<PAGE>

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

                       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

<Table>
<S>   <C>
[X]       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                    SECURITIES EXCHANGE ACT OF 1934
                For the period ended May 31, 2002
[ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                    SECURITIES EXCHANGE ACT OF 1934
     For the transition period from __________ to __________
</Table>

                         COMMISSION FILE NUMBER 0-24050

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

<Table>
<S>                                                   <C>
                      DELAWARE                                        36-3378733
          (State of Other Jurisdiction of                          (I.R.S. Employer
           Incorporation or Organization)                       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)
</Table>

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

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

                     COMMON STOCK, PAR VALUE $.01 PER SHARE

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

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

     As of July 31, 2002, 14,265,875 shares of the Registrant's common stock,
par value $.01 per share, were outstanding. On that date, the aggregate market
value of voting stock (based upon the closing price of the Registrant's common
stock on July 31, 2002) held by non-affiliates of the Registrant was $50,271,223
(11,556,603 shares at $4.35 per share).

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Registrant's Proxy Statement for its 2002 Annual Meeting
are incorporated by reference into Part III of this Form 10-K. The Registrant
maintains an Internet web site at www.northfieldlabs.com. None of the
information contained on this web site is incorporated by reference into this
Form 10-K or into any other document filed by the Registrant with the Securities
and Exchange Commission.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

           CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

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

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

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

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS.

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

     We have conducted clinical trials of PolyHeme at multiple locations in the
United States. Our clinical trials included infusion of PolyHeme in trauma and
emergency surgical applications, in elective surgical procedures, and as
life-saving therapy in situations of compassionate use. The observations in
these trials have demonstrated the potential clinical utility of PolyHeme in the
treatment of urgent blood loss and life-threatening hemoglobin levels. Our
trials have involved high dosage and rapid infusion of PolyHeme in situations
that are life-threatening and where massive blood loss routinely occurs. We
believe that this application addresses the largest world-wide clinical need and
has the greatest market opportunity. We believe we are the only company in our
field with an oxygen-carrying blood substitute that has been rapidly infused at
high doses -- as much as 20 units (1,000 grams) or twice the blood volume of the
average adult.

     On August 28, 2001 we submitted our Biologics License Application to the
Food and Drug Administration seeking approval to market PolyHeme for use in the
treatment of urgent, life-threatening blood loss. On November 16, 2001 the FDA
issued a refusal to file letter. We have learned that many of the agency's
concerns are focused on the perceived broad nature of the proposed indication
for the use of the product, the validity of the historical control group, and
the actual trial design itself. We have had numerous meetings and follow-on
discussions with the FDA. Our dialogue has been instructive and encouraging,
although it is possible that additional trials will still be necessary. We are
striving to reach a consensus in order to move forward to regulatory approval
for PolyHeme and resolve the uncertainty that currently exists.

                                   BACKGROUND

     The principal function of human blood is to transport oxygen throughout the
body. The lack of an adequate supply of oxygen as a result of blood loss can
lead to organ dysfunction or death. The transfusion of human blood is presently
the only effective means of immediately restoring diminished oxygen-carrying
capacity resulting from blood loss. We estimate that approximately 12 million
units of blood were transfused in the United States in 2001, of which
approximately 7.2 million units were administered to patients suffering the
effects of acute blood loss.

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

                                        3
<PAGE>

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

                                  THE PRODUCT

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

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

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

     Impact on Disease Transmission. We believe, and laboratory and clinical
tests have thus far indicated, that the manufacturing process used to produce
PolyHeme greatly reduces the concentration of infectious agents known to be
responsible for the transmission of blood-borne diseases. There are no currently
approved methods in this country to reduce the quantity of such infectious
agents in red cells.

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

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

                                   THE MARKET

     We estimate that approximately 12 million units of blood were transfused in
the United States in 2001, of which approximately 7.2 million units were
administered to patients suffering the effects of acute blood loss. Patient
charges for the units of blood used in the United States in 2001 for the
treatment of acute blood loss exceed $2 billion. The transfusion market in the
United States consists of two principal segments. The acute blood loss segment,
which comprises approximately 60% of the transfusion market, includes
transfusions required in connection with trauma, surgery and unexpected blood
loss. The chronic blood loss segment

                                        4
<PAGE>

represents approximately 40% of the transfusion market and includes transfusions
in connection with general medical applications and chronic anemias.

     PolyHeme is intended for use in the treatment of acute blood loss. The two
principal clinical settings in which patients experience acute blood loss are
urgent use in trauma, emergency surgery and other unexpected blood loss, and
elective use in planned surgery. For trauma and emergency surgical procedures,
the immediate availability and universal compatibility of PolyHeme are expected
to provide significant advantages over transfused blood by avoiding the delay
and opportunities for error associated with blood typing. The major benefit of
PolyHeme in elective surgery is expected to be increased transfusion safety for
patients and health care professionals.

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

                                CLINICAL TRIALS

     We have conducted clinical trials of PolyHeme at multiple locations in the
United States. Our clinical trials included infusion of PolyHeme in trauma and
emergency surgical applications, in elective surgical procedures, and as
life-saving therapy in situations of compassionate use. The observations in
these trials have demonstrated the potential clinical utility of PolyHeme in the
treatment of urgent blood loss and life threatening hemoglobin levels. Our
trials have involved high dosage and rapid infusion of PolyHeme in situations
that are life-threatening and where massive blood loss routinely occurs. We
believe that this application addresses the largest world-wide clinical need and
has the greatest market opportunity. We believe we are the only company in our
field with an oxygen-carrying blood substitute that has been rapidly infused at
high doses -- as much as 20 units (1,000 grams) or twice the blood volume of the
average adult.

TRAUMA AND EMERGENCY SURGICAL APPLICATIONS

     We have conducted clinical trials of PolyHeme in trauma and emergency
surgical applications at multiple hospitals in the United States, including both
civilian and military institutions. These clinical trials were designed to
assess the safety and effectiveness of PolyHeme in treating acute blood loss and
hemorrhagic shock in trauma and emergency surgical patients. Patients
participating in these trials were infused with up to 20 units (1000 grams) of
PolyHeme. This unprecedented dose is equivalent to twice the blood volume of an
average adult.

     Our clinical protocol allowed us to assess the life-sustaining capacity of
PolyHeme following massive blood loss when blood was not used for resuscitation
and the red blood cell hemoglobin level fell to life-threatening levels. The
anticipated survival rate at the life-threatening red blood cell hemoglobin
levels that occur in our patients is less than 20% based on the published
literature. The observed survival rate in our patients receiving PolyHeme was
75%. This improvement demonstrates the ability of PolyHeme to effectively
transport oxygen. The important safety observations were that none of the
toxicities historically associated with other hemoglobin solutions have been
identified in our clinical experience.

     We analyzed the data from our trauma trials and considered our regulatory
position based on our findings. We were pleased with the results from these
trials, which demonstrated potential life-saving benefit from the use of
PolyHeme in urgent, acute blood loss settings, including trauma, emergency
surgery and unexpected life-threatening blood loss during elective surgical
procedures. We submitted our BLA with the FDA based on the strength of these
data.

                                        5
<PAGE>

ELECTIVE SURGICAL APPLICATIONS

     We have also conducted clinical trials of PolyHeme in elective surgical
applications at multiple locations in the United States. Our clinical protocol
for these trials was a randomized controlled study in which elective surgical
patients were infused with up to six units of PolyHeme (three liters containing
300 grams of hemoglobin). The majority of elective surgical procedures require
the infusion of six units or less of blood.

     While the use of PolyHeme in our elective surgery trials was the same as
that for trauma -- high dose, rapid infusion for acute blood loss -- the
clinical endpoint for these trials was the elimination of the use of banked
blood. Due to the complexity of the clinical protocol, however, patient accrual
progressed slowly. As a result, we closed the elective surgery protocol after
our BLA was submitted. We anticipate other potential trials in elective surgery
in the future.

COMPASSIONATE USE

     We continue to enroll patients on a case by case basis in situations of
compassionate use on an emergent basis in life-threatening situations. We
provide PolyHeme as life-saving treatment in situations of immunologic
incompatibility with the available supply of blood, or religious objection to
donated blood. Each case is reviewed to be certain that the use of PolyHeme may
be beneficial in treating a patient who would otherwise have a high risk of
mortality. We will continue this support on an on-going basis.

                       MANUFACTURING AND MATERIAL SUPPLY

     We use a proprietary process of separation, filtration and chemical
modification to produce PolyHeme. Since 1990, we have produced PolyHeme in our
manufacturing facility. We believe this facility is capable of producing
sufficient quantities of PolyHeme for all of our clinical trials in the United
States. Our current manufacturing capability for PolyHeme is to produce 10,000
units annually. We have leased space adjacent to our current facility that will
allow a further expansion of an additional 75,000 units of capacity per year as
our next step. Our independent engineering consultants and we believe that our
existing manufacturing process may be scaled up without substantial modification
to produce commercial quantities of PolyHeme in larger facilities.

