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===============================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2001

                                       OR

              [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the transition period from_____ to ______

                           Commission File No. 0-19153

                            NEXELL THERAPEUTICS INC.
             (Exact name of Registrant as specified in its charter)

                 Delaware                                         06-1192468
      (State or other jurisdiction of                         (I.R.S. Employer
      incorporation or organization)                         Identification No.)

        9 Parker, Irvine, California                               92618
   (Address of principal executive offices)                      (Zip Code)
              Registrant's telephone number, including area code:

                                 (949) 470-9011
           Securities registered pursuant to Section 12(b) of the Act:

                                      None

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

                          Common Stock, $.001 par value
                       Common Stock Subscription Warrants

     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes X       No ___
    -

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

     The aggregate market value of Common Stock held by non-affiliates of the
Registrant was approximately $18,662,000 on March 18, 2002 based on the closing
price of the Common Stock on such date. For purposes of this calculation, shares
owned by officers, directors, and 5% stockholders known to the Registrant are
deemed to be owned by affiliates.

     The aggregate number of outstanding shares of Common Stock, $.001 par
value, of the Registrant was 20,940,509 on March 18, 2002.
===============================================================================

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DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Registrant's definitive proxy statement (the "2002 Proxy
Statement") to be filed pursuant to Regulation 14A not later than 120 days after
the end of the fiscal year (April 30, 2002) are incorporated by reference in
Part III or if the 2002 Proxy Statement is not filed within such time frame,
such information will be included in an amendment to this Form 10-K filed within
such time frame.

                                     PART I

ITEM 1.  BUSINESS

DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS

     This Report on Form 10-K contains certain statements that are "Forward
Looking Statements" within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Those statements include, among other things, the discussions of the
Company's business strategy and expectations contained in "Item 1 - Business"
and "Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations." Although the Company believes that the expectations
reflected in Forward Looking Statements are reasonable, management can give no
assurance that such expectations will prove to be correct. Generally, these
statements relate to business plans or strategies, projected or anticipated
benefits or other consequences of such plans or strategies, or projections
involving anticipated revenues, expenses, earnings, levels of capital
expenditures, liquidity or indebtedness or other aspects of operating results or
financial position. All phases of the operations of the Company are subject to a
number of uncertainties, risks and other influences (including the lack of
significant revenues, timely commencement and success of the Company's clinical
trials and other research endeavors, delays in receiving FDA or other regulatory
approvals, the development of competing therapies and/or technologies, the terms
of any future strategic alliances, the need for additional capital and the other
risk factors identified herein), many of which are outside the control of the
Company and any one of which, or a combination of which, could materially affect
the results of the Company's operations and whether the Forward Looking
Statements made by the Company ultimately prove to be accurate.

GENERAL

     Nexell Therapeutics Inc. ("Nexell" or the "Company") is a Delaware
corporation with operations in Irvine, California. Nexell's principal
subsidiary, Nexell of California, Inc. ("NCI") is an Irvine, California based
biopharmaceutical company dedicated to the development of cell therapy products
for the treatment of genetic blood disorders, autoimmune diseases, cancer and
regenerative medicine applications. Nexell's previously commercialized products
are distributed and sold by Baxter International Inc. Also, the Company
previously operated two other biotechnology subsidiaries engaged in the
discovery and development of biopharmaceuticals, Innovir Laboratories, Inc.
("Innovir") and Vimrx Genomics, Inc. ("VGI"), both of which have ceased active
operations.

     All references to common share and per share information have been adjusted
to give retroactive effect to a one-for-four reverse stock split effected by the
Company on June 15, 2000.

BUSINESS OF NCI

     NCI is engaged in the development, manufacture and commercialization of
proprietary cell-based products. The Company intends to develop and market
proprietary cellular drugs and establish a business channel to provide
patient-specific therapeutics. Candidate products address certain
life-threatening genetic disorders, autoimmune diseases and cancer.

     The Company's lead candidate product in Phase III clinical trials is a
proprietary cellular product comprised of CD34+ hematopoietic stem cells (HSC)
for treatment of chronic granulomatous disease (CGD). CGD is one of a group of
inherited disorders affecting neutrophil function. NCI has received Orphan Drug
and Fast Track designation for this product from the FDA. The Orphan-Drug
designation, under the U. S. Federal Food, Drug and Cosmetic Act, provides
enhanced financial incentives for the development of drugs for diseases or
disorders for which the potential patient population is under 200,000. Fast
Track designation is a formal mechanism to interact with the FDA. The benefits
of Fast Track include scheduled meetings to seek FDA input into development
plans, the option of submitting a New Drug Application in sections rather than
all components simultaneously, and the option of requesting evaluation of
studies using surrogate endpoints. The Company plans to extend this technology
to treat other blood disorders that result from a genetic dysfunction of
hematopoietic cells, such as hemoglobinopathies, granulocyte and macrophage
disorders, storage diseases and combined immunodeficiency diseases.

     NCI is also developing dendritic cell vaccines for the treatment of certain
cancers. In this program, NCI is applying proprietary technology to isolate
dendritic cell precursors, activate them ex vivo and transform them into mature
dendritic cells suitable for reinfusion into the patient. The initial candidate
vaccine is targeting colon cancer. NCI is in pre-IND discussions with the FDA
for this candidate product, which will be manufactured from the patient's own
cells.

     Finally, NCI has a preclinical development program for a companion to the
HSC stem cell product that is intended for stabilization and maintenance of
donor cells. This stabilization may be necessary in some patients after initial
treatment with the HSC

                                      2

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product, and may require additional donor cells that can cause severe side
effects (graft-versus- host disease or GVHD). NCI's candidate product is
designed to reduce the risk of GVHD during the maintenance phase of therapy,
and thereby expand HSC therapy to patients who might otherwise not be
candidates for this treatment approach.

     Historically, NCI was engaged in the development, manufacture, marketing
and distribution of tools used for ex vivo manipulation of cells, so-called
"Toolbox products". These products include cell selection systems, comprised of
specialized instruments, biologicals, reagents, sterile plastic sets and related
products used in ex vivo stem cell research and therapies. In 2001, the Company
transferred to Baxter Healthcare Corporation all sales, marketing and
distribution rights to the Isolex/R/ Magnetic Cell Separation System and related
Toolbox products for sale to the research and clinical market, but has retained
exclusive rights to the technology for the development of cellular therapeutic
products. In addition to the Isolex/R/ System, NCI Toolbox products marketed by
Baxter include the MaxSep/R/ System, a negative selection system, and various
cell storage and handling products that are typically utilized in ex vivo cell
processing.

RELATIONSHIP WITH BAXTER HEALTHCARE CORPORATION

     OVERVIEW

     The Company's significant operating activities began with its December 1997
acquisition of the business of the Immunotherapy Division (the "Division") of
the Biotech Business Group of Baxter Healthcare Corporation ("Baxter"). In
connection therewith, the Company entered into several agreements with Baxter by
which Baxter agreed to perform certain activities related to the Division. In
1999, the parties entered into additional agreements to restructure Baxter's
ownership interest in the Company and NCI and to modify their business
arrangements. Pursuant to such agreements, during the year ended December 31,
2001, NCI paid Baxter the aggregate amount of $2,711,000. In 2001, the parties
entered into a series of agreements transferring sales, marketing and regulatory
activities associated with the Toolbox products to Baxter.

DECEMBER 1997 - ACQUISITION OF THE IMMUNOTHERAPY DIVISION

     In December 1997, the Company acquired substantially all of the assets of
the Division. In exchange for these assets, Baxter received (i) 2,750,000 shares
of Nexell Common Stock ("Common Stock"), (ii) 66,304 shares of the Company's
Series A Convertible Preferred Stock, convertible into Common Stock at a
conversion price of $22.00 per share, (iii) 19.5% of the outstanding common
stock of NCI, (iv) a warrant to purchase an additional 6% of the then
outstanding common stock of NCI for an aggregate $6,000,000, and (v) the right
to receive milestone payments of up to $21,000,000 from NCI upon the occurrence
of certain FDA and European regulatory approvals. To date none of these
regulatory approvals have occurred and the Company believes that these are not
likely to be achieved. As the amount of the contingent consideration, if any,
was not determinable nor was the achievement of the approvals considered
probable at the date of the acquisition, it was excluded from the determination
of the cost of the acquisition. In addition, Baxter purchased $30,000,000
principal amount of NCI's 6 1/2% convertible subordinated debentures. Many of
these terms have been renegotiated as set forth below.

     Marketing, Sales and Distribution Agreement ("Distribution Agreement"). NCI
     -----------------------------------------------------------------------
appointed Baxter as its exclusive worldwide marketing, sales and distribution
entity for NCI's Isolex/R/ and MaxSep/R/ products and reagent kits, with the
right of first offer with respect to acquiring such rights for NCI's future
products. NCI agreed to supply to Baxter products and kits at a discount to
NCI's suggested retail price. The Distribution Agreement was, by its terms, to
expire December 17, 2008. However, as described below, as of November 30, 1999,
the parties terminated the agreement.

     Services Agreement. Baxter agreed to provide the following services as
     -------------------
necessary to meet NCI's requirements: access to Baxter's Information Management
Center; quality and compliance training; access to the Baxter Institute for
Training and Development; and access to specific accounts through Baxter's
General Ledger and Fixed Assets Systems. NCI agreed to pay only for those
services requested. In addition, Baxter agreed to manufacture, warehouse and
manage inventory for certain clinical codes under protocols in accordance with
the terms of the Hardware and Disposables Supply Agreement and the Hardware and
Disposables Manufacturing Agreement and, at its option, to manufacture certain
prototype products for the research market at a cost to NCI of time and
materials plus 20%. Baxter's obligation to provide the services was extended
until June 30, 1999, at which time (as described below) the Services Agreement
was terminated.

     Hardware and Disposables Manufacturing Agreement. Baxter agreed to
     -------------------------------------------------
manufacture on a non-exclusive basis for NCI certain Isolex/R/ and Maxsep/R/
products and components and to complete assembly of Isolex/R/ and Maxsep/R/
instruments and disposable sets. NCI agreed to pay Baxter's Fully Loaded Cost
for the products and components for the first three years, and Baxter's Fully
Loaded Cost plus 15% for the remaining years. Baxter's "Fully Loaded Cost" means
the cost to Baxter of manufacturing the items, including any royalties payable
by Baxter in connection with such manufacturing. The Agreement was, by its
terms, to expire December 17, 2008. However, as described below, as of August
31, 2001, the parties terminated the agreement.

     Antibody Manufacturing and Storage Agreement. Baxter agreed to manufacture
     ---------------------------------------------
on a non-exclusive basis for NCI certain antibodies, reagents and reagent kits
used in connection with the Isolex/R/ and Maxsep/R/ products. NCI agreed to pay
Baxter's Fully Loaded Cost for the antibodies, reagents and reagent kits for the
first three years, and Baxter's Fully Loaded Cost plus 15% for the remaining
years. The Agreement was, by its terms, to expire December 17, 2002. However, as
described below, as of August 31,

                                      3

<PAGE>

2001, the parties terminated the agreement.

     Hardware and Disposables Supply Agreement. Baxter agreed to supply to NCI
     ------------------------------------------
certain of Baxter's products and components in conjunction with the manufacture,
use and sale of Isolex/R/ and Maxsep/R/ products. Baxter granted to NCI the
exclusive worldwide royalty-free right to distribute such products and
components in connection with ex vivo cell processing, subject to certain
exceptions. NCI agreed to pay Baxter's Fully Loaded Cost for the products and
components for the first three years, Baxter's Fully Loaded Cost plus 15% for
the next two years and Baxter's Fully Loaded Cost plus 30% for the remaining
years. The Agreement was, by its terms, to expire December 17, 2008. However, as
described below, as of August 31, 2001, the parties terminated the agreement.

     License Agreements. Pursuant to four separate sublicense agreements, Baxter
     -------------------
sublicensed to NCI its rights under the following licenses: license from Baxter
and Becton, Dickinson & Company ("Becton Dickinson") to certain CD34+ cell
population and related antibody and method patents (the "First BD License");
license from Becton Dickinson to certain B cell antibodies (the "Second BD
License"); license from Chiron Therapeutics to certain breast cancer antibodies
(the "Chiron License"); and license from Professor Bernd Doerken to certain B
Cell antibodies (the "Doerken License"). In addition, pursuant to a royalty
assignment and agreement, Baxter assigned to NCI its rights to receive royalties
under three sublicenses Baxter had previously granted under the First BD
License. According to the terms of NCI's sublicense under the Chiron License,
Baxter's rights thereunder were assigned to NCI effective November 30, 1999. As
of May 22, 2001, the Chiron License was terminated. As of August 31, 2001, the
terms of NCI's sublicenses under the First BD License, the Second BD License and
the Doerken License were amended to grant Baxter sales, marketing and
distribution rights under these sublicense agreements in order to be appointed
as Nexell's distributor of the Toolbox Products. In addition, Baxter and NCI
entered into a Distribution and License Agreement granting Baxter rights to
certain Toolbox related patents and trademarks in order to manufacture, sell and
distribute the Toolbox Products. Nexell will receive a two percent royalty from
Baxter on net sales of Toolbox Products.


     Non-Competition and Confidentiality Agreement. Each party agreed not to,
     ----------------------------------------------
directly or indirectly, engage in, render advisory services to an entity that
engages in, or be a joint venturer, partner, licensor or shareholder of more
than 2% of any entity that engages in, the marketing, sale or distribution of
any product that directly competes with certain products of the other. In the
case of Baxter's products, such protected products are for use in on-line
separation of human blood into its constituents. In the case of the Company's
and NCI's products, such protected products are for use in ex vivo cell
selection or genetic alteration and/or expansion in combination with such
selection. Baxter's non-competition obligations expire on the later of December
17, 2004, one year after the date on which Baxter does not own 10% of NCI's
common stock nor has a seat on NCI's board of directors, or the termination of
the Marketing, Sales and Distribution Agreement. The Company's obligations
expire on the later of December 17, 2004, or one year after the date on which
the Company does not have voting control of NCI nor has a seat on NCI's board of
directors. NCI's obligations expire on the later of December 17, 2010, or the
termination of the Hardware and Disposables Supply Agreement.

     The Company and Baxter are also parties to a Registration Rights Agreement
dated December 17, 1997 whereby the Company has granted certain demand and
piggyback rights to Baxter.

     The Company, certain current and former directors of the Company, and
Baxter are also parties to a Voting Agreement, dated December 17, 1997, pursuant
to which all parties agreed to vote all of their Common Stock in favor of one
Baxter-nominated director. In addition, Baxter has agreed to vote all of its
Common Stock in favor of the nominees for director recommended by the Company's
nominating committee, or, if there is no such committee, by a majority of the
Board of Directors. The Voting Agreement will remain in effect as long as Baxter
continues to own at least 3% of the Common Stock. Baxter's obligations under the
Voting Agreement will terminate if the "Threshold" (as set forth in a Side
Letter Agreement dated November 24, 1999 between the parties described below) is
met.

     JANUARY 1999 THROUGH JUNE 1999 - TRANSFERS OF OWNERSHIP AND ASSETS

     In early 1999, the Company and Baxter agreed that it would be in the best
interests of both parties to (i) restructure Baxter's ownership interests in the
Company and NCI, and (ii) modify certain business arrangements among the
Company, NCI and Baxter. In January 1999, the Company and Baxter agreed that the
Company would purchase Baxter's interest in NCI (other than Baxter's right to
milestone payments), resulting in the Company owning 100% of NCI. In exchange
for the common stock, warrant and convertible debentures of NCI then held by
Baxter, Baxter received (i) 750,000 shares of Common Stock, (ii) a warrant to
purchase an additional 1,300,000 shares of Common Stock at an exercise price of
$4.60 per share, (iii) a change in the conversion price of the 70,282 shares of
Series A Convertible Preferred Stock then held by Baxter (an increase from
66,304 shares resulting from dividends payable in kind) from $22.00 to $11.00
per share, and (iv) approximately $33,000,000 principal amount of the Company's
6 1/2% convertible subordinated debentures (replacing the $30,000,000 principal
amount of NCI's 6 1/2% convertible subordinated debentures, plus accrued
interest).

     Following the closing on May 28, 1999 (which occurred after stockholder
approval of the transaction at the Company's May 25, 1999 annual meeting of
stockholders), NCI became a wholly owned subsidiary of the Company. As of
December 31, 2001, Baxter owns approximately 17% of the outstanding Common
Stock without giving effect to the possible conversion or exercise by Baxter or
others of additional securities they own.

     In June 1999, the Company and Baxter entered into a series of agreements
dated June 30, 1999 pursuant to which, among other things, Baxter transferred
the sales, marketing and distribution responsibilities for Isolex/R/ and the
Company's other cell therapy products to the Company. Pursuant to an asset
transfer agreement, the Company agreed to purchase from Baxter the finished
goods inventory, copies of customer lists and accounting books and records,
hardware and related assets leased or owned, and agreements with customers and
service contracts, all relating to the products previously marketed and
distributed by Baxter under the Distribution Agreement. In addition, certain
Baxter personnel transferred to the Company and became part of the Company's
worldwide sales force. The purchase price for the transferred assets was equal
to the price Baxter as a distributor had originally paid to NCI for the finished
goods inventory plus the net book value of all other transferred assets. The
closing for the transfer of assets in the United

                                      4

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States and Canada occurred on June 30, 1999 and in the rest of the world
occurred on November 30, 1999. For the year ended December 31, 1999, the
Company's cost of repurchasing the inventory in the United States was
approximately $1,000,000 and in the rest of the world was approximately
$2,000,000. Additionally, the Company purchased approximately $1,200,000 in
devices classified as fixed assets.

     In connection with the asset transfer, the Company and Baxter also entered
into a royalty agreement pursuant to which Baxter would receive a royalty of 5%
on the Company's net sales of Isolex/R/ and related toolbox products from
January 1, 2001 until December 17, 2008. (Baxter was also entitled to a royalty
of 5% on the Company's net sales of the foregoing products in excess of
$50,000,000 in the year 2000, which did not occur). Effective August 31, 2001,
NCI transferred distribution of the Toolbox Products to Baxter and will
therefore no longer be obligated to pay royalties to Baxter on Toolbox Products
sold by NCI. In addition, Baxter extended a $20,000,000 line of credit to the
Company pursuant to a credit agreement, which agreement terminated by its terms
without being drawn on, upon the closing of the November 1999 financing
described below.

     As of June 30, 1999 and November 30, 1999, respectively, the Services
Agreement and Distribution Agreement were terminated. The Company had direct
control of sales of its Isolex/R/ and related Toolbox products through its
field sales group in the United States and its European headquarters in
Belgium. For regions outside the United States, Canada and Western Europe, NCI
and its European subsidiary entered into arrangements with third party
distributors for distribution of the Isolex/R/ and related Toolbox products.
NCI and its European subsidiary also entered into several interim services
agreements with Baxter pursuant to which Baxter continued to provide services
in Europe and certain other regions relating to warehouse and shipping,
information systems, general infrastructure and administrative support, quality
assurance and regulatory affairs.

     Baxter also agreed to continue to provide worldwide services relating to
the installation, repair and maintenance of NCI's cell therapy instruments
pursuant to the terms of several instrument services agreements dated June 30,
1999 and November 30, 1999 covering various regions of the world where such
products are sold. The instrument services agreements expired upon termination
of the Manufacturing Agreement.

     Notwithstanding the termination of the Distribution Agreement, the parties
agreed that Baxter's obligations with respect to the delivery of Isolex/R/ and
other related Toolbox products under the Manufacturing Agreement, Antibody
Agreement and Supply Agreement remained in full force and effect.

     The assets purchased from Baxter in conjunction with the termination of
the supply and manufacturing agreements were accounted for as an asset purchase
for cash. The types of items purchased included saleable inventory, Isolex/R/
devices that were located in customer sites both in the United States and in
Europe and minor amounts of promotional materials. The purchase price for the
inventory was equal to the price Baxter as a distributor had originally paid to
the Company. The Isolex/R/ devices were purchased and recorded at their net
book value, which the Company believes approximated the fair market value.

NOVEMBER 1999 - PRIVATE PLACEMENT FINANCING

     On November 24, 1999, the Company closed a private placement of its
securities to certain institutional investors pursuant to the terms of a
securities agreement (the "Securities Agreement"). The private placement
consisted of the issuance of (i) 63,000 shares of the Company's newly
designated Series B Cumulative Convertible Preferred Stock ("Series B Preferred
Stock"), convertible at the option of the holder at any time until November 24,
2006 (at which time the conversion is automatic) into shares of Common Stock at
$11.00 per share, subject to anti-dilution adjustment in certain
circumstances--the conversion price is $10.218 at December 31, 2001; (ii) one
right per share of Series B Preferred Stock to put such share to Baxter
International Inc. ("Baxter International"), an affiliate of Baxter, from
November 24, 2002 until November 24, 2004 unless earlier terminated (the "Put
Rights"); (iii) warrants to purchase up to 750,000 shares of Common Stock at a
purchase price of $12.00 per share, subject to anti-dilution adjustment in
certain circumstances - the exercise price is $11.129 at December 31, 2001,
exercisable for five years; and (iv) a class of performance warrants to
purchase shares of Common Stock at a purchase price of $.04 per share, subject
to anti-dilution adjustment in certain circumstances, exercisable after five
years. The number of performance warrants that may be exercised adjust based
upon the closing price of the Common Stock at the date of exercise, ranging
from zero (if the closing price exceeds $20.00 per share) to 1,500,000 shares
(if the closing price is equal to or less than $12.00 per share). Net proceeds
to the Company from the private placement were approximately $60,400,000. The
Company used a portion of the proceeds to retire all of the approximately
$33,900,000 of the Company's convertible debentures held by Baxter, and used
the remainder of the proceeds for general corporate purposes.

     On November 24, 1999, the Company and Baxter International entered into an
agreement (the "Side Letter Agreement") to provide that the conversion price for
the Series B Preferred Stock purchased by Baxter International in the event the
Put Rights are exercised (the "Put Series B Preferred Stock") would be adjusted
on November 24, 2004 (or earlier, if 100% of the Series B Preferred Stock is put
to Baxter International) but only in the event that an amount in excess of
$15,000,000 is purchased by Baxter International, as follows: (i) for the Put
Series B Preferred Stock in an amount up to $53,000,000 (computed on the basis
of the liquidation preference for such stock) (the "Threshold"), the conversion
price would be adjusted to equal the closing price of the Common Stock on the
respective date or dates such Series B Preferred Stock was purchased by Baxter
International (including purchases below the $15,000,000 amount), less a 5%
discount (subject to a floor price equal to the closing price of the Common
Stock on November 24, 1999, unless shareholder approval is obtained if required
by the rules of the Nasdaq Stock Market); (ii) for the Put Series B Preferred
Stock in an amount in excess of the Threshold, then the conversion price would
be adjusted to equal the closing price of the Common Stock on November 24, 1999.
The closing price of the Common Stock on November 24, 1999 was $5.12 per
share. The dollar amount of the Put Series B Preferred Stock would be deemed to
accrue

                                      5

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interest (payable in kind in shares of Series B Preferred Stock) from the
respective date or dates the Series B Preferred Stock is put to Baxter
International to the date the adjusted conversion price is determined, at a rate
equal to the applicable three-year U.S. Treasury Note rate at the date of each
such purchase, plus 100 basis points. In the event that the foregoing conversion
adjustments would not be permissible under Delaware law, the Company has agreed
to take such action as is appropriate to exchange the Put Series B Preferred
Stock for an equal number of shares of a new series of preferred stock of the
Company, having the identical terms, conditions, preferences and rights of the
Series B Preferred Stock, except that it would bear the conversion price
adjustment described above.

     It is likely that the holders of the Series B Preferred Stock will put
their stock to Baxter, in which case the conversion price of the Series B
Preferred Stock will be adjusted as described in the Side Letter Agreement.
Triggering of the provisions of the Side Letter Agreement would mean that, in
Baxter International's hands, the Series B Preferred Stock would convert into
substantially more shares of Common Stock than at present, resulting in
significant dilution to the holders of Common Stock as well as potentially being
deemed to effect a change in control of the Company with Baxter owning
substantially in excess of a majority of the Common Stock on a fully diluted
basis. Under the Side Letter Agreement, if shareholder approval is required, the
Company has agreed to use reasonable best efforts to accomplish this.

     As noted in the Company's March 28, 2002 press release the Company's cash
and cash equivalents are insufficient to fund projected operating expenses
through the current fiscal year and based on the Company's current projections
will not fund operations beyond June 2002. An effort to raise funds through a
private placement of equity securities was terminated in the first quarter of
2002 principally so that the Company could focus efforts on potential business
combinations. It is likely that any such transactions would result in
substantial dilution to common shareholders. In addition, in order to complete
such transactions, it may be necessary to simplify the Company's capital
structure by converting its existing two series of preferred stock to common
stock, thereby eliminating the liquidation preference of such preferred stock.
In such an event it is possible that in connection with the conversion of the
Series B Preferred Stock pursuant to the Side Letter Agreement or otherwise,
Baxter could own substantially in excess of a majority of the outstanding common
stock.

     The Company and Baxter International also entered into a Put Agreement
dated November 24, 1999 pursuant to which the parties made certain
representations to each other, and agreed to take certain actions in connection
with, and to provide for certain rights and remedies regarding the transactions
contemplated by, the Securities Agreement.

     On December 17, 1999, 2000 and 2001, respectively, pursuant to the terms of
the Series A Preferred Stock owned by Baxter, the Company issued 4,216, 4,469
and 4,738 additional shares, respectively, of Series A Preferred Stock to Baxter
representing dividends payable in kind.

     On December 21, 2000, the Company entered into a sale-leaseback agreement
under which the Company sold certain fixed assets to Baxter that were
subsequently leased back to the Company over a three year term. See Note 9 to
the Consolidated Financial Statements for a further description of this
transaction. This lease was terminated concurrent with completion of the Asset
Purchase Agreement with Baxter on August 31, 2001 described below.

AUGUST 2001  - TRANSFER OF TOOLBOX DISTRIBUTION BUSINESS TO BAXTER

     In 2000, Company management identified two distinct market opportunities
for the Company's technology. In addition to the historical business of
developing and commercializing cell processing systems and other tools for ex
vivo cell manipulation, so called "Toolbox" products, management identified an
opportunity to develop proprietary biopharmaceutical products based on the use
of cells as drugs. In 2001, the Company and Baxter agreed to transfer the
Toolbox products distribution business to Baxter to allow NCI to focus on the
development of cell based products. In August 2001, the Company and Baxter
entered into a series of agreements pursuant to which, among other things, the
Company licensed to Baxter on an exclusive worldwide basis the sales, marketing
and distribution rights for Isolex/R/ and the Company's other Toolbox products
(the "Transaction").

     Pursuant to an asset purchase agreement, Baxter purchased from the Company
finished goods inventory of the Toolbox products distribution business, trade
accounts receivable of the Toolbox products distribution business, certain fixed
assets of NCI relating to the Toolbox products business, and all books, records,
files and papers relating to the purchased assets. NCI assigned to Baxter the
ownership of the regulatory applications and submissions to the FDA and other
state, local and foreign regulatory authorities relating to the Toolbox
products, though Nexell retained the right of reference to the regulatory files
and all data contained therein. The Company also sold to Baxter all shares of
stock or other equity interests in Nexell International. In addition, certain
Nexell personnel transferred to Baxter. Pursuant to a supply agreement, Baxter
agreed to continue to supply Nexell with the Toolbox products marketed, sold and
distributed by Baxter for Nexell's internal use in the development of Nexell's
therapeutic cellular drugs.

                                      6

<PAGE>

     The purchase price for the transferred assets was equal to the book value
of the finished goods inventory and other transferred assets plus the net book
value of Nexell International. Approximately $2.6 million of the purchase price
was paid at the August 31, 2001 closing and approximately $2,100,000 was paid on
March 19, 2002. As part of the transactions, Baxter agreed to pay to NCI an
earned royalty on "Net Sales" as defined, of the Toolbox products sold by
Baxter.

     Upon closing of the Transaction, substantially all of the Company's current
revenue-producing activities have ceased, and the Company will focus on
development of new therapeutic cellular drugs.

     Pursuant to the asset purchase agreement, the following agreements between
Baxter and NCI were terminated on August 31, 2001: (i) Hardware and Disposable
Supply Agreement dated December 17, 1997; (ii) US and Canada Instrument Services
Agreement dated June 30, 1999; (iii) Hardware and Disposables Manufacturing
Agreement dated December 17, 1997; (iv) Antibody Manufacturing and Storage
Agreement dated December 17, 1997; (v) Royalty Assignment and Agreement dated
December 17, 1997; (vi) Equipment Lease Agreement dated December 21, 2000; and
(vii) Instrument Services Agreement dated November 30, 1999.

ACQUISITION OF CELLPRO ASSETS

     On January 29, 1999, the Company completed the purchase of certain assets
of CellPro Incorporated ("CellPro"). Assets purchased included substantially all
of CellPro's intellectual property rights, patents, antibodies and related cell
banks, and license rights. These assets were acquired in exchange for 470,553
shares of Common Stock with a fair market value of $3,000,000. The fair market
value was determined based upon the average closing price of the Common Stock
for the 15 business days which ended prior to the closing of $6.36 per share.
The transaction was accounted for as an asset purchase.

     The intellectual property and other assets acquired by NCI consists of
patents (granted and pending), license agreements, antibodies and related master
cell banks and working cell banks for such antibodies, clinical and research
protocols, copyrights, copyright registration applications, trademarks and
trademark applications, software, supply agreements, marketing materials and
books and records. Some of the technology as well as some of the monoclonal
antibody lines included in the purchased assets may be useful in the development
and manufacture of cellular based therapeutics. Additionally, included in the
assets are rights to two diagnostic kits related to the detection and
enumeration of certain types of cancer cells. NCI began marketing the first of
these kits, the Cytonex/TM/ ImmunoCyto Chemistry staining kit in mid-year 1999,
but ceased marketing this product following the closing of the August 2001 asset
purchase agreement with Baxter. This product was not included in the August 2001
agreements with Baxter and is currently not marketed. The second diagnostic
product, the Tumor Enrichment Column (TEC/TM/), including related tumor
enrichment technology, was licensed to MRDx Diagnostics, Inc. in January 2002.
Pursuant to the license agreement, Nexell will receive royalties on net sales as
well as equity in MRDx Diagnostics, Inc., a recently formed private company
founded by a former officer of NCI.

