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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

   For the fiscal year ended December 28, 2002

or

Commission File No. 0-24241

V.I. TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (617) 926-1551

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

None

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

Common stock, $.01 par value

(Title of class)

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule12b-2). Yes  ¨  No  x

The aggregate market value of voting common stock held by non-affiliates of the Registrant, based on the closing price of the common stock on June 29, 2002 as reported on the Nasdaq National Market, was approximately $23,762,000. Shares of common stock held by each officer and director and by each person who owns 5 percent or more of the outstanding Common Stock have been excluded from this computation in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

22,793,723

(Number of shares of common stock outstanding as of March 1, 2003)

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Registrant’s Annual Report to Stockholders for the fiscal year ended December 28, 2002 are incorporated by reference into Part II of this Report. Portions of the Registrant’s Definitive Proxy Statement for the 2003 Annual Meeting of Stockholders (the Definitive Proxy Statement), to be filed with the SEC within 120 days of December 28, 2002, are incorporated by reference into Part III of this Report.

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FORWARD LOOKING STATEMENTS

This document and other documents we may file with the Securities and Exchange Commission contain forward-looking statements. Also, our company management may make forward-looking statements orally to investors, analysts, the media and others. Forward-looking statements express our expectations or predictions of future events or results. They are not guarantees and are subject to many risks and uncertainties. There are a number of factors that could cause actual events or results to be significantly different from those described in the forward-looking statement. Forward-looking statements might include one or more of the following:

Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They use words such as “anticipate”, “estimate”, “expect”, “project”, “intend”, “opportunity”, “plan”, “potential”, “believe” or words of similar meaning. They may also use words such as “will”, “would”, “should”, “could” or “may”. Given these uncertainties, you should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. You should review carefully the risks and uncertainties identified in this report. We may not revise these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.

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INDEX

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PART I

Item 1.    BUSINESS

Overview

Based on the demonstrated effectiveness of our science as presented in industry publications and presentations, and on our competitive analysis, we believe that we are a leading developer of innovative biotechnology products designed to improve the safety of the world’s blood supply. We have designed our proprietary INACTINE^™ Pathogen Reduction System for red cells (the “INACTINE^™ system”) to inactivate a wide range of viruses, bacteria, parasites and lymphocytes from red blood cells while maintaining the therapeutic properties of the red blood cells. The INACTINE^™ system has also demonstrated in non-clinical trials the ability to remove in a highly efficient fashion prions that may cause “Mad Cow Disease” in cows and the human form of the disease, variant Creutzfeldt-Jakob Disease (“vCJD”). The technology works by binding to the RNA or DNA of the pathogen. Once bound, the compound forms an irreversible bond to the pathogenic nucleic acid, preventing replication and thereby “killing” the pathogens. Our lead product candidate, INACTINE^™ red blood cell system for pathogen reduction, is in pivotal Phase III clinical trials. We are designing our INACTINE^™ system to work with existing red blood cell bag and collection systems and to be easily integrated into the blood banking infrastructure. Over 40 million red cell units are transfused annually in the U.S., Europe and Japan, representing an over $4 billion market opportunity. We currently do not have any approved products and we have not made any commercial sales of our products under development.

Blood safety and availability remain a significant concern as new pathogens are discovered and the demand for blood products continues to increase. To reduce the risk of contamination of the blood supply with pathogens, blood banks currently screen donors using detailed questionnaires and screen the donated blood for five known pathogens. Although these safety measures have increased the safety of blood products overall, the risk of transmitting pathogens remains. Our goal is to diminish this risk with our INACTINE^™ system.

In order to accelerate product development and commercialization of our INACTINE^™ system, we are actively engaged in discussions with potential distribution partners. We have a continuing relationship with Pall Corporation (“Pall”) and also have a contract development and manufacturing agreement with Haemonetics Corporation and a collaboration with Amersham Pharmacia Biotech.

Market Opportunity

The global market for blood products is large and growing. Over 40 million units of whole blood are collected each year in the United States, Europe and Japan, yielding over 40 million units of red blood cells for transfusion. Worldwide, approximately $4 billion is spent each year on red blood cells. Over one-third of all transfusions occur in the United States, where it is estimated that one out of every three Americans will receive a transfusion at some point during his or her lifetime. Driven by an aging population susceptible to illness, increased prevalence of new disease and a rise in the number of major surgeries performed, blood use in the United States grew more than 10 percent between 1999 and 2001. Blood use, particularly units of red blood cells, is expected to continue to increase as aggressive therapeutic treatments requiring chronic transfusions become more routine.

Demand for blood products continues to increase as the supply of blood is constrained by increasingly restrictive donor selection and other blood safety policies. Reports of supply shortages continue to increase on a regional and national basis. The continued tightening of the donor exclusion criteria for individuals has exacerbated shortages.

According to a 2000 University of Michigan study, only 15 percent of Americans today view the blood supply as safe, down from 48 percent in 1988. Blood safety concerns caused by transfusion-transmitted diseases such as AIDS and Hepatitis C have made a “zero-defect” blood supply the goal of regulators around the world, including the FDA. We believe these dynamics create significant demand for products that make blood safer.

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Industry Background

In the United States, the American Red Cross collects nearly half of the country’s blood supply. The next two largest blood banks are United Blood Services and the New York Blood Center. The rest of the industry consists of smaller independent blood banks. The Japanese and European blood markets are even more concentrated. For example, in Japan, which collects 15 percent of the world’s transfusion blood supply, the Japanese Red Cross collects all of the blood supply.

Blood banks collect, separate and process whole blood from donors at either mobile or fixed collection sites. After collection, whole blood is separated into the following components, which are then distributed to hospitals for storage and transfusion:

The demand for blood products is ultimately driven by hospital-based physicians, particularly surgeons, in the acute care setting. Hematologists and oncologists also prescribe most of the blood used to treat chronic diseases such as cancer.

Maintaining adequate supplies of safe blood products is an increasing challenge for blood centers around the world. In late summer 2000, the American Red Cross reported that two-thirds of its collection centers had no more than one day’s supply of the necessary blood components. While collections increased in 2001 by 7.1 percent over 2000, according to the National Blood Data Resource Center, this increase reflected the spike in collections immediately following September 11, 2001. Subsequently, collections have returned to previous levels and inventories are again becoming dangerously low.

Most blood centers rely on volunteer donors to donate blood for transfusion, but less than five percent of healthy Americans eligible to donate blood do so each year. More rigorous screening and stricter donor exclusion criteria have reduced the number of previously eligible donors. For example, due to fears of vCJD, which has resulted in approximately 100 deaths in the United Kingdom alone, the FDA guidelines currently exclude potential donors who have spent a total of three months or more in the United Kingdom between 1980 and 1996, or a cumulative five years in other countries in Europe. The FDA estimates that approximately five percent of currently eligible donors are excluded due to these rules.

In 2002, the FDA and the Center for Disease Control (“CDC”) reported on 13 cases of suspected transmission of West Nile Virus via blood transfusion. The West Nile Virus is an example of the vulnerability of the blood supply to emerging pathogens.

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Current Approaches to Blood Safety

The following approaches are currently being used or are under development to reduce the risk of having a blood supply contaminated with pathogens and to maintain an adequate supply of blood products.

Donor Exclusions. Regulatory agencies increasingly rely on tightened donor exclusion criteria to reduce the risk of transmitting infections caused by viruses, bacteria, parasites and prions. In the United States, all donors are screened confidentially immediately prior to donation. A trained healthcare professional questions the prospective donor regarding his or her current health, health history, sexual habits, drug usage and travel outside the United States.

Screening Donated Blood. In the United States, Europe, and Japan, donated blood undergoes screening for five different infectious disease-causing pathogens:

Hepatitis B, or HBV;

Hepatitis C, or HCV;

human immuno-deficiency virus, or HIV;

and human T-cell lymphotropic, or HTLV, and

Three types of screening tests are currently used – antibody, antigen, and nucleic acid testing. Antibody tests detect the body’s response to a virus. Antigen tests detect antigens on the surface of the virus itself. Nucleic acid testing, or NAT, used in Europe to screen for the presence of HIV and Hepatitis C, employs a relatively new technology that directly tests for evidence of the pathogen itself. NAT enables earlier detection of a pathogen because it detects genetic material of a virus, its DNA or RNA, instead of waiting for the human body to mount a detectable response to a virus.

Donation Strategies. Autologous, or self, donation is a strategy that can be used by patients undergoing scheduled surgery to avoid the risk of receiving contaminated blood. Prior to a scheduled surgery, the patient can arrange to have his or her own blood taken and stored for later transfusion. A related strategy, quarantining, a method used for plasma, requires that blood be stored for three to six months after donation, at which time the donor must return to the blood bank to undergo additional testing. If there are no detectable pathogens in the donor’s blood after this additional testing, the donated blood may be used for transfusion.

Leukocyte Reduction and Gamma Irradiation. Leukocyte reduction, which is used to remove leukocytes, or white blood cells, from blood, is a standard of care in many European countries where all donated blood is filtered to remove leukocytes prior to transfusion. We estimate that 65 percent of all red blood cell units processed in the United States are currently leukoreduced. Gamma irradiation, which is a method of destroying white blood cells, has been used more frequently over the past few years. Gamma irradiation involves exposing blood products to radioactive isotopes which inactivate leukocytes. We estimate that 10 percent of red blood cells in the United States are gamma irradiated, while 100 percent of red blood cells are gamma irradiated in Japan. Currently, gamma irradiation is used primarily to destroy lymphocytes, a type of leukocyte that can cause graft versus host disease, which is the body’s rejection of transfused blood, after transfusion.

Blood Substitutes or Temporary Oxygen Carriers. Several companies are developing blood substitutes designed to mimic the therapeutic properties of blood components. These products fall into two general categories, those that are based on the blood’s own hemoglobins and those that are synthetic substitutes. Hemoglobin-based substitutes require donated blood from either people or cows; synthetic substitutes, generally oxygen carriers, are designed to dissolve gases, moving oxygen from the lungs to organs and removing carbon dioxide.

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Pathogen Inactivation. Pathogen inactivation depletes or inactivates a limited number of pathogens in blood, which improves the safety of the blood product instead of simply testing for the presence of pathogens. Current pathogen inactivation approaches are only applicable for plasma derivatives and transfusion plasma.

