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, 2000


                           Commission File No. 0-21816


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



            Delaware                                   93-1089304
(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:  $14,001,938

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 July 31,
2000 was approximately $151,400.

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 July 31, 2000,  there were  1,785,441  shares of Class A 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                                         7

Item 3.   Legal Proceedings                                                 7

Item 4.   Submission of Matters to a Vote of Security Holders               7

                                     Part II
                                     -------

Item 5.   Market for Registrant's Common Equity and Related
             Stockholder Matters                                            8

Item 6.   Management's Discussion and Analysis of Financial Condition
             and Results of Operations                                      8

Item 7.   Financial Statements and Supplementary Data                    12 & 18

Item 8.   Changes in and Disagreements with Accountants on Accounting
             and Financial Disclosure                                      12

                                    Part III
                                    --------

Item 9.   Directors, Executive Officers, Promoters and Control Personnel;
             Compliance with Section 16(a) of the Exchange Act             13

Item 10.  Executive Compensation                                           14

Item 11.  Security Ownership of Certain Beneficial Owners and Management   14

Item 12.  Certain Relationships and Related Transactions                   16

Item 13.  Exhibits, Financial Statement Schedules and Reports on Form 8-K  16



                                       2
<PAGE>



                                    PML, INC.

                         1999 FORM 10-KSB ANNUAL REPORT


                                     PART I

Item 1.  Description of Business

General
-------

     PML  Microbiologicals,  Inc. is the sole operating  subsidiary of PML, Inc.
and  consequently  any  reference  herein  to  "PML" or "the  Company"  are used
interchangeably.  PML,  which has been in business  since  1969,  markets to the
clinical  market  (diagnosis of diseases in humans),  to the  industrial  market
(environmental   and  sterility   testing),   and  to  the  original   equipment
manufacturers (OEM) market (private label clinical products).  Typical customers
for PML's clinical products are hospitals,  clinics, and wholesalers that market
to hospitals and clinics. Industrial customers include pharmaceutical companies,
biotech research  facilities,  and food and water testing  enterprises.  The OEM
market includes companies in the medical device industry.

     In September 1991, the Company entered into a transaction  with Monogenesis
Corporation,  in which it purchased a  non-operating  subsidiary of  Monogenesis
Corporation  named Meda,  Inc. This entity was  subsequently  renamed PML, Inc.,
which became the parent organization of Prepared Media Laboratory,  Inc. and was
later renamed PML Microbiologicals, Inc.

     PML, Inc. shares have been listed on the NASDAQ  Electronic  Bulletin Board
since January 1993 under the symbol "PMLI".

Products
--------

     The Company's  product line consists of diagnostic  products and supporting
materials  used  by  both  clinical  and  industrial  microbiologists.  Clinical
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.  The  Company  also offers a
complete  line  of  irradiated  media  used  for  environmental  monitoring  and
sterility  testing by the  pharmaceutical,  biotechnology  and food and beverage
industries.  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 quality control organisms for
gas  generating  systems,  for  providing  the proper  gaseous  environment  for
culturing organisms;  swabs for collecting specimens;  and various fixatives and
preservatives.

     The majority of the  Company'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."

                                       3
<PAGE>

Marketing
---------

     The Company markets its products  primarily in the United States and Canada
through its internal sales  organization  and through a growing network of major
distributors.  Customers  include  both  clinical  and  industrial  microbiology
laboratories.  Hospital and private  medical  laboratories,  as well as doctor's
offices and clinics make up most of our 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
management  expects to grow rapidly,  includes companies  manufacturing  medical
devices or industrial equipment requiring media based suppliers.  The veterinary
market also appears to be a potential growth segment.

     Based upon management's research and information derived from sources which
management believes to be reliable,  the clinical microbiology market exceeds $1
billion  annually in the United  States.  The Company  estimates the  industrial
market to be in excess of $100 million and growing.  The prepared  culture media
segment of the clinical  microbiology market is similarly 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.  The Company  maintains  a strong  presence in this
product line because of its overwhelming  importance to microbiologists  and the
proven  value  of the  Company's  service  philosophy  in  gaining  and  keeping
customers.  The Company'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 for the Company.

     In  addition,  the  Company  has  increased  its  focus  on the  industrial
microbiology market and OEM market,  which appear to be growing at a faster pace
than the clinical market.  In Fiscal 2000, the Company's sales in the industrial
segment  continued  to increase,  and the Company is  optimistic  about  further
increases in Fiscal 2001.

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

     To address service, shipping, and shelf life requirements,  the Company has
established  distribution  centers in or near the following  metropolitan areas;
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. The Company typically ships a complete customer order within twenty-four
to  forty-eight  hours of  receipt of the  order.  Depending  on the size of the
order, customer requirements and distance,  shipments are made by local courier,
international  package  delivery  service (e.g. UPS, Federal Express) or an over
the road common carrier.

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

     At present,  the  majority of the  Company's  sales  consist of products it
manufactures;  primarily  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

                                       4
<PAGE>

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,  the Company  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.

     The  Company  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,  the Company  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 PML 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.  The Company hires  licensed  hazardous
waste disposal  companies for the disposal of these materials at a nominal cost.
See "Governmental Regulation."

Suppliers
---------

     The Company's  largest  suppliers  provide Petri  dishes,  blood,  agar and
plastic  packaging  material which are available from a number of sources in the
United States and Canada.  Several  manufacturers and distributors of glassware,
chemicals and packaging materials exist in the United States and Canada.

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

     The Company operates in three distinct  markets,  Clinical,  Industrial and
Original Equipment Manufacturing (OEM), with each containing different customers
and competitive forces.

     In the clinical market,  the Company's  primary  customers are hospital and
clinical laboratories.  In the United States, most hospitals have become members
of buying  groups known as Group  Purchasing  Organizations  (GPOs),  which have
negotiated single supplier  contracts for prepared media from only one supplier.
Under these agreements,  the Company's  principal  competitor,  Becton Dickinson
Microbiology Systems (BDMS), a subsidiary of Becton Dickinson & Co. has obtained
sole source  supplier status to  approximately  85% of the U.S.  market.  In the
Canadian clinical market,  normal nonrestrictive  competitive  conditions exist,
and the Company has  historically  outperformed  all of its  competitors and has
continually increased its market share.

     In the industrial market, the key competitive factors are product features,
quality and service.  The Company has only one other  significant  competitor in
this market, which it competes favorably against.

     In the OEM  market,  the  Company  is one of very few  companies  supplying
media-based  products.  Product  quality  and  customer  responsiveness  are the
primary  factors for success in this market.  The Company has been successful in
expanding this market against its competitors.


                                       5
<PAGE>

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

     The Company 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 the Company's  product line,  and to develop new products for addition to its
line. R & D functions are presently performed by multiple departments within the
Company and by independent researchers and scientists that have been retained by
the Company.

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

     The  Company  owns  a  number  of  patents,  trademarks  and  licenses.  No
individual patent,  trademark, or license is material or critical to the Company
or any particular product line that the Company  maintains.  All such agreements
or rights are considered to be standard for companies operating in our industry.

