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)

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 - 35,591,912 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 .

<PAGE>
PART I

Item 1.  Description of Busines(1).
-----------------------------------

General

         Vasogen Inc.,  which  together with its  subsidiaries,  is  hereinafter
referred to as the "Company" or the "Corporation" or "Vasogen" is focused on the
development and  commercialization  of its immune  modulation  therapies for the
treatment of human  disease.  Delivered by a medical  device  technology,  these
therapies  utilize  components  derived  from a  patient's  own blood  which are
believed to down-regulate or inhibit destructive inflammatory processes involved
in a number of major diseases. In collaboration with independent,  international
biomedical  research  centres,  the Company has immune  modulation  therapies in
development for the prevention and treatment of inflammatory disorders including
atherosclerosis,  congestive  heart failure,  autoimmune  diseases,  and for the
prevention  or  amelioration  of  ischemia/reperfusion  injury.  Vasogen is also
developing  a process for  treating  donor T cells to prevent  graft-versus-host
disease   ("GvHD"),    a   life-threatening    complication   of   bone   marrow
transplantation.

         Delivered by a platform medical device technology,  Vasogen's therapies
are designed to target fundamental disease-causing processes while causing fewer
side  effects  than current  therapies.  The Company has an active  research and
development  program  for  new  products  and for the  advancement  of  existing
products.   The  Company   controls  the  development  and  manufacture  of  its
technologies  for use in  pre-clinical  and clinical  research and  continues to
advance its  product  development  program to support  future  commercial  scale
production. Patent applications are filed by the Company to protect its products
and processes.  Confidentiality  agreements are used to protect against improper
use and  disclosure of the  Company's  confidential  information.  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 its  therapies  to the  treatment of a number of
disease indications.  The Company currently has five issued patents and fourteen
patent applications.

         The Company intends to commercialize  its therapies  through  licensing
agreements  with  established  healthcare  companies.  To date,  the Company has
received no revenues from any of its product lines.

         For the two fiscal years ended  November 30, 1999 and 1998, the Company
spent a total  of  $4,672,486  Cdn(2)  and  $4,656,643  Cdn.,  respectively,  on
research and development.

------------------
(1)  See Glossary on pages 19-20 for terms used throughout this Annual Report.

(2)  Unless  indicated  otherwise,  all  references  in this  Annual  Report are
     expressed in Canadian dollars.  The following table sets forth the exchange
     rates for one Canadian dollar expressed in terms of one U.S. dollar for the
     past five years.


                  Average             Low - High            Year End

1995               .7305            .7023 - .7527             .7323
1996               .7332            .7140 - .7472             .7301
1997               .7223            .7020 - .7487             .7020
1998               .6743            .6311 - .7123             .6523
1999               .6705            .6441 - .6912             .6788
<PAGE>
         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 March 27, 2000, one Canadian  dollar,  as quoted by National Bank at
9:00 a.m., for foreign exchange cash selling rates was $0.6838 in U.S. dollars.

Corporate History
-----------------

         Vasogen Inc.  ("Vasogen" or the "Company") 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 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.

Immune Modulation Therapy
-------------------------

         Immune modulation therapies utilize components derived from a patient's
blood that are  believed  to  down-regulate  or inhibit the  destructive  immune
processes  involved in a number of major diseases.  These therapies are designed
to target fundamental  disease-causing  processes, with fewer side effects, than
current therapies. The administration of these therapies involves the withdrawal
of a small  sample  of a  patient's  blood,  the  subsequent  processing  of the
patient's  blood and the  administration  of the processed blood to the patient.
The  procedure  can be performed in 30 minutes.  A course of therapy  involves a
series of these 30-minute procedures administered on an outpatient basis.

Delivery Technology
-------------------

         The Company is developing medical device  technologies for the delivery
of immune  modulation  therapies and for the processing of donor T cells.  These
medical devices are designed to apply a number of physicochemical stress factors
to a sample of a  patient's  own  blood or donor T cells.  The  current  systems
employ a single use disposable unit, which contains the patient's blood or donor
T cells during processing.

Products
--------

         Vasogen's research program is focused on the development of products to
address  significant market  opportunities as described below. Immune modulation
therapies  currently  in  development  include:  VasoCare(TM)  therapy  for  the
treatment of  atherosclerosis,  VAS971 for the  prevention  or  amelioration  of
ischemia/reperfusion injury, VAS972 for the treatment of autoimmune disease, and
VAS991 for the  treatment  of  congestive  heart  failure.  The  Company is also
developing  VAS981 for  treating  donor T cells to prevent  GvHD.  Each of these
therapies (VasoCare(TM), VAS971, VAS972, VAS981, VAS991) involve the application
of a specific combination of physicochemical stress factors to a patient's blood
or donor T cells using the medical devices developed by the Company.
<PAGE>
VasoCare(TM) Therapy and Atherosclerosis
----------------------------------------

         VasoCare(TM)   therapy  is  being   developed  for  the  treatment  and
prevention   of   atherosclerosis,   the  most   common   underlying   cause  of
cardiovascular disease. Cardiovascular disease is the leading cause of death and
disability in the western world. The disease (atherosclerosis) generally results
in narrowing  of the  arteries,  which leads to heart  attack,  stroke,  and the
symptoms of  peripheral  vascular  disease.  The Company has  received  European
regulatory  approval for  VasoCare(TM)  therapy for the  treatment of peripheral
vascular disease.

         Atherosclerosis  is  characterized  by the  build-up of  fat-containing
plaque  within  blood  vessel  walls,  which leads to  progressive  narrowing of
arteries,  particularly common in the coronary circulation. In the United States
alone,  13.9 million  people suffer from coronary  heart disease while another 4
million  people  suffer  from  stroke  (American  Heart   Association   website.
Cardiovascular Disease Statistics - www.americanheart.org).

         A key factor in the initiation of  atherosclerotic  plaque formation is
believed  to be damage to and  dysfunction  of the  endothelial  cells that line
blood vessel walls.  Endothelial cells exposed to injury become "sticky" through
up-regulation  or  stimulation  of adhesion  molecules  (Anderson  et al.  1995.
Systemic nature of endothelial dysfunction in atherosclerosis.  American Journal
of Cardiology 75: 71B-74B). This causes leukocytes to adhere and migrate through
the  endothelium,  a process  accompanied  by the release of cytokines and other
inflammatory mediators that cause further endothelial  dysfunction.  Endothelial
dysfunction  further enhances the ability of LDL cholesterol to migrate into the
blood vessel wall and the presence of the oxidized LDL  molecules in the wall of
the blood vessel is, in turn,  one factor that  attracts the  leukocytes  to the
site. However, elevated blood cholesterol levels only occur in about one-half of
patients with atherosclerosis.

         Researchers   now   generally   agree  that  there  is  a   significant
inflammatory component in atherosclerosis and there is considerable experimental
evidence of  pro-inflamatory  T-cells in plaque,  even at the earliest stages of
development.  Inflammation  processes  appear to play an  important  role in the
progression  of  the  atherosclerotic  process  referred  to  as  atherogenesis.
Inflammation  may also be associated with plaque  instability and lead to plaque
rupture,  resulting in thrombosis and the severe clinical  consequences  such as
myocardial infarction (heart attack) and stroke.

         Vasogen is initially developing  VasoCare(TM) therapy for the treatment
of peripheral  vascular disease ("PVD"), a serious form of atherosclerosis  that
affects  an  individual's  extremities,  particularly  the  legs  and  feet.  An
estimated  5.6  million  people in North  America  and  Europe  suffer  from the
disease.  PVD results in leg pain when walking,  progresses to pain at rest and,
in approximately 25 percent of patients, requires expensive medical intervention
such as balloon  angioplasty,  surgical bypass graft,  or amputation  (Tooke and
Lowe. A Textbook of Vascular  Medicine.  Oxford  University Press Inc. New York.
164).  Management  estimates  that surgery for PVD costs  healthcare  systems in
North America and Europe in excess of ten billion dollars annually.

         VasoCare(TM) therapy is being developed for PVD patients primarily as a
therapy to prevent or reverse  progression  of  atherosclerosis,  the underlying
cause of the disease,  thereby reducing  symptoms and thus the need for surgical
intervention.  As well, VasoCare(TM) therapy may increase plaque stability, thus
potentially reducing the cardiovascular  complications  associated with PVD. The
therapy may also improve  walking  distance,  reduce pain and improve quality of
life.
<PAGE>
         During  1998 and 1999,  Vasogen  completed  pre-clinical  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.
The results showed a substantial  and significant  (p<0.05)  reduction in plaque
area in VasoCare(TM)-treated  animals. Based on these results, the Company filed
certain patent  applications  with the United States Patent Office in respect of
preventing and reversing atherosclerosis.

         One key factor in the initiation of atherosclerotic plaque formation is
believed to be a dysfunction of the endothelial cells that line the blood vessel
walls. In 1999,  Vasogen  completed a double blind  placebo-controlled  clinical
study  at the  University  of Lund,  Sweden  under  the  direction  of Dr.  Lars
Edvinson,  Department  of  Internal  Medicine,  on 18 patients  with  peripheral
arterial  occlusive  disease.  In this study, the rate of recovery of skin blood
flow was measured  following  occlusion  with a blood pressure cuff. The results
showed a significant increase in blood flow recovery (p<0.05,  paired t-test) in
the VasoCare(TM)-treated  patients. There were no reports of significant adverse
side effects associated with VasoCare(TM)

         An  initial  open  clinical  study  at  the  Bristol  Royal  Infirmary,
University of Bristol, U.K., was completed on patients with PVD and intermittent
claudication  (severe leg pain upon walking).  As a group,  the patients in this
study  experienced a significant  increase in their pain-free  walking  distance
after  receiving  VasoCare(TM)  therapy and maintained  this  improvement  for a
minimum  of six  weeks  after  therapy.  Some  patients  continued  to  show  an
improvement  after six months. On the basis of this study, the Company initiated
a controlled  randomized  double-blind clinical study in PVD at the Universities
of Bristol and Dundee, U.K. in 1998. This study has been fully enrolled.

The Company has also conducted  research into Raynaud's  disease.  Patients with
Raynaud's  suffer a wide range of symptoms from mild cold  intolerance to severe
and disabling pain in the fingers and toes on exposure to cold,  loss of feeling
in the extremities, digital skin ulcers, and, in some cases, gangrene leading to
amputation.  During 1996,  based on results from a pilot study  conducted at the
University of London,  the Company conducted a double blind,  placebo controlled
study in 38 Raynaud's  disease  patients at the University of Dundee,  Scotland,
under the direction of Professor J.J. F. Belch.  Primary Raynaud's is a seasonal
disease, the symptoms of which are brought on by exposure to cold.  Accordingly,
trials into Raynaud's  disease must be conducted  during the winter  months.  In
1997, Dundee experienced an unexpectedly early spring,  with the average maximum
temperature in March reaching 11(degree)C,  34% warmer than the 30 year average.
For this reason,  for the analysis of the results,  the patients enrolled in the
trial were split into two groups - those who had  completed the trial before the
warm weather set in and those who had not. Of the sixteen  patients who received
treatment prior to the onset of warm weather, nine received VasoCare(TM) therapy
and seven received placebo treatment. In the  VasoCare(TM)-treated  group, there
was a 51% improvement in the severity of patients' symptoms.  The improvement in
the VasoCare(TM)  -treated group was double that of the 24% improvement reported
in the group who received a placebo  treatment.  The level of improvement in the
placebo group was consistent with the placebo effect reported in other Raynaud's
trials. The second group of Raynaud's patients in the Dundee trial, as expected,
appeared to benefit from the warmer  weather,  with both the treated and placebo
groups showing a similar improvement in their symptoms. There were no reports of
significant adverse side effects associated with VasoCare(TM) therapy.
<PAGE>
VAS971 and Pre-conditioning against Ischemia Reperfusion Injury
---------------------------------------------------------------

         VAS971  is  being  developed  for the  prevention  or  amelioration  of
ischemia/reperfusion  injury during major vascular surgery. Each year, more than
500,000 major  vascular  surgical  procedures are performed in North America and
Europe (1. Espicom.  Medical Markets of Western Europe. West Sussex, UK: Espicom
Business  Intelligence  Publications  Limited, 1997 and 2. Health Care Costs and
Utilization  Project.  HCUP-3  Nationwide  Inpatient  Sample Release 3 for 1994.
Hyattsville,  MD: US Department  of Health and Human  Resources,  1996).  During
these  procedures,  the  blood  supply  to major  organs  is often  interrupted,
resulting in injury to the organs. This is known as ischemia/reperfusion ("I/R")
injury.  Ischemia  is a lack of blood flow;  reperfusion  is the return of blood
flow.  Ischemia and  reperfusion  cause  damage to organs and tissues,  which is
documented  to result  from an  inflammatory  response  mediated  by  cytokines.
(Daemen,  MARC et al (1999)  Involvement of endogenous  interleukin-10 and tumor
necrosis factor-alpha have been implicated in renal ischemia-reperfusion injury.
Transplantation 67: 792-800)

         Three  surgical  interventions  that result in I/R injury are  coronary
artery bypass graft  ("CABG")  procedures,  abdominal  aortic  aneurysm  ("AAA")
repair surgery and thoracic  abdominal  aortic aneurysm  ("TAA") repair surgery.
Vasogen is initially  developing  VAS971 to prevent organ damage in patients who
undergo TAA repair surgery. A thoracic aortic aneurysm is a weakness or bulge in
the wall of the upper part of the aorta,  which, if not repaired,  could lead to
blood vessel rupture and death from internal bleeding. It is estimated that more
than 10,000 TAA repairs are performed annually in North America and Europe at an
average cost of $71,000 per procedure (Rice et al.  Financial  impact of thoraco
abdominal aneurysm repair. 1993 American Journal of Surgery 166:186-190). If the
Company's  efforts  with  respect to TAA  repairs  are  successful,  the Company
intends to pursue expansion into other markets such as AAA or CABG.

