemias.

PolyHeme is intended for use in the treatment of acute blood loss. The two
principal clinical settings in which patients experience acute blood loss are
urgent use in trauma, emergency surgery and other unexpected blood loss, and
elective use in planned surgery. For trauma and emergency surgical procedures,
the immediate availability and universal compatibility of PolyHeme are expected
to provide significant advantages over transfused blood by avoiding the delay
and opportunities for error associated with blood typing. The major benefit of
PolyHeme in elective surgery is expected to be increased transfusion safety for
patients and health care professionals.

In addition to the foregoing applications for which blood is currently
used, there exist potential sources of demand for which blood is not currently
utilized and for which PolyHeme may be suitable. These include applications in
which the required blood type is not immediately available or in which
transfusions are desirable but not given for fear of a transfusion reaction due
to difficulty in identifying compatible blood. For example, we believe
emergicenters and surgicenters both experience events where an oxygen-carrying
volume

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expander may be useful. We also believe PolyHeme may be used by Emergency
Medical Technicians in ambulances, medical helicopters and other prehospital
settings. In addition, the military has expressed a high level of interest in
oxygen-carrying products for the resuscitation of battlefield casualties.

CLINICAL TRIALS

We have engaged an international contract research organization to
independently administer the collection of patient data generated by test sites
participating in our trials. The purpose of independent administration is to
ensure that data collected as part of these trials is free from any inaccuracy
or bias that might result from interactions between the testing sites and the
trial sponsor.

TRAUMA AND EMERGENCY SURGICAL APPLICATIONS

We are conducting clinical trials of PolyHeme in trauma and emergency
surgical applications at multiple hospitals in the United States, including both
civilian and military institutions. These continuing clinical trials are
designed to assess the safety and effectiveness of PolyHeme in treating acute
blood loss and hemorrhagic shock in trauma and emergency surgical patients.
Patients participating in these trials have been infused with up to 20 units
(1000 grams) of PolyHeme. This unprecedented dose is equivalent to twice the
blood volume of an average adult.

We have been analyzing the data from our trauma trials and are continuing
to consider our regulatory position based on our findings. We are pleased with
the results from these trials, which demonstrate potential benefits from the use
of PolyHeme in urgent, acute blood loss settings, including trauma, emergency
surgery and unexpected life-threatening blood loss during elective surgical
procedures.

ELECTIVE SURGICAL APPLICATIONS

We are also conducting clinical trials of PolyHeme in elective surgical
applications at multiple locations in the United States. Our clinical protocol
for these trials is a randomized controlled study in which elective surgical
patients are infused with up to six units of PolyHeme (three liters containing
300 grams of hemoglobin). The majority of elective surgical procedures require
the infusion of six units or less of blood.

While the use of PolyHeme in our elective surgery trials is the same as
that for trauma -- high dose, rapid infusion for acute blood loss -- the
clinical endpoint for these trials is the elimination of the use of banked
blood. We believe these trials are producing important results. Due to the
complexity of the clinical protocol, however, patient accrual is progressing
slowly, as previously reported. As a result, we are considering instituting
additional elective surgery trials with different protocols to more broadly and
rapidly confirm PolyHeme's capability as an alternative to blood in critical
care situations. We believe our clinical trials will continue throughout the
regulatory review process.

MANUFACTURING AND MATERIAL SUPPLY

We use a proprietary process of separation, filtration and chemical
modification to produce PolyHeme. Since 1990, we have produced PolyHeme in our
manufacturing facility. We believe this facility is capable of producing
sufficient quantities of PolyHeme for all of our clinical trials in the United
States. Our independent

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engineering consultants and we believe that our existing manufacturing process
may be scaled up without substantial modification to produce commercial
quantities of PolyHeme in larger facilities.

If FDA approval of PolyHeme is received, we presently intend to manufacture
PolyHeme for commercial sale in the United States using our own facilities. We
currently have licensing arrangements for the manufacture of PolyHeme in certain
countries outside the United States. We are also considering entering into other
collaborative relationships with strategic partners which could involve
arrangements relating to the manufacture of PolyHeme.

The successful commercial introduction of PolyHeme will also depend on an
adequate supply of blood to be used as a starting material. We believe that an
adequate supply of blood is obtainable through the voluntary blood services
sector. We have had extensive discussions with existing blood collection
agencies, including The American Red Cross and Blood Centers of America,
regarding sourcing of blood. We currently have short-term purchasing contracts
with each of these agencies. We have also entered into an agreement with
hemerica, Inc., a subsidiary of Blood Centers of America, under which hemerica
will supply us with 82,500 units per year of packed red cells, the source
material for PolyHeme, over a three year period. We have not purchased any blood
supplies under this agreement to date. We will continue to pursue long-term
supply contracts with such agencies and other potential sources, although we
cannot ensure that we will be able to obtain sufficient quantities of blood from
the voluntary blood services sector to enable us to produce commercial
quantities of PolyHeme if FDA approval is received.

MARKETING STRATEGIES

If FDA approval of PolyHeme is received, we intend to market PolyHeme with
our own sales force in the United States. We intend to recruit and train a
specialty sales force of approximately 20 individuals to introduce PolyHeme in
selected markets. The selling effort will target approximately 500 hospitals
which utilize over 70% of the nation's blood supply. We believe the most
important marketing activities will be educating, stimulating use by and
servicing health care professionals.

We may pursue licenses or other arrangements for the manufacture and
distribution of PolyHeme both inside and outside the United States. We have
entered into license agreements with Pharmacia & Upjohn AB and Hemocare Ltd., an
Israeli corporation, to develop, manufacture and distribute PolyHeme in certain
European, Middle Eastern and African countries. The license agreements permit
Pharmacia and Hemocare to utilize PolyHeme and related manufacturing technology
in return for the payment of royalties based upon sales of PolyHeme in the
licensed territories.

In March 1989, we granted Pharmacia an exclusive license to manufacture,
promote and sell PolyHeme in a territory encompassing the United Kingdom,
Germany, the Scandinavian countries and certain countries in the Middle East.
Under the terms of the license agreement, Pharmacia has the right, upon
consultation with us, to promote and sell PolyHeme in the licensed territory
under its own trademark. The license agreement with Pharmacia provides for a
nonrefundable initial fee, two additional nonrefundable fees based upon
achievement of certain regulatory milestones, and ongoing royalty payments based
upon net sales of PolyHeme in the licensed territory. The license agreement
further provides for a reduction of royalty payments upon the occurrence of
certain events. In addition, under the terms of the agreement, we have the right
under certain circumstances to direct Pharmacia's clinical testing of PolyHeme
in the licensed territory.

In July 1990, we granted Hemocare an exclusive license to manufacture,
promote and sell PolyHeme in a territory encompassing Israel, Cyprus, Ivory
Coast, Jordan, Kenya, Lebanon, Liberia, Nigeria and Zaire. Under the terms of
the license agreement, Hemocare has the right, upon consultation with us, to
promote and sell PolyHeme in the licensed territory under its own trademark. The
license agreement with Hemocare provides for royalty payments based on net sales
of PolyHeme in the licensed territory. In addition, under the terms of the
license agreement, we have the right under certain circumstances to direct
Hemocare's clinical testing of PolyHeme in the licensed territory.

Our present plans with respect to the marketing and distribution of
PolyHeme in the United States and overseas may change significantly based on the
results of the clinical testing of PolyHeme, the establishment
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of relationships with strategic partners, changes in the scale, timing and cost
of our commercial manufacturing facility, competitive and technological
advances, the FDA regulatory process, the availability of additional funding and
other factors.

COMPETITION

We believe that the treatment of urgent blood loss is the setting most
likely to lead to FDA approval and the application which presents the greatest
market opportunity. However, several companies have developed or are in the
process of developing technologies which are, or in the future may be, the basis
for products which will compete with PolyHeme. Certain of these companies are
pursuing different approaches or means of accomplishing the therapeutic effects
sought to be achieved through the use of PolyHeme. Many of these companies have
substantially greater financial resources, larger research and development
staffs, more extensive facilities and more experience than Northfield in
testing, manufacturing, marketing and distributing medical products. We cannot
ensure that one or more other companies will not succeed in developing
technologies and products which will be available for commercial use prior to
PolyHeme, which will be more effective or less costly than PolyHeme or which
would otherwise render PolyHeme obsolete or noncompetitive.

We believe that important competitive factors in the market for blood
substitute products will include the relative speed with which competitors can
develop their respective products, complete the clinical testing and regulatory
approval process and supply commercial quantities of their products to the
market. In addition to these factors, competition is expected to be based on the
effectiveness of blood substitute products and the scope of the intended uses
for which they are approved, the scope and enforceability of patent or other
proprietary rights, product price, product supply and marketing and sales
capability. We believe that our competitive position will be significantly
influenced by the timing of the clinical testing and regulatory filings for
PolyHeme, our ability to expand its manufacturing capability to permit
commercial production of PolyHeme, if approved, and our ability to maintain and
enforce our proprietary rights covering PolyHeme and its manufacturing process.

GOVERNMENT REGULATION

The manufacture and distribution of PolyHeme and the operation of our
manufacturing facilities will require the approval of United States government
authorities as well as those of foreign countries. In the United States, the FDA
regulates medical products, including the category known as "biologicals" which
includes PolyHeme. The Federal Food, Drug and Cosmetic Act and the Public Health
Service Act govern the testing, manufacture, safety, effectiveness, labeling,
storage, record keeping, approval, advertising and promotion of PolyHeme. In
addition to FDA regulations, we are also subject to other federal and state
regulations, such as the Occupational Safety and Health Act and the
Environmental Protection Act. Product development and approval within this
regulatory framework requires a number of years and involves the expenditure of
substantial funds.

The steps required before a biological product may be sold commercially in
the United States include preclinical testing, the submission to the FDA of an
Investigational New Drug application, clinical trials in humans to establish the
safety and effectiveness of the product, the submission to the FDA of a Biologic
License Application, or BLA, relating to the product and the manufacturing
facilities to be used to produce the product for commercial sale, and FDA
approval of a BLA.

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Preclinical tests include evaluation of product chemistry and studies to
assess the safety and effectiveness of the product and its formulation. The
results of the preclinical tests are submitted to the FDA as part of the
Investigational New Drug application. The goal of clinical testing is the
demonstration in adequate and well-controlled studies of substantial evidence of
the safety and effectiveness of the product in the setting of its intended use.
The results of preclinical and clinical testing are submitted to the FDA from
time to time throughout the trial process. In addition, before approval for the
commercial sale of a product can be obtained, results of the preclinical and
clinical studies must be submitted to the FDA in the form of a BLA. The testing
and approval process requires substantial time and effort and there can be no
assurance that any approval will be granted on a timely basis, if at all. The
approval process is affected by a number of factors, including the severity of
the condition being treated, the availability of alternative treatments and the
risks and benefits demonstrated in clinical trials. Additional preclinical
studies or clinical trials may be requested during the FDA review process and
may delay product approval. After FDA approval for its initial indications,
further clinical trials may be necessary to gain approval for the use of a
product for additional indications. The FDA may also require post-marketing
testing, which can involve significant expense, to monitor for adverse effects.

