<PAGE>   1



 =============================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                   FORM 10-Q

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

For the period ended February 28, 1997
                                       OR
[   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
       EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ____________ TO ______________

                         COMMISSION FILE NUMBER 0-24050

                          NORTHFIELD LABORATORIES INC.
           (Exact name of registrant as specified in its charter)

                   DELAWARE                                    36-3378733
          (State or other jurisdiction                      (I.R.S. Employer
       of incorporation or organization)                  Identification Number)

1560 SHERMAN AVENUE, SUITE 1000, EVANSTON, ILLINOIS            60201-4800
      (Address of principal executive offices)                 (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:  (847) 864-3500

FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST 
REPORT: 

        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 
                       ---                             ---

               APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

        INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS
AND REPORTS REQUIRED TO BE FILED BY SECTION 12, 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN
CONFIRMED BY A COURT.    YES                       NO 
                             ---                      ---

        AS OF FEBRUARY 28, 1997 REGISTRANT HAD 13,995,045 SHARES OF COMMON
STOCK OUTSTANDING.


================================================================================
<PAGE>   2






















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

                    Financial Statements

                    February 28, 1997

                    (See accompanying review report of
                    KPMG Peat Marwick LLP)


















<PAGE>   3
[KPMG PEAT MARWICK LLP LETTERHEAD]













                      INDEPENDENT AUDITORS' REVIEW REPORT


  The Board of Directors
  Northfield Laboratories Inc.:


  We have reviewed the balance sheets of Northfield Laboratories Inc. (a
  company in the development stage) as of February 28, 1997, and the
  related statements of operations and cash flows for the three-and
  nine-month periods ended February 28, 1997 and February 29, 1996 and
  for the period from June 19, 1985 (inception) through February 28,
  1997.  We have also reviewed the statements of shareholders' equity
  (deficit) for the nine-month period ended February 28, 1997 and for the
  period from June 19, 1985 (inception) through February 28, 1997.  These
  financial statements are the responsibility of the Company's
  management.

  We conducted our review in accordance with standards established by the
  American Institute of Certified Public Accountants.  A review of
  interim financial information consists principally of applying
  analytical procedures to financial data and making inquiries of persons
  responsible for financial and accounting matters.  It is substantially
  less in scope than an audit conducted in accordance with generally
  accepted auditing standards, the objective of which is the expression
  of an opinion regarding the financial statements taken as a whole.
  Accordingly, we do not express such an opinion.

  Based on our review, we are not aware of any material modifications
  that should be made to the financial statements referred to above for
  them to be in conformity with generally accepted accounting principles.

  We have previously audited, in accordance with generally accepted
  auditing standards, the balance sheet of Northfield Laboratories Inc.
  as of May 31, 1996, and the related statements of operations,
  shareholders' equity, and cash flows for the year then ended and for
  the period from June 19, 1985 (inception) through May 31, 1996 (not
  presented herein); and in our report dated July 3, 1996, except as to
  note 10, which is as of July 8, 1996, we expressed an unqualified
  opinion on those financial statements.  In our opinion, the information
  set forth in the accompanying balance sheet as of May 31, 1996 and in
  the accompanying statement of shareholders' equity is fairly stated, in
  all material respects, in relation to the statement from which it has
  been derived.

                                                    /s/ KPMG PEAT MARWICK LLP



  March 21, 1997




                                      

<PAGE>   4

NORTHFIELD LABORATORIES INC.                                                  
(a company in the development stage)                                          
                                                                              
Balance Sheets                                                                
                                                                              
February 28, 1997 (unaudited) and May 31, 1996                                
                                                                              
<TABLE>                                                                       
<CAPTION>                                                                     
                                                                              
==================================================================================================      
                                                                              
                                                                        February 28,     May 31,        
                                 ASSETS                                    1997           1996          
--------------------------------------------------------------------------------------------------      
<S>                                                                   <C>               <C>             
Current assets:                                                               
 Cash                                                                 $   10,376,821    11,688,744      
 Short-term marketable securities                                         50,416,612    52,295,647      
 Prepaid expenses                                                            142,820       362,272      
 Other current assets                                                        497,012       598,068      
--------------------------------------------------------------------------------------------------      
Total current assets                                                      61,433,265    64,944,731      
                                                                              
