<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   ----------

                                    FORM 10-K

       For Annual and Transition Reports Pursuant to Sections 13 or 15(d)
                     of the Securities Exchange Act of 1934

(Mark one)

     [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934 For the fiscal year ended March 31, 1999 or

     [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934 For the transition period from ________ to ___________
     Commission File Number: 1-12748

                    CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                 MARYLAND                                52-1176514
      (State or other jurisdiction of       (IRS Employer Identification Number)
      incorporation or organization)

   1111 S. PACA STREET, BALTIMORE, MARYLAND      21230             2834
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)    (ZIP CODE)         (SIC)

                                 (410) 843-5000
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)


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

           Securities registered pursuant to Section 12(g) of the Act:
      Title of Each Class: Class A Common Stock, $.01 par value per share.

Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
               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 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 ]

As of June 8, 1999 the aggregate market value of the outstanding shares of the
Registrant's Class A Common Stock, par value $.01 per share, held by
non-affiliates of the Registrant was approximately $16,100,000 based on the
closing sale price of the Class A Common Stock on June 8, 1999.

The number of shares outstanding of each of the Registrant's classes of common
stock, as of June 8, 1999:
Class A Common Stock, $.01 per share - 5,590,101 shares
Class B Common Stock, $.01 per share - none

                       DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents incorporated by reference and the part of
the Form 10-K into which the document is incorporated      NONE

This Form 10-K consists of 38 pages. The index to exhibits is set forth on
page 19.



<PAGE>

                                     PART I

ITEM 1. BUSINESS

     GENERAL OVERVIEW

          Chesapeake Biological Laboratories, Inc. ("CBL" or the "Company") is
     an established provider of pharmaceutical and biopharmaceutical product
     development and production services for parenteral and other sterile
     products. The Company serves a broad range of customers, from major
     international pharmaceutical firms to emerging biotechnology companies.
     Since 1990, the Company has provided services on a contract basis to more
     than 100 pharmaceutical and biotechnology companies and has contributed to
     the development and production of more than 100 therapeutic products.
     Customers contract with the Company to produce development stage products
     for use in U.S. Food and Drug Administration ("FDA") required toxicology
     studies, clinical trials and to produce and manufacture FDA approved
     products for commercial sale.

          The Company has particular experience and expertise in providing
     product development services and producing sterile, process-sensitive
     biopharmaceutical parenteral products. Biopharmaceutical products are
     derived from biological materials and typically involve larger, more
     complex molecules than traditional pharmaceutical products, which generally
     are based upon smaller, more stable, synthetic organic molecules. The
     complexity, inherent instability and process-sensitivity of
     biopharmaceutical products require the application of specialized
     technology and expertise in their development, production and analysis.

          The specialized development services provided by the Company include
     research and development on sterile product formulations; test method
     development and validation; process design and manufacturing validations;
     regulatory and compliance consulting; preparation of clinical trial and
     toxicology materials; container-closure system design; and, accelerated and
     ongoing stability studies.

          In June 1996, the Company received ISO (International Organization for
     Standardization) 9001 certification, demonstrating CBL's conformance with
     the established international quality management standards for product
     design, development, production, inspection and testing. CBL believes that
     ISO 9001 certification has been a positive factor in attracting domestic
     and international customers.

          The Company's objective is to accelerate its growth and profitability
     by expanding its share of the market for parenteral product development and
     production services for the pharmaceutical and biotechnology industries.
     CBL's strategy to achieve this objective is to capitalize on outsourcing
     trends in those industries by increasing its development and production
     capabilities. The Company renovated a 70,000 square foot building purchased
     in November 1996 into a sterile pharmaceutical production facility. The
     pharmaceutical production operation was mechanically completed in December
     1997. The FDA initial general facility inspection was completed in July
     1998.

          CBL believes its established experience and expertise, ISO 9001
     certification, plus the increase in capacity provided by the new facility
     and ability to offer a broad range of drug development and production
     services, will enable it to provide competitive, cost-effective contract
     services to the pharmaceutical and biopharmaceutical industries.

     STRATEGY

          The Company's strategy is to accelerate its revenue growth and return
     to profitability by achieving a greater share of the market for contract
     services relating to the product development and production services for
     the pharmaceutical and biotechnology industries.



                                        2

<PAGE>




     EXPAND PRODUCTION AND DEVELOPMENT SERVICES CAPABILITIES.

          The acquisition, renovation, validation and start-up of the Company's
     new laboratory and production facility has significantly increased CBL's
     capacity. This increase in production capacity will enable the Company to
     continue to meet current and future customers' increasing volume
     requirements, pursue larger scale, long-term commercial contracts and
     achieve a greater market share. While the Company has increased it's
     capacity to include larger scale production, the equipment acquired for the
     Camden facility in fiscal year 1999 was designed to meet the needs of
     biotechnology firms whose production lot sizes are in the range of 30 to
     50 thousand units per run. The Company needs to acquire manufacturing
     equipment that can provide larger production runs in order to produce
     product for customers who are seeking more efficient, larger production
     lots.

     OUTSOURCING TREND/SALES MARKETING.

          The Company is expanding its capabilities to effectively meet the
     increasing preference of pharmaceutical and biotechnology companies to
     outsource development and production functions. As part of this effort,
     the Company has expanded its scientific staff to meet the challenges of
     developing and producing increasingly complex biologically-derived drug
     products. In addition, the Company hired two sales representatives. These
     sales representatives have increased CBL's presence in the market with
     direct sales calls on new and existing customers and have been in
     attendance at industry trade shows and exhibits. The Company's sales
     strategy is to match the Company's capabilities with the needs of
     prospective customers. At present, the Company has a limited range of types
     and size of production equipment which may effect the Company's ability to
     meet its sales objectives.

     FOCUS ON DEVELOPMENT OF CUSTOMERS' PRODUCTS.

          The Company believes that many pharmaceutical and biotechnology
     companies prefer to out source development services to companies that do
     not manufacture, market and distribute potentially competitive proprietary
     products. CBL focuses substantially all of its resources on product
     development and production services for others and does not pursue research
     or product development in direct competition with its customers.

     CONTRACTS AND CUSTOMERS

          Substantially all of the Company's current customers are engaged in
     early phase of clinical development, accordingly, only a limited amount of
     the Company's fiscal year 1999 revenue is from the manufacture of
     commercial products. This product mix is anticipated to continue for fiscal
     year 2000. Generally, all non-commercial, early phase clinical work is
     performed under purchase orders provided by its customers. The Company
     presently is not manufacturing commercial products under long-term
     agreements. Customers provide purchase orders within 30-60 days of
     commencement of work, therefore, the Company's backlog averages
     approximately two months of future revenues.

     COMPETITION

          The Company directly competes with several pharmaceutical product
     development organizations, contract manufacturers of biopharmaceutical
     products and university research laboratories. Although many of these
     pharmaceutical product development organizations, contract manufacturers
     and university research laboratories do not offer the full range of
     services offered by the Company, they can and do compete effectively
     against certain segments of the Company's business, including its
     pharmaceutical production capabilities. The Company also competes with
     in-house research, development and support service departments of
     pharmaceutical and biotechnology companies. Certain of these competitors,
     particularly large established pharmaceutical and biotechnology companies,
     may have significantly greater resources than the Company.

                                        3

<PAGE>



          Competitive factors include reliability, turnaround time, reputation
     for innovation and quality performance, capacity to perform numerous
     required services, financial and regulatory strength and price. The Company
     believes that it can compete favorably in these areas. In addition, the
     Company's strategy is to complement its customers by not pursuing research
     and development, or production, of products of its own. The Company
     believes that customers prefer CBL to others that offer contract
     manufacturing, but which also produce and sell their own products in direct
     competition with those of the customer.

     EMPLOYEES

          At March 31, 1999, the Company had 81 full-time equivalent employees,
     of which six hold Ph.D. degrees, five hold master's degrees and 11 hold
     professional certifications. Thirty of CBL's employees perform scientific,
     regulatory or engineering functions. The Company believes that its
     relations with its employees are good.

     GOVERNMENTAL REGULATIONS

          The services performed by the Company are subject to various
     regulatory requirements designed to ensure the quality and integrity of
     pharmaceutical products, primarily under the U.S. Federal Food, Drug and
     Cosmetic Act and FDA administered Current Good Manufacturing Practices
     ("cGMP") regulations. Although the Company has successfully operated in
     this stringent regulatory environment since the early 1980's and believes
     such experience is an advantage over certain of its competitors, compliance
     with these regulations is a continuous process. These regulations apply to
     all phases of drug manufacturing, testing and record keeping, including
     personnel, facilities, equipment, control of materials, processes and
     laboratories, packaging, labeling and distribution. Noncompliance with cGMP
     by the Company could result in disqualification of data collected by the
     Company. Material violation of cGMP requirements could result in additional
     regulatory sanctions, and in severe cases could result in a mandated
     closing of the Company's facilities which would materially and adversely
     affect the Company's business.

          To help assure compliance with applicable regulations, the Company has
     established quality assurance controls at its facilities that monitor
     on-going compliance by auditing test data and regularly inspecting
     facilities, procedures and other cGMP compliance parameters. In addition,
     FDA regulations and guidelines serve as a basis for the Company's standard
     operating procedures.

     ADDITIONAL INFORMATION

          No portion of the Company's business is subject to renegotiation of
     profits or termination of contracts or subcontracts at the election of the
     United States Government.

     CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

          Certain statements contained in this Form 10-K or in documents
     incorporated herein by reference, including without limitation, statements
     including the word "BELIEVES," "ANTICIPATES," "INTENDS," "EXPECTS," or
     words of similar import, constitute "FORWARD-LOOKING STATEMENTS" within the
     meaning of Section 27A of the Securities Act of 1933, as amended, and
     Section 21E of the Securities Exchange Act of 1934, as amended. Such
     forward-looking statements involve known and unknown risks, uncertainties
     and other factors that may cause the actual results, performance or
     achievements of the Company expressed or implied by such forward-looking
     statements. Such factors include, among others, general economic and
     business conditions, changes in business strategy or development plans, the
     Company's ability to market and sell its products and services, the
     Company's ability to successfully operate and maintain the new production
     facility in a manner compliant with applicable regulations and standards,
     and other factors referenced in this Form 10-K including, without
     limitation, under the headings "Business", "Properties", "Market for
     Registrant's Common Equity and Related Stockholder

                                        4

<PAGE>



     Matters", "Management's Discussion and Analysis of Financial Condition and
     Results of Operations", and "Financial Statements and Supplementary Data".
     For an explanation of certain risk factors which may effect the Company the
     reader should review the Registration Statement on Form S-2 (No. 333-
     25903) filed with the United States Securities and Exchange Commission
     April 25, 1997.

ITEM 2. PROPERTIES

          Since 1986, the Company has leased 15,000 square feet at the Seton
     Business Park which the Company has operated as a multi-customer
     pharmaceutical production facility in accordance with cGMP regulations. In
     April 1998, the lease term for this facility was extended to December 31,
     2000, with one, two-year renewal option thereafter. The Company plans to
     consolidate the functions of the Seton facility into the new Camden
     facility. The Company's pharmaceutical manufacturing and warehouse
     operations are located at two sites in Baltimore, Maryland.

          In November 1996, the Company acquired a 70,000 square foot building,
     located on 3.48 acres of land in the Camden Industrial Park in Baltimore,
     Maryland. The Company has completed the renovation which included office,
     warehouse and several laboratories in addition to the production area
     build-out and installation of production support and processing equipment.
     In July 1998, the FDA completed their initial general facility inspection
     which made the facility operational for customer use.

          In October 1998, the Company entered into a lease for a 7,700 square
     foot building at 730 W. West Street and a vacant lot at 1200 South Paca
     Street. The building is adjacent to CBL's property at 1111 South Paca
     Street. The Company expects to utilize the building for expanded laboratory
     space or a future customer who would best be serviced with a separate
     dedicated facility.

          Through May 31, 1997, the Company had leased 19,200 square feet of
     space in Owings Mills, Maryland, which housed the Company's corporate
     headquarters, warehouse facilities and shipping and receiving operations
     prior to the relocation of those operations to the Camden Industrial Park
     facility in February 1997. As of June 1, 1997, the Company negotiated the
     termination of the Owings Mills facility lease obligation and paid a
     $30,200 termination fee.


ITEM 3. LEGAL PROCEEDINGS
        None


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
        None

                                     PART II


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

     a)   As of March 31, 1999, the Company's Class A Common Stock traded on the
          Nasdaq Stock Market's National Market under the symbol CBLI.