Employees
---------

     On May 31,  2000 and  1999,  the  Company  had  approximately  170 and 166,
respectively, full time employees. Minor increases and decrease to the number of
employees  occurs in the ordinary  course  throughout the year as  manufacturing
demand changes.  The Company's  employees are located  throughout  North America
with the heaviest  concentrations in Wilsonville,  Oregon (a suburb of Portland,
Oregon), and Mississauga, Ontario (a suburb of Toronto, Ontario), Canada.

     The  Company's  employees  are  not  covered  by  a  collective  bargaining
agreement, and the Company considers its employee relations to be satisfactory.

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

     As a  manufacturer  of medical  devices,  the Company 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  these  government
agencies  inspect  the  Company's   products,   facilities,   and  manufacturing
processes. The Company's facilities, processes and products have received all of
the required  approvals,  and the Company believes that it is in compliance with
all relevant FDA and HPB requirements.

     In  addition,  the  Company 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 the  Company's  business.  Management  believes  that  the  Company's
business is operated in compliance with applicable laws and regulations.

Liability Insurance
-------------------

     The  Company  maintains  product  liability  insurance  in the amount of $2
million  dollars,  supported by a $10 million dollar  umbrella  policy.  Product
liability insurance is limited in availability and restrictive in cost. Based on
the essentially  confirmatory nature of the majority of the Company's diagnostic
products,  the Company's  management believes that the Company is not subject to
significant  product  liability risk with its present product line. To date, the
Company has never paid a product liability claim.

                                       6
<PAGE>

Item 2.  Description of Properties

     In March 2000 the owner of the Mississauga,  Ontario facility  informed the
Company  that he was  going  to sell  the  property.  In May  2000  the  Company
purchased  the  property  (after  obtaining   financing   through  KeyBank)  and
consolidated  the  manufacturing  operations of its second  Mississauga,  leased
facility,  into this one  facility.  The Company  currently  operates from three
other leased locations,  one in Wilsonville,  Oregon,  one in Providence,  Rhode
Island  and one in  Richmond,  British  Columbia.  The  Company  does not expect
substantial  difficulty  in extending its leases as they come due. Each facility
has  extensive  leasehold  improvements  and  equipment.   The  following  chart
summarizes the significant facilities which the Company owns and leases.
<TABLE>
<CAPTION>
                                  Approximate            Approximate
                                 Square Footage         Square Footage          Lease
            Location             Manufacturing       Admin & Distribution     Expiration
            --------             --------------      --------------------     ----------
<S>                                 <C>                    <C>                  <C>
OWNED:
     Mississauga, Ontario           16,000                  3,000               N/A

LEASED:
     Wilsonville, Oregon             9,000                 34,000             June 2004
     Providence, Rhode Island            -                 12,000             April, 2004
     Richmond, British Columbia      2,000                  3,100             June, 2001
</TABLE>

     The Wilsonville facility houses all corporate  administrative  functions, a
manufacturing unit and a distribution center. The manufacturing  production unit
supplies  conventional  culture media to the western  United States and Canadian
regions and provides  specialty  products to all other locations.  Equipment for
the production of PML's PHASE2 blood culture system,  DUOTEK  sterility  testing
system, MIC panels, and dehydrated media are also located in Wilsonville.

     The  Mississauga  manufacturing  plant produces  mostly high volume culture
media for eastern Canada and for the eastern United States regions,  much of the
Company's  industrial  contact plate  product line and assembly of  parasitology
kits on a contract basis for various Canadian accounts.

Item 3.  Legal Proceedings

     The Company occasionally has been made a party to incidental suits or other
legal  actions  arising  in the  ordinary  course of its  business.  To the best
knowledge of  Management,  the Company is not  currently  subject to any pending
litigation that would have a material  adverse effect upon its  operations.  The
Company was engaged in discussions with one purchaser concerning product quality
and had notified its product liability  insurance carrier of those  discussions.
To date, the Company has never paid a product liability claim.

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

     The  Company  held  its  annual   meeting  on  November  16,  1999  at  its
Wilsonville,  Oregon  facility.  Four  members  of the Board of  Directors  were
elected  and  Moss-Adams  LLP  was  ratified  as  independent  accountants.  The
directors elected and the votes cast for all matters are as follows:
<TABLE>
<CAPTION>

                                             Votes For    Votes Against    Abstain
                                             ---------    -------------    -------
<S>                                          <C>            <C>             <C>
    Kenneth L. Minton                        1,381,920      128,618         26,500
    Arthur R. (Ron) Torland (CLASS B)          211,511            0              0
    Craig S. Montgomery (CLASS B)              211,511            0              0
    Douglas C. Johnson (CLASS B)               211,511            0              0


    Ratification of independent accountants  1,747,889          125         31,750
</TABLE>

                                       7
<PAGE>

                                     PART II



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

     The  Company's  common  stock  commenced  trading on the NASDAQ  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, 2000                   $1.43750         $0.75000
    February, 2000              $1.75000         $0.51000
    November, 1999              $1.03125         $0.15625
    August, 1999                $0.53125         $0.25000
    May, 1999                   $0.53125         $0.53125
    February, 1999              $0.75000         $0.43750
    November, 1998              $0.75000         $0.37500
    August, 1998                $1.12500         $0.87500

     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  its  lender.  The  Class  A  convertible  preferred  shares  have a
provision,  which calls for the  accretion  of  dividends  annually at a rate of
prime plus 1.5%. As of May 31, 2000 accreted  dividends  totaled  $292,644.  See
Note 9 of Notes to Consolidated Financial Statements. Approximately 1,085 record
holders of Common Stock existed as of May 31, 2000.


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 various 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 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.  Moreover,  forward-looking
statements  are  intended to provide the reader with  meaningful  insight  about
management's  plans and  expectations  about  future  events;  these  events are
inherently  difficult to predict, and our actual performance may vary materially
and adversely from the  expectations  presented here. In addition to the factors
discussed in this paragraph and elsewhere in this report,  a non-exclusive  list
of elements that could  adversely  affect our  performance  include  competitive
pressures and other factors listed from time to time in the Company's reports to
the Securities and Exchange Commission.


                                       8
<PAGE>

Canadian Exchange
-----------------

     PML is a US incorporated company but also has several significant operating
locations in Canada and  significant  Canadian  revenue.  Since  management  has
previously determined that the functional currency of the Canadian operations is
the US  dollar,  it  must  consolidate  its  foreign  operations  by  using  the
appropriate   foreign  exchange  rate  in  accordance  with  generally  accepted
accounting  principles  applied on a  consistent  basis.  Unlike  most of our US
competitors,   the  Company  is  in  a  somewhat  unique  position  in  that  it
manufactures in both the US and Canada and regularly receives  approximately 40%
of its revenues  from Canadian  sales.  In the five fiscal years ending in 1998,
the exchange  rate between  Canadian and US currency had been stable and did not
fluctuate  more than about 3% from its "normal"  trading  range of about $.72 to
$.73 (US $ equivalent rate).