Limitations of Current Approaches to the Safety of the Blood Supply

Each of the current approaches is limited in its scope, effectiveness, or practicality.

Donor Exclusions. Although donor screening has been used for decades, it remains limited because it relies heavily on the honesty and the cooperation of the donor. In addition, it is only designed to exclude donors who are more likely to be at risk for diseases known to be transmissible through blood. In a time where maintaining adequate supplies of safe blood products is increasingly challenging, donor exclusions can inadvertently increase the magnitude of that challenge. There is also no guarantee that the donor will return once the deferral period has lapsed.

Screening Donated Blood. The principal limitation on current screening procedures is their limited scope – in the United States, Europe, and Japan, blood is only screened for five pathogens – HIV, HBV, HCV, HTLV and syphilis. Therefore, current screening methods are not used to detect other known pathogens. In addition, they cannot detect unknown or emerging pathogens, which have historically presented a threat to the blood supply. For example, scientists estimate that HIV was present in the blood supply for at least seven years before it was identified as the agent that causes AIDS and at least eight years before a test was commercially available to detect the presence of HIV antibodies in donated blood. During those years, many transfusion recipients were infected with HIV, including approximately 70 percent of patients with severe hemophilia. Similarly, of the four million Americans infected with HCV, the most common chronic blood borne viral infection in the United States, more than one million were infected through HCV infected blood products. Although HCV was first identified in 1988, donated blood was not screened for HCV until 1992. In 2002, the FDA and the Center for Disease Control (“CDC”) reported on 13 cases of suspected transmission of West Nile Virus via blood transfusion. The FDA established a goal of initiating screening of all blood donations for West Nile Virus.

In addition, most tests for known pathogens cannot detect the presence of viruses during the infectivity window, the period during which viruses are present in the blood but are not yet detectable. NAT provides only limited incremental benefits, because it is effective only for specific viruses for which the testing is performed.

No tests have been implemented for certain pathogens that are known to be prevalent in the blood supply, such as SEN V and parvo B-19 virus. The latter virus has been reported to cause rashes, arthritis and has also been implicated in miscarriages in pregnant women. Moreover, there are no practical tests available to detect the presence of pathogenic prions. In addition, bacteria and many other agents are known to transmit disease during transfusion, including the bacteria which can cause sepsis or other systemic infections which can result in serious illness or even death. The parasites that cause malaria and Chagas’ disease may also be transmitted by transfusion; however, there are no practical tests used for these pathogens. Animal studies have indicated that the pathogenic prions known to cause Mad Cow Disease and vCJD can be transmitted by blood but no diagnostic tests exist to determine the presence of these specific prions in blood. Although there have been no reports of vCJD being transmitted through blood transfusions in humans, prion-related diseases remain a significant public health concern.

Donation Strategies. Autologous donation is impractical for most patients and impossible when a transfusion is required due to trauma. Quarantining depends on the donor’s timely return for additional testing, cannot be applied to red blood cells or platelets because of their limited shelf life and remains subject to limitations associated with blood screening.

Leukocyte Reduction and Gamma Irradiation. Leukocyte reduction is effective at removing white blood cells, but does little to reduce the existence of other pathogens in blood products other than cytomeglavirus.

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Gamma irradiation provides a narrow range of efficacy – insufficient treatment can leave white blood cells in the blood, while excessive treatment can impair the therapeutic function of the desirable blood components being transfused. In addition, irradiated red blood cells have a decreased survival rate, resulting in a reduced shelf life.

Blood Substitutes or Temporary Oxygen Carriers. Blood substitutes are being developed to simulate specific therapeutic characteristics of blood and are not intended to replace whole blood components, such as red blood cells, for most conditions. The few substitutes available today remain effective only for approximately 24 to 48 hours in the blood, making the substitutes inadequate for treatment of indications requiring chronic transfusion, which we believe to be the fastest growing segment of blood use.

Pathogen Inactivation. There is currently no pathogen inactivation process available for red blood cells. Additionally, existing pathogen inactivation approaches are only applicable to plasma and are limited in the scope of pathogens they can inactivate.

Our Solution

We believe that our proprietary INACTINE^™ Pathogen Reduction System for red cells (the “INACTINE^™ system”) offers the following advantages over current approaches to blood safety:

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Our Strategy

Our objective is to establish our proprietary INACTINE^™ Pathogen Reduction System for red cells (the “INACTINE^™ system”) as the industry standard for blood product safety. The key elements of our strategy include:

Our Technology

INACTINE^™

We have identified a family of small molecular compounds that penetrate blood-borne viruses, bacteria, and other pathogens. Our INACTINE^™ compound for red blood cells, referred to as PEN110, is a highly water soluble, stable and low-molecular weight compound. This compound selectively binds and irreversibly modifies nucleic acids, including both DNA and RNA. The compound is activated when it forms a weak bond with the negatively-charged sites within DNA and RNA, after which the compound forms a permanent bond with its guanine in DNA, or guanasine in RNA, the key building blocks of nucleic acid. This bond prevents the replication of the nucleic acid. As the vast majority of pathogens have DNA and RNA and pathogens need to replicate to survive and grow, preventing the replication of the nucleic acid effectively kills the pathogens. Blood components, such as red blood cells, plasma and platelets, do not contain nucleic acid and, based on our clinical studies, PEN110 maintains the therapeutic properties of the red blood cell. In addition to its pathogen reduction capabilities, because PEN110 is a stable and small molecule, it can penetrate the tight protein coat of non-enveloped viruses, such as parvo B-19 virus, which are small, difficult to kill viruses that do not have an outer lipid envelope surrounding them.

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The following basic steps are involved in our INACTINE^™ Pathogen Reduction System for red cells:

The result is a unit of pathogen-inactivated washed red blood cells that is ready for transfusion.

Our preclinical research indicates that the cell washing process we use to remove PEN110 has the potential to remove substantial levels of proteins, including prion proteins, immunoglobulins and cytokines from red blood cells. This feature of our INACTINE^™ system could provide an important competitive advantage over other approaches by further reducing pathogen levels.

Our Aptamer Technology

Aptamers are sub-strands of DNA and RNA that have the property of folding in a variety of shapes. Scientists can create large libraries of aptamers and using technologies for high throughput drug screening, can identify aptamers with a high affinity to differentially bond to a specific target. Our target for an aptamer diagnostic is the prion for the diagnosis of Mad Cow Disease or vCJD.

Prions are proteins and, therefore, do not contain RNA or DNA. Normal benign prion proteins can be induced to change shape (misfold) to an infectious form. A successful, broadly used diagnostic screen for the presence of pathogenic prion proteins, we believe, must be able to differentiate between the pathogenic and non-pathogenic form of the prion. We further believe the aptamer to be an ideal candidate as a preferential high affinity binder. We are collaborating with researchers at Oxford University in the United Kingdom to identify that specific aptamer.

INACTINE^™ System Development Status

Our INACTINE^™ Pathogen Reduction System for red cells is in clinical trials. Below is a summary of our INACTINE^™ clinical program to date:

INACTINE^™ Clinical Program

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Non-Clinical Studies

Our non-clinical studies focused on determining the range of viruses and bacteria that our INACTINE^™ system could inactivate, as well as the reduction of parasites and lymphocytes. In these studies, PEN110 demonstrated effectiveness against a broad spectrum of enveloped and non-enveloped viruses and gram negative and gram positive bacteria, and parasites. In addition, our non-clinical studies focused on the effect of INACTINE^™ on the therapeutic properties of red blood cells and blood storage time. In vivo testing of baboons with INACTINE^™ treated red blood cells resulted in no detectable adverse effects on the cellular properties of the red blood cells and did not affect their 24-hour post-transfusion survival. We also demonstrated in our baboon studies that the levels of survival of red blood cells were equivalent to those of the untreated control group after one day and 28 days.

Phase I Clinical Study

We designed our Phase I clinical study of our INACTINE^™ system to further evaluate the effect of INACTINE^™ on the therapeutic properties of red blood cells and blood storage time after a six-hour INACTINE^™ treatment of red blood cells followed by a 28-day storage period. This study involved 12 healthy adults using a randomized crossover design, meaning that each participant received a treatment of the INACTINE^™ treated red blood cells and standard red blood cells sequentially. In the study, we collected a red blood cell unit from each participant. We then treated half of these units with 0.1 percent INACTINE^™ for six hours followed by cell washing. We stored the INACTINE^™ treated and untreated red blood cells for 28 days. This study effectively demonstrated a 28-day shelf life for INACTINE^™ treated red blood cells and equivalent functionality or recovery of INACTINE^™ treated red blood cells compared to control red blood cells in healthy participants. In addition, the participants had no adverse reactions to the transfusions.

Phase II Clinical Study

We designed our Phase II clinical study for our INACTINE^™ system to evaluate a 24-hour INACTINE^™ treatment of red blood cells, a maximum storage period and full unit transfusion safety. This study involved 72 healthy adults divided into three groups based on the storage time of the INACTINE^™ treated red blood cells: 28 days, 35 days and 42 days. This study effectively demonstrated that a 24-hour treatment period and a 42-day storage life for INACTINE^™ treated red blood cells is possible and that this treatment period and storage time did not affect the 24-hour survival of the red blood cells. In addition, the participants had no adverse reactions to the transfusions.

Phase III Clinical Studies

We designed our two Phase III clinical studies for our INACTINE^™ system to evaluate the safety and effectiveness of INACTINE^™ treated red blood cells. One study involves cardiac surgical patients requiring acute transfusion support, and a second study is in patients requiring chronic transfusion support. The two studies are expected to enroll 270 patients combined: 200 patients in the acute surgical transfusion support setting and 70 patients in the chronic transfusion support setting. Both studies are designed as multi-center, double-blind, controlled and parallel-group studies.

International Clinical and Regulatory Status

We intend to discuss our clinical and regulatory plans in Europe and Japan with the relevant regulatory agencies for their agreement. If agreed to by the relevant regulatory agencies, we intend to use our United States clinical data as a basis for submissions in Europe and Japan. If necessary, we may also choose to conduct smaller supportive studies in select countries in parallel with our Phase III clinical studies in the United States. We also intend to submit marketing applications in Europe and Japan using our Phase III clinical data.