Among the conditions for BLA approval is the requirement that the
prospective manufacturer's quality controls and manufacturing procedures conform
to FDA requirements. In addition, domestic manufacturing facilities are subject
to biennial FDA inspections and foreign manufacturing facilities are subject to
periodic FDA inspections or inspections by the foreign regulatory authorities
with reciprocal inspection agreements with the FDA. Outside the United States,
we are also subject to foreign regulatory requirements governing clinical trials
and marketing approval for medical products. The requirements governing the
conduct of clinical trials, product licensing, pricing and reimbursement vary
widely from country to country.

Our regulatory strategy is to pursue clinical testing and FDA approval of
PolyHeme in the United States. We intend to arrange for testing and seek
regulatory approval of PolyHeme outside the United States through licensing or
other arrangements with other foreign or domestic companies. To date, we have
not conducted any clinical trials of PolyHeme outside of the United States.

PATENTS AND PROPRIETARY RIGHTS

We own four United States patents relating to PolyHeme, its uses and
certain of our manufacturing processes. We have obtained counterpart patents and
have additional patent applications pending in Canada, Israel and various
European Union countries. Our United States patents expire in 2006. We have a
policy of seeking patents covering the important techniques, processes and
applications developed from its research and all modifications and improvements
thereto. We also rely upon trade secrets, know-how, continuing technological
innovations and licensing opportunities to develop and maintain its competitive
position. We will continue to seek appropriate protection for its proprietary
technology.

We cannot ensure that our patents or other proprietary rights will be
determined to be valid or enforceable if challenged in court or administrative
proceedings or that we will not become involved in disputes with respect to the
patents or proprietary rights of third parties. An adverse outcome from these
proceedings could subject us to significant liabilities to third parties,
require disputed rights to be licensed from third parties or require us to stop
using our technology, any of which would result in a material adverse effect on
our results of operations.

RESEARCH AND DEVELOPMENT

The principal focus of our research and development effort is the support
of the clinical trials necessary for regulatory approval of PolyHeme. We have
also contracted for the preliminary engineering necessary to assess the
production of PolyHeme in commercial quantities.

In fiscal 2000, 1999 and 1998, our research and development expenses
totaled $9,193,000, $7,661,000 and $6,675,000, respectively. We anticipate that
these expenses will continue to increase as we fund the further clinical testing
of PolyHeme and prepare for production of PolyHeme in commercial quantities.

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HUMAN RESOURCES

As of May 31, 2000, we had 51 employees, of whom 43 were involved in
research and development and eight were responsible for financial and other
administrative matters. We also had consulting arrangements with eight
individuals as of that date. None of our employees are represented by labor
unions, and we are not aware of any organizational efforts on behalf of any
labor unions involving our employees. We consider our relations with our
employees to be excellent.

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RISK FACTORS

You should consider the following matters when reviewing the information
contained in this document. You also should consider the other information
incorporated by reference in this document.

WE MAY BE REQUIRED TO CONDUCT EXTENSIVE ADDITIONAL CLINICAL TRIALS IN THE FUTURE

The results of our clinical trials may not be sufficient at present to
demonstrate adequately the safety and effectiveness of PolyHeme in order to file
a Biologic License Application with the FDA. If additional trials are necessary,
they will be expensive and time-consuming. The timing of the FDA review process
is uncertain. We cannot ensure that we will be able to complete our clinical
trials successfully or obtain FDA approval of PolyHeme, or that FDA approval, if
obtained, will not include limitations on the indicated uses for which PolyHeme
may be marketed. Our business, financial condition and results of operations are
critically dependent on receiving FDA approval of PolyHeme. A significant delay
in our clinical trials or a failure to achieve FDA approval of commercial sales
of PolyHeme would have a material adverse effect on us and could result in the
cessation of our business. We or the FDA may in the future suspend clinical
trials at any time if it is believed that the subjects participating in such
trials are being exposed to unacceptable health risks.

OUR ACTIVITIES ARE AND WILL CONTINUE TO BE SUBJECT TO EXTENSIVE GOVERNMENT
REGULATION

Our research, development, testing, manufacturing, marketing and
distribution of PolyHeme are, and will continue to be, subject to extensive
regulation, monitoring and approval by the FDA and its foreign counterparts. The
regulatory approval process to establish the safety and effectiveness of
PolyHeme and the safety and reliability of our manufacturing process has already
consumed several years and considerable expenditures. The data obtained from
clinical trials are susceptible to varying interpretations, which could delay,
limit or prevent FDA regulatory approval. The lack of established criteria for
evaluating the effectiveness of blood substitute products could also delay or
prevent FDA regulatory approval. In addition, delay or rejection could be caused
by changes in FDA policies and regulations. Similar delays or rejections may
also be encountered in foreign countries. We cannot ensure that, even after
extensive clinical trials, regulatory approval will ever be obtained for
PolyHeme. Under new FDA guidelines, the FDA may comment upon the acceptability
of a BLA following its submission. We cannot ensure that the FDA will accept our
BLA or, if our BLA is deemed acceptable, that PolyHeme will ultimately be
approved for manufacture and sale based on our BLA. Moreover, if regulatory
approval of PolyHeme is granted, the approval may include limitations on the
indicated uses for which PolyHeme may be marketed. Further, even if such
regulatory approval is obtained, we do not presently have manufacturing
facilities sufficient to produce commercial quantities of PolyHeme. In order to
seek FDA approval of the sale of PolyHeme produced at its first commercial
manufacturing facility, we may be required to conduct a portion of our clinical
trials with product manufactured at that facility. Discovery of previously
unknown problems with PolyHeme or unanticipated problems with our manufacturing
facilities, even after FDA approval of PolyHeme for commercial sale, may result
in the imposition of significant restrictions, including withdrawal of PolyHeme
from the market. Additional laws and regulations may also be enacted which could
prevent or delay regulatory approval of PolyHeme, including laws or regulations
relating to the price or cost-effectiveness of medical products. Any delay or
failure to achieve regulatory approval of commercial sales of PolyHeme is likely
to have a material adverse effect on our financial condition.

WE ARE A DEVELOPMENT STAGE COMPANY WITHOUT REVENUES OR PROFITS

Northfield was founded in 1985 and is a development stage company. Since
1985, we have been engaged primarily in the development and clinical testing of
PolyHeme. No revenues have been generated to date from commercial sales of
PolyHeme. Our revenues to date have consisted solely of license fees and
interest income. We cannot ensure that our clinical testing will be successful,
that regulatory approval of PolyHeme will be obtained, that we will be able to
manufacture PolyHeme at an acceptable cost and in appropriate quantities or that
we will be able to successfully market and sell PolyHeme. We also cannot ensure
that we will not encounter unexpected difficulties which will have a material
adverse effect on us, our operations or our properties.
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WE ARE DEVELOPING A SINGLE PRODUCT THAT IS SUBJECT TO A HIGH LEVEL OF
TECHNOLOGICAL RISK

Our operations have to date consisted primarily of the development and
clinical testing of PolyHeme. We do not expect to realize product revenues
unless we successfully develop and achieve commercial introduction of PolyHeme.
We expect that such revenues, if any, will be derived solely from sales of
PolyHeme. We also expect the use of PolyHeme to be limited primarily to the
acute blood loss segment of the transfusion market. The biomedical field has
undergone rapid and significant technological changes. Technological
developments may result in PolyHeme becoming obsolete or non-competitive before
we are able to recover any portion of the research and development and other
expenses we have incurred to develop and clinically test PolyHeme. Any such
occurrence would have a material adverse effect on us and our operations.

WE ARE NOT CERTAIN THAT WE WILL BE ABLE TO MANUFACTURE POLYHEME COMMERCIALLY

Commercial-scale manufacturing of PolyHeme will require the construction of
a manufacturing facility significantly larger than that currently being used to
produce PolyHeme for our clinical trials. We have no experience in
commercial-scale manufacturing, and there can be no assurance that we can
achieve commercial-scale manufacturing capacity. It is also possible that we may
incur substantial cost overruns and delays compared to existing estimates in
building and equipping a commercial-scale manufacturing facility. Moreover, in
order to seek FDA approval of the sale of PolyHeme produced at our first
commercial manufacturing facility, we may be required to conduct a portion of
our clinical trials with product manufactured at that facility. Accordingly, a
delay in achieving scale-up of manufacturing capabilities will have a material
adverse effect on the completion of our clinical trials and therefore on the
commercial manufacture and sale of PolyHeme. Additionally, the manufacture of
PolyHeme will be subject to extensive government regulation. Among the
conditions for marketing approval is that our quality control and manufacturing
procedures conform to the FDA's good manufacturing practice regulations. We
cannot ensure that we will be able to obtain the necessary regulatory clearances
or approvals to manufacture PolyHeme on a timely basis or at all.

THERE MAY BE LIMITATIONS IN THE SUPPLY OF THE STARTING MATERIAL FOR POLYHEME

We currently purchase donated blood from The American Red Cross and Blood
Centers of America for use as the starting material for PolyHeme. We have also
entered into an agreement with hemerica, Inc., a subsidiary of Blood Centers of
America, under which hemerica would supply us with 82,500 units per year of
packed red cells, the source material for PolyHeme, over a three year period. We
have not purchased any blood supplies under this agreement to date. We have
plans to enter long-term supply arrangements with other blood collectors. We
cannot ensure that we will be able to enter into satisfactory long-term
arrangements with blood bank operators, that the price we may be required to pay
for starting material will permit us to price PolyHeme competitively or that we
will be able to obtain an adequate supply of starting material. Additional
demand for blood may arise from competing blood substitute products, some of
which are derived from human blood, thereby limiting our available supply of
starting material.

THERE ARE SIGNIFICANT COMPETITORS DEVELOPING SIMILAR PRODUCTS

If approved for commercial sale, PolyHeme will compete directly with
established therapies for acute blood loss and may compete with other
technologies currently under development. We cannot ensure that PolyHeme will
have advantages which will be significant enough to cause medical professionals
to adopt it rather than to continue to use established therapies or to adopt
other new technologies or products. We also cannot ensure that the cost of
PolyHeme will be competitive with the cost of established therapies or other new
technologies or products. The development of blood substitute products is a
rapidly evolving field. Competition is intense and expected to increase. Several
companies have developed or are in the process of developing technologies which
are, or in the future may be, the basis for products which will compete with
PolyHeme. Certain of these companies are pursuing different approaches or means
of accomplishing the therapeutic effects sought to be achieved through the use
of PolyHeme. Many of these companies have substantially greater financial
resources, larger research and development staffs, more extensive facilities and
more experience than Northfield in testing, manufacturing, marketing and
distributing medical products. We
11
<PAGE> 12

cannot ensure that one or more other companies will not succeed in developing
technologies or products which will become available for commercial use prior to
PolyHeme, which will be more effective or less costly than PolyHeme or which
would otherwise render PolyHeme obsolete or non-competitive.

