As filed with the Securities and Exchange Commission on March 30, 2000

                                  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, 1999

                                       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) 485-6850
                                                   ---------------------------

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:


906583.4

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

          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 $102,138,300 on March 24, 2000.

Number of shares  outstanding  of the  registrant's  class of common stock as of
March 24, 2000: 19,795,667.


                       DOCUMENTS INCORPORATED BY REFERENCE

Proxy Statement for 2000 Annual Meeting of Stockholders - Part III



906583.4

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                                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.

906583.4

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                                     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  30% to 35% 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.  In  addition,  the  American Red
Cross,  which  collected  over 6  million  units of  blood in 1999  representing
approximately 50% of the blood donated in the United States,  publicly announced
that it is striving to achieve 100% leukoreduction by the end of 2000. Moreover,
many other countries in the past several years have mandated the  leukoreduction
of their blood supply.

     The  Company  believes  that with the r\LS  System,  the Company is able to
offer a more  effective  product than those offered in the market today based on
low cost,  ease of use and  improved  operational  fit.  According  to  industry
sources,   the  leukoreduction   industry   represents  a  market  potential  of
approximately  $800 million.  The Company  believes its proprietary  technology,
marketing  and  distribution  arrangements  will  help it to  capitalize  on the
anticipated growth in this industry.

     The  Company's  current  focus is to increase  the sales of its r\LS System
both in the United States and internationally. It commenced commercialization of
the r\LS System in early 1999.  The demand for the r\LS System has  exceeded its
original  expectations and, as a result,  the Company has initiated a production
expansion plan. See " -- Strategic Relationships."

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 American Red
Cross),  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.

906583.4
                                       -1-

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     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.  Whole  blood is composed of  platelets,
which assist in clotting; plasma, which is the fluid part of blood that contains
proteins that fight  infections,  aid in clotting and retain blood  volume;  red
blood cells,  which help carry oxygen  throughout the body; and  leukocytes,  or
white  blood  cells,  which are used by the body's  immune  system to help fight
infections.

     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  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.


906583.4
                                       -2-

<PAGE>



     Recent Trend Toward Leukoreduction

     Historically, approximately 20% 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 beside.

     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 30% to 35% 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.  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 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

906583.4
                                       -3-

<PAGE>



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 Solution

     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 is
utilizing  its   technologies   as  the  basis  for   developing   products  and
methodologies to address the needs of the leukoreduction market.

     Based primarily on its discussions with the American Red Cross, the Company
believes that a dockable  filter used in  conjunction  with a manual  collection
process is the optimal method of high-volume,  pre-storage leukoreduction in the
United States. The Company's current product,  the r\LS System, was developed to
provide high-volume, centralized, pre-storage leukoreduction in blood centers in
batch processes. The Company believes that its r\LS System is well positioned to
take advantage of the anticipated growth in leukoreduction,  particularly in the
United States.

     Currently,  the  Company  does not have an in-line  blood  cell  filtration
system available for sale,  which the Company  understands from Gambro Inc., its
distribution  partner, is used predominantly in Europe.  However, the Company is
in  discussions  with   manufacturers  of  blood  bag  systems  to  develop  and
commercialize  in-line  leukocyte  reduction  systems for red blood  cells.  The
Company is evaluating  different product design options and discussing potential
agreements with respect to supply and  manufacturing  arrangements.  The Company
believes that the core filter  technology  used in the r\LS System could be used
in an in-line system.

     Technological Benefits

     The Company  believes that the r\LS System  provides  significant  value to
leukoreduction  market  participants.  By implementing a more functional  design
that  incorporates  such  features as self  priming,  draining  and a unique air
removal system, which allows the blood center technician to essentially hang the
blood  unit and  "walk  away,"  the  Company  believes  that it has been able to
incorporate  features  considered  desirable  in  leukoreduction   products.  In
addition,  the  Company's  r\LS  System  does  not  require  the  time-consuming
"stripping"  operation that is required with other  filters.  The r\LS System is
predicated  on a simple  design  that  requires  fewer  manipulations  which the
Company believes provides for a more efficient process.

     Low Cost Supplier

     The Company  designed the r\LS System to be a low cost filter and developed
a manufacturing  process,  which the Company  believes enables it to manufacture
and market the r\LS System at a low cost, and which,  as a result,  allows it to
effectively compete in the marketplace. In the product development

906583.4
                                       -4-

<PAGE>



and  commercialization  process,  the Company has worked very  closely  with key
component  suppliers to ensure high  quality,  low cost parts and to ensure that
the  suppliers  will be able to meet the demand for product.  The  manufacturing
process has been designed to permit multiple site assembly capacity. The Company
believes that its pre-storage filters will capture increased market share as the
relative  benefits of pre-storage  filtration become more pronounced in the next
few years.

     Focus on Blood Center Customers

     Unlike  Pall   Corporation   ("Pall")  and  Baxter,   the  Company's  major
competitors,  the Company's  products are marketed solely to blood donor centers
rather than to hospitals.  The top four blood center  organizations  account for
approximately  70% of the  supply  of blood  and blood  products  in the  United
States.  The Company  believes  that this  approach will enable it to keep sales
costs low and provide value-added services to these customers.

     Strategic Relationships

     Strategic Partnership with American Red Cross

     In August  1998,  the  Company  completed  an amended and  restated  Master
Strategic  Alliance  Agreement with the American Red Cross 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 American Red Cross BioMedical Services.

     Pursuant to the strategic  alliance  agreement,  the Company entered into a
master purchase agreement with the American Red Cross that provides for the sale
of the r\LS System by the Company to the American Red Cross on specified  terms.
The master purchase agreement provides for a thirty-eight month term expiring on
August 31, 2002,  subject to, among other  things,  earlier  termination  by the
American Red Cross 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  American  Red Cross  deems  that it has no  further
requirement  for  leukoreduction  filters  generally,  or (iii) the American Red
Cross changes its policies toward  leukoreduction.  The Company currently is not
aware of the availability of any such products, any such changes in requirements
for   leukoreduction   filters   or  any  such   changes  in   policies   toward
leukoreduction.  Under the master purchase agreement,  the American Red Cross is
required to purchase  specified  minimum  annual  quantities of the r\LS System,
subject  to  certain  terms  and  conditions.  The term of the  master  purchase
agreement may be extended by one year in certain  circumstances  if the American
Red Cross fails to meet its minimum purchase obligation in the third year of the
agreement.

     If the Company's agreements with the American Red Cross are terminated,  or
not implemented, for any reason, the Company's business, financial condition and
results of operations could be materially and adversely affected.


906583.4
                                       -5-

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     Global Distribution Capabilities through Partnership with Gambro Inc.

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

     The  Company  believes  that  Gambro Inc.  will be an  effective  marketing
partner  for it with  respect  to its r\LS  System  because  their  sales  force
currently  targets  customers  who  the  Company  had  identified  as  potential
customers of its r\LS System.  The Company's  agreement  also gives it access to
Gambro Inc.'s extensive international distribution network, which includes sales
offices in more than 100 locations  worldwide.  This agreement  provides for the
cooperation  by Gambro Inc.  with the  Company  with  respect to certain  patent
defense  costs  related to current and potential  future  products.  The product
development  agreement  contemplates  the supply by the  Company  of  filtration
devices that may be used in  connection  with Gambro Inc.'s  Trima(R)  Automated
Blood Collection System.

     Under the distribution  agreement,  Gambro Inc. is required to meet certain
minimum  purchase  requirements and is 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 provides for Gambro Inc. 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 Inc. must also
cooperate  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."

     The  Company  is  dependent  on  Gambro  Inc.  for  sales,   marketing  and
distribution of its products.  If Gambro Inc. does not  successfully  market and
sell the Company's products or the distribution  agreement is terminated for any
reason, the Company's  business,  financial  condition and results of operations
could be materially and adversely affected.

     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
expects to increase  manufacturing  capacity in  increments to several times its
current  level over the next two  years.  The  capacity  expansion  effort  will
include  process  flow  review,   capital   equipment   design,   qualification,
implementation, validation and vendor supply chain management.


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                                       -6-

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     In December 1999, the Company entered into an agreement 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.  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.

     In January 2000, the Company entered into an agreement with Command Medical
Products Inc.  ("Command") that provides 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 r\LS System,  subject to
certain terms and conditions.  The agreement has a term of three years,  subject
to an automatic  one-year extension in the event the Company fails to purchase a
specified  number of  products  by the third  year and,  also,  upon the  mutual
agreement by the Company and Command.  Thereafter, the agreement will be subject
to automatic one-year renewals unless the agreement is previously terminated.