         TAA repair surgery poses significant  perioperative risk, requiring the
aorta to be clamped for up to one hour,  cutting off blood flow and  potentially
causing  I/R  injury to the  kidneys,  bowel,  liver and spinal  cord.  As well,
because of the major nature of the surgery and the fact that most  patients have
underlying  generalized  vascular  disease,  cardiac,  pulmonary,  and  cerebral
complications  are common.  Management  estimates that TAA surgery  results in a
major  complication  rate of approximately  42% and death in approximately 7% of
cases and that long-term direct  healthcare  costs resulting from  complications
associated with the TAA repair procedure exceed $30,000 per patient, on average.

         Based on pre-clinical  studies to date,  treatment with VAS971 prior to
surgery could have a significant effect in reducing  ischemia/reperfusion injury
during major surgery,  considerably reducing morbidity and mortality.  Using two
different animal models, Vasogen has shown that pre-treatment with VAS971 causes
a significant reduction in I/R injury to the kidney by reducing the level of I/R
injury-induced  cell death in this organ.  Data confirming the ability of VAS971
to provide  protection  against the damaging effects of I/R injury was 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  Centre 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, Lahti, Finland, in June 1998.
<PAGE>
         Using an animal  model  system in which a balloon  catheter is inserted
into the  thoracic  aorta and  inflated to occlude the blood flow - to mimic TAA
surgery-VAS971  was  shown to  reduce  subsequent  damage  to both  liver and to
skeletal muscle. These results,  obtained in 1999 by Dr. Chen,  demonstrate that
the organ  protection  effected by VAS971 can extend to other organs in addition
to the kidney.

         Dr. Chen's and Dr.  Tremblay's  research has also focused on the effect
of VAS971 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.  The  results  of these  new  studies
demonstrate  that VAS971  improves  the  retention  of  mitochondrial  integrity
subsequent to ischemic damage, thus enhancing cell survival after I/R injury.

         In Dr. Chen's studies,  animals were given a course of either VAS971 or
placebo,  followed by surgical  removal of one kidney.  The blood  supply to the
remaining  kidney was clamped for 60 minutes and then released,  re-establishing
blood flow,  thereby simulating the I/R injury that occurs during major vascular
surgery. Recovery of kidney function following I/R injury was monitored daily by
measurement of serum  creatinine  levels.  In addition,  mitochondrial  membrane
potential  ("MMP") was measured in kidney tubule cells at the  conclusion of the
experiment.  Reduction  in MMP is one of the  earliest  indications  of impaired
mitochondrial function and impending cell death.

         The  results  showed  that the degree of kidney  damage  following  I/R
injury, as reflected by elevation of serum creatinine  levels, was significantly
less in the  VAS971-treated  group. The average daily creatinine levels over the
six-day observation period were 45% lower in the VAS971-treated  group, compared
to the placebo group (p=0.0325).  Following I/R injury, MMP was fully maintained
and significantly  higher in the kidneys of the VAS971-treated group compared to
the placebo group, a difference of 48% (p=0.006).

         In Dr.  Tremblay's  experiments,  the degree of cell death by apoptosis
was measured by DNA laddering.  The degree of DNA laddering  correlates with the
amount of apoptosis in a tissue. The results showed that there was a lower level
of DNA  laddering  (by 60%,  P<0.05) in the kidney 12 hours  following  ischemia
reperfusion  in  VAS971-treated  animals  compared to  controls.  These  results
confirm a lower level of apoptosis in animals  receiving  VAS971  therapy before
surgery.

         During  1997,  a research  team led by Dr.  Johanne  Tremblay  of CHUM,
demonstrated  that VAS971 reduces several responses to stress in an animal model
of human essential  hypertension.  Experiments  showed that VAS971 resulted in a
significant  improvement in the response to psychological  stress as measured by
reductions in stress-induced  increases in diastolic blood pressure, heart rate,
and body temperature (p < 0.0001 in each case). It was also shown that following
surgery for  implantation  of  telemetry  monitors,  elevated  body  temperature
returned to normal significantly more rapidly in the VAS971 - treated group (p <
0.002).

         Vasogen has recently  commenced a clinical  study at Baylor  College of
Medicine in patients undergoing TAA repair. Success in the TAA repair indication
could also lead to the commercial development of VAS971 for other major vascular
surgery  indications,  including  abdominal  aortic aneurysm repair and coronary
artery  bypass  graft  surgery,  where the  incidence  of I/R related  injury is
significant.
<PAGE>
VAS972 and Autoimmune Disease
-----------------------------

         VAS972 is being  developed  for the  treatment of  autoimmune  disease.
Autoimmune  diseases  affect over 80 million people  throughout the world.  Many
autoimmune  diseases are  characterized  by an imbalance  between the  different
types of T cells, the  pro-inflammatory Th1 cells and the regulatory Th2 type of
cells.  In  certain  autoimmune  diseases,   including   rheumatoid   arthritis,
scleroderma  and  psoriasis,  there is a relative  increase  in Th1  cells.  The
Company is focusing  development  of VAS972 on Th1-driven  autoimmune  diseases,
particularly rheumatoid arthritis and psoriasis.

         Rheumatoid  arthritis (RA) is a progressive and destructive  autoimmune
disease in which the body's immune system attacks the joints.  The prevalence of
RA is  estimated to be one percent of the  population  over the age of 16 years,
with a total prevalence in Europe and North America of approximately 5.4 million
people (Jacobsen et al. Epidemiology and estimated population burden of selected
autoimmune   diseases  in  the  United  States.  1997  Clinical  Immunology  and
Immunopathology.   84(3):   223-243).   As  the  disease   progresses,   chronic
inflammation  irreversibly  erodes cartilage,  bone, the articular capsule,  and
ligaments,  resulting in swelling,  pain, and eventual destruction of the joint.
Progression  of damage can lead to profound  disability,  chronic  pain,  and an
increased risk of premature death. The economic impact of RA is significant with
annual  direct  medical  costs per RA patient  ranging  from $US3,  300-$US3,800
(Gabriel et al. 1997.  Direct  medical  costs  unique to people with  rheumatoid
arthritis, 1997 Journal of Rheumatology 24: 719-725).

         Psoriasis is also believed to be a Th1-driven  autoimmune disease. This
chronic  disease  affects  the  skin  and  is   characterized   by  scaling  and
inflammation.  Scaling  occurs when cells in the outer  layer of skin  reproduce
faster than normal and pile up on the skins  surface.  People with psoriasis may
suffer  discomfort,   restricted  motion  of  joints,  and  emotional  distress.
Psoriasis  affects an estimated two percent of the  population,  or more than 10
million people in North America and Europe. Approximately five to ten percent of
people with psoriasis develop  psoriatic  arthritis,  a joint  inflammation that
produces  symptoms of arthritis.  Annual treatment costs for psoriasis  patients
are estimated to aggregate $US 1.6 to 3.2 billion in the United States (American
Autoimmune Related Diseases  Association Inc. website - www.aarda.org,  National
Psoriasis Foundation website).

         During 1997,  preliminary clinical studies at the University of Toronto
on patients with the autoimmune disease scleroderma indicated a significant (p <
0.05)  reduction in the proportion of Th1 to Th2 T cells in the blood  following
treatment with VAS972.  This research  provided initial evidence  indicating how
VAS972 may modulate the immune  system and suggests the potential of the therapy
for the treatment of inflammatory and autoimmune conditions.

         Vasogen  believes  that the increase in the  proportion of Th2 cells to
Th1 cells observed  following the administration of VAS972 seen in patients with
the  autoimmune  disease  scleroderma  suggest  that  the  therapy  leads to the
production of inhibitory cytokines and to a down-regulation or inhibition of the
autoreactive immune responses.  The potential ability of VAS972 to down-regulate
or inhibit  these  destructive  processes  could provide  significant  long-term
therapeutic benefit in patients with autoimmune disease.
<PAGE>
         Based on  these  findings,  the  Company  has  initiated  a  series  of
pre-clinical  studies  in  models  of  autoimmune/inflammatory  disease  at  the
University  of Toronto.  A  significant  reduction  (by  45-50%,  p<0.05) in ear
swelling  in  the  contact  hypersensitivity   response,  a  known  Th1-mediated
inflammatory reaction, has been measured in animals treated with VAS972.

These results have supported the successful regulatory  application to conduct a
double blind placebo-controlled clinical study in psoriasis, which has commenced
at the Sunnybrook  and Women's  College Health  Sciences  Centre,  University of
Toronto, under the direction of Dr. Daniel Sauder, Chief of Dermatology.

VAS981 and Graft-versus-Host-Disease
------------------------------------

         VAS981  is  being   developed   for   treating   T  cells  to   prevent
Graft-versus-Host  Disease,  a  life-threatening  complication  of  bone  marrow
transplantation.  During curative  treatment for malignancies of the blood, such
as leukemia, patients undergo high doses of chemotherapy and radiotherapy, which
severely damage the bone marrow. Bone marrow can be replaced through a procedure
known  as  bone  marrow  transplantation  ("BMT").  GvHD  is a  life-threatening
complication  of BMT.  It  occurs  when T cells in the  donated  marrow  (graft)
identify  cells of the  recipient's  body (host) as foreign and attack them. The
disease causes symptoms related  primarily to the skin,  bowel, and liver of the
recipient.

         The ability to treat the donor T cells to prevent GvHD could have major
beneficial  implications  for the  treatment  of  certain  forms  of  cancer  by
increasing  the number of patients who could become  candidates  for life saving
BMTs.  The economic  impact of GvHD is also  significant,  with  treatments  for
severe GvHD  complications  costing  upwards of $US 40,000 per affected  patient
(Weeks  et al.  The true cost of bone  marrow  transplantation.  (1997  American
Journal of the Medical  Sciences  314(2):  101-112).  Unless a suitably  matched
donor  (HLA  identical  twin)  can be  found,  bone  marrow  transplantation  is
accompanied by GvHD,  when  lymphocytes  present in the bone marrow graft attack
the tissues of the immunologically incompatible patient.

         Vasogen is developing  VAS981 for patients with  malignancies who could
potentially be treated with a bone marrow transplant. The therapy is anticipated
to  decrease  the  severity  and  incidence  of GvHD and  provide  a  clinically
effective  process  to allow a parent or  sibling to donate  bone  marrow.  This
latter benefit could result in a significant increase in the potential number of
bone marrow transplants.

         The Company has  completed the first stage of  pre-clinical  studies in
GvHD at the Ontario Cancer Institute and the Sunnybrook  Health Sciences Centre,
University  of  Toronto   under  the  direction  of  Dr.  David  Spaner,   using
experimental animal systems, which introduce incompatible bone marrow stem cells
into  unrelated  hosts.  These studies have  demonstrated  the ability of VAS981
therapy to markedly  decrease the  incidence and severity of GvHD in these model
systems.  Parallel laboratory studies on human T cells have also been completed.
Based on the results of this work,  certain  patent  applications  pertaining to
methods of alleviating GvHD have been filed in various jurisdictions.

