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, 1999

                           Commission File No. 0-21816

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


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


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

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


Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No

Indicate by check if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. Yes X No

Revenues for the most recent fiscal year:  $13,818,563

The aggregate market value of voting Common Stock held by non affiliates (based
on the closing sales price on the NASD Electronic Bulletin Board) on August 31,
1999 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 August 31, 1999, there were 1,780,441 shares of Common Stock with $0.01
par value outstanding, and 211,551 Class B Common Shares with $0.01 par value
outstanding.

Documents incorporated by reference:  N/A



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

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

<S>                                                                                <C>
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                      8

                                     Part II

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

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

Item 7.      Financial Statements and Supplementary Data                           13 & 21

Item 8.      Changes in and Disagreements with Accountants on Accounting
                and Financial Disclosure                                             14

                                    Part III

Item 9.      Directors, Executive Officers, Promoters and Control Personnel;
                Compliance with Section 16(a) of the Exchange Act                    15

Item 10.     Executive Compensation                                                  16

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

Item 12.     Certain Relationships and Related Transactions                          18

Item 13.     Exhibits, Financial Statement Schedules and Reports on Form 8-K         19
</TABLE>




<PAGE>
                                    PML, INC.

                         1999 FORM 10-KSB ANNUAL REPORT


                                     PART I


Item 1.  Description of Business

General
-------

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

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

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

Products
--------

         PML's  product line  consists of  diagnostic  products  and  supporting
materials used by both clinical and industrial  microbiologists.  Its diagnostic
products  include,  among other items,  prepared  culture media in Petri dishes,
tubes and  bottles  for use in  culturing  and  differentiating  organisms  from
specimens; various kits, disks and strips for rapid identification of organisms;
microdilution   ("MIC")   panels  for   determining   the   minimum   inhibitory
concentration of antibiotics  which may be used against the cultured  organisms;
and various  identification  stains and reagents.  Supporting  materials include
inoculating  loops for  inoculating  the specimen into culture media;  transport
media for keeping  specimens  viable until they are delivered to the laboratory;
lyophilized 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 PML's  products  have a defined shelf life ranging from
as  little  as a few  weeks  for  media in

                                       3
<PAGE>
Petri  dishes to one year or more for  products in test tubes or  bottles.  Most
products require  refrigeration  to prevent  premature  deterioration.  and some
products are stored and shipped  frozen.  Most products can be shipped by common
carrier  overnight  without  special  protective  packaging  except  in  extreme
temperatures.  Some  products,  such as  general  laboratory  reagents,  contain
hazardous chemicals and require special storage,  packaging,  and shipping.  See
"Governmental Regulation."

Marketing
---------

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

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

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

         In addition, PML has increased its focus on the industrial microbiology
market and OEM  market,  which are  growing at a faster  pace than the  clinical
market. In Fiscal 1999, the Company's sales in the industrial  segment continued
to increased,  and the Company is optimistic  about further  increases in Fiscal
2000.

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

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

                                       4
<PAGE>
Manufacturing
-------------

         At  present,  the  majority  of PML's  sales  consist  of  products  it
manufactures itself; 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
aseptically  dispensed into  presterilized  plastic Petri dishes.  As the medium
cools it gels into a semi-solid  state and is then packaged for sale.  Tubed and
bottled media are prepared in a similar  manner  except that these  products are
usually sterilized after they are dispensed.

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

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

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

Suppliers
---------

         PML's largest suppliers  provide Petri dishes,  blood, 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
-----------

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

         In the  clinical  market,  PML'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,   PML'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 PML 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. PML has


                                       5
<PAGE>
only  one  other  significant  competitor  in this  market,  which  it  competes
favorably against.

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

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

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

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

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

Employees
---------

         On  May  31,  1999  and  1998,  PML  had  approximately  166  and  160,
respectively,  full time equivalent  employees.  Minor increases and decrease to
the number of  employees  occurs  throughout  the year as  manufacturing  demand
changes.  PML's employees are located throughout North America with the heaviest
concentrations in Portland, Oregon, and Toronto, Canada.

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

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

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

         The Company maintains  product liability  insurance in the amount of $4
million  dollars.  Product  liability  insurance is limited in availability  and
restrictive  in  cost.  Based  on the  essentially  confirmatory  nature  of the


                                       6
<PAGE>
majority  of PML's  diagnostic  products,  PML's  management  believes  that the
Company is not subject to  significant  product  liability risk with its present
product line. To date, PML has never paid a product liability claim.

Item 2.  Description of Properties

         PML currently operates from five leased locations in two countries. The
Company  expects no  difficulty in extending any of its leases as they come due.
The following  chart  summarizes the  significant  facilities  which the Company
leases.
<TABLE>

                                     Approximate           Approximate
                                    Square Footage        Square Footage          Lease
            Location                Manufacturing      Admin & Distribution     Expiration
            --------                --------------     --------------------     ----------
<S>                                 <C>                <C>                      <C>
1.   Wilsonville, Oregon                 9,000               34,000             June 2004
2.   Mississauga, Ontario               16,000                3,000             November 2000
3.   Mississauga, Ontario                4,000                   -              May 2000
4.   Richmond, British Columbia          2,000                3,100             June, 2001
5.   Providence, Rhode Island               -                12,000             April, 2004
</TABLE>


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

         The Wilsonville production facility supplies conventional culture media
to the  western  United  States and  Canadian  regions  and  provides  specialty
products to all other  locations.  Equipment for the production of PML's PHASE27
blood  culture  system,   DUOTEK  sterility  testing  system,  MIC  panels,  and
dehydrated media are also located in Wilsonville.

