##### Table of Contents









UNITED STATES


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 fiscal year ended May 31, 2006               
|                                                     
|o                                                     |  | 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.




|                                                                   |  |                                            
|------------------------------------------------------------------ |  | -------------------------------------------
|Delaware                                                           |  | 36-3378733                                 
|(State of Other Jurisdiction of
    Incorporation or Organization) |  | (I.R.S. Employer
    Identification Number)
|                                                                  
|1560 Sherman Avenue, Suite 1000, Evanston, Illinois                |  | 60201-4800                                 
|(Address of Principal Executive Offices)                           |  | (Zip Code)                                 
|(847) 864-3500(Registrants Telephone Number, Including Area Code)



COMMON STOCK, PAR VALUE $.01 PER SHARE




o x


o x


x o


S-K 10-K 10-K. x


12b-2


o x o


12b-2 o x






DOCUMENTS INCORPORATED BY REFERENCE


10-K. www.northfieldlabs.com. 10-K










---

TABLE OF CONTENTS



|                                                           |                                                                                                                       |  |  |  |  |  |  | 
|---------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
|PART I                                                    
|                                                           | ITEM 1. Business.                                                                                                    
|BACKGROUND                                                
|OUR PRODUCT                                               
|OUR PIVOTAL PHASE III TRIAL                               
|TRIAL DESIGN AND CLINICAL ENDPOINTS                       
|THE MARKET OPPORTUNITY                                    
|MANUFACTURING AND MATERIAL SUPPLY                         
|MARKETING STRATEGIES                                      
|COMPETITION                                               
|GOVERNMENT REGULATION                                     
|PATENTS AND PROPRIETARY RIGHTS                            
|RESEARCH AND DEVELOPMENT                                  
|HUMAN RESOURCES                                           
|                                                           | Item 1A. Risk Factors.                                                                                               
|                                                           | Item 1B. Unresolved Staff Comments.                                                                                  
|                                                           | Item 2. Properties.                                                                                                  
|                                                           | Item 3. Legal Proceedings.                                                                                           
|                                                           | Item 4. Submission of Matters to a Vote of Security Holders.                                                         
|PART II                                                   
|                                                           | Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
|MARKET INFORMATION                                        
|HOLDERS OF RECORD                                         
|DIVIDENDS                                                 
|                                                           | Item 6. Selected Financial Data.                                                                                     
|                                                           | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.                       
|RECENT DEVELOPMENTS                                       
|RESULTS OF OPERATIONS                                     
|OPERATING EXPENSES                                        
|INTEREST INCOME                                           
|NET LOSS                                                  
|LIQUIDITY AND CAPITAL RESOURCES                           
|CRITICAL ACCOUNTING POLICIES                              
|NET DEFERRED TAX ASSETS VALUATION                         
|CONTRACTUAL OBLIGATIONS                                   
|RECENT ACCOUNTING PRONOUNCEMENTS                          
|                                                           | ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.                                                 
|                                                           | ITEM 8. Financial Statements and Supplemental Data.                                                                  
|                                                           | ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.                        
|                                                           | ITEM 9A. Controls and Procedures.                                                                                    
|                                                           | Item 9B. Other Information.                                                                                          
|PART III                                                  
|PART IV                                                   
|                                                           | Item 15. Exhibits and Financial Statement Schedules.                                                                 
|EXHIBITS                                                  
|SIGNATURES                                                
|Exhibit 10.18                                             
|Consent of Independent Registered Public Accounting Firm  
|Certification Pursuant to Rule 13a-14(a)/15d-14(a)        
|Certification Pursuant to Rule 13a-14(a)/15d-14(a)        
|Certification Pursuant to Section 906                     
|Certification Pursuant to Section 906                     



---



##### Table of Contents






CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION












---



##### Table of Contents






PART I







|        |          
|------- | ---------
|ITEM 1. | Business.

®














3



---



##### Table of Contents








BACKGROUND











OUR PRODUCT








4



---



##### Table of Contents







Universal Compatibility.


Oxygen-Carrying Ability.


Blood Volume Replacement.


Impact on Disease Transmission.


Extended Shelf Life.





OUR PIVOTAL PHASE III TRIAL








30-day


5



---



##### Table of Contents














TRIAL DESIGN AND CLINICAL ENDPOINTS








6



---



##### Table of Contents










THE MARKET OPPORTUNITY










7



---



##### Table of Contents










MANUFACTURING AND MATERIAL SUPPLY













MARKETING STRATEGIES






8



---



##### Table of Contents














COMPETITION




® out-of proof-of




9



---



##### Table of Contents








GOVERNMENT REGULATION








10



---



##### Table of Contents















11



---



##### Table of Contents










PATENTS AND PROPRIETARY RIGHTS









RESEARCH AND DEVELOPMENT









HUMAN RESOURCES




10-K, 10-Q, 8-K,


12



---



##### Table of Contents








|         |              
|-------- | -------------
|Item 1A. | Risk Factors.

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


We are a development stage company without revenues or
profits.




We have a history of losses and our future profitability is
uncertain.




We are developing a single product that is subject to a high
level of technological risk.




We are required to receive FDA approval before we may sell
PolyHeme commercially, data from our clinical trials to date may
not be adequate to obtain FDA approval, and we may be required
to conduct additional clinical trials in the future.






13



---



##### Table of Contents









There may be limitations in the supply of the starting
material for PolyHeme.




The market may not accept our product.






| |   |                                                                                        
| | - | ---------------------------------------------------------------------------------------
| |  | relative convenience and ease of administration;                                       
|
| |  | the prevalence and severity of any adverse side effects;                               
|
| |  | effectiveness of our sales and marketing strategy; and                                 
|
| |  | the price of PolyHeme compared with other hemoglobin-based
    oxygen carrier products.



14



---



##### Table of Contents



We rely on third parties to coordinate our clinical trials
and perform data collection and analysis, which may result in
costs and delays that prevent us from successfully
commercializing our product.








| |   |                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | these third parties do not successfully carry out their
    contractual duties or regulatory obligations or meet expected
    deadlines;                                                     
|
| |  | these third parties need to be replaced; or                                                                                                                                                  
|
| |  | the quality or accuracy of the data obtained by third parties is
    compromised due to their failure to adhere to our clinical
    protocol or regulatory requirements or for other reasons.



Our activities are and will continue to be subject to
extensive government regulation.










15



---



##### Table of Contents













16



---



##### Table of Contents



We expect to need to raise additional capital in the future
to continue our business.




We currently manufacture PolyHeme at a single location and,
if we were unable to utilize this facility, our ability to
manufacture PolyHeme will be significantly affected, and we will
be delayed or prevented from commercializing PolyHeme.




Failure to increase manufacturing capacity may impair
PolyHemes market acceptance and prevent us from achieving
profitability.


scale-up scale-up


There are significant competitors developing similar
products.




17



---



##### Table of Contents





We do not have experience in the sale and marketing of
medical products.




Our profitability will be affected if we incur product
liability claims in excess of our insurance coverage.






We depend on the services of a limited number of key
personnel.




18



---



##### Table of Contents



Our ability to generate revenue from our product will depend
on reimbursement and drug pricing policies and regulations.






Failure to obtain regulatory approval in foreign
jurisdictions would prevent our product from being marketed
abroad.




Our financial results are expected to be affected by changes
in the accounting rules governing the recognition of stock-based
compensation expense.




19



---



##### Table of Contents



Failure to maintain effective internal controls over
financial reporting could have a material adverse effect on our
business, operating results and stock price.






We are subject to a variety of federal, state and local laws,
rules and regulations related to the discharge or disposal of
toxic, volatile or other hazardous chemicals.




We are subject to a putative class action lawsuit and have
received requests from both the SEC and the Senate Committee on
Finance asking us voluntarily to provide information.




20



---



##### Table of Contents









RISKS RELATED TO OUR INTELLECTUAL PROPERTY


Our success depends upon our ability to protect our
intellectual property and our proprietary technology.




We rely on trade secrets and other confidential information
to maintain our proprietary position.




21



---



##### Table of Contents





We may be involved in lawsuits to protect or enforce our
patents, which could be expensive and time consuming.










Third parties may own or control patents or patent
applications that are infringed by our product or
technologies.




22



---



##### Table of Contents







RISKS RELATED TO OUR COMMON STOCK


Our stock price could be volatile.






| |   |                                                                                                
| | - | -----------------------------------------------------------------------------------------------
| |  | regulatory developments relating to our PolyHeme product;                                      
|
| |  | announcements by us relating to the results of our clinical
    trials of PolyHeme;            
|
| |  | developments relating to our efforts to obtain additional
    financing to fund our operations;
|
| |  | announcements by us regarding transactions with potential
    strategic partners;              
|
| |  | announcements relating to blood substitute products being
    developed by our competitors;    
|
| |  | changes in industry trends or conditions;                                                      
|
| |  | our issuance of additional equity or debt securities; and                                      
|
| |  | sales of significant amounts of our common stock or other
    securities in the market.        



Anti-takeover provisions contained in our charter and bylaws
could discourage potential takeover attempts.




23



---



##### Table of Contents








|         |                           
|-------- | --------------------------
|Item 1B. | Unresolved Staff Comments.








|        |            
|------- | -----------
|Item 2. | Properties.










|        |                   
|------- | ------------------
|Item 3. | Legal Proceedings.

10b-5






24



---



##### Table of Contents








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






PART II







|        |                                                                                                                      
|------- | ---------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities.




MARKET INFORMATION




|                                        |  |      |       |  |     |  |       | 
|--------------------------------------- |  | ---- | ----- |  | --- |  | ----- | 
|Fiscal Quarter Ended                    |  | High |       |  | Low | 
|                                        |  |      |       |  |     | 
|May 31, 2004                            |  |      | 19.74 |  |     |  | 11.34 | 
|August 31, 2004                         |  |      | 15.28 |  |     |  | 8.78  | 
|November 30, 2004                       |  |      | 18.83 |  |     |  | 12.21 | 
|February 29, 2005                       |  |      | 23.85 |  |     |  | 15.35 | 
|May 31, 2005                            |  |      | 16.19 |  |     |  | 10.71 | 
|August 31, 2005                         |  |      | 15.10 |  |     |  | 11.32 | 
|November 30, 2005                       |  |      | 15.50 |  |     |  | 11.45 | 
|February 28, 2006                       |  |      | 14.45 |  |     |  | 8.86  | 
|May 31, 2006                            |  |      | 11.30 |  |     |  | 8.62  | 
|August 31, 2006 (through July 31, 2006) |  |      | 13.10 |  |     |  | 8.06  | 




HOLDERS OF RECORD







DIVIDENDS




25



---



##### Table of Contents








|        |                         
|------- | ------------------------
|Item 6. | Selected Financial Data.



|                                                |                            |                                       |          |          |         |  |          |        |  |  |          |            |  |      |          |       |              |  |         |       |  |  |          |         | 
|----------------------------------------------- | -------------------------- | ------------------------------------- | -------- | -------- | ------- |  | -------- | ------ |  |  | -------- | ---------- |  | ---- | -------- | ----- | ------------ |  | ------- | ----- |  |  | -------- | ------- | 
|                                                |                            |                                       |          |          |         |  |          |        |  |  |          | Cumulative | 
|                                                |                            |                                       |          | June 19, |        
|                                                |                            | Years Ended May 31,                   |          |          | 1985    | 
|                                                |                            |                                       |          |          | through | 
|                                                |                            | 2006                                  |          |          | 2005    |  |          | 2004   |  |  | 2003     |            |  | 2002 |          |       | May 31, 2006 | 
|                                                |                            |                                       |          |          |         |  |          |        |  |  |          |            |  |      |          |       |              | 
|                                                |                            | (In thousands, except per share data) |         
|Statement of Operations Data:                   |                            |                                       |          |          |         |  |          |        |  |  |          |            |  |      |          |       |              |  |         |       |  |  |          |        
|Revenues:                                       |                            |                                       |          |          |         |  |          |        |  |  |          |            |  |      |          |       |              |  |         |       |  |  |          |        
|                                                | License income             |                                       | $        |         |         |  |          |       |  |  |          |           |  |      |          |      |              |  |         |      |  |  |          | 3,000   | 
|Costs and expenses:                             |                            |                                       |          |          |         |  |          |        |  |  |          |            |  |      |          |       |              |  |         |       |  |  |          |        
|                                                | Research and development   |                                       | $        | 24,165   |         |  |          | 16,600 |  |  |          | 10,777     |  |      |          | 8,819 |              |  |         | 8,843 |  |  |          | 147,781 | 
|                                                | General and administrative |                                       |          | 5,832    |         |  |          | 4,990  |  |  |          | 3,854      |  |      |          | 3,643 |              |  |         | 2,700 |  |  |          | 55,276  | 
|Interest income (net)                           |                            |                                       | 3,222    |          |         |  | 1,268    |        |  |  | 131      |            |  |      | 212      |       |              |  | 826     |       |  |  | 27,996   |        
|Net loss                                        |                            | $                                     | (26,775  | )        |         |  | (20,322  | )      |  |  | (14,574  | )          |  |      | (12,250  | )     |              |  | (10,717 | )     |  |  | (172,136 | )      
|Net loss per share basic and diluted            |                            | $                                     | (1.00    | )        |         |  | (0.88    | )      |  |  | (0.86    | )          |  |      | (0.86    | )     |              |  | (0.75   | )     |  |  | (15.01   | )      
|Shares used in calculation of per share data(1) |                            |                                       | 26,770   |          |         |  | 23,069   |        |  |  | 16,932   |            |  |      | 14,266   |       |              |  | 14,266  |       |  |  | 11,468   |        
|Balance Sheet Data:                             |                            |                                       |          |          |         |  |          |        |  |  |          |            |  |      |          |       |              |  |         |       |  |  |          |        
|Cash and marketable securities                  |                            | $                                     | 73,910   |          |         |  | 98,131   |        |  |  | 42,487   |            |  |      | 6,890    |       |              |  | 18,389  |       |  |  |          |        
|Total assets                                    |                            |                                       | 75,871   |          |         |  | 100,002  |        |  |  | 44,179   |            |  |      | 9,246    |       |              |  | 21,235  |       |  |  |          |        
|Total liabilities                               |                            |                                       | 6,534    |          |         |  | 4,228    |        |  |  | 2,626    |            |  |      | 2,066    |       |              |  | 1,804   |       |  |  |          |        
|Deficit accumulated during development stage    |                            |                                       | (172,136 | )        |         |  | (145,361 | )      |  |  | (125,040 | )          |  |      | (110,466 | )     |              |  | (98,216 | )     |  |  |          |        
|Total shareholders equity                      |                            |                                       | 69,337   |          |         |  | 95,774   |        |  |  | 41,553   |            |  |      | 7,180    |       |              |  | 19,430  |       |  |  |          |        






|    |                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Computed on the basis described in Note 1 of the Notes to
    Financial Statements. Excludes 1,747,375 shares reserved
    for issuance upon the exercise of stock options and
    212,392 shares reserved for issuance for stock warrants as
    of May 31, 2006. Additional stock options for a total of
    1,441,199 were available for grant as of May 31, 2006 under
    our employee stock option plans.






|        |                                                                                           
|------- | ------------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations.