         The Company has received  ethics  committee  approval and Health Canada
approval  to  initiate a clinical  study to use VAS981 to process  donor T cells
prior to their  infusion as part of the  treatment of serious  leukemia/lymphoma
patients  requiring bone marrow  transplants.  This study will be directed by Dr
Hans  Messner,  Director  of the  Bone  Marrow  Transplant  Programme,  Princess
Margaret Hospital, University of Toronto.
<PAGE>
VAS991 and Congestive Heart Failure
-----------------------------------

         Nearly five million  Americans  suffer from  congestive  heart  failure
("CHF") and its prevalence is increasing at ten percent per year,  primarily due
to the aging population, as well as improved long-term survival in heart disease
patients.  CHF occurs when the pumping  function of the heart is insufficient to
meet the body's demand for oxygen and other nutrients. With prolonged inadequate
blood supply to vital organs and  voluntary  muscles,  a number of  compensatory
mechanisms  develop  initially,  leading to salt and water retention,  worsening
heart function,  and eventually  symptoms of shortness of breath,  fatigue,  and
swelling  of  the  legs.   The   condition  is  usually   progressive,   becomes
irreversible, and ultimately results in death.

         CHF is now  recognized  to be a systemic  disorder  characterized  by a
number of factors  including:  generalized  dysfunction of the endothelial cells
lining blood  vessels,  inflammation  secondary to immune  activation of the Th1
cell type,  and an increased  death rate of heart muscle cells by the  apoptotic
cell  death  process.  Vasogen's  immune  modulation  therapies  have been shown
experimentally  to  have a  beneficial  impact  on each  of  these  pathological
processes.

         The  Company  has  received  FDA  approval  for  a  placebo-controlled,
double-blind clinical trial and plans are underway to initiate this trial at two
U.S.  cardiovascular  centres:  The Cleveland Clinic, under the direction of Dr.
James  Young,  Medical  Director of the Kaufman  Center for Heart  Failure;  and
Baylor College of Medicine,  under the direction of Dr. Guillermo Torre, Medical
Director of the Heart Transplant Service.

Competitive Environment
-----------------------

         The  pharmaceutical,  medical device, and biotechnology  industries are
characterized  by rapidly  evolving  technology  and intense  competition.  Many
companies,  including major pharmaceutical as well as specialized  biotechnology
companies,  are engaged in activities  focused on similar medical  conditions as
those  targeted  by the  Company.  Many of these  companies  have  substantially
greater  financial and other resources,  larger research and development  staff,
and more extensive  marketing and manufacturing  organizations than the Company.
Many of these companies have  significant  experience in  pre-clinical  testing,
human clinical trials,  product manufacturing,  marketing and distribution,  and
other  regulatory  approval  procedures.  In addition,  colleges,  universities,
government agencies, and other public and private research organizations conduct
research  and may  market  commercial  products  on their own or  through  joint
ventures.  These  institutions  are  becoming  more  active  in  seeking  patent
protection and licensing arrangements to collect royalties for use of technology
that they have developed.  These  institutions  also compete with the Company in
recruiting and retaining highly qualified scientific personnel.

Intellectual Property
---------------------

         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 its  therapies  to the  treatment  of a number of  disease  indications.  The

<PAGE>
Company  seeks patent  protection  in various  commercial  jurisdictions  of the
world; for example,  the Company  currently has five issued patents and fourteen
patent  applications  pending.  The issued U.S.  patents  relate to a device for
processing blood (1990),  an ozone generator (1996), a method for inhibiting the
aggregation of blood platelets  (1997), a method of increasing the concentration
of nitric  oxide in a human  (1998)  and the  treatment  of  autoimmune  disease
(1999). The Company will continue to seek intellectual  property  protection for
its technology as appropriate.

         The  Company  requires  its  employees,  consultants,  members  of  the
Scientific  Advisory  Board,  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 to  be  kept
confidential and not disclosed except in specific circumstances.

Manufacturing
-------------

         The Company's  medical device  technologies  for the delivery of immune
modulation  therapies  and for the  processing of donor T cells are designed and
manufactured under the Company's quality system,  which is registered to ISO9001
and  EN46001.  These  quality  system  registrations  are  necessary  to support
regulatory  approvals  (see  "Government  Regulation").  For entry into the U.S.
market,  the Company's  quality system is being modified as necessary to conform
to Quality  System  Regulations  (QSR) and other  regulatory  requirements  (see
"Government Regulation").

         The   manufacture   and  testing  of  the  Company's   medical   device
technologies  are currently  subcontracted  to suppliers and managed by Vasogen.
The  technology  consists of medical device systems that are designed to apply a
number of physicochemical stress factors to a sample of a patient's own blood or
donor T cells. The systems employ a single-use disposable vessel, which contains
the patient's blood or donor T cells during treatment.  Vasogen currently relies
upon a single  subcontractor  for the disposable  blood  containers and a single
subcontractor for the medical device system. Both subcontractors operate quality
systems in  accordance  with  ISO9001/EN46001  requirements.  In  addition,  the
Company's  subcontractor  for disposable blood containers  executes all critical
assembly  operations  in  controlled  environment  rooms in which  bacterial and
airborne particulate levels are monitored and meets regulatory requirements.

Human Resources
---------------

         At March 1,  2000,  the  Company  had 21 full  time  employees.  As the
Company encourages share ownership, it has established an option plan (see "Item
12.  Compensation  - Stock Option  Plan") to attract,  motivate,  and retain key
employees  and  consultants.  The  Company's  employees  are not  governed  by a
collective agreement.

Regulation
----------

         The  Company's  immune  modulation  therapies are produced by a medical
device  utilizing a sample of the patient's own blood.  The production of immune
modulation  therapies  involves the removal from the patient of a small quantity
of blood, the treating of the blood by applying  physicochemical  stress factors

<PAGE>
to it,  and the  administration  of the  treated  autologous  blood  to the same
patient.  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 is 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.

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  VasoCare(TM)  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)  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)  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 serious  adverse  incidents  or near  incidents to the
appropriate authorities.

United States

         In the United  States,  the Company's  technology  for the treatment of
autologous blood is subjected to regulation by the health authorities as medical

<PAGE>
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  pre-clinical  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 the clinical  study(ies) 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
centres participating in the studies must approve the clinical protocol.

         Toward  the end of 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 treatment of autologous
blood 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 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 devices under approved quality system
conditions and must validate the  performance  characteristics  of the device to
ensure that the device performs safely, consistently and reliably.
<PAGE>
         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 or 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.

Summary
-------

         The Company's  regulatory affairs advisors and product development team
have extensive  experience  with, and understand the European and North American
regulatory  requirements.  They are continuing to develop the immune  modulation
therapies in compliance with all such requirements.

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.
<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 Reduction in Health Care Expenditures
----------------------------------------------------

         Almost all medical  devices are subject to the  reduction in healthcare
expenditures  in most  countries.  However,  those devices which reduce  overall
healthcare costs will benefit by being adopted by the healthcare  industry.  The
Company's products are expected to be such devices.

(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 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.

(f) Proprietary Technology
--------------------------

              Vasogen  owns  all  of  its  key  technologies.  However,  as  the
development of its products  continues and increases,  the potential uses of its
products  may overlap with other  products  and, as a result,  may  increasingly
become  subject  to claims of  infringement.  To date,  Vasogen  is  unaware  of

<PAGE>
infringement  claims made or being made against it or of any such  products.  As
Vasogen  continues the  development  of its products,  there can be no assurance
that third parties will not assert  infringement  claims against  Vasogen in the
future,  or require  Vasogen to obtain a license for the  intellectual  property
right of third  parties.  There  can be no  assurance  that  such  licenses,  if
required, will be available on reasonable terms, or at all.

              The Company's success will depend in part on its ability to obtain
patent  protection  for  its  product   candidates.   The  patent  positions  of
pharmaceutical  and  biotechnology  industry are uncertain  and involve  complex
legal  and  factual  questions.   Moreover,   the  coverage  claimed  in  patent
applications  can  be  significantly   reduced  before  the  patent  is  issued.
Consequently,  the Company does not know whether any of its patent  applications
will result in the  issuance  of patents or, if any patents are issued,  whether
they will provide significant protection or will be circumvented or invalidated.
Since patent  applications  in the United States are maintained in secrecy until
patents issue and since  publication of discoveries in the scientific and patent
literature often lags behind actual  discoveries,  the Company cannot be certain
that it was the first  creator  of  inventions  covered  by its  pending  patent
applications  or that it was the  first  to file  patent  application  for  such
inventions.  There can be no assurance  that the Company's  patents,  if issued,
would  be held to be  valid by a court of  competent  jurisdiction.  An  adverse
outcome could subject the Company to  significant  liabilities to third parties,
required  disputed  rights to be  licensed  from third  parties  or require  the
Company to cease using such technology.

(g) 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 which 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. Evidence to date, however,
suggests that the products are both efficacious and very safe.

(h) 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  $1 million of keyman  insurance  on Dr.  Anthony
Bolton, Director of Research.

(i) Financing
-------------

         The Company may need to raise  additional funds to conduct research and
development,  pre-clinical  studies,  and clinical trials necessary to bring its
potential   products  to  market  and  establish   manufacturing  and  marketing
capabilities.  The  Companys  future  capital  requirements  will depend on many
factors, including continued scientific progress in its research and development

<PAGE>
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   developments,   the   cost   of   manufacturing   scale-up,   effective
commercialization activities and arrangements,  and other factors not within the
Companys 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 2001.

(j) 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 cannot 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.

(k) Year 2000 Compliance
------------------------

         The Year 2000 Issue arises  because many  computerized  systems use two
digits rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date,  resulting in errors when  information
using year 2000 dates is processed.  In addition,  similar problems may arise in
some systems,  which use certain dates in 1999 to represent something other than
a date. Although the change in date has occurred, it is not possible to conclude
that all  aspects of the Year 2000 Issue that may affect the  entity,  including
those related to customers,  suppliers,  or other third parties, have been fully
resolved. The Company has not experienced any material impacts on its operations
to date as a result of the Year 2000 Issue.

(l) 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

<PAGE>
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.

(m) 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 Companys
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  Companys  preclinical  studies and  clinical
trials will be  indicative of future  clinical  trial  results.  A commitment of
substantial resources to conduct time consuming research,  pre-clinical studies,
and clinical  trials will be required if the Company is to complete  development
of its products.  Delays in planned patient  enrollment in the Companys  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 Companys  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  are not  expected to 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 Companys products. The appearance of any
such unacceptable  toxicities or side effects could interrupt,  limit, delay, or
abort  the  development  of any of  the  Companys  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.

(n) 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

<PAGE>
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 13. Interest of Management in Certain Transactions."

(o) History of Operating Losses
-------------------------------

          As of November 30,  1999,  the Company had an  accumulated  deficit of
approximately  $37.31 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.

(p) 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  Companys  success  may  depend  in part on its  ability  to  obtain  patent
protection  for its products and  processes.  There can be no assurance that the
Companys 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 Companys patents are issued, or issued with limited
coverage,  others may receive  patents  which contain  claims  applicable to the
Companys product. There can be no assurance that any of the Companys 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
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 Companys  trade secrets will not otherwise
become known or independently discovered by its competitors. It is possible that
the Companys 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

<PAGE>
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.

(q) Dependence on Third Parties
-------------------------------

         The   Companys   strategy   for   the   research,    development,   and
commercialization  of its products requires  entering into various  arrangements
with corporate collaborators, licensors, licensees, and others, and the Companys
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.

(r) Lack of Commercial Manufacturing and Marketing Experience
-------------------------------------------------------------

         If the  Company is  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  arranged  for the
manufacture of these 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 Companys 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 Companys 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 GMP
requirements and the non-compliance could not be rapidly rectified. The Companys
inability or reduced  capacity to manufacture its products would have a material
adverse effect on the Company's business and results of operations.
<PAGE>
         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 GMP 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  Companys  potential  dependence  upon third  parties  for the
manufacture of its products may adversely affect the Companys profit margins and
its  ability to develop and deliver  such  products on a timely and  competitive
basis.

(s) Uncertainty of Product Pricing, Reimbursement, and Related Matters
----------------------------------------------------------------------

         The Companys  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 Companys  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.

(t) 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.
<PAGE>
(u) 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 Companys 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
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.

(v) 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 pre-clinical
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  Companys  collaborators,  developments  concerning  patent  or  other
proprietary  rights of the Company or its  competitors  (including  litigation),
concern as to the safety of the Companys products, period-to-period fluctuations
in the  Companys  operating  results,  changes  in  estimates  of  the  Companys
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.
<PAGE>
GLOSSARY
--------

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

AAA                        Abdominal  Aortic  Aneurysm,  meaning a  balloon-like
                           dilatation of the abdominal aorta (main artery).

Amelioration:              A reduction  in the  severity of as in "his  symptoms
                           were ameliorated"

Apoptotic                  Cell  Death:  A form of cell  death  in  which a cell
                           causes its own death (suicide) usually because it has
                           been  injured or when it dies of "old age" as opposed
                           to cell death  from  direct  injury,  which is called
                           necrosis

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

Autoloqus Blood:           The patient's own blood

Autoimmune:                A reaction of the body's immune cells against its own
                           cells.

