UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549




                                   FORM 10-KSB




                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                     FOR THE FISCAL YEAR ENDED MAY 31, 1998

                           Commission File No. 0-21816

                                    PML, INC.
                 (Name of small business issuer in its charter


             Delaware                                 93-1116123
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
 incorporation or organization


                              27120 SW 95TH Avenue
                            Wilsonville, Oregon 97070
          (Address of principal executive offices, including zip code)

                                 (503) 570-2500
                           (Issuer's telephone number)


Indicate by check mark whether the issuer (1) has filed all reports  required to
be filed by Section 13 or 15(d) of the  Securities  Exchange Act during the past
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 if disclosure of delinquent  filers pursuant
to  Item  405 of  Regulation  S-B is  not  contained  herein,  and  will  not be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statement  incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.   Yes X No
                                           ---  ---

Revenues for the most recent fiscal year:  $13,935,858

The aggregate market value of voting Common Stock held by non affiliates  (based
on the closing sales price on the NASD Electronic  Bulletin Board) on August 31,
1998 was approximately $676,000.

Indicate by check mark  whether the issuer has filed all  documents  and reports
required  to be filed by Section 12, 13 or 15(d) of the  Exchange  Act after the
distribution of securities under a plan confirmed by a court.   Yes   No X
                                                                   ---  ---

As of August 31, 1998,  there were  1,780,441  shares of Common Stock with $0.01
par value  outstanding,  and 211,551  Class B Common Shares with $0.01 par value
outstanding.

Documents incorporated by reference:  N/A

<PAGE>
                                    PML, INC.
                                FORM 10-KSB INDEX

                                     Part I                                Page
                                     ------                                ----

Item 1.      Description of Business                                          3

Item 2.      Description of Properties                                        8

Item 3.      Legal Proceedings                                                8

Item 4.      Submission of Matters to a Vote of Security Holders              8

                                     Part II
                                     -------

Item 5.      Market for Registrant's Common Equity and Related
                Stockholder Matters                                           9

Item 6.      Management's Discussion and Analysis of Financial Condition
                and Results of Operations                                     9


Item 7.      Financial Statements and Supplementary Data                    15 &
                                                                          F1-F19

Item 8.      Changes in and Disagreements with Accountants on Accounting
                and Financial Disclosure                                     15

                                    Part III
                                    --------

Item 9.      Directors, Executive Officers, Promoters and Control Personnel;
                Compliance with Section 16(a) of the Exchange Act            16

Item 10.     Executive Compensation                                          17

Item 11.     Security Ownership of Certain Beneficial Owners and Management  18

Item 12.     Certain Relationships and Related Transactions                  19

Item 13.     Exhibits, Financial Statement Schedules and Reports on Form 8-K 20


                                       2
<PAGE>
                                    PML, INC.

                         1998 FORM 10-KSB ANNUAL REPORT


                                     PART I


Item 1.  Description of Business


General
-------

         PML, Inc., (the company),  formerly known as Meda,  Inc., was formed on
September 3, 1991 by Monogenesis Corporation.  It was inactive until it acquired
all of the issued and outstanding stock of PML Microbiologicals,  Inc., formerly
known as Prepared Media  Laboratory,  Inc.  (PML), on December 4, 1992 in return
for shares of its stock. The Company  currently does all of its business through
PML, and references herein to "PML" and "the Company" are used  interchangeably.
On December  13,  1996,  the name of the  operating  company  was  changed  from
Prepared Media Laboratory,  Inc. to PML Microbiologicals,  Inc., and on February
24, 1997 the name of the parent company was changed from Meda, Inc. to PML, Inc.

         PML,  which has been in  business  since  1969,  researches,  develops,
manufactures,  tests and  distributes a wide array of biological  products which
are  used  to  test  for  and  diagnose   various   conditions,   illnesses  and
contaminants.  Its  products  include the  following:  prepared  culture  media;
monophasic and biphasic blood culture systems; enzyme-based rapid identification
kits, disks and strips;  identification reagents in ampules and dropper bottles;
environmental systems for non-aerobic  organisms;  bacteriology and parasitology
stains;  inoculating  loops and  transport  swabs;  parasitology  transport  and
specimen processing kits; and lyophilized organisms.

         PML markets to the clinical  market  (diagnosis of diseases in humans),
to the industrial market  (environmental and sterility testing),  and to the OEM
market (private label clinical  products).  Typical customers for PML's clinical
products are hospitals,  clinics,  and wholesalers  that market to hospitals and
clinics.  PML's industrial customers include pharmaceutical  companies,  biotech
research  facilities,  and food  and  water  testing.  The OEM  market  includes
companies in the medical device industry.

Products
--------

         PML's  product line  consists of  diagnostic  products  and  supporting
materials used by both clinical and industrial  microbiologists.  Its diagnostic
products  include,  among other items,  prepared  culture media in Petri dishes,
tubes and  bottles  for use in  culturing  and  differentiating  organisms  from
specimens; various kits, disks and strips for rapid identification of organisms;
microdilution   ("MIC")   panels  for   determining   the   minimum   inhibitory
concentration of antibiotics  which may be used against the cultured  organisms;
and various  identification  stains and reagents.  Supporting  materials include
inoculating  loops for  inoculating  the specimen into culture media;  transport
media for keeping  specimens  viable until they are delivered to the laboratory;
lyophilized control organisms,  for quality control and training; gas generating
systems,  for providing the proper gaseous environment for culturing  organisms;
swabs for collecting specimens; and various fixatives and preservatives.

                                       3
<PAGE>
         The majority of PML's  products  have a defined shelf life ranging from
as  little  as a few  weeks  for  media in Petri  dishes to one year or more for
products  in test tubes or  bottles.  Most  products  require  refrigeration  to
prevent  premature  deterioration.  and some  products  are stored  and  shipped
frozen. Most products can be shipped by common carrier overnight without special
protective  packaging  except in extreme  temperatures.  Some products,  such as
general  laboratory  reagents,  contain hazardous  chemicals and require special
storage, packaging, and shipping. See "Governmental Regulation."

Marketing
---------

         PML  markets its  products  primarily  in the United  States and Canada
through its internal sales  organization  and through a network of distributors.
PML's customers include both clinical and industrial microbiology  laboratories.
Hospital and private medical laboratories plus doctor's offices and clinics make
up most of the clinical  market.  The industrial  market  includes food and drug
packagers,  food and water testing labs, and  pharmaceutical  and  biotechnology
research firms.  The OEM market,  which is a new fast growing  market,  includes
companies  manufacturing  medical devices  requiring media based suppliers.  The
veterinary market is also a growing segment.

         Based  upon  management's  research  and  derived  from  sources  which
management believes to be reliable,  the clinical microbiology market exceeds $1
billion annually in the United States.  The industrial market is estimated to be
in excess of $100 million and growing. The prepared culture media segment of the
clinical  microbiology market is estimated at over $200 million.  The balance of
this market  consists  of products  such as viral  identification  kits,  mainly
hepatitis  and  AIDS;  bacteriology  identification  test  kits;  and  automated
microbiology systems.

         Although prepared culture media represents only a modest portion of the
total  microbiology  products market,  these products are some of the most basic
and essential tools used by  microbiologists.  Despite  technological  advances,
conventional  culture media is among the cheapest and most reliable  methods for
identification  of  microorganisms.   Product  differentiation  between  various
suppliers of prepared  culture media typically  shows only minimal  differences;
price and service are generally the key variables, and culture media tends to be
a very competitive  market. PML maintains a strong presence in this product line
because of its overwhelming  importance to microbiologists  and the proven value
of PML's  service  philosophy  in  gaining  and  keeping  customers.  PML's main
marketing  strategy is to acquire  and/or develop newer  technological  products
that can be sold in  conjunction  with  conventional  culture  media.  Marketing
selected products at the national,  regional and international  level is another
successful strategy.

         In  addition,  PML  intends  to  increase  its focus on the  industrial
microbiology market and OEM market,  which are growing at a faster pace than the
clinical market.  In Fiscal 1998, the Company's sales in the industrial  segment
increased  substantially,  and the Company is optimistic about further increases
in Fiscal 1999.

Distribution of Products
------------------------

         To address  service,  shipping,  and shelf life  requirements,  PML has
established  distribution centers in or near the following metropolitan areas of
the United  States and  Canada:  Portland,  Oregon;  Providence,  Rhode  Island;
Vancouver,   British  Columbia;   and  Toronto   (Mississauga),   Ontario.  Each
distribution  center  includes  temperature-controlled  storage areas and a full
inventory of routinely-ordered  products.  Each distribution center receives the
bulk of its inventory  from the nearest PML  production  plant on a weekly basis
with specialty  (products other than routine prepared culture media commercially
available  from  most  suppliers)  and  distributed  products  coming  from  the
Wilsonville  plant, a Portland,  Oregon suburb.  PML typically  ships a complete
customer order within  twenty-four to forty-eight hours of receipt of the order.
For larger

                                       4
<PAGE>
customers, such as major hospital laboratories,  PML often delivers its products
directly  to the  customer's  lab in its own  delivery  vehicles.  Shipments  to
smaller or more remote customers are made by common carrier,  e.g. United Parcel
Service or Federal Express.

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

         At  present,  the  majority  of PML's  sales  consist  of  products  it
manufactures  itself;  primarily a prepared culture media in Petri dishes, tubes
and bottles.  The  manufacturing  process is  essentially a mixing,  filling and
packaging operation.  The culture medium itself is a blend of powdered nutrients
which typically include beef and soy byproducts; agar, a seaweed derivative used
as a gelling  agent;  and other  nutritional  or diagnostic  substances  such as
animal  blood.  For  Petri  dishes,  the  powdered  nutrients  are  blended  and
rehydrated,  and the  resulting  liquid is  sterilized  in pressure  vessels and
aseptically  dispensed into  presterilized  plastic Petri dishes.  As the medium
cools it gels into a semi-solid  state and is then packaged for sale.  Tubed and
bottled media are prepared in a similar  manner  except that these  products are
usually sterilized after they are dispensed.

         With the exception of small batches,  PML produces most of its products
on custom-designed semi-automated production equipment. For example, empty Petri
dishes are loaded into a filling machine where automated dispensing pumps fill a
measured  amount  of  culture  medium  into each  dish.  The dish  moves  onto a
refrigerated  cooling  conveyer  where gelling  occurs;  then, it is stacked and
packaged.  The finished  products are stored in a quarantine  area until quality
control testing is complete and the batch is approved for distribution.

         PML maintains a quality control laboratory in each of its manufacturing
plants as part of its Total Quality Assurance  program.  The quality control lab
tests raw material samples prior to purchase,  and tests representative  samples
from each production batch for sterility, pH, color, and general appearance,  as
well as the  growth  of the  microorganisms  that the  product  is  designed  to
culture.

         In  addition  to culture  media,  PML  produces a variety of  ancillary
products  such as stains,  reagents,  microdilution  MIC  panels,  animal  blood
products,  and  a  variety  of  chemical  solutions  used  by  other  production
departments.  The manufacturing  process for certain of PML's ancillary products
such as stains,  reagents, and other chemical solutions generates a small amount
(50 to 100 gallons per year) of hazardous  materials which consist  primarily of
organic  solvents  and heavy metal salts.  PML hires  licensed  hazardous  waste
disposal  companies for the disposal of these  materials at a nominal cost.  See
"Governmental Regulation."

