SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 20-F


[_]  REGISTRATION  STATEMENT  PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                                       OR

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


                                       OR

[_]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

             For the transition period from __________ to __________

                         Commission file number 0-29350

                                  VASOGEN INC.
             (Exact name of Registrant as specified in its charter)

                                  VASOGEN INC.
                 (Translation of Registrant's name into English)

                                     Canada
                 (Jurisdiction of incorporation or organization)

                           2155 Dunwin Drive, Suite 10
                       Mississauga, Ontario L5L 4M1 Canada
                    (Address of principal executive offices)

 Securities registered or to be registered pursuant to Section 12(g) of the Act:
                           Common Shares, no par value
                                (Title of Class)

Securities for which there is a reporting  obligation  pursuant to Section 15(d)
of the Act:

                                      None
                                (Title of Class)


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<PAGE>


Indicate the number of outstanding shares of each of the issuer's classes of
capital or common shares as of the close of the period covered by the annual
report - 44,741,697 shares outstanding.

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

Indicate by check mark which financial statement item the Registrant has elected
to follow.    Item 17 ___    Item 18   [X].

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<PAGE>

                                     PART I

Item 1. Identity of Directors, Senior Management and Advisers.
        ------------------------------------------------------

        Not applicable.

Item 2. Offer Statistics and Expected Timetable.
        ----------------------------------------

        Not applicable.

Item 3. Key Information.
        ----------------

A. Selected Financial Data.
   ------------------------

     Following is selected financial data of Vasogen Inc. ("Vasogen" or "the
Company"), expressed in Canadian dollars, for each of the last five fiscal years
ended November 30, calculated in accordance with Canadian generally accepted
accounting principles, which except as described in Note 9 to the financial
statements, conform in all material respects with accounting principles
generally accepted in the United States.

Years ended November 30

(in thousands of dollars except for per share data)

<TABLE>
<CAPTION>
                                       2000             1999             1998             1997             1996
                                    --------          -------          -------          -------         --------
<S>                                   <C>              <C>              <C>              <C>              <C>
Research and development              6,108            4,672            4,656            5,351            3,167
General and administration            5,156            3,554            2,957            2,830            1,790
Loss before the undernoted          (11,264)          (8,226)          (7,613)          (8,181)          (4,957)
Investment income                     1,303              311              301              190               95
Loss for the period                  (9,961)          (7,915)          (7,312)          (7,991)          (4,862)
Loss per share                        (0.24)           (0.25)           (0.29)           (0.38)           (0.38)
Working capital                      41,490            8,224            4,807            7,188            5,426
Total assets                         44,840           11,387            7,490            9,470            7,696
Share capital                        90,785           47,752           36,139           31,172           21,541
Deficit                             (47,271)         (37,310)         (29,395)         (22,083)         (14,092)
Shareholders' equity                 43,514           10,442            6,744            9,089            7,449
</TABLE>

Notes:

(1)  To date, the Company has been in the development stage and, accordingly,
     has no revenue.

                                       3
<PAGE>

     All dollar amounts herein are expressed in Canadian dollars/1/, unless
otherwise indicated. Reference is made to footnote number 1 for a summary of the
exchange rates between the U.S. and Canadian dollar.

----------

     /1/ The following table sets forth the exchange rate for one Canadian
dollar expressed in terms of one U.S. dollar for the fiscal years 1996 through
2000 and for November 2000 through April 2001.

                               AVERAGE

                       1996               .7332

                       1997               .7286

                       1998               .6742

                       1999               .6744

                       2000               .6723


                                     LOW               HIGH

        November 2000               .6636             .6783

        December 2000               .6547             .6687

        January 2001                .6410             .6552

        February 2001               .6969             .6669

        March 2001                  .6595             .6692

        April 2001                  .6494             .6697


     The exchange rates are based upon the noon buying rate in New York City for
cable transfers in foreign currencies as certified for customs purposes by the
Federal Reserve Bank of New York. At May 16, 2001, one Canadian dollar, as
quoted by Telerate and other sources at 4 p.m. Eastern Time for New York foreign
exchange selling rates (for bank transactions of at least $1,000,000), equaled
$.6504 in U.S. dollars. (Source: The Globe and Mail, Toronto)


                                       4
<PAGE>


     Reference is made to Note 9 of the Company's audited financial statements
for the year ended November 30, 2000, in "Item 18. Financial Statements", for a
description of the differences between Canadian and United States generally
accepted accounting principles, and how these differences affect the Company's
financial statements.

     The following table sets forth how the above amounts would be presented
under United States generally accepted accounting principles for the fiscal
years ended November 30, 2000, 1999, and 1998:


Fiscal Years Ended November 30

(in thousands of dollars except for per share data)


                                                 2000        1999          1998

Research and development                        5,855        4,859        4,631
Loss for the period                           (10,303)      (8,428)      (7,415)
Basic and diluted loss per share                (0.25)       (0.27)       (0.29)
Total Assets                                   43,068        9,362        5,652
Share Capital                                  92,362       48,374       36,795
Deficit                                       (50,620)     (40,317)     (31,889)
Shareholders' equity                           41,742        8,057        4,906

B.   Capitalization and Indebtedness.
     --------------------------------

         Not applicable.

C.   Reasons for the Offer and Use of Proceeds.
     ------------------------------------------

         Not applicable.


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<PAGE>

D.   Risk Factors.
     -------------

     RISK FACTORS AFFECTING THE COMPANY

     The business of the Company entails significant risks, and an investment in
the Common Shares should be considered highly speculative for a variety of
reasons. An investment in Common Shares should only be undertaken by persons who
have sufficient financial resources to enable them to assume such risks. In
addition to the usual risks associated with investment in a business, the
following is a general description of certain significant risk factors, which
should be considered.

     (a)  Regulatory Environment

     Biotechnology, medical device, and pharmaceutical companies historically
operate in a high-risk regulatory environment. The FDA and other health agencies
can be very slow to approve a product and can also withhold product approvals.
In addition, these health agencies also oversee many other Company operations,
such as manufacturing. As a result, regulatory risk is normally higher than
other industry sectors.

     The Company has incurred, and expects to continue to incur, substantial
clinical research and other costs in connection with obtaining regulatory
approvals for its medical products in Canada, the United States, Europe, and
other jurisdictions. While the Company is not aware of any pending or threatened
governmental action against it in any country, any enforcement action by
regulatory authorities with respect to past or any future regulatory
non-compliance could have a material adverse effect on the Company's business,
financial condition, and results of operations.

     There can be no assurance that the Company will be able to achieve or
maintain regulatory compliance on all or any of its current or future products
or that it will be able to timely and profitably produce its products while
complying with applicable regulatory requirements. Failure to achieve or
maintain such compliance could have a material adverse effect upon the Company's
business, financial condition, and results of operations.

     Certain regulatory authorities can institute proceedings to detain or seize
products, issue a recall, enjoin future violations, assess civil and criminal
penalties against the Company, its officers and its employees, or require the
Company to make substantial changes to its manufacturing operations. Any of such
actions could have a material adverse effect on the Company's business,
financial condition, and results of operations.


                                       6
<PAGE>

     While the Company believes it is in compliance with all existing
regulations, there can be no assurance that a violation of such laws will not
occur, or that any such violations will not have a material adverse effect on
the Company's business, financial condition, or results of operations.

     (b) Government and Insurance Reimbursements for Healthcare Expenditures

     Government and insurance reimbursements for healthcare expenditures play an
important role for all healthcare providers, including physicians, drug
companies, medical supply companies, and companies such as Vasogen which plans
to offer its various products and treatments in the United States and other
countries in the future. In the United States, the ability of Vasogen to have
its products and treatments eligible for Medicare or private insurance
reimbursement will be an important factor in determining the ultimate success of
its products. If for any reason, Medicare or the insurance companies decline to
provide reimbursement for Vasogen's products and treatments, this would have a
materially adverse effect on Vasogen. There can be no assurance that Vasogen's
products and treatments will be eligible for reimbursement.

     There has been a trend of declining government and private insurance
expenditures for many health care items. Even if Vasogen's products and
treatments are approved for reimbursements by Medicare and private insurances,
of which there can be no assurance, the amount of reimbursement may be reduced
at times, or even eliminated, having a materially adverse effect on Vasogen.

     (c) Potential Competition

     The medical device industry is not a static environment and market share
can change rapidly if competing products are introduced. There can be no
assurances that the Company can avoid intense competition from other medical
technology companies and other technological advances, which could render the
Company's technology uneconomical or obsolete.

     (d) Development Stage

     Vasogen's products are in the development stage and, accordingly, Vasogen's
business operations are subject to all of the risks inherent in the
establishment and maintenance of a developing business enterprise, such as
competition and viable operations management. Due to its initial investment in
extensive research and development and clinical testing, Vasogen has incurred a
loss and has received no cash flow from operations to date, and there is no
assurance that it will have earnings or cash flow from operations in the future.
The future earnings and cash flow from operations of Vasogen are dependent, in
part, on its ability to


                                       7
<PAGE>

further develop its products. There can be no assurances that Vasogen will grow
and be profitable. The operations of Vasogen are presently funded by external
financing and if sufficient cash flow from operations or earnings is not
generated in the future, additional financing will be required. There is no
assurance that such financing will be available.

     (e) Product Concentration

     Vasogen intends to rely substantially on the exploitation of its products
that are currently in development for its future earnings. If any of these
products does not become commercially saleable for whatever reason, Vasogen's
future earnings will suffer. If the products become commercially suitable,
Vasogen's future financial performance will then depend on the successful
introduction and customer acceptance of its products, of which there can be no
assurance.

     (f) Scientific Research and Product Risk

     Definitive proof of the precise mechanism of action of a biological
response modifier such as immune modulation therapy will require considerably
more basic scientific research than has been accomplished to date. With the
exception of certain patient trials, results from clinical trials have not yet
been obtained and the impact of immune modulation therapy in the treatment of
these conditions has not yet been addressed. There can be no assurances that the
products that Vasogen is currently developing will be approved by regulatory
agencies or that further testing will yield positive results. Should the product
prove to have no benefit and/or have an unsafe profile, its development will
likely be discontinued.

     (g) Key Personnel

     The operations of the Company are highly dependent upon the participation
of its key personnel. The loss of the service of any one of the key personnel
may materially affect the ability of the Company to grow and expand. The Company
carries keyman insurance on senior management members who are critical to the
Company.

     (h) Financing

     The Company may need to raise additional funds to conduct research and
development, preclinical studies, and clinical trials necessary to bring its
potential products to market and establish manufacturing and marketing
capabilities. The Company's future capital requirements will depend on many
factors, including continued scientific progress in its research and development
programs, the scope and results of preclinical studies and clinical trials, the
time and costs involved in obtaining regulatory approvals, the costs involved in
filing, prosecuting and enforcing patent claims, competing technological and
market

                                       8
<PAGE>

developments, the cost of manufacturing scale-up, effective commercialization
activities and arrangements, and other factors not within the Company's control.

     Adequate funds may not be available when needed or on terms acceptable to
the Company. Insufficient funds may require the Company to scale back or
eliminate some or all of its research and development programs or license to
third parties products or technologies that the Company would otherwise seek to
develop itself. The Company anticipates that its existing resources will enable
the Company to maintain its current and planned operations through fiscal 2003.

     (i) Manufacturing

     Vasogen currently relies upon a single subcontractor for the disposable
blood containers and a single subcontractor for the medical instruments on which
its immune modulation therapy delivery systems are based. The Company is
continually reviewing its own capabilities and the capabilities of other
potential suppliers and subcontractors. The establishment of additional or
replacement suppliers for certain materials, components, subassemblies,
assemblies, or finished products may not be accomplished quickly, largely due to
the regulatory approval systems and the complex nature of manufacturing
processes employed by many suppliers. The failure to obtain sufficient
quantities of component materials on commercially reasonable terms could have a
material adverse effect on the Company's business, financial condition, and
results of operations.

     There can be no assurance that the Company will be successful in scaling up
its manufacturing operations or that it will not experience manufacturing
difficulties or recalls or safety alerts in the future. Potential difficulties
experienced by the Company in manufacturing scale-up, including recalls or
safety alerts, could have a material adverse effect on the Company's business,
financial condition, and results of operations.

     (j) Dilution

     As a business having no sales or revenues, Management anticipates that the
Company will be dependent over the foreseeable future upon securing additional
financing, of which there can be no assurance. In order to obtain additional
financing, if it is even available, it is likely that the Company will sell
additional shares or financial instruments, which are exchangeable or
convertible into shares, resulting in substantial dilution to all shareholders.
In order to provide incentives to current employees and induce prospective
employees and consultants to work for the Company, the Company has granted
options and intends to offer and issue options to purchase shares and/or rights,
exchangeable or convertible into shares; the exercise of such options and/or
conversion of such other rights exchangeable or convertible into shares could
result in substantial dilution to all shareholders.

                                       9

<PAGE>

     (k) Uncertainty of Product Development and Clinical Testing

     The Company has not completed the development of any products and there can
be no assurance any products will be successfully developed. The Company's
immune modulation therapies will require significant additional research and
development efforts and regulatory approvals, including clinical trials, prior
to potential commercialization in the United States and elsewhere. However,
there can be no assurance that the results of all required clinical trials will
demonstrate that these immune modulation therapies are safe and efficacious or,
that even if the results of the clinical trials are considered successful by the
Company, that the FDA will not require the Company to conduct additional large
scale clinical trials with these immune modulation therapies before the FDA will
consider approving therapies for commercial sale.

     Failure of these trials to demonstrate the safety and effectiveness of
these immune modulation therapies could have a material adverse effect on the
regulatory approval process for this potential product. There can be no
assurance that the results of the Company's preclinical studies and clinical
trials will be indicative of future clinical trial results. A commitment of
substantial resources to conduct time-consuming research, preclinical studies,
and clinical trials will be required if the Company is to complete development
of its products. Delays in planned patient enrollment in the Company's current
clinical trials or future clinical trials may result in increased costs, program
delays, or both. There can be no assurance that any of the Company's potential
products will prove to be safe and effective in clinical trials, that FDA or
other regulatory approvals will be obtained, or that such products will achieve
market acceptance.

     Any products resulting from these programs may not be successfully
developed or commercially available in the United States for a number of years,
if at all. There can be no assurance that unacceptable toxicities or side
effects will not occur at any time in the course of human clinical trials or, if
any products are successfully developed and approved for marketing, during
commercial use of the Company's products. The appearance of any such
unacceptable toxicities or side effects could interrupt, limit, delay, or abort
the development of any of the Company's products or, if previously approved,
necessitate their withdrawal from the market. Furthermore, there can be no
assurance that disease resistance will not limit the efficacy of potential
products.


                                       10
<PAGE>


     (l) Potential Conflicts of Interests

     Certain of the directors and officers of the Company are also directors and
officers of other companies. Consequently, there exists the possibility for such
directors and officers to be in a position of conflict. Any decision made by any
of such directors and officers involving the Company are made in accordance with
their duties and obligations to deal fairly and in good faith with the Company
and such other companies. In addition, each of the directors of the Company will
declare a conflict in, and refrain from voting on, any matter in which such
director may have a conflict of interest. Reference is made to "Item 7B. Related
Party Transactions."

     (m) History of Operating Losses

     As of November 30, 2000, the Company had an accumulated deficit of
approximately $47.3 million. The Company has not generated revenues from the
commercialization of any products and expects to incur substantial net operating
losses over the next several years. There can be no assurance that the Company
will be able to generate sufficient product revenue to become profitable at all
or on a sustained basis. The Company expects to have quarter-to-quarter
fluctuations in expenses, some of which could be significant, due to expanded
research, development and clinical trial activities.

     (n) Patents and Proprietary Technology

     The Company has filed a number of patent applications in the United States
and many international countries. The Company files applications as appropriate
for patents covering its products and processes. The Company has been issued
patents covering certain aspects of its immune modulation therapies. The
Company's success may depend in part on its ability to obtain patent protection
for its products and processes. There can be no assurance that the Company's
patent applications will be issued as patents or that any of its issued patents,
or any patent that may be issued in the future, will provide the Company with
adequate protection for the covered products, processes, or technology. The
patent positions of biotechnology and pharmaceutical companies can be highly
uncertain, and involve complex legal and factual questions. Therefore, the
breadth of claims allowed in biotechnology and pharmaceutical patents cannot be
predicted. The Company also relies upon unpatented trade secrets and know-how,
and no assurance can be given that others will not independently develop
substantially equivalent trade secrets or know how. In addition, whether or not
the Company's patents are issued, or issued with limited coverage, others may
receive patents, which contain claims applicable to the Company's product. There
can be no assurance that any of the Company's patents, or any patents issued to
the Company in the future, will afford meaningful protection against
competitors. Defending any such patent could be costly to the


                                       11
<PAGE>

Company, and there can be no assurance that the patent would be held valid by a
court of competent jurisdiction.

     The Company also relies on protecting its proprietary technology in part
through confidentiality agreements with its corporate collaborators, employees,
consultants, and certain contractors. There can be no assurance that these
agreements will not be breached, that the Company will have adequate remedies
for any breach, or that the Company's trade secrets will not otherwise become
known or independently discovered by its competitors. It is possible that the
Company's products or processes will infringe, or will be found to infringe,
patents not owned or controlled by the Company. If any relevant claims of
third-party patents are upheld as valid and enforceable, the Company could be
prevented from practicing the subject matter claimed in such patents, or would
be required to obtain licenses or redesign its products or processes to avoid
infringement. There can be no assurance that such licenses would be available at
all or on terms commercially reasonable to the Company or that the Company could
redesign its products or processes to avoid infringement. Litigation may be
necessary to defend against claims of infringement, to enforce patents issued to
the Company, or to protect trade secrets. Such litigation could result in
substantial costs and diversion of management efforts regardless of the results
of such litigation and an adverse result could subject the Company to
significant liabilities to third parties, require disputed rights to be
licensed, or require the Company to cease using such technology.

     (o) Dependence on Third Parties

     The Company's strategy for the research, development, and commercialization
of its products requires entering into various arrangements with corporate
collaborators, licensors, licensees, and others, and the Company's commercial
success is dependent upon these outside parties performing their respective
contractual responsibilities. The amount and timing of resources such third
parties will devote to these activities may not be within the control of the
Company. There can be no assurance that such parties will perform their
obligations as expected or that the Company will derive any revenue from such
arrangements. There can be no assurance that these collaborations will result in
the development of any commercial products. The Company intends to seek
additional collaborative arrangements to develop and commercialize certain of
its products. There can be no assurance that the Company will be able to
negotiate collaborative arrangements on favorable terms, or at all, in the
future, or that its current or future collaborative arrangements will be
successful.

     (p) Lack of Commercial Manufacturing and Marketing Experience

     If the Company were successful in developing the markets for immune
modulation therapies, the Company would have to arrange for the manufacture of
its devices. At the present time, the Company has not finalized arrangements for
the manufacture of these


                                       12
<PAGE>

treatment medical devices on a large scale. There can no assurance that the
Company, on a timely basis, will be able to make the transition from
manufacturing clinical trial quantities to commercial production quantities
successfully or be able to arrange for contract manufacturing. The Company
believes it will be able to manufacture its medical devices for initial
commercialization, if the product obtains FDA approval, but it has not yet
demonstrated the capability to manufacture the treatment devices in commercial
quantities.

     The Company has no experience in the sales, marketing, and distribution of
pharmaceutical or medical products. There can be no assurance that the Company
will be able to establish sales, marketing, and distribution capabilities or
make arrangements with its collaborators, licensees or others to perform such
activities or that such efforts will be successful. The manufacture of the
Company's products involves a number of steps and requires compliance with
stringent quality control specifications imposed by the Company itself and by
the FDA. Moreover, the Company's products can only be manufactured in a facility
that has undergone a satisfactory inspection by the FDA. For these reasons, the
Company would not be able quickly to replace its manufacturing capacity if it
were unable to use its manufacturing facilities as a result of a fire, natural
disaster (including an earthquake), equipment failure, or other difficulty, or
if such facilities are deemed not in compliance with the FDA's drug cGMP
requirements and the non-compliance could not be rapidly rectified. The
Company's inability or reduced capacity to manufacture its products would have a
material adverse effect on the Company's business and results of operations.

     The Company may enter into arrangements with contract manufacturing
companies to expand its own production capacity in order to meet requirements
for its products, or to attempt to improve manufacturing efficiency. If the
Company chooses to contract for manufacturing services and encounters delays or
difficulties in establishing relationships with manufacturers to produce,
package, and distribute its finished products, clinical trials, market
introduction and subsequent sales of such products would be adversely affected.
Further, contract manufacturers must also operate in compliance with the FDA's
drug cGMP requirements; failure to do so could result in, among other things,
the disruption of product supplies. Until recently, biologic product licenses
could not be held by any company unless it performed significant manufacturing
operations. The FDA recently amended its regulations in this regard, and the
Company believes that under these new regulations it can now hold licenses for
its biological products without performing significant manufacturing steps.
Nonetheless, the Company's potential dependence upon third parties for the
manufacture of its products may adversely affect the Company's profit margins
and its ability to develop and deliver such products on a timely and competitive
basis.


                                       13
<PAGE>

     (q) Uncertainty of Product Pricing, Reimbursement, and Related Matters

     The Company's ability to earn sufficient returns on its products will
depend in part on the extent to which reimbursement for the costs of such
products and related treatments will be available from government health
administration authorities, private health coverage insurers, managed care
organizations, and other organizations. Third party payors are increasingly
challenging the price of medical products and services. If purchasers or users
of the Company's products are not able to obtain adequate reimbursement for the
cost of using such products, they may forego or reduce such use. Significant
uncertainty exists as to the reimbursement status of newly approved healthcare
products, and there can be no assurance that adequate third party coverage will
be available.

     (r) Product Liability Exposure

     The Company faces an inherent business risk of exposure to product
liability and other claims in the event that the development or use of its
technology or prospective products is alleged to have resulted in adverse
effects. While the Company has taken, and will continue to take, what it
believes are appropriate precautions, there can be no assurance that it will
avoid significant liability exposure. Although the Company currently carries
product liability insurance for clinical trials, there can be no assurance that
the Company has sufficient coverage, or can obtain sufficient coverage, at a
reasonable cost. An inability to obtain product liability insurance at
acceptable cost or to otherwise protect against potential product liability
claims could prevent or inhibit the commercialization of products developed by
the Company. A product liability claim could have a material adverse effect on
the Company's business, financial condition and results of operations.