RECENT DEVELOPMENTS


12-hour




26



---



##### Table of Contents














RESULTS OF OPERATIONS







OPERATING EXPENSES










27



---



##### Table of Contents
















INTEREST INCOME






12-month


28



---



##### Table of Contents






NET LOSS









LIQUIDITY AND CAPITAL RESOURCES














29



---



##### Table of Contents






CRITICAL ACCOUNTING POLICIES







NET DEFERRED TAX ASSETS VALUATION







CONTRACTUAL OBLIGATIONS




|                                   |  |       |           |           |          |   |           |           |  |   |           | 
|---------------------------------- |  | ----- | --------- | --------- | -------- | - | --------- | --------- |  | - | --------- | 
|                                   |  |       |           | Less than |          |   |          
|Contractual Obligations            |  | Total |           |           | One Year |   |           | 1-3 Years | 
|                                   |  |       |           |           |          |   |           |           | 
|Lease Obligations(1)               |  | $     | 2,658,000 |           |          | $ | 838,000   |           |  | $ | 1,820,000 | 
|Other Obligations(2)               |  |       | 1,300,000 |           |          |   | 1,300,000 |           |  |   |          | 
|                                   |  |       |           |           |          |   |           |           | 
|Total Contractual Cash Obligations |  | $     | 3,958,000 |           |          | $ | 2,138,000 |           |  | $ | 1,820,000 | 
|                                   |  |       |           |           |          |   |           |           | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The lease for our Evanston headquarters is cancelable with six
    months notice combined with a termination payment equal to three
    months base rent at any time after February 14, 2009. If
    the lease is cancelled as of February 15, 2009 unamortized
    broker commissions of $17,470 would also be due.                                                                                                                                                                                                                                                                                                                                         
|   
|(2) | Represents payments required to be made upon termination of
    employment agreements with two of our executive officers. The
    employment contracts renew automatically unless terminated.
    Figures shown represent compensation payable upon the
    termination of the employment agreements for reasons other than
    death, disability, cause or voluntary termination of employment
    by the executive officer other than for good reason. Additional
    payments may be required under the employment agreements in
    connection with a termination of employment of the executive
    officer following a change in control of Northfield.



|                              |  |       |           |           |          |   |           |           |  |   |         | 
|----------------------------- |  | ----- | --------- | --------- | -------- | - | --------- | --------- |  | - | ------- | 
|                              |  |       |           | Less than |          |   |          
|Contractual Obligations       |  | Total |           |           | One Year |   |           | 1-3 Years | 
|                              |  |       |           |           |          |   |           |           | 
|Lease Obligations(1)          |  | $     | 1,080,886 |           |          | $ | 353,439   |           |  | $ | 727,447 | 
|Other Obligations(2)          |  |       | 1,300,000 |           |          |   | 1,300,000 |           |  |   |        | 
|                              |  |       |           |           |          |   |           |           | 
|Total Contractual Obligations |  | $     | 2,380,886 |           |          | $ | 1,653,439 |           |  | $ | 727,447 | 
|                              |  |       |           |           |          |   |           |           | 




RECENT ACCOUNTING PRONOUNCEMENTS




30



---



##### Table of Contents












|         |                                                                
|-------- | ---------------------------------------------------------------
|ITEM 7A. | Quantitative and Qualitative Disclosures About Market
    Risk.








|        |                                            
|------- | -------------------------------------------
|ITEM 8. | Financial Statements and Supplemental Data.








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|ITEM 9. | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure.








|         |                         
|-------- | ------------------------
|ITEM 9A. | Controls and Procedures.

Evaluation of Disclosure Controls and Procedures


13a-15(e) 15d-15(e)


Change in Internal Control Over Financial Reporting




Managements Report on Internal Control over Financial
Reporting


13a-15(f)


31



---



##### Table of Contents





Limitations on the Effectiveness of Controls







Item 9B. Other Information.




32



---



##### Table of Contents






PART III


Items 10 Through 14.


10-K 10-K. 10-K.





PART IV







|         |                                            
|-------- | -------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules.





| |                                                                               
| | ------------------------------------------------------------------------------
| | (1) and (2). See the Table of Contents to Financial
    Statements on page 34.
|
| | (3) See Description of Exhibits on page 58.                                   





33



---



##### Table of Contents



NORTHFIELD LABORATORIES INC.


(a company in the development stage)


TABLE OF CONTENTS


|                                                                                                                                                                                         |  |      |    | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                                                                                                         |  | PAGE |   
|                                                                                                                                                                                         |  |      |   
|Report of Independent Registered Public Accounting Firm                                                                                                                                  |  |      | 35 | 
|Report of Independent Registered Public Accounting Firm on
    Internal Control Over Financial Reporting                                                                                 |  |      | 36 | 
|Balance Sheets, May 31, 2006 and 2005                                                                                                                                                    |  |      | 38 | 
|Statements of Operations, Fiscal Years ended May 31, 2006,
    2005 and 2004, and the cumulative period from June 19, 1985
    (inception) through May 31, 2006                          |  |      | 39 | 
|Statements of Shareholders Equity (Deficit), Fiscal Years
    ended May 31, 2006, 2005, and 2004, and the cumulative
    period from June 19, 1985 (inception) through May 31,
    2006 |  |      | 41 | 
|Statements of Cash Flows, Fiscal Years ended May 31, 2006,
    2005, and 2004, and the cumulative period from June 19,
    1985 (inception) through May 31, 2006                         |  |      | 45 | 
|Notes of Financial Statements                                                                                                                                                            |  |      | 46 | 

34



---



##### Table of Contents






Report of Independent Registered Public Accounting Firm












Internal Control-Integrated
Framework






| |               
| | --------------
| | (-s- KPMG LLP)





KPMG LLP, a U.S. limited liability
partnership, in the U.S.


member firm of KPMG International,
a Swiss cooperative.


35



---



##### Table of Contents






Report of Independent Registered Public Accounting Firm


on Internal Control Over Financial Reporting





Internal Control 
Integrated Framework








Internal Control  Integrated Framework Internal Control 
Integrated Framework




KPMG LLP, a U.S. limited
liability partnership, is the U.S.


member firm of KPMG
International, a Swiss cooperative.


36



---



##### Table of Contents













| |            
| | -----------
| | (KPMG LOGO)





37



---



##### Table of Contents



NORTHFIELD LABORATORIES INC.


(a company in the development stage)


BALANCE SHEETS


May 31, 2006 and May 31, 2005


|                                     |                                                                                                                                      |                            |             |              |            |  |             |              |            | 
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------ | -------------------------- | ----------- | ------------ | ---------- |  | ----------- | ------------ | ---------- | 
|                                     |                                                                                                                                      | May 31,                    |             |              | May 31,    | 
|                                     |                                                                                                                                      | 2006                       |             |              | 2005       | 
|                                     |                                                                                                                                      |                            |             |              |            | 
|ASSETS                               |                                                                                                                                      |                            |             |              |            |  |             |             
|Current assets:                      |                                                                                                                                      |                            |             |              |            |  |             |             
|                                     | Cash and cash equivalents                                                                                                            |                            | $           | 39,304,602   |            |  |             | 6,800,405    |           
|                                     | Restricted cash                                                                                                                      |                            |             | 926,492      |            |  |             |             |           
|                                     | Marketable securities                                                                                                                |                            |             | 33,679,022   |            |  |             | 91,330,289   |           
|                                     | Prepaid expenses                                                                                                                     |                            |             | 813,104      |            |  |             | 826,741      |           
|                                     | Other current assets                                                                                                                 |                            |             |             |            |  |             | 139,808      |           
|                                     |                                                                                                                                      |                            |             |              |            | 
|                                     |                                                                                                                                      | Total current assets       |             |              | 74,723,220 |  |             |              | 99,097,243 | 
|Property, plant, and equipment       |                                                                                                                                      |                            | 15,654,049  |              |            |  | 14,796,631  |             
|Accumulated depreciation             |                                                                                                                                      |                            | (14,575,118 | )            |            |  | (13,961,694 | )           
|                                     |                                                                                                                                      |                            |             |              |            | 
|Net property, plant, and equipment   |                                                                                                                                      |                            | 1,078,931   |              |            |  | 834,937     |             
|Other assets                         |                                                                                                                                      |                            | 68,941      |              |            |  | 69,392      |             
|                                     |                                                                                                                                      |                            |             |              |            | 
|                                     |                                                                                                                                      | $                          | 75,871,092  |              |            |  | 100,001,572 |             
|                                     |                                                                                                                                      |                            |             |              |            | 
|                                    
|LIABILITIES AND SHAREHOLDERS EQUITY |                                                                                                                                      |                            |             |              |            |  |             |             
|Current liabilities:                 |                                                                                                                                      |                            |             |              |            |  |             |             
|                                     | Accounts payable                                                                                                                     |                            | $           | 4,481,804    |            |  |             | 3,325,570    |           
|                                     | Accrued expenses                                                                                                                     |                            |             | 134,006      |            |  |             | 110,679      |           
|                                     | Accrued compensation and benefits                                                                                                    |                            |             | 742,038      |            |  |             | 539,783      |           
|                                     | Government grant liability                                                                                                           |                            |             | 926,492      |            |  |             |             |           
|                                     | Other                                                                                                                                |                            |             | 249,580      |            |  |             |             |           
|                                     |                                                                                                                                      |                            |             |              |            | 
|                                     |                                                                                                                                      | Total current liabilities  |             |              | 6,533,920  |  |             |              | 3,976,032  | 
|Other liabilities                    |                                                                                                                                      |                            |            |              |            |  | 251,582     |             
|                                     |                                                                                                                                      |                            |             |              |            | 
|                                     |                                                                                                                                      | Total liabilities          |             |              | 6,533,920  |  |             |              | 4,227,614  | 
|                                     |                                                                                                                                      |                            |             |              |            | 
|Shareholders equity:                |                                                                                                                                      |                            |             |              |            |  |             |             
|                                     | Preferred stock, $.01 par value. Authorized 5,000,000 shares;
    none issued and outstanding                                        |                            |             |             |            |  |             |             |           
|                                     | Common stock, $.01 par value. Authorized 60,000,000 shares;
    issued 26,777,655 at May 31, 2006 and 26,752,739 at
    May 31, 2005 |                            |             | 267,777      |            |  |             | 267,527      |           
|                                     | Additional paid-in capital                                                                                                           |                            |             | 241,240,276  |            |  |             | 240,997,444  |           
|                                     | Deficit accumulated during the development stage                                                                                     |                            |             | (172,136,429 | )          |  |             | (145,361,011 | )         
|                                     | Deferred compensation                                                                                                                |                            |             | (9,059       | )          |  |             | (104,609     | )         
|                                     |                                                                                                                                      |                            |             |              |            | 
|                                     |                                                                                                                                      |                            | 69,362,565  |              |            |  | 95,799,351  |             
|                                     | Less cost of common shares in treasury; 1,717 shares and 1,717
    shares, respectively                                              |                            |             | (25,393      | )          |  |             | (25,393      | )         
|                                     |                                                                                                                                      |                            |             |              |            | 
|                                     |                                                                                                                                      | Total shareholders equity |             |              | 69,337,172 |  |             |              | 95,773,958 | 
|                                     |                                                                                                                                      |                            |             |              |            | 
|                                     |                                                                                                                                      | $                          | 75,871,092  |              |            |  | 100,001,572 |             
|                                     |                                                                                                                                      |                            |             |              |            | 



38



---



##### Table of Contents



NORTHFIELD LABORATORIES INC.