Suppliers
---------

         PML's  largest  suppliers  provide  Petri  dishes,  blood  and  plastic
packaging  material  which are available  from a number of sources in the United
States and Canada.  During the past year,  the Company has reduced its purchases
of dehydrated  media by increasing  its in-house  production to 70% of its total
consumption  of  this  commodity.  Several  manufacturers  and  distributors  of
glassware,  chemicals  and  packaging  materials  exist in the United States and
Canada.

Competition
-----------

         The market for prepared  culture  media  continues to change.  There is
continued  national  attention on the cost of health care and many hospitals and
clinical laboratories,  PML's primary customers,  are focusing on cutting costs.
As a result,  the prepared  culture media market has become  increasingly  price
competitive.  Most  hospitals  are now members of buying  groups  known as Group
Purchasing  Organizations  (GPOs), which negotiate single supplier contracts for
their members.  In the clinical products market,  PML's principal  competitor is
Becton Dickinson Microbiology Systems ("BDMS"), a subsidiary of Becton Dickinson
& Co. 

                                       5
<PAGE>
In addition to BDMS,  there is only one other  significant  competitor  in North
America. Two to three other very small competitors are located in Canada and the
United States. Key competitive  factors in the clinical  microbiology market are
price,  quality,  service,  and breadth of  distribution.  Although PML competes
favorably  in each of these  areas,  its  ability to compete in the future  will
depend,  in part,  on its ability to  continue  to lower its  culture  media and
distribution  costs.  Competition  in the OEM market is also very limited due to
the relatively few companies able to produce culture media.

         In the industrial  market,  the key  competitive  factors are features,
quality,  and  service;  price  competition  is not as prevalent as it is in the
clinical market. PML has only one other significant competitor in the industrial
market.  PML competes  favorably in the industrial market in all areas with this
competitor.

Research and Development
------------------------

         PML does a small amount of pure research and development ("R & D"). The
principal  purposes of its current R & D activities  are to improve its products
(e.g.  testing   additional   ingredients  and  formulas  or  enhancing  certain
performance characteristics), to evaluate products being considered for addition
to PML's product line, and to develop new products for addition to its line. R &
D functions are presently  performed by multiple  departments  within PML and by
independent researchers and scientists that have been retained by PML.

Patents and Licenses
--------------------

         PML owns a number of patents and  trademarks  for products in the early
marketing  stage.  In  addition,  it has a  license  agreement  with  Definitive
Diagnostics,  Inc. to manufacture and market its PHASE2(R) blood culture system.
This license  agreement  began June 1, 1992 and runs for 6 years with two 2-year
extension periods. See Note 11 of Notes to Consolidated Financial Statements.

Employees
---------

         On May 31, 1998 the Company had  approximately 160 full time equivalent
employees,  compared with  approximately  162 at May 31, 1997. This decrease was
due primarily to consolidating  three Oregon facilities into one and closing the
Sacramento,  California  distribution  center.  These two cost reduction actions
more than offset the additional  employees  needed to accommodate  the company's
increased  sales.  The  Company's   employees  are  not  covered  by  collective
bargaining  agreements,  and the Company considers its employee  relations to be
satisfactory.

Government Regulation
---------------------

         As a  manufacturer  of  medical  devices,  PML is  subject  to  certain
regulations of the U.S. Food and Drug  Administration  (FDA) and Canada's Health
Protection  Branch (HPB).  These  regulations  require that the FDA register and
inspect  PML's  products,   facilities,   and  manufacturing  processes.   PML's
facilities,  processes and products have received all of the required approvals,
and PML believes that it is in substantial  compliance with all relevant FDA and
HPB requirements.

         In  addition,  PML  is  subject  to  other  federal,  state  and  local
regulatory  requirements relating to environmental  concerns,  waste management,
hazardous  materials  shipping,  and  health and  safety  matters.  As with many
similar businesses,  some risk of costs and liabilities related to these matters
exists in PML's  business.  Management  believes that the Company's  business is
operated in substantial  compliance with applicable regulations -- the violation
of  which  could  have a  material  adverse  effect  on the  Company.


                                       6
<PAGE>
Liability Insurance
-------------------

         The Company maintains  product liability  insurance in the amount of $3
million  and will  increase  this to $11 million in FY 1999.  Product  liability
insurance  is limited in  availability  and  restrictive  in cost.  Based on the
essentially  confirmatory  nature of the majority of PML's diagnostic  products,
PML's management believes that the Company is not subject to significant product
liability  risk with its present  product  line.  To date,  PML has never paid a
product  liability claim.  The Company is currently  engaged in discussions with
one purchaser  concerning product quality and has notified its product liability
insurance carrier of these discussions.


























                                       7
<PAGE>
Item 2.  Description of Properties

         PML currently  operates from five leased locations in two countries.  A
sixth lease location in Sacramento,  California was closed in February 1998. The
Company  expects no  difficulty in extending any of its leases as they come due.
The following  chart  summarizes the  significant  facilities  which the Company
leases.
<TABLE>
<CAPTION>
                                          Approximate               Approximate
                                         Square Footage            Square Footage          Lease
            Location                     Manufacturing          Admin & Distribution    Expiration
            --------                     -------------          --------------------    ----------
<S>                                      <C>                    <C>                     <C>
1.   Wilsonville, Oregon                     9,000                    34,000             June 2004
2.   Mississauga, Ontario                   16,000                     3,000             November 2000
3.   Mississauga, Ontario                    4,000                         -             May 2000
4.   Richmond, British Columbia              2,000                     3,100             June 2001
5.   Providence, Rhode Island                    -                    12,000             April 1999
</TABLE>

         Each  of  the   manufacturing   facilities   has  extensive   leasehold
improvements and production  equipment.  In April 1997, the Company consolidated
its Oregon  facilities  into one new  building  in  Wilsonville,  Oregon.  PML's
Corporate  headquarters,  a manufacturing unit and a distribution center are now
located in this facility. The move eliminates inefficiencies associated with the
operation  of  multiple  facilities  and it  provides  additional  capacity  for
anticipated growth in current product lines and in potential new business areas.

         The Wilsonville production facility supplies conventional culture media
to the western United States region and provides specialty products to all other
locations. Equipment for the production of PML's PHASE2(R) blood culture system,
DUOTEK  sterility  testing  system,  MIC panels,  and dehydrated  media are also
located in Wilsonville.

         The Richmond  facility  produces and  distributes  high volume  culture
media for western Canada and also produces PML's line of parasitology  products.
The  Mississauga  plant produces  mostly  high-volume  culture media for eastern
Canada and for the northern United States regions,  and much of PML's industrial
contact plate product line. A second Mississauga facility assembles parasitology
kits on a contract basis for various Canadian accounts.

Item 3.  Legal Proceedings

         Occasionally, the Company is a party to incidental suits or other legal
actions arising in the ordinary course of its business. The Company is not aware
of any pending or existing material lawsuits.

Item 4.  Submission of Matters to a Vote of Security Holders

         The  Company  held  its  annual  meeting  on  November  6,  1997 at its
Wilsonville,  Oregon  facility.  Four  members  of the Board of  Directors  were
elected and Price  Waterhouse,  LLP was ratified as  independent  auditors.  The
directors elected and the votes cast for all matters are as follows:

                                            Votes For   Votes Against   Abstain
                                            ---------   -------------   -------

         Kenneth L. Minton                  1,046,455        250          2,875
         Arthur R. (Ron) Torland (CLASS B)    211,551          0              0
         Craig S. Montgomery (CLASS B)        211,551          0              0
         Douglas C. Johnson (CLASS B)         211,551          0              0


         Ratification of auditors           1,261,006        125              0






                                       8
<PAGE>
                                           PART II


Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

         The  Company's  common  stock  commenced  trading on NASD's  Electronic
Bulletin  Board  system in January of 1993  under the symbol  "MDAN."  Effective
March of 1997, the symbol was changed to "PMLI." The following  table sets forth
the high and low  closing  bid prices for the last two years as  reported by The
National Quotation Bureau.

         For the Quarterly                    High               Low
         Period Ended                         Bid Price        Bid Price
         ------------                         ---------        ---------

         May, 1998                           $1.25000          $0.87500
         February, 1998                      $2.62500          $1.25000
         November, 1997                      $2.37500          $1.31250
         August, 1997                        $1.37500          $0.59375
         May, 1997                           $0.59375          $0.59375
         February, 1997                      $0.59375          $0.59375
         November, 1996                      $0.62500          $0.62500
         August, 1996                        $0.53125          $0.37500

         The Company has not paid any cash  dividends on the Common Stock in the
past and  anticipates  that,  for the  foreseeable  future,  it will  retain any
earnings  available as dividends  for use in its business.  The  Company's  loan
agreement  does not allow the Company to declare or pay cash  dividends  without
the written  consent of the bank.  The preferred  shares have a provision  which
calls for the accretion of dividends  annually at a rate of prime plus 1.5%. May
31,  1998  accreted  dividends  totaled  $196,060.   See  Note  8  of  Notes  to
Consolidated Financial Statements.  Approximately 1,150 record holders of Common
Stock existed as of May 31, 1998.


Item 6.  Management's Discussion and Analysis of Financial Condition and Results
of Operations

Forward Looking Statements
--------------------------

         Management's Discussion and Analysis of Financial Condition and Results
of Operations  contains certain forward looking statements that involve a number
of risks and uncertainties.  For example, the Company has stated its belief that
sales of  industrial  products  should  increase  in the coming  year,  and that
reductions in the the cost of goods sold should  result from improved  operating
practices.  Future demand for the Company's  products,  including its industrial
products,  is  inherently  subject to supply and demand  conditions,  and to the
unpredictable decisions of other market participants.  There can be no assurance
that sales will increase  generally or within any specified product line or that
the Company's margins will stabilize or improve. Other elements that could cause
results to differ materially  include  competitive  pressures and factors listed
from  time to time in the  Company's  reports  to the  Securities  and  Exchange
Commission, including, but not limited to, this report on Form 10-KSB.

Year 2000 Issue
---------------

         The Company  recognizes  the importance to its operations and reporting
systems of Year 2000  issues  and is  addressing  this issue to ensure  that the
reliability of its operations as well as the  availability  and integrity of its
financial  systems  will  not  be  adversely  impacted  by  Year  2000  computer
technology software failures.



                                       9
<PAGE>
In that regard the Company is  attempting  to identify all internal  information
technology  ("IT") and non-IT  systems  which may be  affected  by the Year 2000
issues as well as trying to assess  third  party IT and non-IT  that the Company
relies upon and the third parties' Year 2000 readiness.

         Between  September  1996 and  March  31,  1998 the  Company  evaluated,
selected,  and appointed a task team to upgrade and install a completely new MIS
system which the vendor represents to be fully Year 2000 compliant.  This system
is now operational in all but one of the Company's  locations and is expected to
be  fully  operational  throughout  the  Company  by May 31,  1999.  This new IT
software  package  controls  major  operational  systems  including  purchasing,
scheduling,  inventory control,  sales and distribution as well as providing the
Company's new financial systems. The financial impact for the new MIS system was
about  $350,000 for capital and $70,000 for excess  labor and other  expenses in
fiscal 1998.