Plant and equipment, net                                                   1,303,796     1,310,385      
Other assets                                                                  45,183        83,442      
--------------------------------------------------------------------------------------------------      
                                                                      $   62,782,244    66,338,558      
==================================================================================================
                   LIABILITIES AND SHAREHOLDERS' EQUITY                      
--------------------------------------------------------------------------------------------------      
Current liabilities:                                                         
 Accounts payable                                                            271,630       924,097      
 Accrued expenses                                                             94,218       172,350      
 Accrued compensation and benefits                                           182,260       178,050      
--------------------------------------------------------------------------------------------------      
Total current liabilities                                                    548,108     1,274,497      
                                                                             
Other liabilities                                                             99,392       116,101      
--------------------------------------------------------------------------------------------------      
Total liabilities                                                            647,500     1,390,598      
--------------------------------------------------------------------------------------------------      
Shareholders' equity:                                                        
 Preferred stock, $.01 par value.  Authorized 5,000,000 shares;               
  none issued and outstanding                                                      -             -      
 Common stock, $.01 par value.  Authorized 20,000,000 shares;                 
  issued and outstanding 13,995,045 and 13,586,155 shares                     
  at February 28, 1997 and May 31, 1996, respectively                        139,950       135,862      
 Additional paid-in capital                                              115,766,899   115,427,120      
 Deficit accumulated during the development stage                        (53,770,179)  (50,611,169)     
 Deferred compensation                                                        (1,926)       (3,853)     
--------------------------------------------------------------------------------------------------      
Total shareholders' equity                                                62,134,744    64,947,960      
--------------------------------------------------------------------------------------------------      
                                                                      $   62,782,244    66,338,558      
==================================================================================================      
</TABLE>                                                                      
                                                                              
See accompanying independent auditors' review report.                         
                                                                              
                                                                              
                                                                   
<PAGE>   5

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

Statements of Operations

Three and nine months ended February 28, 1997 and February 29, 1996
and for the period from June 19, 1985 through February 28, 1997

<TABLE>
<CAPTION>
======================================================================================================================
                                                                                                         Cumulative      
                                                Three months Three months   Nine months  Nine months        from         
                                                    ended        ended         ended       ended       June 19, 1985     
                                                February 28, February 29,   February 28, February 29,     through        
                                                    1997         1996         1997         1996       February 28,1997   
----------------------------------------------------------------------------------------------------------------------   
                                                 (unaudited)  (unaudited)   (unaudited)  (unaudited)    (unaudited)      
<S>                                           <C>              <C>          <C>          <C>              <C>
Revenues - license income                     $            -            -            -            -         3,000,000    
Costs and expenses:                                                                                                      
 Research and development                          1,249,712    1,414,523    3,928,879    3,774,743        44,352,906    
 General and administrative                          576,399      560,513    1,656,544    1,812,368        23,900,236    
---------------------------------------------------------------------------------------------------------------------   
                                                   1,826,111    1,975,036    5,585,423    5,587,111        68,253,142    
---------------------------------------------------------------------------------------------------------------------   
Other income and expense:                                                                                                
 Interest income                                     776,486      896,384    2,426,413    2,089,894        11,566,197    
 Interest expense                                          -            -            -            -            83,234    
---------------------------------------------------------------------------------------------------------------------   
                                                     776,486      896,384    2,426,413    2,089,894        11,482,963    
---------------------------------------------------------------------------------------------------------------------   
Net loss                                      $   (1,049,625)  (1,078,652)  (3,159,010)  (3,497,217)      (53,770,179)   
=====================================================================================================================   
Net loss per share                            $        (0.07)       (0.08)       (0.23)       (0.28)            (7.16)   
=====================================================================================================================   
Shares used in calculation of per share data      13,995,045   13,572,748   13,926,970   12,601,360         7,507,571    
=====================================================================================================================
</TABLE>

See accompanying independent auditors' review report.