     Under the Command agreement,  the Company is required to purchase a minimum
number of dry bags used in its r\LS  System  and  assembly  requirements  of 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 the risk
of price fluctuations in respect of raw materials, overhead and labor. Under the
Company's supply and assembly  agreement with Command,  the Company is obligated
to  provide  to Command  90 days  before  each year of the  supply and  assembly
agreement  forecasts  for  anticipated  purchases  of the dry bags and  assembly
requirements for the upcoming 12-month period.

     The Company depends on Command 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
Command for any reason could have a material and adverse effect on the Company's
business.


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                                      -7-

<PAGE>



Current Product and Products Under Development

     The Company is working to develop a range of related  leukocyte  filtration
products  that utilize its core  technology,  including  an in-line  pre-storage
filter (the In-Line RBC Filtersets) and whole blood pre-storage.  The Company is
also exploring the  possibility of utilizing its core  filtration  technology to
develop non-leukocyte reduction filtration applications.

     Red Blood Cell Systems

     r\LS System.  The  Company's  r\LS System has been  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 Company  believes  that the demand for  filtered  blood for
transfusions  will  continue to increase  over the next several  years and that,
while a significant amount of leukocyte  filtration currently takes place at the
patient bedside,  as the demand for filtered blood increases,  leukocyte removal
will all be done through centralized filtration performed at blood centers.

     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 is
focusing its marketing  efforts  exclusively on blood centers and hospital blood
banks for pre-storage leukocyte reduction.

     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.
However,  there is no  assurance  that  the  r\LS  System  will  achieve  market
acceptance.

     While the Company believes that the performance and ease-of-use of the r\LS
System will compare favorably with other blood filtration  devices,  there is no
assurance 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."

     In-Line RBC Filtersets. The Company is in discussions with manufacturers of
blood bag  systems to develop  and  commercialize  in-line  leukocyte  reduction
systems for red blood cells. In these systems, the filter and receiving bags are
integrated  with the  collection bag and therefore  require no sterile  docking.
Currently,  the Company is evaluating  different product design options,  and is
discussing potential agreements covering supply and manufacturing arrangements.

     Whole Blood Filters

     The  Company is  pursuing  technology  which it  believes  will  enable the
development of whole blood filtration  systems aimed at meeting the needs of two
distinct market segments: (i) traditional manual collection users of whole blood
filtration  sets who prefer to continue to operate  within their  existing blood
collection  and  processing  infrastructure,  and  (ii)  integrating  filtration
technology with blood collection

906583.4
                                       -8-

<PAGE>



equipment to do  real-time,  simultaneous  collection/leukocyte  reduction  and,
optionally,  subsequent  component  separation.  These different approaches will
require  different  technical  solutions.  The Company  believes that it is well
positioned to apply its core  proprietary  know-how to providing  such solutions
independently, or in collaboration with selected partners.

     Automated Blood Collection Solutions

     Gambro Inc. markets and sells automated blood component apheresis equipment
to the blood center  market.  The agreement  with Gambro Inc.  contemplates  the
development of a red blood cell leukoreduction filter for use with Gambro Inc.'s
Trima(R)Automated Blood Collection System.

     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 and its planned products are 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.

     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.


906583.4
                                       -9-

<PAGE>



     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  $2,681,000  in the  year  ended
December 31, 1999 and $3,794,000  for the year ended December 31, 1998.  Amounts
expended in the year ended  December  31, 1999 were lower than that  expended in
the comparable  period in 1998,  primarily  because the majority of research and
development  expenditures  relating  to the r\LS  System  were  made in the 1998
period.

Competition

     The Company expects to encounter significant competition in the sale of its
proposed products.  Its proposed products, if commercialized,  will 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


906583.4
                                      -10-

<PAGE>


relationships  with the national and regional blood centers to which the Company
will market its products. There is no assurance that the Company will 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 is pursuing areas of product  development in a rapidly  growing
field in which there is a potential for  technological  innovation in relatively
short periods of time. Its competitors may succeed in developing technologies or
products that are more effective than those of the Company. Technological change
or  developments  by others may result in the  Company's  technology or proposed
products 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 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  believes  that  protection  of the  proprietary  nature of its
products and  technology is critical to its business.  Accordingly,  the Company
has adopted and will  maintain a vigorous  program to secure and  maintain  such
protection.  The Company's practice is to file patent  applications with respect
to technology,  inventions and improvements  that are important to its business.
The  Company  also  relies 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 31 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



906583.4
                                      -11-

<PAGE>

separations.  To date, 18 patents have been issued to the Company  (which expire
at various dates from 2011 through 2017).

     The Company success depends,  in part, 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, may 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 may 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."

     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
HemaSure  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



906583.4
                                      -12-

<PAGE>


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
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



906583.4
                                      -13-

<PAGE>

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  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



906583.4
                                      -14-

<PAGE>


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.

     The  regulations  relating to 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.



906583.4
                                      -15-

<PAGE>

     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.

Manufacturing and Facilities

     Currently,  the Company occupies approximately 30,000 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). In June 2000, the Company plans to occupy
an additional  15,000 square feet in connection  with its expansion  plans.  The
Company  believes that these  facilities are adequate and suitable for its needs
through 2000. See Item 1. "Business -- Strategic Relationships." The facility is
designed to conform to current good manufacturing practice regulations and other
applicable government standards.

     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."



906583.4
                                      -16-

<PAGE>

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 24, 2000, the Company employed a total of 106 persons,  of whom
23 were in research and development, 65 were in manufacturing and support and 18
were in sales and administration.

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 March 24, 2000,  Sepracor owned 22% of
the Company's  issued  and  outstanding  Common Stock.  As  of  the date hereof,
two executive officers of Sepracor serve as directors of the Company.

     In September  1998,  the Company  completed a $5 million  revolving line of
credit  arrangement  with a commercial  bank.  Sepracor has  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.

     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.

     Gambro. On May 3, 1999, the Company completed a private placement financing
with Gambro Inc. The stock  subscription  agreement,  which the Company  entered
into with Gambro Inc. 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 Inc. 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,




906583.4
                                       17
<PAGE>









Gambro Inc.  exercised  this option in full. In connection  with the exercise of
this option, Gambro Inc. 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 Inc. in connection  with
this  financing,  provides  that Gambro  Inc.  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 Inc. the
opportunity  to purchase  at the same price and terms that number of  securities
necessary for Gambro Inc. 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 Inc.  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  Inc.  agrees to
certain  restrictions on its ability to sell the Company's Common Stock owned by
it and its  permitted  transferees.  Gambro  Inc.  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  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  Inc.  has  purchased
1,178,680  shares of Common  Stock in this  offering.  Gambro Inc. has agreed to
waive its registration  rights in connection with the registration  statement to
be filed by the Company in connection with this offering.

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

Item 2.      Properties

     Currently,  the Company occupies approximately 30,000 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). In June 2000, the Company plans to occupy
an additional  15,000 square feet in connection  with its expansion  plans.  The
Company  believes that these  facilities are adequate and suitable for its needs
through 2000. See Item 1. "Business -- Strategic Relationships." The facility is
designed to conform to current good manufacturing practice regulations and other
applicable  government  standards.  See Item 1. "Business --  Manufacturing  and
Facilities."


906583.4
                                      -18-

<PAGE>



Item 3.                    Legal Proceedings

     The  Company is a  defendant  in a lawsuit  brought by Pall  regarding  its
LeukoNet System,  which is no longer made or sold by the Company. In a complaint
filed in November 1996, Pall alleged that the Company's 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 Company's LeukoNet System infringed 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 has not
acted on the summary judgment motions.

     On April 5, 1999, the Company and Gambro filed a complaint for  declaratory
relief against Pall in the United States District Court of Colorado. The Company
and Gambro seek  declaratory  relief that the '572  Patent,  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 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, and
the action is proceeding.  On September 30, 1999, the Court denied Pall's motion
to dismiss  the action and the case is  proceeding.  On October 20,  1999,  Pall
submitted a counterclaim  alleging that the Company's r\LS System  infringes its
'572  patent  and that the  Company  and Gambro BCT  tortiously  interfered  and
unfairly competed with Pall's business. On March 22, 2000, Pall filed its second
amended   answer   and   counterclaims   alleging   infringement   of  all   the
patents-in-suit. Pall also added counterclaims against Gambro A.B.

     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  Inc.,  Gambro A.B.  and  Sepracor as
defendants.  The Company and Gambro have moved to dismiss,  transfer or stay the
action  and Pall has  opposed  the  motion.  There has been no  decision  on the
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

906583.4
                                      -19-

<PAGE>

System  do not  infringe  any  valid  enforceable  claims  of the Pall  patents.
However,  there is 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.