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

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

                              MARKETING STRATEGIES

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

                                        6
<PAGE>

utilize over 70% of the nation's blood supply. We believe the most important
marketing activities will be educating, stimulating use by and servicing health
care professionals. If we secure a partnership with a pharmaceutical company
with expertise in marketing this strategy will change.

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

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

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

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

                                  COMPETITION

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

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

                                        7
<PAGE>

a BLA was submitted to the FDA for its use in the United States. An application
for marketing approval for one human-source hemoglobin-based oxygen carrier was
not approved in Canada and is still pending in the United Kingdom.

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

                             GOVERNMENT REGULATION

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

     The steps required before a biological product may be sold commercially in
the United States include preclinical testing, the submission to the FDA of an
Investigational New Drug application, clinical trials in humans to establish the
safety and effectiveness of the product, the submission to the FDA of a
Biologics License Application, or BLA, relating to the product and the
manufacturing facilities to be used to produce the product for commercial sale,
and FDA approval of a BLA. After a BLA is submitted there is an initial review
by the FDA to be sure that all of the required elements are included in the
submission. There can be no assurance that the filing will be accepted for
filing or that the FDA may not issue a refusal to file, or RTF. If an RTF is
issued, there is opportunity for dialogue between the sponsor and the FDA in an
effort to resolve all concerns. There can be no assurance that such a dialogue
will be successful in leading to the filing of the BLA. If the submission is
filed, there can be no assurance that the full review will result in product
approval.

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

     Among the conditions for BLA approval is the requirement that the
prospective manufacturer's quality controls and manufacturing procedures conform
to FDA requirements. In addition, domestic manufacturing

                                        8
<PAGE>

facilities are subject to biennial FDA inspections and foreign manufacturing
facilities are subject to periodic FDA inspections or inspections by the foreign
regulatory authorities with reciprocal inspection agreements with the FDA.
Outside the United States, we are also subject to foreign regulatory
requirements governing clinical trials and marketing approval for medical
products. The requirements governing the conduct of clinical trials, product
licensing, pricing and reimbursement vary widely from country to country.

     Our regulatory strategy is to pursue clinical testing and FDA approval of
PolyHeme in the United States. We intend to arrange for testing and seek
regulatory approval of PolyHeme outside the United States through licensing or
other arrangements with other foreign or domestic companies. To date, we have
not conducted any clinical trials of PolyHeme outside of the United States.

                         PATENTS AND PROPRIETARY RIGHTS

     We own five United States patents relating to PolyHeme, its uses and
certain of our manufacturing processes. We have obtained counterpart patents and
have additional patent applications pending in Canada, Israel and various
European Union countries. Our United States patents expire in 2017. We have a
policy of seeking patents covering the important techniques, processes and
applications developed from our research and all modifications and improvements
thereto. We also rely upon trade secrets, know-how, continuing technological
innovations and licensing opportunities to develop and maintain our competitive
position. We will continue to seek appropriate protection for our proprietary
technology.

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

                            RESEARCH AND DEVELOPMENT

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

     In fiscal 2002, 2001 and 2000, our research and development expenses
totaled $8,843,000, $9,437,000, and $9,193,000, respectively. We anticipate that
these expenses will continue to increase as we fund the further clinical testing
of PolyHeme and prepare for production of PolyHeme in commercial quantities.

                                HUMAN RESOURCES

     As of May 31, 2002, we had 60 employees, of whom 52 were involved in
research and development and eight were responsible for financial and other
administrative matters. We also had consulting arrangements with seven
individuals as of that date. None of our employees are represented by labor
unions, and we are not aware of any organizational efforts on behalf of any
labor unions involving our employees. We consider our relations with our
employees to be excellent.

                                        9
<PAGE>

                                  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 MAY BE REQUIRED TO CONDUCT EXTENSIVE ADDITIONAL CLINICAL TRIALS IN THE FUTURE

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

OUR ACTIVITIES ARE AND WILL CONTINUE TO BE SUBJECT TO EXTENSIVE GOVERNMENT
REGULATION

     Our research, development, testing, manufacturing, marketing and
distribution of PolyHeme are, and will continue to be, subject to extensive
regulation, monitoring and approval by the FDA and its foreign counterparts. The
regulatory approval process to establish the safety and effectiveness of
PolyHeme and the safety and reliability of our manufacturing process has already
consumed several years and considerable expenditures. The data obtained from
clinical trials are susceptible to varying interpretations, which could delay,
limit or prevent FDA regulatory approval. The lack of established criteria for
evaluating the effectiveness of blood substitute products could also delay or
prevent FDA regulatory approval. In addition, delay or rejection could be caused
by changes in FDA policies and regulations. Similar delays or rejections may
also be encountered in foreign countries. We cannot ensure that, even after
extensive clinical trials, regulatory approval will ever be obtained for
PolyHeme. Under FDA guidelines, the FDA may comment upon the acceptability of a
BLA following its submission. After a BLA is submitted there is an initial
review by the FDA to be sure that all of the required elements are included in
the submission. There can be no assurance that the filing will be accepted for
filing or that the FDA may not issue a refusal to file, or RTF. If an RTF is
issued, there is opportunity for dialogue between the sponsor and the FDA in an
effort to resolve all concerns. There can be no assurance that such a dialogue
will be successful in leading to the filing of the BLA. If the submission is
filed, there can be no assurance that the full review will result in product
approval. Moreover, if regulatory approval of PolyHeme is granted, the approval
may include limitations on the indicated uses for which PolyHeme may be
marketed. Further, even if such regulatory approval is obtained, we do not
presently have manufacturing facilities sufficient to produce commercial
quantities of PolyHeme. In order to seek FDA approval of the sale of PolyHeme
produced at its first commercial manufacturing facility, we may be required to
conduct a portion of our clinical trials with product manufactured at that
facility. Discovery of previously unknown problems with PolyHeme or
unanticipated problems with our manufacturing facilities, even after FDA
approval of PolyHeme for commercial sale, may result in the imposition of
significant restrictions, including withdrawal of PolyHeme from the market.
Additional laws and regulations may also be enacted which could prevent or delay
regulatory approval of PolyHeme, including laws or regulations relating to the
price or cost-effectiveness of medical products. Any delay or failure to achieve
regulatory approval of commercial sales of PolyHeme is likely to have a material
adverse effect on our financial condition.

WE ARE A DEVELOPMENT STAGE COMPANY WITHOUT REVENUES OR PROFITS

     Northfield was founded in 1985 and is a development stage company. Since
1985, we have been engaged primarily in the development and clinical testing of
PolyHeme. No revenues have been generated to date from commercial sales of
PolyHeme. Our revenues to date have consisted solely of license fees. We cannot
ensure that our clinical testing will be successful, that regulatory approval of
PolyHeme will be obtained, that we will

                                        10
<PAGE>

be able to manufacture PolyHeme at an acceptable cost and in appropriate
quantities or that we will be able to successfully market and sell PolyHeme. We
also cannot ensure that we will not encounter unexpected difficulties which will
have a material adverse effect on us, our operations or our properties.

WE WILL NEED TO RAISE SUBSTANTIAL ADDITIONAL CAPITAL TO CONTINUE OUR BUSINESS

     We will be required to raise substantial additional capital to achieve
commercial production of PolyHeme. Our future capital requirements will depend
on many factors, including the scope and results of clinical trials, the timing
and outcome of regulatory reviews, administrative and legal expenses, the status
of competitive products, the establishment of manufacturing capacity and the
establishment of collaborative relationships. We cannot ensure that this
additional funding will be available or, if it is available, that it can be
obtained on terms and conditions we will deem acceptable. If we are unable to
raise additional capital, our independent accountants may qualify their audit
opinions based on uncertainty regarding our ability to continue as a going
concern. A qualification of this type may interfere with our ability to issue
our securities to the public or in private transactions. Any additional funding
derived from the sale of equity securities may result in significant dilution to
our existing stockholders.

WE ARE DEVELOPING A SINGLE PRODUCT THAT IS SUBJECT TO A HIGH LEVEL OF
TECHNOLOGICAL RISK

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

WE ARE NOT CERTAIN THAT WE WILL BE ABLE TO MANUFACTURE POLYHEME COMMERCIALLY

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

THERE MAY BE LIMITATIONS IN THE SUPPLY OF THE STARTING MATERIAL FOR POLYHEME

     We currently purchase donated blood from The American Red Cross and Blood
Centers of America for use as the starting material for PolyHeme. We have also
entered into an agreement with hemerica, Inc., a subsidiary of Blood Centers of
America, under which hemerica would supply us with 82,500 units per year of
packed red cells, the source material for PolyHeme, over a three year period. We
have not purchased any blood supplies under this agreement to date. We have
plans to enter long-term supply arrangements with other blood collectors. We
cannot ensure that we will be able to enter into satisfactory long-term
arrangements with blood bank operators, that the price we may be required to pay
for starting material will permit us to price PolyHeme competitively or that we
will be able to obtain an adequate supply of starting material. Additional

                                        11
<PAGE>

demand for blood may arise from competing blood substitute products, some of
which are derived from human blood, thereby limiting our available supply of
starting material.