(a company in the development stage)


STATEMENTS OF OPERATIONS


Years ended May 31, 2006, 2005 and 2004 and


the cumulative period from June 19, 1985


(inception) through May 31, 2006


|                                                                        |                            |                     |             |            |               |   |             |            |             |   |              |            |             |   |              |             |              |  
|----------------------------------------------------------------------- | -------------------------- | ------------------- | ----------- | ---------- | ------------- | - | ----------- | ---------- | ----------- | - | ------------ | ---------- | ----------- | - | ------------ | ----------- | ------------ | -
|                                                                        |                            |                     |             |            |               |   |             | Cumulative |            
|                                                                        |                            |                     |             | from       |              
|                                                                        |                            | Years ended May 31, |             |            | June 19, 1985 |  
|                                                                        |                            |                     |             |            | through       |  
|                                                                        |                            | 2006                |             |            | 2005          |   |             | 2004       |             |   | May 31, 2006 |           
|                                                                        |                            |                     |             |            |               |   |             |            |             |   |              |           
|Revenues  license income                                               |                            | $                   |            |            |               |   |            |            |             |   |             |            |             |   | 3,000,000    |            
|Costs and expenses:                                                     |                            |                     |             |            |               |   |             |            |             |   |              |            |             |   |              |            
|                                                                        | Research and development   |                     |             | 24,165,407 |               |   |             | 16,599,736 |             |   |              | 10,776,519 |             |   |              | 147,781,198 |             
|                                                                        | General and administrative |                     |             | 5,832,297  |               |   |             | 4,989,620  |             |   |              | 3,853,769  |             |   |              | 55,275,900  |             
|                                                                        |                            |                     |             |            |               |   |             |            |             |   |              |           
|                                                                        |                            |                     | 29,997,704  |            |               |   | 21,589,356  |            |             |   | 14,630,288   |            |             |   | 203,057,098  |            
|Other income and expense:                                               |                            |                     |             |            |               |   |             |            |             |   |              |            |             |   |              |            
|                                                                        | Interest income            |                     |             | 3,222,286  |               |   |             | 1,267,900  |             |   |              | 131,411    |             |   |              | 28,078,824  |             
|                                                                        | Interest expense           |                     |             |           |               |   |             |           |             |   |              |           |             |   |              | 83,234      |             
|                                                                        |                            |                     |             |            |               |   |             |            |             |   |              |           
|                                                                        |                            | $                   | 3,222,286   |            |               |   | 1,267,900   |            |             |   | 131,411      |            |             |   | 27,995,590   |            
|                                                                        |                            |                     |             |            |               |   |             |            |             |   |              |           
|Net loss before cumulative effect of change in accounting
    principle |                            |                     | (26,775,418 | )          |               |   | (20,321,456 | )          |             |   | (14,498,877  | )          |             |   | (172,061,508 | )          
|Cumulative effect of change in accounting principle                     |                            |                     |            |            |               |   |            |            |             |   | 74,921       |            |             |   | 74,921       |            
|                                                                        |                            |                     |             |            |               |   |             |            |             |   |              |           
|                                                                        |                            | Net loss            |             | $          | (26,775,418   | ) |             |            | (20,321,456 | ) |              |            | (14,573,798 | ) |              |             | (172,136,429 | )
|                                                                        |                            |                     |             |            |               |   |             |            |             |   |              |           
|Net loss per share  basic and diluted                                  |                            | $                   | (1.00       | )          |               |   | (0.88       | )          |             |   | (0.86        | )          |             |   | (15.01       | )          
|                                                                        |                            |                     |             |            |               |   |             |            |             |   |              |           
|Shares used in calculation of per share data  basic
    and diluted    |                            |                     | 26,769,860  |            |               |   | 23,069,166  |            |             |   | 16,932,301   |            |             |   | 11,467,942   |            
|                                                                        |                            |                     |             |            |               |   |             |            |             |   |              |           



39



---



##### Table of Contents





40



---



##### Table of Contents



NORTHFIELD LABORATORIES INC.


(a company in the development stage)


STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIT)


Years ended May 31, 2006, 2005 and 2004 and the
cumulative period


from June 19, 1985 (inception) through May 31,
2006


|                                                                                                                                              |  |                 |   |              |           |   |           |  |  |           |            |  |  |   |         | 
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | - | ------------ | --------- | - | --------- |  |  | --------- | ---------- |  |  | - | ------- | 
|                                                                                                                                              |  | Preferred stock |   | Common stock |          
|                                                                                                                                              |  |                 |   |              |          
|                                                                                                                                              |  | Number          |   |              | Aggregate |   | Number of |  |  | Aggregate |           
|                                                                                                                                              |  | of shares       |   |              | amount    |   | shares    |  |  | amount    |           
|                                                                                                                                              |  |                 |   |              |           |   |           |  |  |           |           
|Issuance of common stock on August 27, 1985                                                                                                   |  |                 |  |              |           | $ |          |  |  |           | 3,500,000  |  |  | $ | 35,000  | 
|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                                                                                                                       |  |                 |  |              |           |   |          |  |  |           | 3,500,000  |  |  |   | 35,000  | 
|Net loss                                                                                                                                      |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|Deferred compensation relating to grant of stock options                                                                                      |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|Amortization of deferred compensation                                                                                                         |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|                                                                                                                                              |  |                 |   |              |           |   |           |  |  |           |            | 
|Balance at May 31, 1987                                                                                                                       |  |                 |  |              |           |   |          |  |  |           | 3,500,000  |  |  |   | 35,000  | 
|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                                                                                                                       |  |                 |  |              |           |   |          |  |  |           | 3,500,000  |  |  |   | 35,000  | 
|Issuance of common stock at $24.21 per share on June 7,
    1988 (net of costs of issuance of $246,000)                                       |  |                 |  |              |           |   |          |  |  |           | 413,020    |  |  |   | 4,130   | 
|Conversion of Series A convertible preferred stock to
    common stock on June 7, 1988                                                        |  |                 |  |              |           |   |          |  |  |           | 1,250,000  |  |  |   | 12,500  | 
|Conversion of Series B convertible preferred stock to
    common stock on June 7, 1988                                                        |  |                 |  |              |           |   |          |  |  |           | 1,003,165  |  |  |   | 10,032  | 
|Exercise of stock options at $2.00 per share                                                                                                  |  |                 |  |              |           |   |          |  |  |           | 47,115     |  |  |   | 471     | 
|Issuance of common stock at $28.49 per share on March 6,
    1989 (net of costs of issuance of $21,395)                                       |  |                 |  |              |           |   |          |  |  |           | 175,525    |  |  |   | 1,755   | 
|Issuance of common stock at $28.49 per share on March 30,
    1989 (net of costs of issuance of $10,697)                                      |  |                 |  |              |           |   |          |  |  |           | 87,760     |  |  |   | 878     | 
|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                                                                                                                       |  |                 |  |              |           |   |          |  |  |           | 6,476,585  |  |  |   | 64,766  | 
|Net loss                                                                                                                                      |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|Deferred compensation relating to grant of stock options                                                                                      |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|Amortization of deferred compensation                                                                                                         |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|                                                                                                                                              |  |                 |   |              |           |   |           |  |  |           |            | 
|Balance at May 31, 1990                                                                                                                       |  |                 |  |              |           |   |          |  |  |           | 6,476,585  |  |  |   | 64,766  | 
|Net loss                                                                                                                                      |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|Amortization of deferred compensation                                                                                                         |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|                                                                                                                                              |  |                 |   |              |           |   |           |  |  |           |            | 
|Balance at May 31, 1991                                                                                                                       |  |                 |  |              |           |   |          |  |  |           | 6,476,585  |  |  |   | 64,766  | 
|Exercise of stock warrants at $5.60 per share                                                                                                 |  |                 |  |              |           |   |          |  |  |           | 90,000     |  |  |   | 900     | 
|Net loss                                                                                                                                      |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|Amortization of deferred compensation                                                                                                         |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|                                                                                                                                              |  |                 |   |              |           |   |           |  |  |           |            | 
|Balance at May 31, 1992                                                                                                                       |  |                 |  |              |           |   |          |  |  |           | 6,566,585  |  |  |   | 65,666  | 
|Exercise of stock warrants at $7.14 per share                                                                                                 |  |                 |  |              |           |   |          |  |  |           | 15,000     |  |  |   | 150     | 
|Issuance of common stock at $15.19 per share on April 19,
    1993 (net of costs of issuance of $20,724)                                      |  |                 |  |              |           |   |          |  |  |           | 374,370    |  |  |   | 3,744   | 
|Net loss                                                                                                                                      |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|Amortization of deferred compensation                                                                                                         |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|                                                                                                                                              |  |                 |   |              |           |   |           |  |  |           |            | 
|Balance at May 31, 1993                                                                                                                       |  |                 |  |              |           |   |          |  |  |           | 6,955,955  |  |  |   | 69,560  | 
|Net loss                                                                                                                                      |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|Issuance of common stock at $6.50 per share on May 26, 1994
    (net of costs of issuance of $2,061,149)                                      |  |                 |  |              |           |   |          |  |  |           | 2,500,000  |  |  |   | 25,000  | 
|Cancellation of stock options                                                                                                                 |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|Amortization of deferred compensation                                                                                                         |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|                                                                                                                                              |  |                 |   |              |           |   |           |  |  |           |            | 
|Balance at May 31, 1994                                                                                                                       |  |                 |  |              |           |   |          |  |  |           | 9,455,955  |  |  |   | 94,560  | 
|Net loss                                                                                                                                      |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|Issuance of common stock at $6.50 per share on June 20,
    1994 (net of issuance costs of $172,500)                                          |  |                 |  |              |           |   |          |  |  |           | 375,000    |  |  |   | 3,750   | 
|Exercise of stock options at $7.14 per share                                                                                                  |  |                 |  |              |           |   |          |  |  |           | 10,000     |  |  |   | 100     | 
|Exercise of stock options at $2.00 per share                                                                                                  |  |                 |  |              |           |   |          |  |  |           | 187,570    |  |  |   | 1,875   | 
|Cancellation of stock options                                                                                                                 |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|Amortization of deferred compensation                                                                                                         |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|                                                                                                                                              |  |                 |   |              |           |   |           |  |  |           |            | 
|Balance at May 31, 1995                                                                                                                       |  |                 |  |              |           | $ |          |  |  |           | 10,028,525 |  |  | $ | 100,285 | 