                                      
<PAGE>   6

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

Statements of Shareholders' Equity (Deficit)

Nine months ended February 28, 1997 and for the period from
June 19, 1985 through February 28, 1997

<TABLE>
<CAPTION>
============================================================================================================================
                                                                                                          Preferred stock
                                                                                                       ---------------------
                                                                                                         Number    Aggregate
                                                                                                        of shares   amount
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                           <C>    <C>
Issuance of common shares at $0.002 per share on August 27, 1985                                              -      $   -
Issuance of Series A convertible preferred shares at $4.00 per share on 
 August 27, 1985 (net of costs of issuance of $79,150)                                                        -          -
Net loss                                                                                                      -          -
----------------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1986                                                                                       -          -
Net loss                                                                                                      -          -
Deferred compensation relating to grant of stock options                                                      -          -
Amortization of deferred compensation                                                                         -          -
----------------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1987                                                                                       -          -
Issuance of Series B convertible preferred shares at $35.68 per share on 
 August 14, 1987 (net of costs of issuance of $75,450)                                                        -          - 
Net loss                                                                                                      -          - 
Amortization of deferred compensation                                                                         -          -
----------------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1988                                                                                       -          -
Issuance of common shares at $24.21 per share on June 7, 1988 (net of costs of issuance of $246,000)          -          -
Conversion of Series A convertible preferred shares to common shares on June 7, 1988                          -          -
Conversion of Series B convertible preferred shares to common shares on June 7, 1988                          -          -
Exercise of stock options at $2.00 per share                                                                  -          -
Issuance of common shares at $28.49 per share on March 6, 1989 (net of costs of issuance of $21,395)          -          - 
Issuance of common shares at $28.49 per share on March 30, 1989 (net of costs of issuance of $10,697)         -          -
Sale of options at $28.29 per share to purchase common shares at $.20 per share on
 March 30, 1989 (net of costs of issuance of $4,162)                                                          -          -
Net loss                                                                                                      -          -
Deferred compensation relating to grant of stock options                                                      -          -
Amortization of deferred compensation                                                                         -          -
----------------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1989                                                                                       -          -
Net loss                                                                                                      -          -
Deferred compensation relating to grant of stock options                                                      -          -
Amortization of deferred compensation                                                                         -          -
----------------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1990                                                                                       -          -
Net loss                                                                                                      -          -
Amortization of deferred compensation                                                                         -          -
----------------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1991                                                                                       -          -
Exercise of stock warrants at $5.60 per share                                                                 -          -
Net loss                                                                                                      -          -
Amortization of deferred compensation                                                                         -          -     
----------------------------------------------------------------------------------------------------------------------------   
Balance at May 31, 1992                                                                                       -          -
Exercise of stock warrants at $7.14 per share                                                                 -          -
Issuance of common shares at $15.19 per share on April 19, 1993 (net of costs of issuance of $20,724)         -          -
Net loss                                                                                                      -          -
Amortization of deferred compensation                                                                         -          -
----------------------------------------------------------------------------------------------------------------------------   
Balance at May 31, 1993                                                                                       -      $   -
----------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                      
<PAGE>   7

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

Statements of Shareholders' Equity (Deficit)

Nine months ended February 28, 1997 and for the period from
June 19, 1985 through February 28, 1997

<TABLE>
<CAPTION>
====================================================================================================================
                        Series A convertible  Series B convertible                Deficit                   Total               
     Common stock          preferred stock       preferred stock                accumulated                 share- 
----------------------- --------------------  -------------------- Additional    during the   Deferred     holders'
    Number    Aggregate   Number   Aggregate    Number   Aggregate   paid-in    development    compen-      equity
  of shares    amount   of shares    amount   of shares   amount     capital       stage       sation      (deficit)
--------------------------------------------------------------------------------------------------------------------
    <S>         <C>       <C>     <C>          <C>      <C>         <C>         <C>          <C>          <C>
    3,500,000   35,000          - $        -          - $       -      (28,000)           -           -        7,000

            -        -    250,000    250,000          -         -      670,850            -           -      920,850
            -        -          -          -          -         -            -     (607,688)          -     (607,688)
--------------------------------------------------------------------------------------------------------------------
    3,500,000   35,000    250,000    250,000          -         -      642,850     (607,688)          -      320,162
            -        -          -          -          -         -            -   (2,429,953)          -   (2,429,953)
            -        -          -          -          -         -    2,340,000            -  (2,340,000)           -
            -        -          -          -          -         -            -            -     720,000      720,000
--------------------------------------------------------------------------------------------------------------------
    3,500,000   35,000    250,000    250,000          -         -    2,982,850   (3,037,641) (1,620,000)  (1,389,791)