THERE ARE SIGNIFICANT COMPETITORS DEVELOPING SIMILAR PRODUCTS

     If approved for commercial sale, PolyHeme will compete directly with
established therapies for acute blood loss and may compete with other
technologies currently under development. We cannot ensure that PolyHeme will
have advantages which will be significant enough to cause medical professionals
to adopt it rather than continue to use established therapies or to adopt other
new technologies or products. We also cannot ensure that the cost of PolyHeme
will be competitive with the cost of established therapies or other new
technologies or products. The development of blood substitute products is a
rapidly evolving field. Competition is intense and expected to increase. Several
companies have developed or are in the process of developing technologies which
are, or in the future may be, the basis for products which will compete with
PolyHeme. Certain of these companies are pursuing different approaches or means
of accomplishing the therapeutic effects sought to be achieved through the use
of PolyHeme. Many of these companies have substantially greater financial
resources, larger research and development staffs, more extensive facilities and
more experience than Northfield in testing, manufacturing, marketing and
distributing medical products. We cannot ensure that one or more other companies
will not succeed in developing technologies or products which will become
available for commercial use prior to PolyHeme, which will be more effective or
less costly than PolyHeme or which would otherwise render PolyHeme obsolete or
non-competitive. A bovine-source hemoglobin-based oxygen-carrier has been
approved for human use in South Africa and a BLA was submitted to the FDA for
its use in the United States. An application for marketing approval for one
human-source hemoglobin-based oxygen carrier was not approved in Canada and is
still pending in the United Kingdom.

WE DO NOT HAVE EXPERIENCE IN THE SALE AND MARKETING OF MEDICAL PRODUCTS

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

WE HAVE A HISTORY OF LOSSES AND OUR FUTURE PROFITABILITY IS UNCERTAIN

     From Northfield's inception through May 31, 2002, we have incurred net
operating losses totaling $98,216,000. We will require substantial additional
expenditures to complete clinical trials, to pursue regulatory approval for
PolyHeme, to establish commercial scale manufacturing processes and facilities,
and to establish marketing, sales and administrative capabilities. These
expenditures are expected to result in substantial losses for at least the next
several years. The expense and the time required to realize any product revenues
or profitability are highly uncertain. We cannot ensure that we will be able to
achieve product revenues or profitability on a sustained basis or at all.

THE MARKET MAY NOT ACCEPT OUR PRODUCT

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

                                        12
<PAGE>

OUR PATENTS AND OTHER PROPRIETARY RIGHTS MAY NOT PROTECT OUR TECHNOLOGY

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

WE DEPEND ON THE SERVICES OF A LIMITED NUMBER OF KEY PERSONNEL

     Our success is highly dependent on the continued services of a limited
number of skilled managers and scientists. The loss of any of these individuals
could have a material adverse effect on us. In addition, our success will
depend, among other factors, on the recruitment and retention of additional
highly skilled and experienced management and technical personnel. We cannot
ensure that we will be able to retain existing employees or to attract and
retain additional skilled personnel on acceptable terms given the competition
for such personnel among numerous large and well-funded pharmaceutical and
health care companies, universities and non-profit research institutions.

                                    PART II

ITEM 2. PROPERTIES

     We currently lease a manufacturing facility located in Mt. Prospect,
Illinois, and maintain our principal executive offices in Evanston, Illinois.
The leases for our manufacturing facility and executive offices extend through
August 2004 and February 2006, respectively. We have the option to extend the
existing lease for two additional five-year periods for the manufacturing
facility. Rent expense for our 2002 fiscal year was $835,661. We believe our
present manufacturing facility is capable of producing sufficient quantities of
PolyHeme for all of our clinical trials in the United States.

     Currently, we have a manufacturing capacity of approximately 10,000 units
of PolyHeme per year. We have leased additional space adjacent to our existing
manufacturing facility but have not yet committed to the buildout of this space.
The initial engineering studies on the additional space have been completed and
indicate that an additional capacity of 75,000 units of PolyHeme per year could
be developed in approximately 16 to 20 months at a cost of $28 to $32 million.

ITEM 3. LEGAL PROCEEDINGS.

     As of May 31, 2002, we were not a party to any material pending legal
proceedings.

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

     None.

                                        13
<PAGE>

                                    PART III

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

                               MARKET INFORMATION

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

<Table>
<Caption>
FISCAL QUARTER ENDED                                          HIGH     LOW
--------------------                                          ----     ---
<S>                                                           <C>     <C>
May 31, 1998................................................  17.25    9.50
August 31, 1998.............................................  18.13   10.13
November 30, 1998...........................................  15.63    9.13
February 28, 1999...........................................  16.38   10.94
May 31, 1999................................................  15.00   10.50
August 31, 1999.............................................  13.88   11.00
November 30, 1999...........................................  15.25   11.25
February 29, 2000...........................................  23.31   10.00
May 31, 2000................................................  41.50   11.00
August 31, 2000.............................................  18.00   11.00
November 30, 2000...........................................  16.25    8.50
February 28, 2001...........................................  17.50    9.00
May 31, 2001................................................  17.00    8.41
August 31, 2001.............................................  21.25   12.70
November 30, 2001...........................................  17.75    9.00
February 28, 2002...........................................  10.20    7.12
May 31, 2002................................................   8.98    3.91
  (through July 31, 2002)...................................   5.77    3.00
</Table>

                               HOLDERS OF RECORD

     As of May 31, 2002, there were approximately 400 holders of record and
approximately 10,000 beneficial owners of our common stock. There were as of
that date no issued and outstanding shares of our preferred stock.

                                   DIVIDENDS

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

                                        14
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA.

     The selected financial data set forth below for, and as of the end of, each
of the years in the five-year period ended May 31, 2002 and for the period from
June 19, 1985 (inception) through May 31, 2002 were derived from Northfield's
financial statements, which financial statements have been audited by KPMG LLP,
independent certified public accountants.

<Table>
<Caption>
                                                                                      CUMULATIVE
                                                                                         FROM
                                                                                       JUNE 19,
                                                  YEARS ENDED MAY 31,                    1985
                                     ---------------------------------------------     THROUGH
                                       2002      2001      2000     1999     1998    MAY 31, 2002
                                       ----      ----      ----     ----     ----    ------------
                                                (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                  <C>        <C>       <C>      <C>      <C>      <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
  License income...................  $     --        --       --       --       --       3,000
Costs and expenses:
  Research and development.........     8,843     9,437    9,193    7,661    6,675      87,421
  General and administrative.......     2,700     2,786    2,260    2,311    2,338      36,957
Interest income (net)..............       826     2,048    2,286    2,556    3,130      23,245
Net loss...........................  $(10,717)  (10,175)  (9,167)  (7,416)  (5,883)    (98,216)
Net loss per share basic and
  diluted..........................  $  (0.75)    (0.71)   (0.64)   (0.53)   (0.42)     (10.23)
Shares used in calculation of per
  share data(1)....................    14,266    14,253   14,241   14,115   14,097       9,601
</Table>

<Table>
<Caption>
                                                              MAY 31,
                                      --------------------------------------------------------
                                        2002        2001        2000        1999        1998
                                        ----        ----        ----        ----        ----
                                                           (IN THOUSANDS)
<S>                                   <C>         <C>         <C>         <C>         <C>
BALANCE SHEET DATA:
Cash and marketable securities......  $ 18,389    $ 28,698    $ 38,284    $ 47,561    $ 53,504
Total assets........................    21,235      32,502      41,728      50,963      56,919
Total liabilities...................     1,804       2,355       1,634       1,791       1,471
Deficit accumulated during
  development stage.................   (98,216)    (87,498)    (77,324)    (68,157)    (60,740)
Total shareholders' equity(2).......    19,430      30,148      40,095      49,171      55,448
</Table>

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

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

(2) Excludes 694,000 shares reserved for issuance upon the exercise of stock
    options outstanding as of May 31, 2002. Additional stock options for a total
    of 393,000 shares and 170,000 shares, respectively, were available for grant
    as of May 31, 2002 under our employee stock option plans and stock option
    plan for outside directors.