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Strategic Alliances

We believe that we can efficiently accelerate the commercialization of our products by entering into strategic alliances for sales, marketing, distribution and complementary technologies. To date, we have entered into strategic alliances with Pall Corporation, Haemonetics Corporation, and Amersham Pharmacia Biotech for the commercialization of the INACTINE^™ system, and a sponsored research agreement with Oxford University and a license agreement with ISIS Innovation Limited for the aptamer technology.

Pall Corporation

In February 1998, we entered into a series of agreements with Pall to collaborate on the development and marketing of systems employing our pathogen reduction technologies for red blood cell and platelet concentrates. Pall is a leading manufacturer and distributor of filtration products, including those relating to the collection, preservation, processing, manipulation, storage and treatment of blood and blood components.

In August 2002, we modified our worldwide collaboration for the INACTINE^™ system. Driven by our recent commencement of the pivotal Phase III clinical trials in the United States, this modification seeks to accelerate our clinical development and broaden geographic distribution in the United States and other international markets through the establishment of agreements with new distribution partners.

As part of this modification,

During fiscal 2002, through the August 2002 modification of the collaboration, Pall provided $3.6 million in research funding. At December 28, 2002, Pall owned 9.9 percent of our outstanding shares.

Haemonetics Corporation

In January 2000, we entered into a development and manufacturing agreement with Haemonetics. Haemonetics is one of the leading developers of automated blood collection equipment and disposables. The Haemonetics system is the only “closed” cell washing system approved by the FDA. This closed system allows the cells to be either immediately transfused or stored for later transfusion similar to untreated red blood cells. We secured

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exclusive worldwide rights to use the Haemonetics cell washing system as part of our INACTINE^™ Pathogen Reduction System for red cells. When our INACTINE^™ system is commercialized, Haemonetics will provide contract manufacturing services for the cell wash equipment and disposables. We are paying Haemonetics for modifications to the cell wash system to adapt it for use as part of our INACTINE^™ red blood cell system. During 2002, we paid Haemonetics $0.9 million for the development of the cell washing system for use in the INACTINE system. This agreement will terminate after ten years unless extended by mutual agreement.

Amersham Pharmacia Biotech

In April 2000, we entered into a license and distribution agreement with Amersham Pharmacia Biotech to exclusively market and distribute our INACTINE^™ technology to manufacturers of biopharmaceuticals and transgenic products and to plasma fractionators. Amersham Pharmacia Biotech is the life science business of Nycomed Amersham plc. We retained all rights for the marketing and distribution of our INACTINE^™ technology with regard to blood components such as red blood cells, platelets and plasma. We will provide Amersham Pharmacia Biotech with technical support and training and conduct research and development projects as directed by Amersham Pharmacia Biotech during the duration of the agreement. Through December 28, 2002, we have received $1.6 million from Amersham Pharmacia Biotech. We could also receive further payments of $1.0 million subject to product testing and FDA approval milestones. In addition, we will receive a percentage royalty based on net sales made by Amersham Pharmacia Biotech of products that incorporate our INACTINE^™ system. The duration of the agreement is ten years. Either party may terminate the agreement due to a material breach that is not cured within 90 days. Amersham Pharmacia Biotech has the right to terminate the agreement after 30 days written notice to us after the initial evaluation phase. This termination right may not be exercised before April 2003 or after April 2005.

Oxford University

In May 2001, we entered into a ten-year exclusive license agreement with ISIS Innovation Limited, or ISIS, an affiliate of Oxford University. Under this agreement, we were granted a license to patents relating to aptamer technology. We may use the technology to develop products and services in the field of prion diagnostics and in vivo prion removal related products and processes for food, agricultural, human and veterinary applications. Additionally, if we use or market any licensed products, we will pay a royalty. If either party commits a material breach and fails to cure within 30 days, the other party may terminate by written notice. We may terminate by six months written notice at any time.

In April 2001, we also entered into an exclusive sponsored research agreement with Oxford University for the development of the aptamer technology as a diagnostic. We are funding ongoing development work in the lab of a leading Oxford infectious disease researcher and will make milestone payments during the clinical trial process. Any intellectual property that is developed as a result of this agreement will be owned by Oxford and exclusively licensed to us.

Patents, Licenses and Proprietary Rights

Our policy is to seek to protect our proprietary position by, among other methods, filing United States and foreign patent applications related to our proprietary technology, inventions and improvements that are important to the development of our business. We believe that the protection of our proprietary technologies may create competitive barriers to entry into the pathogen reduction market. We intend to continue to pursue our patent filing strategy and to vigorously defend our intellectual property position against infringement.

As of December 28, 2002, our INACTINE^™ patent portfolio consisted of nine issued United States patents, twenty-three issued foreign patents and sixty-six pending United States and foreign patent applications. Our issued patents expire at various dates between 2015 and 2020. Our INACTINE^™ portfolio includes patents and/or patent applications that generally relate to methods comprising the use of pathogen reduction and/or

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inactivating agents, methods of removing and/or quenching pathogen inactivating agents, methods of synthesizing pathogen reduction agents, a blood collecting device comprising a pathogen inactivating agent, and therapeutic uses for pathogen inactivating agents.

Our patent portfolio also consists of twenty-five other pending United States and foreign patent applications, covering applications relating to methods of affinity purification, prion detection and virus detection.

It is worth noting that:

We cannot be certain that we were the first to invent the subject matter covered by our patents and patent applications or that we were the first to file patent applications for our inventions or that a court or patent authority will not determine that our patent rights are invalid or unpatentable.

We believe that several elements of our pathogen inactivation program involve unpatented proprietary technology, processes, know-how, or data, including fermentation and production process and purification technology. With respect to proprietary technology, know-how and data which are not patentable or potentially patentable or processes other than production processes for which patents are difficult to enforce, we have chosen to protect our interests by relying on trade secret protection and confidentiality agreements with our employees, consultants and certain strategic partners. All of our key employees and scientific researchers are parties to confidentiality agreements. The confidentiality agreements and other trade secret protection may not provide meaningful protection and may be breached. We may not have adequate remedies for any breach. Our trade secrets may otherwise become known or be independently developed by competitors.

Competition

Our products under development will compete with current approaches to enhance blood safety, as well as with future products under development by others, including medical technology, biotechnology, pharmaceutical and hospital supply companies, national and regional blood centers, governmental organizations and agencies, academic institutions and other agencies. The industries in which we compete are characterized by rapid and significant technological changes. Accordingly, our success will depend in part on our ability to respond quickly to medical and technological changes through the development and introduction of new products. Many companies and organizations, including our principal competitors Cerus Corporation and Gambro, that may be competitors or our potential competitors, have substantially greater financial and other resources than we do and may have greater experience in conducting non-clinical studies and clinical trials and obtaining regulatory approvals. In addition, other technologies or products may be developed that have an entirely different approach or means of accomplishing the intended purposes of our products, or that might render our technology and products obsolete. Furthermore, we cannot be certain that our competitors will not obtain patent protection or other intellectual property rights that would limit our ability to use our technology or commercialize products that may be developed.

Competition for INACTINE^™ treated red blood cells may come from alternative approaches to the problem of improving the safety of blood and blood products and from alternative pathogen reduction technologies. The

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alternative approaches to achieving safer blood component products include donor retesting, the use of blood substitutes, leukocyte filters and reduction systems, improved blood testing such as nucleic acid testing and gamma irradiation. All of these approaches are currently available, and each has gained some degree of market acceptance.

In the area of pathogen inactivation of blood and blood components, several companies are developing technologies which are, or in the future may be, the basis for products that will directly compete with the our products. We believe that the primary competitive factors in the market for pathogen inactivation systems will include the breadth and effectiveness of pathogen inactivation processes, compatibility of processes with cells and proteins, ease of use, the scope and enforceability of patent or other proprietary rights, product price, product supply and marketing and sales capability. In addition, the length of time required for products to be developed and to receive regulatory and, in some cases, reimbursement approval is an important competitive factor.

Government Regulation

Our products under development will be comprehensively regulated by the FDA and, in some instances, by state and local governments, and by foreign regulatory authorities. The FDA regulates drugs, medical devices and biologics under the Federal Food, Drug and Cosmetic Act and other laws, including, in the case of biologics, the Public Health Service Act. These laws and implementing regulations govern the development, testing, manufacturing, record keeping, storage, labeling, advertising, promotion and pre-market approval of these products.

We believe that our red blood cell system incorporating our INACTINE^™ system will be treated as a biologic regulated by the FDA’s Center for Biologics Evaluation and Research.

Before a biologic may be marketed in the United States, the FDA must approve a biologics license application, or BLA covering both the product and the facility. Before a medical device may be marketed in the United States, the FDA must clear a pre-market notification known as a 510(k) notice or approve a pre-market application or PMA for the product. Before a combination product may be marketed in the United States, it must have an approved BLA (or PLA/ELA) or PMA.

The steps required before a biologic or medical device may be approved for marketing in the United States generally include:

In addition, the FDA inspects the facilities at which the product is manufactured and will not approve the product unless the facilities and the process used to manufacture the product comply with current good manufacturing practices, or cGMP.

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We believe that, in deciding whether a pathogen inactivation system is safe and effective, the FDA will consider the therapeutic efficacy of treated blood components as compared to blood components which are untreated by the system and that system safety and any other risks in the use of treated components will be weighed against system benefits.

Generally, similar regulatory requirements apply to products intended for marketing outside the United States.

The FDA could significantly limit the indicated use for which one of our products can be marketed. The testing and review process requires substantial time, effort and financial resources, and is generally lengthy, expensive and uncertain. The approval process may be affected by a number of factors, including the availability of alternative treatments and the risks and benefits demonstrated in clinical trials. Additional animal studies or clinical trials may be requested during the FDA review period and may delay marketing approval. Even if we are granted regulatory approval or clearance from the FDA, we and our products will be subject to continuing review. After FDA approval for the initial indications, further clinical trials may be necessary to obtain approval for the use of the product for additional indications. The FDA may also require post-marketing testing which can involve significant expense. Later discovery of previously unknown problems with a product may result in labeling changes and other restrictions on the product, including withdrawal of the product from the market. In addition, the policies of the FDA may change, and additional regulations may be promulgated which could prevent or delay regulatory approval of our planned products.