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

Item 3.  Legal Proceedings

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









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

         The  Company  held  its  annual  meeting  on  December  3,  1998 at its
Wilsonville,  Oregon  facility.  Four  members  of the Board of  Directors  were
elected and  PricewaterhouseCoopers LLP was ratified as independent accountants.
Subsequent to the annual meeting,  the Board of Directors  appointed  Moss-Adams
LLP as  independent  accountants  in place of  PricewaterhouseCoopers  LLP,  due
solely to cost considerations.  The directors elected and the votes cast for all
matters are as follows:

                                            Votes For   Votes Against   Abstain

         Kenneth L. Minton                  1,411,678       3,550        64,000
         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 auditors           1,661,829      23,625         4,875






















                                       8
<PAGE>
                                     PART II



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

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

         For the Quarterly                High              Low
         Period Ended                   Bid Price        Bid Price
         ------------                   ---------        ---------
         May, 1999                       $0.53125         $0.53125
         February, 1999                  $0.75000         $0.43750
         November, 1998                  $0.75000         $0.37500
         August, 1998                    $1.12500         $0.87500
         May, 1998                       $1.25000         $0.87500
         February, 1998                  $2.62500         $1.25000
         November, 1997                  $2.37500         $1.31250
         August, 1997                    $1.37500         $0.59375

         The Company has not paid any cash  dividends on the Common Stock in the
past and  anticipates  that,  for the  foreseeable  future,  it will  retain any
earnings  available as dividends  for use in its business.  The  Company's  loan
agreement  does not allow the Company to declare or pay cash  dividends  without
the written  consent of the bank.  The preferred  shares have a provision  which
calls for the accretion of dividends  annually at a rate of prime plus 1.5%. May
31,  1999  accreted  dividends  totaled  $243,296.   See  Note  9  of  Notes  to
Consolidated Financial Statements.  Approximately 1,114 record holders of Common
Stock existed as of May 31, 1999.


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

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

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

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

         The Company  recognized  the importance to its operations and reporting
systems  of the Year 2000  issues  and began  addressing  the issue in 1996,  to
ensure that the  reliability of its operations as well as the  availability  and
integrity of its financial  systems will not be adversely  impacted by Year 2000
computer technology software


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

         Starting  in  September  1996  the  Company  evaluated,  selected,  and
appointed a task team to upgrade and install a  completely  new MIS system which
the  vendor  represents  to be fully  Year 2000  compliant.  This  system is now
operational.  This new IT software  package controls major  operational  systems
including purchasing,  scheduling,  inventory control, sales and distribution as
well as providing the Company's new financial systems.

         Most of the Company's  internal  systems have been evaluated and are to
be Year 2000  compliant by the end of September  1999.  The financial  impact of
future  required  system  improvements  is not  anticipated to be material.  The
Company  will also be working on  contingency  plans for  material  IT and third
party  providers  that the Company  relies upon, but at this time it is too soon
for the Company to determine if these contingency plans will be needed.

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

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

         PML is a US  incorporated  company  but  also has  several  significant
operating locations in Canada.  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  has been quite stable and has not  fluctuated  more than about 3% from
its "normal" trading range of about $.72 to $.73 (US $ equivalent rate).

         Starting  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  are such a
significant part of total operations, this decline in the Canadian exchange rate
has had a material adverse impact on the consolidated  financial  results of the
Company.

For example,  in the twelve  months ended May 31, 1999 the  Company's  net sales
were reduced, as a result of changes in the Canadian exchange rate to about $5.5
million from a historical exchange of about $6.0 million or nearly $500,000. For
this same time  period  cost of goods sold and  operating  expenses  improved by
approximately $180,000 due to the lower exchange rate. As of May 31 the exchange
loss related to current assets and liabilities  included in other expense in the
Company's  Consolidated  Statements of Operations  was about $30,000 and results
solely  from the  decline in the  exchange  rate and would be reversed in future
periods if the  Canadian/US  exchange rate returned to last year's levels.  As a
result of the decline in the  Canadian/US  exchange rate, the Company's net loss
increased  by an  estimated  $350,000  for the twelve month period ended May 31,
1999.

                                       10
<PAGE>
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.  For
the fiscal year ended May 31,  1998,  this task was made more  difficult  as the
Company  had  just  "gone  live"  on a new  and  totally  integrated  management
reporting system. As with any new system, it took many months to "debug" the new
software.  One  area in which  the  Company  encountered  more  difficulty  than
anticipated  was in estimating  credits and discounts due to customers.  Another
area with inherent  estimating  difficulty is inventory  reductions  required by
changing  market  conditions.  For the year ended May 31,  1999,  net sales were
negatively  impacted  by about  $91,000 due to a change in the  customer  credit
estimate.  For the same period,  cost of goods sold and operating  expenses were
negatively impacted by nearly $46,000 reflecting a change in inventory reserves.
The total of the adjustments to these reserves  increased the pre-tax loss by an
estimated $137,000 for the year ended May 31, 1999.

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

         The results of operations for Fiscal 1999 have been negatively affected
by several  significant  events which, when compared to Fiscal 1998,  reflects a
deterioration of current earnings.

         As discussed in the Canadian Exchange and Accounting  Estimate sections
above,  Fiscal 1999 results of operations  have been  negatively  affected by an
estimated  $487,000 due to these two items alone.  While the  management  of the
Company has no control over the Canadian/US  exchange rate,  operational actions
have occurred and will  continue to be made in an effort to mitigate,  partially
or completely,  an exchange effect for Fiscal 2000.  However,  management cannot
predict  how the  exchange  rate may react in the future.  Management  is of the
opinion  that the  accounting  estimate  charge to  earnings  will not repeat in
Fiscal 2000.

Year Ended May 31, 1999 Compared With Year Ended May 31, 1998
-------------------------------------------------------------

         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,
                                                         ------------------
                                                         1999          1998
                                                         ----          ----

         Net Sales                                       100.0%        100.0%
         Cost of Goods Sold                               63.6          61.7
                                                        ------        ------
         Gross Profit                                     36.4          38.3
         Selling, general and administrative expenses     36.0          35.3
                                                        ------        ------
         Operating Income                                  0.4           3.0
         Other expense                                     2.3           2.4
                                                        ------       -------
         Income before income taxes                       (1.9)          0.6
         Income tax expense (benefit)                     (0.4)          0.3
                                                        ------        ------
         Net income                                       (1.5)%         0.3%
                                                        ======        ======

                                       11
<PAGE>
         Sales in Fiscal 1999 totaled $13.8  million,  a decrease of $117,000 or
 .8% over Fiscal 1998.  As  discussed  above,  this year's sales were  negatively
affected  by the  Canadian  exchange.  Had the  exchange  rate  remained  at its
historical position, sales would have increased over 4% compared to Fiscal 1998.

