10-K

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                       -----------------------------------

                                    FORM 10-K

(Mark one)

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

                                       OR

[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from __________ to ________

                           Commission File No. 0-15360

                        BIOJECT MEDICAL TECHNOLOGIES INC.
             (Exact name of registrant as specified in its charter)

             Oregon                                     93-1099680
- --------------------------------------        ---------------------------------
(State of other jurisdiction of               (I.R.S. identification no.)
 incorporation or organization)

      7620 SW Bridgeport Road
       Portland, Oregon                                    97224
- --------------------------------------        ---------------------------------
(Address of principal executive offices)                (Zip code)


(Registrant's telephone number, including areas code)  (503) 639-7221

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

   Title of each class                 Name of each exchange on which registered
- -------------------------              -----------------------------------------
         None                                           None

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

                                 Title of Class
                          ----------------------------
                           Common Stock, no par value

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrants  knowledge,  in definitive  proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

State the aggregate market value of voting stock held by  non-affiliates  of the
registrant, as of May 31, 1999: $50,594,111


Indicate the number of shares  outstanding of each of tFhe registrant's  classes
of common  stock,  as of May 29, 1999:  Common Stock,  no par value,  29,011,236
shares.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the  registrant's  definitive  Proxy  Statement  for the 1999 Annual
Shareholders' Meeting are incorporated by reference into Part III.




                                Table of Contents

                                     PART I

Item 1.   Business

Item 2.   Properties

Item 3.   Legal Proceedings

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

                                     PART II

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

Item 6.   Selected Consolidated Financial Data

Item 7.   Management's Discussion and Analysis of Financial Condition and
          Results of Operations

Item 8.   Consolidated Financial Statements and Supplementary Data

Item 9.   Changes  in and  Disagreements  with  Accountants  on  Accounting  and
          Financial Disclosure

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant

Item 11.  Executive Compensation

Item 12.  Security Ownership of Certain Beneficial Owners and Management

Item 13.  Certain Relationships and Related Transactions

                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K





                                     PART I

ITEM 1.   BUSINESS

FORWARD-LOOKING STATEMENTS

This annual report contains forward-looking statements within the meaning of the
Private  Securities   Litigation  Reform  Act  of  1995.  These  forward-looking
statements  concern,  among other  things,  future  product  development  plans,
anticipated  revenues  from product sales and  licensing  and  technology  fees,
anticipated  proceeds  from the sale of the Company's  blood glucose  monitoring
technology, expected sufficiency of capital resources, future sources of working
capital,  and Year  2000  issues.  These  forward-looking  statements  are often
identified  with  a  cross-reference  to  this  section.   Such  forward-looking
statements are based on  expectations,  assumptions,  estimates and  projections
about the Company and the  industry in which the Company  operates  that involve
risks  and   uncertainties.   These   forward-looking   statements  are  usually
accompanied by words such as "believe",  "anticipate", "plan", "seek", "expect",
"intend" and similar expressions. These forward-looking statements involve known
and unknown risks,  uncertainties and other factors that may cause the Company's
actual results or industry results to be materially  different from the results,
performance,  or  achievements  discussed  or  implied  in  the  forward-looking
statements.  These  risks,  uncertainties  and other  factors  include,  without
limitation  and  inclusive of risks,  those  described  in the  "Business - Risk
Factors" and  "Management's  Discussion and Analysis of Financial  Condition and
Results  of  Operations"   sections  of  this  annual  report.   Forward-looking
statements are based on the estimates and opinions of management on the date the
statements are made. The Company assumes no obligation to update forward-looking
statements if conditions or  management's  estimates or opinions  should change,
even if new information becomes available or other events occur in the future.


GENERAL

Bioject  Medical  Technologies  Inc.  ("Bioject"  or  the  "Company")  develops,
manufactures  and markets jet injection  systems for needle-free  drug delivery.
The Company  sells its products  directly to healthcare  providers.  The Company
also  licenses  its  technology  to  leading  pharmaceutical  and  biotechnology
companies for whose products the Company's technology provides increased medical
efficacy or enhanced market acceptance.

