UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

(Mark One)

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

                   For the fiscal year ended December 31, 2000

                                       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 number 0-19410


                                  HemaSure Inc.
                     --------------------------------------
             (Exact name of registrant as specified in its charter)

                        Delaware                      04-3216862
           ---------------------------------          --------------
           State or other jurisdiction of             (I.R.S. Employer
           incorporation or organization              Identification No.)

                     140 Locke Drive
                  Marlborough, Massachusetts                    01752
           ----------------------------------                   -----
          (Address of principal executive offices)               (Zip Code)

Registrant's telephone number, including area code        (508) 490-9500
                                                  -----------------------

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

     Title of each class           Name of each exchange on which registered
             None                                   None
     --------------------          ------------------------------

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

                     Common Stock, par value $.01 per share
                    ----------------------------------------
                                (Title of class)






<PAGE>

      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 (ss.229.405 of this chapter) 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. [X]

The  aggregate  market  value of  voting  stock  held by  non-affiliates  of the
registrant was $6,840,864 on March 2, 2001.

Number of shares  outstanding  of the  registrant's  class of common stock as of
March 2, 2001:  19,903,589.  Effective  with the return of  1,011,692  shares of
common stock by Gambro Inc. in connection  with the  termination  and release of
the supply and development  agreement between the Company and Gambro Inc., there
will be 18,891,897 shares outstanding- See Recent Events -.


                       DOCUMENTS INCORPORATED BY REFERENCE

Proxy Statement for 2001 Annual Meeting of Stockholders - Part III




<PAGE>

                                EXPLANATORY NOTE

      This Annual  Report on Form 10-K  contains  predictions,  projections  and
other  statements  about the future  that are  intended  to be  "forward-looking
statements" within the meaning of Section 21E of the Securities  Exchange Act of
1934, as amended (collectively,  "Forward-Looking Statements").  Forward-Looking
Statements  are  included  with  respect  to various  aspects  of the  Company's
strategy and operations,  including but not limited to, its product  development
efforts, including regulatory requirements and approvals;  potential development
and strategic alliances; and the Company's liquidity and capital resources. Each
Forward-Looking  Statement that the Company  believes is material is accompanied
by cautionary  statements  identifying important factors that could cause actual
results  to  differ  materially  from  those  described  in the  Forward-Looking
Statement. The cautionary statements are set forth following the Forward-Looking
Statement,  and/or in other  sections  of the  Annual  Report on Form  10-K.  IN
ASSESSING  FORWARD-LOOKING  STATEMENTS  CONTAINED IN THIS ANNUAL  REPORT ON FORM
10-K, READERS ARE URGED TO READ CAREFULLY ALL CAUTIONARY STATEMENTS -- INCLUDING
THOSE CONTAINED IN OTHER SECTIONS OF THIS ANNUAL REPORT ON FORM 10-K.





<PAGE>

                                       PART I

Item 1.           Business

Overview

      HemaSure Inc. (the "Company") was  incorporated as a Delaware  corporation
in  December  1993.  Its  principal  executive  offices are located at 140 Locke
Drive,  Marlborough,  Massachusetts  01752.  The shares of its common stock, par
value $.01 per share (the "Common Stock"), trade on the OTC Bulletin Board under
the symbol "HMSR".

      The Company develops and supplies innovative blood filtration technologies
designed to help meet today's increasing demand for a safer, more reliable blood
supply. Its blood filtration  technologies are designed to reduce virus-carrying
white blood cells  (leukocytes)  in donated  blood to nominal  levels (a process
known as "leukoreduction").

      While  approximately  40% to 50% of donated  blood in the United States is
currently  leukoreduced,  the Company believes this percentage will increase. In
September  1998, the Food and Drug  Administration's  (the "FDA") Blood Products
Advisory Committee announced a non-binding recommendation that 100% of the blood
supply in the United States be leukoreduced and in January 2000 recommended that
universal  leukoreduction be implemented as soon as feasible.  In addition,  the
American Red Cross  ("ARC"),  which  collects  over 6 million units of blood per
year  representing  approximately 50% of the blood donated in the United States,
is striving to achieve 100% leukoreduction as soon as feasible.  Moreover,  many
other  countries in the past several years have mandated the  leukoreduction  of
their blood supply.

      According to industry sources,  the leukoreduction  industry  represents a
market potential of approximately  $800 million.  The Company has been utilizing
its  technologies  as the basis for  developing  products and  methodologies  to
address the needs of the leukoreduction market. The first such product developed
by the Company was the LeukoNet System, which received clearance from the FDA in
June 1995. In February 1998, the Company determined to discontinue manufacturing
the  LeukoNet  System  and focus on the  completion  of  development  and market
introduction  of its next  generation  red  cell  filtration  product,  the r\LS
System.  The r\LS System was  designed to offer a more  effective  product  than
those  offered in the market  today based on low cost,  ease of use and improved
operational fit.

      The Company initiated sales of the r\LS System in the United States in the
third quarter 1999. In May 1999, the Company  completed an amended  distribution
and  development  agreement  with  Gambro  to  act as  the  Company's  exclusive
distributor of its r\LS System  worldwide,  except for sales to the ARC. In July
1999,  the Company  entered into a master  purchase  agreement with the ARC that
provided  for the sale of the r\LS System by the Company to the ARC on specified
terms.

Significant Events

      In April 2000,  the  Company  was  notified  that the ARC,  the  Company's
largest  customer at the time,  was  suspending use of the Company's r\LS System
pending  the  outcome  of an  investigation  of a small  number of  non-critical
adverse  reactions in patients who had received a transfusion  of blood filtered
with the  r\LS.  In  September  2000,  the  Company  was  notified  that the ARC
terminated its





                                       -1-
<PAGE>


supply  contract for the r\LS System based on the extended  period of time taken
by the Company to prove  product  improvements  resolved  these  reactions.  The
Company and the ARC are  currently  negotiating  a  termination  of the purchase
contract  and a release of any and all claims that either party may have against
the other, with certain exceptions. It is uncertain at this time when and if the
ARC and the Company will complete a termination agreement or when and if the ARC
will resume the purchase and use of the r\LS System.

      In March 2001, the Company signed a termination and release agreement with
Gambro Inc.  ("Gambro"),  effective  November 2000, which ended the distribution
and development agreement.  Gambro cited the termination of the Company's supply
contract  with ARC and other  recent  business  conditions  as the  reasons  for
terminating the agreement.  In  consideration  for the Company's  inventory (net
book value at  December  31, 2000 of  $332,000)  of  products  bearing  Gambro's
company name,  and by way of complete  resolution of all issues now  outstanding
between  the Company and Gambro,  Gambro  agreed to return  1,011,692  shares of
common stock with a fair market value at closing of $332,000.

      The termination of both the purchase  contract by ARC and the distribution
and development agreement with Gambro has had an adverse impact on the Company's
ability to generate  revenues from the sale of the Company's r\LS product and on
the Company's supply contracts with manufacturers of key components to the r\LS.
See "Strategic Relationships" below for additional detail regarding these events
and the ARC and Gambro.

Recent Events

      On February 3, 2001, the Company agreed to sell  substantially  all of the
Company's   non-cash  assets  to  Whatman   Bioscience   Inc.,  a  Massachusetts
corporation  ("Whatman"),  a wholly owned  subsidiary of Whatman plc, an English
corporation  ("Whatman  plc"),  pursuant  to  the  terms  of an  Asset  Purchase
Agreement (the "Purchase Agreement").

      Following  any  approval  and  adoption of the  Purchase  Agreement by the
Stockholders  of the Company  and the  satisfaction  or waiver of certain  other
conditions,  the Company will sell  substantially  all of its non-cash assets to
Whatman.  Under the terms of the Purchase  Agreement,  the  consideration  to be
received by the Company for the Asset Sale (the "Consideration") will consist of
(1) $10 million in cash,  which will be paid to the Company at the Closing;  (2)
an  additional  payment by  Whatman,  in cash or common  stock of Whatman plc at
Whatman's option, which effectively reimburses the Company for its net operating
costs and expenses incurred in connection with the Company's business during the
period  beginning  on  November  1,  2000 and  ending on the  Closing  Date (the
"Reimbursement   Portion"),   which  amount  is  currently   anticipated  to  be
approximately $4 million and is expected to be paid to the Company in the second
quarter of 2001;  and (3) a royalty of 4% on sales by  Whatman,  Whatman  plc or
their affiliates of certain filtration products, including products that utilize
the  Company's  technology,  up to a total  royalty of $12  million,  subject to
certain reductions described in the Royalty Agreement,  which include the offset
of certain potential liabilities associated with the Company's patent litigation
with Pall Corporation that Whatman will assume. Accordingly, the total amount of
the Consideration to be paid by Whatman to the Company will be approximately $14
million to $26 million in cash or cash and common stock of Whatman plc.




                                       -2-
<PAGE>


      Under the terms of the  Purchase  Agreement,  Whatman  will  assume and be
legally responsible for certain liabilities of the Company, and Whatman plc will
guarantee  Whatman's  obligation  to pay the  Consideration  to the Company.  In
addition,  in the event that Whatman elects to pay the  approximately $4 million
reimbursement  portion of the  Consideration  in shares of Whatman  plc's common
stock, the Purchase Agreement provides that Whatman plc will guarantee a minimum
per share price to the Company of $4.3864  with  respect to any share of Whatman
plc's common  stock  resold by the Company  within 60 days after such shares are
issued to the  Company.  The  Company  currently  anticipates  that any share of
Whatman  plc's  common stock issued to the Company will be resold by the Company
within 60 days of the issuance to the Company of such share.

      The  Company  has the right to  terminate  the  Purchase  Agreement  under
certain circumstances,  including if the Board of Directors determines, upon the
written  opinion of the  Company's  counsel,  that the failure to terminate  the
Purchase Agreement could be expected to be a breach of, or be inconsistent with,
the  fiduciary  duties of the Board of Directors  under  applicable  law. In the
event of termination  for the foregoing  reason,  the Company is required to pay
Whatman a fee of $500,000 upon the termination of the Purchase Agreement.

      It is  currently  anticipated  that the  Closing  Date will occur on or as
promptly as  practicable  following  the  approval  and adoption of the Purchase
Agreement by the  Stockholders of the Company and the  satisfaction or waiver of
all of the other  conditions set forth in the Purchase  Agreement.  Either party
may  terminate  the Purchase  Agreement if the closing does not occur by May 31,
2001.  Accordingly,  there can be no  assurance  as to if or when the Asset Sale
will be consummated.

      In connection with the sale of the non-cash assets, the Company expects to
realize  a gain of  approximately  $3,500,000  after all  anticipated  costs and
expenses  associated  with the sale.  The Company does not expect to incur a tax
liability in connection with the sale, as it believes it has sufficient  federal
and state net operating loss  carryforwards  and tax credits to offset any gains
realized.

      Upon  closing of the  Purchase  Agreement  with  Whatman,  the  Company is
expected to have  approximately  $17.5  million in a combination  of cash,  cash
equivalents,  marketable securities and Whatman plc stock (based on current cash
and marketable  securities  levels,  the Company's  expected "burn rate" through
closing and the terms of the Purchase Agreement). In that regard, the Company is
in the preliminary stages of considering various strategic business combinations
and other  transactions with a view toward further  enhancing  stockholder value
following the consummation of the sale of its assets and business to Whatman.

      In the event that the Asset Sale does not occur, the Company will consider
other  business  alternatives,  including  but not  limited to,  other  business
combinations and a liquidation of the Company's assets.  Given that any proceeds
from any such  liquidation and any other cash on hand would be first used to pay
the  Company's  creditors  and  outstanding  payables,  and given  certain legal
requirements that the Company maintain certain cash on hand for certain mandated
time  periods,  there is no assurance as to when,  if ever,  any proceeds from a
liquidation would be distributed to the Company's Stockholders.




                                       -3-
<PAGE>


The Blood Market

      Blood Collection

      Industry sources have estimated that  approximately 40 to 45 million units
of blood are collected and transfused by developed  countries  annually and that
this number  reaches 70 to 80 million units  worldwide.  Collection is typically
done by affiliated blood collection centers (for example, the ARC),  consortiums
of independent blood collection centers (for example, Blood Centers of America),
independent  blood  collection  centers (for example,  New York Blood Center) or
government affiliated blood centers in some foreign countries.

      Whole blood is composed of four major  components,  (i)  platelets,  which
assist in clotting;  (ii) plasma, which is the fluid part of blood that contains
proteins that fight infections,  aid in clotting and retain blood volume;  (iii)
red  blood  cells,  which  help  carry  oxygen  throughout  the  body;  and (iv)
leukocytes,  or white blood cells, which are used by the body's immune system to
help fight  infections.  Blood is collected  either  manually or with the use of
automated blood collection equipment.  If collected manually,  the donated blood
is tested  and  separated  into  components.  If  collected  through  the use of
automated blood collection equipment, the desired component is extracted and the
remaining components are returned to the donor.

      Individuals  suffering  physical  trauma  or  anemia,  undergoing  complex
surgical procedures or hemodialysis or undergoing treatment for cancer are among
the diverse  group of patients who require blood  transfusions  in the course of
their  medical  care.  Health  risks,  such  as  transfusion  complications  and
infections,  may arise  from  contaminated  blood and blood  products,  although
infection  risks are lower today than in the recent past as a result of improved
donor  education  and selection and  implementation  of screening  procedures to
identify certain virus contaminated blood units prior to transfusion.  Moreover,
these health risks can increase in patients who receive  frequent  transfusions,
such as those  suffering from kidney and liver  disorders,  and patients who are
immune-suppressed, such as those undergoing treatment for cancer.

      The number of units of whole blood,  blood  components or plasma a patient
receives  in a blood  transfusion  varies  significantly.  A patient  undergoing
routine  surgery  may  typically  receive  three or four  units,  while a cancer
patient undergoing platelet  transfusion may receive in excess of 100 units over
time.  The risk of  infection  to a  patient  increases  as the  number of units
transfused increases.

      Transfusion Risks

      Health risks from  transfusions,  including  complications and infections,
arise from the  presence of  leukocytes,  viruses and other  pathogens in blood,
cellular blood components and plasma. In addition, autologous blood recovery and
reinfusion  result in an increased risk of  contamination  of a patient's blood.
The Company  believes that the demand for filtered blood for  transfusions  will
continue to increase over the next several years due to the growing  recognition
in the medical field of the benefits of leukocyte reduction.

      Leukocytes.  Leukocytes may cause adverse reactions in patients  receiving
blood  transfusions,  such  as  fever,  chills,  immune  system  suppression  or
development of immunological  responses that could cause the affected patient to
reject  subsequent  blood  transfusions.  In  addition,  leukocytes  may




                                       -4-
<PAGE>


harbor  infectious  viruses and other  agents,  including  cytomegalovirus,  new
variant CJD and human T-cell lymphocyte virus I (HTLV-I).

      Pathogens.  Viruses  such  as  HIV,  hepatitis  B and  hepatitis  C may be
contained  inside or outside of the  leukocytes  and may be  transmitted  during
transfusions.  Other viruses may develop or become  prevalent  over time. Of the
currently known viruses,  there has been  significant  public focus on hepatitis
and HIV.

      Recent Trend Toward Leukoreduction

      Historically,  approximately  20% to 30% of  donated  blood  in  developed
countries was filtered to remove  leukocytes.  Due primarily to cost,  generally
only those  patients with  diseases that may cause immune system  complications,
such as HIV, or those with severely compromised immune systems, such as patients
undergoing  chemotherapy,   received  leukoreduced  blood  and  because  of  the
relatively low number, these were done at the patients' hospital bedside.

      However,  the  developed  nations  throughout  the world are  increasingly
mandating universal leukoreduction of their blood supplies. In North America and
Europe,  numerous  countries are committed to providing 100% leukoreduced  blood
components or have received  recommendations  to provide 100% leukoreduced blood
components.

      France  committed  to 100%  leukocyte  reduction  in April  1998,  both on
clinical  grounds and as a  precautionary  tool ensuring the safety of its blood
supply. Ireland announced its plans to move to 100% leukocyte reduction in April
1998.  The  United  Kingdom  has also made the  decision  to  require  leukocyte
reduction  for all blood  units and blood  products  derived  from whole  blood.
Following a directive  issued by the Canadian  Government,  the  Canadian  Blood
Services  and  Hema-Quebec  in Canada have  announced  plans to adopt  leukocyte
reduction  of all blood and blood  products.  In July 1999,  Japan  announced it
planned to begin full  leukoreduction of its blood supply.  The Company believes
that additional  countries will recommend  leukoreduction as more people seek to
protect   themselves   from  the  dangerous   transmission  of  disease  through
transfusion.  Scientific  studies have shown that the use of leukoreduced  blood
could result in shorter hospital stays,  fewer  postoperative  infections and/or
cost  savings  per  patient of  approximately  $3,000 to $6,000 per  patient for
certain  procedures,  including  thoracic  surgery,  heart  bypass  surgery  and
gastrointestinal surgery.

      The United States is also moving toward  universal  leukoreduction  of its
blood supply.  Approximately 40% to 50% of donated blood in the United States is
currently  filtered  to remove  leukocytes  and this  percentage  is expected to
increase.  In  September  1998,  the FDA's  Blood  Products  Advisory  Committee
announced  a  non-binding  recommendation  that the  United  States  adopt  100%
leukoreduction  of its donated blood supply and in January 2000 recommended that
universal  leukoreduction be implemented as soon as feasible. The committee said
that, "The benefit-to-risk  ratio associated with leukoreduction is sufficiently
significant  to  justify  the  universal  leukoreduction  of  all  non-leukocyte
cellular transfusion blood components."  Pre-storage filtration (filtration done
at the blood  collection  center prior to storage for shipment to the  hospital)
was recognized by the FDA's Blood Products  Advisory  Committee as the preferred
method of leukoreduction.

      Pre-storage   leukoreduction   is  typically   done  using  two  different
processes.  One such process  requires a filter that is an integral  part of the
blood  collection set  ("in-line").  The second process




                                       -5-
<PAGE>


requires a filter to be  sterile  docked to the blood  collection  set after the
blood  is  collected.  Scientific  use  of  each  process  is  dependent  upon a
particular blood center's manufacturing flow-process.

      Recent  medical  studies  have   demonstrated   the  patient  benefits  of
leukoreduction. For example, a study of open heart surgery patients published in
the Annals of Thoracic Surgery found that filtering leukocytes reduced the risks
associated  with this type of surgery and  improved  patient  outcomes.  It also
determined that leukoreduction in the approximately 300,000 patients who undergo
heart bypass  surgeries  could  result in a 20%  decrease in hospital  stays and
savings of  approximately  $3,000 to $6,000 in costs per patient.  Another major
study published in the American  Journal of Surgery found that  gastrointestinal
surgery patients had fewer  postoperative  infections and shorter hospital stays
after they received  leukocyte-filtered  red cells.  Hospital  stays averaged 12
days for  patients who received  leukocyte-reduced  transfusions  compared to 18
days  for  those  who  received   non-leukoreduced   blood,   at  a  savings  of
approximately $6,000 per patient.

The Company's Approach

      The Company's blood filtration  technologies initially were developed from
core  technologies  transferred  to it from  Sepracor Inc.  ("Sepracor")  at the
Company's inception in 1993 relating to the development, manufacture and use and
sale of blood,  blood products and blood  components and membrane  filter design
technologies.  Since that time, the Company has developed  technologies designed
to make the process of filtering blood easy and cost effective.  The Company has
been  utilizing  its  technologies  as the basis  for  developing  products  and
methodologies to address the needs of the leukoreduction market.

      In June 1995, the Company  received  clearance from the United States Food
and Drug  Administration  (the "FDA") for the LeukoNet  System, a medical device
designed for the removal of contaminating  leukocytes from donated blood. Fiscal
1996 was the first  full year of  commercial  sale of its  LeukoNet  System.  In
February 1998, the Company determined to discontinue  manufacturing the LeukoNet
System and focus on the completion of development and market introduction of its
next generation red cell filtration  product,  the r\LS System. The r\LS System,
was developed to provide high-volume, centralized, pre-storage leukoreduction in
blood centers in batch processes.

Strategic Relationships

      Strategic Partnership with ARC

      In August  1998,  the Company  completed  an amended and  restated  Master
Strategic  Alliance Agreement with the ARC BioMedical  Services,  which provides
for,  among  other  things,  the  development  and  enhancement  of a number  of
filtration products,  based on the Company's core technology including red blood
cell  leukoreduction,  leukocyte  recovery,  platelet  filtration,  whole  blood
filtration  and tumor cell  filtration.  The agreement has a term of five years,
unless  previously  terminated,  and can be  renewed  or  extended.  There is no
assurance,  however, that such products will ultimately be developed or that any
definitive  development  arrangements  with respect to such products will result
from the strategic alliance with the ARC BioMedical Services.

      Pursuant to the strategic  alliance  agreement,  in July 1999, the Company
entered into a master purchase agreement with the ARC that provided for the sale
of the r\LS  System by the  Company to the





                                       -6-
<PAGE>



ARC  on  specified  terms.  The  master  purchase   agreement   provided  for  a
thirty-eight  month term  expiring on August 31,  2002,  subject to, among other
things,  earlier  termination by the ARC in the event (i) of the availability on
the  market  of  certain  new  products  that  provide  substantial  safety  and
efficiency  improvements over the r\LS System, (ii) the ARC deems that it has no
further  requirement  for  leukoreduction  filters  generally,  or (iii) the ARC
changes its policies toward leukoreduction.

      In April 2000, the Company was notified that the ARC, its largest customer
at the time,  was  suspending  use of the r\LS System  pending the outcome of an
investigation  of a small number of non-critical  adverse  reactions in patients
who have received a transfusion  of blood  filtered with the r\LS System.  As of
April 2000, there had been  approximately  25 reactions  reported to the Company
from about 14 patients out of  approximately  150,000 units of blood  transfused
utilizing  the r\LS System.  The patients  involved  with these  reactions  were
primarily   hematology   or  oncology   patients  who  had   received   multiple
transfusions.  The  reaction  rate was  less  than .02  percent,  and  generally
involved pain in the back,  head or neck area. The Company also  commissioned an
epidemiology  study at a major U.S. medical center to further  investigate these
reactions.  This study  revealed  that the types of  reactions  reported  to the
Company by the ARC  occurred in patients  transfused  with blood  filtered  with
other manufacturers' filters as well as blood filtered with the r\LS filter and,
indeed,  in blood that was not filtered at all. The study also revealed that the
reactions  occurred  in from 1 to 12 per  10,000  transfusions,  but were at the
upper end of this scale with the r\LS filter. These reactions were not permanent
and were treatable using standard practices.  In September 2000, the Company was
notified that the ARC terminated  its supply  contract for the r\LS System based
on the  extended  period of time taken to prove  product  improvements  resolved
these reactions. The Company and the ARC are currently negotiating a termination
of the  purchase  contract and a release of any and all claims that either party
may have  against the other,  with certain  exceptions.  It is uncertain at this
time when and if the ARC and the Company will complete such an agreement.