Operating  expenses   (selling,   general  and   administrative)   increased  by
approximately  $0.7%.  The  majority of this  increase is  attributed  to higher
depreciation  levels resulting from the large MIS upgrades in capital  equipment
and freight charges  absorbed,  which resulted from backlogs  generated when the
new computer system was launched.

QUARTERLY FINANCIAL INFORMATION (Unaudited)

         The  following is a summary of unaudited  operating  results by quarter
for the fiscal years ended May 31, 1999 and 1998:
<TABLE>

         1999                               1st Qtr      2nd Qtr      3rd Qtr     4th Qtr        Total
<S>                                       <C>          <C>          <C>          <C>           <C>
         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)

         1998                                1st Qtr     2nd Qtr      3rd Qtr     4th Qtr        Total

         Net sales                        $3,430,884   $3,534,612   $3,472,101   $3,498,261    $13,935,858
         Gross profit                      1,358,058    1,315,353    1,379,064    1,283,013      5,335,488
         Net income (loss) before tax         58,638       (1,024)      41,561      (13,224)        85,951
         Net income                           32,708       (3,101)      24,043      (14,720)        38,930
         Basic earnings per share               0.01        (0.01)        0.01        (0.01)         (0.01)
         Diluted earnings per share*            0.01        (0.01)        0.01        (0.01)         (0.01)

</TABLE>

* Where the effect of the diluted  earnings (loss) per share  calculation  would
have been  anti-dilutive,  the diluted  earnings (loss) per share is 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, 1999, the Company had negative  working  capital of  approximately  $615,400
compared with a negative working capital of about $114,000 at May 31, 1998. Much
of the decrease in the current year is due to internal  investments and a strong
effort to reduce  current  and long term debt.  The ratio of  current  assets to
current  liabilities  is .87 at May 31, 1999  compared  to .98 at May 31,  1998.
Quick liquidity (current assets less inventories to current  liabilities) is .51
at May 31, 1999 and .57 at May 31, 1998.  The  twelve-month  average  collection
period for trade  receivables  was 55.1 days at May 31, 1999  compared with 52.1
days at May 31, 1998.

       Net cash  provided by  operating  activities  was $599,428 in fiscal 1999
compared  with  $164,898  used by


                                       12
<PAGE>
operations in fiscal 1998. Net cash used in investing activities was $112,573 in
fiscal 1999 compared  with $374,629 used by the Company in investing  activities
in fiscal 1998.  The Company spent  $113,723 on the purchase of plant,  property
and  equipment  during  fiscal  1999,  compared  with  $414,158 in fiscal  1998.
Financing  activities  consumed cash of ($649,789),  primarily from decreases in
short-term and long-term debt,  compared with providing cash of $628,622 in 1998
from increases in the bank line of credit and a long-term lease on the Company's
new MIS reporting system.

       The  Company  has a line of credit  that has a current  maturity  date of
November 30, 2000. This line of credit is secured  substantially with all of the
assets of the Company.  The  available  amount under the line of credit is based
upon 80% to 85% of the eligible  accounts  receivable and 30% to 40% of eligible
inventory at the end of each reporting period, not to exceed $2.5 million.  This
loan will be repaid  primarily out of the Company's  receivable  collections and
other cash provided by operating activities.

       The Company may require additional capital to finance current operations,
make enhancements to or expansions of its manufacturing  capacity, in accordance
with its business strategy, or for additional working capital, for inventory and
accounts  receivable.  The Company may also seek additional funds through public
or private  debt or through bank  borrowings.  No  assurances  can be given that
future  financings  will be  available  with terms  acceptable  to the  Company.
Without such future financing,  the Company's ability to finance its growth will
be limited.
<TABLE>
       The Company's total debt structure at May 31, 1999 is as follows:

                                                                           Long-Term     Current-Portion

<S>                                                                       <C>              <C>
     Revolving credit at prime plus 2.0%, due November 30, 2000           $         0      $ 1,714,450
     Note payable at prime plus 2.0%, due November 30, 2000                    58,306          100,008
     Note payable at 10%, due January 2000                                          0           10,000
     Note payable at prime plus 1%, due December 1999                          35,821           11,679
     Note payable at 8%, due May 2000                                               0           27,873
     Capital Lease obligations, due January 2001                               52,145           70,206
     Note payable at 6%, due May 2005                                          50,000           10,000
     Note payable at 12%, due April 2000                                            0           64,770
     Trade A/P converted to notes payable at 6%, due February 2001            172,769          209,360
                                                                          -----------      -----------

       Total Bank and Term debt                                           $   369,041      $ 2,218,346

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

     Total long and short term debt                                       $   369,041      $ 2,465,897
                                                                          ===========      ===========
</TABLE>

Item 7.  Financial Statements and Supplementary Data

         The information required by this item starts on page 21 of this report.

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

         PML, Inc. engaged Moss Adams, LLP as its new independent accountants as
of March 15, 1999. There have been no disagreements  with the accountants on any
matter of accounting principles or practices,  financial statement  disclosures,
or auditing scope or procedures.



                                       13
<PAGE>
         The  Board  of  Directors  of  PML,  Inc.   dismissed  its  independent
accountants,  PricewaterhouseCoopers  LLP on March  15,  1999.  The  reports  of
PricewaterhouseCoopers LLP on the consolidated financial statements of PML, Inc.
as of May 31, 1998 and for the year then ended contained no adverse  opinions or
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope or accounting principle.  In connection with its audit of the consolidated
financial statements of PML, Inc. as of May 31, 1998 and for the year then ended
and   through   March   15,   1999,   there   were   no    disagreements    with
PricewaterhouseCoopers  LLP on matters of  accounting  principles  or practices,
financial  statement   disclosure,   or  auditing  scope  or  procedure,   which
disagreements if not resolved to the satisfaction of PricewaterhouseCoopers  LLP
would  have  caused  them to make  reference  thereto  in  their  report  on the
consolidated financial statements for such years.

























                                       14
<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, 1999 are
as follows:
                                                                 Term as
                Name                     Position            Director Expires
                ----                     --------            ----------------
         A. Ron Torland            Chairman of the Board           1999
                                   Secretary, Treasurer

         Kenneth L. Minton         President and
                                   Chief Executive Officer
                                   Director                        1999

         Douglas C. Johnson        Director                        1999

         Craig S. Montgomery       Director                        1999


         A.  Ron  Torland,  age 52,  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 49, 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 43, 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.,  45, 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.