     In January 1997, the Company entered into a Restructuring  Agreement of the
debt related to the Company's  acquisition of Novo Nordisk A/S's plasma products
unit. In January 1998, the Company elected to convert all indebtedness under the
approximately  $11,700,000  promissory note which was issued to Novo Nordisk A/S
in connection with the Restructuring Agreement into Common Stock at a conversion
price of $10.50 per share, or 827,375 shares.  The Company also elected to treat
as forgiven $3,000,000 in principal amount of the note, pursuant to the terms of
the note.  Novo Nordisk A/S has contested the conversion of the note,  including
the forgiveness of the $3,000,000 amount.  This dispute,  with or without merit,
could be  time-consuming  and  expensive to litigate or settle if brought into a
court of law, and could  divert  management  attention  from  administering  the
Company's  core  business.  If Novo  Nordisk A/S succeeds on its dispute and the
Company is deemed to have  wrongfully  converted  the  original  note,  then the
827,375  shares of common  stock  issued  to Novo  Nordisk  A/S may no longer be
outstanding and the Company may be obligated to repay certain indebtedness under
the original note.

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, 1999.


906583.4
                                      -20-

<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    53   President, Chief Executive Officer and Director

James B. Murphy         43   Senior Vice President, Finance and Administration

Peter C. Sutcliffe      50   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,  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.



906583.4
                                      -21-

<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.


              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


              1998                High                  Low
              ----                ----                  ---
         First Quarter            2 3/16                3/8
         Second Quarter           2 1/16                7/16
         Third Quarter            2 15/32               1 3/16
         Fourth Quarter           2 15/16               7/8

2.   Holders.

     On March 24, 2000, the Company's Common Stock was held by approximately 125
stockholders  of record.  On March 24, 2000, the last reported sale price of the
Company's Common Stock on the OTC bulletin board was $11.

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.



906583.4
                                      -22-

<PAGE>



4.   Sales of Securities.

     In March 2000,  the Company  completed a $28,000,000  private  placement in
which institutional investors purchased 3,730,000 shares of the Company's common
stock at a  purchase  price of $7.50  per  share.  The  Company  has  agreed  to
register, prior to June 2, 2000, such shares for resale.

     On May 3, 1999, the Company  completed a private  placement  financing with
Gambro Inc. The stock  subscription  agreement,  which the Company  entered into
with Gambro Inc. 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 Inc. 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 Inc. exercised this
option in full.  In  connection  with the exercise of this  option,  Gambro Inc.
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  completed a $5 million  revolving line of
credit  arrangement  with a commercial  bank.  Sepracor has  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.

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

Item 6.                    Selected Financial Data

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA
(In thousands, except per share data)

Year Ended December 31,                        1999         1998         1997        1996        1995
                                               ----         ----         ----        ----        ----
Revenues:

<S>                                           <C>         <C>        <C>          <C>          <C>
   Product sales                              $   805     $   25     $  2,357     $  725       $ 534

   Collaborative research and development           -          -            -         54         300
                                              -------     ------     --------     ------       -----
       Total revenues                             805         25        2,357        779         834
                                              -------     ------     --------     ------       -----

Costs and expenses:

   Cost of products sold                        2,408        657        4,158      3,785       1,073
</TABLE>



906583.4
                                      -23-

<PAGE>

<TABLE>
<CAPTION>

<S>                                                      <C>           <C>            <C>            <C>           <C>
   Cost of collaborative research and
       development                                            -               -              -            41            283

   Research and development                               2,681           3,794          3,577         6,128          4,061

   Legal expense related to patents                       1,361           3,340            506           744            152

   Selling, general and administrative                    3,728           4,201          4,458         7,325          3,729

   Restructuring charge                                      -                -          1,215             -              -
                                                        -------         --------      --------       -------       --------

       Total costs and expenses                          10,178          11,992         13,914        18,023          9,298
                                                        -------        --------       --------       -------       --------

Loss from operations                                    (9,373)        (11,967)       (11,557)      (17,244)        (8,464)

Other (expense) income                                  (1,292)           (203)          1,673         1,394          1,014
                                                       --------      ----------       --------     ---------      ---------

Net loss from continuing operations                    (10,665)        (12,170)        (9,884)      (15,850)        (7,450)
                                                       --------       ---------      ---------     ---------      ---------

Discontinued operations:

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

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

       Net loss                                      $ (10,665)      $ (12,170)     $  (9,884)     $(40,598)      $ (7,450)
                                                     ----------      ----------     ----------     ---------      ---------

Net loss per common share - basic and diluted:

   Net loss from continuing operations               $   (0.77)      $   (1.35)     $   (1.22)     $  (1.96)      $  (1.20)

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

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

       Net loss                                    $     (0.77)     $    (1.35)    $    (1.22)   $    (5.03)     $   (1.20)
                                                   ------------     -----------    -----------   -----------     ----------

Weighted average number of shares of
common stock outstanding - basic and diluted:            13,766           9,025          8,127         8,069          6,205
                                                    -----------      ----------     ----------     ---------     ----------


BALANCE SHEET DATA
(In thousands)



Cash and marketable securities                         $  5,243      $    1,827     $    8,156       $16,724        $47,841

Working capital                                           (327)              37          6,071        14,844         46,905

Total assets                                              9,090           5,655         10,607        20,560         50,212

Capital lease obligations long term                           -              68            289           525            286

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

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

Stockholders' equity (deficit)                            1,227         (2,832)        (1,467)         7,929         48,002

</TABLE>



906583.4
                                      -24-

<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.  The Company  initiated  sales of the r\LS
System in the United States in the third quarter 1999.

     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.  The  Company's  success  will  depend on the
commercial  acceptance  of  the  r\LS  System  and  development  and  commercial
acceptance of the other blood-related products.

Results of Continuing Operations

     Revenues were $805,000 in 1999, $25,000 in 1998 and $2,357,000 in 1997. All
revenues  in  1999,   1998  and  1997  were  from  the  sale  of  the  Company's
leukoreduction  systems.  In  1999,  the  Company  initiated  sales  of its next
generation red blood cell  leukoreduction  system,  the r\LS System. In February
1998, the Company  decided to discontinue the manufacture and sale of its former
leukoreduction  filter, the LeukoNet System,  which accounts for the increase in
revenues  in 1999 from those in 1998 and for the  decrease in 1998 from those in
1997 when all revenues were  attributed  to the LeukoNet  System.  In 1999,  one
customer  represented 66% of total revenues and another customer represented 33%
of total  revenues.  In 1998 one customer  represented 53% of total revenues and
another  customer  represented  10% of total  revenues.  In 1997,  one  customer
represented 86% of total revenues.

     The cost of  products  sold was  $2,408,000  in 1999,  $657,000 in 1998 and
$4,158,000 in 1997. Cost of products sold exceeded  product sales in all periods
due to the high costs associated with low volume

906583.4
                                      -25-

<PAGE>



production  and to the  start-up  costs  of new  product  introduction.  Cost of
products sold in 1997 includes a charge of approximately $800,000 related to the
Company's determination to discontinue  manufacturing the LeukoNet System and to
focus exclusively on its next generation red cell filter.

     Research and development  expenses were  $2,681,000 in 1999,  $3,794,000 in
1998 and  $3,577,000  in 1997.  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.  The increase in 1998 over amounts
expended in 1997 is  attributable to costs  associated  with  development of the
Company's r\LS System.

     Legal expense  related to patents were  $1,361,000  in 1999,  $3,340,000 in
1998 and $506,000 in 1997. 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 1999 from those
expended  in  1998  is 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.  See  "  --
Litigation."

     Selling,  general and  administrative  expenses  were  $3,728,000  in 1999,
$4,201,000 in 1998 and $4,458,000 in 1997.  The decrease in the amount  expended
in 1999  from  1998 is  primarily  due to a lower  level  of  general  corporate
expenses. The decrease in the amount expended in 1998 from 1997 is primarily due
to a lower  level of sales  and  marketing  expense  associated  with the  lower
revenues in 1998  compared to 1997.  Sales and  marketing  costs may increase in
future  periods  from  current  levels as the Company  continues  its efforts to
market and launch sales of its blood filtration products.

     In April 1997, the Company determined to focus management  resources on its
core business of blood filtration  technologies.  In connection  therewith,  the
Company  incurred  a one-time  restructuring  charge of  $1,215,000  in 1997 for
severance  and  related   charges  in  connection   with  executive   management
departures. At December 31, 1998 all amounts related to this charge were paid.

     Interest income in 1999, 1998 and 1997 primarily represents interest earned
 on available cash and marketable securities balances during those periods.

     The  increase in  interest  expense in 1999  compared to 1998 is  primarily
related  to  amounts  outstanding  on the  Company's  line of  credit  which was
outstanding for all of 1999 and only for approximately three months in 1998. The
decrease in interest expense in 1998 compared to 1997 is primarily  related to a
convertible  subordinated note payable which was outstanding for all of 1997 and
converted to Common Stock in 1998 and lower  average  capital  lease  obligation
balances.