      Global Distribution Capabilities through Partnership with Gambro.

      In 1998, the Company  completed a distribution and development  agreement,
which was  amended in May 1999,  with Gambro to act as the  Company's  exclusive
distributor  of its  r\LS  System  worldwide,  except  for  sales  to  the  ARC.
Furthermore,  this agreement  provided that Gambro may (upon mutual agreement by
the Company and Gambro)  distribute  additional future products developed by the
Company that filter blood and its components.

      Under the  distribution  agreement,  Gambro was  required to meet  certain
minimum purchase  requirements and was required to purchase from the Company all
of its  requirements  for certain  blood  filtration  products,  in each case at
agreed upon  prices.  The  distribution  agreement  also  provided for Gambro to
cooperate  with the Company in the  pending  litigation  against  Pall which was
initiated by the Company and by Gambro BCT in April 1999. Gambro also cooperated
with the Company in any patent infringement proceeding arising subsequent to the
time the  distribution  agreement  was  entered  into and pay  certain  expenses
incident to any such proceeding other than damages against the Company. See Item
3. "Legal Proceedings."

      In March 2001, the Company signed a termination and release agreement with
Gambro,  effective  November 2000,  which ended the distribution and development
agreement.  Gambro cited the  termination of the Company's  supply contract with
the ARC and other recent business  conditions as the





                                       -7-
<PAGE>


reasons for  terminating  the agreement.  In connection with the termination and
release  agreement,  Gambro agreed to return  1,011,692  shares of the Company's
common stock.

      Production Capacity Expansion Initiative

      In December  1999,  the  Company  engaged  the  international  engineering
consulting  firm, PA Consulting  Group, to assist it in its production  capacity
expansion initiative.  With this initiative, the Company began in March 2000 and
expected to increase  manufacturing  capacity in increments to several times its
current  level over  fiscal 2000 and 2001.  The  capacity  expansion  effort was
anticipated  to  include  process  flow  review,   capital   equipment   design,
qualification,  implementation,  validation and vendor supply chain  management.
The  termination of both the purchase  contract by the ARC and the  distribution
and  development  agreement  with  Gambro  resulted  in the  suspension  of this
capacity  expansion  effort.

      In December 1999, the Company entered into an agreement, which was amended
in September 2000 and December 2000, with Filtertek Inc. ("Filtertek") that
provides for Filtertek to act as its exclusive manufacturer and supplier of the
filters used in its r\LS System, subject to certain terms and conditions. In the
fiscal 2000 amendments, the Company agreed to pay Filtertek a total of $705,000
to reimburse the supplier for costs and expenses incurred after the ARC's
decision to suspend use of the r\LS. No commitments have been made to make such
payments in the future. The agreement has a term of five years, subject to an
automatic one-year extension in the event the Company fails to purchase a
specified number of products by the fifth year. Thereafter, the agreement will
be subject to automatic one-year renewals unless the agreement is previously
terminated.

      Under the agreement,  the Company is required to purchase a minimum number
of, and is required to purchase from Filtertek all of its requirements  for, the
filters used in its r\LS System, in each case at agreed upon prices. Pursuant to
the  agreement,  pricing is fixed for the first three years,  subject to certain
raw material  price  increases or  decreases.  Under its supply  agreement  with
Filtertek,  the Company is  obligated  to provide to  Filtertek,  on a quarterly
basis, forecasts for anticipated purchases for the upcoming 12-month period.

      Under the agreement,  Filtertek is required to make capital  investment in
their production  equipment at certain levels and by certain times. If Filtertek
is unable to meet such  requirements,  the  Company  has the right to  terminate
Filtertek's rights to exclusivity under the agreement,  subject to certain terms
and  conditions.  The Company  depends on Filtertek  to (i) allocate  sufficient
capacity to the Company's  manufacturing  needs, (ii) produce acceptable quality
at  agreed  pricing,  and  (iii)  deliver  on a timely  basis.  Any  failure  in
performance by Filtertek for any reason could have a material and adverse effect
on the Company's  business.  The Company has no supply agreements with component
suppliers  and,  accordingly,  the Company is dependent on the future ability of
Filtertek  to purchase  components.  Failure or delay by  suppliers in supplying
necessary  components  could adversely  affect the Company's  ability to deliver
products on a timely and  competitive  basis in the future.  It is expected that
this agreement will be assigned to or renegotiated with Whatman upon the closing
of the Purchase Agreement.

      In January  2000,  the Company  entered  into an  agreement  with  Command
Medical Products Inc.  ("Command") that provided for Command, on a non-exclusive
basis, to (i) act as the Company's manufacturer and supplier of dry bags used in
its r\LS System and (ii)  assemble the filters used in its





                                       -8-
<PAGE>


r\LS System,  subject to certain terms and conditions.  In December 2000, due to
the  termination  of several  key supply  contracts,  the  Company  completed  a
termination and release of its supply and assembly  agreement with Command.  The
Company agreed to pay Command  $600,000 in connection  with the  termination and
release.

Current Product

      Red Blood Cell Systems

      r\LS  System.  The  Company's  r\LS  System  was  designed  for  leukocyte
filtration by blood centers and hospital blood banks  immediately prior to blood
storage,  a process  which it  believes  results in improved  quality  leukocyte
reduced blood.

      The r\LS  System is based on a  proprietary  filter  medium  comprised  of
multiple  fibrous  components.  Leukocytes  are  removed  by  a  combination  of
entrapment and adhesion.  With a proprietary  automatic internal prime and drain
design,  the filter device reduces  operator  intervention  and facilitates high
volume, centralized processing in a blood center environment.

      The  Company  filed an  application  for  510(k)  pre-market  notification
clearance  with respect to its r\LS System with the FDA in May 1998. The Company
commenced  commercialization  of the r\LS System in foreign  countries  in early
1999. It received 510(k) pre-market  notification  clearance from the FDA in May
1999 for its r\LS System which was classified as a Class II medical device.

      Since the notification by the ARC of the suspension of use of the r\LS and
the termination of the distribution and development  agreement with Gambro,  the
Company has been developing  production process  improvements as a result of the
findings  in  connection  with  the  adverse  reactions  reported  by  the  ARC.
Currently, the Company is not producing any products for sale.

      While the Company  believes that the  performance  and  ease-of-use of the
r\LS System compares favorably with other blood filtration devices,  there is no
assurance that the production process improvements will be completed, that these
improvements will adequately address the concerns of the ARC and other potential
customers  with the  adverse  reactions,  that the r\LS  system made using these
production  process  improvements  will be  accepted  in the  market or that the
performance  or  price  of  the  r\LS  System  will  be  sufficient  to  achieve
significant  sales,  particularly in view of the dominant position in the market
held by Pall. See "-- Competition."

      OEM Filters

      Other potential partners have asked the Company to provide them with price
quotes  for a basic  filtration  device  to use in their own  applications.  The
Company is pursuing  these  requests  and expects that any such filter would use
the Company's core filtration technology.

Technologies

      The Company's  current  product is based on its  proprietary  technologies
that the Company has acquired or developed in the areas of affinity separations,
membrane technology and device design and fabrication.





                                       -9-
<PAGE>


      Affinity Separations

      The Company has proprietary affinity separations  technology that utilizes
ligand,  which  are  molecules  that  bind  to  complementary  biomolecules,  in
connection with its various  filtration  products.  The Company has identified a
family of carbohydrate-based  ligand that recognize and bind to the cell surface
receptors on leukocytes.  It has filed patent  applications  covering the use of
these carbohydrate-based ligand for removing leukocytes.

      Membrane Technology

      The Company  believes  that,  as a result of the research and  development
work  performed at Sepracor over an eight-year  period and  transferred to it on
January  1,  1994,  the  Company  has  expertise  in the  field  of  separations
technology using both composite  matrices and flat- and hollow-fiber  membranes.
Successful  separation  of a substance  from its source  depends on matching the
properties  of that  substance,  such as  size,  molecular  weight  and  surface
characteristics,  to appropriate  separations  media.  The ability to select and
modify  the  composition  and  physical  structure  of  the  media  is a key  to
successful  separations  technology.  The Company can utilize a variety of media
compositions,  custom made structures and surface  modifications,  including the
attachment of selective ligand, to separate a diverse variety of substances. The
Company's separations  technologies can be used to separate substances including
particulates, such as cells and debris, macromolecules, such as enzymes, and low
molecular weight substances, such as salts, nutrients and anti-viral chemicals.

      Device Design and Fabrication

      The Company  believes  that the benefits of high  performance  separations
media  can only be  realized  in a  well-designed  device  where  access  to and
placement of the media,  hydrodynamics and selection of biocompatible  materials
have been  optimized.  The Company has  expertise  in module  design,  including
theoretical calculations of mass transfer,  hydrodynamic modeling,  prototyping,
testing and manufacturing engineering.

      Drawing from this  expertise,  the Company is integrating  its proprietary
technologies  in device  design and media  development  with blood flow  control
systems, tubing, collection containers and other assembly components, in devices
which are designed to achieve  efficiency  in  increasing  the safety of donated
blood and improving  certain blood  transfusion and collection  procedures.  The
Company  considers  its  device  design  and  fabrication   capabilities  to  be
proprietary and intends to file patent applications where appropriate.

      The  Company  has  undertaken  preliminary  studies  on  the  use  of  its
proprietary media in other  applications such as the removal of tumor cells from
peripheral stem cell preparations and in whole blood leukoreduction.

Research and Development Expenses

      Research  and  development  expenses  were  $4,450,000  in the year  ended
December 31, 2000 and $2,681,000  for the year ended December 31, 1999.  Amounts
expended in the year ended  December 31, 2000 were higher than that  expended in
the comparable  period in 1999 primarily  because of costs  associated  with the
formulation  and design of process  alternatives  to support  the then  expected





                                       -10-
<PAGE>


increase in demand for the Company's r\LS System,  and the costs associated with
the transfusion reactions reported by the ARC.

Competition

      The Company has  encountered  significant  competition  in the sale of its
product.  Its product, if  re-commercialized,  would compete with other products
currently  on the  market as well as with  future  products  developed  by other
medical device companies,  biotechnology and pharmaceutical companies,  hospital
supply  companies,  national and regional  blood centers,  certain  governmental
organizations  and  agencies and academic  institutions.  Many of the  Company's
competitors  in the field of  leukocyte  reduction  have  substantially  greater
resources,  manufacturing  and marketing  capabilities,  research and production
staffs  and  production  facilities  than  the  Company.  Moreover,  some of the
Company's  competitors are significantly  larger than the Company,  have greater
experience in pre-clinical  testing,  human clinical trials and other regulatory
approval procedures.  In addition, many of the Company's competitors have access
to greater capital and other resources,  may have management personnel with more
experience  than the Company and may have other  advantages  over the Company in
conducting  certain  businesses and providing  certain  services.  The Company's
ability to compete  successfully will depend, in part, on its ability to develop
and maintain  products  which are  technically  superior to and/or of lower cost
than those currently on the market;  develop proprietary  products;  attract and
retain scientific personnel;  obtain patent or other proprietary  protection for
its  products  and  technologies;  obtain  required  regulatory  approvals;  and
manufacture, assemble and successfully market any products the Company develops.
In addition, many of the Company's competitors have long-standing  relationships
with the national and  regional  blood  centers to which the Company will market
its  products.  There is no assurance  that the Company would be able to compete
effectively against such companies.

      Presently,  there  are  approximately  seven  to nine  competitors  in the
leukoreduction  filter market.  The market leader is Pall with approximately 50%
to 60% market share. Pall offers products to all product/market  segments,  with
an  emphasis  in  the  bedside   leukoreduction   market.   Baxter,   which  has
approximately   25%  market  share,   also  plays  a  significant  role  in  all
product/market  segments. The remaining 15% of the market is shared by the other
five to seven competitors.  The Company believes that the competitive  landscape
for the  leukoreduction  market will level off as the market  moves  toward 100%
leukoreduction  and market  participants  with  smaller  market  shares  realize
greater market penetration. Some of these competitors have long-standing and, in
certain cases, exclusive,  relationships,  including long-term supply contracts,
with the blood  centers that are the  Company's  target  customers.  The Company
expects that the principal  competitive factors in the area of leukocyte removal
will be removal efficiency, cost and ease of use.

      The  Company's  competitors  may  succeed in  developing  technologies  or
products that are more effective than those of the Company. Technological change
or  developments  by others could result in the Company's  technology or product
becoming obsolete or noncompetitive.

Licenses, Patents and Proprietary Information

      The Company has a Technology  Transfer and License Agreement with Sepracor
under which  Sepracor  transferred  to the Company all rights to the  technology
developed by Sepracor for the development,  manufacture, use and sale of medical
devices  for the  separation  and  purification  of blood





                                       -11-
<PAGE>


and blood components,  including technology relating to (i) optimization of flat
membranes,  hollow fiber membranes and fibrous supports;  (ii) specific affinity
and immunoaffinity ligand; (iii) linking chemistries;  (iv) surface modification
including hydrophilic polymers and coatings; (v) device designs and engineering;
(vi)  fabrication  and  manufacturing   including   encapsulation  and  assembly
techniques;  and (vii) organic chemical synthesis. The Company expects that this
Technology  Transfer and License  Agreement  with  Sepracor  will be assigned to
Whatman in connection with the expected closing of the Purchase Agreement.

      The Company  believes  that  protection of the  proprietary  nature of its
products and  technology is critical to its business.  Accordingly,  the Company
has  adopted a vigorous  program to secure and  maintain  such  protection.  The
Company's  practice  has  been to  file  patent  applications  with  respect  to
technology,  inventions and improvements that are important to its business. The
Company  also  relied  on  trade  secrets,   unpatented   know-how,   continuing
technological  invention and the pursuit of licensing  opportunities  to develop
and maintain its  competitive  position.  There is no assurance that others will
not independently develop  substantially  equivalent  proprietary  technology or
that the Company can meaningfully protect its proprietary position.

      To date,  the  Company  owns or has  filed 34 patent  applications  in the
United  States   relating  to  blood   filtration   and  pathogen   inactivation
technologies.  Corresponding  foreign patent  applications  have been filed with
respect  to  certain  of  these  United   States  patent   applications.   Where
appropriate,  the Company  intends to file,  or cause to be filed on its behalf,
additional patent applications  relating to future discoveries and improvements,
including,  among  other  things,  the  use  of  certain  ligands  for  affinity
separations.  To date, 20 patents have been issued to the Company  (which expire
at various dates from 2011 through 2018).

      The Company's  viability depends,  in part, and among other things, on its
ability  to obtain  patents,  to  protect  trade  secrets,  to  operate  without
infringing  upon the  proprietary  rights of others and to prevent  others  from
infringing  on  its  proprietary  rights.  See  Item  3.  "Legal   Proceedings".
Proprietary  rights  relating to its planned  products  will be  protected  from
unauthorized  use by third  parties  only to the extent that they are covered by
valid and enforceable patents or are maintained in confidence as trade secrets.

      There is no assurance that any patents owned by or licensed to the Company
will  afford  protection   against   competitors  or  that  any  pending  patent
applications now or hereafter filed by or licensed to the Company will result in
patents being issued.  Competitors,  including those with substantially  greater
resources than those of the Company, could seek to challenge the validity of the
patents owned by or licensed to the Company or may use their resources to design
comparable  products  that do not  infringe  these  patents.  See Item 3. "Legal
Proceedings."

      There  are  many  issued  third-party   patents  in  the  field  of  blood
filtration,  including  patents held by the Company's  competitors.  The Company
would need to acquire  licenses  to, or contest  the  validity  of, some of such
patents.  It is likely  that  significant  funds would be required to defend any
claim that the Company infringes a third-party  patent, and any such claim could
adversely  affect sales of the  challenged  product until the claim is resolved.
There is no assurance  that any license  required under any such patent would be
made  available on  acceptable  terms or that the Company  would  prevail in any
litigation involving such patent. See Item 3. "Legal Proceedings."






                                       -12-
<PAGE>


      Much of the know-how of importance to the Company's technology and many of
its processes are dependent  upon the  unpatentable  knowledge,  experience  and
skills of the Company's key scientific and technical  personnel.  To protect its
rights and to maintain  the  confidentiality  of trade  secrets and  proprietary
information,  the  Company  requires  all  of  its  employees,  consultants  and
commercial  partners  and members of its  Scientific/Medical  Advisory  Board to
agree  to  keep  its  proprietary  information  confidential.  These  agreements
generally prohibit the disclosure of confidential  information to anyone outside
the Company  and  require  disclosure  and  assignment  to the Company of ideas,
developments,  discoveries and inventions. There is no assurance,  however, that
these   agreements  will  provide   meaningful   protection  for  the  Company's
proprietary  information in the event of unauthorized  use or disclosure of such
information.

Government Regulation

      The research,  development,  manufacturing  and marketing of the Company's
products are subject to extensive  regulation  in the United  States by numerous
regulatory  authorities  including  the FDA under the Federal  Food,  Drug,  and
Cosmetic Act (the "FDC Act") , the Federal  Trade  Commission  (the "FTC") under
the Federal Trade  Commission  Act (the "FTC Act") and by comparable  regulatory
authorities  in  foreign  countries.  These  regulatory  authorities  and  other
federal,  state and local  entities  will  regulate,  among  other  things,  the
pre-clinical and clinical testing, safety,  effectiveness,  approval, clearance,
manufacturing,  labeling,  packaging,  export, storage,  recordkeeping,  adverse
event reporting,  and promotion and advertising of the Company's  products.  FDA
approval or clearance of the Company's products, typically including a review of
the  manufacturing  processes and facilities  used to produce such products,  is
required before the products may be marketed in the United States.  Further,  if
cleared or approved,  there may be  significant  conditions  imposed,  including
limitations on labeling and advertising claims and post-market testing, tracking
or surveillance requirements. In addition, for products exported from the United
States to any foreign country or territory,  applicable FDA export  requirements
must  be met.  Failure  to  meet  regulatory  standards  or to  obtain  required
marketing  permissions could have a material and adverse effect on the Company's
business,  financial condition,  results of operations and ability to market its
products.

      The Company  believes that its In-line RBC Filtersets will be regulated as
new  drugs by the FDA.  Development  of a new drug  product  for human use under
applicable laws and regulations is a multi-step process.  First, in vitro and/or
animal testing must be conducted in accordance with good laboratory practices to
establish the potential safety and effectiveness of the experimental product for
a given  disease.  If a product is found to be reasonably  safe and  potentially
effective in pre-clinical trials, the next step in the process is human clinical
trials. An Investigative New Drug application  ("IND")  containing,  among other
things,   the  pre-clinical   data,   chemistry,   manufacturing,   and  control
information, and an investigative plan, must be submitted to the FDA and allowed
to become effective by the agency before such trials may begin.  There can be no
assurance  that  submission  of an IND will  result in the  ability to  commence
clinical  trials.  In  addition,  the FDA may place a clinical  trial on hold or
terminate it if, among other reasons,  it concludes  that clinical  subjects are
being exposed to an unacceptable health risk.

      Clinical trials under IND, or for medical  devices under an  Investigation
Device Exemption ("IDE"),  typically involve three phases, although those phases
can overlap. Phase I is conducted to evaluate the safety and pharmacokinetics of
the experimental  product in humans, and if possible,  to gain early indications
of effectiveness.  Phase I studies may also evaluate various routes, dosages and





                                       -13-
<PAGE>


schedules  of  product   administration.   If  acceptable   product   safety  is
demonstrated,  Phase II studies are initiated.  In Phase II, clinical trials are
conducted in groups of patients  afflicted with a specific  disease or condition
for which the product is intended for use in order to further test safety, begin
evaluating effectiveness,  optimize dosage amounts, and determine dose schedules
and routes of administration. If Phase II studies yield satisfactory results and
no hold is  placed  on  further  studies  by the  FDA,  Phase  III  studies  are
commenced.  Phase III studies  are  usually  randomized,  double  blind  studies
testing for product safety and  effectiveness in an expanded patient  population
in order to evaluate the overall risk/benefit relationship of the product and to
provide an adequate basis for product  labeling.  These studies also may compare
the safety and effectiveness of the product with currently  available  products.
It is not  possible  to  estimate  the time in which Phase I, II and III studies
will be completed  with respect to a given  product,  if at all. The time period
may last as long as several years.

      Following  completion of clinical  investigations,  the  pre-clinical  and
clinical data that has been accumulated, together with chemistry, manufacturing,
and controls  specifications and information,  are submitted to the FDA in a New
Drug  Application  ("NDA").  There can be no  assurance  that a product  will be
approved in a timely manner, if at all. The approval process can be very lengthy
and depends upon, among other things,  the time it takes to review the submitted
data,  the FDA's  comments on the  application,  and the time required for us to
provide satisfactory answers or additional clinical data if requested.

      If an NDA is approved,  continued  compliance with strict FDA current good
manufacturing practices requirements,  enforced by periodic inspections, as well
as any  special  requirements  imposed  as a part  of the NDA  approval  will be
required to continue  marketing the approved  product.  Changes to approved drug
products  that affect  safety or  effectiveness  require  approved  supplemental
applications,  as do changes in manufacturing that have a substantial  potential
to  adversely  affect  product  safety  or   effectiveness.   Such  supplemental
applications  may  require  the  submission  of  clinical  and/or  manufacturing
comparability  data and must be  approved  before the product may be marketed as
modified.  Manufacturers,  packers and  distributors are also subject to adverse
drug event reporting  requirements,  which depending on their  significance  can
result in, among other things, agency inspection, recalls, and patient/physician
notifications,  and enforcement actions. Because adverse drug experience reports
are  publicly  available,  they can also become the basis for private  lawsuits,
including  class actions.  Depending on their  significance,  such reports could
have a  material  and  adverse  effect  on  the  Company's  business,  financial
condition, results of operations and ability to market its products.