                                        15
<PAGE>

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

     Since Northfield's incorporation in 1985, we have devoted substantially all
of our efforts and resources to the research, development and clinical testing
of our potential product, PolyHeme. We have incurred operating losses during
each year of our operations since inception and expect to incur substantial
additional operating losses for the next several years. From Northfield's
inception through May 31, 2002, we have incurred operating losses totaling
$98,216,000.

     As more fully described above in "Clinical Trials," the FDA in November
2001 issued a refusal to file letter with respect to our Biologics License
Application for PolyHeme. Since that time, we have had numerous meetings and
follow-up discussions with the FDA and are attempting to reach a consensus with
the FDA in order to move forward as quickly as possible toward regulatory
approval for PolyHeme. The FDA regulatory process, however, is subject to
significant risks and uncertainties, including those described above in "Risk
Factors." The nature, timing and costs of the efforts necessary for us to obtain
regulatory approval for PolyHeme, and the timing of any future revenues from the
commercial sale of PolyHeme, cannot therefore be reasonably estimated at this
time because of the current regulatory status of PolyHeme and the wide range of
possible outcomes arising from our discussions with the FDA.

     The costs incurred by Northfield to date and during each period presented
below in connection with our development of PolyHeme are described in the
Statements of Operations and in note 10 of notes to our financial statements.

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

                             RESULTS OF OPERATIONS

     We reported no revenues for the fiscal years ended May 31, 2002, 2001 or
2000. From Northfield's inception through May 31, 2002, we have reported total
revenues of $3,000,000, all of which were derived from licensing fees.

                               OPERATING EXPENSES

     Operating expenses for our fiscal years ended May 31, 2002, 2001 and 2000
totaled $11,543,000, $12,222,000 and $11,453,000, respectively. Measured on a
percentage basis, fiscal 2002 operating expenses were less than fiscal 2001
expenses by 5.6%, while fiscal 2001 operating expenses exceeded fiscal 2000
expenses by 6.7%.

     For our 2002 fiscal year, research and development expenses totaled
$8,843,000, representing a decrease of $594,000, or 6.3%, from the prior fiscal
year. During fiscal 2002, Northfield closed all of its current clinical trials,
except those relating to compassionate use. The elimination of these expenses
caused fiscal 2002 research and development expenses to be less than those
incurred in fiscal 2001.

     For our 2001 fiscal year, research and development expenses totaled
$9,437,000, representing an increase of $244,000, or 2.7%, from the prior fiscal
year. Higher manufacturing employment levels and salary increases resulted in
higher labor costs, partially offset by reductions in purchased services related
to reduced clinical trial field work.

     General and administrative expenses for fiscal 2002 totaled $2,700,000
compared to expenses of $2,786,000 for fiscal 2001, representing a decrease of
$86,000, or 3.1%. The decrease was due primarily to reduced professional fees.

                                        16
<PAGE>

     General and administrative expenses for fiscal 2001 totaled $2,786,000
compared to expenses of $2,260,000 for fiscal 2000, representing an increase of
$526,000, or 23.3%. The increase was due primarily to increased professional
fees.

     We anticipate that general and administrative expenses will likely increase
over the next few quarters as the costs of maintaining directors and officers
liability insurance coverage recently increased by $290,000 and we expect to
incur additional professional fees and other costs in connection with our 2002
annual shareholders meeting. Thereafter, following resolution of the regulatory
status of PolyHeme, we expect that our general and administrative expenses will
increase as we expand our business organization to support the commercialization
of PolyHeme.

                                INTEREST INCOME

     Interest income in fiscal 2002 equaled $826,000, representing a decrease of
$1,222,000, or 59.7%, from the $2,048,000 in interest income reported in fiscal
2001. Significantly lower interest rates and lower available investment balances
account for the decrease. Currently available short-term interest rates are
yielding less than 2.25%.

     Interest income in fiscal 2001 equaled $2,048,000, or a $238,000 decrease
from the $2,286,000 in interest income reported in fiscal 2000. Higher interest
rates early in fiscal 2001 partially offset lower available investment balances
to account for the decrease.

     Without additional cash inflows, interest income will decline significantly
in fiscal 2003. If we maintain our present level of expenditures and earn
interest at current short-term money rates, interest income in fiscal 2003 is
expected to decline by approximately 70% compared to fiscal 2002.

                                    NET LOSS

     The net loss for our fiscal year ended May 31, 2002 was $10,717,000, or
$.75 per share, compared to a net loss of $10,175,000, or $.71 per share, for
the fiscal year ended May 31, 2001. The increase in the loss per share is
primarily the result of the reduction in interest income. Fiscal 2002 operating
expenses were $679,000 less than those incurred in fiscal 2001, while interest
income in fiscal 2002 was $1,222,000 less than the interest income earned in
fiscal 2001.

     The net loss for our fiscal year ended May 31, 2001 was $10,175,000, or
$.71 per share, compared to a net loss of $9,167,000, or $.64 per share, for the
fiscal year ended May 31, 2000. The increase in the loss per share was primarily
the result of higher administrative costs and professional fees, which increased
over the course of the year, as well as increased labor costs.

                        LIQUIDITY AND CAPITAL RESOURCES

     From Northfield's inception through May 31, 2002, we have used cash in
operating activities and for the purchase of property, plant, equipment and
engineering services in the amount of $97,599,000. For the years ended May 31,
2002, 2001 and 2000, these cash expenditures totaled $10,310,000, $9,813,000 and
$11,097,000, respectively. The year over year increase is due primarily to
funding the fiscal 2001 year-end accruals for expenses related to our clinical
trials partially offset by reduced purchases of property, plant, equipment and
capitalized engineering services during fiscal 2002.

     We have financed our research and development and other activities to date
through the public and private sale of equity securities and, to a more limited
extent, through the license of product rights. As of May 31, 2002, we had cash
and marketable securities totaling $18,389,000.

     We believe our existing capital resources will be adequate to satisfy our
operating capital requirements and maintain our existing manufacturing plant and
office facilities for approximately the next 18 months. Thereafter, we will
require substantial additional funding to continue our operations. We are
currently unable to fund the construction of a large-scale greenfield
manufacturing facility, which is estimated to cost
                                        17
<PAGE>

approximately $45-$50 million, without raising substantial additional capital.
Currently, we have manufacturing capacity of approximately 10,000 units per
year. Initial engineering on the leased space adjacent to our existing
manufacturing facility is completed. This engineering indicates an additional
capacity of 75,000 units per year could be developed in approximately 16 to 20
months at a cost of $28-$32 million. We believe that a 75,000 unit facility is
the smallest facility that could be commercially successful. Like a greenfield
project, significant additional funding will be required before the smaller
scale expansion facility could be completed. Northfield has not yet committed to
the build-out of a smaller scale expansion facility.

     We may issue additional equity or debt securities to the public or enter
into collaborative arrangements with strategic partners, which could provide us
with additional funding or absorb expenses we would otherwise be required to
pay. Any one or a combination of these sources may be utilized to raise
additional capital. We believe our ability to raise additional capital or enter
into a collaborative arrangement with a strategic partner will depend primarily
on the outcome of our discussions with the FDA regarding the regulatory status
of PolyHeme. General business and market conditions may also affect our ability
to pursue additional sources of capital on acceptable terms. Our inability to
raise sufficient levels of capital could materially delay or prevent the
commercialization of PolyHeme, even if it is approved by the FDA.

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

                          CRITICAL ACCOUNTING POLICIES

     The preparation of financial statements requires management to make
estimates and assumptions that affect amounts reported therein. We believe the
following critical accounting policies reflect our more significant judgments
and estimates used in the preparation of our consolidated financial statements.

                       NET DEFERRED TAX ASSETS VALUATION

     We record our net deferred tax assets in the amount that we expect to
realize based on projected future taxable income. In assessing the
appropriateness of our valuation, assumptions and estimates are required, such
as Northfield's ability to generate future taxable income. In the event we were
to determine that it was more likely than not we would be able to realize our
deferred tax assets in the future in excess of their carrying value, an
adjustment to recognize the deferred tax assets would increase income in the
period such determination was made. As of May 31, 2002, we have recorded a 100%
percent valuation allowance against our net deferred tax assets.

                            CONTRACTUAL OBLIGATIONS

     The following table reflects a summary of our contractual cash obligations
as of May 31, 2002:

<Table>
<Caption>
                                                                LESS THAN                 4-5
CONTRACTUAL CASH OBLIGATIONS                         TOTAL      ONE YEAR    1-3 YEARS    YEARS
----------------------------                         -----      ---------   ---------    -----
<S>                                                <C>          <C>         <C>         <C>
Lease Obligations(1).............................  $2,368,761     840,157   1,289,400   239,204
Other Obligations................................   1,696,810     867,326     829,484        --
                                                   ----------   ---------   ---------   -------
Total Contractual Cash Obligations...............  $4,065,571   1,707,483   2,118,884   239,204
                                                   ==========   =========   =========   =======
</Table>

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

(1) The lease for our Evanston headquarters is cancelable with six months notice
    combined with a termination payment equal to six months base rent and six
    months of additional rental payments. If the lease were terminated today,
    the termination payment would be $315,530.