INNOVIR LABORATORIES, INC.

     In June 1998, the Company determined that the operations of its 85% owned
subsidiary, Innovir, no longer fit into the Company's long-term business
strategy. At that time, the Company had completed its funding commitments to
Innovir under its December 31, 1997 agreement, and notified Innovir that no
further funding would be provided. Innovir closed its Cambridge, England
operations on or about November 30, 1998, and closed its remaining operations,
located in Gottingen, Germany and New York, New York, on December 31, 1998.
Innovir completed technology sales and license arrangements during 1999 and in
2000 sold its investment in Ribozyme Pharmaceuticals Inc. stock for $3,818,000.
Innovir's common stock was delisted from the Nasdaq Small-Cap Market and later
from the OTC Bulletin Board and now trades via "pink sheets" maintained by the
National Quotation Bureau, LLC. In August 2001, Innovir paid a cash dividend of
$.0335 per share to each common shareholder and, in accordance with its
certificate of incorporation, to the sole holder of its Class B Preferred Stock
(the Company).

     Apart from the August 2001 cash distribution, Innovir's assets consist
largely of warrants expiring on August 13, 2006 that it holds in Ribozyme
Pharmaceuticals, Inc., which are significantly "underwater" currently and likely
will not have value because Innovir would need cash reserves to exercise the
warrants and hold them for a year, and approximately $787,000 in cash, which
cannot currently be distributed due to restrictions under Delaware law. Innovir
also has entered into certain licensing agreements with Amgen Inc. and with Yale
University, pursuant to which Innovir may obtain milestone or royalty payments
in the future. Although the actual value of these ongoing agreements cannot be
precisely determined, they are not expected to generate meaningful revenues in
the foreseeable future. However, since it is difficult to determine the actual
value of these agreements or the potential value of the warrants, the Board of
Directors of Innovir has concluded that at this point in time it is in the best
interests of Innovir's stockholders to keep Innovir in existence. Innovir is
continuing to explore whether there are transactions, such as a potential merger
with Nexell Therapeutics, Inc. or a liquidation, which could be effected in the
future to simplify operations and provide a mechanism for monetizing the equity
held by minority stockholders.

PATENTS AND LICENSES

     NCI has more than 75 issued patents (U.S., EU, ROW) and more than 60
pending applications that fall into six general patent families:

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     1.  Hematopoietic stem cells;
     2.  Non-HSC cell compositions and culture;
     3.  Cell therapy;
     4.  Cell Selection systems;
     5.  Bioreactor and culture systems; and
     6.  Reagents for use in selection

     CD34+ hematopoietic stem cell patents include 7 issued U.S. patents and 3
pending foreign patents that cover the composition of CD34+ cell products,
monoclonal antibodies to purify CD34+ cells, in vitro expansion of CD34+ cells,
subsets that further enrich the pluripotent stem cell (CD38-) and subsets that
define T-lymphocyte precursors.

     As part of the acquisition of intellectual property from CellPro, the
Company also has rights to one U.S. patent on culture expansion of CD34+ cells.
In 1999, the Company was in receipt of two additional U.S. patents as part of
the CellPro acquisition relating to linking compounds to bind antibodies to
other moieties.

     At the time of the acquisition of NCI, Baxter granted to NCI sublicenses of
substantially all of Baxter's rights under four license agreements, and NCI
assumed substantially all of Baxter's obligations as licensee thereunder,
including payment of all royalties, annual maintenance fees and other required
payments. Two of the sublicenses are under licenses to Baxter from Becton
Dickinson and relate, respectively, to (i) CD34+ technology for use in
applications other than diagnostic applications and (ii) certain antibodies
which attach to CD20+ and CD10+ B cells. A third license, subsequently expired
on May 22, 2001, is under a non- exclusive license from Chiron Therapeutics, and
related to the manufacture, use and sale of specific antibodies and cell lines
for the ex vivo therapeutic treatment of breast cancer. According to the terms
of NCI's sublicense under the Chiron License, Baxter's rights thereunder were
assigned to NCI effective June 30, 1999. The fourth sublicense is under a
non-exclusive license from Professor Bernd Doerken and relates to certain cell
lines for the production of antibodies to be used in the extracorporeal
therapeutic treatment or diagnosis of Non-Hodgkins lymphoma and other specified
malignancies. As of August 31, 2001, the terms of NCI's sublicenses under the
First BD License, the Second BD License and the Doerken License were amended to
grant Baxter sales, marketing and distribution rights under these sublicense
agreements in order to be appointed as Nexell's distributor of the Toolbox
Products.

     In October 1999, the United States Patent and Trademark Office (the "Patent
Office") issued to the Company a patent relating to a peptide which binds to
CD34+ antibody and releases CD34 cells and which is a critical component of the
Isolex/R/ system. A similar patent has been issued in Europe and Australia.
These patents relate to the method of using a peptide to compete for the binding
site of a cell-capturing antibody, thereby displacing the antibody and releasing
the target cells essentially free of contamination by any of the reagents used
in the cell selection process.

     Device and instrumentation patents include 32 issued U.S. and foreign
patents with another 31 pending applications. This intellectual property broadly
covers technology associated with magnetic cell separation, cell washing,
culturing technology and methods for ex vivo gene therapy. The selection system
encompasses the Isolex/R/ and similar instruments. This patent family includes
patents and patent applications directed to the basic selection device having
two magnets for capturing the paramagnetic beads, and patents and applications
directed to the specific device configuration.

     NCI has rights to several antibodies and antibody-producing cell lines
under a series of license agreements with Diaclone S.A. ("Diaclone") in
Besancon, France. Under these agreements, Diaclone granted NCI an exclusive
license to Diaclone's CD2, CD3 and CD8 antibodies, markers for human T-cells.
NCI also has exclusive rights for exvivo applications of Diaclone's CD25
antibody, a T-cell activation marker that may facilitate the removal of
alloreactive cells from a stem cell graft prior to transplant. In addition, NCI
has non-exclusive rights to Diaclone's antibodies against CD138, useful for
identification of myeloma cells; CD56 and CD16, markers for NK (natural killer)
cells; and CD14, a monocyte marker.

     Cell therapy patents include 12 issued U.S. and foreign patents with 27
pending applications. These patents cover the methods for preparing, isolating
and priming dendritic cells, as well as progenitor and precursor therapies for
the treatment of granulocyte and platelet deficiencies. In addition, NCI has
licensed intellectual property from Epimmune that includes peptides for
developing cancer vaccines, including peptides specific for the tumor antigens
associated with breast, colon and lung cancer as well as a T-helper specific
peptide called PADRE. NCI has an option on an additional 30 peptides.

MANUFACTURING

     Nexell currently has no manufacturing capability and has historically
contracted with Baxter to manufacture and package its Isolex/R/ and Maxsep/R/
products as well as supplies used by those products. Baxter is now directly
responsible for the manufacture of those products it markets and sells, as well
as for relationships with other contract manufacturers that may supply certain
components of those products and/or other Nexell Toolbox products marketed and
sold by Baxter. See "Relationship with Baxter Healthcare Corporation." Nexell
intends to develop manufacturing capability either internally, or with a
contract manufacturer, for the manufacture of therapeutic cellular products now
in development.

GOVERNMENT REGULATION

     The Company has acquired or developed technologies that are intended to
lead to commercialization of human medical cellular products. These biologic
drugs are subject to extensive regulation by numerous governmental authorities
in the United States and

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<PAGE>

other countries. None of the Company's cellular product candidates has been
approved for sale in the United States or any foreign market. The regulatory
review and approval process, which includes pre-clinical testing and clinical
trials of each product candidate, is lengthy, expensive and uncertain. Securing
FDA approval requires the submission of extensive pre-clinical and clinical
data and supporting information to the FDA for each indication to establish a
product candidate's safety and efficacy. For clinical investigations in humans,
the Company must submit to, and receive approval from FDA for an
Investigational New Drug ("IND") application. Clinical development, which is
undertaken in three stages, is the testing of investigational products in
humans to demonstrate their safety and efficacy. The conduct of clinical trials
normally takes three to eight years, but longer times may be required. If the
clinical trials are successful, the Company will file a Biologics License
Application ("BLA") containing both the pre-clinical and clinical data to
receive approval to market the product. This process requires substantial
expense, time and effort and there is no guarantee that approval will be
granted on a timely basis, if at all.

     The Company and any of its contract manufacturers are also required to
comply with the applicable FDA current Good Manufacturing Practice ("cGMP")
regulations. cGMP regulations include requirements relating to quality control
and quality assurance as well as the corresponding maintenance of records and
documentation. Manufacturing facilities are subject to inspection by the FDA.
Such facilities must be approved before the Company can use them in commercial
manufacturing of our products.

     Outside the United States, the Company's ability to market a product is
contingent upon receiving a marketing authorization from the appropriate
regulatory authorities. The requirements governing the conduct of clinical
trials, marketing authorization, pricing, and reimbursement vary widely from
country to country, but are for the most part similar to those in the United
States. At present, foreign marketing authorizations are applied for at a
national level. However, within the European Community, registration procedures
are available to companies wishing to market a product in more than one member
state.

     The Company's lead candidate cellular therapy product (CD34+ HSC) is
currently in Phase III clinical testing in the United States under a
Nexell-sponsored IND, and the Company is in pre-IND discussions with the FDA for
its dendritic cell vaccine product.

COMPETITION

     The biomedical industry is highly competitive. Competition in each of the
fields in which the Company is engaged is intense and expected to increase as
knowledge and interest in the technology and products being developed by the
Company increase. The Company faces competition from biotechnology companies,
large pharmaceutical companies, academic institutions, government agencies and
public and private research organizations, many of which have extensive
resources and experience in research and development, clinical testing,
manufacturing, regulatory affairs, distribution and marketing. Some of these
entities have significant research and development activities in areas upon
which the Company's programs focus. Many of the Company's competitors possess
substantially greater research and development, financial, technical, marketing
and human resources than the Company and may be in a better position to develop,
manufacture and market products.

     There are several companies developing devices for cell processing,
including Miltenyi Biotec GmbH, Biotransplant, Inc., and Aastrom Biosciences
Inc. These device companies sell manufacturing tools to scientific investigators
that enable cell processing in the research or clinical investigational setting.
As such, they do not compete directly with Nexell. Since Nexell is developing
biologic drugs, the primary competition will come from companies selling similar
FDA-approved cell products or drugs.

     Alternatives to CD34+ HSC treatment for CGD include antibiotics and
interferon gamma, which offer partial or temporary restoration of function.
Alternative technologies and therapies to treat other genetic disorders are
being developed or are already commercially available, including protein
replacement therapy and gene therapy, such as for Gaucher's disease
(glucocerebrosidase), Fabry's disease (alpha-galactosidase) and coagulation
disorders (Factor VIII, Factor IX). Significant success has been obtained with
certain protein replacement therapies.

     There are many approaches to limiting GVHD, including immunotoxins, the
incorporation of suicide genes, photoinactivation, costimulatory blockade and
the use of immunosupppressive drugs such as cyclosporine. Most of these methods
are investigational and have only been studied in early clinical trials or in
laboratory studies. Later stage clinical investigations are aimed at treating
GVHD post-transplantation and involve the use of T-cell antibodies such as the
humanized antibodies Simulect/R/ and Zenapax/R/ and the mouse anti CD147
monoclonal antibody ABX-CBL.

     Several companies are actively involved in the research and development of
dendritic cell-based cancer therapeutics. The processes developed by each varies
significantly, as does the stage of development, with some companies in early
preclinical research and others in advanced clinical trials. In addition, there
is a multitude of alternative approaches in development for the treatment of
cancer that if successful could reduce the attractiveness of the dendritic cell
vaccine approach.

RISK FACTORS

     Following are certain risk factors associated with the Company. These risks
and uncertainties are not the only ones present. Others that are currently
unknown, or are currently not considered important, may impair the Company's
business or the trading price of its securities.

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<PAGE>

THE COMPANY WILL NEED TO RAISE ADDITIONAL FUNDS IN ORDER TO CONTINUE OPERATIONS.

As of December 31, 2001, the Company had approximately $5.1 million in cash and
cash equivalents, compared to approximately $12.1 million at December 31, 2000.
Cash and cash equivalents were approximately $6.3 million on March 25, 2002. Of
this amount, approximately $0.1 million may be payable to minority shareholders
of a subsidiary and a maximum of approximately $1.0 million may be payable to
Company employees for bonuses, severance, accruals such as vacation and other
benefits.

The Company has received a report from its independent auditors for the fiscal
year ended December 31, 2001 containing an explanatory paragraph indicating
there is substantial doubt about the Company's ability to continue as a going
concern due to the Company's recurring losses from operations, negative cash
flows from operations and need for continued funding. The Company's cash and
cash equivalents are insufficient to fund projected operating expenses through
2002 and, based on the Company's current projections, will not fund operations
beyond June 2002. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

The Company intends to seek additional funding through collaborative
arrangements or equity or debt financings. An effort to raise funds through a
private placement of equity securities was terminated during the first quarter
of 2002 with no financing commitments received. If additional financing is not
available, based on the Company's current projections, the Company's cash and
cash equivalents will be insufficient to fund projected operating expenses
beyond June 2002. The Company may not be able to obtain financing on favorable
terms, if at all. If the Company acquires funds by issuing securities, it is
likely further dilution to existing stockholders will result. If the Company
acquires funds through collaborations, it will likely have to relinquish some or
all of the rights to products or technologies that the Company may have
otherwise developed itself. If the Company is unable to obtain funding, it may
be required to sell the Company or certain of its assets or technologies or to
cease operations.

The Company's future capital requirements will depend on many factors including:

    .   progress in the development of the Company's future therapeutic
        cellular products;

    .   the Company's ability to establish and maintain collaborative
        arrangements;

    .   progress with preclinical testing and clinical trials and the cost of
        such trials;

    .   the time and costs involved in obtaining regulatory approvals;

    .   the costs involving in filing, prosecuting and enforcing patent claims;

    .   competing technological and market developments;

    .   the cost of manufacturing scale-up; and

    .   effective commercialization activities and arrangements.


THE COMPANY HAS NO SOURCE OF SIGNIFICANT REVENUES, HAS A HISTORY OF OPERATING
LOSSES AND HAS NOT BEEN PROFITABLE.

Since commencing operations in January 1987, through December 31, 2001 the
Company has incurred an accumulated deficit of approximately $225 million. These
losses have resulted principally from costs incurred in research and development
of the Isolex /R/ cell processing system and cell culture technologies, general
and administrative expenses, establishment of worldwide sales, marketing, and
service for the cell processing products, and the prosecution of patent
applications. The Company had no significant operating revenues until 1998.
Revenues since 1998 have been principally derived from sales of Isolex /R/ cell
processing systems and related disposables. However, as a result of the August
31, 2001 distribution agreement and the associated sale to Baxter of the
Company's sales and marketing business unit, the Company's current revenue
producing activities have ceased. Thus, until the Company successfully develops
and commercializes its cellular therapeutics products, it is not expected to
generate significant new revenues. The Company expects to incur additional
losses over the next several years, as it focuses on the development of cellular
therapy products. The Company expects that these additional losses will result
primarily from its research and development programs, including preclinical and
clinical trials, establishment of supply capabilities, and the establishment of
marketing and distribution capabilities necessary to support commercialization
efforts for the Company's future therapeutics products. The Company cannot
predict with any certainty the amount of future losses. The Company's ability to
generate revenue and operating income in the future will depend on many factors,
including:

    .   raising additional capital;

    .   developing and commercializing future cellular therapeutics products;

    .   establishing manufacturing, sales and marketing capabilities for the
        Company's future cellular therapeutic products internally and through
        collaborative arrangements;

    .   cost and timing of regulatory approvals and commercial sales of the
        Company's future cellular therapeutic products;

    .   economical and reliable supply of the Company's future cellular
        therapeutic products;

    .   level of competing technologies and market developments;

    .   protection of the Company's patent and other intellectual rights;

    .   continued scientific progress in the Company's research and development
        programs; and

    .   timing and investment in new technologies.

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<PAGE>

The Company expects to continue to incur net operating losses for the
foreseeable future, and the Company can give no assurance that it will ever be
profitable.

FAILURE TO COMPLY WITH NASDAQ'S LISTING STANDARDS COULD RESULT IN THE COMPANY'S
DELISTING BY NASDAQ FROM THE NASDAQ NATIONAL MARKET AND SEVERELY LIMIT THE
ABILITY OF STOCKHOLDERS TO SELL ANY COMMON STOCK.

The Company's Common Stock is currently traded on the NASDAQ National Market
which imposes, among other requirements, listing maintenance standards, minimum
bid and public float requirements. For example, if the closing bid price of the
Company's Common Stock is under $1.00 per share for 30 consecutive trading days,
NASDAQ may choose to notify the Company that it may delist its Common Stock from
the NASDAQ National Market. If the closing bid price of the Company's Common
Stock does not thereafter regain compliance for a minimum of ten consecutive
trading days during the 90 days following notification by NASDAQ, NASDAQ may
delist the Company's Common Stock from trading on the NASDAQ National Market.
NASDAQ National Market maintenance standards also require a minimum shareholders
equity of $10,000,000, or, until November 1, 2002, "net tangible assets" of
$4,000,000. There can be no assurance that the Company's Common Stock will
remain eligible for trading on the NASDAQ National Market. If the Company's
stock were delisted, the ability of the Company's shareholders to sell their
Common Stock would be negatively impacted. The Company's publicly traded
warrants which are currently traded on NASDAQ also could be subject to
delisting.

THE COMPANY MAY NOT SUCCESSFULLY COMPETE IN THE BIOTECHNOLOGY INDUSTRY.

The Company competes with biotechnology companies, pharmaceutical companies,
academic institutions, government agencies and public and private research
organizations. Many of these entities have extensive resources and experience in
research and development, clinical testing, manufacturing, regulatory affairs,
distribution and marketing. Some of these entities have significant research and
development activities in areas upon which the Company focuses. Many of the
Company's competitors possess substantially greater research and development,
financial, technical, sales, marketing and human resources than the Company and
may be in a better position to develop, manufacture and market products. The
Company is aware of existing products that compete with its candidate products
and other products in development that may compete with its candidate products.
If the Company cannot successfully compete with existing or new products, any
sales by the Company will suffer, and the Company may not ever be profitable.

PUBLIC ATTITUDES TOWARDS CELL THERAPY MAY NEGATIVELY AFFECT REGULATORY APPROVAL
OR PUBLIC PERCEPTION OF PRODUCTS THE COMPANY MAY DEVELOP.

The commercial success of the Company's candidate products will depend in part
on public acceptance of the use of cellular therapy for the prevention or
treatment of human diseases. Public attitudes may be influenced by claims that
cellular therapy is unsafe, and cellular therapy may not gain the acceptance of
the public or the medical community. The use of embryonic human stem cells by
others may give rise to ethical, legal and social issues regarding the
appropriate use of any stem cell. Adverse effects in the field of cellular
therapy that have occurred or may occur in the future may result in greater
governmental regulation of the Company's products and potential regulatory
delays relating to the testing or approval of its candidate products.

THE ETHICAL, LEGAL AND SOCIAL IMPLICATIONS OF THE COMPANY'S RESEARCH USING
LIVING HUMAN CELLS COULD PREVENT THE COMPANY FROM DEVELOPING OR GAINING
ACCEPTANCE FOR COMMERCIALLY VIABLE PRODUCTS IN THIS AREA.

The Company's research programs involve the use of living human cells that are
derived from human tissue. In the event that the Company's research related to
living human cells becomes the subject of adverse commentary, publicity or
restrictive laws, the market price for the Company's Common Stock could be
significantly harmed, and its business may suffer.

FAILURE TO OBTAIN AND MAINTAIN REQUIRED REGULATORY APPROVALS WOULD RESTRICT THE
COMPANY'S ABILITY TO SELL ITS PRODUCTS AND EARN REVENUES.

The Company's development activities are intended to lead to new biologic drugs
that must obtain the approval of the United States Food and Drug Administration
before sales may be made in the United States, and the approval of foreign
regulators before sales may be made in foreign jurisdictions. The process of
obtaining and maintaining regulatory approvals for new drugs is lengthy,
expensive and uncertain. The manufacturing, distribution, advertising and
marketing of these products are also subject to extensive regulation. If the
Company cannot demonstrate the safety, reliability and efficacy of its products,
the Company will not obtain required regulatory approvals, and its ability to
generate revenues will suffer. Noncompliance with applicable requirements can
result in, among other things, fines, injunctions, civil penalties, recall or
seizure of products, total or partial suspension of production, failure of the
FDA to grant premarket clearance or premarket approval, withdrawal of marketing
clearances or approvals, and criminal prosecution.

                                      11

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Even after regulatory approval of a product is granted, that approval may be
subject to limitations on the indicated uses for which it may be marketed. In
addition, the FDA, other regulatory agencies and governments in other countries
continue to review and inspect marketed products, manufacturers and
manufacturing facilities after regulatory approval is granted. Later discovery
of previously unknown problems with a product, manufacturer or facility may
result in restrictions on the product or manufacturer, including withdrawal of
the product from the market. Further, governmental agencies may establish
additional regulations that could prevent or delay regulatory approval of the
Company's candidate products.

IF THE COMPANY DOES NOT SUCCESSFULLY COMPLETE CLINICAL TRIALS, IT WILL NOT BE
ABLE TO OBTAIN FDA APPROVAL AND SELL ITS PRODUCTS.

To be able to market products in the United States, the Company must
demonstrate, through extensive preclinical studies and clinical trials, the
safety and efficacy of its processes and product candidates, together with the
cells produced by such processes in such products, for application in the
treatment of humans. If the Company's clinical trials for new products are not
successful, its products may not be marketable. The Company's ongoing studies
may be delayed or halted for various reasons, including:

    .   inability to raise additional capital;

    .   lack of effectiveness of its products or the perception by physicians
        that the products are not successful;

    .   failure of patients to enroll in the trials at the rate the Company
        expects;

    .   doubts among physicians and patients regarding the utility of stem cell
        therapy; and

    .   side effects as a result of the treatment.

In addition, the FDA and foreign regulatory authorities have substantial
discretion in the approval process. The FDA and foreign regulatory authorities
may not agree that the Company has demonstrated that its products are safe and
effective.

THE MARKET FOR ANY PRODUCTS THE COMPANY DEVELOPS WILL DEPEND ON ACCEPTANCE BY
PHYSICIANS AND PATIENTS.

Market acceptance and demand for products the Company develop will depend
largely on acceptance by physicians and patients of the products as safe and
effective treatments and on the efficacy and pricing of alternative products.
The Company's products may not be accepted by the marketplace as readily as
competing products. The Company cannot assure that any of its products will gain
any significant degree of market acceptance in the United States or
internationally among physicians, other health care providers and third-party
payers, even if reimbursement and necessary regulatory approvals are obtained.
The Company believes that the commercial success of its products will depend on
such acceptance. Failure of the Company's products to achieve significant market
acceptance would have a material adverse effect on its business, financial
condition and results of operations.

IF THE COMPANY DOES NOT KEEP PACE WITH TECHNOLOGICAL AND MARKET CHANGES, ANY
PRODUCTS IT DEVELOPS MAY BECOME OBSOLETE AND ITS BUSINESS MAY SUFFER.

The market for the Company's potential products is very competitive and is
subject to rapid technological changes. The Company's competitors may have
developed, or could in the future develop, new technologies that compete with
the Company's potential products or even render such products obsolete. Numerous
investigators are working in the fields for which the Company's potential
products are intended for use. Given the unpredictable nature of medical
research and clinical development, studies have been and will continue to be
published that are not supportive of the intended uses of the Company's products
in development. Even if the Company is able to demonstrate improved or
equivalent results of its products compared to existing products, practitioners
may not switch to the Company's new products.

THE SUCCESS OF SALES OF PRODUCTS THE COMPANY DEVELOPS MAY DEPEND UPON
REIMBURSEMENTS BY THIRD-PARTY PAYERS.

In the United States, physicians, hospitals and other health care providers that
perform medical services generally rely on third-party payers, such as
government and private health insurance plans and health maintenance
organizations, to reimburse all or part of the cost associated with the
treatment of patients. The Company's ability to successfully commercialize its
product candidates will also depend on the extent to which these third party
payers will pay for the products. Reimbursement by third party payers depends on
factors such as the payers' determination that use of the products is safe and
effective, reasonable and medically necessary, not experimental or
investigational, appropriate for the patient and cost-effective. The Company
anticipates its products to be subject to the same considerations as for
reimbursement of other biologic drugs that requires physician supervision for
administration. If third party payers do not approve the Company's products for
reimbursement, sales will suffer as physicians and patients opt for competing
products or alternative treatments.

THE COMPANY HAS LIMITED EXPERIENCE WITH MANUFACTURING AND DEPENDS ON THIRD
PARTIES FOR KEY MANUFACTURING TOOLS.

The Company currently has no in-house manufacturing capability and must develop
this capability for candidate products in development. To be successful, the
Company's products must be manufactured in compliance with regulatory
requirements and at acceptable costs. Manufacturing facilities of the Company's
products will be subject to Good Manufacturing Practices ("GMP") regulations,
international quality standards and other regulatory requirements. Failure by
the Company to maintain their facilities in

                                      12

<PAGE>

accordance with GMP regulations, international quality standards or other
regulatory requirements may entail a delay in or termination of production,
which could have a material adverse effect on the Company's business, financial
condition and results of operations.

The Company relies on Baxter for the provision of several key manufacturing
tools for its candidate products, as well as the supplies associated with these
products. The Company also contracts with other companies for supply of
reagents, including cytokines and antigens. If third parties do not successfully
carry out their contractual duties or meet expected deadlines, or if the
Company's supply of certain reagents, tools or other materials is limited or
interrupted, it would not be able to continue development activities, conduct
clinical trials or market its products on a timely and cost-competitive basis,
if at all. The Company may not be able to maintain favorable agreements with
these parties or enter into favorable agreements with them. If third party
agreements terminate at a crucial time, the Company may not have manufacturing
capabilities to meet demand for its products.

GIVEN THE COMPANY'S LIMITED SALES AND MARKETING EXPERIENCE, IT MAY NOT BE ABLE
TO DEVELOP EFFECTIVE METHODS TO SELL AND MARKET ITS PRODUCTS.

With the exception of approximately two years between late 1999 and late 2001,
the Company has relied on Baxter for sales and marketing of its products. If the
Company is not able to develop an effective sales and marketing organization for
products in development, it will have to arrange for such activities to be
performed by contracted third parties. The Company may not be able to enter into
favorable agreements with such third parties, if at all. Such failures could
have a material adverse effect on the Company's business, financial condition
and results of operations.

THE COMPANY'S FINANCIAL PERFORMANCE AND SUBSEQUENT REDUCTION OF THE WORKFORCE
MAY AFFECT THE MORALE AND PERFORMANCE OF ITS PERSONNEL AND ABILITY TO ATTRACT
AND RETAIN KEY MANAGEMENT, CONSULTANTS AND SCIENTIFIC PERSONNEL.

In an effort to reduce cash expenditures, during the year ended December 31,
2001, the Company reduced the number of its full-time employees from 105 to 24.
In addition, recent trading levels of the Company's Common Stock have decreased
the value of stock options granted to employees, pursuant to the Company's stock
option plans. As a result of these factors, the Company's remaining personnel
may seek employment with larger companies or companies they perceive to have
better prospects. The Company's success will largely depend upon its ability to
retain its current key personnel and consultants and to attract and retain new
highly qualified personnel. Expertise in the field of ex vivo cell research and
therapy is not generally available in the market, and competition for qualified
consultants, management and scientific personnel is intense. The Company may not
be successful in retaining existing or hiring new key consultants and personnel,
which may have an adverse effect on the Company.

INTELLECTUAL PROPERTY LITIGATION COULD HARM THE COMPANY'S BUSINESS.

The Company's success will depend in part on its ability to develop commercially
viable products without infringing the proprietary rights of others. Litigation,
which is very expensive, may be necessary to enforce or defend its patents or
proprietary rights and may not end favorably for the Company. Although the
Company has not been subject to any filed infringement claims based on third
party patents, other patents could exist or could be filed, which would prohibit
or limit the Company's ability to market its products or maintain its
competitive position. Any of the Company's patents, licenses or other
intellectual property may be challenged, invalidated, canceled, infringed or
circumvented and may not provide any competitive advantage to the Company. On
March 2, 2000, the Company filed suit against Miltenyi Biotec GmbH and their
related companies, Miltenyi Biotec, Inc. and AmCell Corporation. The suit
charges Miltenyi with patent infringement, breach of contract and deceptive
trade practices. For a further description of this litigation, see "Legal
Proceedings." Since the Company no longer directly sells its cell processing
systems to the research marketplace where Miltenyi competes, the business risk
to the Company should it lose the litigation has decreased. Intellectual
property litigation such as this could divert management's attention from
developing its products and could force the Company to incur substantial costs
regardless of whether the Company is successful.

IF THE COMPANY'S PATENT AND OTHER INTELLECTUAL PROPERTY PROTECTION IS
INADEQUATE, THE COMPANY'S ABILITY TO GENERATE ANY SALES AND PROFITS COULD SUFFER
OR COMPETITORS COULD FORCE THE COMPANY'S PRODUCTS OUT OF THE MARKET.

The Company owns or licenses patents on which its products rely in six general
patent families:

..  hematopoietic stem cells;
..  non-HSC cell compositions and culture;
..  cell therapy;
..  cell selection systems;
..  bioreactor and culture systems; and
..  reagents for use in selection

Four of the Company's licensed patents relating to CD34+ stem cell separation
currently are set to expire in 2004, 2007, 2110 and 2111, respectively. The
Company may not be able to extend these or any other patents. In addition,
patents may be issued to others that prevent the manufacture or sale of the
products the Company is developing. The Company may have to license those
patents and

                                      13

<PAGE>

pay significant fees or royalties to the owners of the patents in order to
market any products. This would cause profits on sales to suffer.