         The  Company  is  currently  developing  a plan to  identify  Year 2000
readiness issues pertaining to internal and external  communication  systems and
desk top systems as well as developing a questionnaire  to aid in assessing Year
2000 readiness of its third party  providers  including  those third parties who
provide  financial,  payroll,  communications  and  component  services  to  the
Company.  This plan is  expected  to be ready by  December  1998 and the Company
expects to  substantially  complete its evaluations of these remaining Year 2000
issues  by the end of its  fiscal  1999  year.  The  financial  impact of future
required system improvements is not anticipated to be material. The Company will
also be working on contingency  plans for material IT and third party  providers
that the Company relies upon, but at this time it is too soon for the Company to
determine if these contingency plans will be needed.

         The above statements contain certain risks and uncertainties.  Although
the Company is continuing to thoroughly  examine its Year 2000 readiness,  there
is no  assurance  that it can  identify  all Year 2000  issues.  These risks and
uncertainties  could include the risk of unidentified bugs in the source code of
packaged  or  custom  software,   misrepresentations  by  third  party  vendors,
unidentified dependency upon a system that is not Year 2000 ready,  unidentified
non-IT systems, or misdiagnosed Year 2000 readiness in current systems.


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

         Fiscal  1998  was  targeted  by the  management  of the  Company  as an
"investment  year for the future."  Management  devoted a substantial  amount of
time, and of the Company's resources, to updating manufacturing  facilities that
were outdated, information systems that would not take the Company into the year
2000,  establishing product distribution channels,  developing new products, and
determining a new strategic sales and marketing direction.

         Most of the  Company's  resources  and earnings  this year were used to
launch the Company on its new path of growth and increased profitability. During
the fiscal 1998 year, the Company made over $600,000 in internal  investments in
several areas which are expected to  substantially  improve its long-term growth
and profitability.  These  investments,  which increased both Cost of Goods Sold
(COGS) and Selling,  General, and Administrative  (SG&A) expenses,  have already
started to benefit  operational  efficiencies,  sales growth,  and the strategic
re-direction of the Company. Management anticipates that many of these increases
will not recur in future  periods,  resulting in reduced  expense  levels in the
future.  In addition,  over $60,000 in Canadian exchange loss was incurred which
may or may not be incurred in the future.

         Some of the more significant investments are summarized below:

         Year  2000  Information  Systems  - A  new  fully  integrated  computer
information system was installed

                                       10
<PAGE>
during the year and  launched in April 1998.  While this does not resolve all of
the  Company's  Year 2000 issues,  it is expected to eliminate  most of them The
cost to this  year's  operations,  due  mainly  to  excess  labor  expenses,  is
estimated at $70,000.

         Oregon  Facility  Consolidation  - During  the first  quarter of fiscal
1998,  the Company  successfully  completed a major  consolidation  of its three
Portland,  Oregon manufacturing,  distribution,  and headquarter facilities into
one  combined  state-of-the-art   corporate  headquarters,   distribution,   and
manufacturing facility in Wilsonville, Oregon. This new facility has more square
footage, two and one-half times the manufacturing  capacity,  and costs less per
month to operate  than the old  facilities.  The "one time" cost to this  year's
operations is estimated at more than $100,000.

         Vancouver,  B.C.  Manufacturing  Closure  -  Because  of  the  expanded
manufacturing  capacity in the new Oregon  facility,  the need for the Vancouver
manufacturing  facility was no longer  required.  All costs  associated with the
July 1998 planned closure were accrued into fiscal 1998. The cost to this year's
operations was approximately $30,000.

         New  Product   Launch  -  Several  new  products   and  OEM   prototype
development,  validation,  and set-up  costs were  incurred  this  fiscal  year.
Management anticipates  significant future revenue from these products. The cost
incurred in this year's operations is estimated at nearly $200,000.

         Sales and Marketing Support - Substantial  investments were made during
fiscal 1998 to turn around the  multi-year  sales  decline  that the Company has
been  incurring  for  the  past  three  years.  A  strong  push to  develop  new
distribution channels, new marketing material, and a totally new strategic sales
direction  was  accomplished.  The  estimated  cost  for all  these  efforts  is
estimated at nearly $160,000.

         Employment Lawsuit - The Company  vigorously  defended itself against a
lawsuit brought by a former employee alleging several employment violations. The
Company was  successful  in having all counts  dismissed.  The cost of defending
this lawsuit was approximately $40,000.

         Canadian   Exchange  Loss  -  The  Company  has  significant   Canadian
operations that have been negatively  affected by the decline in the US/Canadian
exchange rate. The effect on this fiscal year amounted to a sales decrease in US
dollars of about $200,000 and exchange loss of more than $61,000.

         It is management's  opinion that the significant  investments  outlined
above have  positioned the Company for the stable,  profitable path on which the
Company has now embarked.

         The Company had its third  successive  profitable  year in fiscal 1998,
earning  net income of $38,930  but a ($0.01)  per share basic loss for the year
after  accretion of preferred  stock  dividends,  compared  with a net income of
$669,371 or $0.31 per share basic  earnings the prior year.  However,  net sales
improved to $13,935,858 in fiscal 1998 which represents a 4.6% increase over net
sales of $13,319,120 for fiscal 1997.  Gross profit  decreased to 38.3% of sales
down from 39.1% in the prior  year.  This  decrease  was due mainly to  expenses
associated  with combining  three Oregon  locations into one new facility at the
beginning  of fiscal  1998.  Operating ( selling,  general  and  administrative)
expenses  increase  to 35.3% of sales  in 1998  compared  to 33.5% in 1997.  The
increase  was due mainly to wage and salary  increases  and higher  depreciation
from leasehold improvements and other capital investments.




                                       11
<PAGE>
         The following table presents the percentage  relationship  that certain
items in the Company's  Consolidated  Statements of Operations bear to sales for
the period indicated.


                                                             Percent of Sales
                                                            Year Ended May 31,
                                                          ----------------------

                                                            1998          1997
                                                           -----         -----

         Net Sales                                         100.0%        100.0%
         Cost of Goods Sold                                 61.7          60.9
                                                          ------        ------
         Gross Profit                                       38.3          39.1
         Selling, general and administrative expenses       35.3          33.5
                                                          ------        ------
         Operating Income                                    3.0           5.6
         Other expense                                       2.4           2.2
                                                          ------        ------
         Income before income taxes                          0.6           3.4
         Income tax expense (benefit)                        0.3          (1.6)
                                                          ------        ------
         Net income                                          0.3%          5.0%
                                                          ======        ======

























                                       12
<PAGE>
Year Ended May 31, 1998 compared With Year Ended May 31, 1997
-------------------------------------------------------------

         Sales in fiscal 1998 totalled $13.9 million, an increase of $617,000 or
4.6%  year-over-year.  This increase was mainly in the industrial sector and was
due  primarily to the full year impact of the Company's  distribution  agreement
with VWR.

         Gross  profit  decreased to 38.3% of sales down from 39.1% in the prior
year. The decrease in fiscal 1998 was mainly due to expenses at the beginning of
the fiscal year associated  with combining three Oregon  facilities into one new
Oregon  facility and expenses  associated  with new product  launch.  Management
believes that there have been no other  changes in its sales or operations  that
would materially affect gross profit.

         Operating (selling,  general and administrative)  expenses increased to
35.3% of sales in 1998 compared to 33.5% in 1997. The increase was due mainly to
wage and salary increases,  marketing investments,  MIS new system expenses, and
higher depreciation from leasehold improvements and other capital investments.

QUARTERLY FINANCIAL INFORMATION (Unaudited)
-------------------------------------------

         The  following is a summary of unaudited  operating  results by quarter
for the fiscal years ended May 31, 1998 and 1997:
<TABLE>
<CAPTION>
         1998                             1st Qtr      2nd Qtr      3rd Qtr      4th Qtr       Total
<S>                                     <C>          <C>          <C>          <C>          <C>        
         Net sales                      $3,430,884   $3,534,612   $3,472,101   $3,498,261   $13,935,858
         Gross profit                    1,358,058    1,315,353    1,379,064    1,283,013     5,335,488
         Net income (loss)                  32,708       (3,101)      24,043      (14,720)       38,930
         Basic earnings (loss) per share      0.01        (0.01)        0.01        (0.01)        (0.01)
         Diluted earnings (loss) per share*   0.01        (0.01)        0.01        (0.01)        (0.01)

         1997                             1st Qtr      2nd Qtr      3rd Qtr      4th Qtr       Total

         Net sales                      $3,240,712   $3,386,393   $3,280,227   $3,411,788   $13,319,120
         Gross profit                    1,215,799    1,350,030    1,360,947    1,433,223     5,359,999
         Net income                          8,598      110,719      100,373      449,681       669,371
         Basic earnings per share             0.00         0.05         0.04         0.22          0.31
         Diluted earnings per share*          0.00         0.05         0.04         0.20          0.30
</TABLE>

* Where the effect of the diluted  earnings (loss) per share  calculation  would
have been  anti-dilutive,  the  diluted  earnings  (loss)  per  share  have been
restated to be the same as the basic earnings (loss) per share.

Liquidity and Capital Resources

         The Company has  financed  its  operations  over the years  principally
through funds generated from  operations and bank and stockholder  loans. At May
31, 1998, the Company had negative  working  capital of  approximately  $114,000
compared with positive working capital of about $99,000 at May 31, 1997. Much of
the decrease in the current year was due to the internal investments  previously
discussed.  In addition,  fiscal 1997 was favorably  impacted by eliminating the
Company's  deferred tax valuation  reserve which  increased  current assets last
year by $220,000  partially  offset by an increase in the Company's bank line of
credit of



                                       13
<PAGE>
about  $140,000.  The ratio of current assets to current  liabilities was .98 at
May 31, 1998 compared to 1.03 at May 31, 1997.  Quick liquidity  (current assets
less inventories to current  liabilities) was .57 at May 31, 1998 and .62 at May
31, 1997. The twelve-month  average  collection period for trade receivables was
52.1 days at May 31, 1998 compared with 49.4 days at May 31, 1997.

       Net cash  used by  operating  activities  was  $164,898  in  fiscal  1998
compared with $404,915  provided by operations in fiscal 1997. The negative cash
this year was  mainly  from  building  inventory  to support  anticipated  sales
growth.  Net cash used in  investing  activities  was  $374,629  in fiscal  1998
compared  with  $637,316  used by the Company in investing  activities in fiscal
1997.  The  Company  spent  $414,158  on the  purchase  of plant,  property  and
equipment during fiscal 1998,  compared with $659,982 in fiscal 1997.  Financing
activities  provided  cash of $628,622,  primarily  from an increase in the bank
line of credit and a long term lease on the Company's new MIS reporting  system,
compared  with  $296,924  provided by the bank line of credit and long term bank
loans from the Company's new lender in fiscal 1997.

       The Company  negotiated a larger and more  favorable  four year financing
agreement  with another  lender  effective  December 1, 1996.  The new financing
agreement included interest at prime plus 2.5% which was lowered to 2.0% on June
1, 1997 and will decrease in future years if certain  financial  ratios are met.
In addition,  the loan allows the Company to borrow  against both  equipment and
inventory as well as accounts  receivable.  Proceeds from the new loan were used
to pay off all outstanding debt from the prior lender and will provide the funds
for future expansion and capital expenditures. The Company has already used part
of these new funds to achieve cost  efficiencies by consolidating all its Oregon
facilities  and making  much  needed  improvements  in MIS  systems.  Management
expects that both of these investments will payback in about two years.