     In April 1998,  the  Canadian/US  exchange rate started an unusually  sharp
decline and reached as low as the $.63 range before stabilizing at about $.67 in
May 1999.  This decline is  unprecedented  in PML's history and whether the rate
continues to decline,  remains the same, or starts to recover is  unpredictable.
However, since the Company's Canadian operations represent a significant part of
its total  operations,  the adverse condition of the Canadian currency market is
expected  to continue to have an adverse  impact on the  consolidated  financial
results of the Company.

     For the year ended May 31, 2000 and May 31,  1999,  the  exchange  rate was
$.6680 and $.6784,  respectively.  This decline during Fiscal 2000 resulted in a
Balance Sheet write down of approximately $17,000.

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 reported  amounts of revenues and expenses during the reporting
periods. Actual results often will differ from such accounting estimates.

                                       9
<PAGE>

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

Year Ended May 31, 2000 Compared With Year Ended May 31, 1999
-------------------------------------------------------------

     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,
                                               ------------------

                                               2000          1999
                                               ----          ----

         Net Sales                             100.0%        100.0%
         Cost of Goods Sold                     61.2          63.6
                                              ------        ------
         Gross Profit                           38.8          36.4
         Operating Expense                      32.9          36.0
                                              ------        ------
         Operating Income                        5.9           0.4
         Other expense                           1.8           2.3
                                              ------        ------
         Income (Loss) before income taxes       4.1          (1.9)
         Income tax expense (benefit)            1.3          (0.4)
                                              ------        ------
         Net income (Loss)                       2.8%         (1.5)%
                                              ======       =======

     Sales in Fiscal 2000 totaled $14.0 million, an increase of $183,000 or 1.3%
over Fiscal 1999.  Income  before taxes for the twelve months ended May 31, 2000
showed an increase in pre-tax profits of $837,351 over the  twelve-month  period
ended May 31, 1999.

     Cost of Goods  Sold  decreased  as a  percentage  of sales by  2.40%.  This
significant  improvement  is a result of  across-the-board  cost savings in most
cost-of-goods areas such as inventory outdates,  manufacturing rejects, material
usage, etc.

     Operating expenses  (selling,  general and  administrative)  decreased as a
percentage of sales by 3.1%.  This  improvement  is  attributed to  management's
priority  in  making  the  best  use  of  operating   expenses,   improving  and
streamlining  all functions that occur in all categories of operating  expenses.
The Company anticipates  operating expenses,  as a percent of sales, will remain
constant;  however, they may increase when appropriate to support higher company
sales.


                                       10
<PAGE>

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

     The  following is a summary of unaudited  operating  results by quarter for
the fiscal years ended May 31, 2000 and 1999:
<TABLE>
<CAPTION>

    2000                               1st Qtr        2nd Qtr        3rd Qtr        4th Qtr        Total
<S>                                   <C>            <C>            <C>            <C>            <C>
    Net sales                         $3,540,405     $3,442,638     $3,511,846     $3,507,049     $14,001,938
    Gross profit                       1,324,881      1,367,300      1,348,813      1,385,312       5,426,306
    Net income (loss) before tax          81,415        121,065        190,482        180,290         573,252
    Net income (loss)                     52,919         70,596        120,122        148,442         392,079
    Basic earnings (loss) per share         0.02           0.03           0.05           0.07            0.17
    Diluted earnings (loss) per share*      0.02           0.03           0.05           0.06            0.16

    1999                               1st Qtr        2nd Qtr        3rd Qtr        4th Qtr        Total

    Net sales                         $3,597,242     $3,310,997     $3,352,728     $3,557,596     $13,818,563
    Gross profit                       1,454,325      1,194,481      1,079,397      1,302,029       5,030,232
    Net income (loss) before tax          13,908       (219,826)       (82,906)        24,725        (264,099)
    Net income (loss)                      6,698       (128,847)       (49,442)       (42,010)       (213,601)
    Basic earnings (loss) per share         0.00          (0.07)         (0.03)         (0.03)          (0.13)
    Diluted earnings (loss) per share*      0.00          (0.07)         (0.03)         (0.03)          (0.13)
</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, 2000,
the Company had  positive  working  capital of $30,465  compared  with  negative
working capital of ($645,406) at May 31, 1999.  This  improvement in the current
year is due to the continued  significant cash provided by operating  activities
and the  restructuring  of the  current  portion  of  long-term  debt to related
parties and, their acceptance and signing,  of new long-term notes. The ratio of
current  assets to current  liabilities is 1.01 at May 31, 2000 compared to .863
at May 31, 1999.  Quick liquidity  (current  assets less  inventories to current
liabilities)  is .63 at May 31, 2000 and .51 at May 31, 1999.  The  twelve-month
average  collection  period for trade  receivables was 53.7 days at May 31, 2000
compared with 55.1 days at May 31, 1999.

     Net cash  provided by operating  activities  was  $1,175,834 in Fiscal 2000
compared with $599,428  provided by operations in Fiscal 1999.  Net cash used in
investing activities was ($886,244) in Fiscal 2000 compared with ($112,573) used
by the  Company in  investing  activities  in Fiscal  1999.  The  Company  spent
$696,485 on the  purchase  of the  Mississauga,  Ontario,  Canada  building  and
property and $189,759 on equipment and building improvements during Fiscal 2000,
compared with $113,723  spent on equipment and building  improvements  in Fiscal
1999. Financing activities provided cash of $8,221,  primarily from increases in
long-term debt, compared with the consumption of cash of ($649,789) in 1999 from
decreases in short-term and long-term debt.

     The  Company  has a line of  credit  that has a  current  maturity  date of
November 30, 2000. This line of credit is secured substantially by 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.  This loan will be
repaid  primarily out of the  Company's  receivable  collections  and other cash
provided by operating activities.

                                       11
<PAGE>

     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 financing will be available with terms acceptable to the Company. Without
such  future  financing,  the  Company's  ability to finance  its growth will be
limited.

<TABLE>
<CAPTION>
       The Company's total debt structure at May 31, 2000 is as follows:

                                                                          Long-Term   Current-Portion
                                                                          ---------   ---------------
<S>                                                                  <C>               <C>
     Revolving credit at prime plus 2.0%, due November 30, 2000      $            0    $    1,597,618
     Note payable at prime plus 2.0%, due November 30, 2000                       0            58,306
     Note payable at 12%, due April 2001                                          0            45,052
     Capital Lease obligations, due January 2001                                  0            52,145
     Note payable at 6%, due May 2005                                        40,000            10,000
     Note payable at prime less .25%, due May 2010                          532,088            28,005
     Trade A/P converted to notes payable at 6%, due February 2001                0           149,855
                                                                      --------------    --------------

       Total Bank and Term debt                                      $      572,088    $    1,940,981

     Notes payable to related parties                                       237,266            90,949
                                                                      --------------    --------------

     Total long and short term debt                                  $      809,354    $    2,031,930
                                                                      ==============    ==============
</TABLE>

Item 7.  Financial Statements and Supplementary Data

         The information required by this item starts on page 18 of this report.