WE DO NOT HAVE EXPERIENCE IN THE SALE AND MARKETING OF MEDICAL PRODUCTS

If approved for commercial sale, we intend to market PolyHeme in the United
States using our own sales force. We have no experience in the sale or marketing
of medical products. Our ability to implement our sales and marketing strategy
for the United States will depend on our ability to recruit, train and retain a
marketing staff and sales force with sufficient technical expertise. We cannot
ensure that we will be able to establish an effective marketing staff and sales
force, that the cost of establishing such a marketing staff and sales force will
not exceed revenues from the sale of PolyHeme or that our marketing and sales
efforts will be successful.

WE HAVE A HISTORY OF LOSSES AND OUR FUTURE PROFITABILITY IS UNCERTAIN

From Northfield's inception through May 31, 2000, we have incurred net
operating losses totaling $77,324,000. We will require substantial additional
expenditures to complete clinical trials, to establish commercial scale
manufacturing processes and facilities, and to establish marketing, sales and
administrative capabilities. These expenditures are expected to result in
substantial losses for at least the next several years. The expense and the time
required to realize any product revenues or profitability are highly uncertain.
We cannot ensure that we will be able to achieve product revenues or
profitability on a sustained basis or at all. We may require substantial
additional funds to achieve commercial production of PolyHeme. Our future
capital requirements will depend on many factors, including the scope and
results of clinical trials, the timing and outcome of regulatory reviews,
administrative and legal expenses, the status of competitive products, the
establishment of manufacturing capacity and the establishment of collaborative
relationships. We cannot ensure that this additional funding will be available
or, if it is available, that it can be obtained on terms and conditions we will
deem acceptable. Any additional funding derived from the sale of equity may
result in significant dilution to then existing stockholders.

THE MARKET MAY NOT ACCEPT OUR PRODUCT

We anticipate that the market price for PolyHeme, if FDA approval is
received, will exceed the cost of transfused blood. Competitors may also develop
new technologies or products which are more effective or less costly than
PolyHeme. We cannot ensure that the price of PolyHeme, considered in relation to
PolyHeme's expected benefits, will be perceived by health care providers and
third party payors as cost-effective, or that the price of PolyHeme will be
competitive with transfused blood or with other new technologies or products.
Our results of operations may be adversely affected if the price of PolyHeme is
not considered cost-effective or if PolyHeme does not otherwise receive market
acceptance.

OUR PATENTS AND OTHER PROPRIETARY RIGHTS MAY NOT PROTECT OUR TECHNOLOGY

Our ability to compete effectively with other companies will depend, in
part, on our ability to protect and maintain the proprietary nature of our
technology. We cannot be certain as to the degree of protection offered by our
patents or as to the likelihood that additional patents in the United States and
certain other countries will be issued based upon pending patent applications.
Patent applications in the United States are maintained in secrecy until patents
are issued. We cannot be certain that we were the first creator of the
inventions covered by our patents or pending patent applications or that we were
the first to file patent applications for our inventions. The high costs of
enforcing patent and other proprietary rights may also limit the degree of
protection afforded to us. We also rely on unpatented proprietary technology,
and we cannot ensure that others may not independently develop the same or
similar technology or otherwise obtain access to our proprietary technology. We
cannot ensure that our patents or other proprietary rights will be determined to
be valid or enforceable if challenged in court or administrative proceedings or
that we will not become involved in disputes with respect to the patents or
proprietary rights of third parties. An adverse outcome from these proceedings
could subject us to significant liabilities to third parties, require disputed
rights to be licensed from

12
<PAGE> 13

third parties or require us to stop using this technology, any of which would
result in a material adverse effect on our results of operations.

WE DEPEND ON THE SERVICES OF A LIMITED NUMBER OF KEY PERSONNEL

Our success is highly dependent on the continued services of a limited
number of skilled managers and scientists. The loss of any of these individuals
could have a material adverse effect on us. In addition, our success will
depend, among other factors, on the recruitment and retention of additional
highly skilled and experienced management and technical personnel. We cannot
ensure that we will be able to retain existing employees or to attract and
retain additional skilled personnel on acceptable terms given the competition
for such personnel among numerous large and well-funded pharmaceutical and
health care companies, universities and non-profit research institutions.

PART II

ITEM 2. PROPERTIES

We currently lease a manufacturing facility located in Mt. Prospect,
Illinois, and maintain our principal executive offices in Evanston, Illinois.
The leases for our manufacturing facility and executive offices extend through
June 2003 and February 2006, respectively. Rent expense for our 2000 fiscal year
was $747,000. We believe our present manufacturing facility is capable of
producing sufficient quantities of PolyHeme for all of our clinical trials in
the United States.

Currently, we have a manufacturing capacity of approximately 10,000 units
of PolyHeme per year. We have leased additional space adjacent to our existing
manufacturing facility but have not yet committed to the buildout of this space.
The initial engineering studies on the additional space have been completed and
indicate that an additional capacity of 50,000 to 60,000 units of PolyHeme per
year could be developed in approximately 16 to 18 months at a cost of $18 to $20
million.

ITEM 3. LEGAL PROCEEDINGS.

As of May 31, 2000, we were not a party to any material pending legal
proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

13
<PAGE> 14

PART III

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

MARKET INFORMATION

The following table sets forth, for the periods indicated, the range of
high and low sales prices for our common stock on the Nasdaq National Market.
These prices do not include retail markups, markdowns or commissions.

<TABLE>
<CAPTION>
FISCAL QUARTER ENDED HIGH LOW
-------------------- ---- ---
<S> <C> <C> <C> <C>
May 31, 1997................................................ $13 1/2 $ 8 3/8
August 31, 1997............................................. 10 3/8 9
November 30, 1997........................................... 13 7/8 8 3/8
February 28, 1998........................................... 11 1/2 8
May 31, 1998................................................ 17 1/4 9 1/2
August 31, 1998............................................. 18 1/8 10 1/8
November 30, 1998........................................... 15 5/8 9 1/8
February 28, 1999........................................... 16 3/8 10 15/16
May 31, 1999................................................ 15 10 1/2
August 31, 1999............................................. 13 7/8 11
November 30, 1999........................................... 15 1/4 11 1/4
February 29, 2000........................................... 23 5/16 10
May 31, 2000................................................ 41 1/2 11
August 31, 2000
(through August 11, 2000)................................. 18 11
</TABLE>

HOLDERS OF RECORD

As of May 31, 2000, there were approximately 400 holders of record and
approximately 11,000 beneficial owners of our common stock. There were as of
that date no issued and outstanding shares of our preferred stock.

DIVIDENDS

We have never declared or paid dividends on our capital stock and do not
anticipate declaring or paying any dividends in the foreseeable future.

14
<PAGE> 15

ITEM 6. SELECTED FINANCIAL DATA.

The selected financial data set forth below for, and as of the end of, each
of the years in the five-year period ended May 31, 2000 and for the period from
June 19, 1985 (inception) through May 31, 2000 were derived from Northfield's
financial statements, which financial statements have been audited by KPMG LLP,
independent certified public accountants.

<TABLE>
<CAPTION>
CUMULATIVE
FROM
YEARS ENDED MAY 31, JUNE 19, 1985
----------------------------------------------- THROUGH
2000 1999 1998 1997 1996 MAY 31, 2000
---- ---- ---- ---- ---- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
License income....................... $ -- -- -- -- -- 3,000
Costs and expenses:
Research and development............. 9,193 7,661 6,675 5,188 5,223 69,140
General and administrative........... 2,260 2,311 2,338 2,317 2,509 31,421
Interest income (net).................. 2,286 2,556 3,130 3,259 2,953 20,288
Net loss............................... $(9,167) (7,416) (5,883) (4,246) (4,779) (77,324)
Net loss per basic share............... $ (0.64) (0.53) (0.42) (0.30) (0.37) (8.62)
Shares used in calculation of per
Share data (1)....................... 14,241 14,115 14,097 13,961 12,849 8,970
</TABLE>

<TABLE>
<CAPTION>
MAY 31,
----------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and marketable securities............ $ 38,284 $ 47,561 $ 53,504 $ 60,294 $ 63,984
Total assets.............................. 41,728 50,963 56,919 62,343 66,339
Total liabilities......................... 1,634 1,791 1,471 1,048 1,391
Deficit accumulated during
Development stage....................... (77,324) (68,157) (60,740) (54,857) (50,611)
Total shareholders' equity (2)............ 40,095 49,171 55,448 61,295 64,948
</TABLE>

-------------------------
(1) Computed on the basis described in Note 1 of Notes to Financial Statements.

(2) Excludes 565,500 shares reserved for issuance upon the exercise of stock
options outstanding as of May 31, 2000. Additional stock options for a total
of 555,000 shares and 185,000 shares, respectively, were available for grant
as of May 31, 2000 under the Company's employee stock option plans and stock
option plan for outside directors.

15
<PAGE> 16

ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

Since Northfield's incorporation in 1985, we have devoted substantially all
of our efforts and resources to the research, development and clinical testing
of our potential product, PolyHeme. We have incurred operating losses during
each year of our operations since inception and expect to incur substantial
additional operating losses for the next several years. From Northfield's
inception through May 31, 2000, we have incurred operating losses totaling
$77,324,000.

Our success will depend on several factors, including our ability to obtain
FDA regulatory approval of PolyHeme and our manufacturing facilities, obtain
sufficient quantities of blood to manufacture PolyHeme in commercial quantities,
manufacture and distribute PolyHeme in a cost-effective manner, and enforce our
patent positions. We have experienced significant delays in the development and
clinical testing of PolyHeme. We cannot ensure that we will be able to achieve
these goals or that we will be able to realize product revenues or profitability
on a sustained basis or at all.

We anticipate that research and development expenses will continue to
increase during the foreseeable future. These expected increases are
attributable to anticipated future clinical trials, monitoring and reporting the
results of these trials and continuing process development associated with
improving our manufacturing capacity to permit commercial-scale production of
PolyHeme. We expect that general and administrative expenses will increase over
the foreseeable future due to increased expenses relating to the expansion of
our organization in support of expanded commercial operations.

RESULTS OF OPERATIONS

We reported no revenues for the fiscal years ended May 31, 2000, 1999 or
1998. From its inception through May 31, 2000, Northfield has reported total
revenues of $3,000,000, all of which were derived from licensing fees.

OPERATING EXPENSES

Operating expenses for our fiscal years ended May 31, 2000, 1999 and 1998
totaled $11,453,000, $9,972,000 and $9,013,000, respectively. On a percentage
basis, fiscal 2000 operating expenses exceeded fiscal 1999 expenses by 14.9%,
while fiscal 1999 operating expenses exceeded fiscal 1998 expenses by 10.6%.