            -        -          -          -    200,633   200,633    6,882,502            -           -    7,083,135
            -        -          -          -          -         -            -   (3,057,254)          -   (3,057,254)
            -        -          -          -          -         -            -            -     566,136      566,136
--------------------------------------------------------------------------------------------------------------------
    3,500,000   35,000    250,000    250,000    200,633   200,633    9,865,352   (6,094,895) (1,053,864)   3,202,226
      413,020    4,130          -          -          -         -    9,749,870            -           -    9,754,000
    1,250,000   12,500   (250,000)  (250,000)         -         -      237,500            -           -            -
    1,003,165   10,032          -          -   (200,633) (200,633)     190,601            -           -            -
       47,115      471          -          -          -         -       93,759            -           -       94,230
      175,525    1,755          -          -          -         -    4,976,855            -           -    4,978,610
       87,760      878          -          -          -         -    2,488,356            -           -    2,489,234

            -        -          -          -          -         -    7,443,118            -           -    7,443,118
            -        -          -          -          -         -            -     (791,206)          -     (791,206)
            -        -          -          -          -         -      683,040            -    (683,040)           -
            -        -          -          -          -         -            -            -     800,729      800,729
--------------------------------------------------------------------------------------------------------------------
    6,476,585   64,766          -          -          -         -   35,728,451   (6,886,101)   (936,175)  27,970,941
            -        -          -          -          -         -            -   (3,490,394)          -   (3,490,394)
            -        -          -          -          -         -      699,163            -    (699,163)           -
            -        -          -          -          -         -            -            -     546,278      546,278
--------------------------------------------------------------------------------------------------------------------
    6,476,585   64,766          -          -          -         -   36,427,614  (10,376,495) (1,089,060)  25,026,825
            -        -          -          -          -         -            -   (5,579,872)          -   (5,579,872)
            -        -          -          -          -         -            -            -     435,296      435,296
--------------------------------------------------------------------------------------------------------------------
    6,476,585   64,766          -          -          -         -   36,427,614  (15,956,367)   (653,764)  19,882,249
       90,000      900          -          -          -         -      503,100            -           -      504,000
            -        -          -          -          -         -            -   (7,006,495)          -   (7,006,495)
            -        -          -          -          -         -            -            -     254,025      254,025
--------------------------------------------------------------------------------------------------------------------
    6,566,585   65,666          -          -          -         -   36,930,714  (22,962,862)   (399,739)  13,633,779
       15,000      150          -          -          -         -      106,890            -           -      107,040
      374,370    3,744          -          -          -         -    5,663,710            -           -    5,667,454
            -        -          -          -          -         -            -   (8,066,609)          -   (8,066,609)
            -        -          -          -          -         -            -            -     254,025      254,025
--------------------------------------------------------------------------------------------------------------------
    6,955,955   69,560          - $        -          - $       -   42,701,314  (31,029,471)   (145,714)  11,595,689
--------------------------------------------------------------------------------------------------------------------