Balloon Angioplasty        Dilation of a narrowed coronary artery by an
                           expandable balloon.

Blood Lipids               An alternate term for blood fats.

Claudication:              Muscle pain on exercise, due to lack of oxygen.

CABG                       Coronary  Artery  Bypass  Graft,  meaning a venous or
                           synthetic  graft  which  bypasses a blocked  coronary
                           artery.

Cytokines                  Intercellular  messengers produced by cells which are
                           involved in many body functions,  particularly in how
                           the immune system is run.

Diastolic                  Blood   Pressure:   Lower  half  of  blood   pressure
                           systolic/diastolic  (the  actual BP when the heart is
                           not   contracting   and  depends  on  the  degree  of
                           constriction  of  the  peripheral   arterioles  small
                           arteries).

Endothelium:               The thin cellular lining of blood vessels which plays
                           a key  role in  regulating  blood  flow by  secreting
                           vasoconstrictor and vasodilator substance

Endothelial Cells          A thin layer of cells  that  lines the blood  vessels
                           and is very important in  controlling  blood flow and
                           blood clotting.

Endothelial Dysfunction:   Failure  of the  endothelium  to  perform  its normal
                           function.
<PAGE>
LDL Cholesterol            A form of cholesterol  that is harmful because it can
                           easily penetrate the endothelial  lining and form the
                           fatty deposits of atherosclerosis.

Leukocytes:                White blood cells.

Nitric Oxide:              A gas which  causes  smooth  muscle  fibers to relax,
                           i.e. in blood  vessels;  has many other  functions in
                           the body.

Physicochemical:           A reaction or process  based on both the physical and
                           chemical properties of the respective ingredients.

Platelets:                 Small cells in the blood required for blood clotting.

Raynaud's Disease:         Excessive  constriction  of digital  blood vessels on
                           exposure to cold, leading to pain and numbness.

Rheumatoid Arthritis:      An autoimmune  disease which causes  arthritis (joint
                           inflammation) in many different joints.

Scleroderma:               An  Autoimmune  disease  which causes  hardening  and
                           thickening of the skin and blood vessels;  may affect
                           internal organs.

Serum Creatinine levels    A measure of kidney function.

T cell                     A type of lymphocyte which constitutes the attack arm
                           of the immune system.

Th1                        A proinflammatory type of T cell.

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

Thrombosis:                Formation of a blood clot

Vasoconstrictor:           Causes blood vessels to narrow.

Vascular:                  Pertaining to blood vessels.

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

<PAGE>
Item 2.  Description of Property.
--------------------------------

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

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

         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.

Item 4.  Control of Registrant.
-------------------------------

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

         (b) At April 20, 2000, there were 39,453,887 Shares outstanding with an
authorized  capital of an unlimited number of shares.  At such date, the Company
is  unaware  of any  person  beneficially  owning  10% or more of the  Company's
outstanding shares.

         At March 14, 2000, officers and directors,  as a group, owned 1,183,386
shares of the Company.

         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.

Item 5.  Nature of Trading Market.
----------------------------------

         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 trade, on a limited
basis,  on The American Stock Exchange  starting 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. The following is a summary of trading,
on a  quarterly  basis,  in the  Shares on The  Toronto  Stock  Exchange  or The
Montreal Exchange for 1998, 1999, and the first quarter of 2000 (stated in
Canadian dollars):

                            High         Low          Volume
1998

1st  Quarter                2.30         1.30        3,196,000
2nd  Quarter                2.25         1.10        2,237,000
3rd  Quarter                1.88         0.81        1,390,000
4th  Quarter                1.55         0.81        2,079,000

1999

1st  Quarter                2.29         1.10        3,388,000
2nd  Quarter                2.10         1.49        2,010,000
3rd  Quarter                1.89         1.30        3,223,000
4th  Quarter                7.17         1.78       24,200,000
<PAGE>
                            High         Low          Volume

2000

1st  Quarter               15.80         4.55       26,110,000


         The closing sales price of the Shares on The Toronto Stock  Exchange on
April 20, 2000 was $7.90.

         The  following is a summary of trading,  on a quarterly  basis,  in the
Shares on The American  Stock  Exchange  for 1999 and the first  quarter of 2000
(stated in United States dollars):

                            High         Low          Volume

1999

4st  Quarter                4.81         3.375         98,900

2000

1st  Quarter               10.81         3.25       2,592,000

         The closing sales price of the Shares on The American Stock Exchange on
April 20, 2000 was $5.125.

         At April 20, 2000, the Company had 569 shareholders of record. At April
20, 2000, there were 30 United States shareholders of record,  holding 1,107,897
Shares, which represents 2.8% of the outstanding class.

Item 6.  Exchange Controls and Other Limitations Affecting  Security Holders.
-----------------------------------------------------------------------------

         (a) 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 7. Taxation."

         (b) 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 Common 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 Common 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

<PAGE>
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 1998 is $172 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, 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 Common Shares. The
acquisition  of less than a majority but  one-third or more of the Common 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 Common Shares.

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

         (a) an acquisition of Common 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 Common 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 Director of  Investigation  and Research  (the  "Director").  If or when the
Director  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 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.
<PAGE>
         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.

         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 Corporation  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:

         (i)  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

         (ii)  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

         (iii) the party being  acquired  must have gross  assets in Canada,  or
gross revenues from sales in or form Canada,  exceeding  $35,000,000 as whose 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
Director containing the prescribed  information with respect to the parties, and
a waiting period,  (either seven or twenty-one days, depending on whether a long
or short form filing is chosen) must expire prior to closing.

         As an  alternative  to  pre-notification,  the  Director  may  grant an
Advance Ruling Certificate, which exempts the transaction from pre-notification.
Advance Ruling Certificates are granted where the Director  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.

Item 7.  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 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").
<PAGE>
         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  Revenue  Canada,  Customs,  Excise and
Taxation.  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 Canada-United States Income Tax Convention
(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 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 (i) such shares are "taxable Canadian property" within the meaning of the
Income  Tax Act  (Canada)  (the  "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  five  year  period
immediately preceding a disposition by the non-resident of such shares, not less
than 25% of the issued 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 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 shares of the Company is derived  principally  from real
property (as defined in the Convention) situated in Canada.
<PAGE>
Item 8. Selected Financial Data.
--------------------------------

         Following  is selected  financial  data of 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 8 to the financial statements,  conform in all
material respects with accounting  principles  generally  accepted in the United
States.

Years ended November 30
-----------------------
<TABLE>
<CAPTION>
(in thousands of dollars except
for per share data)          1999         1998         1997          1996        1995
<S>                          <C>          <C>          <C>          <C>         <C>
Research & development       4,672        4,656        5,351        3,167       1,496
Other expenses               3,243        2,656        2,640        1,695         827
Loss for the period         (7,915)      (7,312)      (7,991)      (4,862)     (2,323)
Loss per share               (0.25)       (0.29)       (0.38)       (0.38)      (0.27)

Working capital              8,224        4,807        7,188        5,426       1,644
Total assets                11,387        7,490        9,470        7,696
                                                                                3,550

Share capital               47,752       36,139       31,172       21,541      12,735
Deficit                    (37,310)     (29,395)     (22,083)     (14,092)

Shareholders' equity        10,442        6,744        9,089        7,449       3,505
</TABLE>

Notes:

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


         All dollar  amounts  herein are expressed in Canadian  dollars,  except
where  otherwise  indicated.  Reference is made to footnote number 2, on page 2,
for a summary of the exchange rates between the U.S. and Canadian dollar for the
past five years.

         Reference  is  made  to  Note  8 of  the  Company's  audited  financial
statement  for the  year  ended  November  30,  1999,  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, 1999, 1998 and 1997:
<PAGE>
Fiscal Years Ended November 30
------------------------------
<TABLE>
<CAPTION>

                                               1999         1998          1997

<S>                                           <C>           <C>           <C>
Research and development                      4,859         4,631         5,225
Loss for the period                          (8,428)       (7,415)       (8,332)
Basic and diluted loss per share              (0.27)        (0.29)        (0.39)
Total Assets                                  9,362         5,652         7,606
Share Capital                                48,374        36,795        31,700
Deficit                                     (40,317)      (31,889)      (24,474)
Shareholders' equity                          8,057         4,906         7,226

</TABLE>
Item 9.  Management's Discussion and Analysis of Financial Condition and Results
 of Operations.
--------------------------------------------------------------------------------

         The following  discussion  and analysis  should be read in  conjunction
with the audited financial statements and notes thereto. See "Item 18. Financial
Statements"  The financial  statements  have been  prepared in  accordance  with
generally  accepted  accounting  principles  (GAAP) in Canada  which,  except as
described in Note 8, conform in all material respects with accounting principles
generally accepted in the United States. In addition to historical  information,
the following  Management's  Discussion and Analysis of Financial  Condition and
Results of Operations contains forward-looking statements that involve risks and
uncertainties.  The Company's  actual  results could differ  significantly  from
those  anticipated  in these  forward-looking  statements as a result of certain
factors,  including  those  discussed  in "Risk  Factors" and else where in this
Annual Report.

Overview
--------

         Vasogen is focused on the development of a series of immune  modulation
therapies  for  the  treatment  of  human   disease.   In   collaboration   with
international  centres of  excellence  in  biomedical  research,  the Company is
developing  proprietary   therapeutics  for  the  prevention  and  treatment  of
inflammatory  disorders,  including  atherosclerosis,  congestive heart failure,
autoimmune    diseases    (psoriasis    and    rheumatoid    arthritis),     and
ischemia/reperfusion  injury resulting from major vascular  surgery.  Vasogen is
also developing a proprietary cell-processing technology to modify donor T cells
to  prevent  or  reduce   Graft-versus-Host   Disease   following   bone  marrow
transplantation.  Delivered by a platform medical device  technology,  Vasogen's
therapies  are designed to target  fundamental  disease-causing  processes  with
fewer side effects than current therapies. The Company currently has five issued
patents and fourteen patent  applications.  Vasogen intends to commercialize its
products through partnering with established health care companies.

         During 1999,  Vasogen remained in a research and development  phase and
has not yet  generated  revenues.  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 establish  alliances  with other health care  companies to assist in
marketing its therapy, as well as to provide research and development funding.
<PAGE>
         Marketing the Company's  products  outside the European  Community,  or
offering  it for the  treatment  of disease  indications  other than  peripheral
vascular  disease within the European  Community,  may require the completion of
further clinical trials and/or regulatory  approvals,  the timing and outcome of
which will impact future operations.

Results of Operations
---------------------

         The Company is in the research and  development  phase and as such, has
incurred  losses  since its  inception.  For the fiscal year ended  November 30,
1999, the Company recorded a loss of $7.9 million, or $0.25 per common share, as
compared with a loss of $7.3 million or $0.29 per common  share,  for the fiscal
year ended November 30, 1998.

         Research and  development  expenses,  including  costs  associated with
pre-clinical and clinical research, product development, and regulatory affairs,
in fiscal 1999, were  essentially the same as compared to fiscal 1998. The major
expenditures for research and development  expenses during 1999 were directed at
moving the Company's products through pre-clinical development and into clinical
trials.  By the end of fiscal,  1999, the Company had three products in clinical
trials  and  had  completed  pre-clinical  development  on a  fourth  and  began
preparing to move it into a clinical trial.

         General and  administration  expenses  increased  by $0.4  million,  as
compared to fiscal  1998.  The increase in general and  administrative  expenses
related to a  significant  increase in corporate  activity  during  1999.  These
activities  included  the  listing  of  Vasogen's  shares on The  Toronto  Stock
Exchange and The  American  Stock  Exchange.  Vasogen  also  increased  investor
relations'  expenses  during 1999 to increase  the  awareness  of the  Company's
activities  in the  investment  community in Canada and to initiate a program in
the United States.

         Professional fees increased by $0.1 million in fiscal 1999, as compared
to fiscal 1998.  These include legal,  audit,  tax, market  research,  strategic
planning, investor relations, and other consulting costs not directly related to
research and development. The increase in 1999 was associated with the increased
corporate activity described above.

         Salary expenses increased by $0.1 million,  as compared to fiscal 1998.
The increase in salary expense in 1999 was the result of higher  expenses during
1999 required to support the Company's growth.

Liquidity and Capital Resources
-------------------------------

         As  at  November  30,  1999,  the  Company  had  cash  equivalents  and
marketable  securities  of $8.6  million,  versus $5.2 million at the end of the
previous year. Cash equivalents  consist of certificates of deposit.  Marketable
securities  include  liquid  bonds with  varying  maturities  issued by Canadian
governments and corporations.