      The Company believes that its other products  currently under  development
will, like its r\LS System, be regulated as medical devices by the FDA. Before a
new device may be introduced into commercial distribution, the manufacturer must
generally obtain marketing clearance through a 510(k) pre-market notification or
approval through a pre-market approval application.

      In the United States,  medical  devices for human use are classified  into
three  classes  (Class I, Class II and Class  III) on the basis of the  controls
deemed reasonably  necessary to assure their safety and  effectiveness.  Class I
devices are subject to general controls,  unless exempt (for example,  labeling,
pre-market  notification under section 510(k) and quality system  requirements).
Class II devices are devices for which  general  controls  are  insufficient  to
provide a reasonable  assurance of safety and  effectiveness and for which there
is  sufficient   information  to  establish   special   controls  (for  example,
performance  standards,  FDA guidance documents or post-market  surveillance) to
provide  such   assurance.   Class  III  devices  are  those  devices  that  are
life-supporting,  life-sustaining  or of  substantial




                                       -14-
<PAGE>


importance  in  preventing  impairment  of human life and for which  general and
special  controls are  insufficient to provide a reasonable  assurance of safety
and  effectiveness,  or new devices for which a manufacturer  cannot demonstrate
substantial equivalence to an already legally marketed device.

      In order to  demonstrate  substantial  equivalence,  a  manufacturer  must
submit a pre-market notification ("510(k)") under section 510(k) of the FDC Act.
The FDA will clear a device if the  manufacturer can demonstrate that the device
is "substantially equivalent" to an already legally marketed device. The FDA may
or may not require clinical data in support of a 510(k), and the FDA may require
additional data beyond that in the original  submission to support a substantial
equivalence  determination.  There can be no assurance  that the FDA will find a
device  substantially  equivalent.  If  the  FDA  finds  that  a  device  is not
substantially equivalent,  the manufacturer may ask the FDA to make a risk-based
classification to place the device in Class I or Class II. However,  if a timely
request for risk-based classification is not made, or if the FDA determines that
a Class III  designation  is  appropriate,  an approved  pre-market  application
("PMA") will be required before the device may be marketed.

      The PMA approval  process is lengthy,  expensive and  typically  requires,
among  other   things,   extensive   data  from   pre-clinical   testing  and  a
well-controlled clinical trial or trials that demonstrate a reasonable assurance
of  safety  and  effectiveness.  Clinical  data for  devices  generally  must be
obtained pursuant to Investigation Device Exemptions,  which must be approved by
the FDA before a clinical  trial may  commence.  Like an IND,  an IDE  contains,
among other things, the pre-clinical data, chemistry,  manufacturing and control
information and an  investigative  plan,  generally  proceeding in three phases.
There is no guarantee  that the agency will approve the IDE, and an IDE approval
process could result in significant delay. In addition, the FDA may place an IDE
on hold or terminate  it if, among other  reasons,  it concludes  that  clinical
subjects are being exposed to an unacceptable health risk. There is no assurance
that review of a PMA will result in a timely PMA approval,  if at all.  Further,
if approved,  there may be  significant  PMA  conditions of approval,  including
limitations on labeling and advertising claims and the imposition of post-market
testing, tracking or surveillance requirements.

      Changes to devices  cleared for marketing  under section 510(k) that could
significantly  affect safety and  effectiveness  will require clearance of a new
510(k).  Changes to approved PMA products that affect  safety and  effectiveness
require the  submission of a  supplemental  PMA. The Company would be prohibited
from marketing the modified  device until it received FDA clearance or approval,
and there is no  guarantee  that the FDA would timely or at all clear or approve
the modified 510(k) or PMA device.  Failure to obtain timely or any approval for
changes to marketed  devices  could have a material  and  adverse  effect on the
Company's business, financial condition and results of operations.

      The Company's  r\LS System was cleared for marketing in 1999 in the United
States under section 510(k) with a post-market surveillance protocol to look for
filter-related transfusion reactions which was agreed to between the FDA and the
Company.  The  Company has found no  filter-related  transfusion  reactions  and
believe it has satisfied the FDA's post-market  surveillance  requirements.  The
Company  submitted a report to that effect in early March 2000.  It  anticipates
but  cannot  guarantee  that the FDA  will  find its  report  satisfactory.  The
post-market  surveillance  study does not currently affect the Company's ability
to market and sell the r\LS System.






                                       -15-
<PAGE>


      The regulations  relating to medical device reports  ("MDRs") require that
reports  be  submitted  to the  FDA to  report  device-related  deaths,  serious
injuries and malfunctions that could result in death or serious injury were they
to recur.  MDRs can result in agency  action  such as  inspections,  recalls and
patient/physician  notifications, and are often the basis for agency enforcement
actions. Because MDRs are publicly available, they can also become the basis for
private  lawsuits,  including class actions.  Failure to file MDRs constitutes a
violation  of the  law  enforceable  under  the  FDC  Act.  Depending  on  their
significance,  MDRs could have a material  and adverse  effect on the  Company's
business,  financial condition,  results of operations and ability to market its
products.

      The  Company's   marketed   products  will  be  subject  to  current  good
manufacturing  practice  regulations for drugs and the quality system regulation
for medical  devices.  The Company  cannot  assure that it or its  suppliers  or
contractors will be able to attain or maintain  compliance with these standards.
In addition, any changes to manufacturing  facilities or methods may require FDA
clearance or approval.

      The nature of marketing  claims that the Company will be permitted to make
in the  labeling  and  advertising  of its  products  will be  limited  to those
specified  in an FDA  clearance  or approval.  Claims  exceeding  those that are
cleared or approved will constitute violations of the FDC Act. Advertisements of
the  Company's  products will also be subject to regulation by the FTC under the
FTC Act.  The FTC Act  prohibits  unfair  methods of  competition  and unfair or
deceptive  acts in or affecting  commerce.  Violations  of the FTC Act,  such as
failure to have substantiation for product claims,  would subject the Company to
a variety of enforcement actions, including compulsory process, cease and desist
orders and injunctions.  FTC enforcement can result in orders  requiring,  among
other things, limits on advertising,  corrective  advertising,  consumer redress
and recission of contracts.  Violations of FTC enforcement  orders can result in
substantial fines or other penalties.

      Violations  of the FDC Act or regulatory  requirements  at any time during
the product development  process,  approval process or after approval may result
in FDA enforcement  actions,  including  voluntary or mandatory recall,  license
suspension or revocation,  seizure of products,  fines, injunctions and/or civil
or criminal penalties.  Any such agency action could have a material and adverse
effect on the Company's business, financial condition and results of operations.

      The Company is also  subject to numerous  and varying  foreign  regulatory
requirements  governing  the  design  and  conduct  of  clinical  trials and the
manufacturing and marketing of its products. The approval procedure varies among
countries. The time required to obtain foreign approvals often differs from that
required to obtain FDA approval.  Moreover,  approval by the FDA does not ensure
approval by regulatory authorities in other countries.

      The Company  cannot  predict the nature of any future  laws,  regulations,
interpretations  or  applications.  The Company also cannot  predict what effect
additional  governmental  regulations  or  administrative  orders,  when  and if
promulgated,  would have on its  business in the future.  Any such  requirements
could delay or prevent  regulatory  approval  or  clearance  of  products  under
development.  Any such requirements  could have a material and adverse effect on
its business,  financial condition,  results of operations and ability to market
its products.






                                       -16-
<PAGE>


Manufacturing and Facilities

      Currently, the Company occupies approximately 45,000 square feet of leased
office,  laboratory  and  manufacturing  space  in a  facility  in  Marlborough,
Massachusetts  (which  lease  expires in February  2004,  and  provides  for two
five-year renewal options thereafter. The Company believes that these facilities
are adequate and suitable for its needs through 2001.  See Item 1.  "Business --
Strategic  Relationships."  The  facility is designed to conform to current good
manufacturing practice regulations and other applicable government standards. It
is anticipated  that the lease of this facility will be assigned to Whatman upon
the expected closing of the Purchase Agreement.

      In January 1998, the Company  received ISO 9001  Registration  and CE mark
EN46001   Certification,   which  was   awarded   by  Bureau   Veritas   Quality
International.  The ISO 9000 and EN46000 Series of  international  standards was
developed  by the  International  Organization  for  Standardization  to promote
homogeneous  quality  processes  through the global  trade  community.  ISO 9001
specifically  addresses requirements for the manufacture,  design,  development,
installation  and service of products and CE EN46001  addresses the requirements
to market medical devices in the European Union.

      For  manufacturing  outside the United  States,  the Company  will also be
subject to foreign  regulatory  requirements  governing  human clinical  trials,
manufacturing and marketing approval for drugs or biologics and medical devices.
The regulatory  requirements  may vary widely from country to country.  See " --
Government Regulation."

Source and Availability of Raw Materials

      The Company  acquires  each of the main  components  of its products  from
separate  single  suppliers.  However,  given  that there are  multiple  sources
available to it for each such  component,  and based upon the Company's  ongoing
relationship with each such supplier, the Company does not believe that the loss
of any of its current  supply  channels  would  result in a material and adverse
effect on its business or its results of operations.

Employees

      As of March 2, 2001, the Company  employed a total of 73 persons,  of whom
24 were in research and development, 27 were in manufacturing and support and 22
were in sales and  administration.  It is  anticipated  that Whatman will employ
these employees upon the expected closing of the Purchase Agreement.

Relationships with Sepracor and Gambro

      Sepracor.  The Company was  organized in December  1993 as a  wholly-owned
subsidiary  of  Sepracor.  Sepracor is engaged in the  business of using  chiral
chemistry   to   develop   single-isomer   forms  of   existing,   widely   sold
pharmaceuticals.  Effective  January 1,  1994,  Sepracor  transferred  its blood
filtration  and membrane  filter design  business to the Company in exchange for
3,000,000 shares of Common Stock. As of the date hereof,  one executive  officer
of Sepracor serves as a director of the Company.






                                       -17-
<PAGE>


      In September  1998,  the Company  obtained a $5 million  revolving line of
credit  arrangement with a commercial  bank.  Sepracor  guaranteed  repayment of
amounts  borrowed under the line of credit.  In exchange for the guarantee,  the
Company granted to Sepracor  warrants to purchase up to 1,700,000  shares of the
Company's  common stock at a price of $0.69 per share.  The warrants will expire
in the year 2003 and have certain  registration  rights associated with them. In
September  2000,  the  revolving  line of  credit  expired  and  the $5  million
outstanding balance was repaid by the Company in accordance with the agreement.

      In March 1999, Sepracor purchased an additional 1,333,334 shares of Common
Stock of the  Company for $1.50 per share and  received  warrants to purchase an
additional 667,000 shares at a price of $1.50 per share. Sepracor is entitled to
certain  rights with respect to the  registration  under the  Securities  Act of
1933,  as amended,  of a total of 6,700,334  shares of Common  Stock,  including
shares of Common Stock  issuable upon exercise of  outstanding  warrants.  These
rights provide that Sepracor may require the Company to register  shares subject
to certain conditions and limitations.

      Any future arrangements and transactions  between the Company and Sepracor
will  continue  to be on  terms  which  the  Company  determines  are  fair  and
reasonable to the Company.

      As of March 2,  2001,  Sepracor  owned  22% of the  Company's  issued  and
outstanding  Common  Stock.  Effective  with the return of  1,011,692  shares of
common stock by Gambro in  connection  with the  termination  and release of the
supply and development  agreement between the Company and Gambro,  Sepracor will
own 23% of the issued and outstanding common stock of the Company.

      Gambro.  On May  3,  1999,  the  Company  completed  a  private  placement
financing  with  Gambro.  The stock  subscription  agreement,  which the Company
entered  into with Gambro in  connection  with this  financing,  provides for an
initial  investment  of  $9,000,000  in  exchange  for  4,500,000  shares of the
Company's  Common Stock. The stock  subscription  agreement also provides Gambro
with an option to purchase  additional  shares of the Company's Common Stock for
up to an aggregate  purchase  price of $3,000,000 at any time between  August 3,
1999 and May 3, 2000 with the price per share of Common  Stock to be based  upon
the  market  price of the  Company's  Common  Stock.  In  October  1999,  Gambro
exercised  this option in full. In connection  with the exercise of this option,
Gambro  purchased  498,355  shares at a price of $6.02 per share.  The price and
number of shares  reflects the average  price of the  Company's  stock in the 30
days prior to the exercise date of October 5, 1999. The stockholders' agreement,
which the Company  entered into with Gambro in connection  with this  financing,
provides  that  Gambro  will  have  representation  on the  Company's  board  of
directors of up to two directors and the Company's representative committees and
contains,  among other things, various registration rights and anti-dilution and
standstill   provisions.   Subject  to  certain   terms  and   conditions,   the
anti-dilution  provisions  prohibit  the  Company  from  selling or issuing  the
Company's Common Stock or securities convertible into the Company's Common Stock
in any offering to a third party  without  offering  Gambro the  opportunity  to
purchase at the same price and terms that  number of  securities  necessary  for
Gambro to maintain its beneficial ownership of the Company's  outstanding Common
Stock. Furthermore,  in an offering or in certain other limited situations,  the
Company must provide  Gambro with notice of the  Company's  intention to sell as
well as a right to  negotiate  with the  Company  first for the  purchase of the
Company's  securities.  Gambro agrees to certain  restrictions on its ability to
sell the  Company's  Common  Stock  owned by it and its  permitted  transferees.
Gambro also agrees to refrain from acquiring  beneficial ownership of additional
equity or debt securities of the Company, engaging in certain proxy solicitation
activities, seeking to control the Company's





                                       -18-
<PAGE>


management,  policies or affairs and taking certain actions relating to business
combinations  and similar  transactions  without prior approval of the Company's
board of directors.  Gambro  purchased  1,178,680  shares of Common Stock in the
offering.  Gambro agreed to waive its registration rights in connection with the
registration  statement  to be  filed  by the  Company  in  connection  with the
offering.

      In 1998, the Company  completed a distribution and development  agreement,
which was  amended in May 1999,  with Gambro to act as the  Company's  exclusive
distributor of the Company's r\LS System worldwide, except for sales to the ARC.
Furthermore,  this agreement  provided that Gambro may (upon mutual agreement by
the Company and Gambro)  distribute  additional future products developed by the
Company that filter  blood and its  components.  Gambro  markets and sells blood
component  apheresis  equipment to the blood center  market.  The agreement with
Gambro contemplated the development by the Company of an OEM filter for use with
Gambro's Trima(R) Automated Blood Collection System. The distribution  agreement
provided  for a five year term that  expires in June 2004,  subject to automatic
three year renewals unless the agreement is previously terminated.

      In March 2001, the Company signed a termination and release agreement with
Gambro,  effective  November 2000,  which ended the distribution and development
agreement.  Gambro cited the  termination of the Company's  supply contract with
the ARC and other recent business  conditions as the reasons for terminating the
agreement.  In  consideration  for the  Company's  inventory  (net book value at
December 31, 2000 of $332,000) of products bearing Gambro's company name, and by
way of complete resolution of all issues now outstanding between the Company and
Gambro,  Gambro  agreed to return  1,011,692  shares of common stock with a fair
market value at closing of $332,000.

      As of  March  2,  2001,  Gambro  owned  31% of the  Company's  issued  and
outstanding  Common  Stock.  Effective  with the return of  1,011,692  shares of
common stock by Gambro in  connection  with the  termination  and release of the
supply and development agreement between the Company and Gambro, Gambro will own
27% of the issued and outstanding common stock of the Company.

Item 2.           Properties

      Currently, the Company occupies approximately 45,000 square feet of leased
office,  laboratory  and  manufacturing  space  in a  facility  in  Marlborough,
Massachusetts  (which  lease  expires in February  2004,  and  provides  for two
five-year  renewal  options   thereafter).   The  Company  believes  that  these
facilities  are adequate and suitable for its needs  through  2001.  See Item 1.
"Business  -- Strategic  Relationships."  The facility is designed to conform to
current good manufacturing  practice regulations and other applicable government
standards. It is anticipated that the lease of this facility will be assigned to
Whatman  upon  the  expected  closing  of the  Purchase  Agreement.  See Item 1.
"Business -- Manufacturing and Facilities."

Item 3.           Legal Proceedings

      The  Company  is a  defendant  in a lawsuit  brought  by Pall  Corporation
("Pall")  regarding the Company's  LeukoNet  System,  which is no longer made or
sold by the Company.  In a complaint  filed in November 1996,  Pall alleged that
the  manufacture,  use and/or sale of the  LeukoNet  System  infringed  upon two
patents held by Pall.  Pall dropped its allegations  concerning  infringement of
one of the




                                       -19-
<PAGE>


patents and alleges only that the LeukoNet System  infringed  Pall's U.S. Patent
No. 4,952,572 (the "'572 Patent").

      With respect to the  allegations  concerning the '572 Patent,  the Company
answered the  complaint  stating that the LeukoNet  System does not infringe any
claim  of  the  asserted  patents.   Further,  the  Company  counterclaimed  for
declaratory judgment of invalidity,  noninfringement and unenforceability of the
'572 Patent.  Pall amended its complaint to add Lydall,  Inc.,  whose subsidiary
supplied  the filter  media for the  LeukoNet  System,  as a  co-defendant.  The
Company filed for summary judgment of non-infringement, and Pall cross-filed for
summary judgement of infringement at the same time.  Lydall,  Inc. supported the
Company's  motion for summary judgment of  non-infringement,  and filed a motion
for summary  judgment that the asserted claims of the '572 patent are invalid as
a matter of law.  Discovery has been  completed in the action.  The Court held a
hearing on the summary  judgment motions on April 18, 2000. No decision has been
made on the motions.

      The Company and Gambro BCT, Inc. filed a complaint for declaratory  relief
against Pall in the United States  District  Court of Colorado.  The Company and
Gambro BCT seek declaratory relief that the '572 Patent,  Pall's U.S. Patent No.
5,451,321 (the "'321 Patent") and Pall's U.S. Patent No.'s 5,229,012, 5,344,561,
5,501,795 and  5,863,436  are invalid and not  infringed by the  Company's  r\LS
System and methods of using the r\LS  System.  Pall moved to dismiss or transfer
to the Eastern District of New York or, in the alternative, to stay this action.
The Company and Gambro BCT opposed Pall's  motion.  On July 16, 1999, the United
States  District  Court of Colorado  denied Pall's motion to transfer or, in the
alternative,  to stay the action. On September 30, 1999, the Court denied Pall's
motion to dismiss the action. On October 20, 1999, Pall submitted a counterclaim
alleging  that the  Company's  r\LS System  infringes  its patents  that are the
subject of the lawsuit and that the Company and Gambro BCT tortiously interfered
and unfairly  competed with Pall's business.  The Company and Gambro BCT replied
to Pall's  counterclaim and denied Pall's allegations of tortious  interference,
unfair competition and patent infringement.

      On July 13,  2000,  Pall filed a Complaint in the United  States  District
Court for the  District of Colorado  against the Company,  Gambro BCT,  Inc. and
Gambro AB alleging that the Company's r\LS system  infringes  Pall's U.S. Patent
No.  6,086,770  (the  "'770  Patent").  On August  11,  2000,  this  action  was
consolidated  with the earlier  declaratory  relief  action in the United States
District Court for the District of Colorado.  The Company,  Gambro BCT, Inc. and
Gambro AB answered the complaint,  denied the  allegations of  infringement  and
submitted a  counterclaim  alleging  that  Pall's  '770  patent is invalid,  not
infringed and  unenforceable.  In September 2000, Pall answered the counterclaim
and denied the allegations of noninfringement,  invalidity and unenforceability.
Discovery is proceeding.

      On December  15,  2000,  Pall filed a complaint  against  Filtertek,  Inc.
("Filtertek")  alleging  that  Filtertek,  a  manufacturer  of the r\LS  filter,
infringes  the  seven  above-mentioned  Pall  patents.  Filtertek  answered  the
complaint on January 31, 2001,  denied Pall's  allegations of  infringement  and
asserted  that the claims of the Pall patents are invalid  and/or  unenforceable
and that Pall is estopped  from  asserting  infringement  against  Filtertek  by
reason of Pall's prior conduct with Filtertek. This action has been consolidated
with the other actions pending in Colorado. Discovery is now ongoing.

      On  December  22,  2000,  Gambro AB and Gambro  BCT moved to  dismiss  the
consolidated actions based on a settlement  agreement with Pall Corporation.  On
January 10,  2001,  the Court  dismissed  the action with  respect to all claims
between Pall, Gambro BCT, and Gambro AB.





                                       -20-
<PAGE>



      On April 23, 1999,  Pall filed a complaint  against the Company and Gambro
BCT in the Eastern  District of New York alleging that the Company's r\LS System
infringes  Pall's '572  Patent and that the  Company  and Gambro BCT  tortiously
interfered and unfairly  competed with Pall's  business.  On May 19, 1999,  Pall
amended its complaint and added Gambro,  Gambro A.B. and Sepracor as defendants.
The Company  and Gambro BCT have moved to  dismiss,  transfer or stay the action
and Pall has  opposed  the  motion.  On April  18,  2000,  Pall  moved,  without
opposition  from the  defendants,  to dismiss  the action and the Court  granted
Pall's motion.

      A prior lawsuit  brought by Pall in February 1996 has  concluded.  In June
1999, the United States Court of Appeals for the Federal Circuit determined that
the LeukoNet  System did not  infringe  claim 39 of the '321 Patent and Pall has
not appealed that decision.

      The  Company  has  engaged  patent  counsel  to  investigate  the  pending
litigations.  The Company believes, based upon its review of these matters, that
a properly informed court should conclude that the manufacture,  use and/or sale
by the Company or its  customers of the  LeukoNet  System and the r\LS System do
not infringe any valid enforceable claim of the Pall patents. However, there can
be no assurance that the Company will prevail in the pending litigations, and an
adverse  outcome in a patent  infringement  action  would  have a  material  and
adverse  effect on the Company's  financial  condition  and future  business and
operations,  including the possibility of significant damages in the litigations
and an  injunction  against the sale of the r\LS System if the Company  does not
prevail in the litigations.

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

      No matters were  submitted  to a vote of security  holders of the Company,
through  solicitation  of proxies or  otherwise,  during the last quarter of the
year ended December 31, 2000.





                                       -21-
<PAGE>


                      EXECUTIVE OFFICERS OF THE REGISTRANT

      Set forth  below is the name,  age,  position  and a brief  account of the
business experience of each of the Company's current executive officers.