In addition to the regulatory requirements applicable to us, there are also regulatory requirements applicable to our prospective customers, which are primarily entities that ship blood and blood products in interstate commerce. Such entities are regulated by the FDA pursuant to the Food, Drug and Cosmetic Act and the Public Health Service Act and implementing regulations. Blood centers and others that ship blood and blood products interstate will likely be required to obtain approved license supplements or BLAs from the FDA before shipping products processed with our pathogen reduction systems. This requirement and/or FDA delays in approving such supplements may deter some blood centers from using our products, and blood centers that do submit supplements may face disapproval or delays in approval that could provide further disincentives to use of the systems.

Organization and Operating History

We are headquartered in Watertown, Massachusetts and were incorporated in Delaware in 1992.

On August 14, 2001, we completed the divestiture of our Plasma Operations located in Melville, New York to Precision Pharma Services, Inc. (“Precision”). These operations were responsible for producing intermediate plasma fractions for Bayer and for viral inactivation of transfusion plasma for the Red Cross. The Plasma Operations accounted for all of our previously reported processing revenues. The total value of the transaction was approximately $34.0 million. We will receive the final $3.0 million of transaction proceeds in August 2003, the second anniversary of the divestiture, subject to its subordination to Precision’s superior indebtedness to a financial institution. We recorded a loss of $6.8 million on the transaction in 2001.

Our total costs over the last three fiscal years in our research and development activities were as follows: fiscal year 2002 – $21.5 million, fiscal year 2001-$20.2 million and fiscal year 2000 – $17.5 million.

Employees

As of December 28, 2002, we had seventy-six employees, of whom sixty-three were engaged in research and development and thirteen were engaged in general and administrative activities. Eleven hold Ph.D.’s and one holds an M.D. We consider our employee relations to be good.

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Website Access to Reports

Our website address is www.Vitechnologies.com.

We make available on our website our annual report on Form 10-K, our quarterly reports on Form 10-Q, any current reports on Form 8-K and any such amendments to those reports as soon as reasonably practicable after this material is electronically filed with or furnished to the Securities and Exchange Commission.

In addition, we provide paper copies of our filings free of charge upon request.

Item 2.    PROPERTIES

We currently lease 36,000 square feet of space in Watertown, Massachusetts to accommodate our research and development activities. This lease expires in 2009 with two options to extend the lease term by five years each. We also lease 16,000 square feet of space in Stoughton, Massachusetts which we are outfitting as a prototype processing center for our INACTINE^™ Pathogen Reduction System for red cells and for use in treating red blood cells during the Phase III clinical trials. This lease expires in 2008 with one option to extend the lease term through 2013. We believe that our current facilities are adequate for present and foreseeable future uses.

Item 3.    LEGAL PROCEEDINGS

We are not a party to any material legal proceedings.

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

No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 28, 2002.

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PART II

Item 5.    MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock trades on the Nasdaq National Market under the symbol “VITX.” The following table sets forth the reported high and low bid prices of our common stock for each fiscal quarter during the period from December 31, 2000 through December 28, 2002. These prices do not include retail mark-up, mark-down or commissions and may not represent actual transactions.

The closing price of our common stock on March 1, 2003, as reported on the Nasdaq National Market was $0.91 per share. As of March 1, 2003, there were 61 holders of record of our common stock.

We have not paid any dividends on our common stock to date. We intend to retain future earnings for use in the development of our business and do not anticipate paying dividends in the foreseeable future. The payment of any dividends will be at the discretion of our Board of Directors and will depend on, among other things, future earnings, business outlook, capital requirements, contractual restrictions, and the general health of our Company.

Under the terms of our Amended and Restated 1998 Stock Purchase Plan, which complies with Section 423 of the Internal Revenue Code, our eligible employees can purchase our common stock at the end of each quarter at a 15% discount to market price, as defined. For the calendar quarters ended December 31, 2002, September 30, 2002 and June 30, 2002, employees purchased 21,902, 20,057, and 2,956 shares of unregistered common stock, respectively, under this plan. The aggregate cash offering price of these unregistered common stock purchases for those three periods were $17,084, $14,039 and $7,327, respectively. These shares were issued in transactions that were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended, and in accordance with the plan, involved the issuance of shares to persons who were our employees and had access to material information about us. No commissions were paid or expenses incurred. Proceeds were used for general corporate purposes. We are filing a Form S-8 registration statement registering these securities for resale.

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Item 6.    SELECTED FINANCIAL DATA (in thousands, except per share data)

The following table sets forth consolidated financial data with respect to the Company for each of the five years in the period ended December 28, 2002. The selected financial data for each of the five years in the period ended December 28, 2002 have been derived from the consolidated financial statements of the Company, which consolidated financial statements have been audited by KPMG LLP, independent auditors.

Note:  For presentation purposes, years ended December 28, 2002, December 29, 2001, December 30, 2000, January 1, 2000, and January 2, 1999 are presented as fiscal years 2002, 2001, 2000, 1999 and 1998, respectively.

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Item 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Recent Developments

On January 21, 2003, we announced the achievement of the Phase III clinical trial milestone under our agreement with Pall Corporation, thereby triggering a $4 million investment by Pall in Vitex common stock. This investment will be priced at $1.02 per share, the average of recent market prices, and will close if we secure more than an additional $11.0 million in equity financing, including through the rights offering described below, on or before September 30, 2003.

Also on January 21, 2003, we announced the filing of a registration statement with the Securities and Exchange Commission for a proposed rights offering of our common stock with a maximum value of approximately $20 million through the distribution of subscription rights to all our shareholders. Under the terms of the rights offering, which remain subject to change, shareholders will receive 0.87 subscription rights for each share of common stock which they own at the record date thereby entitling them to purchase shares of Vitex common stock representing a total of approximately 19.8 million shares. Holders who exercise their basic subscription right will have oversubscription rights to purchase any unsubscribed shares. The exercise price will be $1.02 per share, the same pricing as the Pall $4 million Phase III milestone investment. We have received expressions of interest from certain institutional and venture capital shareholders and their affiliates in exercising their basic and oversubscription rights to purchase common stock under the proposed rights offering. As of March 25, 2003, expressions of interest total between $14 million and $19 million. We intend to close the Pall $4 million investment commitment concurrently with the rights offering resulting in anticipated minimum gross proceeds from the two transactions of between $18 million and $23 million.

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Critical Accounting Policies

We prepare our consolidated financial statements in conformity with generally accepted accounting principles in the United States of America. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the date of the consolidated financial statements as well as reported revenues and expenses during the reporting periods. Our actual results could differ from these estimates.

The significant accounting policies that we believe are most critical to aid in fully understanding and evaluating our reported financial results and the accounting policies most critical to the preparation of our consolidated financial statements include the following:

Research and Development Revenue and Cost Recognition

We recognize revenue in accordance with Staff Accounting Bulletin (SAB) No. 101 (SAB101), “Revenue Recognition in Financial Statements”. Revenues under partner research collaborations are recognized as we incur research costs eligible for reimbursement under the collaboration agreements. Non-refundable up-front and milestone payments related to license and distribution agreements are deferred and amortized over the period in which the licensee has distribution rights. The Company continually reviews these estimates that could result in a change in the deferral period. Amounts received in advance of the incurrence of reimbursable research expenses are deferred and recognized when the related expenses have been incurred.

Prior to the divestiture of our Plasma Operations in August 2001, we recognized revenue from processing services when persuasive evidence of a sales arrangement existed, the processing services were rendered, certain quality control requirements were met and risk of loss passed to the customer.

Research and development costs are charged to operations as incurred.

Long-Lived Assets

Our long-lived assets, which consist of property and equipment and intangible assets, are recorded at cost and amortized over the estimated useful life of the asset. We generally depreciate property and equipment using the straight-line method over their economic life, which ranges from 3 to 15 years. We amortize acquired intangible assets using the straight-line method over their economic lives, which range from 5 to 15 years. Determining the economic lives of our long-lived assets requires us to make significant judgments and estimates, and can materially impact our operating results.

Asset Impairments

We review the valuation of long-lived assets, including property and equipment and intangible assets, under the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. We are required to assess the recoverability of long-lived assets on an interim basis whenever events and circumstances indicate that the carrying value may not be recoverable. Factors we consider important that could trigger an interim impairment review include the following:

In accordance with SFAS No. 144, when we determine that the carrying value of applicable long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, we

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evaluate whether the carrying amount of the asset exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of that asset. If such a circumstance were to exist, we would measure an impairment loss to the extent the carrying amount of the particular long-lived asset or group of assets exceeds its fair value. We would determine the fair value based on a projected discounted cash flow method using a discount rate determined by our management to be commensurate with the risk inherent in our current business model. Use of different estimates and judgments on any of these factors could yield materially different results in our analysis, and could result in significantly different asset impairment charges.

Effective January 1, 2002, we adopted the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets”. Under SFAS No. 142, goodwill is required to be tested for impairment annually in lieu of being amortized. We have selected the fourth quarter as the period to perform the annual test. Furthermore, goodwill is required to be tested for impairment on an interim basis if an event or circumstance indicates that it is more likely than not that an impairment loss has been incurred. An impairment loss shall be recognized to the extent that the carrying amount of goodwill exceeds its implied fair value. Impairment losses shall be recognized in operations.

We adopted SFAS No. 142 during the first quarter of 2002 without a material impact on our financial position or results of operations.

Contingencies

Contingencies are addressed by assessing the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of losses. A determination of the amount of reserves required, if any, for these contingencies is made after reviewing the relevant facts and circumstances, seeking outside professional advice of lawyers or accountants where appropriate, and then making and recording our best judgment of potential loss under the guidance of Statement of Financial Accounting Standards No. 5, “Contingencies”. This process is repeated in each reporting period as circumstances evolve and are reevaluated. Any changes in our assumptions or estimates that impact our estimates of loss will be recorded in operations immediately in the period of the change.

Results of Operations

Fiscal Year 2002 as Compared to Fiscal Year 2001

Net Revenues

Partner research funding decreased by $2.0 million to $4.2 million for fiscal year 2002 in comparison with 2001 as a result of our August 2002 modification of the Pall collaboration. Under terms of that modification, we assumed responsibility from Pall for funding of the INACTINE^™ red cell program. Prior to August 2002, partner research funding was principally from Pall Corporation.

Processing revenue for 2001 was related to the Plasma Operations which we divested in August 2001; accordingly, we had no processing revenue in 2002.