       As part of the new financing  agreement,  the Company obtained a new line
of credit that has a current maturity date of November 30, 2000. The new line of
credit is  secured  substantially  with all of the  assets of the  Company.  The
available  amount  under  the line of  credit  is  based  upon 80% to 85% of the
eligible accounts  receivable and 30% to 40% of eligible inventory at the end of
each  reporting  period,  not to exceed $2.5 million.  The Company also borrowed
$400,000 on December 1, 1996,  under a new  four-year  loan  secured by eligible
operating equipment. The rate of interest charged on the line is prime plus 2.0%
and will decrease next year if the company meets certain financial ratios.  This
loan will be repaid  primarily out of the Company's  receivable  collections and
other cash provided by operating activities.

       The Company may require additional capital to finance current operations,
make enhancements to or expansions of its manufacturing  capacity, in accordance
with its business strategy, or for additional working capital, for inventory and
accounts  receivable.  The Company may also seek additional funds through public
or private  debt or through bank  borrowings.  No  assurances  can be given that
future  financings  will be  available  with terms  acceptable  to the  Company.
Without such future financing,  the Company's ability to finance its growth will
be severely limited.









                                       14
<PAGE>
       The Company's total debt structure at May 31, 1998 was as follows:
<TABLE>
<CAPTION>
                                                                           Long-Term      Current-Portion
                                                                       --------------     -------------
<S>                                                                     <C>                <C>          
     Revolving credit at prime plus 2.0%, due November 30, 2000         $            0     $   1,987,548
     Note payable at prime plus 2.0%, due November 30, 2000                    158,314           100,008
     Note payable at prime plus 1.25%, due November 1998                             0             6,383
     Note payable at 10%, due January 1999                                           0            10,000
     Note payable at prime plus 1%, due December 1999                           35,821            11,679
     Note payable at 8%, due May 2000                                           27,873            25,737
     Capital Lease obligations, due January 2001                               122,197            90,731
     Note payable at 6%, due May 2005                                           60,000            10,000
     Note payable at 12%, due April 2000                                        64,770            17,498
     Trade A/P converted to notes payable at 6%, due February 2001             368,397           140,220
                                                                        --------------     -------------

     Total  long  debt                                                  $      837,372     $   2,399,804

     Total Notes payable to related parties                                          0           247,551
                                                                        --------------     -------------

     Total long and short term debt                                     $      837,372     $   2,647,355
                                                                        ==============     =============
</TABLE>

Item 7.  Financial Statements and Supplementary Data

         The information  required by this item is included on pages F-1 to F-19
of this report.

Item 8.  Changes in and Disagreements with Accountants on Accounting Disclosure

         PML's independent  accountants,  PricewaterhouseCoopers  LLP, (formerly
Price Waterhouse, LLP) were engaged on May 21, 1996 and have been re-engaged for
each year since that date. There have been no disagreements with the accountants
on any  matter  of  accounting  principles  or  practices,  financial  statement
disclosures, or auditing scope or procedures.


















                                       15
<PAGE>
                                    PART III


Item 9.  Directors,  Executive  Officers,  Promoters   and   Control  Personnel;
         Compliance with Section 16(a) of the Exchange Act


Directors and Executive Officers of the Company
-----------------------------------------------

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

                                                                  Term as
                Name                       Position           Director Expires
                ----                       --------           ----------------

         A. Ron Torland              Chairman of the Board         1998

         Kenneth L. Minton           President and
                                     Chief Executive Officer
                                     Director                      1998

         James N. Weider             Chief Financial Officer,
                                     Vice President-Finance,
                                     Secretary, Treasurer          N/A

         Douglas C. Johnson          Director                      1998

         Craig S. Montgomery         Director                      1998


         A.  Ron  Torland,  age 51,  has been  employed  by the  Company  or its
predecessor  since  1970.  He became  Chairman  of the Board in 1988,  was Chief
Executive Officer from 1988 to 1996, and was President from 1982 to 1988. He was
Treasurer  from 1972 to 1996 and a member of the  Board of  Directors  since the
Company was  incorporated  in 1972. Mr. Torland holds a B.S.  degree in business
administration and served in the U.S. Army from 1968 to 1970.

         Kenneth L. Minton,  age 48, was hired as the  Company's  President  and
Chief  Executive  Officer  in  April,  1996,  and was  elected  to the  Board of
Directors in November,  1997.  Prior to joining PML, he was  President and Chief
Operating  Officer of Hind,  Inc., a  manufacturer  and  distributor of high end
sports apparel from 1993 to 1996,  and Vice President of Microwave  Applications
Group, an electronics manufacturer, from 1985 to 1993. Prior to 1985, Mr. Minton
had extensive experience in operations,  finance, sales and marketing in several
industries.  Mr. Minton  holds a B.S. degree in Business Administration.

         James N. Weider, age 55, has been employed by the Company since August,
1995 as its  CFO,  Vice-President  -  Finance  and  Secretary.  He  also  became
Treasurer in 1997. He has both a B.S. in business  administration,  with a major
in accounting,  and an MBA from The Ohio State  University,  and has also passed
the CPA exam. Prior to coming to the Company,  Mr. Weider was the Vice President
- Finance at TNT Reddaway  Truck Line from 1989 to 1995 and spent six years with
Tektronix and seventeen years with International Harvester.

         Douglas C.  Johnson,  age 42, has been a director of the Company  since
March,  1996.  He holds a B.A.  degree in Music  from  Fort  Wright  College  in
Spokane,  Washington,  and a Masters  Degree  from the  University  of  Southern
California in Los Angeles.  He has been a professional opera singer for 13 years
and returned to the U.S. four years ago after nine years in Europe.



                                       16
<PAGE>
         Craig S.  Montgomery,  Ph.D.,  44, has been a director  of the  Company
since March, 1996. He is a licensed clinical psychologist. From 1983 to 1991, he
was Program  Director of New Day Center,  Portland,  Oregon,  a residential  and
outpatient facility for chemical dependency treatment. From 1991 to 1993, he was
Clinical Supervisor of both the New Day Center and the Dual Diagnosis program at
Portland Adventist Hospital and Caremark  Behavioral Health Services.  He is now
in private  practice.  Dr.  Montgomery  holds a Masters  Degree from  Pepperdine
University and a Ph.D. from the California School of Professional  Psychology in
San Diego, California.

         No director holds a directorship  in any other Company  reporting under
the Securities and Exchange Act of 1934.

Significant Employees
---------------------

         There are no significant employees other than those listed above.

Family Relationships
--------------------

         Mr.  Torland and Dr.  Montgomery are  stepbrothers.  Mr. Johnson is Dr.
Montgomery's and Mr. Torland's brother-in-law.

Involvement in Certain Legal Proceedings
----------------------------------------

         None.

Item 10.  Executive Compensation

         The  following  table  sets  forth the  compensation  of all  executive
officers of the  Company  for the fiscal year ending May 31, 1998 and 1997,  who
earned total annual salary and bonuses during that period in excess of $100,000.
<TABLE>
<CAPTION>
     Name of Individual         Annual Compensation   
        and Position                   Year              Salary         Bonus        Other Compensation
        ------------                   ----              ------         -----        ------------------
<S>                             <C>                      <C>            <C>          <C>
     Kenneth L. Minton, CEO            1998              150,026          None           None
                                       1997              150,023        66,389           None

     Woody Streb, VP Marketing         1998              103,025         8,000           None
                                       1997               92,447        25,000           None
</TABLE>
         No officer,  director  or employee  was  beneficiary  of any  long-term
compensation or other  compensation in excess of the dollar values  reflected in
item  402(b)(2)(iii)(c).  No director  received any  compensation for his or her
services as a director.








                                       17
<PAGE>
Item 11.  Security Ownership of Certain Beneficial Owners and Management

         The  following  table  sets  forth  information  with  respect  to  the
ownership of issued and outstanding  shares of the Company as of the date hereof
by each director,  executive officer,  and person known to the Company to be the
beneficial owner of more than 5% of any class of the Company's voting securities
as of August 31, 1998:



                                                       Amount and
                     Name and Address                  Nature of        Percent
Title of             of Beneficial                     Beneficial       of
Class                Owner                             Ownership        Class
-------------        -----------------------------     -------------    -------
Common Shares        A. Ron Torland                     157,381 (1)      8.8%
                     10595 SW Kiowa Street
                     Tualatin, OR  97062

Common Shares        Arthur N. Torland                  146,392          8.2%
                     10755 SW Lucas
                     Tualatin, OR  97062

Common Shares        Julian G. Torland                  267,900         15.1%
                     11100 SW North Dakota Street
                     Tigard, OR  97223

Common Shares        Douglas C. & Joanne E. Johnson     240,832 (2)     13.5%
                     8728 SW Pamlico Court
                     Tualatin, OR  97062

Common Shares        Craig S. Montgomery                141,243 (3)      7.9%
                     12600 SE Rachella Court
                     Boring, OR  97009

Common Shares        Marcia & Stan Drake                 95,243          5.3%
                     28890 S. Beavercreek Rd.
                     Mulino, OR  97042

Common Shares        Mary Lou Ham                      141,243 (4)       7.9%
                     3363-B Blaine Rd.
                     Moscow, ID  83843

--------
1 Includes  1,000 shares  owned by Janice  Torland,  Ron  Torland's  wife.  Also
includes  23,500 shares owned by Kris  Torland,  Ron  Torland's  daughter.  Kris
Torland lives at home but is an adult and Ron Torland  disclaims any  beneficial
interest in these shares.

2 Includes 70,743 shares owned by Joanne Johnson,  Doug Johnson's wife. Includes
70,500 shares owned by the Johnson children.

3 Includes 70,500 shares owned by the Montgomery children.

4  Includes  70,500  owned by the three Ham  children.  However,  one of the Ham
children  is an adult who owns  23,500 of these  70,500  shares and Mary Lou Ham
disclaims any beneficial interest in these shares.
 

                                       18
<PAGE>
Class B
Common Shares        A. Ron Torland                    142,902          67.5%
                     10595 SW Kiowa Street
                     Tualatin, OR  97062

Class B
Common Shares        Julian G. Torland                  68,649          32.5%
                     11100 SW North Dakota Street
                     Tigard, OR  97223

Class A Convertible
Preferred Shares     Arthur N. and Bessie M. Torland     2,750          55.6%
                     8520 SW Avery Street
                     Tualatin, OR  97062

Class A Convertible
Preferred Shares     Julian G. Torland                    700           14.1%
                     11100 SW North Dakota Street
                     Tigard, OR  97223

Class A Convertible
Preferred Shares     Douglas C. & Joanne E. Johnson      1,500          30.3%
                     8728 SW Pamlico Court
                     Tualatin, OR  97062


         The  directors  and  officers of the Company,  as a group,  own 539,456
common shares,  representing  30.3% of that class, and 142,902 shares of Class B
common  shares,  representing  67.5% of that class,  and 1,500 shares of Class A
convertible preferred, representing 30.3% of that class.