</TABLE>


                                      
<PAGE>   8

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

Statements of Shareholders' Equity (Deficit), Continued

<TABLE>
<CAPTION>
===========================================================================================================================
                                                                                                         Preferred stock
                                                                                                       --------------------
                                                                                                        Number    Aggregate
                                                                                                       of shares   amount
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                           <C>   <C>
Net loss                                                                                                      -     $    -
Issuance of common shares at $6.50 per share on May 26, 1994 (net of costs of issuance of $2,061,149)         -          -
Cancellation of stock options                                                                                 -          -
Amortization of deferred compensation                                                                         -          -
---------------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1994                                                                                       -          -
Net loss                                                                                                      -          -
Issuance of common shares at $6.50 per share on June 20, 1994 (net of issuance costs of $172,500)             -          -
Exercise of stock options at $7.14 per share                                                                  -          -
Exercise of stock options at $2.00 per share                                                                  -          -
Cancellation of stock options                                                                                 -          - 
Amortization of deferred compensation                                                                         -          - 
---------------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1995                                                                                       -          -
Net loss                                                                                                      -          - 
Issuance of common stock at $17.75 per share on August 9, 1995 (net of issuance costs of $3,565,125)          -          -
Issuance of common stock at $17.75 per share on September 11, 1995 (net of issuance costs of $423,238)        -          -
Exercise of stock options at $2.00 per share                                                                  -          -
Exercise of stock options at $6.38 per share                                                                  -          -
Exercise of stock options at $7.14 per share                                                                  -          -
Cancellation of stock options                                                                                 -          -
Amortization of deferred compensation                                                                         -          -
---------------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1996                                                                                       -          -
Net loss (unaudited)                                                                                          -          -
Exercise of stock options at $0.20 per share (unaudited)                                                      -          -
Exercise of stock options at $2.00 per share (unaudited)                                                      -          -
Amortization of deferred compensation (unaudited)                                                             -          -
---------------------------------------------------------------------------------------------------------------------------
Balance at February 28, 1997 (unaudited)                                                                      -     $    -
---------------------------------------------------------------------------------------------------------------------------

</TABLE>

See accompanying independent auditors' review report.


                                      
<PAGE>   9

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

Statements of Shareholders' Equity (Deficit), Continued

<TABLE>
<CAPTION>
=====================================================================================================================
                                                                                  
                        Series A convertible  Series B convertible                Deficit                   Total
     Common stock         preferred stock       preferred stock                 accumulated                 share-
----------------------- --------------------  -------------------- Additional   during the    Deferred     holders'
    Number    Aggregate   Number   Aggregate    Number   Aggregate   paid-in    development    compen-      equity
  of shares    amount   of shares    amount   of shares   amount     capital       stage       sation     (deficit)
---------------------------------------------------------------------------------------------------------------------
   <S>         <C>              <C>   <C>             <C>  <C>     <C>          <C>             <C>       <C>
            -        -          -          -          -         -            -   (7,363,810)          -   (7,363,810)
    2,500,000   25,000          -          -          -         -   14,163,851            -           -   14,188,851
            -        -          -          -          -         -      (85,400)           -      85,400            -
            -        -          -          -          -         -            -            -         267          267
---------------------------------------------------------------------------------------------------------------------
    9,455,955   94,560          -          -          -         -   56,779,765  (38,393,281)    (60,047)  18,420,997
            -        -          -          -          -         -            -   (7,439,013)          -   (7,439,013)
      375,000    3,750          -          -          -         -    2,261,250            -           -    2,265,000
       10,000      100          -          -          -         -       71,300            -           -       71,400
      187,570    1,875          -          -          -         -      373,264            -           -      375,139
            -        -          -          -          -         -     (106,750)           -     106,750            -
            -        -          -          -          -         -            -            -     (67,892)     (67,892)
---------------------------------------------------------------------------------------------------------------------
   10,028,525  100,285          -          -          -         -   59,378,829  (45,832,294)    (21,189)  13,625,631
            -        -          -          -          -         -            -   (4,778,875)          -   (4,778,875)
    2,925,000   29,250          -          -          -         -   48,324,374            -           -   48,353,624
      438,750    4,388          -          -          -         -    7,360,187            -           -    7,364,575
      182,380    1,824          -          -          -         -      362,937            -           -      364,761
        1,500       15          -          -          -         -        9,555            -           -        9,570
       10,000      100          -          -          -         -       71,300            -           -       71,400
            -        -          -          -          -         -      (80,062)           -      80,062            -
            -        -          -          -          -         -            -            -     (62,726)     (62,726)
---------------------------------------------------------------------------------------------------------------------
   13,586,155  135,862          -          -          -         -  115,427,120  (50,611,169)     (3,853)  64,947,960
            -        -          -          -          -         -            -   (3,159,010)          -   (3,159,010)
      263,285    2,633          -          -          -         -       50,025            -           -       52,658
      145,605    1,455          -          -          -         -      289,754            -           -      291,209
            -        -          -          -          -         -            -            -       1,927        1,927
---------------------------------------------------------------------------------------------------------------------
   13,995,045  139,950          -     $    -          -    $    -  115,766,899  (53,770,179)     (1,926)  62,134,744
---------------------------------------------------------------------------------------------------------------------
</TABLE>