     (s) Hazardous Material; Environmental Matters

     Although the Company does not currently manufacture commercial quantities
of its products, it produces limited quantities of such products for its
clinical trials. The Company's research and development processes involve the
controlled storage, use, and disposal of hazardous materials, and biological
hazardous materials. The Company is subject to federal, state, and local laws
and regulations governing the use, manufacture, storage, handling and disposal
of such materials and certain waste products. Although the Company believes that
its safety procedures for handling, and disposing of such materials comply with
the standards prescribed by such laws and regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of such an accident, the Company could be held liable for any damages
that result, and any such liability could exceed the resources of the Company.
There can be no assurance that the Company will not be required to incur
significant costs to comply with current or future environmental laws and


                                       14
<PAGE>

regulations, nor that the operations, business, or assets of the Company will
not be materially or adversely affected by current or future environmental laws
or regulations.

     (t) Volatility of Stock Price and Absence of Dividends

     The market price of the Company's Shares, like that of the common stock of
many other biopharmaceutical companies in the development stages, has been and
is likely to be highly volatile. Factors such as the results of preclinical
studies and clinical trials by the Company, its collaborators, or its
competitors, other evidence of the safety or efficacy of products of the Company
or its competitors, announcements of technological innovations or new products
by the Company or its competitors, governmental regulatory actions, developments
with the Company's collaborators, developments concerning patent or other
proprietary rights of the Company or its competitors (including litigation),
concern as to the safety of the Company's products, period-to-period
fluctuations in the Company's operating results, changes in estimates of the
Company's performance by securities analysts, market conditions for
biopharmaceutical stocks in general, and other factors not within the control of
the Company could have a significant adverse impact on the market price of the
Common Stock. The Company has never paid cash dividends on its Common Stock and
does not anticipate paying any cash dividends in the foreseeable future.

Item 4.  Information on the Company.
         ---------------------------

A.   History and Development of the Company.
     ---------------------------------------

     Corporate History

     Vasogen was incorporated under the Business Corporations Act (Ontario) by
articles of incorporation dated January 10, 1980, as amended by articles of
amendment dated September 19, 1985, June 15, 1988, and April 21, 1994, and was
continued under the Canada Business Corporations Act by Certificate and Articles
of Continuance dated August 9, 1999. The Company's principal place of business
is located at 2155 Dunwin Drive, Suite 10, Mississauga, Ontario, L5L 4M1,
Canada. Its telephone number is (905) 569-2265.

     For the three fiscal years ended November 30, 2000, 1999, and 1998, the
Company spent a total of $6,108,187, $4,672,486, and $4,656,643, respectively,
on research and development. At the present time, the Company has not made any
significant principal capital expenditures as expenditures are focused on the
advancement of the Company's research and development program. Over the past
three fiscal years, Vasogen has raised approximately $59 million in net proceeds
from the issuance of equity securities to investors and the exercise of options
and warrants. The Company's common shares are listed on the


                                       15
<PAGE>


Toronto Stock Exchange under the symbol "VAS" and on the American Stock Exchange
under the symbol "MEW".

B.   Business Overview /2/.
     -----------------

     Vasogen is engaged in the development and commercialization of immune
modulation therapy, a therapeutic platform technology designed to treat disease
by regulating the immune response. Recent advances in the field of immunology
have demonstrated the central role that inflammation plays in a broad range of
disorders, including cardiovascular diseases, autoimmune diseases such as
psoriasis and multiple sclerosis, and some cancers. Vasogen is focused on the
development of novel therapeutic interventions to treat many of these
devastating diseases by harnessing the power of the human immune system to
regulate destructive inflammatory responses.

     Over the past three years, the Company has completed fundamental,
preclinical, and clinical research with respect to its proprietary immune
modulation therapy. In addition to supporting the regulatory approvals process,
this research has provided information with which the Company has been able to
target the application of immune modulation therapy to disease indications.

     Vasogen's immune modulation therapy is currently in clinical development
for a number of disease indications including psoriasis, peripheral arterial
disease, congestive heart failure, ischemia/reperfusion injury associated with
major vascular surgery, chronic lymphocytic leukemia, and graft-versus-host
disease. During fiscal 2000, the Company completed controlled clinical trials in
psoriasis and peripheral arterial disease, with follow-on studies underway or
planned. Successful completion of ongoing clinical studies would position the
Company to enter a number of multi-center clinical trials of immune modulation
therapy to support regulatory approval. Through collaborations with
international researchers, Vasogen is also investigating therapeutic
interventions for the treatment of additional autoimmune and neurological
disorders.

The Company intends to commercialize its therapies through licensing agreements
with established healthcare companies, although there can be no assurance it
will be able to enter into satisfactory arrangements


-------------
     /2/ See Glossary on pages 28 to 29 for terms used throughout this Annual
Report.



                                       16
<PAGE>

1. INTRODUCTION

a)   The Role of Inflammation in Disease

     Inflammation is the normal response by the immune system to infection,
injury, or disease. Inflamed tissues generate signals, including
pro-inflammatory cytokines, that lead to the redness, swelling, and pain
associated with inflammation. Additional pro-inflammatory cytokine production
leads to the recruitment of immune cells from the bloodstream to the site of
inflammation in the tissue, where these cells help to destroy and clear the
inflammatory agent. This response is normally self-limiting and promotes
healing; but, when uncontrolled, it becomes harmful and can cause tissue damage.

     The inflammatory response can be either acute or chronic. Acute
inflammation usually lasts at most a few days and generally enables healing and
repair processes; however, in chronic inflammation the attempt at healing and
repair becomes misdirected. Chronically inflamed tissues continue to generate
pro-inflammatory cytokines that recruit additional immune cells into the tissue.
The migration of immune cells into the tissue further amplifies the ongoing
inflammatory response, leading to organ and tissue damage that manifests as a
range of disease symptoms.

     The medical community is becoming increasingly aware of the role that
chronic inflammation plays in many diseases. As the link between inflammation
and disease becomes more apparent, the need for effective and safe
anti-inflammatory therapies continues to grow. Vasogen's immune modulation
therapy is being developed to provide safe and effective treatment for
inflammatory disorders by down-regulating the chronic inappropriate production
of harmful pro-inflammatory cytokines.

b)   Mechanism of Action of Vasogen's Immune Modulation Therapy

     Published research suggests that the normal removal of stressed cells from
the body by the immune system is inherently an anti-inflammatory process.
Vasogen's immune modulation therapy is designed to exploit this
anti-inflammatory response to stressed cells. Delivered during a 20-minute
outpatient procedure, immune modulation therapy involves the stressing of a
small sample of a patient's blood cells using a proprietary medical device
technology, followed by the administration of the stressed cells to the patient.

     Administration of the stressed cells leads to their interaction with cells
of the patient's immune system, including macrophages and dendritic cells,
triggering the release of regulatory cytokines, particularly interleukin-10.
Production of regulatory cytokines leads to a relative decrease in the level of
pro-inflammatory Th1 cells and cytokines, including tumor necrosis factor-alpha,
interleukin-6 and interferon-gamma. At the same time, the relative number of


                                       17
<PAGE>


Th2 cells is increased, leading to an increased production of regulatory
cytokines, including interleukin-10.

     The process of modulating the levels of both anti-inflammatory and
pro-inflammatory cytokines leads to a decrease in systemic inflammation. This is
the fundamental basis for the application of immune modulation therapy across a
broad range of disease targets.

2.   DISEASE TARGETS

2.1  Cardiovascular Disease

a)  Overview

     It is estimated that more than 2,600 Americans die of cardiovascular
disease each day. It is now widely recognized that inappropriate inflammatory
responses are a significant factor in the development of a number of
cardiovascular disorders, including atherosclerosis - the major underlying cause
of peripheral arterial disease, congestive heart failure, and
ischemia/reperfusion injury. Atherosclerosis is a progressive condition in which
the development of plaque in the artery wall restricts blood flow to the heart,
brain, and extremities. A high level of inflammatory cell activity is also
associated with atherosclerotic plaque instability and rupture, leading to
thrombosis, which may result in heart attack or stroke. Vasogen's immune
modulation therapy has been shown to beneficially impact pathological processes
associated with these cardiovascular diseases.

     Peripheral arterial disease ("PAD"), which is characterized by
atherosclerotic blockage of the major arteries leading to the legs, affects
approximately 20 million people in North America and Europe. Symptoms of PAD,
including severe pain on walking, are associated with a near threefold increase
in the incidence of heart attack and stroke - 30% of PAD patients die from these
causes within five years of diagnosis. An estimated one in four patients with
advanced PAD requires expensive surgical intervention, and in approximately
200,000 cases each year, there is a need to amputate. Health expenditures
resulting from PAD are now estimated to exceed $10 billion annually.

     Approximately 11 million individuals in North America and Europe suffer
from congestive heart failure ("CHF"), and due to the aging population, its
prevalence is increasing. CHF occurs when the pumping function of the heart is
insufficient to meet the body's demands for oxygen and nutrients. The most
common triggers of CHF are hypertension and coronary artery disease due to
atherosclerosis. Symptoms include shortness of breath, fatigue, and swelling of
the legs. CHF is usually progressive, becomes irreversible, and ultimately
results in death. The direct costs of treating CHF in the United States are
currently estimated at $20 billion per year.


                                       18
<PAGE>

     Ischemia/reperfusion ("I/R") injury is implicated in approximately 500,000
major vascular surgical procedures performed annually in the United States. I/R
injury occurs when blood flow to an organ is interrupted, leading to lack of
oxygen (ischemia), and then re-established after a period of time (reperfusion).
The restoration of blood flow induces a complex series of events, resulting in a
harmful inflammatory response. I/R injury results in post-operative organ
failure, prolonged patient recovery times, and consequently higher healthcare
costs. Each year, complications associated with I/R injury cost healthcare
systems an estimated $1 billion.

b)   Current Development Status

     Vasogen has reported successful results from a double-blind,
placebo-controlled clinical trial of immune modulation therapy in 81 patients
with PAD. The trial was designed to investigate the impact of this therapy on
patients' walking distance before onset of pain - a widely recognized measure of
therapeutic efficacy in PAD. The trial was conducted in the United Kingdom at
the University of Dundee, under the direction of Dr. Jill J. F. Belch, Professor
of Vascular Medicine, and at the University of Bristol, under the direction of
Dr. Roger Baird, Senior Vascular Surgeon, Directorate of Surgery.

     The primary endpoint of the trial was successfully achieved, with
significantly more of the patients (67%) who received immune modulation therapy
exhibiting a greater than 50% increase in their pain-free walking distance
compared to those who received placebo (42%). Patients who received active
therapy also showed a significantly greater increase in their median pain-free
walking distance - 102% versus 42% in the placebo group. Vasogen's immune
modulation therapy was well tolerated, with no reports of significant adverse
side effects, and provided a long-term therapeutic benefit. Based on these
results, plans are underway for the launch of a multi-center trial to support
regulatory approval in the United States.

     Clinical development in the U.S. is also focused on applying Vasogen's
immune modulation therapy to the treatment of CHF and the prevention of I/R
injury during major vascular surgery. The CHF clinical trial is ongoing at The
Cleveland Clinic Foundation, under the direction of Dr. James Young, Medical
Director of the Kaufman Center for Heart Failure, and at Baylor College of
Medicine and the Texas Heart Institute, Houston, Texas, under the direction of
Dr. Guillermo Torre, Medical Director of the Heart Transplant Service.

     Also in progress at Baylor College of Medicine is a clinical trial designed
to investigate the effectiveness of immune modulation therapy in preventing I/R
injury during major vascular surgery. Successful completion of these U.S.
trials, planned for the second half of

                                       19
<PAGE>

2001, would position the Company to enter multi-center clinical trials of immune
modulation therapy to support regulatory approval in two additional areas of
cardiovascular disease.

c)   Supporting Studies

     During 2000, Vasogen completed preclinical research providing evidence that
the Company's immune modulation therapy improves the function of the vascular
endothelium, the cellular lining of blood vessels. In patients with
atherosclerosis, poor endothelial function can contribute to inflammation,
promote progression of atherosclerosis, and allow the formation of thrombi that
can block blood vessels. Reduced endothelial function contributes to the
progression of atherosclerosis, leading to heart attack, stroke, and many other
cardiovascular complications. The controlled preclinical research, conducted in
a widely-used model of atherosclerosis, was carried out at McMaster University,
Hamilton, and St. Michael's Hospital, University of Toronto, under the direction
of Dr. David Courtman, Director of Research, Division of Cardiovascular and
Thoracic Surgery at St. Michael's Hospital. Endothelial function was assessed in
treated versus untreated control animals by measuring relaxation of arteries in
response to acetylcholine, a potent dilator of blood vessels in animals with
normal endothelial function. Endothelial-dependent relaxation was confirmed by
comparing the function of intact arteries with those in which the endothelium
had been removed. A near threefold greater maximal endothelial-dependent
relaxation was observed in the treated compared to the untreated control group.

     In 1999, Vasogen completed a double blind placebo-controlled clinical study
at the University of Lund, Sweden under the direction of Dr. Lars Edvinsson,
Department of Internal Medicine, on 18 patients with advanced PAD. In this
study, the rate of recovery of skin blood flow was measured following temporary
occlusion with a blood pressure cuff, this recovery rate being related to nitric
oxide activity. The results showed a significant decrease in blood flow recovery
times in the treated patients, evidence of an improvement in endothelial
function. There were no reports of significant adverse side effects associated
with Vasogen's immune modulation therapy. These results on endothelial function
were presented in November 2000 at the 73rd Scientific Sessions of the American
Heart Association.

     During 1998 and 1999, Vasogen completed preclinical studies in a standard
animal model of atherosclerosis directed by Dr. Duncan Stewart, Head of the
Division of Cardiology, St. Michael's Hospital at the University of Toronto.
These results, which showed a substantial and significant reduction in plaque
area in treated animals, were presented in March 2000 at the 49th Annual
Scientific Session of the American College of Cardiology. Based on these
results, the Company filed certain patent applications with the United States
Patent Office in respect of preventing and reversing atherosclerosis.

                                      20
<PAGE>

     Using preclinical models, Vasogen has shown that pre-treatment with the
Company's immune modulation therapy causes a significant reduction in I/R injury
to the kidney by reducing the level of I/R induced cell death in this organ.
Data confirming this ability to provide protection against the damaging effects
of I/R injury were presented at the VIIth Annual Scientific Meeting of La
Societe Quebecoise d'Hypertension Arterielle, held in Quebec City in January
1999. The results presented were based on studies carried out by Dr. Huifang
Chen of the Research center of the University of Montreal ("CHUM") in a standard
large animal model of I/R-induced kidney failure. Dr. Chen's findings confirmed
earlier studies performed by Dr. Johanne Tremblay of CHUM, described below,
which were presented at the Third International Congress of Pathophysiology in
Lahti, Finland in June of 1998.

     In these studies, animals were given a course of either Vasogen's immune
modulation therapy or placebo, followed by induction of I/R injury in the
kidney. Renal I/R injury frequently occurs during major vascular surgery.
Recovery of kidney function following I/R injury was monitored daily by
measurement of serum creatinine levels, which is a marker of kidney damage. The
results showed that the degree of renal damage following I/R injury, as
reflected by elevation of serum creatinine levels, was significantly less in the
treated group. The average daily creatinine levels over the six-day observation
period were 45% lower in the treated group, compared to the placebo group. Using
another preclinical model, which simulates multi-organ I/R injury, Vasogen's
immune modulation therapy was shown to reduce subsequent damage to both the
liver and to skeletal muscle. These results demonstrate that this organ
protection can be extended to other organs in addition to the kidney.

     This research has also focused on the effect of Vasogen's immune modulation
therapy on the mechanism of protection against cell death, the ultimate result
of I/R injury. It is now known that impaired function of the mitochondria, the
structures on which cells depend for energy and survival, is a sign of impending
apoptosis, a common form of cell death. Mitochondrial membrane potential ("MMP")
was measured in kidney tubule cells subjected to I/R injury. Reduction in MMP is
one of the earliest indications of impaired mitochondrial function and impending
cell death. Following I/R injury, MMP was fully maintained and significantly
higher in the kidneys of the group treated with Vasogen's immune modulation
therapy, compared to the placebo group, a difference of 48%. Additional studies
have also measured the degree of cell death by apoptosis in the proximal renal
tubule cells, by DNA laddering. The degree of DNA laddering correlates with the
amount of apoptosis in a tissue. The results showed that there was a
significantly lower level of DNA laddering in the kidney 12 hours following the
I/R event in treated animals compared to controls, and a reduction of TUNEL
staining of the cell nuclei confirmed the reduction in apoptosis of the cells.
These studies indicate a lower level of apoptosis in animals receiving Vasogen's
immune modulation

                                       21
<PAGE>

therapy and demonstrate that the Company's therapy improves the retention of
mitochondrial integrity subsequent to ischemic damage, thus enhancing cell
survival after I/R injury.


2.2  Autoimmune Disease

a)   Overview

     Approximately 50 million Americans, or one in five people, suffer from one
or more of 80 autoimmune diseases, including psoriasis, multiple sclerosis, and
rheumatoid arthritis. Autoimmune diseases result when the immune system attacks
the very tissues it was designed to protect. Tissue damage and infection
normally trigger a self-limiting immune response that is accompanied by the
activation of immune cells and the production of inflammatory cytokines for the
purpose of infection clearance and tissue repair. In autoimmune diseases,
however, the immune response is ongoing and results in chronic inflammation,
leading to progressive tissue damage. The impact of these diseases on everyday
life can range from mild inconvenience to severe disability and even death.
Vasogen's immune modulation therapy is being developed to down-regulate chronic
inflammation and to reduce the harmful effects associated with autoimmune
diseases.

     Psoriasis, an autoimmune disease that affects the skin, is characterized by
immune-related inflammation and excessive cell growth. It is a lifelong
condition with chronic recurrent exacerbations and remissions that are
emotionally and physically distressing. Psoriasis is a common disease, occurring
in up to 2% of the population. In North America, approximately 400,000
individuals suffer from moderate to severe psoriasis, with the annual cost of
outpatient care estimated to exceed $3 billion.

     In multiple sclerosis, the myelin sheath (the outer layer of nerve fibers)
becomes inflamed and is ultimately damaged. As a result, the transmission of
messages along the nerves and throughout the body may be slowed or blocked,
leading to diminished function. Patients experience weakness, numbness, impaired
vision, poor coordination, speech problems, muscle rigidity, paraplegia, and
loss of voluntary bowel control. Approximately one million people worldwide
suffer from multiple sclerosis.


                                       22
<PAGE>

     Rheumatoid arthritis is a condition in which the immune system attacks
cartilage and bone, and may also damage internal organs. Daily joint pain is an
inevitable consequence of the disease, and most patients also experience some
degree of depression, anxiety, and feelings of helplessness. In some cases,
rheumatoid arthritis can interfere with a person's ability to carry out normal
daily activities, limit job opportunities, and disrupt the joys and
responsibilities of family life. It is estimated that more than two million
Americans suffer from this potentially disabling disease.

b)   Current Development Status

     Research results, published in the Journal of Cutaneous Medicine and
Surgery (Vol. 4, Number 3, 2000, pages 132-137), have demonstrated that
Vasogen's immune modulation therapy significantly inhibits inflammation.
Furthermore, an alteration in the balance between pro-inflammatory and
anti-inflammatory cytokines has been demonstrated in preclinical models of
inflammatory disease: the pro-inflammatory cytokines tumor necrosis
factor-alpha, interferon-gamma, and interleukin-6 were significantly
down-regulated, while anti-inflammatory cytokines, including interleukin-10,
were significantly up-regulated following immune modulation therapy.

     These results have led to the identification of a number of autoimmune
disorders, including psoriasis, multiple sclerosis, and rheumatoid arthritis, as
potential application targets for immune modulation therapy. In addition to the
psoriasis application, which is currently in clinical trials, ongoing research
programs are focused on developing these additional autoimmune disease
indications.

     During 2000, Vasogen carried out its first double-blind, placebo-controlled
clinical trial of immune modulation therapy for the treatment of an autoimmune
disease, in patients with moderate to severe psoriasis. This 20-patient
feasibility clinical trial was conducted at the Sunnybrook and Women's College
Health Sciences center, Toronto, under the direction of Dr. Daniel Sauder,
Professor and Chief of Dermatology at the University of Toronto.

     Of the patients who received Vasogen's immune modulation therapy, 70%
reported symptomatic improvement (as measured by patient global assessment) by
the end of their first course of therapy. Using the psoriasis area severity
index (PASI) score, 50% of patients who received treatment experienced a
clinically significant benefit (that is, a greater than 40% improvement in PASI
score). These results show the promise of immune modulation therapy for the
treatment of psoriasis. Both in terms of the therapy's beneficial effects and
its favorable side-effect profile, immune modulation therapy compares very
favorably to existing therapies for moderate to severe psoriasis, which exhibit
significant toxicity.


                                       23
<PAGE>

     Vasogen is now carrying out a multi-center clinical trial in patients with
moderate to severe psoriasis. This follow-on trial is designed to study
optimized treatment schedules and provide further information supporting the
efficacy of immune modulation therapy. Successful completion of this trial,
scheduled for late 2001, would position the Company to enter pivotal trials to
support regulatory approval of its first autoimmune disease indication.

c)  Supporting Studies

     During 2000, University of Toronto researchers identified interleukin-10
(IL-10), a cytokine produced by regulatory T cells, as a key factor in the
anti-inflammatory mechanism of the Company's immune modulation therapy. IL-10
has been shown to play a significant role in inflammatory medical conditions,
including I/R injury and autoimmune diseases such as psoriasis. These results,
based on research carried out under the direction of Dr. Daniel Sauder,
Professor and Chief of Dermatology at the University of Toronto, were presented
at the 61st Annual Meeting of the International Society of Dermatology, held on
May 10-14, 2000, in Chicago. The results, obtained in a preclinical model of
inflammatory skin disease, showed that the administration of a course of
Vasogen's immune modulation therapy significantly reduced inflammation in the
treated animals by 46%, compared to control animals. In animals specifically
bred to produce none of the anti-inflammatory cytokine IL-10, however, treatment
with immune modulation therapy had no effect, demonstrating that IL-10 is an
important mediator in the anti-inflammatory mechanism of Vasogen's immune
modulation therapy.