The Company has filed patent applications with respect to its potential
products. These patent applications and others that may be filed by the Company
may not issue. The scope of any patent that issues may not be sufficient to
protect the Company's technology. The laws of foreign jurisdictions in which the
Company intends to sell its products may not protect the Company's right to the
same extent as the laws of the United States.

In addition to patent protection, the Company also relies on trade secrets,
proprietary know-how and technology advances. The Company enters into
confidentiality agreements with its employees and others, but these agreements
may not be effective in protecting proprietary information. Others may
independently develop substantially equivalent proprietary information or obtain
access to the Company's know-how.

IF THE LICENSES THE COMPANY DEPENDS ON ARE BREACHED OR TERMINATED, THE COMPANY
WOULD LOSE ITS RIGHT TO DEVELOP AND SELL THE PRODUCTS COVERED BY THE LICENSES.

The Company has obtained licenses to third-party technology to conduct parts of
its business. The Company is the exclusive licensee in the field of therapeutic
research to patented technology from Becton Dickinson Company and Johns Hopkins
University, which technology relates to stem cell separation and particularly
relates to the immunomagnetic separation of CD34+ blood stem cells. If the
licensors breach or terminate this or other licenses, the Company may lose
certain rights to develop and market the products for the purposes covered by
the licenses. The Company may not be able to obtain additional licenses as may
be required for the development of the Company's products on reasonable terms or
at all.

PRODUCT LIABILITY RISKS MAY EXPOSE THE COMPANY TO SIGNIFICANT LIABILITY.

The Company's business exposes the Company to potential product liability risks
that are inherent in the testing, manufacturing and marketing of human
therapeutic products. While the Company currently has product liability
insurance, it cannot be sure that it can maintain such insurance on acceptable
terms or that the Company's insurance will provide adequate coverage against
potential liabilities.

RECENT ACCOUNTING STANDARDS MAY IMPACT THE COMPANY'S FINANCIAL STATEMENTS.

In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 141, Business Combinations (SFAS
141), and SFAS 142, Goodwill and Other Intangible Assets. SFAS 141 requires that
the purchase method of accounting be used for all business combinations
initiated after June 30, 2001 as well as all purchase method business
combinations completed after June 30, 2001. SFAS 141 also specifies criteria
intangible assets acquired in a purchase method business combination must meet
to be recognized and reported apart from goodwill, noting that any purchase
price allocable to an assembled workforce may not be accounted for separately.
SFAS 142 will require that goodwill and intangible assets with indefinite useful
lives no longer be amortized, but instead tested for impairment at least
annually. SFAS 142 will also require that intangible assets with definite useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of.

The Company was required to adopt the provisions of SFAS 141 immediately, and is
required to adopt the provisions of SFAS 142 effective January 1, 2002.
Furthermore, any goodwill and any intangible asset determined to have an
indefinite useful life that are acquired in a purchase business combination
completed after June 30, 2001 will not be amortized, but will continue to be
evaluated for impairment in accordance with the appropriate pre-SFAS 142
accounting literature. Goodwill and intangible assets acquired in business
combinations completed before July 1, 2001 continued to be amortized prior to
the adoption of SFAS 142.

SFAS 141 will require, upon adoption of SFAS 142, that the Company evaluate its
existing intangible assets and goodwill that were acquired in a prior purchase
business combination, and to make any necessary reclassifications in order to
conform with the new criteria in SFAS 141 for recognition apart from goodwill.
Upon adoption of SFAS 142, the Company will be required to reassess the useful
lives and residual values of all intangible assets acquired in purchase business
combinations, and make any necessary amortization period adjustments by the end
of the first interim period after adoption. In addition, to the extent an
intangible asset is identified as having an indefinite useful life, the Company
will be required to test the intangible asset for impairment in accordance with
the provisions of SFAS 142 within the first interim period. Any impairment loss
will be measured as of the date of adoption and recognized as the cumulative
effect of a change in accounting principle in the first interim period.

In connection with the transitional goodwill impairment evaluation, SFAS 142
will require the Company to perform an assessment of whether there is an
indication that goodwill is impaired as of the date of adoption. To accomplish
this, the Company must identify its reporting units and determine the carrying
value of each reporting unit by assigning the assets and liabilities, including
the existing goodwill and intangible assets, to those reporting units as of the
date of adoption. The Company will then have up to six months from the date of
adoption to determine the fair value of each reporting unit and compare it to
the reporting unit's carrying amount. To the extent a reporting unit's carrying
amount exceeds its fair value, an indication exists that the reporting unit's
goodwill may be impaired and the Company must perform the second step of the
transitional impairment test. In the second step, the Company must compare the
implied fair value of the reporting unit's goodwill, determined by allocating
the reporting unit's fair value to all of it assets (recognized and
unrecognized) and liabilities in a manner similar to a purchase price allocation
in accordance with SFAS 141, to its carrying amount, both of which would be
measured as of the date of adoption. This second step is required to be
completed as soon as possible, but no later than the end of the year of
adoption. Any transitional impairment loss will be recognized as the cumulative
effect of a change in accounting principle in the Company's statement of
operations.

As of the date of adoption, the Company had unamortized goodwill in the amount
of $25,122,000 and unamortized identifiable intangible assets in the amount of
$7,615,000 all of which will be subject to the transition provisions of SFAS 141
and 142. Amortization expense related to goodwill was $2,955,000, $2,955,000 and
$2,719,000 for the years ended December 31, 2001, 2000 and 1999, respectively.

In October 2001, the FASB issued Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS 144), which addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. SFAS 144 supersedes Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the
accounting and reporting provisions of APB Opinion No. 30, Reporting the Results
of Operations -- Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,
for the disposal of a segment of a business. SFAS 144 retains the requirement in
Opinion No. 30 to report separately discontinued operations and extends that
reporting to a component of an entity that either has been disposed of or is
classified as held for sale.

The Company is required and plans to adopt the provisions of SFAS 144 for the
quarter ending March 31, 2002. Based upon an independent third party evaluation,
the Company anticipates that the adoption of SFAS 41, SFAS 142 and SFAS 144 on
January 1, 2002 will have no material impact on its financial statements.

THE COMPANY'S STOCK PRICE AND WARRANT PRICE COULD BE VOLATILE AND COULD DECLINE.

The market prices for securities of biotechnology companies are highly volatile,
and there are significant price and volume fluctuations in the market that may
be unrelated to particular companies' operating performances. The Company's
stock price could decline suddenly due to factors such as the following:

                                      14

<PAGE>

     .  results of clinical trials;
     .  the amount of the Company's cash resources and ability to obtain
        additional funding;
     .  timing of regulatory approvals and changes in government regulation;
     .  fluctuations in operating results;
     .  announcements by us or others of technological innovations or new
        products;
     .  failure to meet estimates or expectations of securities analysts, if
        any;
     .  rate of product acceptance;
     .  developments in or disputes over patent or other proprietary rights;
     .  public concern as to the safety of products developed by us or by
        others;
     .  changes in recommendations by securities analysts, if any; and
     .  general market conditions.

Any of these events may cause the price of the Company's shares to fall, which
may adversely affect the Company's business and financing opportunities. In
addition, the stock market in general and the market prices for biotechnology
companies in particular have experienced significant volatility that often has
been unrelated to the operating performance or financial conditions of such
companies. These broad market and industry fluctuations may adversely affect the
trading price of the Company's shares, regardless of its operating performance
or prospects. For example, from December 31, 1999 through December 31, 2001, the
price of the Company's Common Stock has fluctuated from a low of $0.63 to a high
of $60.50, and the price of the Company's publicly traded warrants has
fluctuated from a low of $0.18 to a high of $13.875.

THE COMPANY'S OUTSTANDING SHARES OF CONVERTIBLE PREFERRED STOCK AND WARRANTS
COULD CAUSE SUBSTANTIAL DILUTION.

As of December 31, 2001, the Company's outstanding equity securities, excluding
Common Stock, included:

     .  83,705 shares of Series A Cumulative Convertible Preferred Stock,
        convertible into 7,609,545 shares of Common Stock at a conversion price
        of $11.00 per share;

     .  63,000 shares of Series B Cumulative Convertible Preferred Stock,
        convertible into 6,165,590 shares of Common Stock at a conversion price
        of $10.218 per share (assuming such shares are not put to Baxter as
        described below);

     .  Class B Warrants to purchase 808,686 shares of Common Stock for a price
        of $11.129 per share;

     .  warrants to purchase 1,300,000 shares of Common Stock for a price of
        $4.60 per share; and

     .  publicly-traded warrants to purchase 383,567 shares of Common Stock for
        a price of approximately $5.10 per share.

If holders of the preferred stock and warrants listed above converted or
exercised all of their shares as of December 31, 2001, the holders would receive
approximately 18,221,000 shares of Common Stock (representing approximately 45%
of the Company's outstanding shares on a fully diluted basis, including
approximately 1,954,000 shares of Common Stock upon the exercise of stock
options outstanding as of December 31, 2001). Holders of Common Stock could
experience substantial dilution of their investment upon conversion of the
preferred stock or exercise of the warrants. The Company's outstanding equity
securities also include Class A Warrants to purchase up to 1,500,000 shares of
Common Stock for a price of $.04 per share, which are not exercisable, if at
all, until November 24, 2004. In addition, unlike Common Stock, certain of these
securities provide for anti-dilution protection in the event, among other
things, of certain issuances of Common Stock, or securities convertible into or
exercisable for Common Stock, below certain prices. If one or more of these
events occur, the conversion or exercise price of the securities would decrease,
and the number of shares of Common Stock that may be acquired upon conversion or
exercise would increase.

It is likely that the holders of the Series B Preferred Stock will put their
stock to Baxter under the circumstances described in the Side Letter Agreement
or otherwise, in which case the conversion price of the Series B Preferred Stock
would be adjusted. Conversion of the Series B Preferred Stock at the adjusted
conversion price would result in substantial dilution of the Common Stock and
in Baxter owning substantially in excess of a majority of the Common Stock. See
"Relationship with Baxter Healthcare Corporation--November 1999 Private
Placement Financing."

FUTURE SALES OF SHARES MAY DEPRESS THE PRICE OF THE COMPANY'S COMMON STOCK.

If shareholders sell a substantial number of shares of the Company's Common
Stock in the public market, or investors perceive that these sales might occur,
the market price of the Company's Common Stock could decrease. Such a decrease
could make it difficult for the Company to raise capital by selling stock or to
pay for acquisitions using stock. To the extent outstanding options or warrants
are exercised or additional shares of capital stock are issued, investors
purchasing the Company's Common Stock or securities convertible into Common
Stock may incur additional dilution. The Company's employees hold a significant
number of options to purchase shares, many of which are presently exercisable.
Employees may exercise their options and sell shares shortly after such options
become exercisable, particularly if they need to raise funds to pay for the
exercise of such options or to satisfy tax liabilities that they may incur in
connection with exercising their options.

                                      15

<PAGE>

IF SHAREHOLDERS DO NOT RECEIVE DIVIDENDS, SHAREHOLDERS MUST RELY ON STOCK
APPRECIATION FOR ANY RETURN ON THEIR INVESTMENT.

The Company has never declared or paid cash dividends on its Common Stock. The
Company currently intends to retain any earnings for future growth and,
therefore, does not anticipate paying cash dividends in the future. As a result,
only appreciation of the price of the Common Stock will provide a return to
investors who purchase or acquire securities of the Company.

THE SUBORDINATION OF THE COMPANY'S COMMON STOCK TO THE COMPANY'S PREFERRED STOCK
COULD HURT STOCKHOLDERS.

The Company's Common Stock is expressly subordinate to the Company's Series A
Preferred Stock and Series B Preferred Stock in the event of the Company's
liquidation, dissolution or winding up. Accordingly, if the Preferred Stock were
not converted to Common Stock, if the Company were to cease operations and
liquidate its assets because of its inability to obtain additional funding or
otherwise, the Company would first be required to pay substantial sums to its
holders of Preferred Stock, and there would likely not be any remaining value
available for distribution to the holders of Common Stock after providing for
the Series A Preferred Stock and Series B Preferred Stock liquidation
preference.



EMPLOYEES

     Nexell had 24 full-time employees at December 31, 2001 compared with 105
full time employees at December 31, 2000. During the year ended December 31,
2001, the Company terminated 47 employees, and 34 employees became employees of
Baxter following the August 2001 asset transaction with Baxter. The Company
believes that relations with its employees are satisfactory.

CONSULTANTS

     The Company is dependent on third parties for significant aspects of its
research and development operations. In certain cases, consultants are used to
perform or supervise such activities. Consultants have been retained to assist
in interpretation of FDA and international regulations and to provide
statistical support for clinical trials. The Company also retains financial
consultants. The Company's consultants generally are employed by and/or have
consulting agreements with entities other than the Company, some of which may
conflict or compete with the Company, and generally devote only a portion of
their time to the affairs of the Company.

     Regulations or policies now in effect or adopted in the future by their
respective employers may limit the ability of such persons to consult with the
Company. The loss of the services of certain of such persons may adversely
affect the Company.

EXECUTIVE OFFICERS OF THE COMPANY

     The following is a list of current executive officers of the Company and of
individuals who may be deemed to be executive officers of the Company.

Name                         Age   Position
----                         ---   --------
Richard L. Dunning           56    Chairman of the Board
William A. Albright, Jr.     44    Chief Executive Officer, President, Chief
                                   Financial  Officer  and  Treasurer
Michel L. E. Bergh, Ph.D.    50    Vice President, Business Development, NCI
Wayne A. Tyo                 41    Secretary
-------------------

     RICHARD L. DUNNING was elected Chairman of the Board of Directors in May
1999 and was Chief Executive Officer of the Company from April 1996 until March
1, 2001. Prior to joining the Company, Mr. Dunning served as Executive Vice
President and Chief Financial Officer of the DuPont Merck Pharmaceutical Company
(now DuPont Pharmaceuticals  Company) from 1991-1995. Mr. Dunning also serves as
a director of Epoch Biosciences, Inc. and DOR BioPharma, Inc.

     WILLIAM A. ALBRIGHT, JR. was elected a director and was appointed President
and Chief Executive Officer of the Company in March 2001 at which time he
relinquished his position as Chief Operating Officer, which he had held since
July 2000. Mr. Albright joined the Company as Senior Vice President, Chief
Financial Officer, Treasurer and Secretary in May 1999 and became President and
Chief Operating Officer in July 2000. Prior to joining the Company, he was a
consultant to the healthcare industry. From 1996 to 1998, he was Chief Financial
Officer of LocalMed, Inc., a venture-stage medical device company developing
products for interventional cardiology. From 1994 to 1996, he was Chief
Financial Officer of Connetics Corp., a biopharmaceutical company. He joined
Connetics as the third employee and helped build the organization from the
venture-backed spin-off of Genentech Inc. into a freestanding publicly traded
company. Earlier in his career, he held senior positions within the medical
device group of Eli Lilly and Company.

     MICHEL L.E. BERGH, Ph.D. has served as Vice President, Business Development
of NCI since September 1999. Prior to joining the Company, he served as Vice
President, Business Development of LocalMed, Inc., a manufacturer of medical
devices for interventional cardiology. Previously, he held executive positions
in business development and research at Shaman Pharmaceuticals, Schering-Plough,
Inc. and Genzyme Corporation.

                                      16

<PAGE>

     WAYNE A. TYO has served as Secretary of the Company since July 2000 and has
also served as the Company's Corporate Controller since March 2000. From 1997 to
2000, Mr. Tyo served as Corporate Controller of Perigon Medical Distribution
Corporation, a venture stage consolidator in the medical products distribution
industry. From 1984 to 1997, he held various financial management positions at
Caliber Collision Centers, Inc., MedTrans, Inc. and its predecessor company,
CareLine, Inc., CareVisions Corporation and Ernst & Young.

     In December 2001, Joseph A. Mollica, resigned his position as a
Director of the Company.

ITEM 2.  PROPERTIES.

     The Company currently occupies a building at 9 Parker, Irvine, California
consisting of approximately 59,600 square feet. This facility is under a lease
which provides for a current monthly rental of $45,892 plus real estate taxes
and operating costs. The current term expires November 30, 2004 with two
five-year renewal options.

     The Company also occupied 377 square meters (approximately 4,058 square
feet) of office space at I. Meyskensstraat 224, B-1780 Wemmel, Belgium, under a
lease with a monthly rental of 168,333 BEF (approximately $4,000). The lease was
transferred to Baxter as part of the asset purchase agreement executed between
the parties in August 2001.

ITEM 3.  LEGAL PROCEEDINGS.

     On March 2, 2000, the Company filed suit in the U.S. District Court in
Delaware (civil case number 00-141) against Miltenyi Biotec GmbH of Germany and
its related U.S. companies, Miltenyi Biotec, Inc.  and AmCell Corporation
(collectively "Miltenyi"). The suit charges Miltenyi with patent infringement
(U.S. Patents 4,714,680 and 4,965,204), breach of contract and deceptive trade
practices. Becton Dickinson and The Johns Hopkins University, both of which
have proprietary rights associated with the Company's technology, have joined
with the Company in the suit. The Company is seeking damages and injunctive
relief.  Miltenyi Biotec GmbH of Germany and Miltenyi Biotec, Inc. are
contesting whether jurisdiction over them is proper in the Delaware court. In
the fall of 2000, AmCell Corporation moved for partial summary judgment of
non-infringement of the patents, on the ground that AmCell's current activities
are exempt from liability for infringement under the clinical trial "safe
harbor" provision provided by 35 U.S.C. [sect] 271(e)(1). The Company opposed
this motion and itself moved for partial summary judgment of infringement of
the patents. In an opinion dated April 23, 2001 concerning these motions, the
court declined to resolve the question of whether AmCell's activities are
exempt from infringement under the safe harbor provision, choosing instead to
defer such resolution to the United States Food and Drug Administration
("FDA"). The court further indicated, however, that the Company could revisit
these issues with the court depending on the FDA's response to its
consideration of these issues. Therefore, while recognizing the Company's right
to renew its claim for relief depending on the FDA's actions, the court granted
AmCell's motion for summary judgment and denied the Company's motion for
summary judgment. Following the entry of an order pursuant to the grant and
denial of these cross-motions, the Company moved to amend the order to clarify
certain matters raised therein. The Company's motion remains pending at this
time. Also, following entry of the court's order, inquiry was made at the FDA
concerning the court's invitation to the FDA to resolve the question of whether
particular activities of defendants are exempt from infringement under the
relevant patent laws. Thereafter, the Company received notification from the
FDA that the FDA declines to address the issues raised in the court's order. It
is unclear at this time how the court will respond to this notification from
the FDA. Pursuant to the consummation of the asset purchase agreement with
Baxter, the Company granted Baxter the exclusive right to maintain, continue to
prosecute, enforce and settle this lawsuit.

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

       Not Applicable.

                                     PART II

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

MARKET PRICE OF COMMON STOCK

     The Common Stock and the Common Stock Subscription Warrants are currently
traded on The Nasdaq Stock Market National Market System under the symbols NEXL
and NEXLW, respectively. The following table sets forth for the Common Stock the
high and low sales prices for each calendar quarter from January 1, 2000 through
December 31, 2001. All amounts have been retroactively adjusted for the
Company's one-for-four reverse stock split which was effected on June 15, 2000.

2000                     High                  Low
----                     ----                  ---
First Quarter           $60.50              $ 4.75
Second Quarter           23.12               10.50
Third Quarter            15.50                7.53
Fourth Quarter            8.44                2.69

                                      17

<PAGE>

2001
----
First Quarter           $ 4.38              $ 1.22
Second Quarter            3.44                0.97
Third Quarter             2.84                0.99
Fourth Quarter            2.40                0.63

     On March 8, 2002, there were 1298 shareholders of record of the Common
Stock.

     The Company has not paid a cash dividend on Common Stock and does not
anticipate the payment of cash dividends on Common Stock in the foreseeable
future. The holder of the Company's Series A Cumulative Convertible Preferred
Stock and the holders of the Company's Series B Cumulative Convertible Preferred
Stock are entitled to annual stock dividends and semi-annual cash dividends,
respectively. Cash dividends of $1,890,000 were paid in 2001 to holders of the
Company's Series B Cumulative Convertible Preferred Stock. In addition, the
terms of the Company's Amended and Restated Certificate of Incorporation
applicable to its Series B Cumulative Convertible Preferred Stock limit the
ability of the Company to pay dividends on Common Stock.

RECENT SALES OF UNREGISTERED SECURITIES

     Not applicable.

                                      18

<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA.

Consolidated Statements of Operations Data:

<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                                     -------------------------
                                               2001            2000              1999             1998              1997
                                               ----            ----              ----             ----              ----
<S>                                       <C>             <C>               <C>              <C>              <C>
Revenue                                   $  13,180,000   $  18,180,000     $  14,961,000    $  13,443,000    $   5,002,000
Cost of goods sold                            6,813,000      11,429,000         9,677,000        8,226,000        4,630,000
                                          -------------   -------------     -------------     -------------    -------------
Gross profit                                  6,367,000       6,751,000         5,284,000        5,217,000          372,000
Operating expenses:
  Research and development                    5,919,000      10,828,000        15,243,000       20,485,000       13,252,000
  Purchased research and
    development                                      --              --                --               --       39,862,000
  General and administrative                  8,347,000       9,262,000         8,924,000       10,561,000        7,650,000
  Selling, marketing and distribution         6,000,000      11,649,000         9,400,000        4,592,000           61,000
  Goodwill and intangible asset
    amortization                              4,046,000       4,067,000         3,781,000        3,602,000          412,000
  Depreciation                                2,665,000       3,437,000         2,902,000        2,575,000          820,000
  Impairment of intangible assets             2,637,000              --                --               --               --
  Restructuring costs                                                             502,000        2,625,000               --
                                          -------------   -------------     -------------    -------------    -------------
Total operating expenses                     29,614,000      39,243,000        40,752,000       44,440,000       62,057,000
                                          -------------   -------------     -------------    -------------    -------------

Operating loss                              (23,247,000)    (32,492,000)      (35,468,000)     (39,223,000)     (61,685,000)

Other (income) expense:
Royalty and licensing (income) expense           (2,000)         22,000          (855,000)        (176,000)         150,000
Interest income                                (378,000)     (1,217,000)       (1,069,000)      (2,972,000)      (2,216,000)
Interest expense                                181,000           8,000         1,903,000        2,036,000          196,000
Gain on sale of equity investments                   --      (3,231,000)               --               --               --
Contract settlement                                  --              --                --          900,000               --
Minority interest in net loss of
  consolidated subsidiaries                          --              --                --       (4,161,000)      (3,474,000)
Other, net                                      262,000          21,000           226,000          113,000         (142,000)
                                          -------------   -------------     -------------    -------------    -------------
Total other (income) expenses                    63,000      (4,397,000)          205,000       (4,260,000)      (5,486,000)

Net loss                                    (23,310,000)    (28,095,000)      (35,673,000)     (34,963,000)     (56,199,000)
                                          -------------   -------------     -------------    -------------    -------------

Preferred stock dividends                    (6,640,000)     (6,371,000)       (4,418,000)      (3,988,000)        (166,000)
                                          -------------   -------------     -------------    -------------    -------------

Net loss applicable to common stock       $ (29,950,000)  $ (34,466,000)    $ (40,091,000)   $ (38,951,000)   $ (56,365,000)
                                          =============   =============     =============    =============    =============

Basic and diluted loss per share          $       (1.45)  $       (1.84)    $       (2.24)   $       (2.32)   $       (4.07)
                                          =============   =============     =============    =============    =============
Weighted average number of shares of
common stock outstanding                     20,697,000      18,761,000        17,861,000       16,821,000       13,864,000
                                          =============   =============     =============    =============    =============
</TABLE>

The share and loss per share data has been restated to retroactively reflect
the one-for-four reverse stock split in June 2000 (see Note 3 to the
Consolidated Financial Statements).

Consolidated Balance Sheets Data:

<TABLE>
<CAPTION>
                                               2001            2000              1999             1998              1997
                                               ----            ----              ----             ----              ----
<S>                                       <C>              <C>              <C>              <C>              <C>
Working capital                           $   4,013,000   $  16,891,000     $ 28,831,000     $ 32,017,000     $ 61,354,000
Total assets                                 44,514,000      75,455,000       93,839,000       89,344,000      121,947,000
Total liabilities                             6,264,000      14,015,000       10,625,000       40,529,000       34,239,000
Minority interest in subsidiary                      --              --               --               --        4,161,000
Accumulated deficit                        (224,824,000)   (199,373,000)    (169,398,000)    (133,533,000)     (98,570,000)
Shareholders' equity                         38,250,000      61,440,000       83,214,000       48,815,000       83,547,000
</TABLE>

                                      19

<PAGE>

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

On August 31, 2001 the Company and NCI (together, the "Nexell Group") completed
the sale to Baxter of certain assets and liabilities of the Nexell Group's cell
processing business (including trade receivables, inventory and fixed assets and
all of the stock of the Company's wholly owned subsidiary, Nexell International
Sprl) as well as worldwide sales, marketing and distribution rights for the
related products (including the Isolex/R/ 300i Magnetic Cell Selection System)
for a purchase price of $4,687,000, and royalties on future product sales (the
"Transaction"). At closing $2,586,000 of the purchase price was paid and the
balance was paid in March 2002 pursuant to a settlement agreement that was
entered into to resolve certain disagreements between the parties. Pursuant to
the Transaction, Baxter offered certain Nexell Group employees positions with
Baxter. Consistent with the Nexell Group's streamlined business plans, the
Company's permanent workforce has been reduced to 24 employees from 105 at
December 31, 2000. The Company recorded a charge of approximately $145,000 in
the third quarter related to severance and/or related costs, and the transfer of
distribution responsibilities. The full impact of spending reductions on
operating results was first realized in December 2001.

As a result of the Transaction, substantially all of the Company's current
revenue-producing activities have ceased, and the Company is focusing on
development of proprietary cellular therapy products. In addition, as noted in
the Company's March 28, 2002 press release, the Company's cash and cash
equivalents are insufficient to fund projected operating expenses through the
current fiscal year, and based on the Company's current projections will not
fund operations beyond June 2002.

The Transaction was effected pursuant to the terms of an Asset Purchase
Agreement dated August 3, 2001 among the Company, NCI and Baxter ("Asset
Purchase Agreement"); a Distribution and License Agreement dated August 31, 2001
between Baxter and NCI; a Sublicense Agreement of the First BD Sublicense dated
August 31, 2001 between Baxter and NCI; a Sublicense Agreement of the Second BD
Sublicense dated August 31, 2001 between Baxter and NCI; a Sublicense Agreement
of the Dorken Sublicense dated August 31, 2001 between Baxter and NCI; a
Sublicense Agreement of the Public Health Service Biological Materials License
dated August 31, 2001 between Baxter and NCI; a Sublicense Agreement of the
Diaclone Monoclonal Antibody License dated August 31, 2001 between Baxter and
NCI; an Employee Lease Agreement dated August 31, 2001 among Baxter, the Company
and NCI; and a Supply Agreement dated August 31, 2001 between Baxter and NCI.

Pursuant to the Asset Purchase Agreement, the following agreements between
Baxter and NCI were terminated on August 31, 2001: (i) Hardware and Disposable
Supply Agreement dated December 17, 1997; (ii) US and Canada Instrument Services
Agreement dated June 30, 1999; (iii) Hardware and Disposables Manufacturing
Agreement dated December 17, 1997; (iv) Antibody Manufacturing and Storage
Agreement dated December 17, 1997; (v) Royalty Assignment and Agreement dated
December 17, 1997; (vi) Equipment Lease Agreement dated December 21, 2000; and
(vii) Instrument Services Agreement dated November 30, 1999.

Additionally, certain other non-recurring items were recorded in the third and
fourth quarters of 2001 that were associated with the events described above.
These included direct transaction costs of approximately $500,000; a write-down
of approximately $2,637,000 related to certain intangibles that were impaired as
a result of the transaction; and cumulative foreign exchange losses of
approximately $594,000. In the third quarter of 2001, write-downs of inventory
that the Company believed would have otherwise been saleable in the ordinary
course of business but which Baxter elected not to purchase and were no longer
saleable by the Company due to non-compete provisions in the agreements resulted
in a charge to cost of sales of approximately $1,182,000. As a result of the
final negotiated settlement and reconciliation of the asset purchase price, the
Company recorded a reversal in the fourth quarter of $1,739,000 of previously
recognized cost of sales.

The asset purchase price receivable was offset by $716,000 due to the net effect
of payments made and receipts collected by Nexell on Baxter's behalf subsequent
to execution of the transaction. In addition, in February 2002, Baxter purchased
and paid for additional inventory that had originally been excluded from the
transaction and written down to a net realizable value of zero for cash
consideration of $1,465,000. An additional $150,000 is payable to Nexell for its
provision of extended transition services to Baxter.

Critical Accounting Policies and Estimates

The Company's discussion and analysis of its financial condition and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities as of the dates of the balance sheets and revenues and expenses for
the periods presented. Therefore, on an ongoing basis, the Company evaluates its
estimates, including assessing the valuation of intangible assets.

The Company considers the valuation of intangible assets to be the critical
accounting policy that is important to the portrayal of the Company's financial
condition and results of operations.

The Company evaluates intangible assets, including goodwill, in accordance with
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
("FAS 121"). This Statement requires that intangibles and other long-lived
assets be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. As a
result of the Asset Purchase Agreement with Baxter in August 2001 and the
reductions in the Company's work force it was determined that such an evaluation
was appropriate at that time. In such a circumstance FAS 121 requires that
recoverability be based upon an estimate of expected undiscounted future cash
flows. The Company performed such an evaluation in the third quarter of 2001 and
based on current projections it was determined that no impairment of goodwill
and related intangibles had been realized. The Company updated such projections
at year end and performed a similar analysis with the same results. Given the
Company's near-term liquidity issues and market value of the Company's Common
Stock, several additional factors were considered. These included the Company's
market value on a fully diluted basis assuming conversion of its two series of
Preferred Stock; the results of an independent third party valuation analysis
performed in anticipation of adopting FAS 142; and other considerations.