                                      

<PAGE>   10

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

Statements of Cash Flows

Nine months ended February 28, 1997 and February 29, 1996
and for the period from June 19, 1985 to February 28, 1997


<TABLE>
<CAPTION>
===============================================================================================================
                                                                                                    Cumulative       
                                                                     Nine months    Nine months        from          
                                                                        ended          ended       June 19,1985      
                                                                     February 28,   February 29,     through         
                                                                        1997           1996        Feb.28,1997       
---------------------------------------------------------------------------------------------------------------
                                                                     (unaudited)    (unaudited)    (unaudited)       
<S>                                                               <C>               <C>            <C>                          
Cash flows from operating activities:                                                                                
 Net loss                                                         $    (3,159,010)    (3,497,217)   (53,770,179)     
 Adjustments to reconcile net loss to net                                                                            
  cash used in operating activities:                                                                                 
   Depreciation and amortization                                          355,425        920,343     12,732,578      
   Amortization of deferred compensation                                    1,927        (65,615)     3,448,065      
   Loss on sale of equipment                                                    -              -         66,359      
   Changes in assets and liabilities:                                                                                
    Prepaid expenses                                                      219,452        103,722       (142,820)     
    Other current assets                                                  (10,612)      (290,029)    (2,356,596)     
    Other assets                                                           37,500         10,413        (59,762)     
    Accounts payable                                                     (652,468)      (129,549)       271,630      
    Accrued expenses                                                      (78,131)      (170,193)        94,218      
    Accrued compensation and benefits                                       4,210         (7,746)       182,260      
    Other liabilities                                                     (16,708)         9,279         99,392      
---------------------------------------------------------------------------------------------------------------     
Net cash used in operating activities                                  (3,298,415)    (3,116,592)   (39,434,855)     
---------------------------------------------------------------------------------------------------------------     
Cash flows from investing activities:                                                                                
 Purchase of plant, equipment, and                                                                                   
  capitalized engineering costs                                          (236,410)      (317,168)   (12,305,158)     
 Proceeds from matured marketable securities                           38,099,200     64,113,031    204,242,381      
 Proceeds from sale of marketable securities                                    -              -      7,141,656      
 Purchase of marketable securities                                    (36,220,165)  (102,119,605)  (261,800,649)     
 Proceeds from sale of equipment                                                -              -         76,587      
---------------------------------------------------------------------------------------------------------------     
Net cash provided by (used in) in investing activities                  1,642,625    (38,323,742)   (62,645,183)     
---------------------------------------------------------------------------------------------------------------     
Cash flows from financing activities:                                                                                
 Proceeds from issuance of common stock                                   343,867     56,163,930    102,081,768      
 Payment of common stock issuance costs                                         -              -     (5,072,012)     
 Proceeds from issuance of preferred stock                                      -              -      6,644,953      
 Proceeds from sale of stock options to                                                                              
  purchase common shares                                                        -              -      7,443,118      
 Proceeds from issuance of notes payable                                        -              -      1,500,000      
 Repayment of notes payable                                                     -              -       (140,968)     
---------------------------------------------------------------------------------------------------------------     
Net cash provided by financing activities                                 343,867     56,163,930    112,456,859      
---------------------------------------------------------------------------------------------------------------     
Net increase (decrease) in cash                                        (1,311,923)    14,723,596     10,376,821      
Cash at beginning of period                                            11,688,744      1,574,008              -      
---------------------------------------------------------------------------------------------------------------     
Cash at end of period                                             $    10,376,821     16,297,604     10,376,821      
===============================================================================================================
</TABLE>

See accompanying independent auditors' review report.