         There are no  arrangements  which may  result in a change of control of
the Company.

Itwm 12.  Certain Relationships and Related Transactions

         The Company currently leases equipment and formerly leased laboratories
and office  facilities  from Arthur & Bessie Torland,  Julian  Torland,  and Ron
Torland,  some of whom hold more than ten  percent of certain  classes of voting
securities of the Company under three  operating  leases.  Total rental  expense
incurred  under  these four  operating  leases  was  approximately  $80,500  and
$150,000  in  fiscal  1998  and  1997,  respectively.  (See  Note 11 on Notes to
Consolidated Financial Statements.

         The  Company  has  a  Technology   License  Agreement  with  Definitive
Diagnostics,  Inc. ("DDI"). See Patents and Licenses.  Under the agreement which
extends  for six  years,  the  Company  will  manufacture  and  market  products
developed  by DDI and pay a royalty  based upon the number of units sold.  Total
royalties  of $11,403  were  incurred in fiscal 1998 and $28,855 in fiscal 1997.
DDI is owned by Messrs.  Arthur and Ron Torland,  both shareholders  owning more
than ten  percent  of a class of stock of the  Company.  Ron  Torland  is also a
director of the Company.

         Joanne E. Johnson,  wife of director Doug C.  Johnson;  Ron Torland,  a
stockholder and director;  Arthur & Bessie Torland,  shareholders;  and L. Bruce
Ham, brother-in-law of a director all have five year six percent notes issued in
fiscal 1996. In fiscal 1996 this group of shareholders paid off a small group of
the Company's  Accounts Payable vendors who would not accept the Company's offer
to exchange these  liabilities  for five year notes.  Instead the Company issued
these  notes to this group of  shareholders  and the notes now have a balance of
$71,212 at May 31, 1998.



                                       19
<PAGE>
         There are no other  transactions,  or series of  similar  transactions,
involving amounts in excess of $60,000.


Item 13.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)  Exhibits
-------------

Exhibit                    Description of Exhibit
-------                    ----------------------

    3             Articles of Incorporation and Bylaws

    4             Instruments defining the rights of holder (none)

    9             Voting Trust Agreement (none)

   10             Material contracts
                  a.       Employment Agreement with Lester L. Leno
         *        b.       Employment Agreement with Kenneth L. Minton
         *        c.       Incentive Plan for VP Sales/Marketing
                  d.       1994 Stock Option Plan for Non-employee Directors.
                  e.       1994 Stock Option Plan


   16             Letter on changes and certifying accountants

   18             Letter on change in accounting principles

   19             Previously unfiled documents (none)

   21             Subsidiaries of Registrant

   22             Published report regarding matters submitted to vote (none)

   23    *        Consent of independent accountants

   24             Power of Attorney (none)

   28             Additional exhibits (none)

         Each exhibit marked with a single asterisk is filed with this report on
form  10-KSB.  Except as  otherwise  indicated,  each  exhibit  not so marked is
incorporated  by reference to the exhibit filed by the Company with its previous
filings to the SEC.


(b)  Reports on Form 8-K.
-------------------------

         None.





                                       20
<PAGE>
                                   SIGNATURES

         In  accordance  with  Section  13 or 15(d)  of the  Exchange  Act,  the
Registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto  duly  authorized  in the City of  Wilsonville,  State of  Oregon,  on
September 4, 1998.

                                      PML, INC.

                                      By: /s/ Kenneth L. Minton

                                      Kenneth L. Minton, Chief Executive Officer



         In accordance  with the Exchange Act, this report has been signed below
by the  following  persons on September 4, 1998, on behalf of the Company and in
the capacities indicated.


Signatures                  Title
----------                  -----


/s/ Kenneth L. Minton       President and Chief Executive Officer
---------------------       (Principal Executive Officer), Director
Kenneth L. Minton           



/s/ James N. Weider         Vice President-Finance, Secretary and Treasurer, CFO
---------------------       (Principal Financial and Accounting Officer)
James N. Weider                             



/s/A. Ron Torland           Chairman of the Board
---------------------
A. Ron Torland



/s/Doug C. Johnson          Director
---------------------
Doug C. Johnson



/s/Craig S. Montgomery      Director
---------------------
Craig S. Montgomery







                                       21
<PAGE>
                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Stockholders of PML, Inc.


In our opinion,  the  accompanying  consolidated  balance sheets and the related
consolidated  statements  of  operations,  of  cash  flows  and  of  changes  in
stockholders'  equity present fairly,  in all material  respects,  the financial
position of PML, Inc.  (formerly MEDA,  Inc.) and its subsidiary at May 31, 1998
and 1997, and the results of their operations and their cash flows for the years
then ended, in conformity with generally accepted accounting  principles.  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 of these  statements  in  accordance  with
generally accepted auditing standards which require that we plan and perform the
audits 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,
assessing the  accounting  principles  used and  significant  estimates  made by
management,  and evaluating the overall  financial  statement  presentation.  We
believe  that our audits  provide a reasonable  basis for the opinion  expressed
above.



/s/PricewaterhouseCoopers LLP
-----------------------------
PRICEWATERHOUSECOOPERS LLP

Portland, Oregon
August 21, 1998












                                       F-1
<PAGE>
<TABLE>
<CAPTION>
PML, INC.
CONSOLIDATED BALANCE SHEETS




                                                                            May 31,                 May 31,
Assets                                                                        1998                    1997
                                                                         ----------------        ----------------
<S>                                                                      <C>                     <C>
Current Assets:
  Cash                                                                   $       163,505         $        74,410
  Trade accounts receivable, less allowance for doubtful                       2,145,257               1,773,446
    accounts of $30,000 and $81,609
  Inventories                                                                  1,916,818               1,460,064
  Deferred income taxes                                                          276,604                 318,854
  Prepaid expenses and other current assets                                      113,931                  70,669
                                                                         ----------------        ----------------

     Total Current Assets                                                      4,616,115               3,697,443
                                                                         ----------------        ----------------

Property, plant and equipment - net                                            1,754,993               1,717,951
Intangible assets - net                                                           20,928                  14,990
Other assets                                                                     126,453                 133,365
                                                                         ----------------        ----------------

          Total Assets                                                   $     6,518,489         $     5,563,749
                                                                         ================        ================


Liabilities and Stockholders' Equity

Current Liabilities:
  Accounts payable                                                       $     1,505,707         $     1,054,462
  Accrued salaries and wages                                                     256,027                 375,249
  Accounts payable - related parties                                                   -                   2,174
  Other accrued liabilities                                                      321,415                 364,076
  Notes payable - related parties                                                247,551                 247,551
  Bank line of credit                                                          1,987,548               1,248,928
  Current portion capital lease obligations                                       90,731                  40,143
  Current portion of borrowings - related parties                                 73,507                  69,073
  Current portion of borrowings                                                  248,018                 196,574
                                                                         ----------------        ----------------

     Total Current Liabilities                                                 4,730,504               3,598,230
                                                                         ----------------        ----------------


Capital lease obligations, less current portion                                  122,197                  40,246
Borrowings - related parties less current portion                                115,197                 164,958
Borrowings, less current portion                                                 599,978                 850,507
                                                                         ----------------        ----------------
     Total Borrowings. less current portion                                      837,372               1,055,711
                                                                         ----------------        ----------------


Commitments and contingencies                                                          -                       -
                                                                         ----------------        ----------------

Stockholders' Equity
  Preferred stock, $.01 par value; authorized 25,000 shares,
    no shares issued or outstanding                                                    -                       -
  Class A convertible preferred stock, stated and liquidation
    value $100 per share; authorized 7,500 shares, issued and
    outstanding 4,950 shares, including accreted dividends                       691,060                 641,561
  Common stock, $.01 par value; authorized 2,500,000 shares,
    issued and outstanding 1,780,441 and 1,776,816 shares respectively            17,804                  17,768
  Class B common stock, $.01 par value; authorized 250,000 shares,
    issued and outstanding 211,551 shares.                                         2,116                   2,116
  Class D common stock, $.01 par value, authorized 100 shares,
    no shares issued or outstanding.                                                   -                       -
  Additional Paid In Capital                                                     146,540                 144,701
  Retained Earnings                                                               93,093                 103,662
                                                                         ----------------        ----------------
     Total Stockholders' Equity                                                  950,613                 909,808
                                                                         ----------------        ----------------
          Total Liabilities and Stockholders' Equity                     $     6,518,489         $     5,563,749
                                                                         ================        ================

</TABLE>
The accompanying  notes are an integral part of these statements.

                                      F - 2


<PAGE>
PML, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS





                                                  For The Years Ended
                                                        May 31,
                                                 1998             1997
                                           ---------------------------------


Net sales                                  $   13,935,858     $  13,319,120

Cost of goods sold                              8,600,370         8,110,381
                                           ---------------    --------------

     Gross profit                               5,335,488         5,208,739

Operating expenses                              4,914,652         4,453,954
                                           ---------------    --------------

Operating income                                  420,836           754,785

Other expense:
  Interest expense                                334,299           282,016
  Other                                               586            13,612
                                           ---------------    --------------
     Total other expense                          334,885           295,628
                                           ---------------    --------------

Income before income taxes                         85,951           459,157

Income tax expense (benefit)                       47,021          (210,214)
                                           ---------------    --------------

Net income                                 $       38,930     $     669,371
                                           ===============    ==============


Basic (loss) income per share              $        (0.01)    $        0.31
                                           ===============    ==============

Diluted (loss) income per share            $        (0.01)    $        0.30
                                           ===============    ==============







The  accompanying  notes  are  an  integral  part  of  these statements.

                                      F - 3

<PAGE>
<TABLE>
<CAPTION>
PML, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY




                                         Class A                                    Class B                    Retained
                                       Convertible             Common               Common       Additional    Earnings
                                     Preferred Shares          Shares               Shares        Paid-in    (Accumulated
                                    ----------------- --------------------- --------------------
                                     SHARES   AMOUNT    SHARES      AMOUNT    SHARES     AMOUNT   Capital     Deficit)       Total
                                     ------   ------    ------      ------    ------     ------  ---------  ----------       -----
<S>          <C> <C>                  <C>   <C>        <C>        <C>         <C>      <C>       <C>        <C>          <C>       

Balance, May 31, 1996                 4,950 $ 592,974  1,776,816  $ 17,768    211,551  $ 2,116   $  144,701 $ 517,122)   $  240,437
  Preferred Stock dividends accreted           48,587                   -                -            -       (48,587)            -
  Net income                                        -                   -                -            -       669,371       669,371
                                    -----------------------------------------------------------------------------------------------
Balance, May 31, 1997                 4,950 $ 641,561  1,776,816  $ 17,768    211,551  $ 2,116   $  144,701 $ 103,662    $  909,808
                                    ===============================================================================================


Balance, May 31, 1997                 4,950 $ 641,561  1,776,816  $ 17,768    211,551  $ 2,116   $  144,701 $ 103,662    $  909,808
  Preferred Stock dividends accreted           49,499                    -                   -            -   (49,499)            -
  Common Stock returned and canceled                -       (125)       (1)                  -            1         -             -
  Stock options exercised                           -      3,750        37                   -        1,838         -         1,875
  Net income                                        -                    -                   -            -    38,930        38,930
                                    -----------------------------------------------------------------------------------------------
Balance, May 31, 1998                 4,950 $ 691,060  1,780,441  $ 17,804    211,551  $ 2,116   $  146,540 $  93,093    $  950,613
                                    ===============================================================================================
</TABLE>














The accompanying notes are an integral part of these statements.