                                        18
<PAGE>

                        RECENT ACCOUNTING PRONOUNCEMENTS

     In August 2001, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 143, Accounting for Asset Retirement Obligations, which addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and for the associated asset retirement
costs. FASB Statement No. 143 requires an enterprise to record the fair value of
an asset retirement obligation as a liability in the period in which it incurs a
legal obligation associated with the retirement of tangible long-lived assets
that result from the acquisition, construction, development and/or normal use of
the assets. The enterprise also is to record a corresponding increase to the
carrying amount of the related long-lived asset (i.e., the associated asset
retirement costs) and to depreciate that cost over the life of the asset. The
liability is changed at the end of each period to reflect the passage of time
and changes in the estimated future cash flows underlying the initial fair value
measurement. Adoption of FASB Statement No. 143 is required for fiscal years
beginning after June 15, 2002. Upon adoption of this provision we expect to
record an additional liability of approximately $138,000.

     In October 2001, the FASB issued FASB Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This Statement supersedes FASB
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, and the accounting and reporting provisions
of APB Opinion No. 30, Reporting the Results of Operations -- Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions, for the disposal of a segment of
a business (as previously defined in that Opinion), and also amends ARB No. 51.
Consolidated Financial Statements, to eliminate the exception to consolidation
for a subsidiary for which control is likely to be temporary. FASB Statement
No. 144 retains a majority of the provisions of FASB Statement No. 121 while
establishing a single accounting model, based on the framework established in
FASB Statement No. 121, for long-lived assets to be disposed of by sale. FASB
Statement No. 144 also resolves significant implementation issues related to
FASB Statement No. 121. Adoption of FASB Statements No. 144 is required for
fiscal years beginning after December 15, 2001. We do not expect the adoption of
the provisions of FASB Statement No. 144 to have a material impact on the
financial position or the results of operations of the Company.

ITEM 7(A) QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

     The Company currently does not have any foreign currency exchange risk. The
Company invests its cash and cash equivalents in government securities,
certificates of deposit and money market funds. These investments are subject to
interest rate risk. However, due to the nature of the Company's short-term
investments, it believes that the financial market risk exposure is not
material. A one percentage point decrease on an investable balance of $18.4
million would decrease interest income by $184,000.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     See the Table of Contents to Financial Statements on page 21. See footnote
10 to the Financial Statements on page 37 for Supplementary Quarterly Data.
These Financial Statements are incorporated by reference into this document.

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

     We have not had a disagreement on any matter of accounting principles or
financial statement disclosure with our independent accountants during our 2002,
2001 or 2000 fiscal years.

                                    PART III

ITEMS 10 THROUGH 13.

     The information specified in Items 10 through 13 of Form 10-K has been
omitted in accordance with instructions to Form 10-K. We expect to file with the
Commission in August 2002, pursuant to Regula-

                                        19
<PAGE>

tion 14A, a definitive proxy statement which will contain the information
required to be included in Items 10 through 13 of Form 10-K.

                                    PART IV

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

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

          (1) and (2) See the Table of Contents to Financial Statements on page
     21.

          (3) See Description of Exhibits on page 38.

     b) None.

     c) See Description of Exhibits on page 38.

     d) None.

                                        20
<PAGE>

                          NORTHFIELD LABORATORIES INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                               TABLE OF CONTENTS

<Table>
<Caption>
                                                                PAGE
                                                                ----
<S>                                                             <C>
Independent Auditors' Report................................      22
Balance Sheets, May 31, 2002 and 2001.......................      23
Statements of Operations, Years ended May 31, 2002, 2001,
  and 2000, and the cumulative period from June 19, 1985
  (inception) through May 31, 2002..........................      24
Statements of Shareholders' Equity (Deficit), Years ended
  May 31, 2002, 2001, and 2000, and the cumulative period
  from June 19, 1985 (inception) through May 31, 2002.......      26
Statements of Cash Flows, Years ended May 31, 2002, 2001,
  and 2000, and the cumulative period from June 19, 1985
  (inception) through May 31, 2002..........................      30
Notes to Financial Statements...............................      31
</Table>

                                        21
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Northfield Laboratories Inc.:

     We have audited the accompanying balance sheets of Northfield Laboratories
Inc. (a company in the development stage) as of May 31, 2002 and 2001, and the
related statements of operations, shareholders' equity (deficit), and cash flows
for each of the years in the three-year period ended May 31, 2002 and for the
cumulative period from June 19, 1985 (inception) through May 31, 2002. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Northfield Laboratories Inc.
(a company in the development stage) as of May 31, 2002 and 2001, and the
results of its operations and its cash flows for each of the years in the
three-year period ended May 31, 2002 and for the cumulative period from June 19,
1985 (inception) through May 31, 2002 in conformity with accounting principles
generally accepted in the United States of America.

                                /s/ KPMG LLP

Chicago, Illinois
July 16, 2002

                                        22
<PAGE>

                          NORTHFIELD LABORATORIES INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                                 BALANCE SHEETS
                             MAY 31, 2002 AND 2001

<Table>
<Caption>
                                                                    2002           2001
                                                                    ----           ----
<S>                                                             <C>             <C>
                           ASSETS
Current assets:
  Cash......................................................    $ 17,668,687      6,435,540
  Marketable securities.....................................         720,000     22,262,841
  Prepaid expenses..........................................         540,003        378,142
  Other current assets......................................           1,437        455,860
                                                                ------------    -----------
       Total current assets.................................      18,930,127     29,532,383
Property, plant, and equipment, net.........................       2,232,204      2,847,333
Other assets................................................          72,410        122,522
                                                                ------------    -----------
                                                                $ 21,234,741     32,502,238
                                                                ============    ===========
            LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................    $  1,077,712      1,772,582
  Accrued expenses..........................................         210,109        153,905
  Accrued compensation and benefits.........................         338,849        261,213
                                                                ------------    -----------
       Total current liabilities............................       1,626,670      2,187,700
Other liabilities...........................................         177,753        166,860
                                                                ------------    -----------
       Total liabilities....................................       1,804,423      2,354,560
                                                                ------------    -----------
Shareholders' equity:
  Preferred stock, $.01 par value. Authorized 5,000,000
     shares; none issued and outstanding....................              --             --
  Common stock, $.01 par value. Authorized 30,000,000
     shares; issued and outstanding 14,265,875 at May 31,
     2002 and 2001, respectively............................         142,659        142,659
  Additional paid-in capital................................     117,503,271    117,503,271
  Deficit accumulated during the development stage..........     (98,215,612)   (87,498,252)
                                                                ------------    -----------
       Total shareholders' equity...........................      19,430,318     30,147,678
                                                                ------------    -----------
                                                                $ 21,234,741     32,502,238
                                                                ============    ===========
</Table>

                See accompanying notes to financial statements.

                                        23
<PAGE>

                          NORTHFIELD LABORATORIES INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                            STATEMENTS OF OPERATIONS
                    YEARS ENDED MAY 31, 2002, 2001, AND 2000
                  AND THE CUMULATIVE PERIOD FROM JUNE 19, 1985
                        (INCEPTION) THROUGH MAY 31, 2002

<Table>
<Caption>
                                                                                          CUMULATIVE
                                                                                             FROM
                                                       YEARS ENDED MAY 31,               JUNE 19, 1985
                                            -----------------------------------------       THROUGH
                                                2002           2001           2000       MAY 31, 2002
                                                ----           ----           ----       -------------
<S>                                         <C>             <C>            <C>           <C>
Revenues -- license income..............    $         --             --            --       3,000,000
                                            ------------    -----------    ----------     -----------
Costs and expenses:
  Research and development..............       8,843,115      9,436,992     9,192,833      87,420,520
  General and administrative............       2,700,183      2,785,500     2,260,488      36,956,896
                                            ------------    -----------    ----------     -----------
                                              11,543,298     12,222,492    11,453,321     124,377,416
                                            ------------    -----------    ----------     -----------
Other income and expense:
  Interest income.......................         825,938      2,047,883     2,286,251      23,245,038
  Interest expense......................              --             --            --          83,234
                                            ------------    -----------    ----------     -----------
                                                 825,938      2,047,883     2,286,251      23,161,804
                                            ------------    -----------    ----------     -----------
       Net loss.........................    $(10,717,360)   (10,174,609)   (9,167,070)    (98,215,612)
                                            ============    ===========    ==========     ===========
Net loss per share -- basic and
  diluted...............................    $      (0.75)         (0.71)        (0.64)         (10.23)
                                            ============    ===========    ==========     ===========
Shares used in calculation of per share
  data -- basic and diluted.............      14,265,875     14,253,385    14,240,749       9,600,593
                                            ============    ===========    ==========     ===========
</Table>

                See accompanying notes to financial statements.