                                       15
<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  following  table  sets  forth the  compensation  of all  executive
officers of the  Company  for the fiscal year ending May 31, 1999 and 1998,  who
earned total annual salary and bonuses during that period in excess of $100,000.
<TABLE>

     Name of Individual        Annual Compensation
        and Position                 Year          Salary         Bonus     Other Compensation
        ------------                 ----          ------         -----     ------------------
<S>                                  <C>           <C>            <C>       <C>
     Kenneth L. Minton, CEO          1999          150,026          None        None
                                     1998          150,026          None        None

     Woody Streb, VP Marketing       1999          107,881        23,000        None
                                     1998          103,025         8,000        None
</TABLE>

         No officer,  director  or employee  was  beneficiary  of any  long-term
compensation or other  compensation in excess of the dollar values  reflected in
item  402(b)(2)(iii)(c).  No director  received any  compensation for his or her
services as a director.


Item 11.  Security Ownership of Certain Beneficial Owners and Management

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

                                                              Amount and
                           Name and Address                   Nature of      Percent
     Title of              of Beneficial                      Beneficial    of Class
     Class                 Owner                              Ownership
------------------         ------------------------------     -----------   --------
<S>                        <C>                                <C>              <C>
     Common Shares         A. Ron Torland                     183,381 (a)      10.3%
                           10595 SW Kiowa Street
                           Tualatin, OR  97062

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

     Common Shares         Douglas C. & Joanne E. Johnson     266,832  (b)     15.0%


                                       16
<PAGE>
                           8728 SW Pamlico Court
                           Tualatin, OR  97062

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

     Common Shares         Marcia & Stan Drake                122,243           6.9%
                           28890 S. Beavercreek Rd.
                           Mulino, OR  97042

     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

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 bt 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 of these 70,500 shares, and Mary Lou
     Ham disclaims any beneficial interest in these shares.







                                       17
<PAGE>
         The  directors  and  officers of the Company,  as a group,  own 624,556
common shares,  representing  35.1% 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 and formerly leased laboratories
and office  facilities  from Arthur & Bessie Torland,  Julian  Torland,  and Ron
Torland,  some of whom hold more than ten  percent of certain  classes of voting
securities of the Company under three  operating  leases.  Total rental  expense
incurred under these four operating leases was approximately $78,500 and $80,500
in fiscal  1999 and 1998,  respectively.  (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
extends  for six  years,  the  Company  will  manufacture  and  market  products
developed  by DDI and pay a royalty  based upon the number of units sold.  Total
royalties  of $11,404  were  incurred in fiscal 1999 and $11,403 in fiscal 1998.
DDI is owned by Messrs.  Arthur and Ron Torland,  both shareholders  owning more
than ten  percent  of a class of stock of the  Company.  Ron  Torland  is also a
director of the Company.

         Joanne E. Johnson,  wife of director Doug C.  Johnson;  Ron Torland,  a
stockholder and director;  Arthur & Bessie Torland,  shareholders;  and L. Bruce
Ham, brother-in-law of a director all have five year six percent notes issued in
fiscal 1996. In fiscal 1996 this group of shareholders paid off a small group of
the Company's  Accounts Payable vendors who would not accept the Company's offer
to exchange these  liabilities  for five year notes.  Instead the Company issued
these  notes to this group of  shareholders  and the notes now have a balance of
$71,211 at May 31, 1999.

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













                                       18
<PAGE>
Item 13.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

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

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

    3             Articles of Incorporation and Bylaws

    4             Instruments defining the rights of holder (none)

    9             Voting Trust Agreement (none)

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


   16             Letter on changes and certifying accountants

   18             Letter on change in accounting principles

   19             Previously unfiled documents (none)

   21             Subsidiaries of Registrant

   22             Published report regarding matters submitted to vote (none)

   23    *        Consent of independent accountants

   24             Power of Attorney (none)

   28             Additional exhibits (none)

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


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

         Change     in     Registrant's      Certifying     Accountants     from
PricewaterhouseCoopers LLP, to Moss-Adams LLP.








                                       19
<PAGE>
                                   SIGNATURES

         In  accordance  with  Section  13 or 15(d)  of the  Exchange  Act,  the
Registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto  duly  authorized  in the City of  Wilsonville,  State of  Oregon,  on
September 10, 1999.

                              PML, INC.

                              By: /s/ Kenneth L. Minton
                                 -----------------------
                                 Kenneth L. Minton, Chief Executive Officer



         In accordance  with the Exchange Act, this report has been signed below
by the following  persons on September 10, 1999, on behalf of the Company and in
the capacities indicated.


Signatures                    Title



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


/s/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










                                       20
<PAGE>

                                    PML, INC.


                          INDEPENDENT AUDITOR'S REPORT
                                       AND
                              FINANCIAL STATEMENTS


                              MAY 31, 1999 AND 1998




<PAGE>









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



                                                                       Page
                                                                       ----

INDEPENDENT AUDITOR'S REPORT                                            21


CONSOLIDATED FINANCIAL STATEMENTS
    Consolidated balance sheets                                         22
    Consolidated statements of operations                               23
    Consolidated statement of changes in stockholders' equity           24
    Consolidated statements of cash flows                               25
    Notes to financial statements                                    26 - 41






<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, 1999,
and the related consolidated statements of operations, changes in stockholder's
equity, and cash flows for the year 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. The financial
statements of PML, Inc. as of May 31, 1998, were audited by other auditors whose
report dated August 21, 1998, expressed an unqualified opinion on these
statements.

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, 1999,
and the results of its operations and its cash flows for the year then ended, in
conformity with generally accepted accounting principles.




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



Beaverton, Oregon
August 6, 1999


                                       21


<PAGE>
                        Report of Independent Accountants


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

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of cash flows and of changes in
stockholders' equity present fairly, in all material respects, the financial
position of PML, Inc. (formerly MEDA, Inc.) and its subsidiary at May 31, 1998,
and the reults of their operations and their cash flows for the year then ended,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above. We have not audited the consolidated financial statements of PML, Inc.
and its subsidiary for any period subsequent to May 31, 1998.