         Cash used for  operations in fiscal 1999 was $7.4 million,  compared to
$6.9 million in fiscal 1998. This increase resulted from the increased corporate
activity in fiscal 1999 as described above.
<PAGE>
         Cash provided from  financing  activities  during fiscal 1999 was $11.4
million,  compared to $4.9 million in fiscal 1998. The Company completed private
placements  for proceeds of $8.9  million net of share issue  costs.  A total of
6,590,000  Common  Shares  was  issued  in  connection  with  these  placements.
Additional  funding was generated  through the exercise of warrants and options,
for proceeds of $2.5 million, which resulted in the issuance of 2,220,863 Common
Shares.  During 1999,  206,939  Common Shares valued at $0.3 million were issued
for services provided to the Company.

         As at November 30, 1999, the Company had no long-term obligations.

Year 2000
---------

          The Year 2000 Issue arises because many  computerized  systems use two
digits rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date,  resulting in errors when  information
using year 2000 dates is processed.  In addition,  similar problems may arise in
some systems,  which use certain dates in 1999 to represent something other than
a date. Although the change in date has occurred, it is not possible to conclude
that all  aspects of the Year 2000 Issue that may affect the  entity,  including
those related to customers,  suppliers,  or other third parties, have been fully
resolved. The Company has not experienced any material impacts on its operations
to date as a result of the Year 2000 Issue.

Item 9A.  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.

         The Company does not utilize derivative financial  instruments to hedge
its interest rate or foreign currency rate risks.
<PAGE>
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 March 31, 2000:
<TABLE>
<CAPTION>
                                                    Expected to mature in
                                              2000            2001        2002
Cash and short-term deposits:
<S>                                        <C>             <C>           <C>
Canadian Dollars                           18,637,096      5,234,299     686,200

         Average interest rate - fixed           5.64%          5.64%       5.84%

U.S. Dollars                                1,116,125            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 March
31, 2000 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
March 31, 2000 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  will depend on the
exposures that arise during the period,  the Company's hedging strategies at the
time, and interest and foreign exchange rates.

Item 10.  Directors and Officers of Registrant.
----------------------------------------------

The following table outlines the names and  municipalities  of residence of each
of the directors and officers of Vasogen,  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 3, 2000.
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Name of Directors                        Principal Occupation                            Position Since
 and Executive Officers
--------------------------------------------------------------------------------------------------------
<S>                                      <C>                                           <C>
William A. Cochrane,  OC, MD             Chairman of the Board                         February 1995
Calgary, Alberta                         and a Director of the Company and Healthcare
                                         Consultant
--------------------------------------------------------------------------------------------------------
David G. Elsley, MBA                     President, CEO and a Director of the Company  January 1991
Oakville, Ontario
--------------------------------------------------------------------------------------------------------
William R. Grant *                       Director and Vice-Chairman of the Board and   November 1998
New York, NY                             Chairman of Galen Associates
--------------------------------------------------------------------------------------------------------
Terrance Gregg,+                         Director of the Company and President and     September 1999
Los Angeles, CA                          Chief Operating Officer of MiniMed Inc.
--------------------------------------------------------------------------------------------------------
Donald Grilli +                           Director of the Company and Health Care       July 1999
Boston, MA                               Consultant
--------------------------------------------------------------------------------------------------------
Graham Strachan +                        Director of the Company and Life Sciences     September 1998
Etobicoke, Ontario                       Consultant
--------------------------------------------------------------------------------------------------------
Dr. Eldon Smith                          Vice-President, Scientific Affairs and a      May 1998
Calgary, Alberta                         Director of the Company
--------------------------------------------------------------------------------------------------------
Benoit La Salle *                        Director of the Company and the President of  January 1997
Montreal, Quebec                         Semafo Inc.
--------------------------------------------------------------------------------------------------------
Jan-Eric Osterlund *                     Director of the Company and the Chairman of   February 1997
London, United Kingdom                   QueQuoin Holdings Ltd.
--------------------------------------------------------------------------------------------------------
Christopher J. Waddick                   Vice-President, Finance, Chief Financial      March, 1997
Chatham, Ontario                         Officer, Corporate Secretary and Treasurer
--------------------------------------------------------------------------------------------------------
</TABLE>


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.
<PAGE>
Directors and Officers
----------------------

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

Dr. Cochrane joined the Board of Directors as Chairman in 1995. As Chairman,  he
is  responsible  for  guiding the  Company's  strategic  development  through to
commercialization.  For ten years the  Chairman and Chief  Executive  Officer of
Connaught   Laboratories  Ltd.,  Dr.  Cochrane  is  currently  an  international
investment  consultant in the area of health products and services. He serves on
several boards, including MDS Capital Corp., StressGen Biotechnologies Corp, and
Selective Genetics Inc. of San Diego. He was a senior advisor to Vencap Equities
Alberta  Ltd.  He is a past  Chairman  of the  National  Biotechnology  Advisory
Committee.  Dr.  Cochrane  was the first Dean of Medicine of the  University  of
Calgary Medical School and his academic career  culminated in his appointment as
President and  Vice-Chancellor  of the  University  of Calgary.  He served for a
short time as Deputy Minister of Health Services in the Government of Alberta.

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

Mr. Elsley has served as an officer and director  since 1991. In this  capacity,
he has been responsible for identifying,  acquiring the Company's technology and
for  assembling a management  team with the  requisite  experience to manage the
commercial development of Vasogen's products.  Prior to joining Vasogen Inc., he
held  marketing  and  management  positions in the computer  industry 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.

William R. Grant, Vice-Chairman of the Board and Director

Mr. Grant  co-founded  Galen  Associates in 1990 and possesses a combination  of
more than 40 years of  experience  in the  investment  banking and  risk-capital
fields.  In  addition,   his  career  includes  substantial  experience  in  the
healthcare  industry.  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  (now Hoechst Marion Roussel),  American Hospital Supply Corp., and
SmithKline Beecham. Mr. Grant, then, joined MacKay-Shields Financial Corporation
as  President  and was later  elected  Chairman of the Board.  He served as Vice
Chairman of SmithKline  Beecham for ten years and currently serves on the Boards
of Allergan,  Inc.; Fluor  Corporation;  MiniMed Inc.;  Ocular  Sciences,  Inc.;
WBN.com; 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. Mr. Grant was appointed as the  Vice-Chairman of
the Board of the Company on March 3, 2000.

Terrance H. Gregg, Director

Mr. Gregg is the President and Chief Operating  Officer of MiniMed Inc., a world
leader in diabetes management systems.  Prior to joining MiniMed Inc., Mr. Gregg
served in executive  positions  with Smith & Nephew plc., a  diversified  health
care  product  company,  and  Allergan  Inc.,  a leading  ophthalmic  device and
pharmaceutical company. 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.
<PAGE>
Donald A. Grilli, Director

Mr. Grilli has more than thirty years experience with Johnson & Johnson ("J&J"),
a diversified health care product company having held senior executive positions
with seven J&J  companies,  most  recently,  as  President  of Johnson & Johnson
Professional,  Inc. Mr. Grilli also served as Executive  Vice President of J&J's
Surgikos,  a $500 million  manufacturer of disposable products for the operating
room, as Executive  Vice  President of Sales and Marketing for J&J's  Ultrasound
Division,  and in various executive roles with J&J's  Technicare,  a global high
tech manufacturer of CT scanners, MRI units and nuclear equipment.

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 of Semafo Inc. and the Chairman of the Board
of Vauquelin Mines Ltd. He has extensive  experience in international  taxation.
He is the  Treasurer  and  member of the  executive  board  committee  of Foster
Parents Plan of Canada, and a member of the board of several Canadian companies.

Jan-Eric Osterlund, MMech Eng, MBA, Director

Mr.  Osterlund is chairman of QueQuoin  Holdings  Ltd., an UK  investment  group
specializing in medical venture capital. He is also chairman of Phairson Medical
Ltd., a biotechnology group; Stril AB, a leader in radiation sterilization;  and
BM Research and Epivac Ltd., both of whom  specialize in drug delivery  systems.
Mr. Osterlund is a Director of Ermitage  International  Ltd., a money management
company;  Shilling Banco Ltd., an UK commercial real estate investment  company;
and  Ostrumentia,  a Swedish  commercial  real estate  investment  company.  Mr.
Osterlund is also a Director of Indigo Aviation, a company quoted on Nasdaq. Mr.
Osterlund holds a Masters of Mechanical  Engineering  from Chalmers,  Gothenburg
and a Masters of Business  Administration  from the  University  of Uppsala.  He
structured  the buy-out of HemoCue from  Pharmacia in 1988,  became its Chairman
and later sold the group in 1992.

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

Dr. Smith, is a Professor at the University of Calgary Medical School,  Alberta,
where he was the former Dean of the Faculty of Medicine,  and previously Head of
the Department of Medicine and Head of the Division of Cardiology. Dr. Smith has
been at the  University of Calgary since 1980. 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.  He has  received  numerous  awards  and  serves  on the  advisory  or
corporate boards of a number of Canadian  companies.  Dr. Smith is a graduate of
Dalhousie  University  Medical  School and received his  cardiology and research
training  at the  National  Heart  Institute,  London,  U.K.  and  the  National
Institutes of Health, Bethesda, Maryland.
<PAGE>
Graham Strachan, Director

Mr. Strachan is a member of the Board of Directors of Allelix Biopharmaceuticals
Inc.  and formerly  President  and Chief  Executive  Officer.  Mr.  Strachan was
involved in the formation of Allelix in 1983 and  participated in the growth and
evolution of the original  Allelix  venture  into three  independent  companies.
Prior to  joining  Allelix,  Mr.  Strachan  was  Vice-President  for  Commercial
Development at John Labatt  Limited.  During 15 years with Labatt,  Mr. Strachan
was  involved in patents  and  licensing,  technology  management  and  business
development.  Previously,  Mr.  Strachan  worked  for  several  years in product
licensing with the European  Division of Schering  Inc., a major  pharmaceutical
company.  Mr.  Strachan  has  served  on  the  National  Biotechnology  Advisory
Committee  (NBAC)  since 1989 and has been  Chairman  since 1992.  Mr.  Strachan
serves as a Director and past-Chair of the Industrial Biotechnology  Association
of Canada, as well as past-President of the Biotechnology  Industry Organization
(BIO), an international trade association for biotechnology companies,  based in
Washington,  D.C. 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. Christopher J. Waddick, MBA, CMA, Vice-President,  Finance,
Chief Financial Officer, Corporate Secretary and Treasurer

As Chief  Financial  Officer since 1997, 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  Limited,  a  leading  North
American energy services provider. Mr. Waddick served in various financial roles
with Union Gas Limited from 1989 to 1997.  He holds an honours  Business  degree
from  Wilfrid  Laurier  University  and  has his CMA  designation.  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  Chairman of the  Department  of Medicine  and  Professor  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.  He is widely
recognized  for  his  role  in  organizing  and  leading  major   international,
multi-centre,  clinical  trials in the area of  cardiovascular  disease.  He has
served  as  Chairman  of the  Scientific  Review  Committee  and  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.

Pavel Hamet, MD, PhD, FRCP(C)

Dr. Hamet is Director of Research of the Centre  hospitalier de  l'Universite de
Montreal (CHUM),  and Chief of the Laboratory of Molecular  Medicine at the CHUM
Research  Centre 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  speciality  and research
training in Paris, Montreal and Nashville, Tennessee.
<PAGE>
Richard G. Margolese, MD, FRCS(C)

Dr.  Margolese  is the Hebert  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 a Professor and Chairman of the  Department of Medical  Biophysics
as the University of Toronto,  where he was founding and Acting  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.
An internationally  recognized  scientist and leader in the field of immunology,
he has received many honours  including being an invited  visiting  scientist at
many of the world's  leading  immunology  centres.  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.

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-centre  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. This includes 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  and The
Methodist  Hospital,  Houston,  Texas,  one of the world's  leading  centres 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

<PAGE>
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 honours 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 Rosen, MD

Dr. Rosen is President of the Center for Blood  Research in Boston and Professor
of  Pediatrics  at Harvard  Medical  School.  Dr.  Rosen is  recognized  for his
ground-breaking  research  into the  functioning  of the  immune  system and the
causes  of  immune  deficiency  diseases.  His  wide  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.  Dr Rosen has received wide international  recognition as a
leader in his field.  He has been  elected as an honorary  member to  scientific
societies in many countries,  including  becoming a Membre d'Honneur for Life of
the French  Society of  Immunology,  and is the  recipient of numerous  honorary
degrees and  honours,  including  being a  Distinguished  Visiting  Scholar,  at
Christ's College,  Cambridge  University,  England.  Dr. Rosen is also active in
many  important  committees and  scientific  societies and 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.
<PAGE>
Item 11.  Compensation of Directors and Officers
------------------------------------------------

         The  following  table  sets  forth  all  compensation  for all  periods
indicated in respect of the  individual  who was, as of November  30, 1999,  the
chief  executive  officer of the Company,  and all other officers of the Company
who received,  during the financial year of the Company ended November 30, 1999,
salary and bonus in excess of $100,000 ("Named Executive Officers").