                                        5

<PAGE>



     The price range of the Company's Class A Common Stock during the fiscal
     year ended March 31, 1999, was:

                               Stock Trading Price

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,                                    1999                             1998
                                               HIGH             LOW              HIGH             LOW
PRICE RANGE OF COMMON STOCK:
-----------------------------------------------------------------------------------------------------
<S>                                         <C>              <C>              <C>              <C>
First quarter                                $7.625           $6.625           $5.250          $4.125
Second quarter                                8.500            5.500            6.500          $3.750
Third quarter                                 5.625            3.625            6.375          $5.000
Fourth quarter                                4.500            1.750            7.750          $5.500
-----------------------------------------------------------------------------------------------------
</TABLE>

On May 27, 1997, the Company's Class A Common Stock was listed on the Nasdaq
Stock Market's National Market (the "Nasdaq National Market") under the trading
symbol "CBLI," and trading of the Class A Common Stock on the American Stock
Exchange Emerging Company Market Place, (the "AMEX-EC", where the Class A Common
Stock had previously traded), terminated as of the close of trading on May 23,
1997.

     a.   As of June 8, 1999, there were approximately 253 holders of record of
          the Company's Class A Common Stock.

     b.   The Company has never declared or paid a cash dividend on its Class A
          Common Stock. Earnings, if any, are expected to be retained to finance
          the development of the Company's business.

     c.   In connection with the listing by the Company of its Class A Common
          Stock on the Nasdaq National Market, the Company filed on May 22,
          1997, a Registration Statement on Form 8-A with the United States
          Securities and Exchange Commission in order to register the Class A
          Common Stock pursuant to Section 12(g) of the Securities Exchange Act
          of 1934, as amended (the "Exchange Act"). The Registration Statement
          on Form 8-A was declared effective on May 27, 1997.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

     The following data has been derived from the audited consolidated financial
statements of the Company and should be read in conjunction with those
statements, which for fiscal years 1999, 1998, and 1997 are included in this
report.

<TABLE>
<CAPTION>
SUMMARY OF OPERATIONS                           For the year ended March 31,
                                     ------------------------------------------------
                                       1999      1998       1997      1996     1995
                                        ( $ in thousands, except per share amounts)
<S>                                  <C>        <C>        <C>       <C>       <C>
Revenues                             $6,747     $7,016     $8,654    $6,174    $6,982
Gross (loss) profit                    (676)     1,658      2,635     2,203     1,904
Operating expenses                    2,930      2,276      1,844     1,665     1,539
Restructuring charge                  1,240       --         --        --        --
(Loss) income from operations        (4,846)      (619)       791       537       365
Extraordinary loss on refinancing      (265)      --         --        --        --
Net (loss) income                    (5,414)      (379)       504       309       566
Net (loss) earnings per share         (1.02)      (.08)       .12       .08       .14
</TABLE>


<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET DATA                        At March 31,
                                     ------------------------------------------------
                                       1999      1998       1997      1996      1995
                                                    ( $ in thousands)
<S>                                  <C>        <C>        <C>       <C>       <C>
Working capital                        $(99)    $4,873     $2,794    $2,161    $1,822
Total assets                         13,241     16,493     13,445     4,320     4,138
Long term obligations                 8,280      8,431      8,715       319       290
Stockholders' equity                  1,895      7,064      4,043     3,384     3,075
</TABLE>


                                       6
<PAGE>

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

OVERVIEW

     The Company's revenues are derived from two sources -- product development
services, which includes filling of clinical lots for testing and commercial
production of parenteral and other sterile product presentations. The Company
provides its customers in the pharmaceutical and biotechnology industries with
product development services, experimental products for use in clinical trials
and manufacturing services for FDA approved commercial drugs and medical
devices. The Company has particular experience and expertise in the development
and production of sterile, process-sensitive biopharmaceutical products. The
Company is ISO 9001 certified.

     The Company's scientific, regulatory and engineering staff perform multiple
product development functions for CBL's customers, including regulatory research
and development of sterile product formulations, test method development and
validation, container-closure system design, accelerated and on-going product
stability studies, process design and manufacturing validations, and regulatory
and compliance consulting. Following final development of a stable formulation
of the pharmaceutical product and validation of the manufacturing process, the
Company's production expertise is typically called upon to produce the
development stage product for use in clinical trials or investigations as part
of the FDA approval process.

     During fiscal year ended March 31, 1999, the Company completed the
build-out and validation of its 70,000 square foot commercial production Camden
facility purchased by the Company in November 1996. The Company moved its
executive and administrative staff and warehouse operation into the building in
February 1997, during the renovation of the pharmaceutical production area. The
pharmaceutical production facility was mechanically completed in December 1997.
After a successful FDA inspection in July 1998, the Company initiated a
comprehensive sales and marketing program for the new facility. This included
hiring two experienced pharmaceutical sales people. During the year the Company
had 49 quality assurance audits/visits by potential and current customers, 40 of
which were after the successful FDA facility inspection. The audit visits are an
essential preliminary step in securing development and commercial business.
During the current year, the Company had 47 active customers as compared to 40
in the prior year.

     In the fourth quarter of fiscal 1999, the Company implemented a management
realignment and workforce reduction program. In addition, the decision was made
to close the Seton facility and consolidate operations in the Camden facility as
soon as feasible, consistent with the Company's contractual obligations. This
consolidation is expected to provide the Company with operational efficiencies.
These decisions resulted in a restructuring charge of $1.2 million in the
current year.


RESULTS OF OPERATIONS

FISCAL YEAR ENDED MARCH 31, 1999 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1998

     Revenues for the year ended March 31, 1999 were $6.7 million, down $300,000
or 4% from fiscal year 1998. Due to the expiration of the Allergan contract in
fiscal year 1998, there were no sales to Allergan in fiscal year 1999 compared
to sales of $900,000 in fiscal year 1998. Allergan, as a percentage of total
sales for fiscal years 1999, 1998 and 1997 was 0%, 14% and 47%, respectively.
The Company had 47 active customers in fiscal year 1999 as compared to 40 in
fiscal year 1998. CBL received FDA approval of its new facility in August 1998
and initiated a sales promotion program subsequent to the facility's approval.
While a portion of the revenues were generated at the Camden facility,
approximately 85% of revenues were generated at CBL's original Seton facility
during fiscal year 1999.



                                       7

<PAGE>



     Although revenues were primarily associated with the Seton facility, the
fiscal year includes $2.2 million of operating costs associated with the Camden
facility. This resulted in a loss at the gross margin line as compared to a 24%
gross margin on fiscal year 1998 sales. These costs primarily include the
trained personnel needed to validate, start-up, maintain and operate the
facility, as well as fixed cost associated with the facility during a period of
limited revenues.

     Operating expenses increased $654,000 to $2,930,000 for the fiscal year
1999. Primary factors for the expense increase include costs related to a sales
and marketing program initiated after the FDA approval of the Camden facility.
The program included the addition of two sales representatives and an increase
in CBL's advertising expenditures. Another factor in the increase was the
management reorganization costs which were not considered restructuring charges.

     In January 1999, Mr. Thomas P. Rice was appointed President and Chief
Executive Officer. During the fourth quarter of the current fiscal year, CBL
initiated a workforce reduction program and made a decision to close the Seton
facility and consolidate all of its operations at the new Camden facility. The
Company recorded a provision of $1.2 million for restructuring costs associated
with these actions. On his appointment as President and CEO, Mr. Rice was
granted 200,000 non-qualified options to purchase CBL common stock at $1.00 per
share which was below the then current market price of $2.50 per share. The
Company recorded the expense of $150,000 for the vested portion of 100,000
options in general and administrative expense.

     In summary, the fiscal year 1999 operating loss from operations of $4.8
million compared to the $619,000 loss in fiscal year 1998 primarily resulted
from the cost to operate, validate and maintain the new Camden facility during
the current fiscal year against limited revenues, restructuring costs,
implementation of a sales and marketing program for the new facility and other
costs related to the management realignment.

     Interest income and other, net decreased during fiscal year 1999 compared
to fiscal year 1998 as the Company used the remaining bond funds received in
November 1996 and the proceeds of the June 1997 follow-on public offering for
the validation, start-up, and transitional costs of the new facility and general
corporate purposes. Interest expense increased in fiscal year 1999 compared to
fiscal year 1998 as the Company began recording the full interest expense,
following the FDA approval in August 1998 which allowed the new facility to be
operational. During the facility renovation, the Company capitalized a portion
of the interest related to the bond funds.

     Due to the recent operating results and uncertainties related to the timing
of significant commercial production at the new Camden facility, the Company
established a valuation reserve for the tax benefit associated with the 1999
fiscal year loss. The valuation reserve associated with the tax benefit at March
31, 1999 approximates $2.0 million. The Company's effective income tax rate in
fiscal years 1999 and 1998 was 0% and 37%, respectively. As of March 31, 1999,
the Company had generated a net operating loss carry forwards available for
federal income tax purposes of $3.9 million .

     Net loss for fiscal year 1999 was $5.4 million compared to a net loss of
$379,000 for fiscal year 1998. Earnings per share reflect a net loss of $1.02
for fiscal year 1999, compared to net loss of $0.08 per share in fiscal year
1998.

FISCAL YEAR ENDED MARCH 31, 1998 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1997

     Revenues for the fiscal year ended March 31, 1998, were $7.0 million
compared to $8.7 million for fiscal year 1997. Fiscal year 1998 revenues reflect
an anticipated reduction in sales of Vitrax-TM- to Allergan, which amounted to
77%, but this reduction was partially offset by a 38% increase in sales to other
customers. Vitrax-TM- sales to Allergan as a percentage of total sales were 14%
and 47% for fiscal years 1998 and 1997, respectively. The Company secured 11 new
customers, accounting for sales of approximately $2.0 million during the fiscal
year. All operating revenues were generated by the Company's existing
experimental products facility, as the new pharmaceutical production facility
was under renovation throughout fiscal year 1998.


                                        8

<PAGE>




     Gross margin was 24% of revenue for the fiscal year compared to 32% for
fiscal year 1997. The decrease was primarily the result of costs related to the
new facility, including the $550,000 in operating expenses. In addition, in
January 1998, additional personnel were hired initially to assist in start-up
and quality control testing associated with the new facility. These expenses
were necessary due to the Company's anticipated future need for trained and
experienced pharmaceutical personnel, although the effort of these personnel did
not contribute toward revenues in the current fiscal year.

     Operating expenses for fiscal year 1998 were $2.3 million compared to $2.0
million in fiscal year 1997. The increase is attributed to the addition of a
marketing executive, plus the development of a multi-faceted marketing,
advertising and promotion program. With more aggressive marketing, advertising
and promotion, the Company seeks to continue to expand its customer base. In the
past, the Company has incurred minimal expenses related to uncollected accounts
receivable. However, as the Company pursues opportunities for significant
growth, management recognizes that receivable risks are increasing, and
consequently has increased its reserve for doubtful accounts above historical
levels as of March 31, 1998. Due to the compound effect of the increase in
expenses and the decrease in total revenues, operating expenses were 32% of
revenues in fiscal year 1998, compared to 23% in fiscal year 1997.

     In summary, the operating loss in fiscal 1998 was a direct result of the
costs associated with the Company's production capacity expansion and its
increased marketing, advertising and promotion activities. Both of these
undertakings are integral to the achievement by the Company of its objective of
returning to profitability by expanding its share of the market for product
development and production services for the pharmaceutical and biotechnology
industries.

     Interest income and other, net includes interest income on the $3,300,000
of net proceeds to the Company from the follow-on public offering of Class A
Common Stock, completed in June 1997. Interest expense of $150,000 relates to
the November 1996 loans to build-out the new commercial production facility.

     The Company's effective income tax rate in fiscal years 1998 and 1997 was
37%. During fiscal year 1997, the Company fully utilized its remaining net
operating loss carry forward.

     Net loss for fiscal year 1998 was $379,000 compared to a net profit of
$504,000 for fiscal year 1997. Earnings per share reflect a loss of $0.08 for
fiscal year 1998, compared to earnings of $0.12 per share in fiscal year 1997.


CAPITAL RESOURCES

     In November 1996, the Company acquired its Camden facility in Baltimore,
Maryland, to renovate and equip as a pharmaceutical manufacturing facility and
to house its administrative offices and warehouse operations. The Company paid
$2,150,000 in cash and 125,000 shares of Class A Common Stock for the land and
existing improvements. Renovations to convert the building to a commercial
pharmaceutical production facility were completed in December 1997 and a FDA
general facility inspection was completed in July 1998.