Name                      Age    Position
----                      ---    --------

John  F. McGuire, III     54     President, Chief Executive Officer and Director
James B. Murphy           44     Senior Vice President, Chief Financial Officer
Peter C. Sutcliffe        51     Vice President and Chief Operating Officer

      John F. McGuire,  III has served as the Company's Chief Executive Officer,
President and as one of the Company's  directors since April 1997. Prior to that
time,  Mr.  McGuire  served as Vice  President and General  Manager of Johnson &
Johnson's Ortho Diagnostic  Systems Blood Bank Business Unit since January 1996.
From  March  1995 to  January  1996,  Mr.  McGuire  held  the  position  of Vice
President,  Sales & Marketing,  North America for Johnson & Johnson. From August
1990 to March 1995, Mr. McGuire served as Managing  Director of Ortho Diagnostic
Systems in the United Kingdom and Belgium for Johnson & Johnson.  From September
1988 to August 1990, Mr. McGuire held the position of Marketing Director for the
AIDS and Hepatitis  Business Unit of Johnson & Johnson.  From 1977 to 1988,  Mr.
McGuire  held  various  management  positions  at E. I. du Pont de  Nemours  and
Company,  the  last of  which  was  National  Sales  Manager,  AIDS &  Hepatitis
Business. Mr. McGuire is a member of the board of trustees of the National Blood
Foundation Trust Fund.

      James B. Murphy has served as the Company's  Senior Vice President,  Chief
Financial Officer since April 1998 and as its Senior Vice President, Finance and
Administration  since February 1996.  From April 1994 to January 1996, he served
as the Company's Vice President and Corporate  Controller.  Prior to that,  from
1990 to April 1994, he served as Corporate  Controller of Sepracor.  Previously,
Mr.  Murphy held the  positions of Senior  Corporate  Accountant at BBN Inc. and
Senior Accountant at Arthur Andersen LLP.

      Peter C.  Sutcliffe has served as the Company's  Chief  Operating  Officer
since  April  1998.  From May 1996 to April 1998,  Mr.  Sutcliffe  served as the
Company's Vice President of Manufacturing Operations. From May 1982 to May 1996,
Mr.  Sutcliffe held the position of Vice  President,  Manufacturing  for Corning
Costar Incorporated.  From 1976 to 1982, he was a plant manufacturing manager at
Millipore Corporation.





                                       -22-
<PAGE>


                                     PART II

Item 5.     Market  for  Registrant's  Common  Equity and  Related  Stockholder
            Matters

1.          Market Information.

      The Common Stock of the Company has been included for quotation on the OTC
bulletin  board under the symbol HMSR since  January 14, 1998.  From October 28,
1997 until January 13, 1998,  the Common Stock was included for quotation on The
Nasdaq  SmallCap  Market under the symbol  HMSRC.  Prior to October 28, 1997 and
since April 7, 1994,  the Common Stock of the Company was included for quotation
on the Nasdaq National Market under the symbol HMSR. Prior to April 7, 1994, the
Company's Common Stock was not publicly  traded.  The following table sets forth
for the periods indicated the range of high and low bid information per share of
the Common Stock as included for quotation on the Nasdaq  National Market or The
Nasdaq SmallCap Market, as the case may be.



                    2000                  High              Low
                    ----                  ----              ---

               First Quarter              19 1/2          5 3/8

               Second Quarter             10 1/2          2 7/32

               Third Quarter              5 3/4            1 1/4

               Fourth Quarter             2 25/32          13/64


                    1999                  High              Low
                    ----                  ----              ---

               First Quarter              2 1/2            1 13/32

               Second Quarter             4 7/8            2 1/8

               Third Quarter              7 3/8            3 7/8

               Fourth Quarter             6 1/2            4 1/2

2.          Holders.

      On March 2, 2001, the Company's Common Stock was held by approximately 150
stockholders  of record.  On March 2, 2001,  the last reported sale price of the
Company's Common Stock on the OTC bulletin board was $0.3437.

3.          Dividend Information.

      The  Company has never paid  dividends  on its Common  Stock.  The Company
currently intends to reinvest its earnings,  if any, for use in the business and
does not expect to pay cash dividends in the foreseeable future.





                                       -23-
<PAGE>



4.          Sales of Securities.

      In March  2000,  the  Company  completed  a  private  placement  financing
yielding  gross proceeds of  $27,975,000  in which  institutional  and corporate
investors  purchased 3,730,000 shares of its common stock at a purchase price of
$7.50 per share. The Company has registered 2,551,320 of such shares for resale.
The Company has used the majority of the net proceeds of such  financing,  which
aggregated  $25,791,000,  for working  capital,  capital  equipment  and general
corporate purposes.

      In May 1999,  the Company  completed a private  placement  financing  with
Gambro.  The stock subscription  agreement,  which the Company entered into with
Gambro in connection with this financing,  provided for an initial investment of
$9,000,000 in exchange for 4,500,000  shares of the Company's  Common Stock. The
stock  subscription  agreement  also provided  Gambro with an option to purchase
additional shares of the Company's Common Stock for up to an aggregate  purchase
price of $3,000,000 at any time between  August 3, 1999 and May 3, 2000 with the
price  per  share  of  Common  Stock to be based  upon the  market  price of the
Company's  Common Stock. In October 1999,  Gambro exercised this option in full.
In connection with the exercise of this option,  Gambro purchased 498,355 shares
at a price of $6.02  per  share.  The price and  number of shares  reflects  the
average  price of HemaSure  stock in the 30 days prior to the  exercise  date of
October 5, 1999.

      In March 1999, Sepracor purchased an additional 1,333,334 shares of Common
Stock of the  Company for $1.50 per share and  received  warrants to purchase an
additional 667,000 shares at a price of $1.50 per share. Sepracor is entitled to
certain  rights with respect to the  registration  under the  Securities  Act of
1933,  as amended,  of a total of 6,700,334  shares of Common  Stock,  including
shares of Common Stock  issuable upon exercise of  outstanding  warrants.  These
rights provide that Sepracor may require the Company to register  shares subject
to certain conditions and limitations.

      In September  1998,  the Company  obtained a $5 million  revolving line of
credit  arrangement with a commercial  bank.  Sepracor  guaranteed  repayment of
amounts  borrowed under the line of credit.  In exchange for the guarantee,  the
Company granted to Sepracor  warrants to purchase up to 1,700,000  shares of the
Company's  common stock at a price of $0.69 per share.  The warrants will expire
in the year 2003 and have certain  registration  rights associated with them. In
September  2000,  the  revolving  line of credit  expired  and was repaid by the
Company in accordance with the agreement.

      In each case, the securities were issued pursuant to an exemption from the
registration requirements of the Securities Act under Section 4(2).







                                       -24-
<PAGE>



Item 6.     Selected Financial Data

STATEMENT OF OPERATIONS DATA
(In thousands, except per share
data)

Year Ended December 31,               2000      1999     1998     1997     1996
                                      ----      ----     ----     ----     ----

Revenues:

  Product sales                     $3,219     $ 805    $  25   $2,357    $ 725

  Collaborative research and             -         -        -        -       54
  development                       ------     -----    -----   ------    ------

     Total revenues
                                     3,219       805       25    2,357      779
                                    ------     -----    -----   ------    ------

Costs and expenses:

  Cost of products sold              9,095     2,408      657    4,158    3,785

  Cost of collaborative research
     and development                     -         -        -        -       41

  Research and development           4,450     2,681    3,794    3,577    6,128

  Legal expense related to patents   1,134     1,361    3,340      506      744

  Selling, general and
  administrative                     4,191     3,728    4,201    4,458    7,325

  Other operating                      425         -        -        -        -
  Restructuring charge                   -         -        -    1,215        -
                                    ------    ------   ------   ------   -------
     Total costs and expenses       19,295    10,178   11,992   13,914   18,023
                                    ------    ------   ------   ------   -------

Loss from operations              (16,076)   (9,373) (11,967) (11,557) (17,244)

Other (expense) income               (147)   (1,292)    (203)    1,673    1,394
                                   -------   -------  -------  -------  --------
Net loss from continuing
operations                        (16,223)  (10,665) (12,170)  (9,884) (15,850)
                                  --------  -------- --------  ------- --------

Discontinued operations:

  Loss from operations of
  discontinued business                  -         -        -        -  (9,550)

  Loss on disposal of
  discontinued business                  -         -        -        - (15,198)

     Net loss                    $(16,223) $(10,665)$(12,170) $(9,884) $(40,598)
                                  --------  -------- -------- -------- ---------

Net loss per common share -
basic and diluted:

  Net loss from continuing
  operations                      $ (0.85)  $ (0.77) $ (1.35) $ (1.22) $ (1.97)

  Loss from operations of
  discontinued business                  -         -        -        -   (1.18)

  Loss on disposal of
  discontinued business                  -         -       -         -   (1.88)
                                    ------     -----    -----   ------    ------

     Net loss                     $ (0.85)  $ (0.77) $ (1.35) $ (1.22) $ (5.03)
                                  --------  -------- -------- -------- ---------

Weighted average number of
shares of common stock
outstanding - basic and diluted:    19,046    13,766    9,025    8,127    8,069
                                    ------    ------    -----    -----    ------

BALANCE SHEET DATA
(In thousands)


Cash and marketable securities      $8,678    $5,243  $ 1,827  $ 8,156  $16,724

Working capital                      9,234     (327)       37    6,071   14,844

Total assets                        13,158     9,090    5,655   10,607   20,560

Capital lease obligations long
term                                     -         -       68      289      525

Notes payable long-term                  9        43    5,073       72        -

Convertible subordinated note
payable long term                        -         -        -    8,687    8,687

Stockholders' equity (deficit)      11,115     1,227  (2,832)  (1,467)    7,929
Dividends - none





                                       -25-
<PAGE>


Item 7.     Management's Discussion and Analysis of Financial Condition and
            Results of Operation

Overview

      The Company was established in December 1993 as a wholly-owned  subsidiary
of Sepracor.  Effective as of January 1, 1994, in exchange for 3,000,000  shares
of Common Stock,  Sepracor transferred to the Company its technology relating to
the  manufacture,  use and  sale of  medical  devices  for  the  separation  and
purification  of blood,  blood  products and blood  components  and its membrane
filter design technologies.

      HemaSure  develops and supplies  innovative blood filtration  technologies
designed to help meet today's increasing demand for a safer, more reliable blood
supply.  The  Company's  blood  filtration  technologies  are designed to reduce
virus-carrying white blood cells (leukocytes) in donated blood to nominal levels
(a process known as "leukoreduction").

      In June 1995, the Company  received  clearance from the United States Food
and Drug  Administration  (the "FDA") for the LeukoNet  System, a medical device
designed for the removal of contaminating  leukocytes from donated blood. Fiscal
1996 was the first  full year of  commercial  sale of its  LeukoNet  System.  In
February 1998, the Company determined to discontinue  manufacturing the LeukoNet
System and focus on the completion of development and market introduction of its
next generation red cell filtration product, the r\LS System.

      In May 1999, the Company  received 510(k) clearance from the FDA to market
its r\LS System in the United  States.  In May 1999,  the Company  completed  an
amended  distribution  and  development  agreement,  with  Gambro  to act as the
Company's exclusive  distributor of the Company's r\LS System worldwide,  except
for sales to the ARC. In July 1999, the Company  entered into a master  purchase
agreement  with the ARC that  provided  for the sale of the r\LS  System  by the
Company to the ARC on specified terms.  The Company  initiated sales of the r\LS
System in the United States in the third quarter 1999.

      In April 2000,  the  Company  was  notified  that the ARC,  the  Company's
largest  customer,  was  suspending use of the Company's r\LS System pending the
outcome of an investigation of a small number of non-critical  adverse reactions
in patients who had received a transfusion  of blood  filtered with the r\LS. In
September  2000,  the Company was notified  that the ARC  terminated  its supply
contract for the r\LS System based on the extended period of time taken to prove
product  improvements  resolved  these  reactions.  The  Company and the ARC are
currently  negotiating a termination  of the purchase  contract and a release of
any and all claims that either  party may have  against the other,  with certain
exceptions.

      In March 2001, the Company signed a termination and release agreement with
Gambro  BCT,   effective   November  2000,  which  ended  the  distribution  and
development  agreement.  In consideration for the Company's  inventory (net book
value at December  31, 2000 of $332,000) of products  bearing  Gambro's  company
name, and by way of complete  resolution of all issues now  outstanding  between
the Company and Gambro, Gambro agreed to return 1,011,692 shares of common stock
with a fair market value at closing of $332,000.





                                       -26-
<PAGE>


      The termination of the purchase  contract by the ARC and the  distribution
and development agreement with Gambro has had an adverse impact on the Company's
ability to generate  revenues from the sale of the Company's r\LS product and on
the Company's supply contracts with manufacturers of key components to the r\LS.
It is  uncertain  at this time when and if the Company  will resume  selling the
r\LS products to its potential customers, if at all.

      All of the  Company's  other  planned  blood-related  products  are in the
research  and  development  stage,  and  certain of these  products  may require
pre-clinical  and  clinical  testing  prior  to  submission  of  any  regulatory
application for commercial use.

Sale of the Non-Cash Assets of the Company

      On February 3, 2001, the Company agreed to sell  substantially  all of the
Company's   non-cash  assets  to  Whatman   Bioscience   Inc.,  a  Massachusetts
corporation  ("Whatman"),  a wholly owned  subsidiary of Whatman plc, an English
corporation ("Whatman plc") pursuant to the terms of an Asset Purchase Agreement
("Purchase  Agreement")  executed  by the two  companies.  See  Item 1.  "Recent
Events".

      The obligations of the Company,  Whatman and Whatman plc to consummate the
Asset Sale are subject to a number of  customary  conditions,  including,  among
others,  approval and adoption of the Purchase Agreement by the affirmative vote
of the holders of a majority of the outstanding Shares entitled to vote thereon.

      It is  currently  anticipated  that the  Closing  Date will occur on or as
promptly as  practicable  following  the  approval  and adoption of the Purchase
Agreement by the  Stockholders of the Company and the  satisfaction or waiver of
all of the other  conditions set forth in the Purchase  Agreement.  Either party
may  terminate  the Purchase  Agreement if the closing does not occur by May 31,
2001.  Accordingly,  there can be no  assurance  as to if or when the Asset Sale
will be consummated.

      In connection with the sale of the non-cash assets, the Company expects to
realize  a gain of  approximately  $3,500,000  after all  anticipated  costs and
expenses  associated  with the sale.  The Company does not expect to incur a tax
liability in connection with the sale, as it believes it has sufficient  federal
and state net operating loss  carryforwards  and tax credits to offset any gains
realized.

      Upon  closing of the  Purchase  Agreement  with  Whatman,  the  Company is
expected to have  approximately  $17.5  million in a combination  of cash,  cash
equivalents,  marketable securities and Whatman plc stock (based on current cash
and marketable  securities  levels,  the Company's  expected "burn rate" through
closing and the terms of the Purchase Agreement). In that regard, the Company is
in the preliminary stages of considering various strategic business combinations
and other  transactions with a view toward further  enhancing  stockholder value
following the consummation of the sale of its assets and business to Whatman.

      In the event that the Asset Sale does not occur, the Company will consider
other  business  alternatives,  including  but not  limited to,  other  business
combinations and a liquidation of the Company's assets.  Given that any proceeds
from any such  liquidation and any other cash on hand would be first used to pay
the  Company's  creditors  and  outstanding  payables,  and given  certain legal
requirements that the Company maintain certain cash on hand for certain mandated
time  periods,  there is no assurance as to when,  if ever,  any proceeds from a
liquidation  would be  distributed  to the





                                       -27-
<PAGE>


Company's  Stockholders.  In certain  instances,  if the  Purchase  Agreement is
terminated, the Company will pay Buyer certain fees.

Results of Continuing Operations

      Revenues were  $3,219,000  in 2000,  $805,000 in 1999 and $25,000 in 1998.
The  majority  of  revenues  in 2000,  1999 and 1998  were  from the sale of the
Company's  leukoreduction  systems.  In February  1998,  the Company  decided to
discontinue the manufacture and sale of its former  leukoreduction  filter,  the
LeukoNet System. In September of 1999, the Company initiated sales in the United
States of its next  generation red blood cell  leukoreduction  system,  the r\LS
System,  which  accounts for the increase in revenues in 1999 from those in 1998
and the  increase  in  revenues  in 2000 from  those in 1999.  In 2000,  the ARC
represented 50% of total revenues and Gambro  represented 49% of total revenues.
In 1999, the ARC represented 66% of total revenues and Gambro represented 33% of
total  revenues.  In 1998 the ARC  represented 53% of total revenues and another
customer represented 10% of total revenues.

      In September  2000,  the Company was notified that the ARC  terminated its
supply  contract for the r\LS System based on the extended  period of time taken
to prove product improvements resolved these reactions.  The Company and the ARC
are currently  negotiating a termination of the purchase  contract and a release
of any and all claims that either party may have against the other, with certain
exceptions.  In March  2001,  the  Company  signed  a  termination  and  release
agreement with Gambro BCT, effective November 2000, which ended the distribution
and development agreement.  It is uncertain at this time when and if the ARC and
other potential customers of the Company will resume the purchase and use of the
r\LS System.

      The cost of products sold was  $9,095,000 in 2000,  $2,408,000 in 1999 and
$657,000 in 1998.  Total cost of products sold  exceeded  total product sales in
all periods  due to the high costs  associated  with new  product  manufacturing
start up and low volume production. Included in cost of products sold for fiscal
2000 are charges of approximately  $2,554,000 for product warranty and inventory
write-down.  These charges were primarily in connection with the decision by the
ARC to terminate its purchase  contract  with the Company in September  2000 and
Gambro BCT's decision to terminate its distribution and development agreement in
November  2000.  The  Company  incurred  additional  charges  of  $1,305,000  to
terminate and amend certain key contractual  supply  agreements,  with Filtertek
and Command as disclosed in "Liquidity and Capital Resources".

      Research and development  expenses were $4,450,000 in 2000,  $2,681,000 in
1999 and  $3,794,000  in 1998.  The  increase  in 2000  from  1999 is  primarily
attributable  to costs  associated  with the  formulation  and design of process
alternatives  to support the then expected  increase in demand for the Company's
r\LS System,  and the costs associated with investigating and studying potential
causes for the transfusion  reactions  reported by the ARC. The decrease in 1999
from 1998 is primarily  attributable to costs associated with the development of
the Company's next generation red cell filtration  system,  the r\LS System, for
which a majority of the effort was expended in the 1998 period.

      Legal expenses related to patents were  $1,134,000 in 2000,  $1,361,000 in
1999 and  $3,340,000  in 1998.  The expenses in all three  periods are primarily
related to costs  associated with defending the Company's patent position in its
outstanding  litigation  with Pall  Corporation.  In 1998 the  Company  incurred
significant  expenses in connection  with expert  witness and  discovery-related
activities  associated  with its  outstanding  patent  litigation with Pall. The
decrease in 2000 and 1999 from 1998 is





                                       -28-
<PAGE>




due to a reduction in these costs as well as from cooperation with Gambro BCT in
connection  with such  costs  consistent  with the  Company's  distribution  and
development  agreement with Gambro. Due to the termination and release agreement
signed with Gambro BCT in March, 2001, there can be no assurance that such costs
will remain at the same level in future periods. A substantial  increase in such
costs  could have a  material  and  adverse  effect on the  Company's  financial
condition and future business and operations. See " -- Litigation."

      Selling,  general and  administrative  expenses  were  $4,191,000 in 2000,
$3,728,000  in 1999 and  $4,201,000  in 1998.  The increase in 2000 from 1999 is
primarily  attributable to higher administrative  personnel of $221,000,  travel
and related  costs of $41,000 and general  professional  services of $207,000 in
connection  with the Company's  expected  increasing  level of sales of its r\LS
System.  The decrease in the amount  expended in 1999 from 1998 is primarily due
to lower general professional services of $319,000 and costs associated with the
discontinuation of the Leukonet System.

      Other  operating  expenses in 2000  represents  the Company's  fixed asset
write-down  of two  production  units to their net scrap value,  as they will no
longer be used in the manufacturing process.

      Interest  income  in 2000,  1999 and 1998  primarily  represents  interest
earned  on  available  cash and  marketable  securities  balances  during  those
periods.

      Interest  expense  decreased in 2000 compared to 1999 due primarily to the
completion of the amortization of deferred  financing charges in September 2000,
the  repayment of the  revolving  line of credit in  September  2000 and a lower
average capital lease  obligation  balance.  The increase in interest expense in
1999  compared  to 1998 is  primarily  related to the  amortization  of deferred
financing charges and amounts  outstanding on the Company's line of credit which
was outstanding for all of 1999 and only for approximately three months in 1998.

New Accounting Standards

      In December 1999, the  Securities and Exchange  Commission  ("SEC") issued
SAB No. 101,  "Revenue  Recognition in Financial  Statements," as amended by SAB
101A and 101B,  which is effective no later than the quarter ended  December 31,
2000.  SAB No. 101  clarifies  the SEC's  views  regarding  the  recognition  of
revenue. The Company adopted SAB No. 101 in fiscal 2000. The adoption of SAB No.
101 did not have a  significant  impact on the Company's  financial  position or
results of operations.

      In September  2000, the FASB issued SFAS No. 140 "Accounting for Transfers
and  Servicing  of  Financial  Assets  and   Extinguishments  of  Liabilities--a
replacement  of FASB  Statement  No.  125"  ("SFAS  140").  SFAS 140 revises the
standards for accounting for  securitizations  and other  transfers of financial
assets and collateral and requires certain disclosures, but it carries over most
of SFAS 125's provisions  without  reconsideration.  This Statement is effective
for  transfers  and  servicing  of  financial  assets  and   extinguishments  of
liabilities  occurring  after March 31, 2001.  This  Statement is effective  for
recognition and  reclassification of collateral and for disclosures  relating to
securitization  transactions  and  collateral  for  fiscal  years  ending  after
December 15, 2000. The Company is currently analyzing this new standard.