     During 1999, preclinical studies carried out at the Sunnybrook Health
Sciences center, University of Toronto, under the direction of Dr. Daniel
Sauder, demonstrated that the Company's immune modulation therapy significantly
inhibited the inflammatory response in a preclinical model of inflammation
(contact hypersensitivity). Contact hypersensitivity results from an immune
response associated with a particular population of T cells, the Th1 cells.
Inappropriate chronic activity of Th1 cells is associated with many autoimmune
diseases including rheumatoid arthritis, psoriasis, and multiple sclerosis. In
the contact hypersensitivity system, mice are first sensitized by application of
a chemical sensitizing agent to the skin and then challenged five days later by
application of the same agent to the ear. The resulting inflammation can be
precisely quantified by measuring the degree of ear swelling. Animals receiving
Vasogen's immune modulation therapy showed a reduction of 45% in swelling
compared to control animals given a placebo treatment. This significant
reduction of swelling is comparable to the effect of several powerful but toxic
immunosuppressive agents, such as cyclosporine, which are currently used to
treat a number of autoimmune diseases.

                                       24
<PAGE>

2.3  Leukemia

a)   Overview

     Leukemia is a cancer of the bone marrow and blood. In all types of
leukemia, abnormal white cells proliferate in the bone marrow, crowding out
healthy blood cells so that organs, such as the liver, spleen, or lymph nodes,
do not function properly. Dysfunction of the immune system is implicated both in
leukemia and its treatment. In chronic lymphocytic leukemia ("CLL"),
B-lymphocytes multiply in an uncontrolled fashion. Vasogen's immune modulation
therapy may increase anti-CLL T cells, potentially leading to disease control.
In graft-versus-host disease ("GvHD"), activation of T cells in donor bone
marrow grafts causes a potentially life-threatening inflammatory reaction.
Processing of donor T cells with Vasogen's technology has been shown
preclinically to prevent such a response.

     CLL is the most common form of adult leukemia in the Western world,
affecting approximately 120,000 individuals in North America and Europe. CLL is
characterized by the proliferation of malignant B-lymphocytes in the blood, bone
marrow, and lymph tissue, resulting in bone marrow dysfunction and enlargement
of the lymph nodes, spleen, and liver. Patients with CLL experience numerous
symptoms, including fatigue, weight loss, anemia, bleeding disorders, and
increased infections. High-risk CLL patients have a median survival time of less
than three years. At present CLL is incurable, with conventional chemotherapy
being used mainly for palliation of symptoms. These agents have serious adverse
side effects, including suppression of bone marrow function, nausea, vomiting,
hair loss, and increased risk of infection. An estimated $300 million is spent
annually on current therapies for CLL.

     GvHD is a potentially fatal complication of bone marrow transplantation
("BMT"), a procedure that is performed to treat leukemias and lymphomas that no
longer respond to conventional therapy. Prior to a BMT procedure, powerful
chemotherapeutic drugs are used alone or in combination with radiotherapy to
eliminate the patient's bone marrow, which is the site of production of the
malignant cells. The patient's bone marrow is then replaced by normal bone
marrow from a donor. Thousands of donor BMT procedures are performed annually.
However, the number of BMTs are limited by the scarcity of finding appropriate
matches of donors to recipients. A mismatched BMT will result in overwhelming
GvHD, which can ultimately lead to death of the recipient. GvHD develops as part
of an immune response that occurs when T cells given with the donor bone marrow
(graft) identify cells in the recipient's body (host) as foreign and reject
them. Potentially fatal, GvHD is a chronic debilitating disease that can result
in widespread organ and tissue damage. Nearly half of all patients who undergo
donor BMT develop GvHD. Costs associated with treating the complications of this
condition are estimated to be $400 million annually.


                                       25
<PAGE>

b)   Current Development Status

     Published research shows that the malignant B-lymphocytes involved in
chronic lymphocytic leukemia (CLL) appear to have escaped normal immune
regulation. Based on encouraging clinical improvements observed in CLL patients
who received immune modulation therapy as an alternative to chemotherapy,
Vasogen announced plans to initiate a clinical trial in this indication. The
trial, designed to investigate the efficacy of Vasogen's immune modulation
therapy in patients with CLL, will be conducted at the Toronto Sunnybrook
Regional Cancer center, Sunnybrook and Women's College Health Sciences center,
under the direction of Dr. David Spaner, Clinical Oncologist, University of
Toronto.

     Vasogen is also applying its platform technology to the prevention of GvHD.
Results published in the December 2000 issue of the journal Transplantation
(Vol. 70, pages 1683-1693) demonstrated that using Vasogen's cell-processing
technology to treat donor T cells prior to their transplantation attenuated or
prevented GvHD in preclinical research models. Transplantation of processed
cells also resulted in a significantly improved outcome compared to the use of
cyclosporine, a standard clinical approach currently used in the prevention and
treatment of GvHD.

     Research has also shown that treatment of human T cells by Vasogen's
cell-processing technology results in the production of lower levels of
inflammatory cytokines by these cells, and these changes closely mirror those
seen in preclinical models. These results suggest that the use of Vasogen's
technology may offer a therapeutic option when no appropriately matched bone
marrow donors are available - a situation in which the risk of the patient's
developing life-threatening GvHD would otherwise be high. These results have
provided the rationale for the ongoing clinical study in leukemia patients under
the direction of Dr. Hans Messner, Director, Bone Marrow Transplant Program,
Princess Margaret Hospital, Toronto.

     Successful outcomes from these trials, scheduled to report during 2001, may
position Vasogen to seek fast-track regulatory approval for these indications.
However, there can be no assurance the trials will be successful.

c)   Supporting Studies

     During 1999, Vasogen completed preclinical studies in GvHD using
preclinical model systems, which introduce incompatible bone marrow stem cells
into unrelated hosts. The research was conducted by Dr. David Spaner at the
Division of Cancer Biology Research, Sunnybrook Health Science center,
University of Toronto.


                                       26
<PAGE>

     A 20-week study was designed to investigate the ability of Vasogen's
cell-processing technology to prevent GvHD in a preclinical model in which stem
cells (the cells required to reconstitute the recipient's bone marrow) were
transplanted from a genetically unrelated donor. The effectiveness of Vasogen's
technology was compared with that of standard immunosuppression therapy and
untreated controls. In the untreated group, transplantation of the stem cells
resulted in severe GvHD, causing death within two weeks. The group that received
cyclosporine, an immunosuppressant drug widely used to treat GvHD, developed
fatal GvHD within three weeks following transplantation. In the group that
received Vasogen-processed stem cells prior to transplantation, however, no
animals developed GvHD for the duration of the experiment. This protection was
associated with a normalization of the imbalance between CD8 and CD4 T cells
seen in GvHD.

     This and other studies demonstrate the ability of Vasogen's platform
technology to markedly decrease the incidence and severity of GvHD in these
model systems. Based on the results of this work, certain patent applications
pertaining to methods of alleviating GvHD have been filed in various
jurisdictions.

     See "Item 5. C. Research and Development, Patent and Licenses, Etc." for a
discussion on government regulations and patent overview.



                                       27
<PAGE>


GLOSSARY

     Following is a glossary of terms used throughout this Annual Report.

Apoptotic                  Cell Death: A form of cell death in which a cell
                           causes its own death (suicide) usually because it
                           has been exposed to stress or when it dies of "old
                           age".

Atherosclerosis:           Deposits  of fat  (cholesterol)  in the  walls  of
                           arteries--causes  obstruction  and/or  thrombosis.

Autoimmune:                An inappropriate reaction of the body's immune cells
                           against its own cells and tissues.

Cyclosporine:              A powerful immunosuppressant drug.

Cytokines:                 Intercellular  signalling  molecules  produced by
                           cells,  which are involved in many body functions,
                           particularly in immune responses.

Dendritic Cells:           A unique subset of antigen presenting cells (cells
                           that initiate immune responses).

Endothelium:               The cellular lining of blood vessels which plays a
                           key role in regulating blood flow by secreting
                           vasoconstrictor and vasodilator substances and
                           regulates white blood cells leaving the blood by
                           becoming `sticky' at sites of inflammation.

Immunosuppressive:         A drug or process that non-specifically
                           down-regulates immune responses.

Interferon-gamma:          A pro-inflammatory cytokine that is produced mainly
                           by Th1 immune cells.

Interleukin-6:             A  cytokine  produced  by both T and B cells,  as
                           well as  numerous  other cell types, which can be
                           pro-inflammatory under certain conditions.

Interleukin-10:            A key anti-inflammatory cytokine produced by Th2
                           immune cells and B cells.


                                       28
<PAGE>


Ischemia/Reperfusion       The tissue damage that occurs when blood flow is
Injury:                    interrupted (ischemia), and then restored
                           (reperfusion), for example, during heart attack, and
                           major surgery.

Macrophage Cells:          Specialized  cells of the immune  system that are
                           responsible  for removing  dead cells and cellular
                           debris, and that participate in generating immune
                           responses.

Nitric Oxide:              A gas which causes smooth muscle fibers to relax,
                           i.e. in blood vessels;  also acts as a signalling
                           molecule with additional functions.

Renal Damage:              Kidney damage.

Rheumatoid Arthritis:      An autoimmune disease which causes joint
                           inflammation and destruction.

Serum Creatinine Levels:   A measure of kidney function.

T cell:                    A type of immune  cell that is  involved  in both
                           regulating  and  carrying  out immune responses.

Th1:                       A pro-inflammatory type of T cell.

Th2:                       A less inflammatory type of T cell which can
                           control Th1 cells.

Thrombi:                   Blood clots.

Thrombosis:                Formation of a blood clot.

Tumor Necrosis             A powerful pro-inflammatory cytokine produced by
Factor-Alpha:              macrophages and many other cell types, including
                           T cells.

Vasoconstrictor:           A compound that causes blood vessels to narrow.


                            * * * * * * * * * * * * *


                                       29
<PAGE>


C.   Organizational Structure.
     -------------------------

     The Company has one wholly-owned subsidiary, Vasogen Ireland Limited, a
company incorporated under the laws of Ireland, which is the holder of the
Company's technology.

D.   Property, Plants, and Equipment.
     --------------------------------

     The Company's principal facility, which is leased, is located at 2155
Dunwin Drive, Unit 10, Mississauga, Ontario, Canada L5L 4M1. The lease covers
8,333 square feet. The lease commenced on May 1, 1998 and expires on April 30,
2005. The Company's secondary facility, which is leased, is located at 2155
Dunwin Drive, Unit 1, Mississauga, Ontario, Canada L5L 4M1. The lease covers
5,202 square feet. The lease commenced on December 16, 2000 and expires on
December 15, 2001 and is extendable at the option of the Company. Management
believes that the existing facility is adequate for the Company's current needs.
Management continually monitors the Company's facility requirements in light of
the results of its research and development activities.

Item 5. Operating and Financial Review and Prospects.
        ---------------------------------------------

     The following discussion and analysis should be read in conjunction with
the audited consolidated financial statements of the Company and notes thereto.
See "Item 18. Financial Statements" The consolidated financial statements have
been prepared in accordance with generally accepted accounting principles (GAAP)
in Canada, which, except as described in Note 9, conform in all material
respects with generally accepted accounting principles in the United States. All
amounts are expressed in Canadian dollars unless otherwise noted. Annual
references are to the Company's fiscal years, which end on November 30.

     Vasogen Inc. is engaged in the development and commercialization of a
therapeutic platform technology designed to treat disease by harnessing the
power of the human immune system. Vasogen's lead program, now entering
late-stage clinical development, focuses on applying the Company's proprietary
immune modulation therapy to the treatment of peripheral arterial disease.
Vasogen's immune modulation therapy is also in clinical development for a number
of other indications, including psoriasis, congestive heart failure,
ischemia/reperfusion injury, chronic lymphocytic leukemia, and graft-versus-host
disease. Through collaborations with leading international researchers, Vasogen
is also advancing the development of therapeutic interventions for the treatment
of additional autoimmune diseases and neurological disorders.


                                       30
<PAGE>


     Published research suggests that the normal removal of stressed cells from
the body by the immune system is inherently an anti-inflammatory process.
Vasogen's immune modulation therapy is designed to exploit this
anti-inflammatory response to stressed cells. Delivered during a 20-minute
outpatient procedure, Vasogen's immune modulation therapy involves the
withdrawal of a sample of a patient's blood cells and the stressing of the cells
using a proprietary medical device technology, followed by administration of the
stressed cells to the patient. Vasogen intends to commercialize its immune
modulation therapy through alliances with established healthcare companies.

A.   Operating Results
     -----------------

     Vasogen has incurred annual operating losses since inception related to the
research and development of its immune modulation therapy. To date, the Company
has not received any revenue from the sales of its products, which are currently
in clinical development. These losses may continue as the Company continues to
invest in its clinical development programs and develop new applications for its
immune modulation therapy platform. To fund its operations, the Company relies
principally upon the proceeds of public and private offerings of equity
securities and the resulting interest revenue generated. In the future, the
Company may also establish alliances with other healthcare companies to assist
in delivering and marketing immune modulation therapy, as well as to provide
research and development funding.

     Marketing the Company's products will require the completion of further
clinical trials and/or regulatory approvals, the timing and outcome of which
will impact future operations.

     Research and development expenditures totaled $6.1 million in 2000,
compared to $4.7 million in 1999 and 1998. The increase in spending from last
year primarily reflects expanded clinical development activity and the execution
of basic science programs aimed at identifying new clinical targets and
discovering additional mechanisms by which immune modulation therapy modifies
disease processes.

     During the year, the Company completed clinical trials in peripheral
arterial disease and psoriasis on schedule and advanced its clinical programs in
the areas of ischemia/reperfusion injury, congestive heart failure, and
graft-versus-host disease. There were no unexpected cost increases associated
with these programs. Subsequent to year-end, Vasogen initiated a clinical
program in chronic lymphocytic leukemia.

     The Company's preclinical program continued to evaluate new disease targets
for clinical development, and significant progress was made with respect to
identifying additional fundamental mechanisms of its immune modulation therapy.
The Company's scientific developments resulted in the filing of numerous patent
applications during the year.


                                       31
<PAGE>

     General and administration expenditures totaled $5.2 million in 2000,
compared to $3.6 million in 1999, and $3.0 million in 1998. In general, this
increase relates to the internal growth necessary to support advancing the
commercial development of the Company's immune modulation therapy. Specifically,
this increase is due to higher expenses related to business and corporate
development activities, and general and administration expenditures resulting
from increased infrastructure requirements to support both research and
corporate activities.

     Investment income totaled $1.3 million in 2000, compared with $0.3 million
in 1999 and 1998. Investment income was higher in 2000 due primarily to a larger
cash and marketable securities balance, which in turn resulted from net cash
proceeds of $42.8 million raised from the issue of common shares and the
exercise of options and warrants during the period.

     The loss for the year totaled $10.0 million in 2000, compared to $7.9
million in 1999, and $7.3 million in 1998. The increase in 2000 resulted mainly
from higher costs associated with the increase in research and development
activities and the corporate costs associated with supporting these activities.
The loss per common share was $0.24 in 2000, compared to $0.25 in 1999, and
$0.29 in 1998. The reduction in the loss per share occurred due to a higher
average number of common shares outstanding in 2000, compared to 1999 and 1998.

B.   Liquidity and Capital Resources
     -------------------------------

     Since inception, Vasogen has financed its operations primarily from public
and private sales of equity, the exercise of warrants and stock options, and
interest on funds held for future investments.

     Vasogen completed financings in March and July 2000, for total gross
proceeds of $35.6 million. During fiscal 2000, Vasogen also received proceeds of
$9.0 million from the exercise of options and warrants. The total number of
common shares outstanding at year-end increased to 44.7 million from 35.6
million in 1999.

     At November 30, 2000, the Company had cash, cash equivalents, and
marketable securities held to maturity totaling $41.6 million, compared to $8.6
million in 1999. The Company invests in highly rated and liquid government and
corporate debt instruments. Investment decisions are made by Management in
accordance with an established investment policy overseen by the Board of
Directors. Although its current cash position is adequate, the Company may seek
to access the public or private equity markets from time to time, even if it
does not have an immediate need for additional capital at that time.

                                       32
<PAGE>

     The Company's products are in development and have not yet been marketed
commercially. The business of the Company entails significant risks, including
the costs and time involved in obtaining the required regulatory approvals, the
adequacy of the Company's patent protection, the uncertainties involved in
clinical testing, the availability of capital to continue development and
commercialization of its products, and competition from pharmaceutical and other
biotechnology companies. There can be no assurance that the Company's clinical
studies will provide a positive outcome or that the results will meet the
desired clinical endpoints established in the clinical study protocols. Even if
the clinical studies are successful, there can be no assurance that the Company
will be successful in obtaining product approvals from regulatory authorities.
There can also be no assurance that the Company will be successful in marketing
and distributing its products.

     The Company maintains product liability insurance consistent with current
industry practice. It is possible that this coverage might not provide full
protection against all risks.

     The Company may continue to generate financing as required through
strategic partnering arrangements, the exercise of options and warrants, and the
issuance of new share capital, as well as other financing opportunities.
However, there can be no assurance that any of these methods will be successful
or that the Company will continue to be able to meet its ongoing cash
requirements. Any proceeds from the issuance of new share capital or the
exercise of options and warrants will depend on prevailing market conditions.

     Vasogen expects to continue to incur operating losses as a result of the
expanded clinical activity associated with moving indications into larger
pivotal trials to support U.S. and Canadian regulatory approval, as well as the
expansion of preclinical and clinical programs directed at increasing its
product pipeline. Based on current plans, it is anticipated that total expenses
will increase 20%-25% during fiscal 2001. The Company may need to raise
additional capital to fund operations over the long term.

     To commercialize its immune modulation therapy platform for a number of
potential disease indications, the Company intends to enter into strategic
alliances with established healthcare companies that have the marketing and
distribution infrastructure necessary to support successful market introduction.

C.   Research and Development, Patents and Licenses, Etc.
     ----------------------------------------------------

     To date the Company's activities have focused on the development of the
various products described in "Item 4. B. Business Overview". Since none of its
products are available for commercial sale, the Company is still considered a
research and development company. Reference is made to "Item 4. Business
Overview" for a detailed description of the Company's research and development
activities.

                                       33
<PAGE>

     Because of the substantial length of time and expense associated with
developing new products, the pharmaceutical, medical device, and biotechnology
industries place considerable importance on obtaining patent protection for new
technologies, products and processes. The Company's policy is to file patent
applications to protect inventions, technology, and improvements that are
important to the development of its business and with respect to the application
of immune modulation therapy to the treatment of a number of disease
indications. The Company seeks patent protection in various commercial
jurisdictions of the world. Vasogen has eight United States patents in addition
to over twenty-five patent applications pending throughout the world. The
Company will continue to seek intellectual property protection as appropriate.

     The Company has been granted eight patents in the United States covering
various aspects of its immune modulation therapy, such as the delivery
technology and the treatment of various diseases with immune modulation therapy.
The expiration dates of the various patents range from 2007 to 2018.

     The Company requires its employees, consultants, members of the Scientific
Advisory Board ("SAB"), outside scientific collaborators, and sponsored
researchers to enter into confidentiality agreements with the Company that
contain assignment of invention clauses. These agreements provide that all
confidential information developed or made known to the individual during the
course of the individual's relationship with the Company is the property of the
Company and is to be kept confidential and not disclosed except in specific
circumstances.

Government Regulation

The Company's immune modulation therapies are produced by a medical device
utilizing a sample of the patient's own blood. Sales of medical products and
therapies are subject to stringent regulatory requirements in most countries.
The regulatory review process required for commercial sales varies from country
to country. In certain countries, the Company may also be subject to regulations
governing clinical studies of its products. The Company pursues pre-market
approvals and complies with clinical study requirements in those jurisdictions;
namely, Europe, the United States, and Canada, where activities are being
planned or are conducted by or on behalf of the Company. The Company cannot
predict or give any assurances as to whether further regulatory approvals will
be received or how long the process of seeking approval will take.


                                       34
<PAGE>

Europe

Medical products that are placed on the market in the European Union ("EU") are
currently subject to one of two mutually-exclusive regulatory regimes: either
the Medical Devices Directive (MDD), Council Directive 93/42/EEC, for medical
devices; or the Medicinal Products Directive (MPD), Council Directive 65/65/EEC
for pharmaceutical products. The Company's technology for the production and
delivery of immune modulation therapy has been classified as medical devices in
the EU.

Generally, in order to sell its medical device products within the European
Union, Norway and Switzerland, the Company is required to achieve compliance
with the requirements of the MDD and affix CE Marking on its medical device
products to attest to such compliance. To achieve compliance, the Company's
medical device products must meet the "essential requirements" of the MDD
relating to safety and performance and the Company must successfully undergo
verification of its regulatory compliance ("conformity assessment") by a
qualified third party (a "Notified Body") selected by the Company. The Company
was granted CE Marking certification for its technology for the production and
delivery of VasoCare(TM) immune modulation therapy and its quality system was
registered to ISO9001:1994 and BS EN46001:1997 on February 3, 1998.

As the MDD is applied through enactment of national legislation of European
Union member states, the Company must comply with a variety of different
legislative requirements in each country in which it plans to sell its products,
such as use of certain languages for labelling, notification, and assessment
procedures for clinical trials, and notification to authorities prior to entry
of the product into the market. At this time, the review conducted by the
Notified Body and the subsequent CE Marking of the Company's technology for the
production and delivery of VasoCare(TM) immune modulation therapy are both
necessary and sufficient to place the devices on the market in all states of the
European Union, Norway, and Switzerland. Except in cases of ethical or public
health concerns, or in the case of procedures shown to have significant adverse
effects once on the market, the relevant authorities in each country do not
usually involve themselves directly in the market approval/disapproval of
medical procedures based on medical devices; however, there can be no assurance
that this situation may not change in the future.

The Company is subject to continued audit by its Notified Body and will be
required to report any device-related serious adverse incidents or near
incidents to the appropriate authorities.


                                       35
<PAGE>

United States

In the United States, the Company's technology for the production and delivery
of immune modulation therapy is subjected to regulation by the health
authorities as medical devices. The regulatory classification for the Company's
technology being developed for the prevention of GvHD has not yet been
finalized. The manufacture and sale of medical devices in the United States are
controlled by the Food and Drug Administration (FDA). The Company is subject to
the regulation of the FDA, as well as state and local authorities. It is
expected that the Company's medical devices will be subject to the FDA's
Pre-Market Approval (PMA) process prior to marketing in the United States. The
PMA approval process is a multi-step process that requires the Company to submit
to the FDA scientifically valid preclinical and clinical data which it has
developed to demonstrate the safety and effectiveness of the device for the
stated medical indications or uses.