Summary Compensation Table
--------------------------
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
                                             Annual Compensation               Long-Term Compensation
                                      -----------------------------------
                                                                         ------------------------------------
                                                                                  Awards           Payouts
                                                                         ------------------------------------
                                                                                       Restricted
                                                                          Securities     Shares
                                                                Other       Under          Or
                                                                Annual     Options/    Restricted              All Other
                                                              Compens-       SARs        Share       LTIP       Compen-
 Name and Principal Position   Year     Salary     Bonus (2)   ation(5)   Granted        Units      Payouts     sation
                                          ($)         ($)       ($)          (#)          ($)         ($)          ($)
---------------------------------------------------------------------------------------------------------------------------
<S>                            <C>    <C>           <C>       <C>          <C>           <C>         <C>       <C>
David Elsley                   1999   167,200       75,240                 622,800(1)
(President and Chief           1998   167,200       63,954                 687,800
Executive Officer)             1997   161,183                              565,000

---------------------------------------------------------------------------------------------------------------------------
Paul Moore                     1999   150,000       53,700                 375,700(1)
(Executive Vice-President,     1998   150,000       47,325                 405,700                             62,499(3)
Chief Operating Officer(4))    1997   131,000                              330,000                             61,067(3)


---------------------------------------------------------------------------------------------------------------------------
Christopher Waddick            1999   132,200       48,385                 396,700(1)
(Vice-President Finance,       1998   132,200       41,709                 346,700
Chief Financial Officer,       1997   124,067       25,000                 280,000
Corporate Secretary and
Treasurer)
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)      This is a  cumulative  total and  represents  the  aggregate  number of
         securities under option as at November 30, 1999.
(2)      Bonus paid through the issuance of common shares of the Company.
(3)      This  payment  was made to  compensate  Mr.  Moore for loss of benefits
         suffered  as a  result  of his  acceptance  of the  position  of  Chief
         Operating Officer of the Company.
(4)      On February 1, 2000, Mr. Moore was named to the position of Director of
         Product  Development  and  Marketing  and  ceased  to be  an  Executive
         Vice-President and the Chief Operating Officer of the Company.
(5)      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.

<PAGE>
Employment Contracts
--------------------

         The  Corporation has entered into an employment  agreement,  made as of
the 1st day of  January  1997,  with  Mr.  David  G.  Elsley.  Pursuant  to this
agreement,  Mr.  Elsley  serves  the  Corporation  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
December 31, 2002, and an annual  remuneration of $180,000 per annum. Mr. Elsley
is entitled to benefits  available to other  employees of the  Corporation.  The
agreement  is  terminable  at the option of the  Corporation;  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 or warrants then  outstanding
vest for their full term. The agreement  contains standard  non-competition  and
non-solicitation provisions.

         The  Corporation has entered into an employment  agreement,  made as of
the 1st day of  February  2000,  with Mr.  Paul G. A.  Moore.  Pursuant  to this
agreement,  Mr.  Moore  serves  the  Corporation  as  its  Director  of  Product
Development and Marketing.  The agreement provides for a fixed two-year term and
an annual remuneration of $115,000 per annum. The agreement is terminable at the
option of the  Corporation;  however,  if such  agreement is not  terminated for
cause,  Mr. Moore 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.

         The  Corporation 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 Corporation as its Vice  President,  Finance,
Chief Financial Officer and Secretary and Treasurer.  The agreement provides for
an annual  remuneration of $150,000 per annum.  The other terms of the agreement
are similar to those described for Mr. Elsley.

Compensation of Directors
-------------------------

         Directors of the  Corporation  who are not  full-time  employees of the
Corporation  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  Corporation  and are eligible to receive  stock
options.  For the fiscal period ended  November 30, 1999, the  Corporation  paid
$27,000 in  directors'  fees,  as well as  reimbursement  of  reasonable  travel
expenses.

         Officers and directors, as a group, received total cash remuneration of
approximately $477,000 during the fiscal year ended November 30, 1999.

         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.

<PAGE>
Item 12.  Options to Purchase Securities from Registrant or Subsidiaries.
-------------------------------------------------------------------------

Stock Option Plan

           The Company maintains a stock option plan pursuant to which a maximum
of 5,000,000  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,  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 following  table sets out  information  relating to outstanding  options and
warrants to purchase  common shares granted by the Company that are  outstanding
as at the date  hereof  with the  number of persons  in each  category  shown in
parentheses:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
                                   NUMBER OF                          MARKET VALUE OF    EXERCISE
                                 COMMON SHARES     DATE OF GRANT       SECURITIES ON     PRICE PER      EXPIRY DATE
                                    OPTIONED                           DATE OF GRANT       SHARE
------------------------------------------------------------------------------------------------------------------------
Executive Officers
(Four)
<S>                                  <C>           <C>                     <C>          <C>          <C>
                                     270,000       Sept. 15, 1998          1.00         1.00         Sept. 15, 2003
                                     165,000       May 28, 1996            1.00         1.00         May 28, 2001
                                      45,000       June 19, 1996           1.20         1.20         June 18,2001
                                     205,055       Dec. 15, 1998           1.25         1.25         Dec. 15, 2003
                                     100,000       June 19, 1996           1.20         1.20         June 18,2002
                                     150,000       October 27, 1999        2.95         2.95         October 27, 2004
                                      58,770       January 4, 2000         5.70         5.70         January 4, 2005
                                       5,000       February 3, 2000        9.55         9.55         February 3, 2003

------------------------------------------------------------------------------------------------------------------------
Directors
(Excluding Executive
Officers)  (Six)


                                      10,000       August 4, 1999          1.75         1.75         August 4, 2002
                                      30,000       February 3, 2000        9.55         9.55         February 3, 2003

------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                  <C>           <C>                     <C>          <C>          <C>
Other Employees Of
And Advisors To
The Company
(Fifteen)

                                      35,000       May 7, 1998             2.00         2.00         May 7, 2003
                                     196,385       Dec. 15, 1998          1.25          1.25         Dec. 15, 2003
                                     125,000       Sept. 15, 1998         1.00          1.00         Sept. 15, 2003
                                      15,000       May 1, 1997            2.30          2.30         May 1, 2002
                                     100,000       May 28, 1996           1.00          1.00         May 28, 2001
                                     100,000       June 19, 1996          1.20          1.20         June 18, 2002
                                      14,750       May 26, 1999           1.55          1.55         May 26, 2004
                                     125,000       January 8, 1997        1.69          1.69         January 8, 2002
                                      25,000       August 4, 1999         1.75          1.75         August 4, 2004
                                      68,290       January 4, 2000        5.70          5.70         January 4, 2005
                                      10,000       February 3, 2000       9.55          9.55         February 3, 2005
                                      75,000       October 27, 1999       2.95          2.95         October 27, 2004
------------------------------------------------------------------------------------------------------------------------
Other Persons Or
Corporations
(Twenty)
                                     855,749       Mar. 10, 1998          1.75          1.75         Nov. 30, 2000
                                       7,500       Jan. 2, 1996           1.15          1.15         Mar. 13, 2001
                                      70,000       May 25. 1998           1.75          1.75         Nov. 30, 2000
                                      55,000       Jan. 17, 1997          2.48          2.48         Jan. 17, 2001
                                      47,500       August 19, 1999        1.75          1.75         August  31, 2001
                                      10,000       October 27, 1999       2.95          2.95         October 27, 2004
                                      30,000       November 17, 1999      4.03          4.03         November 17, 2001
                                        7,500       January 4, 2000        5.70          5.70         August 31, 2001
                                      30,000       January 4, 2000        7.40          7.40         June 4, 2002
                                      94,000       Jan. 13, 1999          1.98          1.98         July 13, 2000
                                      78,900       Feb. 24, 1999          2.00          2.00         Aug. 22, 2000
------------------------------------------------------------------------------------------------------------------------
</TABLE>

         Options/SARs  Granted or Exercised  During the Most Recently  Completed
Financial Year
<PAGE>
         Details of options granted to the Named  Executive  Officers during the
financial year ended November 30, 1999, are shown in the table set out below.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
                                       % of Total                           Market Value
                      Securities        Options/                           of Securities
                        Under             SARs                               Underlying
                       Options/        Granted to         Exercise            Options/
       Name              SARs          Employees             Or         SARs on the Date of
                       Granted        in Financial       Base Price            Grant                  Expiration
                         (#)              Year          ($/Security)        ($/Security)                 Date
--------------------------------------------------------------------------------------------------------------------------
<S>                   <C>                 <C>               <C>                <C>                <C>
David Elsley          122,792             19%               $1.25              $1.25              December 15, 2003

--------------------------------------------------------------------------------------------------------------------------
Paul Moore             75,720             12%               $1.25              $1.25              December 15, 2003

--------------------------------------------------------------------------------------------------------------------------
Christopher            66,735             26%               $1.25              $1.25              December 15, 2003
Waddick               100,000                               $2.95              $2.95               October 27, 2004
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

         Details of options  exercised  by the Named  Executive  Officers of the
corporations during the financial year ended November 30, 1999, are shown in the
table set out below.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
                                                       Unexercised Options/SARs at FY    Value of Unexercised in-the-Money
       Name            Securities                                 - End (#)                Options/SARs at FY - End ($)
                       Acquired on       Aggregate        Exercisable/Unexercisable          Exercisable/Unexercisable
                        Exercise      Value Realized
                           (#)              ($)
--------------------------------------------------------------------------------------------------------------------------
<S>                      <C>              <C>                  <C>                               <C>
David Elsley             65,000           60,000               500,000/122,792                   2,460,000/583,000

--------------------------------------------------------------------------------------------------------------------------
Paul Moore               30,000           23,000               300,000/75,720                    1,293,000/360,000

--------------------------------------------------------------------------------------------------------------------------
Christopher Waddick      50,000           29,000               330,000/66,735                    1,450,000/317,000
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
Item 13.  Interest of Management in Certain Transactions.
---------------------------------------------------------

         (a) During  the fiscal  year ended  November  30,  1999,  there were no
transactions,  and  there  are no  proposed  transactions  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.

         (b) 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, 1999, 1998, and 1997.
<PAGE>
PART II
-------

Item 14. Description of Securities to be Registered.
----------------------------------------------------

         Not Applicable


PART III

Item 15.  Defaults Upon Senior Securities.
--------  --------------------------------

         None.

Item 16.  Changes in Securities and Changes in Security for Registered
          Securities.
          ------------------------------------------------------------

         None.

PART IV
-------

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

See "Item 18.  Financial Statements."

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

         a) Report and  Consolidated  Financial  Statements  for the years ended
November  30,  1999,  1998,  and  1997  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 8 conform in
all material  respects  with  accounting  principles  generally  accepted in the
United States.
<PAGE>
Item 19.  Financial Statements and Exhibits.
-------------------------------------------

         1) Financial Statements.

         a) Report and  Consolidated  Financial  Statements  for the years ended
November  30,  1999,  1998,  and  1997  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 8 conform in
all material  respects  with  accounting  principles  generally  accepted in the
United States.

         2) 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).

1.       Articles of Incorporation and Amendments thereto.

2.       By-Laws.

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.


<PAGE>



                  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:

<PAGE>

                      Consolidated Financial Statements of

                                  VASOGEN INC.

                          Year ended November 30, 1999



<PAGE>
Auditors' Report


To the Board of Directors of Vasogen Inc.



We have audited the  consolidated  balance sheets of Vasogen Inc. as at November
30, 1999 and 1998 and the consolidated  statements of operations and deficit and
cash flows for each of the years in the  three-year  period  ended  November 30,
1999 and for the period  from  December  1, 1987 to  November  30,  1999.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We conducted our audits in accordance with 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, 1999
and 1998 and the  results of its  operations  and its cash flows for each of the
years in the  three-year  period ended November 30, 1999 and for the period from
December 1, 1987 to November  30, 1999 in  accordance  with  Canadian  generally
accepted accounting principles.