41



---



##### Table of Contents







| |  |                      |          |   |                      |   |          |            |  |             |            |   |  |         |          |   |              |          |            |              |  |   |             |   |  |           |            |   |  |  |   |  |  |   |            |  
| |  | -------------------- | -------- | - | -------------------- | - | -------- | ---------- |  | ----------- | ---------- | - |  | ------- | -------- | - | ------------ | -------- | ---------- | ------------ |  | - | ----------- | - |  | --------- | ---------- | - |  |  | - |  |  | - | ---------- | -
| |  | Series A convertible |          |   | Series B convertible |   |          |            |  | Deficit     |            |   |  |         |          |   |             
| |  | preferred stock      |          |   | preferred stock      |   |          |            |  | accumulated |            |   |  |         |          |   | Total share- |         
| |  |                      |          |   |                      |   |          | Additional |  |             | during the |   |  |         |          |   |              | holders |           
| |  | Number               |          |   | Aggregate            |   |          | Number     |  |             | Aggregate  |   |  | paid-in |          |   | development  |          |            | Deferred     |  |   | Treasury    |   |  | equity    |           
| |  | of shares            |          |   | amount               |   |          | of shares  |  |             | amount     |   |  | capital |          |   | stage        |          |            | compensation |  |   | shares      |   |  | (deficit) |           
| |  |                      |          |   |                      |   |          |            |  |             |            |   |  |         |          |   |              |          |            |              |  |   |             |   |  |           |           
| |  |                      |         |   |                      | $ |         |            |  |             |           |   |  | $       |         |   |              | $        | (28,000    | )            |  | $ |            |   |  | $         |           |   |  |  |  |  |  | $ | 7,000      |  
| |  |                      | 250,000  |   |                      |   | 250,000  |            |  |             |           |   |  |         |         |   |              |          | 670,850    |              |  |   |            |   |  |           |           |   |  |  |  |  |  |   | 920,850    |  
| |  |                      |         |   |                      |   |         |            |  |             |           |   |  |         |         |   |              |          |           |              |  |   | (607,688    | ) |  |           |           |   |  |  |  |  |  |   | (607,688   | )
| |  |                      |          |   |                      |   |          |            |  |             |            |   |  |         |          |   |              |          |            |              |  |   |             |   |  |           |           
| |  |                      | 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    |  
| |  |                      |          |   |                      |   |          |            |  |             |            |   |  |         |          |   |              |          |            |              |  |   |             |   |  |           |           
| |  |                      | 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    |  
| |  |                      |          |   |                      |   |          |            |  |             |            |   |  |         |          |   |              |          |            |              |  |   |             |   |  |           |           
| |  |                      | 250,000  |   |                      |   | 250,000  |            |  |             | 200,633    |   |  |         | 200,633  |   |              |          | 9,865,352  |              |  |   | (6,094,895  | ) |  |           | (1,053,864 | ) |  |  |  |  |  |   | 3,202,226  |  
| |  |                      |         |   |                      |   |         |            |  |             |           |   |  |         |         |   |              |          | 9,749,870  |              |  |   |            |   |  |           |           |   |  |  |  |  |  |   | 9,754,000  |  
| |  |                      | (250,000 | ) |                      |   | (250,000 | )          |  |             |           |   |  |         |         |   |              |          | 237,500    |              |  |   |            |   |  |           |           |   |  |  |  |  |  |   |           |  
| |  |                      |         |   |                      |   |         |            |  |             | (200,633   | ) |  |         | (200,633 | ) |              |          | 190,601    |              |  |   |            |   |  |           |           |   |  |  |  |  |  |   |           |  
| |  |                      |         |   |                      |   |         |            |  |             |           |   |  |         |         |   |              |          | 93,759     |              |  |   |            |   |  |           |           |   |  |  |  |  |  |   | 94,230     |  
| |  |                      |         |   |                      |   |         |            |  |             |           |   |  |         |         |   |              |          | 4,976,855  |              |  |   |            |   |  |           |           |   |  |  |  |  |  |   | 4,978,610  |  
| |  |                      |         |   |                      |   |         |            |  |             |           |   |  |         |         |   |              |          | 2,488,356  |              |  |   |            |   |  |           |           |   |  |  |  |  |  |   | 2,489,234  |  
| |  |                      |         |   |                      |   |         |            |  |             |           |   |  |         |         |   |              |          | 7,443,118  |              |  |   |            |   |  |           |           |   |  |  |  |  |  |   | 7,443,118  |  
| |  |                      |         |   |                      |   |         |            |  |             |           |   |  |         |         |   |              |          |           |              |  |   | (791,206    | ) |  |           |           |   |  |  |  |  |  |   | (791,206   | )
| |  |                      |         |   |                      |   |         |            |  |             |           |   |  |         |         |   |              |          | 683,040    |              |  |   |            |   |  |           | (683,040   | ) |  |  |  |  |  |   |           |  
| |  |                      |         |   |                      |   |         |            |  |             |           |   |  |         |         |   |              |          |           |              |  |   |            |   |  |           | 800,729    |   |  |  |  |  |  |   | 800,729    |  
| |  |                      |          |   |                      |   |          |            |  |             |            |   |  |         |          |   |              |          |            |              |  |   |             |   |  |           |           
| |  |                      |         |   |                      |   |         |            |  |             |           |   |  |         |         |   |              |          | 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    |  
| |  |                      |          |   |                      |   |          |            |  |             |            |   |  |         |          |   |              |          |            |              |  |   |             |   |  |           |           
| |  |                      |         |   |                      |   |         |            |  |             |           |   |  |         |         |   |              |          | 36,427,614 |              |  |   | (10,376,495 | ) |  |           | (1,089,060 | ) |  |  |  |  |  |   | 25,026,825 |  
| |  |                      |         |   |                      |   |         |            |  |             |           |   |  |         |         |   |              |          |           |              |  |   | (5,579,872  | ) |  |           |           |   |  |  |  |  |  |   | (5,579,872 | )
| |  |                      |         |   |                      |   |         |            |  |             |           |   |  |         |         |   |              |          |           |              |  |   |            |   |  |           | 435,296    |   |  |  |  |  |  |   | 435,296    |  
| |  |                      |          |   |                      |   |          |            |  |             |            |   |  |         |          |   |              |          |            |              |  |   |             |   |  |           |           
| |  |                      |         |   |                      |   |         |            |  |             |           |   |  |         |         |   |              |          | 36,427,614 |              |  |   | (15,956,367 | ) |  |           | (653,764   | ) |  |  |  |  |  |   | 19,882,249 |  
| |  |                      |         |   |                      |   |         |            |  |             |           |   |  |         |         |   |              |          | 503,100    |              |  |   |            |   |  |           |           |   |  |  |  |  |  |   | 504,000    |  
| |  |                      |         |   |                      |   |         |            |  |             |           |   |  |         |         |   |              |          |           |              |  |   | (7,006,495  | ) |  |           |           |   |  |  |  |  |  |   | (7,006,495 | )
| |  |                      |         |   |                      |   |         |            |  |             |           |   |  |         |         |   |              |          |           |              |  |   |            |   |  |           | 254,025    |   |  |  |  |  |  |   | 254,025    |  
| |  |                      |          |   |                      |   |          |            |  |             |            |   |  |         |          |   |              |          |            |              |  |   |             |   |  |           |           
| |  |                      |         |   |                      |   |         |            |  |             |           |   |  |         |         |   |              |          | 36,930,714 |              |  |   | (22,962,862 | ) |  |           | (399,739   | ) |  |  |  |  |  |   | 13,633,779 |  
| |  |                      |         |   |                      |   |         |            |  |             |           |   |  |         |         |   |              |          | 106,890    |              |  |   |            |   |  |           |           |   |  |  |  |  |  |   | 107,040    |  
| |  |                      |         |   |                      |   |         |            |  |             |           |   |  |         |         |   |              |          | 5,663,710  |              |  |   |            |   |  |           |           |   |  |  |  |  |  |   | 5,667,454  |  
| |  |                      |         |   |                      |   |         |            |  |             |           |   |  |         |         |   |              |          |           |              |  |   | (8,066,609  | ) |  |           |           |   |  |  |  |  |  |   | (8,066,609 | )
| |  |                      |         |   |                      |   |         |            |  |             |           |   |  |         |         |   |              |          |           |              |  |   |            |   |  |           | 254,025    |   |  |  |  |  |  |   | 254,025    |  
| |  |                      |          |   |                      |   |          |            |  |             |            |   |  |         |          |   |              |          |            |              |  |   |             |   |  |           |           
| |  |                      |         |   |                      |   |         |            |  |             |           |   |  |         |         |   |              |          | 42,701,314 |              |  |   | (31,029,471 | ) |  |           | (145,714   | ) |  |  |  |  |  |   | 11,595,689 |  
| |  |                      |         |   |                      |   |         |            |  |             |           |   |  |         |         |   |              |          |           |              |  |   | (7,363,810  | ) |  |           |           |   |  |  |  |  |  |   | (7,363,810 | )
| |  |                      |         |   |                      |   |         |            |  |             |           |   |  |         |         |   |              |          | 14,163,851 |              |  |   |            |   |  |           |           |   |  |  |  |  |  |   | 14,188,851 |  
| |  |                      |         |   |                      |   |         |            |  |             |           |   |  |         |         |   |              |          | (85,400    | )            |  |   |            |   |  |           | 85,400     |   |  |  |  |  |  |   |           |  
| |  |                      |         |   |                      |   |         |            |  |             |           |   |  |         |         |   |              |          |           |              |  |   |            |   |  |           | 267        |   |  |  |  |  |  |   | 267        |  
| |  |                      |          |   |                      |   |          |            |  |             |            |   |  |         |          |   |              |          |            |              |  |   |             |   |  |           |           
| |  |                      |         |   |                      |   |         |            |  |             |           |   |  |         |         |   |              |          | 56,779,765 |              |  |   | (38,393,281 | ) |  |           | (60,047    | ) |  |  |  |  |  |   | 18,420,997 |  
| |  |                      |         |   |                      |   |         |            |  |             |           |   |  |         |         |   |              |          |           |              |  |   | (7,439,013  | ) |  |           |           |   |  |  |  |  |  |   | (7,439,013 | )
| |  |                      |         |   |                      |   |         |            |  |             |           |   |  |         |         |   |              |          | 2,261,250  |              |  |   |            |   |  |           |           |   |  |  |  |  |  |   | 2,265,000  |  
| |  |                      |         |   |                      |   |         |            |  |             |           |   |  |         |         |   |              |          | 71,300     |              |  |   |            |   |  |           |           |   |  |  |  |  |  |   | 71,400     |  
| |  |                      |         |   |                      |   |         |            |  |             |           |   |  |         |         |   |              |          | 373,264    |              |  |   |            |   |  |           |           |   |  |  |  |  |  |   | 375,139    |  
| |  |                      |         |   |                      |   |         |            |  |             |           |   |  |         |         |   |              |          | (106,750   | )            |  |   |            |   |  |           | 106,750    |   |  |  |  |  |  |   |           |  
| |  |                      |         |   |                      |   |         |            |  |             |           |   |  |         |         |   |              |          |           |              |  |   |            |   |  |           | (67,892    | ) |  |  |  |  |  |   | (67,892    | )
| |  |                      |          |   |                      |   |          |            |  |             |            |   |  |         |          |   |              |          |            |              |  |   |             |   |  |           |           
| |  |                      |         |   |                      | $ |         |            |  |             |           |   |  | $       |         |   |              | $        | 59,378,829 |              |  | $ | (45,832,294 | ) |  | $         | (21,189    | ) |  |  |  |  |  | $ | 13,625,631 |  



42



---



##### Table of Contents



NORTHFIELD LABORATORIES INC.


(a company in the development stage)


STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIT)