     In September  1997, the Company  reached an  out-of-court  settlement  with
Pharmacia & Upjohn Inc.  arising out of the alleged breach by Pharmacia & Upjohn
Inc. of an agreement  to sell to the Company  Pharmacia & Upjohn  Inc.'s  plasma
pharmaceutical  business located in Stockholm,  Sweden.  The terms of settlement
included  a cash  payment  to the  Company  and the  granting  of an  option  to
Pharmacia  &  Upjohn  Inc.  to  license,  on  a  non-exclusive   basis,  certain
intellectual  property  held by the  Company  and its  subsidiaries  relating to
plasma  fractionation.  The cash payment was  recognized as other income in 1997
and represents the majority of the amount in other income for that year.



906583.4
                                      -26-

<PAGE>


New Accounting Standards

     In June 1998, the Financial  Accounting Standards Board issued Statement of
Financial  Accounting  Standards No. 133 (SFAS 133),  "Accounting for Derivative
Instruments and Hedging Activities." This statement  establishes  accounting and
reporting  standards for derivative  instruments,  including certain  derivative
instruments   embedded  in  other   contracts   (collectively   referred  to  as
derivatives),  and for hedging  activities.  The statement requires companies to
recognize all derivatives as either assets or liabilities,  with the instruments
measured  at fair value.  The  accounting  for  changes in fair value,  gains or
losses  depends  on the  intended  use  of  the  derivative  and  its  resulting
designation.  The statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. The Company does not expect such adoption to have
a material impact on its financial statements.

     In December 1999, the Securities and Exchange Commission (the "Commission")
issued Staff Accounting  Bulletin No. 101 ("SAB 101"),  "Revenue  Recognition in
Financial  Statements," which is effective no later than the quarter ending June
30,  2000.  SAB  101  clarifies  the  Commission's   views  related  to  revenue
recognition  and  disclosure.  The Company  will adopt SAB 101  effective in the
second quarter of 2000 and are presently  determining the effect it will have on
the Company's financial  statements,  but management does not believe the effect
will be material.

Litigation

     The  Company is a  defendant  in a lawsuit  brought by 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 has not
acted on the summary judgment motions.

     The Company and Gambro BCT 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, and the action is proceeding. On September 30,
1999,  the Court  denied  Pall's  motion to  dismiss  the action and the case is
proceeding. On October 20, 1999,

906583.4
                                      -27-

<PAGE>



Pall submitted a counterclaim  alleging that the Company's r\LS System infringes
its '572 patent and that the Company and Gambro BCT  tortiously  interfered  and
unfairly  competed  with Pall's  business.Pall  has also  asserted that the r\LS
System  infringes  one or more of the other  patents that are the subject of the
lawsuit.

     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  Inc.,  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.  There has been no decision on the
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  claims 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.

     On November 1, 1996,  the Company  filed a complaint in the Supreme  Court,
State of New York,  County of New York,  against  Pharmacia & Upjohn Inc. In its
complaint,  the Company  sought  damages  arising  out of the alleged  breach by
Pharmacia  & Upjohn  Inc. of an  agreement  to sell to the  Company  Pharmacia &
Upjohn Inc.'s plasma  pharmaceutical  business located in Stockholm,  Sweden. In
September 1997, the Company reached an out-of-court  settlement with Pharmacia &
Upjohn Inc. The terms of settlement  included a cash payment to the Company and
the  granting  of an  option  to  Pharmacia  &  Upjohn  Inc.  to  license,  on a
non-exclusive basis,  certain intellectual  property held by the Company and its
subsidiaries relating to plasma  fractionation.  The cash payment was recognized
as other income in 1997.

Liquidity and Capital Resources

     The net increase in cash and cash equivalents in 1999 was $3,416,000.  This
net increase is  attributable  to net cash  provided by financing  activities of
$14,472,000  offset  in  part  by net  cash  used  in  operating  activities  of
$10,539,000 and net cash used in investing activities of $517,000.

     Net cash  provided by financing  activities  relates to net  proceeds  from
issuance of Common Stock of $14,724,000  offset in part by repayments of capital
lease  obligations  of  $225,000.  Net  cash  used in  operating  activities  is
primarily  attributable to the net loss of $10,665,000,  a reduction in accounts
payable of $343,000  and  increases  in  accounts  receivable  of  $443,000  and
inventories  of  $600,000,  offset  in part by  non-cash  charges  to  operating
activities of $1,024,000 related to warrant financing costs and depreciation and
amortization  of  $475,000.  Net cash used in  investing  activities  relates to
additions to property and equipment of $517,000.


906583.4
                                      -28-

<PAGE>



     In March 2000,  the Company  completed a $28,000,000  private  placement in
which institutional investors purchased 3,730,000 shares of the Company's common
stock at a  purchase  price of $7.50  per  share.  The  Company  has  agreed  to
register,  prior to June 2, 2000, such shares for resale. The Company intends to
use the proceeds of the financing  for working  capital,  capital  equipment and
general corporate purposes.

     The  Company  believes,  based  on its  current  operating  plan,  that its
existing cash balances  together with the financing  provided in March 2000 will
be sufficient to fund the Company's operations beyond the first quarter 2001. If
the Company's plans or assumptions change, if the Company's assumptions prove to
be inaccurate or if the Company  experiences  unanticipated costs or competitive
pressures,  it may  seek to  raise  additional  capital  by  pursuing  strategic
partnerships,  public or private  equity and/or debt  financing.  If the Company
fails to generate such cash flow or obtain any such financing on terms favorable
to it or if other unforeseen  circumstances  occur, the Company may be unable to
continue to commercialize and market the r\LS System or complete the development
of the Company's proposed products and/or market such products successfully,  or
to continue the Company's current operations as presently conducted,  if at all,
beyond  the  first  quarter  2001.  The  Company's  cash  requirements  may vary
materially  from  those  now  planned  because  of  factors  such as  successful
development of products, results of product testing, approval process at the FDA
and similar  foreign  agencies,  commercial  acceptance of its products,  patent
developments and the introduction of competitive products.

     On May 3, 1999, the Company  completed a private  placement  financing with
Gambro Inc. The stock  subscription  agreement,  which the Company  entered into
with Gambro Inc. 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 Inc. 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 Inc. exercised this
option in full.  In  connection  with the exercise of this  option,  Gambro Inc.
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. As of December 31, 1999, the entire
$5 million was outstanding  under the line. The revolving line of credit,  which
expires in August  2000,  is 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
quarterly in arrears. The  weighted-average  borrowing rate for the period ended
December 31, 1999 was 8.67%.  The Company  recorded  interest expense related to
borrowings under the line of $434,000 and $93,000 for the periods ended December
31,  1999 and  1998,  respectively.  The  credit  agreement  contains  customary
covenants and provisions. The bank has a first lien on all assets of the Company
including its intellectual property.


906583.4
                                      -29-

<PAGE>



    Sepracor, the Company's largest shareholder, has 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 has
placed a value of  $1,938,000  on the  1,700,000  warrants as of the date of the
final  agreement and is amortizing this deferred  financing  charge on a monthly
basis over the term of the line of credit. The Company amortized  $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,
1999 and 1998, respectively.

     In April 1997, the Company determined to focus management  resources on its
core business of blood filtration  technologies.  In connection  therewith,  the
Company  incurred  a one-time  restructuring  charge of  $1,215,000  in 1997 for
severance  and  related   charges  in  connection   with  executive   management
departures. At December 31, 1998 all amounts related to this charge were paid.

     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, 1999,  there was a balance of $73,000  remaining to be
paid on this note.

     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 in the  principal
amount of approximately  $11,700,000,  which was due and payable on December 31,
2001,  with  interest  payable  quarterly  (provided  that  up to  approximately
$3,000,000 would be forgiven in certain circumstances). Approximately $8,500,000
of the  reduction  of  such  indebtedness  was  forgiven;  such  forgiveness  is
reflected  in the 1996  Statement  of  Operations  as a reduction of the loss on
disposal of the  discontinued  plasma  business.  The remainder of the reduction
represented a net amount due from Novo Nordisk to the Company related to various
service  arrangements  between  the two  companies.  The amount  included in the
balance  sheet at  December  31,  1997  and  1996  includes  the  effect  of the
Restructuring  Agreement net of the $3,000,000 contingency amount to reflect the
most probable result of the Company's decision to exit the plasma business.  All
amounts outstanding under such note were convertible by either party, commencing
January 1998, into shares of Common Stock at a conversion  price equal to $10.50
per share.  In December  1997,  the Company's  Danish  subsidiary  was placed in
bankruptcy  and the  Company  notified  the  holder of the note of its intent to
convert in January 1998,  $8,687,000  of debt,  which it believes was the entire
amount outstanding as of the date of conversion. 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
has contested  the  conversion of the note,  including  the  forgiveness  of the
$3,000,000 amount. The Company believes that such claims are without merit.