      In March  2000,  the FASB  issued  FASB  Interpretation  ("FIN")  No.  44,
"Accounting  for  Certain  Transactions   Involving  Stock  Compensation  --  an
Interpretation  of APB Opinion No. 25." FIN




                                       -29-
<PAGE>


No. 44 primarily  clarifies  (a) the  definition  of an employee for purposes of
applying  APB Opinion No. 25, (b) the criteria  for  determining  whether a plan
qualifies as a noncompensatory  plan, (c) the accounting  consequence of various
modifications  to the terms of previously  fixed stock option awards and (d) the
accounting  for  an  exchange  of  stock  compensation   awards  in  a  business
combination. The adoption of FIN No. 44 did not have a significant impact on the
Company's financial position or results of operations.

      In June 1998, the Financial  Accounting  Standards  Board ("FASB")  issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended by SFAS No.  137 and SFAS No.  138,  which  establishes  accounting  and
reporting  standards for  derivative  instruments  and hedging  activities.  The
standard requires that the Company recognize all derivatives as either assets or
liabilities  on the balance sheet and measure those  instruments  at fair value.
The Company, to date, has not engaged in derivative and hedging activities,  and
accordingly  does not  believe  that the  adoption  of SFAS No.  133 will have a
material impact on its financial statements and related disclosures. The Company
will  adopt  SFAS No.  133 as amended by SFAS No. 137 and SFAS No. 138 in fiscal
year 2001.

Litigation

      The  Company  is a  defendant  in a lawsuit  brought  by Pall  Corporation
("Pall")  regarding the Company's  LeukoNet  System,  which is no longer made or
sold by the Company.  In a complaint  filed in November 1996,  Pall alleged that
the  manufacture,  use and/or sale of the  LeukoNet  System  infringed  upon two
patents held by Pall.  Pall dropped its allegations  concerning  infringement of
one of the patents and alleges only that the LeukoNet  System  infringed  Pall's
U.S. Patent No. 4,952,572 (the "'572 Patent").

      With respect to the  allegations  concerning the '572 Patent,  the Company
answered the  complaint  stating that the LeukoNet  System does not infringe any
claim  of  the  asserted  patents.   Further,  the  Company  counterclaimed  for
declaratory judgment of invalidity,  noninfringement and unenforceability of the
'572 Patent.  Pall amended its complaint to add Lydall,  Inc.,  whose subsidiary
supplied  the filter  media for the  LeukoNet  System,  as a  co-defendant.  The
Company filed for summary judgment of non-infringement, and Pall cross-filed for
summary judgement of infringement at the same time.  Lydall,  Inc. supported the
Company's  motion for summary judgment of  non-infringement,  and filed a motion
for summary  judgment that the asserted claims of the '572 patent are invalid as
a matter of law.  Discovery has been  completed in the action.  The Court held a
hearing on the summary  judgment motions on April 18, 2000. No decision has been
made on the motions.

      The Company and Gambro BCT, Inc. filed a complaint for declaratory  relief
against Pall in the United States  District  Court of Colorado.  The Company and
Gambro BCT seek declaratory relief that the '572 Patent,  Pall's U.S. Patent No.
5,451,321 (the "'321 Patent") and Pall's U.S. Patent No.'s 5,229,012, 5,344,561,
5,501,795 and  5,863,436  are invalid and not  infringed by the  Company's  r\LS
System and methods of using the r\LS  System.  Pall moved to dismiss or transfer
to the Eastern District of New York or, in the alternative, to stay this action.
The Company and Gambro BCT opposed Pall's  motion.  On July 16, 1999, the United
States  District  Court of Colorado  denied Pall's motion to transfer or, in the
alternative,  to stay the action. On September 30, 1999, the Court denied Pall's
motion to dismiss the action. On October 20, 1999, Pall submitted a counterclaim
alleging  that the  Company's  r\LS System  infringes  its patents  that are the
subject of the lawsuit and that the Company





                                       -30-
<PAGE>


and Gambro BCT tortiously interfered and unfairly competed with Pall's business.
The  Company  and Gambro BCT replied to Pall's  counterclaim  and denied  Pall's
allegations   of   tortious   interference,   unfair   competition   and  patent
infringement.

      On July 13,  2000,  Pall filed a Complaint in the United  States  District
Court for the  District of Colorado  against the Company,  Gambro BCT,  Inc. and
Gambro AB alleging that the Company's r\LS system  infringes  Pall's U.S. Patent
No.  6,086,770  (the  "'770  Patent").  On August  11,  2000,  this  action  was
consolidated  with the earlier  declaratory  relief  action in the United States
District Court for the District of Colorado.  The Company,  Gambro BCT, Inc. and
Gambro AB answered the complaint,  denied the  allegations of  infringement  and
submitted a  counterclaim  alleging  that  Pall's  '770  patent is invalid,  not
infringed and  unenforceable.  In September 2000, Pall answered the counterclaim
and denied the allegations of noninfringement,  invalidity and unenforceability.
Discovery is proceeding.

      On December  15,  2000,  Pall filed a complaint  against  Filtertek,  Inc.
("Filtertek")  alleging  that  Filtertek,  a  manufacturer  of the r\LS  filter,
infringes  the  seven  above-mentioned  Pall  patents.  Filtertek  answered  the
complaint on January 31, 2001,  denied Pall's  allegations of  infringement  and
asserted  that the claims of the Pall patents are invalid  and/or  unenforceable
and that Pall is estopped  from  asserting  infringement  against  Filtertek  by
reason of Pall's prior conduct with Filtertek. This action has been consolidated
with the other actions pending in Colorado. Discovery is now ongoing.

      On  December  22,  2000,  Gambro AB and Gambro  BCT moved to  dismiss  the
consolidated actions based on a settlement  agreement with Pall Corporation.  On
January 10,  2001,  the Court  dismissed  the action with  respect to all claims
between Pall, Gambro BCT, and Gambro AB.

      On April 23, 1999,  Pall filed a complaint  against the Company and Gambro
BCT in the Eastern  District of New York alleging that the Company's r\LS System
infringes  Pall's '572  Patent and that the  Company  and Gambro BCT  tortiously
interfered and unfairly  competed with Pall's  business.  On May 19, 1999,  Pall
amended its complaint and added Gambro,  Gambro A.B. and Sepracor as defendants.
The Company  and Gambro BCT have moved to  dismiss,  transfer or stay the action
and Pall has  opposed  the  motion.  On April  18,  2000,  Pall  moved,  without
opposition  from the  defendants,  to dismiss  the action and the Court  granted
Pall's motion.

      A prior lawsuit  brought by Pall in February 1996 has  concluded.  In June
1999, the United States Court of Appeals for the Federal Circuit determined that
the LeukoNet  System did not  infringe  claim 39 of the '321 Patent and Pall has
not appealed that decision.

      The  Company  has  engaged  patent  counsel  to  investigate  the  pending
litigations.  The Company believes, based upon its review of these matters, that
a properly informed court should conclude that the manufacture,  use and/or sale
by the Company or its  customers of the  LeukoNet  System and the r\LS System do
not infringe any valid enforceable claim of the Pall patents. However, there can
be no assurance that the Company will prevail in the pending litigations, and an
adverse  outcome in a patent  infringement  action  would  have a  material  and
adverse  effect on the Company's  financial  condition  and future  business and
operations,  including the possibility of significant damages in the litigations
and an  injunction  against the sale of the r\LS System if the Company  does not
prevail in the litigations.





                                       -31-
<PAGE>



Liquidity and Capital Resources

      The net decrease in cash and cash equivalents in 2000 was $2,028,000. This
decrease is attributable  primarily to net cash used in operating  activities of
$16,216,000 and net cash used in investing  activities of $6,822,000,  offset in
part by net cash provided from financing activities of $21,010,000.

      Net cash used in operating activities is primarily attributable to the net
loss of  $16,223,000,  an increase in inventory of $3,423,000  and a decrease in
accounts  payable of  $588,000.  This was offset in part by  non-cash  operating
charges for financing  costs related to warrants of $725,000,  depreciation  and
amortization  of  $636,000,  write-down  of  fixed  asset  charge  of  $425,000,
write-down of inventories of $1,944,000 and a decrease in accounts receivable of
$322,000.  Net cash used in investing  activities resulted  principally from the
net purchase of  available-for-sale  marketable securities of $5,402,000 and the
acquisition  of property and  equipment of  $1,420,000  in the period.  Net cash
provided from financing  activities  relates  primarily to the net proceeds from
the issuance of common stock of $26,111,000, the majority of which is due to the
Company's March 2000 private placement financing, offset in part by a $5,000,000
repayment of the Company's commercial line of credit.

      In March  2000,  the  Company  completed  a  private  placement  financing
yielding  gross proceeds of  $27,975,000  in which  institutional  and corporate
investors  purchased 3,730,000 shares of its common stock at a purchase price of
$7.50 per share. The Company has registered 2,551,320 of such shares for resale.
The Company has used the majority of the net proceeds of such  financing,  which
aggregated  $25,791,000,  for working  capital,  capital  equipment  and general
corporate purposes.

      In April 2000,  the  Company  was  notified  that the ARC,  the  Company's
largest  customer,  was  suspending use of the Company's r\LS System pending the
outcome of an investigation of a small number of non-critical  adverse reactions
in patients who had received a transfusion  of blood  filtered with the r\LS. In
September  2000,  the Company was notified  that the ARC  terminated  its supply
contract for the r\LS System after the completion of these studies. The extended
period of time taken to prove  product  improvements  that resolve the reactions
was the  basis  for  the  termination.  The  Company  and the ARC are  currently
negotiating a termination of the purchase  contract and a release of any and all
claims that either party may have against the other, with certain exceptions.

      In  November  2000,  the  Company was  notified  that  Gambro  intended to
terminate  its  distribution  and  development  contract with the Company and in
March 2001,  signed a termination and release  agreement with Gambro,  effective
November  2000,  which ended the  distribution  and  development  agreement.  In
consideration  for the Company's  inventory (net book value at December 31, 2000
of $332,000) of products  bearing  Gambro's company name, and by way of complete
resolution of all issues now outstanding between the Company and Gambro,  Gambro
agreed to return  1,011,692  shares of common  stock with a fair market value at
closing of $332,000.

      The termination of the purchase  contract by the ARC and the  distribution
and  development  agreement  with Gambro,  has had an adverse impact on both the
Company's supply contracts with  manufacturers of key components to the r\LS and
inventories it had built in  anticipation of expected  increased  demand for the
Company's product.

      In September  2000, the Company  agreed to pay Filtertek Inc.  $525,000 in
connection  with an  amendment  to its  manufacturing  supply  agreement  and in
December 2000 the Company agreed to pay




                                       -32-
<PAGE>


Filtertek Inc. an additional  $180,000 in connection with a second  amendment to
its manufacturing  supply agreement.  No commitments have been made to make such
payments in the future. The agreement contains minimum purchase  requirements in
future  years,  which if not met could  require the Company to purchase  certain
production equipment of the supplier as defined in the agreement.

      In December 2000, the Company agreed to pay Command Medical  Products Inc.
$600,000 in connection with the termination of its supply and assembly agreement
and release.

      On May 3, 1999, the Company completed a private  placement  financing with
Gambro.  The stock subscription  agreement,  which the Company entered into with
Gambro in connection with this financing,  provided for an initial investment of
$9,000,000 in exchange for 4,500,000  shares of the Company's  Common Stock. The
stock  subscription  agreement  also provided  Gambro with an option to purchase
additional shares of the Company's Common Stock for up to an aggregate  purchase
price of $3,000,000 at any time between  August 3, 1999 and May 3, 2000 with the
price  per  share  of  Common  Stock to be based  upon the  market  price of the
Company's  Common Stock. In October 1999,  Gambro exercised this option in full.
In connection with the exercise of this option,  Gambro purchased 498,355 shares
at a price of $6.02  per  share.  The price and  number of shares  reflects  the
average  price of HemaSure  stock in the 30 days prior to the  exercise  date of
October 5, 1999.

      In March 1999,  Sepracor  purchased an  additional  1,333,334  shares in a
private  placement  of  Common  Stock of the  Company  for  $1.50  per share and
received  warrants to purchase an additional  667,000 shares at a price of $1.50
per share.  The financing  agreement  contains certain  registration  rights and
warrant exercise provisions.

      In September  1998, the Company  completed a $5 million  revolving line of
credit arrangement with a commercial bank. In September 2000, the revolving line
of credit  expired  and the $5  million  outstanding  balance  was repaid by the
Company in accordance with the agreement. The revolving line of credit was being
used to help finance the Company's working capital  requirements and for general
corporate purposes.  Amounts borrowed under the line bore interest at the bank's
prime  lending rate plus 1/2% payable  monthly in arrears.  For the period ended
December 31, 2000, the Company  recorded  interest expense related to borrowings
under the line of $322,000.

      Sepracor guaranteed to repay amounts borrowed under the line of credit. In
exchange for the guarantee, the Company granted to Sepracor warrants to purchase
up to  1,700,000  shares of the  Company's  Common Stock at a price of $0.69 per
share.  The warrants will expire in the year 2003 and have certain  registration
rights  associated  with them.  The Company  placed a value of $1,938,000 on the
1,700,000  warrants as of the date of the final  agreement  and  amortized  this
deferred  financing  charge  on a  monthly  basis  over  the term of the line of
credit. The Company amortized $725,000, $1,024,000 and $189,000 of this deferred
finance  charge  and  recorded  it  as  interest  expense  in  the  Consolidated
Statements of Operations for the periods ended December 31, 2000, 1999, and 1998
respectively.

      In  March  1997,  the  Company  exercised  its  right,   under  the  lease
arrangement of its Marlborough, Massachusetts facility, to have a portion of its
leasehold  improvements  financed and received  $140,000 in connection with this
arrangement.  This amount will be repaid in 60 equal monthly  installments  at a
rate of 12% per annum.  As of December 31, 2000,  there was a balance of $43,000
remaining to be paid on this note.





                                       -33-
<PAGE>



      In January 1997, the Company entered into a  Restructuring  Agreement with
respect to the  indebtedness  incurred  by the  Company in  connection  with its
acquisition of the plasma pharmaceutical business unit of Novo Nordisk. Pursuant
to the Restructuring Agreement,  approximately  $23,000,000 of indebtedness owed
to Novo  Nordisk  was  restructured  by way of  issuance  by the Company to Novo
Nordisk of a 12%  convertible  subordinated  promissory  note for a net  amount,
after  certain  reductions  and  the  forgiveness  of a  $3,000,000  amount,  of
$8,687,000.  On January 6, 1998, the Company converted the note, pursuant to its
terms, into shares of Common Stock at a conversion price of $10.50 per share, or
827,375 shares. The holder of the note initially contested the conversion of the
note,  however,  in March 2001, the holder  surrendered the note consistent with
the terms of the Resructuring Agreement.

Future Operating Results

      On February 3, 2001, the Company agreed to sell  substantially  all of the
Company's  non-cash assets to Whatman, a wholly owned subsidiary of Whatman plc,
pursuant to the terms of the Purchase  Agreement  executed by the two companies.
See Item 1. "Recent Events".

      In the event that the Asset Sale does not occur, the Company will consider
other  business  alternatives,  including  but not  limited to,  other  business
combinations and a liquidation of the Company's assets.  Given that any proceeds
from any such  liquidation and any other cash on hand would be first used to pay
the  Company's  creditors  and  outstanding  payables,  and given  certain legal
requirements that the Company maintain certain cash on hand for certain mandated
time  periods,  there is no assurance as to when,  if ever,  any proceeds from a
liquidation would be distributed to the Company's Stockholders.

      In certain instances, if the Purchase Agreement is terminated, the Company
will pay Buyer  certain  fees.  Based on our current cash  utilization  rate our
existing cash and marketable  securities balances will be sufficient to fund our
operations  only  into  the  second  quarter  of  2001.  Although  currently  no
definitive  plans  have  been  approved  by the  Board of  Directors,  they will
continue  to examine  all other  business  alternatives  in order to prepare for
future contingencies.


Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

      Not applicable.

Item 8.           Financial Statements and Supplementary Data

      The financial  statements filed as part of this Annual Report on Form 10-K
are provided under Item 14 below.

Item 9.      Changes  in  and   Disagreements   on   Accounting   and  Financial
Disclosure

      Not applicable.
                                   PART III

Items 10-13.





                                       -34-
<PAGE>



      The  information  required for Part III in this Annual Report on Form 10-K
is incorporated by reference from the Company's  definitive  proxy statement for
the Company's  2001 Annual Meeting of  Stockholders.  Such  information  will be
contained in the sections of such proxy statement  captioned "Stock Ownership of
Certain  Beneficial Owners and Management,"  "Election of Directors," "Board and
Committee Meetings,"  "Compensation for Directors,"  "Compensation for Executive
Officers"  and "Certain  Relationships  and Related  Transactions."  Information
regarding  executive officers of the Company is also furnished in Part I of this
Annual  Report  on Form  10-K  under  the  heading  "Executive  Officers  of the
Registrant."







                                       -35-
<PAGE>



                                       PART IV

Item 14.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K


     a (1)       Financial Statements
                 HemaSure Inc. Consolidated Financial Statements as of
                 December 31, 2000 and for each of the three years in the
                 period ended December 31, 2000.  See pages F-1 through F-7,
                 which are included herein.

     a (2)       Financial Statement Schedules
                 All schedules are omitted because they are inapplicable, not
                 required or the information is included in the consolidated
                 financial statements or the notes thereto.

     a (3)       Exhibits

                 The exhibits listed in the Exhibit Index immediately
                 preceding the exhibits are filed as part of this Annual
                 Report on Form 10-K.

      (b)        No Current Reports on Form 8-K were filed by the Company
                 during the last quarter of the period covered by this report.

      The  following  trademarks  are  mentioned in this Annual  Report on Form
10-K: HemaSure r\LS and LeukoNet.







                                       -36-
<PAGE>


                             HemaSure Inc.
                                                                         Page
                                                                         ----
                     Index to Financial Statements
                     -----------------------------

Report of Independent Accountants                                        F-2

Consolidated Balance Sheets at December 31, 2000 and 1999                F-3

Consolidated Statements of Operations for the Years
Ended December 31, 2000, 1999 and 1998                                   F-4

Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended December 31, 2000, 1999 and 1998                     F-5

Consolidated Statements of Cash Flows for the Years
Ended December 31, 2000, 1999 and 1998                                   F-6

Notes to Consolidated Financial Statements                               F-7





                                       F-1
<PAGE>



                          REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of HemaSure Inc.:

      In our  opinion,  the  accompanying  consolidated  balance  sheets and the
related consolidated statements of operations, of stockholders' equity (deficit)
and of cash flows  present  fairly,  in all  material  respects,  the  financial
position of HemaSure  Inc. and its  subsidiaries  at December 31, 2000 and 1999,
and the results of their  operations  and their cash flows for each of the three
years in the period ended  December  31, 2000,  in  conformity  with  accounting
principles  generally accepted in the United States of America.  These financial
statements   are  the   responsibility   of  the   Company's   management;   our
responsibility  is to express an opinion on these financial  statements based on
our audits.  We conducted  our audits of these  statements  in  accordance  with
auditing  standards  generally  accepted in the United States of America,  which
require that we plan and perform the audit to obtain reasonable  assurance about
whether the financial  statements  are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the financial  statements,  assessing the  accounting  principles
used and  significant  estimates made by management,  and evaluating the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

      The accompanying financial statements have been prepared assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note A to the
financial  statements,  the Company has incurred  losses from  operations  since
inception that raise  substantial doubt about its ability to continue as a going
concern.  Management's  plans in regard to these  matters are also  described in
Note A, under the heading  "Sale of the  non-cash  assets of the  Company".  The
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.

