<PAGE>   1
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                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    ---------

                                    FORM 10-K

                            FOR ANNUAL AND TRANSITION
                        REPORTS PURSUANT TO SECTION 13 OR
                  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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

         For the period ended May 31, 1999

[  ]     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 0-24050

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

                                    DELAWARE
         (State of Other Jurisdiction of Incorporation or Organization)

                                   36-3378733
                     (I.R.S. Employer Identification Number)

               1560 SHERMAN AVENUE, SUITE 1000, EVANSTON, ILLINOIS
                    (Address of Principal Executive Offices)

                                   60201-4800
                                   (Zip Code)

                                 (847) 864-3500
              (Registrant's Telephone Number, Including Area Code)




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

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

                     COMMON STOCK, PAR VALUE $.01 PER SHARE

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

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

         As of August 25, 1999, 14,239,875 shares of the Registrant's common
stock, par value $.01 per share, were outstanding. On that date, the aggregate
market value of voting stock (based upon the closing price of the Registrant's
common stock on August 25, 1999) held by non-affiliates of the Registrant was
$129,180,858 (10,878,388 shares at $11.875 per share).

                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the Registrant's Proxy Statement for its 1999 Annual
Meeting are incorporated by reference into Part III of this Form 10-K.


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           CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

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

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

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




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                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS.

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

         We are presently conducting clinical trials of PolyHeme at multiple
locations in the United States. Our clinical trials include the infusion of
PolyHeme in elective surgical procedures as well as in trauma and emergency
surgical applications. We are authorized by the Food and Drug Administration to
infuse elective surgical patients with up to six units of PolyHeme. The average
person has the equivalent of 10 units of circulating blood. Patients
participating in our trauma and emergency surgical trials may receive up to 20
units of PolyHeme. We are the only firm to report successful infusion of such
high doses of a blood substitute in any phase of clinical testing.

         Infusions have been given during resuscitation, intraoperatively and
postoperatively. The rate of infusion has varied with the clinical setting. The
most rapid rate consisted of the infusion of 20 units in 20 minutes during rapid
hemorrhage. No substantive safety concerns attributed to the infusion of
PolyHeme have been observed. The results of our ongoing clinical trials have
been presented to the American Association for the Surgery of Trauma and the
American College of Surgeons, and have been published in the September 1997
issue of the Journal of Trauma and the August 1998 issue of the Journal of the
American College of Surgeons, both peer-reviewed scientific journals.

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                                   BACKGROUND

         The principal function of human blood is to transport oxygen throughout
the body. The lack of an adequate supply of oxygen as a result of blood loss can
lead to organ dysfunction or death. The transfusion of human blood is presently
the only effective means of immediately restoring diminished oxygen-carrying
capacity resulting from blood loss. We estimate that approximately 14 million
units of blood were transfused in the United States in 1998, of which
approximately 8.5 million units were administered to patients suffering the
effects of acute blood loss.

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

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

                                   THE PRODUCT

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

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

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

                  IMPACT ON DISEASE TRANSMISSION. We believe, and laboratory and
clinical tests have thus far indicated, that the manufacturing process used to
produce PolyHeme reduces blood-borne diseases, such as AIDS and hepatitis below
detectable levels, which may be present in transfused blood.

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

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

                                   THE MARKET

         We estimate that approximately 14 million units of blood were
transfused in the United States in 1998, of which approximately 8.5 million
units were administered to patients suffering the effects of acute blood loss.
Patient charges for the units of blood used in the United States in 1998 for the
treatment of acute blood loss were approximately $2.5 billion. The transfusion
market in the United States consists of two principal segments. The acute blood
loss segment, which comprises approximately 60% of the transfusion market,
includes transfusions required in connection with trauma, surgery and unexpected
blood loss. The chronic blood loss segment represents approximately 40% of the
transfusion market and includes transfusions in connection with general medical
applications and chronic anemias.

         PolyHeme is intended for use as an alternative to transfused blood in
the treatment of acute blood loss. The two principal clinical settings in which
patients experience acute blood loss are elective surgery and non-elective,
emergency surgery. Elective surgery represents the largest potential market for
PolyHeme, with approximately 6.5 million units of blood being used in the United
States each year. The major benefit of PolyHeme in this setting is expected to
be increased transfusion safety for patients and health care professionals. In
addition, approximately two million units of blood are used in the United States
each year for emergency surgical procedures. In this setting, the immediate
availability and universal compatibility of PolyHeme is expected to provide
significant advantages over transfused blood by avoiding the delay and
opportunities for error associated with blood typing.

         In addition to the foregoing applications for which blood is currently
used, there exist potential sources of demand for which blood is not currently
utilized and for which PolyHeme may be suitable. These include applications in
which the required blood type is not immediately available or in which
transfusions are desirable but not given for fear of a transfusion reaction due
to difficulty in identifying compatible blood. For example, we believe
emergicenters and surgicenters both experience events where an oxygen-carrying
volume expander may be useful. We also believe PolyHeme may be used by Emergency
Medical Technicians in ambulances, medical helicopters and other prehospital
settings. In addition, the military has expressed a high level of interest in
oxygen-carrying products for the resuscitation of battlefield casualties.

                                 CLINICAL TRIALS

         Infusions have been given during resuscitation, intraoperatively and
postoperatively. The rate of infusion has varied with the clinical setting. The
most rapid rate consisted of the infusion of 20 units in 20 minutes during rapid
hemorrhage. No substantive safety concerns attributed to the infusion of
PolyHeme have been observed. The results of our ongoing clinical trials have
been presented to the American Association for the Surgery of Trauma and the
American College of Surgeons, and have been published in the September 1997
issue of the Journal of Trauma and the August 1998 issue of the Journal of the
American College of Surgeons, both peer-reviewed scientific journals.



<PAGE>   6

ELECTIVE SURGICAL APPLICATIONS

         We are presently conducting Phase III clinical trials of PolyHeme at
multiple locations in the United States. Our Phase III clinical protocol is a
randomized controlled study in which informed elective surgical patients are
infused with up to six units of PolyHeme (three liters containing 300 grams of
hemoglobin).



         We have engaged an international contract research organization to
independently administer the collection of patient data generated by test sites
participating in our Phase III clinical trials. The purpose of independent
administration is to ensure that data collected as part of Phase III trials is
free from any inaccuracy or bias that might result from interactions between the
testing sites and the trial sponsor. As a result of this arrangement, we will
not have access to detailed information regarding the status or results of our
Phase III clinical trials until patient enrollment is completed.

TRAUMA AND EMERGENCY SURGICAL APPLICATIONS

         In addition to our Phase III trials, we are continuing to conduct Phase
II clinical trials of PolyHeme in trauma and emergency surgical applications at
civilian hospitals and military medical facilities in the United States. These
continuing clinical trials, which began in 1994, are designed to assess the
safety and effectiveness of PolyHeme in treating acute blood loss and
hemorrhagic shock in trauma and surgical patients. We are authorized by the FDA
to infuse up to 20 units (1000 grams) of PolyHeme to patients participating in
our clinical trials in trauma and emergency surgical applications. This
unprecedented dose is equivalent to twice the blood volume of an average person.

                        MANUFACTURING AND MATERIAL SUPPLY

         We use a proprietary process of separation, filtration and chemical
modification to produce PolyHeme. Since 1990, we have produced PolyHeme in our
21,000 square foot manufacturing facility. We believe this facility is capable
of producing sufficient quantities of PolyHeme for all of our clinical trials in
the United States. We and our independent engineering consultants believe that
our existing manufacturing process may be scaled up without substantial
modification to produce commercial quantities of PolyHeme in larger facilities.

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

         The successful commercial introduction of PolyHeme will also depend on
an adequate supply of blood to be used as a starting material. We believe that
an adequate supply of blood is obtainable through the voluntary blood services
sector. We have had extensive discussions with existing blood collection
agencies, including The American Red Cross and Blood Centers of America,
regarding sourcing of blood. We currently have short-term purchasing contracts
with each of these agencies. In 1996, we entered into an agreement with
hemerica, Inc., a subsidiary of Blood Centers of America, under which hemerica
will supply us with 82,500 units per year of packed red cells, the source
material for PolyHeme, over a three year period. We have and will continue to
pursue long-term supply contracts with such agencies and other potential
sources, although we cannot ensure that we will be able to obtain sufficient
quantities of blood from the voluntary blood services sector to enable it to
produce commercial quantities of PolyHeme if FDA approval is received.

                              MARKETING STRATEGIES

         If FDA approval of PolyHeme is received, we intend to market PolyHeme
with our own sales force in the United States. We intend to recruit and train a
specialty sales force of approximately 20 individuals to introduce PolyHeme in
selected markets. The selling effort will target approximately 500 hospitals
which utilize over 70% of the nation's blood


<PAGE>   7

supply. We believe the most important marketing activities will be educating,
stimulating use by and servicing health care professionals.