     In  1994,  in  collaboration   with  Sepracor  and  certain  of  its  other
subsidiaries,  the  Company  executed  an  equipment  leasing  arrangement  that
provided  for a total  of  $2,000,000  to  Sepracor  and  certain  of its  other
subsidiaries  for  purposes  of  financing  capital  equipment.   Under  certain
circumstances,  Sepracor is the guarantor of any amounts  outstanding under this
financing arrangement. In October 1996, the

906583.4
                                      -30-

<PAGE>



Company  executed  a  replacement  leasing  arrangement  for the  benefit of the
Company only with the same leasing  company  providing  $1,100,000  of equipment
lease  financing.  This  arrangement  terminated  in  March  1997.  All  amounts
outstanding  under the 1994 leasing facility are being repaid under the original
terms of that  leasing  arrangement.  There was  $71,000  outstanding  under all
leasing arrangements as of December 31, 1999.

Future Operating Results

     Certain of the  information  contained  in this  Annual  Report,  including
information  with  respect  to  the  development  and  commercialization  of the
Company's  products under development and the Company's other plans and strategy
for its business, consists of forward-looking statements. Important factors that
could  cause  actual  results  to  differ  materially  from the  forward-looking
statements include the following:

     The Company  believes that the  performance of its  blood-related  products
will be competitive  with products sold by other vendors of blood filtration and
transfusion  products and may encounter  significant  competition in the sale of
such products from biotechnology,  pharmaceutical and hospital supply companies.
In  the  leukoreduction   field,  several  of  the  Company's  competitors  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 preclinical 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 that of the Company and may have
other advantages over the Company in conducting certain businesses and providing
certain  services.  There can be no  assurance  that the Company will be able to
compete  effectively  against  such  companies.  The Company is a defendant in a
lawsuit brought by Pall regarding its LeukoNet  System,  which is no longer made
or sold by the  Company.  In  addition,  the  Company  and  Gambro  BCT  filed a
complaint for  declaratory  relief  against Pall in the United  States  District
Court of Colorado  regarding  six patents  related to its r\LS System.  Pall has
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  one of  Pall's
patents.

     The  Company  believes,  based  on its  current  operating  plan,  that its
existing cash balances  together with the financing  provided in March 2000 will
be sufficient to fund the Company's operations beyond the first quarter 2001. If
the Company's plans or assumptions change, if the Company's assumptions prove to
be inaccurate or if the Company  experiences  unanticipated costs or competitive
pressures,  it may  seek to  raise  additional  capital  by  pursuing  strategic
partnerships,  public or private  equity and/or debt  financing.  If the Company
fails to generate such cash flow or obtain any such financing on terms favorable
to it or if other unforeseen  circumstances  occur, the Company may be unable to
continue to commercialize and market the r\LS System or complete the development
of the Company's proposed products and/or market such products successfully,  or
to continue the Company's current operations as presently conducted,  if at all,
beyond  the  first  quarter  2001.  The  Company's  cash  requirements  may vary
materially  from  those  now  planned  because  of  factors  such as  successful
development of products, results of product testing, approval process at the FDA
and similar  foreign  agencies,  commercial  acceptance of its products,  patent
developments and the introduction of competitive products.

     The customers for the Company's  potential products are a limited number of
national and regional blood centers,  which collect,  store and distribute blood
and blood  products.  In the United States,  the American Red Cross collects and
distributes approximately 50% of the nation's supply of blood products.

906583.4
                                      -31-

<PAGE>



Other major blood centers  include the New York Blood  Center,  Blood Centers of
America,  America's  Blood  Centers  and United  Blood  Services,  each of which
distributes  6% to 12% of the nation's  supply of blood and blood  products.  In
Europe,  various national blood transfusion  services or Red Cross organizations
collect,  store and distribute  virtually all of their respective nation's blood
and  blood  products   supply.   The  Company's   principal   competitors   have
long-standing  relationships  with  these  blood  centers  and  there  can be no
assurance that the Company will be successful in marketing its products to these
centers.

     In August  1998,  the  Company  completed  an amended and  restated  Master
Strategic  Alliance  Agreement with the American Red Cross 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.  Pursuant to the strategic  alliance
agreement,  the  Company  entered  into a  master  purchase  agreement  with the
American Red Cross that  provides for the sale of the r\LS System by the Company
to the American Red Cross on specified terms.

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

     In May 1999, the Company  received 510(k)  clearance from the 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.  If the  Company's
agreements with the American Red Cross are terminated,  or not implemented,  for
any  reason,  the  Company's  business,   financial  condition  and  results  of
operations could be materially and adversely  affected.  If Gambro Inc. does not
successfully  market  and  sell  the  Company's  products  or  the  distribution
agreement  is  terminated  for any reason,  the  Company's  business,  financial
condition and results of operations could be materially and adversely affected.

     All of  the  Company's  other  planned  blood  filtration  and  transfusion
products are in the research and development stage. The Company will be required
to conduct significant research, development,  testing and regulatory compliance
activities on these products that,  together with  anticipated  costs  expenses,
could to result in  additional  losses  through 2000.  The Company's  ability to
achieve  a  profitable   level  of  operations   will  depend  on   successfully
implementing its supply and distribution  agreements for its current product and
completing  development,  obtaining  regulatory  approvals and achieving  market
acceptance of its other blood-related products.

     Some or all of the Company's blood filtration and transfusion  products may
require  preclinical and clinical  testing prior to submission of any regulatory
application for commercial use. The Company does not expect regulatory  approval
for  commercial  sale in the United States of any of its other planned  products
before the end of 2000.

     To succeed in the implementation of the Company's  business  strategy,  the
Company must implement effective planning and operating processes.  In addition,
to manage  anticipated  growth,  the Company must continue to expand and upgrade
core technologies,  continue to implement and improve its operational, financial
and  management  information  systems,  and hire,  train and  retain  additional
qualified

906583.4
                                      -32-

<PAGE>



personnel.  The Company  has  limited  experience  with the  manufacture  of our
products on a commercial  scale. The Company's systems and procedures may not be
adequate  to  support  its  operations,  and its  management  may not be able to
achieve the rapid execution necessary to exploit the market for its products and
services.

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.

906583.4
                                      -33-

<PAGE>



                                    PART III

Items 10-13.

     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  2000  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."


906583.4
                                      -34-

<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, 1999 and for each of the three years in
                         the period ended December 31, 1999. 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.


906583.4
                                      -35-
<PAGE>

                                  HemaSure Inc.
<TABLE>
<CAPTION>

                       Index to Financial Statements                                                         Page
                       -----------------------------
<S>                                                                                                          <C>

Report of Independent Accountants..........................................................................  F-2

Consolidated Balance Sheets at December 31, 1999 and 1998..................................................  F-3

Consolidated Statements of Operations for the Years
Ended December 31, 1999, 1998 and 1997.....................................................................  F-4

Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended December 31, 1999, 1998 and 1997.......................................................  F-5

Consolidated Statements of Cash Flows for the Years
Ended December 31, 1999, 1998 and 1997.....................................................................  F-6

Notes to Consolidated Financial Statements.................................................................  F-7

</TABLE>





906583.4
                                       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, stockholders' equity
(deficit) and cash flows present fairly, in all material respects, the financial
position of HemaSure Inc. at December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. 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, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

                                         /s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
February 4, 2000
  except for Note Q for
  which the date is
  March 2, 2000

906583.4
                                       F-2

<PAGE>



HemaSure Inc.
Consolidated Balance Sheets

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

<TABLE>
<CAPTION>

ASSETS                                                                                       1999               1998
                                                                                             ----               ----
Current assets:
<S>                                                                                       <C>               <C>
         Cash and cash equivalents (Note B)                                               $ 5,243           $  1,827
         Accounts receivable (Note D)                                                         443                  -
         Inventories (Note E)                                                                 806                206
         Deferred financing costs (Note H)                                                    725              1,024
         Prepaid expenses and other current assets                                            276                326
                                                                                        ---------          ---------

         Total current assets                                                               7,493              3,383

Property and equipment, net (Note F)                                                        1,547              1,505
Deferred financing costs long-term (Note H)                                                     -                725
Other assets                                                                                   50                 42
                                                                                       ----------         ----------

                  Total assets                                                            $ 9,090            $ 5,655
                                                                                          =======            =======

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:

         Accounts payable                                                                 $ 1,199            $ 1,542
         Accrued expenses (Note G)                                                          1,520              1,549
         Current portion of notes payable (Note H)                                          5,030                 27
         Current portion of capital lease obligations (Note G)                                 71                228
                                                                                        ---------