                                        24
<PAGE>

                      (This page intentionally left blank)

                                        25
<PAGE>

                          NORTHFIELD LABORATORIES INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)
                  STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
          YEARS ENDED MAY 31, 2002, 2001, AND 2000 AND THE CUMULATIVE
           PERIOD FROM JUNE 19, 1985 (INCEPTION) THROUGH MAY 31, 2002

<Table>
<Caption>
                                                                                               COMMON STOCK
                                                                                          ----------------------
                                                                 NUMBER      AGGREGATE     NUMBER      AGGREGATE
                                                                OF SHARES     AMOUNT      OF SHARES     AMOUNT
                                                                ---------    ---------    ---------    ---------
<S>                                                             <C>          <C>          <C>          <C>
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
                                                                 ======       =======     =========     =======
</Table>

                                        26
<PAGE>

<Table>
<Caption>
    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        EQUITY
    OF SHARES    AMOUNT     OF SHARES    AMOUNT      CAPITAL        STAGE      COMPENSATION     (DEFICIT)
    ---------   ---------   ---------   ---------   ----------   -----------   ------------   -------------
<S> <C>         <C>         <C>         <C>         <C>          <C>           <C>            <C>
          --    $      --         --    $      --      (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
    ========    =========   ========    =========   ==========   ===========    ==========     ==========
</Table>

                                        27
<PAGE>

                          NORTHFIELD LABORATORIES INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                  STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
                    YEARS ENDED MAY 31, 2002, 2001, AND 2000
 AND THE CUMULATIVE PERIOD FROM JUNE 19, 1985 (INCEPTION) THROUGH MAY 31, 2002

<Table>
<Caption>
                                                                   PREFERRED STOCK             COMMON STOCK
                                                                ----------------------    -----------------------
                                                                 NUMBER      AGGREGATE    NUMBER OF     AGGREGATE
                                                                OF SHARES     AMOUNT        SHARES       AMOUNT
                                                                ---------    ---------    ---------     ---------
<S>                                                             <C>          <C>          <C>           <C>
Net loss....................................................          --      $    --             --    $     --
Issuance of common stock at $6.50 per share on May 26, 1994
  (net of costs of issuance of $2,061,149)..................                       --      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
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
                                                                 =======      =======     ==========    ========
</Table>

                                        28
<PAGE>

<Table>
<Caption>
     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        EQUITY
    OF SHARES     AMOUNT     OF SHARES    AMOUNT       CAPITAL        STAGE      COMPENSATION     (DEFICIT)
    ---------    ---------   ---------   ---------   ----------    -----------   ------------   -------------
<S> <C>          <C>         <C>         <C>         <C>           <C>           <C>            <C>
            --   $     --          --    $     --             --    (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
            --         --          --          --             --    (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
    ==========   ========    ========    ========    ===========   ===========     =======       ===========
</Table>

                                        29
<PAGE>

                          NORTHFIELD LABORATORIES INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                            STATEMENTS OF CASH FLOWS
                    YEARS ENDED MAY 31, 2002, 2001, AND 2000
                  AND THE CUMULATIVE PERIOD FROM JUNE 19, 1985
                        (INCEPTION) THROUGH MAY 31, 2002

<Table>
<Caption>
                                                                                        CUMULATIVE
                                                                                           FROM
                                                      YEARS ENDED MAY 31,              JUNE 19, 1985
                                            ----------------------------------------      THROUGH
                                                2002          2001          2000       MAY 31, 2002
                                                ----          ----          ----       -------------
<S>                                         <C>            <C>           <C>           <C>
Cash flows from operating activities:
  Net loss................................  $(10,717,360)  (10,174,609)   (9,167,070)   (98,215,612)
  Adjustments to reconcile net loss to net
     cash used in operating activities:
       Depreciation and amortization......       822,257       819,828       790,563     16,290,714
       Non-cash compensation..............            --            --        88,378      3,552,723
       Loss on sale of equipment..........            --            --            --         66,359
       Changes in assets and liabilities:
          Prepaid expenses................      (161,861)       31,128      (107,030)      (749,214)
          Other current assets............       454,423        49,712      (237,142)    (1,897,688)
          Other assets....................        49,099       (49,201)           --          6,851
          Accounts payable................      (694,870)      711,215      (263,663)     1,077,713
          Accrued expenses................        56,204       (20,104)       53,385        210,107
          Accrued compensation and
            benefits......................        77,636        10,643        29,570        338,849
          Other liabilities...............        10,893        19,143        23,015        177,753
                                            ------------   -----------   -----------   ------------
            Net cash used in operating
               activities.................   (10,103,579)   (8,602,245)   (8,789,994)   (79,141,445)
                                            ------------   -----------   -----------   ------------
Cash flows from investing activities:
  Purchase of property, plant, equipment,
     and capitalized engineering costs....      (206,115)   (1,210,448)   (2,307,390)   (18,457,364)
  Proceeds from sale of land and
     equipment............................            --            --     1,786,436      1,863,023
  Proceeds from matured marketable
     securities...........................    29,279,200    24,148,171    21,549,200    408,817,352
  Proceeds from sale of marketable
     securities...........................            --            --            --      7,141,656
  Purchase of marketable securities.......    (7,736,359)  (23,281,688)  (22,973,075)  (416,679,009)
                                            ------------   -----------   -----------   ------------
            Net cash provided by (used in)
               investing activities.......    21,336,726      (343,965)   (1,944,829)   (17,314,342)
                                            ------------   -----------   -----------   ------------
Cash flows from financing activities:
  Proceeds from issuance of common
     stock................................            --       227,455        33,450    103,749,383
  Payment of common stock issuance
     costs................................            --            --            --     (5,072,012)
  Proceeds from issuance of preferred
     stock................................            --            --            --      6,644,953
  Proceeds from sale of stock options to
     purchase common shares...............            --            --            --      7,443,118
  Proceeds from issuance of notes
     payable..............................            --            --            --      1,500,000
  Repayment of notes payable..............            --            --            --       (140,968)
                                            ------------   -----------   -----------   ------------
            Net cash provided by financing
               activities.................            --       227,455        33,450    114,124,474
                                            ------------   -----------   -----------   ------------
            Net (decrease)/increase in
               cash.......................    11,233,147    (8,718,755)  (10,701,373)    17,668,687
Cash at beginning of period...............     6,435,540    15,154,295    25,855,668
                                            ------------   -----------   -----------   ------------
Cash at end of period.....................  $ 17,668,687     6,435,540    15,154,295     17,668,687
                                            ============   ===========   ===========   ============
</Table>

                See accompanying notes to financial statements.

                                        30
<PAGE>

                          NORTHFIELD LABORATORIES INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                         NOTES TO FINANCIAL STATEMENTS
                             MAY 31, 2002 AND 2001

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF OPERATIONS IN THE DEVELOPMENT STAGE

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

BASIS OF PRESENTATION

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

MARKETABLE SECURITIES

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

PROPERTY, PLANT, AND EQUIPMENT

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

CAPITALIZED ENGINEERING COSTS

     Capitalized engineering costs include design and other initial engineering
studies relating to a commercial scale facility. During fiscal 2002 and 2001,
the Company capitalized no engineering costs. Capitalized engineering costs are
being amortized over a three year period. For the years ended May 31, 2002 and
2001, amortization cost recorded was $120,000.

COMPUTATION OF NET LOSS PER SHARE

     Basic earnings per share is based on the weighted average number of shares
outstanding and excludes the dilutive effect of unexercised common equivalent
shares. Diluted earnings per share is based on the weighted average number of
shares outstanding and includes the dilutive effect of unexercised common
equivalent shares as long as their inclusion is not anti-dilutive. Because the
Company reported a net loss for the years ended May 31, 2002, 2001, and 2000 and
the cumulative period from June 19, 1985 (inception) through May 31, 2002, basic
and diluted per share amounts are the same.

                                        31
<PAGE>

     The following potential common share instruments have been excluded from
the computation of per share amounts for all periods presented as their effect
on per share calculations is anti-dilutive.

<Table>
<Caption>
                                                                          CUMULATIVE
                                                                             FROM
                                                                         JUNE 19, 1985
                                                                            THROUGH
                                         2002       2001       2000      MAY 31, 2002
                                         ----       ----       ----      -------------
<S>                                     <C>        <C>        <C>        <C>
Stock options.......................    629,750    603,000    594,350       579,033
Warrants............................         --         --         --        71,765
                                        -------    -------    -------       -------
                                        629,750    603,000    594,350       650,798
                                        =======    =======    =======       =======
</Table>

FINANCIAL INSTRUMENTS

     The fair values of financial instruments, which consist of marketable
securities (note 2), were not materially different from their carrying values at
May 31, 2002 and 2001.