The clinical studies to generate the clinical data for the PMA are subject to
regulation under the investigational device exemption ("IDE") regulations.
Before clinical studies of the Company's device can begin, an IDE application
must be submitted to the FDA and be approved. Also, before the studies can
begin, the institutional review boards at the respective clinical centers
participating in the studies must approve the clinical protocol.

During the PMA review process, the FDA will conduct an inspection of the
manufacturer's facilities to ensure that the device design and manufacture are
in compliance with applicable quality system regulation ("QSR") requirements.
The QSR requirements mandate that the Company manufacture its devices and
maintain its documents in a prescribed manner with respect to design,
manufacturing, testing, and control activities. If the FDA evaluations of both
the PMA application and the manufacturing facilities are favorable, the FDA may
issue an approvable letter, which usually contains a number of conditions which
must be met in order to secure final approval of the PMA. When those conditions
have been fulfilled to the satisfaction of the FDA, the agency will issue a PMA
approval order, authorizing commercial marketing of the device for stated
indications. The FDA also has the authority to impose certain post-approval
requirements in the PMA approval order. FDA approval can be withdrawn for
failure to comply with any post-approval requirements or for other reasons, such
as the discovery of significant adverse effects.

Canada

In Canada, the Company's technology for the production and delivery of immune
modulation therapy is subjected to regulation by the health authorities as
medical devices. The regulatory classification for the Company's technology
being developed for the prevention of GvHD has not yet been finalized. The
Medical Devices Bureau ("MDB") controls the manufacture and


                                       36
<PAGE>

sale of medical devices in Canada. In their basic requirements, the regulations
of Canada are similar to those of the United States and require that clinical
studies be conducted to demonstrate the safety and effectiveness of devices
prior to marketing. As well, there must be documented evidence that the devices
are developed, manufactured and produced under current quality system
regulations and guidelines in order to ensure the quality of the product made
available for sale. Approval of such therapy and technology is a multi-step
process and the Company is prohibited from promoting or commercializing its
products prior to regulatory approval. For any investigation and testing of the
Company's products in Canada on humans, authorization by the MDB is required.

The Company must manufacture the device under approved quality system conditions
and must validate the performance characteristics of the device to ensure that
the device performs safely, consistently, and reliably.

In addition to the regulatory product approval framework, the Company is also
subject to regulation under municipal, provincial, and federal laws, including
requirements regarding occupational safety, laboratory practices, the use,
handling, and disposition of biological waste, environmental protection, and
hazardous substance control, and may be subject to other present and future
local, provincial, state, federal and foreign regulation, including future
regulation of the biotechnology industry. The Company believes it is in
compliance with all such existing regulations.

D.   Trend Information
     -----------------

     The Company does not know of any significant trends, uncertainties,
demands, commitments, or events that would have a material effect on the
Company's financial condition.

Item 6. Directors, Senior Management and Employees.
        -------------------------------------------

A.   Directors and Senior Management
     -------------------------------

     The following table outlines the names and municipalities of residence of
each of the directors and the officers of the Company, their principal
occupations, and their periods of service as directors or officers. Each
director is expected to hold these positions until the next Annual General
Meeting of Shareholders, scheduled for May 2002.


                                       37
<PAGE>

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
Name of Directors                 Position with Company          Principal Occupation                 Director/
 and Officers                                                                                         Officer Since
-----------------------------------------------------------------------------------------------------------------------
<S>                               <C>                            <C>                                  <C>
William A. Cochrane *,            Vice-Chairman of the Board     Healthcare Consultant                February, 1995
OC, MD, FRCP(C)                   and a Director
Calgary, Alberta
-----------------------------------------------------------------------------------------------------------------------
David G. Elsley, MBA              President, CEO and a Director  President, CEO and a Director of     January, 1991
Oakville, Ontario                                                the Company
-----------------------------------------------------------------------------------------------------------------------
William R. Grant                  Chairman of the Board and a    Chairman of Galen Associates         November, 1998
New York, New York                Director
-----------------------------------------------------------------------------------------------------------------------
Andre Berard *                    Director                       Chairman of the Board and Chief      November, 2000
Verdun, Quebec                                                   Executive Officer of National Bank
                                                                 of Canada
-----------------------------------------------------------------------------------------------------------------------
Terrance H. Gregg,+               Director                       President and Chief Operating        September, 1999
Los Angeles, California                                          Officer, Office of the Chief
                                                                 Executive of MiniMed Inc.
-----------------------------------------------------------------------------------------------------------------------
John C. Villforth+                Director                       President and Executive Director of  March, 2001
Derwood, Maryland                                                The Food and Drug Law Institute
-----------------------------------------------------------------------------------------------------------------------
Graham Strachan +                 Director                       Life Sciences Consultant             September, 1998
Etobicoke, Ontario
-----------------------------------------------------------------------------------------------------------------------
Dr. Eldon R. Smith                Vice-President, Scientific     Vice-President, Scientific Affairs   May, 1998
Calgary, Alberta                  Affairs and a Director         of the Company and Professor at the
                                                                 University of Calgary Medical School
-----------------------------------------------------------------------------------------------------------------------
Benoit La Salle *                 Director                       President and CEO of SEMAFO Inc.     January, 1997
Montreal, Quebec
-----------------------------------------------------------------------------------------------------------------------
Bernard Lim                       Vice-President, Technology     Vice-President, Technology of the    March, 2001
Mississauga, Ontario                                             Company
-----------------------------------------------------------------------------------------------------------------------
Clive Ward-Able                   Vice-President, Research and   Vice-President, Research and         August, 2000
Burlington, Ontario               Development                    Development of the Company
-----------------------------------------------------------------------------------------------------------------------
Christopher J. Waddick            Vice-President, Finance,       Vice-President, Finance, Chief       March, 1997
Chatham, Ontario                  Chief Financial Officer,       Financial Officer, Corporate
                                  Corporate Secretary and        Secretary and Treasurer of the
                                  Treasurer                      Company
-----------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       38
<PAGE>

Notes:

1.  * denotes a member of the Audit Committee of the Board of Directors.

2.  + denotes a member of the Compensation and Corporate Governance Committee
    of the Board of Directors.

3.  The Company does not have an executive committee of the Board of Directors.

Directors and Officers

William R. Grant, Chairman of the Board, Director

     Mr. Grant joined Vasogen's Board of Directors in 1998 and became Chairman
in March 2001. He is co-founder and Chairman of Galen Associates and possesses a
combination of more than 40 years of experience in the investment banking and
risk-capital fields. During his 25 years with Smith Barney, Mr. Grant was
elected President and then Vice-Chairman. He participated in the financing of
many healthcare companies, including G.D. Searle, A.H. Robins, Marion
Laboratories, American Hospital Supply, and SmithKline Beecham. Mr. Grant then
joined MacKay-Shields Financial Corporation as President and was later elected
Chairman of the Board. He has recently retired as Vice-Chairman of SmithKline
Beecham and currently serves on the boards of Allergan, Inc., Fluor Corporation,
Massey Energy Company, MiniMed Inc., Ocular Sciences, Inc., Quest Diagnostics
Inc., Seagull Energy Corporation, Witco Corporation, and several private Galen
portfolio companies. He is a Trustee of the Mary Flagler Cary Charitable Trust
and a member of the General Electric Equity Advisory Board.

William A. Cochrane, OC, MD, Vice-Chairman of the Board, Director

     Dr. Cochrane acted as Chairman of Vasogen's Board of Directors from 1995
until March 2001. He also serves on the boards of Andre Wines, Fox Energy Corp.,
Medicure Inc., Nucleus Bioscience, Pheromone Sciences Corp., and StressGen
Biotech. For ten years, Dr. Cochrane served as Chairman and Chief Executive
Officer of Connaught Laboratories and was a senior advisor to Vencap Equities
Alberta. He is a past-Chairman of the National Biotechnology Advisory Committee
and was the first Dean of Medicine of the University of Calgary Medical School.
His academic career culminated in his appointment as President and
Vice-Chancellor of the University of Calgary. He has served as Deputy Minister
of Health Services with the Government of Alberta and is currently an
international investment consultant in the area of health products and services.

                                       39
<PAGE>

David Elsley, MBA, President and Chief Executive Officer, Director

     Mr. Elsley has executive responsibility for the Company's strategic
direction and for carrying out its business plan. He has been responsible for
assembling a team of management, directors, and healthcare advisors with the
industry experience needed to take the Company forward to commercial success.
Prior to joining Vasogen, he held marketing and management positions with Seiko
Epson Corporation and the Hudson's Bay Company of Canada. Mr. Elsley holds a
Master of Business Administration from the University of Western Ontario.

Andre Berard, Director

     Mr. Berard has spent over four decades with the National Bank of Canada
where he now serves as Chairman of the Board and Chief Executive Officer.
National Bank is Canada's sixth largest chartered bank and the leading banking
institution in Quebec. Mr. Berard also serves on a number of other boards
including Noranda Inc., Groupe BMTC Inc., Groupe TVA Inc., Groupe Saputo Inc.,
Groupe Videotron and Societe financiere Bourgie Inc. He is a member of the
Advisory Committee to the Prime Minister on the Business/Government Executive
Exchange Program and is a member of the Policy Committee of the Business Council
on National Issues, the Conseil des gouverneurs associes of the Universite de
Montreal, the Jeune Chambre de commerce de Montreal, and the Chambre de commerce
du Quebec. Mr. Berard has received two honorary doctorates from leading Canadian
universities, and he is an Officer of the Order of Canada, an Officer of the
Ordre national du Quebec, and has received the Ordre de Saint-Jean.

Terrance H. Gregg, Director

     Since 1996, Mr. Gregg has served as President and Chief Operating Officer
and Director of MiniMed Inc., a world leader in diabetes management systems, and
has led the Company to a fourfold increase in revenue and a 15-fold increase in
market capitalization. Mr. Gregg has also served in executive positions with
Smith & Nephew plc., a diversified healthcare product company, and Allergan
Inc., a leading ophthalmic device and pharmaceutical company. Mr. Gregg is
currently a director of Ocular Sciences. He currently serves as a Health
Advisory Board Member of the School of Policy, Planning, and Development at the
University of Southern California and as an Advisory Council Member of the San
Fernando Valley Economic Research Center at the California State University
Northridge.

                                       40
<PAGE>

John C. Villforth, Director

     Since 1990, Mr. Villforth has served as President and Executive Director of
the Food and Drug Law Institute, a non-profit organization whose mission is to
increase knowledge about the laws and regulations pertaining to foods, drugs,
cosmetics, medical devices, and biological products. For 29 years, he was a
Commissioned Officer in the U.S. Public Health Service in the Department of
Health and Human Services, the last 19 years of which, he was assigned to the
Food and Drug Administration (FDA). Mr. Villforth retired from the Public Health
Service in 1990 with the rank of Assistant Surgeon General (Rear Admiral). Mr.
Villforth is currently a director of MiniMed Inc., a leading supplier of insulin
delivery devices and has served on the boards of Target Therapeutics, Inc., a
medical device company subsequently acquired by Boston Scientific Corporation,
and BRI International, a contract research organization for the biotechnology,
pharmaceutical, and medical devices industries, subsequently acquired by
Quintiles Transnational Corp.

Benoit La Salle, CA, Director

     Mr. La Salle is a chartered accountant and is a member of the Quebec Order
of Chartered Accountants, the Canadian Institute of Chartered Accountants, the
Order of Chartered Administrators of Quebec, and the Quebec Institute of
Financial Planners. He holds a Commerce degree from McGill University and a
Master of Business Administration from IMEDE, Switzerland. In 1980, he founded
Parisien, Grou, La Salle and Grou La Salle & Associes, Chartered Accountants.
Mr. La Salle is currently President and CEO of SEMAFO, Inc. and the Chairman of
the Board of Vauquelin Mines. He has extensive experience in international
taxation and also serves on the board of many other Canadian companies. He
currently serves on the boards of Bridgepoint International Inc., The Canam
Manac Group, Electromed Imaging Inc., and Pebercan Inc.

Eldon R. Smith, MD, FRCP(C), FACC, Vice-President Scientific Affairs, Director

     Dr. Smith has executive responsibility for Vasogen's research and clinical
development programs. He is a Professor at the University of Calgary Medical
School, Alberta, where he was formerly Dean of the Faculty of Medicine and
former Head of both the Department of Medicine and the Division of Cardiology.
He is a distinguished clinician and research scientist, who has made major
contributions to the Canadian cardiology and medical communities. He has served
as President of the Canadian Cardiovascular Society, Chairman of the Scientific
Grant Review Committee of the Heart and Stroke Foundation, and President of the
Association of Canadian Medical Colleges. Dr. Smith is a graduate of Dalhousie
University Medical School and received his cardiology and research training at
the National

                                       41
<PAGE>

Heart Institute, London, U.K. and the National Institutes of Health, Bethesda,
Maryland. He currently serves on the boards of Canada National Resources
Limited, BioMax Technologies Incorporated, Visual Labs Incorporated, and
Pheromone Sciences Corporation.

Graham Strachan, Director

     Mr. Strachan is a former member of the Board of Directors of Allelix
Biopharmaceuticals and was formerly President and Chief Executive Officer. He
was involved in the formation of Allelix and participated in the growth and
evolution of the original venture into three independent companies. Prior to
joining Allelix, Mr. Strachan was Vice-President for Commercial Development at
John Labatt Limited, where he was involved in patents and licensing, technology
management, and business development. He has also worked in product licensing
with the European Division of Schering, a major pharmaceutical company. He has
served on the National Biotechnology Advisory Committee since 1989 and has been
Chairman since 1992. Mr. Strachan serves as a Director and is past-Chair of the
Industrial Biotechnology Association of Canada. He is also past-President of the
Biotechnology Industry Organization (BIO), an international trade association
for biotechnology companies. He also currently serves on the boards of CRS
Robotics Inc., Cytovax Biotechnology Inc., and Lorus Therapeutics. Mr. Strachan
is a chemistry graduate from the University of Glasgow, a qualified patent
agent, and a Fellow of the Patent and Trade Mark Institute of Canada.

Bernard Lim, MIEE, C.Eng, Vice-President, Technology

         Mr. Lim is responsible for managing and leading all aspects of product
development, manufacturing, and quality assurance. He was previously the founder
and Managing Director of WELMED, a high technology medical devices company
specializing in intravenous drug delivery systems. Most recently, Mr. Lim was
the founder and Managing Consultant of Belle Consulting, a medical devices
consultancy specializing in strategic and operational aspects of R&D and
operations. Prior to WELMED, he headed Manufacturing Operations for Tektronix, a
Class A MRP & JIT site in the U.K., and, prior to that, also served as Head of
New Product Development for Vickers Medical, a medical devices company in
neonatology. Mr. Lim holds a degree in Electrical and Electronics Engineering
from the University of Coventry, U.K. and is a Chartered Engineer. He is a
member of the British Standards Committee responsible for the IEC
standardization of intravenous therapy medical devices.

Clive Ward-Able, MD, BPharm, Vice-President, Research & Development

     Dr. Ward-Able is responsible for directing the Company's research and
development program. He has built a successful international career in the
pharmaceutical industry. Prior to joining Vasogen, he held the position of
Medical and Healthcare Director for Roche Products, U.K., a division of Roche
Pharmaceuticals, where he was responsible for a wide

                                       42
<PAGE>

range of activities, including medical affairs, clinical trials management,
medical support for strategic marketing, and new product introductions. He held
senior management positions at Roche in Basel, Switzerland, including Head of
Medical Support for International Strategic Marketing and International Medical
Manager, Transplantation and has also served as Medical Marketing Director at
Roche Canada. Prior to joining Roche, Dr. Ward-Able served as Product Manager
for Eli Lilly, Johannesburg, South Africa. Dr. Ward-Able holds a Bachelor degree
in Pharmacy from Rhodes University and a Medical degree from the University of
Stellenbosch, both located in South Africa.

Christopher J. Waddick, MBA, CMA, Vice-President, Finance, Chief Financial
Officer, Corporate Secretary and Treasurer

     Mr. Waddick is responsible for managing the Company's financial and
corporate affairs. Mr. Waddick has over fifteen years' experience in various
financial roles. Prior to joining Vasogen, he was responsible for financial
planning at Union Gas, a leading North American energy services provider. He
holds an honors Business degree from Wilfrid Laurier University and is a
Certified Management Accountant. Mr. Waddick obtained his Master of Business
Administration from York University.

Scientific Advisory Board

The members of this board are:

Paul W. Armstrong, MD, FRCP(C), FACC

     Dr. Armstrong is Professor of Medicine and past-Chairman of the Department
of Medicine at the University of Alberta Medical School, Edmonton, Alberta. He
was previously Chief of the Division of Cardiology at St. Michael's Hospital in
Toronto and Professor of Medicine at the University of Toronto. Dr. Armstrong is
widely recognized for his role in organizing and leading major international,
multi-center, clinical trials in the area of cardiovascular disease. He has
served as Chairman of the Scientific Review Committee, as Vice-President
(Medical) of the Heart and Stroke Foundation of Canada, and as a regional
governor of the American College of Cardiology. Dr. Armstrong is a medical
graduate of Queen's University and received his clinical training in cardiology
and research at St. George's Hospital in London, the Massachusetts General
Hospital, and Harvard Medical School. His major research interests include
coronary artery disease and congestive heart failure.

                                       43
<PAGE>

Pavel Hamet, MD, PhD, FRCP(C)

     Dr. Hamet is Director of Research of the center hospitalier de l'Universite
de Montreal (CHUM), Chief of the Laboratory of Molecular Medicine at the CHUM
Research center in Montreal, and a Professor of Medicine at the University of
Montreal. He is an international authority on the molecular biology and genetics
of hypertension and has a major interest in diabetes. He has published over 300
research papers and has held many distinguished positions, including President
of the Canadian Hypertension Society. Dr. Hamet graduated in Medicine from
Charles University, Prague, Czechoslovakia and received his specialty and
research training in Paris, Montreal, and Nashville, Tennessee.

Richard G. Margolese, MD, FRCS(C)

     Dr. Margolese is the Herbert Black Professor of Surgical Oncology at McGill
University and the Director of the Department of Oncology at Sir Mortimer B.
Davis-Jewish General Hospital in Montreal. Internationally recognized for his
leadership in both cancer research and treatment, he is the author of numerous
important scientific publications and has served on the review and editorial
boards of most major oncology journals. Dr. Margolese has served as Chairman of
the Treatment Committee of the Breast Cancer Task Force at the National Cancer
Institute (U.S.A.), and he is the Chairman of the Surgical Committee at the
National Surgical Adjuvant Breast Project, a position he has held for the past
20 years. He has served as President of the National Cancer Institute of Canada,
as Chairman of Cancer 2000, a Federal and Provincial Task Force on Cancer
Control, and as Chairman of the Management Committee of the Canadian Breast
Cancer Research Initiative. Dr. Margolese is the recipient of numerous awards
including the Order of Canada, and most recently, the R.M. Taylor medal of the
Canadian Cancer Society for the year 2000.

Richard G. Miller, PhD, FRSC

     Dr. Miller is Professor and past-Chairman of the Department of Medical
Biophysics at the University of Toronto, where he was founding Chairman of the
Department of Immunology from 1984 through 1990. He is also a past-President of
the Canadian Society of Immunology and a Fellow of the Royal Society of Canada.
As an internationally recognized scientist and leader in the field of
immunology, he has received many honors including being invited as a visiting
scientist at many of the world's leading immunology centers. He is the author of
over 150 publications and numerous book chapters and has been a member of the
editorial board of several key scientific journals in the areas of immunology
and cancer. Dr. Miller is a gold medal graduate in Physics from the University
of Alberta and was awarded his PhD at the California Institute of Technology.

                                       44
<PAGE>

Craig M. Pratt, MD

     Dr. Pratt is Professor of Medicine and Director of Clinical Cardiovascular
Research at Baylor College of Medicine, Houston, Texas. He is widely recognized
for his knowledge of FDA regulatory procedures, particularly in the area of
cardiovascular disease. From 1987 to 1993, Dr. Pratt was Chair of the
Cardiovascular and Renal Drugs Advisory Board of the U.S. Food and Drug
Administration. Since then, he has remained an active consultant to the FDA
Center for Drug Evaluation and Research. Dr. Pratt is also a leading authority
on the design and conduct of large multi-center clinical trials in the field of
cardiology. He has acted as principal investigator or co-investigator for many
of the landmark trials that have led to fundamental changes in the management of
patients with heart disease, including numerous clinical trials sponsored by the
National Heart Lung and Blood Institute (NHLBI). In addition, Dr. Pratt has
consulted with most of the major pharmaceutical companies regarding various
aspects of clinical and regulatory drug development.

Robert Roberts, MD, FRCP(C), FACC, Chairman

     Dr. Roberts is Chief of Cardiology at Baylor College of Medicine-The
Methodist Hospital, Houston, Texas, one of the world's leading centers for
cardiovascular care, research, and education. Dr. Roberts, a Professor in the
Departments of Medicine, Physiology, and Biology, is an active clinician and
researcher recognized for his groundbreaking research on cardiac creatine kinase
(CK-MB), a key diagnostic marker for cardiac injury, as well as for his original
contributions to the molecular biology and genetics of heart disease. He and his
research team are credited with uncovering the genetic basis for several
inherited cardiac disorders. He is the author of more than 500 scientific
publications and sits on several key editorial boards. Dr. Roberts has received
many honors and awards, the most recent of which was the prestigious American
College of Cardiology's 1998 Distinguished Scientist Award. In addition to his
contributions to basic research, Dr. Roberts is also well recognized for his
role as a principal investigator in several pivotal clinical trials related to
the introduction of new therapies for heart disease.

Fred S. Rosen, MD

     Dr. Rosen is President of the Center for Blood Research in Boston and
Professor of Pediatrics at Harvard Medical School. He is internationally
recognized for his groundbreaking research into the functioning of the immune
system and the causes of immune deficiency diseases. Dr. Rosen's extensive
scientific leadership in immunology has led to fundamental insights into the
mechanisms by which immune responses are initiated. His work has been widely
published in premier scientific journals, such as Science, Nature, The Lancet,
and The New England Journal of Medicine, where his immunology review articles
are considered


                                       45

<PAGE>

classics. Dr. Rosen has been elected as an honorary member to scientific
societies in many countries. He is a Membre d'Honneur for Life of the French
Society of Immunology and is the recipient of numerous honorary designations,
including the Distinguished Visiting Scholar at Christ's College, Cambridge
University, England. He is also active in several scientific societies and
important committees. He currently chairs the Scientific Advisory Committee of
the Clinical Research Center, Children's Hospital, Boston and the World Health
Organization's Expert Scientific Committee on Immunodeficiency.