                                      
<PAGE>   11



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

Notes to Financial Statements

February 28, 1997


================================================================================

(1) BASIS OF PRESENTATION

    The interim financial statements presented are unaudited but, in the
    opinion of management, have been prepared in conformity with generally
    accepted accounting principles applied on a basis consistent with those of
    the annual financial statements.  Such interim financial statements reflect
    all adjustments (consisting of normal recurring accruals) necessary for a
    fair presentation of the financial position and the results of operations
    for the interim periods presented.  The results of operations for the
    interim period presented are not necessarily indicative of the results to
    be expected for the year ending May 31, 1997.  The interim financial
    statements should be read in connection with the audited financial
    statements for the year ended May 31, 1996.


(2) COMPUTATION OF NET LOSS PER SHARE

    The net loss per common and common equivalent share has been computed using
    the weighted average number of common shares outstanding for each period.
    Common equivalent shares from stock options and warrants are excluded from
    the computation as their effect is antidilutive.


(3) RECLASSIFICATION

    Certain amounts have been reclassified to conform with the current year's
    presentation.






                                       

<PAGE>   12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS.

     Since its incorporation in 1985, Northfield Laboratories Inc.
("Northfield" or the "Company") has devoted substantially all of its efforts
and resources to the research, development and clinical testing of its
potential product, PolyHeme.  Northfield has incurred operating losses during
each year of its operations since inception and expects to incur substantial
additional operating losses for the next several years.  From its inception to
February 28, 1997, Northfield incurred operating losses totaling $53,770,000.

     The Company's success will depend on several factors, including its
ability to obtain Food and Drug Administration regulatory approval of PolyHeme
and the Company's manufacturing facilities, obtain sufficient quantities of
blood to manufacture PolyHeme in commercial quantities, manufacture and
distribute PolyHeme in a cost-effective manner and enforce its patent
positions.  The Company has experienced significant delays in the development
and clinical testing of PolyHeme.  There can be no assurance that the Company
will be able to achieve these goals or that it will be able to realize product
revenues or profitability on a sustained basis or at all.

     The Company anticipates that research and development expenses will
increase during the foreseeable future.  These expected increases are related
to the conducting of future clinical trials, the monitoring and reporting of
results of such trials and continuing process development associated with
increases in the Company's manufacturing capacity to permit commercial scale
production of PolyHeme.  The Company expects that general and administrative
expenses will 

                                     

<PAGE>   13

increase over the foreseeable future due to increased expenses relating to the
expansion of the Company's organization in support of commercial operations.

                             RESULTS OF OPERATIONS

For the three-month and nine-month periods ended February 28, 1997 and February
29, 1996.

REVENUE

     The Company reported no revenues for either of the three-month periods
ended February 28, 1997 or February 29, 1996.  The Company also had no revenues
to report for either of the nine-month periods ended February 28, 1997 or
February 29, 1996.  From its inception through February 28, 1997, the Company
has reported total revenues of $3,000,000, all of which were derived from
licensing fees.

OPERATING EXPENSES

     Operating expenses for the Company's third fiscal quarter ended February
28, 1997 totaled $1,826,000, a decrease of $149,000 from the $1,975,000
reported in the comparable prior year period.  Measured on a percentage basis,
total expenses in the third quarter of fiscal 1997 decreased by 7.5%.

                                      

<PAGE>   14

     Operating expenses for the nine-month period ended February 28, 1997
totaled $5,585,000, which represented a decrease of $2,000 from the comparable
in prior year period.

     Research and development expenses for the third quarter of fiscal 1997
totaled $1,250,000, a decrease of $165,000, or 11.7%, from the $1,415,000
reported in the third quarter of fiscal 1996.  The decrease in research and
development expenses resulted from a decrease in depreciation expenses as the
prototype facility is nearing the end of its depreciable life.  This decrease
in depreciation expense more than offset increases incurred from higher
staffing levels and expenses incurred in preparation for our anticipated Phase
III trials.

     The Company anticipates that research and development expenses will
increase over the next several years.  Additional costs will be incurred for
expanded multi-center clinical trials, third-party clinical monitoring,
third-party product testing as well as the planning, engineering and
construction of a commercial scale production facility.

     For the nine-month period ended February 28, 1997, research and
development expenses totaled $3,929,000, representing an increase of $154,000,
or 4.1%, from the research and development expenses reported for the nine-month
period ended February 29, 1996.  During the first nine months increased
expenses were incurred due to higher staffing levels, expanded process
development efforts and in the execution of the clinical trials.  These
increases offset a decrease in depreciation expense.