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


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

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

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

                                   COMPETITION

         If approved for commercial sale, PolyHeme will compete directly with
established therapies for acute blood loss and may compete with other
technologies currently under development. We cannot ensure that PolyHeme will
have advantages which will be significant enough to cause medical professionals
to adopt it rather than to continue to use established therapies or other new
technologies or products. We also cannot ensure that the price of PolyHeme, in
light of PolyHeme's potential advantages, will be competitive with the price of
established therapies or other new technologies or products.

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



<PAGE>   8
         We believe that important competitive factors in the market for blood
substitute products will include the relative speed with which competitors can
develop their respective products, complete the clinical testing and regulatory
approval process and supply commercial quantities of their products to the
market. In addition to these factors, competition is expected to be based on the
effectiveness of blood substitute products and the scope of the intended uses
for which they are approved, the scope and enforceability of patent or other
proprietary rights, product price, product supply and marketing and sales
capability. We believe that our competitive position will be significantly
influenced by the timing of the clinical testing and regulatory filings for
PolyHeme, our ability to expand its manufacturing capability to permit
commercial production of PolyHeme, if approved, and our ability to maintain and
enforce our proprietary rights covering PolyHeme and its manufacturing process.

                              GOVERNMENT REGULATION

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

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

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

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


<PAGE>   9

         Our regulatory strategy is to pursue clinical testing and FDA approval
of PolyHeme in the United States. We intend to arrange for testing and seek
regulatory approval of PolyHeme outside the United States through licensing or
other arrangements with other foreign or domestic companies.

                         PATENTS AND PROPRIETARY RIGHTS

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

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

                            RESEARCH AND DEVELOPMENT

                  Since 1991, the principal focus of our research and
development effort has been the support of the clinical trials necessary for
regulatory approval of PolyHeme. We have also contracted for the preliminary
engineering necessary to assess the production of PolyHeme in commercial
quantities.

                  In fiscal 1999, 1998 and 1997, our research and development
expenses totaled $7,661,000, $6,675,000, and $5,188,000, respectively. We
anticipate that these expenses will continue to increase as we fund the further
clinical testing of PolyHeme and prepare for production of PolyHeme in
commercial quantities.

                                 HUMAN RESOURCES

                  As of May 31, 1999, we had 42 employees, of whom 35 were
involved in research and development and seven were responsible for financial
and other administrative matters. We also had consulting arrangements with seven
individuals as of that date. None of our employees are represented by labor
unions, and we are not aware of any organizational efforts on behalf of any
labor unions involving our employees. We consider our relations with our
employees to be excellent.



<PAGE>   10

                                  RISK FACTORS

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

NEED FOR EXTENSIVE CLINICAL TRIALS

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

GOVERNMENT REGULATION AND UNCERTAINTY OF PRODUCT APPROVALS

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

EARLY STAGE OF DEVELOPMENT

                  Northfield was founded in 1985 and is a development stage
company. Since 1985, we have been engaged primarily in the development and
clinical testing of PolyHeme. No revenues have been generated to date from
commercial sales of PolyHeme. Our revenues to date have consisted solely of
license fees and interest income. We cannot ensure that our clinical testing
will be successful, that regulatory approval of PolyHeme will be obtained, that
we will be able to manufacture PolyHeme at an acceptable cost and in appropriate
quantities or that we will be able
<PAGE>   11
to successfully market and sell PolyHeme. We also cannot ensure that we will not
encounter unexpected difficulties which will have a material adverse effect on
us, our operations or our properties.

RELIANCE ON SINGLE PRODUCT: TECHNOLOGICAL RISK

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

MANUFACTURING UNCERTAINTIES

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

LIMITATION OF SUPPLY OF STARTING MATERIAL

                  We currently purchase donated blood from The American Red
Cross and Blood Centers of America for use as the starting material for
PolyHeme. In 1996, we entered into an agreement with hemerica, Inc., a
subsidiary of Blood Centers of America, under which hemerica would supply us
with 82,500 units per year of packed red cells, the source material for
PolyHeme, over a three year period. We have plans to enter long-term supply
arrangements with other blood collectors. We cannot ensure that we will be able
to enter into satisfactory long-term arrangements with blood bank operators,
that the price we may be required to pay for starting material will permit us to
price PolyHeme competitively or that we will be able to obtain an adequate
supply of starting material. Additional demand for blood may arise from
competing blood substitute products, some of which are derived from human blood,
thereby limiting our available supply of starting material.

COMPETITION

                  If approved for commercial sale, PolyHeme will compete
directly with established therapies for acute blood loss and may compete with
other technologies currently under development. We cannot ensure that PolyHeme
will have advantages which will be significant enough to cause medical
professionals to adopt it rather than to continue to use established therapies
or to adopt other new technologies or products. We also cannot ensure that the
cost of PolyHeme will be competitive with the cost of established therapies or
other new technologies or products. The development of blood substitute products
is a rapidly evolving field. Competition is intense and expected to increase.
Several companies have developed or are in the process of developing
technologies which are, or in the future may


<PAGE>   12

be, the basis for products which will compete with PolyHeme. Certain of these
companies are pursuing different approaches or means of accomplishing the
therapeutic effects sought to be achieved through the use of PolyHeme. Many of
these companies have substantially greater financial resources, larger research
and development staffs, more extensive facilities and more experience than
Northfield in testing, manufacturing, marketing and distributing medical
products. We cannot ensure that one or more other companies will not succeed in
developing technologies or products which will become available for commercial
use prior to PolyHeme, which will be more effective or less costly than PolyHeme
or which would otherwise render PolyHeme obsolete or non-competitive.

ABSENCE OF SALES AND MARKETING EXPERIENCE

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

HISTORY OF LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY OR FUNDING

      From Northfield's inception through May 31, 1999, we have incurred net
operating losses totaling $68,157,000. We will require substantial additional
expenditures to complete clinical trials, to establish commercial scale
manufacturing processes and facilities, and to establish marketing, sales and
administrative capabilities. These expenditures are expected to result in
substantial losses for at least the next several years. The expense and the time
required to realize any product revenues or profitability are highly uncertain.
We cannot ensure that we will be able to achieve product revenues or
profitability on a sustained basis or at all. We may require substantial
additional funds to achieve commercial production of PolyHeme. Our future
capital requirements will depend on many factors, including the scope and
results of clinical trials, the timing and outcome of regulatory reviews,
administrative and legal expenses, the status of competitive products, the
establishment of manufacturing capacity and the establishment of collaborative
relationships. We cannot ensure that this additional funding will be available
or, if it is available, that it can be obtained on terms and conditions we will
deem acceptable. Any additional funding may result in significant dilution to
then existing stockholders.

UNCERTAINTY OF MARKET ACCEPTANCE

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

UNCERTAINTY OF PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY

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


<PAGE>   13

                                     PART II

ITEM 2. PROPERTIES.

      We currently lease a 21,000 square foot pilot manufacturing facility
located in Mt. Prospect, Illinois, and maintain our principal executive offices
in Evanston, Illinois. The leases for our manufacturing facility and executive
offices extend through June 2003 and February 2006, respectively. Rent expense
for our 1999 fiscal year was $499,491. We believe our present manufacturing
facility is capable of producing sufficient quantities of PolyHeme for all of
our clinical trials in the United States.

      Currently, we are planning a two-step expansion. After a two-month
shutdown this fall, new equipment will be installed in our current Mt. Prospect,
Illinois manufacturing facility to bring our manufacturing capacity to
approximately 10,000 units. During the second phase of the expansion, we plan to
lease additional facilities adjacent to our current Mt. Prospect facility. Our
preliminary engineering studies indicate that additional capacity of 50-60,000
units could be developed in approximately 16-18 months at a cost of $18-20
million. Northfield is taking this approach due to the capital required to build
a greenfield facility with a 300,000 unit capacity. We view the smaller facility
as financially prudent yet large enough for commercial viability.

      We have notified the seller of a parcel of undeveloped land previously
purchased for use as our initial commercial-scale manufacturing facility of our
intention to delay development of the site. Under the terms of our purchase
contract, the seller has the right to repurchase the property for an amount
equal to our acquisition cost of approximately $1.8 million. If the seller
elects not to repurchase the property, we plan to hold the property for future
development.


ITEM 3. LEGAL PROCEEDINGS.

      As of May 31, 1999, we were not a party to any material pending legal
proceedings.

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

      None.