David Wofsy, MD

     Dr. Wofsy is the George A. Zimmerman Distinguished Professor of Medicine
and Microbiology/Immunology and Director of the Clinical Trials Center at the
University of California, San Francisco. He also serves as Chief of the
Rheumatology Section at the San Francisco Veterans Administration Medical
Center. Dr. Wofsy is a leading authority on the cellular and molecular
mechanisms underlying autoimmune diseases. Based on extensive research, he has
developed novel approaches to the use of immune modulation therapies in the
treatment of this very common group of diseases. Much of Dr. Wofsy's research
has been on systemic lupus erythematosus (SLE), an autoimmune disease, where he
was the first to demonstrate the key pathological role of CD4+T cells in a
standard animal model of this disease. His most recent research has extended to
additional novel methods for blocking T cell activation. These approaches are
currently in clinical trials. He is the author of numerous key publications and
book chapters and serves on the editorial and advisory boards of several major
immunology journals. He has received many distinguished awards and his visiting
professorships include Harvard University and the National Institutes of Health.

B.  Compensation.
    -------------

         The following table shows the aggregate remuneration paid by the
Company for the year ended November 30, 2000 to all its executive officers.



                                       46
<PAGE>

Summary Compensation Table

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
                                         Annual Compensation               Long-Term Compensation
------------------------------------------------------------------------------------------------------------------------
                                                                               Awards           Payouts
------------------------------------------------------------------------------------------------------------------------
                                                                                   Restricted
                                                                      Securities     Shares
                                                             Other      Under          Or
                                                            Annual     Options/    Restricted              All Other
   Name and Principal                                       Compen-      SARs         Share       LTIP      Compen-
        Position           Year     Salary     Bonus(2)     sation     Granted        Units     Payouts     sation
                                     ($)         ($)        ($)(3)       (#)           ($)        ($)         ($)
------------------------------------------------------------------------------------------------------------------------
<S>                        <C>    <C>          <C>          <C>        <C>         <C>          <C>        <C>
David Elsley               2000   190,000      100,000                 299,500(1)
(President and Chief
Executive Officer)

Christopher Waddick        2000   150,000       59,100                 228,700(1)
(Vice-President Finance,
Chief Financial Officer,
Secretary and Treasurer)

Clive Ward-Able            2000   60,000        23,300                  60,000(1)
(Vice-President, Research
and Development)

Eldon Smith
(Vice-President,           2000   107,000       30,800                 175,638(1)
Scientific Affairs)
------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  This is a cumulative total and represents the aggregate number of
     securities under option as at November 30, 2000.
(2)  Bonus paid through a combination of cash and/or the issuance of common
     shares of the Corporation.
(3)  Perquisites and other personal benefits do not exceed the lesser of $50,000
     and 10% of the total of the annual salary and bonus for the above-named
     officers.
(4)  Dr. Clive Ward-Able joined the Company as its Vice-President of Research
     and Development on August 8, 2000.

Employment Contracts

     The Company has entered into an employment agreement, made as of the 1st
day of February 1997, with Mr. David G. Elsley. Pursuant to this agreement, Mr.
Elsley serves the Company as its President and Chief Executive Officer. The
following is a summary of the terms of the agreement with Mr. Elsley. The
agreement provides for a fixed five-year term, ending on January 31, 2002, and
an annual remuneration of $225,000 per annum. Mr. Elsley is entitled to benefits
available to other employees of the Company. The agreement is terminable at the
option of the Company; however, if such agreement is not terminated for cause,
Mr. Elsley is entitled to a lump-sum payment equal to two years' salary and any
options


                                       47
<PAGE>

or warrants then outstanding vest for their full term. The agreement contains
standard non-competition and non-solicitation provisions.

     The Company has entered into an employment agreement, made as of the 10th
day of March 1997, with Mr. Christopher J. Waddick. Pursuant to this agreement,
Mr. Waddick serves the Company as its Vice-President, Finance, Chief Financial
Officer and Secretary and Treasurer. The agreement provides for an annual
remuneration of $170,000 per annum. The other terms of the agreement are similar
to those described for Mr. Elsley.

     The Company has entered into an employment agreement, made as of the 8th
day of August 2000, with Dr. Clive Ward-Able. Pursuant to this agreement, Dr.
Ward-Able serves the Company as its Vice-President, Research and Development.
The agreement provides for no fixed term, and an annual remuneration of $180,000
per annum. The agreement is terminable at the option of the Company; however, if
such agreement is not terminated for cause, Dr. Ward-Able is entitled to a
lump-sum payment equal to four months salary. The other terms of the agreement
are similar to those described for Mr. Elsley.

     The Company has entered into an employment agreement, made as of the 1st
day of February 2001, with Mr. Bernard Lim. Pursuant to this agreement, Mr. Lim
serves the Company as its Vice-President, Technology. The agreement provides for
no fixed term, and an annual remuneration of $150,000 per annum. The agreement
is terminable at the option of the Company; however, if such agreement is not
terminated for cause, Mr. Lim is entitled to a lump-sum payment equal to six
months salary. The other terms of the agreement are similar to those described
for Mr. Elsley.

Compensation of Directors

     Directors of the Company who are not full-time employees of the Company are
entitled to receive a fee of up to $1,500 for each meeting of the Board and $500
for each meeting of any Committee thereof attended. Directors are also entitled
to be reimbursed for their reasonable out-of-pocket expenses incurred on the
business of the Company and are eligible to receive stock options. For the
fiscal period ended November 30, 2000, the Company paid $34,500 in directors'
fees, as well as reimbursement of reasonable travel expenses.

     No amount has been set aside or accrued by the Company and its subsidiaries
during the last fiscal year of the Company to provide pension, retirement or
similar benefits for directors and officers of the Company, pursuant to any
existing plan provided or contributed to by the Company and its subsidiaries.


                                       48
<PAGE>


Scientific Advisory Board

The Company has an independent Scientific Advisory Board ("SAB") to advise
management and the Board of Directors on the Corporation's scientific,
technical, research, development, and commercialization endeavors. Members of
the SAB are entitled to an annual honorarium, reimbursement for their reasonable
out-of-pocket expenses incurred on the business of the Corporation, and are
eligible to receive stock options. Members of the SAB through their affiliation
with universities, hospitals and other centers of biomedical research, may, from
time to time, collaborate on or direct, independent basic research, preclinical
studies and/or feasibility clinical trials involving the Company's technologies
and receive, in connection therewith, professional fees at market rates.

C.  Board Practices.
    ----------------

     The directors of the Company are identified in Item 6. A. Directors and
Senior Management.                                             -------------
------------------

A. Directors and Senior Management.
   --------------------------------

     The Audit Committee consists of three unrelated directors, William
Cochrane, Benoit La Salle, and Andre Berard. Mr. Berard replaced Jan-Eric
Osterlund and William Cochrane replaced William Grant on the Audit Committee
subsequent to the fiscal year-end. The Audit Committee reviews the annual and
quarterly financial statements of the Company and certain other public
disclosure documents required by regulatory authorities, and makes
recommendations to the Board with respect thereto. The Audit Committee also
reviews with the auditors and Management the adequacy of the Company's financial
reporting and internal control procedures to ensure they are effective and
appropriate.

     The Company has a Compensation and Corporate Governance Committee, which
consists of three unrelated directors, Terrance Gregg, John Villforth, and
Graham Strachan. Mr. Villforth replaced Donald Grilli on the Compensation and
Corporate Governance Committee subsequent to the fiscal year-end. The
Compensation and Corporate Governance Committee reviews the Company's
compensation policies and practices, compensation of senior Management,
succession planning, size and constitution of the Board, and corporate
governance practices, and makes recommendations to the Board of Directors.


                                       49
<PAGE>

D. Employees.
   ---------

     The number of employees for each of last three fiscal years is as follows:

<TABLE>
<CAPTION>
--------------------------------------------------------------- ------------------ ------------------ -----------------
                                                                      2000               1999               1998
--------------------------------------------------------------- ------------------ ------------------ -----------------
<S>                                                                    <C>                <C>                <C>
Number of Employees                                                    37                 24                 18
--------------------------------------------------------------- ------------------ ------------------ -----------------
</TABLE>


     At May 1, 2001, the Company had 38 full time employees. As the Company
encourages share ownership, it has established a share option plan to attract,
motivate, and retain key employees and consultants. The Company's employees are
not governed by a collective agreement.

E.  Share Ownership.
    ---------------

     The following table states the names of the directors of the Company, the
positions within the Company now held by them, and the approximate number of
shares of the Company beneficially owned or over which control or direction is
exercised by each of them as of May 1, 2001. The following table does not
reflect shares, which may be acquired pursuant to the exercise of stock options.



                                       50
<PAGE>

<TABLE>
<CAPTION>
---------------------------------------------------------- ------------------------- ---------------------------------
Name and Position with Company                                   Number of                       Percentage of
                                                                Shares Owned                   Outstanding Shares
                                                                ------------                   ------------------
---------------------------------------------------------- ------------------------- ---------------------------------
<S>                                                             <C>                             <C>
William A. Cochrane                                             138,800 *
Vice-Chairman of the Board, Director
---------------------------------------------------------- ------------------------- ---------------------------------

David G. Elsley                                                 130,958 *
President, CEO, Director
---------------------------------------------------------- ------------------------- ---------------------------------

William R. Grant                                                392,600 *
Chairman of the Board, Director
---------------------------------------------------------- ------------------------- ---------------------------------

Andre Berard                                                      5,000 *
Director
---------------------------------------------------------- ------------------------- ---------------------------------

Terrance Gregg                                                    6.000 *
Director
---------------------------------------------------------- ------------------------- ---------------------------------

John C. Villforth                                                 2,000 *
Director
---------------------------------------------------------- ------------------------- ---------------------------------

Graham Strachan                                                 102,000 *
Director
---------------------------------------------------------- ------------------------- ---------------------------------

Dr. Eldon Smith                                                  10,790 *
Vice-President, Scientific Affairs, Director
---------------------------------------------------------- ------------------------- ---------------------------------

Benoit La Salle                                                  50,000 *
Director
---------------------------------------------------------- ------------------------- ---------------------------------
Bernard Lim                                                           0 *
Vice-President, Technology
---------------------------------------------------------- ------------------------- ---------------------------------
Clive Ward-Able                                                       0 *
Vice-President, Research and
Development
---------------------------------------------------------- ------------------------- ---------------------------------
Christopher J. Waddick                                          118,320 *
Vice-President, Finance, CFO, Corporate
Secretary and Treasurer
---------------------------------------------------------- ------------------------- ---------------------------------
</TABLE>

Notes:

* Represents less than 1% of the Company's outstanding shares.


                                       51
<PAGE>

Stock Option Plan

     The Company maintains a stock option plan (the "Plan") pursuant to which a
maximum of 5,400,000 options or such greater number as shall have been duly
approved by the Board of Directors and if required, by any exchange or
over-the-counter market on which the common shares may be listed or quoted for
trading or any security regulatory authority, and by the shareholders of the
Company, may be granted by the Board of Directors to executive officers,
directors, employees, consultants and members of the Scientific Advisory Board
of the Company in such numbers, for such periods of time, and at exercise prices
as the Board may approve and according to the rules and regulations of any stock
exchange or dealing network on which the Common Shares may be listed or quoted
for trading from time to time.

     The amount of shares from time to time reserved under the Plan is not
reflective of the number of options that are outstanding at any given time
because options that are exercised over time do not replenish the number
reserved, but is merely an indication of the number of shares or potential
shares in respect of which a listing fee has been paid to the stock exchanges
upon which the Company's shares are listed. At fiscal year-end 2000, the Company
had 1.7 million options outstanding granted under the plan representing 3.8% of
the shares outstanding at November 30, 2000. The number of shares reserved under
the Plan from time to time must comply with the rules of The Toronto Stock
Exchange ("TSE") with respect to stock option plans. These rules require, among
other things, that the number of shares reserved for issuance under a stock
option plan be set at a fixed number and that the shareholders approve such
number.

                                       52
<PAGE>


The following table sets out information relating to outstanding options and
warrants to purchase common shares granted by the Company to directors and
officers that are outstanding as at the date hereof:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
              Name                  Securities                Exercise                      Expiration
                                      Under                      Or                            Date
                                     Option                  Base Price
                                       (#)                  ($/Security)
----------------------------------------------------------------------------------------------------------------------
<S>                                  <C>                    <C>                            <C>
William A. Cochrane                    5,000                   $9.55                       February 3, 2003
Vice-Chairman of the Board             5,000                   $6.75                       February 7, 2004
----------------------------------------------------------------------------------------------------------------------
David G. Elsley                       45,000                   $1.20                        June 18, 2001
President, CEO, Director              70,000                   $1.20                        June 18, 2002
                                     122,792                   $1.25                      December 15, 2003
                                      31,680                   $5.70                       January 4, 2005
                                      28,571                   $8.40                      December 21, 2005
----------------------------------------------------------------------------------------------------------------------
William R. Grant                       5,000                   $5.70                       February 3, 2003
Chairman of the Board,                 5,000                   $6.75                       February 7, 2004
Director                              20,000                   $7.68                        March 7, 2004
----------------------------------------------------------------------------------------------------------------------
Andre Berard                           5,000                   $6.75                       February 7, 2004
Director
----------------------------------------------------------------------------------------------------------------------
Terrance Gregg                         5,000                   $1.75                       August 31, 2001
Director                               5,000                   $9.55                       February 3, 2003
                                       5,000                   $6.75                       February 7, 2004
----------------------------------------------------------------------------------------------------------------------
Graham Strachan                        5,000                   $9.55                       February 3, 2003
Director                               5,000                   $6.75                       February 7, 2004
----------------------------------------------------------------------------------------------------------------------
Dr. Eldon Smith                      100,000                   $1.00                      September 15, 2003
Vice-President, Scientific            15,528                   $1.25                      December 15, 2003
Affairs, Director                     50,000                   $2.95                       October 27, 2004
                                      10,110                   $5.70                       January 4, 2005
                                       7,333                   $8.40                      December 21, 2005
----------------------------------------------------------------------------------------------------------------------
Benoit La Salle                        5,000                   $9.55                       February 3, 2003
Director                               5,000                   $6.75                       February 7, 2004
----------------------------------------------------------------------------------------------------------------------
Bernard Lim                           50,000                   $9.20                       December 8, 2005
Vice-President, Technology
----------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       53
<PAGE>

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
<S>                                  <C>                    <C>                            <C>
Clive Ward-Able                       60,000                   $8.25                         June 6, 2005
Vice-President, Research and           5,543                   $8.40                      December 21, 2005
Development
----------------------------------------------------------------------------------------------------------------------
Christopher J. Waddick                70,000                   $1.00                      September 15, 2003
Vice-President, Finance, CFO,         66,735                   $1.25                      December 15, 2003
Corporate Secretary and               75,000                   $2.95                       October 27, 2004
Treasurer                             16,980                   $5.70                       January 4, 2005
                                      14,071                   $8.40                      December 21, 2005
----------------------------------------------------------------------------------------------------------------------
</TABLE>


Item 7. Major Shareholders and Related Party Transactions.
        --------------------------------------------------

A.  Major Shareholders
    ------------------

     At May 1, 2001, there were 44,832,148 shares outstanding with an authorized
capital of an unlimited number of shares. There are no persons known to own 5%
or more of the Company's outstanding shares as of May 1, 2001.

     There has been no significant change in percentage ownership by any major
shareholders during the past three years.

     To the best of the Company's knowledge, the Company is not directly or
indirectly owned or controlled by another corporation or foreign government.

     There are no arrangements, known to the Company, the operation of which may
at a subsequent date result in a change in control of the Company.

     All shareholders have identical voting rights to all other shareholders.

B. Related Party Transactions.
   ---------------------------

     There are no proposed transactions or any transactions that have occurred
in the previous three fiscal periods in which directors, executive officers,
holders of ten percent of the Company's outstanding shares, or any associate or
affiliate of such person, have had a material interest, direct or indirect.

     None of the officers or directors of the Company is indebted to the Company
or was indebted to the Company during the fiscal years ended November 30, 2000,
1999, and 1998.



                                       54
<PAGE>

C. Interests of Experts and Counsel.
   ---------------------------------

     Not applicable.

Item 8.  Financial Information
         ---------------------

A. Consolidated Statements and Other Financial Information
   -------------------------------------------------------

     Reference is made to "Item 18. Financial Statements" for the financial
                                    --------------------
statements included in this annual report.

     There are no legal proceedings of a material nature pending against the
Company, or its subsidiaries. The Company is unaware of any legal proceedings
known to be contemplated by any governmental authorities.

     To date, the Company has not paid a dividend. The declaration, amount, and
date of distribution of any dividends in the future will be decided by the Board
of Directors from time to time based upon and subject to the Company's earnings,
financial requirements, and other conditions prevailing at the time.

B. Significant Changes
   -------------------

     There have not been any significant changes since the November 30, 2000
annual financial statements.

Item 9.  The Offer and Listing
         ---------------------

A.  Offer and Listing Details
    -------------------------

     The Company's Shares commenced trading on the Toronto Stock Exchange in
Canada on July 22, 1999. The Toronto Stock Exchange is the primary trading
market for the Company's Shares. The Company's Shares also began trading on The
American Stock Exchange on November 22, 1999. From July 5, 1996 to July 22,
1999, the Company's shares were traded on The Montreal Exchange. Prior to July
6, 1996, the Company's shares were traded on The Canadian Dealing Network Inc.
in Ontario.


                                       55
<PAGE>

     The following is a summary of trading of the Company's Shares:

----------------------- ------------- ----------------- -----------------
                            YEAR            HIGH              LOW
----------------------- ------------- ----------------- -----------------
ME                          1996            1.80              0.95
----------------------- ------------- ----------------- -----------------
ME                          1997            3.45              1.50
----------------------- ------------- ----------------- -----------------
ME                          1998            2.15              0.81
----------------------- ------------- ----------------- -----------------
ME to July 22/99            1999            2.18              1.40
----------------------- ------------- ----------------- -----------------
TSE from July 23/99         1999            6.70              1.60
----------------------- ------------- ----------------- -----------------
TSE                         2000           18.10              5.70
----------------------- ------------- ----------------- -----------------

     The following is a summary of trading, on a quarterly basis, of the
Company's Shares on the Montreal Stock Exchange and the Toronto Stock Exchange
for 1999 and 2000:

----------------------- --------------- ----------------- -----------------
1999                       QUARTER            HIGH              LOW
----------------------- --------------- ----------------- -----------------
ME                            1               2.18              1.56
----------------------- --------------- ----------------- -----------------
ME                            2               1.90              1.51
----------------------- --------------- ----------------- -----------------
ME to July 22/99              3               1.75              1.40
----------------------- --------------- ----------------- -----------------
TSE from July 23/99           3               3.40              1.60
----------------------- --------------- ----------------- -----------------
TSE                           4               6.70              2.69
----------------------- --------------- ----------------- -----------------

2000
----------------------- --------------- ----------------- -----------------
TSE                           1              18.10              5.70
----------------------- --------------- ----------------- -----------------
TSE                           2              10.80              7.00
----------------------- --------------- ----------------- -----------------
TSE                           3              14.50              8.60
----------------------- --------------- ----------------- -----------------
TSE                           4              13.00              8.15
----------------------- --------------- ----------------- -----------------


                                       56
<PAGE>


     The following is a summary of trading, on a quarterly basis, of the
Company's Shares on the American Stock Exchange for 1999 and 2000 and the first
quarter of 2001, expressed in United States dollars:

----------------------- -------------- ------------------ ---------------------
                           QUARTER            HIGH                  LOW
----------------------- -------------- ------------------ ---------------------
1999 (November 23)            4               4.63                  3.25
----------------------- -------------- ------------------ ---------------------

----------------------- -------------- ------------------ ---------------------
2000                          1              12.50                  4.00
----------------------- -------------- ------------------ ---------------------
                              2               7.38                  4.50
----------------------- -------------- ------------------ ---------------------
                              3               9.81                  5.88
----------------------- -------------- ------------------ ---------------------
                              4               8.63                  5.38
----------------------- -------------- ------------------ ---------------------
2001                          1               6.00                  4.41
----------------------- -------------- ------------------ ---------------------

     The low and high market prices for the Company's Shares for the past six
months on the Toronto Stock Exchange and American Stock Exchange are as follows:

                      Toronto Stock Exchange

----------------------- --------------------- ---------------------
2000                              HIGH                  LOW
----------------------- --------------------- ---------------------
November                         11.85                  8.15
----------------------- --------------------- ---------------------
December                          9.45                  8.40
----------------------- --------------------- ---------------------
2001
----------------------- --------------------- ---------------------
January                           8.90                  7.20
----------------------- --------------------- ---------------------
February                          7.95                  6.75
----------------------- --------------------- ---------------------
March                             8.35                  6.95
----------------------- --------------------- ---------------------
April                             9.54                  7.21
----------------------- --------------------- ---------------------

                      American Stock Exchange

----------------------- --------------------- ---------------------
2000                              HIGH                  LOW
----------------------- --------------------- ---------------------
November                          7.75                  5.38
----------------------- --------------------- ---------------------
December                          6.38                  5.50
----------------------- --------------------- ---------------------
2001
----------------------- --------------------- ---------------------
January                           6.00                  4.88
----------------------- --------------------- ---------------------
February                          5.30                  4.41
----------------------- --------------------- ---------------------
March                             5.35                  4.53
----------------------- --------------------- ---------------------
April                             6.20                  4.65
----------------------- --------------------- ---------------------


                                       57
<PAGE>

     The closing prices of the Company's Shares on the Toronto Stock Exchange
and American Stock Exchange on May 1, 2001 were $9.78 Can. and $6.31 US,
respectively.

     At May 1, 2001, the Company had 18,752 shareholders of record. At March 13,
2001, there were 1,667 United States shareholders of record, holding 6,044,659
Shares, which represents 13.5% of the outstanding class.

B.  Plan of Distribution
    --------------------

         Not applicable.