The  Company  manufactures  and  markets a  professional  needle-free  injection
system, the Biojector(R)  2000, which allows healthcare  professionals to inject
medications through the skin, both intramuscularly and subcutaneously, without a
needle. Using this technology to administer  injections virtually eliminates the
risk of contaminated needlestick injuries and the resulting blood-borne pathogen
transmission,  which is a major concern throughout the healthcare industry.  The
Biojector  2000  system  consists  of  two  components:  a  handheld,   reusable
jet-injector  (the  "Biojector  2000" or  "B-2000")  and a  sterile,  single-use
disposable syringe (the "Biojector syringe").  The Company also manufactures and
markets a device that allows the Biojector syringe to be filled without a needle
(the "Vial Adapter").  The Vial Adapter may be purchased either separately or as
a pre-packaged  component of the B-2000 system.  The B-2000 system is capable of
delivering  needle-free  injections in varying doses up to 1 ml. The Company has
also developed the B-2020 and B-4000 jet-injection systems. The B-2020 system is
similar  in design  and  intended  use to the B-2000  system  except  that it is
designed to deliver  injections in varying doses up to 1.5 ml. The B-4000 system
is intended to be used by  non-professionals  to  self-administer  injections of
various  medications  in  varying  doses  up to 1 ml.  The  Company  has not yet


                                       1



received  regulatory  clearance to begin selling either the B-2020 or the B-4000
systems. See "Business - Governmental Regulation".

The  Company  also  markets  the  Vitajet 3  (R),("Vitajet")  a  spring-powered,
needle-free  self-injection  device,  the  rights to which  were  acquired  in a
transaction  with Vitajet  Corporation in March 1998. The Vitajet  currently has
regulatory  clearance for administering  injections of insulin.  See "Business -
Research and Product Development".

Under a January 1995 agreement with Hoffman  LaRoche Inc.  ("Roche") the Company
agreed to develop a needle-free  injection  system for Roche to use with certain
of its products.  The B-2020 system was designed as a result of this  agreement.
The Company and Roche intended that Roche would be granted  worldwide  rights to
distribute the B-2020 for a specific class of medications.  In June 1999,  after
the end of the fiscal  year,  Roche  advised  the  Company  that  because of the
additional time and cost required to gain regulatory clearance to use the B-2020
in  conjunction  with the Roche  drugs and  because of an overall  change in its
marketing  strategy  for the  drugs in  question,  it does not  intend to pursue
distributing  the  B-2020  and is  relinquishing  its  exclusive  rights  to the
product.  See  "Business  - Research  and  Product  Development",  "Management's
Discussion and Analysis of Financial Condition and Results of Operations".

In  October  1997,  the  Company  entered  into a  license  agreement  with Elan
Corporation,  plc ("Elan").  Under this agreement,  the Company licensed certain
blood glucose monitoring technology from Elan and formed a new subsidiary of the
Company,  Marathon Medical  Technologies  Inc.  ("Marathon  Medical")  (formerly
Bioject  JV  Subsidiary   Inc.),  to  develop  and  commercialize  the  licensed
technology. As part of the transaction, Elan acquired common and preferred stock
of the Company and a 19.9  percent  interest in Marathon  Medical.  In May 1999,
rather  than  continue  to  fund  the  cost  of  its  development,  the  Company
entertained  a  preliminary  proposal  from a third party to  purchase  Marathon
Medical's blood glucose  monitoring  technology.  Pursuant to the proposal,  the
Company  intends to enter  into an  agreement  to sell the  license to the blood
glucose  monitoring  technology,  along with certain  fixed  assets.  During the
period  of March  through  May  1999,  it  became  increasingly  clear  that the
technology would take longer and require greater resources to commercialize than
the Company had  anticipated.  At the same time,  the Company  concluded that it
would be unable to  finance  its  required  contributions  to  Marathon  Medical
through  sales of equity  securities  without very  substantial  dilution to the
Company's existing shareholders. The completion of the transaction is subject to
negotiation and execution of definitive  agreements and  satisfaction of certain
conditions,  so there can be no assurance that the transaction will be completed
on the terms  anticipated by the Company or at all. If the proposed  transaction
is not  completed,  the Company  intends to pursue other means to dispose of the
blood glucose monitoring technology.  Accordingly,  Marathon Medical's operation
is reported as "Discontinued  Operations" in the financial  statements and other
financial  information  included  as a part of this  report.  See "Risk  Factors
Uncertainty   of  the  Sale  of  the  Blood  Glucose   Monitoring   Technology",
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations", and "Consolidated Financial Statements and Supplementary Data Notes
to Consolidated Financial Statements".

Since licensing the blood glucose  monitoring  technology from Elan, the Company
has  operated as two  distinct  business  segments:  the  needle-free  injection
business  and the blood  glucose  monitoring  business.  Because the Company has
reached a decision to  entertain a  preliminary  proposal  from a third party to
purchase  the license to the blood  glucose  monitoring  technology  this annual
report does not  contemplate the Company's  continued  activity in that business
segment.  Accordingly,  this annual  report  refers to the activity of the blood
glucose monitoring business as Discontinued Operations.