YEARS ENDED DECEMBER 31, 2001 AND 2000

Net sales in fiscal 2001 decreased to $13,180,000 from $18,180,000 in fiscal
2000, a decrease of $5,000,000 or 28%. This decrease was primarily the result of
the termination of substantially all revenue-producing activities by Nexell
after August 2001 as a result of the Transaction as described above. Net sales
in 2001 includes only eight months of product revenue as a result of the
transfer of sales, marketing and distribution of NCI's Toolbox products to
Baxter in August 2001 described above. Sales for the first eight months of 2001
increased as a result of the United States FDA approval of the improved 2.5
version of the Isolex device in mid 2000 and more aggressive sales strategy
implemented in late 2000. The 2.5 version had improved performance and gradually
resulted in better market acceptance. In June 2001, Nexell launched a major new
product, the CytoMate cell washer. Both of these activities positively impacted
sales in the eight months ended August 31, 2001, as reflected by the first and
second quarter results.

The gross profit in fiscal 2001 decreased to $6,367,000 from $6,751,000, a
decrease of $384,000 or 6%. In addition to 2001 including only eight months of
gross profit, the Company realized a net decrease in cost of sales as a result
of the final settlement of the transaction with Baxter as described above.
Exclusive of these non-recurring adjustments the Company's gross profit for 2001
was 44%. The remaining increase was principally the result of changes in sales
mix, particularly a relative decline in sales of lower margin devices favorably
impacted gross profit in 2001.

Total operating expenses decreased from $39,243,000 in 2000 to $29,614,000 in
2001, a decrease of $9,629,000 or 25%. This decrease was principally the result
of focused headcount and employee related expense reductions in October 2001 and
the transfer of the

                                      20

<PAGE>

Company's cell processing business to Baxter on August 31, 2001. While the
impact of the latter was not fully realized until December 2001 due to certain
offsetting non-recurring charges, including severance, it did result in the
immediate elimination of all sales, marketing and distribution expenses.

     Research and development expenses decreased $4,909,000 or 45% from
$10,828,000 in 2000 to $5,919,000 in 2001. The decrease reflects the shift in
business strategy to focus Company efforts on development of cell-based
therapeutic products, and termination of all research and development activities
related to the Company's cell processing business.

     General and administrative expenses decreased $915,000 or 10% from
$9,262,000 in 2000 to $8,347,000 in 2001. This decrease reflects reduced
expenses resulting from the implementation of the Company's strategic plan in
late 2000 and the impact of spending reductions effective with the close of the
Baxter transaction in August 2001. Both the implementation of the strategic plan
in late 2000 and the Baxter transaction in 2001 resulted in reductions in
headcount in October 2000 and August 2001, respectively. As of December 31, 2001
the Company had 24 full time employees. These expense reductions were partially
offset by non-recurring charges incurred in the third and fourth quarters of
2001 as a result of the transaction with Baxter and the related restructure.
These non-recurring items included approximately $0.5 million for direct
transaction costs, $0.6 million for severance and related costs, a charge of
approximately $1,250,000 related to the impairment of certain fixed assets held
for disposal and $0.6 million for retention bonuses earned as of December 31,
2001.

     Selling, marketing and distribution expenses decreased from $11,649,000 in
2000 to $6,000,000 in 2001, a decrease of $5,649,000 or 48%. The decrease
results from the transfer of the sales and distribution responsibilities to
Baxter related to the license distribution agreement on August 31, 2001,
including transfer of a European headquarters with a fully staffed sales and
marketing function to Baxter and decreased marketing activities in anticipation
of the exit from the cell processing business. Effective September 1, 2001 all
sales, marketing and distribution expenses were eliminated.

     Goodwill and intangible asset amortization decreased by $21,000 or 1% to
$4,046,000 in 2001 from $4,067,000 in 2000. This was the result of the decrease
in amortization as a result of the write down of intangibles impaired as a
result of the transaction with Baxter partially offset by the acquisition of
licenses for manufacturing components of the cellular products in 2001.

     Depreciation expense decreased from $3,437,000 in 2000 to $2,665,000 in
2001, a decline of $772,000 or 22%. This decrease was principally the result of
the sale of fixed assets related to the cell processing business as part of the
transaction with Baxter. Additionally, the Company discontinued depreciation on
certain fixed assets held for disposal as a result of the changes in the
Company's business.

     An impairment of intangible assets of $2,637,000 occurred in 2001 as a
result of the transaction with Baxter and the Company's exit from the cell
processing business. There was no comparable expense in 2000. The impaired
intangible related to amounts allocated to workforce in the 1997 acquisition of
the Immunotherapy Division of the Biotech Business Group of Baxter.

     Other expense was $63,000 in 2001 while other income of $4,397,000 was
recognized in 2000, a change of $4,460,000. In 2000, the Company recognized a
gain on the sale of an equity investment of $3,231,000 that did not recur in
2001. Additionally, interest income declined by $839,000 from 2000 as a result
of lower interest rates and the Company maintaining lower average cash balances.
Interest expense increased from $8,000 in 2000 to $181,000 in 2001 due to
interest on the Company's capital lease with Baxter which began in December 2000
and was terminated in August 2001.

     The foregoing resulted in a net loss of $23,310,000 for fiscal 2001, a
decreased loss of $4,785,000 or 17% from the 2000 net loss of $28,095,000. The
net loss applicable to common stock likewise declined by $4,516,000 or 13% from
$34,466,000 in 2000 to $29,950,000 in 2001.

YEARS ENDED DECEMBER 31, 2000 AND 1999

     Net sales in fiscal 2000 increased to $18,180,000 from $14,961,000 in
fiscal 1999, an increase of $3,219,000 or 22%. This increase was the result of
several factors. There were also factors that negatively impacted net sales in
2000. Both these positive and negative factors are summarized as follows:

     .  changes in the Company's Marketing, Sales and Distribution Agreement
        ("Distribution Agreement") with Baxter in the last half of 1999;

     .  regulatory approval of the Isolex 300i in the United States in July
        1999;

     .  sales force issues;

     .  marketplace factors; and

     .  foreign currency impacts.

     Through June 1999, Baxter had exclusive worldwide distribution rights for
NCI's products and, therefore sales for the six months

                                      21

<PAGE>

ended June 30, 1999 represented sales made to Baxter. See Item 1 -
"Relationship with Baxter Healthcare Corporation" regarding termination of the
Distribution Agreement in 1999. In 1999, sales were decreased by $4,359,000 as
a result of non-recurring charges to repurchase unsold inventory from Baxter as
a result of the termination of the Distribution Agreement. In addition, sales
were increased in 2000 as a result of the United States approval of the Isolex
300i system in July 1999.

     The termination of the Distribution Agreement and subsequent turnover of
the European sales force resulted in a significant rebuilding of the European
sales function which was not completed until the second quarter of 2000.
Similarly, the training of a United States sales force following approval of the
Isolex 300i system was not completed until the end of the first quarter of 2000.
Both of these factors negatively impacted 2000 net sales.

     In the Spring of 2000, an apparent decrease in the total number of new
Investigational Device Exemptions (IDE's), in the Company's view, affected
customer use of the Company's products in research protocols. Management
believes this adversely impacted associated sales of its approved kit and
disposable products. Also in the Spring of 1999, data presented from non-Company
studies indicated that high dose chemotherapy showed no significant benefit
versus conventional therapy for the treatment of breast cancer, which
significantly reduced the selection market in this field of use.

     As a result of the restructuring of the Distribution Agreement, beginning
in December 1999 the Company made direct sales to European customers. Prior to
that time, all sales had been made to Baxter for global distribution in United
States dollars. Sales subsequent to December 1999 were negatively impacted by
the declining value of the Euro in relation to the United States dollar
throughout 2000.

     The gross profit in fiscal 2000 increased to $6,751,000 from $5,284,000, an
increase of $1,467,000 or 28%. The gross profit percentage in 2000 was 37%
versus 35% in 1999. The increase in the gross profit percentage relates to costs
recorded in 1999 related to the impact of changes in the Distribution Agreement,
spreading substantially fixed overhead costs over a large sales base and changes
in sales mix.

     Total operating expenses decreased from $40,752,000 in 1999 to $39,243,000
in 2000, a decrease of $1,509,000 or 4%. Factors in this decrease are discussed
below.

     Research and development expenses decreased $4,415,000 or 29% from
$15,243,000 in 1999 to $10,828,000 in 2000. The decrease resulted from the
wind-down of former Innovir activities and reduced new product development costs
after the initial approval of the Isolex 300i.

     General and administrative expenses increased $338,000 or 4% to $9,262,000
in 2000 from $8,924,000 in 1999. This increase was primarily due to one-time
charges related to separation agreements with former employees, including
certain officers, as a result of which the Company incurred charges for
severance and acceleration of stock option vesting and increased headcount and
related costs to support the July 1999 launch of the Isolex system. These were
partially offset by reductions in headcount in October 2000 consistent with the
Company's recently completed strategic planning.

     Selling, marketing and distribution expenses increased to $11,649,000 in
2000 from $9,400,000 in 1999, an increase of $2,249,000 or 24%. The increase
related to 1) the ramp up of marketing efforts for the U.S. launch of the
Isolex/R/ 300 and Isolex/R/ 300i, which received final approval from the FDA in
July 1999, and 2) the assumption of the direct sales and distribution
responsibilities from Baxter related to the restructuring of the Distribution
Agreement on June 30, 1999, including creation of a European headquarters in
December 1999 with a fully staffed sales and marketing function.

     Goodwill and intangible asset amortization increased by $286,000 or 8% to
$4,067,000 in 2000 from $3,781,000 in 1999. This was the result of the
acquisition of certain assets of CellPro Incorporated in January 1999, the
acquisition of Baxter's minority interest in NCI in May 1999 and the acquisition
of several antibody licenses in 1999 and 2000.

     Depreciation expense increased from $2,902,000 in 1999 to $3,437,000 in
2000, an increase of $535,000 or 18%. This increase was principally the result
of the increased placement of devices following U.S. approval of the Isolex/R/
300i device and establishment of a European sales office in 1999.

     Restructuring costs of $502,000 were incurred in 1999 related to the
Company's relocation of its corporate headquarters. This did not recur in 2000.

     Other income was $4,397,000 in 2000 while other expense of $205,000 was
incurred in 1999. Significant factors in this change are discussed below.

     Net royalty and licensing expense was $22,000 in 2000 while net royalty and
licensing income of $855,000 was realized in 1999. This change was primarily
related to the sale and licensing of certain Innovir assets to Ribozyme
Pharmaceuticals Inc. ("RPI") and Amgen, Inc. in 1999.

     Interest income increased from $1,069,000 in 1999 to $1,217,000 in 2000 due
to improved performance in the Company's mutual

                                      22

<PAGE>

fund in which it invests the majority of its excess cash and improved cash
management.

     Interest expense decreased from $1,903,000 in 1999 to $8,000 in 2000 as a
result of the repayment of approximately $34,000,000 in convertible debentures
from the proceeds of the Company's private placement financing that was
completed in November 1999.

     The gain on sale of equity investment of $3,231,000 in 2000 was a result of
the sale of the Company's investment in RPI common stock in August 2000.

     The foregoing resulted in a net loss of $28,095,000 for fiscal 2000, a
decreased loss of $7,578,000 or 21% from the 1999 net loss of $35,673,000. The
net loss applicable to common stock likewise declined by $5,625,000 or 14% from
$40,091,000 in 1999 to $34,466,000 in 2000.

LIQUIDITY AND CAPITAL RESOURCES

     The Company has received a report from its independent auditors for the
fiscal year ended December 31, 2001 containing an explanatory paragraph that
describes the substantial doubt as to the Company's ability to continue as a
going concern due to its recurring losses from operations, negative cash flow
from operations and need for continued funding. As noted above, as a result of
the Transaction substantially all of the Company's revenue-producing activities
have ceased. Management's plans to continue as a going concern rely on raising
additional financing, reducing operating expenses, liquidating certain assets
and/or other restructuring alternatives. Any of these may have a material
adverse effect on the Company's business. In addition, management is currently
analyzing and exploring various financial, strategic and restructuring
alternatives available to the Company, including a strategic alliance, the
possible sale of all or a portion of the Company or liquidation. There can be no
assurance that any such transaction will occur or as to the impact of such
transaction on the Company's business but it is likely that any such transaction
would result in substantial shareholder dilution. In addition, in order to
complete such transactions, it may be necessary to simplify the Company's
capital structure by converting its existing two series of Preferred Stock to
Common Stock, thereby eliminating the liquidation preferences of such Preferred
Stock. In such an event it is possible that in connection with the conversion of
the Series B Preferred Stock pursuant to the Side Letter Agreement or otherwise,
Baxter could own substantially in excess of a majority of the outstanding Common
Stock. It is likely that the holders of the Series B Preferred Stock will put
their stock to Baxter as described in the Side Letter Agreement or otherwise, in
which case the conversion price of the Series B Preferred Stock would be
adjusted. Conversion of the Series B Preferred Stock at the adjusted conversion
price would result in substantial dilution of the Common Stock and in Baxter
owning substantially in excess of a majority of the outstanding Common Stock.
See "Relationship with Baxter Healthcare Corporation -- November 1999 Private
Placement Financing."

     The Company expects to incur substantial expenditures in the foreseeable
future for the research and development and ultimate commercialization of its
proposed cellular therapy products. Based on current projections, which are
subject to change, the significant reduction in spending that resulted from the
Company's restructure and management's ability to liquidate certain assets if
necessary, the Company's management believes that the current balance of cash
and cash equivalents is sufficient to fund its remaining operations into
approximately June 2002. Thereafter, the Company will require additional funds,
which it has sought and is seeking to raise through public or private equity or
debt financings, collaborative or other arrangements with corporate sources, or
through other sources of financing including potential merger, sale or
restructuring transactions. There can be no assurance that such additional funds
will be available to the Company on terms favorable to the Company, or at all,
and the Company's operations could be negatively materially impacted by the need
to further adjust spending and/or liquidate assets. An effort to raise funds
through a private placement of equity securities was terminated in the first
quarter of 2002 principally to allow the Company to direct its focus on
potential business combinations.

     The Company had $5,092,000 in cash and cash equivalents as of December 31,
2001 as compared to $12,119,000 as of December 31, 2000. Cash and cash
equivalents were approximately $6,300,000 on March 25, 2002 and, based on
current projections, will not fund operations beyond June 2002. Working capital
was $4,013,000 at December 31, 2001 as compared to $16,891,000 at December 31,
2000. The $7,027,000 decrease in cash and cash equivalents in 2001 resulted from
cash used in the operations of the Company of $10,597,000 partially offset by
cash provided by investing activities of $2,039,000 and cash provided by
financing activities of $1,308,000. The $12,878,000 decrease in working capital
principally resulted from the decrease in cash, a $1,857,000 decrease in
short-term marketable securities and decreases in net current assets as a result
of the transfer of the Company's cell processing business.

     Net cash used in operations was $10,597,000 in 2001 compared to $24,077,000
in 2000 and $27,851,000 in 1999, principally due to operating losses less
depreciation, amortization and other non-cash charges.

     Net cash provided by investing activities was $2,039,000 in 2001 compared
to $2,951,000 in 2000 and cash use of $3,172,000 in 1999. In 2001, the Company
received cash proceeds of $2,586,000 as a result of the asset sale to Baxter.
Proceeds from the sale of short-term marketable securities were $3,818,000 in
2000. The Company had no similar proceeds from investing activities in 1999 and
had a higher level of equipment purchases in 2000 related to placement of
devices subsequent to U.S. FDA approval.

     Net cash provided by financing activities was $1,308,000 in 2001 compared
to $4,716,000 in 2000 and $26,632,000 in 1999. Cash provided by financing
activities in 2001 consisted of net proceeds from the Acqua Wellington financing
of $3,865,000 partially offset by dividend payments, and capital lease
payments. Cash provided by financing activities in 2000 consisted of proceeds
from the issuance of common stock in connection with option and warrant
exercises and from the sale of equipment subject to leaseback partially offset
by the payment of preferred stock dividends. Cash provided by financing
activities in 1999 consisted primarily of net proceeds from the sale of
preferred stock partially offset by the repayment of long term debt.

     Cash dividends are payable on the Company's Series B Preferred Stock at the
rate of 3% of the liquidation preference, payable semi-annually and will be
approximately $1,900,000 per year (see Note 10 to the Consolidated Financial
Statements for a description

                                      23

<PAGE>

of the Series B Preferred Stock).

     During the third quarter of 2001, the Company implemented a severance,
retention and performance bonus policy which superseded all such programs
previously in effect. Under this policy maximum cash severance and retention
payments of approximately $982,000 and maximum performance bonuses of
approximately $423,000 could be payable. The severance benefit provides for
payment of 2, 4 or 8 weeks pay depending on the employee's responsibilities. The
retention bonus was designed as an incentive in retaining employees through
December 31, 2001 following the head count reductions occurring earlier in the
year. The performance bonus is payable only on the successful achievement of
critical milestones. An additional reserve was established for $272,000 for
outplacement services and benefits including COBRA cost reimbursement and
employer taxes. Such amounts became or will become payable in the event of an
employee's involuntary termination without cause and/or achievement of specific
performance objectives within specified time frames. The Company made severance
payments of $206,000 in October 2001. Additionally, retention payments totaling
$584,000 earned and accrued as of December 31, 2001 were made in January 2002.
In addition to the above, the Company has obligations related to accrued
vacation and holiday pay.

     The Company's Common Stock is currently traded on the Nasdaq National
Market which imposes, among other requirements, listing maintenance standards,
minimum bid and public float requirements. For example, if the closing bid price
of the Common Stock is under $1.00 per share for 30 consecutive trading days,
Nasdaq may choose to notify the Company that it may delist the Common Stock from
the Nasdaq National Market. If the closing bid price of the Common Stock does
not thereafter regain compliance for a minimum of 10 consecutive trading days
during the 90 days following notification by Nasdaq, Nasdaq may delist the
Common Stock from trading on the Nasdaq National Market. NASDAQ National Market
maintenance standards also require a minimum shareholders equity of $10,000,000,
or, until November 1, 2002, "net tangible assets" of $4,000,000. There can be no
assurance that the Common Stock will remain eligible for trading on the Nasdaq
National Market. If the stock were delisted, the ability of the Company's
shareholders to sell their Common Stock would be negatively impacted. The
Company's publicly held warrants which are currently traded on Nasdaq also could
be subject to delisting.

NEW & PROPOSED ACCOUNTING STANDARDS

     In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations (SFAS 141), and SFAS 142, Goodwill and Other Intangible Assets.
SFAS 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001 as well as all purchase
method business combinations completed after June 30, 2001. SFAS 141 also
specifies criteria intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill, noting
that any purchase price allocable to an assembled workforce may not be accounted
for separately. SFAS 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually. SFAS 142 will also require that intangible assets
with definite useful lives be amortized over their respective estimated useful
lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of.

     The Company was required to adopt the provisions of SFAS 141 immediately,
and is required to adopt the provisions of SFAS 142 effective January 1, 2002.
Furthermore, any goodwill and any intangible asset determined to have an
indefinite useful life that are acquired in a purchase business combination
completed after June 30, 2001 will not be amortized, but will continue to be
evaluated for impairment in accordance with the appropriate pre-SFAS 142
accounting literature. Goodwill and intangible assets acquired in business
combinations completed before July 1, 2001 continued to be amortized prior
to the adoption of SFAS 142.

     SFAS 141 will require, upon adoption of SFAS 142, that the Company evaluate
its existing intangible assets and goodwill that were acquired in a prior
purchase business combination, and to make any necessary reclassifications in
order to conform with the new criteria in SFAS 141 for recognition apart from
goodwill. Upon adoption of SFAS 142, the Company will be required to reassess
the useful lives and residual values of all intangible assets acquired in
purchase business combinations, and make any necessary amortization period
adjustments by the end of the first interim period after adoption. In addition,
to the extent an intangible asset is identified as having an indefinite useful
life, the Company will be required to test the intangible asset for impairment
in accordance with the provisions of SFAS 142 within the first interim period.
Any impairment loss will be measured as of the date of adoption and recognized
as the cumulative effect of a change in accounting principle in the first
interim period.

     In connection with the transitional goodwill impairment evaluation, SFAS
142 will require the Company to perform an assessment of whether there is an
indication that goodwill is impaired as of the date of adoption. To accomplish
this, the

                                      24

<PAGE>

Company must identify its reporting units and determine the carrying value of
each reporting unit by assigning the assets and liabilities, including the
existing goodwill and intangible assets, to those reporting units as of the
date of adoption. The Company will then have up to six months from the date of
adoption to determine the fair value of each reporting unit and compare it to
the reporting unit's carrying amount. To the extent a reporting unit's carrying
amount exceeds its fair value, an indication exists that the reporting unit's
goodwill may be impaired and the Company must perform the second step of the
transitional impairment test. In the second step, the Company must compare the
implied fair value of the reporting unit's goodwill, determined by allocating
the reporting unit's fair value to all of it assets (recognized and
unrecognized) and liabilities in a manner similar to a purchase price
allocation in accordance with SFAS 141, to its carrying amount, both of which
would be measured as of the date of adoption. This second step is required to
be completed as soon as possible, but no later than the end of the year of
adoption. Any transitional impairment loss will be recognized as the cumulative
effect of a change in accounting principle in the Company's statement of
operations.

     As of the date of adoption, the Company had unamortized goodwill in the
amount of $25,122,000 and unamortized identifiable intangible assets in the
amount of $7,615,000 all of which will be subject to the transition provisions
of SFAS 141 and 142. Amortization expense related to goodwill was $2,955,000,
$2,955,000 and $2,719,000 for the years ended December 31, 2001, 2000 and 1999,
respectively.

     In October 2001, the FASB issued Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS 144), which addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. SFAS 144 supersedes Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the
accounting and reporting provisions of APB Opinion No. 30, Reporting the Results
of Operations - Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,
for the disposal of a segment of a business. SFAS 144 retains the requirement in
Opinion No. 30 to report separately discontinued operations and extends that
reporting to a component of an entity that either has been disposed of or is
classified as held for sale.

     The Company is required and plans to adopt the provisions of SFAS 144 for
the quarter ending March 31, 2002. Based upon an independent third party
evaluation, the Company anticipates that the adoption of SFAS 141, SFAS 142 and
SFAS 144 on January 1, 2002 will have no material impact on its financial
statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     In the normal course of business, operations of the Company are exposed to
risks associated with fluctuations in interest rates and foreign currency
exchange rates.

INTEREST RATE RISK

     The Company maintains excess cash in a mutual fund, the "BlackRock Low
Duration Bond Portfolio" (the "fund"), which invests in asset backed securities,
bonds and various other commercial obligations. The fund may, from time to time,
use certain derivatives in its investment strategy. Additionally, the Company
maintains excess cash required for short-term needs in daily money market funds
with financial institutions.

     Two of the main risks disclosed by the fund are interest rate risk and
credit risk. Typically, when interest rates rise, there is a corresponding
decline in the market value of bonds such as those held by the fund. Credit risk
refers to the possibility that the issuer of the bond will not be able to make
principal and interest payments. The Company addresses these risks by actively
monitoring the fund's performance and investment holdings. The Company does not
enter into financial instruments for trading or speculative purposes.

     The Company's interest income is most sensitive to fluctuations in the
general level of U.S. interest rates. In this regard, changes in U.S. interest
rates affect the interest earned on the Company's cash as well as the value of
the mutual fund in which excess cash is invested.

     The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's investment of excess cash in a mutual fund, which
invests in asset backed securities, bonds and various other commercial
obligations. The fund may, from time to time, use certain derivatives in its
investment strategy. The fund's portfolio managers make all investment decisions
and the Company has no control over such investment decisions or the fund's use
of derivatives.

FOREIGN CURRENCY RISK

The Company has no current exposure to foreign currency risk as a result of the
sale of its international subsidiary to Baxter under

                                      25

<PAGE>

terms of the asset purchase agreement.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     See Index to Financial Statements on page F-1.

     Financial Statement Schedule:
         Schedule II - Valuation and Qualifying Accounts for the years ended
         December 31, 2001, 2000, and 1999.

     All other financial statement schedules are omitted because they are not
applicable or the required information is disclosed in the Consolidated
Financial Statements or notes thereto.

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

     Not Applicable.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     Certain of the information required in response to this item is
incorporated by reference to the 2002 Proxy Statement or if the 2002 Proxy
Statement is not filed within 120 days of the Company's fiscal year end, such
information will be included in an amendment to this Form 10-K filed within such
time frame. See also "Executive Officers of the Company" hereinabove.

ITEM 11.  EXECUTIVE COMPENSATION.

     The information required in response to this item is incorporated by
reference to the 2002 Proxy Statement or if the 2002 Proxy Statement is not
filed within 120 days of the Company's fiscal year end, such information will be
included in an amendment to this Form 10-K filed within such time frame.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The information required in response to this item is incorporated by
reference to the 2002 Proxy Statement or if the 2002 Proxy Statement is not
filed within 120 days of the Company's fiscal year end, such information will be
included in an amendment to this Form 10-K filed within such time frame.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The information required in response to this item is incorporated by
     reference to the 2002 Proxy Statement or if the 2002 Proxy Statement is not
     filed within 120 days of the Company's fiscal year end, such information
     will be included in an amendment to this Form 10-K filed within such time
     frame.

                                     PART IV

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

(a)      Lists.

     1.  See Index to Financial Statements on page F-1.

     2.  See Item 8 regarding financial statement schedules.

     3.  Exhibits.

                                      26

<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number           Description
-------          -----------
<S>              <C>
2.4              Asset Purchase Agreement dated October 10, 1997 by and among Baxter
                 Healthcare Corporation ("Baxter"), the Company and NCI(1)

2.5              Asset Acquisition Agreement dated February 18, 1999, by and among
                 Baxter, the Company and NCI (2)

2.6              Securities Agreement dated as of November 24, 1999 among the Company
                 and the Purchasers named in Schedule I thereto (certain schedules are omitted
                 and the Company agrees to furnish supplementally a copy to the Commission upon
                 request) (3)

2.7              Asset Purchase Agreement dated as of August 3, 2001 among the Company,
                 NCI and Baxter (schedules are omitted from this agreement and Exhibits 10.89
                 through 10.96 filed herewith, and the Company agrees to furnish supplementally a
                 copy of any schedule to the Commission upon request). (34)

3.1              The Company's Amended and Restated Certificate of Incorporation as
                 amended to date (24)

3.2              The Company's Amended and Restated By-Laws as amended to date (25)

4.4              Warrant Agreement dated June 17, 1996 between the Company and American
                 Stock Transfer & Trust Company (4)

4.5              The Certificate of Amendment of the Certificate of Incorporation of the
                 Company filed with the Delaware Secretary of State on December 16, 1997 creating
                 the Series A Preferred Stock and amendments subsequent thereto (included in
                 Exhibit 3.1 above)

4.6              The Certificate of Amendment of the Certificate of Incorporation of the
                 Company filed with the Delaware Secretary of State on May 25, 1999 modifying the
                 Series A Preferred Stock (included in Exhibit 3.1 above)

4.7              The Company's Series 1 6 1/2% Convertible Subordinated Debenture Due
                 November 30, 2004 issued May 28, 1999 to Baxter (5)

4.8              The Company's Series 1 6 1/2% Convertible Subordinated Debenture Due
                 November 30, 2004 issued May 28, 1999 to Baxter (5)

4.9              The Company's Certificate of Designation filed with the Delaware
                 Secretary of State on November 24, 1999  creating the Series B Preferred Stock
                 (included in Exhibit 3.1 above)

10.3             The Company's Amended and Restated 1990  Incentive and Non-Incentive
                 Stock Option Plan, as amended to date (35)*

10.11            The Company's 1995 Outside Directors Stock Option Plan (7)*

10.12            Letter agreement dated August 7, 1995 between the Company and Lindsay
                 A. Rosenwald, M.D. (7)*

10.13            Stock Option Agreement dated August 7, 1995 between the Company and
                 Lindsay A. Rosenwald, M.D. (7)*

10.14            Consulting and Stock Option Agreement dated November 17, 1995 between
                 the Company and Eric A. Rose, M.D. (7)*

10.15            Stock Option Agreement dated November 17, 1995 between the Company
                 and Donald G. Drapkin (7)*

10.16            The Company's 1996 Non-Employee Director Restricted Stock Award Plan
                 (7)*

10.18            Research Agreement dated as of March 7, 1997 among the Company, The
                 Trustees of Columbia University in the City of New York and Vimrx Genomics, Inc.
                 (8)

10.20            Employment Agreement dated October 30, 1996 between the Registrant
                 and Richard L. Dunning (4)*

10.21            Employment Agreement dated August 26, 1996 between the Registrant and
                 David A. Jackson, Ph.D. (4)*
</TABLE>

                                      27

<PAGE>

<TABLE>
<S>              <C>
10.22            Factor IX Research Agreement dated March 28, 1997 between
                   Registrant and the Trustees of Columbia University in the
                   City of New York (9)

10.24            Employment Agreement dated May 19, 1997 between the Company and
                   L. William McIntosh (10)*

10.24(a)         Letter Agreement dated May 28, 1998 between NCI and L. William
                   McIntosh (2)*

10.24(b)         Letter Agreement dated May 28, 1998 between the Company and L.
                   William McIntosh (2)*

10.25            Hardware and Disposables Manufacturing Agreement between NCI
                   and Baxter, dated as of December 17, 1997 (11)

10.26            Antibody Manufacturing and Storage Agreement between NCI and
                   Baxter, dated as of December 17, 1997 (12)

10.27            Hardware and Disposables Supply Agreement between NCI and
                   Baxter, dated as of December 17, 1997 (13)

10.28            Marketing, Sale and Distribution Agreement between NCI and
                   Baxter, dated as of December 17, 1997 (14)

10.29            Non-Competition and Confidentiality Agreement between the
                   Company and Baxter, dated as of December 17, 1997 (15)

10.30            Sublicense (Chiron) between NCI and Baxter, dated as of
                   December 17, 1997 (16)

10.31            Sublicense (Dorken) between NCI and Baxter, dated as of
                   December 17, 1997 (17)

10.32            Sublicense (First Becton-Dickinson) between NCI and Baxter,
                   dated as of December 17, 1997 (18)