                                      

<PAGE>   15

     General and administrative expense in the third quarter of fiscal 1997
totaled $576,000 compared to expenses of $561,000 in the second quarter of
fiscal 1996, representing an increase of $15,000, or 2.7%.  Year over year
quarterly expenses show no marked change.  During the third quarter of its 1997
fiscal year, the Company focus remained centered on the FDA and product related
issues.  Commercial development issues remain secondary to the product.

     For the nine-month period ended February 28, 1997, general and
administrative expenses totaled $1,657,000, for a $155,000 decrease, or 8.6%,
from the comparable period ended February 29, 1996.  Expense decreases occurred
in professional services and travel as efforts in commercial development are
being deferred.  Corporate resources are being focused on clinical and FDA
issues.  The Company anticipates general and administrative expenses will grow
over time to create and support commercial activity.  For the 1997 fiscal year,
however, the Company anticipates general and administrative expenses will lag
prior year levels.

INTEREST INCOME

     Interest income in the third quarter of fiscal 1997 equaled $776,000, or a
$120,000 decrease from the $896,000 in interest income reported in the third
quarter of fiscal 1996.  Lower interest rates combined with lower fiscal 1997
cash balances caused interest income to decrease.  In August 1995, the Company
completed a public stock offering generating net proceeds to the Company of
$48,354,000.  In September 1995, the Company sold common shares generating net
proceeds to the Company of $7,365,000.  The Company anticipates that

                                      

<PAGE>   16

interest income for the balance of fiscal 1997 will be less than interest 
income for the comparable periods of fiscal 1996.

     Interest income for the nine-month period ended February 28, 1997 equaled
$2,426,000 or a $336,000 increase from the $2,090,000 reported for the
nine-month period ended February 29, 1996.  Proceeds from the Company's common
stock offering in the first quarter of fiscal 1996 caused investment balances
to significantly increase which caused interest income to increase.

NET LOSS

     The net loss for the third quarter ended February 28, 1997 was $1,050,000,
or $.07 per share, compared to a net loss of $1,079,000, or $.08 per share, for
the third quarter ended February 29, 1996.  The reduction in the loss per share
to $.07 from $.08 is primarily the result of an increase in the number of
shares outstanding.

     For the nine-month period ended February 28, 1997, the Company reported a
loss of $3,159,000, or $.23 per share, compared to a loss of $3,497,000, or
$.28 per share, for the nine-month period ended February 29, 1996.  The
reduction in loss per share is the result of the reduction in the dollar loss
as well as having additional shares outstanding.

LIQUIDITY AND CAPITAL RESOURCES

                                     
<PAGE>   17

     From its inception through February 28, 1997, the Company has expended
cash in operating activities and for the purchase of plant, equipment and
engineering services in the amount of $51,740.00.  For the nine-month periods
ended February 28, 1997 and February 29, 1996, net cash expenditures totaled
$3,535,000 and $3,434,000, respectively.

     The Company has financed its research and development and other activities
to date through the sale of public and private securities and, to a more
limited extent, through the license of product rights.  As of February 28,
1997, the Company had cash and marketable securities totaling $60,793,000.

     The Company believes existing capital resources will be adequate to
satisfy its operating capital requirements for approximately the next 18 - 24
months.  Thereafter, the Company may require substantial additional funds to
test and seek regulatory approval for PolyHeme and to expand its commercial
capabilities.   Construction of a commercial scale manufacturing facility is
currently in the planning stages and is estimated to cost $42 million.

     The Company expects to use existing resources to finance a commercial
manufacturing facility, though it may enter into collaborative arrangements
with strategic partners which could provide the Company with additional funding
or absorb expenses otherwise payable by the Company.  The Company has engaged
in discussions with a number of potential strategic partners, though these
discussions are at preliminary stages and there can be no assurance that any
such arrangement will be consummated.


                                      

<PAGE>   18

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


                                      
<PAGE>   19
ITEM 5. OTHER INFORMATION.

     Northfield announced on April 2, 1997 that the Company  has received
clearance from the Food and Drug Administration to begin Phase III trials of
its blood substitute, PolyHeme.