Research and Development

Our research and development activities all relate to the development of pathogen inactivation technologies for blood products of which our INACTINE^™ chemistry is currently the core technology and our INACTINE^™ Pathogen Reduction System for red cells (the “INACTINE^™ system”) is the lead product candidate. The INACTINE^™ system has completed Phase I and Phase II clinical trials in human subjects and has now entered Phase III trials in the United States.

Our research and development spending on pathogen inactivation technologies principally includes our internal research efforts, scientific and development work under contract to independent vendors, our intellectual property protection efforts and clinical trials conducted by medical institutions. Research and development

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spending on pathogen inactivation technologies totaled $21.5 million for 2002 as compared to $20.2 million for 2001, an increase of $1.3 million, or 7 percent. The increase from 2001 includes a non-recurring $1.0 million royalty prepayment in 2002 in connection with engineering services for the INACTINE^™ system as well as component development costs and outside studies of the safety profile of the INACTINE^™ system. In fiscal year 2000, research and development spending totaled $17.7 million. Cumulatively, we have invested $128.2 million in research and development on pathogen inactivation technologies for blood products since our inception in 1995, including the cost of in-process research and development resulting from our 1999 merger with Pentose Pharmaceuticals, Inc.

Our Phase III clinical trial program for the INACTINE^™ system began in December 2002 and we expect that program to continue into the second half of fiscal 2004. At that point, we will prepare a Biologics License Application (BLA) for submission to the FDA which initiates the final step of FDA review, leading to a decision by the FDA on approval to market the system in the U.S. The time involved in this stage of the FDA review is not within our control and we cannot reasonably estimate this time period. We intend to introduce the INACTINE^™ system into the U.S. market shortly after receiving BLA approval. We anticipate that our research and development spending during the time leading to our filing of a BLA, including the cost of conducting clinical trials, will be in the annual range of approximately $25 million.

In parallel with this process, we will be developing and implementing a strategy to achieve marketing approval of the INACTINE^™ system in the European Community and Japan. We are currently in the course of developing this strategy and have not yet arrived at estimates of the timing and related cost.

The exact nature, timing and estimated costs of the efforts necessary to bring to market the product resulting from our pathogen inactivation research and development projects involve a number of key variables which are either unpredictable or outside our control, including the enrollment rates and results of the Phase III clinical trials, the length of the FDA and foreign regulatory approval processes, the success of our fundraising efforts, our ability to establish and maintain relationships with marketing partners and strategic collaborators, and the timing of commencement of commercialization of our product. These factors are also described elsewhere in this Form 10-K in the section entitled “Risk Factors.” Accordingly, we are unable to estimate, with any degree of precision, either the total future costs that will be required to continue and complete the commercialization of the INACTINE^™ system, or the period in which we can expect material net cash inflows from the system.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased $3.0 million or 39 percent to $4.8 million in 2002 versus the prior year period. The decrease reflects lower administrative staffing levels required for our operations subsequent to the divestiture of the Plasma Operations in August 2001.

Cost of Sales

Cost of sales of $15.7 million recorded in fiscal year 2001 contains costs incurred by the Plasma Operations prior to the divestiture of those operations on August 14, 2001. Accordingly, there were no cost of sales in 2002.

Plasma Operations Impairment

We recorded a net asset impairment charge of $6.8 million during fiscal 2001 due to the divestiture of our Plasma Operations in August of that year. In 2002, we recorded credits of $1.6 million primarily related to the $1.2 million settlement of an ethanol tax dispute with the U.S. Bureau of Alcohol, Tobacco and Firearms as well as the settlement of certain liabilities below recorded amounts.

Interest Income, Net

We earned net interest income of $0.4 million in 2002 versus net interest income of $0.1 million for the prior year. The difference was due primarily to lower average term debt obligations during 2002.

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Provision for Income Taxes

For fiscal years 2002 and 2001, we have recorded no income tax expense or benefit. At December 28, 2002 and December 29, 2001, we established a full valuation allowance against our net deferred tax asset positions of $47.2 million and $38.0 million, respectively. Realization of these net deferred tax assets will be based on, among other things, our ability to generate future taxable profits and utilize our net operating loss carryforwards and tax credits before they expire.

Fiscal Year 2001 as Compared to Fiscal Year 2000

Net Revenues

Processing revenues decreased 42 percent to $20.6 million for fiscal year 2001 in comparison with $35.5 million in fiscal year 2000. The 2001 results reflect a partial year of activity due to the divestiture of the Plasma Operations on August 14, 2001. The Plasma Operations were responsible for all reported processing revenues.

Partner research funding, principally from Pall Corporation, increased by $2.2 million or 55 percent to $6.3 million for the fiscal year 2001 versus fiscal year 2000. The increase reflects the acceleration of our research and development efforts in the INACTINE^™ red blood cell program.

Cost of Sales

Cost of sales was $15.7 million or 76 percent of processing revenues in fiscal year 2001 versus $28.1 million or 79 percent of processing revenues in fiscal year 2000. The decrease in cost of sales reflects lower processing volume and the divestiture of the Plasma Operations in August 2001. As mentioned previously, 2001 cost of sales was for a partial year due to the August 14, 2001 divestiture of the Plasma Operations.

Research and Development

Research and development costs increased by $2.7 million to $20.2 million in fiscal year 2001 versus $17.5 million in fiscal year 2000. Our increased spending is concentrated in our INACTINE^™ red cell pathogen reduction program which covered Phase II clinical trials in 2001.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased $2.6 million in fiscal 2001 to $7.8 million from $10.4 million in the prior year. The decrease reflects the effects of the divestiture of the Plasma Operations on August 14, 2001.

Plasma Operations Divestiture

During fiscal year 2001, we recorded a net charge of $6.8 million for the divestiture of our Plasma Operations.

Provision for Income Taxes

For fiscal years 2001 and 2000, we have recorded no income tax expense or benefit. At December 29, 2001 and December 30, 2000, we established a full valuation allowance against our net deferred tax asset positions of $38.0 million and $25.7 million, respectively. Realization of these net deferred tax assets will be based on, among other things, our ability to generate future taxable profits and utilize our net operating loss carryforwards and tax credits before they expire.

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Liquidity and Capital Resources

We have historically financed our operations through sales of common stock, issuance of short-term and long-term debt, capital lease financing arrangements and research and development funding.

At December 28, 2002, we had working capital of $5.5 million, including cash and cash equivalents of $7.2 million, in comparison with working capital of $23.4 million, including cash and cash equivalents and short-term investments of $25.3 million at December 29, 2001. The primary objectives for our investment of cash balances are safety of principal and liquidity. Available cash balances are historically invested in money market funds and in portfolios of investment grade corporate and U.S. government securities.

During the year ended December 28, 2002, our total cash and investments position decreased by $18.0 million primarily reflecting operating losses and changes in working capital of $20.9 million, investments in property and equipment of $1.5 million and repayment of capital lease obligations of $0.3 million. This spending was offset by borrowings of $2.5 million under the Pall Corporation revolving credit facility and the receipt of $2.0 million contingent consideration related to the 2001 divestiture of the Plasma Operations.

Under our collaboration agreement, Pall Corporation is obligated to make a $4 million investment in our common stock at an average market price upon initiation of Phase III clinical trials. This milestone was achieved on December 31, 2002 resulting in pricing of $1.02 per share for the investment. The investment is expected to close concurrently with the rights offering as described below. In addition, Pall has made available to us a revolving credit facility in the total amount of $5.0 million of which $2.5 million was available for future drawdowns at December 28, 2002. In February 2003, we drew the remaining $2.5 million under the facility.

We are involved in discussions with potential distribution partners for the INACTINE^™ red cell system. These companies have marketing capabilities in different regions of the world and also have substantial technology and financial resources. We expect that if we enter marketing collaborations with new partners, the terms of the arrangements would involve upfront and milestone payments to Vitex. At this date, we cannot predict the likelihood of closing new marketing partnerships in the near future or the likely terms of those partnerships.

On January 21, 2003, we filed a registration statement with the Securities and Exchange Commission (the “SEC”) for a proposed offering of our common stock with a maximum value of approximately $20 million through the distribution of subscription rights to all our shareholders. Under terms of the rights offering, shareholders will receive 0.87 subscription rights for each share of common stock which they own at the record date, thereby entitling them to purchase shares of Vitex common stock representing a total of approximately 19.8 million shares. The exercise price will be $1.02 per share, the same pricing as the Pall $4 million Phase III milestone investment commitment. Pall is required to complete its equity milestone investment if we close an equity financing of $11 million or more prior to September 30, 2003. As of March 25, 2003, we have received non-binding expressions of interest in the proposed rights offering totaling $14 million to $19 million. With the rights offering in this minimum range, we intend to close the rights offering concurrently with the Pall milestone investment resulting in anticipated minimum proceeds of $18 million to $23 million from the combined transactions. As further described in Note 11 to the consolidated financial statements, if the total financing exceeds $15 million, our credit facility with Pall will mature and we will repay the current outstanding balance of $5 million, The registration statement for the rights offering is currently under review by the SEC. The Company intends to commence the rights offering shortly after the review is completed and the registration statement is declared effective by the SEC. However, there is no guarantee that we will be able to successfully complete these transactions.

At December 28, 2002, the Company had cash and available borrowings under its revolving credit facility of approximately $9.7 million. Management believes that these resources will only be adequate to support the Company’s operations into the second quarter of fiscal 2003.

In the event that our fund raising efforts are not successful in raising the minimum proceeds indicated under the expressions of interest, the Company intends to delay or reduce expenditures so as to continue its operations on a limited scale and within its available resources.

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New Accounting Pronouncements

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure”. SFAS No. 148 amends SFAS No. 123, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition guidance and annual disclosure provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. As the Company did not make a voluntary change to the fair value based method of accounting for stock-based employee compensation in 2002, the adoption of SFAS No. 148 did not have a material impact on the Company’s financial position and results of operations.

In November 2002, the FASB issued Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”, which clarifies disclosure and recognition/measurement requirements related to certain guarantees. The disclosure requirements are effective for financial statements issued after December 15, 2002 and the recognition/measurement requirements are effective on a prospective basis for guarantees issued or modified after December 31, 2002. The application of the requirements of FIN 45 did not have a material impact on the Company’s financial position or results of operations.