Years ended May 31, 2006, 2005 and 2004 and the
cumulative period


from June 19, 1985 (inception) through May 31,
2006


|                                                                                                              |  |                 |   |              |           |   |           |  |  |           |            |  |  |   |         | 
|------------------------------------------------------------------------------------------------------------- |  | --------------- | - | ------------ | --------- | - | --------- |  |  | --------- | ---------- |  |  | - | ------- | 
|                                                                                                              |  | Preferred stock |   | Common stock |          
|                                                                                                              |  |                 |   |              |          
|                                                                                                              |  | Number          |   |              | Aggregate |   | Number    |  |  | Aggregate |           
|                                                                                                              |  | of shares       |   |              | amount    |   | of shares |  |  | amount    |           
|                                                                                                              |  |                 |   |              |           |   |           |  |  |           |           
|Net loss                                                                                                      |  |                 |  |              |           | $ |          |  |  |           |           |  |  | $ |        | 
|Issuance of common stock at $17.75 per share on August 9,
    1995 (net of issuance costs of $3,565,125)      |  |                 |  |              |           |   |          |  |  |           | 2,925,000  |  |  |   | 29,250  | 
|Issuance of common stock at $17.75 per share on
    September 11, 1995 (net of issuance costs of $423,238)    |  |                 |  |              |           |   |          |  |  |           | 438,750    |  |  |   | 4,388   | 
|Exercise of stock options at $2.00 per share                                                                  |  |                 |  |              |           |   |          |  |  |           | 182,380    |  |  |   | 1,824   | 
|Exercise of stock options at $6.38 per share                                                                  |  |                 |  |              |           |   |          |  |  |           | 1,500      |  |  |   | 15      | 
|Exercise of stock options at $7.14 per share                                                                  |  |                 |  |              |           |   |          |  |  |           | 10,000     |  |  |   | 100     | 
|Cancellation of stock options                                                                                 |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|Amortization of deferred compensation                                                                         |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|                                                                                                              |  |                 |   |              |           |   |           |  |  |           |            | 
|Balance at May 31, 1996                                                                                       |  |                 |  |              |           |   |          |  |  |           | 13,586,155 |  |  |   | 135,862 | 
|Net loss                                                                                                      |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|Exercise of stock options at $0.20 per share                                                                  |  |                 |  |              |           |   |          |  |  |           | 263,285    |  |  |   | 2,633   | 
|Exercise of stock options at $2.00 per share                                                                  |  |                 |  |              |           |   |          |  |  |           | 232,935    |  |  |   | 2,329   | 
|Exercise of stock options at $7.14 per share                                                                  |  |                 |  |              |           |   |          |  |  |           | 10,000     |  |  |   | 100     | 
|Amortization of deferred compensation                                                                         |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|                                                                                                              |  |                 |   |              |           |   |           |  |  |           |            | 
|Balance at May 31, 1997                                                                                       |  |                 |  |              |           |   |          |  |  |           | 14,092,375 |  |  |   | 140,924 | 
|Net loss                                                                                                      |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|Exercise of stock options at $7.14 per share                                                                  |  |                 |  |              |           |   |          |  |  |           | 5,000      |  |  |   | 50      | 
|Amortization of deferred compensation                                                                         |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|                                                                                                              |  |                 |   |              |           |   |           |  |  |           |            | 
|Balance at May 31, 1998                                                                                       |  |                 |  |              |           |   |          |  |  |           | 14,097,375 |  |  |   | 140,974 | 
|Net loss                                                                                                      |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|Non-cash compensation                                                                                         |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|Exercise of stock options at $7.14 per share                                                                  |  |                 |  |              |           |   |          |  |  |           | 17,500     |  |  |   | 175     | 
|Exercise of stock warrants at $8.00 per share                                                                 |  |                 |  |              |           |   |          |  |  |           | 125,000    |  |  |   | 1,250   | 
|                                                                                                              |  |                 |   |              |           |   |           |  |  |           |            | 
|Balance at May 31, 1999                                                                                       |  |                 |  |              |           |   |          |  |  |           | 14,239,875 |  |  |   | 142,399 | 
|Net loss                                                                                                      |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|Non-cash compensation                                                                                         |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|Exercise of stock options at $13.38 per share                                                                 |  |                 |  |              |           |   |          |  |  |           | 2,500      |  |  |   | 25      | 
|                                                                                                              |  |                 |   |              |           |   |           |  |  |           |            | 
|Balance at May 31, 2000                                                                                       |  |                 |  |              |           |   |          |  |  |           | 14,242,375 |  |  |   | 142,424 | 
|Net loss                                                                                                      |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|Non-cash compensation                                                                                         |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|Exercise of stock options at $6.38 per share                                                                  |  |                 |  |              |           |   |          |  |  |           | 6,000      |  |  |   | 60      | 
|Exercise of stock options at $10.81 per share                                                                 |  |                 |  |              |           |   |          |  |  |           | 17,500     |  |  |   | 175     | 
|                                                                                                              |  |                 |   |              |           |   |           |  |  |           |            | 
|Balance at May 31, 2001                                                                                       |  |                 |  |              |           |   |          |  |  |           | 14,265,875 |  |  |   | 142,659 | 
|Net loss                                                                                                      |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|                                                                                                              |  |                 |   |              |           |   |           |  |  |           |            | 
|Balance at May 31, 2002                                                                                       |  |                 |  |              |           |   |          |  |  |           | 14,265,875 |  |  |   | 142,659 | 
|Net loss                                                                                                      |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|                                                                                                              |  |                 |   |              |           |   |           |  |  |           |            | 
|Balance at May 31, 2003                                                                                       |  |                 |  |              |           |   |          |  |  |           | 14,265,875 |  |  |   | 142,659 | 
|Issuance of common stock at $5.60 per share on July 28,
    2003 (net of costs of issuance of $909,229)       |  |                 |  |              |           |   |          |  |  |           | 1,892,857  |  |  |   | 18,928  | 
|Issuance of common stock to directors at $6.08 per share on
    October 30, 2003                              |  |                 |  |              |           |   |          |  |  |           | 12,335     |  |  |   | 123     | 
|Deferred compensation related to stock grants                                                                 |  |                 |  |              |           |   |          |  |  |           | 25,500     |  |  |   | 255     | 
|Amortization of deferred compensation                                                                         |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|Issuance of common stock at $5.80 per share on January 29,
    2004 (net of costs of issuance of $1,126,104)  |  |                 |  |              |           |   |          |  |  |           | 2,585,965  |  |  |   | 25,860  | 
|Issuance of common stock at $5.80 per share on February 18,
    2004 (net of costs of issuance of $116,423)   |  |                 |  |              |           |   |          |  |  |           | 237,008    |  |  |   | 2,370   | 
|Issuance of common stock at $5.80 per share on April 15,
    2004 (net of costs of issuance of $192,242)      |  |                 |  |              |           |   |          |  |  |           | 409,483    |  |  |   | 4,095   | 
|Issuance of common stock at $12.00 per share on May 18,
    2004 (net of costs of issuance of $1,716,831)     |  |                 |  |              |           |   |          |  |  |           | 1,954,416  |  |  |   | 19,544  | 
|Exercise of stock options at $6.38 per share                                                                  |  |                 |  |              |           |   |          |  |  |           | 15,000     |  |  |   | 150     | 
|Net loss                                                                                                      |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|                                                                                                              |  |                 |   |              |           |   |           |  |  |           |            | 
|Balance at May 31, 2004                                                                                       |  |                 |   |              |           |   |           |  |  |           | 21,398,439 |  |  |   | 213,984 | 
|Deferred compensation related to stock grants                                                                 |  |                 |  |              |           |   |          |  |  |           | 5,500      |  |  |   | 55      | 
|Amortization of deferred compensation                                                                         |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|Exercise of stock options between $5.08 and $14.17 per share                                                  |  |                 |  |              |           |   |          |  |  |           | 167,875    |  |  |   | 1,679   | 
|Cost of shares in treasury, 1,717 shares                                                                      |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|Issuance of common stock to directors at $12.66 per share on
    September 21, 2004                           |  |                 |  |              |           |   |          |  |  |           | 5,925      |  |  |   | 59      | 
|Issuance of common stock at $15.00 per share on February 9,
    2005 (net of costs of issuance of $4,995,689) |  |                 |  |              |           |   |          |  |  |           | 5,175,000  |  |  |   | 51,750  | 
|Net loss                                                                                                      |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|                                                                                                              |  |                 |   |              |           |   |           |  |  |           |            | 
|Balance at May 31, 2005                                                                                       |  |                 |   |              |           |   |           |  |  |           | 26,752,739 |  |  |   | 267,527 | 
|Amortization of deferred compensation                                                                         |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|Exercise of stock options at $7.13 and $10.66 per share                                                       |  |                 |  |              |           |   |          |  |  |           | 2,875      |  |  |   | 29      | 
|Issuance of common stock to directors at $13.05 per share on
    September 29, 2005                           |  |                 |  |              |           |   |          |  |  |           | 5,750      |  |  |   | 57      | 
|Issuance of common stock to director at $13.21 per share on
    October 3, 2005                               |  |                 |  |              |           |   |          |  |  |           | 1,135      |  |  |   | 12      | 
|Issuance of common stock to director at $10.67 per share on
    February 24, 2006                             |  |                 |  |              |           |   |          |  |  |           | 1,406      |  |  |   | 14      | 
|Exercise of stock options at $10.66, $5.15 and $11.09 per share                                               |  |                 |  |              |           |   |          |  |  |           | 8,000      |  |  |   | 80      | 
|Exercise of stock options at $10.66 and $7.13 per share                                                       |  |                 |  |              |           |   |          |  |  |           | 2,750      |  |  |   | 28      | 
|Exercise of stock options at $5.15 and $7.13 per share                                                        |  |                 |  |              |           |   |          |  |  |           | 3,000      |  |  |   | 30      | 
|Net loss                                                                                                      |  |                 |  |              |           |   |          |  |  |           |           |  |  |   |        | 
|                                                                                                              |  |                 |   |              |           |   |           |  |  |           |            | 
|Balance at May 31, 2006                                                                                       |  |                 |   |              |           | $ |           |  |  |           | 26,777,655 |  |  | $ | 267,777 | 
|                                                                                                              |  |                 |   |              |           |   |           |  |  |           |            | 



43



---



##### Table of Contents









| |  |                      |   |                      |           |            |           |             |            |           |   |         |  |   |             |               |  |              |             |   |          |   |              |           |  |   |          |   |  |  |         |   |  |   |             |  
| |  | -------------------- | - | -------------------- | --------- | ---------- | --------- | ----------- | ---------- | --------- | - | ------- |  | - | ----------- | ------------- |  | ------------ | ----------- | - | -------- | - | ------------ | --------- |  | - | -------- | - |  |  | ------- | - |  | - | ----------- | -
| |  | Series A convertible |   | Series B convertible |           |            |           | Deficit     |            |           |   |         |  |   |            
| |  | preferred stock      |   | preferred stock      |           |            |           | accumulated |            |           |   |         |  |   | Total       |              
| |  |                      |   |                      |           | Additional |           |             | during the |           |   |         |  |   |             | shareholders | 
| |  | Number               |   |                      | Aggregate |            | Number    |             |            | Aggregate |   | paid-in |  |   | development |               |  | Deferred     |             |   | Treasury |   |              | equity    | 
| |  | of shares            |   |                      | amount    |            | of shares |             |            | amount    |   | capital |  |   | stage       |               |  | compensation |             |   | shares   |   |              | (deficit) | 
| |  |                      |   |                      |           |            |           |             |            |           |   |         |  |   |             |               |  |              |             |   |          |   |              |           | 
| |  |                      |  |                      |           | $          |          |             |            |           |  |         |  | $ |            |               |  | $            |            |   |          | $ | (4,778,875   | )         |  | $ |         |   |  |  |        |   |  | $ | (4,778,875  | )
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 48,324,374  |   |          |   |             |           |  |   |         |   |  |  |        |   |  |   | 48,353,624  |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 7,360,187   |   |          |   |             |           |  |   |         |   |  |  |        |   |  |   | 7,364,575   |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 362,937     |   |          |   |             |           |  |   |         |   |  |  |        |   |  |   | 364,761     |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 9,555       |   |          |   |             |           |  |   |         |   |  |  |        |   |  |   | 9,570       |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 71,300      |   |          |   |             |           |  |   |         |   |  |  |        |   |  |   | 71,400      |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | (80,062     | ) |          |   |             |           |  |   | 80,062   |   |  |  |        |   |  |   |            |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              |            |   |          |   |             |           |  |   | (62,726  | ) |  |  |        |   |  |   | (62,726     | )
| |  |                      |   |                      |           |            |           |             |            |           |   |         |  |   |             |               |  |              |             |   |          |   |              |           |  |   |         
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 115,427,120 |   |          |   | (50,611,169  | )         |  |   | (3,853   | ) |  |  |        |   |  |   | 64,947,960  |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              |            |   |          |   | (4,245,693   | )         |  |   |         |   |  |  |        |   |  |   | (4,245,693  | )
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 50,025      |   |          |   |             |           |  |   |         |   |  |  |        |   |  |   | 52,658      |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 463,540     |   |          |   |             |           |  |   |         |   |  |  |        |   |  |   | 465,869     |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 71,300      |   |          |   |             |           |  |   |         |   |  |  |        |   |  |   | 71,400      |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              |            |   |          |   |             |           |  |   | 2,569    |   |  |  |        |   |  |   | 2,569       |  
| |  |                      |   |                      |           |            |           |             |            |           |   |         |  |   |             |               |  |              |             |   |          |   |              |           |  |   |         
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 116,011,985 |   |          |   | (54,856,862  | )         |  |   | (1,284   | ) |  |  |        |   |  |   | 61,294,763  |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              |            |   |          |   | (5,883,378   | )         |  |   |         |   |  |  |        |   |  |   | (5,883,378  | )
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 35,650      |   |          |   |             |           |  |   |         |   |  |  |        |   |  |   | 35,700      |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              |            |   |          |   |             |           |  |   | 1,284    |   |  |  |        |   |  |   | 1,284       |  
| |  |                      |   |                      |           |            |           |             |            |           |   |         |  |   |             |               |  |              |             |   |          |   |              |           |  |   |         
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 116,047,635 |   |          |   | (60,740,240  | )         |  |   |         |   |  |  |        |   |  |   | 55,448,369  |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              |            |   |          |   | (7,416,333   | )         |  |   |         |   |  |  |        |   |  |   | (7,416,333  | )
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 14,354      |   |          |   |             |           |  |   |          |   |  |  |        |   |  |   | 14,354      |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 124,775     |   |          |   |             |           |  |   |         |   |  |  |        |   |  |   | 124,950     |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 998,750     |   |          |   |             |           |  |   |         |   |  |  |        |   |  |   | 1,000,000   |  
| |  |                      |   |                      |           |            |           |             |            |           |   |         |  |   |             |               |  |              |             |   |          |   |              |           |  |   |         
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 117,185,514 |   |          |   | (68,156,573  | )         |  |   |         |   |  |  |        |   |  |   | 49,171,340  |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              |            |   |          |   | (9,167,070   | )         |  |   |         |   |  |  |        |   |  |   | (9,167,070  | )
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 57,112      |   |          |   |             |           |  |   |         |   |  |  |        |   |  |   | 57,112      |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 33,425      |   |          |   |             |           |  |   |         |   |  |  |        |   |  |   | 33,450      |  
| |  |                      |   |                      |           |            |           |             |            |           |   |         |  |   |             |               |  |              |             |   |          |   |              |           |  |   |         
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 117,276,051 |   |          |   | (77,323,643  | )         |  |   |         |   |  |  |        |   |  |   | 40,094,832  |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              |            |   |          |   | (10,174,609  | )         |  |   |         |   |  |  |        |   |  |   | (10,174,609 | )
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              |            |   |          |   |             |           |  |   |         |   |  |  |        |   |  |   |            |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 38,220      |   |          |   |             |           |  |   |         |   |  |  |        |   |  |   | 38,280      |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 189,000     |   |          |   |             |           |  |   |         |   |  |  |        |   |  |   | 189,175     |  
| |  |                      |   |                      |           |            |           |             |            |           |   |         |  |   |             |               |  |              |             |   |          |   |              |           |  |   |         
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 117,503,271 |   |          |   | (87,498,252  | )         |  |   |         |   |  |  |        |   |  |   | 30,147,678  |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              |            |   |          |   | (10,717,360  | )         |  |   |         |   |  |  |        |   |  |   | (10,717,360 | )
| |  |                      |   |                      |           |            |           |             |            |           |   |         |  |   |             |               |  |              |             |   |          |   |              |           |  |   |         
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 117,503,271 |   |          |   | (98,215,612  | )         |  |   |         |   |  |  |        |   |  |   | 19,430,318  |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              |            |   |          |   | (12,250,145  | )         |  |   |         |   |  |  |        |   |  |   | (12,250,145 | )
| |  |                      |   |                      |           |            |           |             |            |           |   |         |  |   |             |               |  |              |             |   |          |   |              |           |  |   |         
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 117,503,271 |   |          |   | (110,465,757 | )         |  |   |         |   |  |  |        |   |  |   | 7,180,173   |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 9,671,843   |   |          |   |             |           |  |   |         |   |  |  |        |   |  |   | 9,690,771   |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 74,877      |   |          |   |             |           |  |   |         |   |  |  |        |   |  |   | 75,000      |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 190,995     |   |          |   |             |           |  |   | (191,250 | ) |  |  |        |   |  |   |            |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              |            |   |          |   |             |           |  |   | 35,630   |   |  |  |        |   |  |   | 35,630      |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 13,846,633  |   |          |   |             |           |  |   |         |   |  |  |        |   |  |   | 13,872,493  |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 1,255,853   |   |          |   |             |           |  |   |         |   |  |  |        |   |  |   | 1,258,223   |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 2,178,664   |   |          |   |             |           |  |   |         |   |  |  |        |   |  |   | 2,182,759   |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 21,716,616  |   |          |   |             |           |  |   |         |   |  |  |        |   |  |   | 21,736,160  |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 95,550      |   |          |   |             |           |  |   |         |   |  |  |        |   |  |   | 95,700      |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              |            |   |          |   | (14,573,798  | )         |  |   |         |   |  |  |        |   |  |   | (14,573,798 | )
| |  |                      |   |                      |           |            |           |             |            |           |   |         |  |   |             |               |  |              |             |   |          |   |              |           |  |   |         
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 166,534,302 |   |          |   | (125,039,555 | )         |  |   | (155,620 | ) |  |  |        |   |  |   | 41,553,111  |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 71,055      |   |          |   |             |           |  |   | (71,110  | ) |  |  |        |   |  |   |            |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              |            |   |          |   |             |           |  |   | 122,121  |   |  |  |        |   |  |   | 122,121     |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 1,739,585   |   |          |   |             |           |  |   |         |   |  |  |        |   |  |   | 1,741,264   |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              |            |   |          |   |             |           |  |   |         |   |  |  | (25,393 | ) |  |   | (25,393     | )
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 74,941      |   |          |   |             |           |  |   |         |   |  |  |        |   |  |   | 75,000      |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 72,577,561  |   |          |   |             |           |  |   |         |   |  |  |        |   |  |   | 72,629,311  |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              |            |   |          |   | (20,321,456  | )         |  |   |         |   |  |  |        |   |  |   | (20,321,456 | )
| |  |                      |   |                      |           |            |           |             |            |           |   |         |  |   |             |               |  |              |             |   |          |   |              |           |  |   |         
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 240,997,444 |   |          |   | (145,361,011 | )         |  |   | (104,609 | ) |  |  | (25,393 | ) |  |   | 95,773,958  |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              |            |   |          |   |             |           |  |   | 95,550   |   |  |  |        |   |  |   | 95,550      |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 29,295      |   |          |   |             |           |  |   |         |   |  |  |        |   |  |   | 29,324      |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 74,943      |   |          |   |             |           |  |   |         |   |  |  |        |   |  |   | 75,000      |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 14,988      |   |          |   |             |           |  |   |         |   |  |  |        |   |  |   | 15,000      |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 14,986      |   |          |   |             |           |  |   |         |   |  |  |        |   |  |   | 15,000      |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 65,075      |   |          |   |             |           |  |   |         |   |  |  |        |   |  |   | 65,155      |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 26,640      |   |          |   |             |           |  |   |         |   |  |  |        |   |  |   | 26,668      |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              | 16,905      |   |          |   |             |           |  |   |         |   |  |  |        |   |  |   | 16,935      |  
| |  |                      |  |                      |           |            |          |             |            |           |  |         |  |   |            |               |  |              |            |   |          |   | (26,775,418  | )         |  |   |         |   |  |  |        |   |  |   | (26,775,418 | )
| |  |                      |   |                      |           |            |           |             |            |           |   |         |  |   |             |               |  |              |             |   |          |   |              |           |  |   |         
| |  |                      |  |                      |           | $          |          |             |            |           |  |         |  | $ |            |               |  | $            | 241,240,276 |   |          | $ | (172,136,429 | )         |  | $ | (9,059   | ) |  |  | (25,393 | ) |  | $ | 69,337,172  |  
| |  |                      |   |                      |           |            |           |             |            |           |   |         |  |   |             |               |  |              |             |   |          |   |              |           |  |   |         