                                          /s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
March 20, 2001







                                       F-2
<PAGE>


HemaSure Inc.
Consolidated Balance Sheets

December 31,
(In thousands, except par value amounts)

ASSETS                                                        2000        1999
                                                              ----        ----
Current assets:

      Cash and cash equivalents (Note B)                   $ 3,215     $ 5,243
      Marketable securities (Note B)                         5,463           -
      Accounts receivable (Note C)                             121         443
      Inventories (Note D)                                   2,285         806
      Deferred financing costs (Note H)                          -         725
      Prepaid expenses and other current assets                184         276
                                                           -------      ------
      Total current assets                                  11,268       7,493

Property and equipment, net (Note E)                         1,850       1,547
Other assets                                                    40          50
                                                           -------      ------

            Total assets                                  $ 13,158     $ 9,090
                                                          ========     =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:

      Accounts payable                                       $ 611     $ 1,199
      Accrued expenses (Note F)                              1,389       1,520
      Current portion of notes payable (Note H)                 34       5,030
      Current portion of capital lease obligations(Note G)       -          71
                                                           -------      ------
      Total current liabilities                              2,034       7,820

Notes payable (Note H)                                           9          43

            Total liabilities                                2,043       7,863
                                                           -------      ------

Commitments and contingencies (Notes F and G)
Stockholders' equity (Notes J and K):
      Preferred stock, $0.01 par value, 1,000 shares
        authorized, no shares issued or outstanding
      Common stock, $0.01 par value, 35,000 shares
        authorized, 19,904 and 15,823 shares issued
        and outstanding at December 31, 2000 and
        December 31, 1999 respectively                         199         158
      Additional paid-in capital                           112,311      86,241
      Accumulated deficit                                (101,395)    (85,172)
                                                         ---------    --------
      Total stockholders' equity                            11,115       1,227
                                                         ---------    --------

            Total liabilities and stockholders' equity    $ 13,158     $ 9,090
                                                            ======      ======

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






                                     F - 3



<PAGE>


HemaSure Inc.
Consolidated Statements of Operations


Year Ended December 31,                            2000        1999       1998
                                                  -----        ----       ----

(In thousands, except per share amounts)


Revenue                                         $ 3,219      $  805      $  25

Costs and expenses:
      Cost of products sold                       9,095       2,408        657
      Research and development                    4,450       2,681      3,794
      Legal expense related to patents            1,134       1,361      3,340
      Selling, general and administrative         4,191       3,728      4,201
      Other operating                               425           -          -
                                                -------      ------     ------
      Total costs and expenses                   19,295      10,178     11,992
                                                -------      ------     ------
Loss from operations                           (16,076)     (9,373)   (11,967)
Other income (expense):
      Interest income                               935         201        169
      Interest expense                          (1,056)     (1,493)      (372)
      Other expense                                (26)           -          -
                                              ---------    --------  ---------
Net loss                                      $(16,223)   $(10,665)  $(12,170)
                                              =========   =========  =========

Net loss per share - basic and diluted:        $ (0.85)    $ (0.77)   $ (1.35)
                                               ========    ========   ========

Weighted average number of shares of common
 stock Outstanding - basic and diluted           19,046      13,766      9,025


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





                                     F - 4



<PAGE>




HemaSure Inc.
Consolidated Statements of Stockholders' Equity (Deficit)

Year ended
December 31, 2000, 1999
and 1998 (In thousands)

<TABLE>
<CAPTION>

                                                                                                                       Total
                                                          Additional                                             Stockholders'
                                          Common Stock      Paid-in          Unearned            Accumulated           Equity
                                      Shares     Amount     Capital      Compensation    Other       Deficit         (Deficit)
                                      ------     ------     -------      ------------    -----       -------         ---------
<S>                                    <C>      <C>         <C>           <C>           <C>         <C>             <C>


Balance at December 31,1997            8,164    $ 82        $60,878        $(89)        $(1)        $(62,337)       $(1,467)

Issuance of common stock to
  employees under stock plans             97       1             89                                                       90

Issuance of common stock for debt        827       8          8,679                                                    8,687

Issuance of warrants                                          1,938                                                    1,938

Unearned compensation
  amortization                                                                89                                          89

Other                                                                                      1                               1

Net loss                                                                                              (12,170)      (12,170)
                                      ------    ----       --------      -------      ------          --------      --------


Balance at December 31, 1998           9,088      91         71,584           -            -          (74,507)       (2,832)

Issuance of common stock to
 employees under stock plans             404       4            813                                                      817
Issuance of common stock
 in private placements, net of
    issuance costs of $93              6,331      63         13,844                                                   13,907

Net loss                                                                                              (10,665)      (10,665)
                                      ------    ----       --------       ------      ------          --------      --------


Balance at December 31, 1999          15,823     158         86,241           -            -          (85,172)         1,227

Issuance of common stock to
   employees under stock plans           351       4            316                                                      320
Issuance of common stock
    in private placements, net of
    issuance costs of $2,184           3,730      37         25,754                                                   25,791

Net loss                                                                                              (16,223)      (16,223)
                                      ------    ----       --------       ------      ------          --------      --------

Balance at December 31, 2000          19,904   $ 199       $112,311        $  -         $  -        $(101,395)      $ 11,115
                                      ======   =====       ========        =====        ====        ==========      ========

</TABLE>


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




                                     F - 5



<PAGE>

HemaSure Inc.
Consolidated Statements of Cash Flows
Year ended December 31,
(In thousands)
<TABLE>
<CAPTION>

                                                      2000       1999       1998
                                                      ----       ----       ----
<S>                                              <C>        <C>        <C>
Cash flows from operating activities:

  Net loss                                       $(16,223)  $(10,665)  $(12,170)

  Adjustments to reconcile net loss to net
    cash used in operating activities:
     Financing costs related to warrants               725      1,024        189
     Write-down of fixed assets                        425          -          -
     Depreciation and amortization                     636        475        479
     Accretion of marketable securities discount      (61)          -         20
     Loss on disposal of equipment                      56          -          5
     Write-down in inventories                       1,944          -          -
  Changes in operating assets and liabilities:
     Accounts receivable                               322      (443)        436
     Inventories                                   (3,423)      (600)       (48)
     Prepaid expenses and other current assets          92         50         21
     Accounts payable                                (588)      (343)        666
     Accrued expenses                                (131)       (29)      (297)
     Other assets                                       10        (8)       (10)
                                                   -------   --------  ---------

  Net cash used in operating activities           (16,216)   (10,539)   (10,709)
                                                  --------   --------  ---------

  Cash flows from investing activities:

     Purchases of marketable securities             (31,402)        -   (20,255)
     Maturities of marketable securities              26,000        -     27,117
     Unrealized holding loss of available for
     sale marketable securities                            -        -          1
     Additions to property and equipment             (1,420)     517)      (422)
                                                     -------    -----      -----

  Net cash provided by (used in) investing
   activities                                        (6,822)    (517)      6,441
                                                     -------    -----      -----

  Cash flows from financing activities:

     Net proceeds from issuance of common stock      26,111    14,724         90
     Borrowing from notes payable arrangements            -         -      5,000
     Repayment of notes payable                      (5,030)     (27)        (9)
     Repayments of capital lease obligations            (71)    (225)      (260)
                                                     -------    -----     ------

  Net cash provided by financing activities           21,010   14,472      4,821
                                                      ------   ------      -----

  Net (decrease) increase in cash and cash
   equivalents                                       (2,028)    3,416        553
  Cash and cash equivalents at beginning of period     5,243    1,827      1,274
                                                      ------    -----      -----

  Cash and cash equivalents at end of period          $3,215   $5,243     $1,827
                                                      ======   ======     ======

  Supplemental schedule of cash flow information:
     Cash paid during the year for interest           $  372   $  453     $  503

  Noncash investing and financing activities:
     Common stock issued for convertible
      subordinated note                               $   -     $   -     $8,687
     Value of warrants issued for guaranteed
      line of credit                                  $   -     $   -     $1,938
</TABLE>

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




                                    F - 6



<PAGE>

HemaSure Inc.
Notes to Consolidated Financial Statements

A.     THE COMPANY:

Nature of the Business

      HemaSure Inc. (the  "Company")  is utilizing  its  proprietary  filtration
technologies to develop  products to increase the safety of donated blood and to
improve  certain  blood  transfusion  procedures.  The  Company's  current blood
filtration  product  ("r\LS  System") is designed  for use by blood  centers and
hospital blood banks worldwide.

      From the  Company's  inception  through the first  quarter of fiscal 1996,
HemaSure had sold non-blood  related filter products  primarily to Sepracor Inc.
("Sepracor"),  a related  party,  for use in chemical  processing  applications.
Subsequently  and throughout  1997,  the Company's  revenue was derived from the
commercial  sales of its  LeukoNet  System,  a medical  device  designed for the
removal of  contaminating  leukocytes  from donated blood. In February 1998, the
Company determined to discontinue manufacturing the LeukoNet System and focus on
the completion of development and market introduction of its next generation red
cell filtration product. In May 1999, the Company received 510(k) clearance from
the U.S. Food and Drug  Administration  ("FDA") to market its r\LS System in the
United States.

      The Company initiated sales of the r\LS System in the United States in the
third quarter  1999.  In April 2000,  the Company was notified that the American
Red Cross ("ARC"),  the Company's  largest  customer,  was suspending use of the
Company's r\LS System pending the outcome of an  investigation of a small number
of non-critical  adverse reactions in patients who had received a transfusion of
blood  filtered with the r\LS. In September  2000, the Company was notified that
the ARC terminated its supply contract for the r\LS System based on the extended
period of time taken to prove product improvements resolved these reactions.  In
March 2001, the Company signed a termination  and release  agreement with Gambro
BCT, effective November 2000, which ended their exclusive distribution rights of
the r\LS.

      The  Company  is  subject  to risks  common to  companies  in the  medical
technology industry,  including,  but not limited to, development by the Company
or  its  competitors  of  new  technological  innovations,   dependence  on  key
personnel, protection of proprietary technology, and compliance with regulations
of the FDA and similar foreign regulatory authorities and agencies.

      Since its  inception,  the  Company  has  suffered  recurring  losses from
operations  and, as of December 31, 2000, had an  accumulated  deficit of $101.4
million.  Other than the Company's r\LS System, all of its planned blood-related
products  are in the  research  and  development  stage,  and  certain  of these
products that may require  pre-clinical and clinical testing prior to submission
of any regulatory application for commercial use.

      The accompanying  financial statements have been prepared on a basis which
assumes that the Company will continue as a going concern and which contemplates
the realization of assets and the satisfaction of liabilities and commitments in
the normal course of business. The termination and cancellation of the Company's
distribution  and sales  agreements  respectively and the losses from operations
raise  substantial  doubt with respect to the Company's ability to continue as a
going concern.  Management's plans with regard to these matters include the sale
of the non-cash assets of the Company as described  below.  Although  management
continues to pursue this plan,  there is no  assurance  that the Company will be
successful in obtaining  shareholder  approval.  The financial statements do not
include  any   adjustments   that  might   result  from  the  outcome  of  these
uncertainties

Sale of the non-cash assets of the Company

      On February 3, 2001, the Company agreed to sell  substantially  all of the
Company's   non-cash  assets  to  Whatman   Bioscience   Inc.,  a  Massachusetts
corporation  ("Whatman"),  a wholly owned  subsidiary of Whatman plc, an English
corporation ("Whatman plc") pursuant to the terms of an Asset Purchase Agreement
("Purchase Agreement") executed by the two companies.


                                    F - 7


<PAGE>

      Following   approval  and  adoption  of  the  Purchase  Agreement  by  the
Stockholders  of the Company  and the  satisfaction  or waiver of certain  other
conditions,  the Company will sell  substantially  all of its non-cash assets to
Whatman.  Under the terms of the Purchase  Agreement,  the  consideration  to be
received by the Company for the Asset Sale (the "Consideration") will consist of
(1) $10 million in cash,  which will be paid to the Company at the Closing;  (2)
an  additional  payment by  Whatman,  in cash or common  stock of Whatman plc at
Whatman's option, which effectively reimburses the Company for its net operating
costs and expenses incurred in connection with the Company's business during the
period  beginning  on  November 1, 2000 and ending on the  Closing  Date,  which
amount is currently  anticipated to be  approximately $4 million and is expected
to be paid to the Company in the second quarter of 2001; and (3) a royalty of 4%
on sales by  Whatman,  Whatman  plc or their  affiliates  of certain  filtration
products,  including  products  that utilize the Company's  technology,  up to a
total  royalty of $12 million,  subject to certain  reductions  described in the
Royalty  Agreement,  which include the offset of certain  potential  liabilities
associated  with the Company's  patent  litigation  with Pall  Corporation  that
Whatman will assume.  Accordingly,  the total amount of the  Consideration to be
paid by Whatman to the Company will be approximately  $13 million to $25 million
in cash or cash and common stock of Whatman plc.

      Under the terms of the  Purchase  Agreement,  Whatman  will  assume and be
legally responsible for certain liabilities of the Company, and Whatman plc will
guarantee  Whatman's  obligation  to pay the  Consideration  to the Company.  In
addition,  in the event that Whatman elects to pay the  approximately $4 million
reimbursement  portion of the  Consideration  in shares of Whatman  plc's common
stock, the Purchase Agreement provides that Whatman plc will guarantee a minimum
per share price to the Company of $4.3864  with  respect to any share of Whatman
plc's common  stock  resold by the Company  within 60 days after such shares are
issued to the  Company.  The  Company  currently  anticipates  that any share of
Whatman  plc's  common stock issued to the Company will be resold by the Company
within 60 days of the issuance to the Company of such share.

      The  Company  has the right to  terminate  the  Purchase  Agreement  under
certain circumstances,  including if the Board of Directors determines, upon the
written  opinion of the  Company's  counsel,  that the failure to terminate  the
Purchase Agreement could be expected to be a breach of, or be inconsistent with,
the  fiduciary  duties of the Board of Directors  under  applicable  law. In the
event of termination  for the foregoing  reason,  the Company is required to pay
Whatman a fee of $500,000 upon the termination of the Purchase Agreement.

      The obligations of the Company,  Whatman and Whatman plc to consummate the
Asset Sale are subject to a number of  customary  conditions,  including,  among
others,  approval and adoption of the Purchase Agreement by the affirmative vote
of the holders of a majority of the outstanding Shares entitled to vote thereon.

      It is  currently  anticipated  that the  Closing  Date will occur on or as
promptly as  practicable  following  the  approval  and adoption of the Purchase
Agreement by the  Stockholders of the Company and the  satisfaction or waiver of
all of the other  conditions set forth in the Purchase  Agreement.  Either party
may  terminate  the Purchase  Agreement if the closing does not occur by May 31,
2001.  Accordingly,  there can be no  assurance  as to if or when the Asset Sale
will be consummated.

      Upon  closing of the  Purchase  Agreement  with  Whatman,  the  Company is
expected to have  approximately  $17.5  million in a combination  of cash,  cash
equivalents,  marketable securities and Whatman plc stock (based on current cash
and marketable  securities  levels,  the Company's  expected "burn rate" through
closing and the terms of the Purchase Agreement). In that regard, the Company is
in the preliminary stages of considering various strategic business combinations
and other  transactions with a view toward further  enhancing  stockholder value
following the consummation of the sale of its assets and business to Whatman.

      In the event that the Asset Sale does not occur, the Company will consider
other  business  alternatives,  including  but not  limited  to  other  business
combinations and a liquidation of the Company's assets.  Given that any proceeds
from any such  liquidation and any other cash on hand would be first used to pay
the  Company's  creditors  and  outstanding  payables,  and given  certain legal
requirements that the Company maintain certain cash on hand for certain mandated
time  periods,  there is no assurance as to when,  if ever,  any proceeds from a
liquidation  would be  distributed  to the  Company's  Stockholders.  In certain
instances,  if the Purchase Agreement is terminated,  the Company will pay Buyer
certain fees.


                                    F - 8

<PAGE>

B.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation

      The consolidation financial statements include the accounts of the Company
and its  subsidiaries.  All significant  intercompany  transactions and balances
have  been  eliminated.  Certain  reclassifications  have been made to the prior
years  consolidated  financial  statements  to conform to current  presentation.
These  reclassifications  have no effect on the Company's  financial position or
results of operations.

Cash and Cash Equivalents

      The Company  considers all demand deposits,  money market  instruments and
repurchase  agreements  to be cash and cash  equivalents.  Cash  equivalents  of
$1,221,000  and  $4,743,000  and at December  31,  2000 and 1999,  respectively,
consist of repurchase  agreements  with a commercial  bank. The carrying  amount
approximates fair value because of the short maturity of those instruments.

Marketable Securities

      Management determines the appropriate classification of its investments in
debt and equity  securities at the time of purchase.  At December 31, 2000,  all
marketable  securities were classified as available for sale and carried at fair
value,  with the  unrealized  gains and losses,  if any,  reported as a separate
component of stockholders'  equity. The Company held no marketable securities at
December 31, 1999 and 1998.

      The amortized cost of debt securities classified as available for sales is
adjusted for accretion of discounts to maturity.  Such  accretion is included in
interest  income.  Realized  gains and losses are  included  in other  income or
expense.  The cost of  securities  sold is based on the specific  identification
method.

      The fair value of available for sale marketable securities at December 31,
2000 was $5,463,000 and represented Commercial Paper and United State Government
Agency Obligations of $2,488,000 and $ 2,975,000, respectively.

      The  Company's  policy when  applicable  is to  diversify  the  investment
portfolio to reduce exposure of principal to credit and investment  sector risk.
At  December  31,  2000,  investments  were placed with a variety of high credit
quality financial institutions or other issuers.

Inventories

      Inventories  are  stated at the  lower of cost  (first-in,  first-out)  or
market.

Property and Equipment

      Property and  equipment are stated at cost.  Costs of major  additions and
betterments are  capitalized;  maintenance and repairs,  which do not improve or
extend  the  life of the  respective  assets,  are  charged  to  operations.  On
disposal,  the related cost and  accumulated  depreciation  or  amortization  is
removed  from the  accounts  and any  resulting  gain or loss is included in the
results of operations.  Depreciation is computed using the straight-line  method
over the estimated useful lives of the assets. All laboratory, manufacturing and
office equipment have estimated useful lives of three to 10 years.

Revenue Recognition

      The Company  recognizes  revenue from product sales upon transfer of title
to its customers,  typically upon  shipment.  The Company  accrues for estimated
warranty  costs,  sales  returns,  and other  allowances at the time of shipment
based on its experience.


                                    F - 9



<PAGE>

Research and Development

      Research and development costs are expensed in the year incurred.

Net Loss Per Share

      The Company follows Statement of Financial  Accounting  Standards No. 128,
"Earnings Per Share" ("SFAS 128"), which established standards for computing and
presenting earnings per share ("EPS"). Net loss per common share is based on the
weighted  average  number  of shares of common  stock  outstanding  during  each
period. Potential common stock has not been included because the effect would be
antidilutive.  The potential common stock of the Company consist of common stock
warrants  (see  Notes M and H),  stock  options  (see Note K). The  Company  had
4,920,000,  4,757,000 and 4,214,000 potential common stock shares as of December
31, 2000, 1999, and 1998, respectively.

Income Taxes

      Deferred  income  taxes are  accounted  for under the asset and  liability
method.  Deferred tax assets and  liabilities  reflect the estimated  future tax
consequences  attributable  to  tax  benefit  carryforwards  and  to  "temporary
differences"  between amounts of assets and liabilities for financial  reporting
purposes  and such  amounts as  measured  by tax laws.  A  valuation  reserve is
established  if it is more likely than not that all or a portion of the deferred
tax asset will not be realized.

      Net operating losses of the Company incurred while operating as a division
of Sepracor are not available for carryforward because the Company's results for
those periods were included in the tax returns of Sepracor.  Additionally, based
upon the Internal Revenue Code and changes in company ownership,  utilization of
the Company's net operating loss may be subject to an annual limitation.

Comprehensive Income

      For all periods  presented,  net income and  comprehensive  income are the
same due to the realization of all previously unrealized gains and losses in the
statement of operations.

New Accounting Standards

      In December 1999, the  Securities and Exchange  Commission  ("SEC") issued
SAB No. 101,  "Revenue  Recognition in Financial  Statements," as amended by SAB
101A and 101B,  which is effective no later than the quarter ended  December 31,
2000.  SAB No. 101  clarifies  the SEC's  views  regarding  the  recognition  of
revenue. The Company adopted SAB No. 101 in fiscal 2000. The adoption of SAB No.
101 did not have a  significant  impact on the Company's  financial  position or
results of operations.

      In September  2000, the FASB issued SFAS No. 140 "Accounting for Transfers
and  Servicing  of  Financial  Assets  and   Extinguishments  of  Liabilities--a
replacement  of FASB  Statement  No.  125"  ("SFAS  140").  SFAS 140 revises the
standards for accounting for  securitizations  and other  transfers of financial
assets and collateral and requires certain disclosures, but it carries over most
of SFAS 125's provisions  without  reconsideration.  This Statement is effective
for  transfers  and  servicing  of  financial  assets  and   extinguishments  of
liabilities  occurring  after March 31, 2001.  This  Statement is effective  for
recognition and  reclassification of collateral and for disclosures  relating to
securitization  transactions  and  collateral  for  fiscal  years  ending  after
December 15, 2000. The Company is currently analyzing this new standard.

      In March  2000,  the FASB  issued  FASB  Interpretation  ("FIN")  No.  44,
"Accounting  for  Certain  Transactions   Involving  Stock  Compensation  --  an
Interpretation  of APB Opinion No. 25." FIN No. 44 primarily  clarifies  (a) the
definition  of an employee  for purposes of applying APB Opinion No. 25, (b) the
criteria for determining whether a plan qualifies as a noncompensatory plan, (c)
the accounting  consequence of various  modifications to the terms of previously
fixed  stock  option  awards and (d) the  accounting  for an  exchange  of stock
compensation  awards in a business  combination.  The adoption of FIN No. 44 did
not have a significant impact on the Company's  financial position or results of
operations.

                                    F - 10


<PAGE>

      In June 1998, the Financial  Accounting  Standards  Board ("FASB")  issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended by SFAS No.  137 and SFAS No.  138,  which  establishes  accounting  and
reporting  standards for  derivative  instruments  and hedging  activities.  The
standard requires that the Company recognize all derivatives as either assets or
liabilities  on the balance sheet and measure those  instruments  at fair value.
The Company, to date, has not engaged in derivative and hedging activities,  and
accordingly  does not  believe  that the  adoption  of SFAS No.  133 will have a
material impact on its financial statements and related disclosures. The Company
will  adopt  SFAS No.  133 as amended by SFAS No. 137 and SFAS No. 138 in fiscal
year 2001.

Use of Estimates in the Preparation of Financial Statements

      The  preparation  of financial  statements  in conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of contingent  assets and  liabilities  at December 31, 2000 and 1999
and the  reported  amounts of  revenues  and  expenses  during  the years  ended
December  31,  2000,  1999 and 1998.  Actual  results  could  differ  from those
estimates.

C.    ACCOUNTS RECEIVABLE:

      The Company's 2000 and 1999 trade receivables  primarily represent amounts
due for product sales. The allowance for doubtful  accounts was $0 and $5,000 at
December 31, 2000 and 1999, respectively.

      The Company  performs  ongoing  credit  evaluations  of its  customers and
generally does not require collateral.

D.    INVENTORIES:

      Inventories consist of the following at December 31:

(In thousands)                                    2000         1999
                                                  ----         ----
Raw materials                                  $ 2,200         $393
Work in Progress                                    78          401
Finished goods                                       7           12
                                               -------       ------
                                               $ 2,285         $806
                                               =======         ====

E.    PROPERTY AND EQUIPMENT:

      Property and equipment consist of the following at December 31:

(In thousands)                                    2000         1999
                                                  ----         ----
Laboratory and manufacturing equipment          $1,430       $1,835
Leased   laboratory   and   manufacturing
                                equipment            -          149
Office equipment                                   704          858
Leasehold improvements                             858          772
                                               -------       ------
                                                 2,992        3,614

Accumulated depreciation and amortization      (1,759)      (2,324)
                                               -------      -------

                                                 1,233        1,290
Construction in progress                           617          257
                                                ------       ------

                                               $ 1,850       $1,547
                                               =======       ======


                                    F - 11


<PAGE>

      Depreciation and amortization expense was $636,000, $475,000 and $391,000,
in 2000,  1999 and 1998,  respectively.  In 2000, the Company  recorded to other
operating expense a $425,000 charge related to the fixed asset write-down of two
production units to their net scrap value, as they will no longer be used in the
manufacturing process.

      Accumulated amortization of assets under lease was $106,000 for the period
ended December 31, 1999.

F.    ACCRUED EXPENSES AND COMMITMENTS AND CONTINGENCIES:

      Accrued expenses consist of the following at December 31:

(In thousands)                       2000         1999
                                     ----         ----
Employee Compensation                $ 91         $189
Professional fees                     428          155
Interest on notes payable               -           41
Customer refunds                      664          175
Services                               12          678
Miscellaneous                         194          282
                                   ======       ======

                                   $1,389       $1,520

      In the event of a termination of the Purchase Agreement with Whatman,  the
Company is required to pay Whatman a fee of $500,000.