Pro Forma Results of Operations

The following unaudited pro forma statements of operations are based on our historical consolidated financial statements after giving effect to the divestiture of our Plasma Operations as if the sale had occurred on the first day of fiscal year 2000. In deriving these unaudited pro forma statements, we eliminated revenues, cost of sales, research and development expenses, sales and marketing costs, divestiture adjustments and interest expense associated with the Plasma Operations from the historical financial statements. These unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations that actually would have been reported had the divestiture occurred on the first fiscal day of 2000, or of our future results of operations.

Pro Forma Condensed Consolidated Statements of Operations

For the fiscal years ended December 28, 2002, December 29, 2001 and December 30, 2000

(unaudited) (in thousands, except for per share data)

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Pro Forma Fiscal 2002 as Compared to Pro Forma Fiscal 2001

Net Revenues

Partner research funding decreased by $2.0 million to $4.2 million for fiscal year 2002 in comparison with 2001 as a result of our August 2002 modification of the Pall collaboration. Under terms of that modification, we assumed responsibility from Pall for funding of the INACTINE^™ red cell program. Prior to August 2002, partner research funding was principally from Pall Corporation.

Research and Development

Research and development costs of $21.5 million for 2002 increased $1.4 million or 7 percent from the prior year. The increase encompasses a non-recurring $1.0 million royalty prepayment in 2002 in connection with engineering services and increased costs of development and safety studies for the INACTINE^™ Pathogen Reduction System for red cells (the “INACTINE^™ system). We began Phase III clinical trials for the INACTINE^™ system in December 2002 and expect an increase in research and development spending in future quarters as we move forward with these trials.

General and Administrative Expenses

General and administrative expenses decreased $2.7 million or 36 percent to $4.8 million in 2002 versus the prior year period. The decrease reflects lower administrative staffing levels required for our operations subsequent to the divestiture of the Plasma Operations in August 2001 as well as a credit of approximately $0.3 million in the fourth quarter of fiscal 2002 for adjustment of compensation-related accrued expenses.

Interest Income, Net

We earned interest income of $0.4 million in 2002, consistent with 2001.

Pro Forma Fiscal 2001 as Compared to Pro Forma Fiscal 2000

Net Revenues

Partner research funding, principally from Pall Corporation, increased by $2.2 million or 55 percent to $6.3 million for the fiscal year 2001 versus fiscal year 2000. The increase reflects the acceleration of our research and development efforts in the INACTINE^™ Pathogen Reduction System for red cells.

Research and Development

Research and development costs increased by $4.0 million to $20.1 million in fiscal year 2001 versus $16.1 million in fiscal year 2000. Our increased spending is concentrated in our INACTINE^™ Pathogen Reduction System for red cells which covered Phase II clinical trials in fiscal year 2001.

General and Administrative Expenses

General and administrative expenses were slightly higher in fiscal 2001 at $7.4 million versus $6.9 million in fiscal 2000 due to increased legal costs.

Interest Income, Net

Net interest income was $0.5 million for fiscal year 2001 compared to $0.8 million for fiscal year 2000. This reflects higher cash balances in fiscal 2000 where, under the pro forma scenario, divestiture proceeds were received on the first day of fiscal 2000.

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Risk Factors

Our business faces significant risks. These risks include those described below and may include additional risks of which we are not currently aware or which we do not believe are material. If any of the events or circumstances described in the following risks actually occurs, our business, financial condition or results of operations could be materially adversely affected. These risks should be read in conjunction with the other information set forth in this report.

Risks Related to Our Business

We have historically incurred operating losses and these losses will continue.

We have historically incurred substantial operating losses due to our research and development activities in blood safety and we expect these losses to continue for the foreseeable future. As of December 28, 2002, we had an accumulated deficit of approximately $128.8 million. Our year-to-date losses as of December 28, 2002 were $20.0 million. During the next several years we expect to continue our INACTINE^™ development efforts and other research activities. The INACTINE^™ red blood cell Phase III clinical trial program will be conducted in the U.S. and clinical studies will likely occur in other geographic markets. Product commercialization activities will be at a higher level and our expenditures for research and development will likely increase. We are actively seeking marketing partners who would provide financial support to our INACTINE^™ red blood cell program; however, at this time we are not able to assess the probability of success in attracting partners or the timing and amount of their financial support. It is likely that we will continue to incur operating losses for the foreseeable future.

We will need additional capital in the future, but our access to such capital is uncertain.

Our current resources are insufficient to fund all of our commercialization efforts. As of December 28, 2002 we had cash on hand of $7,249,000 and funding commitments from Pall Corporation totaling $6,500,000 through a combination of a $4,000,000 equity milestone investment, if we secure more than an additional $11,000,000 in equity financing by September 30, 2003, plus available borrowings of $2,500,000 under a revolving credit facility. As of March 1, 2003, we have drawn down the maximum available borrowings of $5,000,000 under the Pall credit facility. We are obligated to repay this amount to Pall upon the earlier of August 1, 2003 and the date on which we receive at least $15,000,000 in equity financing. We anticipate, based on expressions of interest we have received, that we will receive more than $15,000,000 in proceeds from our proposed rights offering and the anticipated milestone investment from Pall. Accordingly, we expect that we will use a portion of the proceeds of this rights offering to repay the $5,000,000 obligation to Pall. Presently, we are consuming approximately $6,500,000 cash per quarter. We are proposing the sale of common stock in a maximum amount of approximately $20,000,000 under the terms of a rights offering to shareholders. A combination of available cash, anticipated Pall funding and a successful rights offering will provide sufficient cash resources for our activities during fiscal 2003. Our capital needs beyond fiscal 2003 will depend on many factors, including our success in negotiating marketing partnerships, the extent of our research and development activities, the scope of our clinical trial program, the timing of regulatory approval for our products under development and the successful commercialization of our products. Our needs may also depend on the magnitude and scope of these activities, the progress and the level of success in our clinical trials, the costs of preparing, filing, prosecuting, maintaining and enforcing patent claims and other intellectual property rights, competing technological and market developments, changes in or terminations of existing collaboration and licensing arrangements, the establishment of additional collaboration and licensing arrangements and the cost of manufacturing scale-up and development of marketing activities, if undertaken by us. We do not have committed external sources of funding, and we may not be able to obtain additional funds on acceptable terms, if at all. If adequate funds are not available, we may be required to:

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If we raise additional funds by issuing additional stock, further dilution to our stockholders may result, and new investors could have rights superior to existing stockholders. If funding is insufficient at any time in the future, we may be unable to develop or commercialize our products, take advantage of business opportunities or respond to competitive pressures.

Our ability to continue as a going concern is dependent on future financing.

KPMG LLP, our independent auditors, have included an explanatory paragraph in their audit opinion on our consolidated financial statements for the fiscal year ended December 28, 2002, which highlights that our current cash balances and available borrowings under our revolving credit facility are insufficient to support our operations until the end of the fiscal year ended December 27, 2003, thereby raising substantial doubt about our ability to continue as a going concern. The inclusion of a going concern explanatory paragraph in KPMG LLP’s audit opinion on our consolidated financial statements for the fiscal year ended December 28, 2002 could have a detrimental effect on our stock price, the proposed rights offering and our ability to raise new capital.

Our consolidated financial statements have been prepared on the basis of a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We have not made any adjustments to our consolidated financial statements as a result of the outcome of the uncertainty described above. If we cannot continue as a going concern, we may have to liquidate our assets and we may be able to sell them for significantly less than the values at which they are carried on our consolidated financial statements. Any shortfall in the proceeds from the liquidation of our assets would directly reduce the amounts that holders of our common stock would receive, if anything, in liquidation.

Our success depends on new products and systems which we are developing, but may be unable to commercialize due to numerous factors, including regulatory requirements on both us and our customers.

The success of our business depends on the successful development and commercialization of pathogen reduction products and systems, including products based on the INACTINE ^™ system. Successful commercialization of our products and systems under development depends, in significant part, on our ability to:

Our pathogen inactivated blood products are under development and have not been approved by the FDA for marketing in the United States or by regulatory authorities in other countries. The process of obtaining regulatory approvals is generally lengthy, expensive and uncertain. Satisfaction of pre-market approval or other regulatory requirements of the FDA, or similar requirements of non-United States regulatory agencies, typically takes several years, depending upon the type, complexity, novelty and intended purpose of the product. The regulatory process includes pre-clinical (animal) studies and clinical (human) trials of each product to establish its safety and efficacy. During fiscal year 2002 we spent approximately $21,500,000 on research and development.

We must provide the FDA and foreign regulatory authorities with pre-clinical and clinical data that demonstrate our products are safe and effective before they can be approved for commercial sale. Our lead product,

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INACTINE ^™ Pathogen Reduction System for red cells, has completed Phase I and Phase II clinical trials in the United States. We commenced pivotal Phase III clinical trials, consisting of two studies, in December 2002. The FDA has concurred with the design of both of these studies. The results from pre-clinical studies and early clinical trials conducted by us will not ensure that results obtained in later clinical trials will be satisfactory to the FDA or foreign regulatory authorities. Data obtained from pre-clinical and clinical activities are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. Our completion of clinical trials may also be delayed by slower than anticipated patient enrollment, negative or inconclusive clinical results or other adverse events occurring during the clinical trials. Therefore, we cannot ensure that clinical trials will demonstrate sufficient safety and efficacy to obtain required marketing approvals on a timely basis, if at all.

Delays in our clinical testing or approval from government authorities will increase our product development costs and may impair our ability to commercialize our products and allow competitors to bring products to market before we do. Our clinical development plan for cellular products, including INACTINE^™, assumes that only data from laboratory studies, not from human clinical trials, will be required to demonstrate efficacy in reducing pathogens and that clinical trials for these products will instead focus on demonstrating therapeutic efficacy, safety and tolerability of treated blood components. Although we have held discussions with the FDA concerning the proposed clinical plan for these products, this plan of demonstrating safety and efficacy may not ultimately be acceptable to the FDA or the FDA may reconsider any decision that this clinical plan is appropriate.

Even if our products receive approval for commercial sale, their manufacture, storage, marketing and distribution are and will be subject to extensive and continuing regulation in the United States by the federal government, especially the FDA, and state and local governments. The failure to comply with these regulatory requirements could result in enforcement action, including, without limitation, withdrawal of approval, which would harm our business. Later discovery of problems with our product may result in additional restriction on the product, including withdrawal of the product from the market. Regulatory authorities may also require post-marketing testing, which can involve significant expenses. Additionally, governments may impose new regulations, which could further delay or preclude regulatory approval of our products or result in significantly increased compliance costs.