For the year ended May 31, 2000, research and development expenses totaled
$9,193,000, representing an increase of $1,532,000, or 20.0%, from the year
ended May 31, 1999. The year over year difference is due to increased expenses
for clinical trials, expansion of our manufacturing organization, validation
services and amortization of previously capitalized engineering costs.

For the year ended May 31, 1999, research and development expenses totaled
$7,661,000, representing an increase of $986,000, or 14.8%, from the year ended
May 31, 1998. Substantially all of the 1999 fiscal year research and development
expense increase over the prior year relates to our clinical trials and the
amortization of previously capitalized engineering costs.

We anticipate that research and development expenses will continue to
increase significantly for the foreseeable future. Increased costs are being
planned for multi-center clinical trials, third party clinical monitoring,
biostatistical analysis and report preparation and production.

General and administrative expenses for fiscal 2000 totaled $2,260,000
compared to expenses of $2,311,000 for fiscal 1999, representing a decrease of
$51,000, or 2.2%. The decrease was primarily due to lower non-cash expenses as
the depreciation stream of our corporate leasehold improvements ended. We
anticipate that general and administrative expenses will likely increase over
the next several quarters as commercial development will be required to keep
pace with the progress of PolyHeme through the FDA approval process.

General and administrative expenses for fiscal 1999 totaled $2,311,000,
representing a $27,000, or 1.2%, decrease from the $2,338,000 reported for the
prior fiscal year. General and administrative spending during
16
<PAGE> 17

fiscal 1999 remained consistent with the prior fiscal year as we were able to
effectively control general and administrative costs while increasing the level
of research and development activity.

INTEREST INCOME

Interest income in fiscal 2000 equaled $2,286,000, or a $270,000 decrease
from the $2,556,000 in interest income reported in fiscal 1999. Lower available
investment balances were the primary reason for the decrease in interest income.

Interest income for fiscal 1999 totaled $2,556,000, or a $574,000 decrease
from the comparable prior year period. Declining available investment balances
and fluctuating interest rates combined for the reduction in interest income.

Without additional cash inflows, interest income will decline over the next
several quarters as the cost of operations and capital investments will
significantly lower available investment balances.

NET LOSS

Our net loss for the year ended May 31, 2000 was $9,167,000, or $.64 per
basic share, compared to a net loss of $7,416,000, or $.53 per basic share, for
the year ended May 31, 1999. The increase in the loss per basic share was the
result of the increased expense of conducting our clinical trials, increased
expenditures for validation services and the expansion of our manufacturing
organization and facilities.

For the year ended May 31, 1999, we reported a net loss of $7,416,000, or
$.53 per basic share, compared to a prior year net loss of $5,883,000, or $.42
per basic share. The increase in the loss per basic share was primarily the
result of the increase in the expense of conducting our ongoing clinical trials.

LIQUIDITY AND CAPITAL RESOURCES

From its inception through May 31, 2000, Northfield has expended cash in
operating activities and for the purchase of property, plant, equipment and
engineering services in the amount of $77,476,000. For the years ended May 31,
2000 and 1999, these cash expenditures totaled $11,097,000 and $7,068,000,
respectively. The year over year difference is primarily due to increased cash
expenditures for the expansion of our production facilities and the increased
cost of operations related to our manufacturing expansion.

We have financed our research and development and other activities to date
through the public and private sale of equity securities and, to a more limited
extent, through the license of product rights. As of May 31, 2000, we had cash
and marketable securities totaling $38,284,000.

We believe our existing capital resources will be adequate to satisfy our
operating capital requirements and maintain our existing manufacturing plant and
office facilities for approximately the next 24 to 36 months. Thereafter, we are
likely to require substantial additional capital to continue our operations. We
are currently unable to fund the construction of a large-scale greenfield
manufacturing facility, which is estimated to cost approximately $45-$50
million, without raising substantial additional capital. Currently, we have a
manufacturing capacity of approximately 10,000 units of PolyHeme per year. We
have leased additional space adjacent to our existing pilot manufacturing
facility but have not yet committed to the buildout of this space. The initial
engineering studies on the additional space have been completed and indicate
that an additional capacity of 50,000 to 60,000 units of PolyHeme per year could
be developed in approximately 16 to 18 months at a cost of $18 to $20 million.
Northfield is evaluating this approach due to the capital required to build a
greenfield facility with a 300,000 unit capacity. We view the smaller facility
as financially prudent yet large enough for commercial viability.

We may enter into collaborative arrangements with strategic partners which
could provide us with additional funding or absorb expenses we would otherwise
be required to pay. We have engaged in discussions with a number of potential
strategic partners. These discussions are at various stages and we cannot ensure
that any of these arrangements will be consummated.

Our capital requirements may vary materially from those now anticipated
because of the results of our clinical testing of PolyHeme, the establishment of
relationships with strategic partners, changes in the scale,

17
<PAGE> 18

timing or cost of our commercial manufacturing facility, competitive and
technological advances, the FDA regulatory process, changes in our marketing and
distribution strategy and other factors.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

See the Index to Financial Statements on page 20. These Financial
Statements are incorporated by reference into this document.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON A ACCOUNTING AND
FINANCIAL DISCLOSURE.

We have not had a disagreement on any matter of accounting principles or
financial statement disclosure with our independent accountants during our 2000,
1999 or 1998 fiscal years.

PART III

ITEMS 10 THROUGH 13.

The information specified in Items 10 through 13 of Form 10-K has been
omitted in accordance with instructions to Form 10-K. We expect to file with the
Commission in August 2000, pursuant to Regulation 14A, a definitive proxy
statement which will contain the information required to be included in Items 10
through 13 of Form 10-K.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

a) The following documents are filed as part of this report:

(1) and (2) See the Index to Financial Statements on page 20.

(3) See Description of Exhibits on page 35.

b) None.

c) See Description of Exhibits on page 35.

d) None.

18
<PAGE> 19

This page intentionally left blank
<PAGE> 20

FINANCIAL SECTIONS
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ 21
Balance Sheets, May 31, 2000 and 1999....................... 22
Statements of Operations, Years ended May 31, 2000, 1999 and
1998 and the cumulative period from June 19, 1985
(inception) through May 31, 2000.......................... 23
Statements of Shareholders' Equity (Deficit), Years ended
May 31, 2000, 1999 and 1998 and the cumulative period from
June 19, 1985 (inception) through May 31, 2000............ 24
Statements of Cash Flows, Years ended May 31, 2000, 1999 and
1998 and the cumulative period from June 19, 1985
(inception) through May 31, 2000.......................... 28
Notes to Financial Statements............................... 29
</TABLE>

20
<PAGE> 21

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Northfield Laboratories Inc.:

We have audited the accompanying balance sheets of Northfield Laboratories
Inc. (a company in the development stage) as of May 31, 2000 and 1999 and the
related statements of operations, shareholders' equity (deficit), and cash flows
for each of the years in the three-year period ended May 31, 2000 and for the
cumulative period from June 19, 1985 (inception) through May 31, 2000. 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 auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our 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 Northfield Laboratories Inc.
(a company in the development stage) as of May 31, 2000 and 1999, and the
results of its operations and its cash flows for each of the years in the
three-year period ended May 31, 2000 and for the cumulative period from June 19,
1985 (inception) through May 31, 2000 in conformity with accounting principles
generally accepted in the United States of America.

/s/ KPMG LLP
June 29, 2000
Chicago, Illinois

21
<PAGE> 22

NORTHFIELD LABORATORIES INC.
(A COMPANY IN THE DEVELOPMENT STAGE)

BALANCE SHEETS
MAY 31, 2000 AND 1999

<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 15,154,295 $ 25,855,668
Short-term marketable securities.......................... 23,129,324 21,705,449
Prepaid expenses.......................................... 409,270 302,240
Other current assets...................................... 505,572 268,430
------------ ------------
Total current assets................................. 39,198,461 48,131,787

Property, plant and equipment, net.......................... 2,455,701 2,755,565
Other assets................................................ 74,333 75,344
------------ ------------
$ 41,728,495 $ 50,962,696
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,061,367 $ 1,325,030
Accrued expenses.......................................... 174,009 120,624
Accrued compensation and benefits......................... 250,570 221,000
------------ ------------
Total current liabilities............................ 1,485,946 1,666,654

Other liabilities........................................... 147,717 124,702
------------ ------------
Total liabilities.................................... 1,633,663 1,791,356
------------ ------------
Shareholder's equity:
Preferred stock, $.01 par value. Authorized 5,000,000
shares; none issued and outstanding.................... -- --
Common stock, $.01 par value. Authorized 30,000,000
shares; issued and outstanding 14,242,375 and
14,239,875 shares in 2000 and 1999, respectively....... 142,424 142,399
Additional paid-in capital................................ 117,276,051 117,185,514
Deficit accumulated during the development stage.......... (77,323,643) (68,156,573)
------------ ------------
Total shareholders' equity........................... 40,094,832 49,171,340
------------ ------------
$ 41,728,495 $ 50,962,696
============ ============
</TABLE>

See accompanying notes to financial statements.

22
<PAGE> 23

NORTHFIELD LABORATORIES INC.
(A COMPANY IN THE DEVELOPMENT STAGE)

STATEMENT OF OPERATIONS
YEARS ENDED MAY 31, 2000, 1999 AND 1998
AND THE CUMULATIVE PERIOD FROM JUNE 19, 1985
(INCEPTION) THROUGH MAY 31, 2000

<TABLE>
<CAPTION>
CUMULATIVE
FROM
YEARS ENDED MAY 31, JUNE 19, 1985
--------------------------------------- THROUGH
2000 1999 1998 MAY 31, 2000
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Revenues -- license income.............. $ -- $ -- $ -- $ 3,000,000
----------- ----------- ----------- ------------
Costs and expenses:
Research and development.............. 9,192,833 7,660,763 6,675,052 69,140,413
General and administrative............ 2,260,488 2,311,365 2,338,451 31,471,213
----------- ----------- ----------- ------------
11,453,321 9,972,128 9,013,503 100,611,626
----------- ----------- ----------- ------------
Other income and expense:
Interest income....................... 2,286,251 2,555,795 3,130,125 20,371,217
Interest expense...................... -- -- -- 83,234
----------- ----------- ----------- ------------
2,286,251 2,555,795 3,130,125 20,287,983
----------- ----------- ----------- ------------
Net loss......................... (9,167,070) (7,416,333) (5,883,378) (77,323,643)
=========== =========== =========== ============
Net loss per share -- basic and
diluted............................... $ (0.64) $ (0.53) $ (0.42) $ (8.62)
=========== =========== =========== ============
Shares used in calculation of per share
data -- basic......................... 14,240,749 14,114,676 14,097,375 8,969,709
=========== =========== =========== ============
</TABLE>

See accompanying notes to financial statements.