C.  Markets
    -------

         (see A. above)

D.  Selling Shareholders
    --------------------

         Not applicable.

E. Dilution
   --------

         Not applicable.

F.  Expenses of the Issue
    ---------------------

         Not applicable.

Item 10.  Additional Information
          ----------------------

A.  Share Capital
    -------------

         Not applicable.

B.  Articles of Incorporation and By-laws
    -------------------------------------

Common Shares

     The Company's authorized capital consists of an unlimited number of common
shares, without par value ("Shares"). At May 1, 2001, there were 44,832,148
Shares issued and outstanding and an additional 1,999,279 Shares have been
allotted and reserved for issuance


                                       58
<PAGE>

pursuant to outstanding options and warrants. All issued and outstanding Shares
are fully paid and non-assessable.

     All Shares are entitled to one vote per share at all meetings of
shareholders, rank equally as to dividends and as to the distribution of the
Company's assets available for distribution in the event of a liquidation,
dissolution, or winding up of the Company. There are no preemptive, conversion,
or exchange rights and no provision for redemption, purchase for cancellation,
surrender or sinking or purchase funds.

     Provisions as to the modification, amendment or variation of such rights
and provisions are contained in the Canada Business Corporations Act (the "Act")
and the regulations promulgated thereunder. Certain fundamental changes to the
articles of the Company will require the approval of two-thirds of the votes
cast on a resolution submitted to a special meeting of the Company's
shareholders called for the purpose of considering the resolution. These items
include (i) an amendment to the provisions relating to the outstanding capital
of the Company, (ii) a sale of all or substantially all of the assets of the
Company, (iii) an amalgamation of the Company with another company, other than a
subsidiary, (iv) a winding-up of the Company, (v) a continuance of the Company
into another jurisdiction, (vi) a statutory court approved arrangement under the
Act (essentially a corporate reorganization such as an amalgamation, sale of
assets, winding-up, etc.), or (vii) a change of name.

     Under the Act, a corporation cannot repurchase its shares or declare
dividends if there are reasonable grounds for believing that (a) the corporation
is, or after payment would be, unable to pay its liabilities as they become due,
or (b) after the payment, the realizable value of the corporation's assets would
be less than the aggregate of (i) its liabilities and (ii) its stated capital of
all classes of its securities. Generally, stated capital is the amount paid on
the issuance of a share.

                              ARTICLES AND BY-LAWS

     The following presents a description of certain terms and provisions of the
Company's articles and by-laws.

General

     The Company was incorporated under the Business Corporations Act (Ontario)
by articles of incorporation dated January 10, 1980, as amended by certificate
and articles of amendment dated September 19, 1985, June 15, 1988, and April 21,
1994, and was continued under the Canada Business Corporations Act by
certificate and articles of continuance dated August 9, 1999.


                                       59
<PAGE>

     The Company's corporate objectives and purpose are unrestricted.

Directors

     The Company's by-laws provide that a director who is a party to, or who is
a director or officer of or has a material interest in any person who is a party
to, a material contract or transaction or proposed material contract or
transaction with the Company shall disclose the nature and extent of that
interest and shall not vote on any resolution to approve such contract or
transaction.

     The Company's by-laws provide that the directors shall be paid such
remuneration for their services as the Board of Directors may from time to time
determine.

     The Company's by-laws provide that the Board may from time to time on the
Company's behalf, without authorization of shareholders:

     o    borrow money upon credit;

     o    issue, reissue, sell or pledge bonds, debentures, notes or other
          evidences of indebtedness or guarantee of us, whether secured or
          unsecured;

     o    to the extent permitted by the Canada Business Corporations Act, give
          directly or indirectly financial assistance to any person by means of
          a loan, a guarantee or otherwise on our behalf to secure performance
          of any present or future indebtedness, liability or obligation of any
          person; and

     o    mortgage, hypothecate, pledge or otherwise create a security interest
          in all or any or currently owned or subsequently acquired real or
          personal, movable or immovable, property including book debts, rights,
          powers, franchises and undertakings, to secure any of our bonds,
          debentures, notes or other evidences of indebtedness or guarantee or
          any other present or future indebtedness, liability or obligation.

     o    The Company's by-laws provide that no person shall be qualified for
          election as a director if such person is less than 18 years of age.
          There is no provision in the Company's by-laws relating to retirement
          or non-retirement of directors under an age limit requirement. A
          director need not be a shareholder. A majority of directors must be
          resident Canadians and at least one-third of the directors must not be
          officers or employees of the Company or of any of the Company's
          affiliates.



                                       60
<PAGE>


Annual and Special Meetings

     The annual meeting and special meetings of shareholders are held at such
time and place as the Board of Directors shall determine. Notice of meetings are
sent out to shareholders not less than 21 nor more than 50 days before the date
of such meeting. All shareholders at the record date are entitled to notice of
the meeting and have the right to attend the meeting. The directors do not stand
for re-election at staggered intervals.

     There are no by-law provisions governing the ownership threshold above
which shareholder ownership must be disclosed.

     There are no provisions in either the Company's articles of incorporation
or by-laws that would have the effect of delaying, deferring or preventing a
change in control of the Company and that would operate only with respect to a
merger, acquisition or corporate restructuring involving the Company or its
subsidiary, other than as described in the Shareholder Rights Plan below.

Adoption of Shareholder Rights Plan

     The Board of Directors of the Company adopted a shareholder rights plan as
of November 22, 2000 (the "Rights Plan").

     The Rights Plan was effective immediately upon its adoption by the Board,
but it had to be confirmed by shareholders to remain in effect, which occurred
at the Company's Annual and Special Meeting of Shareholders held on May 2, 2001.
The Rights Plan was not adopted by the Board of Directors in response to, or in
anticipation of, any offer or takeover bid.

Purpose of the Rights Plan

     The Rights Plan is designed to give the Company's shareholders sufficient
time to properly assess a takeover bid without undue pressure and to give the
Company's Board of Directors time to consider alternatives designed to allow the
Company's shareholders to receive full and fair value for their Shares.
Additionally, the Rights Plan is designed to provide shareholders of the Company
with equal treatment in a take-over bid. The desire to ensure that the Company
is able to address unsolicited take-over bids for its issued and outstanding
Shares during the term of the Rights Plan stems from a concern that Canadian
take-over bid rules provide too short a response time to companies that are
subject to unsolicited take-over bids to ensure that shareholders are offered
full and fair value for their shares.


                                       61
<PAGE>

     In recent years, shareholder rights plans have been adopted by many
Canadian companies, and the terms of such plans have evolved to reflect changes
in investor attitudes, standards of corporate governance, requirements of
securities regulatory authorities, and the views of third-party commentators.
The Rights Plan reflects this evolution.

Summary of the Rights Plan

     The following is a summary of the principal terms of the Rights Plan, which
is qualified in its entirety by reference to the text of the Rights Plan, a copy
of which accompanied the Company's Management Proxy Circular as Exhibit "A,"
filed with the Securities and Exchange on April 24, 2001 on a Form 6-K dated
April 6, 2001.

Term

     The term of the Rights Plan ends on the date of the Company's Annual
Meeting of Shareholders to be held in 2003, at which time the Rights expire
unless they are terminated, redeemed, or exchanged earlier by the Board of
Directors.

Issue of Rights

     To implement the Rights Plan, the Board of Directors authorized the
issuance of share purchase rights ("Rights") to the current shareholders of the
Company at the rate of one Right for each common share outstanding as at 5:00
p.m. (Toronto time) on November 22, 2000 (the "Record Time"). In addition, one
Right will be issued with each common share issued after the Record Time and
prior to the earlier of the Separation Time (as defined below) and the
redemption or expiration of the Rights. The Company has entered into a rights
plan agreement, dated as of November 22, 2000, with CIBC Mellon Trust Company of
Canada, as rights agent, which provides for the exercise of the Rights, the
issue of certificates evidencing the Rights, and other related matters,
including those described in this Management Proxy Circular.

Rights Exercise Privilege

     The Rights will trigger (i.e., separate from the Company's Shares) (the
"Separation Time") and will become exercisable eight trading days after a person
(an "Acquiring Person") has acquired 20% or more of, or commences or announces a
take-over bid for, the Company's outstanding Shares (defined to include the
Shares and any other shares that the Company may issue that carry voting rights
relating to the election of directors), other than by an acquisition pursuant to
a Permitted Bid or a Competing Permitted Bid (each as defined below). The
acquisition by an Acquiring Person of 20% or more of the Shares is referred to
as a "Flip-in Event."


                                       62
<PAGE>


     Any rights held by an Acquiring Person will become void upon the occurrence
of the Flip-in Event. By making any take-over bid other than a Permitted Bid or
a Competing Permitted Bid prohibitively expensive for an Acquiring Person, the
Rights Plan is designed to require any person interested in acquiring more than
20% of the Company's Shares to do so by way of a Permitted Bid or a Competing
Permitted Bid or to make a take-over bid which the Board of Directors considers
to represent the full and fair value of the Company's Shares.

     Prior to the rights being triggered, they will have no value and no
dilutive effect on the Company's Shares.

Flip-In Event

     A "Flip-in Event" is triggered in the event that a transaction occurs
pursuant to which a person becomes an Acquiring Person (as defined by the Rights
Plan). Upon the occurrence of the Flip-in Event, each Right (except for Rights
Beneficially Owned by the Acquiring Person and certain other persons specified
below) shall thereafter constitute the right to purchase from the Company upon
exercise thereof in accordance with the terms of the Rights Plan that number of
Shares of the Company having an aggregate Market Price (as defined in the Rights
Plan) on the date of the consummation or occurrence of such Flip-in Event equal
to twice the Exercise Price (as defined in the Rights Plan) for an amount in
cash equal to the Exercise Price.

     The Rights Plan provides that Rights that are beneficially owned by (i) an
Acquiring Person or any affiliate or associate of an Acquiring Person, or any
Person acting jointly or in concert with an Acquiring Person, or any affiliate
or associate of such Acquiring Person; or (ii) a transferee or other successor
in tide of Rights of an Acquiring Person (or of an affiliate or associate of an
Acquiring Person or of any person acting jointly or in concert with an Acquiring
Person or any associate or affiliate of an Acquiring Person) who becomes a
transferee or successor in title concurrently with or subsequent to the
Acquiring Person becoming an Acquiring Person shall become null and void without
any further action, and any holder of such Rights (including transferees or
successors in title) shall not have any right whatsoever to exercise such Rights
under any provision of the Rights Plan.

Acquiring Person

     An "Acquiring Person" is a person who Beneficially Owns (as defined in the
Rights Plan) twenty percent (20%) or more of the outstanding Voting Shares of
the Company. An Acquiring Person does not, however, include the Company or any
subsidiary of the Company or any person who becomes the Beneficial Owner of
twenty percent (20%) or more of the outstanding Voting Shares of the Company as
a result of Permitted Bids, Competing Permitted Bids, and certain other exempt
transactions.


                                       63
<PAGE>

Permitted Bids and Competing Permitted Bids

     A "Permitted Bid" is a take-over bid made by take-over bid circular in
compliance with the following additional provisions:

1.   the bid must be made to all holders of record of Shares;

2.   the bid must be open for a minimum of 60 days following the date of the
     bid, and no shares may be taken up prior to such time;

3.   take-up and payment for shares may not occur unless the bid is accepted by
     persons holding more than fifty percent (50%) of the outstanding Shares
     exclusive of shares held by the person responsible for triggering the
     Flip-in Event or any person that has announced an intention to make, or who
     has made, a take-over bid for the shares of the Company and the respective
     affiliates and associates of such persons and persons acting jointly or in
     concert with such persons;

4.   shares may be deposited into or withdrawn from the bid at any time prior to
     the take-up date; and

5.   if the bid is accepted by the requisite percentage specified in (3) above,
     the bidder must extend the bid for a period of 10 business days to allow
     other shareholders to tender into the bid, should they so wish, and must
     make a public announcement to such effect.

     A "Competing Permitted Bid" is a take-over bid that satisfies all of the
criteria of a Permitted Bid except that since it is made after a Permitted Bid
has been made, the minimum deposit period and the time period for the take-up of
and payment for shares tendered under a Competing Bid is not 60 days, but is
instead the greater of 21 days (the minimum permitted by law) and the 60th day
after the date on which the Permitted Bid then in existence was made.

     Neither a Permitted Bid nor a Competing Permitted Bid need be approved by
the Board of Directors and may be taken directly to the shareholders of the
Company. Acquisitions of Shares made pursuant to a Permitted Bid or a Competing
Permitted Bid do not give rise to a Flip-in Event.

Certificates and Transferability

     Prior to separation, the Rights will be evidenced by a legend imprinted on
the Share certificates of the Company and will not be transferable separately
from the Shares. Common share certificates do not need to be exchanged to
entitle a shareholder to these Rights. The legend will be on all new
certificates issued by the Company. From and after separation, the


                                       64
<PAGE>


Rights will be evidenced by Rights certificates and will be transferable
separately from the Company's Shares.

Redemption and Waiver

     The Board of Directors may, at any time prior to the occurrence of a
Flip-in Event, and subject to shareholder approval, elect to redeem all but not
less than all of the Rights at a redemption price of $0.0001 per Right (the
"Redemption Price"), appropriately adjusted in certain events. Rights will be
deemed to be automatically redeemed at the Redemption Price where a person that
has made a Permitted Bid, a Competing Permitted Bid, or a take-over bid
otherwise exempted by the Board of Directors takes up and pays for the Company's
shares under the terms of the bid. If the Board of Directors elects or is deemed
to have elected to redeem the Rights, the right to exercise the Rights will
terminate, and each Right will, after redemption, be null and void, and the only
right thereafter of the holders of Rights shall be to receive the Redemption
Price. Under the Rights Plan, the Board of Directors has discretion to waive
application of the Rights Plan to a take-over bid, subject to an automatic
waiver with respect to all other take-over bids made while the waived take-over
bid is outstanding. The Board of Directors of the Company may also waive the
application of the Rights Plan to a Flip-in Event which occurs through
inadvertence, subject to the "inadvertent" Acquiring Person reducing its holding
of the Company's shares within an agreed time. Other waivers of the Rights Plan
will require shareholder approval.

Amendment

     Any amendments or supplements to the terms of the Rights Plan (other than
for clerical errors or to maintain the Rights Plan's validity as a result of
changes in legislation) will require prior shareholder approval. Changes arising
from changes in applicable legislation will require subsequent shareholder
ratification.

C.  Material Contracts
    ------------------

     The Company does not have any material contracts that are required to be
disclosed.


                                       65
<PAGE>

D.  Exchange Controls
    -----------------

     There are no laws or governmental decrees or regulations in Canada that
restrict the export or import of capital, or affect the remittance of dividends,
interest, or other payments to holders of the Company's securities who are not
residents of Canada, other than withholding tax requirements. Reference is made
to "Item 10-E. Taxation."

     There are no limitations imposed by the laws of Canada, the laws of Ontario
or by the charter or other governing documents of the Company on the right of a
non-resident to hold or vote Shares of the Company, other than as provided in
the Investment Canada Act (Canada) (the "Investment Act"). The following
summarizes the principal features of the Investment Act for a non-resident who
proposes to acquire Shares. The summary is of a general nature only and is not
intended to be nor is it, a substitute of independent advice from an investor's
own advisor. The summary does not anticipate statutory or regulatory amendments.

     The Investment Act generally prohibits implementation of a reviewable
investment by an individual, government or agency thereof, corporation,
partnership, trust or joint venture that is not a "Canadian" as defined in the
Investment Act (a "non-Canadian"), unless after review, the minister responsible
for the Investment Act (the "Minister") is satisfied that the investment is
likely to be of net benefit to Canada. Under the Investment Act, a United States
citizen qualifies as a "World Trade Organization Investor." Subject to the
restrictions noted below, an investment in a Canadian business by a World Trade
Organization Investor would be reviewable under the Investment Act only if it is
an investment to acquire control of such Canadian business and the value of the
assets of the Canadian business as shown on its financial statements is not less
than a specified amount, which for 2001 is $209 million. An investment in the
shares of a Canadian business by a non-Canadian other than a "World Trade
Organization Investor" when the Company is not controlled by a World Trade
Organization Investor, would be review able under the Investment Act if it is an
investment to acquire control of the Canadian business and the value of the
assets of the Canadian business as shown on its financial statements is $5
million or more, or if an order for review is made by the federal cabinet on the
grounds that the investment relates to Canada's cultural heritage or national
identity.

     The acquisition by a World Trade Organization Investor of control of a
Canadian business in any of the following sectors is also subject to review if
the value of the assets of the Canadian business exceeds $5 million (as shown on
its financial statements): uranium, financial services (except insurance),
transportation services, and cultural businesses, which include broadcast media
(publication, distribution or sale of books, magazines, periodicals,

                                       66
<PAGE>

newspapers, music, film, and video products and the exhibition of film and video
products), television and radio services.

     A non-Canadian would acquire control of the Company for purposes of the
Investment Act if the non-Canadian acquired a majority of the Shares. The
acquisition of less than a majority but one-third or more of the Shares would be
presumed to be an acquisition of control of the Company unless it could be
established that, on acquisition, the Company was not controlled in fact by the
acquiree through the ownership of Shares.

     Certain transactions relating to Shares are exempt from the Investment Act,
including:

         (a) an acquisition of Shares by a person in the ordinary course of that
person's business as a trader or dealer in securities;

         (b) an acquisition of control of the Company in connection with the
realization of security granted for a loan or other financial assistance and not
for a purpose related to the provisions of the Investment Act; and

         (c) an acquisition of control of the Company by reason of an
amalgamation, merger, consolidation, or corporate reorganization, following
which the ultimate direct or indirect control in fact of the Company, through
the ownership of Shares, remained unchanged.

Competition Act Review

     Investments giving rise to the acquisition or establishment, directly or
indirectly, by one of more persons of control over, or a significant interest in
the whole or part of a business of a competitor, supplier, customer or other
person are subject to substantive review by Canada's Competition Law Authority,
the Commissioner of Competition (the "Commissioner"). If or when the
Commissioner concludes that Merger, whether by purchase or lease of shares or
assets, by amalgamation or by combination, or otherwise, prevents or lessens, or
is likely to prevent or lessen competition substantially, he may apply to the
competition tribunal for such order as may be necessary to eliminate the
substantial lessening or prevention of competition. Such substantive Merger
review power applies to all Mergers, whether or not they meet limits for
pre-notification under the Competition Act.

     In addition to substantive Merger review, the Competition Act provides for
a notification regime respecting Mergers of certain size. The regime applies in
respect of share acquisitions, asset acquisitions, amalgamations and
combinations. For ease of reference, this filing refers specifically to share
acquisition, although the pre-notification regime applies, with the appropriate
modification, to other types of acquisition of control as well.


                                       67
<PAGE>


     In order for a share acquisition transaction to be pre-notifiable, the
parties to the transaction (being the person or persons who proposed to acquire
shares, and the Company the shares of which are to be acquired), together with
their affiliates (being all firms with a 50% or more voting shares linkage up
and down the chain) must have:

     A. aggregate gross assets in Canada that exceed $400,000,000.00 in value,
as shown on their audited financial statements for the most recently completed
fiscal year (which must be within the last fifteen (15) months); or

     B. aggregate gross revenue from sales in, from, or into Canada that exceed
$400,000,000.00 for the most recently completed fiscal year shown on the said
financial statements; and

     C. in addition the party being acquired must have gross assets in Canada,
or gross revenues from sales in or from Canada, exceeding $35,000,000 as shown
on the said financial statements. Acquisition of shares carrying up to 20% of
the votes of a publicly traded corporation, or 35% of the votes in a private
corporation will not be subject to pre-notification, regardless of the above
thresholds. However, exceeding the 20% or the 35% threshold, and again exceeding
the 50% threshold, gives rise to an obligation of notification if the size
threshold is met.

     If a transaction is pre-notifiable, a filing must be made with the
Commissioner containing the prescribed information with respect to the parties,
and a waiting period, (either fourteen or forty-two days, depending on whether a
long or short form filing is chosen) must expire prior to closing.

     As an alternative to pre-notification, the Commissioner may grant an
Advance Ruling Certificate, which exempts the transaction from pre-notification.
Advance Ruling Certificates are granted where the Commissioner concludes, based
on the information provided to him, that he would not have sufficient grounds on
which to apply to the Competition Tribunal to challenge the Merger.

E.   Taxation
     --------

     The following summary describes the principal Canadian federal income tax
considerations generally applicable to a holder of the Company's Shares who, for
purposes of the Income Tax Act (Canada) (the "Canadian Tax Act") and the
Convention between Canada and the United States of America with Respect to Taxes
on Income and on Capital (the "Convention") and at all relevant times, is
resident in the United States and not resident in Canada, deals at arm's length
with the Company, holds the Company's Shares as capital


                                       68
<PAGE>

property, and does not use or hold and is not deemed to use or hold the
Company's Shares in or in the course of carrying on business in Canada (a
"United States Holder").

     This following summary is based upon the current provisions of the Canadian
Tax Act, the regulations thereunder, all specific proposals to amend the
Canadian Tax Act and the regulations announced by the Minister of Finance
(Canada) prior to the date hereof and the Company's understanding of the
published administrative practices of the Canada Customs and Revenue Agency.
This summary does not take into account or anticipate any other changes in the
governing law, whether by judicial, governmental or legislative decision or
action, nor does it take into account the tax legislation or considerations of
any province, territory or non-Canadian (including U.S.) jurisdiction, which
legislation or considerations may differ significantly from those described
herein.

     This summary is of a general nature only and is not intended to be, and
should not be interpreted as legal or tax advice to any prospective purchaser or
holder of the Company's Shares and no representation with respect to the
Canadian federal income tax consequences to any such prospective purchaser is
made. Accordingly, prospective purchasers of the Company's shares should consult
their own tax advisors with respect to their individual circumstances.

Dividends on the Company's Shares

     Generally, dividends paid by Canadian corporations to non-resident
shareholders are subject to a withholding tax of 25% of the gross amount of such
dividends. However, pursuant to the Convention, the withholding tax rate on the
gross amount of dividends paid to residents of the United States is reduced to
15% or, in the case of a U.S. corporation which beneficially owns at least 10%
of the voting stock of the Canadian corporation paying the dividends, to 5% of
the gross amount of such dividends.

     Pursuant to the Convention, certain tax-exempt entities resident in the
United States may be exempt from Canadian withholding taxes, including any
withholding tax levied in respect of dividends received on the Company's Shares.