Chartered Accountants

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

Toronto, Canada

December 17, 1999,
except for note 9 which is at February 29, 2,000


<PAGE>
<TABLE>
<CAPTION>
VASOGEN INC.
Consolidated Balance Sheets
(In thousands of Canadian dollars)

November 30, 1999, with comparative figures for 1998
------------------------------------------------------------------------------------------------------------------------------------
                                                                                 1999                 1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                  <C>
Assets

Current assets:
     Cash and cash equivalents                                                $     1,031          $     1,073
     Marketable securities (note 2)                                                 7,576                4,128
     Inventory                                                                        117                  243
     Prepaid expenses and advances                                                    445                  109
------------------------------------------------------------------------------------------------------------------------------------
                                                                                    9,169                5,553

Capital assets                                                                        299                  158
Less accumulated amortization                                                        (106)                 (59)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                      193                   99

Acquired technology                                                                 4,081                3,641
Less accumulated amortization                                                      (2,056)              (1,803)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                    2,025                1,838

------------------------------------------------------------------------------------------------------------------------------------
                                                                              $    11,387          $     7,490
------------------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity

Current liabilities:
     Accounts payable and accrued liabilities                                 $       945          $       746

Shareholders' equity:
     Share capital (note 3)                                                        47,752               36,139
     Deficit                                                                      (37,310)             (29,395)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                   10,442                6,744

------------------------------------------------------------------------------------------------------------------------------------
                                                                              $    11,387          $     7,490
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.

On behalf of the Board:

 /s/ Benoit La Salle              Director
---------------------------------
BENOIT LA SALLE

/S/ Janeric Osterlund            Director
---------------------------------
JANERIC OSTERLUND
<PAGE>
<TABLE>
<CAPTION>
VASOGEN INC.
Consolidated Statements of Operations and Deficit
(In thousands of Canadian dollars except per share amounts)

------------------------------------------------------------------------------------------------------------------------------------
                                                                                                   Period from
                                                                                                   December 1,
                                                                                                     1987 to
                                                            Years ended November 30,                November 30,
                                                  1999              1998             1997             1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>               <C>              <C>                  <C>
Expenses:
     Research and development             $      4,672      $      4,656     $      5,351         $     21,209
     Salaries                                    1,064               981            1,097                4,842
     General and administration                  1,224               822              813                5,427
     Professional fees                             908               821              717                4,026
     Amortization of capital assets                 47                32               13                  296
------------------------------------------------------------------------------------------------------------------------------------

Loss for the period                             (7,915)           (7,312)          (7,991)             (35,800)

Deficit, beginning of period                   (29,395)          (22,083)         (14,092)              (1,510)

------------------------------------------------------------------------------------------------------------------------------------
Deficit, end of period                    $    (37,310)     $    (29,395)    $    (22,083)        $    (37,310)
------------------------------------------------------------------------------------------------------------------------------------

Loss per share                            $      (0.25)     $      (0.29)    $      (0.38)
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
VASOGEN INC.
Consolidated Statements of Cash Flows
(In thousands of Canadian dollars)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                   Period from
                                                                                                   December 1,
                                                                                                       1987 to
                                                            Years ended November 30,              November 30,
                                                  1999              1998             1997                 1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>               <C>               <C>               <C>
Cash provided by (used in):

Operations:
     Loss for the period                    $   (7,915)       $   (7,312)       $  (7,991)        $    (35,800)
     Items not involving cash:
         Amortization of capital assets
           and acquired technology                 300               236              199                2,381
         Loss on write-off of
           capital assets                            -                 6                -                   24
         Forgiveness of debt                         -                 -                -                  (63)
         Services provided for
           common shares                           259                55              215                2,216
         Change in non-cash
            working capital (note 4)               (38)               59               83                  288
------------------------------------------------------------------------------------------------------------------------------------
                                                (7,394)           (6,956)          (7,494)             (30,954)
Financing:
     Shares issued for cash                      9,825             5,043            7,625               33,232
     Warrants exercised for cash                 1,739               253            1,621                8,696
     Options exercised for cash                    724                95              482                2,120
     Share issue costs                            (934)             (479)            (312)              (3,174)
     Issue of convertible debt                       -                 -                -                  650
     Financing costs                                 -                 -                -                  (28)
     Payable to related parties                      -                 -                -                 (232)
------------------------------------------------------------------------------------------------------------------------------------
                                                11,354             4,912            9,416               41,264
Investments:
     Increase in capital assets                   (141)             (100)             (17)                (487)
     Increase in acquired technology              (440)             (178)             (60)              (1,283)
     Maturities (purchase) of
        marketable securities                   (3,448)            2,900           (7,028)              (7,576)
------------------------------------------------------------------------------------------------------------------------------------
                                                (4,029)            2,622           (7,105)              (9,346)
Foreign exchange gain on cash held in
   foreign currency                                 27                40                -                   67
------------------------------------------------------------------------------------------------------------------------------------

Increase (decrease) in cash
   and cash equivalents                            (42)              618           (5,183)               1,031
Cash and cash equivalents,
   beginning of period                           1,073               455            5,638                    -

------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents
   end of period                            $    1,031        $    1,073        $     455         $      1,031
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Supplementary disclosures (note 4)
See accompanying notes to consolidated financial statements.
<PAGE>
VASOGEN INC.
Notes to Consolidated Financial Statements (continued)
(Tabular amounts in thousands of Canadian dollars)

Year ended November 30, 1999
--------------------------------------------------------------------------------
Since  December  1, 1987,  the  Company  has been  engaged in the  research  and
commercial  development of its proprietary  platform medical  technology for the
treatment  and  prevention  of disease.  The Company has not had any  commercial
operations  since  that  date.  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 reflect the cumulative amounts from December 1, 1987 to November 30, 1999.


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 8, 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.


       (b) Marketable securities:


           Marketable  securities  held to  maturity  are stated at the lower of
           amortized cost or market.


       (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
           generally  ranging between six months and thirty-six  months from the
           date of purchase and which are capable of prompt liquidation.  Market
           value of these securities approximates cost.
<PAGE>
VASOGEN INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of Canadian dollars)

Year ended November 30, 1999
--------------------------------------------------------------------------------

1.     Significant accounting policies (continued):


       (d) Inventory:


           Inventory is carried at the lower of cost or net realizable value.


       (e) 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.


       (f) 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.


       (g) Stock-Based compensation plan


           The Company has a compensation  plan which is described in note 3 b),
           c) and d). No compensation expense is recognized for these plans when
           stock options or warrants are issued to employees.  Any consideration
           paid by employees on exercise of stock options,  warrants or purchase
           of stock is credited to share capital.


       (h) 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  has not  deferred  any such  development
           costs.
<PAGE>
VASOGEN INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of Canadian dollars)

Year ended November 30, 1999
--------------------------------------------------------------------------------

        (i)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.


2.     Marketable securities:
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
                                                                        One
                                                    One year      year plus                           Yield to
       1999                                         maturity     maturities          Total            maturity
------------------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>              <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
------------------------------------------------------------------------------------------------------------------------------------

<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                        One
                                                    One year      year plus                           Yield to
       1998                                         maturity     maturities          Total            maturity
------------------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>              <C>           <C>             <C>     <C>
       Canadian federal government bonds          $      100       $      -      $     100               3.62%
       Canadian provincial government
         bonds                                         3,107              -          3,107       3.70% - 5.03%
       Canadian corporate bonds                          598            323            921       5.00% - 5.75%

------------------------------------------------------------------------------------------------------------------------------------
                                                  $    3,805       $    323      $   4,128
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
VASOGEN INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of Canadian dollars)

Year ended November 30, 1999
--------------------------------------------------------------------------------

3.     Share capital:

       (a) Authorized unlimited common shares, without par value:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                        Period from
                                                                                                                        December 1,
                                                                                                                            1987 to
                                                                                                                       November 30,
                                              1999                      1998                       1997                       1999
------------------------------------------------------------------------------------------------------------------------------------
                            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 year                    26,574   $    36,139       23,331  $    31,172       18,307   $    21,541        1,032     $   1,213
 Issued for:
      Cash                      6,590         9,825        2,882        5,043        3,064         7,625       21,669        33,232
      Services                    207           259           33           55          115           215        1,531         2,216
      Technology                    -             -            -            -            -             -        1,913         2,799
      Warrants exercised        1,627         1,739          228          253        1,352         1,621        7,049         8,696
      Options exercised           594           724          100           95          493           482        1,974         2,120
      Debt conversion               -             -            -            -            -             -          424           650
      Share issue costs             -          (934)           -         (479)           -          (312)           -        (3,174)

-----------------------------------------------------------------------------------------------------------------------------------
  Balance, end of year         35,592   $    47,752       26,574  $    36,139       23,331   $    31,172       35,592     $  47,752
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
VASOGEN INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of Canadian dollars)

Year ended November 30, 1999
--------------------------------------------------------------------------------

3.     Share capital (continued):


       (b) Stock options:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                   1999              1998                 1997
------------------------------------------------------------------------------------------------------------------------------------
                                                                                 (In thousands)

<S>                                                               <C>               <C>                  <C>
           Balance, beginning of year                             2,435             2,481                1,629
           Issued                                                   766               569                1,345
           Exercised                                               (594)             (100)                (493)
           Expired or cancelled                                     (45)             (515)                   -
------------------------------------------------------------------------------------------------------------------------------------
           Outstanding, end of year                               2,562             2,435                2,481
------------------------------------------------------------------------------------------------------------------------------------
           Exercisable, end of year                               2,092             2,285                1,793
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
           The  exercise  prices  set must at least  equal the fair 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, 1999,  these options have exercise  prices  ranging from
           $1.00 to $2.95,  generally vest over a maximum period of two to three
           years and expire over various dates to 2004.

       (c) Warrants:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                            1999           1998           1997
------------------------------------------------------------------------------------------------------------------------------------
                                                        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             2,100          3,785           5,885          4,725          4,078
           Issued                             424            372             796          2,538          2,182
           Exercised                         (632)          (995)         (1,627)          (228)        (1,352)
           Expired or cancelled              (200)          (382)           (582)        (1,150)          (183)
------------------------------------------------------------------------------------------------------------------------------------
           Outstanding, end of year         1,692          2,780           4,472          5,885          4,725
------------------------------------------------------------------------------------------------------------------------------------
           Exercisable, end of year         1,524          2,780           4,304          5,885          4,585
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
VASOGEN INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of Canadian dollars)

Year ended November 30, 1999
--------------------------------------------------------------------------------
3.     Share capital (continued):


           As at November 30, 1999,  these warrants have exercise prices ranging
           from  $1.00 to $3.05 and  expire  over  various  dates to 2005.  Each
           warrant  granted  allows the  holder to  purchase  one common  share.
           Warrants  issued for  services are at values  which  approximate  the
           market value of the services received.


       (d) Employment options:


            The following tables present information on employment options which
            include stock options and common share purchase  warrants issued for
            employment compensation:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                      1999                      1998                      1997
------------------------------------------------------------------------------------------------------------------------------------
                                                  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        4,534     $   1.37         4,445    $    1.43        3,444    $    1.08
           Issued                        766         1.62           804         1.25        1,745         1.84
           Exercised                  (1,194)        1.18          (150)        1.01         (744)        1.05
           Expired or cancelled         (245)        1.52          (565)        2.23            -            -

------------------------------------------------------------------------------------------------------------------------------------
            Outstanding,
              end of year              3,861     $   1.46         4,534    $    1.37        4,445    $    1.43
------------------------------------------------------------------------------------------------------------------------------------

           Exercisable,
              end of year              3,392     $   1.40         4,385    $    1.35        3,618    $    1.31

------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
           As at November 30, 1999,  there were 246,952 (1998 - 380,798;  1997 -
569,798) employment options available for grant.
<PAGE>
VASOGEN INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of Canadian dollars)

Year ended November 30, 1999
--------------------------------------------------------------------------------

3.     Share capital (continued):


           Employment  options  outstanding  and  exercisable as of November 30,
1999 are as follows:
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
                                           1999 Employment                                     1999 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 -  $1.15                         1,430               2.1 - 2.7                       1,430
               1.16 -   1.55                         1,347               0.6 - 4.5                         908
               1.56 -   1.90                           649               1.0 - 3.8                         629
               1.91 -   2.63                           225               0.8 - 3.4                         215
               2.64 -   2.95                           210               0.5 - 4.9                         210

------------------------------------------------------------------------------------------------------------------------------------
                                                     3,861                     2.3                       3,392
------------------------------------------------------------------------------------------------------------------------------------
</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,
                                                        1999           1998           1997                1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>              <C>           <C>                     <C>
       Inventory                                  $      126       $   (243)     $       -               (117)
       Prepaid expenses and advances                    (336)           (23)           (52)              (413)
       Accounts payable and accrued liabilities          199            365            135                885
       Foreign exchange                                  (27)           (40)             -                (67)

------------------------------------------------------------------------------------------------------------------------------------
                                                  $      (38)      $     59      $      83                288
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
VASOGEN INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of Canadian dollars)

Year ended November 30, 1999
--------------------------------------------------------------------------------