     The cash portion of the purchase price for the land and existing building,
as well as the cost of the proposed renovations and a portion of the
pharmaceutical manufacturing equipment and related pharmaceutical facility
build-out, was financed through the issuance of $7,000,000 variable rate
economic development demand revenue bonds by the Maryland Industrial Development
Financing Authority ("MIDFA"), and a $1,500,000 loan from the Mayor and City
Council of Baltimore, acting through the Department of Housing and Community
Development and the City of Baltimore Development Corporation. In addition,
approximately $3,400,000 of pharmaceutical manufacturing equipment was financed
through equipment operating leases from companies affiliated with NationsBank,
American Equipment Leasing, BancBoston and CoreStates (now First Union National
Bank).


                                        9

<PAGE>




     The loan from the City of Baltimore Development Corporation accrues
interest at a fixed rate of 6.5% per annum, amortized over 20 years. Monthly
interest only payments were due through November 1998 and monthly payments of
principal and interest are due thereafter through November 2016.

     The bonds issued in November 1996 by MIDFA were variable rate, tax-exempt,
and issued pursuant to a Trust Indenture. The maximum annual interest rate
provided for under the terms of the bonds was 12% and, subject to certain
conditions, the bonds could be converted to fixed-rate at the option of the
Company. The Company entered into an interest rate swap agreement and, as a
result, the interest rate applicable to the bonds through November 2003 was
capped at 5.51%. The principal portion of the bonds, and the accrued interest
thereon, is payable from monies drawn under a direct pay Letter of Credit issued
by First Union National Bank of North Carolina (the "Bank"), in amounts up to
$7,280,000. Interest is payable quarterly, as of February 1, 1997, and principal
portions of the bonds are subject to redemption, commencing November 1998, in
accordance with a schedule set forth in the bonds. The maturity date is August
1, 2018. The letter of credit is issued pursuant to a Letter of Credit and
Reimbursement Agreement containing various terms and covenants applicable to the
Company. The Company's obligations with respect to the letter of credit and the
bonds are secured by substantially all of the assets of the Company, including
the new facility. MIDFA has also provided the Bank with additional credit
support for the letter of credit in the form of a $1,800,000 deficiency
guaranty.

     Due to capital expenditure restrictions on the tax-exempt bonds, the
Company converted the bonds to a taxable status in November 1998. These
restrictions could have hindered CBL's ability to effectively satisfy the needs
of new customers who would require additional capital expenditures for product
manufacturing purposes. In conjunction with the conversion, CBL entered into a
variable interest rate swap agreement on the taxable bonds with a maximum rate
of 6.99% through November 1, 2005. As of March 31, 1999, the interest rate was
5.99%.

     Under the documentation applicable to the bond financing, the Company is
obligated to maintain certain financial ratios and balances, including a minimum
tangible net worth, a liability to net worth ratio, an EBITDA ratio and a
current ratio, all as defined and established in the applicable documents. As of
March 31, 1999, the Company was not in compliance on three covenants due to the
fiscal year operating loss. The EBITDA ratio covenant had been waived at March
31, 1998 through fiscal year 1999. Subsequent to March 31, 1999, the Bank
modified all the covenants as of March 31, 1999 and for the fiscal year ending
March 31, 2000. As of March 31, 1999, the Company was in compliance with the
modified covenants. In return for the covenant modifications, the Company agreed
to issue warrants for 75,000 shares of Class A Common stock at $2.25 per share,
which was the market price at the date of the agreement.

FINANCIAL CONDITION AND LIQUIDITY

     On March 31, 1999, CBL had cash and cash equivalents of $411,000 compared
to $3.0 million at March 31, 1998. These balances do not include $350,000 held
as collateral for the Company's obligations under the Letter of Credit and
Reimbursement Agreement with the Bank, pursuant to which a letter of credit was
issued as

                                       10

<PAGE>



credit enhancement for the bonds issued by the MIDFA. The proceeds of these
bonds were used by the Company to finance a portion of the purchase price, plus
the renovation and equipping of the Camden Industrial Park facility. The Company
continues to maintain a $750,000 Revolving Line of Credit from the First Union
National Bank of North Carolina, under which there was an outstanding balance of
$644,000 at March 31, 1999. Revolving line of Credit has the same ratio and
balance requirements discussed in relation to the MIDFA bonds. Not reflected in
cash and cash equivalents at March 31, 1999 is the $1.9 million private
placement, of convertible preferred shares and common stock which was completed
in May 1999.

     The decrease in cash and cash equivalents of $2.6 million was due primarily
to the operating loss for the current fiscal year, which resulted in a use of
cash from operating activities totaling $2.4 million. The Company also invested
$1.3 million in property and equipment related primarily to the new Camden
facility of which $778,000 was provided from the bond financing of November
1996. CBL repaid $391,000 of debt primarily relating to the MIDFA bond and the
loan from the City of Baltimore Development Corporation. In addition, the
Company utilized $644,000 from its revolving line of credit with the Bank.

During the fiscal year ended March 31, 1999, the Company successfully validated
and completed the FDA initial inspection of the new Camden production facility,
and reorganized and expanded the sales and marketing organization to utilize the
additional capacity now available to the Company. The Company also initiated a
management reorganization, including hiring a new President and Chief Executive
Officer, implemented a workforce reduction and began to consolidate all
production into the Camden facility. These actions were taken to address the
Company's recent significant operating losses which resulted from costs
associated with the start-up of the new Camden facility and the related delay in
the new sales and marketing programs. The implementation of these plans have
resulted in a positive sales trend from February to May 1999 and the recent
signing of new customer agreements.

     Subsequent to the March 31, 1999 fiscal year end, the Company raised
$1.9 million, net of related costs of approximately $100,000, with private
placements of convertible preferred shares and common stock. The Company, has
implemented a workforce reduction to reduce its operating expenses from
fiscal year 1999. These actions were taken to address the Company's recent
operating losses which resulted from costs associated with the start-up of
the new Camden facility and the related delay in the new sales and marketing
programs. The implementation of these plans have resulted in a positive sales
trend from February to May 1999 and the recent signing of new customer
agreements. During June 1999, the Company also negotiated revised loan
covenants with its primary lender allowing the Company to be in compliance at
March 31, 1999. The Company is required to achieve substantial growth in
revenues and improvement in operating results in order to meet these
covenants and its obligations through March 31, 2000. Management believes its
plans will generate sufficient cash resources to meet its covenants and cash
needs through at least April 2000. However, there can be no assurance this
will occur.


YEAR 2000 ISSUE

     The year 2000 issue, (Y2K), refers to computer applications using only the
last two digits to refer to a year rather than all four digits. As a result,
some applications could fail or create incorrect results if they interpret "00"
as the year 1900 rather than 2000. The Company addressed the Y2K situation
during the construction the Camden facility.

     In conjunction with the Company's expansion of its commercial production
capabilities, the Company has upgraded both its computer hardware and software.
Management believes the software upgrade will resolve the Y2K issue for the
Company. An independent consultant studied the Company's information technology
status and recommended changes, including the installation of commercially
available software packages. Installation of critical modules, which are Y2K
compliant, was completed by late calender year 1998. Time-sensitive internal
programs have been reviewed and require only minor modifications, at nominal
cost, to resolve the Year 2000 issue. The equipment installed in the Company's
new commercial production facility over the past two years is certified by the
suppliers as Y2K compliant.

     CBL has requested critical suppliers to report the status of the Y2K
compliance of their information technology systems. Fifty-seven suppliers,
including CBL's major suppliers, have responded to CBL's questionnaire that they
are Y2K compliant. CBL is currently following up with suppliers that have not
responded to the questionnaire or who stated that they are working on Y2K
compliance. Due to the nature of CBL's business, it is unlikely that a customer
with a Y2K problem would adversely effect CBL to any significant degree. CBL
does not expect to be dependent on one customer or a small group of customers,
which limits CBL's exposure if some customers have not resolved their Y2K
problems. The Company is working on contingency plans which include increasing
inventory levels and potential staff adjustments. There can be no assurances
that these contingency plans will be successful.


                                       11

<PAGE>




ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements are contained on pages 24 through 38 of this report.

ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

     None

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The  directors and executive officers of the Company are as follows:

<TABLE>
<CAPTION>
               NAME                 AGE              POSITION(S) WITH THE COMPANY
               ----                 ---              ----------------------------
<S>                                 <C>              <C>
William P. Tew, Ph.D. (1)           52               Chairman and Director
Thomas P. Rice                      49               President, Chief Executive Officer and
                                                     Director
Narlin B. Beaty, Ph.D.              49               Chief Technical Officer and Director
John T. Janssen                     60               Chief Financial Officer and Treasurer
Robert J. Mello, Ph.D.              48               Vice President and Secretary
Regis F. Burke (2) (3)              51               Director
Harvey L. Miller (2) (4)            59               Director
</TABLE>

(1)  Resigned as Chairman and Board member effective June 30, 1999.
(2)  Member of Compensation, Stock Option and Audit Committees.
(3)  Chairman of the Audit Committee.
(4)  Chairman of the Stock Option and Compensation Committees.

     WILLIAM P. TEW, PH.D., age 52, is a founder of the Company. He resigned as
Chief Executive Officer in January 1999 and as Director in June 1999. He was a
Director and Chairman of the Board of the Company since operations began in
1980, and was Chief Executive Officer from 1988 until January 1999. Dr. Tew also
holds an appointment as Research Associate in the Department of Biological
Chemistry at The Johns Hopkins University School of Medicine.

     THOMAS P. RICE, age 49, was elected a Director in 1997 and was appointed
President and Chief Executive Officer as of January 11, 1999. Mr. Rice is a
Certified Public Accountant. In 1996, Mr. Rice founded Columbia Investments, LLC
which made selective investments, primarily in the health care industry. From
1993 to 1996, Mr. Rice was Executive Vice President, Chief Operating and
Financial Officer, and a member of the Board of Directors of Circa
Pharmaceuticals, Inc., a publicly-traded pharmaceutical firm. From 1991 to 1993,
Mr. Rice was a principal of Competitive Advantage, a Baltimore-based management
consulting firm. From 1985 to 1990, Mr. Rice was Vice President of
Administration and Finance of PharmaKinetics Laboratories, Inc., Baltimore,
Maryland.

     NARLIN B. BEATY, PH.D., age 49, joined the Company in 1983 and currently
serves as Chief Technical Officer. He served as President of the Company from
1991 until May 1996, and has been a Director of the Company since 1989. Dr.
Beaty also served as Acting President of the Company from 1989 to 1991 and as
Director of Development for the Company from 1985 to 1988.

     JOHN T. JANSSEN, age 60, a Certified Public Accountant, has over 35 years
of diversified financial management experience and, during the 12 years prior to
joining the Company, was a member of the Board of Directors and was Chief
Financial Officer of both Barre-National, Inc. of Baltimore, Maryland, and
Genesee Brewing Co. of Rochester, New York.

                                       12

<PAGE>


     ROBERT J. MELLO, PH.D., age 48, has served as Vice-President of Quality and
Regulatory Affairs since 1994 and was appointed Secretary in 1998. He had been
with the Company for ten (10) years prior to spending 1992 to 1994 with Lederle
Laboratories as Manager, Validation Services where he established, coordinated
and monitored validation programs at four sites.

     REGIS F. BURKE, age 51, was elected a Director of the Company in 1995. Mr.
Burke is a Certified Public Accountant in private practice, since 1988. Mr.
Burke specializes in corporate transaction consulting, business planning,
business valuation and litigation support services. Mr. Burke currently serves
as an outside director to several companies located in Maryland and
Pennsylvania. Prior to 1988, Mr. Burke was a partner with Touche Ross & Co., an
international accounting firm.

     HARVEY L. MILLER, age 59, was elected a Director in 1996. Since 1980, Mr.
Miller has been Chairman of GSI Corporation, a manufacturer of high-tech wire
assemblies. Since 1986, Mr. Miller has been president of DM Realty Corporation,
a developer of commercial real estate sites. Mr. Miller was elected a Director
of Maryland Midland Railway, Inc. in March 1997.

BOARD COMMITTEES AND MEETINGS

     The Board of Directors has three standing committees: a Compensation
Committee, an Audit Committee and a Stock Option Committee. The current members
of each committee are Messrs. Burke and Miller. The Compensation Committee makes
recommendations concerning salaries and incentive compensation for employees of
and consultants to the Company. The Audit Committee reviews the results and
scope of the audit and other services provided by the Company's independent
public accountants. The Stock Option Committee administers and grants stock
options and awards pursuant to the Company's Incentive Stock Option Plans.