USE OF ESTIMATES

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

(2) MARKETABLE SECURITIES

     The fair market value of the Company's marketable securities was $715,360
at May 31, 2002, which included gross unrealized holding losses of $4,640. The
fair market value of the Company's marketable securities was $22,464,045 at May
31, 2001, which included gross unrealized holding gains of $201,204.

     At May 31, 2002, all of the Company's marketable securities were scheduled
to mature in less than one year.

(3) PROPERTY, PLANT, AND EQUIPMENT

     Property, plant, and equipment, at cost, less accumulated depreciation and
amortization, is summarized as follows as of May 31, 2002 and 2001:

<Table>
<Caption>
                                             USEFUL LIFE       2002           2001
                                             -----------       ----           ----
<S>                                          <C>            <C>            <C>
Manufacturing equipment..................     5 years       $ 9,482,870     9,331,865
Laboratory equipment.....................     5 years         1,330,425     1,330,425
Office furniture and equipment...........     7 years           680,008       671,778
Computer equipment.......................     3 years           104,280        87,515
Leasehold improvements...................    Lease term       1,651,447     1,621,332
Capitalized engineering costs............     3 years           924,867       924,867
                                                            -----------    ----------
                                                             14,173,897    13,967,782
Less accumulated depreciation and
  amortization...........................                    11,941,693    11,120,449
                                                            -----------    ----------
                                                            $ 2,232,204     2,847,333
                                                            ===========    ==========
</Table>

     Depreciation and amortization expense related to property, plant and
equipment amounted to $821,244, $818,816, and $789,551, for the years ended May
31, 2002, 2001, and 2000, respectively.

                                        32
<PAGE>

(4) SHAREHOLDERS' EQUITY

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                        33
<PAGE>

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

     During the year ended May 31, 2000, the Company issued 2,500 additional
shares of common stock upon the exercise of stock options for cash at $13.38 per
share, for net proceeds of $33,450.

     During the year ended May 31, 2001, the Company issued 23,500 additional
shares of common stock upon the exercise of stock options for cash at $6.38 and
$10.81 per share, respectively, for net proceeds of $227,455.

5) INCOME TAXES

     As a result of losses incurred to date, the Company has not provided for
income taxes. As of May 31, 2002, the Company had net operating loss
carryforwards for income tax purposes of approximately $98,000,000, which are
available to offset future taxable income, if any, from 2003 to 2022. Deferred
tax assets primarily resulted from net operating loss carryforwards and
differences in the recognition of research and development and depreciation
expenses. Additionally, the Company had approximately $2,900,000 of research and
experimentation tax credits and investment tax credits available to reduce
future income taxes through 2022.

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

     The net deferred tax assets as of May 31, 2002 and 2001 are summarized as
follows:

<Table>
<Caption>
                                                           2002           2001
                                                           ----           ----
<S>                                                    <C>             <C>
Deferred tax assets:
  Net operating loss carryforwards.................    $ 40,700,000     34,200,000
  Tax credit carryforwards.........................       2,900,000      2,500,000
  Other............................................         700,000        900,000
                                                       ------------    -----------
                                                         44,300,000     37,600,000
Valuation Allowance................................     (44,300,000)   (37,600,000)
                                                       ------------    -----------
       Net deferred tax assets.....................    $         --             --
                                                       ============    ===========
</Table>

     The net change in the valuation allowance during fiscal 2002, 2001 and 2000
was an increase of $6,700,000, $2,800,000, and $4,400,000 respectively.

(6) STOCK OPTION PLAN

     The Company's Restated Nonqualified Stock Option Plan (the Employee Stock
Option Plan) lapsed on September 30, 1996. Following the termination of the
plan, all options outstanding prior to the plan termination may be exercised in
accordance with their terms. As of May 31, 2002, options to purchase a total of
77,000 shares of the Company's common stock at prices of $6.38 and $15.19 per
share were outstanding under the Employee Stock Option Plan. These options
expire in 2003 and 2004, ten years after the date of grant.

     With an effective date of October 1, 1996, the Company established the
Northfield Laboratories Inc. 1996 Stock Option Plan (the 1996 Option Plan). This
plan provides for the granting of stock options to the Company's directors,
officers, key employees, and consultants. Stock options to purchase a total of
500,000 shares of common stock are available under the 1996 Option Plan. During
the year ended May 31, 2002, the Company did not grant any options from this
plan. During the year ended May 31, 2001, the Company granted 64,000 options to
purchase shares of common stock at prices of $10.66 and $15.41 per share, which
was equal

                                        34
<PAGE>

to the fair market value of a share of common stock at the dates of grant. These
options expire in 2010, ten years after the date of grant.

     With an effective date of June 1, 1999, the Company established the
Northfield Laboratories Inc. 1999 Stock Option Plan (the 1999 Option Plan). This
plan provides for the granting of stock options to the Company's directors,
officers, key employees, and consultants. Stock options to purchase a total of
500,000 shares of common stock are available under the 1999 Option Plan. During
the year ended May 31, 2002, the Company granted 54,500 options to purchase
shares of common stock at $7.83 and $14.17 per share. These options expire in
2011 and 2012, ten years after the date of the grant. During the year ended May
31, 2001, the Company granted 60,000 options to purchase shares of common stock
at $10.88 per share. These options expire in 2011, ten years after the date of
grant.

     In September 1994, the Company adopted the Nonqualified Stock Option Plan
for Outside Directors (Directors Plan) which provides for the granting of
nonqualified stock options to directors of the Company who are neither employees
of nor consultants to the Company and who were not directors of the Company
prior to June 1, 1994. Stock options to purchase a total of 200,000 shares of
common stock are available under the Directors Plan. During the year ended May
31, 2002 the Company did not grant any options to purchase shares of common
stock. During the year ended May 31, 2001, the Company granted 15,000 options to
purchase shares of common stock at $11.18 per share. These options expire in
2011 or ten years after the date of grant.

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

<Table>
<Caption>
                                                2002           2001           2000
                                                ----           ----           ----
<S>                                         <C>             <C>            <C>
Net loss as reported....................    $(10,717,360)   (10,174,609)   (9,167,970)
Pro forma...............................     (11,577,283)   (10,854,076)   (9,727,924)
Net loss per share as reported..........           (0.75)         (0.71)        (0.64)
Pro forma...............................           (0.81)         (0.76)        (0.68)
                                            ============    ===========    ==========
</Table>

     For purposes of calculating the compensation cost consistent with SFAS No.
123, the fair value of each option grant is estimated using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
grants in fiscal 2002, 2001, and 2000:

<Table>
<Caption>
                                                 2002            2001            2000
                                                 ----            ----            ----
<S>                                            <C>             <C>             <C>
Expected volatility........................         66.3%           67.0%           60.2%
Risk-free interest rate....................          4.8%            5.4%            5.3%
Dividend yield.............................           --              --              --
Expected lives.............................    7.0 years       7.0 years       6.7 years
                                               =========       =========       =========
</Table>

                                        35
<PAGE>

     Additional information on shares subject to options is as follows:

<Table>
<Caption>
                                               2002                    2001                    2000
                                       --------------------    --------------------    --------------------
                                                   WEIGHTED                WEIGHTED                WEIGHTED
                                                   AVERAGE                 AVERAGE                 AVERAGE
                                                   EXERCISE                EXERCISE                EXERCISE
                                       OPTIONS      PRICE      OPTIONS      PRICE      OPTIONS      PRICE
                                       -------     --------    -------     --------    -------     --------
<S>                                    <C>         <C>         <C>         <C>         <C>         <C>
Outstanding at beginning of year...     640,500     $11.65      565,500     $11.64      623,000     $11.41
Granted............................      54,500      13.59      139,000      11.97       15,000      12.88
Exercised..........................          --         --       23,500       9.68        2,500      13.38
Canceled...........................       1,000      10.66       40,500      13.82       70,000       9.76
                                       --------     ------     --------     ------     --------     ------
Outstanding at end of year.........     694,000     $11.81      640,500     $11.65      565,500     $11.64
                                       ========     ======     ========     ======     ========     ======
Options exercisable at year end....     519,500     $11.62      423,250     $11.56      404,250     $11.66
                                       ========     ======     ========     ======     ========     ======
Weighted-average fair value of
  options granted during the
  year.............................    $   9.23                $   8.27                $  10.62
                                       ========                ========                ========
</Table>

     The following table summarizes information about stock options outstanding
at May 31, 2002:

<Table>
<Caption>
                                                        OPTIONS OUTSTANDING                OPTIONS EXERCISABLE
                                               --------------------------------------    -----------------------
                                                               WEIGHTED
                                                                AVERAGE      WEIGHTED      OPTIONS      WEIGHTED
                                                               REMAINING     AVERAGE     EXERCISABLE    AVERAGE
RANGE OF                                         NUMBER       CONTRACTUAL    EXERCISE    AT MAY 31,     EXERCISE
EXERCISE PRICES                                OUTSTANDING       LIFE         PRICE         2002         PRICE
---------------                                -----------    -----------    --------    -----------    --------
<S>                                            <C>            <C>            <C>         <C>            <C>
$ 6.38 -- 10.81............................      358,000         5.60         $10.39       302,250       10.37
 10.88 -- 15.19............................      336,000         6.62          13.32       217,250       13.36
                                                 =======         ====         ======       =======       =====
</Table>

(7) STOCK WARRANTS

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

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

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

(8) LEASES/COMMITMENTS

     Rent expense amounted to $835,661, $809,721, and $747,055 for the years
ended May 31, 2002, 2001, and 2000, respectively.