In similar fashion to the FDA, foreign regulatory authorities require demonstration of product quality, safety and efficacy prior to granting authorization for product registration which allows for distribution of the product for commercial sale. International organizations, such as the World Health Organization, and foreign government agencies including those for the Americas, Middle East, Europe, and Asia and the Pacific have laws, regulations and guidelines for reporting and evaluating the data on safety, quality and efficacy of new drug products. Although most of these laws, regulations and guidelines are very similar, each of the individual nations reviews all of the information available on the new drug product and makes an independent determination for product registration.

In addition to the regulatory requirements applicable to us and our products and systems, there are regulatory requirements applicable to our prospective customers, the blood banks that process and distribute both blood and blood products. Blood banks, such as the American Red Cross and the New York Blood Center, will be required to obtain approved license supplements from the FDA before using products processed with our pathogen reduction systems. FDA delays in approving these supplements may deter some blood centers from using our products. In addition, blood centers that do submit supplements may face disapproval or delays in approval that could in turn cause further delay or deter them from using our products.

If we fail to establish and maintain relationships with strategic collaborators and distributors, we may be unable to market our products.

We are dependent on enlisting strategic collaborators, including Pall Corporation, for sales, marketing and distribution support and for financial support in the development of our INACTINE^™ Pathogen Reduction

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System for red cells. We are currently seeking new distribution partners for our INACTINE^™ system for red cells. If we fail to develop new strategic partnerships or to maintain existing alliances, the failure will delay or possibly inhibit the commercialization of our products.

For example, in order to effectively market our products outside the United States, we may need to secure foreign marketing partners who have a strong presence in such foreign markets. Securing new corporate collaborators is a time-consuming process, and we cannot guarantee that the negotiations with new collaborators will yield positive results. Even if we find additional corporate collaborators to assist in the commercialization of existing or new product candidates, the terms of the arrangements may not be favorable or acceptable to us.

Our technologies are new and unproven. We will need to gain market acceptance to generate revenue.

We believe that market acceptance of our products and systems will depend on our ability to provide acceptable evidence of their safety, efficacy and cost-effectiveness. Implementation of our systems will involve new investment by our customers which we believe will result in significant improvements in safety and cost savings in health care. We believe that market acceptance of our products and systems will also depend upon the extent to which physicians, patients and health care payers perceive that the benefits of using our products and systems justify the additional costs and processing requirements. Our products and systems may not gain any significant degree of market acceptance among blood centers, physicians, patients and health care payers, even if clinical trials demonstrate safety and efficacy and necessary regulatory approvals and health care reimbursement approvals are obtained. If our products and systems fail to achieve market acceptance, we may never become profitable.

A small number of customers will determine market acceptance of our products.

A defined number of blood collection services will dominate the market for the INACTINE^™ Pathogen Reduction System for red cells. In the United States, the American Red Cross and the America’s Blood Centers collect and distribute the vast majority of the nation’s supply of blood and blood components. Major United States blood centers include the New York Blood Center and the United Blood Services, each of which distributes approximately 6 percent of the nation’s supply of blood and blood components. In Western Europe and Japan, various national blood transfusion services or Red Cross organizations collect, store and distribute virtually all of their respective nations’ blood and blood components supply. Failure to properly market, price or sell our products to any of these large customers could significantly diminish potential product revenue.

We rely on a limited number of suppliers to manufacture our inactivation compound and other components of our INACTINE^™ Pathogen Reduction System for red cells.

Our INACTINE^™ system uses a small molecule compound known as PEN110 to inactivate pathogens. We have a contract with one manufacturer for PEN110 and are currently seeking to qualify additional manufacturers to produce this compound to meet our anticipated commercialization requirements. If any of these manufacturers, which have not yet been identified, cannot produce and deliver this compound in the required quantities, to the required standards, or in a timely manner we may face delays in the commercialization of the INACTINE^™ system before we are able to identify alternate or additional manufacturers to meet these requirements.

The procedure for inactivating pathogens using the INACTINE^™ system requires the use of a cell washing system to remove PEN110, cell debris and other impurities. We are currently using a cell washing system manufactured by Haemonetics, which we exclusively license from Haemonetics pursuant to a development and manufacturing agreement. When and if our INACTINE^™ system is commercialized, Haemonetics will provide contract manufacturing services for the cell washing equipment and associated disposables. If Haemonetics fails to deliver an adequate supply of the cell washing systems and disposables, we would be required to identify other third-party manufacturers. We may not be able to identify such manufacturers on a timely basis or enter into

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contracts with such manufacturers on reasonable terms, if at all. Any delay in the availability of the cell washing system and the disposables from Haemonetics could delay commercialization and subsequent sales of the INACTINE^™ system. Furthermore, the inclusion of cell washing systems manufactured by others could require us to seek new approvals from governmental regulatory authorities, which could result in delays in product delivery. We may not be able to receive any such required regulatory approvals.

If we do not successfully distinguish and commercialize our technology, we may be unable to compete successfully or to generate revenue significant to sustain our operations.

The biotechnology industry, including the fields of transfusion medicine and therapeutic use of blood products, is highly competitive and subject to significant and rapid technological change. Accordingly, our success will depend, in part, on our ability to respond quickly to such change through the development and introduction of new products and systems.

Many of our competitors or potential competitors, including our principal competitors Cerus Corporation and Gambro, have substantially greater financial and other resources than we have and may also have greater experience in conducting pre-clinical studies, clinical trials and other regulatory approval procedures as well as in marketing their products. If we or our corporate partners commence commercial product sales, we or our corporate partners will be competing against companies with greater marketing and manufacturing capabilities. Our competitors may obtain patent protection, receive FDA approval or commercialize products before we do.

Our ability to compete successfully against currently existing and future alternatives to our pathogen reduction technology and competitors who compete directly with us in the pathogen reduction industry will depend, in part, on our ability to:

If we are unable to protect our intellectual property, we may not be able to operate our business profitably.

Our success depends on our ability to develop proprietary products and technologies, to obtain and maintain patents, to protect trade secrets, and to prevent others from infringing on our proprietary rights. We have exclusive patents, licenses to patents and patent applications covering critical components of our technologies. We also seek to protect our proprietary technology and processes, in part, by confidentiality agreements with our employees and certain contractors. Our patents, pending patent applications and licensed technologies may not afford adequate protection against competitors, and any pending patent applications now or hereafter filed by or licensed to us may not result in patents being issued. We cannot be certain that our confidentiality agreements will not be breached, that we will have adequate remedies for any breach, or that our trade secrets will not otherwise become known or be independently discovered by competitors. To the extent that our employees, consultants or contractors use intellectual property owned by others, disputes may arise as to the rights related to or resulting from the know-how and inventions. In addition, the laws of certain non-United States countries do not protect intellectual property rights to the same extent, as do the laws of the United States. Medical technology patents involve complex legal and factual questions and, therefore, we cannot predict with certainty their enforceability.

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Our patents or patent applications, if issued, may be challenged, invalidated or circumvented, or may not provide protection or competitive advantages against competitors with similar technology. Furthermore, our competitors may obtain patent protection or other intellectual property rights for technology similar to ours that could limit our ability to use our technology or commercialize products that we may develop.

Litigation may be necessary to assert claims of infringement, to enforce patents issued to us, to protect trade secrets or know-how or to determine the scope and validity of the proprietary rights of others. Litigation or interference proceedings could result in substantial additional costs and diversion of management focus. If we are ultimately unable to protect our technology, trade secrets or know-how, we may be unable to operate profitably.

If we are unable to operate our business without infringing upon intellectual property rights of others, we may not be able to operate our business profitably.

Our success depends on our ability to operate without infringing upon the proprietary rights of others. We are aware that patents have been applied for and/or issued to third parties claiming technologies for decontamination of blood and blood products that may be similar to those needed by us. We endeavor to follow developments in these fields and we do not believe that our technologies and/or products infringe upon any proprietary rights of third parties. To the extent that planned or potential products turn out to be covered by patents or other intellectual property rights held by third parties, we would need a license under such patents or other intellectual property rights to continue development and marketing of our products. Any required licenses may not be available on acceptable terms, if at all. If we do not obtain such licenses, we may need to design around other parties’ patents or we may not be able to proceed with the development, manufacture or sale of our products.

Litigation may be necessary to defend against claims of infringement or to determine the scope and validity of the proprietary rights of others. Litigation or interference proceedings could result in substantial additional costs and diversion of management focus. If we are ultimately unsuccessful in defending against claims of infringement, we may be unable to operate profitably.

If we lose or are unable to hire and retain qualified personnel, we may not be able to develop our products and technology.

We are highly dependent on the members of our scientific and management staff but have no formal employment agreements with our employees. Although we believe we have been successful in attracting and retaining our employees, we may not be able to attract and retain personnel on acceptable terms, if at all, given the competition for such personnel among other companies and research and academic institutions. If we lose an executive officer or certain key members of our research and development staff or are unable to hire and retain qualified personnel, then our ability to develop and commercialize our products and technology may be hindered. We have not purchased any key-man life insurance. To date, no executive officer or key employee has notified us of any plans to terminate employment with us.

Third-party reimbursement policies may adversely affect our ability to commercialize and sell our products and services.

Our ability to successfully commercialize our products depends in part on the extent to which appropriate levels of reimbursement for our products and related treatments are obtained from government authorities, private health insurers, third party payers, and other organizations, such as managed care organizations, or MCOs. Any failure by doctors, hospitals and other users of our products or systems to obtain appropriate levels of reimbursement could adversely affect our ability to sell these products and systems.

Significant uncertainty exists about the reimbursement status of newly approved medical products and services. Reimbursement in the United States or foreign countries may not be available for any of our products,

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reimbursement granted may not be maintained, and limits on reimbursement available from third-party payers may reduce the demand for, or negatively affect the price of, our products. We anticipate that we will need to work with a variety of organizations to lobby government agencies for improved reimbursement policies for our products. However, we cannot guarantee that such lobbying efforts will take place or that they will ultimately be successful.

We use and generate hazardous materials in our research activities. Defending against any claims relating to the improper handling, storage, release or disposal of these materials could be time consuming and costly.