<PAGE>   14

                                    PART III

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


                               MARKET INFORMATION

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

<TABLE>
<CAPTION>

                           Fiscal Quarter Ended               High            Low
<S>                        <C>                                <C>             <C>
                           May 31, 1997                       13 1/2          8 3/8
                           August 31, 1997                    10 3/8          9
                           November 30, 1997                  13 7/8          8 3/8
                           February 28, 1998                  11 1/2          8
                           May 31, 1998                       17 1/4          9 1/2
                           August 31, 1998                    18 1/8         10 1/8
                           November 30, 1998                  15 5/8          9 1/8
                           February 28, 1999                  16 3/8         10 15/16
                           May 31, 1999                       15             10 1/2
                           August 31, 1999                    13 7/8         11
                           (through August 25, 1999)
</TABLE>


                                HOLDERS OF RECORD

      As of May 31, 1999, there were approximately 400 holders of record and
approximately 8,700 beneficial owners of our common stock. There were as of that
date no issued and outstanding shares of our preferred stock.

                                    DIVIDENDS

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



<PAGE>   15



ITEM 6. SELECTED FINANCIAL DATA.

      The selected financial data set forth below for, and as of the end of,
each of the years in the five-year period ended May 31, 1999 and for the period
from June 19, 1985 (inception) through May 31, 1999 were derived from
Northfield's financial statements, which financial statements have been audited
by KPMG LLP, independent certified public accountants.


<TABLE>
<CAPTION>


                                                         YEARS ENDED MAY 31,                      CUMULATIVE
                                                                                                     FROM
                                                                                                 JUNE 19, 1985
                                                                                                    THROUGH
                                             1999        1998       1997       1996     1995     MAY 31, 1999
                                            ------      ------     ------     ------   ------   --------------
<S>                                        <C>         <C>          <C>       <C>      <C>        <C>
STATEMENT OF OPERATIONS DATA:
(in thousands, except per share data)

Revenues:

      License income                       $     -         -            -         -        -      $   3,000

Costs and expenses:

      Research and development               7,661     6,675        5,188     5,223    5,901         59,948


      General and administrative             2,311     2,338        2,317     2,509    2,275         29,211


      Interest income (net)                  2,556     3,130        3,259     2,953      737         18,002


Net loss                                   $(7,416)   (5,883)      (4,246)   (4,779)  (7,439)       (68,157)


Net loss per basic share                   $ (0.53)    (0.42)       (0.30)    (0.37)   (0.76)         (7.94)


Shares used in calculation of per
    Share data (1)                          14,115    14,093       13,961    12,849    9,850          8,586


<CAPTION>
                                                                         May 31,
                                              1999         1998           1997         1996          1995
                                             ------       ------        --------      ------        ------
<S>                                        <C>             <C>           <C>          <C>            <C>
BALANCE SHEET DATA:
  (in thousands)

Cash and marketable securities             $  47,561       53,504        60,294       63,984         12,252

Total assets                                  50,963       56,919        62,343       66,339         14,852

Total liabilities                              1,791        1,471         1,048        1,391          1,226

Deficit accumulated during
    Development stage                        (68,157)     (60,740)      (54,857)     (50,611)       (45,832)

Total shareholders' equity (2)                49,171       55,448        61,295       64,948         13,626
</TABLE>



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

(2)  Excludes 623,000 shares reserved for issuance upon the exercise of stock
options outstanding as of May 31, 1999. Additional stock options exercisable for
a total of 20,000 shares and 185,000 shares, respectively, were available for
grant as of May 31, 1999 under the Company's Employee Stock Option Plan and
Stock Option Plan for Outside Directors.



<PAGE>   16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                                 OF OPERATIONS.

      Since Northfield's incorporation in 1985, We have devoted substantially
all of our efforts and resources to the research, development and clinical
testing of our potential product, PolyHeme(TM). We have incurred operating
losses during each year of our operations since inception and expect to incur
substantial additional operating losses for the next several years. From
Northfield's inception through May 31, 1999, we have incurred operating losses
totaling $68,157,000.

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

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

                              RESULTS OF OPERATIONS

      We reported no revenues for the fiscal years ended May 31, 1999,
1998 or 1997. From its inception through May 31, 1999,




<PAGE>   17


Northfield has reported total revenues of $3,000,000, all of which were derived
from licensing fees.

                               OPERATING EXPENSES

      Operating expenses for our fiscal years ended May 31, 1999, 1998 and 1997
totaled $9,972,000, $9,013,000 and $7,505,000, respectively. On a percentage
basis, fiscal 1999 operating expenses exceeded fiscal 1998 expenses by 10.6%,
while fiscal 1998 operating expenses exceeded fiscal 1997 expenses by 20.1%.

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

      For the year ended May 31, 1998, research and development expenses totaled
$6,675,000, representing an increase of $1,487,000, or 28.7%, from the year
ended May 31, 1997. The year over year difference is due to increased expenses
related to our clinical trials, validation services related to the our existing
facility and preparatory analysis work for our planned commercial manufacturing
facility.

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

      General and administrative expenses for fiscal 1999 totaled $2,311,000
compared to expenses of $2,338,000 for fiscal 1998, representing a decrease of
$27,000, or 1.2%. We will continue to prioritize research and development over
general and administrative expenses. We anticipate that general and
administrative expenses will likely increase over the next several quarters as
planning for commercial development will need to keep pace with the progress of
PolyHeme through the FDA approval process.

      General and administrative expenses for fiscal 1998 totaled $2,338,000,
representing a $21,000, or 0.9%, increase from the $2,317,000 reported for the
prior fiscal year. General and administrative spending remained consistent with
the prior fiscal year as we were able to effectively control general and
administrative costs while increasing the level of research and development
activity.

                                 INTEREST INCOME

      Interest income in fiscal 1999 equaled $2,556,000, or a $574,000 decrease
from the $3,130,000 in interest income reported in fiscal 1998. Lower available
investment balances and lower interest rates caused the year over year decrease
in interest income.

      Interest income for fiscal 1998 totaled $3,130,000, or a $129,000 decrease
from the comparable prior year period. Declining available investment balances
and fluctuating interest rates combined for the 4.0% reduction in interest
income.

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

                                    NET LOSS

      Our net loss for the year ended May 31, 1999 was $7,416,000, or $.53 per
basic share, compared to a net loss of $5,883,000, or $.42 per basic share, for
the year ended May 31, 1998. The increase in the loss per basic share is
primarily the result of the increase in the expense of conducting our ongoing
clinical trials.

      For the year ended May 31, 1998, we reported a net loss of $5,883,000, or
$.42 per basic share, compared to a prior year net loss



<PAGE>   18


of $4,246,000, or $.30 per basic share. Higher research expenses for expanded
multi-center clinical trials, increased costs associated with validation
procedures for our manufacturing process and lower interest income combined to
cause the reported net loss and per share net loss to increase.

                         LIQUIDITY AND CAPITAL RESOURCES

      From its inception through May 31, 1999, Northfield has expended cash in
operating activities and for the purchase of property, plant, equipment and
engineering services in the amount of $66,379,000. For the years ended May 31,
1999 and 1998, these cash expenditures totaled $7,068,000 and $6,826,000,
respectively. The year over year difference is primarily due to increased cash
expenditures related to our ongoing clinical trials.

      We have financed our research and development and other activities to date
through the public and private sale of equity securities and, to a more limited
extent, through the license of product rights. As of May 31, 1999, we had cash
and marketable securities totaling $47,561,000.

      We believe our existing capital resources will be adequate to satisfy our
operating capital requirements and maintain our existing manufacturing plant and
office facilities for approximately the next two to three years. Thereafter, we
are likely to require substantial additional capital to continue our operations.
We are currently unable to fund the construction of a large-scale greenfield
manufacturing facility, which is estimated to cost approximately $45 million,
without raising substantial additional capital. Currently, we are planning a
two-step expansion. After a two month shutdown this fall, new equipment will be
installed in our current Mt. Prospect, Illinois manufacturing facility to bring
our manufacturing capacity to approximately 10,000 units. During the second
phase of the expansion, we plan to lease additional facilities adjacent to our
current Mt. Prospect facility. Our preliminary engineering studies indicate that
additional capacity of 50-60,000 units could be developed in approximately 16-18
months at a cost of $18-20 million. Northfield is taking this approach due to
the capital required to build a greenfield facility with a 300,000 unit
capacity. We view the smaller facility as financially prudent yet large enough
for commercial viability.

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

      Our capital requirements may vary materially from those now anticipated
because of the results of our clinical testing of PolyHeme, the establishment of
relationships with strategic partners, changes in the scale, timing or cost of
our commercial manufacturing facility, competitive and technological advances,
the FDA regulatory process, changes in our marketing and distribution strategy
and other factors.

                                    YEAR 2000

      We have reviewed our internal computer applications and have consulted
with our vendors who provide software services. We believe we are substantially
year 2000 compliant and that any required changes in coding or hardware will be
handled in a manner non-disruptive to our business and at a minimal cost.