         Total current liabilities                                                          7,820              3,346

Capital lease obligations (Note G)                                                              -                 68
Notes payable (Note H)                                                                         43              5,073

                  Total liabilities                                                         7,863              8,487
                                                                                          -------            -------

Commitments and contingencies (Notes G, H and I) Stockholders' equity (deficit)
(Notes K and L):
         Preferred stock, $0.01 par value, 1,000 shares authorized, none issued
            and outstanding in 1999 and 1998
         Common stock, $0.01 par value, authorized shares 35,000
            in 1999, issued and outstanding
            15,823 in 1999 and 9,088 in 1998                                                  158                 91
         Additional paid-in capital                                                        86,241             71,584
         Accumulated deficit                                                             (85,172)           (74,507)
                                                                                         --------          ---------
         Total stockholders' equity (deficit)                                               1,227            (2,832)
                                                                                            -----          ---------

                     Total liabilities and stockholders' equity (deficit)                 $ 9,090           $  5,655
                                                                                          =======           ========
</TABLE>

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


906583.4
                                       F-3

<PAGE>



HemaSure Inc.
Consolidated Statements of Operations


<TABLE>
<CAPTION>

Year Ended December 31,
(In thousands, except per share amounts)                                      1999               1998              1997
                                                                              ----               ----              ----


<S>                                                                    <C>                 <C>                <C>
Revenue                                                                $       805         $       25         $   2,357

Costs and expenses:
         Cost of products sold                                               2,408                657             4,158
         Research and development                                            2,681              3,794             3,577
         Legal expense related to patents                                    1,361              3,340               506
         Selling, general and administrative                                 3,728              4,201             4,458
         Restructuring charge                                                    -                  -             1,215
                                                                     -------------      -------------         ---------
         Total costs and expenses                                           10,178             11,992            13,914
                                                                         ---------          ---------          --------

Loss from operations                                                       (9,373)           (11,967)          (11,557)
Other income (expense):
         Interest income                                                       201                169               577
         Interest expense                                                  (1,493)              (372)           (1,401)
         Other income                                                            -                  -             2,497
                                                                      ------------      -------------          --------
Net loss                                                                 $(10,665)          $(12,170)         $ (9,884)
                                                                         =========          =========         =========

Net loss per share - basic and diluted:                                 $   (0.77)         $   (1.35)        $   (1.22)
                                                                        ==========         ==========        ==========

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

</TABLE>

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



906583.4
                                      F-4

<PAGE>



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

Year ended
December 31, 1999, 1998
and 1997 (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, 1996                 8,098          $81      $60,702           $(398)        $(3)    $(52,453)       $7,929

Issuance of common stock to
   employees under stock plans                  66            1          176                                                    177

Unearned compensation amortization                                                       309                                    309

Other                                                                                                  2                          2

Net loss                                                                                                       (9,884)       (9,884)
                                         ---------      -------     --------       ---------             -------------   -----------


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
                                            ======   ==========   ==========    ============ ===========  ============   ==========
</TABLE>

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


906583.4
                                       F-5

<PAGE>



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

<TABLE>
<CAPTION>

                                                                                      1999             1998              1997
                                                                                      ----             ----              ----

Cash flows from operating activities:
<S>                                                                              <C>             <C>                <C>
   Net loss                                                                      $(10,665)       $ (12,170)         $ (9,884)
   Adjustments to reconcile net loss to net
      cash used in operating activities:
        Financing costs related to warrants                                          1,024              189                 -
        Impairment of assets                                                             -                -               475
        Depreciation and amortization                                                  475              479               859
        Accretion of marketable securities discount                                      -               20                 4
        Loss on disposal of equipment                                                    -                5                 -
   Changes in operating assets and liabilities:
        Net assets of discontinued business                                              -                -               500
        Accounts receivable                                                          (443)              436             (153)
        Inventories                                                                  (600)             (48)               218
        Prepaid expenses and other current assets                                       50               21                33
        Accounts payable                                                             (343)              666             (736)
        Accrued expenses                                                              (29)            (297)               273
        Other assets                                                                   (8)             (10)                20
                                                                               -----------       ----------         ---------

   Net cash used in operating activities                                          (10,539)         (10,709)           (8,391)
                                                                                  --------         --------           -------

   Cash flows from investing activities:

        Purchases of marketable securities                                               -         (20,255)          (99,752)
        Maturities of marketable securities                                              -           27,117           104,235
        Unrealized holding loss of available for sale marketable securities              -                1                 2
        Additions to property and equipment                                          (517)            (422)             (220)
                                                                                     -----            -----             -----

   Net cash provided by (used in) investing activities                               (517)            6,441             4,265
                                                                                     -----            -----             -----

   Cash flows from financing activities:

        Net proceeds from issuance of common stock                                  14,724               90               177
        Borrowing from notes payable arrangements                                        -            5,000               140
        Repayment of notes payable                                                    (27)              (9)              (31)
        Repayments of capital lease obligations                                      (225)            (260)             (241)
                                                                                   -------           ------            ------

   Net cash provided by financing activities                                        14,472            4,821                45
                                                                                    ------            -----           -------

   Net (decrease) increase in cash and cash equivalents                              3,416              553           (4,081)
   Cash and cash equivalents at beginning of period                                  1,827            1,274             5,355
                                                                                   -------          -------           -------

   Cash and cash equivalents at end of period                                       $5,243           $1,827            $1,274
                                                                                    ======           ======            ======

   Supplemental schedule of cash flow information:
        Cash paid during the year for interest                                       $ 453             $503            $1,072

   Noncash investing and financing activities:
        Acquisition of fixed assets financed by capital leases                   $       -        $       -         $      38
        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.

906583.4
                                       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 currently-marketed
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.

         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, 1999, had an accumulated deficit of $85.2
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 the Company is currently developing may require pre-clinical and
clinical testing prior to submission of any regulatory application for
commercial use. The Company's success will depend on the commercial acceptance
of its r\LS System and the development and commercial acceptance of its other
planned blood-related products. The Company believes that the funds currently
available, including the funds raised in March 2000 (Note Q) will be sufficient
to fund operations through at least the next twelve months.

B.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

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
$4,743,000 and $2,138,000 and at December 31, 1999 and 1998, 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. The Company held no
marketable securities at December 31, 1999 and 1998.

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

906583.4
                                       F-7

<PAGE>



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

         Revenues from product sales are recognized when goods are shipped.

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 C and H), stock options (see Note L) and a
convertible subordinated note payable (see Note I). The Company had 4,757,000,
4,214,000 and 2,846,000 potential common stock shares as of December 31, 1999,
1998, and 1997, respectively. The convertible subordinated note was converted
into 827,375 shares of common stock of the Company in January 1998.

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 June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
"derivatives"), and for hedging activities. The statement requires companies to
recognize all derivatives as either assets or liabilities, with the instruments
measured at fair value. The accounting for changes in fair value, gains or
losses depends on the intended use of the derivative and its resulting
designation. The statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. The Company does not expect such adoption to have
a material impact on its financial statements.

         In December 1999, the Commission issued Staff Accounting Bulletin No.
101 ("SAB 101"), "Revenue Recognition in Financial Statements," which is
effective no later than the quarter ending June 30, 2000. SAB 101

906583.4
                                       F-8

<PAGE>



clarifies the Commission's views related to revenue recognition and disclosure.
The Company will adopt SAB 101 in the second quarter of 2000 and is presently
determining the effect it will have on the Company's financial statements,
although management does not believe the effect will be material.

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, 1999 and 1998
and the reported amounts of revenues and expenses during the years ended
December 31, 1999, 1998 and 1997. Actual results could differ from those
estimates.

C.       AGREEMENTS WITH SEPRACOR:

         The Company was formerly a wholly-owned subsidiary of Sepracor. As of
January 31, 2000, Sepracor owned 27% of the common stock, $.01 par value, of the
Company (the"Common Stock").

         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 has 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. (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.

D.       ACCOUNTS RECEIVABLE:

         The Company's 1999 and 1998 trade receivables primarily represent
amounts due for product sales. The allowance for doubtful accounts was $5,000
and $7,000 at December 31, 1999 and 1998, respectively.