4.     Supplemental cash flow information (continued):


     (b) Non-cash financing and investing activities:
<TABLE>
<CAPTION>
<S>                                                <C>                <C>             <C>                <C>
       Non-cash financing activity:
            Debt conversion                          -                 -                -                 (650)
            Shares issued on debt conversion         -                 -                -                  650
            Shares issued for services             259                55              215                2,216
            Shares issued for technology             -                 -                -                2,799
------------------------------------------------------------------------------------------------------------------------------------
                                                   259                55              215                5,015
------------------------------------------------------------------------------------------------------------------------------------

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

------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5.     Fair values of financial instruments:


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


6.     Income taxes:


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


       The  balance  of  the  Scientific  Research  &  Experimental  Development
       expenditure pool at November 30, 1999 is approximately $7,445,000 (1998 -
       $5,887,000).
<PAGE>
VASOGEN INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of Canadian dollars)

Year ended November 30, 1999
--------------------------------------------------------------------------------

6.     Income taxes (continued):


       The Company has also earned estimated  investment tax credits ("ITCs") on
       Scientific Research & Experimental Development  expenditures,  which will
       expire as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
<S>    <C>                                                                                          <C>
       2005                                                                                         $      128
       2006                                                                                                299
       2007                                                                                                404
       2008                                                                                                341
       2009                                                                                                533

------------------------------------------------------------------------------------------------------------------------------------
                                                                                                    $    1,705
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

       The Company has losses of approximately  $11,339,000  available to reduce
       future  taxable  income,  the benefit of which will be  recognized in the
       accounts when realized. These tax losses expire as follows:
<TABLE>
<CAPTION>
<S>    <C>                                                                                          <C>
------------------------------------------------------------------------------------------------------------------------------------
       2003                                                                                        $     3,058
       2004                                                                                              6,473
       2006                                                                                              1,808

------------------------------------------------------------------------------------------------------------------------------------
                                                                                                   $    11,339
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
       The  Company's  subsidiary,   Vasogen  Ireland  Limited,  has  losses  of
       approximately  $8,564,191 available indefinitely to reduce future taxable
       income,  the benefit of which will be  recognized  in the  accounts  when
       realized.

7.     Commitments and contingency:

       (a) Royalties:

       The Company has granted royalties to arm's-length  third parties on gross
       amounts  received  by the  Company on  commercial  sales of its  products
       comprising  1.5% on all sales to a maximum  royalty of $1.3  million  per
       annum and an additional  4% with respect to revenue  derived from VAS971.
       To date, no royalties are due and/or payable.
<PAGE>
VASOGEN INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of Canadian dollars)

Year ended November 30, 1999
--------------------------------------------------------------------------------

       (b) Uncertainty due to the Year 2000 Issue:

       The Year 2000 Issue  arises  because  many  computerized  systems use two
       digits  rather than four to identify a year.  Date-sensitive  systems may
       recognize  the year 2000 as 1900 or some other date,  resulting in errors
       when information using year 2000 dates is processed. In addition, similar
       problems  may arise in some  systems  which use certain  dates in 1999 to
       represent something other than a date. The effects of the Year 2000 Issue
       may be  experienced  before,  on, or after  January 1, 2000,  and, if not
       addressed,  the impact on operations  and  financial  reporting may range
       from minor errors to  significant  systems  failure which could affect an
       entity's  ability  to  conduct  normal  business  operations.  It is  not
       possible to be certain that all aspects of the Year 2000 Issue  affecting
       the  Company,  including  those  related  to the  efforts  of  customers,
       suppliers, or other third parties, will be fully resolved.


8.     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.



<PAGE>
VASOGEN INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of Canadian dollars)

Year ended November 30, 1999
--------------------------------------------------------------------------------

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


       (a) Consolidated statement of operations and deficit:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                    Period from
                                                                                                    December 1,
                                                                                                      1987 to
                                                                 Years ended November 30,           November 30,
                                                          1999           1998            1997           1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>             <C>            <C>              <C>
           Loss per Canadian GAAP                  $    (7,915)    $   (7,312)    $    (7,991)     $   (35,800)
           Technology costs (i)                           (440)          (179)            (60)          (4,081)
           Technology amortization (i)                     253            204             186            2,056
           Non-employee stock options (ii)                (326)          (128)           (467)            (921)
           Warrants issued to acquire
              technology (iii)                               -              -               -              (61)
------------------------------------------------------------------------------------------------------------------------------------
           Loss per United States GAAP             $    (8,428)    $   (7,415)    $    (8,332)     $   (38,807)
------------------------------------------------------------------------------------------------------------------------------------

           Basic and diluted loss per share
              under United States GAAP             $     (0.27)    $    (0.29)    $    (0.39)
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                  (In thousands)
<S>                                                <C>             <C>            <C>              <C>
           Weighted average number of
              shares under United States GAAP           31,131         25,416          21,360
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
       (b) Consolidated balance sheet:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                   1999                                   1998
------------------------------------------------------------------------------------------------------------------------------------
                                                                 United                                 United
                                             Canada              States             Canada              States
------------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>                 <C>                <C>                  <C>
           Acquired technology (i)     $      2,025        $          -       $      1,838         $         -
           Share capital (ii) (iii)          47,752              48,734             36,139              36,795
           Deficit, end of year
              (i) (ii) (iii)                (37,310)            (40,317)           (29,395)            (31,889)
           Deficit accumulated
              during development
              stage (i) (ii) (iii)          (35,800)            (38,807)           (27,885)            (30,379)
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
VASOGEN INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of Canadian dollars)

Year ended November 30, 1999
--------------------------------------------------------------------------------

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


           (i)  Canadian GAAP permits the  capitalization  and  amortization  of
                acquired  technology  costs.  Under  United  States  GAAP,  such
                acquired  technology  costs  are  charged  to  expense.  At  the
                acquisition   date,  the   technological   feasibility  of  this
                technology  had  not yet  been  established  and  had no  future
                alternative uses.

           (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 issued after
                December  15,  1995 to  non-employees,  such as  members  of the
                Scientific  Advisory Board and Business  Advisory Board, at fair
                value. The fair value of the non-employee  stock options granted
                in 1999  has been  estimated  at the  date of  grant  using  the
                Black-Scholes  option pricing model based on the assumptions set
                out in note 8(e).

                For purposes of measuring  compensation cost under United States
                GAAP,  the Company has applied the provisions of APB Opinion No.
                25 in  accounting  for stock  options and common share  purchase
                warrants   issued  for  employment   compensation   ("employment
                options").  Under this  method,  compensation  cost is  measured
                consistently  with the approach  used under  Canadian  GAAP and,
                accordingly, no compensation expense has been recognized.

           (iii)In 1996,  100,000 common share purchase  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 8(e).

       (c) Consolidated statement 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)).
<PAGE>
VASOGEN INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of Canadian dollars)

Year ended November 30, 1999
--------------------------------------------------------------------------------


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

       (d) Income taxes:

           Under Canadian GAAP,  deferred tax assets  resulting from the benefit
           of loss  carryforwards  are  recognized  only when  there is  virtual
           certainty that the losses will be utilized.

           United States GAAP  requires that deferred  income taxes be accounted
           for under the  liability  method,  whereby  deferred  tax  assets and
           liabilities   are   recognized   for  the  future  tax   consequences
           attributable  to differences  between  financial  statement  carrying
           amounts of existing assets and  liabilities and their  respective tax
           bases. A valuation  allowance against the net deferred tax debits may
           be provided due to the uncertainty of realization.

          The Company has  determined  that there is no material  difference in
           the net deferred income tax position of the Company  recognized under
           United States GAAP as any deferred  taxes  initially  recognized  are
           fully  offset by a valuation  allowance.  Management  has  provided a
           valuation allowance  equivalent to the gross deferred tax asset given
           the nature of the Company's  activities and uncertainty  that it will
           generate  sufficient  income for tax purposes to utilize these losses
           in the carryforward year.

           The approximate tax effect of the Company's temporary  difference and
           losses  carryforward  which give rise to the  Company's  deferred tax
           asset are as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                               1999                  1998                 1997
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                 <C>                  <C>
           Unclaimed technology costs                     $   3,321           $     2,413          $     1,544
           Loss carryforwards                                 5,497                 4,368                7,692
------------------------------------------------------------------------------------------------------------------------------------

           Gross deferred tax asset                           8,818                 6,781                9,236

           Valuation allowance                               (8,818)               (6,781)              (9,236)

------------------------------------------------------------------------------------------------------------------------------------
           Net deferred tax asset                         $       -           $         -          $         -
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
VASOGEN INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of Canadian dollars)

Year ended November 30, 1999
--------------------------------------------------------------------------------


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

       (e) Stock-based compensation:


           The fair value of the employment options and non-employee options has
           been   estimated   at  the  date  of  grant  or  reissue   using  the
           Black-Scholes option pricing model under the following assumptions:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                     1999               1998              1997
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>                <C>           <C>
           Weighted average risk-free interest rate                     6.19%              5.54%        6.71%
           Dividend yield                                               0.00               0.00         0.00
           Volatility factor of the expected market
              price of the Company's common shares                      0.90               0.90         0.90
           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
           employment options and non-employee  options issued in 1999 was $1.05
           (1998 - $0.88).

           While SFAS No. 123 does not require  the  recording  of  compensation
           cost for stock  options  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
           issued  in 1999,  1998 and 1997  under  the  fair  value  method,  as
           follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                 1999                1998                 1997
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                 <C>                  <C>
           Loss for the year                              $    (8,428)        $    (7,415)         $    (8,332)
           Compensation cost - employees                         (675)               (665)                (797)

------------------------------------------------------------------------------------------------------------------------------------
           Pro forma loss for the year                    $    (9,103)        $    (8,080)         $    (9,129)
------------------------------------------------------------------------------------------------------------------------------------

           Pro forma loss per share                       $    (0.29)         $     (0.32)         $     (0.43)

------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
           The effects of applying SFAS No. 123 to calculate  compensation  cost
           in 1999,  1998 and 1997 may not be  representative  of the effects on
           pro forma net income in future periods.
<PAGE>
VASOGEN INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of Canadian dollars)

Year ended November 30, 1999
--------------------------------------------------------------------------------

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

       (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.  The Company
           expects the adoption of SFAS No. 133 will have no material  impact on
           its financial position, results of operations or cash flows.

           In 1999, the FASB issued SFAS No. 134 to No. 137. The Company expects
           that the  adoption  of SFAS No. 134 to No. 137 will have no  material
           impact on its  financial  position,  results  of  operations  or cash
           flows.

           In 1999, the AICPA issued SOP 98-6 to 99-3. The Company  expects that
           the adoption of SOP 98-6 to 99-3 will have no material  impact on its
           financial position, results of operations or cash flows.

9.     Subsequent event

           In February 2000, the Company issued 1,725,000  Special Warrants at a
           price of $9.00 per Special Warrant for proceeds of  $15,325,000,  net
           of issuance  costs of  $200,000.  Each Special  Warrant  entitles the
           holder  thereof to  acquire  one  common  share of the  Company at no
           additional cost.

           Subject to adjustment,  the Special  Warrants are  exercisable at any
           time and will be automatically  exercised following the issuance of a
           receipt for the final  prospectus  qualifying the common shares to be
           issued upon exercise of the Special Warrants.
<PAGE>

                                 DELVIN LIMITED
                      POB 404 Whiteley Chambers, Don Street
                    St. Helier, Jersey JE 9 WG Channel Island


September 29, 1999

Confidential

Vasogen Ireland Limited
Shannon Airport House
Shannon, Co. Clare
Ireland


Dear Sirs:

RE: Agreement dated November 1, 1997 between Vasogen Ireland Limited ("VIL") and
Delvin Ltd. ("Delvin") (the "Agreement")

This letter confirms that upon payment to Delvin on or before October 8, 1999 of
$160,044  (taking into  account the  discount of $36,000 for early  payment) the
Royalty payable to Delvin pursuant to the agreement will equal 1.5% of the gross
amount actually received,  directly or indirectly,  by Vasogen or any subsidiary
thereof on the commercial sale of products by Vasogen or any subsidiary  thereof
which  incorporate  the Technology  (as such term is defined in the  Agreement).
This letter also  confirms  that upon payment to Delvin on or before  October 8,
1999 of $160,044 the Royalty  payable to Delvin in any one fiscal year shall not
exceed $1.3 million.

All figures above are stated in Canadian currency.

This  amendment  will become void if the payment is not made by October 8, 1999.
In that case the agreement dated November 1, 1997 stays in force.

If you are in agreement  with the above,  please  signify by signing this letter
and returning it via fax to my attention.


DELVIN LTD.                                   AGREED AND ACCEPTED BY:

                                              Dated the 29 day of September 1999




-------------------------                     ------------------------------
Duly Authorized Signatory                     Duly Authorized Signatory of
                                              Vasogen Ireland Limited