23
<PAGE> 24

NORTHFIELD LABORATORIES INC.
(A COMPANY IN THE DEVELOPMENT STAGE)

STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
YEARS ENDED MAY 31, 2000, 1999 AND 1998 AND THE CUMULATIVE
PERIOD FROM JUNE 19, 1985 (INCEPTION) THROUGH MAY 31, 2000

<TABLE>
<CAPTION>
PREFERRED STOCK
---------------------
NUMBER AGGREGATE
OF SHARES AMOUNT
--------- ---------
<S> <C> <C>
Issuance of common stock on August 27, 1985................. -- $ --
Issuance of Series A convertible preferred stock at $4.00
per share on August 27, 1985 (net of costs of issuance of
$79, 150)................................................. -- --
Net loss.................................................... -- --
------ -------
Balance at May 31, 1986..................................... -- --
Net loss.................................................... -- --
Deferred compensation relating to grant of stock options.... -- --
Amortization of deferred compensation....................... -- --
------ -------
Balance at May 31, 1987..................................... -- --
Issuance of Series B convertible preferred stock at $35.68
per share on August 14, 1987 (net of costs of issuance of
$75,450).................................................. -- --
Net loss.................................................... -- --
Amortization of deferred compensation....................... -- --
------ -------
Balance at May 31, 1988..................................... -- --
Issuance of common stock at $24.21 per share on June 7, 1988
(net of costs of issuance of $246,000).................... -- --
Conversion of Series A convertible preferred stock to common
stock on June 7, 1988..................................... -- --
Conversion of Series B convertible preferred stock to common
stock on June 7, 1988..................................... -- --
Exercise of stock options at $2.00 per share................ -- --
Issuance of common stock at $28.49 per share on March 6,
1989 (net of costs of issuance of $21,395)................ -- --
Issuance of common stock at $28.49 per share on March 30,
1989 (net of costs of issuance of $10,697)................ -- --
Sale of options at $28.29 per share to purchase common stock
at $.20 per share on March 30, 1989 (net of costs of
issuance of $4,162)....................................... -- --
Net loss.................................................... -- --
Deferred compensation relating to grant of stock options.... -- --
Amortization of deferred compensation....................... -- --
------ -------
Balance at May 31, 1989..................................... -- --
Net loss.................................................... -- --
Deferred compensation relating to grant of stock options.... -- --
Amortization of deferred compensation....................... -- --
------ -------
Balance at May 31, 1990..................................... -- --
Net loss.................................................... -- --
Amortization of deferred compensation....................... -- --
------ -------
Balance at May 31, 1991..................................... -- --
Exercise of stock warrants at $5.60 per share............... -- --
Net loss.................................................... -- --
Amortization of deferred compensation....................... -- --
------ -------
Balance at May 31, 1992..................................... -- --
Exercise of stock warrants at $7.14 per share............... -- --
Issuance of common stock at $15.19 per share on April 19,
1993 (net of costs of issuance of $20,724)................ -- --
Net loss.................................................... -- --
Amortization of deferred compensation....................... -- --
------ -------
Balance at May 31, 1993..................................... -- $ --
====== =======
</TABLE>

24
<PAGE> 25
<TABLE>
<CAPTION>
SERIES A CONVERTIBLE SERIES B CONVERTIBLE DEFICIT
COMMON STOCK PREFERRED STOCK PREFERRED STOCK ACCUMULATED
--------------------- --------------------- --------------------- ADDITIONAL DURING THE
NUMBER AGGREGATE NUMBER AGGREGATE NUMBER OF AGGREGATE PAID-IN DEVELOPMENT DEFERRED
OF SHARES AMOUNT OF SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE COMPENSATION
--------- --------- --------- --------- --------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3,500,000 $35,000 -- $ -- -- $ -- $ (28,000) $ -- $ --
-- -- 25,000 250,000 -- -- 670,850 -- --
-- -- -- -- -- -- -- (607,688) --
--------- ------- -------- --------- -------- --------- ----------- ------------ -----------
3,500,000 35,000 250,000 250,000 -- -- 642,850 (607,688) --
-- -- -- -- -- -- -- (2,429,953) --
-- -- -- -- -- -- 2,340,000 -- (2,340,000)
-- -- -- -- -- -- -- -- 720,000
--------- ------- -------- --------- -------- --------- ----------- ------------ -----------
3,500,000 35,000 250,000 250,000 -- -- 2,982,850 (3,037,641) (1,620,000)
-- -- -- -- 200,633 200,633 6,882,502 -- --
-- -- -- -- -- -- -- (3,057,254) --
-- -- -- -- -- -- -- -- 566,136
--------- ------- -------- --------- -------- --------- ----------- ------------ -----------
3,500,000 35,000 250,000 250,000 200,633 200,633 9,865,352 (6,094,895) (1,053,864)
413,020 4,130 -- -- -- -- 9,749,870 -- --
1,250,000 12,500 (250,000) (250,000) -- -- 237,500 -- --
1,003,165 10,032 -- -- (200,633) (200,633) 190,601 -- --
47,115 471 -- -- -- -- 93,759 -- --
175,525 1,755 -- -- -- -- 4,976,855 -- --
87,760 878 -- -- -- -- 2,488,356 -- --
-- -- -- -- -- -- 7,443,118 -- --
-- -- -- -- -- -- -- (791,206) --
-- -- -- -- -- -- 683,040 -- (683,040)
-- -- -- -- -- -- -- -- 800,729
--------- ------- -------- --------- -------- --------- ----------- ------------ -----------
6,476,585 64,766 -- -- -- -- 35,728,451 (6,886,101) (936,175)
-- -- -- -- -- -- -- (3,490,394) --
-- -- -- -- -- -- 699,163 -- (699,163)
-- -- -- -- -- -- -- -- 546,278
--------- ------- -------- --------- -------- --------- ----------- ------------ -----------
6,476,585 64,766 -- -- -- -- 36,427,614 (10,376,495) (1,089,060)
-- -- -- -- -- -- -- (5,579,872) --
-- -- -- -- -- -- -- -- 435,296
--------- ------- -------- --------- -------- --------- ----------- ------------ -----------
6,476,585 64,766 -- -- -- -- 36,427,614 (15,956,367) (653,764)
90,000 900 -- -- -- -- 503,100 -- --
-- -- -- -- -- -- -- (7,006,495) --
-- -- -- -- -- -- -- -- 254,025
--------- ------- -------- --------- -------- --------- ----------- ------------ -----------
6,566,585 65,666 -- -- -- -- 36,930,714 (22,962,862) (399,739)
15,000 150 -- -- -- -- 106,890 -- --
374,370 3,744 -- -- -- -- 5,663,710 -- --
-- -- -- -- -- -- -- (8,066,609) --
-- -- -- -- -- -- -- -- 254,025
--------- ------- -------- --------- -------- --------- ----------- ------------ -----------
6,955,955 $69,560 -- $ -- -- $ -- $42,701,314 $(31,029,471) $ (145,714)
========= ======= ======== ========= ======== ========= =========== ============ ===========

TOTAL
SHAREHOLDERS'
EQUITY
(DEFICIT)
-------------
<S> <C>
$ 7,000
920,850
(607,688)
-----------
320,162
(2,429,953)
--
720,000
-----------
(1,389,791)
7,083,135
(3,057,254)
566,136
-----------
3,202,226
9,754,000
--
--
94,230
4,978,610
2,489,234
7,443,118
(791,206)
--
800,729
-----------
27,970,941
(3,490,394)
--
546,278
-----------
25,026,825
(5,579,872)
435,296
-----------
19,882,249
504,000
(7,006,495)
254,025
-----------
13,633,779
107,040
5,667,454
(8,066,609)
254,025
-----------
$11,595,689
===========
</TABLE>

25
<PAGE> 26

NORTHFIELD LABORATORIES INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
YEARS ENDED MAY 31, 2000, 1999 AND 1998 AND THE CUMULATIVE
PERIOD FROM JUNE 19, 1985 (INCEPTION) THROUGH MAY 31, 2000

<TABLE>
<CAPTION>
PREFERRED STOCK
----------------------
NUMBER AGGREGATE
OF SHARES AMOUNT
--------- ---------
<S> <C> <C>
Net loss.................................................... -- $ --
Issuance of common stock at $6.50 per share on May 26, 1994
(net of costs of issuance of $2,061,149).................. -- --
Cancellation of stock options............................... -- --
Amortization of deferred compensation....................... -- --
------- -------
Balance at May 31, 1994..................................... -- --
Net loss.................................................... -- --
Issuance of common stock at $6.50 per share on June 20, 1994
(net of issuance costs of $172,500)....................... -- --
Exercise of stock options at $7.14 per share................ -- --
Exercise of stock options at $2.00 per share................ -- --
Cancellation of stock options............................... -- --
Amortization of deferred compensation....................... -- --
------- -------
Balance at May 31, 1995..................................... -- --
Net loss.................................................... -- --
Issuance of common stock at $17.75 per share on August 9,
1995 (net of issuance costs of $3,565,125)................ -- --
Issuance of common stock at $17.75 per share on September
11, 1995 (net of issuance costs of $423,238).............. -- --
Exercise of stock options at $2.00 per share................ -- --
Exercise of stock options at $6.38 per share................ -- --
Exercise of stock options at $7.14 per share................ -- --
Cancellation of stock options............................... -- --
Amortization of deferred compensation....................... -- --
------- -------
Balance at May 31, 1996..................................... -- --
Net loss.................................................... -- --
Exercise of stock options at $0.20 per share................ -- --
Exercise of stock options at $2.00 per share................ -- --
Exercise of stock options at $7.14 per share................ -- --
Amortization of deferred compensation....................... -- --
------- -------
Balance at May 31, 1997..................................... -- --
Net loss.................................................... -- --
Exercise of stock options at $7.14 per share................ -- --
Amortization of deferred compensation....................... -- --
------- -------
Balance at May 31, 1998..................................... -- --
Net loss.................................................... -- --
Non-cash compensation....................................... -- --
Exercise of stock options at $7.14 per share................ -- --
Exercise of stock warrants at $8.00 per share............... -- --
------- -------
Balance at May 31, 1999..................................... -- --
Net loss.................................................... -- --
Non-cash compensation....................................... -- --
Exercise of stock options at $13.38 per share............... -- --
------- -------
Balance at May 31, 2000..................................... -- $ --
======= =======
</TABLE>

See accompanying notes to financial statements.