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

906583.4
                                       F-9

<PAGE>




E.       INVENTORIES:

         Inventories consist of the following at December 31:


(In thousands)                                               1999         1998
                                                             ----         ----
Raw materials                                             $   393    $     206
Work in Progress                                              401            -
Finished goods                                                 12            -
                                                         --------   ----------

                                                           $  806     $  206
                                                         ========   ==========


F.       PROPERTY AND EQUIPMENT

         Property and equipment consist of the following at December 31:

<TABLE>
<CAPTION>

(In thousands)                                                             1999                  1998
                                                                           ----                  ----
<S>                                                                    <C>                   <C>
Laboratory and manufacturing equipment                                 $  1,479              $    874
Leased laboratory and manufacturing equipment                               505                   505
Office equipment                                                            858                   759
Leasehold improvements                                                      772                   766
                                                                        -------
                                                                          3,614                 2,904

Accumulated depreciation and amortization                               (2,324)               (1,849)
                                                                        -------

                                                                          1,290                 1,055
Construction in progress                                                    257                   450
                                                                       --------

                                                                       $  1,547              $  1,505
                                                                       ========              ========
</TABLE>


         Depreciation and amortization expense was $475,000, $391,000 and
$548,000, in 1999, 1998 and 1997, respectively. In conjunction with its
determination to discontinue manufacture of the LeukoNet System in February
1998, a provision for impairment of $475,000 for manufacturing and related
assets was recorded for the period ended December 31, 1997.

         Accumulated amortization of assets under lease was $106,000 and
$395,000 as of December 31, 1999 and 1998, respectively.


906583.4
                                      F-10

<PAGE>



G.       ACCRUED EXPENSES AND COMMITMENTS AND CONTINGENCIES:

         Accrued expenses consist of the following at December 31:



(In thousands)                              1999                1998
                                            ----                ----
Compensation                              $  189              $   43
Professional fees                            155                 104
Interest on notes payable                     41                  26
Customer refunds                             175                 175
Services                                     678                 750
Miscellaneous                                282                 451
                                          ======             =======

                                          $1,520              $1,549
                                          ======              ======

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.

         In 1994, the Company, in collaboration with Sepracor and certain of its
other subsidiaries, executed an equipment leasing arrangement that provided for
a total of $2,000,000 to these companies for purposes of financing capital
equipment. In October 1996, the Company executed a separate follow-on equipment
leasing arrangement that provided $1,100,000 of equipment financing through
March 31, 1997. The Company has 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 is required to make a deposit of 20% of the original equipment cost,
which earns interest at an annual rate of 4%. As of December 31, 1999 the
Company had $68,000 on deposit at the leasing company under this leasing
arrangement. Under certain circumstances, Sepracor is 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%.



906583.4
                                      F-11

<PAGE>



         Future minimum payments under all noncancelable leases in effect at
December 31, 1999 are as follows:

<TABLE>
<CAPTION>

(In thousands)                                                    Operating            Capital
Year                                                                 Leases             Leases
----                                                                 ------             ------
<S>                                                                  <C>               <C>
2000                                                                 $  236            $    74
2001                                                                    236                  -
2002                                                                    236                  -
2003                                                                    236                  -
2004                                                                     20                  -
                                                                    -------          ---------
Total minimum lease payments                                         $  964                 74
                                                                     ------           --------
Less amount representing interest                                                            3
Present value of minimum lease payments                                                $    71
                                                                                       =======
</TABLE>

Based on the borrowing rates currently available to the Company for capital
leases with similar terms and average maturities, the fair value of capital
leases approximates the carrying value.

         The total charged to rent expense for all noncancelable leases
including amounts for building maintenance, utilities and other operating costs
was $660,000, $833,000, and $803,000, in 1999, 1998, and 1997, 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 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)                                    1999                   1998
                                                  ----                   ----
Leasehold improvements financing               $    73               $    100
Revolving line of credit                         5,000                  5,000
                                                 -----                  -----
                                                 5,073                  5,100
Less current portion                             5,030                     27
                                                 -----                -------
                                               $    43                $ 5,073
                                               =======                =======

         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. As of December 31, 1999, the entire
$5 million was outstanding under the line. The revolving line of credit, which
expires in August 2000, is 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. The weighted average borrowing rate for the period ended
December 31, 1999 was 8.67%. For the period ended December 31, 1999, the Company
recorded interest expense related to borrowings under the line of $434,000. The
credit agreement contains customary covenants and provisions. The bank has a
first lien on all assets of the Company including its intellectual property.





906583.4
                                      F-12

<PAGE>



         Sepracor, the Company's largest shareholder, has 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 has placed a value of $1,938,000 on the 1,700,000 warrants as of the
date of the final agreement and is amortizing this deferred financing charge on
a monthly basis over the term of the line of credit. For the periods ended
December 31, 1999 and 1998 the Company amortized $1,024,000 and $189,000,
respectively, of this deferred finance charge and recorded it as interest
expense in the Statement of Operations.

I.       CONVERTIBLE SUBORDINATED NOTE PAYABLE

         In May 1996, the Company acquired the plasma product unit of Novo
Nordisk A/S, a Denmark corporation ("Novo Nordisk"), through its Danish
subsidiary, HemaSure A/S (the "Denmark Acquisition"). The purchase price for the
transaction was comprised of a combination of promissory notes, convertible
subordinated notes (which would convert to common stock of the Company or a
subsidiary of the Company) and additional consideration payable in 1998 in cash
or stock, at the option of the Company, which would not be paid in certain
events. On February 20, 1997, the Company's board of directors voted to
discontinue the development and operation of the Danish Plasma Business,
retroactive to December 31, 1996.

         In January 1997, the Company entered into a Restructuring Agreement of
the debt related to the Denmark Acquisition. 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 in the principal amount of
approximately $11,700,000, which was due and payable on December 31, 2001, with
interest payable quarterly (provided that up to approximately $3,000,000 would
be forgiven in certain circumstances). Approximately $8,500,000 of the reduction
of such indebtedness was forgiven. The remainder of the reduction represented a
net amount due from Novo Nordisk to the Company related to various service
arrangements between the two companies. The amount included in the balance sheet
at December 31, 1997 included the effect of the Restructuring Agreement net of
the $3,000,000 contingency amount to reflect the most probable result of the
Company's decision to exit the plasma business. In December 1997, the Company
notified the holder of the note of its intent to convert in January 1998
$8,687,000 of debt, which it believes was the entire amount outstanding as of
the date of conversion. 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 has contested the
conversion of the note, including the forgiveness of the $3,000,000 amount. The
Company believes that such assertions are without merit.

J.       SEGMENT INFORMATION

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

         Revenue from significant unaffiliated customers are as follows:


Year Ended December 31:           1999                 1998               1997
                                  ----                 ----               ----
Customer A.                       66%                  53%                86%
Customer B.                       33%                  -                  -
Customer C.                       -                    10%                -

K.       STOCKHOLDERS' EQUITY (DEFICIT)

         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.



906583.4
                                      F-13

<PAGE>



         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 Inc. 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 Inc. 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 Inc. exercised this
option in full. In connection with the exercise of this option, Gambro Inc.
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.

L.       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 "Plans"). A total of
3,000,000 shares have been authorized by the Company for grants of options or
shares, of which 155,000 are still available for grant. Stock options granted
during 1999 and 1998 generally have a maximum term of ten years and vest ratably
over a period of two to five years.

906583.4
                                                       F-14

<PAGE>



         A summary of the Company's stock option activity for the years ended
December 31 follows:
<TABLE>
<CAPTION>


                                               Number of Options          Weighted Average
                                                  (In thousands)            Exercise Price
----------------------------------------------------------------------------------------

<S>                                                        <C>                     <C>
Outstanding at December 31, 1996                           2,373                   $  9.24
Granted                                                    1,262                   $  3.02
Exercised                                                   (24)                   $  2.25
Terminated                                               (1,592)                    $12.06
                                                         -------

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
                                                           =====                   =======
</TABLE>

   The following table summarizes the status of the Company's stock options at
December 31, 1999:
<TABLE>
<CAPTION>


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

                                                   Weighted          Weighted           Number
                                  Number            Average          Average         Exercisable         Weighted
                              Outstanding As       Remaining         Exercise           As of             Average
                                Of 12/31/99       Contractual         Price            12/31/99          Exercise
Range of Exercise Prices      (In thousands)         Life                           (In thousands)         Price
-------------------------------------------------------------------------------------------------------------------


<S>                                <C>               <C>                <C>              <C>             <C>
      $   .63   -   $   .94        1,581             8.1                $  .64           408             $   .65
      $  1.25   -   $  1.75          294             8.5                $ 1.28            65             $  1.34
      $  2.00   -   $  3.50          183             4.9                $ 2.54           138             $  2.25
      $  3.88   -   $  5.94          284             9.6                $ 5.51             5             $  5.50
      $ 12.38   -   $ 16.25           48             6.3                $14.74            40             $ 15.17
                                  ------             ---                -----            ---             -------
                                   2,390             8.0                $ 1.72           656             $  1.98
</TABLE>

         The weighted average grant date fair value for options granted during
1999, 1998 and 1997 was $3.57, $0.49 and $2.04 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 1999, 1998 and
1997: 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 of
$89,000 and $309,000 in 1998 and 1997, respectively, related to these options.