     The Audit Committee, which includes the outside directors, met with the
Company's independent public accountants, both before and after the year-end
audit.

     During the fiscal year ended March 31, 1999, the Board of Directors held
six formal meetings. All directors attended at least 80% of the meetings.


                                       13

<PAGE>



ITEM 11. EXECUTIVE COMPENSATION AND RELATED INFORMATION

SUMMARY OF COMPENSATION

     The following table sets forth the compensation earned by the Company's
Chief Executive Officer and the Company's four other highest compensated
executive officers for services rendered in all capacities to the Company for
the fiscal years ended March 31, 1999, 1998, and 1997.

<TABLE>
<CAPTION>
                                                                            SUMMARY COMPENSATION
                                               -----------------------------------------------------------------------------
                                                         ANNUAL COMPENSATION
                                               ----------------------------------------
                                                         SALARY AND INCENTIVE                    LONG TERM COMPENSATION
                                                           COMPENSATION                     --------------------------------
                                               ----------------------------------------      OTHER ANNUAL           STOCK
                                               YEAR           ($)              BONUS($)     COMPENSATION($)       OPTIONS(#)
                                               ----      --------------        --------     ---------------       ----------
<S>                                            <C>       <C>                   <C>          <C>                   <C>
William P. Tew, Ph.D.......................... 1999        $174,818                          $51,353(4)(1)         154,089
Chairman   (A)                                 1998        $194,428                          $   849(1)             30,130
                                               1997        $187,219                          $   270(1)             75,000

Thomas P. Rice................................ 1999        $ 34,134(2)(6)                    $ 7,200(3)            253,000(5)
President and Chief                            1998              --                          $ 9,600( 3)             3,000(3)
Executive Officer                              1997              --                          $ 1,600( 3)             8,000(3)

Narlin B. Beaty, Ph.D......................... 1999        $143,601                               --                   --
Chief Technical Officer                        1998        $150,053                               --               13,786
                                               1997        $145,434                               --               30,000

John T. Janssen............................... 1999        $141,521                               --                   --
Chief Financial Officer and Treasurer          1998        $147,880            $4,000             --               13,786
                                               1997        $141,299                               --               20,000

Robert J. Mello, Ph.D......................... 1999        $138,566                               --                   --
Secretary and Vice President                   1998        $144,792                               --               13,786
Quality and Regulatory Affairs                 1997        $138,698                               --               30,000
</TABLE>

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

(A)  Dr. Tew resigned as Chairman effective June 30, 1999.
(1)  Represents amounts paid by the Company for life insurance premiums on
     behalf of Dr. Tew.
(2)  Represents a partial fiscal year. Mr. Rice was appointed President of the
     Company in January 1999, after a two-year tenure on the Board of Directors.
(3)  Represents fees and options given to Mr. Rice as a non-employee director.
(4)  Includes $50,000 paid in January 1999 as part of management realignment.
(5)  Includes 3,000 options given Mr. Rice as an outside director and 250,000
     upon joining CBL.
(6)  Includes $17,067 of deferred compensation.

EMPLOYMENT AGREEMENT

     William P. Tew, Ph.D., modified his employment agreement of November 1996
as a result of the January 1999 management realignment. In exchange for Dr. Tew
canceling his employment agreement he was retained as Chairman through June 30,
1999, at a monthly salary of $10,416. Beginning July 1, 1999 through June 30,
2000, Dr. Tew will serve as a consultant to the Company at a monthly retainer of
$20,416 through December 31, 1999 and $20,000 per month through June 30, 2000.
Dr. Tew also received a non-qualified stock option to purchase 125,000 shares at
an exercise price of $3.8125 per share, which expires in December 2008.


                                       14

<PAGE>



     Mr. Rice entered into an agreement with the Company on January 11, 1999.
Upon joining the Company as President and Chief Executive Officer, Mr. Rice will
receive an annual salary of $150,000 of which $75,000 is deferred until January
2000. The agreement continues through December 31, 2000 and is automatically
renewed for one year periods unless Mr. Rice or the Company give 90 day written
notice of non-renewal. Mr. Rice was granted qualified stock options for 50,000
shares which were vested upon grant and had an exercise price of $3.75 per
share, which was the market at the day of the grant. Mr. Rice also received
non-qualified stock options for 200,000 shares at $1.00 per share, which was
below the then $2.50 market price. 100,000 of these shares vested upon grant.
The vesting of the remaining shares vest at 20,000 shares per year over the next
five years or based upon the achievement of certain milestones, which if
achieved would result in accelerated vesting.

     The Company has also entered into employment agreements with Dr. Beaty, Mr.
Janssen and Dr. Mello. These agreements generally provide for payment of a base
salary, together with incentive compensation in an amount to be determined by
the Board of Directors or Compensation Committee from time to time. Base
salaries established in the employment agreements for Dr. Beaty, Mr. Janssen and
Dr. Mello are $131,200, $129,300, and $126,000, respectively. The base salary
applicable to any executive officer may be changed through action of the
Compensation Committee or Board of Directors.

     The employment agreements provide, in the case of Dr. Beaty, for an initial
term of three years, with successive three-year renewal terms; and, in the case
of Mr. Janssen and Dr. Mello, for an initial term of two years, with successive
two-year renewal terms. The initial term of each employment agreement commenced
July 1, 1995. Pursuant to the employment agreements, each of the executive
officers is required to devote substantially all of his business time to Company
related matters and has agreed not to solicit clients or customers of the
Company for a period following termination of employment.

     The employment agreements also provide for severance payments to the
executive officers of the Company in certain circumstances. Drs. Beaty and Mello
and Mr. Janssen are each entitled to receipt of severance payments in an amount
equal to approximately one-half of their respective annual compensation upon
termination of their employment following a breach by the Company of their
respective employment agreements or for good reason by the employee.

STOCK OPTION GRANTS

     Stock options were granted during the fiscal year to the officers listed
below:

<TABLE>
<CAPTION>
                                                                                               Potential Realizable
                                                                                               Value At
                                                                                               Assumed Annual
                                       % of Total                                              Appreciation
                                       Options           Exercise                              For Option Term (4)
                         Shares        Granted           Price           Expiration        ---------------------------
                         Granted       in fiscal 99      Per Share       Date                 5%($)            10%($)
                         -------       ------------      ---------      --------------     -----------       ---------
<S>                     <C>            <C>               <C>            <C>                <C>               <C>
William P. Tew           29,098(1)         5.8%            $7.750         07/09/08          $145,900         $384,900
                        125,000(1)        24.9%            $3.813         12/22/08          $313,800         $827,900

Thomas P. Rice           50,000(1)        10.0%            $3.750         01/11/09          $121,300         $320,062
                        200,000(2)        39.8%            $1.000         12/31/08          $323,500         $863,500
                          3,000(3)         0.6%            $8.125         07/09/08          $ 15,800         $ 41,600
</TABLE>

(1)  Options were fully exercisable when granted.
(2)  Non-qualified options. 100,000 were vested upon grant and were issued at
     $1.00 compared to $2.50 market on date of grant. The balance of the shares
     vest over a five year period or upon a qualifying event.
(3)  Granted as an outside director prior to becoming an officer.
(4)  Amounts represent hypothetical gains that could be achieved for the
     respective options at the end of the ten-year option term. The assumed 5%
     and 10% rates of stock appreciation are mandated by rules of the Securities
     and Exchange Commission and do not represent the Company's estimate of the
     future market price of the Common Stock.


                                       15

<PAGE>



STOCK OPTION EXERCISES AND HOLDINGS

     The table below sets forth information concerning the exercise of options
during the 1999 fiscal year and unexercised options held as of the end of the
fiscal year by the Company's Chief Executive Officer and the Company's four
other most highly compensated executive officers.

             AGGREGATED OPTION EXERCISES IN THE 1999 FISCAL YEAR AND
                          FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                                                                                             VALUE OF
                                                                     NUMBER OF               UNEXERCISED
                                                                     UNEXERCISED             IN-THE-MONEY
                                                                     OPTIONS                 OPTIONS
                                     SHARES                          AT FISCAL               AT FISCAL
                                     ACQUIRED         VALUE          YEAR-END (#)            YEAR-END ($) (1)
                                     ON EXERCISE      REALIZED       EXERCISABLE (E)/        EXERCISABLE (E)/
NAME                                     (#)            ($)          UNEXERCISABLE (U)       UNEXERCISABLE (U)
----                                 -----------     ---------      -----------------       ----------------
<S>                                  <C>             <C>            <C>                     <C>
William P. Tew, Ph.D.                   --                 --        202,969 (E)                     --
                                        --                 --         56,250 (U)                     --

Thomas P. Rice                          --                 --        107,000 (E)                $87,500 (E)
                                        --                 --        157,000 (U)                $87,500 (U)

Narlin B. Beaty, Ph.D.                  --                 --         36,286 (E)                $ 5,625 (E)
                                                                      27,500 (U)                $ 1,875 (U)

John T. Janssen                         --                 --         23,786 (E)                $ 1,875 (E)
                                        --                 --         25,000 (U)                $ 3,750 (U)

Robert J. Mello, Ph.D.               5,000            $28,125         26,286 (E)                $ 2,187 (E)
                                                                      32,500 (U)                $ 4,687 (U)
</TABLE>

-------------------------
(1) Assumes, for all unexercised in-the-money options, the difference between
fair market value and the exercise price. The fair market value on March 31,
1999 was $1.875 per share.

     Robert J. Mello, Ph.D., Secretary and Vice President of Quality and
Regulatory Affairs exercised options on April 21, 1998 to purchase 5,000 shares
at $1.50 which had been granted November 30, 1995.

COMPENSATION OF BOARD OF DIRECTORS

     Executive Officers of the Company who also serve on the Board of Directors
receive no additional compensation for their service as such. Members of the
Board of Directors who are not also employed by the Company receive annual
compensation of $9,600 per year for their service on the Board of Directors. In
addition, the Company grants to each director, upon that individual's initial
appointment or election to the Board of Directors, an option to purchase 8,000
shares of Common Stock at the then current market price. Accordingly, Mr. Burke
was granted an option to purchase 8,000 shares of Common Stock at $1.50 per
share in November 1995, Mr. Miller was granted an option to purchase 8,000
shares of Common Stock at $3.125 per share in November 1996, and Mr. Rice was
granted an option to purchase 8,000 shares of Common Stock at an exercise price
of $5.1875 per share in March 1997. Each of these respective options is
evidenced by a Director's Agreement and a related Option Agreement by and
between the Company and the director and becomes exercisable based on a vesting
schedule over a four-year period measured from the date of grant.


                                       16

<PAGE>



     In addition, in March 1997, the Board of Directors approved the 1997
Directors' Stock Option Plan of the Company (the "Directors' Plan"). The
Directors' Plan provides for the issuance of a qualified stock option to
purchase 3,000 shares of Common Stock to each director of the Company who is not
an officer and who is serving as chairperson of any standing committee of the
Board of Directors at the date of grant. Options under the Directors' Plan are
automatically granted annually at the first meeting of the Board of Directors
following the Annual Meeting of the Stockholders at an exercise price equal to
the then current market price of the Common Stock. Accordingly, on August 12,
1997, options to purchase 3,000 shares each were granted to Messrs. Burke,
Miller and Rice, exercisable at the then current market price of $6.00 per
share. Options granted under the Directors' Plan generally vest on the first
anniversary of the date of grant, provided that the director is deemed under the
Directors' Plan to have served as chairperson. In accordance with the 1997
Directors' Stock Option Plan on July 9, 1998, options to purchase 3,000 shares
each were issued to Messrs. Burke, Miller and Rice exercisable at $8.125, the
then current market price.






                                       17

<PAGE>



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth information as of June 1, 1999, with respect
to the number of shares owned by each person who is known by the Company to own
beneficially 5% or more of its Class A Common Stock, each director of the
Company and all directors and officers of the Company as a group.