      We are dependent in our operations on a number of suppliers whose
individual status in achieving a year 2000 conversion is not known at this time.
In the event that we or any of our significant suppliers experience disruption
due to the year 2000 issue, our operations could be adversely affected.


              ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

      See the Index to Financial Statements on page 21. These Financial
Statements are incorporated by reference into this document.

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

      We have not had a disagreement on any matter of accounting principles or
financial statement disclosure with our independent accountants during our 1999,
1998 or 1997 fiscal years.



<PAGE>   19


                                    PART III


ITEMS 10 THROUGH 13.

      The information specified in Items 10 through 13 of Form 10-K has been
omitted in accordance with instructions to Form 10-K. We expect to file with the
Commission in September 1999, pursuant to Regulation 14A, a definitive proxy
statement which will contain the information required to be included in Items 10
through 13 of Form 10-K.


                                     PART IV

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

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

    (1) and (2) See the Index to Financial Statements on page 21
    (3) See Description of Exhibits on page 39.

b)  None.

c)  See Description of Exhibits on page 39.

d)  None.




<PAGE>   20






                          NORTHFIELD LABORATORIES INC.
                      (a company in the development stage)

                              Financial Statements

                              May 31, 1999 and 1998

                   (With Independent Auditors' Report Thereon)



<PAGE>   21


                          NORTHFIELD LABORATORIES INC.
                      (a company in the development stage)



                                TABLE OF CONTENTS



<TABLE>
<CAPTION>
                                                                                                 PAGE

<S>                                                                                               <C>
Independent Auditors' Report                                                                     F-1

Balance Sheets, May 31, 1999 and 1998                                                            F-2

Statements of Operations, Years ended May 31, 1999, 1998 and 1997 and the
     cumulative period from June 19, 1985
     (inception) through May 31, 1999                                                            F-3

Statements of Shareholders' Equity (Deficit), Years ended May 31, 1999, 1998 and
     1997 and the cumulative period from June 19, 1985
     (inception) through May 31, 1999                                                            F-4

Statements of Cash Flows, Years ended May 31, 1999, 1998 and 1997 and the
     cumulative period from June 19, 1985
     (inception) through May 31, 1999                                                            F-8

Notes to Financial Statements                                                                    F-9
</TABLE>



<PAGE>   22





                          INDEPENDENT AUDITORS' REPORT



The Board of Directors and Stockholders
Northfield Laboratories Inc.:


We have audited the accompanying balance sheets of Northfield Laboratories Inc.
(a company in the development stage) as of May 31, 1999 and 1998 and the related
statements of operations, shareholders' equity (deficit), and cash flows for
each of the years in the three-year period ended May 31, 1999 and for the
cumulative period from June 19, 1985 (inception) through May 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Northfield Laboratories Inc. (a
company in the development stage) as of May 31, 1999 and 1998, and the results
of its operations and its cash flows for each of the years in the three-year
period ended May 31, 1999 and for the cumulative period from June 19, 1985
(inception) through May 31, 1999 in conformity with generally accepted
accounting principles.






July 2, 1999


                                      F-1
<PAGE>   23
                          NORTHFIELD LABORATORIES INC.
                      (a company in the development stage)

                                 Balance Sheets

                             May 31, 1999 and 1998


<TABLE>
<CAPTION>
                           ASSETS                                             1999               1998
                                                                          ------------       -----------
<S>                                                                       <C>                <C>
Current assets:
 Cash                                                                     $ 25,855,668        26,473,577
 Short-term marketable securities                                           21,705,449        27,030,902
 Prepaid expenses                                                              351,340           373,151
 Other current assets                                                          268,430            17,657
                                                                          ------------       -----------
     Total current assets                                                   48,180,887        53,895,287

Property, plant and equipment, net                                           2,755,565         2,996,937
Other assets                                                                    26,244            27,255
                                                                          ------------       -----------
                                                                          $ 50,962,696        56,919,479
                                                                          ============       ===========
                LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
 Accounts payable                                                         $  1,325,030         1,037,267
 Accrued expenses                                                              120,624            81,522
 Accrued compensation and benefits                                             221,000           253,345
                                                                          ------------       -----------
     Total current liabilities                                               1,666,654         1,372,134

Other liabilities                                                              124,702            98,976
                                                                          ------------       -----------
     Total liabilities                                                       1,791,356         1,471,110
                                                                          ------------       -----------
Shareholders' equity:
 Preferred stock, $.01 par value.  Authorized 5,000,000 shares;
  none issued and outstanding                                                        -                 -
 Common stock, $.01 par value.  Authorized 20,000,000 shares;
  issued and outstanding 14,239,875 and 14,097,375 shares
  in 1999 and 1998, respectively                                               142,399           140,974
 Additional paid-in capital                                                117,185,514       116,047,635
 Deficit accumulated during the development stage                          (68,156,573)      (60,740,240)
                                                                          ------------       -----------
     Total shareholders' equity                                             49,171,340        55,448,369
                                                                          ------------       -----------
                                                                          $ 50,962,696        56,919,479
                                                                          ============       ===========
</TABLE>
See accompanying notes to financial statements.


                                      F-2
<PAGE>   24

                          NORTHFIELD LABORATORIES INC.
                      (a company in the development stage)

                            Statements of Operations

                    Years ended May 31, 1999, 1998 and 1997
                  and the cumulative period from June 19, 1985
                        (inception) through May 31, 1999

<TABLE>
<CAPTION>

                                                                                                   CUMULATIVE
                                                                                                      FROM
                                                               YEARS ENDED MAY 31,                JUNE 19, 1985
                                                    ------------------------------------------      THROUGH
                                                       1999            1998           1997        MAY 31, 1999
                                                    ------------     ----------     ----------    -------------
<S>                                                 <C>              <C>            <C>           <C>
Revenues - license income                           $         -              -              -         3,000,000
                                                    ------------     ----------     ----------    -------------
Costs and expenses:
 Research and development                              7,660,763      6,675,052      5,187,738       59,947,580
 General and administrative                            2,311,365      2,338,451      2,317,217       29,210,725
                                                    ------------     ----------     ----------    -------------
                                                       9,972,128      9,013,503      7,504,955       89,158,305
                                                    ------------     ----------     ----------    -------------
Other income and expense:
 Interest income                                       2,555,795      3,130,125      3,259,262       18,084,966
 Interest expense                                             -              -              -            83,234
                                                    ------------     ----------     ----------    -------------
                                                       2,555,795      3,130,125      3,259,262       18,001,732
                                                    ------------     ----------     ----------    -------------
     Net loss                                       $ (7,416,333)    (5,883,378)    (4,245,693)     (68,156,573)
                                                    ============     ==========     ==========    =============
Net loss per share - basic and diluted              $      (0.53)         (0.42)         (0.30)           (7.94)
                                                    ============     ==========     ==========    =============
Shares used in calculation of
 per share data - basic                               14,114,676     14,097,375     13,960,557        8,585,788
                                                    ============     ==========     ==========    =============
</TABLE>
See accompanying notes to financial statements.

                                      F-3
<PAGE>   25
                          NORTHFIELD LABORATORIES INC.
                      (a company in the development stage)

                  Statements of Shareholders' Equity (Deficit)

           Years ended May 31, 1999, 1998 and 1997 and the cumulative
           period from June 19, 1985 (inception) through May 31, 1999


<TABLE>
<CAPTION>
                                                                                                               PREFERRED STOCK
                                                                                                           -----------------------
                                                                                                            NUMBER       AGGREGATE
                                                                                                           OF SHARES       AMOUNT
                                                                                                           ---------     ---------
<S>                                                                                                        <C>           <C>
Issuance of common stock on August 27, 1985                                                                      --      $      --
Issuance of Series A convertible preferred stock at $4.00 per share on
  August 27, 1985 (net of costs of issuance of $79,150)                                                          --             --
Net loss                                                                                                         --             --
                                                                                                           ---------     ---------

Balance at May 31, 1986                                                                                          --             --
Net loss                                                                                                         --             --
Deferred compensation relating to grant of stock options                                                         --             --
Amortization of deferred compensation                                                                            --             --
                                                                                                           ---------     ---------

Balance at May 31, 1987                                                                                          --             --
Issuance of Series B convertible preferred stock at $35.68 per share on
  August 14, 1987 (net of costs of issuance of $75,450)                                                          --             --
Net loss                                                                                                         --             --
Amortization of deferred compensation                                                                            --             --
                                                                                                           ---------     ---------