10.33            Sublicense (Second Becton-Dickinson) between NCI and Baxter,
                   dated as of December 17, 1997 (19)

10.34            Warrant, dated December 31, 1997, issued by Innovir to the
                   Company (20)

10.35            Agreement, dated December 31, 1997, between the Company and
                   Innovir relating to future equity purchases (20)

10.37            Termination Agreement dated November 11, 1998 between the
                   Company, VGI and Columbia (21)

10.38            Asset Purchase Agreement, dated October 28, 1998, between
                   CellPro, Incorporated and NCI (2)

10.39            The Company's Common Stock Purchase Warrant issued May 28, 1999
                   to Baxter (5)

10.40            Asset Transfer Agreement dated June 30, 1999 among the Company,
                   NCI and Baxter (22)

10.41            Royalty Agreement dated June 30, 1999 among the Company, NCI
                   and Baxter (22)

10.42            Credit Agreement dated June 30, 1999 between the Company and
                   Baxter (22)

10.43            Letter Agreement dated as of April 15, 1999 between the Company
                   and Richard L. Dunning (23)*

10.44            Letter Agreement dated as of August 20, 1999 between the
                   Company and L. William McIntosh (23)*

10.45            Letter Agreement dated as of April 15, 1999 between the Company
                   and David A. Jackson, Ph.D. (23)*

10.46            Form of Put Right Certificate (3)

10.47            Form of Class A Warrant (3)

10.48            Form of Class B Warrant (3)

10.49            Registration Rights Agreement dated as of November 24, 1999
                   among the Company and the Investors identified therein (3)

10.50              Side Letter Agreement dated as of November 24, 1999 among the
                   Company, Baxter International, Inc. and the
</TABLE>

                                      28

<PAGE>

<TABLE>
<S>              <C>
                 other parties signatory thereto (3)

10.51          Put Agreement dated as of November 24, 1999 between the Company and
                 Baxter International, Inc. (3)

10.52          Voting Agreement dated December 17, 1997 among Baxter, the Company
                 and certain other parties (27)

10.53          Registration Rights Agreement dated December 17, 1997 between Baxter
                 and the Company (27)

10.54          Non-Incentive Stock Option Agreement dated November 9, 1999 between
                 the Company and Joseph A. Mollica (27)*

10.55          Non-Incentive Stock Option Agreement dated November 9, 1999 between
                 the Company and Richard L. Casey (27)*
</TABLE>

                                      29

<PAGE>

<TABLE>
<CAPTION>

Exhibit
Number           Description
-------          -----------
<S>              <C>
10.56            Non-Incentive Stock Option Agreement dated November 9, 1999 between
                 the Company and Richard C. Piazza (27)*

10.57            Non-Incentive Stock Option Agreement dated November 9, 1999 between
                 the Company and Victor W. Schmitt (27)*

10.58            Non-Incentive Stock Option Agreement dated November 9, 1999 between
                 the Company and Victor W. Schmitt (27)*

10.59            Stock Option Agreement dated March 12, 1996 between the Company and
                 Donald G. Drapkin (27)*

10.60            Amendment dated May 25, 1999 to Consulting and Stock Option Agreement
                 dated November 17, 1995 between the Company and Eric A. Rose, M.D. (27)*

10.61            Amendment dated May 25, 1999 to Stock Option Agreement dated November
                 17, 1995 between the Company and Donald G. Drapkin (27)*

10.62            Form of Indemnification Agreement between the Company and Members of
                 the Board of Directors (27)

10.63            Amendment dated November 30, 1999 to Asset Transfer Agreement dated
                 June 30, 1999, among the Company, NCI and Baxter (27)

10.64            Distribution Agreement with Takara Shuzo Co., Ltd. (28)

10.65            Co-Development Agreement with Takara Shuzo Co., Ltd. (28)

10.66            Letter Agreement between L. William McIntosh and the Company dated
                 August 10, 2000 (29)*

10.67            Sale-leaseback agreement between Baxter Healthcare Corp. and the
                 Company dated December 21, 2000 (35)

10.68            Non-Incentive Stock Option Agreement dated February 18, 2000 between
                 the Company and Dennis E. Van Epps(35)*

10.69            Non-Incentive Stock Option Agreement dated July 3, 2000 between the
                 Company and William A. Albright, Jr.(35)*

10.70            Non-Incentive Stock Option Agreement dated July 3, 2000 between the
                 Company and Michel L. E. Bergh (35)*

10.71            Non-Incentive Stock Option Agreement dated July 3, 2000 between the
                 Company and Richard L. Dunning (35)*

10.72            Non-Incentive Stock Option Agreement dated July 3, 2000 between the
                 Company and David J. Hirsch (35)*

10.73            Non-Incentive Stock Option Agreement dated July 3, 2000 between the
                 Company and Amy Ross (35)*

10.74            Non-Incentive Stock Option Agreement dated July 3, 2000 between the
                 Company and Dennis E. Van Epps (35)*

10.75            Non-Incentive Stock Option Agreement dated October 10, 2000 between
                 the Company and David J. Hirsch (35)*

10.76            Non-Incentive Stock Option Agreement dated October 10, 2000 between
                 the Company and Daniel Levitt (35)*

10.77            Non-Incentive Stock Option Agreement dated October 10, 2000 between
                 the Company and Amy Ross (35)*

10.78            Non-Incentive Stock Option Agreement dated December 7, 2000 between
                 the Company and Richard L. Casey (35) *

10.79            Non-Incentive Stock Option Agreement dated December 7, 2000 between
                 the Company and Joseph A. Mollica (35)*
</TABLE>

                                      30

<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number           Description
-------          -----------
<S>              <C>
10.80            Non-Incentive Stock Option Agreement dated December 7, 2000 between
                 the Company and C. Richard Piazza (35)*

10.81            Non-Incentive Stock Option Agreement dated December 7, 2000 between
                 the Company and Eric A. Rose (35)*

10.82            Non-Incentive Stock Option Agreement dated December 7, 2000 between
                 the Company and Victor W. Schmitt (35)*

10.83            1998 Non-Incentive Stock Option Plan of the Company for Directors,
                 Employees and Consultants of Nexell of California, Inc., as amended to date
                 (35)*

10.84            Common Stock Purchase Agreement dated January 9, 2001, between Acqua
                 Wellington North American Equities Fund, Ltd. and the Company (30)

10.85            License Agreement dated March 28, 2001 between NCI and Epimmune Inc.
                 (Confidential treatment has been granted with respect to certain portions of
                 this exhibit.  Omitted portions have been filed separately with the Securities
                 and Exchange Commission.) (31)

10.86            Non-Incentive Stock Option Agreement dated February 23, 2001 between
                 the Company and William A. Albright, Jr. (31)*

10.87            Termination Letter with Acqua Wellington North American Equities
                 Fund, Ltd. (32)

10.88            The Company's 1997 Incentive and Non-Incentive Stock Option Plan, as
                 amended to date (33)*

10.89            Distribution and License Agreement dated August 31, 2001 between
                 Baxter and NCI (34)

10.90            Sublicense Agreement of the First BD Sublicense dated August 31, 2001
                 between Baxter and NCI (34)

10.91            Sublicense Agreement of the Second BD Sublicense dated August 31,
                 2001 between Baxter and NCI (34)

10.92            Sublicense Agreement of the Dorken Sublicense dated August 31, 2001
                 between Baxter and NCI (34)

10.93            Sublicense   Agreement of the Public Health Service Biological
                 Materials License dated August 31, 2001 between Baxter and NCI (34)

10.94            Sublicense Agreement of the Diaclone Monoclonal Antibody License
                 dated August 31, 2001 between Baxter and NCI (34)

10.95            Employee Lease Agreement dated August 31, 2001 among Baxter, the
                 Company and NCI (34)

10.96            Supply Agreement dated August 31, 2001 between Baxter and NCI (34)

10.97            Non-Incentive Stock Option Agreement dated November 12, 2001 between
                 the Company and Richard L. Casey*

10.98            Non-Incentive Stock Option Agreement dated November 12, 2001 between
                 the Company and Joseph A. Mollica*

10.99            Non-Incentive Stock Option Agreement dated November 12, 2001 between
                 the Company and C. Richard Piazza*
</TABLE>

                                      31

<PAGE>

<TABLE>

<S>              <C>
10.100           Non-Incentive Stock Option Agreement dated November 12, 2001
                 between the Company and Eric A. Rose*

10.101           Non-Incentive Stock Option Agreement dated November 12, 2001
                 between the Company and Victor W. Schmitt *

10.102           Non-Incentive Stock Option Agreement dated November 12, 2001
                 between the Company and Richard L. Dunning *

10.103           Nexell Therapeutics Inc. Retention and Severance Plan, as
                 amended, and Summary Plan Description*

10.104           Nexell Therapeutics Inc. Retention and Severance Plan, as
                 amended, [For Senior Staff Members] and Summary Plan
                 Description*

10.105           Letter Agreement dated March 26, 2002 between the Company and
                 William A. Albright, Jr.*

10.106           Settlement Agreement dated March 19, 2002 among the Company,
                 NCI and Baxter

10.107           Letter Agreement dated September 27, 2001 between the Company
                 and Michel Bergh*

10.108           Letter Agreement dated September 27, 2001 between the Company
                 and Wayne Tyo*

21               List of Subsidiaries

23(a)            Consent of KPMG LLP
</TABLE>

Note: The Company's Commission File No. for all filings is No. 0-19153.

* Denotes management contract or compensatory plan or arrangement.

(1)  Filed as the same numbered Exhibit to the Company's Current Report on
     Form 8-K filed January 2, 1998 and incorporated herein by reference
     thereto.

(2)  Filed as the same numbered Exhibit to the Company's Annual Report on
     Form 10-K for the year ended December 31, 1998 and incorporated herein by
     reference thereto.

(3)  Filed as the same numbered Exhibit to the Company's Current Report on
     Form 8-K filed December 7, 1999 and incorporated herein by reference
     thereto.

(4)  Filed as the same numbered Exhibit to the Company's Annual Report on
     Form 10-K for the year ended December 31, 1996 and incorporated herein by
     reference thereto.

(5)  Filed as the same numbered Exhibit to the Company's Current Report on
     Form 8-K filed June 29, 1999 and incorporated herein by reference thereto.

(6)  Filed as the same numbered Exhibit to the Company's Annual Report on
     Form 10-K for the year ended December 31, 1994 and incorporated herein by
     reference thereto.

(7)  Filed as the same numbered Exhibit to the Company's Annual Report on
     Form 10-K for the year ended December 31, 1995 and incorporated herein by
     reference thereto.

(8)  Filed as the same numbered Exhibit to the Company's Current Report on
     Form 8-K filed March 21, 1997 and incorporated herein by reference thereto.

(9)  Filed as the same numbered Exhibit to the Company's Quarterly Report on
     Form 10-Q for the quarter ended March 31, 1997 and incorporated herein by
     reference thereto.

(10) Filed as the same numbered Exhibit to the Company's Quarterly Report
     on Form 10-Q for the quarter ended September 30, 1997 and incorporated
     herein by reference thereto.

(11) Filed as Exhibit number 10.1 to the Company's Current Report on Form
     8-K filed January 2, 1998 and incorporated herein by reference thereto.

(12) Filed as Exhibit number 10.2 to the Company's Current Report on Form
     8-K filed January 2, 1998 and incorporated herein by reference thereto.

                                      32

<PAGE>

(13) Filed as Exhibit number 10.3 to the Company's Current Report on Form
     8-K filed January 2, 1998 and incorporated herein by reference thereto.

(14) Filed as Exhibit number 10.4 to the Company's Current Report on Form
     8-K filed January 2, 1998 and incorporated herein by reference thereto.

(15) Filed as Exhibit number 10.5 to the Company's Current Report on Form
     8-K filed January 2, 1998 and incorporated herein by reference thereto.

(16) Filed as Exhibit number 10.6 to the Company's Current Report on Form
     8-K filed January 2, 1998 and incorporated herein by reference thereto.

(17) Filed as Exhibit number 10.7 to the Company's Current Report on Form
     8-K filed January 2, 1998 and incorporated herein by reference thereto.

(18) Filed as Exhibit number 10.8 to the Company's Current Report on Form
     8-K filed January 2, 1998 and incorporated herein by reference thereto.

(19) Filed as Exhibit number 10.9 to the Company's Current Report on Form
     8-K filed January 2, 1998 and incorporated herein by reference thereto.

(20) Filed as the same numbered Exhibit to the Company's Annual Report on
     Form 10-K for the year ended December 31, 1997 and incorporated herein by
     reference thereto.

(21) Filed as the same numbered Exhibit to the Company's Quarterly Report
     on Form 10-Q for the quarter ended September 30, 1998 and incorporated
     herein by reference thereto.

(22) Filed as the same numbered Exhibit to the Company's Quarterly Report
     on Form 10-Q for the quarter ended June 30, 1999 and incorporated herein by
     reference thereto.

(23) Filed as the same numbered Exhibit to the Company's Quarterly Report
     on Form 10-Q for the quarter ended September 30, 1999 and incorporated
     herein by reference thereto.

(24) Filed as Exhibit 4.1 to the Company's registration statement on Form
     S-8 filed with the Commission on July 6, 2000  (Registration Number
     333-40860), and incorporated herein by reference thereto.

(25) Filed as the same numbered Exhibit to the Company's Quarterly Report
     on Form 10-Q for the quarter ended June 30, 2000 and incorporated herein by
     reference thereto.

(26) Intentionally omitted.

(27) Filed as the same numbered Exhibit to the Company's Annual Report on
     Form 10-K for the year ended December 31, 1999 and incorporated herein by
     reference thereto.

(28) Filed as the same numbered Exhibit to the Company's Quarterly Report
     on Form 10-Q for the quarter ended June 30, 2000 and incorporated herein by
     reference thereto.

(29) Filed as the same numbered Exhibit to the Company's Quarterly Report
     on Form 10-Q for the quarter ended September 30, 2000 and incorporated
     herein by reference thereto.

(30) Filed as Exhibit 10.1 to the Company's Post Effective Amendment No. 1
     to its registration statement on Form S-3 filed with the Commission on
     January 10, 2001 (Registration Number 333-51440), and incorporated herein
     by reference thereto.

(31) Filed as the same numbered Exhibit to the Company's Quarterly Report
     on Form 10-Q for the quarter ended March 31, 2001 and incorporated herein
     by reference thereto.

(32) Filed as the same numbered Exhibit to the Company's quarterly report
     on Form 10-Q for the quarter ended June 30, 2001 and incorporated herein by
     reference thereto.

(33) Filed as Exhibit 4.3 to the Company's registration statement on Form
     S-8 filed with the Commission on July 6, 2000 (Registration Number
     333-64138), and incorporated herein by reference thereto.

(34) Filed as the same numbered Exhibit to the Company's Current Report on
     Form 8-K filed on September 17, 2001 and

                                      33

<PAGE>

     incorporated herein by reference thereto.

(35) Filed as the same numbered Exhibit to the Company's Annual Report on
     Form 10-K for the year ended December 31, 2000 and incorporated herein by
     reference thereto.

(b)  Reports on Form 8-K.

     None.

                                      34

<PAGE>

                                   SIGNATURES

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

                              Nexell Therapeutics Inc.

                              By:   /s/ William A. Albright, Jr.
                                    -------------------------------------------
                                        William A. Albright, Jr.
                                      Chief Executive Officer, President, Chief
                                      Financial Officer and Treasurer

Dated:   March 31, 2002

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
               Signature                                               Title                                      Date
               ---------                                               -----                                      ----

<S>                                                <C>                                                       <C>
/s/   Richard L. Dunning                           Chairman of the Board                                     March 31, 2002
------------------------------------------------
Richard L. Dunning

/s/   William A. Albright, Jr.                     Director, Chief Executive Officer, President, Chief       March 31, 2002
------------------------------------------------   Financial Officer and Treasurer (Principal Executive,
William A. Albright, Jr.                           Financial and Accounting Officer)


/s/   Daniel Levitt, M.D., Ph.D                    Director                                                  March 31, 2002
------------------------------------------------
Daniel Levitt, M.D., Ph.D.

/s/   Victor W. Schmitt                            Director                                                  March 31, 2002
------------------------------------------------
Victor W. Schmitt

/s/   Eric A. Rose, M.D.                           Director                                                  March 31, 2002
------------------------------------------------
Eric A. Rose, M.D.

/s/   Richard L. Casey                             Director                                                  March 31, 2002
------------------------------------------------
Richard L. Casey

/s/   C. Richard Piazza                            Director                                                  March 31, 2002
------------------------------------------------
C. Richard Piazza
</TABLE>

                                      35

<PAGE>


                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
<S>                                                                                                                    <C>
Consolidated Financial Statements

Independent Auditors' Report                                                                                                   F-2

Consolidated Balance Sheets at December 31, 2001 and 2000                                                                      F-3

Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999                                     F-4

Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2001, 2000 and 1999         F-5 to F-6

Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999                              F-7 to F-8

Notes to Consolidated Financial Statements                                                                              F-9 to F-31
</TABLE>

                                      F-1

<PAGE>


[LOGO OF KPMG]

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Nexell Therapeutics Inc.:

      We have audited the accompanying consolidated balance sheets of Nexell
Therapeutics Inc. and subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of operations, changes in shareholders' equity
and cash flows for each of the years in the three-year period ended December 31,
2001. In connection with our audits of the consolidated financial statements, we
have also audited the accompanying financial statement schedule. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Nexell
Therapeutics Inc. and subsidiaries as of December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America. Also in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.

      The accompanying consolidated financial statements and financial statement
schedule have been prepared assuming that the Company will continue as a going
concern. As discussed in Note 2 to the consolidated financial statements, the
Company has suffered recurring losses from operations, negative cash flows from
operations and shows a need for continued funding. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
consolidated financial statements and financial statement schedule do not
include any adjustments that might result from the outcome of this uncertainty.

/s/ KPMG LLP

March 1, 2002, except as to
  note 6, which is as of
  March 19, 2002


                                      F-2

<PAGE>

NEXELL THERAPEUTICS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

===================================================================================================================================
                                                                                                          December 31,
                                                                                               ------------------------------------
Assets   (Note 2)                                                                                            2001               2000
-----------------------------------------------------------------------------------------------------------------------------------

<S>                                                                                               <C>               <C>
Current assets:
  Cash and cash equivalents                                                                       $   5,092,000     $  12,119,000
  Trade receivables net of allowance for doubtful accounts of zero and $37,000 in 2001 and
    2000, respectively                                                                                   20,000         2,940,000
  Receivables from related party                                                                      1,423,000         1,576,000
  Inventory                                                                                             286,000         3,831,000
  Short term marketable securities                                                                    1,143,000         3,000,000
     Other current assets                                                                             1,188,000         3,953,000
-----------------------------------------------------------------------------------------------------------------------------------
Total current assets                                                                                  9,152,000        27,419,000
-----------------------------------------------------------------------------------------------------------------------------------
Fixed assets, net                                                                                     1,625,000         8,164,000
Intangible assets, net                                                                               32,737,000        39,372,000
Other assets                                                                                          1,000,000           500,000
-----------------------------------------------------------------------------------------------------------------------------------

Total assets                                                                                      $  44,514,000     $  75,455,000
-----------------------------------------------------------------------------------------------------------------------------------

Liabilities
-----------------------------------------------------------------------------------------------------------------------------------
Current liabilities:
  Accounts payable                                                                                $   1,483,000     $   3,812,000
  Accounts payable due to related party                                                                     -0-         2,821,000
  Accrued expenses                                                                                    3,206,000         2,807,000
  Capital leases-current portion                                                                            -0-           638,000
  Deferred revenue-current portion                                                                      450,000           450,000
-----------------------------------------------------------------------------------------------------------------------------------

Total current liabilities                                                                             5,139,000        10,528,000

Capital lease obligation-non current portion                                                                -0-         1,912,000

Deferred revenue-non current portion                                                                  1,125,000         1,575,000

                                                                                               ------------------------------------
Total liabilities                                                                                     6,264,000        14,015,000
-----------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies and other matters (notes 9 and 14)                                             --                --

Shareholders' equity:
  Convertible preferred stock; $.001 par value, 1,150,000 shares authorized
  Series A; 83,705 and 78,967 issued and outstanding at December 31, 2001 and 2000,
    respectively (liquidation value $83,912,000 and $79,162,000)                                            100               100
  Series B; 63,000 issued and outstanding at December 31, 2001 and 2000 (liquidation value
    $63,194,000 and $63,194,000)                                                                            100               100
  Common stock; $.001 par value, 80,000,000 shares authorized 20,940,509 and 19,084,894
    shares issued and outstanding at December 31, 2001 and 2000, respectively                            21,000            19,000
  Additional paid-in capital                                                                        262,081,800       258,188,800
  Accumulated other comprehensive income                                                                971,000         2,605,000
  Accumulated deficit                                                                              (224,824,000)     (199,373,000)
-----------------------------------------------------------------------------------------------------------------------------------

Total shareholders' equity                                                                           38,250,000        61,440,000
-----------------------------------------------------------------------------------------------------------------------------------

Total liabilities and shareholders' equity                                                        $  44,514,000     $  75,455,000
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

                                      F-3

<PAGE>

NEXELL THERAPEUTICS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>

                                                                                            Years Ended December 31,
                                                                                    2001              2000              1999
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>               <C>               <C>
Revenue                                                                          $ 13,180,000      $ 18,180,000      $ 14,961,000

Cost of goods sold                                                                  6,813,000        11,429,000         9,677,000
-----------------------------------------------------------------------------------------------------------------------------------

Gross profit                                                                        6,367,000         6,751,000         5,284,000

Operating expenses:
  Research and development                                                          5,919,000        10,828,000        15,243,000
  General and administrative                                                        8,347,000         9,262,000         8,924,000
  Selling, marketing and distribution                                               6,000,000        11,649,000         9,400,000
  Goodwill and intangible amortization                                              4,046,000         4,067,000         3,781,000
  Depreciation                                                                      2,665,000         3,437,000         2,902,000
  Impairment of intangible assets                                                   2,637,000              ----              ----
  Restructuring costs                                                                    ----              ----           502,000
-----------------------------------------------------------------------------------------------------------------------------------
Total operating expenses                                                         $ 29,614,000      $ 39,243,000      $ 40,752,000
-----------------------------------------------------------------------------------------------------------------------------------
Operating loss                                                                    (23,247,000)      (32,492,000)      (35,468,000)

Other (income) expenses:
  Royalty and licensing (income) expense                                               (2,000)           22,000          (855,000)
  Interest income                                                                    (378,000)       (1,217,000)       (1,069,000)
  Interest expense                                                                    181,000             8,000         1,903,000
  Gain on sale of equity investment                                                        --        (3,231,000)               --
  Other, net                                                                          262,000            21,000           226,000
-----------------------------------------------------------------------------------------------------------------------------------
Total other (income) expenses                                                    $     63,000      $ (4,397,000)     $    205,000
-----------------------------------------------------------------------------------------------------------------------------------

Net loss                                                                          (23,310,000)      (28,095,000)      (35,673,000)

Preferred stock dividends                                                          (6,640,000)       (6,371,000)       (4,418,000)
-----------------------------------------------------------------------------------------------------------------------------------

Net loss applicable to common stock                                              $(29,950,000)     $(34,466,000)     $(40,091,000)
-----------------------------------------------------------------------------------------------------------------------------------

Basic and diluted loss per share                                                 $      (1.45)     $     (1.84)      $     (2.24)
-----------------------------------------------------------------------------------------------------------------------------------

Weighted average number of shares of common stock outstanding                      20,697,000        18,761,000        17,861,000
-----------------------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

                                      F-4

<PAGE>

NEXELL THERAPEUTICS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY

<TABLE>
<CAPTION>

                                                  Series A               Series B                                       Additional
                                               Preferred Stock       Preferred Stock            Common Stock              paid-in
                                             Shares      Amount     Shares     Amount        Shares        Amount         capital
-----------------------------------------------------------------------------------------------------------------------------------

<S>                                                 <C>     <C>         <C>      <C>             <C>         <C>             <C>
Balance - December 31, 1998                      70,282    $100          --       --      16,957,546     $17,000    $182,588,900

Issuance of shares in connection with
  exercise of underwriter options                    --      --          --       --         120,285          --         922,000
Issuance of Series B shares in connection
  with private placement, net of issuance
  costs of  $2,577,000                                               63,000      100                                  60,422,900
Preferred dividends                               4,216      --          --       --              --          --              --
Issuance of shares in connection with
  acquisition of CellPro                             --      --          --       --         470,553          --       3,000,000
Retirement of CellPro shares                         --      --          --       --        (156,850)         --        (628,000)
Issuance of shares in connection with
  exchange in interest in subsidiary                 --      --          --       --         750,000       1,000       6,281,000
Issuance of shares in exchange for certain
Innovir preferred shares
                                                     --      --          --       --          17,500          --         153,000
Non-cash exercise of options                         --      --          --       --          19,703          --         (24,000)
Amortization of options                              --      --          --       --              --          --              --
Option repricing                                     --      --          --       --              --          --          81,000
Net loss                                             --      --          --       --              --          --              --
Translation adjustment                               --      --          --       --              --          --              --
Comprehensive loss
                                                                                                                   -------------
Balance - December 31, 1999                      74,498    $100      63,000     $100      18,178,737     $18,000    $252,796,800

Exercise of options                                  --      --          --       --         600,042       1,000       2,706,000
Exercise of warrants                                 --      --          --       --         306,115          --       1,339,000
Preferred dividends                               4,469      --          --       --              --          --              --
Amortization of options                              --      --          --       --              --          --         (16,000)
Option repricing and changes in terms                --      --          --       --              --          --       1,363,000
Net loss                                             --      --          --       --              --          --              --
Translation adjustment                               --      --          --       --              --          --              --
Adjustment to market of equity investment            --      --          --       --              --          --              --
Comprehensive loss
                                                                                                                   -------------
Balance - December 31, 2000                      78,967    $100      63,000     $100      19,084,894     $19,000    $258,188,800

Issuance of common stock in private
placement ($1.125 - $ 2.67 per unit),
net of issuance costs                                                                      1,840,615       2,000       3,863,000
Exercise of options                                  --      --          --       --          15,000          --           1,000
Dividend to Innovir minority shareholders            --      --          --       --              --          --              --
Preferred dividends                               4,738      --          --       --              --          --              --
Option repricing and change in terms                 --      --          --       --              --          --          29,000
Net loss                                             --      --          --       --              --          --              --
Translation adjustment                               --      --          --       --              --          --              --
Adjustment to market of equity investment            --      --          --       --              --          --              --
Comprehensive loss
                                                                                                                   -------------
Balance - December 31, 2001                      83,705    $100      63,000     $100      20,940,509     $21,000    $262,081,800
</TABLE>

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

                                      F-5

<PAGE>

NEXELL THERAPEUTICS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY

<TABLE>
<CAPTION>

                                                                Accumulated
                                                                 Other
                                                  Unearned      Comprehensive
                                                                  Income        Accumulated                        Comprehensive
                                                 Compensation     (Loss)          Deficit            Total              Loss
-----------------------------------------------------------------------------------------------------------------------------------

<S>                                              <C>             <C>            <C>                 <C>             <C>
Balance - December 31, 1998                      $ (278,000)     $   20,000     $(133,533,000)      $48,815,000

Issuance  of  shares  in  connection  with
  exercise of underwriter options                        --              --                --           922,000
Issuance of Series B shares in connection
  with private placement, net of
  issuance costs of $2,577,000                           --              --                --        60,423,000
Preferred dividends                                      --              --          (192,000)         (192,000)
Issuance of shares in connection with
  acquisition of CellPro                                 --              --                --         3,000,000
Retirement of CellPro shares                             --              --                --          (628,000)
Issuance of shares in connection with
  exchange in interest in subsidiary                     --              --                --         6,282,000
Issuance of shares in exchange for
  certain Innovir preferred shares                       --              --                --           153,000
Non-cash exercise of options                             --              --                --           (24,000)
Amortization of options                             161,000              --                --           161,000
Option repricing                                    (81,000)             --                --                --
Net loss                                                 --              --       (35,673,000)      (35,673,000)      (35,673,000)
Translation adjustment                                   --         (25,000)               --           (25,000)          (25,000)
                                                                                                                  -----------------
Comprehensive loss                                                                                                  $ (35,698,000)
-----------------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1999                      $ (198,000)     $   (5,000)    $(169,398,000)     $ 83,214,000

Exercise of options                                      --              --                --         2,707,000
Exercise of warrants                                     --              --                --         1,339,000
Preferred dividends                                      --              --        (1,880,000)       (1,880,000)
Amortization of options                             198,000              --                --           182,000
Option repricing and changes in terms                    --              --                --         1,363,000
Net loss                                                 --              --       (28,095,000)      (28,095,000)      (28,095,000)
Translation adjustment                                   --        (241,000)               --          (241,000)         (241,000)
Adjustment to market of equity
  investment                                             --       2,851,000                --         2,851,000         2,851,000
                                                                                                                        ---------

Comprehensive loss                                                                                                  $ (25,485,000)
-----------------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 2000                      $       --      $2,605,000     $(199,373,000)     $ 61,440,000

Issuance of common stock in private
placement ($1.125 - $ 2.67 per unit),
net of issuance costs                                                                                 3,865,000
Exercise of options                                      --              --                --             1,000
Dividend to Innovir minority shareholders                --              --          (251,000)         (251,000)
Preferred dividends                                      --              --        (1,890,000)       (1,890,000)
Option repricing and changes in terms                    --              --                 --           29,000
Net loss                                                 --              --       (23,310,000)      (23,310,000)      (23,310,000)
Translation adjustment                                   --         223,000                --           223,000           223,000
Adjustment to market of equity
  investment                                             --      (1,857,000)               --        (1,857,000)       (1,857,000)
                                                                                                                       -----------

Comprehensive loss                                                                                                  $ (24,944,000)
-----------------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 2001                      $       --      $  971,000     $(224,824,000)     $ 38,250,000
</TABLE>


                                      F-6

<PAGE>

CONSOLIDATED STATEMENT OF CASH FLOW

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------------
                                                                                              Years Ended December 31,
                                                                               ----------------------------------------------------
                                                                                     2001              2000               1999
-----------------------------------------------------------------------------------------------------------------------------------

<S>                                                                               <C>                <C>                <C>
Cash flows from operating activities:
Net loss                                                                          $(23,310,000)   $(28,095,000)      $(35,673,000)
Adjustments to reconcile net loss to net cash used in operating activities:
  Depreciation and amortization                                                      6,711,000       7,683,000          6,999,000
  Noncash compensation                                                                  29,000       1,545,000            161,000
  Accrued interest on long-term debt                                                        --              --          1,901,000
  (Gain) loss from disposal of equipment                                               (95,000)         20,000            163,000
  Amortization of deferred revenue                                                    (450,000)       (225,000)                --
  Gain on sale of equity investments                                                        --      (3,231,000)                --
  Asset impairment charges                                                           3,887,000              --                 --
  Closure of facilities and related costs                                                   --         100,000            112,000
  Changes in operating assets and liabilities, net of dispositions
    Increase in trade accounts receivable                                             (967,000)       (907,000)        (2,033,000)
    (Increase) decrease in inventory                                                 1,244,000         578,000         (2,020,000)
    Increase in other current assets and other assets                                 (969,000)     (2,273,000)        (2,448,000)
    (Increase) decrease in receivable from related party                             1,037,000        (328,000)         2,945,000
    Increase in accounts payable and accrued expenses                                  367,000         264,000          1,485,000
    Increase (decrease) in accounts payable to related party                         1,919,000      (1,458,000)           557,000
    Increase in deferred revenue                                                            --       2,250,000                 --
-----------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities                                             $(10,597,000)   $(24,077,000)      $(27,851,000)
-----------------------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
  Purchases of equipment                                                              (635,000)     (1,040,000)        (3,323,000)
  Proceeds from sale of equipment                                                       88,000         173,000            151,000
  Proceeds from asset sale to Baxter                                                 2,586,000              --                 --
  Proceeds from sale of short-term marketable securities                                    --       3,818,000                 --
-----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities                               $  2,039,000    $  2,951,000       $ (3,172,000)
-----------------------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
  Proceeds from sales of preferred stock, net                                               --              --         60,423,000
  Proceeds from issuance of common stock in connection with the exercise of
  warrants/options                                                                       1,000       4,046,000            922,000
  Proceeds from sale of common stock, net                                            3,865,000              --                 --
  Purchase/retirement of common stock                                                       --              --           (628,000)
  Repayment of long-term debt                                                               --              --        (34,029,000)
  Proceeds from sale of equipment subject to leaseback                                      --       2,550,000                 --
  Dividends on preferred stock                                                      (1,890,000)     (1,880,000)                --
  Payment of dividends to minority shareholders of subsidiary                         (251,000)             --                 --
  Repayment of capital leases                                                         (417,000)             --            (56,000)
-----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities                               $  1,308,000    $  4,716,000       $ 26,632,000
-----------------------------------------------------------------------------------------------------------------------------------

Effect of exchange rate changes on cash                                                223,000        (166,000)            (5,000)

Net decrease in cash and cash equivalents                                           (7,027,000)    (16,576,000)        (4,396,000)

Cash and cash equivalents at beginning of period                                    12,119,000      28,695,000         33,091,000
-----------------------------------------------------------------------------------------------------------------------------------

Cash and cash equivalents at end of period                                        $  5,092,000    $ 12,119,000       $ 28,695,000
-----------------------------------------------------------------------------------------------------------------------------------

Supplemental disclosures:
  Cash paid for interest                                                          $    190,000              --       $  3,934,000
  Cash paid for taxes                                                             $     27,000    $     24,000                 --
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

NEXELL THERAPEUTICS INC. AND SUBSIDIARIES

                                      F-7

<PAGE>

NEXELL THERAPEUTICS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOW

Non cash investing and financing activities:

In January 1999, the Company issued 470,553 shares of Common Stock valued at
$3,000,000 in exchange for certain intangible assets.