26
<PAGE> 27
<TABLE>
<CAPTION>
SERIES A CONVERTIBLE SERIES B CONVERTIBLE DEFICIT
COMMON STOCK PREFERRED STOCK PREFERRED STOCK ACCUMULATED
---------------------- --------------------- --------------------- ADDITIONAL DURING THE
NUMBER AGGREGATE NUMBER AGGREGATE NUMBER AGGREGATE PAID-IN DEVELOPMENT DEFERRED
OF SHARES AMOUNT OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL STAGE COMPENSATION
--------- --------- --------- --------- --------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-- $ -- -- $ -- -- $ -- $ -- $ (7,363,810) $ --
2,500,000 25,000 -- -- -- -- 14,163,851 -- --
-- -- -- -- -- -- (85,400) -- 85,400
-- -- -- -- -- -- -- -- 267
---------- -------- ------- -------- ------- -------- ------------ ------------ --------
9,455,955 94,560 -- -- -- -- 56,779,765 (38,393,281) (60,047)
-- -- -- -- -- -- -- (7,439,013) --
375,000 3,750 -- -- -- -- 2,261,250 -- --
10,000 100 -- -- -- -- 71,300 -- --
187,570 1,875 -- -- -- -- 373,264 -- --
-- -- -- -- -- -- (106,750) -- 106,750
-- -- -- -- -- -- -- -- (67,892)
---------- -------- ------- -------- ------- -------- ------------ ------------ --------
10,028,525 100,285 -- -- -- -- 59,378,829 (45,832,294) (21,189)
-- -- -- -- -- -- -- (4,778,875) --
2,925,000 29,250 -- -- -- -- 48,324,374 -- --
438,750 4,388 -- -- -- -- 7,360,187 -- --
182,380 1,824 -- -- -- -- 362,937 -- --
1,500 15 -- -- -- -- 9,555 -- --
10,000 100 -- -- -- -- 71,300 -- --
-- -- -- -- -- -- (80,062) -- 80,062
-- -- -- -- -- -- -- -- (62,726)
---------- -------- ------- -------- ------- -------- ------------ ------------ --------
13,586,155 135,862 -- -- -- -- 115,427,120 (50,611,169) (3,853)
-- -- -- -- -- -- -- (4,245,693) --
263,285 2,633 -- -- -- -- 50,025 -- --
232,935 2,329 -- -- -- -- 463,540 -- --
10,000 100 -- -- -- -- 71,300 -- --
-- -- -- -- -- -- -- -- 2,569
---------- -------- ------- -------- ------- -------- ------------ ------------ --------
14,092,375 140,924 -- -- -- -- 116,011,985 (54,856,862) (1,284)
-- -- -- -- -- -- -- (5,883,378) --
5,000 50 -- -- -- -- 35,650 -- --
-- -- -- -- -- -- -- -- 1,284
---------- -------- ------- -------- ------- -------- ------------ ------------ --------
14,097,375 140,974 -- -- -- -- 116,047,635 (60,740,240) --
-- -- -- -- -- -- -- (7,416,333) --
-- -- -- -- -- -- 14,354 -- --
17,500 175 -- -- -- -- 124,775 -- --
125,000 1,250 -- -- -- -- 998,750 -- --
---------- -------- ------- -------- ------- -------- ------------ ------------ --------
14,239,875 142,399 -- -- -- -- 117,185,514 (68,156,573) --
-- -- -- -- -- -- -- (9,167,070) --
-- -- -- -- -- -- 57,112 -- --
2,500 25 -- -- -- -- 33,425 -- --
---------- -------- ------- -------- ------- -------- ------------ ------------ --------
14,242,375 $142,424 -- $ -- -- $ -- $117,276,051 $(77,323,643) $ --
========== ======== ======= ======== ======= ======== ============ ============ ========

TOTAL
SHAREHOLDERS'
EQUITY
(DEFICIT)
-------------
<S> <C>
$(7,363,810)
14,188,851
--
267
-----------
18,420,997
(7,439,013)
2,265,000
71,400
375,139
--
(67,892)
-----------
13,625,631
(4,778,875)
48,353,624
7,364,575
364,761
9,570
71,400
--
(62,726)
-----------
64,947,960
(4,245,693)
52,658
465,869
71,400
2,569
-----------
61,294,763
(5,883,378)
35,700
1,284
-----------
55,448,369
(7,416,333)
14,354
124,950
1,000,000
-----------
49,171,340
(9,167,070)
57,112
33,450
-----------
$40,094,832
===========
</TABLE>

27
<PAGE> 28

NORTHFIELD LABORATORIES INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF CASH FLOWS
YEARS ENDED MAY 31, 2000, 1999 AND 1998
AND THE CUMULATIVE PERIOD FROM JUNE 19, 1985
(INCEPTION) THROUGH MAY 31, 2000

<TABLE>
<CAPTION>
CUMULATIVE
FROM
YEARS ENDED MAY 31, JUNE 19, 1985
------------------------------------------ THROUGH
2000 1999 1998 MAY 31, 2000
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................. $ (9,167,070) $ (7,416,333) $ (5,883,378) $ (77,323,643)
Adjustments to reconcile net loss to
net
cash used in operating activities:
Depreciation and amortization.... 790,563 489,773 501,169 14,648,629
Non-cash compensation............ 88,378 14,354 1,284 3,552,723
Loss on sale of equipment........ -- -- -- 66,359
Changes in assets and
liabilities:
Prepaid expenses.............. (107,030) 21,811 (149,287) (618,481)
Other current assets.......... (237,142) (259,940) 400,036 (2,401,823)
Other assets.................. -- -- 5,177 6,953
Accounts payable.............. (263,663) 287,763 380,451 1,061,367
Accrued expenses.............. 53,385 39,102 (40,037) 174,009
Accrued compensation and
benefits.................... 29,570 (32,345) 77,545 250,570
Other liabilities............. 23,015 25,726 5,153 147,717
------------ ------------ ------------ -------------
Net cash used in operating
activities............... (8,789,994) (6,830,089) (4,701,887) (60,435,620)
------------ ------------ ------------ -------------
Cash flows from investing activities:
Purchase of property, plant,
equipment, and capitalized
engineering costs.................. (2,307,390) (238,223) (2,123,734) (17,040,802)
Proceeds from sale of land and
equipment.......................... 1,786,436 -- -- 1,863,023
Proceeds from matured marketable
securities......................... 21,549,200 49,049,200 49,049,200 355,389,981
Proceeds from sale of marketable
securities......................... -- -- -- 7,141,656
Purchase of marketable securities..... (22,973,075) (43,723,747) (37,153,198) (385,660,962)
------------ ------------ ------------ -------------
Net cash provided by (used
in) investing
activities............... (1,944,829) 5,087,230 9,772,268 (38,307,104)
------------ ------------ ------------ -------------
Cash flows from financing activities:
Proceeds from issuance of common
stock.............................. 33,450 1,124,950 35,700 103,521,928
Payment of common stock issuance
costs.............................. -- -- -- (5,072,012)
Proceeds from issuance of preferred
stock.............................. -- -- -- 6,644,953
Proceeds from sale of stock options to
purchase common shares............. -- -- -- 7,443,118
Proceeds from issuance of notes
payable............................ -- -- -- 1,500,000
Repayment of notes payable............ -- -- -- (140,968)
------------ ------------ ------------ -------------
Net cash provided by
financing activities..... 33,450 1,124,950 35,700 113,897,019
------------ ------------ ------------ -------------
Net (decrease) increase in
cash..................... (10,701,373) (617,909) 5,106,081 15,154,295
Cash at beginning of period............. 25,855,668 26,473,577 21,367,496 --
------------ ------------ ------------ -------------
Cash at end of period................... $ 15,154,295 $ 25,855,668 $ 26,473,577 $ 15,154,295
============ ============ ============ =============
</TABLE>

See accompanying notes to financial statements.

28
<PAGE> 29

NORTHFIELD LABORATORIES INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2000 AND 1999

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF OPERATIONS IN THE DEVELOPMENT STAGE

Northfield Laboratories Inc. (the Company), a Delaware corporation, was
incorporated on June 19, 1985 to research, develop, test, manufacture, market,
and distribute a hemoglobin-based blood substitute product. The Company is
continuing its research and development activities.

BASIS OF PRESENTATION

The financial statements have been prepared in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 7,
Accounting and Reporting by Development Stage Enterprises, which requires
development stage companies to employ the same generally accepted accounting
principles as operating companies.

MARKETABLE SECURITIES

Marketable securities consist of government securities, corporate notes,
and certificates of deposit with maturities of less than one year. The Company
classifies its investment securities as held-to-maturity. Held-to-maturity
securities are those securities which the Company has the ability and intent to
hold until maturity. Held-to-maturity securities are recorded at amortized cost,
adjusted for the amortization or accretion of premiums or discounts. Premiums
and discounts are amortized or accreted over the life of the related instrument
as an adjustment to yield using the straight-line method, which approximates the
effective interest method. Interest income is recognized when earned.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are recorded at cost and are depreciated
using the straight-line method over the estimated useful lives of the respective
assets, generally five to seven years. Leasehold improvements are amortized
using the straight-line method over the lesser of the life of the asset or the
term of the lease, generally eight to ten years.

CAPITALIZED ENGINEERING COSTS

Capitalized engineering costs include design and other initial engineering
studies relating to a commercial scale facility. During fiscal 2000 and 1999,
the Company capitalized $359,649 and $4,770, respectively, of such engineering
costs. These costs are being amortized over a three year period. For the years
ended May 31, 2000 and 1999, total amortization cost recorded was $379,674 and
$185,544, respectively.

COMPUTATION OF NET LOSS PER SHARE

Basic earnings per share is based on the weighted average number of shares
outstanding and excludes the dilutive effect of unexercised common equivalent
shares. Diluted earnings per share is based on the weighted average number of
shares outstanding and includes the dilutive effect of unexercised common
equivalent shares. Because the Company reported a net loss for the years ended
May 31, 2000, 1999 and 1998 and the cumulative period from June 19, 1985
(inception) through May 31, 2000, basic and diluted per share amounts are the
same.

Had the Company reported net earnings for the years ended May 31, 2000,
1999 and 1998 and the cumulative period from June 19, 1985 (inception) through
May 31, 2000, the weighted average number of

29
<PAGE> 30

shares outstanding would have been diluted by the following common equivalent
securities (not assuming the effects of applying the treasury stock method):

<TABLE>
<CAPTION>
CUMULATIVE
FROM
JUNE 19, 1985
THROUGH
2000 1999 1998 MAY 31, 2000
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Stock options....................... 594,250 539,250 400,500 567,271
Warrants............................ -- 118,836 133,849 81,333
------- ------- ------- -------
594,250 658,086 534,349 648,604
======= ======= ======= =======
</TABLE>

USE OF ESTIMATES

Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.

FINANCIAL INSTRUMENTS

The fair values of financial instruments, which consist of marketable
securities (note 2), were not materially different from their carrying values at
May 31, 2000 and 1999.

(2) MARKETABLE SECURITIES

The fair market value of the Company's marketable securities was
$23,022,457 at May 31, 2000, which included gross unrealized holding losses of
$106,867. The fair market value of the Company's marketable securities was
$21,673,300 at May 31, 1999, which included gross unrealized holding losses of
$32,149.

At May 31, 2000, all of the Company's marketable securities were scheduled
to mature in less than one year.