<TABLE>
<CAPTION>
NAME AND ADDRESS OF                                        SHARES BENEFICIALLY      PERCENTAGE BENEFICIALLY
BENEFICIAL OWNER                                                 OWNED(1)                    OWNED
----------------------                                     -------------------      -----------------------
<S>                                                        <C>                      <C>
William P. Tew, Ph.D.                                            559,907(2)                  7.9%
1111 South Paca Street
Baltimore, MD 21230

Regis F. Burke                                                    63,200(3)                   .9%
6 Kincaid Court
Baldwin, MD 21013


Harvey L. Miller                                                  92,500(4)                  1.3%
200 Village Square
Cross Keys
Baltimore, MD 21210

Thomas P. Rice                                                   162,500(5)                  2.3%
4209 Buckskin Wood Drive
Ellicott City, MD 21042

Narlin B. Beaty, Ph.D.                                           167,791(6)                  2.4%
13406 Blythenia Road
Phoenix, MD 21131

Corporate Opportunities Fund (Institutional) L.P.                798,458(8)                 11.2%
126 East 56th Street
New York, NY 10022

Corporate Opportunities Fund L.P.                                147,427(9)                  2.1%
126 East 56th Street
New York, NY 10022

All directors and officers as a group                          1,223,131(7)                 17.2%
(7 persons)
------------------------------------
</TABLE>

(1)  Unless otherwise noted, all shares indicated are held with sole voting and
     sole investment power.
(2)  Includes 202,969 shares purchasable under option exercisable within 60 days
     of June 1, 1999; does not include 10,000 shares owned by Pamela Maupin,
     wife of Dr. Tew, with respect to which shares Dr. Tew disclaims beneficial
     ownership.
(3)  Includes 12,000 shares purchasable under option exercisable within 60 days
     of June 1, 1999.
(4)  Includes 10,000 shares purchasable under option exercisable within 60 days
     of June 1, 1999.
(5)  Includes 110,000 shares purchasable under option exercisable within 60 days
     of June 1, 1999.
(6)  Includes 36,286 shares purchasable under option exercisable within 60 days
     of June 1, 1999.
(7)  Includes 475,827 shares purchasable under option exercisable within 60 days
     of June 1, 1999.
(8)  Includes the common stock equivalent of Series A Preferred Stock purchased
     May 20, 1999.
(9)  Includes the common stock equivalent of Series A Preferred Stock purchased
     May 20, 1999.




                                       18

<PAGE>



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

<TABLE>
<CAPTION>
      (a)(1). Financial Statements                                                          Page Number
              --------------------                                                          -----------
      <S>                                                                                   <C>
      Report of Independent Public Accountants.....................................              23

      Consolidated Balance Sheets - March 31, 1999
                     and 1998......................................................              24
      Consolidated Statements of Operations - Years
                    Ended March 31, 1999, 1998 and 1997............................              25
      Consolidated Statements of Changes in Stockholders'
                    Equity - Years Ended March 31, 1999,
                    1998 and 1997..................................................              26
      Consolidated Statements of Cash Flows -
                    Years Ended March 31, 1999, 1998 and 1997......................              27

      Notes to Consolidated Financial Statements...................................             28-36
</TABLE>

      (a)(2).  Schedules
               ---------
<TABLE>
<CAPTION>
Schedule Number                      Description                                            Page Number
---------------                      -----------                                            -----------
<S>                                  <C>                                                    <C>
      II                             Valuation and Qualifying Accounts                           37
</TABLE>

<TABLE>
<CAPTION>
Exhibit                              Description                                            Page Number
-------                              -----------                                            -----------
<S>                                 <C>                                                     <C>
      23.1                          Consent of Independent Public Accountant                    38
</TABLE>

(a)(3).  Exhibits
         -------

F 3.01         Articles of Restatement.

C 3.02         Amended and Restated By-Laws of the Registrant

A 10.01        Second Incentive Stock Option plan of the Registrant.

A 10.02        Third Incentive Stock Option Plan of the Registrant.

A 10.03        Lease, dated December 26, 1986, between Centennial/Warren
               Technology Associates Limited Partnership, as predecessor of
               Jiffy Lube International of Maryland, Inc., and the Registrant.

B 10.04        Loan and Security Agreement, dated September 2, 1994, by and
               between the Registrant and the Bank of Baltimore Bancorp Leasing
               and Financial Inc., now known as First Union National Bank of
               Maryland.

D 10.05        Employment Agreement dated as of July 1, 1995 by and between the
               Registrant and William P. Tew, Ph.D.

D 10.06        Employment Agreement dated as of July 1, 1995 by and between the
               Registrant and Narlin B. Beaty, Ph.D.

D 10.07        Employment Agreement dated as of July 1, 1995 by and between the
               Registrant and John T. Janssen.



                                       19

<PAGE>



D 10.08        Employment Agreement dated as of July 1, 1995 by and between the
               Registrant and Robert J. Mello, Ph.D.

E 10.09        Loan Agreement dated as of November 1, 1996, by and between the
               Registrant and Maryland Industrial Development Financing
               Authority

E 10.10        Letter of Credit and Reimbursement Agreement dated as of
               November 1, 1996, by and between the Registrant and First Union
               National Bank of North Carolina.

E 10.11        Collateral Pledge Agreement dated as of November 1, 1996, by and
               between the Registrant and First Union National Bank of North
               Carolina.

E 10.12        Promissory Note dated as of November 21, 1996 from the Registrant
               to the Mayor and City Council of Baltimore, in the original
               principal sum of $1,500,000.

E 10.13        Promissory Note dated as of November 21, 1996 from the Registrant
               to the Maryland Industrial Financing Authority, in the original
               principal sum of $7,000,000.

D 10.14        Fourth Incentive Stock Option Plan of the Registrant.

F 10.15        Letter Agreement dated November 21, 1996, by and between
               Registrant and William P. Tew, Ph.D.

F 10.16        Letter Agreement dated November 21, 1996, by and between
               Registrant and Narlin B. Beaty, Ph.D.

F 10.17        Letter Agreement dated November 21, 1996, by and between
               Registrant and John T. Janssen.

F 10.18        Letter Agreement dated November 21, 1996, by and between
               Registrant and Robert J. Mello, Ph.D.

F 10.19        1997 Directors' Stock Option Plan of the Registrant

G 10.20        Letter Agreement dated February 10, 1999, by and between
               Registrant and William P. Tew, Ph.D.

H 10.21        Employment Agreement dated as of January 11, 1999 by and between
               the Registrant and Thomas P. Rice.


A22            Subsidiary of the Registrant.

A23.1          Consent of Independent Public Accountants

A27            Financial Data Schedule

-------------------
A              Incorporated by reference to Exhibits to Company's Registration
               Statement on Form S-1 (No. 333-17655).
B              Incorporated by reference to Exhibits to Company's Annual Report
               on Form 10-K for Fiscal Year Ended March 31, 1994.
C              Incorporated by reference to the Company's Quarterly Report on
               Form 10-Q for fiscal quarter ended September 30, 1994.
D              Incorporated by reference to the Company's Quarterly Report on
               Form 10-Q for fiscal quarter ended June 30, 1995.
E              Incorporated by reference to the Company's Quarterly Report on
               Form 10-Q for fiscal quarter ended December 31, 1996.


                                       20

<PAGE>


F              Incorporated by reference to Exhibits to the Company's
               Registration Statement on Form S-2 (No. 333-25903).
G              Incorporated by reference to the Company's Quarterly Report on
               Form 10-Q for fiscal quarter ended December 31, 1998.
H              Incorporated by reference to Exhibits to Company's Annual Report
               on Form 10-K for Fiscal Year Ended March 31, 1999.


(b)            REPORTS ON FORM 8-K

               The Registrant filed a current Report on Form 8-K on March 4,
               1997, reporting an Item 5 event (the appointment of Mr. Thomas P.
               Rice to the Board of Directors).

               The Registrant filed a current Report on Form 8-K on May 24,
               1999, reporting an Item 5 event (the private placements of
               Convertible Preferred and Common Stock)

                                       21

<PAGE>



                                   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.

CHESAPEAKE BIOLOGICAL LABORATORIES, INC.

By: /s/Thomas P. Rice                        By: /s/ John T. Janssen
    ---------------------------------            ----------------------------
    Thomas P. Rice                               John T. Janssen
    President and Chief Executive                Treasurer and Chief Financial
    Officer                                       Officer

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

Signature                          Title                        Date

/s/Thomas P. Rice                  President, Chief             June 28, 1999
-------------------------          Executive Officer and
Thomas P. Rice                     Director

/s/Narlin B. Beaty, Ph.D.          Chief Technical Officer      June 28, 1999
-------------------------          and Director
Narlin B. Beaty, Ph.D.

/s/Regis F. Burke                  Director                     June 28, 1999
-------------------------
Regis F. Burke

/s/Harvey L. Miller                Director                     June 28, 1999
-------------------------
Harvey L. Miller






                                       22

<PAGE>



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Directors of
Chesapeake Biological Laboratories, Inc.:

     We have audited the accompanying consolidated balance sheets of Chesapeake
Biological Laboratories, Inc. (a Maryland corporation) and subsidiary as of
March 31, 1999 and 1998, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for the years ended March 31,
1999, 1998 and 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Chesapeake Biological
Laboratories, Inc. and subsidiary as of March 31, 1999 and 1998, and the results
of their operations and their cash flows for the years ended March 31, 1999,
1998 and 1997, in conformity with generally accepted accounting principles.

     Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. Schedule II is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic consolidated financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements, and, in our opinion, fairly states, in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.

/s/ ARTHUR ANDERSEN LLP


Baltimore, Maryland,
June 11, 1999


                                       23

<PAGE>



             CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
ASSETS                                                        MARCH 31, 1999       MARCH 31, 1998
<S>                                                           <C>                  <C>
   CURRENT ASSETS
   Cash and cash equivalents                                      $410,595           $3,041,705
   Restricted cash                                                 350,000              350,000
   Accounts receivable, net                                      1,114,674            1,259,560
   Inventories                                                     491,177              524,996
   Prepaid expenses and other assets                               477,319              603,404
   Deferred tax asset                                              124,084               92,208
                                                               -----------          -----------
     TOTAL CURRENT ASSETS                                        2,967,849            5,871,873

   Property and equipment, net                                  10,171,932            9,428,831
   Bond funds held by the trustee                                       --              778,454
   Deferred financing costs and other assets                       101,375              413,933
                                                               -----------          -----------
     TOTAL ASSETS                                              $13,241,156          $16,493,091
                                                               -----------          -----------
                                                               -----------          -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
   CURRENT LIABILITIES
   Accounts payable and accrued expenses                          $799,089             $403,372
   Line of credit                                                  644,445                   --
   Current portion of long term debt                               717,369              389,547
   Current portion of capital lease obligations                        853               28,098
   Current portion of accrued restructuring costs                  523,094                   --
   Deferred revenue                                                382,208              177,593
                                                               -----------          -----------
      TOTAL CURRENT LIABILITIES                                  3,067,058              998,610


   Long term debt, net of current portion                        7,564,276            8,283,102
   Capital lease obligations, net of current portion                    --                  854
   Accrued restructuring costs, net of current portion             561,215                   --
   Other liabilities                                                30,000               22,523
   Deferred tax liability                                          124,084              124,084
                                                               -----------          -----------
      TOTAL LIABILITIES                                         11,346,633            9,429,173
                                                              ------------         ------------

   COMMITMENTS AND CONTINGENCIES

   STOCKHOLDERS' EQUITY
   Class A common stock, par value $.01 per share;
      8,000,000 shares authorized; 5,365,101 and
      5,276,195 shares issued and outstanding                       53,651               52,762
   Class B common stock, par value $.01 per share;
      2,000,000 shares authorized; no shares issued
      and outstanding                                                   --                   --
   Additional paid-in capital                                    7,613,014            7,369,039
   Accumulated deficit                                          (5,772,142)            (357,883)
                                                               -----------          -----------
      TOTAL STOCKHOLDERS' EQUITY                                 1,894,523            7,063,918
                                                               -----------          -----------
      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY               $13,241,156          $16,493,091
                                                               -----------          -----------
                                                               -----------          -----------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED BALANCE
SHEETS.