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

     PML's independent accountants,  MOSS-ADAMS LLP, were engaged in April 1999.
There  have  been  no  disagreements  with  the  accountants  on any  matter  of
accounting principles or practices,  financial statement  disclosures,  auditing
scope or procedures.




                                       12
<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 at May 31, 2000 are
as follows:
                                                              Term as
           Name                     Position              Director Expires
           ----                     --------              ----------------

    A. Ron Torland            Chairman of the Board             2000
                              Secretary, Treasurer

    Kenneth L. Minton         President and
                              Chief Executive Officer
                              Director                          2000

    Douglas C. Johnson        Director                          2000

    Craig S. Montgomery       Director                          2000


     A. Ron Torland, age 53, 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 50, 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.

     Douglas C. Johnson, age 44, 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.

     Craig S.  Montgomery,  Ph.D.,  46 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.


                                       13
<PAGE>

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

     There are no  significant  employees as defined by the SEC 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  information  required in response to Item 10 shall appear in our definitive
proxy  statement  to be  filed  pursuant  to  Regulation  14A of the  Securities
Exchange Act of 1934 in connection with PML's 2000 Annual Meeting,  and it shall
be incorporated herein by reference when filed.

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 July 31, 2000:
<TABLE>
<CAPTION>

                                                                    Amount and
                                 Name and Address                   Nature of         Percent
     Title of                    of Beneficial                      Beneficial       of Class
     Class                       Owner                              Ownership
     -----------------------------------------------------------------------------------------
<S>                              <C>                                <C>                 <C>

     Class A Common Shares       A. Ron Torland                     183,381 (a)         10.3%
                                 10595 SW Kiowa Street
                                 Tualatin, OR  97062

     Class A Common Shares       Julian G. Torland                  144,705  (e)(f)      8.1%
                                 11100 SW North Dakota Street
                                 Tigard, OR  97223

     Class A Common Shares       Douglas C. & Joanne E. Johnson     266,832  (b)        14.9%
                                 8728 SW Pamlico Court
                                 Tualatin, OR  97062

     Class A Common Shares       Craig S. Montgomery                167,243  (c)         9.4%
                                 12600 SE Rachella Court
                                 Boring, OR  97009

     Class A Common Shares       Marcia & Stan Drake                121,243              6.8%
                                 28890 S. Beavercreek Rd.
                                 Mulino, OR  97042

     Class A Common Shares       Mary Lou Ham                       167,243  (d)         9.4%
                                 3363-B Blaine Rd.
                                 Moscow, ID  83843

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

                                       14
<PAGE>

     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

</TABLE>

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


(a)  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.
(b)  Includes  96,743  shares owned by Joanne  Johnsonn,  Doug  Johnson's  wife.
     Includes 70,500 shares owned by the Johnson children.
(c)  Includes 70,500 shares owned by the Montgomery children.
(d)  Includes 70,500 shares owned by the three Ham children. However, two of the
     Ham  children  are adults who own  47,000  and Mary Lou Ham  disclaims  any
     beneficial interest in these shares.
(e)  Due to an addition error in 1998 and 1999 Julian G. Torland's Common Shares
     were reported at 267,900, that included 199,241 of Common and 68,649 Common
     Class B shares,  but  should  have been  reported  at 199,330  and  144,705
     respectively  of Common,  without  Common Class B shares.  In June 1998 Mr.
     Torland  gifted  54,625  Common  shares to his children  and 15,000  Common
     shares to his wife, and Julian G. Torland disclaims and beneficial interest
     in these shares.
(f)  Includes 15,000 shares owned by Mary H Torland, Julian Torland's wife.

     The directors and officers of the Company,  as a group,  own 355,213 common
shares,  representing  19.9% 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.

Item 12.  Certain Relationships and Related Transactions

     The Company currently leases equipment 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 two operating  leases.  Total
rental  expense  incurred  under these two  operating  leases was  approximately
$78,000  in both  Fiscal  2000 and 1999.  (See Note 12 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 expires in
July 2002, the Company  manufactures  and markets  product  developed by DDI and
pays a royalty based upon the number of units sold.  Total  royalties of $19,901
were incurred in Fiscal 2000 and $11,414 in Fiscal 1999. 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.

                                       15
<PAGE>

     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 $23,164 at May 31, 2000.

     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

   10             Material contracts
                  a.       Employment Agreement with Kenneth L. Minton
                  b.       1994 Stock Option Plan for Non-employee Directors
                  c.       1994 Stock Option Plan

   16             Letter on changes and certifying accountants

   18             Letter on change in accounting principles

   21             Subsidiaries of Registrant

   23             Consent of independent accountants


         Each  of  the  above  exhibits  except  as  otherwise   indicated,   is
incorporated  by reference to the exhibit filed by the Company with its previous
filings to the SEC.





                                       16
<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 August
18, 2000.

                                  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 August 18, 2000, on behalf of the Company and in the
capacities indicated.


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


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


/s/A. Ron Torland                     Chairman of the Board, Secretary
-------------------------------       Treasurer
A. Ron Torland


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


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




                                       17
<PAGE>













                                    PML, INC.

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

                          INDEPENDENT AUDITOR'S REPORT
                                       AND
                              FINANCIAL STATEMENTS

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

                              MAY 31, 2000 AND 1999















                                       18
<PAGE>









CONTENTS
--------------------------------------------------------------------------------



                                                                      Page
                                                                      ----

INDEPENDENT AUDITOR'S REPORT                                           20


CONSOLIDATED FINANCIAL STATEMENTS
    Consolidated balance sheets                                        21
    Consolidated statements of operations                              22
    Consolidated statement of changes in stockholders' equity          23
    Consolidated statements of cash flows                              24
    Notes to financial statements                                   25 - 39









                                       19
<PAGE>











INDEPENDENT AUDITOR'S REPORT



To the Board of Directors and Stockholders
PML, Inc.


We have audited the  accompanying  balance sheet of PML, Inc. as of May 31, 2000
and 1999,  and the related  consolidated  statements of  operations,  changes in
stockholder's  equity,  and cash flows for the years then ended. 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 audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial  position of PML, Inc. as of May 31, 2000
and 1999,  and the  results of its  operations  and its cash flows for the years
then ended, in conformity with generally accepted accounting principles.