                                      F - 4

<PAGE>
<TABLE>
<CAPTION>
PML, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                                                        For The Years Ended
                                                                                              May 31,
                                                                                   1998                     1997
                                                                           ---------------------------------------------
<S>                                                                        <C>                      <C>
Cash Flows from Operating Activities:
     Net  income                                                           $            38,930      $           669,371
     Adjustments to reconcile net income to
            net cash provided by (used in) operating activities:
         Depreciation and amortization                                                 361,247                  279,275
         (Gain) loss on sale of equipment                                              (19,297)                   3,449
         Changes in:
            Accounts receivable                                                       (371,811)                (121,528)
            Inventories                                                               (456,754)                 (37,315)
            Deferred income taxes                                                       42,250                 (220,854)
            Other assets                                                               (46,650)                 (97,202)
            Accounts payable and accrued liabilities                                   287,187                  (70,281)
                                                                           --------------------    ---------------------
            Total adjustments                                                         (203,828)                (264,456)
                                                                           --------------------    ---------------------
         Net cash (used in) provided by operating activities                          (164,898)                 404,915

Cash Flows from Investing Activities:
     Proceeds from sale of assets                                                       39,529                   22,666
     Purchase of property, plant and equipment                                        (414,158)                (659,982)
                                                                           --------------------    ---------------------
         Net cash used in investing activities                                        (374,629)                (637,316)

Cash Flows from Financing Activities:
     Net proceeds of bank credit line                                                  738,620                  142,167
     Proceeds from issuance of notes payable - related parties                               -                  169,596
     Repayment of notes payable - related parties                                            -                 (108,453)
     Proceeds from issuance of capital lease obligations                               220,000                        -
     Repayment of capital lease obligations                                            (87,461)                 (54,921)
     Proceeds from issuance of long-term debt                                                -                  501,120
     Repayment of long-term debt                                                      (244,412)                (352,585)
     Proceeds from issuance of common stock                                              1,875                        -
                                                                           --------------------    ---------------------
         Net cash provided by financing activities                                     628,622                  296,924
                                                                           --------------------    ---------------------
Increase in cash                                                                        89,095                   64,523

Cash at beginning of period                                                             74,410                    9,887
                                                                           --------------------    ---------------------

Cash at end of period                                                      $           163,505      $            74,410
                                                                           ====================    =====================


Supplemental Disclosures:
     Interest paid                                                         $           342,631      $           264,776
     Income tax paid                                                                    10,117                    5,503
     Non Cash Items:
         Preferred stock dividends accreted                                             49,499                   48,587
         Accounts payable exchanged for long-term debt and notes payable                     -                    5,981
         Common Stock returned and canceled                                                  1                        -


</TABLE>

The accompanying notes are an integral part of these statements.

                                      F - 5

<PAGE>
PML, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

1.     ORGANIZATION AND BASIS OF PRESENTATION

       PML, Inc.  ("PML" or the "Company")  was  incorporated  as Meda,  Inc. in
       September  1991 and owns 100% of the  common and  preferred  stock of PML
       Microbiologicals,  Inc. ("PML"), formerly Prepared Media Laboratory, Inc.
       Effective December 4, 1992, Meda acquired PML and issued PML shareholders
       1,164,526 Common Shares, 211,551 Class B Common Shares, and 4,950 Class A
       convertible  preferred  shares of Meda.  This  business  combination  was
       accounted  for as a reverse  acquisition  of Meda by PML  whereby  PML is
       deemed to be the acquirer for accounting purposes.

       As a result of the reverse  acquisition,  effective December 4, 1992, PML
       stockholders'  equity was  adjusted to reflect  the  exchange of stock in
       Meda described above.

       The Company produces and sells,  throughout the United States and Canada,
       to both the  clinical  market  (diagnosis  of diseases in humans) and the
       industrial  market   (environmental  and  sterility   testing).   Typical
       customers for the Company's  clinical products are:  hospitals;  clinics;
       and  wholesalers  that market to  hospitals  and clinics.  The  Company's
       industrial customers include:  pharmaceutical companies; biotech research
       facilities; and food and water testing labs.

2.     SIGNIFICANT ACCOUNTING POLICIES

       Principles of  Consolidation - The  accompanying  consolidated  financial
       statements  include the accounts of PML and its wholly-owned  subsidiary,
       PML  Microbiologicals.  All  significant  intercompany  transactions  and
       balances have been eliminated.

       Revenue  Recognition  - Sales  revenue net of allowances is recognized at
       the time the Company's product is shipped to customers.

       Inventories  -  Inventories  are  stated at the lower of cost  (first-in,
       first-out method) or market.

       Property Plant and Equipment - Property,  plant, and equipment are stated
       at cost. Depreciation of property, plant, and equipment is provided using
       primarily the straight-line method over the estimated useful lives of the
       assets  of 2 to 12  years.  Amortization  of  leasehold  improvements  is
       provided using the  straight-line  method over the estimated useful lives
       of the assets or the initial term of the lease, whichever is shorter.

       Intangible  Assets - Intangible assets include a covenant not to compete,
       customer  lists,  costs in excess of fair value of assets  acquired,  and
       patents.   The  covenant  not  to  compete  is  being  amortized  on  the
       straight-line  method over five  years,  the term of the  agreement.  The
       customer lists are being amortized on the straight-line method over their
       expected useful lives of five and ten years. Cost in excess of fair value
       of the assets acquired is being amortized on the straight-


                                      F-6
<PAGE>
       line  method  over five  years.  Both the  covenant  not to  compete  and
       customer lists are now fully amortized.  Accumulated  amortization at May
       31, 1998 and 1997, was $244,862 and $240,499, respectively.

       Profit  Sharing  Plan - The  Company  has a  profit  sharing  plan  which
       qualifies  under Section 401(k) of the Internal  Revenue Code.  Under the
       plan,  eligible  U.S.  employees  may  contribute  up  to  15%  of  their
       compensation  with  a  Company  match,  at  its  option,  up to 3% of the
       employees' total compensation. The Company also has a profit sharing plan
       which covers eligible Canadian employees. The Company is required to fund
       out of profits a minimum contribution of $100 (CDN) per participant.  The
       Company  recorded  $4,819 of profit sharing  expense in fiscal 1998 and a
       profit sharing expense in fiscal 1997 of $4,971.

       Foreign  Currency - The  financial  statements  and  transactions  of the
       Company's  Canadian  division  are  maintained  in  Canadian  dollars and
       remeasured  into the  Company's  functional  currency  (U.S.  dollars) in
       accordance with Statement of Financial  Accounting Standards ("SFAS") No.
       52. Nonmonetary balance sheet items are remeasured at historical exchange
       rates.  Revenues and expenses are remeasured at the average exchange rate
       for each fiscal year. See Note 12.

       Net Income  (Loss) Per Common  Share - In February  1997,  the  Financial
       Accounting  Standards  Board issued SFAS No. 128 "Earnings Per Share." In
       accordance with this pronouncement,  the Company adopted the new standard
       for periods ended after December 15, 1997 and restated  previous periods'
       earnings per share.  The table showing the effect of this standard on the
       reported earnings per share is displayed in Note 13.

       Fair Value of Financial  Assets and  Liabilities - The Company  estimates
       the fair  value of its  monetary  assets and  liabilities  based upon the
       existing  interest rates related to such assets and liabilities  compared
       to current market rates of interest for monetary  assets and  liabilities
       of similar  nature and degree of risk.  The  Company  estimates  that the
       carrying value of all of its monetary assets and liabilities approximates
       fair value as of May 31, 1998.

       Accounting  Estimates  -  The  preparation  of  the  Company's  financial
       statements in conformity with generally  accepted  accounting  principles
       (GAAP) requires  management to make estimates and assumptions that affect
       the  reported  amounts  of  assets  and  liabilities  and  disclosure  of
       contingent assets and liabilities at the date of the financial statements
       and the reported  amounts of revenues  and  expenses  during the reported
       periods. Actual results may differ from such estimates.

       New Accounting Pronouncements:- Between June 1997 and June 1998, the FASB
       issued three pronouncements. Statements of Financial Accounting Standards
       No.  130,  "Reporting  Comprehensive  Income,"  (FAS 130),  Statement  of
       Financial Accounting Standards No. 131, "Disclosures about Segments of an
       Enterprise  and  Related   Information,"  (FAS  131),  and  Statement  of
       Financial  Accounting  Standards  No.  133,  "Accounting  for  Derivative
       Instruments and Hedging  Activities,"  (FAS 133), which will be effective
       in future reporting  periods.  Management has evaluated the provisions of
       these  pronouncements and expects that their adoption will have no effect
       on results of operations or the financial position of the Company.

                                      F-7
<PAGE>
       Concentration  of Credit Risk:-  Financial  instruments  that potentially
       subject the Company to concentration of credit risk consist  primarily of
       trade  receivables.  The Company  sells to both  clinical and  industrial
       customers who traditionally pay in the 60 to 90 day range.  However, this
       customer  base is very stable and the Company has  experienced a very low
       level of uncollectible accounts in the past. Concentration of credit risk
       with respect to trade  receivables is limited because a relatively  large
       number of customers are spread  throughout  the United States and Canada.
       The Company controls credit risk through credit approvals, credit limits,
       and monitoring  procedures.  The Company performs credit  evaluations for
       all new customers and requires advance payments if deemed necessary.

       Reclassifications  - Certain prior year amounts have been reclassified to
       conform to the current year presentation.  Such reclassifications did not
       have any  effect on  previously  reported  net  income  or  stockholder's
       equity.


3.     INVENTORIES

       Inventories consisted of the following:

                                                         May 31,
                                              -----------------------------
                                                   1998             1997

       Raw materials                          $    982,159     $    756,388
       Work-in-process                              31,013            4,583
       Finished goods                              903,646          699,093
                                              ------------     ------------

              Total inventories               $  1,916,818     $  1,460,064
                                              ============     ============




4.     PREPAID EXPENSES AND OTHER CURRENT ASSETS

       Prepaid expenses and other current assets consisted of the following:

                                                         May 31,
                                              -----------------------------
                                                   1998             1997

       Prepaid expenses and deposits          $    109,363     $     70,622
       Other receivables                             4,568               47
                                              ------------     ------------

          Total prepaid expenses and other
          current assets                      $    113,931     $     70,669
                                              ============     ============

                                      F-8
<PAGE>
5.     PROPERTY, PLANT, AND EQUIPMENT

       Property, plant, and equipment consisted of the following:
<TABLE>
<CAPTION>
                                                                     May 31,
                                                          -----------------------------
                                                              1998             1997
<S>                                                       <C>              <C>        
       Manufacturing equipment                            $ 2,549,702      $ 2,409,482
       Office furniture and equipment                       1,189,254        1,049,809
       Service vehicles                                        19,756           57,522
       Leasehold improvements                                 738,464          660,581
                                                          -----------    -------------

             Subtotal                                       4,497,176        4,177,394
       Less accumulated depreciation and amortization      (2,742,183)      (2,459,443)
                                                          -----------      -----------

             Property, plant, and equipment - net         $ 1,754,993      $ 1,717,951
                                                          ===========      ===========
</TABLE>

6.     NOTES PAYABLE TO RELATED PARTIES

       Notes payable to related parties  consisted of unsecured  demand notes at
       prime rate plus 1% (9.5% at both May 31, 1998 and 1997) totaling $247,551
       at both May 31, 1998 and 1997.