      In January 1997, the Company entered into a  Restructuring  Agreement with
respect to the  indebtedness  incurred  by the  Company in  connection  with its
acquisition of the plasma pharmaceutical business unit of Novo Nordisk. Pursuant
to the Restructuring Agreement,  approximately  $23,000,000 of indebtedness owed
to Novo  Nordisk  was  restructured  by way of  issuance  by the Company to Novo
Nordisk of a 12%  convertible  subordinated  promissory  note for a net  amount,
after  certain  reductions  and  the  forgiveness  of a  $3,000,000  amount,  of
$8,687,000.  On January 6, 1998, the Company converted the note, pursuant to its
terms, into shares of Common Stock at a conversion price of $10.50 per share, or
827,375 shares. The holder of the note initially contested the conversion of the
note,  however,  in March 2001, the holder  surrendered the note consistent with
the terms of the Resructuring Agreement.

G.    LEASE OBLIGATIONS:

      The Company  leased  certain  laboratory,  research  and office space from
Sepracor  through 1995. In 1995, the Company executed a lease for these facility
requirements,  which  commenced in February  1996 and extends  through  February
2004. The lease provides for two five-year  renewal options.  Under the terms of
the lease,  the  Company is  required  to pay its  allocated  share of taxes and
operating costs in addition to the base annual rent.

      The  Company  leased  various   laboratory,   manufacturing  and  computer
equipment under  noncancelable  capital leases.  Terms of arrangements  with the
leasing  company contain  bargain  purchase  provisions at the expiration of the
lease term,  which  range from 36 months to 42 months.  In some  instances,  the
Company was  required to make a deposit of 20% of the original  equipment  cost,
which  earned  interest at an annual rate of 4%. As of December  31,  2000,  all
lease  agreements  have expired and there are no amounts  outstanding  under the
Lease  Agreements.  Under certain  circumstances,  Sepracor was the guarantor of
debt incurred to acquire  equipment under the leasing  facilities.  The interest
rate charged on the Company's capital leases ranges from 14% to 21%.

<PAGE>

      Future  minimum  payments  under  all  noncancelable  leases  in effect at
December 31, 2000 are as follows:

    (In thousands)                           Operating
    Year                                        Leases
    ----                                        ------
    2001                                          $295
    2002                                           306
    2003                                           306
    2004                                            26
    2005 and thereafter                              -
                                                ------
    Total minimum lease payments                  $933
                                                  ----

      The total charged to rent expense for all  noncancelable  leases including
amounts  for  building  maintenance,  utilities  and other  operating  costs was
$872,000, $660,000, and $833,000, in 2000, 1999, and 1998, respectively.

      In  December  1999,  the  Company  entered  into  an  exclusive  five-year
manufacturing  and supply  agreement with a major supplier of a component to the
Company's  product.  The Company  completed two  amendments to this agreement in
both  September and December 2000 in which it agreed to pay Filtertek a total of
$705,000. No commitments have been made to make such payments in the future. The
agreement  contains minimum purchase  requirements in future years, which if not
met could require the Company to purchase  certain  production  equipment of the
supplier as defined in the agreement.  The supplier,  under certain  conditions,
will acquire such  equipment  during  fiscal years 2000 and 2001.  The agreement
also contains  provisions  under which the agreement could become  non-exclusive
under certain  conditions as defined in the agreement and for  extensions of the
term of the agreement.

H.    NOTES PAYABLE:

      Notes payable consist of the following at December 31:

(In thousands)                           2000           1999
                                         ----           ----
Leasehold improvements financing          $43        $    73
Revolving line of credit                    -          5,000
                                      -------         ------
                                           43          5,073
Less current portion                       34          5,030
                                           --          -----
                                          $ 9        $    43
                                          ===        =======

      In March 1997, the Company exercised its right, under the lease, to have a
portion  of  its  leasehold  improvements  financed  and  received  $140,000  in
connection with this arrangement. This amount will be repaid in 60 equal monthly
installments with an interest rate of 12% per annum.

      In September  1998, the Company  completed a $5 million  revolving line of
credit arrangement with a commercial bank. In September 2000, the revolving line
of  credit  expired  and was  repaid  by the  Company  in  accordance  with  the
agreement.  The  revolving  line of credit  was being used to help  finance  the
Company's  working  capital  requirements  and for general  corporate  purposes.
Amounts  borrowed  under the line bear interest at the bank's prime lending rate
plus 1/2% payable monthly in arrears.  For the year ended December 31, 2000, the
Company  recorded  interest  expense  related  to  borrowings  under the line of
$322,000.

      Sepracor guaranteed to repay amounts borrowed under the line of credit. In
exchange for the guarantee, the Company granted to Sepracor warrants to purchase
up to  1,700,000  shares of the  Company's  common stock at a price of $0.69 per
share.  The warrants will expire in the year 2003 and have certain  registration
rights  associated  with  them.  HemaSure  placed a value of  $1,938,000  on the
1,700,000  warrants as of the date of the final  agreement  and  amortized  this
deferred  financing  charge  on a  monthly  basis  over  the term of the line of
credit.  For the periods ended December 31, 2000 and 1999 the Company  amortized
$725,000 and  $1,024,000,  respectively,  of this  deferred  finance  charge and
recorded it as interest expense in the Statement of Operations.

                                    F - 13

<PAGE>

I.    SEGMENT INFORMATION:

      The Company operates exclusively in the blood filtration  business,  which
the Company considers to be one business segment.

      Revenue from significant customers are as follows:


Year Ended December 31:               2000        1999           1998
                                      ----        ----           ----
American Red Cross                     50%         66%            53%
Gambro, Inc.                           49%         33%              -
Other                                   -           -             10%

J.    STOCKHOLDERS' EQUITY:

      In March  2000,  the  Company  completed  a  private  placement  financing
yielding  gross  proceeds  of  $27,975,000  in  which  institutional   investors
purchased  3,730,000 shares of its common stock at a purchase price of $7.50 per
share.  The  Company has  registered  2,551,320  of such shares for resale.  The
Company has used the  majority  of the net  proceeds  of such  financing,  which
aggregated  $25,791,000,  for working  capital,  capital  equipment  and general
corporate purposes.

      In March 1999, the Company  completed a private  placement  financing with
Sepracor in which the Company  received  $2,000,000  in exchange  for  1,333,334
shares of the  Company's  common  stock and  warrants to purchase an  additional
667,000  shares of common stock at $1.50 per share.  The warrants will expire in
the year 2004 and have certain  registration  rights  associated  with them.  In
certain  circumstances,  the Company is entitled to require Sepracor to exercise
these warrants.

      On May 3, 1999, the Company completed a private  placement  financing with
Gambro Inc.  ("Gambro").  The stock  subscription  agreement,  which the Company
entered  into with Gambro in  connection  with this  financing,  provided for an
initial investment of $9,000,000 in exchange for 4,500,000 shares of the Company
common stock.  The stock  subscription  agreement  also provided  Gambro with an
option to purchase  additional shares of the Company's common stock for up to an
aggregate  purchase  price of $3,000,000 at any time between  August 3, 1999 and
May 3, 2000 with the price per share of common stock to be based upon the market
price of the Company's  common stock.  In October 1999,  Gambro  exercised  this
option in full. In connection with the exercise of this option, Gambro purchased
498,355  shares at a price of $6.02 per  share.  The price and  number of shares
reflected the average  price of the Company's  stock in the 30 days prior to the
exercise  date of  October  5,  1999.  In  March  2001,  the  Company  signed  a
termination and release  agreement with Gambro,  effective  November 2000, which
ended the  distribution  and development  agreement.  In  consideration  for the
Company's  inventory  (net book  value at  December  31,  2000 of  $332,000)  of
products bearing Gambro's company name, and by way of complete resolution of all
issues now outstanding  between the Company and Gambro,  Gambro agreed to return
1,011,692  shares  of  common  stock  with a fair  market  value at  closing  of
$332,000.



K.          STOCK OPTION PLANS:

      Statement of  Financial  Accounting  Standards  No. 123,  "Accounting  for
Stock-Based  Compensation"  ("SFAS No. 123"),  encourages,  but does not require
companies to record  compensation  cost for  stock-based  employee  compensation
plans at fair  value.  The  Company  has  chosen  to  continue  to  account  for
stock-based   compensation  using  the  intrinsic  value  method  prescribed  in
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees,"  and related  interpretations.  Accordingly,  compensation  cost for
stock  options is measured as the excess,  if any, of the quoted market price of
the  Company's  stock at the date of the grant over the amount an employee  must
pay to acquire the stock.

      The Company has two stock  options  plans  currently in effect under which
future  grants may be issued:  The 1994 Stock Option Plan,  as amended,  and the
1994 Director Option Plan, as amended  (collectively,  the


                                    F - 14

<PAGE>


"Plans").  A total of 3,528,400 shares have been  authorized  by the Company for
grants of options or shares,  of  which  410,400  are still available for grant.
Stock options granted during 2000 and 1999  generally have a maximum term of ten
years and vest ratably over a period of two to five years.

      A summary of the  Company's  stock  option  activity  for the years  ended
December 31 follows:
                                   Number of Options     Weighted Average
                                      (In thousands)       Exercise Price
--------------------------------------------------------------------------

Outstanding at December 31, 1997               2,019                $3.25
Granted                                        2,029                $0.72
Exercised                                          -                    -
Terminated                                   (1,534)                $3.06
                                             -------                -----

Outstanding at December 31, 1998               2,514                $1.31
Granted                                          302                $5.27
Exercised                                      (363)                $2.02
Terminated                                      (63)                $0.94
                                                ----                -----

Outstanding at December 31, 1999               2,390                $1.72
Granted                                          357                $4.62
Exercised                                      (110)                $1.45
Terminated                                      (84)                $5.22
                                                ----                -----

Outstanding at December 31, 2000               2,553                $2.03
                                               =====                =====

      The following  table  summarizes the status of the Company's stock options
at December 31, 2000:

      OPTIONS OUTSTANDING                           OPTIONS EXERCISABLE
-------------------------------------------       ----------------------

<TABLE>
<CAPTION>

                                              Weighted     Weighted      Number        Weighted
                               Number          Average     Average     Exercisable      Average
                           Outstanding As    Remaining     Exercise       As of        Exercise
                            Of 12/31/00       Contractual    Price       12/31/00        Price
Range of Exercise Prices   (In thousands)         Life                (In thousands)
------------------------   --------------    -----------   --------    --------------   -------
<S>                            <C>              <C>         <C>          <C>            <C>

  $  .63  -  $  .94            1,490            7.1         $ .64         727           $  .64
  $ 1.25  -  $ 1.75              288            7.5         $1.27         118           $ 1.29
  $ 2.00  -  $ 2.12              157            5.1         $2.04         107           $ 2.00
  $ 3.22  -  $ 4.88               57            6.7         $3.77          38           $ 3.75
  $ 5.00  -  $ 5.94              523            9.0         $5.30          53           $ 5.60
  $12.38  -  $16.25               38            5.3        $14.35          34           $14.57
                               -----            ---        ------         ---           ------
                               2,553            7.4        $ 2.03       1,077           $ 1.65
</TABLE>

      The  weighted  average  grant date fair value for options  granted  during
2000,  1999 and 1998 was $3.12,  $3.57 and $0.49 per option,  respectively.  The
fair  value  of  these  options  at  date  of  grant  was  estimated  using  the
Black-Scholes  model with the following  weighted average  assumptions for 2000,
1999  and  1998:  risk-free  interest  rate  of  5.5%;  dividend  yields  of 0%;
volatility  factor of the market price of the Company's common stock of 75%; and
a weighted average expected life of the options of 5.5 years.

      During 1994 and prior to the Company's initial public offering, options to
purchase  482,000  shares of common  stock  were  granted  under the Plans at an
exercise  price of $2.00 per share.  The estimated fair market value on the date
of grant was $4.00 per share.  The Company  recorded  compensation  expense from
1994 through 1998, which expense was $89,000 in 1998.


                                    F - 15



<PAGE>

      In 1995,  the Company  adopted the 1995 Employee  Stock Purchase Plan (the
"Stock Purchase  Plan").  Under the Stock Purchase Plan, an aggregate of 500,000
shares of common  stock may be  purchased by employees at 85% of market value on
the first or last day of each six -month  offering  period,  whichever is lower,
through   accumulation  of  payroll   deductions  ranging  from  1%  to  10%  of
compensation as defined, subject to certain limitations.  Options were exercised
to  purchase  240,117  shares  for a total of  $159,000  during  the year  ended
December  31,  2000 and 41,071  shares for a total of  $117,000  during the year
ended  December 31, 1999.  At December 31, 2000,  51,280  shares of common stock
were reserved for future issuance under the plan.

      Had compensation cost for the Company's stock option plans been determined
based on the fair  value at the grant  date for  awards  in 2000,  1999 and 1998
consistent  with the  provisions of SFAS No. 123, the Company's net loss and net
loss per share would have been reduced to the pro forma amounts indicated below.
The  application  of SFAS No. 123 to the employee  stock purchase plan would not
result in a  significant  difference  from  reported net income and earnings per
share.

(In thousands; except per share amounts)         2000         1999        1998
                                                 ----         ----        -----
Net loss - as reported                      $(16,223)    $(10,665)  $ (12,170)

Net loss - pro forma                        $(17,062)    $(11,274)  $ (12,610)

Net loss per share - as reported - basic
and diluted                                 $  (0.85)    $  (0.77)  $   (1.35)

Net loss per share - pro forma - basic
and diluted                                 $  (0.90)     $ (0.82)  $   (1.40)

      The pro  forma  effect  on net  income  for  2000,  1999  and  1998 is not
representative  of the pro forma effect on net income in future years because it
does not take into  consideration  pro forma  compensation  expense  related  to
grants made prior to 1995 or anticipated future option activity.

      In connection with the initial public offering, the Company granted to the
underwriter an option to purchase  217,500 shares of common stock at an exercise
price equal to 150% of the initial  public  offering price or $10.50 and subject
to adjustment in certain  circumstances.  The option was exercisable at any time
or from time to time after April 14, 1995 and before April 14, 1999.  The option
was not exercised.

L.    INCOME TAXES:

      The components of the Company's deferred tax assets and liabilities are as
follows at December 31:

 (In thousands)                                          2000             1999
                                                         ----             ----
Deferred taxes:
         Net operating loss carryforwards             $35,747          $31,315
         Research and development expense
                              capitalization            5,180            4,392
         Tax credit carryforwards                       1,632            1,235
         Inventory reserves                               803               20
         Deferred compensation                            285              285
         Accrued charges not paid                         527              512
         Other                                              -                7
         Property and equipment                           214                1
                                                     --------         --------
                                                       44,388           37,767
Valuation allowance                                  (44,388)         (37,767)
                                                     --------         --------
Net deferred taxes                                   $      -         $      -
                                                     ========         ========

      Due to the  uncertainty  surrounding  the realization of the favorable tax
attributes in future tax returns,  the Company has placed a valuation  allowance
against its otherwise recognizable net deferred tax assets.

      The  Company's  statutory  and  effective  tax  rates  were  34%  and  0%,
respectively,  for 2000 and  1999.  The  effective  tax rate was 0% due to a net
operating  loss  and the  non-recognition  of any net  deferred  tax  asset.  At

                                    F - 16



<PAGE>

December  31,  2000,  the Company had federal and state tax net  operating  loss
carryforwards   ("NOLs")   of   approximately   $85,000,000   and   $73,000,000,
respectively,  to offset future regular taxable earnings.  The federal and state
NOLs begin to expire in 2009 and 2001.  Approximately  $7,000,000  of state NOLs
expired in 2000. The Company has federal and state research and  development tax
credits of approximately $890,000 and $680,000,  respectively,  which both begin
to expire in 2009. The Company has a state investment tax credit carryforward of
approximately $50,000, of which approximately $6,900 expired in 2000.

M.    AGREEMENTS:

      In January 2000, the Company entered into a  non-exclusive  agreement with
Command Medical Products,  Inc. ("Command"),  to (i) act as its manufacturer and
supplier of dry bags used in its r\LS System and (ii)  assemble the filters used
in its r\LS System,  subject to certain terms and conditions.  In December 2000,
the Company agreed to pay Command $600,000 in connection with the termination of
its supply and assembly agreement and release.

      In  December  1999,  the  Company  entered  into  an  exclusive  five-year
manufacturing and supply agreement with Filtertek,  Inc. ("Filtertek"),  a major
supplier of a component to the  Company's  product.  The Company  completed  two
amendments  to this  agreement in both  September  and December 2000 in which it
agreed to pay Filtertek a total of $705,000.  No  commitments  have been made to
make such  payments in the  future.  The  agreement  contains  minimum  purchase
requirements  in future  years,  which if not met could  require  the Company to
purchase  certain  production  equipment  of  the  supplier  as  defined  in the
agreement. The supplier,  under certain conditions,  will acquire such equipment
during fiscal years 2000 and 2001. The agreement also contains  provisions under
which the  agreement  could become  non-exclusive  under  certain  conditions as
defined in the agreement and for extensions of the term of the agreement.

      In July 1999, the Company  entered into a master  purchase  agreement with
the ARC that  provides for the sale of the r\LS System by the Company to the ARC
on specified  terms.  In April 2000,  the Company was notified that the ARC, the
Company's  largest  customer,  was  suspending  use of the Company's r\LS System
pending  the  outcome  of an  investigation  of a small  number of  non-critical
adverse  reactions in patients who had received a transfusion  of blood filtered
with the  r\LS.  In  September  2000,  the  Company  was  notified  that the ARC
terminated its supply  contract for the r\LS System based on the extended period
of time  taken to prove  product  improvements  resolved  these  reactions.  The
Company and the American Red Cross are currently  negotiating  a termination  of
the purchase  contract and a release of any and all claims that either party may
have against the other, with certain exceptions.

      In August  1998,  the Company  completed  an amended and  restated  Master
Strategic  Alliance Agreement with the ARC BioMedical  Services,  which provides
for,  among  other  things,  the  development  and  enhancement  of a number  of
filtration products, based on the Company's core technology. The agreement has a
term of  five  years,  unless  previously  terminated,  and  can be  renewed  or
extended.  In  connection  with this  agreement,  the ARC is eligible to receive
warrants  to  purchase  common  stock of the  Company up to a maximum of 400,000
shares  based  on  certain  milestones  and at a price of $1.51  per  share,  as
determined  at the date of this  agreement.  As of December 31, 2000 no warrants
have been issued under this Agreement.

      In 1998, the Company  completed a distribution and development  agreement,
which was  amended in May 1999,  with Gambro to act as the  Company's  exclusive
distributor of the Company's r\LS System worldwide, except for sales to the ARC.
In March 2001,  the Company  signed a  termination  and release  agreement  with
Gambro  BCT,   effective   November  2000,  which  ended  the  distribution  and
development  agreement.  In March 2001,  the Company  signed a  termination  and
release  agreement  with  Gambro,  effective  November  2000,  which  ended  the
distribution  and  development  agreement.  In  consideration  for the Company's
inventory (net book value at December 31, 2000 of $332,000) of products  bearing
Gambro's  company  name,  and by way of  complete  resolution  of all issues now
outstanding  between the Company and Gambro,  Gambro agreed to return  1,011,692
shares of common stock with a fair market value at closing of $332,000.

      As of  March  2,  2001,  Gambro  owned  31% of the  Company's  issued  and
outstanding  Common  Stock.  Effective  with the return of  1,011,692  shares of
common stock by Gambro in connection with the termination and


                                    F - 17



<PAGE>

release of the supply and development agreement between the Company  and Gambro,
Gambro will own 27% of the issued and outstanding common stock of the Company.

      Under a Technology Transfer and License Agreement, Sepracor transferred to
the Company all  technology  owned or  controlled by Sepracor,  including  trade
secrets,  patents  and  patent  applications,  that  relates  to and is  used in
researching,  developing  or  manufacturing  products  in the  Company  Field as
defined in the agreement.  Further, Sepracor granted an exclusive license to the
Company  for  any  improvements  to  the  transferred  technology,   which  were
developed, or otherwise acquired, by Sepracor during the period beginning on the
date of the  Technology  Transfer and License  Agreement and  terminating on the
earlier of January 1, 1998 or the  acquisition  of Sepracor or the Company  (the
"Effective Period"). The Company granted to Sepracor an exclusive license to the
transferred  technology  for the  development,  manufacture,  use or sale of any
products  within  the  field of chiral  synthesis,  chiral  separations  and the
development,   manufacture,  use  or  sale  of  chiral  drugs  and  chiral  drug
intermediates,  as well as a non-exclusive license to the transferred technology
for the  development,  manufacture,  use or sale of any products  outside of the
Company Field. All licenses were royalty-free. Sepracor also granted the Company
a right of first  refusal to any product,  which  Sepracor  proposed to sell, or
license a third party to sell during the  Effective  Period,  for use within the
Company Field.

      In  addition,  beginning  in April 1998,  Sepracor was entitled to certain
rights with respect to the  registration  under the  Securities  Act of 1933, as
amended,  of a  total  of  3,000,000  shares  of  common  stock  related  to the
technology  transfer  and  establishment  of the Company in 1993.  These  rights
provide that  Sepracor may require the Company,  on two  occasions,  to register
shares having an aggregate  offering  price of at least  $5,000,000,  subject to
certain conditions and limitations.

      In September  1998,  the Company  obtained a $5 million  revolving line of
credit  arrangement with a commercial  bank.  Sepracor  guaranteed  repayment of
amounts  borrowed under the line of credit.  In exchange for the guarantee,  the
Company granted to Sepracor  warrants to purchase up to 1,700,000  shares of the
Company's  common stock at a price of $0.69 per share.  The warrants will expire
in the year 2003 and have certain  registration  rights associated with them. In
September  2000,  the  revolving  line of  credit  expired  and  the $5  million
outstanding  was repaid by the Company in accordance  with the  agreement.  (See
Note H.)

      In March 1999, the Company  completed a private  placement  financing with
Sepracor in which the Company  received  $2,000,000  in exchange  for  1,333,334
shares of the  Company's  common  stock and  warrants to purchase an  additional
667,000  shares of common stock at $1.50 per share.  The warrants will expire in
the year 2004 and have certain  registration  rights  associated  with them.  In
certain  circumstances,  the Company is entitled to require Sepracor to exercise
these warrants.

      As of March 2,  2001,  Sepracor  owned  22% of the  Company's  issued  and
outstanding  Common  Stock.  Effective  with the return of  1,011,692  shares of
common stock by Gambro in  connection  with the  termination  and release of the
supply and development  agreement between the Company and Gambro,  Sepracor will
own 23% of the issued and outstanding common stock of the Company.