We are subject to federal, state and local laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain materials, biological specimens and wastes. There can be no assurance that we will not be required to incur significant costs to comply with environmental and health and safety regulations in the future. Our research and development activities, including development of the INACTINE^™ Pathogen Reduction System for red blood cells, involve the controlled use of hazardous materials, including certain hazardous chemicals, viruses and radioactive materials. Although we believe that our safety procedures for handling and disposing of such materials comply with the standard prescribed by state and federal regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. In the event of such an accident, we could be held liable for any damages that result, and any such liability could exceed our insurance limits and our cash resources.

We may face exposure to product liability claims.

We may face exposure to product liability and other claims due to allegations that our products cause harm. These risks are inherent in our Phase III clinical trials which are currently underway and in the testing, and future manufacturing and marketing of human blood products, including our INACTINE^™ system. Although we currently maintain product liability insurance, such insurance may not be adequate and we may not be able to obtain adequate insurance coverage in the future at a reasonable cost, if at all. If we are unable to obtain product liability insurance in the future at an acceptable cost or to otherwise protect against potential product liability claims, we could be inhibited in the commercialization of our products which could have a material adverse effect on our business.

Risks Related to Our Stock

Our stock price is volatile and you may not be able to resell your shares at or above the price you paid for them.

We first publicly issued common stock on June 11, 1998 at $12.00 per share in our initial public offering. Between June 11, 1998 and March 1, 2003 the closing sale price has ranged from a high of $17.63 per share to a low of $0.40 per share. The market price of our common stock could continue to fluctuate substantially due to a variety of factors, including:

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In addition, overall stock market volatility has often significantly affected the market prices of securities for reasons unrelated to a company’s operating performance. In the past, securities class action litigation has been commenced against companies that have experienced periods of volatility in the price of their stock. Securities litigation initiated against us could cause us to incur substantial costs and could lead to the diversion of management’s attention and resources, which could have a material adverse effect on our revenue and earnings.

We may not be able to comply with The Nasdaq National Market continued listing requirements.

On November 11, 2002, we received notice from the The Nasdaq Stock Market, Inc. (“Nasdaq”) that our common stock had failed to maintain the minimum bid price closing requirement of $1.00 for 30 consecutive trading days required to maintain continued listing on the Nasdaq National Market. The letter specified that, unless our common stock closes at a minimum bid price of $1.00 or more for ten consecutive days by February 10, 2003, Nasdaq would notify us at that time of its intent to delist the stock. The letter also stated that we could appeal any delisting notification received at that time. On January 30, 2003, The Nasdaq Board of Directors voted to modify its rules for continued listing to provide an extension of the grace period for compliance with the minimum bid price. The proposed new rules were approved by the SEC on March 11, 2003. On March 19, 2003, we received a letter from Nasdaq indicating that we now have until May 12, 2003 to regain compliance with the requirements for continued listing on the Nasdaq National Market. If our closing bid price remains below $1.00, our Board of Directors will consider effecting a reverse stock split. The November 11, 2002 letter also indicated that we have fallen below the requirement that the market value of our publicly held shares be at least $5 million. On November 22, 2002, we sent a letter to Nasdaq disputing their contention that we were not in compliance with their market value requirement. Although we have had no formal response to this letter since that date, the March 19, 2003 letter indicates that Nasdaq no longer contends that the market value of our publicly held shares is below $5 million. Delisting could have an adverse effect on our price and trading volume, and stockholders might find it more difficult to dispose of their shares of our common stock.

The sale of a substantial number of shares of our common stock could cause the market price of our common stock to decline and may impair our ability to raise capital through additional offerings.

Our executive officers, directors and holders of more than 5% of our common stock collectively beneficially own approximately 68% of the outstanding common stock as of March 1, 2003. In addition, if we receive commitments from any of these stockholders to acquire shares of our common stock in the proposed rights offering, that ownership percentage could substantially increase. The 19.8 million shares of our common stock offered for sale in the proposed rights offering will be immediately freely tradable without restriction under the Securities Act of 1933, as amended (the “Securities Act”), except for any shares purchased by an “affiliate” of ours (as that term is defined under the rules and regulations of the Securities Act), which will be subject to the resale limitations of Rule 144 under the Securities Act. In addition, approximately 1,475,000 shares of common stock issuable upon exercise of vested stock options could become available for immediate resale if such options were exercised. Sale, or the availability for sale, of shares of common stock by stockholders could cause the market price of our common stock to decline and could impair our ability to raise capital through an offering of additional equity securities.

Our largest stockholder, Ampersand Ventures, owns sufficient shares of our common stock to significantly affect the results of any stockholder vote.

Our largest stockholder, Ampersand Ventures, beneficially owns or controls approximately 29% of our common stock as of March 1, 2003 and could increase its percentage ownership of our common stock as a result of its participation in our proposed rights offering. Ampersand Ventures (including its affiliates), has expressed interest in the purchase of up to 10,800,000 shares in this offering. Under certain conditions, Ampersand could own directly and indirectly up to 39.8% of our outstanding shares following the closing of the offering. Certain matters which, under our restated Certificate of Incorporation, require a 66 ²/3% vote by the stockholders for approval may be delayed or blocked by Ampersand Ventures, either alone or in collaboration with any other 5% or more stockholder. These matters include the election of the Board of Directors,

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amendments to our organizational documents, or approval of any merger, sale of assets or other major corporate transaction.

In addition, our executive officers and directors, including those directors representing Ampersand Ventures, beneficially own approximately 49% of our common stock as of March 1, 2003, which percentage could also increase as a result of participation by such stockholders and their affiliates in the proposed rights offering. As a result, these executive officers and directors as a group have the ability to significantly influence the outcome of matters requiring a stockholder vote.

Anti-takeover provisions may frustrate attempts to replace our current management and discourage investors from buying our common stock.

Certain provisions of our restated certificate of incorporation and restated by-laws in effect as of March 1, 2003, as well as the Delaware General Corporation Law (the “DGCL”), reduce the power of stockholders generally, even those with a majority of the voting power in our Company, to remove incumbent directors and to fill vacancies on the Board of Directors without the support of the incumbent directors.

In addition, our restated certificate of incorporation and restated by-laws provide that stockholder action may not be effected without a duly called meeting. Our restated certificate of incorporation and restated by-laws also do not permit our stockholders to call special meetings of stockholders. This effectively limits the ability of our stockholders to conduct any form of consent solicitation.

Provisions of the DGCL, our restated certificate of incorporation and restated by-laws could discourage a third party from attempting to acquire, or make it more difficult for a third party to acquire, control of our Company without approval of our Board of Directors, even if such acquisition were beneficial to other stockholders. Moreover, the provisions of the DGCL and our restated certificate of incorporation and restated by-laws relating to the removal of directors and the filling of vacancies on the Board of Directors preclude a third party from removing incumbent directors without cause and simultaneously gaining control of the Board of Directors by filling, with its own nominees, the vacancies created by removal. Such provisions could also limit the price that certain investors might be willing to pay in the future for shares of the common stock. Such provisions also allow the Board of Directors to authorize the issuance of preferred stock with rights superior to those of the common stock.

Item 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our earnings and cash flows are subject to fluctuations due to the effects of changes in interest rates on our investments of available cash balances in money market funds and in portfolios of investment grade corporate and U.S. government securities and on our borrowings under the Pall revolving credit facility. Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes.

Item 8.    CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements and schedules required under item 8 are set forth under item 15 and are herein incorporated by reference.

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

None.

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PART III

Item 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Incorporated by reference from the portions of the Definitive Proxy Statement entitled “Proposal 1—Election of Directors”, “Additional Information” and “Section 16(a) Beneficial Ownership Reporting Compliance”.

Item 11.    EXECUTIVE COMPENSATION

Incorporated by reference from the portions of the Definitive Proxy Statement entitled “Executive Compensation” and “Additional Information—Compensation of Directors”.

Item 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Incorporated by reference from the portions of the Definitive Proxy Statement entitled “Security Ownership by Management and Principal Stockholders” and “Equity Compensation Plan Information”.

Item 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated by reference from the portion of the Definitive Proxy Statement entitled “Certain Relationships and Related Transactions”.

Item 14.    CONTROLS AND PROCEDURES

Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our company’s disclosure controls and procedures (as such term is defined in Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of a date within 90 days prior to the filing date of this report (the “Evaluation Date”). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to our company required to be included in our periodic filings under the Exchange Act. Since the Evaluation Date, there have not been any significant changes in our internal controls or in other factors that could significantly affect such controls.

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PART IV

Item 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Consolidated Financial Statements

Other information and consolidated financial statement schedules are omitted because they are not applicable, or not required, or because the required information is included in the consolidated financial statements or notes thereto.

(b) Reports on Form 8-K

The Company did not file any reports on Form 8-K during the thirteen weeks ended December 28, 2002.

(c) Exhibits

The following exhibits are required to be filed with this Report by Item 15 and are incorporated by reference to the source cited in the Exhibit Index below or are filed herewith.

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SIGNATURES

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

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

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CERTIFICATION

I, John R. Barr, certify that:

Date: March 26, 2003

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CERTIFICATION

I, Thomas T. Higgins, certify that:

Date: March 26, 2003

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REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders

V.I. Technologies, Inc.:

We have audited the accompanying consolidated balance sheets of V.I. Technologies, Inc. as of December 28, 2002 and December 29, 2001 and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the years in the three-year period ended December 28, 2002. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of V.I. Technologies, Inc. as of December 28, 2002 and December 29, 2001 and the results of its operations and its cash flows for each of the years in the three-year period ended December 28, 2002 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, the Company has incurred recurring losses from operations, and its current cash balances and available borrowings under its revolving credit facility as of December 28, 2002 are not sufficient to support its operations over the next fiscal year. The Company has filed with the Securities and Exchange Commission (the “SEC”) a registration statement for a $20 million rights offering to its shareholders and intends to commence the offering shortly after the registration statement is declared effective by the SEC. Concurrently, the Company plans to close a $4 million equity milestone investment by Pall Corporation. However, the ability of the Company to successfully complete the rights offering and close the Pall investment in a total amount adequate to fund its operations during fiscal year 2003 cannot be determined at this time. Accordingly, this raises substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ KPMG LLP

Boston, Massachusetts

February 21, 2003, except for Note 1,

which is as of March 25, 2003

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