In May 1999, the Company issued 750,000 shares of Common Stock valued at
$6,282,000 to Baxter Healthcare Corporation in exchange for its minority
interest in Nexell of California, Inc.

In June 1999, the Company issued 17,500 shares of Common Stock valued at
$153,000 to certain Innovir shareholders in exchange for their outstanding
Innovir preferred stock.

In December 2001, 2000 and 1999, the Company issued 4,738, 4,469 and 4,216
shares, respectively, of Series A Preferred Stock as in-kind dividends.

In December 2000, the Company entered into an agreement to sell certain
equipment to Baxter Healthcare Corporation. This equipment, with a value of
$2,550,000, was subsequently leased back to the Company under a three-year lease
that was accounted for as a capital lease. This lease was terminated in August
2001 as part of the asset purchase agreement between the parties.

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

                                      F-8

<PAGE>

NEXELL THERAPEUTICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)   THE BUSINESS

      OPERATIONS

              Nexell Therapeutics Inc. ("Nexell" or the "Company") is an Irvine,
      California-based biotechnology company. Nexell's principal subsidiary,
      Nexell of California, Inc. ("NCI"), is dedicated to the development of
      cell therapy products for the treatment of genetic blood disorders,
      autoimmune diseases, cancer and regenerative medicine applications.
      Nexell's previously commercialized products are distributed and sold by
      Baxter International.

(2)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      BASIS OF PRESENTATION

              The consolidated financial statements have been presented on the
      basis that the Company will continue as a going concern, which
      contemplates the realization of assets and the satisfaction of liabilities
      in the normal course of business. The Company has suffered recurring
      losses from operations and negative cash flows from operations and has an
      accumulated deficit of $224,824,000 as of December 31, 2001. These
      recurring losses and negative cash flows from operations and the need for
      continued funding, discussed below, raise substantial doubt about the
      Company's ability to continue as a going concern. Management believes that
      existing cash and cash equivalents and other liquid assets and its ability
      to adjust spending will enable the Company to continue to operate into
      approximately June 2002.

              The Company expects to incur substantial research and development
      expenditures to further the development of its therapeutic products and
      remains dependent on its ability to obtain outside financing either
      through the issuance of additional shares of its common or preferred stock
      or through borrowings. If the Company is unable to obtain adequate
      financing, management will be required to sharply curtail certain other of
      its operating expenditures. In addition, management is currently exploring
      a number of strategic and restructuring alternatives that may include a
      merger or sale of all or part of the business and, in this regard, is
      analyzing various financial, strategic, restructuring and liquidation
      alternatives available to the Company.

              If the Company were unable to obtain additional capital or defer
      certain costs as described above, such inability would have an adverse
      effect on the financial position, results of operations, cash flows and
      prospects of the Company and ultimately on its ability to continue as a
      going concern. The consolidated financial statements do not give
      effect to any adjustments that might be necessary if the Company were
      unable to meet its obligations or continue operations.

      CONSOLIDATION

      The accompanying consolidated financial statements include the accounts of
      Nexell, NCI and its subsidiaries, Vimrx Genomics, Inc., Innovir
      Laboratories, Inc.  and its subsidiaries.  All significant intercompany
      balances and transactions have been eliminated.

      FOREIGN CURRENCY TRANSLATION

              The financial position and results of operations of the Company's
      foreign subsidiaries are determined using local currency as the functional
      currency. Assets and liabilities of these subsidiaries are translated at
      the exchange rate in effect at each year-end. Income statement accounts
      are translated at the average rate of exchange prevailing during the year.
      Translation adjustments resulting from the use of differing exchange rates
      from period to period are included in accumulated other comprehensive loss
      in shareholders' equity. Gains and losses resulting from foreign currency
      transactions included in the Company's results of operations were not
      material in any of the periods presented.

      CASH AND CASH EQUIVALENTS

            Cash and cash equivalents of $5,092,000 and $12,119,000 at December
      31, 2001 and 2000, respectively, consist of money market deposits, bank
      deposits and a mutual fund that invests in short duration bonds. For
      purposes of the consolidated statements of cash flows, the Company
      considers all highly liquid debt instruments which have maturities of
      three months or less when acquired to be cash equivalents. The Company
      holds no collateral for these financial instruments. Cash and cash
      equivalents subject the Company to concentrations of credit risk.

      INVENTORIES

            Inventories, which consist only of finished goods, are stated at the
      lower of cost or market determined under the FIFO method.

                                      F-9

<PAGE>

       SHORT-TERM MARKETABLE SECURITIES

           The Company classifies its marketable equity investments as
       available-for-sale securities with net unrealized gains or losses
       recorded as a component of comprehensive income. If it is determined that
       a decline of any investment is other than temporary, then the investment
       basis would be written down to fair value and the write-down would be
       included in operating results.

       LONG-LIVED ASSETS

            Fixed assets consist of office and laboratory equipment and
       leasehold improvements stated at cost.

                                      F-10

<PAGE>

NEXELL THERAPEUTICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            Equipment is depreciated on a straight-line basis over its estimated
       useful lives that range from 3 to 15 years. Leasehold improvements are
       amortized on a straight-line basis over the shorter of the lease term or
       estimated useful life of the asset. The cost and related accumulated
       depreciation or amortization of assets retired or sold are removed from
       the respective accounts and any gain or loss is recognized in operations.

             Expenditures for maintenance and repairs that do not materially
       extend the useful lives of the assets are charged to operations as
       incurred.

             Goodwill represents the excess of acquisition costs over the fair
       value of net assets of purchased businesses and is being amortized on a
       straight-line basis over 12.5 years. Other intangibles primarily consist
       of patents, trademarks and license agreements. Such intangibles are being
       amortized on a straight-line basis over periods from 4 to 15 years. The
       Company evaluates intangible assets, including goodwill, in accordance
       with Statement of Financial Accounting Standards No. 121, Accounting for
       the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
       Disposed Of ("FAS 121"). This Statement requires that intangibles and
       other long-lived assets be reviewed for impairment whenever events or
       changes in circumstances indicate that the carrying amount of an asset
       may not be recoverable. As a result of the Asset Purchase Agreement with
       Baxter in August 2001 and the reductions in the Company's work force it
       was determined that such an evaluation was appropriate at that time. In
       such a circumstance FAS 121 requires that recoverability be based upon an
       estimate of expected undiscounted future cash flows. The Company
       performed such evaluations in 2001 and based on current projections it
       was determined that no impairment of goodwill and related intangibles had
       been realized. The Company updated such projections at year end and
       performed a similar analysis with the same results. Given the Company's
       near-term liquidity issues and market value of the Company's Common
       Stock, several additional factors were considered. These included the
       Company's market value on a fully diluted basis assuming conversion of
       its two series of Preferred Stock; the results of an independent third
       party valuation analysis performed in anticipation of adopting FAS 142;
       and other considerations.

           Long-lived assets are reviewed for impairment when changes in
       circumstances dictate based upon undiscounted future operating cash
       flows, and appropriate losses are recognized and reflected in current
       operating results, to the extent the carrying amount of an asset exceeds
       its estimated fair value determined by the use of appraisals, discounted
       cash flow analyses or comparable fair values of similar assets.

       OTHER ASSETS

            Other current assets consist of miscellaneous receivables and
       prepaid expenses and a long-term prepaid royalty. Other non-current
       assets represent an equity investment in a privately held biotechnology
       company.

       REVENUE RECOGNITION

            The Company recognized revenue from the sale of instruments,
       biologicals, reagents and related products at the time such products were
       shipped from the finished goods warehouse. Upon shipment, title and risk
       of loss transferred to the customer and the earnings process was
       considered complete. Except for warrantied defects, sales of the
       Company's products were not subject to right of return. Effective with
       the August 31, 2001 Asset Purchase Agreement with Baxter, the Company
       ceased product sales. The Company recognizes revenue from a long-term
       technology and distribution agreement over the life of the agreement.

       RESEARCH AND DEVELOPMENT

            Research and development costs are charged to expense as incurred.

       INCOME TAXES

            Income taxes are accounted for under the asset and liability method.
       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. Deferred tax
       assets and liabilities are measured using enacted tax rates expected to
       apply to taxable income in the years in which those temporary differences
       are expected to be recovered or settled. Deferred tax assets may be
       reduced, if necessary, by a valuation allowance for any tax benefits
       which are not expected to be realized. The effect on deferred tax assets
       and liabilities of a change in tax rates is recognized in income in the
       period that includes the enactment date.

       STOCK BASED COMPENSATION

            The Company measures stock based compensation for option grants to
       employees and members of the board of directors using a method which
       assumes that options granted at market price at the date of grant have no
       intrinsic value. Pro forma net loss and net loss per share are presented
       in note 11 as if the fair value method had been applied.

                                      F-11

<PAGE>

NEXELL THERAPEUTICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      NET LOSS PER SHARE

             Basic net loss per share is computed using the weighted average
      number of shares of common stock outstanding during the period. Diluted
      net loss per share is computed using the weighted average number of shares
      of common stock outstanding and potentially dilutive common shares
      outstanding during the period. Potentially dilutive common shares consist
      of stock options and warrants using the treasury stock method but are
      excluded if their effect is antidilutive.

             Stock options and warrants, excluding Class A performance warrants
      (see note 10), to purchase 4,445,776, 4,643,061, and 4,960,209 shares of
      common stock were outstanding at December 31, 2001, 2000 and 1999,
      respectively. Stock options and warrants outstanding were not included in
      the computation of diluted earnings per share as the Company incurred
      losses in all periods presented.

      FAIR VALUE OF FINANCIAL INSTRUMENTS

             Financial instruments include receivables, accounts payable and
      short-term marketable securities. The carrying amounts of these
      instruments approximate fair value due either to their short-term nature
      or because the Company believes the instrument could be exchanged in a
      curren transaction for that carrying amount.

      COMPREHENSIVE LOSS

             Comprehensive loss consists of net loss, net unrealized gains
      (losses) on short-term marketable securities and foreign currency
      translation adjustments and is presented in the table below. Accumulated
      other comprehensive income (loss) is included as a component of
      shareholders' equity.

<TABLE>
<CAPTION>
                                                                2001             2000               1999
                                                                ----             ----               ----
<S>                                                              <C>               <C>               <C>
Net loss                                                         $(23,310,000)     $(28,095,000)     $(35,673,000)
Net unrealized gain (loss) in investment securities                (1,857,000)        2,851,000                --
Translation adjustment                                                223,000          (241,000)          (25,000)
                                                                ---------------   ---------------   --------------
Total comprehensive loss                                        ($ 24,944,000)    ($ 25,485,000)    ($ 35,698,000)
                                                                ===============   ===============   ===============
</TABLE>

             The cumulative foreign currency translation adjustment included as
      a component of accumulated other comprehensive income was $(23,000) and
      $(246,000) at December 31, 2001 and 2000, respectively.

             No income tax expense or benefit was allocated to the net
      unrealized gain (loss) in investment securities or to the foreign currency
      translation adjustments recorded in 2001, 2000 and 1999, respectively, due
      to the Company's significant net operating loss tax carryforwards.

                                      F-12

<PAGE>

NEXELL THERAPEUTICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     USE OF ESTIMATES

          The preparation of financial statements in accordance with accounting
     principles generally accepted in the United States of America requires
     management to make estimates and assumptions that affect the reported
     assets and liabilities as well as the disclosure of contingent assets and
     liabilities as of the dates of the balance sheets and revenues and expenses
     for the periods presented. Actual results could differ from those
     estimates. The Company's most significant estimates include valuation of
     intangible assets.

     NEW AND PROPOSED ACCOUNTING STANDARDS

          In July 2001, the Financial Accounting Standards Board (FASB) issued
     Statement of Financial Accounting Standards (SFAS) No. 141, Business
     Combinations (SFAS 141), and SFAS 142, Goodwill and Other Intangible
     Assets. SFAS 141 requires that the purchase method of accounting be used
     for all business combinations initiated after June 30, 2001 as well as all
     purchase method business combinations completed after June 30, 2001. SFAS
     141 also specifies criteria intangible assets acquired in a purchase method
     business combination must meet to be recognized and reported apart from
     goodwill, noting that any purchase price allocable to an assembled
     workforce may not be accounted for separately. SFAS 142 will require that
     goodwill and intangible assets with indefinite useful lives no longer be
     amortized, but instead tested for impairment at least annually. SFAS 142
     will also require that intangible assets with definite useful lives be
     amortized over their respective estimated useful lives to their estimated
     residual values, and reviewed for impairment in accordance with SFAS 121,
     Accounting for the Impairment of Long-Lived Assets and for Long-Lived
     Assets to Be Disposed Of.

          The Company was required to adopt the provisions of SFAS 141
     immediately, and is required to adopt the provisions of SFAS 142 effective
     January 1, 2002. Furthermore, any goodwill and any intangible asset
     determined to have an indefinite useful life that are acquired in a
     purchase business combination completed after June 30, 2001 will not be
     amortized, but will continue to be evaluated for impairment in accordance
     with the appropriate pre-SFAS 142 accounting literature. Goodwill and
     intangible assets acquired in business combinations completed before July
     1, 2001 continued to be amortized prior to the adoption of SFAS 142.

          SFAS 141 will require, upon adoption of SFAS 142, that the Company
     evaluate its existing intangible assets and goodwill that were acquired in
     a prior purchase business combination and to make any necessary
     reclassifications in order to conform with the new criteria in SFAS 141 for
     recognition apart from goodwill. Upon adoption of SFAS 142, the Company
     will be required to reassess the useful lives and residual values of all
     intangible assets acquired in purchase business combinations, and make any
     necessary amortization period adjustments by the end of the first interim
     period after adoption. In addition, to the extent an intangible asset is
     identified as having an indefinite useful life, the Company will be
     required to test the intangible asset for impairment in accordance with the
     provisions of SFAS 142 within the first interim period. Any impairment loss
     will be measured as of the date of adoption and recognized as the
     cumulative effect of a change in accounting principle in the first interim
     period.

          In connection with the transitional goodwill impairment evaluation,
     SFAS 142 will require the Company to perform an assessment of whether there
     is an indication that goodwill is impaired as of the date of adoption. To
     accomplish this, the Company must identify its reporting units and
     determine the carrying value of each reporting unit by assigning the assets
     and liabilities, including the existing goodwill and intangible assets, to
     those reporting units as of the date of adoption. The Company will then
     have up to six months from the date of adoption to determine the fair value
     of each reporting unit and compare it to the reporting unit's carrying
     amount. To the extent a reporting unit's carrying amount exceeds its fair
     value, an indication exists that the reporting unit's goodwill may be
     impaired and the Company must perform the second step of the transitional
     impairment test. In the second step, the Company must compare the implied
     fair value of the reporting unit's goodwill, determined by allocating the
     reporting unit's fair value to all of it assets (recognized and
     unrecognized) and liabilities in a manner similar to a purchase price
     allocation in accordance with SFAS 141, to its carrying amount, both of
     which would be measured as of the date of adoption. This second step is
     required to be completed as soon as possible, but no later than the end of
     the year of adoption. Any transitional impairment loss will be recognized
     as the cumulative effect of a change in accounting principle in the
     Company's statement of operations.

          As of the date of adoption, the Company had unamortized goodwill in
     the amount of $25,122,000 and unamortized identifiable intangible assets in
     the amount of $7,615,000 all of which will be subject to the transition
     provisions of SFAS 141 and 142. Amortization expense related to goodwill
     was $2,955,000, $2,955,000 and $2,719,000 for the years ended December 31,
     2001, 2000 and 1999, respectively.

          In October 2001, the FASB issued Statement No. 144, Accounting for the
     Impairment or Disposal of Long-Lived Assets (SFAS 144), which addresses
     financial accounting and reporting for the impairment or disposal of
     long-lived assets. SFAS 144 supersedes Statement No. 121, Accounting for
     the Impairment of Long-Lived Assets to Be Disposed Of, and the accounting
     and reporting provisions of APB Opinion No. 30, Reporting the Results of
     Operations--Reporting the Effects of Disposal of a Segment of a Business,
     and Extraordinary, Unusual and Infrequently Occurring Events and
     Transactions, for the disposal of a segment of a business. SFAS 144 retains
     the requirement in Opinion No. 30 to report separately discontinued
     operations and extends that reporting to a component of an entity that
     either has been disposed of or is classified as held for sale.

          The Company is required and plans to adopt the provisions of SFAS 144
     for the quarter ending March 31, 2002. Based upon an independent third
     party evaluation, the Company anticipates that the adoption of SFAS 141,
     SFAS 142 and SFAS 144 on January 1, 2002 will have no material impact on
     its financial statements.

                                      F-13

<PAGE>

     RECLASSIFICATIONS

          Certain prior year amounts have been reclassified to conform with the
     current year presentation.

(3)  REVERSE STOCK SPLIT

               At the June 14, 2000 annual meeting of stockholders, the
          stockholders approved, and on June 15, 2000 the Company effected, a
          one-for-four reverse stock split of the Company's outstanding common
          stock. An amount equal to the par value of the common shares exchanged
          as a result of this reverse stock split was transferred from common
          stock to additional paid in capital. This transfer has been reflected
          in the Consolidated Statement of Changes in Shareholder's Equity at
          December 31, 1998. All prior period common share and per share
          information presented in the Consolidated Financial Statements and
          notes thereto have been adjusted to give retroactive effect to the
          reverse stock split.

(4)  ACQUISITIONS

     ACQUISITION OF MINORITY INTEREST IN NCI

               In May 1999, Nexell acquired the minority interest of Baxter in
          the Company's principal business unit and then 80.5% subsidiary, NCI.
          NCI is now a wholly owned subsidiary of Nexell. Baxter retained its
          right to certain milestone payments from NCI.

                Baxter's 19.5% interest in NCI (consisting of common stock,
         warrants and convertible subordinated debentures), was exchanged for:

                .    750,000 shares of common stock;

                .    An adjustment of the conversion price of the 70,282
                     outstanding shares of the Company's Series A Preferred
                     Stock owned by Baxter from $22.00 per share to $11.00 per
                     share, which Series A Preferred Stock was convertible as of
                     June 17, 1999 into approximately 6,394,000 shares of common
                     stock, subject to adjustment for stock splits and
                     combinations, certain dividends and distributions and
                     reclassification, exchange or substitution;

                .    A warrant expiring May 27, 2006 to purchase 1,300,000
                     shares of common stock at a price of $4.60 per share,
                     subject to adjustment from time to time in the event of
                     cash dividends, stock dividends, stock subdivision, stock
                     splits, stock combinations or reverse stock splits; and

                .    Approximately $33,000,000 principal amount of 6 1/2%
                     Convertible Subordinated Debentures ("Debentures")
                     (replacing the $30,000,000 principal amount of NCI's 6
                     l/2% convertible subordinated debentures plus accrued
                     interest through the closing date of the acquisition)
                     convertible, commencing November 30, 2002, into common
                     stock at a conversion price equal to 95% of the average of
                     the closing prices of the common stock on the NASDAQ Stock
                     Market for the 30 consecutive trading days preceding the
                     date of conversion.  The Debentures bore interest at 6
                     l/2% per annum and were due November 30, 2004.  Interest
                     was to accrue until November 30, 2002, and, together with
                     one-third of the outstanding principal, was to be payable
                     annually commencing November 30, 2002.  Approximately
                     $22,000,000 in principal amount of Debentures was to be
                     convertible into common stock commencing November 30, 2002
                     at the discretion of Baxter, and approximately $11,000,000
                     in principal amount of Debentures was to be convertible
                     only with permission of the Company.  The Debentures were
                     retired in November 1999 in connection with the Company's
                     private placement financing (see note 10).

                                      F-14

<PAGE>

NEXELL THERAPEUTICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

              As a result of the May 1999 transaction, the Company recorded
        approximately $6,282,000 in additional goodwill which is equal to the
        fair market value of the common stock issued. Such goodwill is being
        amortized over twelve years.

        ACQUISITION OF CELLPRO ASSETS

              On January 29, 1999, the Company completed the purchase of certain
        assets of CellPro Incorporated ("CellPro"). Assets purchased included
        substantially all of CellPro's intellectual property rights, patents,
        antibodies and related cell banks, and license rights. These assets were
        acquired in exchange for 470,553 shares of common stock with a fair
        market value of $3,000,000. The fair market value was determined based
        upon the average closing price of the Common Stock for the 15 business
        days which ended prior to the closing, or $6.36 per share. The
        transaction was accounted for as an asset purchase and the purchase
        price was allocated to patents and licenses.

              In March 1999, the Company repurchased from CellPro and retired
        156,851 shares of Common Stock in exchange for a cash payment of
        $628,000

(5)     RESTRUCTURING COSTS

              The Company relocated its corporate headquarters in early 1999. In
        conjunction with the closure of the former headquarters in Wilmington,
        Delaware in 1999, the Company recorded a restructuring charge of
        $502,000 comprised of $390,000 in severance related costs and a fixed
        asset impairment charge of $112,000. Due to the office closure, the
        Company decided to dispose of substantially all of the existing office
        furniture and fixtures. Based upon an independent third-party appraisal
        of the furniture and fixtures, the Company recorded a charge of
        approximately $112,000 at the time such assets were removed from service
        to reduce the assets' carrying amount to the estimated fair value of
        $25,000. All such assets were sold in 1999.

              In addition, eight employees were terminated as a result of the
        restructuring and move of the Company's headquarters. The employees were
        notified in January 1999 of their pending termination and the
        termination benefits they were to receive. All severance related
        payments of $390,000 were made prior to December 31, 1999.

(6)     RESEARCH CONTRACTS AND OTHER AGREEMENTS

              In the normal course of business, the Company is party to various
        research contracts, collaborative agreements, employment agreements, and
        other commitments. Significant contracts and agreements are described
        below.

                                      F-15

<PAGE>

NEXELL THERAPEUTICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         AGREEMENTS WITH BAXTER

                  The Company is party to numerous contracts with Baxter.

                  Under the terms of the Hardware and Disposable Manufacturing
         Agreement, the Antibody Manufacturing and Storage Agreement and the
         Hardware and Disposables Supply Agreement, NCI purchased products from
         Baxter, and Baxter purchased products from NCI under the Marketing,
         Sales and Distribution Agreement (see note 8).

                  In 1999, the Company terminated certain agreements with Baxter
         whereby the Company assumed direct control for all sales and
         distribution of its products. As a result, the Company repurchased
         $4,359,000 of inventory previously sold to Baxter. Additionally, the
         Company entered into a royalty agreement pursuant to which Baxter would
         receive a royalty of 5% of net sales of Isolex and related cell therapy
         products from January 1, 2001 through December 17, 2008.

                  In 2001, the Company and Baxter agreed to transfer the cell
         processing products distribution business to Baxter to allow NCI to
         focus on the development of cell based products. In August 2001, the
         Company and Baxter entered into a series of agreements pursuant to
         which, among other things, the Company licensed to Baxter on an
         exclusive worldwide basis the sales, marketing and distribution rights
         for Isolex(R) and the Company's other Toolbox products (the
         "Transaction").

                  Pursuant to an asset purchase agreement, Baxter purchased from
         the Company finished goods inventory of the cell processing products
         distribution business, trade accounts receivable of the cell processing
         products distribution business, certain fixed assets of NCI relating to
         the cell processing products business, and all books, records, files
         and papers relating to the purchased assets. NCI assigned to Baxter the
         ownership of the regulatory applications and submissions to the FDA and
         other state, local and foreign regulatory authorities relating to the
         cell processing products, though Nexell retained the right of reference
         to the regulatory files and all data contained therein. The Company
         also sold to Baxter all shares of stock or other equity interests in
         Nexell International. In addition, certain Nexell personnel transferred
         to Baxter. Pursuant to a supply agreement, Baxter agreed to continue to
         supply Nexell with the cell processing products marketed, sold and
         distributed by Baxter for Nexell's internal use in the development of
         Nexell's therapeutic cellular drugs.

                  The purchase price for the transferred assets was equal to the
         book value of the finished goods inventory and other transferred assets
         plus the net book value of Nexell International. Approximately $2.6
         million of the purchase price was paid at the August 31, 2001 closing
         and the Company received an additional payment on March 19, 2002 of
         approximately $2.1 million based on adjustments for final settlement of
         the closing balance sheet in accordance with the terms of the
         agreement. These payments represented final settlement of the asset
         purchase agreement. As part of the transactions, Baxter agreed to pay
         to NCI an earned royalty on "Net Sales" as defined, of the cell
         processing products sold by Baxter.

                  Upon closing of the Transaction, substantially all of the
         Company's current revenue- producing activities have ceased, and the
         Company will focus on development of new therapeutic cellular drugs.

                  Pursuant to the asset purchase agreement, the following
         agreements between Baxter and NCI were terminated on August 31, 2001:
         (i) Hardware and Disposable Supply Agreement dated December 17, 1997;
         (ii) US and Canada Instrument Services Agreement dated June 30, 1999;
         (iii) Hardware and Disposables Manufacturing Agreement dated December
         17, 1997; (iv) Antibody Manufacturing and Storage Agreement dated
         December 17, 1997; (v) Royalty Assignment and Agreement dated December
         17, 1997; (vi) Equipment Lease Agreement dated December 21, 2000; and
         (vii) Instrument Services Agreement dated November 30, 1999.

         HYPERICIN AGREEMENT

                  Pursuant to an agreement with New York University and YEDA
         Research Development Co., Ltd., the Company was granted a worldwide
         exclusive license to commercialize and exploit natural hypericin and
         synthetic hypericin compounds to inactivate viruses and retroviruses as
         a therapeutic or preventive treatment for viral or retroviral diseases,
         and for anti-glioma (brain tumor) indications.

                  The Company is required to make royalty and related payments
         to the licensors under the agreements consisting of: (1) royalties of
         7% on net sales of products licensed; (2) royalties of 4.4% on net
         sales of products sublicensed; (3) 40% of payments from third parties
         to fund research and development and (4) 12% of consideration received
         from an entity selling licensed products.

                  Commencing June 1, 1993, minimum annual royalty payments of
         $100,000 are due until the later of the expiration of the licensors'
         patent or 15 years from the first commercial sale of products under the
         agreement. The minimum annual royalty was paid during 2000, 1999 and
         1998.