N.    EMPLOYEES' SAVINGS PLAN:

      The Company has a 401(k) plan for all  employees.  Under the provisions of
the plan,  employees may voluntarily  contribute up to 15% of their compensation
subject to statutory  limitations.  In addition, the Company can make a matching
contribution  at its  discretion.  In 1999 the  Company  provided  approximately
$40,000 of matching  contributions.  There were no employer contributions to the
plan in 2000.

O.    LITIGATION:

      The  Company  is a  defendant  in a lawsuit  brought  by Pall  Corporation
("Pall")  regarding the Company's  LeukoNet  System,  which is no longer made or
sold by the Company.  In a complaint  filed in November 1996,  Pall alleged that
the  manufacture,  use and/or sale of the  LeukoNet  System  infringed  upon two
patents held by Pall.  Pall dropped its allegations  concerning  infringement of
one of the patents and alleges only that the LeukoNet  System  infringed  Pall's
U.S. Patent No. 4,952,572 (the "'572 Patent").

                                    F - 18



<PAGE>

      With respect to the  allegations  concerning the '572 Patent,  the Company
answered the  complaint  stating that the LeukoNet  System does not infringe any
claim  of  the  asserted  patents.   Further,  the  Company  counterclaimed  for
declaratory judgment of invalidity,  noninfringement and unenforceability of the
'572 Patent.  Pall amended its complaint to add Lydall,  Inc.,  whose subsidiary
supplied  the filter  media for the  LeukoNet  System,  as a  co-defendant.  The
Company filed for summary judgment of non-infringement, and Pall cross-filed for
summary judgement of infringement at the same time.  Lydall,  Inc. supported the
Company's  motion for summary judgment of  non-infringement,  and filed a motion
for summary  judgment that the asserted claims of the '572 patent are invalid as
a matter of law.  Discovery has been  completed in the action.  The Court held a
hearing on the summary  judgment motions on April 18, 2000. No decision has been
made on the motions.

      The Company and Gambro BCT, Inc. filed a complaint for declaratory  relief
against Pall in the United States  District  Court of Colorado.  The Company and
Gambro BCT seek declaratory relief that the '572 Patent,  Pall's U.S. Patent No.
5,451,321 (the "'321 Patent") and Pall's U.S. Patent No.'s 5,229,012, 5,344,561,
5,501,795 and  5,863,436  are invalid and not  infringed by the  Company's  r\LS
System and methods of using the r\LS  System.  Pall moved to dismiss or transfer
to the Eastern District of New York or, in the alternative, to stay this action.
The Company and Gambro BCT opposed Pall's  motion.  On July 16, 1999, the United
States  District  Court of Colorado  denied Pall's motion to transfer or, in the
alternative,  to stay the action. On September 30, 1999, the Court denied Pall's
motion to dismiss the action. On October 20, 1999, Pall submitted a counterclaim
alleging  that the  Company's  r\LS System  infringes  its patents  that are the
subject of the lawsuit and that the Company and Gambro BCT tortiously interfered
and unfairly  competed with Pall's business.  The Company and Gambro BCT replied
to Pall's  counterclaim and denied Pall's allegations of tortious  interference,
unfair competition and patent infringement.

      On July 13,  2000,  Pall filed a Complaint in the United  States  District
Court for the  District of Colorado  against the Company,  Gambro BCT,  Inc. and
Gambro AB alleging that the Company's r\LS system  infringes  Pall's U.S. Patent
No.  6,086,770  (the  "'770  Patent").  On August  11,  2000,  this  action  was
consolidated  with the earlier  declaratory  relief  action in the United States
District Court for the District of Colorado.  The Company,  Gambro BCT, Inc. and
Gambro AB answered the complaint,  denied the  allegations of  infringement  and
submitted a  counterclaim  alleging  that  Pall's  '770  patent is invalid,  not
infringed and  unenforceable.  In September 2000, Pall answered the counterclaim
and denied the allegations of noninfringement,  invalidity and unenforceability.
Discovery is proceeding.

      On December  15,  2000,  Pall filed a complaint  against  Filtertek,  Inc.
("Filtertek")  alleging  that  Filtertek,  a  manufacturer  of the r\LS  filter,
infringes  the  seven  above-mentioned  Pall  patents.  Filtertek  answered  the
complaint on January 31, 2001,  denied Pall's  allegations of  infringement  and
asserted  that the claims of the Pall patents are invalid  and/or  unenforceable
and that Pall is estopped  from  asserting  infringement  against  Filtertek  by
reason of Pall's prior conduct with Filtertek. This action has been consolidated
with the other actions pending in Colorado. Discovery is now ongoing.

      On  December  22,  2000,  Gambro AB and Gambro  BCT moved to  dismiss  the
consolidated actions based on a settlement  agreement with Pall Corporation.  On
January 10,  2001,  the Court  dismissed  the action with  respect to all claims
between Pall, Gambro BCT, and Gambro AB.

      On April 23, 1999,  Pall filed a complaint  against the Company and Gambro
BCT in the Eastern  District of New York alleging that the Company's r\LS System
infringes  Pall's '572  Patent and that the  Company  and Gambro BCT  tortiously
interfered and unfairly  competed with Pall's  business.  On May 19, 1999,  Pall
amended its complaint and added Gambro,  Gambro A.B. and Sepracor as defendants.
The Company  and Gambro BCT have moved to  dismiss,  transfer or stay the action
and Pall has  opposed  the  motion.  On April  18,  2000,  Pall  moved,  without
opposition  from the  defendants,  to dismiss  the action and the Court  granted
Pall's motion.

      A prior lawsuit  brought by Pall in February 1996 has  concluded.  In June
1999, the United States Court of Appeals for the Federal Circuit determined that
the LeukoNet  System did not  infringe  claim 39 of the '321 Patent and Pall has
not appealed that decision.

      The  Company  has  engaged  patent  counsel  to  investigate  the  pending
litigations.  The Company believes, based upon its review of these matters, that
a properly informed court should conclude that the manufacture,  use

                                    F - 19



<PAGE>

and/or sale by the Company or its  customers of the LeukoNet System and the r\LS
System do not infringe any valid enforceable claim of the Pall patents. However,
there can be  no  assurance  that  the  Company  will  prevail  in  the  pending
litigations, and an adverse  outcome in a patent  infringement action would have
a  material and adverse effect on the Company's financial  condition  and future
business and operations, including the possibility of significant damages in the
litigations and an injunction against the sale of the r\LS System if the Company
does not prevail in the litigations.

P.    SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):

                                             Q1 2000  Q2 2000  Q3 2000   Q4 2000
                                             -------  -------  -------   -------
(In thousands, except for share amounts)
Total revenues                                $1,816    $ 643    $ 288     $ 472
Loss from operations                         (3,091)  (3,293)  (4,735)   (4,957)
Net Loss                                    $(3,319) $(3,346) $(4,709)  $(4,849)
Net loss per share basic and diluted         $(0.19)  $(0.17)  $(0.24)   $(0.25)
Weighted average number of shares of          17,039   19,652   19,704    19,773
common stock
      Outstanding - basic and diluted

                                             Q1 1999  Q2 1999  Q3 1999   Q4 1999
                                             -------  -------  -------   -------

Total revenues                                 $   4     $  9    $ 119     $ 673
Loss from operations                         (2,544)  (2,173)  (2,236)   (2,420)
Net Loss                                    $(2,918) $(2,473) $(2,543)  $(2,731)
Net loss per share basic and diluted        $ (0.32) $ (0.17)  $(0.17)   $(0.17)
Weighted average number of shares of           9,221   14,830   15,145    15,782
common stock
      Outstanding - basic and diluted



Q.    SUBSEQUENT EVENTS:

      In March 2001, the Company signed a termination and release agreement with
Gambro,  effective  November 2000,  which ended the distribution and development
agreement.  Gambro cited the  termination of the Company's  supply contract with
ARC and other recent  business  conditions  as the reasons for  terminating  the
agreement.  In  consideration  for the  Company's  inventory  (net book value at
December 31, 2000 of $332,000) of products bearing Gambro's company name, and by
way of complete resolution of all issues now outstanding between the Company and
Gambro,  Gambro  agreed to return  1,011,692  shares of common stock with a fair
market value at closing of $332,000.

      On February 3, 2001, the Company agreed to sell  substantially  all of the
Company's   non-cash  assets  to  Whatman   Bioscience   Inc.,  a  Massachusetts
corporation  ("Whatman"),  a wholly owned  subsidiary of Whatman plc, an English
corporation ("Whatman plc") pursuant to the terms of an Asset Purchase Agreement
("Purchase Agreement") executed by the two companies.

      Following   approval  and  adoption  of  the  Purchase  Agreement  by  the
Stockholders  of the Company  and the  satisfaction  or waiver of certain  other
conditions,  the Company will sell  substantially  all of its non-cash assets to
Whatman.  Under the terms of the Purchase  Agreement,  the  consideration  to be
received by the Company for the Asset Sale (the "Consideration") will consist of
(1) $10 million in cash,  which will be paid to the Company at the Closing;  (2)
an  additional  payment by  Whatman,  in cash or common  stock of Whatman plc at
Whatman's option, which effectively reimburses the Company for its net operating
costs and expenses incurred in connection with the Company's business during the
period  beginning  on  November  1,  2000 and  ending on the  Closing  Date (the
"Reimbursement   Portion"),   which  amount  is  currently   anticipated  to  be
approximately $4 million and is expected to be paid to the Company in the second
quarter of 2001;  and (3) a royalty of 4% on sales by  Whatman,  Whatman  plc or
their affiliates of certain filtration products, including products that utilize
the  Company's  technology,  up to a total  royalty of $12  million,  subject to
certain reductions described in the Royalty Agreement,  which include the offset
of certain potential liabilities associated with the Company's patent litigation
with Pall


                                    F - 20


<PAGE>

Corporation  that Whatman  will assume.  Accordingly, the  total  amount of  the
Consideration to be  paid by  Whatman to  the Company will be  approximately $14
million to $26 million in cash or cash and common stock of Whatman plc.

      Under the terms of the  Purchase  Agreement,  Whatman  will  assume and be
legally responsible for certain liabilities of the Company, and Whatman plc will
guarantee  Whatman's  obligation  to pay the  Consideration  to the Company.  In
addition,  in the event that Whatman elects to pay the  approximately $4 million
reimbursement  portion of the  Consideration  in shares of Whatman  plc's common
stock, the Purchase Agreement provides that Whatman plc will guarantee a minimum
per share price to the Company of $4.3864  with  respect to any share of Whatman
plc's common  stock  resold by the Company  within 60 days after such shares are
issued to the  Company.  The  Company  currently  anticipates  that any share of
Whatman  plc's  common stock issued to the Company will be resold by the Company
within 60 days of the issuance to the Company of such share.

      The  Company  has the right to  terminate  the  Purchase  Agreement  under
certain circumstances,  including if the Board of Directors determines, upon the
written  opinion of the  Company's  counsel,  that the failure to terminate  the
Purchase Agreement could be expected to be a breach of, or be inconsistent with,
the  fiduciary  duties of the Board of Directors  under  applicable  law. In the
event of termination  for the foregoing  reason,  the Company is required to pay
Whatman a fee of $500,000 upon the termination of the Purchase Agreement.

      The obligations of the Company,  Whatman and Whatman plc to consummate the
Asset Sale are subject to a number of  customary  conditions,  including,  among
others,  approval and adoption of the Purchase Agreement by the affirmative vote
of the holders of a majority of the outstanding Shares entitled to vote thereon.

      It is  currently  anticipated  that the  Closing  Date will occur on or as
promptly as  practicable  following  the  approval  and adoption of the Purchase
Agreement by the  Stockholders of the Company and the  satisfaction or waiver of
all of the other  conditions set forth in the Purchase  Agreement.  Either party
may  terminate  the Purchase  Agreement if the closing does not occur by May 31,
2001.  Accordingly,  there can be no  assurance  as to if or when the Asset Sale
will be consummated.

      Upon  closing of the  Purchase  Agreement  with  Whatman,  the  Company is
expected to have  approximately  $17.5  million in a combination  of cash,  cash
equivalents,  marketable securities and Whatman plc stock (based on current cash
and marketable  securities  levels,  the Company's  expected "burn rate" through
closing and the terms of the Purchase Agreement). In that regard, the Company is
in the preliminary stages of considering various strategic business combinations
and other  transactions with a view toward further  enhancing  stockholder value
following the consummation of the sale of its assets and business to Whatman.

      In the event that the Asset Sale does not occur, the Company will consider
other  business  alternatives,  including  but not  limited  to  other  business
combinations and a liquidation of the Company's assets.  Given that any proceeds
from any such  liquidation and any other cash on hand would be first used to pay
the  Company's  creditors  and  outstanding  payables,  and given  certain legal
requirements that the Company maintain certain cash on hand for certain mandated
time  periods,  there is no assurance as to when,  if ever,  any proceeds from a
liquidation  would be  distributed  to the  Company's  Stockholders.


                                    F - 21



<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,  on the 26th day of
March, 2001.

                                HEMASURE INC.


                                By:    /s/ John F. McGuire, III
                                      ------------------------------------------
                                      John F. McGuire, III
                                      President and Chief Executive Officer

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


          Signature                     Title                   Date
          ---------                     -----                   ----


/s/ John F. McGuire, III  President, Chief Executive        March 26, 2001
---------------------     Officer and Director (Principal
John F. McGuire, III      Executive Officer)



/s/ James B. Murphy       Senior Vice President, Finance     March 26, 2001
---------------------     and Administration (Principal
James B. Murphy           Financial Officer and Principal
                          Accounting Officer)



/s/ Timothy J. Barberich  Director                           March 26, 2001
---------------------
Timothy J. Barberich



/s/ Justin E. Doheny      Director                           March 26, 2001
------------------------
Justin E. Doheny





                                     S - 1

<PAGE>




                                 EXHIBIT INDEX

   The following exhibits are filed as part of this Annual Report on Form 10-K:


   Exhibit No.                            Description
   -----------                            -----------

           2.1(6) Heads of Agreement, dated as of January 31, 1996,
                  between the Company and Novo Nordisk A/S.

           3.1(1) Certificate of Incorporation of the Company.

           3.2(1) By-Laws of the Company.

           4.1(1) Specimen Certificate for shares of Common Stock, $.01
                  par value, of the Company.

           4.2(9) Registration Rights Agreement, dated January 23, 1997,
                  by and among the Company and Novo Nordisk A/S

          4.3(10) Registration Rights Agreement, dated as of September 15,
                  1998, between the Company and Sepracor.

          4.4(11) Warrant  Agreement,  dated  as of  September  15,  1998,
                  between the Company and Sepracor.

          4.5(11) Warrant Certificate, dated  as of  September  15,  1998,
                  between the Company and Sepracor.

          4.6(13) Registration Rights Agreement, dated as of  March 23,
                  1999, between the Company and Sepracor.

          4.7(13) Warrant  Agreement,  dated  as of  March 23,  1999,
                  between the Company and Sepracor.

          4.8(13) Warrant Certificate, dated  as of  March  23,  1999,
                  between the Company and Sepracor.

          4.9(14) Stock Subscription Agreement, dated as of May 3, 1999,
                  between the Company and COBE.

         4.10(14) Stockholder's Agreement, dated as of May 3, 1999,
                  between the Company and COBE.

          10.1(9) 1994 Stock Option Plan, as amended.

          10.2(9) 1994 Director Option Plan.

          10.3(1) Form of Technology Transfer and License Agreement
                  between the Company and Sepracor Inc.

          10.4(6) Lease Agreement for 140 Locke Drive, Marlborough, MA,
                  dated as of November 1995, between the Company and First
                  Marlboro Development Trust.

          10.5(4) Employment Agreement between the Company and Dr. Hans
                  Heiniger, dated January 10, 1994.

          10.6(7) Asset Purchase Agreement dated as of May 2, 1996 between
                  the Company, HemaPharm Inc., HemaSure A/S and Novo
                  Nordisk A/S.

          10.7(8) Restructuring Agreement, dated January 23, 1997, between
                  the Company, HemaPharm Inc., HemaSure A/S and Novo
                  Nordisk A/S.


                                     I - 1


<PAGE>

   Exhibit No.                            Description
   -----------                            -----------

          10.8(9) Convertible Subordinated Note Due December 31, 2001 in
                  the amount of U.S. $11,721,989, issued by the Company to
                  Novo Nordisk A/S, dated January 23, 1997.

          10.9(9) Amendment to the Company's 1994 Director Option Plan,
                  dated June 25, 1996.

         10.10(9) Amendment to the Company's 1994 Director Option Plan,
                  effective as of May 16, 1996.

         10.11(9) Amendment to the Company's 1994 Stock Option Plan, dated
                  June 25, 1996.

         10.12(9) Amendment to the Company's 1994 Stock Option Plan,
                  effective as of May 16, 1996.

         10.13(9) Sublease Agreement, between the Company and Novo Nordisk
                  A/S, dated May 2, 1996, for the Premises (Denmark), as
                  amended.

         10.14(9) Sublease Agreement between the Company and Novo Nordisk
                  A/S, dated May 2, 1996, for the Warehouse (Denmark), as
                  amended.

        10.15(12) Employment Agreement between the Company and John F.
                  McGuire, dated April 1, 1997.

        10.16(12) Settlement Agreement, dated September 1997, by and among
                  the Company, HemaSure AB, HemaPharm Inc., Pharmacia &
                  Upjohn Inc. and Pharmacia & Upjohn AB.

        10.17(10) 1995 Employee Stock Purchase Plan, as amended.

        10.18(11) Revolving  Credit and  Security  Agreement,  dated as of
                  September  15,  1998,  between  the  Company  and  Fleet
                  National Bank.

        10.19(11) Intellectual  Property Security  Agreement,  dated as of
                  September  15,  1998,  between  the  Company  and  Fleet
                  National Bank.

        10.20(11) Promissory Note, dated as of September 15, 1998, made by
                  the Company in favor of Fleet National Bank.

        10.21(11) Amended and Restated Master Strategic Alliance Agreement
                  between the Company and the ARC.

        10.22(14) Senior Management Retention Agreement, dated as of
                  December 7, 1998, between the Company and John F.
                  McGuire.

        10.23(14) Senior Management Retention Agreement, dated as of
                  December 15, 1998, between the Company and James B.
                  Murphy.

        10.24(14) Senior Management Retention Agreement, dated as of
                  December 22, 1998, between the Company and Peter C.
                  Sutcliffe.

        10.25(13) Securities Purchase Agreement, dated as of  March 23,
                  1999, between the Company and Sepracor.

        10.26(14) Amended and Restated Exclusive Distribution Agreement,
                  dated as of May 3, 1999, between the Company and COBE.

        10.27(15) Master Purchase Agreement, dated as of July 1, 1999,
                  between the Company and The American National Red Cross.

        10.28(16) Manufacturing and Supply Agreement, dated as of December
                  22, 1999, between the Company and Filtertek Inc.


                                     I - 2


<PAGE>

   Exhibit No.                            Description
   -----------                            -----------

        10.29(16) Supply and Assembly Agreement, dated as of January 31,
                  2000, between the Company and Command Medical Products
                  Inc.

        10.30(16) Placement Agency Agreement, dated February 3, 2000,
                  between the Company and Warburg Dillon Read LLC.

        10.31(16) Form of Purchase Agreement, dated March 2, 2000.

        10.32(16) Schedule of purchasers which purchased shares of common
                  stock pursuant to the Form of Purchase Agreement set
                  forth in 10.42.

        10.33(17) Indemnification Agreement, dated as of July 13, 2000
                  between the Company and Ahlstrom Technical Specialties
                  LLC.

        10.34     Termination of Supply and Assembly Agreement and
                  Release, dated as of December 8, 2000, by and between
                  the Company and Command.

        10.35     Amendment No. 1 to Manufacturing and Supply Agreement,
                  dated as of September 21, 2000, by and between the
                  Company and Filtertek.

        10.36     Amendment No. 2 to Manufacturing and Supply Agreement,
                  dated as of December 15, 2000, by and between the
                  Company and Filtertek.

        10.37     Termination and Release Agreement, dated as of March 5,
                  2001, by and between the Company and Gambro.


        21.1(12)  Subsidiaries of the Company.

        23.1      Consent of PricewaterhouseCoopers  LLP


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

(1)          Incorporated herein by reference to the Company's Registration
             Statement on Form S-1, as amended (File No. 33-75930).

(2)          Incorporated herein by reference to the Company's Annual Report
             on Form 10-K for the year ended December 31, 1994.

(3)          Incorporated herein by reference to the Company's Quarterly
             Report on Form 10-Q for the quarter ended March 31, 1995.

(4)          Incorporated herein by reference to the Company's Registration
             Statement on Form S-1, as amended (File No. 33-95540).

(5)          Incorporated herein by reference to the Company's Quarterly
             Report on Form 10-Q for the quarter ended September 30, 1994.

(6)          Incorporated herein by reference to the Company's Annual Report
             on Form 10-K for the year ended December 31, 1995.

(7)          Incorporated by reference to the Company's Quarterly Report on
             Form 10-Q for the quarter ended March 31, 1996.

(8)          Incorporated by reference to the Company's Current Report on
             Form 8-K filed with the Securities and Exchange Commission on
             February 27, 1997.

                                     I - 3


<PAGE>


(9)          Incorporated by reference to the Company's Annual Report on Form
             10-K for the year ended December 31, 1996.

(10)         Incorporated by reference to the Company's Quarterly Report on
             Form 10-Q for the quarter ended June 30, 1998.

(11)         Incorporated by reference to the Company's Quarterly Report on
             Form 10-Q for the quarter ended September 30, 1998.

(12)         Incorporated by reference to the Company's Annual Report on Form
             10-K for the year ended December 31, 1997.

(13)         Incorporated by reference to the Company's Annual Report on Form
             10-K for the year ended December 31, 1998.

(14)         Incorporated by reference to the Company's Quarterly Report on
             Form 10-Q for the quarter ended March 31, 1999.

(15)         Incorporated by reference to the Company's Quarterly Report on
             Form 10-Q for the quarter ended June 30, 1999.

(16)         Incorporated by reference to the Company's Annual Report on Form
             10-K for the year ended December 31, 1999.

(17)         Incorporated by reference to the Company's Quarterly Report on
             Form 10-Q for the quarter ended June 30, 2000.


                                     I - 4