         In January 1998, the Company adopted a one time stock option exchange
program. Upon employee consent, the program provides for the grant to each
employee of a new stock option in exchange for the cancellation of the old stock
option. The new stock option, granted at fair market value at date of issuance,
will become exercisable for a number of shares of common stock equal to the
number of shares covered by the old stock option.



906583.4
                                      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 41,071 shares for a total of $117,000 during the year ended December
31, 1999 and 96,695 shares for a total of $88,000 during the year ended December
31, 1998. At December 31, 1999, 291,397 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 1999, 1998
and 1997 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.
<TABLE>
<CAPTION>


                                                                          1999                1998              1997
                                                                          ----                ----              ----
<S>                                                                  <C>                <C>               <C>
Net loss - as reported                                               $(10,665)          $ (12,170)        $  (9,884)
Net loss - pro forma                                                 $(11,274)          $ (12,610)         $(10,415)
Net loss per share - as reported - basic and diluted                 $  (0.77)         $    (1.35)        $   (1.22)
Net loss per share - pro forma - basic and diluted                  $   (0.82)         $    (1.40)        $   (1.28)
</TABLE>

         The pro forma effect on net income for 1999, 1998 and 1997 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.


906583.4
                                      F-16

<PAGE>



M.       INCOME TAXES

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


 (In thousands)                                                                       1999                     1998
                                                                                      ----                     ----
Deferred taxes:
<S>                                                                                <C>                      <C>
            Net operating loss carryforwards                                       $31,315                  $21,463
            Research and development expense capitalization                          4,392                    3,892
            Tax credit carryforwards                                                 1,235                      999
            Inventory reserves                                                          20                       43
            Deferred compensation                                                      285                      284
            Accrued charges not paid                                                   512                      466
            Other                                                                        7                       21
            Property and equipment                                                       1                     (16)
                                                                               -----------
                                                                                    37,767                   27,152
Valuation allowance                                                               (37,767)                 (27,152)
                                                                                  --------                 --------
Net deferred taxes                                                             $         -              $         -
                                                                               ===========              ===========
</TABLE>

         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 1999, 1998 and 1997. The effective tax rate was 0% due to a
net operating loss and the non-recognition of any net deferred tax asset. At
December 31, 1999, the Company had federal and state tax net operating loss
carryforwards ("NOLs") of approximately $73,000,000 and $67,000,000,
respectively, to offset future regular taxable earnings. The federal and state
NOLs begin to expire in 2009 and 2000. Approximately $4,000,000 of state NOLs
expired in 1999. The Company has research and development tax credits of
approximately $690,000 and $520,000, respectively, which both begin to expire in
2009. The Company has a state investment tax credit carryforward of
approximately $20,000, which begins to expire in 2000.

N.       AGREEMENTS

         In July 1999, the Company entered into a master purchase agreement with
the American Red Cross that provides for the sale of the r\LS System by the
Company to the American Red Cross on specified terms. The master purchase
agreement provides for a thirty-eight month term expiring on August 31, 2002,
subject to, among other things, earlier termination by the American Red Cross in
certain circumstances. Under the master purchase agreement, the American Red
Cross is required to purchase specified minimum annual quantities of the r\LS
System, subject to certain terms and conditions. The term of the master purchase
agreement may be extended by one year in certain circumstances if the American
Red Cross fails to meet its minimum purchase obligation in the third year of the
agreement.

         In August 1998, the Company completed an amended and restated Master
Strategic Alliance Agreement with the American Red Cross 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 American Red Cross
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.

         In 1998, the Company completed a distribution and development
agreement, which was amended in May 1999, with Gambro Inc. to act as the
Company's exclusive distributor of the Company's r\LS System worldwide, except
for sales to the American Red Cross. Under the amended distribution and
development agreement, Gambro Inc. is required to purchase specified minimum
annual quantities of the r\LS System, subject to certain terms and conditions.
Furthermore, this agreement provides that Gambro Inc. may, upon mutual agreement
by the Company and Gambro Inc., distribute additional future products developed
by us that filter blood and its


906583.4
                                      F-17

<PAGE>



components. The distribution agreement provides for a five-year term that
expires in June 2004, subject to automatic three-year renewals unless the
agreement is previously terminated.

O.       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, 1998 and 1997, the Company
provided matching contributions of approximately $40,000, $0, and $34,000,
respectively.

P.       LITIGATION

         The Company is a defendant in a lawsuit brought by Pall Corporation
("Pall") regarding the 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 has not
acted on the summary judgment motions.

         The Company and Gambro BCT 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 ("'321 Patent") and Pall's U.S. Patent Nos. 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, and the action is proceeding. On September 30,
1999, the Court denied Pall's motion to dismiss the action and the case is
proceeding. Pall submitted a counterclaim alleging that the r\LS System
infringes the'572 patent and that the Company and Gambro BCT tortiously
interfered and unfairly competed with Pall's business. Pall has also asserted
that the r\LS System infringes one or more of the other patents that are the
subject of the lawsuit.

         On April 23, 1999, Pall filed a complaint against the Company and
Gambro BCT in the Eastern District of New York alleging that the r\LS System
infringes the '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 Inc., Gambro A.B., a Swedish company, of
which Gambro Inc. is a business unit, and Sepracor as defendants. The Company
and Gambro BCT have moved to dismiss, transfer or stay the action and Pall has
opposed the motion. There has been no decision on the motion.

         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 claims 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.


906583.4
                                      F-18

<PAGE>



         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.

Q.       SUBSEQUENT EVENT

         In March 2000, the Company completed a $28,000,000 private placement 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 agreed to register,  prior
to June 2, 2000, 2,551,320 of such shares for resale. The Company intends to use
the proceeds of the private placement for working capital, capital equipment and
general corporate purposes.

         The Company  entered into an agreement with Command  effective  January
31, 2000 that provides for Command, on a non-exclusive  basis, 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.
The  agreement  has a term of three  years,  subject  to an  automatic  one-year
extension  in the event the  Company  fails to  purchase a  specified  number of
products by the third year and, also,  upon the mutual  agreement by the Company
and Command.  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 dry bags used in its r\LS  System  and  assembly  requirements  of 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 the risk
of price fluctuations in respect of raw materials, overhead and labor. Under the
Company's supply and assembly  agreement with Command,  the Company is obligated
to  provide  to Command  90 days  before  each year of the  supply and  assembly
agreement  forecasts  for  anticipated  purchases  of the dry bags and  assembly
requirements for the upcoming 12-month period.







906583.4
                                      F-19

<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 30th day of
March, 2000.

                            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.
<TABLE>
<CAPTION>


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

<S>                                         <C>                                       <C>
/s/ John F. McGuire, III                    President, Chief Executive                March 30, 2000
---------------------------
John F. McGuire, III                        Officer and Director (Principal
                                            Executive Officer)

/s/ James B. Murphy                         Senior Vice President, Finance            March 30, 2000
---------------------------
James B. Murphy                             and Administration (Principal
                                            Financial Officer)

/s/ Timothy J. Barberich                    Director                                  March 30, 2000
---------------------------
Timothy J. Barberich

/s/ David S. Barlow                         Director                                  March 30, 2000
---------------------------
David S. Barlow

/s/ Frank Corbin                            Director                                  March 30, 2000
---------------------------
Frank Corbin

/s/ Justin E. Doheny                        Director                                  March 30, 2000
---------------------------
Justin E. Doheny

/s/ Edward C. Wood                          Director                                  March 30, 2000
---------------------------
Edward C. Wood
</TABLE>


906583.4
                                       S-1

<PAGE>
                                  EXHIBIT INDEX

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


<TABLE>
<CAPTION>

       Exhibit No.                                              Description
       ----------                                               -----------
<S>                      <C>

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.


935681.2

<PAGE>




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.
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 American Red Cross.
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.


935681.2

<PAGE>




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                    Manufacturing and Supply Agreement, dated as of December 22, 1999, between
                         the Company and Filtertek Inc.
10.29                    Supply and Assembly Agreement, dated as of January 31, 2000, between the
                         Company and Command Medical Products Inc.
10.30                    Placement Agency Agreement, dated February 3, 2000, between the Company
                         and Warburg Dillon Read LLC.
10.31                    Form of Purchase Agreement, dated March 2, 2000.
10.32                    Schedule of purchasers which purchased shares of common stock pursuant to the
                         Form of Purchase Agreement set forth in 10.42.
21.1(12)                 Subsidiaries of the Company.
23.1                     Consent of PricewaterhouseCoopers  LLP
27.1                     Financial Data Schedule.


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

(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.


935681.2

<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.
+                 Confidential treatment requested as to certain portions.
</TABLE>



935681.2