Disposition of the Company's Shares

         In general, a United States Holder will not be subject to Canadian
income tax on capital gains arising on the disposition of the Company's Shares,
unless such shares are "taxable Canadian property" within the meaning of the
Canada Tax Act and no relief is afforded under any applicable tax treaty. The
shares of the Company would be taxable Canadian property of a non-resident if at
any time during the sixty month period immediately preceding a disposition by
the non-resident of such shares, not less than 25% of the issued


                                       69
<PAGE>

shares of any class or series of a class of shares of the Company belonged to
the non-resident, to persons with whom the non-resident did not deal at arm's
length, or to the non-resident and persons with whom the non-resident did not
deal at arm's length for purposes of the Canada Tax Act. For this purpose,
issued shares include options to acquire such shares (including conversion
rights) held by such persons. Under the Convention, a capital gain realized by a
resident of the United States will not be subject to Canadian tax unless the
value of the Company's Shares is derived principally from real property (as
defined in the Convention) situated in Canada.

F.   Dividends and Paying Agents
     ---------------------------

         Not applicable.

G.   Statements by Experts
     ---------------------

         Not applicable.

H.   Documents on Display
     --------------------

     Copies of the documents referred to in this documents may be inspected,
during normal business hours, at the Company's headquarters located at 2155
Dunwin Drive, Suite 10 Mississauga, Ontario, L5L 4M1, Canada.

I.   Subsidiary Information
     ----------------------

     The Company has one wholly-owned subsidiary, Vasogen Ireland Limited, a
company incorporated under the laws of Ireland, which is the holder of the
Company's technology.

Item 11.  Quantitative and Qualitative Disclosures About Market Risk
          ----------------------------------------------------------

     The Company's primary market risk exposures are interest rate risk and
foreign currency risk.

     The Company is exposed to interest rate risk on its cash and short-term
deposits.

     The Company's reporting currency is the Canadian dollar. The Company is
exposed to foreign exchange risk associated with purchases from U.S. suppliers.
The Company does not hedge its exposure to foreign exchange risk. Gains and
losses resulting from the effects of changes in the U.S. dollar to Canadian
dollar exchange rate are recorded in income.



                                       70
<PAGE>

     The Company does not utilize derivative financial instruments to hedge its
interest rate or foreign currency rate risks.

Interest rate risk

     The following table sets out the weighted average interest rate risks and
maturities of the Company's cash and short-term deposits at April 30, 2001:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
                                                                       Expected to mature in

                                                        2001                   2002                  2003

Cash and short-term deposits:
<S>                                                  <C>                     <C>                   <C>
Canadian Dollars                                     24,435,000              6,327,000             5,439,000

         Average interest rate - fixed               4.8%                    5.6%                  5.7%

U.S. Dollars                                         18,000                  N/A                   N/A

         Average interest rate - fixed               N/A                     N/A                   N/A
-----------------------------------------------------------------------------------------------------------------
</TABLE>


Exchange rate sensitivity

     The Company does not have any material assets and liabilities at April 30,
2001 that are denominated in U.S. dollars and subject to exchange rate risk.

Limitations

     The above discussion includes only those exposures that exist as of April
30, 2001 and as a result, does not consider exposures or positions that could
arise after that date. The Company's ultimate realized gain or loss with respect
to interest rate and exchange rate fluctuations would depend on the exposures
that arise during the period, the Company's hedging strategies at the time, and
interest and foreign exchange rates.


Item 12.  Description of Securities Other than Equity Securities.
          -------------------------------------------------------

          Not applicable.


                                       71
<PAGE>

Item 13.  Defaults, Dividend Arrearages, and Delinquencies.
          -------------------------------------------------

          None.

Item 14.  Material Modifications to the Rights of Security Holders and Use
          ----------------------------------------------------------------
          of Proceeds.
          ------------

          None.

Item 15 and 16.

          Not applicable.

Item 17.  Financial Statements
          --------------------

          See "Item 18.  Financial Statements."

Item 18.  Financial Statements
          --------------------

     Report and Consolidated Financial Statements for the years ended November
30, 2000, 1999, and 1998 were reported on by KPMG LLP, Chartered Accountants.
These statements are prepared in accordance with generally accepted accounting
principles in Canada, which, except as described in Note 9 conform in all
material respects with accounting principles generally accepted in the United
States.

Item 19. Exhibits
         --------

     Exhibits 1, 2, and 3 (a) have been previously filed with the Securities and
Exchange Commission on July 2, 1997 in the Company's Registration Statement on
Form 20-F, and Exhibit 3 (b) has been previously filed with the Securities and
Exchange Commission on September 1, 1997 in Amendment Number 1 to the
Registration Statement on Form 20-F and are hereby incorporated by reference.
Exhibit 3 (c) has been previously filed with the Securities and Exchange
Commission on June 12, 1998 in the Company's Registration Statement on Form
20-F. Exhibit 3 (d) has been previously filed with the Securities and Exchange
Commission on May 18, 2000 in the Company's Registration Statement on Form 20-F.

1.   Articles of Incorporation and Amendments thereto.

2.   By-Laws.


                                       72
<PAGE>

3.   List of Agreements

     a. Agreement dated January 31, 1996 between Quarzlampenfabrik Dr. - Ing.
Felix W. Muller and Vasogen Inc.;

     b. Agreement dated April 15, 1997 between Delvin Inc. and Vasogen Inc.

     c. Agreement dated November 30, 1997 between Delvin Inc. and Vasogen Inc.

     d. Agreement dated September 29, 1999 between Delvin Inc. and Vasogen Inc.

     e. Employment agreement dated as of January 1, 1997 between Vasogen Inc.
and David Elsley.

     f. Employment agreement dated as of March 10, 1997 between Vasogen Inc. and
Christopher J. Waddick.

     g. Employment agreement dated as of August 8, 2000 between Vasogen Inc. and
Dr. Clive Ward-Able.

     h. Employment agreement dated as of February 1, 2001 between Vasogen Inc.
and Bernard Lim.

     Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                             VASOGEN INC.

                                             By: /S/ Christopher J.  Waddick
                                                ----------------------------
                                                Christopher J.  Waddick
                                                Vice President, Finance, CFO


Date:

                                       73

<PAGE>
Consolidated Financial Statements of

VASOGEN INC.

Years ended November 30, 2000 and 1999



<PAGE>
                                       1

Auditors' Report

To the Shareholders of Vasogen Inc.


We have audited the consolidated balance sheets of Vasogen Inc. (a development
stage company) as at November 30, 2000 and 1999 and the consolidated statements
of operations and deficit and cash flows for each of the years in the three-year
period ended November 30, 2000 and for the period from December 1, 1987 to
November 30, 2000. 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.

With respect to the consolidated financial statements for the year ended
November 30, 2000, we conducted our audit in accordance with Canadian generally
accepted auditing standards and United States generally accepted auditing
standards. With respect to the consolidated financial statements for each of the
years in the two-year period ended November 30, 1999 and for the period from
December 1, 1987 to November 30, 1999, we conducted our audits in accordance
with Canadian generally accepted auditing standards. Those standards require
that we plan and perform an audit to obtain reasonable assurance 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.

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at November 30, 2000
and 1999 and the results of its operations and its cash flows for each of the
years in the three-year period ended November 30, 2000 and for the period from
December 1, 1987 to November 30, 2000 in accordance with Canadian generally
accepted accounting principles.

Canadian generally accepted accounting principles vary in certain significant
respects from accounting principles generally accepted in the United States.
Application of accounting principles generally accepted in the United States
would have affected results of operations for each of the years in the
three-year period ended November 30, 2000 and for the period from December 1,
1987 to November 30, 2000 and balance sheets as at November 30, 2000 and 1999 to
the extent summarized in Note 9 to the consolidated financial statements.


/s/ KPMG LLP
-------------

Chartered Accountants

Toronto, Canada

December 22, 2000


<PAGE>






VASOGEN INC.
(A DEVELOPMENT STAGE COMPANY)

Consolidated Balance Sheets
(In thousands of Canadian dollars)

November 30, 2000 and 1999

-------------------------------------------------------------------------
                                                        2000         1999
-------------------------------------------------------------------------

Assets

Current assets:
         Cash and cash equivalents                   $ 2,327      $ 1,031
         Marketable securities (note 2)               27,999        6,837
         Prepaid expenses and other receivables        1,177          562
-------------------------------------------------------------------------
                                                      31,503        8,430

Marketable securities (note 2)                        11,313          739

Capital assets                                           432          299
Less accumulated amortization                            180          106
-------------------------------------------------------------------------
                                                         252          193

Acquired technology                                    4,081        4,081
Less accumulated amortization                          2,309        2,056
-------------------------------------------------------------------------
                                                       1,772        2,025
-------------------------------------------------------------------------
                                                    $ 44,840     $ 11,387
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S>                                                            <C>            <C>

Liabilities and Shareholders' Equity

Current liabilities:
         Accounts payable and accrued liabilities              $  1,326       $    945

Shareholders' equity:
         Share capital (note 3)                                  90,785         47,752
         Deficit accumulated during the development stage       (47,271)       (37,310)
--------------------------------------------------------------------------------------
                                                                 43,514         10,442

--------------------------------------------------------------------------------------
                                                               $ 44,840       $ 11,387
--------------------------------------------------------------------------------------
</TABLE>


See accompanying notes to consolidated financial statements.


On behalf of the Board:

/s/                            Director
------------------------------

/s/                            Director
------------------------------


                                        1

<PAGE>



VASOGEN INC.
(A DEVELOPMENT STAGE COMPANY)

Consolidated Statements of Operations and Deficit
(In thousands of Canadian dollars except per share amounts)

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
                                                                                   Period from
                                                                                   December 1,
                                                                                       1987 to
                                              Years ended November 30,             November 30,
                                           2000           1999            1998            2000
-------------------------------------------------------------------------------------------------
<S>                                      <C>            <C>            <C>            <C>
Expenses:
         Research and development        $  6,108       $  4,672       $  4,656       $ 27,318
         General and administration         5,156          3,554          2,957         20,644
-------------------------------------------------------------------------------------------------

Loss before the undernoted                (11,264)        (8,226)        (7,613)       (47,962)

Investment income                           1,303            311            301          2,201
-------------------------------------------------------------------------------------------------

Loss for the period                        (9,961)        (7,915)        (7,312)       (45,761)

Deficit, beginning of period              (37,310)       (29,395)       (22,083)        (1,510)

-------------------------------------------------------------------------------------------------
Deficit, end of period                   $(47,271)      $(37,310)      $(29,395)      $(47,271)
-------------------------------------------------------------------------------------------------

Basic and diluted loss per share         $  (0.24)      $  (0.25)      $  (0.29)

-------------------------------------------------------------------------------------------------
</TABLE>


See accompanying notes to consolidated financial statements.

                                       2

<PAGE>


VASOGEN INC.
(A DEVELOPMENT STAGE COMPANY)

 Consolidated Statements of Cash Flows
(In thousands of Canadian dollars)

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
                                                                                                Period from
                                                                                                December 1,
                                                                                                    1987 to
                                                             Years ended November 30,           November 30,
                                                        2000           1999          1998              2000
----------------------------------------------------------------------------------------------------------------
<S>                                                   <C>            <C>            <C>            <C>
Cash provided by (used in):

Operations:
         Loss for the period                          $ (9,961)      $ (7,915)      $ (7,312)      $(45,761)
         Items not involving cash:
                  Amortization of capital assets
                       and acquired technology             327            300            236          2,708
                  Loss on write-off of
                       capital assets                       --             --              6             24
                  Forgiveness of debt                       --             --             --            (63)
                  Common shares issued
                       for services                        233            259             55          2,449
                  Foreign exchange                         (21)           (27)           (40)           (88)
                  Change in non-cash
                       working capital (note 4)           (234)           (11)            99            121
----------------------------------------------------------------------------------------------------------------
                                                        (9,656)        (7,394)        (6,956)       (40,610)

Financing:
         Shares issued for cash                         35,650          9,825          5,043         68,882
         Warrants exercised for cash                     6,898          1,739            253         15,594
         Options exercised for cash                      2,064            724             95          4,184
         Share issue costs                              (1,812)          (934)          (479)        (4,986)
         Issue of convertible debt                          --             --             --            650
         Financing costs                                    --             --             --            (28)
         Payable to related parties                         --             --             --           (232)
----------------------------------------------------------------------------------------------------------------

                                                        42,800         11,354          4,912         84,064

Investments:
         Increase in capital assets                       (133)          (141)          (100)          (620)
         Increase in acquired technology                    --           (440)          (178)        (1,283)
         Purchases of marketable securities            (35,226)        (9,839)        (4,037)       (60,298)
         Maturities of marketable securities             3,490          6,391          6,937         20,986
----------------------------------------------------------------------------------------------------------------

                                                       (31,869)        (4,029)         2,622        (41,215)

Foreign exchange gain on cash
     held in foreign currency                               21             27             40             88
----------------------------------------------------------------------------------------------------------------


Increase (decrease) in cash
     and cash equivalents                                1,296            (42)           618          2,327

Cash and cash equivalents,
     beginning of period                                 1,031          1,073            455             --

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

Cash and cash equivalents,
     end of period                                    $  2,327       $  1,031       $  1,073       $  2,327
----------------------------------------------------------------------------------------------------------------
</TABLE>

Supplementary disclosures (note 4)
See accompanying notes to consolidated financial statements.

                                       3

<PAGE>


VASOGEN INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements
(Tabular amounts in thousands of Canadian dollars)

Years ended November 30, 2000, 1999 and 1998 and the period
from December 1, 1987 to November 30, 2000.

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

Since December 1, 1987, the Company has been engaged in the research and
commercial development of its immune modulation therapies for the treatment and
prevention of disease. The Company has not had any commercial operations since
inception. The financial information presented has been prepared on the basis
that the Company is considered a development stage enterprise and accordingly,
the statements of operations and deficit and cash flows also reflect the
cumulative amounts from December 1, 1987 to November 30, 2000.


1.    Significant accounting policies:

      These  consolidated  financial  statements are prepared in accordance with
      accounting  principles  generally  accepted  in Canada,  which,  except as
      described  in note 9,  conform in all material  respects  with  accounting
      principles generally accepted in the United States.


      (a) Principles of consolidation:

          These  consolidated  financial  statements include the accounts of the
          Company and its wholly  owned  subsidiary,  Vasogen  Ireland  Limited,
          incorporated in 1998. The functional  currency of the Irish subsidiary
          is  the  Canadian  dollar.  All  material  intercompany  balances  and
          transactions have been eliminated.


      (b) Marketable securities:

          Marketable  securities  held to  maturity  are  stated at the lower of
          amortized cost or market. Interest is recognized on an effective yield
          basis.


      (c) Concentration of credit risk:

          Financial   instruments   potentially   exposing   the  Company  to  a
          concentration  of  credit  risk  consist   principally  of  marketable
          securities.

          Marketable securities include bonds issued by Canadian governments and
          predominantly crown corporations,  with varying maturities between one
          and thirty-six  months from the date of purchase,  that are capable of
          prompt liquidation.

                                        4

<PAGE>

VASOGEN INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements
(Tabular amounts in thousands of Canadian dollars)

Years ended November 30, 2000, 1999 and 1998 and the period
from December 1, 1987 to November 30, 2000.

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

1.    Significant accounting policies (continued):


      (d) Capital assets:

          Capital  assets  are  stated at cost and  include  testing  equipment,
          computer  equipment  and  leasehold   improvements.   Amortization  is
          provided  on a  straight-line  basis  over  five  years.  The  Company
          regularly  reviews the carrying values of its capital  assets.  If the
          carrying values of its capital assets exceed the amount recoverable, a
          write-down is charged to the statement of operations.


      (e) Acquired technology:

          Acquired  technology,  representing  the  Company's  platform  medical
          device  technology,  is stated at cost.  Amortization is provided on a
          straight-line  basis over 20 years,  representing  the period from the
          acquisition  date  to the  expiry  date  of the  technology's  initial
          patent. On an ongoing basis, management reviews the carrying value and
          amortization of the technology,  taking into  consideration any events
          and  circumstances  that might impair its value.  A loss is charged to
          the  statement  of  operations  when the  carrying  values of acquired
          technology exceed its recoverable amount.


      (f) Stock-based compensation plan:

          The Company has a stock-based  compensation  plan as described in note
          3. No  compensation  expense  is  recognized  when  stock  options  or
          warrants are issued.  Any consideration  paid on the exercise of stock
          options, warrants, or purchase of stock is credited to share capital.


      (g) Research and development:

          Research  costs  are  expensed  as  incurred.  Development  costs  are
          expensed as incurred  unless they meet the  criteria  under  generally
          accepted   accounting   principles   in  Canada   for   deferral   and
          amortization.  The Company had not  capitalized  any such  development
          costs to date.

                                       5

<PAGE>
VASOGEN INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements
(Tabular amounts in thousands of Canadian dollars)

Years ended November 30, 2000, 1999 and 1998 and the period
from December 1, 1987 to November 30, 2000.

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

1.    Significant accounting policies (continued):


      (h) Measurement uncertainty:


          The  preparation of financial  statements in conformity with generally
          accepted  accounting  principles requires management to make estimates
          and  assumptions  that  affect  the  reported  amounts  of assets  and
          liabilities and disclosure of contingent assets and liabilities at the
          date of the financial  statements and the reported  amounts of revenue
          and expenses  during the year.  Actual results could differ from those
          estimates.


      (i) Income taxes and investment tax credits:


          Effective  December  1, 1999 the  Company  changed  from the  deferral
          method of  accounting  for  income  taxes to the  asset and  liability
          method of accounting  for income taxes.  Under the asset and liability
          method,  future tax  assets and  liabilities  are  recognized  for the
          future tax  attributable  to the  temporary  differences  between  the
          financial   statement   carrying   amounts  of  existing   assets  and
          liabilities  and their  respective  tax  carrying  values.  Future tax
          assets and  liabilities  are measured  using enacted or  substantially
          enacted tax rates  expected to apply to taxable  income in the year in
          which those  temporary  differences  are  expected to be  recovered or
          settled.


          The Company has determined that there is no material difference in its
          income tax position under the asset and liability method of income tax
          accounting  because  any future tax assets  initially  recognized  are
          fully  offset by a  valuation  allowance.  Management  has  provided a
          valuation  allowance  equivalent  to  the  gross  deferred  tax  asset
          balances given the development  stage of the Company's  activities and
          the  uncertainty  that  it will  generate  sufficient  income  for tax
          purposes to utilize the tax losses in the carry-forward  period. Prior
          years' financial  statements have not been restated for this change in
          accounting policy.


          The benefits of tax credits for  scientific  research and  development
          expenditures  are recognized in the year the  qualifying  expenditures
          are made provided there is reasonable assurance of recoverability. The
          tax credits reduce the cost of capital assets and research  costs,  as
          applicable.

                                       6

<PAGE>
VASOGEN INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements
(Tabular amounts in thousands of Canadian dollars)

Years ended November 30, 2000, 1999 and 1998 and the period
from December 1, 1987 to November 30, 2000.

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

1.    Significant accounting policies (continued):


      (j) Comparative figures:


          Certain comparative figures have been reclassified to conform with the
          financial statements presentation adopted for the current year.


2.    Marketable securities:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                           One year
                                                       One year              plus                                    Yield to
2000                                                   maturity            maturities            Total               maturity
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>                <C>                   <C>                <C>
              Canadian federal government bonds       $  2,438           $    1,289            $    3,727         5.62 - 5.97%
              Canadian provincial government
                  bonds                                  3,567                3,666                 7,233         5.70 - 6.17%
              Canadian corporate bonds                  21,994                6,358                28,352         5.85 - 6.36%

------------------------------------------------------------------------------------------------------------------------------------
                                                      $ 27,999           $   11,313            $   39,312
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                          One year
                                                      One year              plus                                   Yield to
1999                                                  maturity           maturities              Total             maturity
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>                <C>                   <C>               <C>
              Canadian federal government bonds       $  1,299           $        -            $    1,299        4.21% - 4.54%
              Canadian provincial government
                  bonds                                  4,217                  668                 4,885        4.21% - 6.01%
              Canadian corporate bonds                   1,321                   71                 1,392        5.00% - 6.10%

------------------------------------------------------------------------------------------------------------------------------------
                                                      $  6,837           $      739            $    7,576
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

At November  30, 2000 and 1999,  the  carrying  value of  marketable  securities
approximated their quoted market value.

                                       7

<PAGE>

VASOGEN INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements
(Tabular amounts in thousands of Canadian dollars)

Years ended November 30, 2000, 1999 and 1998 and the period
from December 1, 1987 to November 30, 2000.

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

3.    Share capital:


      (a) Authorized unlimited common shares, without par value:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                                                 Period from
                                                                                                              December 1,1987 to
                                            2000                   1999                    1998                 November 30,2000
-----------------------------------------------------------------------------------------------------------------------------------
                                Number of                  Number of               Number of                 Number of
                                shares      Amount         shares      Amount      shares       Amount       shares        Amount
-----------------------------------------------------------------------------------------------------------------------------------
                               (In thousands)             (In thousands)          (In thousands)            (In thousands)
<S>                             <C>        <C>             <C>        <C>          <C>        <C>             <C>        <C>
Balance, beginning
    of period                   35,592     $ 47,752        26,574     $ 36,139     23,331     $ 31,172         1,032     $  1,213

Issued for:
         Cash                    3,738       35,650         6,590        9,825      2,882        5,043        25,407       68,882
         Services                   40          233           207          259         33           55         1,571        2,449
         Technology                 --           --            --           --         --           --         1,913        2,799
         Warrants exercised      3,979        6,898         1,627        1,739        228          253        11,028       15,594
         Options exercised       1,393        2,064           594          724        100           95         3,367        4,184
         Debt conversion            --           --            --           --         --           --           424          650
         Share issue costs          --       (1,812)           --         (934)        --         (479)           --       (4,986)

-----------------------------------------------------------------------------------------------------------------------------------
Balance, end of period          44,742     $ 90,785        35,592     $ 47,752     26,574     $ 36,139        44,742     $ 90,785
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


Common  shares  issued for services or acquired  technology  are recorded at the
quoted market value of the shares at the respective issue date.

                                       8

<PAGE>

VASOGEN INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements
(Tabular amounts in thousands of Canadian dollars)

Years ended November 30, 2000, 1999 and 1998 and the period
from December 1, 1987 to November 30, 2000.