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


Portland, Oregon
August 21, 1998
                                       21a
<PAGE>
                                                                       PML, INC.
                           CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
<TABLE>
                                                                                             May 31,
                                                                               ------------------------------------
                                                                                    1999                1998
                                                                               ----------------    ----------------
                                   ASSETS
<S>                                                                          <C>                 <C>
CURRENT ASSETS
     Cash                                                                    $             571   $         163,505
     Trade accounts receivable, net                                                  2,106,210           2,145,257
     Inventories                                                                     1,670,459           1,916,818
     Prepaid expenses and other                                                         74,675             113,931
     Deferred income taxes                                                             209,000             276,604
                                                                               ----------------    ----------------

              Total current assets                                                   4,060,915           4,616,115
                                                                               ----------------    ----------------

PROPERTY, PLANT, AND EQUIPMENT, net                                                  1,453,222           1,754,993

INTANGIBLE ASSETS, net                                                                  27,469              20,928

DEFERRED INCOME TAXES                                                                  136,000                   -

OTHER ASSETS                                                                           104,768             126,453
                                                                               ----------------    ----------------

                                                                             $       5,782,374   $       6,518,489
                                                                               ================    ================

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
     Bank line of credit                                                     $       1,714,450   $       1,987,548
     Accounts payable                                                                1,596,512           1,505,707
     Accrued salaries and wages                                                        312,964             256,027
     Other accrued liabilities                                                         300,948             321,415
     Notes payable - related parties                                                   247,551             247,551
     Current portion  of capital lease obligations                                      70,153              90,731
     Current portion of long-term debt - related parties                                77,891              73,507
     Current portion of long-term debt                                                 355,852             248,018
                                                                               ----------------    ----------------

              Total current liabilities                                              4,676,321           4,730,504
                                                                               ----------------    ----------------

CAPITAL LEASE OBLIGATIONS, less current portion                                         52,145             122,197
                                                                               ----------------    ----------------

LONG TERM DEBT, related parties less current portion                                    58,985             115,197
                                                                               ----------------    ----------------

LONG TERM DEBT, less current portion                                                   257,911             599,978
                                                                               ----------------    ----------------

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                         738,296             691,060
     Common stock, $.01 par value; authorized 2,500,000 shares,
        issued and outstanding 1,780,441 shares                                         17,804              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                                                        146,540             146,540
     Retained earnings (deficit)                                                      (167,744)             93,093
                                                                               ----------------    ----------------

                                                                                       737,012             950,613
                                                                               ----------------    ----------------

                                                                             $       5,782,374   $       6,518,489
                                                                               ================    ================

</TABLE>

See accompanying notes.                22
--------------------------------------------------------------------------------

<PAGE>
                                                                       PML, INC.
                                           CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
                                                Year ended May 31,
                                      ----------------------------------------
                                            1999                  1998
                                      ------------------    ------------------

NET SALES                           $        13,818,563   $        13,935,858

COST OF GOODS SOLD                            8,788,331             8,600,370
                                      ------------------    ------------------

GROSS PROFIT                                  5,030,232             5,335,488

OPERATING EXPENSES                            4,975,232             4,914,652
                                      ------------------    ------------------

OPERATING INCOME                                 55,000               420,836

OTHER EXPENSE
     Interest expense, net                      310,755               334,299
     Miscellaneous                                8,344                   586
                                      ------------------    ------------------

                                                319,099               334,885
                                      ------------------    ------------------

NET INCOME (LOSS) BEFORE INCOME
     TAX PROVISION                             (264,099)               85,951

INCOME TAX EXPENSE (BENEFIT)                    (50,498)               47,021
                                      ------------------    ------------------

NET INCOME (LOSS)                   $          (213,601)  $            38,930
                                      ==================    ==================



NET INCOME (LOSS) PER COMMON SHARE
     Basic                          $            (0.13)   $            (0.01)
                                      ==================    ==================
     Diluted                        $            (0.13)   $            (0.01)
                                      ==================    ==================


See accompanying notes.                23
--------------------------------------------------------------------------------

<PAGE>
<TABLE>
                                                                       PML, INC.
                       CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------
                                         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, 1997                 4,950  $ 641,561   1,776,816  $ 17,768   211,551  $ 2,116  $ 144,701   $ 103,662   $ 909,808

  Preferred stock dividends accreted    -       49,499         -         -         -        -          -       (49,499)        -
  Common stock returned
     and canceled                       -          -          (125)       (1)      -        -            1         -           -
  Stock options exercised               -          -         3,750        37       -        -        1,838         -         1,875
  Net income                            -          -           -         -         -        -          -        38,930      38,930
                                     ------  ---------  ----------  --------  --------  -------  ---------   ----------  ---------

BALANCE, MAY 31, 1998                 4,950    691,060   1,780,441    17,804   211,551    2,116    146,540      93,093     950,613
                                     ------  ---------  ----------  --------  --------  -------  ---------   ----------  ---------

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

</TABLE>


See accompanying notes.                24
--------------------------------------------------------------------------------

<PAGE>
<TABLE>
                                                                       PML, INC.
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
                                                                       Year ended May 31,
                                                                ---------------------------------
                                                                     1999              1998
                                                                --------------    ---------------
<S>                                                           <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
     Net income (loss)                                        $      (213,601)  $         38,930
     Adjustments to reconcile net income (loss) to net cash
        from operating activities:
        Depreciation and amortization                                 408,451            361,247
        Deferred income taxes                                         (68,396)            42,250
        Gain on disposition of assets                                    (648)           (19,297)
     Changes in:
        Accounts receivable                                            39,047           (371,811)
        Inventories                                                   246,359           (456,754)
        Other assets                                                   60,941            (46,650)
        Accounts payable and accrued liabilities                      127,275            287,187
                                                                --------------    ---------------
              Net cash from operating activities                      599,428           (164,898)
                                                                --------------    ---------------

CASH FLOWS FROM INVESTING ACTIVITIES
     Proceeds from sale of assets                                       1,150             39,529
     Purchase of property, plant and equipment                       (113,723)          (414,158)
                                                                --------------    ---------------

              Net cash from investing activities                     (112,573)          (374,629)
                                                                --------------    ---------------