(3) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, at cost, less accumulated depreciation and
amortization, is summarized as follows as of May 31, 2000 and 1999:

<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Manufacturing equipment............................. $ 9,257,650 $ 7,330,453
Laboratory equipment................................ 1,330,425 1,330,425
Office furniture and equipment...................... 671,778 671,778
Computer equipment.................................. 187,160 166,617
Leasehold improvements.............................. 1,596,927 1,596,927
Capitalized engineering costs....................... 924,867 565,218
Land................................................ -- 1,817,702
----------- -----------
13,968,807 13,479,120
Less accumulated depreciation and amortization...... 11,513,106 10,723,555
----------- -----------
$ 2,455,701 $ 2,755,565
=========== ===========
</TABLE>

Depreciation and amortization expense amounted to $789,551, $479,595 and
$390,159 for the years ended May 31, 2000, 1999 and 1998, respectively.

30
<PAGE> 31

(4) SHAREHOLDERS' EQUITY

On June 19, 1985, the date of incorporation, the Company authorized
5,500,000 shares of $.10 par value common stock. On August 12, 1985, an
amendment to the Certificate of Incorporation was approved increasing the
authorized number of common shares to 8,750,000 and changing the par value to
$.01.

On June 7, 1988, the Company issued 413,020 additional shares of common
stock for net proceeds of $9,754,000. In conjunction with this transaction, all
outstanding shares of Series A and Series B convertible preferred stock were
converted to common stock and the Series B warrants were converted to common
stock warrants (note 7). In conjunction with this transaction, options for
47,115 common shares were exercised at $2.00 per share.

On March 6, 1989, the Company issued 175,525 additional shares of common
stock for net proceeds of $4,978,610.

On March 30, 1989, the Company issued 87,760 additional shares of common
stock for net proceeds of $2,489,234. Also on this date, the Company sold an
option to purchase 263,285 shares of common stock for net proceeds of
$7,443,118. The option exercise price was $.20 per share. On July 8, 1996, the
option was exercised and the Company issued all 263,285 shares of common stock.

On September 30, 1991, the Company issued 90,000 additional shares of
common stock for net proceeds of $504,000. These shares were issued as a result
of the exercise of common stock warrants (note 7).

On June 29, 1992, the Company issued 15,000 additional shares of common
stock for net proceeds of $107,040. These shares were issued as a result of the
exercise of common stock warrants (note 7).

On April 19, 1993, the Company issued 374,370 additional shares of common
stock for net proceeds of $5,667,454.

On May 5, 1994, the Company filed an amended and restated Certificate of
Incorporation effecting a five-for-one stock split of the Company's common
stock. All common share and per share amounts have been adjusted retroactively
to give effect to the stock split. Additionally, the amended and restated
Certificate of Incorporation effected an increase in the number of authorized
shares of common stock to 20,000,000 and authorized 5,000,000 shares of
preferred stock.

On May 26, 1994, the Company issued 2,500,000 additional shares of common
stock for net proceeds of $14,188,851. The proceeds were received by the Company
on June 3, 1994.

On June 20, 1994, the Company issued 375,000 additional shares of common
stock for net proceeds of $2,265,000.

During the year ended May 31, 1995, the Company issued 197,570 additional
shares of common stock upon the exercise of stock options for cash at $2.00 and
$7.14 per share for net proceeds of $446,539.

On August 9, 1995, the Company issued 2,925,000 additional shares of common
stock for net proceeds of $48,353,624.

On September 11, 1995, the Company issued 438,750 additional shares of
common stock for net proceeds of $7,364,575.

During the year ended May 31, 1996, the Company issued 193,880 additional
shares of common stock upon the exercise of stock options for cash at $2.00,
$6.38, and $7.14 per share for net proceeds of $445,731.

During the year ended May 31, 1997, the Company issued 506,220 additional
shares of common stock upon the exercise of stock options for cash at $0.20,
$2.00, and $7.14 per share for net proceeds of $589,927.

During the year ended May 31, 1998, the Company issued 5,000 additional
shares of common stock upon the exercise of stock options for cash at $7.14 per
share for net proceeds of $35,700.

31
<PAGE> 32

During the year ended May 31, 1999, the Company issued 142,500 additional
shares of common stock upon the exercise of warrants and stock options for cash
at $8.00 and $7.14 per share, respectively, for net proceeds of $1,124,950.

During the year ended May 31, 2000, the Company issued 2,500 additional
shares of common stock upon the exercise of stock options for cash at $13.38 per
share, for net proceeds of $33,450.

(5) INCOME TAXES

As a result of losses incurred to date, the Company has not provided for
income taxes. As of May 31, 2000, the Company had net operating loss
carryforwards for income tax purposes of approximately $78,200,000, which are
available to offset future taxable income, if any, through 2001 to 2015.
Deferred tax assets primarily resulted from net operating loss carryforwards and
differences in the recognition of research and development, compensatory stock
options, and depreciation expenses and the tax benefit from the exercise of
stock options. Additionally, the Company had approximately $2,200,000 of
research and experimentation tax credits and investment tax credits available to
reduce future income taxes through 2015.

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards.

The net deferred tax assets as of May 31, 2000 and 1999 are summarized as
follows:

<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................ $ 30,400,000 $ 26,900,000
Tax credit carryforwards........................ 2,200,000 1,900,000
Deferred compensation........................... 1,400,000 1,400,000
Other........................................... 800,000 200,000
------------ ------------
34,800,000 30,400,000
Valuation allowance............................... (34,800,000) (30,400,000)
------------ ------------
Net deferred tax asset....................... $ -- $ --
============ ============
</TABLE>

The net change in the valuation allowance during fiscal 2000, 1999 and 1998
was an increase of $4,400,000, $2,600,000 and $2,300,000, respectively.

(6) STOCK OPTION PLAN

The Company's Restated Nonqualified Stock Option Plan (the Employee Stock
Option Plan) lapsed on September 30, 1996. Following the termination of the
plan, all options outstanding prior to the plan termination may be exercised in
accordance with their terms. As of May 31, 2000, options to purchase a total of
108,000 shares of the Company's common stock at prices of $6.38 and $15.19 per
share were outstanding under the Employee Stock Option Plan. These options
expire in 2003 and 2004, ten years after the date of grant.

With an effective date of October 1, 1996, the Company established the
Northfield Laboratories Inc. 1996 Stock Option Plan (the "1996 Option Plan").
This plan provides for the granting of stock options to the Company's directors,
officers, key employees and consultants. Stock options to purchase a total of
500,000 shares of common stock are available under the 1996 Option Plan. During
the year ended May 31, 2000, the Company granted 15,000 options to purchase
shares of common stock at $12.88 per share, which was below the fair market
value of a share of common stock ($15.69) at the date of grant. These options
expire in 2010, ten years after the date of grant. During the year ended May 31,
1999, the Company granted 185,000 options to purchase shares of common stock at
prices of $10.81 and $13.38 per share, which was equal to the fair market value
of a share of common stock at the dates of grant. These options expire in 2009,
ten years after the date of grant.

32
<PAGE> 33

In September 1994, the Company adopted the Nonqualified Stock Option Plan
for Outside Directors (Directors Plan) which provides for the granting of
nonqualified stock options to directors of the Company who are neither employees
of nor consultants to the Company and who were not directors of the Company
prior to June 1, 1994. Stock options to purchase a total of 200,000 shares of
common stock are available under the Directors Plan. During the year ended May
31, 2000 and 1999, the Company granted no options to purchase shares of common
stock.

The Company applies the intrinsic value method of APB Opinion No. 25 and
related interpretations in accounting for options granted to directors,
officers, and key employees under the plans. Accordingly, compensation cost is
recorded on the date of grant only if the current market price of the underlying
stock exceeds the exercise price. Had compensation cost for the Company's stock
option plans been determined consistent with SFAS No. 123, the Company's net
loss and net loss per share would have been the pro forma amounts indicated
below:

<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net loss as reported.................... $(9,167,970) $(7,416,333) $(5,883,378)
Pro forma............................... (9,727,924) (8,175,218) (6,658,191)
Net loss per share as reported.......... (0.64) (0.53) (0.42)
Pro forma............................... (0.68) (0.58) (0.47)
=========== =========== ===========
</TABLE>

For purposes of calculating the compensation cost consistent with SFAS No.
123, the fair value of each option grant is estimated using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
grants in fiscal 2000, 1999 and 1998:

<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Expected volatility......................... 60.2% 58.5% 57.0%
Risk-free interest rate..................... 5.3 5.9 5.5
Dividend yield.............................. -- -- --
Expected lives.............................. 6.7 years 6.7 years 7.0 years
</TABLE>

Additional information on shares subject to options is as follows:

<TABLE>
<CAPTION>
2000 1999 1998
------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year...... 623,000 $11.41 455,500 $11.49 345,500 $10.91
Granted............................... 15,000 12.88 185,000 10.81 115,000 13.05
Exercised............................. 2,500 13.38 17,500 7.14 5,000 7.14
Canceled.............................. 70,000 9.76 -- -- -- --
------- ------ ------- ------ ------- ------
Outstanding at end of year............ 565,500 $11.64 623,000 $11.41 455,500 $11.49
======= ====== ======= ====== ======= ======
Options exercisable at year end....... 404,250 $11.66 338,000 $11.62 222,250 $11.59
======= ====== ======= ====== ======= ======
Weighted-average fair value of options
granted during the year............. $ 10.62 $ 6.86 $ 8.24
======= ======= =======
</TABLE>

33
<PAGE> 34

The following table summarizes information about stock options outstanding
at May 31, 2000:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- ---------------------------------------
RANGE OF WEIGHTED AVERAGE
EXERCISE NUMBER REMAINING WEIGHTED AVERAGE OPTIONS EXERCISABLE WEIGHTED AVERAGE
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE AT MAY 31, 2000 EXERCISE PRICE
-------- ----------- ---------------- ---------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
$ 6.38-10.81......... 358,000 7.27 $10.37 251,750 $10.20
11.44-15.19......... 207,500 6.28 13.86 152,500 14.06
===================== ======= ==== ====== ======= ======
</TABLE>

(7) STOCK WARRANTS

In connection with demand notes dated September 23, 1986, the Company
issued warrants to purchase a total of 90,000 shares of common stock at $5.60
per share. The warrants were exercised on September 30, 1991 (note 4).

In connection with a demand note dated July 2, 1987, the Company issued
warrants to purchase a total of 3,000 shares of Series B convertible preferred
stock at $35.68 per share. On June 7, 1988, these warrants were converted to
common stock warrants to purchase 15,000 shares of common stock at $7.14 per
share. The warrants were exercised on June 29, 1992 (note 4).

On March 13, 1993, the Company granted warrants to purchase 125,000 shares
of common stock of the Company at $13.00 per share. These warrants were canceled
on August 3, 1994 and were reissued at $8.00 per share. These warrants were
exercised on May 13, 1999 (note 4).

(8) LEASES

Rent expense amounted to $747,055, $499,491 and $444,330 for the years
ended May 31, 2000, 1999 and 1998, respectively.

The Company has renewed the lease for its corporate facility which now
expires in February 2006. The terms of the renewed lease are substantially the
same as the original lease. The Company has the option to cancel the lease after
February 15, 2002, upon giving written notice at least six months prior to
termination, as well as paying a penalty equal to six months rent of $144,375 at
February 15, 2002.