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

3.    Share capital (continued):


      (b) Options:

--------------------------------------------------------------------------------
                                         2000             1999           1998
--------------------------------------------------------------------------------
                                                    (In thousands)

Balance, beginning of year               2,562          2,435            2,481
Issued                                     311            766              569
Exercised                               (1,393)          (594)            (100)
Expired or cancelled                         -            (45)            (515)

--------------------------------------------------------------------------------
Outstanding, end of year                 1,480           2,562           2,435
--------------------------------------------------------------------------------

Exercisable, end of year                 1,265          2,092            2,285

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


          The exercise  prices of options must at least equal the quoted  market
          value of the underlying  common shares on the date of the grant.  Each
          option granted  allows the holder to purchase one common share.  As at
          November 30, 2000,  these  options have exercise  prices  ranging from
          $1.00 to $9.55,  and  generally  vest over a maximum  period of two to
          three years and expire over various dates to 2005.


      (c) Warrants:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
                                                                         2000           1999             1998
----------------------------------------------------------------------------------------------------------------
                                                      Warrants
                                                     issued for
                                       Warrants      financing/
                                      issued for     technology
                                       services      acquisition         Total          Total           Total
----------------------------------------------------------------------------------------------------------------
                                                                                   (In thousands)
<S>                                     <C>             <C>             <C>             <C>               <C>
       Balance,
           beginning of year             1,692           2,780           4,472           5,885           4,725
       Issued                              283              --             283             796           2,538
       Exercised                        (1,372)         (2,607)         (3,979)         (1,627)           (228)
       Expired or cancelled               (290)           (143)           (433)           (582)         (1,150)

----------------------------------------------------------------------------------------------------------------
       Outstanding, end of year            313              30             343           4,472           5,885
----------------------------------------------------------------------------------------------------------------

       Exercisable, end of year            278              30             308           4,304           5,885
----------------------------------------------------------------------------------------------------------------
</TABLE>

                                       9


<PAGE>
VASOGEN INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements
(Tabular amounts in thousands of Canadian dollars)

Years ended November 30, 2000, 1999 and 1998 and the period
from December 1, 1987 to November 30, 2000.

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

3.    Share capital (continued):


          As at November 30, 2000,  these warrants have exercise  prices ranging
          from $1.00 to $10.00  and  expire  over  various  dates to 2004.  Each
          warrant granted allows the holder to purchase one common share.

      (d) Employment options and warrants:

          The following tables present  information on employment  options which
          include  all  stock  options  and  warrants   issued  for   employment
          compensation:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
                                              2000                      1999                      1998
-----------------------------------------------------------------------------------------------------------------
                                                   Weighted                   Weighted                   Weighted
                                                    average                   average                     average
                                                   exercise                   exercise                   exercise
                                     Number           price      Number         price       Number          price
-----------------------------------------------------------------------------------------------------------------
                                   (In thousands)              (In thousands)             (In thousands)
<S>                                 <C>              <C>         <C>             <C>          <C>            <C>
       Outstanding,
           beginning of year         3,861       $   1.46         4,534      $   1.37        4,445       $   1.43
       Issued                          311           7.33           766          1.62          804           1.25
       Exercised                    (2,567)          1.37        (1,194)         1.18         (150)          1.01
       Expired or cancelled             --             --          (245)         1.52         (565)          2.23

-----------------------------------------------------------------------------------------------------------------
       Outstanding,
            end of year              1,605           2.59         3,861          1.46        4,534           1.37
-----------------------------------------------------------------------------------------------------------------

       Exercisable,
           end of year               1,390       $   2.23         3,392      $   1.40        4,385       $   1.35

-----------------------------------------------------------------------------------------------------------------
</TABLE>


          As at November 30, 2000,  there were 443,092  (1999 - 246,952;  1998 -
          380,798) employment options and warrants available for grant.

                                       10

<PAGE>


VASOGEN INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements
(Tabular amounts in thousands of Canadian dollars)

Years ended November 30, 2000, 1999 and 1998 and the period
from December 1, 1987 to November 30, 2000.

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

3.    Share capital (continued):


      Employment options outstanding and exercisable as of November 30, 2000 are
      as follows:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
                             Employment                                Employment
                    options outstanding                       options exercisable
-----------------------------------------------------------------------------------
                                                Weighted average
      Exercise                                         remaining
      price                      Number         contractual life           Number
-----------------------------------------------------------------------------------
                         (In thousands)                             (In thousands)

<S>   <C>                        <C>                <C>                     <C>
      $    1.00 -  $1.25          941               1.4 - 3.0                 941
           1.55 -   1.75          183               1.1 - 3.5                 173
           2.00 -   3.02          170               1.3 - 3.9                 165
           5.70 -   7.05          161               4.1 - 4.4                  21
           8.25 -   9.55          150               2.6 - 4.6                  90

-----------------------------------------------------------------------------------
                                1,605                     3.3                1,390
-----------------------------------------------------------------------------------
</TABLE>


4.    Supplemental cash flow information:


      (a) Change in non-cash working capital:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
                                                                                      Period from
                                                                                      December 1,
                                                                                          1987 to
                                         Years ended November 30,                    November 30,
                                          2000            1999              1998             2000
--------------------------------------------------------------------------------------------------
<S>                                    <C>              <C>              <C>              <C>
       Prepaid expenses and
           advances                    $  (615)         $  (210)         $  (266)         $(1,145)
       Accounts payable and
           accrued liabilities             381              199              365            1,266

--------------------------------------------------------------------------------------------------
                                       $  (234)         $   (11)         $    99          $   121
--------------------------------------------------------------------------------------------------
</TABLE>

                                       11


<PAGE>

VASOGEN INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements
(Tabular amounts in thousands of Canadian dollars)

Years ended November 30, 2000, 1999 and 1998 and the period
from December 1, 1987 to November 30, 2000.

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

4.    Supplemental cash flow information (continued):


      (b) Non-cash financing and investing activities:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
                                                                                         Period from
                                                                                         December 1,
                                                                                             1987 to
                                                       Years ended November 30,         November 30,
                                                 2000            1999          1998             2000
---------------------------------------------------------------------------------------------------------
<S>                                           <C>             <C>             <C>             <C>
       Non-cash financing activity:
                Debt conversion               $    --         $    --         $    --         $  (650)
                Shares issued on debt
                    conversion                     --              --              --             650
                Shares issued for services        233             259              55           2,449
                Shares issued for technology       --              --              --           2,799

---------------------------------------------------------------------------------------------------------
                                              $   233         $   259         $    55         $ 5,248
---------------------------------------------------------------------------------------------------------

       Non-cash investing activity:
                Technology acquired for
                    shares issued             $    --         $    --         $    --         $(2,799)

---------------------------------------------------------------------------------------------------------
</TABLE>


      (c) The interest  received in 2000 was $859,000  (1999 - $195,000;  1998 -
          $146,000; from inception to November 30, 2000 - $1,482,000).

5.    Fair values of financial instruments:


      The carrying values of cash and cash  equivalents and accounts payable and
      accrued  liabilities  approximate  their fair value due to the  relatively
      short  periods to maturity of these  instruments.  The  carrying  value of
      marketable securities approximates their quoted market value.

                                       12

<PAGE>


VASOGEN INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements
(Tabular amounts in thousands of Canadian dollars)

Years ended November 30, 2000, 1999 and 1998 and the period
from December 1, 1987 to November 30, 2000.

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

6.    Income taxes:


      The tax  effect of  temporary  differences  that give rise to  significant
      components of the Company's  future tax assets and future tax  liabilities
      at November 30, 2000 are presented below:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                                                                               2000             1999
--------------------------------------------------------------------------------------------------------
                                                                                    (In thousands)
       <S>                                                                    <C>              <C>
       Future tax assets:
                Non-capital losses                                            $ 4,143          $ 5,794
                Deductible share issue costs                                      871              603
                SR&ED expenditure pool, net of refundable tax credits           4,143            3,201
--------------------------------------------------------------------------------------------------------
                                                                                9,157            9,598

                Less valuation allowance                                       (8,933)          (9,466)

       Future tax liability:
                Excess of book value of capital assets over tax value            (224)            (132)

--------------------------------------------------------------------------------------------------------
       Net future tax asset                                                   $    --          $    --
--------------------------------------------------------------------------------------------------------
</TABLE>


      Under the Income Tax Act of Canada, certain expenditures are classified as
      Scientific Research & Experimental  Development  (SR&ED)  expenditures and
      for tax purposes, are grouped into a pool, which is 100% deductible in the
      year incurred.  This SR&ED  expenditure  pool can also be carried  forward
      indefinitely and deducted in full in any subsequent year.


      The  balance  of the  SR&ED  expenditure  pool  at  November  30,  2000 is
      approximately $11,310,000 (1999 - $7,180,000).

                                       13

<PAGE>
VASOGEN INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements
(Tabular amounts in thousands of Canadian dollars)

Years ended November 30, 2000, 1999 and 1998 and the period
from December 1, 1987 to November 30, 2000.

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


6.    Income taxes (continued):


      The  Company  has also earned  investment  tax  credits  ("ITCs") on SR&ED
      expenditures, which will expire as follows:

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

              2005                                         $   128
              2006                                             299
              2007                                             404
              2008                                             341
              2009                                             485
              2010                                             979

--------------------------------------------------------------------------------
                                                           $ 2,636
--------------------------------------------------------------------------------


      The Company has losses of  approximately  $12,258,000  available to reduce
      future  taxable  income,  the benefit of which will be  recognized  in the
      accounts when realized. These tax losses expire as follows:

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

              2003                                         $ 3,058
              2004                                           6,473
              2006                                           2,002
              2007                                             725

--------------------------------------------------------------------------------
                                                           $12,258
--------------------------------------------------------------------------------


      The  Company's   subsidiary,   Vasogen  Ireland  Limited,  has  losses  of
      approximately  $15,072,000 available indefinitely to reduce future taxable
      income,  the  benefit of which will be  recognized  in the  accounts  when
      realized.


7.    Segment information:


      The Company  operates in one business  segment  being the  development  of
      immune modulation therapies.  The capital assets are located in Canada and
      the acquired technology is located in Ireland.

                                       14

<PAGE>

VASOGEN INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements
(Tabular amounts in thousands of Canadian dollars)

Years ended November 30, 2000, 1999 and 1998 and the period
from December 1, 1987 to November 30, 2000.

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

8.    Royalty commitments:


      The Company has granted  royalties to arm's-length  third parties on gross
      amounts  received  by the  Company  from  future  commercial  sales of its
      products comprising 1.5% on all sales to a maximum royalty of $1.3 million
      per annum and an additional 2% with respect to revenue derived from VAS971
      to a maximum  royalty of $5.0 million per annum. To date, no royalties are
      due and/or payable.


9.    Differences between generally accepted accounting principles ("GAAP")
      in Canada and the United States:


      The Company's consolidated financial statements are prepared in accordance
      with GAAP in Canada which differ in certain respects from those applied in
      the United  States.  The following  tables  present the impact of material
      differences  between  Canadian  GAAP and GAAP in the United  States on the
      Company's consolidated financial statements.


      (a) Consolidated statements of operations and deficit:

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------
                                                                                                   Period from
                                                                                                   December 1,
                                                                                                       1987 to
                                                            Years ended November 30,              November 30,
                                                    2000             1999              1998               2000
----------------------------------------------------------------------------------------------------------------
<S>                                             <C>               <C>               <C>               <C>
       Loss per Canadian GAAP                   $ (9,961)         $ (7,915)         $ (7,312)         $(45,761)
       Technology costs (i)                           --              (440)             (179)           (4,081)
       Technology amortization (i)                   253               253               204             2,309
       Non-employee stock
           compensation (ii)                        (595)             (326)             (128)           (1,516)
       Warrants issued to acquire
           technology (iii)                           --                --                --               (61)

----------------------------------------------------------------------------------------------------------------
       Loss per United States GAAP             $ (10,303)         $ (8,428)         $ (7,415)         $(49,110)
----------------------------------------------------------------------------------------------------------------

       Basic and diluted loss per share
           under United States GAAP             $  (0.25)         $  (0.27)         $  (0.29)

----------------------------------------------------------------------------------------------------------------
                                                                        (In thousands)

       Weighted average number of shares
           under United States GAAP (iv)          40,941            31,131            25,416

----------------------------------------------------------------------------------------------------------------
</TABLE>

                                       15

<PAGE>

VASOGEN INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements
(Tabular amounts in thousands of Canadian dollars)

Years ended November 30, 2000, 1999 and 1998 and the period
from December 1, 1987 to November 30, 2000.

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


9.    Differences between generally accepted  accounting  principles ("GAAP") in
      Canada and the United States (continued):


      (b) Consolidated balance sheets:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
                                                     2000                          1999
--------------------------------------------------------------------------------------------------
                                                            United                        United
                                              Canada        States        Canada          States
--------------------------------------------------------------------------------------------------
       <S>                                   <C>           <C>           <C>          <C>
       Acquired technology (i)               $  1,772      $     --      $  2,025     $       --
       Share capital (ii) (iii)                90,785        92,362        47,752         48,734
       Deficit, end of year (i) (ii) (iii)    (47,271)      (50,620)      (37,310)        40,317
       Deficit accumulated
           during development
           stage (i) (ii) (iii)               (45,761)      (49,110)      (35,800)       (38,807)

--------------------------------------------------------------------------------------------------
</TABLE>


                        (i)     Canadian GAAP permits the capitalization and
                                amortization of acquired technology costs. Under
                                United States GAAP, such acquired technology
                                costs are charged to expense when incurred if,
                                at the acquisition date, the technological
                                feasibility of this technology had not yet been
                                established and no future alternative uses
                                existed. Accordingly, for United States GAAP
                                purposes the costs would have been expensed and
                                the amortization recorded under Canadian GAAP
                                would be reversed.


                        (ii)    In 1996, Financial Accounting Standards Board
                                (FASB) Statement of Financial Accounting
                                Standards (SFAS No. 123), "Accounting for Stock
                                Based Compensation," was issued and requires the
                                recording of compensation costs for stock
                                options and warrants issued after December 15,
                                1995 to non-employees, such as members of the
                                Scientific Advisory Board, and other consultants
                                and advisors, at fair value. The fair value of
                                the non-employee stock options and warrants
                                granted post December 15, 1995 has been
                                estimated at the date of grant using the
                                Black-Scholes option pricing model based on the
                                assumptions set out in note 9(e). The stock
                                compensation charge for non-employee services
                                received, calculated in accordance with SFAS123,
                                is $595,000 for the year ended November 30, 2000
                                (1999 - $326,000; 1998 - $128,000; period from
                                December 1, 1987 to November 30, 2000 -
                                $1,516,000).

                                       16

<PAGE>

VASOGEN INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements
(Tabular amounts in thousands of Canadian dollars)

Years ended November 30, 2000, 1999 and 1998 and the period
from December 1, 1987 to November 30, 2000.

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

9.    Differences between generally accepted accounting principles ("GAAP") in
      Canada and the United States (continued):


                                For purposes of measuring compensation cost
                                under United States GAAP, the Company has
                                elected to apply the provisions of APB Opinion
                                No. 25 and related interpretations including
                                FASB Interpretation No. 44, in accounting for
                                stock options and warrants issued to employees
                                as employment compensation ("employment
                                options"). Under this method, no compensation
                                expense is recorded for employee stock options
                                or warrants having an exercise price that
                                exceeds or equals the market value of the
                                underlying shares at the grant date. For the
                                Company, this results in accounting consistent
                                with the approach used under Canadian GAAP and,
                                accordingly, no compensation expense has been
                                recognized in fiscal 2000 or in prior years
                                since inception.


                        (iii)   In 1996, 100,000 warrants were issued as part of
                                the technology acquisition consideration. United
                                States GAAP requires these acquired technology
                                costs to be recorded in an amount approximating
                                the fair value of the warrants issued, estimated
                                at their grant date using the Black-Scholes
                                option pricing model based on the assumptions
                                similar to those disclosed in note 9(e).


                        (iv)    The options and warrants outstanding for the
                                year ended November 30, 2000 were not included
                                in the calculation of diluted earnings per share
                                because the Company had a net loss for that year
                                and to do so would have been antidilutive.


      (c) Consolidated statements of cash flows:


          Cash from operations under United States GAAP includes the adjustments
          (i),  (ii) and (iii) to the loss for the year.  Cash used in investing
          activities  under United  States GAAP  excludes  amounts  representing
          acquired technology (adjustment (i)).

                                       17

<PAGE>
VASOGEN INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements
(Tabular amounts in thousands of Canadian dollars)

Years ended November 30, 2000, 1999 and 1998 and the period
from December 1, 1987 to November 30, 2000.

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

9.    Differences between generally accepted accounting principles ("GAAP") in
      Canada and the United States (continued):


      (d) Income taxes


          Under  Canadian  GAAP,  investment  tax credits and other research and
          development   credits  are  deducted  from  research  and  development
          expense,  for items of a current  nature,  and  deducted  from capital
          assets,  for  items  of a  capital  nature.  For  United  States  GAAP
          purposes,  these  credits may be recorded as a reduction of income tax
          expense.  Total research and development credits were $403,000 in 2000
          (1999 - $369,000;  1998 - nil;  from  December 1, 1987 to November 30,
          2000 - $772,000).


          Under Canadian GAAP, the future income tax assets and  liabilities are
          calculated using the enacted or substantially enacted tax rates. Under
          United States GAAP,  future tax assets and  liabilities are calculated
          using only enacted tax rates.  As at November 30, 2000, the net future
          tax assets and valuation allowance calculated under United States GAAP
          would have increased by approximately $3,734,000 as set out below:

<TABLE>
<CAPTION>
       -----------------------------------------------------------------------------------
                                                                                    2000
       -----------------------------------------------------------------------------------
                                                                           (In thousands)
       <S>                                                                     <C>
       Future tax assets:
                Non-capital losses                                             $  6,905
                Deductible share issue costs                                        997
                SR&ED expenditure pool, net of refundable tax credits             4,983
                --------------------------------------------------------------------------
                                                                                 12,885

                Less valuation allowance                                        (12,667))

       Future tax liability:
                Excess of book value of capital assets over tax value              (218)

       -----------------------------------------------------------------------------------
       Net future tax asset                                                    $      -
       -----------------------------------------------------------------------------------
</TABLE>


      There are no significant differences in future tax assets and liabilities
      calculated in years preceding 2000 under the Canadian and United States
      accounting standards.

                                       18

<PAGE>

VASOGEN INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements
(Tabular amounts in thousands of Canadian dollars)

Years ended November 30, 2000, 1999 and 1998 and the period
from December 1, 1987 to November 30, 2000.

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


      (e) Stock-based compensation:


      The fair value of the employee and non-employee stock-based compensation
      has been estimated at the date of grant using the Black-Scholes option
      pricing model under the following assumptions:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
                                                         2000          1999         1998
-------------------------------------------------------------------------------------------
<S>                                                    <C>           <C>          <C>
       Weighted average risk-free interest rate          6.13%         6.19%         5.54%
       Dividend yield                                    0.00          0.00          0.00
       Volatility factor of the expected market
           price of the Company's common shares            90%           90%           90%
       Weighted average expected life of the
           employment options                          2 years       2 years      2 years

-------------------------------------------------------------------------------------------
</TABLE>


      The resulting weighted average, grant-date fair value of the employee and
      non-employee stock-based compensation issued in 2000 was $4.61 (1999 -
      $1.05; 1998 - $0.88).

                                       19

<PAGE>

VASOGEN INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements
(Tabular amounts in thousands of Canadian dollars)

Years ended November 30, 2000, 1999 and 1998 and the period
from December 1, 1987 to November 30, 2000.

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

9.    Differences between generally accepted accounting principles ("GAAP") in
      Canada and the United States (continued):


      While SFAS No. 123 does not require the recording of compensation cost for
      stock options and warrants issued to employees at fair value, it does
      require disclosure of pro forma net income and earnings per share
      information as if the Company had accounted for employment options and
      warrants issued in 2000, 1999 and 1998 under the fair value method, as
      follows:

--------------------------------------------------------------------------------
                                           2000           1999            1998
--------------------------------------------------------------------------------
                                                       (Unaudited)

      Loss for the year                 $(10,303)       $(8,428)        $(7,415)
      Compensation cost - employees         (769)          (675)           (665)

--------------------------------------------------------------------------------
      Pro forma loss for the year       $(11,072)       $(9,103)       $ (8,080)
--------------------------------------------------------------------------------

      Pro forma loss per share          $  (0.27)       $ (0.29)        $ (0.32)

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


          The effects of applying SFAS No. 123 to calculate compensation cost in
          2000, 1999 and 1998 may not be representative of the effects on pro
          forma net income in future periods.


      (f) Recent accounting pronouncements:

          In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
          Instruments and Hedging  Activities." SFAS No. 133 established methods
          of  accounting  for  derivative  financial   instruments  and  hedging
          activities  related  to those  instruments,  as well as other  hedging
          activities. Application for this SFAS has been postponed. As such, the
          Company will be required to implement SFAS No. 133 for its fiscal year
          ended  November  30,  2001.  To date the Company has not entered  into
          derivative contracts. The Company expects the adoption of SFAS No. 133
          will have no material  impact on its  financial  position,  results of
          operations or cash flows.

                                       20

<PAGE>

VASOGEN INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements
(Tabular amounts in thousands of Canadian dollars)

Years ended November 30, 2000, 1999 and 1998 and the period
from December 1, 1987 to November 30, 2000.

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


9.    Differences between generally accepted accounting principles ("GAAP") in
      Canada and the United States (continued):


          In 2000, the FASB issued SFAS No. 138, Accounting for Certain
          Derivative Instruments and Certain Hedging Activities - an amendment
          of FASB Statement No. 133, FASB Statement No. 139, Rescission of FASB
          Statement No. 53 and amendments to FASB Statements No. 63, 89 and 122
          - regarding financial reporting by producers and distributors of
          motion picture films, and FASB Statement No. 140, Accounting for
          Transfers and Servicing of Financial Assets and Extinguishments of
          Liabilities - a replacement for FASB Statement No. 125. The Company
          expects that the adoption of SFAS No. 138 and No. 140 will have no
          material impact on its financial position, results of operations or
          cash flows. SFAS No. 139 is not applicable to the Company's business.


                                       21