CASH FLOWS FROM FINANCING ACTIVITIES
     Net proceeds (payments) on line of credit                       (273,098)           738,620
     Principal payments on notes payable - related parties            (51,828)                 -
     Proceeds from issuance of capital lease obligations                    -            220,000
     Principal payments on capital lease obligations                  (90,630)           (87,461)
     Principal payments on long-term debt                            (234,233)          (244,412)
     Proceeds from issuance of common stock                                 -              1,875
                                                                --------------    ---------------

              Net cash from financing activities                     (649,789)           628,622
                                                                --------------    ---------------

NET INCREASE (DECREASE) IN CASH                                      (162,934)            89,095

CASH AND CASH EQUIVALENTS, beginning of year                          163,505             74,410
                                                                --------------    ---------------

CASH AND CASH EQUIVALENTS, end of year                        $           571   $        163,505
                                                                ==============    ===============

SUPPLEMENTAL DISCLOSURES OF CASH
     FLOW INFORMATION
        Interest paid                                         $       315,670   $        342,631
        Income tax paid                                       $         9,792   $         10,117
        Non-cash items:
           Preferred stock dividends accreted                 $        47,236   $         49,499
           Common stock returned and canceled                 $             -   $              1

</TABLE>

See accompanying notes.                25
--------------------------------------------------------------------------------
<PAGE>
                                                                       PML, INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 1    -       ORGANIZATION AND BASIS OF PRESENTATION

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

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

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


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. 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
         of 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
         $50,414 and $30,000 was recorded at May 31, 1999 and 1998,
         respectively.

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


                                       26

<PAGE>
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 12 years. Amortization of leasehold
         improvements is provided using the straight-line method over the
         estimated useful lives of the assets or the initial term of the lease,
         whichever is shorter.

         Intangible assets - Intangible assets 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 also has a profit sharing
         plan which covers eligible Canadian employees. The Company is required
         to fund out of profits, a minimum contribution of $100 (CDN) per
         participant. The Company recorded $5,202 and $4,819 of profit sharing
         expense in fiscal 1999 and 1998, respectively.

         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, 1999.


                                       27
<PAGE>
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 60 to 90 day range. However,
         this customer base is very stable and the Company has experienced a
         very low level of uncollectible accounts in the past. Concentration of
         credit risk with respect to trade receivables is limited because a
         relatively large number of customers are spread throughout the United
         States and Canada. The Company controls credit risk through credit
         approvals, credit limits, and monitoring procedures. The Company
         performs credit evaluations for all new customers and requires advance
         payments if deemed necessary.

         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.



NOTE 3    -       INVENTORIES

         Inventories consist of:

                                           May 31,
                             ------------------------------------
                                  1999                1998
                             ----------------    ----------------

        Raw materials      $         875,434   $         982,159
        Work-in-process               55,388              31,013
        Finished goods               739,637             903,646
                             ----------------    ----------------

                           $       1,670,459   $       1,916,818
                             ================    ================







                                       28
<PAGE>
NOTE 4   -        PROPERTY, PLANT AND EQUIPMENT

         Property, plant and equipment consist of:
<TABLE>

                                                               May 31,
                                                ------------------------------------
                                                     1999                1998
                                                ----------------    ----------------

<S>                                           <C>                 <C>
        Manufacturing equipment               $       2,628,236   $       2,549,702
        Office furniture and equipment                1,211,889           1,189,254
        Service vehicles                                 17,754              19,756
        Leasehold improvements                          743,120             738,464
                                                ----------------    ----------------

                                                      4,600,999           4,497,176
        Less accumulated depreciation and
           amortization                               3,147,777           2,742,183
                                                ----------------    ----------------

                                              $       1,453,222   $       1,754,993
                                                ================    ================
</TABLE>



NOTE 5   -        NOTES PAYABLE TO RELATED PARTIES

         Notes payable to related parties consisted of unsecured demand notes at
         prime rate plus 1% (8.75% and 9.5% at May 31, 1999 and 1998,
         respectively) totaling $247,551 at May 31, 1999 and 1998.

         These related party notes are due upon demand based upon the original
         promissory notes, and are, therefore, classified within current
         liabilities. However, the Company only anticipates repaying these notes
         if operating results in fiscal 2000 substantially exceed management's
         estimates. These notes are subordinated to the debt of the Company's
         primary lender.


NOTE 6    -       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 2.0% or 9.75 % and 10.5% at May 31, 1999 and 1998,
         respectively, and is collateralized by accounts receivable and
         inventory. The amount borrowed was $1,714,450 and $1,987,548 at May 31,
         1999 and 1998, respectively.





                                       29
<PAGE>
NOTE 7    -       LONG-TERM DEBT
<TABLE>

         Borrowings consisted of the following:
                                                                                  May 31,
                                                                     --------------------------------
                                                                          1999               1998
                                                                     ---------------    -------------
<S>                                                                  <C>               <C>
Norwest 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.                                  $   158,314     $     258,322
JP Wilsonville, LLC:
      Unsecured note payable due in monthly
        installments of $2,202, including interest
        of 12% for 36 months and unpaid balance
        due April 1, 2000.                                                64,770            82,268
Les Leno:
      Note payable through May 2005 in yearly
        principal installments of $10,000, interest
        at 6% related to termination settlement
        with former president.                                            60,000            70,000
Various vendors:
      Unsecured notes payable with 6% interest due
        in installments through February 2001.                           330,679           437,406
                                                                     -------------    -------------

                                                                          613,763          847,996
Less current portion                                                     (355,852)        (248,018)
                                                                     -------------    -------------

                                                                     $    257,911     $    599,978
                                                                     =============    =============

</TABLE>
         Maturities of long-term debt, including the long-term debt due related
parties disclosed in Note 9, are as follows:


        Years ending May 31,
                     2000                $         433,743
                     2001                          276,896
                     2002                           10,000
                     2003                           10,000
                     2004                           10,000
                  Thereafter                        10,000
                                           ----------------

                                         $         750,639
                                           ================




                                       30
<PAGE>
NOTE 7    -       LONG-TERM DEBT - (continued)

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


NOTE     8 - LONG-TERM DEBT DUE RELATED PARTIES Long-term debt due related
         parties consisted of the following:

Various - Related parties:
      Unsecured notes payable with 6% interest due
         in installments through February 2001.     $    51,503   $    71,211

Ethel Wildt:
      Unsecured note payable with interest at
         prime plus 1%, due November 1998.                    -         6,383

Mary Brown:
      Unsecured note due in installments of $2,425
         including interest through May 2000,
         related to purchase of common stock.            27,873        53,610

Ronald Torland:
      Unsecured demand note with interest at 10%
         due January 1999 to a related party.            10,000        10,000
      Unsecured note payable with interest at
         prime plus 1%, due December 1999.               47,500        47,500
                                                     -----------   -----------

                                                        136,876       188,704
Less current portion                                    (77,891)      (73,507)
                                                     -----------   -----------

                                                    $    58,985   $   115,197
                                                     ===========   ===========

                                       31
<PAGE>
NOTE 9    -       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:

         o   Stated Value - $100 per share.

         o   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.

         o   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.

         o   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.