The Company has renewed the lease for its research and manufacturing
facility which now expires in June 2003. The terms of the renewed lease are
substantially the same as the original lease. The lease is secured by a letter
of credit, which is collateralized by a $49,200 certificate of deposit as of May
31, 2000.

At May 31, 2000, future minimum lease payments under the operating leases
are as follows:

<TABLE>
<CAPTION>
YEARS ENDING
MAY 31, AMOUNT
------------ ------
<S> <C>
2001........................................................ $ 546,736
2002........................................................ 554,986
2003........................................................ 578,588
2004........................................................ 588,234
2005........................................................ 382,957
2006 and thereafter......................................... 226,188
----------
$2,878,689
==========
</TABLE>

(9) EMPLOYEE BENEFIT PLAN

Effective January 1, 1994, the Company established a defined contribution
401(k) savings plan covering each employee of the Company satisfying certain
minimum length of service requirements. Matching contributions to the accounts
of plan participants are made by the Company in an amount equal to 33% of each
plan participant's before-tax contribution, subject to certain maximum
contribution limitations, and are made at the discretion of the Company.
Expenses incurred under this plan for Company contributions for the years ended
May 31, 2000, 1999 and 1998 amounted to $129,496, $118,167 and $98,567,
respectively.

34
<PAGE> 35

EXHIBITS

<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
3.1 Restated Certificate of Incorporation of the Registrant
(incorporated herein by reference to Exhibit 3.2 to the
Registrant's Registration Statement on Form S-1, filed with
the Securities and Exchange Commission on March 25, 1994,
File No. 33-76856 (the "Registration Statement"))
3.2 Certificate of Amendment to Certificate of Incorporation of
the Registrant (incorporated herein by reference to Exhibit
3.1.1 to the Registrant's Quarterly Report on Form 10-Q for
the Registrant's quarter ended November 30, 1999)
3.3 Restated Bylaws of the Registrant (incorporated herein by
reference to Exhibit 3.4 to the Registration Statement)
10.1 Office Sublease dated as of April 20, 1993 between the
Registrant and First Illinois Bank of Evanston, N.A., as
Trustee (incorporated herein by reference to Exhibit 10.1 to
the Registration Statement)
10.2 Amendment to Lease dated as of January 7, 1998 between the
Registrant and First Illinois Bank of Evanston, N.A.
(incorporated herein by reference to Exhibit 10.1.1 to the
Registrant's Quarterly Report on Form 10-Q for the
Registrant's quarter ended February 28, 1998)
10.3 Lease dated as of June 8, 1989 between the Registrant and
OTR (incorporated by reference to Exhibit 10.2 to the
Registration Statement)
10.4 Amendment to Lease dated as of May 6, 1998 between the
Registrant and OTR (incorporated herein by reference to
Exhibit 10.11 to the Registrant's Annual Report on Form 10-K
for the Registrant's fiscal year ended May 31, 1998)
10.5 Third Amendment to Lease dated as of September 16, 1999
between the Registrant and OTR (incorporated be reference to
Exhibit 10.4.1 to the Registrant's Quarterly Report on Form
10-Q for the Registrant's quarter ended November 30, 1999)
10.6 License Agreement dated as of March 6, 1989 between the
Registrant and KabiVitrum AB (predecessor of Pharmacia &
Upjohn Inc.) (incorporated herein by reference to Exhibit
10.6 to the Registration Statement)
10.7 License Agreement dated as of July 20, 1990 between the
Registrant and Eriphyle BV (incorporated herein by reference
to Exhibit 10.7 to the Registration Statement)
10.8* Northfield Laboratories Inc. 401(K) Plan (incorporated
herein by reference to Exhibit 10.14 to the Registration
Statement)
10.9* Northfield Laboratories Inc. Nonqualified Stock Option Plan
for Outside Directors (incorporated herein by reference to
Exhibit 10.15 to the Registrant's Annual Report on Form 10-K
for the Registrant's fiscal year ended May 31, 1994)
10.10* Northfield Laboratories Inc. 1996 Stock Option Plan
(incorporated herein by reference to Exhibit 10.5.1 to the
Registrant's Quarterly Report on Form 10-Q for the
Registrant's quarter ended November 30, 1997)
10.11* Northfield Laboratories Inc. 1999 Stock Option Plan
(incorporated herein by reference to Exhibit 10.10 to the
Registrant's Annual Report on Form 10-K for the Registrant's
fiscal year ended May 31, 1999)
10.12* Employment Agreement dated as of January 1, 1999 between the
Registrant and Richard E. DeWoskin (incorporated herein by
reference to Exhibit 10.11 to the Registrant's Annual Report
on Form 10-K for the Registrant's fiscal year ended May 31,
1999)
10.13* Employment Agreement dated as of January 1, 1999 between the
Registrant and Steven A. Gould, M.D. (incorporated herein by
reference to Exhibit 10.12 to the Registrant's Annual Report
on Form 10-K for the Registrant's fiscal year ended May 31,
1999)
</TABLE>

35
<PAGE> 36

<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.14* Employment Agreement dated as of January 1, 1999 between the
Registrant and Jack J. Kogut (incorporated herein by
reference to Exhibit 10.13 to the Registrant's Annual Report
on Form 10-K for the Registrant's fiscal year ended May 31,
1999)
23.1 Consent of KPMG LLP
</TABLE>

-------------------------
* Indicates a management contract or compensatory plan or arrangement required
to be filed as an exhibit to Form 10-K pursuant to Item 14(c).

36
<PAGE> 37

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on this August 15,
2000.

NORTHFIELD LABORATORIES INC.

By: /s/ RICHARD E. DEWOSKIN
------------------------------------
Richard E. DeWoskin
Chairman of the Board and
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
in the capacities indicated on August 15, 2000.

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>

/s/ RICHARD E. DEWOSKIN
-------------------------------------------- Chairman of the Board and Chief Executive
Richard E. DeWoskin Officer (principal executive officer)

/s/ STEVEN A. GOULD, M.D.
--------------------------------------------
Steven A. Gould President and Director

/s/ JACK J. KOGUT Vice President - Finance, Secretary and
-------------------------------------------- Treasurer (principal financial and
Jack J. Kogut accounting officer)

/s/ GERALD S. MOSS, M.D.
--------------------------------------------
Gerald S. Moss, M.D. Director

/s/ BRUCE S. CHELBERG
--------------------------------------------
Bruce S. Chelberg Director

/s/ JACK OLSHANSKY
--------------------------------------------
Jack Olshansky Director

/s/ DAVID A. SAVNER
--------------------------------------------
David A. Savner Director
</TABLE>

37
<PAGE> 38
INDEX TO EXHIBITS

NUMBER DESCRIPTION PAGE NO.
<S> <C> <C>
3.1 Restated Certificate of Incorporation of the Registrant --
(incorporated herein by reference to Exhibit 3.2 to the
Registrant's Registration Statement on Form S-1, filed
with the Securities and Exchange Commission on March
25, 1994, File No. 33-76856 (the "Registration
Statement"))

3.2 Certificate of Amendment to Certificate of Incorporation --
of the Registrant (incorporated be reference to Exhibit 3.1.1
to the Registrant's Quarterly Report on Form 10-Q for the
Registrant's quarter ended November 30, 1999)

3.3 Restated Bylaws of the Registrant (incorporated herein --
by reference to Exhibit 3.4 to the Registration Statement)

10.1 Office Sublease dated as of April 20, 1993 between the
Registrant and First Illinois Bank of
Evanston, N.A., a Trustee (incorporated
herein by reference to Exhibit 10 to the
Registration Statement)

10.2 Amendment to Lease dated as of January 7, 1999 --
Between the Registrant and First Illinois Bank of
Evanston, N.A. (incorporated herein by reference
to Exhibit 10.1.1 to the Registrant's Quarterly
Report on Form 10-Q for the Registrant's
quarter ended February 28, 1998)

10.3 Lease dated as of June 8, 1989 between the Registrant --
And OTR (incorporated by reference to Exhibit 10.2
the Registration Statement)

10.4 Amendment to Lease dated as of May 6, 1998 between --
the Registrant and OTR (incorporated by reference to Exhibit
10.11 to the Registrant's Annual Report on Form 10-K for the
Registrant's fiscal year ended
May 31, 1998)

10.5 Third Amendment to Lease dated as of September 16, 1999 --
between the Registrant and OTR (incorporated be reference
to Exhibit 10.4.1 to the Registrant's Quarterly Report
on Form 10-Q for the Registrant's quarter ended
November 30, 1999)

10.6 License Agreement dated as of March 6, 1989 between the --
Registrant and KabiVitrum AB (predecessor or Pharmacia
& Upjohn Inc.) (incorporated herein by reference to
Exhibit 10.6 to the Registration Statement)

10.7 License Agreement dated as of July 20, 1990 between the --
Registrant and Eriphyle BV (incorporated herein by
reference to Exhibit 10.7 to the Registration Statement

10.8* Northfield Laboratories Inc. 401(K) Plan (incorporate --
herein by reference to Exhibit 10.14 to the Registration Statement)
</TABLE>

<PAGE> 39

NUMBER DESCRIPTION PAGE NO.
<S> <C> <C>
10.9* Northfield Laboratories Inc. Nonqualified Stock Option --
Plan for Outside Directors (incorporated herein by Reference to
Exhibit 10.15 to the Registrant's Annual Report on Form 10-K
for the Registrant's fiscal year Ended May 31, 1994)

10.10* Northfield Laboratories Inc. 1996 Stock Option Plan
(incorporated herein by reference to Exhibit 10.5.1 to
the Registrant's Quarterly Report on Form 10-Q for the
Registrant's quarter ended November 30, 1997)

10.11* Northfield Laboratories Inc. 1999 Stock Option Plan
(incorporated herein by reference to Exhibit 10.10 to
the Registrant's Annual Report on Form 10-K for the
Registrant's fiscal year ended May 31, 1999) --

10.12* Employment Agreement dated as of January 1, 1999, --
between the Registrant and Richard E. DeWoskin
(incorporated herein by reference to Exhibit 10.11
to the Registrant's Annual Report on Form 10-K
for the Registrant's fiscal year ended May 31, 1999)

10.13* Employment Agreement dated as of January 1, 1999, --
between the Registrant and Steven A. Gould, M.D.
(incorporated herein by reference to Exhibit 10.12
to the Registrant's Annual Report on Form 10-K
for the Registrant's fiscal year ended May 31, 1999)

10.14* Employment Agreement dated as of January 1, 1999, --
between the Registrant and Jack J. Kogut
(incorporated herein by reference to Exhibit 10.13
to the Registrant's Annual Report on Form 10-K
for the Registrant's fiscal year ended May 31, 1999)

23.1 Consent of KPMG LLP [1]
</TABLE>

* Indicates a management contract or compensatory plan or arrangement
required to be filed as an exhibit to Form 10-K pursuant to Item
14(c).