                                      F-16

<PAGE>

                  The Hypericin license agreement covers thirteen patents and
         patent applications. Seven patents have been issued in the United
         States, with expiration dates from February 2007 to April 2013. For the
         remaining unissued U.S. patents, the earliest expiration date will be
         seventeen years from the date of issue. The foreign patents, all of
         which are counterparts to the U.S. patents, have been issued in various
         countries with various expiration dates (85 individual foreign patents
         by country issued for the 13 patents). Most of the foreign patents have
         20-year terms, and none of the foreign patents will expire before its
         U.S. counterpart expires. The Company has not recorded any commercial
         sales under the agreement to date.

       TAKARA SHUZO CO., LTD. DISTRIBUTION AND CO-DEVELOPMENT AGREEMENT

                  On May 9, 2000, the Company announced it had entered into a
         strategic alliance with Takara Shuzo Co., Ltd. ("Takara"), a
         diversified brewing, foods and biomedical company in Japan. Pursuant to
         such agreements, Takara will become the exclusive distributor of the
         Company's cell therapy products in Japan, Korea, Taiwan and China and
         the parties will engage in development collaborations in gene therapy.
         In exchange for the distribution rights, Takara paid the Company a
         non-refundable net fee of $2.25 million. This amount is being
         recognized as revenue over the five year term of the agreement.
         Deferred revenue was $1,575,000 and $2,025,000 at December 31, 2001 and
         2000, respectively. This agreement was transferred to Baxter as part of
         the August 31, 2001 License Distribution and Asset Purchase Agreements.

                                      F-17

<PAGE>

NEXELL THERAPEUTICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(7)      INVESTMENTS

                  At December 31, 2001 and 2000, a portion of the Company's
         excess cash was invested in a mutual fund, the "Black Rock Low Duration
         Bond Portfolio" (the "fund") which invests in asset backed securities,
         bonds and various other commercial obligations. The fund may, from time
         to time, use certain derivatives in its investment strategy. For
         financial statement purposes, amounts invested in the fund are
         considered to be cash equivalents. Amounts invested in the mutual fund
         were $977,000 and $4,720,000 at December 31, 2001 and 2000,
         respectively. Additionally, the Company maintains excess cash required
         for short-term needs in daily money market funds with financial
         institutions.

                  During 1996, the Company purchased for $800,000 an aggregate
         of 457,143 shares of the common stock of Epoch Pharmaceuticals, Inc.
         ("Epoch"), warrants to purchase 450,000 shares of Epoch's common stock
         at $2.00 per share and warrants to purchase an additional 450,000
         common shares at $3.00 per share, which warrants expired on October 1,
         1997 and October 1, 1998, respectively. In connection therewith, Epoch
         released the Company and its affiliates from any claims Epoch might
         have with respect to Innovir's subsidiary, Ribonetics. These securities
         are freely tradable and accordingly are reflected in the financial
         statements at market value.

                  On August 13, 1999 Innovir closed the sale of a family of
         patents and patent applications to Ribozyme Pharmaceuticals, Inc.
         ("RPI"), a Boulder, Colorado-based company engaged in the research and
         development of ribozyme technology. The patent and patent applications
         sold are related to certain proprietary chemically modified ribozymes.
         In the sale, Innovir received $25,000 cash, 134,000 shares of RPI
         common stock and seven-year warrants to purchase 350,000 additional
         shares of RPI common stock at $12.00 per share. During 2000, the
         Company sold all 134,000 shares of RPI common stock for $3,818,000,
         recognizing a gain of $3,231,000.

                  The investment in Epoch is accounted for under Statement of
         Financial Accounting Standards No. 115 - "Accounting for Certain
         Investments in Debt and Equity Securities", as the investment does not
         represent more than 20 percent of the voting stock of the investee and
         the Company does not exercise significant influence over the investee's
         operations and financial policies. The investment in Epoch is
         classified as available-for-sale.

(8)      SUPPLEMENTAL BALANCE SHEET INFORMATION

         Fixed assets consist of the following:

                                                          December 31
                                                          -----------
                                                       2001        2000
                                                       ----        ----
Office and laboratory equipment                    $6,504,000    $11,268,000
Computers                                           1,495,000      2,464,000
Leasehold improvements                              1,471,000      1,474,000
                                                   ----------    -----------
                                                    9,470,000     15,206,000
                                                                 -----------
Less: accumulated depreciation                      7,845,000      7,042,000
                                                   ----------    -----------
Fixed assets, net                                  $1,625,000    $ 8,164,000
                                                   ==========    ===========

       Accrued expenses consist of the following:

                                                          December 31
                                                          -----------
                                                      2001         2000
                                                      ----         ----
Miscellaneous accrued expenses                      $  944,000    $1,280,000
Professional fees                                      430,000            --
Accrued payroll and related costs                    1,572,000     1,055,000
Relocation                                             260,000       393,000
Royalties                                                  --         79,000
                                                     ---------    ----------
                                                    $3,206,000    $2,807,000
                                                    ==========    ==========

         Intangible assets are comprised of the following:

                                      F-18

<PAGE>

NEXELL THERAPEUTICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                       December 31,
                                                       ------------
                                                    2001         2000
                                                    ----         ----

Goodwill                                          $36,075,000   $36,075,000
Patents and trademarks                             10,230,000    10,230,000
Workforce                                                 ---     3,490,000
Other                                               1,711,000     1,611,000
                                                 ------------  ------------
                                                   48,016,000    51,406,000
Less: accumulated amortization                     15,279,000    12,034,000
                                                 ------------  ------------
Intangible assets, net                            $32,737,000   $39,372,000
                                                 ============  ============

                                      F-19

<PAGE>

NEXELL THERAPEUTICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  Accounts receivable from related parties are due primarily
           from Baxter. The 2001 receivables from related party of $1,423,000
           principally represents the estimated net final settlement due for the
           Asset Purchase Agreement executed in August 2001. The 2000
           receivables from related party of $1,576,000 are related to
           receivables due on product sales under the Marketing, Sales and
           Distribution Agreement and in geographic areas in which Baxter
           continued to distribute the Company's products subsequent to the
           November 1999 termination of the Marketing, Sales and
           Distribution Agreement. Sales to Baxter were $396,000, $1,513,000 and
           $8,032,000 in the years ended 2001, 2000 and 1999, respectively.

                  Accounts payable due to related parties are due primarily to
           Baxter. The $2,821,000 due in 2000 related to payments due for
           purchases of inventory under the Hardware and Disposables
           Manufacturing, Hardware and Disposables Supply, Antibody
           Manufacturing and Storage, and Services Agreements. No amounts were
           due in 2001 as these agreements were cancelled upon execution of the
           Asset Purchase Agreement in August 2001.

                  The various agreements with Baxter provided for net 60 day
           payment terms and net payments were settled by check or bank wires
           within the 60 day terms. The Agreements provided for right of offset
           between the Company and Baxter.

(9)      LEASES

                  The Company leases its facilities and certain equipment under
           noncancelable operating leases expiring through November 2004. The
           facility lease provides for monthly rental payments adjusted yearly
           based upon the consumer price index. Rental expense for the years
           ended December 31, 2001, 2000 and 1999 for operating leases
           aggregated approximately $779,000, $916,000, and $969,000,
           respectively.

                  At December 31, 2001, the future minimum lease commitments
           under these leases are as follows:

Year Ended December 31,                              Operating Leases
-----------------------                              -----------------

          2002                                             $  658,000
          2003                                                640,000
          2004                                                557,000
          2005                                                  9,000
          2006                                                    -0-
                                                           ----------
Total minimum lease payments                               $1,864,000
                                                           ==========

                  In 2000, the Company executed an agreement to sell certain
             equipment, the majority of which was partially depreciated, to
             Baxter at its then current net book value. This equipment was
             subsequently leased back to the Company under a three-year lease
             that has been accounted for as a capital lease. This lease was
             cancelled in conjunction with the completion of the Asset Purchase
             Agreeement between the parties in August 2001. Included in fixed
             assets were assets held under capital leases totaling $2,550,000
             at December 31, 2000.

                                      F-20

<PAGE>

NEXELL THERAPEUTICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  (10)   SHAREHOLDERS' EQUITY

                  On June 15, 2000, the Company effected a one-for-four reverse
             split of its common stock and concurrently reduced the authorized
             shares of common stock, par value $.001, from 160,000,000 to
             80,000,000. The Company's Board, at its sole discretion, can issue
             series of preferred stock with each series having its own rights,
             privileges, and qualifications determined by the Board. The Company
             is authorized to issue up to 1,150,000 shares of preferred stock,
             of which 83,705 shares of Series A Preferred and 63,000 shares of
             Series B Preferred are outstanding.

                  Series A Preferred Stock

                     On May 25, 1999, the shareholders of the Company approved
             certain changes to the terms of the Series A Preferred Stock
             through an amendment to the Certificate of Incorporation to:

                  .  Set the conversion price of the Series A Preferred Stock at
                     $11.00 per share. The Certificate of Incorporation
                     previously provided that the conversion price be set in
                     July 1999 based on the market price of the common stock at
                     that time, subject to a maximum conversion price of $30.00
                     per share and a minimum conversion price of $22.00 per
                     share.

                  .  Eliminate the anti-dilution provision reducing the
                     conversion price of the Series A Preferred Stock in the
                     event the Company were to issue common stock, or securities
                     convertible into common stock, prior to June 17, 1999 at a
                     price below the conversion price then in effect.

                     Holders of Series A shares have no voting rights and are
             entitled to receive dividends payable in-kind at the rate of 6% of
             the Liquidation Preference ($1,000 per share) per share per annum,
             as and when declared by the Board of Directors, before any dividend
             or distribution is declared, set apart or paid upon the common
             stock. The Series A shares are not subject to any mandatory
             redemption or sinking fund provisions.

                    At December 31, 2001 and 2000 Series A share dividends
             amounting to $4,750,000 and $4,481,000, respectively, were payable.
             As of December 17, 2001, $4,738,000 of in-kind dividends were
             declared by the Board of Directors.

                                      F-21

<PAGE>

NEXELL THERAPEUTICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     Series B Preferred Stock

                     On November 24, 1999, the Company entered into a Securities
               Agreement (the "Securities Agreement") with John Hancock Mutual
               Life Insurance Company, Metropolitan Life Insurance Company,
               Massachusetts Mutual Life Insurance Company, The Lincoln National
               Life Insurance Company, and certain of their affiliates (the
               "Purchasers").

                     Pursuant to the terms of the Securities Agreement, the
             Company issued and sold to the Purchasers, for an aggregate price
             of $63,000,000, 63,000 shares of newly-designated Series B
             Cumulative Convertible Preferred Stock of the Company (the "Series
             B Preferred Stock"), Put Rights (the "Put Rights") issued by
             Baxter, Class A Warrants of the Company (the "Class A Warrants"),
             and Class B Warrants of the Company (the "Class B Warrants").

                    Each share of the Series B Preferred Stock is convertible at
             the option of the holder at any time until November 24, 2006 (at
             which time conversion is automatic), into common stock originally
             at a price of $11.00 per share, subject to anti-dilution
             adjustment in certain circumstances. As of December 31, 2001, the
             conversion price was $10.218. The Series B Preferred Stock is
             convertible, in the aggregate, into 6,165,590 shares of common
             stock as of December 31, 2001, subject to adjustment in the
             event, among other things, that the Series B Preferred Stock is
             put to Baxter International pursuant to the Side Letter Agreement
             as described below.

                     Holders of Series B Preferred Stock do not have voting
             rights except as required by Delaware law and for certain matters
             specified in the Certificate of Designation. Cash dividends are
             payable on the Series B Preferred Stock at the rate of 3% of the
             liquidation preference, payable semi-annually. No dividends may be
             declared or paid on the common stock or Series A Preferred Stock if
             dividends on Series B Preferred Stock are in arrears. Also, in the
             event of any cash dividends on Common Stock, the holders of Series
             B Preferred Stock are entitled to participate on an as-if converted
             basis.

                     The Put Rights provide the Purchasers with the ability to
             cause Baxter to purchase the Series B Preferred Stock from November
             24, 2002 until November 24, 2004, unless terminated earlier under
             the circumstances described in the Put Right Certificate. The
             purchase price to be paid by Baxter would reflect a per annum
             compounded return to the Purchasers equal to at least 5.91%. In the
             event the Put Rights are exercised, the conversion price of the
             Series B Preferred Stock would be substantially reduced.

                     On November 24, 1999, the Company and Baxter International
             entered into an agreement (the "Side Letter Agreement") to provide
             that the conversion price for the Series B Preferred Stock
             purchased by Baxter International in the event the Put Rights are
             exercised (the "Put Series B Preferred Stock") would be adjusted on
             November 24, 2004 (or earlier, if 100% of the Series B Preferred
             Stock is put to Baxter International) but only in the event that an
             amount in excess of $15,000,000 is purchased by Baxter
             International, as follows: (i) for the Put Series B Preferred Stock
             in an amount up to $53,000,000 (computed on the basis of the
             liquidation preference for such stock) (the "Threshold"), the
             conversion price would be adjusted to equal the closing price of
             the Common Stock on the respective date or dates such Series B
             Preferred Stock was purchased by Baxter International (including
             purchases below the $15,000,000 amount), less a 5% discount
             (subject to a floor price equal to the closing price of the Common
             Stock on November 24, 1999, unless shareholder approval is obtained
             if required by the rules of the Nasdaq Stock Market); (ii) for the
             Put Series B Preferred Stock in an amount in excess of the
             Threshold, then the conversion price would be adjusted to equal the
             closing price of the Common Stock on November 24, 1999. The closing
             price of the Common Stock on November 24, 1999 was $5.12 per share.
             The dollar amount of the Put Series B Preferred Stock would be
             deemed to accrue interest (payable in kind in shares of Series B
             Preferred Stock) from the respective date or dates the Series B
             Preferred Stock is put to Baxter International to the date the
             adjusted conversion price is determined, at a rate equal to the
             applicable three-year U.S. Treasury Note rate at the date of each
             such purchase, plus 100 basis points. In the event that the
             foregoing conversion adjustments would not be permissible under
             Delaware law, the Company has agreed to take such action as is
             appropriate to exchange the Put Series B Preferred Stock for an
             equal number of shares of a new series of preferred stock of the
             Company, having the identical terms, conditions, preferences and
             rights of the Series B Preferred Stock, except that it would bear
             the conversion price adjustment described above.

                     It is likely that the holders of the Series B Preferred
             Stock will put their stock to Baxter International, in which case
             the conversion price of the Series B Preferred Stock will be
             adjusted as described in the Side Letter Agreement. Triggering of
             the provisions of the Side Letter Agreement would mean that, in
             Baxter International's hands, the Series B Preferred Stock would
             convert into substantially more shares of Common Stock than at
             present, resulting in significant dilution to the holders of Common
             Stock as well as potentially being deemed to effect a change in
             control of the Company with Baxter International owning
             substantially in excess of a majority of the Common Stock on a
             fully diluted basis. Under the Side Letter Agreement, if
             shareholder approval is required, the Company has agreed to use
             reasonable best efforts to accomplish this.

                     The Company's cash and cash equivalents are insufficient to
             fund projected operating expenses through 2002 and based on the
             Company's current projections will not fund operations beyond June
             2002. An effort to raise funds through a private placement of
             equity securities was terminated in February 2002 principally so
             that the Company could focus efforts on potential business
             combinations. It is likely that any such transactions would result
             in substantial dilution to common shareholders. In addition, in
             order to complete such transactions, it may be necessary to
             simplify the Company's capital structure by converting its existing
             two series of preferred stock to common stock, thereby eliminating
             the liquidation preference of such preferred stock. In such an
             event it is possible that in connection with the conversion of the
             Series B Preferred Stock pursuant to the Side Letter Agreement or
             otherwise, Baxter could own substantially in excess of a majority
             of the outstanding common stock.

                                      F-22

<PAGE>


                     The Class A Warrants are exercisable for 15 business days
             commencing November 24, 2004 (provided the Put Right has not been
             exercised), at an exercise price of $.04 per share, subject to
             anti-dilution adjustment in certain circumstances, into a number of
             shares of common stock, up to a maximum of 1,500,000 shares, that
             is dependent on the average of the last reported sale prices of the
             common stock for the 10 trading days preceding November 24, 2004.
             The maximum number of shares is issuable if the price of the common
             stock is $12.00 or less, and no shares are issuable if the price of
             the common stock is greater than $20.00. If the stock price is
             between $12.01 and $20.00, the number of shares that is issuable
             decreases by 250,000 for each $2.00 increment that the stock price
             exceeds $12.00. The Class A Warrants may only be transferable
             together with the Series B Preferred Stock.

                     The Class B Warrants are currently exercisable until
             December 16, 2004, for an aggregate of 808,686 shares of common
             stock, at an exercise price of $11.129, subject to anti-dilution
             adjustment in certain circumstances.

                                      F-23

<PAGE>

NEXELL THERAPEUTICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               During 2001, Series B Preferred cash dividends amounting to
         $1,890,000 were paid.

(11)     STOCK OPTION PLANS

         STOCK OPTION PLANS - EMPLOYEES, DIRECTORS AND CONSULTANTS

               The Company has four stock option plans (the "1990 Plan," the
         "1995 Directors' Plan," the "1997 Plan," and the "1998 Plan").

               Under the 1990 Plan, 600,000 shares of common stock were reserved
         for issuance upon exercise of either incentive or non-incentive
         options, which were granted from time to time by a committee of the
         Board of Directors to employees, directors, consultants, agents,
         independent contractors, and others who contributed to the Company's
         success. The terms of the options were up to ten years and were
         exercisable as determined by the committee, provided that the option
         did not become exercisable before six months from the date of grant.
         The grant prices could be no less than 50% and 100% of the fair market
         value for non-incentive and incentive options, respectively, and were
         generally granted at the market close price on the day prior to the
         grant. The options accelerated upon a change in control as defined in
         the 1990 Plan. The Plan expired on July 9, 2000, and no additional
         options are available for grant under the 1990 Plan. Generally, options
         vested at a rate of 25% per annum on the anniversary date of grant.

              In August 1995, the Company adopted the 1995 Directors' Plan
         authorizing the issuance of five-year options to purchase an aggregate
         of 230,000 shares at an exercise price equal to the fair market value
         of common stock at date of grant. All of the options were granted to
         Directors under the 1995 Directors' Plan and no further options are
         available for grant. As of December 31, 2001, all options available
         under the 1995 Directors' Plan have been exercised.

              On May 25, 1999, the 1997 Plan was amended to increase the number
         of shares issuable upon exercise of options granted under the 1997 Plan
         from 500,000 to 750,000 shares, and on June 14, 2000, the 1997 Plan was
         amended to increase the number of shares of common stock issuable upon
         exercise of options granted under the 1997 Plan from 750,000 to
         1,312,500 shares and on June 21, 2001 the 1997 Plan was amended to
         increase the number of shares of common stock issuable upon exercise of
         options granted under the 1997 Plan from 1,312,500 to 2,262,500 shares.
         The shares of common stock are reserved for issuance upon exercise of
         either incentive or non-incentive options, which may be granted from
         time to time by a committee of the Board of Directors to employees,
         directors, consultants, agents, independent contractors and others who
         contribute to the Company's success. The terms of the options may be up
         to ten years and are exercisable as determined by the committee,
         provided that the option does not become exercisable before six months
         from the date of grant. The grant prices must be no less than 50% and
         100% of the fair market value for non-incentive and incentive options,
         respectively, and are generally granted at the market close price on
         the day prior to the grant. The options accelerate upon a change in
         control as defined in the 1997 Plan. At December 31, 2001, there were
         119,837 options available for grant under the 1997 Plan. Generally,
         options vest 25% per annum on the anniversary date of grant.

              Under the terms of the 1998 Plan, up to an aggregate of (i)
         250,000 shares of NCI common stock and (ii) 750,000 shares of common
         stock of the Company were reserved for issuance upon the exercise of
         non-incentive options which may be granted from time to time by a
         committee of the Board of Directors to employees, directors,
         consultants, agents, independent contractors and others who contribute
         to the Company's success. The terms of the options may be up to ten
         years and are exercisable as determined by the committee. Each grant
         originally provided for an exercise price of $5.00 per share of NCI
         common stock (approximately $6.68 per share of common stock of the
         Company in the event such options became exercisable for the Company's
         common stock). As a result of NCI becoming a wholly owned subsidiary of
         the Company in May 1999, all outstanding options converted
         automatically to options to purchase common stock of the Company. The
         options accelerate upon a change in control as defined in the 1998
         Plan. At December 31, 2001, there were 27,682 options available for
         grant under the 1998 Plan. Generally, options vest at 25% per annum on
         the anniversary date of the grant.

              The Company had consultant option agreements with certain
         consultants who were also directors of the Company. A total of 325,000
         options were granted under these consulting agreements with a five year
         term with an exercise price of $3.76. In 1995, the aggregate value of
         these options were determined to be $351,000 and was amortized over the
         vesting period and has been fully amortized as of December 31, 2001.
         All such options have been exercised.

                                      F-24

<PAGE>

NEXELL THERAPEUTICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

              A total of 50,000 options with a ten year term at an exercise
         price of $5.88 were granted in connection with a March 1996 agreement
         whereby certain directors agreed to guarantee operating funds if needed
         through September 1996. All 50,000 options remain outstanding at
         December 31, 2001 and expire on March 12, 2006.

              Presented below is a summary of stock option plans activity for
         the years shown:

<TABLE>
<CAPTION>
                                                                                                             Weighted
                                                                        Weighted Avg.         Options          Avg.
                                                    Options            Exercise Price       Exercisable      Exercise
                                                    -------            --------------       -----------      --------
                                                                                                              Price
                                                                                                              -----
<S>                                                      <C>                   <C>              <C>               <C>
Balance at December 31, 1998                             1,909,375             $    6.82          637,197         $ 6.24
      Granted                                              791,671                  6.10               --
      Exercised                                            (37,500)                 2.76               --
      Cancelled                                           (423,481)                10.31               --
                                             -----------------------------------------------------------------------------
Balance at December 31, 1999                             2,240,065             $    5.98        1,073,281         $ 5.42
      Granted                                              998,255                 15.82               --
      Exercised                                           (600,042)                 4.64               --
      Cancelled                                           (432,373)                16.39               --
                                             -----------------------------------------------------------------------------
Balance at December 31, 2000                             2,205,905             $    8.76        1,014,638         $ 6.55
      Granted                                              143,500                  2.20               --
      Exercised                                            (15,000)                 0.00               --
      Cancelled                                           (644,362)                10.13               --
                                             -----------------------------------------------------------------------------
Balance at December 31, 2001                             1,690,043             $    7.75        1,245,234         $ 7.69
                                                ==================             =========        =========         ======
</TABLE>

              The following table summarizes information for options outstanding
and exercisable at December 31, 2001:

<TABLE>
<CAPTION>
                                         OPTIONS OUTSTANDING                                 OPTIONS EXERCISABLE
                                         -------------------                                 -------------------

                                                                                                               Weighted
                                    Number                Weighted                               Number        Average
       Range of                   Outstanding              Average            Weighted         Exercisable     Exercise
       Exercise                      As of                Remaining            Average            As of        --------
        Prices                    12/31/2001          Contractual Life     Exercise Price      12/31/2001       Price
        ------                    ----------          ----------------     --------------      ----------       -----
      <S>           <C>                 <C>                       <C>              <C>          <C>             <C>

      $ 0.75        $  3.59               169,375                 8.80             $ 2.36          33,219       $  2.89
      $ 4.00        $  5.88               145,968                 6.42             $ 5.52         119,532       $  5.52
      $ 6.00        $  6.00               232,084                 5.28             $ 6.00         231,897       $  6.00
      $ 6.12        $  6.50               205,625                 6.59             $ 6.39         174,375       $  6.41
      $ 6.64        $  6.64                 9,688                 4.20             $ 6.64           9,688       $  6.64
      $ 6.68        $  6.68               442,136                 6.43             $ 6.68         368,598       $  6.68
      $ 6.76        $ 13.38               185,056                 6.72             $ 8.91         133,323       $  8.56
      $13.88        $ 13.88                 6,250                 8.42             $13.88           1,563       $ 13.88
      $14.88        $ 14.88               214,860                 8.50             $14.88         123,598       $ 14.88
      $15.50        $ 16.00                79,001                 8.40             $15.68          49,441       $ 15.70
------------------------------        -----------             --------             ------      ----------       -------

      $0.75         $ 16.00             1,690,043                 6.91             $ 7.75       1,245,234       $  7.69
</TABLE>

         Note: Option prices and quantities for the 1998 Plan have been adjusted
         due to the conversion from options for NCI stock to options for Nexell
         stock as described above.

               At December 31, 2001, there were 1,560,157 additional shares
         available for grant under the Plans. The per share weighted-average
         fair value of the options granted during 2001, 2000 and 1999 are
         estimated at $2.11, $14.02 per share and $5.20 per share, respectively,
         on the date of grant using the Black-Scholes option-pricing model with
         the following weighted-average assumptions:

                                  2001               2000              1999
Expected dividend yield              0%                 0%                0%
Expected volatility                176%               176%              109%
Risk free interest rate            5.0%               6.1%              5.6%
Expected Life                   5 years            5 years           5 years
                                -------            -------           -------

                                      F-25

<PAGE>

                  The Company applies APB 25 in accounting for its employee
         stock option plans and, accordingly, recognizes compensation expense
         for the difference between the fair value of the underlying common
         stock and the grant price of the option at the date of grant. In the
         event that the fair value of the underlying common stock is equal to or
         below the grant price of the option at the date of grant, no
         compensation expense is recognized in the financial statements. Had the
         Company determined compensation cost based on the fair value at the
         date of grant for its stock options under

                                      F-26

<PAGE>

NEXELL THERAPEUTICS INC, AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        SFAS 123, the Company's net loss applicable to common stock would have
        been increased to the pro forma amounts indicated below:

                         2001                  2000            1999
                         ----                  ----            ----

Net Loss:
    As reported            $ 29,950,000     $ 34,466,000     $ 40,091,000
    Pro forma              $ 32,916,000     $ 39,417,000     $ 43,291,000

Loss per share:
    As reported            $       1.45     $       1.84     $       2.24
    Pro forma              $       1.59     $       2.10     $       2.42

       WARRANTS TO ACQUIRE COMMON STOCK

                  As of December 31, 2001, the Company had 1,303,923 common
        stock subscription warrants (the "Warrants") (Nasdaq National Market
        NEXLW) outstanding to purchase 383,567 shares of common stock at an
        exercise price of approximately $5.10 per share, exercisable through
        June 20, 2006. The Warrants, which have been issued pursuant to a
        Warrant Agreement dated June 17, 1996, previously had an exercise price
        of $6.00 per share and had been exercisable for 549,798 shares, but the
        exercise price and exchange ratio were adjusted as a result of
        additional issuances of derivative securities by the Company in 1999 and
        2001.

                  In December 1996, the Company issued other warrants to an
        individual to purchase 91,250 shares of common stock at an exercise
        price of $.04 per share, exercisable through May 21, 2006. Warrants were
        exercised to purchase 30,416 shares in the year ended December 31, 1997
        and warrants were exercised to purchase 60,834 shares in the year ended
        December 31, 2001. There were no warrants outstanding at December 31,
        2001.

                  In May 1999, the Company issued warrants to Baxter to purchase
        1,300,000 shares of common stock at an exercise price of $4.60 in
        exchange for warrants Baxter had held in NCI (see note 4).

                  In November 1999 the Company issued Class A Warrants and Class
        B Warrants to certain institutional investors (see note 10).

                  As of December 31, 2001, there were total warrants outstanding
        to purchase 3,992,253 shares of common stock exercisable at a
        weighted-average exercise price of $4.26.

      COMPENSATION EXPENSE

                  The grant of nonemployee director restricted stock was charged
        to unearned compensation in shareholders' equity at the intrinsic value
        and is recognized in expense over the vesting period of four years. The
        fair value of the stock options granted to certain consultants, some of
        whom are also directors, was estimated on the date of grant using the
        Black-Scholes option pricing model and charged to unearned compensation
        in shareholders' equity and is recognized in expense over the vesting
        period of two to five years. All compensation expense related to these
        plans was recognized by December 31, 2001.


                                      F-27

<PAGE>

NEXELL THERAPEUTICS INC, AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  The grant of a stock option to a former officer of the Company
        at lower than market value in 1999 was charged to unearned compensation
        in shareholder's equity at the intrinsic value and was being recognized
        in expense over the vesting period of four years. During 2000, the
        former officer terminated his employment and the remaining expense was
        recognized as a result of the accelerated vesting of the former
        officer's options.

                   Compensation expense recognized related to the Nonemployee
        Director Restricted Stock Award Plan, the former officer's options and
        other modified stock options was $29,000, $1,545,000 and $161,000 in
        2001, 2000 and 1999, respectively.

(12)    EMPLOYEE BENEFIT PLANS

                  Effective January 1, 1998, the Company established a defined
        contribution plan which is available to all employees 18 years or older.
        Participants may contribute up to 15% of their compensation and are 100%
        vested in their contributions. The Company matches 50% of each
        participant's contribution up to a maximum of 3% of a participant's
        compensation. The Company's matching contributions totaled approximately
        $155,000, $267,000 and $250,000 for the years ended December 31, 2001,
        2000 and 1999, respectively.

                  During the third quarter of 2001, the Company implemented a
        severance, retention and performance bonus policy which superseded all
        such programs previously in effect. Under this policy maximum cash
        severance and retention payments of approximately $982,000 and maximum
        performance bonuses of approximately $423,000 could be payable. The
        severance benefit provides for payment of 2, 4 or 8 weeks pay depending
        on the employee's responsibilities. The retention bonus was designed as
        an incentive in retaining employees through December 31, 2001 following
        the head count reductions occurring earlier in the year. The performance
        bonus is payable only on the successful achievement of critical
        milestones. An additional reserve was established for $272,000 for
        outplacement services and benefits including COBRA cost reimbursement
        and employer taxes. Such amounts became or will become payable in the
        event of an employee's involuntary termination without cause and/or
        achievement of specific performance objectives within specified time
        frames. The Company made severance payments of $206,000 in October 2001.
        Additionally, retention payments earned and accrued as of December 31,
        2001 totaling $584,000 were made in January 2002.