/s/ Moss Adams LLP
------------------
MOSS ADAMS LLP


Beaverton, Oregon
July 18, 2000


                                       20
<PAGE>
                                                                        PML,INC.
                                                     CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
<TABLE>
                                                                 MAY 31,
                                                    ----------------------------------
                                                         2000               1999
                                                    ---------------    ---------------
                                     ASSETS
                                     ------
<S>                                                 <C>                <C>
CURRENT ASSETS
  Cash                                              $      298,382     $          571
  Trade accounts receivable, net                         1,871,058          2,106,210
  Inventories                                            1,510,136          1,670,459
  Prepaid expenses and other                                29,979             74,675
  Deferred income tax asset                                316,000            209,000
                                                    ---------------    ---------------
              Total current assets                       4,025,555          4,060,915
                                                    ---------------    ---------------

PROPERTY, PLANT, AND EQUIPMENT, net                      1,980,909          1,453,222

INTANGIBLE ASSETS, net                                      30,650             27,469

DEFERRED INCOME TAX ASSET                                        -            136,000

OTHER ASSETS                                                33,296            104,768
                                                    ---------------    ---------------
                                                    $    6,070,410     $    5,782,374
                                                    ===============    ===============

                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------
CURRENT LIABILITIES
  Bank line of credit                               $    1,597,618     $    1,714,450
  Accounts payable                                       1,196,487          1,596,512
  Accrued salaries and wages                               416,461            312,964
  Other accrued liabilities                                350,212            300,948
  Current portion  of capital lease obligations             52,145             70,153
  Current portion of long-term debt - related parties       90,949            325,442
  Current portion of long-term debt                        291,218            355,852
                                                    ---------------    ---------------
              Total current liabilities                  3,995,090          4,676,321
                                                    ---------------    ---------------

CAPITAL LEASE OBLIGATIONS, less current portion                  -             52,145
                                                    ---------------    ---------------
LONG TERM DEBT, related parties less current portion       237,266             58,985
                                                    ---------------    ---------------
LONG TERM DEBT, less current portion                       572,088            257,911
                                                    ---------------    ---------------
DEFERRED INCOME TAX LIABILITY                              135,000                  -
                                                    ---------------    ---------------
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
  Preferred stock, $.01 per share; 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            787,644            738,296
  Common stock, $.01 par value; authorized 2,500,000
     shares, issued and outstanding 1,785,441 shares        17,854             17,804
  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                               148,365            146,540
  Retained earnings (deficit)                              174,987           (167,744)
                                                    ---------------    ---------------
                                                         1,130,966            737,012
                                                    ---------------    ---------------
                                                    $    6,070,410     $    5,782,374
                                                    ===============    ===============
</TABLE>
See accompanying notes.                21
<PAGE>
                                                                        PML,INC.
                                            CONSOLIDATED STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------

                                             Year ended May 31,
                                  ----------------------------------------
                                         2000                  1999
                                  ------------------    ------------------

NET SALES                         $       14,001,938    $       13,818,563

COST OF GOODS SOLD                         8,575,632             8,788,331
                                  ------------------    ------------------

GROSS PROFIT                               5,426,306             5,030,232

OPERATING EXPENSES                         4,604,006             4,975,232
                                  ------------------    ------------------

OPERATING INCOME                             822,300                55,000

OTHER EXPENSE
     Interest expense, net                   265,702               310,755
     Miscellaneous                           (16,654)                8,344
                                  ------------------    ------------------

                                             249,048               319,099
                                  ------------------    ------------------

NET INCOME (LOSS) BEFORE INCOME
     TAX PROVISION                           573,252              (264,099)

INCOME TAX EXPENSE (BENEFIT)                 181,173               (50,498)
                                  ------------------    ------------------

NET INCOME (LOSS)                 $          392,079    $         (213,601)
                                  ==================    ==================


NET INCOME (LOSS) PER COMMON SHARE
     Basic                                    $ 0.17              $ (0.13)
                                  ==================    ==================
     Diluted                                  $ 0.16              $ (0.13)
                                  ==================    ==================


See accompanying notes.
                                       22
<PAGE>
                                                                        PML,INC.
                       CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>


                                            Class A                                 Class B       Additional Retained
                                          Convertible             Common             Common         Paid-in  Earnings
                                        Preferred Shares          Shares             Shares         Capital  (Deficit)   Total
                                      -------------------  -------------------  ----------------  ---------  --------- ----------
<S>                                   <C>       <C>        <C>        <C>       <C>      <C>      <C>        <C>       <C>
BALANCE, MAY 31, 1998                   4,950   $ 691,060  1,780,441  $ 17,804  211,551  $ 2,116  $ 146,540  $ 93,093  $  950,613

 Preferred stock dividends accreted      -        47,236        -         -        -        -          -      (47,236)       -
 Net income                              -           -          -         -        -        -          -     (213,601)   (213,601)
                                      --------  ---------  ---------  --------  -------  -------  ---------  --------- ----------

BALANCE, MAY 31, 1999                   4,950     738,296  1,780,441    17,804  211,551    2,116    146,540  (167,744)    737,012
                                      --------  ---------  ---------  --------  -------  -------  ---------  --------- ----------

 Preferred stock dividends accreted      -        49,348        -         -        -        -          -      (49,348)       -
 Common stock issued                     -           -        5,000        50      -        -         1,825      -          1,875
 Net income                              -           -          -         -        -        -          -      392,079     392,079
                                      --------  ---------  ---------  --------  -------  -------  ---------  --------- ----------

BALANCE, MAY 31, 2000                   4,950   $ 787,644  1,785,441  $ 17,854  211,551  $ 2,116  $ 148,365   174,987  $1,130,966
                                      ========  =========  =========  ========  =======  =======  =========  ========= ==========
</TABLE>



See accompanying notes.
                                       23
<PAGE>
                                                                        PML,INC.
                                            CONSOLIDATED STATEMENT OF CASH FLOWS
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                       Year ended May 31,
                                                                  ----------------------------
                                                                      2000            1999
                                                                  ------------    ------------
<S>                                                               <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
     Net income (loss)                                            $    392,079    $   (213,601)
     Adjustments to reconcile net income (loss) to net cash
        provided by (used in) operating activities:
        Depreciation and amortization                                  355,376         408,451
        Deferred income taxes                                          164,000         (68,396)
        Gain on disposition of assets                                       -             (648)
     Changes in:
        Accounts receivable                                            235,152          39,047
        Inventories                                                    160,323         246,359
        Other assets                                                   116,168          60,941
        Accounts payable and accrued liabilities                      (247,264)        127,275
                                                                  ------------    ------------

              Net cash provided by operating activities              1,175,834         599,428
                                                                  ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES
     Proceeds from sale of assets                                           -            1,150
     Purchase of property, plant and equipment                        (886,244)       (113,723)
                                                                  ------------    ------------

              Net cash used in investing activities                   (886,244)       (112,573)
                                                                  ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES
     Net payments on line of credit                                   (116,832)       (273,098)
     Principal payments on notes payable - related parties             (56,212)        (51,828)
     Proceeds from issuance of capital lease obligations                    -               -
     Principal payments on capital lease obligations                   (70,153)        (90,630)
     Proceeds from long-term borrowings                                560,093              -
     Principal payments on long-term debt                             (310,550)       (234,233)
     Proceeds from issuance of common stock                                 50               -
                                                                  ------------    ------------

              Net cash provided by (used in) financing activities        6,396        (649,789)
                                                                  ------------    ------------

NET INCREASE (DECREASE) IN CASH                                        295,986        (162,934)

CASH AND CASH EQUIVALENTS, beginning of year                               571         163,505
                                                                  ------------    ------------

CASH AND CASH EQUIVALENTS, end of year                            $    296,557    $        571
                                                                  ============    ============