       These  related  party notes are due upon demand  based upon the  original
       promissory   notes,   and  are  therefore   classified   within   current
       liabilities.  However, the Company does not anticipate paying these notes
       in  fiscal  1999 as they are  subordinated  to the debt of the  Company's
       primary lender.


7.     BORROWINGS

       The Company has a  $2,500,000  revolving  line of credit with its primary
       lender which is due  November  20,  2000.  The line is at prime rate plus
       2.0%  or  10.5%  at May  31,  1998  and  is  collateralized  by  accounts
       receivable and inventory.  The line is treated as current  because we pay
       down and borrow against it almost on a daily basis.  The amount  borrowed
       was $1,987,548 and $1,248,948 at May 31, 1998 and 1997, respectively.





                                      F-9
<PAGE>
<TABLE>
<CAPTION>
       Borrowings consisted of the following:
                                                                                             May 31,
                                                                                ---------------------------------
                                                                                      1998             1997
<S>                                                                             <C>              <C>
          Norwest Business Credit, Inc.:
              Note payable  through  November  2000 in  monthly  installments of
                  $8,334  plus  interest  of prime  plus 2.0%  (10.5% at May 31,
                  1998) and 2.5% (11% at May 31, 1997) collateralized
                by substantially all of the Company's equipment.                      258,322          358,330
         JP Wilsonville, LLC:
              Unsecured  note  payable  due in  monthly  installments  of $2,202
                including interest of 12% for 36 months and unpaid balance
                due April 1, 2000.                                                     82,268           97,798
         Les Leno:
              Note payable through May 2005 in yearly principal  installments of
                $10,000, interest at 6% related to
                termination settlement with former president.                          70,000           80,000
         Various Vendors:
              Unsecured notes payable with 6% interest
                due in installments through February 2001.                            437,406          510,953
                                                                                      -------          -------
                                                                                      847,996        1,047,081

              Less current portion of borrowings                                      248,018          196,574
                                                                                      -------          -------

                Total long term borrowings, less current portion                      599,978          850,507
                                                                                      =======          =======



       Borrowings - related parties consisted of the following:

         Various - Related parties:
              Unsecured notes payable with 6% interest
                due in installments through February 2001.                             71,211           82,788
         Ethel Wildt:
              Unsecured note payable with interest at prime plus 1% (9.5% at May
                31, 1998) due November 1998
                 to related party.                                                      6,383           18,277
         Mary Brown:
              Unsecured note due in installments of $2,425, including
                interest at 8% through May 2000 related to repurchase                  53,610           75,466
                of common stock.
         Ronald Torland:
              Unsecured demand note with interest at 10% due
                January 1999 to a related party.                                       10,000           10,000



         Ronald Torland:
              Unsecured note payable with interest at prime plus 1% (9.5% at May
                31, 1998) due December 1999 to a
                related party.                                                         47,500           47,500
                                                                                      -------          -------
                                                                                      188,704          234,031

           Less current portion of borrowings - related parties                        73,507           69,073
                                                                                      -------          -------

                Total long-term borrowings-related parties, less current portion    $ 115,197        $ 164,958  
                                                                                    =========        =========
</TABLE>

                                      F-10
<PAGE>
       Aggregate maturities of borrowings for the years ending subsequent to May
       31, 1998 are as follows:

           1999                                               $ 2,309,073
           2000                                                   419,061
           2001                                                   244,955
           2002                                                    21,159
           2003                                                    10,000
         Thereafter                                                20,000

                Total                                         $ 3,024,248
                                                              ===========


       The various debt agreements with Norwest  Business  Credit,  Inc. contain
       covenants which require the Company,  among other things, to meet certain
       objectives  with  respect to debt  service  coverage  and net income.  In
       addition,  the agreements place certain limitations on dividend payments,
       capital expenditures, lease rental payments and other outside borrowings.
       The Company is either in compliance  with all debt  covenants or has been
       granted waivers where applicable.

8.     STOCKHOLDERS' EQUITY

       Class A  convertible  Preferred  Shares - In  fiscal  1993,  the Board of
       Directors  adopted a  resolution  authorizing  7,500 Class A  Convertible
       Preferred Shares under the following terms and conditions:

       Stated Value - $100 per share.

       Conversion  Feature -  Convertible  by the holder into Common Shares at a
       rate of one Common Share for each $2.80 of preferred share stated value.

       Dividends  - Wells  Fargo  Bank of  Oregon,  N.A.  prime  rate  plus 1.5%
       cumulative,  annually,  payable  when  and as  declared  by the  Board of
       Directors. Such dividends are accreted in periods when the declaration is
       not made.

       Redemption  - Redeemed for cash,  in whole or in part,  at 100% of stated
       value plus accrued and unpaid  dividends to  redemption  date,  on a date
       determined by the Board of Directors.

       Liquidation Preference - Upon any liquidation, dissolution, or winding up
       of the Corporation,  whether voluntary or involuntary, holders of Class A
       Convertible  Preferred  Shares shall have  preference  and priority  over
       Common  Shares,  Class B Common Shares,  Class D Common  Shares,  and any
       other class of stock ranking junior to the Class A Convertible  Preferred
       Shares for payment  out of the assets of the Company or proceeds  thereof
       available for  distribution  to  stockholders  of $100 per share plus all
       accrued and

                                      F-11
<PAGE>
       unpaid  dividends.  The holders of Class A Convertible  Preferred  Shares
       shall not be entitled to any other payments.

       Holders of issued and  outstanding  Common  Shares have  preference  over
       Class B Common Shares upon  voluntary or  involuntary  liquidation of the
       Company  only to the extent that  holders of Common  Shares shall be paid
       par value of such shares prior to any distributions being made to holders
       of Class B Common  Shares.  Holders  of Class B Common  Shares  will then
       receive par value for each share held and a sum equal to the distribution
       to be made on each Common Share.

       Pre-Emptive  Rights - Under  the  terms  of the  amended  Certificate  of
       Incorporation  of PML, the holders of shares of any class of stock of PML
       are not entitled to cumulative  voting nor  preferential  or  pre-emptive
       right to subscribe for,  purchase,  or receive any shares of any class of
       PML  stock  except  that  holders  of Class B Common  Shares  shall  have
       pre-emptive  rights with respect to the issuance of Class B Common Shares
       only. In addition,  PML is not allowed to sell or offer to sell any Class
       B Common Shares  without  prior  approval of the holders of a majority of
       the issued and  outstanding  Class B Common  Shares.  Each Class B Common
       Share may be converted to one Common Share at the discretion of the Class
       B shareholder.

       Stock Option Plans - Effective  September 6, 1994, the Board of Directors
       adopted the "1994 Stock  Option Plan" and the "1994 Stock Option Plan for
       Nonemployee Directors"  (collectively,  the "Plans"). The Plans authorize
       650,000  shares  be  available  for  grant to  eligible  individuals  and
       entities as defined by the Plans. The term of each incentive stock option
       is 10 years or less as  determined  by the  Plan  administrator.  Options
       granted under the Plans  generally vest over four to five years beginning
       one year after the date of grant,  and expire ten years or less after the
       date of the grant.  During  fiscal  1998 and 1997,  the  Company  granted
       80,000 and 70,000  options,  respectively,  expiring  within ten years or
       less, depending on the specific  agreements,  at option prices of $0.3125
       to $0.625 per share . Only 3,750 of all options granted to date have been
       exercised.

       A summary of the status of the options granted under the Plans at May 31,
       1998 and 1997,  together with changes during the periods then ended,  are
       represented  below.  Options  exercisable  at May 31,  1998 and 1997 were
       173,179 and 161,180, respectively.








                                      F-12
<PAGE>
<TABLE>
<CAPTION>
                                                                           Weighted Average
                                                                Options     Exercise Price
                                                            -------------  ----------------
<S>                                                         <C>            <C> 
           Outstanding at May 31, 1996                           370,000        0.68
               Options granted at market price                    70,000        0.49
               Options exercised                                    -               -
               Options canceled or expired                       (89,286)        0.99
                                                            -------------  -------------
           Outstanding at May 31, 1997                           350,714         0.62
               Options granted at market price                    80,000         0.62
               Options exercised                                  (3,750)        0.50
               Options canceled or expired                       (42,857)        1.03
                                                            -------------  -------------
           Outstanding at May 31, 1998                           384,107         0.58
</TABLE>
       The  Company  applies  APB  Opinion  25 and  related  interpretations  in
       accounting for the Option Plans. Accordingly, no significant compensation
       cost has been recognized in the financial  statements for options granted
       under the Plans,  as options  are  granted  at or  proximate  to the fair
       market value at time of grant. Had compensation  cost associated with the
       Plans been  determined  based on the fair market  value at the grant date
       for options under the Plans, consistent with the methodology of Statement
       of  Financial  Accounting  Standards  (SFAS) No. 123, the  Company's  net
       income would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
                                                                  1998           1997
                                                             -------------  -------------
                                                                    (in thousands)
<S>                                                              <C>            <C>     
           Net income, as reported                               $38,930        $669,371
           Net income, pro forma                                  $2,067        $643,265
           Basic earnings (loss) per share, as reported           $(0.01)          $0.31
           Diluted earnings (loss) per share, as reported         $(0.01)          $0.30
           Basic earnings (loss) per share, pro forma             $(0.02)          $0.30
           Diluted earnings (loss) per share, pro forma           $(0.02)          $0.29
</TABLE>
       The effects of applying  SFAS 123 to pro forma  disclosures  for 1998 and
       1997 are not  likely to be  representative  of the  effects  on  reported
       income for future  years,  because  options vest over  several  years and
       additional awards generally are made each year.

       The fair value of each  option  grant is  estimated  on the date of grant
       using  the   Black-Scholes   option-pricing   model  with  the  following
       weighted-average  assumptions used for grants in 1998 and 1997:  expected
       volatility of 144% and 114%, respectively; expected dividend yield of 0%;
       risk-free rate of return of 5.6%; and expected lives of five years.

       Total  fair value of  options  granted  was  computed  to be $45,301  and
       $32,317 for the years ended May 31, 1998 and 1997, respectively.



                                      F-13
<PAGE>
       The following table summarizes  information about options  outstanding at
May 31, 1998.

                                                        Weighted Average
              Exercise       Number       Weighted         Remaining
             Price Range    of Shares   Average Price   Contractual Life

           $0.3125-$0.625     359,107       $0.49             2.95
                    $1.50      25,000       $1.50             6.32

       Stock Bonus - No stock  bonuses  were accrued or paid in the fiscal years
ended May 31, 1998 or May 31, 1997.