44



---



##### Table of Contents



NORTHFIELD LABORATORIES INC.


(a company in the development stage)


STATEMENTS OF CASH FLOWS


Years ended May 31, 2006, 2005 and 2004


and the cumulative period from June 19, 1985


(inception) through May 31, 2006


|                                                       |                                                                                  |                                    |                                                     |                                           |               |            |             |              |          |             |              |             |         |            |             |              |            |             |              |  
|------------------------------------------------------ | -------------------------------------------------------------------------------- | ---------------------------------- | --------------------------------------------------- | ----------------------------------------- | ------------- | ---------- | ----------- | ------------ | -------- | ----------- | ------------ | ----------- | ------- | ---------- | ----------- | ------------ | ---------- | ----------- | ------------ | -
|                                                       |                                                                                  |                                    |                                                     |                                           |               |            |             | Cumulative   |         
|                                                       |                                                                                  |                                    |                                                     | from                                      |              
|                                                       |                                                                                  | Years ended May 31,                |                                                     |                                           | June 19, 1985 |           
|                                                       |                                                                                  |                                    |                                                     |                                           | through       |           
|                                                       |                                                                                  | 2006                               |                                                     |                                           | 2005          |            |             | 2004         |          |             | May 31, 2006 |            
|                                                       |                                                                                  |                                    |                                                     |                                           |               |            |             |              |          |             |              |            
|Cash flows from operating activities:                  |                                                                                  |                                    |                                                     |                                           |               |            |             |              |          |             |              |             |         |            |             |             
|                                                       | Net loss                                                                         |                                    | $                                                   | (26,775,418                               | )             |            |             | (20,321,456  | )        |             |              | (14,573,798 | )       |            |             | (172,136,429 | )         
|                                                       | Adjustments to reconcile net loss to net cash used in operating
    activities:  |                                    |                                                     |                                           |               |            |             |              |          |             |              |             |         |            |             |              |           
|                                                       |                                                                                  | Marketable security amortization   |                                                     |                                           | (1,695,897    | )          |             |              | (537,201 | )           |              |             | (19,266 | )          |             |              | (2,298,203 | )          
|                                                       |                                                                                  | Depreciation and amortization      |                                                     |                                           | 668,063       |            |             |              | 447,633  |             |              |             | 681,153 |            |             |              | 18,944,771 |            
|                                                       |                                                                                  | Stock based compensation           |                                                     |                                           | 200,550       |            |             |              | 197,121  |             |              |             | 110,630 |            |             |              | 4,061,024  |            
|                                                       |                                                                                  | Loss on sale of equipment          |                                                     |                                           |              |            |             |              |         |             |              |             |        |            |             |              | 66,359     |            
|                                                       |                                                                                  | Changes in assets and liabilities: |                                                     |                                           |               |            |             |              |          |             |              |             |         |            |             |              |            |            
|                                                       |                                                                                  |                                    | Prepaid expenses                                    |                                           |               | 13,637     |             |              |          | (212,077    | )            |             |         | 74,091     |             |              |            | (1,022,315  | )           
|                                                       |                                                                                  |                                    | Other current assets                                |                                           |               | 139,808    |             |              |          | (138,726    | )            |             |         | (1,082     | )           |              |            | (1,896,251  | )           
|                                                       |                                                                                  |                                    | Other assets                                        |                                           |               | (451       | )           |              |          |            |              |             |         |           |             |              |            | 6,400       |             
|                                                       |                                                                                  |                                    | Accounts payable                                    |                                           |               | 1,156,234  |             |              |          | 1,487,919   |              |             |         | 375,065    |             |              |            | 4,481,804   |             
|                                                       |                                                                                  |                                    | Accrued expenses                                    |                                           |               | 23,327     |             |              |          | (6,328      | )            |             |         | 55,488     |             |              |            | 134,006     |             
|                                                       |                                                                                  |                                    | Government grant liability                          |                                           |               | 926,492    |             |              |          |            |              |             |         |           |             |              |            | 926,492     |             
|                                                       |                                                                                  |                                    | Accrued compensation and benefits                   |                                           |               | 202,255    |             |              |          | 120,970     |              |             |         | 41,696     |             |              |            | 742,038     |             
|                                                       |                                                                                  |                                    | Other liabilities                                   |                                           |               | (2,002     | )           |              |          | (1,174      | )            |             |         | 87,712     |             |              |            | 249,580     |             
|                                                       |                                                                                  |                                    |                                                     |                                           |               |            |             |              |          |             |              |            
|                                                       |                                                                                  |                                    |                                                     | Net cash used in operating activities     |               |            | (25,143,402 | )            |          |             | (18,963,319  | )           |         |            | (13,168,311 | )            |            |             | (147,740,724 | )
|                                                       |                                                                                  |                                    |                                                     |                                           |               |            |             |              |          |             |              |            
|Cash flows from investing activities:                  |                                                                                  |                                    |                                                     |                                           |               |            |             |              |          |             |              |             |         |            |             |             
|                                                       | Purchase of property, plant, equipment, and capitalized
    engineering costs    |                                    |                                                     | (912,057                                  | )             |            |             | (275,076     | )        |             |              | (90,613     | )       |            |             | (19,948,313  | )         
|                                                       | Proceeds from sale of land and equipment                                         |                                    |                                                     |                                          |               |            |             |             |          |             |              |            |         |            |             | 1,863,023    |           
|                                                       | Proceeds from matured marketable securities                                      |                                    |                                                     | 187,794,000                               |               |            |             | 18,315,000   |          |             |              | 2,000,000   |         |            |             | 617,646,352  |           
|                                                       | Proceeds from sale of marketable securities                                      |                                    |                                                     |                                          |               |            |             |             |          |             |              |            |         |            |             | 7,141,656    |           
|                                                       | Purchase of marketable securities                                                |                                    |                                                     | (128,445,934                              | )             |            |             | (105,664,266 | )        |             |              | (3,432,260  | )       |            |             | (656,174,607 | )         
|                                                       |                                                                                  |                                    |                                                     |                                           |               |            |             |              |          |             |              |            
|                                                       |                                                                                  |                                    | Net cash provided by (used in) investing activities |                                           |               | 58,436,009 |             |              |          | (87,624,342 | )            |             |         | (1,522,873 | )           |              |            | (49,471,889 | )           
|                                                       |                                                                                  |                                    |                                                     |                                           |               |            |             |              |          |             |              |            
|Cash flows from financing activities:                  |                                                                                  |                                    |                                                     |                                           |               |            |             |              |          |             |              |             |         |            |             |             
|                                                       | Proceeds from issuance of common stock                                           |                                    |                                                     | 138,082                                   |               |            |             | 79,340,871   |          |             |              | 52,896,936  |         |            |             | 236,125,135  |           
|                                                       | Payment of common stock issuance costs                                           |                                    |                                                     |                                          |               |            |             | (4,995,689   | )        |             |              | (4,060,830  | )       |            |             | (14,128,531  | )         
|                                                       | 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 |               |            | 138,082     |              |          |             | 74,345,182   |             |         |            | 48,836,106  |              |            |             | 237,443,707  |  
|                                                       |                                                                                  |                                    |                                                     |                                           |               |            |             |              |          |             |              |            
|                                                       |                                                                                  |                                    |                                                     | Net increase (decrease) in cash           |               |            | 33,430,689  |              |          |             | (32,242,479  | )           |         |            | 34,144,922  |              |            |             | 40,231,094   |  
|Cash at beginning of period                            |                                                                                  |                                    | 6,800,405                                           |                                           |               |            | 39,042,884  |              |          |             | 4,897,962    |             |         |            |            |             
|Restricted cash                                        |                                                                                  |                                    | 926,492                                             |                                           |               |            |            |              |          |             |             |             |         |            | 926,492     |             
|                                                       |                                                                                  |                                    |                                                     |                                           |               |            |             |              |          |             |              |            
|Cash at end of period                                  |                                                                                  | $                                  | 39,304,602                                          |                                           |               |            | 6,800,405   |              |          |             | 39,042,884   |             |         |            | 39,304,602  |             
|                                                       |                                                                                  |                                    |                                                     |                                           |               |            |             |              |          |             |              |            
|Supplemental Schedule of Noncash Financing Activities: |                                                                                  |                                    |                                                     |                                           |               |            |             |              |          |             |              |             |         |            |             |             
|                                                       | Exercise of stock option, 5,000 shares in exchange for 1,717
    treasury shares |                                    | $                                                   |                                          |               |            |             | 25,393       |          |             |              |            |         |            |             | 25,393       |           



45



---



##### Table of Contents



NORTHFIELD LABORATORIES INC.