Balance at May 31, 1988                                                                                          --             --
Issuance of common stock at $24.21 per share on June 7, 1988 (net of costs of issuance of $246,000)              --             --
Conversion of Series A convertible preferred stock to common stock on June 7, 1988                               --             --
Conversion of Series B convertible preferred stock to common stock on June 7, 1988                               --             --
Exercise of stock options at $2.00 per share                                                                     --             --
Issuance of common stock at $28.49 per share on March 6, 1989 (net of costs of issuance $21,395)                 --             --
Issuance of common stock at $28.49 per share on March 30, 1989 (net of costs of issuance of $10,697)             --             --
Sale of options at $28.29 per share to purchase common stock at $.20 per share on
  March 30, 1989 (net of costs of issuance of $4,162)                                                            --             --
Net loss                                                                                                         --             --
Deferred compensation relating to grant of stock options                                                         --             --
Amortization of deferred compensation                                                                            --             --
                                                                                                           ---------     ---------

Balance at May 31, 1989                                                                                          --             --
Net loss                                                                                                         --             --
Deferred compensation relating to grant of stock options                                                         --             --
Amortization of deferred compensation                                                                            --             --
                                                                                                           ---------     ---------

Balance at May 31, 1990                                                                                          --             --
Net loss                                                                                                         --             --
Amortization of deferred compensation                                                                            --             --
                                                                                                           ---------     ---------

Balance at May 31, 1991                                                                                          --             --
Exercise of stock warrants at $5.60 per share                                                                    --             --
Net loss                                                                                                         --             --
Amortization of deferred compensation                                                                            --             --
                                                                                                           ---------     ---------

Balance at May 31, 1992                                                                                          --             --
Exercise of stock warrants at $7.14 per share                                                                    --             --
Issuance of common stock at $15.19 per share on April 19, 1993 (net of costs of issuance of $20,724)             --             --
Net loss                                                                                                         --             --
Amortization of deferred compensation                                                                            --             --
                                                                                                           ---------     ---------
Balance at May 31, 1993                                                                                          --      $      --
                                                                                                           ---------     ---------

</TABLE>


                See accompanying notes to financial statements.

                                  (Continued)



                                      F-4



<PAGE>   26
                          NORTHFIELD LABORATORIES INC.
                      (a company in the development stage)

                  Statements of Shareholders' Equity (Deficit)

           Years ended May 31, 1999, 1998 and 1997 and the cumulative
           period from June 19, 1985 (inception) through May 31, 1999
<TABLE>
<CAPTION>

                            SERIES A CONVERTIBLE    SERIES B CONVERTIBLE                      DEFICIT                    TOTAL
     COMMON STOCK              PREFERRED STOCK         PREFERRED STOCK                     ACCUMULATED                    SHARE-
-----------------------   ---------------------    -----------------------   ADDITIONAL    DURING THE      DEFERRED      HOLDERS'
 NUMBER       AGGREGATE    NUMBER      AGGREGATE     NUMBER       AGGREGATE    PAID-IN      DEVELOPMENT      COMPEN-       EQUITY
OF SHARES       AMOUNT    OF SHARES      AMOUNT    OF SHARES      AMOUNT      CAPITAL         STAGE         SATION      (DEFICIT)
---------     ---------   ---------     -------    ---------     ---------  -----------    -----------    ----------   -----------
<C>           <C>         <C>           <C>        <C>           <C>        <C>            <C>            <C>          <C>
3,500,000     $  35,000          --     $     --          --     $      --  $   (28,000)   $        --   $        -    $     7,000

       --            --     250,000      250,000          --            --      670,850             --            -        920,850
       --            --          --           --          --            --           --       (607,688)           -       (607,688)
---------     ---------   ---------     --------  -----------     ---------  -----------    -----------   -----------   -----------

3,500,000        35,000     250,000      250,000          --            --      642,850       (607,688)           -        320,162
       --            --          --           --          --            --           --     (2,429,953)           -     (2,429,953)
       --            --          --           --          --            --    2,340,000             --    (2,340,000)           -
       --            --          --           --          --            --           --             --       720,000       720,000
---------     ---------   ---------     --------  ----------     ---------  -----------    -----------   -----------   -----------

3,500,000        35,000     250,000      250,000          --            --    2,982,850     (3,037,641)   (1,620,000)   (1,389,791)

       --            --          --           --     200,633       200,633    6,882,502             --            -      7,083,135
       --            --          --           --          --            --           --     (3,057,254)           -     (3,057,254)
       --            --          --           --          --            --           --             --       566,136       566,136
---------     ---------   ---------     --------  ----------     ---------  -----------    -----------   -----------   -----------

3,500,000        35,000     250,000      250,000     200,633       200,633    9,865,352     (6,094,895)   (1,053,864)    3,202,226
  413,020         4,130          --           --          --            --    9,749,870             --            -      9,754,000
1,250,000        12,500    (250,000)    (250,000)         --            --      237,500             --            -             -
1,003,165        10,032          --           --    (200,633)     (200,633)     190,601             --            -             -
   47,115           471          --           --          --            --       93,759             --            -         94,230
  175,525         1,755          --           --          --            --    4,976,855             --            -      4,978,610
   87,760           878          --           --          --            --    2,488,356             --            -      2,489,234

       --            --          --           --          --            --    7,443,118             --            -      7,443,118
       --            --          --           --          --            --           --       (791,206)           -       (791,206)
       --            --          --           --          --            --      683,040             --      (683,040)           -
       --            --          --           --          --            --           --             --       800,729       800,729
---------     ---------   ---------     --------  ----------     ---------  -----------    -----------   -----------   -----------

6,476,585        64,766          --           --          --            --   35,728,451     (6,886,101)     (936,175)   27,970,941
       --            --          --           --          --            --           --     (3,490,394)           -     (3,490,394)
       --            --          --           --          --            --      699,163             --      (699,163)           -
       --            --          --           --          --            --           --             --       546,278       546,278
---------     ---------   ---------     --------  ----------     ---------  -----------    -----------   -----------   -----------

6,476,585        64,766          --           --          --            --   36,427,614    (10,376,495)   (1,089,060)   25,026,825
       --            --          --           --          --            --           --     (5,579,872)           -     (5,579,872)
       --            --          --           --          --            --           --             --       435,296       435,296
---------     ---------   ---------     --------  ----------     ---------  -----------    -----------   -----------   -----------

6,476,585        64,766          --           --          --            --   36,427,614    (15,956,367)     (653,764)   19,882,249
   90,000           900          --           --          --            --      503,100             --            -        504,000
       --            --          --           --          --            --           --     (7,006,495)           -     (7,006,495)
       --            --          --           --          --            --           --             --       254,025       254,025
---------     ---------   ---------     --------  ----------     ---------  -----------    -----------   -----------   -----------

6,566,585        65,666          --           --          --            --   36,930,714    (22,962,862)     (399,739)   13,633,779
   15,000           150          --           --          --            --      106,890             --            -        107,040
  374,370         3,744          --           --          --            --    5,663,710             --            -      5,667,454
       --            --          --           --          --            --           --     (8,066,609)           -     (8,066,609)
       --            --          --           --          --            --           --             --       254,025       254,025
---------     ---------   ---------     --------  ----------     ---------  -----------    -----------   -----------   -----------
6,955,955     $  69,560          --     $     --          --     $      --  $42,701,314 $  (31,029,471)  $  (145,714)  $11,595,689
---------     ---------   ---------     --------  ----------     ---------  -----------    -----------   -----------   -----------
</TABLE>

                See accompanying notes to financial statements.

                                  (Continued)

                                      F-5
<PAGE>   27
                          NORTHFIELD LABORATORIES INC.
                      (a company in the development stage)

                  Statements of Shareholders' Equity (Deficit)

           Years ended May 31, 1999, 1998 and 1997 and the cumulative
           period from June 19, 1985 (inception) through May 31, 1999


<TABLE>
<CAPTION>

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

</TABLE>
                See accompanying notes to financial statements.