     The Company lease for its research and manufacturing facility expires
August 30, 2004 and includes the option to renew the lease for (2) successive 5
year terms. The lease is collateralized by a $49,200 security deposit as of May
31, 2002.

     The Company lease for its corporate facility expires February 14, 2006.
Northfield has the option to cancel the lease upon giving written notice 6
months prior to termination as well as paying a penalty equal to 6 months next
calculated at the rate payable on the date of notice. As of May 31, 2002, this
penalty would have amounted to $144,375. The lease is secured by a security
deposit of $19,250 as of May 31, 2002.

                                        36
<PAGE>

     At May 31, 2002, future minimum lease payments under the operating leases
are as follows:

<Table>
<Caption>
                        YEARS ENDING
                          MAY 31,                                 AMOUNT
                        ------------                              ------
<S>                                                             <C>
2003........................................................    $  578,588
2004........................................................       588,234
2005........................................................       382,957
2006........................................................       226,188
                                                                ----------
                                                                $1,775,967
                                                                ==========
</Table>

(9) EMPLOYEE BENEFIT PLAN

     Effective January 1, 1994, the Company established a defined contribution
401(k) savings plan covering each employee of the Company satisfying certain
minimum length of service requirements. Matching contributions to the accounts
of plan participants are made by the Company in an amount equal to 33% of each
plan participant's before-tax contribution, subject to certain maximum
contribution limitations, and are made at the discretion of the Company.
Expenses incurred under this plan for Company contributions for the years ended
May 31, 2002, 2001, and 2000 amounted to $157,294, $145,051 and $129,496,
respectively.

(10) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

     The following table shows our quarterly unaudited financial information for
the eight quarters ended May 31, 2002. We have prepared this information on the
same basis as the annual information presented in other sections of this report.
In management's opinion this information reflects fairly, in all material
respects, the results of its operations. You should not rely on the operating
results for any quarter to predict the results for any subsequent period or for
the entire fiscal year. You should be aware of possible variances in our future
quarterly results. See "Risk Factors" in the body of this document.

<Table>
<Caption>
                                                                         QUARTER ENDED
                                  --------------------------------------------------------------------------------------------
                                                             (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                  MAY 31,     FEB. 28,    NOV. 30,    AUG. 31,    MAY 31,     FEB. 28,    NOV. 30,    AUG. 31,
                                    2002        2002        2001        2001        2001        2001        2000        2000
                                  -------     --------    --------    --------    -------     --------    --------    --------
<S>                               <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>
Revenues......................    $    --          --          --          --          --          --          --          --
Costs and Expenses
    Research and
      Development.............      2,108       2,176       1,911       2,649       2,473       2,489       2,237       2,238
    General and
      Administrative..........        749         583         525         843         738         620         558         870
                                  -------      ------      ------      ------      ------      ------      ------      ------
                                    2,857       2,759       2,436       3,492       3,211       3,109       2,795       3,108
Other Income and Expense
  Interest Income.............         87         168         270         301         401         505         552         590
  Interest Expense............         --          --          --          --          --          --          --          --
                                  -------      ------      ------      ------      ------      ------      ------      ------
Net Loss......................    $(2,770)     (2,591)     (2,166)     (3,191)     (2,810)     (2,604)     (2,243)     (2,518)
Net Loss Per
  share -- Diluted............    $ (0.19)      (0.18)      (0.15)      (0.22)      (0.20)      (0.18)      (0.16)      (0.18)
Shares used in calculation....     14,266      14,266      14,266      14,266      14,266      14,263      14,242      14,242
</Table>

                                        37
<PAGE>

                                    EXHIBITS

<Table>
<Caption>
NUMBER                            DESCRIPTION
------                            -----------
<C>       <S>
 3.1      Restated Certificate of Incorporation of the Registrant
          (incorporated herein by reference to Exhibit 3.2 to the
          Registrant's Registration Statement on Form S-1, filed with
          the Securities and Exchange Commission on March 25, 1994,
          File No. 33-76856 (the "Registration Statement"))
 3.2      Certificate of Amendment to Certificate of Incorporation of
          the Registrant (incorporated herein by reference to Exhibit
          3.1.1 to the Registrant's Quarterly Report on Form 10-Q for
          the Registrant's quarter ended November 30, 1999)
 3.3      Restated Bylaws of the Registrant (incorporated herein by
          reference to Exhibit 3.4 to the Registration Statement)
10.1      Office Sublease dated as of April 20, 1993 between the
          Registrant and First Illinois Bank of Evanston, N.A., as
          Trustee (incorporated herein by reference to Exhibit 10.1 to
          the Registration Statement)
10.2      Amendment to Lease dated as of January 7, 1998 between the
          Registrant and First Illinois Bank of Evanston, N.A.
          (incorporated herein by reference to Exhibit 10.1.1 to the
          Registrant's Quarterly Report on Form 10-Q for the
          Registrant's quarter ended February 28, 1998)
10.3      Lease dated as of June 8, 1989 between the Registrant and
          OTR (incorporated by reference to Exhibit 10.2 to the
          Registration Statement)
10.4      Amendment to Lease dated as of May 6, 1998 between the
          Registrant and OTR (incorporated herein by reference to
          Exhibit 10.11 to the Registrant's Annual Report on Form 10-K
          for the Registrant's fiscal year ended May 31, 1998)
10.5      Third Amendment to Lease dated as of September 16, 1999
          between the Registrant and OTR (incorporated be reference to
          Exhibit 10.4.1 to the Registrant's Quarterly Report on Form
          10-Q for the Registrant's quarter ended November 30, 1999)
10.6      License Agreement dated as of March 6, 1989 between the
          Registrant and KabiVitrum AB (predecessor of Pharmacia &
          Upjohn Inc.) (incorporated herein by reference to Exhibit
          10.6 to the Registration Statement)
10.7      License Agreement dated as of July 20, 1990 between the
          Registrant and Eriphyle BV (incorporated herein by reference
          to Exhibit 10.7 to the Registration Statement)
10.8*     Northfield Laboratories Inc. 401(K) Plan (incorporated
          herein by reference to Exhibit 10.14 to the Registration
          Statement)
10.9*     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)
10.10*    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)
10.11*    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)
10.12*    Employment Agreement dated as of January 1, 2001 between the
          Registrant and Steven A. Gould, M.D. (incorporated herein by
          reference to Exhibit 10.16 to the Registrant's Quarterly
          Report on Form 10-Q for the Registrant's quarter ended
          February 28, 2001)
10.13*    Employment Agreement dated as of January 1, 2001 between the
          Registrant and Jack Kogut (incorporated herein by reference
          to Exhibit 10.17 to the Registrant's Quarterly Report on
          Form 10-Q for the Registrant's quarter ended February 28,
          2001)
</Table>

                                        38
<PAGE>

<Table>
<Caption>
NUMBER                            DESCRIPTION
------                            -----------
<C>       <S>
10.14     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)
10.15     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)
10.16     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)
23.1      Consent of KPMG LLP
</Table>

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

                                        39
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on this August 7,
2002.

                                          NORTHFIELD LABORATORIES INC.

                                          By: /s/ STEVEN A. GOULD, M.D.
                                            ------------------------------------
                                            Steven A. Gould, M.D.
                                            Chairman of the Board and
                                            Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
in the capacities indicated on August 7, 2002.

<Table>
<Caption>
                 SIGNATURE                                            TITLE
                 ---------                                            -----
<C>                                                <S>

         /s/ STEVEN A. GOULD, M.D.
--------------------------------------------       Chairman of the Board and Chief Executive
           Steven A. Gould, M.D.                   Officer (principal executive officer)

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

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

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

             /s/ JACK OLSHANSKY
--------------------------------------------
               Jack Olshansky                      Director

            /s/ DAVID A. SAVNER
--------------------------------------------
              David A. Savner                      Director
</Table>

                                        40