(13)    INCOME TAXES

                  The components of loss before income taxes are as follows for
the years ended December 31:

<TABLE>
<CAPTION>
                                        2001                       2000                       1999
                                        ----                       ----                       ----
<S>                                 <C>                         <C>                       <C>

U.S.                                $ (19,104,000)              $ (26,903,000)            $ (34,729,000)
Foreign                                                            (1,192,000)                 (944,000)
                                       (4,206,000)
                                   -------------------------------------------------------------------------------

Total                               $ (23,310,000)              $ (28,095,000)            $ (35,673,000)
                                   ===============================================================================
</TABLE>

                          Income tax expense, consisting solely of state and
        local taxes, was $16,000, $19,000 and $11,000 for the years ended
        December 31, 2001, 2000 and 1999, respectively.

                  The differences between income taxes for financial reporting
        purposes and the U.S. statutory rate are primarily due to permanent
        differences and the change in valuation allowance.

                  The components of the deferred taxes at December 31, 2001 and
        2000 are as follows:

<TABLE>
<CAPTION>
                                                                   2001                       2000
                                                                   ----                       ----
<S>                                                            <C>                        <C>

Net operating loss carryforwards                               $    70,235,000            $  60,242,000
Research & Other tax credit carryforwards                            4,907,000                5,891,000
Capitalized R & D expenses                                           2,753,000                4,172,000
Accrued expenses and other                                           4,920,000                3,475,000
                                                                     ---------            -------------


Total deferred tax asset                                            82,815,000               73,780,000
Valuation allowance                                                (82,815,000)             (73,780,000)
                                                               ----------------           --------------

Net deferred tax asset                                                      --                       --
                                                               ================           ==============
</TABLE>

                  Deferred tax assets and liabilities reflect the net tax
        effects of temporary differences between carrying amounts of assets and
        liabilities for financial reporting purposes and the carrying amounts
        used for federal income tax purposes. In assessing the realizability of
        deferred tax assets, management considers whether it is more likely than
        not that some portion or all of the deferred tax assets will not be
        realized. The ultimate realization of deferred tax assets is dependent
        upon the generation of future taxable income during the periods in which
        temporary differences representing net future deductible amounts become
        deductible. Due to the uncertainty of the Company's ability to realize
        the benefit of the deferred tax assets, the deferred tax assets are
        fully offset by a valuation allowance at December 31, 2001 and 2000.

                                      F-28

<PAGE>

NEXELL THERAPEUTICS INC, AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  As of December 31, 2001, the Company has net operating loss
        carryforwards for federal and state income tax purposes of approximately
        $188,111,000 and $107,307,000, respectively, which will expire beginning
        in the year 2002 through the year 2021 if not utilized. Of the
        $188,111,000 in federal net operating losses, $36,675,000 is restricted
        based on separate return limitation year rules. These losses can only be
        used to offset income from the subsidiaries in which the losses
        originated.

                  As of December 31, 2001, the Company has tax credit
        carryforwards for federal and state income tax purposes of approximately
        $3,460,000 and $2,193,000, respectively, which are available to offset
        future tax liabilities, if any, through 2020.

                  Under the Tax Reform Act of 1986, the utilization of a
        corporation's net operating loss and tax credit carryforwards is limited
        following a greater than 50% change in ownership during a three-year
        period. Due to the Company's prior and current year equity transactions,
        the Company's net operating loss and tax credit carryforwards may be
        subject to an annual limitation generally determined by multiplying the
        value of the Company on the date of the ownership change by the federal
        long-term rate. Any unused annual limitation may be carried forward to
        future years for the balance of the net operating loss and tax credit
        carryforward period.

(14)    CONTINGENCIES

                  The Company is involved in various claims and legal actions
        arising in the ordinary course of business. In the opinion of
        management, the ultimate disposition of these matters will not have a
        material adverse effect on the Company's consolidated financial
        position, results of operations, or liquidity.

(15)    GEOGRAPHIC INFORMATION

                  The Company operates in one industry segment: the development,
        manufacture and marketing and distribution of specialized instruments,
        biologicals, reagents, sterile plastic sets and related products used in
        ex vivo cell research and therapies.

<TABLE>
<CAPTION>
                                                   Year ended December 31,
Revenues by geographic area                 2001                 2000                1999
                                            ----                 ----                ----
<S>                                         <C>                  <C>                 <C>
United States                               $  7,793,000         $ 11,244,000        $ 14,451,000
Europe                                         4,288,000            6,167,000             510,000
Rest of World                                  1,099,000              769,000                 --
                                            ------------         -------------       ------------
                                            $ 13,180,000         $ 18,180,000        $ 14,961,000
                                            ============         =============       ============
</TABLE>

                                      F-29

<PAGE>

NEXELL THERAPEUTICS INC, AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
<S>                                               <C>                        <C>                     <C>
Operating loss by geographic area:
    United States                                 $ (17,803,000)             $ (23,837,000)          $ (34,869,000)
    Europe                                           (4,206,000)                (7,468,000)               (599,000)
    Rest of World                                    (1,238,000)                (1,187,000)                     --
                                                  --------------             --------------          -------------
                                                  $ (23,247,000)             $ (32,492,000)          $ (35,468,000)
                                                  ==============             ==============          =============

Identifiable assets:
    United States                                 $  44,514,000              $  69,932,000           $  92,481,000
    Europe                                                   --                  5,523,000               1,188,000
    Rest of World                                            --                         --                 170,000
                                                  --------------             -------------           -------------
                                                  $  44,514,000              $  75,455,000           $  93,839,000
                                                  ==============             =============           =============
Depreciation and amortization:
    United States                                 $   6,444,000              $   7,360,000           $   6,987,000
    Europe                                              267,000                    323,000                  12,000
    Rest of World                                            --                         --                      --
                                                  --------------             -------------           -------------
                                                  $   6,711,000              $   7,683,000           $   6,999,000
                                                  ==============             =============           =============
Capital expenditures:
    United States                                 $     635,000              $     182,000           $   3,054,000
    Europe                                                   --                    858,000                 269,000
    Rest of World                                            --                         --                      --
                                                  --------------             -------------
                                                  $     635,000              $   1,040,000           $   3,323,000
                                                  ==============             =============           =============
</TABLE>

                  The 2001, 2000 and 1999 operating losses for Europe were
        mainly the result of the operations of the Company's Belgium subsidiary,
        which was established in 1999. This subsidiary was sold to Baxter as
        part of the Asset Purchase Agreement of August 31, 2001.

                  The Company generated approximately 3%, 8% and 54% of revenues
        from one customer, Baxter, in 2001, 2000 and 1999, respectively.


                                      F-30

<PAGE>

NEXELL THERAPEUTICS INC, and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(16)     Selected Quarterly Financial Data (UNAUDITED)

                  Selected quarterly financial information for each of the two
                  most recent fiscal years is as follows:
<TABLE>
<CAPTION>
                               3 Months         3 Months         3 Months            3 Months         Year Ended
                             Ended March       Ended June     Ended September     Ended December       December
                               31, 2001         30, 2001         30, 2001            31, 2001          31, 2001
                               --------         --------         --------            --------          --------
<S>                           <C>              <C>               <C>               <C>               <C>
Revenue                       $ 4,839,000      $ 4,929,000       $  3,262,000      $    150,000      $ 13,180,000
Gross profit                    2,135,000        2,181,000            163,000         1,888,000         6,367,000
Net loss                        6,143,000        4,654,000          9,511,000         3,002,000        23,310,000
Net loss applicable to
    common stock              $ 7,784,000      $ 6,308,000       $ 11,177,000      $  4,681,000      $ 29,950,000
Basic and diluted loss
   per share                  $      0.39      $      0.30       $       0.53      $       0.23      $       1.45

                               3 Months         3 Months         3 Months            3 Months         Year Ended
                             Ended March       Ended June     Ended September     Ended December       December
                               31, 2000         30, 2000         30, 2000            31, 2000          31, 2000
                               --------         --------         --------            --------          --------

Revenue                       $ 4,784,000      $ 4,630,000       $  4,498,000      $  4,268,000      $ 18,180,000
Gross profit                    2,226,000        1,946,000          1,752,000           827,000         6,751,000
Net loss                        7,731,000        8,254,000          5,492,000         6,618,000        28,095,000
Net loss applicable to
   common stock               $ 9,306,000      $ 9,841,000       $  7,079,000      $  8,240,000      $ 34,466,000
Basic and diluted loss
   per share                  $      0.51      $      0.53       $       0.37      $       0.43      $       1.84
</TABLE>

                                      F-31

<PAGE>


                                   SCHEDULE II

                        VALUATION AND QUALIFYING ACCOUNTS
                  YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999

<TABLE>
<CAPTION>
                                          Balance at                                    Balance
                                          Beginning                                      At End
                                           of Year       Additions      Deductions      of Year
                                           -------       ---------      ----------      -------
<S>                                       <C>           <C>              <C>           <C>
2001 Allowance for Doubtful Accounts      $ 37,000                --     $ 37,000            --

2000 Allowance for Doubtful Accounts      $ 26,000      $  12,000(a)     $  1,000      $ 37,000

1999 Allowance for Doubtful Accounts            --      $  26,000(a)        --         $ 26,000
</TABLE>

--------------
(a)  Provision charged to earnings

                                      S-1

<PAGE>

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit
Number           Description                                                                            Method of Filing
-------          -----------                                                                            ----------------
<S>              <C>                                                                                    <C>
2.4              Asset Purchase Agreement dated October 10, 1997 by and among Baxter
                 Healthcare Corporation ("Baxter"), the Company and NCI(1)

2.5              Asset Acquisition Agreement dated February 18, 1999, by and among
                 Baxter, the Company and NCI. (2)

2.6              Securities Agreement dated as of November 24, 1999 among the Company
                 and the Purchasers named in Schedule I thereto  (certain schedules are omitted
                 and the Company agrees to furnish supplementally a copy to the Commission upon
                 request). (3)

2.7              Asset Purchase Agreement dated as of August 3, 2001 among the Company,
                 NCI and Baxter  (schedules are omitted from this agreement and Exhibits  10.89
                 through 10.96 filed herewith, and the Company agrees to furnish supplementally a
                 copy of any schedule to the Commission upon request). (34)

3.1              The Company's Amended and Restated Certificate of Incorporation as
                 amended to date. (24)

3.2              The Company's Amended and Restated By-Laws as amended to date. (25)

4.4              Warrant Agreement dated June 17, 1996 between the Company and American
                 Stock Transfer & Trust Company. (4)

4.5              The Certificate of Amendment of the Certificate of Incorporation of the
                 Company filed with the Delaware Secretary of State on December 16, 1997 creating
                 the Series A Preferred Stock and amendments subsequent thereto  (included in
                 Exhibit 3.1 above).

4.6              The Certificate of Amendment of the Certificate of Incorporation of the
                 Company filed with the Delaware Secretary of State on May 25, 1999 modifying the
                 Series A Preferred Stock (included in Exhibit 3.1 above).

4.7              The Company's Series 1 6 1/2% Convertible Subordinated Debenture Due
                 November 30, 2004 issued May 28, 1999 to Baxter. (5)

4.8              The Company's Series 2 6 1/2% Convertible Subordinated Debenture Due
                 November 30, 2004 issued May 28, 1999 to Baxter. (5)

4.9              The Company's Certificate of Designation filed with the Delaware
                 Secretary of State on November 24, 1999  creating the Series B Preferred Stock
                 (included in Exhibit 3.1 above).

10.3             The Company's Amended and Restated 1990  Incentive and Non-Incentive
                 Stock Option Plan, as amended to date (35)
</TABLE>

<PAGE>


<TABLE>
<CAPTION>
Exhibit
Number           Description                                                                              Method of Filing
-------          -----------                                                                              ----------------
<S>              <C>                                                                                    <C>

10.11            The Company's 1995 Outside Directors Stock Option Plan. (7)

10.12            Letter agreement dated August 7, 1995 between the Company and Lindsay
                 A. Rosenwald, M.D. (7)

10.13            Stock Option Agreement dated August 7, 1995 between the Company and
                 Lindsay A. Rosenwald, M.D. (7)

10.14            Consulting and Stock Option Agreement dated November 17, 1995 between
                 the Company and Eric A. Rose, M.D. (7)

10.15            Stock Option Agreement dated November 17, 1995 between the Company
                 and Donald G. Drapkin (7)

10.16            The Company's 1996 Non-Employee Director Restricted Stock Award Plan.
                 (7)

10.18            Research Agreement dated as of March 7, 1997 among the Company, The
                 Trustees of Columbia University in the City of New York and Vimrx Genomics,
                 Inc. (8)

10.20            Employment Agreement dated October 30, 1996 between the Registrant
                 and Richard L. Dunning. (4)*

10.21            Employment Agreement dated August 26, 1996 between the Registrant and
                 David A. Jackson, Ph.D. (4)*

10.22            Factor IX Research Agreement dated March 28, 1997 between Registrant
                 and the Trustees of Columbia University in the City of New York. (9)

10.24            Employment Agreement dated May 19, 1997 between the Company and L.
                 William McIntosh. (10)*

10.24(a)         Letter Agreement dated May 28, 1998  between NCI and L. William
                 McIntosh. (2)*

10.24(b)         Letter Agreement dated May 28, 1998  between the Company and L.
                 William McIntosh. (2)*

10.25            Hardware and Disposables Manufacturing Agreement between NCI and
                 Baxter, dated as of December 17, 1997. (11)

10.26            Antibody Manufacturing and Storage Agreement between NCI and Baxter,
                 dated as of December 17, 1997. (12)

10.27            Hardware and Disposables Supply Agreement between NCI and Baxter,
                 dated as of December 17, 1997. (13)

10.28            Marketing, Sale and Distribution Agreement between NCI and Baxter,
                 dated as of December 17, 1997. (14)

10.29            Non-Competition and Confidentiality Agreement between the Company and
                 Baxter, dated as of December 17, 1997. (15)

10.30            Sublicense (Chiron) between NCI and Baxter, dated as of December 17,
                 1997. (16)

10.31            Sublicense (Dorken) between NCI and Baxter, dated as of December 17,
                 1997. (17)

10.32            Sublicense (First Becton-Dickinson)  between NCI and Baxter, dated as
                 of December 17, 1997. (18)
</TABLE>

<PAGE>

<TABLE>
<S>              <C>
10.33            Sublicense (Second Becton-Dickinson) between NCI and Baxter, dated as
                   of December 17, 1997. (19)

10.34            Warrant, dated December 31, 1997, issued by Innovir to the Company.
                   (20)

10.35            Agreement, dated December 31, 1997, between the Company and Innovir
                   relating to future equity purchases. (20)

10.37            Termination Agreement dated November 11, 1998 between the Company,
                   VGI and Columbia. (21)

10.38            Asset Purchase Agreement, dated October 28, 1998, between CellPro,
                   Incorporated and NCI. (2)

10.39            The Company's Common Stock Purchase Warrant issued May 28, 1999 to
                   Baxter (5)

10.40            Asset Transfer Agreement dated June 30, 1999 among the Company, NCI
                   and Baxter. (22)

10.41            Royalty Agreement dated June 30, 1999 among the Company, NCI and
                   Baxter. (22)
</TABLE>

<PAGE>


<TABLE>
<CAPTION>
Exhibit
Number           Description                                                                              Method of Filing
-------          -----------                                                                              ----------------
<S>              <C>                                                                                    <C>

10.42            Credit Agreement dated June 30, 1999 between the Company and Baxter.
                 (22)

10.43            Letter Agreement dated as of April 15, 1999 between the Company and
                 Richard L. Dunning. (23)*

10.44            Letter Agreement dated as of August 20, 1999 between the Company and
                 L. William McIntosh. (23)*

10.45            Letter Agreement dated as of April 15, 1999 between the Company and
                 David A. Jackson, Ph.D. (23)*

10.46            Form of Put Right Certificate. (3)

10.47            Form of Class A Warrant. (3)

10.48            Form of Class B Warrant. (3)

10.49            Registration Rights Agreement dated as of November 24, 1999 among the
                 Company and the Investors identified therein. (3)

10.50            Side Letter Agreement dated as of November  24, 1999  among the
                 Company, Baxter International, Inc. and the other parties signatory thereto. (3)

10.51            Put Agreement dated as of November 24, 1999 between the Company and
                 Baxter International, Inc. (3)

10.52            Voting Agreement dated December 17, 1997 among Baxter, the Company
                 and certain other parties. (27)

10.53            Registration Rights Agreement dated December 17, 1997 between Baxter
                 and the Company. (27)

10.54            Non-Incentive Stock Option Agreement dated November 9, 1999 between
                 the Company and Joseph A. Mollica. (27)*

10.55            Non-Incentive Stock Option Agreement dated November 9, 1999 between
                 the Company and Richard L. Casey. (27)*

10.56            Non-Incentive Stock Option Agreement dated November 9, 1999 between
                 the Company and Richard C. Piazza. (27)*

10.57            Non-Incentive Stock Option Agreement dated November 9, 1999 between
                 the Company and Victor W. Schmitt. (27)*

10.58            Non-Incentive Stock Option Agreement dated November 9, 1999 between
                 the Company and Victor W. Schmitt. (27)*

10.59            Stock Option Agreement dated March 12, 1996 between the Company and
                 Donald G. Drapkin. (27)*

10.60            Amendment dated May 25, 1999 to Consulting and Stock Option Agreement
                 dated November 17, 1995 between the Company and Eric A. Rose, M.D. (27)*

10.61            Amendment dated May 25, 1999 to Stock Option Agreement dated November
                 17, 1995 between the Company and Donald G. Drapkin. (27)*

10.62            Form of Indemnification Agreement between the Company and Members of
                 the Board of Directors. (27)
</TABLE>

<PAGE>

<TABLE>
<S>              <C>
10.63            Amendment dated November 30, 1999 to Asset Transfer Agreement dated
                 June 30, 1999, among the Company, NCI and Baxter. (27)

10.64            Distribution Agreement with Takara Shuzo Co., Ltd. (28)

10.65            Co-Development Agreement with Takara Shuzo Co., Ltd. (28)
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number           Description                                                                              Method of Filing
-------          -----------                                                                              ----------------
<S>              <C>                                                                                    <C>

10.66            Letter Agreement between L. William McIntosh and the Company dated
                 August 10, 2000 (29)*

10.67            Sale-leaseback agreement between Baxter Healthcare Corp. and the
                 Company dated December 21, 2000 (35)

10.68            Non-Incentive Stock Option Agreement dated February 18, 2000 between
                 the Company and Dennis E. Van Epps (35)*

10.69            Non-Incentive Stock Option Agreement dated July 3, 2000 between the
                 Company and William A. Albright, Jr. (35)*

10.70            Non-Incentive Stock Option Agreement dated July 3, 2000 between the
                 Company and Michel L. E. Bergh (35)*

10.71            Non-Incentive Stock Option Agreement dated July 3, 2000 between the
                 Company and Richard L. Dunning (35)*

10.72            Non-Incentive Stock Option Agreement dated July 3, 2000 between the
                 Company and David J. Hirsch (35)*

10.73            Non-Incentive Stock Option Agreement dated July 3, 2000 between the
                 Company and Amy Ross (35)*

10.74            Non-Incentive Stock Option Agreement dated July 3, 2000 between the
                 Company and Dennis E. Van Epps (35)*

10.75            Non-Incentive Stock Option Agreement dated October 10, 2000 between
                 the Company and David J. Hirsch (35)*

10.76            Non-Incentive Stock Option Agreement dated October 10, 2000 between
                 the Company and Daniel Levitt (35)*

10.77            Non-Incentive Stock Option Agreement dated October 10, 2000 between
                 the Company and Amy Ross (35)*

10.78            Non-Incentive Stock Option Agreement dated December 7, 2000 between
                 the Company and Richard L. Casey (35) *

10.79            Non-Incentive Stock Option Agreement dated December 7, 2000 between
                 the Company and Joseph A. Mollica (35)*

10.80            Non-Incentive Stock Option Agreement dated December 7, 2000 between
                 the Company and C. Richard Piazza (35)*
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number           Description                                                                              Method of Filing
-------          -----------                                                                              ----------------
<S>              <C>                                                                                    <C>

10.81            Non-Incentive Stock Option Agreement dated December 7, 2000 between
                 the Company and Eric A. Rose (35)*

10.82            Non-Incentive Stock Option Agreement dated December 7, 2000 between
                 the Company and Victor W. Schmitt (35)*

10.83            1998  Non-Incentive Stock Option Plan of the Company for Directors,
                 Employees and Consultants of Nexell of California, Inc., as amended to Date
                 (35)*

10.84            Common Stock Purchase Agreement dated January 9, 2001, between Acqua
                 Wellington North American Equities Fund, Ltd. and the Company (30)

10.85            License Agreement dated March 28, 2001 between NCI and Epimmune Inc.
                 (Confidential treatment has been granted with respect to certain portions of
                 this exhibit.  Omitted portions have been filed separately with the Securities
                 and Exchange Commission.) (31)

10.86            Non-Incentive Stock Option Agreement dated February 23, 2001 between
                 the Company and William A. Albright, Jr. (31)*

10.87            Termination Letter with Acqua Wellington North American Equities
                 Fund, Ltd. (32)

10.88            The Company's 1997 Incentive and Non-Incentive Stock Option Plan, as
                 amended to date (33)*

10.89            Distribution and License Agreement dated August 31, 2001 between
                 Baxter and NCI (34)

10.90            Sublicense Agreement of the First BD Sublicense dated August 31, 2001
                 between Baxter and NCI (34)

10.91            Sublicense Agreement of the Second BD Sublicense dated August 31,
                 2001 between Baxter and NCI (34)

10.92            Sublicense Agreement of the Dorken Sublicense dated August 31, 2001
                 between Baxter and NCI (34)

10.93            Sublicense Agreement of the Public Health Service Biological
                 Materials License dated August 31, 2001 between Baxter and NCI (34)

10.94            Sublicense Agreement of the Diaclone Monoclonal Antibody License
                 dated August 31, 2001 between Baxter and NCI (34)

10.95            Employee Lease Agreement dated August 31, 2001 among Baxter, the
                 Company and NCI (34)

10.96            Supply Agreement dated August 31, 2001 between Baxter and NCI (34)

10.97            Non-Incentive Stock Option Agreement dated November 12, 2001 between                   Filed electronically
                 the Company and Richard L. Casey*                                                      herewith

10.98            Non-Incentive Stock Option Agreement dated November 12, 2001 between                   Filed electronically
                 the Company and Joseph A. Mollica*                                                     herewith

10.99            Non-Incentive Stock Option Agreement dated November 12, 2001 between                   Filed electronically
                 the Company and C. Richard Piazza*                                                     herewith
</TABLE>

<PAGE>

<TABLE>
<S>              <C>                                                                                    <C>

10.100           Non-Incentive Stock Option Agreement dated November 12, 2001 between                   Filed electronically
                 the Company and Eric A. Rose*                                                          herewith

10.101           Non-Incentive Stock Option Agreement dated November 12, 2001 between                   Filed electronically
                 the Company and Victor W. Schmitt *                                                    herewith

10.102           Non-Incentive Stock Option Agreement dated November 12, 2001 between                   Filed electronically
                 the Company and Richard L. Dunning *                                                   herewith

10.103           Nexell Therapeutics Inc. Retention and Severance Plan, as amended, and                 Filed electronically
                 Summary Plan Description*                                                              herewith

10.104           Nexell Therapeutics Inc.  Retention and Severance Plan, as amended,                    Filed electronically
                 [For Senior Staff Members] and Summary Plan Description*                               herewith

10.105           Letter Agreement dated March 26, 2002 between the Company and                          Filed electronically
                 William A. Albright, Jr.*                                                              herewith

10.106           Settlement Agreement dated March 19, 2002 among the Company, NCI                       Filed electronically
                 and Baxter                                                                             herewith

10.107           Letter Agreement dated September 27, 2001 between the Company                          Filed electronically
                 and Michael Bergh*                                                                     herewith

10.108           Letter Agreement dated September 27, 2001 between the Company                          Filed electronically
                 and Wayne Tyo*                                                                         herewith

21               List of Subsidiaries                                                                   Filed herewith
                                                                                                        electronically

23(a)            Consent of KPMG LLP                                                                    Filed herewith
                                                                                                        electronically
</TABLE>

Note: The Company's commission file number for all filings is No. 0-19153.

 *   Denotes management contract or compensatory plan or arrangement.

(1)  Filed as the same numbered Exhibit to the Company's Current Report on
     Form 8-K filed January 2, 1998 and incorporated herein by reference
     thereto.

(2)  Filed as the same numbered Exhibit to the Company's Annual Report on
     Form 10-K for the year ended December 31, 1998 and incorporated herein by
     reference thereto.

(3)  Filed as the same numbered Exhibit to the Company's Current Report on
     Form 8-K filed December 7, 1999 and incorporated herein by reference
     thereto.

(4)  Filed as the same numbered Exhibit to the Company's Annual Report on
     Form 10-K for the year ended December 31, 1996 and incorporated herein by
     reference thereto.

(5)  Filed as the same numbered Exhibit to the Company's Current Report on
     Form 8-K filed June 29, 1999 and incorporated herein by reference thereto.

(6)  Filed as the same numbered Exhibit to the Company's Annual Report on
     Form 10-K for the year ended December 31, 1994 and incorporated herein by
     reference thereto.

(7)  Filed as the same numbered Exhibit to the Company's Annual Report on
     Form 10-K for the year ended December 31, 1995 and incorporated herein by
     reference thereto.

(8)  Filed as the same numbered Exhibit to the Company's Current Report on
     Form 8-K filed March 21, 1997 and incorporated herein by reference thereto.

(9)  Filed as the same numbered Exhibit to the Company's Quarterly Report on
     Form 10-Q for the quarter ended March 31, 1997 and incorporated herein by
     reference thereto.

(10) Filed as the same numbered Exhibit to the Company's Quarterly Report
     on Form 10-Q for the quarter ended September 30, 1997 and incorporated
     herein by reference thereto.

<PAGE>

(11) Filed as Exhibit number 10.1 to the Company's Current Report on Form
     8-K filed January 2, 1998 and incorporated herein by reference thereto.

(12) Filed as Exhibit number 10.2 to the Company's Current Report on Form
     8-K filed January 2, 1998 and incorporated herein by reference thereto.

(13) Filed as Exhibit number 10.3 to the Company's Current Report on Form
     8-K filed January 2, 1998 and incorporated herein by reference thereto.

(14) Filed as Exhibit number 10.4 to the Company's Current Report on Form
     8-K filed January 2, 1998 and incorporated herein by reference thereto.

(15) Filed as Exhibit number 10.5 to the Company's Current Report on Form
     8-K filed January 2, 1998 and incorporated herein by reference thereto.

(16) Filed as Exhibit number 10.6 to the Company's Current Report on Form
     8-K filed January 2, 1998 and incorporated herein by reference thereto.

(17) Filed as Exhibit number 10.7 to the Company's Current Report on Form
     8-K filed January 2, 1998 and incorporated herein by reference thereto.

(18) Filed as Exhibit number 10.8 to the Company's Current Report on Form
     8-K filed January 2, 1998 and incorporated herein by reference thereto.

(19) Filed as Exhibit number 10.9 to the Company's Current Report on Form
     8-K filed January 2, 1998 and incorporated herein by reference thereto.

(20) Filed as the same numbered Exhibit to the Company's Annual Report on
     Form 10-K for the year ended December 31, 1997 and incorporated herein by
     reference thereto.

(21) Filed as the same number Exhibit to the Company's Quarterly Report
     on Form 10-Q for the quarter ended September 30, 1998 and incorporated
     herein by reference thereto.

(22) Filed as the same number Exhibit to the Company's Quarterly Report
     on Form 10-Q for the quarter ended June 30, 1999 and incorporated herein
     by reference thereto.

(23) Filed as the same number Exhibit to the Company's Quarterly Report
     on Form 10-Q for the quarter ended September 30, 1999 and incorporated
     herein by reference thereto.

(24) Filed as Exhibit 4.1 to the Company's registration statement on Form
     S-8 filed with the Commission on July 6, 2000  (Registration Number
     333-40860), and incorporated herein by reference thereto.

(25) Filed as the same numbered Exhibit to the Company's Quarterly Report
     on Form 10-Q for the quarter ended June 30, 2000 and incorporated herein
     by reference thereto.

(26) Intentionally omitted.

(27) Filed as the same numbered Exhibit to the Company's Annual Report on
     Form 10-K for the year ended December 31, 1999 and incorporated herein by
     reference thereto.

(28) Filed as the same numbered Exhibit to the Company's Quarterly Report
     on Form 10-Q for the quarter ended June 30, 2000 and incorporated herein
     by reference thereto.

(29) Filed as the same numbered Exhibit to the Company's Quarterly Report
     on Form 10-Q for the quarter ended September 30, 2000 and incorporated
     herein by reference thereto.

(30) Filed as Exhibit 10.1 to the Company's Post Effective Amendment No. 1
     to its registration statement on Form S-3 filed with the Commission on
     January 10, 2001 (Registration Number 333-51440), and incorporated herein
     by reference thereto.

(31) Filed as the same numbered Exhibit to the Company's Quarterly Report
     on Form 10-Q for the quarter ended March 31, 2001 and incorporated herein
     by reference thereto.

(32) Filed as the same numbered Exhibit to the Company's quarterly report
     on Form 10-Q for the quarter ended June 30, 2001 and

<PAGE>

     incorporated herein by reference thereto.

(33) Filed as Exhibit 4.3 to the Company's registration statement on Form
     S-8 filed with the Commission on July 6, 2000  (Registration Number
     333-64138), and incorporated herein by reference thereto.

(34) Filed as the same numbered Exhibit to the Company's Current Report on
     Form 8-K filed on September 17, 2001 and incorporated herein by reference
     thereto.

(35) Filed as the same numbered Exhibit to the Company's Annual Report on
     Form 10-K for the year ended December 31, 2000 and incorporated herein by
     reference thereto.