                                       24

<PAGE>



             CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED MARCH 31,

<TABLE>
<CAPTION>
                                                        1999            1998            1997
                                                        ----            ----            ----
<S>                                                  <C>             <C>             <C>
REVENUES                                             $6,747,045      $7,015,858      $8,653,793
Cost of sales                                         7,423,073       5,357,953       6,018,961
                                                    -----------     -----------     -----------
   GROSS (LOSS) PROFIT                                 (676,028)      1,657,905       2,634,832

OPERATING EXPENSES:
   General and administrative                         1,889,185       1,533,388       1,430,976
   Selling                                            1,040,708         743,095         413,136
   Restructuring charges                              1,239,577              --              --
                                                    -----------     -----------     -----------
   (LOSS) INCOME FROM OPERATIONS                     (4,845,498)       (618,578)        790,720

Interest expense                                       (453,108)       (203,864)        (27,315)
Interest income and other, net                          149,031         221,445          36,143
                                                    -----------     -----------     -----------
   (LOSS) INCOME FROM OPERATIONS BEFORE TAXES
    AND EXTRAORDINARY ITEM                           (5,149,575)       (600,997)        799,548

Benefit from (provision for) taxes                           --         222,369        (295,833)
                                                    -----------     -----------     -----------
   (LOSS) INCOME BEFORE EXTRAORDINARY ITEM           (5,149,575)       (378,628)        503,715
EXTRAORDINARY LOSS ON REFINANCING                       264,684              --              --
                                                    -----------     -----------     -----------
   NET (LOSS) INCOME                                $(5,414,259)      $(378,628)       $503,715
                                                    -----------     -----------     -----------
                                                    -----------     -----------     -----------
(LOSS) INCOME PER COMMON SHARE:
Basic -
         (Loss) income before extraordinary item         $(0.97)         $(0.08)          $0.12
                                                    -----------     -----------     -----------
                                                    -----------     -----------     -----------
         Net (loss) income                               $(1.02)         $(0.08)          $0.12
                                                    -----------     -----------     -----------
                                                    -----------     -----------     -----------
Diluted -
         (Loss) income before extraordinary item         $(0.97)         $(0.08)          $0.12
                                                    -----------     -----------     -----------
                                                    -----------     -----------     -----------
         Net (loss) income                               $(1.02)         $(0.08)          $0.12
                                                    -----------     -----------     -----------
                                                    -----------     -----------     -----------

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

         Basic                                        5,323,806       4,991,251       4,030,832
                                                    -----------     -----------     -----------
                                                    -----------     -----------     -----------
         Diluted                                      5,323,806       4,991,251       4,190,767
                                                    -----------     -----------     -----------
                                                    -----------     -----------     -----------
</TABLE>




THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.

                                       25

<PAGE>



             CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                  COMMON STOCK                                                        TOTAL
                                          ----------------------------         ADDITIONAL        ACCUMULATED       STOCKHOLDERS'
                                            SHARES           PAR VALUE       PAID-IN CAPITAL   EARNINGS/(DEFICIT)    EQUITY
                                            ------           ---------       ---------------   ------------------  -------------
<S>                                       <C>                <C>             <C>               <C>                 <C>
BALANCE, MARCH 31, 1996                   3,979,938            $39,799         $3,827,182          $(482,970)       $3,384,011
   Issuance of shares pursuant to
      purchase of building                  125,000              1,250            148,750                 --           150,000

   Issuance of shares pursuant to
      exercise of stock options               9,620                 96              4,904                 --             5,000

   Net income                                    --                 --                 --            503,715           503,715
                                         ----------        -----------        -----------        -----------        ----------
BALANCE, MARCH 31, 1997                   4,114,558             41,145          3,980,836             20,745         4,042,726
   Issuance of shares pursuant
      to follow-on public offering        1,034,793             10,348          3,276,693                 --         3,287,041

   Issuance of shares pursuant to
      exercise of stock options             126,844              1,269            111,510                 --           112,779

   Net loss                                      --                 --                 --           (378,628)         (378,628)
                                         ----------        -----------        -----------        -----------        ----------
BALANCE, MARCH 31, 1998                   5,276,195             52,762          7,369,039           (357,883)        7,063,918
   Issuance of shares pursuant to
      exercise of stock options              88,906                889             15,850                 --            16,739

   Vesting of below market
     stock options grants                        --                 --            228,125                 --           228,125

   Net loss                                      --                 --                 --         (5,414,259)       (5,414,259)
                                         ----------        -----------        -----------        -----------        ----------
BALANCE, MARCH 31, 1999                   5,365,101            $53,651         $7,613,014        $(5,772,142)       $1,894,523
                                         ----------        -----------        -----------        -----------        ----------
                                         ----------        -----------        -----------        -----------        ----------
</TABLE>



THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.



                                       26

<PAGE>



             CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED MARCH 31,

<TABLE>
<CAPTION>
                                                                   1999             1998            1997
                                                                   ----             ----            ----
<S>                                                            <C>               <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income                                              $(5,414,259)      $(378,628)       $503,715
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
   Extraordinary item                                              264,684              --              --
   Depreciation                                                    509,548         346,994         360,922
   Non-cash compensation expense                                   228,125              --              --
   Deferred income taxes                                                --         (26,133)         62,050
   Decrease (increase) in accounts receivable                      144,886        (544,767)        (43,167)
   Decrease in inventories                                          33,819         235,079         927,541
   Decrease (increase) in prepaid expenses and other assets         94,209        (280,628)       (129,139)
   Decrease (increase) in other assets                              53,422         (42,222)             --
   Increase (decrease) in accounts payable
      and accrued expenses                                         395,717        (147,740)        199,370
   Increase in accrued restructuring costs                       1,084,309              --              --
   Increase (decrease) in deferred revenue                         204,615          91,706        (129,626)
   Increase (decrease) in other liabilities                          7,477         (30,067)        (30,067)
                                                               -----------     -----------     -----------
      NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES       (2,393,448)       (776,406)      1,721,599
                                                               -----------     -----------     -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of property and equipment                          (1,252,649)     (4,859,980)     (3,612,600)
    Decrease in bond funds held by trustee                         778,454       3,904,543      (4,682,998)
                                                               -----------     -----------     -----------
       NET CASH USED IN INVESTING ACTIVITIES                      (474,195)       (955,437)     (8,295,598)
                                                               -----------     -----------     -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from short term borrowings, net                       644,445              --              --
    Repayments of long-term debt                                  (391,004)        (23,129)        (22,419)
    Repayments of capital lease obligations                        (28,099)        (29,022)        (29,264)
    Net proceeds from sale of stock                                 16,739       3,399,819           5,000
    Payment of debt issuance costs                                  (5,548)         (7,064)       (336,957)
    Increase in restricted cash                                         --              --        (350,000)
    Proceeds from long-term note and bond                               --              --       8,500,000
                                                               -----------     -----------     -----------
       NET CASH PROVIDED BY FINANCING ACTIVITIES                   236,533       3,340,604       7,766,360
                                                               -----------     -----------     -----------
       (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS         (2,631,110)      1,608,761       1,192,361

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                   3,041,705       1,432,944         240,583
                                                               -----------     -----------     -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD                          $410,595      $3,041,705      $1,432,944
                                                               -----------     -----------     -----------
                                                               -----------     -----------     -----------
CASH PAID DURING THE YEAR FOR:
    Interest                                                      $453,108        $203,865         $27,315
                                                               -----------     -----------     -----------
                                                               -----------     -----------     -----------
    Income taxes                                               $        --        $153,800          $7,733
                                                               -----------     -----------     -----------
                                                               -----------     -----------     -----------
NON-CASH TRANSACTIONS:
    Note payable - maintenance agreement                       $        --        $150,000     $        --
                                                               -----------     -----------     -----------
                                                               -----------     -----------     -----------
    Issuance of stock pursuant to purchase of building         $        --     $        --        $150,000
                                                               -----------     -----------     -----------
                                                               -----------     -----------     -----------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.

                                       27

<PAGE>





             CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          MARCH 31, 1999, 1998 AND 1997

1.   ORGANIZATION

     Chesapeake Biological Laboratories, Inc. ("CBL" or the "Company") is a
     provider of pharmaceutical and biopharmaceutical parenteral product
     development and production services on a contract basis for a broad range
     of customers, from major international pharmaceutical firms to emerging
     biotechnology companies. Since 1990, CBL has provided its parenteral
     product development services to more than 100 pharmaceutical and
     biotechnology companies and has contributed to the development and
     production of more than 100 therapeutic products intended for human
     clinical trials. Customers contract with the Company to produce development
     stage products for use in U.S. Food and Drug Administration ("FDA")
     clinical trials and to produce and manufacture FDA approved parenteral
     products for commercial sale. The Company's business depends in part on
     strict government regulation of the drug development process, especially in
     the United States. CBL's production facilities operate under the current
     Good Manufacturing Practices ("cGMP") established and regulated by the FDA.

     The Company's operations are treated as one operating segment,
     pharmaceutical and biopharmaceutical product development and production
     services, as it only reports profit and loss information on an aggregate
     basis to operating management of the Company.

     During the fiscal year ended March 31, 1999, the Company successfully
     validated and completed the FDA initial inspection of the new Camden
     production facility, and reorganized and expanded the sales and marketing
     organization to utilize the additional capacity now available to the
     Company. The Company also initiated a management reorganization, including
     hiring a new President and Chief Executive Officer, implemented a workforce
     reduction and began to consolidate all production into the Camden facility.
     These actions were taken to address the Company's recent significant
     operating losses which resulted from costs associated with the start-up of
     the new Camden facility and the related delay in the new sales and
     marketing programs. The implementation of these plans have resulted in a
     positive sales trend from February to May 1999 and the recent signing of
     new customer agreements. Additionally as described below, in May 1999, the
     Company raised $1.9 million, net of related fees of $100,000, in private
     placements of common and convertible preferred stock. During June 1999, the
     Company also negotiated revised loan covenants with its primary lender
     allowing the Company to be in compliance at March 31, 1999 (see Note 8).
     The Company is required to achieve substantial growth in revenues and
     improvement in operating results in order to meet these covenants and its
     obligations through March 31, 2000. Management believes its plans will
     generate sufficient cash resources to meet its covenants and cash needs
     through at least April 2000. However, there can be no assurance this will
     occur.

     In May 1999, the Company raised $450,000 through the private placement sale
     of 225,000 shares of its Common Stock to eight investors. The investors
     include board members Thomas P. Rice, Harvey L. Miller, Regis F. Burke, and
     Narlin B. Beaty. The proceeds from the sale will be used for general
     corporate purposes.

     In May 1999, the Company also raised $1,451,000, net of related costs of
     approximately $100,000, through the sale of 15,510 shares of its Series A
     convertible Preferred Stock (the "Preferred Stock") together with warrants
     to purchase an aggregate of 51,700 shares of the Company's Common Stock at
     an exercise price of $1.50 per share. The Preferred Stock is convertible
     into the Company's Common Stock at $1.50 per share. Under the terms of the
     Preferred Stock, the investors are permitted, as a separate class, to elect
     one person to the Company's Board of Directors. The proceeds from the sale
     will be used for general corporate purposes.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     PRINCIPLES OF CONSOLIDATION

     The accompanying consolidated financial statements include the accounts of
     CBL and its wholly-owned subsidiary, CBL Development Corporation.
     Significant intercompany accounts have been eliminated in consolidation.


                                       28

<PAGE>


             CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

     ACCOUNTS RECEIVABLE

     Accounts receivable are stated net of allowance for doubtful accounts of
     $55,490 and $70,300 as of March 31, 1999 and 1998, respectively.

     INVENTORIES

     Inventories consist of raw materials and work-in-process, which are stated
     at the lower of cost or market. Cost is determined using the first-in,
     first-out (FIFO) method.

     PROPERTY AND EQUIPMENT

     Property and equipment are stated at cost less accumulated depreciation.
     Equipment, furniture and fixtures are depreciated using the straight-line
     method over estimated useful lives of three to ten years. The building is
     depreciated over an estimated useful life of thirty years. Leasehold
     improvements are amortized over the term of the lease. Assets under
     construction are not depreciated until placed into service. Interest and
     construction overhead costs incurred during the construction period are
     capitalized.

     CASH AND CASH EQUIVALENTS

     Cash and cash equivalents include amounts held in bank accounts and amounts
     invested in accounts with an a original maturity of three months or less,
     which are readily convertible to known amounts of cash. Included in
     restricted cash are Company funds of $350,000 which are being held by the
     Bond Trustee as collateral for the Company's obligations under the Letter
     of Credit and Reimbursement Agreement with First Union National Bank of
     North Carolina (see Note 8).

     REVENUE RECOGNITION

     The Company recognizes income when product is shipped or the service has
     been provided to the customer. Deferred revenue represent deposits normally
     required of customers with development products.

     INCOME TAXES

     Deferred income taxes are computed using the liability method, which
     provides that deferred tax assets and liabilities are recorded based on the
     differences between the tax bases of assets and liabilities and their
     carrying amounts for financial reporting purposes (see Note 12).

     USE OF ESTIMATES

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

     RECLASSIFICATIONS

     Certain prior year balances have been reclassified to conform with the
     current year presentation.

3.   CONCENTRATIONS OF CREDIT RISK/SIGNIFICANT CUSTOMERS

     The Company's customers span the range of the pharmaceutical and medical
     device industries. For many customers, the Company requires an up-front
     payment on orders. There are several customers, however, for which CBL has
     waived that practice.