                                       32
<PAGE>
NOTE 9    -       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 1999, the
         company did not grant any stock options During fiscal 1998, the Company
         granted 80,000 options, expiring within ten years or less depending on
         the specific agreements, at option prices of $0.594 to $0.625 per
         share. Only 3,750 of all options granted to date have been exercised.

         A summary of the status of the options granted under the Plans at May
         31, 1999 and 1998, together with changes during the periods then ended,
         are following. Options exercisable at May 31, 1999 and 1998 were
         229,357 and 173,179, respectively.

                                                                 Weighted
                                                                 Average
                                                 Options      Exercise Price
                                             --------------   --------------
       Outstanding at May 31, 1997                 350,714             0.62
         Options granted at market price            80,000             0.60
         Options exercised                          (3,750)            0.50
         Options canceled or expired               (42,857)            1.03
                                             --------------   --------------
       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



         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:




                                       33
<PAGE>
NOTE 9    -       STOCKHOLDERS' EQUITY - (continued)
<TABLE>


                                                                1999             1998
                                                           -------------    -------------


<S>                                                          <C>               <C>
       Net income (loss), as reported                        $ (213,601)       $ 38,930
       Net income (loss), pro forma                          $ (310,998)        $ 2,067
       Basic earnings (loss) per share, as reported             $ (0.13)        $ (0.01)
       Diluted earnings (loss) per share, as reported           $ (0.13)        $ (0.01)
       Basic earnings (loss) per share, pro forma               $ (0.18)        $ (0.02)
       Diluted earnings (loss) per share, pro forma             $ (0.18)        $ (0.02)

</TABLE>



         The effects of applying SFAS 123 to pro forma disclosures for 1999 and
         1998 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 1999 and 1998: expected
         volatility 144%, expected dividend yield of 0%; risk-free rate of
         return of 5.6%; and expected lives of five years.

         Total fair value of options granted was computed to be $45,301 for the
         year ended May 31, 1998. No options were granted for the year ended May
         31, 1999.

         The following table summarizes information about options outstanding at
May 31, 1999.

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

        $0.3125 - $0.625          359,107           $ 0.47            1.84
                   $1.50           25,000           $ 1.50            5.32


         Stock Bonus - No stock bonuses were accrued or paid in the fiscal years
ended May 31, 1999 or May 31, 1998.



                                       34
<PAGE>
NOTE 10   -       COMMITMENTS AND CONTINGENCIES

         The Company leases certain laboratories, facilities, and equipment
         under noncancelable long-term lease arrangements which also require the
         Company to pay executory costs such as property taxes, maintenance, and
         insurance. The laboratories, facilities, and equipment leases are
         operating and capital leases which expire in various years through
         2004. Generally, such operating leases include renewal options ranging
         from one to seven years. Rental expense for operating leases was
         $563,148 and $593,786 in fiscal 1999 and 1998, respectively. Certain of
         the operating leases represent related party transactions. See note 11.

         The future expected rental commitments as of May 31, 1999, for all
         long-term noncancellable operating leases are as follows:
<TABLE>

              Years ending                                                 Capital           Operating
                 May 31,                                                   Leases              Leases
              --------------                                            --------------    -----------------
<S>               <C>                                                 <C>               <C>
                  2000                                                $        81,358   $          455,021
                  2001                                                         55,471              351,977
                  2002                                                              -              293,659
                  2003                                                              -              282,000
                  2004                                                              -               32,702
               Thereafter                                                           -                    -
                                                                        --------------    -----------------

                  Total                                                       136,829   $        1,415,359
                                                                                          =================

              Less amount representing interest                               (14,531)
                                                                        --------------

              Present value of capital lease obligations                      122,298

              Less current portion                                            (70,153)
                                                                        --------------

              Long-term portion                                       $        52,145
                                                                        ==============

</TABLE>


NOTE 11   -       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.


                                       35
<PAGE>
NOTE 11   -       INCOME TAXES (continued)

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

                                                                           May 31,
                                                  -----------------------------------------------------------
                                                                1999                          1998
                                                  ----------------------------   ----------------------------

                                                      Amount             %            Amount            %
                                                  ---------------    ---------   ---------------   ----------
<S>                                             <C>                       <C>  <C>                       <C>
Federal statutory expense at 34%                $        (89,794)         34%  $         29,223          34%
Increase (decrease) in tax resulting from:
   Nondeductible permanent differences                     4,539          -2%            12,194          14%
   State and Canadian income taxes                        34,757         -13%             5,604           7%
                                                  ---------------    ---------   ---------------   ----------

                                                $        (50,498)         19%  $         47,021          55%
                                                  ===============    =========   ===============   ==========

</TABLE>

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

                                                   May 31,
                                     ----------------------------------
                                          1999               1998
                                     ---------------    ---------------

Current tax expense                $         17,898   $          4,771
Deferred tax expense                        (68,396)            42,250
                                     ---------------    ---------------
                                   $        (50,498)  $         47,021
                                     ===============    ===============


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

                                                  May 31,
                                    ----------------------------------
                                         1999               1998
                                    ---------------    ---------------

Domestic                          $       (118,009)  $       (152,602)
Foreign                                   (146,090)           238,553
                                    ---------------    ---------------

      Income before income taxes  $       (264,099)  $         85,951
                                    ===============    ===============



                                       36
<PAGE>
NOTE 11   -       INCOME TAXES (continued)