(a company in the development stage)


NOTES TO FINANCIAL STATEMENTS


May 31, 2006 and 2005




|    |                                           
|--- | ------------------------------------------
|(1) | Summary of Significant Accounting Policies

Description of Operations in the Development Stage




Basis of Presentation








Cash and Cash Equivalents




Restricted Cash






Marketable Securities




46



---



##### Table of Contents





Property, Plant, and Equipment




Treasury Shares




Computation of Net Loss Per Share






|              |  |      |           |  |      |  |           |               |  |  |              |  |  |  |         | 
|------------- |  | ---- | --------- |  | ---- |  | --------- | ------------- |  |  | ------------ |  |  |  | ------- | 
|              |  |      |           |  |      |  |           | Cumulative    | 
|              |  |      |           |  |      |  |           | From          | 
|              |  |      |           |  |      |  |           | June 19, 1985 | 
|              |  |      |           |  |      |  |           | Through       | 
|              |  | 2006 |           |  | 2005 |  |           | 2004          |  |  | May 31, 2006 | 
|              |  |      |           |  |      |  |           |               |  |  |              | 
|Stock options |  |      | 1,562,500 |  |      |  | 1,290,563 |               |  |  | 1,081,250    |  |  |  | 720,527 | 
|Warrants      |  |      | 212,392   |  |      |  | 212,392   |               |  |  | 106,196      |  |  |  | 88,437  | 
|              |  |      |           |  |      |  |           |               |  |  |              | 
|              |  |      | 1,774,892 |  |      |  | 1,502,955 |               |  |  | 1,187,446    |  |  |  | 808,964 | 
|              |  |      |           |  |      |  |           |               |  |  |              | 



Stock Based Compensation




47



---



##### Table of Contents





|                                                                                                         |  |      |             |   |      |   |             |      |  |  |             |  
|-------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | ---- |  |  | ----------- | -
|                                                                                                         |  | 2006 |             |   | 2005 |   |             | 2004 | 
|                                                                                                         |  |      |             |   |      |   |             |      | 
|Net loss as reported                                                                                     |  | $    | (26,775,418 | ) |      |   | (20,321,456 | )    |  |  | (14,573,798 | )
|Add: Stock based compensation expense included in statements of
    operations                           |  |      | 200,550     |   |      |   | 197,121     |      |  |  | 110,630     |  
|Deduct: Total stock based compensation expense determined under
    the fair value method for all awards |  |      | (2,721,700  | ) |      |   | (1,659,343  | )    |  |  | (760,239    | )
|                                                                                                         |  |      |             |   |      |   |             |      | 
|Pro forma net loss                                                                                       |  | $    | (29,296,568 | ) |      | $ | (21,783,678 | )    |  |  | (15,223,407 | )
|                                                                                                         |  |      |             |   |      |   |             |      | 
|Basic and diluted loss per share:                                                                        |  |      |             |   |      |   |             |      |  |  |             |  
|As reported                                                                                              |  |      | (1.00       | ) |      |   | (0.88       | )    |  |  | (0.86       | )
|Pro forma                                                                                                |  |      | (1.09       | ) |      |   | (0.94       | )    |  |  | (0.90       | )
|                                                                                                         |  |      |             |   |      |   |             |      | 



|                        |  |      |           |  |      |  |           |      |  |  |           | 
|----------------------- |  | ---- | --------- |  | ---- |  | --------- | ---- |  |  | --------- | 
|                        |  | 2006 |           |  | 2005 |  |           | 2004 | 
|                        |  |      |           |  |      |  |           |      | 
|Expected volatility     |  |      | 71.0%     |  |      |  | 71.3%     |      |  |  | 68.8%     | 
|Risk-free interest rate |  |      | 4.2%      |  |      |  | 4.0%      |      |  |  | 3.2%      | 
|Dividend yield          |  |      |          |  |      |  |          |      |  |  |          | 
|Expected lives          |  |      | 7.2 years |  |      |  | 7.7 years |      |  |  | 7.9 years | 
|                        |  |      |           |  |      |  |           |      | 



Financial Instruments




Use of Estimates






|    |                      
|--- | ---------------------
|(2) | Marketable Securities



48



---



##### Table of Contents







|                                    |  |                |            |  |            |                  |            |        |  |   |        |  
|----------------------------------- |  | -------------- | ---------- |  | ---------- | ---------------- | ---------- | ------ |  | - | ------ | -
|                                    |  |                |            |  |            | Gross Unrealized |           
|                                    |  | Amortized Cost |            |  | Fair Value |                  |            | Losses | 
|                                    |  |                |            |  |            |                  |            |        | 
|Certificates of deposit             |  | $              |           |  |            | $                |           |        |  | $ |       |  
|US Government and agency securities |  |                |           |  |            |                  |           |        |  |   |       |  
|Corporate debt securities           |  |                | 33,679,022 |  |            |                  | 33,677,649 |        |  |   | (1,373 | )
|                                    |  |                |            |  |            |                  |            |        | 
|Total                               |  | $              | 33,679,022 |  |            | $                | 33,677,649 |        |  | $ | (1,373 | )
|                                    |  |                |            |  |            |                  |            |        | 



|                                    |  |                |            |  |            |                  |            |        |  |   |          |  
|----------------------------------- |  | -------------- | ---------- |  | ---------- | ---------------- | ---------- | ------ |  | - | -------- | -
|                                    |  |                |            |  |            | Gross Unrealized |           
|                                    |  | Amortized Cost |            |  | Fair Value |                  |            | Losses | 
|                                    |  |                |            |  |            |                  |            |        | 
|Certificates of deposit             |  | $              | 4,972,789  |  |            | $                | 4,955,938  |        |  | $ | (16,851  | )
|US Government and agency securities |  |                | 37,747,575 |  |            |                  | 37,695,640 |        |  |   | (51,935  | )
|Corporate debt securities           |  |                | 48,609,925 |  |            |                  | 48,558,325 |        |  |   | (51,600  | )
|                                    |  |                |            |  |            |                  |            |        | 
|Total                               |  | $              | 91,330,289 |  |            | $                | 91,209,903 |        |  | $ | (120,386 | )
|                                    |  |                |            |  |            |                  |            |        | 





|    |                               
|--- | ------------------------------
|(3) | Property, Plant, and Equipment



|                                                        |  |             |            |  |      |   |             |      |  |   |             |  
|------------------------------------------------------- |  | ----------- | ---------- |  | ---- | - | ----------- | ---- |  | - | ----------- | -
|                                                        |  | Useful Life |            |  | 2006 |   |             | 2005 | 
|                                                        |  |             |            |  |      |   |             |      | 
|Manufacturing equipment                                 |  |             | 5 years    |  |      | $ | 10,263,545  |      |  | $ | 9,953,048   |  
|Laboratory equipment                                    |  |             | 5 years    |  |      |   | 1,340,440   |      |  |   | 1,340,440   |  
|Office furniture and equipment                          |  |             | 7 years    |  |      |   | 815,100     |      |  |   | 706,138     |  
|Computer equipment                                      |  |             | 3 years    |  |      |   | 287,468     |      |  |   | 142,632     |  
|Leasehold improvements and asset retirement obligations |  |             | Lease term |  |      |   | 1,818,600   |      |  |   | 1,729,506   |  
|Capitalized engineering costs                           |  |             | 3 years    |  |      |   | 1,128,896   |      |  |   | 924,867     |  
|                                                        |  |             |            |  |      |   |             |      | 
|                                                        |  |             |            |  |      |   | 15,654,049  |      |  |   | 14,796,631  |  
|Less accumulated depreciation and amortization          |  |             |            |  |      |   | (14,575,118 | )    |  |   | (13,961,694 | )
|                                                        |  |             |            |  |      |   |             |      | 
|                                                        |  |             |            |  |      | $ | 1,078,931   |      |  | $ | 834,937     |  
|                                                        |  |             |            |  |      |   |             |      | 





|    |                             
|--- | ----------------------------
|(4) | Asset Retirement Obligations



49



---



##### Table of Contents









|                     |  |              |         |  |              |   |         | 
|-------------------- |  | ------------ | ------- |  | ------------ | - | ------- | 
|                     |  | Year Ended   |         |  | Year Ended   |  
|                     |  | May 31, 2006 |         |  | May 31, 2005 |  
|                     |  |              |         |  |              |  
|Obligation at June 1 |  | $            | 228,972 |  |              | $ | 210,066 | 
|Accretion            |  |              | 20,607  |  |              |   | 18,906  | 
|                     |  |              |         |  |              |  
|Obligation at May 31 |  | $            | 249,579 |  |              | $ | 228,972 | 
|                     |  |              |         |  |              |  





|    |                     
|--- | --------------------
|(5) | Shareholders Equity





















50



---



##### Table of Contents











































51



---



##### Table of Contents









































|    |             
|--- | ------------
|(6) | Income Taxes



52



---



##### Table of Contents









|                     |                                  |                         |             |            |      |  |             |            |   | 
|-------------------- | -------------------------------- | ----------------------- | ----------- | ---------- | ---- |  | ----------- | ---------- | - | 
|                     |                                  | 2006                    |             |            | 2005 | 
|                     |                                  |                         |             |            |      | 
|Deferred tax assets: |                                  |                         |             |            |      |  |             |           
|                     | Net operating loss carryforwards |                         | $           | 61,000,000 |      |  | $           | 53,500,000 |  
|                     | Tax credit carryforwards         |                         |             | 5,000,000  |      |  |             | 4,200,000  |  
|                     | Other                            |                         |             | 2,300,000  |      |  |             | 1,400,000  |  
|                     |                                  |                         |             |            |      | 
|                     |                                  |                         | 68,300,000  |            |      |  | 59,100,000  |           
|Valuation allowance  |                                  |                         | (68,300,000 | )          |      |  | (59,100,000 | )         
|                     |                                  |                         |             |            |      | 
|                     |                                  | Net deferred tax assets |             | $          |     |  |             | $          |  | 
|                     |                                  |                         |             |            |      | 





|    |                  
|--- | -----------------
|(7) | Stock Option Plan









53



---



##### Table of Contents









|                                                               |  |         |           |          |       |   |       |         |          |   |           |  |  |          |       |  |       |   |           |  |  |   |       | 
|-------------------------------------------------------------- |  | ------- | --------- | -------- | ----- | - | ----- | ------- | -------- | - | --------- |  |  | -------- | ----- |  | ----- | - | --------- |  |  | - | ----- | 
|                                                               |  | 2006    |           |          | 2005  |   |       | 2004    |         
|                                                               |  |         |           |          |       |   |       |         |         
|                                                               |  |         |           | Weighted |       |   |       |         | Weighted |   |           |  |  | Weighted |      
|                                                               |  |         |           | Average  |       |   |       |         | Average  |   |           |  |  | Average  |      
|                                                               |  |         |           | Exercise |       |   |       |         | Exercise |   |           |  |  | Exercise |      
|                                                               |  | Options |           |          | Price |   |       | Options |          |   | Price     |  |  | Options  |       |  | Price |  
|                                                               |  |         |           |          |       |   |       |         |          |   |           |  |  |          |       |  |       |  
|Outstanding at beginning of year                               |  |         | 1,377,625 |          |       | $ | 10.61 |         |          |   | 1,203,500 |  |  | $        | 8.64  |  |       |   | 959,000   |  |  | $ | 9.62  | 
|Granted                                                        |  |         | 428,500   |          |       |   | 12.72 |         |          |   | 391,000   |  |  |          | 16.23 |  |       |   | 359,500   |  |  |   | 7.22  | 
|Exercised                                                      |  |         | 16,625    |          |       |   | 8.31  |         |          |   | 167,875   |  |  |          | 10.37 |  |       |   | 15,000    |  |  |   | 6.38  | 
|Canceled                                                       |  |         | 42,125    |          |       |   | 12.14 |         |          |   | 49,000    |  |  |          | 7.85  |  |       |   | 100,000   |  |  |   | 11.67 | 
|                                                               |  |         |           |          |       |   |       |         |          |   |           |  |  |          |       |  |       |  
|Outstanding at end of year                                     |  |         | 1,747,375 |          |       | $ | 11.11 |         |          |   | 1,377,625 |  |  | $        | 10.61 |  |       |   | 1,203,500 |  |  | $ | 8.64  | 
|                                                               |  |         |           |          |       |   |       |         |          |   |           |  |  |          |       |  |       |  
|Options exercisable at year end                                |  |         | 943,500   |          |       | $ | 9.94  |         |          |   | 680,125   |  |  | $        | 9.51  |  |       |   | 638,250   |  |  | $ | 10.33 | 
|                                                               |  |         |           |          |       |   |       |         |          |   |           |  |  |          |       |  |       |  
|Weighted-average fair value of options granted during the year |  | $       | 12.71     |          |       |   |       |         |          | $ | 11.76     |  |  |          |       |  |       | $ | 5.10      |  |  |   |       | 
|                                                               |  |         |           |          |       |   |       |         |          |   |           |  |  |          |       |  |       |  