9.     COMMITMENTS AND CONTINGENCIES

       The Company leases certain laboratories,  facilities, and equipment under
       noncancelable long-term lease arrangements which also require the Company
       to  pay  executory  costs  such  as  property  taxes,  maintenance,   and
       insurance.  The  laboratories,   facilities,  and  equipment  leases  are
       operating and capital  leases which expire in various years through 2004.
       Generally, such operating leases include renewal options ranging from one
       to seven  years.  Rental  expense for  operating  leases was $593,786 and
       $578,101 in fiscal 1998 and 1997  respectively.  Certain of the operating
       leases represent related party transactions. See Note 11.

       Future minimum lease  payments on such capital  leases and  noncancelable
       operating leases as of May 31, 1998 are as follows:

             Years Ending                               Capital        Operating
                May 31,                                 Leases           Leases

                 1999                                $   110,460     $   487,380
                 2000                                     81,358         370,770
                 2001                                     55,471         336,503
                 2002                                       -            278,656
                 2003                                       -            271,080
                Thereafter                                  -             22,590
                                                     -----------     -----------

                Total                                    247,289     $ 1,766,979
                                                                     ===========

           Less amount representing interest              34,361
                                                     -----------
           Present value of capital lease obligations    212,928

           Less current portion                           90,731
                                                     -----------
           Long-term portion                         $   122,197
                                                     ===========

                                      F-14
<PAGE>
 10.     INCOME TAXES

       Deferred income taxes are provided for temporary  differences between the
       financial  reporting  bases and the tax bases of assets and  liabilities.
       Deferred  tax  assets  result  primarily  from the  recording  of certain
       expenses which currently are not deductible for tax purposes,  tax credit
       carryforwards,  and Canadian net operating loss  carryforwards.  Deferred
       tax liabilities  result  principally  from the use, for tax purposes,  of
       accelerated depreciation.

       A  reconciliation  between the  statutory  federal  income tax  (benefit)
       expense and effective federal income tax (benefit) expense is as follows:

                                                       Years Ended May 31,
                                                  ------------------------------
                                                        1998             1997

         Federal statutory expense at 34%         $     29,223     $    156,114
         Tax effect of:
           Change in valuation allowance                   -           (414,636)
           Nondeductible permanent differences          12,194           16,547
           State income taxes and other, net             5,604           31,761
                                                  -------------    -------------

                    Total                         $     47,021     $   (210,214)
                                                  =============    =============


       The  components  of the  Company's  income tax expense  (benefit)  are as
follows:

                                                       Years Ended May 31,
                                                  ------------------------------
                                                        1998             1997

         Current                                  $      4,771     $     10,640
         Deferred                                       42,250         (220,854)
                                                  -------------    -------------
                    Total                         $     47,021     $   (210,214)
                                                  =============    =============


       The domestic and foreign  components of income (loss) before income taxes
were as follows:

                                                       Years Ended May 31,
                                                  ------------------------------
                                                        1998             1997

         Domestic                                 $   (152,602)    $     87,612
         Foreign                                       238,553          371,545
                                                  -------------    -------------

                    Income before income
                       taxes                      $     85,951     $    459,157
                                                  =============    =============


 
                                      F-15
<PAGE>
       At May 31, 1998 and 1997,  the  significant  components  of the Company's
       deferred tax assets and liabilities are as follows:

                                                        1998             1997

         Deferred tax assets:
           Vacation accrual                        $    76,944       $   70,988
           Allowance for doubtful accounts              11,580           31,502
           Net operating loss carryforwards            266,189          303,485
           Other                                        39,175           18,836
                                                  -------------    -------------

                    Total deferred tax assets          393,888          424,811
                                                  -------------    -------------

         Deferred tax liabilities:
           Excess tax depreciation                    (117,284)        (105,957)
                                                  -------------    -------------

                    Net deferred tax asset        $    276,604     $    318,854
                                                  =============    =============

       The  Company  files US and  Canadian  tax  returns on the  results of its
       operations  conducted in each country.  At May 31, 1998,  the Company has
       available  approximately $677,246 of unused operating loss carryforwards,
       to offset domestic taxable income, which expire in 2010 and 2011.


11.    RELATED-PARTY TRANSACTIONS

       The  Company  has  entered  into  a  Technology  License  Agreement  with
       Definitive Diagnostics,  Inc. ("DDI").  Certain stockholders and officers
       of the Company are also stockholders and officers of DDI. Under the terms
       of the  agreement,  which began on June 1, 1992, was modified on February
       28,  1997,  and extends  over seven  years from the  original  date,  the
       Company manufactures and markets the products developed by DDI and paid a
       royalty of $.50 per unit  through May 31, 1997.  Effective  June 1, 1997,
       royalties  range from $.15 to $.35 per unit until $500,000 has been paid,
       and then  will be $.00 to $.15 per  unit  for the  remaining  life of the
       agreement. Total royalties of $11,403 and $28,855 were incurred in fiscal
       1998 and 1997, respectively.

       The Company also has related party debt which is separately  disclosed in
       the balance sheet and in Notes 6 and 7. In addition to the specific notes
       identified  by related  party  name,  the  Company  has  $71,211 of notes
       payable  with a  group  of  shareholders.  When  the  Company  had a cash
       shortage in fiscal 1996, a group of shareholders bought out some accounts
       payable  liabilities for the Company and then accepted five year notes at
       6% interest due in installments through February 2001.



                                      F-16
<PAGE>
       The Company  leases  laboratories,  office  facilities and equipment from
       stockholders under three operating leases. The monthly  obligations under
       the leases  were  $5,000 per month on a  month-to-month  basis  which was
       discontinued in June 1997,  $5,500 per month,  expiring May 31, 1999; and
       $1,000 per month expiring May 31, 2000.

       One of the leases the  Company  entered  into was a  five-year  equipment
       lease agreement ("Agreement") with DDI commencing June 1, 1992. Under the
       Agreement,  the  Company is  required to pay rent in the amount of $1,000
       per month for four  months,  $2,500  per  month for the  following  eight
       months,  $4,000 per month for the  following  12  months,  and $5,500 per
       month for the remaining 36 months.  Upon  termination of the Agreement in
       1999,  the  Company may renew the lease at $5,500 per month for 12 months
       or purchase the equipment at its fair market  value.  DDI is owned 51% by
       shareholder A. Ron Torland and 49% by shareholder Arthur N. Torland.

       The Company's formerly leased Tualatin  Manufacturing  Plant is owned 50%
       by  shareholders  Arthur N.  Torland  and  Bessie M.  Torland  and 25% by
       shareholder  Julian G.  Torland.  The Company  moved out of this facility
       into its new  Wilsonville  facility in June 1997. The leased cold room at
       the   Company's   Wilsonville   Distribution   Center  is  owned  50%  by
       shareholders  Arthur  N.  Torland  and  Bessie  M.  Torland  and  25%  by
       shareholder  Julian G.  Torland.  The  Company  also paid rent in 1997 to
       shareholders for a small facility adjacent to its Tualatin  Manufacturing
       Plant  which is owned 50% by  shareholder  Arthur N.  Torland  and 50% by
       shareholder  Julian G. Torland.  The Company  subleases  this property to
       Clinical Microbiology Institute ("CMI"), an independent third party. Both
       this lease and sublease  were  discontinued  in April 1997.  Total rental
       expense paid to stockholders for all leases was approximately $80,500 and
       $150,000 in fiscal 1998 and 1997 respectively.


12.    FOREIGN OPERATIONS

       The  following  table  indicates  the  relative  amounts  of  net  sales,
       operating  income,  and identifiable  assets of the Company by geographic
       area during fiscal years 1998 and 1997.

                                                        1998             1997
         Net sales:
           United States                          $  8,223,118     $  7,867,023
           Canada                                    5,712,740        5,452,097
                                                  -------------    -------------

                    Total net sales               $ 13,935,858     $ 13,319,120
                                                  =============    =============

         Operating income:
           United States                          $     74,073     $    271,526
           Canada                                      346,763          483,259
                                                  -------------    -------------

                    Total operating income        $     420,836    $    754,785
                                                  ===============  =============

         Identifiable assets:
           United States                          $  4,649,983     $  3,695,665
           Canada                                    1,868,506        1,868,084
                                                  -------------    -------------

                    Total identifiable assets     $   6,518,489    $  5,563,749
                                                  ==============   =============

                                      F-17
<PAGE>
       Net currency  transactions losses from Canada were $61,086 and $10,214 in
       1998 and 1997, respectively.

       Sales between geographic areas and export sales are not material.

       The Company  maintains  separate  accounts for both the United States and
       Canada down to the Gross Profit level. However, some operating,  selling,
       general and  administrative  expenses  are  captured  only on a Corporate
       level.  Therefore,  the  Company  has  had  to  make  substantial  use of
       estimates and  allocations  in order to split its  operating  income on a
       geographic basis. The numbers shown represent  management's best estimate
       of total operating income on a segment basis.



13.  EARNINGS PER SHARE CALCULATIONS

                        Information Needed to Calculate Basic Earnings Per Share


                                                         For The Years Ended
                                                               May 31,
                                                        1998             1997
                                                  ------------------------------
Numerator
---------
Net income                                        $     38,930     $    669,371
Preferred stock dividends accreted                     (49,499)         (48,587)
                                                  -------------    -------------
Net (loss) income after accretion of dividends    $    (10,569)    $    620,784
                                                  =============    =============

Denominator
-----------
Average number of common shares outstanding          1,778,822        1,776,816
Average number of Class B common stock outstanding     211,551          211,551
                                                  -------------    -------------

Average shares used in basic EPS calculation         1,990,373        1,988,367
                                                  =============    =============

Basic (loss) income per share                     $      (0.01)    $       0.31








                                      F-18
<PAGE>
                      Information Needed to Calculate Diluted Earnings Per Share

                                                         For The Years Ended
                                                               May 31,
                                                        1998             1997
                                                  ------------------------------
Numerator
Basic income                                      $    (10,569)    $    620,784
Add back preferred stock dividends accreted*               -             48,587
                                                  -------------    -------------
Diluted (loss) income after add back of                                        
          accreted dividends                      $    (10,569)    $    669,371
                                                  =============    =============
Denominator
Average number of common shares outstanding          1,778,822        1,776,816
Average number of Class B common stock outstanding     211,551          211,551
Effect of common stock equivalents*                        -             71,890
Effect of preferred convertible stock*                     -            176,786
                                                  -------------    -------------
Average shares used in diluted EPS calculation       1,990,373        2,237,043
                                                  =============    =============

Diluted (loss) income per share                   $      (0.01)    $       0.30



* To the extent that the effect of preferred  stock dividends  accreted,  common
stock equivalents,  and the preferred convertible stock are anti-dilutive,  they
are not included in the diluted earnings per share  calculation.  In fiscal 1998
amounts  excluded  were $49,499 of accreted  dividends,  71,890 shares of common
stock equivalents and 176,786 shares of preferred convertible stock.








                                   * * * * * *










                                      F-19
<PAGE>
PML, INC.
Exhibit 23
Consent of Independent Accountants
--------------------------------------------------------------------------------



We  hereby  consent  to the  incorporation  by  reference  in  the  Registration
Statement on Form S-8 (No.  333-38903)  of PML,  Inc. of our report dated August
21, 1998 appearing on page F-1 of this Annual Report on Form 10-KSB.




/s/PRICEWATERHOUSECOOPERS LLP
-----------------------------
PricewaterhouseCoopers LLP

Portland, Oregon
September 3, 1998