     The contract manufacturing agreement between the Company and Allergan
     Botox, Ltd. ("Allergan") for the production of VitraxTM originally expired
     in February 1997. Subsequent thereto, an agreement was reached between CBL
     and Allergan which called for the production of VitraxTM through December
     31, 1997, on modified terms using active ingredients supplied by Allergan,
     rather than active ingredients manufactured by CBL. In addition, Allergan
     was relieved of any obligation to purchase VitraxTM exclusively from the
     Company.

                                       29

<PAGE>


             CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

     In September 1997, the Company made its final shipment of VitraxTM to
     Allergan and no further shipments have been made and no further revenues
     are expected from Allergan relative to VitraxTM.

     There were no sales to Allergan in fiscal year 1999. During the years ended
     March 31, 1998 and 1997, approximately 14% and 49% of CBL's sales were to
     Allergan, respectively. During the years ended March 31, 1999, 1998 and
     1997, sales to the largest customer, exclusive of Allergan, which was a
     different customer each year, were 13%, 6% and 8%, of CBL's sales,
     respectively.

4.   INVENTORIES

     Inventories consisted of the following at March 31, 1999 and 1998:

<TABLE>
<CAPTION>
                                                 1999              1998
                                                 ----              ----
     <S>                                   <C>                <C>
     Raw materials                          $ 273,506         $ 280,344
     Work-in-process                          217,671           244,652
                                              -------           -------
                                            $ 491,177         $ 524,996
                                              -------           -------
                                              -------           -------
</TABLE>

5.   PROPERTY AND EQUIPMENT

     Property and equipment consisted of the following at March 31, 1999 and
     1998:

<TABLE>
<CAPTION>
                                                     1999                 1998
                                                     ----                 ----
     <S>                                      <C>                  <C>
     Land                                     $   253,763          $   253,763
     Building                                   9,075,034            2,131,538
     Construction in progress                          --            6,119,240
     Laboratory equipment                       2,478,034            2,173,321
     Furniture and fixtures                       555,695              432,015
     Leasehold improvements                       446,992              446,992
                                              -----------          -----------
                                               12,809,518           11,556,869
     Less: Accumulated depreciation and
            amortization                       (2,637,586)          (2,128,038)
                                              -----------          -----------
                                              $10,171,932           $9,428,831
                                              -----------          -----------
                                              -----------          -----------
</TABLE>

     Depreciation and amortization expense for the years ended March 31, 1999,
     1998 and 1997 was $509,548, $346,994 and $360,922, respectively.

6.   ACCOUNTS PAYABLE AND ACCRUED EXPENSES

     Accounts payable and accrued expenses at March 31, 1999 and 1998 are
     summarized as follows:

<TABLE>
<CAPTION>
                                                     1999              1998
                                                     ----              ----
     <S>                                       <C>                <C>
     Accounts payable, trade                   $  449,257         $ 250,016
     Accrued expenses                             286,048           100,661
     Accrued vacation payable                      63,784            52,695
                                               ----------         ---------
                                               $  799,089         $ 403,372
                                               ----------         ---------
                                               ----------         ---------
</TABLE>

     7.   BANK FINANCING ARRANGEMENTS

     During fiscal 1995, the Company obtained a $750,000 Revolving Line of
     Credit Facility secured by the Company's inventory and accounts receivable,
     and by equipment acquired by the Company. The Revolving Line of Credit
     Facility, which is used to fund operating requirements, provides for
     interest at 3.00% over the LIBOR Market Index Rate. The balance outstanding
     on the Revolving Line of Credit Facility as of March 31, 1999 was $644,445
     and there were no balances outstanding on the Revolving Line of Credit
     Facility as of March 31, 1998 and 1997.

     The average outstanding balance on the Revolving Line of Credit Facility
     for fiscal years 1999, 1998 and 1997 was $370,000, $24,000 and $21,000,
     respectively. The average interest rate on the Revolving Line of Credit
     Facility for fiscal years 1999, 1998 and 1997 was 7.96%, 8.69% and 8.75%,
     respectively.

                                       30

<PAGE>


             CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


     There are certain covenants contained in the Revolving Line of Credit
     Facility. During 1999, certain covenant violations were waived and the
     covenants were amended going forward, effective March 31, 1999. As of
     March 31, 1999, the Company is in compliance with all amended covenants.

8.   LONG TERM DEBT

     In November 1996, the Company completed the acquisition of an approximately
     70,000 square foot building on 3.48 acres in Baltimore, Maryland, which the
     Company has now completed renovating in order to provide office, warehouse
     and pharmaceutical manufacturing space.

     The purchase and renovation costs for this building were financed with a
     $7,000,000 Economic Development Bond issued by the Maryland Industrial
     Development Financing Authority (the "MIDFA Bonds"), and a $1,500,000 loan
     from the Mayor and City Council of Baltimore acting through the Department
     of Housing and Community Development and the City of Baltimore Development
     Corporation (the "Loan"). The bonds were tax exempt and originally carried
     a variable rate with an option to be converted to a fixed rate.

     Also in November 1996, the Company entered into an interest rate agreement
     with First Union National Bank of North Carolina to reduce the potential
     impact of the variable interest rates on the bonds. This agreement resulted
     in a maximum interest rate of 5.51% on $6,000,000 of the outstanding bonds.
     The agreement originally expired in November 2003.

     During November 1998, the Company converted the $7,000,000 MIDFA Bonds from
     tax-exempt to taxable bonds in order to eliminate the capital expenditure
     restriction associated with the tax-exempt bonds. In connection with the
     conversion, the Company also amended the interest rate agreement with First
     Union National Bank of North Carolina to reduce the potential impact of the
     variable interest rates on the bonds. This amended agreement results in a
     maximum interest rate of 6.99% on all of the outstanding bonds. This
     amended agreement will expire in November 2005. The fair value of the
     interest rate agreement at March 31,1999 was approximately $145,000.

     The principal portion of the Bonds, and the accrued interest thereon, is
     payable from monies drawn under a direct pay letter of credit issued by
     First Union National Bank of North Carolina (the "Bank"), in amounts up to
     $7,280,000. Interest is payable quarterly, and principal portions of the
     bonds are subject to redemption, in part, commencing November 1998. The
     maturity date is August 1, 2018.

     In connection with the conversion of the bonds from tax-exempt to
     taxable, the Company incurred costs of approximately $87,000 which have
     been capitalized as deferred financing costs in the accompanying
     consolidated balance sheet as of March 31, 1999. These cost will be
     amortized over the remaining term of the bonds. The remaining unamortized
     deferred financing costs associated with the initial financing of
     $264,684, was accounted for as an extinguishment of debt and is presented
     in the consolidated statement of operations as extraordinary loss on
     refinancing, net of tax.

     There are certain covenants contained in the debt agreement. During 1999,
     certain covenant violations were waived and the covenants were amended
     going forward, effective March 31, 1999. As of March 31, 1999, the Company
     is in compliance with all amended covenants.

     The Loan from the City of Baltimore has an interest rate which is fixed at
     6.5%. The Loan required interest only payments for the first two years and,
     beginning November 1998, monthly principal and interest payments which
     expire in November 2016.

     In connection with the financing, the Company has capitalized net
     construction period interest costs of $217,000 and $337,000 in fiscal years
     1999 and 1998 respectively, which is being amortized over the useful life
     of the building. The Company's other long term debt as of March 31, 1999 is
     an equipment loan which bears interest at 8.5% and is repayable through
     April 1, 1999 in variable monthly installments.

                                       31

<PAGE>


             CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

     The remaining principal payments on the Company's long term debt as of
     March 31, 1999, are as follows:

<TABLE>
<CAPTION>
         Year Ending March 31,
         ---------------------
         <S>                                        <C>
         2000                                         $717,369
         2001                                          728,019
         2002                                          672,834
         2003                                          671,373
         2004 and thereafter                         5,492,050
                                                    ----------
                                                    $8,281,645
                                                    ----------
                                                    ----------
</TABLE>

     Based on the borrowing rates currently available to the Company, the fair
     value of long-term debt, exclusive of capital lease obligations, as of
     March 31, 1999, is approximately $8,383,168.

9.   LEASES:

     In December 1993, the Company entered into a non-cancelable operating lease
     agreement for a facility in Owings Mills, Maryland, to house its corporate
     offices, warehousing, shipping and receiving functions. The lease terms had
     provided for an initial expiration date of December 31, 1998. However, as
     of June 1, 1997, the Company negotiated termination of the Owings Mills
     facility lease, effective June 1, 1997, in exchange for a termination fee
     of $30,200 paid by the Company, resulting in net savings to the Company of
     approximately $200,000 over the remaining term of the lease. The rent
     expense to the Company under the lease agreement was $0, $59,378 and
     $143,948 for years ended March 31, 1999, 1998 and 1997, respectively.

     The Company's original facility ("Seton") is primarily used for production
     and is occupied under a non-cancelable operating lease agreement with an
     initial six and one-half year term, expiring December 31, 1998 and two
     renewable terms of two years each. On April 14, 1998, the Company exercised
     the right to renew the Seton lease. The lease now expires on December 31,
     2000 and may, at the Company's option, be renewed again for another two
     year period. Related rental payments for the years ended March 31, 1999,
     1998 and 1997, were $250,163, $243,067 and $232,784, respectively.

     In previous years, the Company entered into several non-cancelable capital
     lease obligations for various pieces of laboratory equipment and furniture
     that expire during next fiscal year. In addition, the Company entered into
     several operating leases in fiscal year 1999, 1998 and 1997 that expire
     during fiscal years 2001 through 2004.

     At March 31, 1999 the aggregate future minimum annual lease payments were
     as follows:

<TABLE>
<CAPTION>
         Year Ended March 31                              Capital Leases   Operating Leases
         -------------------                              --------------   ----------------
         <S>                                              <C>              <C>
         2000                                                   $ 1,123        $ 1,035,046
         2001                                                        --            987,094
         2002                                                        --            817,440
         2003                                                        --            618,631
                                                               --------        -----------
         Total payments                                           1,123        $ 3,458,211
                                                                               -----------
                                                                               -----------
         Less: interest                                            (270)
                                                               --------
         Present value of future minimum lease payments        $    853
                                                               --------
                                                               --------
</TABLE>


10.  CONTINGENCIES

     In the ordinary course of business, the Company could be exposed to a risk
     of liability as a result of the

                                       32

<PAGE>


             CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

     products that it has produced or developed for others. The Company attempts
     to limit its exposure to liability through contractual agreements with its
     customers and insurance coverage. Clinical trial materials are produced by
     the Company for use by its customers in studies that are strictly regulated
     by the FDA. During fiscal 1999, 1998 and 1997, there were no legal
     proceedings to which the Company was a party.

11.  STOCK OPTION PLANS

     The Company has adopted four incentive stock option plans for employees
     (the "Option Plans") and a separate plan for Directors. The Option Plans
     provide for the granting of incentive stock options within the meaning of
     Section 422A of the Internal Revenue Code of 1986, as amended. The exercise
     price of all options granted under the Option Plans must be at least equal
     to the fair market value of such shares on the date of the grant and the
     maximum term of the options range from five to ten years.

     In fiscal year 1999, the Company granted non-qualified stock options to two
     executive officers to purchase up to 325,000 shares of the Company's common
     stock, valid for 10 years from issuance, with an exercise price of $1.00
     per share. Vesting periods are based on either the passage of time or based
     upon the achievement of certain milestones, which if achieved would result
     in accelerated vesting of up to 162,500 shares of the aforementioned
     options for the key employees. In fiscal year 1999, the Company recognized
     $228,125 in non-cash compensation expense, in accordance with APB Opinion
     No. 25, relating to the value of such immediately vesting options and it
     expects to charge varying amounts of non-cash compensation expense to
     operations through 2004 relating to such agreements.