SUPPLEMENTAL DISCLOSURES OF CASH
     FLOW INFORMATION
        Interest paid                                             $    266,034    $    315,670
        Income tax paid                                           $      4,613    $     (9,792)
        Non-cash items:
           Preferred stock dividends accreted                     $     49,348    $     47,236
</TABLE>

See accompanying notes.
                                       24
<PAGE>
                                                                       PML, INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 1    -       ORGANIZATION AND BASIS OF PRESENTATION

         PML  Microbiologicals,  Inc. is the sole  operating  subsidiary of PML,
         Inc.,  and any  reference  herein  to "PML" or "the  Company"  are used
         interchangeably when referring to either entity. PML, which has been in
         business  since 1969,  markets to the  clinical  market  (diagnosis  of
         diseases  in  humans),  to the  industrial  market  (environmental  and
         sterility testing),  and to the Original Equipment  Manufacturing (OEM)
         market  (private label  clinical  products).  The Company  produces and
         sells  throughout the United States and Canada.  Typical  customers for
         PML's clinical  products are hospitals,  clinics,  and wholesalers that
         market  to  hospitals  and  clinics.   Industrial   customers   include
         pharmaceutical  companies,  biotech research  facilities,  and food and
         water testing.  The OEM market includes companies in the medical device
         industry.

         In  September  1991,  the  Company  entered  into  a  transaction  with
         Monogenesis   Corporation,   in  which  it  purchased  a  non-operating
         subsidiary of Monogenesis Corporation named Media, Inc. This entity was
         subsequently renamed PML, Inc., which became the parent organization of
         Prepared  Medical  Laboratory,   Inc.,  which  was  later  renamed  PML
         Microbiologicals, Inc.


NOTE 2    -       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Principles of consolidation - The accompanying  consolidated  financial
         statements include the accounts of PML and its wholly-owned subsidiary,
         PML Microbiologicals,  Inc. 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.

         Cash and cash  equivalents  - For the purpose of the  statement of cash
         flows, the Company considers highly liquid  investments with a maturity
         of three months or less to be cash equivalents.  The Company places its
         cash and cash equivalents with high quality financial institutions.

         Accounts receivable - The Company generally does not require collateral
         or  other   security  to  support   accounts   receivable.   Management
         periodically  assesses the collectibility of accounts receivable.  This
         assessment  provides the basis for the allowance for doubtful  accounts
         and related bad debt  expense.  An allowance  for doubtful  accounts of
         $50,482  and   $50,414   was   recorded  at  May  31,  2000  and  1999,
         respectively.

         Inventories  -  Inventories  are stated at the lower of cost or market.
         Cost is determined by the first-in first-out method.


                                       25
<PAGE>
                                                                       PML, INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 2    -       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)

         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 39 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  are  comprised  of patents in
         process.  Patents are amortized over the life of the patent as they are
         received.

         Income taxes - The Company  accounts for income taxes on the  liability
         method.  The liability  method  recognizes the amount of tax payable at
         the date of the  financial  statements  as a result of all events  that
         have been  recognized in the financial  statements,  as measured by the
         provisions of currently enacted tax laws and rates. The accumulated tax
         effect of all temporary  differences  is presented as deferred  federal
         income tax assets and liabilities within the balance sheet.

         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 changed its profit sharing
         plan for its eligible Canadian employees effective March 1, 2000. Under
         the old plan,  the  Company  was  required  to fund out of  profits,  a
         minimum  contribution  of $100  (CDN) per  participant.  The new profit
         sharing plan for the eligible Canadian employees is similar to the plan
         for eligible U.S.  employees,  which  qualifies under Section 401(k) of
         the Internal Revenue Code. Under the new plan,  Canadian  employees may
         contribute up to 18% of their compensation or $18,500 (CDN),  whichever
         is  higher.  The  Company  does not  currently  match for the  eligible
         Canadian and U.S. employees.

         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 Statements of Financial Accounting Standards (SFAS) No.
         52.  Non-monetary  balance  sheet items are  remeasured  at  historical
         exchange  rates.  Revenue and  expenses are  remeasured  at the average
         exchange rate for each fiscal year.

         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, 2000.


                                       26
<PAGE>
                                                                       PML, INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 2    -       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)


         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 45 to 70 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.

         Use  of  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.

         Reclassifications - Certain  reclassifications were made to the May 31,
         1999   balance   sheet  in  order  to  conform  to  the  May  31,  2000
         presentation. These reclassifications had no effect on net income.


NOTE 3    -       INVENTORIES

         Inventories consist of:

                                                     May 31,
                                          ------------------------------
                                              2000              1999
                                          -------------    -------------

          Raw materials                    $    884,887     $    875,434
          Work-in-process                        30,065           55,388
          Finished goods                        595,184          739,637
                                          -------------    -------------
                                           $  1,510,136     $  1,670,459
                                          =============    =============


                                       27
<PAGE>
                                                                       PML, INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 4   -        PROPERTY, PLANT AND EQUIPMENT

         Property, plant and equipment consist of:

                                                     May 31,
                                          ------------------------------
                                              2000              1999
                                          -------------    -------------

          Land                             $     98,541     $          -
          Building                              597,943                -
          Manufacturing equipment             2,753,916        2,628,236
          Office furniture and equipment      1,251,229        1,211,889
          Service vehicles                       17,754           17,754
          Leasehold improvements                763,655          743,120
                                          -------------    -------------
                                              5,483,038        4,600,999

          Less accumulated depreciation and
            amortization                      3,502,129        3,147,777
                                          -------------    -------------
                                           $  1,980,909     $  1,453,222
                                          =============    =============



NOTE 5    -       LINE OF CREDIT

         The Company has a $2,500,000  revolving line of credit with its primary
         lender,  which is due November 20, 2000. The line of credit is at prime
         rate plus 1.5% or 11.00 % at May 31,  2000,  and is  collateralized  by
         accounts  receivable and inventory.  The amount borrowed was $1,597,618
         and $1,714,450 at May 31, 2000 and 1999, respectively.





                                       28
<PAGE>
                                                                       PML, INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 6    -       LONG-TERM DEBT

    Borrowings consisted of the following:
<TABLE>
<CAPTION>
                                                                        May 31,
                                                             -----------------------------
                                                                 2000             1999
                                                             ------------     ------------
<S>                                                          <C>              <C>
     Keybank National Association:
      Note payable through May 2010 due in monthly
         principal installments of $2,334 plus interest
         of 8.75% for 119 months and unpaid balance
         due May 1, 2010; collateralized by land and
         buildings.                                          $   560,093      $        -
     Wells Fargo Business Credit, Inc.:
      Note payable through November 2000 in monthly
         installments of $8,334 plus interest of prime
         plus 2%; collateralized by substantially all
         of the Company's equipment.                               58,306          158,314
     Les Leno:
      Note payable through May 2005 in yearly
         principal installments of $10,000, interest
         at 6%  related to termination settlement
         with former president.                                    50,000           60,000
     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, 2001.                                        45,052           64,770
     Various vendors:
      Unsecured notes payable with 6% interest due
         in installments through February 2001.                   149,855          330,679
                                                             ------------     ------------

                                                                  863,306          613,763
     Less current portion                                        (291,218)        (355,852)
                                                             ------------     ------------

                                                             $    572,088     $    257,911
                                                             ============     ============
</TABLE>

         Maturities of long-term debt,  including the long-term debt due related
parties disclosed in Note 7, are as follows:


        Years ending May 31,
                2001                           $     382,167
                2002                                 136,758
                2003                                 147,369
                2004                                  67,153
                2005                                  38,004
             Thereafter                              420,070
                                              ---------------

                                               $   1,191,521
                                              ===============


                                       29

<PAGE>
                                                                       PML, INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 6    -       LONG-TERM DEBT - (continued)

         The various debt  agreements  with Wells Fargo  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 in compliance  with all debt
         covenants.