                                  (Continued)

                                      F-6

<PAGE>   28
                          NORTHFIELD LABORATORIES INC.
                      (a company in the development stage)

                  Statements of Shareholders' Equity (Deficit)

           Years ended May 31, 1999, 1998 and 1997 and the cumulative
           period from June 19, 1985 (inception) through May 31, 1999

<TABLE>
<CAPTION>
                              SERIES A CONVERTIBLE       SERIES  B CONVERTIBLE                   DEFICIT                  TOTAL
       COMMON STOCK              PREFERRED STOCK          PREFERRED STOCK                    ACCUMULATED                 SHARE-
 -------------------------   ------------------------ ----------------------   ADDITIONAL     DURING THE    DEFERRED     HOLDERS'
  NUMBER       AGGREGATE       NUMBER       AGGREGATE    NUMBER   AGGREGATE      PAID-IN      DEVELOPMENT    COMPEN-      EQUITY
 OF SHARES       AMOUNT       OF SHARES       AMOUNT   OF SHARES    AMOUNT       CAPITAL        STAGE        SATION     (DEFICIT)
----------   -------------   ----------  ------------ ----------  ----------  ------------- ------------- ----------- ------------
C>           <C>             <C>         <C>          <C>         <C>         <C>           <C>           <C>         <C>
        --   $          --        --     $      --         --     $     --   $          --  $ (7,363,810)         --  $ (7,363,810)
 2,500,000          25,000        --            --         --           --      14,163,851            --          --    14,188,851
        --              --        --            --         --           --         (85,400)           --      85,400            --
        --              --        --            --         --           --              --            --         267           267
----------   -------------   -------    ----------    -------     --------   -------------  ------------  ----------  ------------
 9,455,955          94,560        --            --         --           --      56,779,765   (38,393,281)    (60,047)   18,420,997
        --              --        --            --         --           --              --    (7,439,013)         --    (7,439,013)
   375,000           3,750        --            --         --           --       2,261,250            --          --     2,265,000
    10,000             100        --            --         --           --          71,300            --          --        71,400
   187,570           1,875        --            --         --           --         373,264            --          --       375,139
        --              --        --            --         --           --        (106,750)           --     106,750            --
        --              --        --            --         --           --              --            --     (67,892)      (67,892)
----------   -------------   -------    ----------    -------     --------   -------------  ------------  ----------  ------------
10,028,525         100,285        --            --         --           --      59,378,829   (45,832,294)    (21,189)   13,625,631
        --              --        --            --         --           --              --    (4,778,875)         --    (4,778,875)
 2,925,000          29,250        --            --         --           --      48,324,374            --          --    48,353,624
   438,750           4,388        --            --         --           --       7,360,187            --          --     7,364,575
   182,380           1,824        --            --         --           --         362,937            --          --       364,761
     1,500              15        --            --         --           --           9,555            --          --         9,570
    10,000             100        --            --         --           --          71,300            --          --        71,400
        --              --        --            --         --           --         (80,062)           --      80,062            --
        --              --        --            --         --           --              --            --     (62,726)      (62,726)
----------   -------------   -------    ----------    -------     --------   -------------  ------------  ----------  ------------
13,586,155         135,862        --            --         --           --     115,427,120   (50,611,169)     (3,853)   64,947,960
        --              --        --            --         --           --              --    (4,245,693)         --    (4,245,693)
   263,285           2,633        --            --         --           --          50,025            --          --        52,658
   232,935           2,329        --            --         --           --         463,540            --          --       465,869
    10,000             100        --            --         --           --          71,300            --          --        71,400
        --              --        --            --         --           --              --            --       2,569         2,569
----------   -------------   -------    ----------    -------     --------   -------------  ------------  ----------  ------------
14,092,375         140,924        --            --         --           --     116,011,985   (54,856,862)     (1,284)   61,294,763
        --              --        --            --         --           --              --    (5,883,378)         --    (5,883,378)
     5,000              50        --            --         --           --          35,650            --          --        35,700
        --              --        --            --         --           --              --            --       1,284         1,284
----------   -------------   -------    ----------    -------     --------   -------------  ------------  ----------  ------------
14,097,375         140,974        --            --         --           --     116,047,635   (60,740,240)         --    55,448,369
        --              --        --            --         --           --              --    (7,416,333)         --    (7,416,333)
        --              --        --            --         --           --          14,354            --                    14,354
    17,500             175        --            --         --           --         124,775            --          --       124,950
   125,000           1,250        --            --         --           --         998,750            --          --     1,000,000
----------   -------------   -------    ----------    -------     --------   -------------  ------------  ----------  ------------
14,239,875   $     142,399        --    $       --         --     $     --   $ 117,185,514  $(68,156,573)         --  $ 49,171,340
----------   -------------   =======    ==========    =======     ========   =============  ============  ==========  ============


</TABLE>

See accompanying notes to financial statements.


                                      F-7

<PAGE>   29

                          NORTHFIELD LABORATORIES INC.
                      (a company in the development stage)

                            Statements of Cash Flows

                    Years ended May 31, 1999, 1998 and 1997
                  and the cumulative period from June 19, 1985
                        (inception) through May 31, 1999


<TABLE>
<CAPTION>
                                                                                                                      CUMULATIVE
                                                                                                                         FROM
                                                                               YEARS ENDED MAY 31,                  JUNE 19, 1985
                                                                 -----------------------------------------------       THROUGH
                                                                      1999             1998            1997          MAY 31, 1999
                                                                 --------------   --------------  --------------   ---------------
<S>                                                              <C>              <C>             <C>              <C>
Cash flows from operating activities:
 Net loss                                                        $  (7,416,333)     (5,883,378)      (4,245,693)     (68,156,573)
 Adjustments to reconcile net loss to net
  cash used in operating activities:
   Depreciation and amortization                                       489,773         501,169          489,970       13,858,066
   Non-cash compensation                                                14,354           1,284            2,569        3,464,345
   Loss on sale of equipment                                                 -               -                -           66,359
   Changes in assets and liabilities:
    Prepaid expenses                                                    21,811        (149,287)          27,397         (462,351)
    Other current assets                                              (259,940)        400,036           41,208       (2,164,681)
    Other assets                                                             -           5,177           49,938          (42,147)
    Accounts payable                                                   287,763         380,451         (267,281)       1,325,030
    Accrued expenses                                                    39,102         (40,037)         (50,791)         120,624
    Accrued compensation and benefits                                  (32,345)         77,545           (2,250)         221,000
    Other liabilities                                                   25,726           5,153          (22,278)         124,702
                                                                 --------------   --------------  --------------   ---------------

      Net cash used in operating activities                         (6,830,089)     (4,701,887)      (3,977,211)     (51,645,626)
                                                                 --------------   --------------  --------------   ---------------

Cash flows from investing activities:
 Purchase of property, plant, equipment, and
  capitalized engineering costs                                       (238,223)     (2,123,734)        (302,706)     (14,733,412)
 Proceeds from sale of equipment                                             -               -                -           76,587
 Proceeds from matured marketable securities                        49,049,200      49,049,200       69,599,200      333,840,781
 Proceeds from sale of marketable securities                                 -               -                -        7,141,656
 Purchase of marketable securities                                 (43,723,747)    (37,153,198)     (56,230,458)    (362,687,887)
                                                                 --------------   --------------  --------------   ---------------

      Net cash provided by (used in) investing activities            5,087,230       9,772,268       13,066,036      (36,362,275)
                                                                 --------------   --------------  --------------   ---------------

Cash flows from financing activities:
 Proceeds from issuance of common stock                              1,124,950          35,700          589,927      103,488,478
 Payment of common stock issuance costs                                      -               -                -       (5,072,012)
 Proceeds from issuance of preferred stock                                   -               -                -        6,644,953
 Proceeds from sale of stock options to
  purchase common shares                                                     -               -                -        7,443,118
 Proceeds from issuance of notes payable                                     -               -                -        1,500,000
 Repayment of notes payable                                                  -               -                -         (140,968)
                                                                 --------------   --------------  --------------   ---------------

      Net cash provided by financing activities                      1,124,950          35,700          589,927      113,863,569
                                                                 --------------   --------------  --------------   ---------------

      Net (decrease) increase in cash                                 (617,909)      5,106,081        9,678,752       25,855,668

Cash at beginning of period                                         26,473,577      21,367,496       11,688,744                -
                                                                 --------------   --------------  --------------   ---------------

Cash at end of period                                            $  25,855,668      26,473,577       21,367,496       25,855,668
                                                                 ==============   ==============  ==============   ===============
</TABLE>

See accompanying notes to financial statements.


                                      F-8
<PAGE>   30


                          NORTHFIELD LABORATORIES INC.
                      (a company in the development stage)

                          Notes to Financial Statements

                              May 31, 1999 and 1998



(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          DESCRIPTION OF OPERATIONS IN THE DEVELOPMENT STAGE

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

          BASIS OF PRESENTATION

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

          SHORT-TERM MARKETABLE SECURITIES

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

          PROPERTY, PLANT AND EQUIPMENT

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

          CAPITALIZED ENGINEERING COSTS

          Capitalized engineering costs include design and other initial
          engineering studies relating to a commercial scale facility. During
          fiscal 1999 and 1998, the company capitalized $4,770 and $18,128,
          respectively, of such engineering costs. These costs are being
          amortized over a three year period. For the years ended May 31, 1999
          and 1998, total amortization cost recorded was 185,544 and zero
          respectively.