     The Company applies APB Opinion No. 25 and related interpretations in
     accounting for its plans, under which no compensation expense has been
     recognized, except as noted above. Had compensation cost for the Company's
     stock-based compensation plans been determined based on the fair value at
     the grant dates for awards under those plans consistent with the method of
     SFAS 123 "Accounting for Stock-Based Compensation", the Company's net loss
     and earnings per share would have been reduced to the pro forma amounts
     indicated below:

<TABLE>
<CAPTION>
                                                    Year Ended           Year Ended
                                                March 31, 1999       March 31, 1998
                                                --------------       --------------
     <S>                                        <C>                  <C>
     Net loss:
        As reported                                $(5,414,259)        $ (378,628)
        Pro forma                                   (6,654,039)          (660,876)

     Basic earnings per share:
        As reported                                     (1.02)             (0.08)
        Pro forma                                       (1.25)             (0.13)
     Diluted earnings per share:
        As reported                                     (1.02)             (0.08)
        Pro forma                                       (1.25)             (0.13)
</TABLE>

     The fair value of each option grant is estimated on the date of grant using
     the Black-Scholes option-pricing model with the following assumptions:

<TABLE>
<CAPTION>
                                                    Year Ended           Year Ended
                                                March 31, 1999       March 31, 1998
                                                --------------       --------------
     <S>                                        <C>                  <C>
     Expected volatility                                119.0%                75.0%
     Risk-free interest rates                       4.5 - 5.4%           5.5 - 6.4%
     Expected lives                                    5 years              5 years
</TABLE>




                                       33

<PAGE>


             CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

     A summary of qualified option transactions for the years ended March 31,
     1999, 1998 and 1997 is as follows:

<TABLE>
<CAPTION>
                                                        1999                           1998                        1997
                                              -------------------------  ---------------------------  ---------------------------
                                                       Weighted Average             Weighted Average             Weighted Average
                                               Shares    Exercise Price     Shares    Exercise Price     Shares    Exercise Price
                                               ------    --------------     ------    --------------     ------    --------------
  <S>                                       <C>        <C>               <C>        <C>               <C>        <C>
  Outstanding, beginning of year              610,887             $3.10    571,900             $2.37    366,750             $2.16
  Granted                                     271,889              4.97    202,361              4.22    300,000              2.98
  Exercised                                  (165,926)             2.66   (160,484)             1.94    (11,250)             1.28
  Expired or canceled                         (59,750)             5.03     (2,890)             1.40    (83,600)             3.80
                                            ---------             -----  ---------             -----  ---------             -----
  Outstanding, end of year                    657,100             $3.81    610,887             $3.10    571,900             $2.37
                                            ---------             -----  ---------             -----  ---------             -----
                                            ---------             -----  ---------             -----  ---------             -----
  Shares available for future grant           129,350                      324,239                      531,550
                                            ---------                    ---------                    ---------
                                            ---------                    ---------                    ---------
  Options exercisable at end of period        409,450                      166,787                      105,000
                                            ---------                    ---------                    ---------
                                            ---------                    ---------                    ---------
  Weighted average fair value
   of qualified options granted             $    2.49                    $    2.78                    $    2.24
                                            ---------                    ---------                    ---------
                                            ---------                    ---------                    ---------
</TABLE>


     The following table summarizes information about qualified stock options
     outstanding and exercisable at March 31, 1999:


<TABLE>
<CAPTION>
                                         Options Outstanding                            Options Exercisable
                                         -------------------                            -------------------
                              Number             Average             Weighted             Number            Weighted
      Range of        Outstanding at           Remaining              Average    Exercisable  at             Average
   Exercise Prices   March 31, 1999     Contractual Life       Exercise Price     March 31, 1999      Exercise Price
   -----------------------------------------------------------------------------------------------------------------
   <S>               <C>                <C>                    <C>               <C>                  <C>
   $1.50-$3.00               101,975           6.8 years                $1.55             47,700               $1.53
   $3.00-$5.00               426,536           8.6 years                 3.60            306,286                3.73
   $5.00-$8.125              128,589           9.0 years                 6.31             55,464                6.76
                             -------           ---------                -----            -------               -----
                             657,100           8.4 years                $3.81            409,450               $3.89
                             -------           ---------                -----            -------               -----
                             -------           ---------                -----            -------               -----
</TABLE>


12.  INCOME TAXES

     The (benefit) provision for income taxes was comprised of the following for
     the years ended March 31, 1999, 1998 and 1997:

<TABLE>
<CAPTION>
                                                   1999             1998          1997
                                                   ----             ----          ----
   <S>                                         <C>               <C>          <C>
   Federal:
      Current                                  $        --       $(180,325)   $ 198,716
      Deferred                                  (1,765,915)        (24,014)      52,743
   State:
      Current                                           --         (15,911)      35,067
      Deferred                                    (240,806)         (2,119)       9,307
                                              ------------        --------     --------
   (Benefit) provision for income taxes         (2,006,721)       (222,369)     295,833
   Less: valuation allowance                     2,006,721              --           --
                                              ------------        --------     --------
                                              $         --        $222,369     $295,833
                                              ------------        --------     --------
                                              ------------        --------     --------
</TABLE>


     The following table reconciles income taxes at the federal statutory rate
     to the provision for income taxes in the

                                       34

<PAGE>


             CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

     accompanying consolidated statements of income for the years ended
     March 31, 1999, 1998 and 1997.

<TABLE>
<CAPTION>
                                                        1999         1998        1997
                                                        ----         ----        ----
      <S>                                           <C>           <C>          <C>
      Income tax at federal statutory rate          $(1,840,848)  $(204,339)   $271,846
      State tax, net of federal benefit                (240,806)    (18,030)     36,939
      Other                                              74,933          --     (12,952)

       Increase in valuation allowance                2,006,721          --          --
                                                    -----------   ---------    --------
      (Benefit) provision for income taxes          $        --   $(222,369)   $295,833
                                                    -----------   ---------    --------
                                                    -----------   ---------    --------
</TABLE>

     As of March 31, 1999, the Company had net operating loss ("NOL") carry
     forwards available for federal income tax purposes of $3,866,394, which
     expires in 2019. NOL carry forwards are subject to ownership limitations
     and may also be subject to various other limitations on the amounts to be
     utilized. As of March 31, 1999, the Company had certain other tax credits
     of approximately $54,400, the majority of which will begin to expire in
     2013. Realization of net deferred tax assets related to the Company's NOL
     carry forwards and other items is dependent on future earnings, which are
     uncertain. Accordingly, a valuation allowance has been established equal to
     the net deferred tax asset which are uncertain to be realized in the
     future, resulting in a net deferred tax assets of approximately $0 at March
     31, 1999. The amount charged to the valuation reserve in 1999 was
     $2,006,721.

     Deferred tax liabilities and deferred tax assets as of March 31, 1999 and
     1998, and the sources of the differences between financial accounting and
     tax basis of the Company's assets and liabilities which give rise to the
     deferred tax liabilities and deferred tax assets and the tax effects of
     each are as follows:

<TABLE>
<CAPTION>
                                                                 March 31, 1999      March 31, 1998
                                                                 --------------      --------------
      <S>                                                        <C>                 <C>
      Net current deferred tax assets/ (deferred tax
            liabilities):
         Inventory                                                   $   81,928          $   41,359
         Accruals and reserves                                          399,112              50,849
         Valuation allowance                                           (356,956)                 --
                                                                     ----------           ---------
                                                                     $  124,084          $   92,208
                                                                     ----------           ---------
                                                                     ----------           ---------
      Net long term deferred tax assets/ (deferred tax
            liabilities):
         Credit carry forwards                                       $   54,400          $   17,537
         Property and equipment                                         (29,107)           (134,490)
         Consulting costs                                                (7,506)            ( 7,131)
         Net operating loss                                           1,507,894                  --
         Valuation allowance                                         (1,649,765)                 --
                                                                     ----------           ---------
                                                                     $ (124,084)          $(124,084)
                                                                     ----------           ---------
                                                                     ----------           ---------
</TABLE>

13.  PROFIT SHARING PLAN

     During the year ended March 31, 1994, the Company established a
     401(k)-Profit Sharing Plan ("the Plan") for all full-time employees with at
     least six months of service with the Company. Employees may contribute up
     to 10% of their salary to the Plan and the Company may match the first 3%
     of salary that the employee contributes to the Plan. The Company suspended
     the matching of employee contributions as of July 31, 1994.

14.  EARNINGS PER SHARE

     In March 1997, the Financial Accounting Standards Board, (FASB), issued a
     Statement of Financial Accounting Standards, (SFAS), No. 128, "Earnings per
     Share". SFAS 128 simplifies the standards for computing earnings per share
     ("EPS") previously found in APB Opinion No. 15, "Earnings per Share". It
     replaces the presentation of primary EPS with a presentation of basic EPS
     and requires a reconciliation of the numerator and denominator of the
     diluted EPS calculation. Basic EPS excludes dilution and is computed by
     dividing income available to common stockholders by the weighted average
     number of common shares


                                       35

<PAGE>




     outstanding for the period. Diluted EPS is computed similarly to primary
     EPS pursuant to APB Opinion No. 15. The adoption of SFAS 128 did not have a
     significant impact on the Company for the years ended March 31, 1999 and
     1998 respectively, because of the Company's net loss. Earnings per share
     information for prior years has been restated to reflect the new
     requirements.

     The dilutive effect of all options outstanding has been determined using
     the treasury stock method. The weighted average shares outstanding is
     calculated as follows:



<TABLE>
<CAPTION>
                                                               1999          1998         1997
                                                               ----          ----         ----
     <S>                                                  <C>           <C>          <C>
     Basic weighted average shares outstanding            5,323,806     4,991,251    4,030,832
     Effect of dilutive common equivalent shares                 --            --      159,935
                                                          ---------     ---------    ---------
     Diluted weighted average shares outstanding          5,323,806     4,991,251    4,190,767
                                                          ---------     ---------    ---------
                                                          ---------     ---------    ---------
</TABLE>

     Qualified options to purchase 657,100 shares of common stock at a weighted
     average exercise price of $3.81 per share and non-qualified options to
     purchase 325,000 shares of common stock at a weighted average exercise
     price of $1.00 per share were outstanding at March 31, 1999, but were not
     included in the computation of diluted earnings per share because the
     Company had a net loss for the year, and, therefore, the effect would be
     antidilutive.

15.  RESTRUCTURING CHARGES

     In the fourth quarter of fiscal year 1999, the Company implemented a
     realignment of management, a workforce reduction and decided to close its
     Seton experimental facility and consolidate its operation into the new
     Camden facility. The workforce reduction resulted in the termination of 15
     people including full time and temporary employees. This action in addition
     to other non-personnel cost reductions resulted in a restructuring charge
     of $1.2 million in the accompanying consolidated statement of operations.
     The realignment and the workforce reduction resulted in a charge of
     $692,577 in fiscal year 1999 and $548,000 was provided for the closing of
     the Seton facility for a total restructuring charge of $1.2 million.

     Expenses totaling $155,268 of the restructuring were charged against the
     accrual in fiscal year 1999. Of the remaining accrual balance of $1.1
     million, $523,094 is classified in current liabilities as accrued
     restructuring and is expected to be paid in the next fiscal year, with the
     remaining balance of $561,215 recorded as a noncurrent liability

16.  NEW ACCOUNTING PRONOUNCEMENTS


     During March 1998, the American Institute of Certified Public Accountants
     issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
     Computer Software Developed or Obtained for Internal Use." SOP 98-1
     provides that computer software costs that are incurred in the preliminary
     project stage should be expensed as incurred. Once the capitalization
     criteria of SOP 98-1 have been met, external direct costs of materials and
     services consumed in developing or obtaining internal-use computer
     software; payroll and payroll-related costs for employees who are directly
     associated with and who devoted time to the internal-use computer software
     project (to the extent of the time spent directly on the project); and the
     interest costs incurred when developing computer software for internal use
     should be capitalized.

     Under SOP 98-1, training costs, data conversion costs and internal costs
     incurred for upgrades, enhancements and maintenance should be expensed as
     incurred. Impairment of capitalized software should be recognized in
     accordance with the provision of FASB Statement No. 121, "Accounting for
     the Impairment of Long-Lived Assets and for Long-Lived Assets to be
     Disposed Of." The SOP is effective for fiscal years beginning after
     December 15, 1998 and is to be adopted prospectively. Management does not
     believe that the adoption of SOP 98-1 will have a material affect on the
     Company's financial condition or results of operations.



                                       36

<PAGE>



                                   SCHEDULE II
             CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY

                        VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED MARCH 31,

<TABLE>
<CAPTION>
                                          1999          1998        1997
                                      -----------     -------    --------
<S>                                   <C>             <C>        <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
   Balance at beginning of period         $70,300     $10,300     $16,400
   Provision for bad debts                 40,000      60,000      15,000
   Write-offs                             (54,810)         --     (21,100)
                                      -----------     -------    --------
   Balance at end of period               $55,490     $70,300     $10,300
                                      -----------     -------    --------
                                      -----------     -------    --------

RESTRUCTURING CHARGES
   Balance at beginning of period     $        --     $    --    $     --
   New restructuring charge             1,239,577          --          --
   Amounts charged against accrual       (155,268)         --          --
                                      -----------     -------    --------
   Balance at end of period            $1,084,309     $    --    $     --
                                      -----------     -------    --------
                                      -----------     -------    --------
</TABLE>



                                       37