NOTE     7 -  LONG-TERM  DEBT DUE  RELATED  PARTIES  Long-term  debt due related
         parties consisted of the following:
<TABLE>
<CAPTION>

                                                                        May 31,
                                                             -----------------------------
                                                                 2000             1999
                                                             ------------     ------------
<S>                                                          <C>              <C>
     The Torland Trust
      Unsecured note payable with 9.5% interest due
         in installments through October 2003.
         Principal payments of $6,000 may begin
         December 2000 provided the Company
         meets certain net income criteria.                  $    247,551     $    247,551

     Ronald Torland:
      Unsecured note payable with 9.5% interest due
         in installments through October 2003.
         Principal payments of $1,400 may begin
         December 2000 provided the Company
         meets certain net income criteria.                        57,500           57,500

     Various - Related parties:
      Unsecured notes payable with 6% interest due
         in installments through February 2001.                    23,164           51,503

     Mary Brown:
      Unsecured note due in installments of $2,425
         including interest through May 2000,
         related to purchase of common stock.                          -            27,873
                                                             ------------     ------------

                                                                  328,215          384,427
     Less current portion                                         (90,949)         (77,891)
                                                             ------------     ------------

                                                             $    237,266     $    306,536
                                                             ============     ============
</TABLE>




                                       30
<PAGE>
                                                                       PML, INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 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 -  Redeemable  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
         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 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
         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.

                                       31
<PAGE>
                                                                       PML, INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 8    -       STOCKHOLDERS' EQUITY - (continued)

         Stock  Option  Plans -  Effective  September  6,  1994,  the  Board  of
         Directors  adopted  the "1994  Stock  Option  Plan" and the "1994 Stock
         Option Plan for Non-employee  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 2000, the
         company granted 40,000 stock options  expiring within 10 years or less,
         depending on the  specific  agreements,  at option  prices of $0.50 per
         share. During fiscal 1999, the Company did not grant any options.  Only
         8,750 of all options granted to date have been exercised.

         A summary of the status of the options  granted  under the Plans at May
         31, 2000 and 1999, together with changes during the periods then ended,
         are  following.  Options  exercisable  at May 31,  2000 and  1999  were
         237,107 and 229,357, respectively.

                                                                   Weighted
                                                                    Average
                                                   Options      Exercise Price
                                               --------------   --------------
        Outstanding at May 31, 1998                  384,107             0.53
         Options granted at market price                   -               -
         Options exercised                                 -               -
         Options canceled or expired                       -               -
                                               --------------   --------------
        Outstanding at May 31, 1999                  384,107             0.53
         Options granted at market price              40,000             0.50
         Options exercised                            (5,000)           (0.38)
         Options canceled or expired                 (40,000)           (0.50)
                                               --------------   --------------
        Outstanding at May 31, 2000                  379,107              0.54


         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:




                                       32
<PAGE>
                                                                       PML, INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 8    -       STOCKHOLDERS' EQUITY - (continued)

<TABLE>
<CAPTION>

                                                              2000          1999
                                                           ----------    ----------
<S>                                                        <C>           <C>

          Net income (loss), as reported                    $ 392,079    $ (213,601)
          Net income (loss), pro forma                      $ 362,149    $ (310,998)
          Basic earnings (loss) per share, as reported      $    0.17    $    (0.13)
          Diluted earnings (loss) per share, as reported    $    0.16    $    (0.13)
          Basic earnings (loss) per share, pro forma        $    0.16    $    (0.18)
          Diluted earnings (loss) per share, pro forma      $    0.15    $    (0.18)
</TABLE>



         The effects of applying SFAS 123 to pro forma  disclosures for 2000 and
         1999 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 grant in 2000 and 1999: expected
         volatility of 196% and 144%  respectively,  expected  dividend yield of
         0%; risk-free rates of return ranging from 5.68% to 7.63%; and expected
         lives ranging from 5 to 10 years .

         Total fair value of options  granted was computed to be $19,107 for the
         year ended May 31, 2000. No options were granted for the year ended May
         31, 1999.

         The following table summarizes information about options outstanding at
         May 31, 2000.



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

     $0.3125 - $0.625          354,107           $ 0.47            2.05
                $1.50           25,000           $ 1.50            4.32



         Stock Bonus - No stock bonuses were accrued or paid in the fiscal years
ended May 31, 2000 or May 31, 1999.



                                       33
<PAGE>
                                                                       PML, INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 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
         2005. Generally,  such operating leases include renewal options ranging
         from one to seven  years.  Rental  expense  for  operating  leases  was
         $438,931 and $563,148 in fiscal 2000 and 1999, respectively. Certain of
         the operating leases represent related party transactions. See note 11.

         The future  expected  rental  commitments  as of May 31, 2000,  for all
         long-term noncancellable operating and capital leases are as follows:
<TABLE>
<CAPTION>

           Years ending                                     Capital       Operating
              May 31,                                       Leases          Leases
           --------------                                 -----------    -----------
<S>                                                       <C>            <C>
               2001                                       $   54,370     $   453,687
               2002                                               -          448,960
               2003                                               -          394,556
               2004                                               -          380,167
               2005                                               -           57,721
            Thereafter                                            -               -
                                                          -----------    -----------

               Total                                          54,370     $ 1,735,091
                                                                         ===========

           Less amount representing interest                  (2,225)
                                                          -----------

           Present value of capital lease obligations         52,145

           Less current portion                              (52,145)
                                                          -----------

           Long-term portion                              $        -
                                                          ===========
</TABLE>



NOTE 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.