                                      F-9                            (Continued)

<PAGE>   31


                          NORTHFIELD LABORATORIES INC.
                      (a company in the development stage)

                          Notes to Financial Statements

                              May 31, 1999 and 1998



          COMPUTATION OF NET LOSS PER SHARE

          Basic earnings per share is based on the weighted average number of
          shares outstanding and excludes the dilutive effect of unexercised
          common equivalent shares. Diluted earnings per share is based on the
          weighted average number of shares outstanding and includes the
          dilutive effect of unexercised common equivalent shares. Because the
          Company reported a net loss for the years ended May 31, 1999, 1998 and
          1997 and the cumulative period from June 19, 1985 (inception) through
          May 31, 1999, basic and diluted per share amounts are the same.

          Had the Company reported net earnings for the years ended May 31,
          1999, 1998 and 1997 and the cumulative period from June 19, 1985
          (inception) through May 31, 1999, the weighted average number of
          shares outstanding would have been diluted by the following common
          equivalent securities (not assuming the effects of applying the
          treasury stock method):

<TABLE>
<CAPTION>
                                                                          CUMULATIVE
                                                                             FROM
                                                                         JUNE 19, 1985
                                                                            THROUGH
                                  1999          1998         1997         MAY 31, 1999
                              ------------  -----------  ------------  -----------------
          <S>                 <C>           <C>          <C>           <C>
          Stock options          539,250       400,500      369,468         567,397
          Warrants               118,836       133,849      135,000          87,143
                              ------------  -----------  ------------  -----------------

                                 658,086       534,349      504,468         654,540
                              ============  ===========  ============  =================
</TABLE>

          USE OF ESTIMATES

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

          FINANCIAL INSTRUMENTS

          The fair values of financial instruments, which consist of marketable
          securities (note 9), were not materially different from their carrying
          values at May 31, 1999 and 1998.







                                      F-10                           (Continued)

<PAGE>   32


                          NORTHFIELD LABORATORIES INC.
                      (a company in the development stage)

                          Notes to Financial Statements

                              May 31, 1999 and 1998



(2)  PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment, at cost, less accumulated depreciation and
     amortization, is summarized as follows as of May 31, 1999 and 1998:

<TABLE>
<CAPTION>
                                                                      1999              1998
                                                                 ----------------  ----------------

     <S>                                                         <C>               <C>
     Manufacturing equipment                                     $   7,330,453         7,116,614
     Laboratory equipment                                            1,330,425         1,330,425
     Office furniture and equipment                                    671,778           832,348
     Computer equipment                                                166,617                --
     Leasehold improvements                                          1,596,927         1,583,360
     Capitalized engineering costs                                     565,218           560,448
     Land                                                            1,817,702         1,817,702
                                                                 ----------------  ----------------

                                                                    13,479,120        13,240,897

     Less accumulated depreciation and amortization                 10,723,555        10,243,960
                                                                 ----------------  ----------------

                                                                 $   2,755,565         2,996,937
                                                                 ================  ================
</TABLE>

     Depreciation and amortization expense amounted to $479,595, $390,159 and
     $349,730 for the years ended May 31, 1999, 1998 and 1997, respectively.

(3)  SHAREHOLDERS' EQUITY

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

     On June 7, 1988, the Company issued 413,020 additional shares of common
     stock for net proceeds of $9,754,000. In conjunction with this transaction,
     all outstanding shares of Series A and Series B convertible preferred stock
     were converted to common stock and the Series B warrants were converted to
     common stock warrants (note 6). In conjunction with this transaction,
     options for 47,115 common shares were exercised at $2.00 per share.

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

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

     On September 30, 1991, the Company issued 90,000 additional shares of
     common stock for net proceeds of $504,000. These shares were issued as a
     result of the exercise of common stock warrants (note 6).



                                      F-11                           (Continued)

<PAGE>   33


                          NORTHFIELD LABORATORIES INC.
                      (a company in the development stage)

                          Notes to Financial Statements

                              May 31, 1999 and 1998



     On June 29, 1992, the Company issued 15,000 additional shares of common
     stock for net proceeds of $107,040. These shares were issued as a result of
     the exercise of common stock warrants (note 6).

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

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

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

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

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

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

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

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

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

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

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





                                      F-12                           (Continued)

<PAGE>   34


                          NORTHFIELD LABORATORIES INC.
                      (a company in the development stage)

                          Notes to Financial Statements

                              May 31, 1999 and 1998



(4)  INCOME TAXES

     As a result of losses incurred to date, the Company has not provided for
     income taxes. As of May 31, 1999, the Company had net operating loss
     carryforwards for income tax purposes of approximately $69,200,000, which
     are available to offset future taxable income, if any, through 2001 to
     2014. Deferred tax assets primarily resulted from net operating loss
     carryforwards and differences in the recognition of research and
     development, compensatory stock options, and depreciation expenses and the
     tax benefit from the exercise of stock options. Additionally, the Company
     had approximately $1,900,000 of research and experimentation tax credits
     and investment tax credits available to reduce future income taxes through
     2014.

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

     The net deferred tax assets as of May 31, 1999 and 1998 are summarized as
     follows:

<TABLE>
<CAPTION>
                                                              1999              1998
                                                        ----------------  ----------------
     <S>                                                <C>               <C>
     Deferred tax assets:
         Net operating loss carryforwards               $   26,900,000        24,100,000
         Tax credit carryforwards                            1,900,000         1,600,000
         Deferred compensation                               1,400,000         1,400,000
         Other                                                 200,000           700,000
                                                        ----------------  ----------------

                                                            30,400,000        27,800,000

     Valuation allowance                                   (30,400,000)      (27,800,000)
                                                        ----------------  ----------------

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

     The net change in the valuation allowance during fiscal 1999, 1998 and 1997
     was an increase of $2,600,000, $2,300,000 and $2,700,000, respectively.

(5)  STOCK OPTION PLAN

     The Company's Restated Nonqualified Stock Option Plan (the Employee Stock
     Option Plan) lapsed on September 30, 1996. Following the termination of the
     plan, all options outstanding prior to the plan termination may be
     exercised in accordance with their terms. As of May 31, 1999, options to
     purchase a total of 128,000 shares of the Company's common stock at prices
     between $6.38 and $15.19 per share were outstanding under the Employee
     Stock Option Plan. These options expire between 2000 and 2004, ten years
     after the date of grant.

     With an effective date of October 1, 1996, the Company established the
     Northfield Laboratories Inc. 1996 Stock Option Plan (the "1996 Option
     Plan"). This plan provides for the granting of stock options to the
     Company's directors, officers, key employees and consultants. Stock options
     to purchase a total of 500,000 shares of common stock are available under
     the 1996 Option Plan. During the year ended May 31, 1999, the Company
     granted 185,000 options to purchase shares of common stock at $10.81


                                      F-13                           (Continued)

<PAGE>   35


                          NORTHFIELD LABORATORIES INC.
                      (a company in the development stage)

                          Notes to Financial Statements

                              May 31, 1999 and 1998



     per share, which was equal to the fair market value of a share of common
     stock at the date of grant. These options expire in 2009, ten years after
     the date of grant. During the year ended May 31, 1998, the Company granted
     100,000 options to purchase shares of common stock at prices of $9.56 and
     $13.38 per share, which was equal to the fair market value of a share of
     common stock at the dates of grant. These options expire in 2007 and 2008,
     ten years after the date of grant.

     In September 1994, the Company adopted the Nonqualified Stock Option Plan
     for Outside Directors (Directors Plan) which provides for the granting of
     nonqualified stock options to directors of the Company who are neither
     employees of nor consultants to the Company and who were not directors of
     the Company prior to June 1, 1994. Stock options to purchase a total of
     200,000 shares of common stock are available under the Directors Plan.
     During the year ended May 31, 1999, the Company granted no options to
     purchase shares of common stock. During the year ended May 31, 1998, the
     Company granted 15,000 options to purchase shares of common stock at a
     price of $13.38 per share, which was equal to the fair market value of a
     share of common stock at the date of grant. These options expire in 2008,
     ten years after the date of grant.