         At May 31, 1999 and 1998, the significant components of the Company's
         deferred tax assets and liabilities are as follows:
<TABLE>

                                                                            May 31,
                                                                ---------------------------------
                                                                     1999              1998
                                                                ---------------    --------------
<S>                                                           <C>               <C>
          Current deferred tax assets:
             Vacation accrual                                 $         35,600  $         76,944
             Allowance for doubtful accounts                            17,100            11,580
             Net operating loss carryforwards                          102,000           148,905
             Other                                                      54,300            39,175
                                                                ---------------    --------------

                                                              $        209,000  $        276,604
                                                                ===============    ==============

          Non-current deferred tax asset:
             Net operating loss carryforwards                 $        257,000  $        117,284

          Non-current deferred tax liability:
             Depreciation differences between
                   financial and tax accounting                       (121,000)         (117,284)
                                                                ---------------    --------------

                                                              $        136,000   $             -
                                                                ===============    ==============

</TABLE>



         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, 1999, the Company has
         available approximately $1,055,157 of unused operating loss
         carryforwards, to offset domestic taxable income, which expire in 2010
         and 2019.



                                       37
<PAGE>
NOTE 12   -       RELATED PARTY TRANSACTIONS

         The Company has entered into a Technology License Agreement with
         Definitive Diagnostics, Inc. ("DDI"). Certain stockholders and officers
         of the Company are also stockholders and officers of DDI. Under the
         terms of the agreement, which began on June 1, 1992, was modified on
         February 28, 1997, and extends over seven years from the original date,
         the Company manufactures and markets the products developed by DDI and
         paid a royalty of $.50 per unit through May 31, 1997. Effective June 1,
         1997, royalties range from $.15 to $.35 per unit until $500,000 has
         been paid, and then will be $.00 to $.15 per unit for the remaining
         life of the agreement. Total royalties of $11,414 and $11,403 were
         incurred in fiscal 1999 and 1998, respectively.

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

         The Company leases laboratories, office facilities and equipment from
         stockholders under three operating leases. The monthly obligations
         under the leases were $5,000 per month on a month-to-month basis, which
         was discontinued in June 1997, $5,500 per month, expiring May 31, 1999;
         and $1,000 per month expiring May 31, 2000. Total rental expense paid
         to stockholders for all leases was approximately $78,000 and $80,500 in
         fiscal 1999 and 1998, respectively.

         One of the leases the Company entered into was a five-year equipment
         lease agreement ("Agreement") with DDI, commencing June 1, 1992. Under
         the Agreement, the Company is required to pay rent in the amount of
         $1,000 per month for four months, $2,500 per month for the following
         eight months, $4,000 per month for the following 12 months, and $5,500
         per month for the remaining 36 months. Upon termination of the
         Agreement in 2000, the Company may renew the lease at $5,500 per month
         for 12 months or purchase the equipment at its fair market value.




                                       38
<PAGE>
NOTE 13   -       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 1999 and 1998.

<TABLE>


                                                      1999                   1998
                                               -------------------     -----------------
<S>                                          <C>                     <C>
Net sales:
     United States                           $          8,263,747    $        8,223,118
     Canada                                             5,554,816             5,712,740
                                               -------------------     -----------------

           Total net sales                   $         13,818,563    $       13,935,858
                                               ===================     =================

Operating income:
     United States                           $             88,576    $           74,073
     Canada                                               (33,576)              346,763
                                               -------------------     -----------------

           Total operating income            $             55,000    $          420,836
                                               ===================     =================

Identifiable assets:
     United States                           $          3,975,425      $      4,649,983
     Canada                                             1,738,553             1,868,506
                                               -------------------     -----------------

           Total identifiable assets         $          5,713,978    $        6,518,489
                                               ===================     =================

</TABLE>


         Net currency transaction losses from Canada were $30,512 and $61,086 in
         1999 and 1998, respectively.

         Sales between geographic areas and export sales are not material.

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



                                       39
<PAGE>
NOTE 14   -       EARNINGS PER SHARE CALCULATIONS
<TABLE>
         Information needed to calculate basic earnings per share:


                                                       For the year ended May 31,
                                                       1999                 1998
                                                  ----------------     ----------------
<S>                                             <C>                  <C>
Numerator:
     Net income                                 $        (213,601)   $          38,930
     Preferred stock dividends accreted                   (47,236)             (49,499)
                                                  ----------------     ----------------

                                                $        (260,837)   $         (10,569)
                                                  ================     ================

Denominator:
     Average number of common shares
        outstanding                             $       1,780,441    $       1,778,822
     Average number of Class B common
        stock outstanding                                 211,551              211,551
                                                  ----------------     ----------------

Average shares used in basic EPS calculation    $       1,991,992    $       1,990,373
                                                  ================     ================

Basic (loss) income per share                   $           (0.13)   $           (0.01)
                                                  ================     ================



         Information needed to calculate diluted earnings per share:

                                                       For the year ended May 31,
                                                       1999                 1998
                                                  ----------------     ----------------
Numerator
Basic income                                    $        (260,837)   $         (10,569)
Add back preferred stock dividends accreted*                    -                    -
                                                  ----------------     ----------------

Diluted (loss) income after add back of
     accreted dividends                         $        (260,837)   $         (10,569)
                                                  ================     ================

Denominator
Average number of common shares outstanding             1,780,441            1,778,822
Average number of Class B common stock
     outstanding                                          211,551              211,551
Effect of common stock equivalents*                             -                    -
Effect of preferred convertible stock*                          -                    -
                                                  ----------------     ----------------

Average shares used in diluted EPS calculation          1,991,992            1,990,373
                                                  ================     ================

Diluted (loss) income per share                 $           (0.13)   $           (0.01)
                                                  ================     ================

</TABLE>


                                       40
<PAGE>



NOTE 14   -       EARNINGS PER SHARE CALCULATIONS - (continued)

         *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 1999, amounts excluded were $47,236 of accreted
         dividends, 99,117 shares of common stock equivalents and 176,786 shares
         of preferred convertible stock. In fiscal 1998, amounts excluded were
         $49,499 of accreted dividends, 71,890 shares of common stock
         equivalents and 176,786 shares of preferred convertible stock.



                                       41