                                       34
<PAGE>
                                                                       PML, INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 10   -       INCOME TAXES (continued)

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

                                                                                May 31,
                                                       -------------------------------------------------
                                                                2000                      1999
                                                       -----------------------   -----------------------
                                                         Amount         %          Amount         %
                                                       ----------   ----------   ----------   ----------
<S>                                                     <C>           <C>        <C>            <C>
          Federal statutory expense at 34%              $ 194,906      34%       $ (89,794)      34%
          Increase (decrease) in tax resulting from:
            Nondeductible permanent differences             6,984       1%           4,539       -2%
           Reversal of deferred tax items at rates
               different than the effective tax rates
               used to establish the deferred tax
               assets and liabilities                     (43,647)     -8%              -         0%
          State and Canadian income taxes                  22,930       4%          34,757      -13%
                                                       ----------   ----------   ----------   ----------

                                                        $ 181,173      31%       $ (50,498)      19%
                                                       ===========  ==========   ==========   ==========
</TABLE>




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

                                                May 31,
                                      ---------------------------

                                          2000           1999
                                      ------------   ------------

          Current tax expense         $    17,173    $    17,898
          Deferred tax expense            164,000        (68,396)
                                      ------------   ------------

                                      $   181,173    $   (50,498)
                                      ============   ===========

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

                                                 May 31,
                                      ---------------------------

                                          2000           1999
                                      ------------   ------------

          Domestic                    $   377,446    $  (118,009)
          Foreign                         195,806       (146,090)
                                      ------------   ------------
           Income before income taxes $   573,252    $  (264,099)
                                      ============   ============

                                       35
<PAGE>
                                                                       PML, INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 10   -       INCOME TAXES (continued)

         At May 31, 2000 and 1999, the  significant  components of the Company's
deferred tax assets and liabilities are as follows:

                                                           May 31,
                                                ----------------------------
                                                    2000            1999
                                                ------------    ------------

     Current deferred tax assets:
       Vacation accrual                         $     49,749    $     35,600
       Allowance for doubtful accounts                19,183          17,100
       Net operating loss carryforwards              178,054         102,000
       Other                                          69,014          54,300
                                                ------------    ------------
                                                $    316,000    $    209,000
                                                ============    ============

     Non-current deferred tax asset:
       Net operating loss carryforwards         $         -     $    257,000
       Alternative minimum tax carryforward            7,000              -
                                                ------------    ------------

                                                $      7,000    $    257,000
                                                ============    ============

     Non-current deferred tax liability:
       Depreciation differences between
         financial and tax accounting               (142,000)       (121,000)
                                                ------------    ------------
                                                $   (135,000)       $136,000
                                                ============    ============


         Management  periodically  assesses the need for valuation allowances as
         they relate to deferred tax assets.  Management  has  concluded  that a
         valuation  allowance  is not  necessary  given the  estimates of future
         earnings and the expected timing of temporary difference reversals.

         The Company  files U.S.  and Canadian tax returns on the results of its
         operations  conducted in each country. At May 31, 2000, the Company has
         available    approximately    $436,000   of   unused   operating   loss
         carryforwards,  to offset domestic taxable income, which expire in 2010
         and 2019.



                                       36
<PAGE>
                                                                       PML, INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 11   -       RELATED PARTY TRANSACTIONS

         The  Company  has  a  Technology   License  Agreement  with  Definitive
         Diagnostics,  Inc.  ("DDI").  Certain  stockholders and officers of the
         Company are also stockholders and officers of DDI. The agreement, which
         began on June 1, 1992,  and was modified on February 28, 1997,  extends
         over a ten year period (including option years) from the original date.
         The  Company  manufactures,   markets  and  sells  products  originally
         developed  by DDI and pays  royalties  based  upon the  number of units
         sold,  with certain  limitations  on the total  royalties  paid.  Total
         royalties of $19,901 and $11,414 were incurred in fiscal 2000 and 1999,
         respectively.

         The Company also has related party debt, which is separately  disclosed
         in the balance  sheet and in Note 7. In addition to the specific  notes
         identified  by related  party  name,  the  Company has $23,164 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.

         The Company  leases  equipment  from  stockholders  under two operating
         leases.  The  monthly  obligations  under the leases  total  $6,500 per
         month.  Total rental  expense paid to  stockholders  for all leases was
         $78,000 in both fiscal 2000 and 1999.


NOTE 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 2000 and 1999.

                                                    2000            1999
                                                ------------    ------------
          Net sales:
               United States                    $  8,641,648    $  8,263,747
               Canada                              5,360,290       5,554,816
                                                ------------    ------------

                    Total net sales             $ 14,001,938    $ 13,818,563
                                                ============    ============

          Operating income:
               United States                    $    557,419    $     88,576
               Canada                                297,938         (33,576)
                                                ------------    ------------
                    Total operating income      $    855,357    $     55,000
                                                ============    ============

          Identifiable assets:
               United States                    $  3,646,950    $  3,975,425
               Canada                              2,411,460       1,738,553
                                                ------------    ------------

                    Total identifiable assets   $  6,058,410    $  5,713,978
                                                ============    ============
                                       37
<PAGE>

                                                                       PML, INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 12   -       FOREIGN OPERATIONS (continued)

         Net currency transaction losses from Canada were $16,677 and $30,512 in
         2000 and 1999, respectively.

         Sales between geographic areas and export sales are not material.

         The Company maintains  separate  accounting ledgers 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.


NOTE 13   -       EARNINGS PER SHARE CALCULATIONS

         Information needed to calculate basic earnings per share:


                                                      For the year ended May 31,
                                                         2000          1999
                                                      ----------    ----------
         Numerator:
              Net income                              $  392,079    $ (213,601)
              Preferred stock dividends accreted         (49,348)      (47,236)
                                                      ----------    ----------

                                                      $  342,731    $ (260,837)
                                                      ==========    ==========
         Denominator:
              Average number of common shares
                 outstanding                           1,785,441     1,780,441
              Average number of Class B common
                 stock outstanding                       211,551       211,551
                                                      ----------    ----------

         Average shares used in basic EPS calculation  1,996,992     1,991,992
                                                      ==========    ==========
         Basic (loss) income per share                $     0.17    $    (0.13)
                                                      ==========    ==========

                                       38
<PAGE>
                                                                       PML, INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 13   -       EARNINGS PER SHARE CALCULATIONS (continued)

         Information needed to calculate diluted earnings per share:


                                                      For the year ended May 31,
                                                         2000          1999
                                                      ----------    ----------
       Basic income (loss)                            $  342,731    $ (260,837)
       Add back preferred stock dividends accreted*           -             -
                                                      ----------    ----------

       Diluted (loss) income after add back of
            accreted dividends                        $  342,731    $ (260,837)
                                                      ==========    ==========

       Denominator
       Average number of common shares outstanding     1,785,441     1,780,441
       Average number of Class B common stock
            outstanding                                  211,551       211,551
       Effect of common stock equivalents*               102,636            -
       Effect of preferred convertible stock*                 -             -
                                                      ----------    ----------

       Average shares used in diluted EPS calculation  2,099,628     1,991,992
                                                      ==========    ==========

       Diluted (loss) income per share                $     0.16    $    (0.13)
                                                      ==========    ==========



         *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 2000, amounts excluded were $49,348 of accreted
         dividends, 99,117 shares of common stock equivalents and 176,786 shares
         of preferred  convertible  stock. In fiscal 1999, amounts excluded were
         $47,236  of  accreted   dividends,   99,117   shares  of  common  stock
         equivalents and 176,786 shares of preferred convertible stock.



                                       39