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

<TABLE>
<CAPTION>
                                                                           1999            1998             1997
                                                                     ---------------  --------------  ---------------
     <S>                                                             <C>              <C>             <C>
     Net loss as reported                                            $  (7,416,333)      (5,883,378)     (4,245,693)
     Pro forma                                                          (8,175,218)      (6,658,191)     (4,526,133)

     Net loss per share as reported                                          (0.53)           (0.42)          (0.30)
     Pro forma                                                               (0.58)           (0.47)          (0.32)
                                                                     ===============  ==============  ===============
</TABLE>



     For purposes of calculating the compensation cost consistent with SFAS No.
     123, the fair value of each option grant is estimated using the
     Black-Scholes option-pricing model with the following weighted-average
     assumptions used for grants in fiscal 1999, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                           1999            1998             1997
                                                                     ---------------  --------------  ---------------
     <S>                                                             <C>              <C>             <C>
     Expected volatility                                                    58.5%            57.0%           60.0%
     Risk-free interest rate                                                 5.9%             5.5%            6.7%
     Dividend yield                                                           --               --              --
     Expected lives                                                     6.7 years        7.0 years       7.9 years
                                                                     ===============  ==============  ===============
</TABLE>





                                      F-14                           (Continued)


<PAGE>   36


                          NORTHFIELD LABORATORIES INC.
                      (a company in the development stage)

                          Notes to Financial Statements

                              May 31, 1999 and 1998



     Additional information on shares subject to options is as follows:

<TABLE>
<CAPTION>
                                               1999                       1998                       1997
                                     -------------------------- -------------------------- --------------------------
                                                    WEIGHTED                   WEIGHTED                   WEIGHTED
                                                    AVERAGE                    AVERAGE                    AVERAGE
                                                    EXERCISE                   EXERCISE                   EXERCISE
                                       OPTIONS       PRICE        OPTIONS       PRICE        OPTIONS       PRICE
                                     ------------ ------------- ------------ ------------- ------------ -------------
     <S>                             <C>          <C>           <C>          <C>           <C>          <C>
     Outstanding at beginning of
        year                            455,500   $   11.49        345,500   $   10.91        393,435   $    5.57
     Granted                            185,000       10.81        115,000       13.05        195,000       10.86
     Exercised                           17,500        7.14          5,000        7.14        242,935        2.21
     Canceled                                --          --             --          --             --          --
                                     ------------ ------------- ------------ ------------- ------------ -------------

     Outstanding at end
        of year                         623,000   $   11.41        455,500   $   11.49        345,500   $   10.91
                                     ============ ============= ============ ============= ============ =============

     Options exercisable at year
        end                             338,000   $   11.62        222,250   $   11.59        100,250   $   11.75
                                     ============ ============= ============ ============= ============ =============
     Weighted-average fair value
        of options granted
        during the year              $     6.86                 $     8.24                 $     7.55
                                     ============               ============               ============
</TABLE>

     The following table summarizes information about stock options outstanding
     at May 31, 1999:

<TABLE>
<CAPTION>
                                               OPTIONS OUTSTANDING                      OPTIONS EXERCISABLE
                                  -----------------------------------------------  ------------------------------
                                                       WEIGHTED
                                                       AVERAGE         WEIGHTED        OPTIONS         WEIGHTED
                                                      REMAINING        AVERAGE       EXERCISABLE       AVERAGE
             RANGE OF                  NUMBER        CONTRACTUAL       EXERCISE       AT MAY 31,       EXERCISE
         EXERCISE PRICES            OUTSTANDING          LIFE           PRICE            1999           PRICE
     -------------------------    ---------------  ---------------  -------------  ---------------  -------------
     <S>                          <C>              <C>              <C>            <C>              <C>
     $     6.38 - 9.56                 63,000        4.25 years     $     7.13          35,500      $     6.60
          10.81 - 15.19               560,000        8.17 years          11.90         302,500           12.20
     =========================    ===============  ===============  =============  ===============  =============
</TABLE>

(6)  STOCK WARRANTS

     In connection with demand notes dated September 23, 1986, the Company
     issued warrants to purchase a total of 90,000 shares of common stock at
     $5.60 per share. The warrants were exercised on September 30, 1991 (note
     3).

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

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



                                      F-15                           (Continued)

<PAGE>   37


                          NORTHFIELD LABORATORIES INC.
                      (a company in the development stage)

                          Notes to Financial Statements

                              May 31, 1999 and 1998



(7)  LEASES

     Rent expense amounted to $499,491, $444,330 and $439,189 for the years
     ended May 31, 1999, 1998 and 1997, respectively.

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

     The Company has renewed the lease for its research and manufacturing
     facility which now expires in June 2003. The terms of the renewed lease are
     substantially the same as the original lease. The lease is secured by a
     letter of credit, which is collateralized by a $49,200 certificate of
     deposit as of May 31, 1999.

     At May 31, 1999, future minimum lease payments under the operating leases
     are as follows:

                    YEARS ENDING
                       MAY 31,                        AMOUNT
                    ------------                ---------------

                    2000                        $    452,739
                    2001                             460,989
                    2002                             474,849
                    2003                             483,609
                    2004                             319,225
                    2005 and
                       thereafter                    698,844
                                                ---------------

                                                $  2,890,255
                                                ===============

(8)  EMPLOYEE BENEFIT PLAN

     Effective January 1, 1994, the Company established a defined contribution
     401(k) savings plan covering each employee of the Company satisfying
     certain minimum length of service requirements. Matching contributions to
     the accounts of plan participants are made by the Company in an amount
     equal to 50% of each plan participant's before-tax contribution, subject to
     certain maximum contribution limitations, and are made at the discretion of
     the Company. Expenses incurred under this plan for Company contributions
     for the years ended May 31, 1999, 1998 and 1997 amounted to $118,167,
     $98,567 and $99,781, respectively.






                                      F-16                           (Continued)


<PAGE>   38


                          NORTHFIELD LABORATORIES INC.
                      (a company in the development stage)

                          Notes to Financial Statements

                              May 31, 1999 and 1998



(9)  SHORT-TERM MARKETABLE SECURITIES

     The fair market value of the Company's short-term marketable securities was
     $21,673,300 at May 31, 1999, which included gross unrealized holding losses
     of $32,149. The fair market value of the Company's short-term marketable
     securities was $27,030,511 at May 31, 1998, which included gross unrealized
     holding losses of $391.

     At May 31, 1999, all of the Company's short-term marketable securities were
     scheduled to mature in less than one year.

(10) SUBSEQUENT EVENT

     With an effective date of June 1, 1999, the Company established the
     Northfield Laboratories Inc. 1999 Stock Option Plan (the "1999 Option
     Plan"). This plan provides for the granting of stock options to the
     Company's directors, officers, key employees and consultants. Stock options
     to purchase a total of 500,000 shares of common stock are available under
     the 1999 Option Plan.



















                                      F-17                           (Continued)
<PAGE>   39
                                    EXHIBITS



Number                   Description

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

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

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

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

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

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

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

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


<PAGE>   40

10.7*                    Northfield Laboratories Inc. 401(K) Plan (incorporated
                         herein by reference to Exhibit 10.14 to the
                         Registration Statement)

10.8*                    Northfield Laboratories Inc. Nonqualified Stock Option
                         Plan for Outside Directors (incorporated herein by
                         reference to Exhibit 10.15 to the Registrant's Annual
                         Report on Form 10-K for the Registrant's fiscal year
                         ended May 31, 1994)

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

10.10*                   Northfield Laboratories Inc. 1999 Stock Option Plan.


10.11*                   Employment Agreement dated as of January 1, 1999
                         between the Registrant and Richard E. DeWoskin.

10.12*                   Employment Agreement dated as of January 1, 1999
                         between the Registrant and Steven A. Gould, M.D.

10.13*                   Employment Agreement dated as of January 1, 1999
                         between the Registrant and Jack J. Kogut.

23.1                     Consent of KPMG Peat Marwick LLP

27                       Financial Data Schedule.

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



<PAGE>   41

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on this August 26,
1999.


                                                    NORTHFIELD LABORATORIES INC.


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


     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
in the capacities indicated on August 26, 1999.


            SIGNATURE                            TITLE

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


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

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


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


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


      /s/ Jack Olshansky                 Director
-------------------------------
         Jack Olshansky


      /s/ David A. Savner                Director
-------------------------------
         David A. Savner


<PAGE>   42

                                INDEX TO EXHIBITS
<TABLE>
<CAPTION>

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

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

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

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


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

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

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

10.6                License Agreement dated as of July 20, 1990 between the       --
                    Registrant and Eriphyle BV (incorporated herein by
</TABLE>

                                       26
<PAGE>   43
<TABLE>
<S>            <C>                                                          <C>
               reference to Exhibit 10.7 to the Registration Statement

10.7*          Northfield Laboratories Inc. 401(K) Plan (incorporate         --
               herein by reference to Exhibit 10.14 to the Registration
               Statement)


10.8*          Northfield Laboratories Inc. Nonqualified Stock Option        --
               Plan for Outside Directors (incorporated
               herein by Reference to Exhibit 10.15 to the
               Registrant's Annual Report on Form 10-K for
               the Registrant's fiscal year Ended May 31,
               1994)


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

10.10*         Northfield Laboratories Inc. 1999 Stock Option Plan.           1


10.11*         Employment Agreement dated as of January 1, 1999,              9
               between the Registrant and Richard E. DeWoskin

10.12*         Employment Agreement dated as of January 1, 1999,             18
               between the Registrant and Steven A. Gould, M.D.

10.13*         Employment Agreement dated as of January 1, 1999,             27
               between the Registrant and Jack J. Kogut



23.1           Consent of KPMG LLP                                           36

27             Financial Data Schedule.                                      37
</TABLE>

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