54



---



##### Table of Contents



|                |  |                     |         |           |                     |  |          |          |         |             |         |  |          |          |         |  |  |   |       | 
|--------------- |  | ------------------- | ------- | --------- | ------------------- |  | -------- | -------- | ------- | ----------- | ------- |  | -------- | -------- | ------- |  |  | - | ----- | 
|                |  | Options Outstanding |         |           | Options Exercisable | 
|                |  |                     |         |           |                     | 
|                |  |                     |         | Weighted  |                     |  |          |          | Options |             |         | 
|                |  |                     |         | Average   |                     |  | Weighted |          |         | Exercisable |         |  | Weighted |         
|                |  |                     |         | Remaining |                     |  | Average  |          |         | At          |         |  | Average  |         
|Range of        |  | Number              |         |           | Contractual         |  |          | Exercise |         |             | May 31, |  |          | Exercise |        
|Exercise Prices |  | Outstanding         |         |           | Life                |  |          | Price    |         |             | 2006    |  |          | Price    |        
|                |  |                     |         |           |                     |  |          |          |         |             |         |  |          |          |        
|$ 3.62  5.94   |  |                     | 306,500 |           |                     |  | 6.64     |          |         | $           | 4.60    |  |          |          | 226,750 |  |  | $ | 4.52  | 
|6.03  9.56     |  |                     | 261,875 |           |                     |  | 7.32     |          |         |             | 7.41    |  |          |          | 147,375 |  |  |   | 7.35  | 
|10.41  15.60   |  |                     | 954,000 |           |                     |  | 6.55     |          |         |             | 12.45   |  |          |          | 513,125 |  |  |   | 12.16 | 
|18.55  22.02   |  |                     | 225,000 |           |                     |  | 8.67     |          |         |             | 18.63   |  |          |          | 56,250  |  |  |   | 18.63 | 
|                |  |                     |         |           |                     |  |          |          |         |             |         |  |          |          |        



|    |               
|--- | --------------
|(8) | Stock Warrants















|    |                   
|--- | ------------------
|(9) | Leases/commitments







55



---



##### Table of Contents





|             |  |        |           | 
|------------ |  | ------ | --------- | 
|Years Ending |  |       
|May 31,      |  | Amount |          
|             |  |        |          
|2007         |  | $      | 837,884   | 
|2008         |  |        | 846,039   | 
|2009         |  |        | 853,088   | 
|2010         |  |        | 121,460   | 
|             |  |        |          
|             |  | $      | 2,658,471 | 
|             |  |        |          



|             |  |        |           | 
|------------ |  | ------ | --------- | 
|Years Ending |  |       
|May 31,      |  | Amount |          
|             |  |        |          
|2007         |  | $      | 353,439   | 
|2008         |  |        | 360,198   | 
|2009         |  |        | 367,249   | 
|             |  |        |          
|             |  | $      | 1,080,886 | 
|             |  |        |          



|     |                      
|---- | ---------------------
|(10) | Employee Benefit Plan





|     |                                            
|---- | -------------------------------------------
|(11) | Quarterly Financial Information (Unaudited)



|                                       |                  |                                      |        |     |          |  |        |          |       |  |          |     |       |         |        |     |          |   |        |     |       |  |        |     |       | 
|-------------------------------------- | ---------------- | ------------------------------------ | ------ | --- | -------- |  | ------ | -------- | ----- |  | -------- | --- | ----- | ------- | ------ | --- | -------- | - | ------ | --- | ----- |  | ------ | --- | ----- | 
|                                       |                  | Quarter Ended                        |       
|                                       |                  |                                      |       
|                                       |                  | (in thousands except per share data) |       
|                                       |                  | May 31,                              |        |     | Feb. 28, |  |        | Nov. 30, |       |  | Aug. 31, |     |       | May 31, |        |     | Feb. 29, |  
|                                       |                  | 2006                                 |        |     | 2006     |  |        | 2005     |       |  | 2005     |     |       | 2005    |        |     | 2005     |  
|                                       |                  |                                      |        |     |          |  |        |          |       |  |          |     |       |         |        |     |          |  
|Revenues                               |                  | $                                    |       |     |          |  |       |          |       |  |         |     |       |         |       |     |          |   |       |     |       |  |       |    
|Costs and expenses:                    |                  |                                      |        |     |          |  |        |          |       |  |          |     |       |         |        |     |          |   |        |     |       |  |        |    
|                                       |                  | Research and development             |        |     | 7,712    |  |        |          | 5,786 |  |          |     | 5,573 |         |        |     | 5,094    |   |        |     | 4,566 |  |        |     | 3,818 | 
|                                       |                  | General and administrative           |        |     | 1,530    |  |        |          | 1,454 |  |          |     | 1,460 |         |        |     | 1,389    |   |        |     | 1,820 |  |        |     | 1,311 | 
|                                       |                  |                                      |        |     |          |  |        |          |       |  |          |     |       |         |        |     |          |  
|                                       |                  |                                      | 9,242  |     |          |  | 7,240  |          |       |  | 7,033    |     |       |         | 6,483  |     |          |   | 6,386  |     |       |  | 5,129  |    
|Other income and expense:              |                  |                                      |        |     |          |  |        |          |       |  |          |     |       |         |        |     |          |   |        |     |       |  |        |    
|                                       | Interest income  |                                      |        | 911 |          |  |        | 845      |       |  |          | 764 |       |         |        | 702 |          |   |        | 711 |       |  |        | 281 |      
|                                       | Interest expense |                                      |        |    |          |  |        |         |       |  |          |    |       |         |        |    |          |   |        |    |       |  |        |    |      
|                                       |                  |                                      |        |     |          |  |        |          |       |  |          |     |       |         |        |     |          |  
|Net loss                               |                  | $                                    | (8,331 | )   |          |  | (6,395 | )        |       |  | (6,269   | )   |       |         | (5,781 | )   |          | $ | (5,675 | )   |       |  | (4,848 | )  
|                                       |                  |                                      |        |     |          |  |        |          |       |  |          |     |       |         |        |     |          |  
|Net loss per share  basic and diluted |                  | $                                    | (0.31  | )   |          |  | (0.24  | )        |       |  | (0.23    | )   |       |         | (0.22  | )   |          | $ | (0.21  | )   |       |  | (0.21  | )  
|                                       |                  |                                      |        |     |          |  |        |          |       |  |          |     |       |         |        |     |          |  
|Shares used in calculation             |                  |                                      | 26,770 |     |          |  | 26,769 |          |       |  | 26,759   |     |       |         | 26,751 |     |          |   | 26,747 |     |       |  | 22,658 |    

56



---



##### Table of Contents



|                                       |                  |                                      |        |     |               |  |        |     |       | 
|-------------------------------------- | ---------------- | ------------------------------------ | ------ | --- | ------------- |  | ------ | --- | ----- | 
|                                       |                  | Quarter Ended                        |       
|                                       |                  |                                      |       
|                                       |                  | (in thousands except per share data) |       
|                                       |                  | Nov. 30, 2004                        |        |     | Aug. 31, 2004 | 
|                                       |                  |                                      |        |     |               | 
|Revenues                               |                  | $                                    |       |     |               |  |       |    
|Costs and expenses:                    |                  |                                      |        |     |               |  |        |    
|                                       |                  | Research and development             |        |     | 4,178         |  |        |     | 4,038 | 
|                                       |                  | General and administrative           |        |     | 910           |  |        |     | 949   | 
|                                       |                  |                                      |        |     |               | 
|                                       |                  |                                      | 5,088  |     |               |  | 4,987  |    
|Other income and expense:              |                  |                                      |        |     |               |  |        |    
|                                       | Interest income  |                                      |        | 156 |               |  |        | 120 |      
|                                       | Interest expense |                                      |        |    |               |  |        |    |      
|                                       |                  |                                      |        |     |               | 
|Net loss                               |                  | $                                    | (4,932 | )   |               |  | (4,687 | )  
|                                       |                  |                                      |        |     |               | 
|Net loss per share  basic and diluted |                  | $                                    | (0.23  | )   |               |  | (0.23  | )  
|                                       |                  |                                      |        |     |               | 
|Shares used in calculation             |                  |                                      | 21,440 |     |               |  | 21,404 |    



|     |                  
|---- | -----------------
|(12) | Legal Proceedings

10b-5








|     |                 
|---- | ----------------
|(13) | Subsequent Event



57



---



##### Table of Contents






EXHIBITS


|       |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                 
|------ | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |    | Description
|       |    |            
|       | 3  | .1          |  | Restated Certificate of Amendment to Certificate of
    Incorporation of the Registrant (incorporated herein by
    reference to Exhibit 3.11 to the Registrants
    Quarterly Report on Form 10-Q for the Registrants
    quarter ended November 30, 1999)                                                                                                                                   
|       | 3  | .2          |  | Restated Bylaws of the Registrant (incorporated herein by
    reference to Exhibit 3.1 to the Form 8-K filed by the
    Registrant with the Commission on August 15, 2005)                                                                                                                                                                                                                      
|       | 10 | .1          |  | Sublease dated as of April 20, 1988 between the Registrant
    and First Illinois Bank of Evanston, N.A., as Trustee
    (incorporated herein by reference to Exhibit 10.1 to the
    Registrants Registration Statement on Form S-1, filed
    with the Securities and Exchange Commission (the
    Commission) on March 25, 1994, File
    No. 33-76856 (the S-1 Registration Statement))
|       | 10 | .2          |  | Amendment to Sublease dated as of January 7, 1998 between
    the Registrant and Bank One of Illinois, N.A., as successor to
    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 | .4          |  | Second Amendment to Lease between the Registrant and Rotary
    International (incorporated by reference to Exhibit 10.1 to
    the Form 8-K filed by the Registrant with the Commission on
    March 7, 2005)                                                                                                                                                                                  
|       | 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 S-1 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 S-1 Registration Statement)                                                                                                                                                                                                                 
|       | 10 | .7*         |  | Northfield Laboratories Inc. 401(K) Plan (incorporated herein by
    reference to Exhibit 10.14 to the S-1 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
    (incorporated herein by reference to Exhibit 10.10 to the
    Registrants Annual Report on Form 10-K for the
    Registrants fiscal year ended May 31, 1999)                                                                                                                                                                          
|       | 10 | .11*        |  | Northfield Stock Option Plan for New Employees (incorporated
    herein by reference to Exhibit 10.12 to the
    Registrants Registration Statement on Form S-3 filed
    with the Securities and Exchange Commission on June 27,
    2003, File No. 333-106615 the S-3 Registration
    Statement)                                                                                          
|       | 10 | .12*        |  | Northfield Laboratories Inc. 2003 Equity Compensation Plan
    (incorporated herein by reference to Exhibit 10.1 to the
    Registrants Registration Statement on Form S-8 filed
    with the Securities and Exchange Commission on October 30,
    2003, File No. 333-110110)                                                                                                                 
|       | 10 | .13*        |  | Employment Agreement dated as of January 25, 2005 between
    the Registrant and Steven A. Gould, M.D. (incorporated
    herein by reference to Exhibit 99.1 to the Form 8-K
    filed by the Registrant with the Commission on February 1,
    2005)                                                                                                                                           
|       | 10 | .14*        |  | Employment Agreement dated as of January 25, 2005 between
    the Registrant and Jack J. Kogut (incorporated herein by
    reference to Exhibit 99.2 to the Form 8-K filed by the
    Registrant with the Commission on February 1, 2005)                                                                                                                                                       
|       | 10 | .15*        |  | Form of Indemnification Agreement  Director and
    Executive Officer (incorporated herein by reference to
    Exhibit 10.18 to the Registrants Quarterly Report on
    Form 10-Q for the Registrants quarter ended
    February 28, 2001)                                                                                                                                                   

58



---



##### Table of Contents



|       |    |             |  |                                                                                                                                                                                                                             
|------ | -- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |    | Description
|       |    |            
|       | 10 | .16*        |  | Form of Indemnification Agreement  Director
    (incorporated herein by reference to Exhibit 10.19 to the
    Registrants Quarterly Report on Form 10-Q for the
    Registrants quarter ended February 28, 2001)         
|       | 10 | .17*        |  | Form of Indemnification Agreement  Executive Officer
    (incorporated herein by reference to Exhibit 10.20 to the
    Registrants Quarterly Report on Form 10-Q for the
    Registrants quarter ended February 28, 2001)
|       | 10 | .18         |  | Agreement of Purchase and Sale dated June 12, 2006 between
    First Industrial, L.P. and the Registrant                                                                                                                    
|       | 23 | .1          |  | Consent of Independent Registered Public Accounting Firm                                                                                                                                                                    
|       | 31 | .1          |  | Certification Pursuant to Rule 13a-14(a)/15d-14(a)                                                                                                                                                                          
|       | 31 | .2          |  | Certification Pursuant to Rule 13a-14(a)/15d-14(a)                                                                                                                                                                          
|       | 32 | .1          |  | Certification Pursuant to 18 U.S.C. Section 1350, as
    Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002                                                                                              
|       | 32 | .2          |  | Certification Pursuant to 18 U.S.C. Section 1350, as
    Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002                                                                                              






|  |                                                                                                                                                        
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------
|* | 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).

59



---



##### Table of Contents






SIGNATURES




NORTHFIELD LABORATORIES INC.




| |     |                          
| | --- | -------------------------
| | By: | /s/ Steven A. Gould, M.D.

| |                          
| | -------------------------
| |                          
| | Steven A. Gould, M.D.    
| | Chairman of the Board and
| | Chief Executive Officer  



|                                                       |  |                                                                                                    |  | 
|------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------- |  | 
|Signature                                              |  | Title                                                                                             
|                                                       |  |                                                                                                   
|                                                      
|/s/ Steven A.
    Gould, M.D.Steven
    A. Gould, M.D. |  | Chairman of the Board and Chief Executive Officer (principal
    executive officer)               
|                                                      
|/s/ Jack J. KogutJack
    J. Kogut                     |  | Senior Vice President and Chief Financial Officer (principal
    financial and accounting officer)
|                                                      
|/s/ John F. BierbaumJohn
    F. Bierbaum               |  | Director                                                                                          
|                                                      
|/s/ Alan L. HellerAlan
    L. Heller                   |  | Director                                                                                          
|                                                      
|/s/ Bruce S. ChelbergBruce
    S. Chelberg             |  | Director                                                                                          
|                                                      
|/s/ Paul M.
    Ness, M.D.Paul
    M. Ness, M.D.       |  | Director                                                                                          
|                                                      
|/s/ Jack OlshanskyJack
    Olshansky                   |  | Director                                                                                          
|                                                      
|/s/ David A. SavnerDavid
    A. Savner                 |  | Director                                                                                          
|                                                      
|/s/ Edward C. Wood, Jr.Edward
    C. Wood, Jr.         |  | Director                                                                                          

60