In July 1998, the Company  entered into an agreement with Merck & Co.  ("Merck")
which provided Merck limited-term rights to use the B-2000 needle-free injection
system with selected Merck vaccines. As part of the agreement,  the Company also
granted Merck  exclusive  rights to negotiate a long-term  license to the B-2000
for  certain   medical   indications.   The  Company   received   $1.5   million
in non-refundable fees under this agreement in the year ended March 31, 1999. In
February 1999, citing a refinement in its vaccine development


                                       2




strategy,  Merck advised the Company that it would not continue  discussions  to
seek long-term license rights to the Company's  technology.  No further fees are
due to the Company from Merck pursuant to the agreement.

Also in July 1998, the Company entered into a collaborative  research  agreement
with  GeneMedicine  Inc. (now owned by Valentis  Inc.), a developer of DNA-based
medicines and genetic vaccine technologies for treatment or prevention of a wide
range of diseases.  This collaboration  involves the continued refinement of the
Biojector  2000 jet  injection  system  coupled with  GeneMedicine's  gene-based
delivery  platforms to create a combined product that is intended to enhance the
delivery and  activity of  plasmid-based  genetic  vaccines.  "See  Research and
Product Development".


NEEDLE-FREE INJECTION

Medications  are currently  delivered using various  methods,  each of which has
both advantages and limitations. The most commonly used drug delivery techniques
include oral  ingestion,  intravenous  infusion,  subcutaneous,  intradermal and
intramuscular  injection,  inhalation and transdermal  "patch"  diffusion.  Many
drugs are effective only when injected.  Published data indicates that more than
1.7 billion  needle-syringes  are sold annually in the U.S. The Company believes
that   approximately  80%  of  these  syringes  are  used  for  subcutaneous  or
intramuscular injections up to 1 ml.

Injections  using  traditional  needle-syringes  suffer  from many  shortcoming,
including:  (i) the risk of needlestick injuries; (ii) the risk of penetrating a
patient's vein; and (iii) the patients' aversion to needles and discomfort.  The
most dangerous of these,  the  contaminated  needlestick  injury,  occurs when a
needle that has been  exposed to a patient's  blood  accidentally  penetrates  a
healthcare worker's skin.  Contaminated  needles can transmit deadly blood-borne
pathogens including such viruses as HIV and hepatitis B. Published data estimate
that approximately 800,000 needlestick injuries occur in the U.S. each year.

Because  of  growing  awareness  in recent  years of the  danger of  blood-borne
pathogen transmission,  needle safety has become a higher concern for hospitals,
healthcare  professionals  and  their  patients.  As a result,  pressure  on the
healthcare industry to eliminate the risk of contaminated  needlestick  injuries
has  increased.   For  example,   the  U.S.   Occupational   Safety  and  Health
Administration  ("OSHA") issued  regulations,  effective in 1992,  which require
healthcare  institutions to treat all blood and other body fluids as infectious.
These regulations require implementing  "engineering and work practice controls"
to "isolate or remove blood-borne pathogen hazard from the workplace." Among the
required controls are special handling and disposal of contaminated  "sharps" in
biohazardous   "sharps"   containers  and  follow-up   testing  for  victims  of
needlestick injuries.

The State of California has enacted healthcare worker safety legislation that is
going into effect in 1999. This  legislation  requires  healthcare  providers to
evaluate the various uses of  needle-syringes  in their  facilities and to begin
using alternative  injection  systems to protect  healthcare worker safety where
appropriate.  Under the law,  healthcare  providers  can be held liable to their
workers if a worker  becomes  infected  from a  needlestick  injury and suitable
alternatives to needle-syringes were available but not used.

The  costs  resulting  from   needlestick   injuries  vary  widely.   Accidental
needlesticks  involving   sterile  needles  involve   relatively   little  cost.


                                       3




Needlesticks  with  contaminated  needles require  investigation  and follow-up.
These are much more expensive.  Investigation typically includes identifying the
source of  contamination,  testing  the source  for  blood-borne  pathogens  and
repeatedly testing the needlestick victim for infection over an extended period.
Some healthcare providers are requiring additional measures,  including treating
all  needlestick  injuries as  contaminated  unless  proven  otherwise.  In some
circumstances,  procedures require administering  prophylactic treatment such as
zidovudine  (AZT)  or  other  drugs.  If a  needlestick  injury  results  in the
healthcare worker actually becoming  infected with  life-threatening  pathogens,
such as HIV or hepatitis B, the cost of that injury is dramatically higher.

In an effort to protect  healthcare  workers  from  needlestick  injuries,  many
healthcare facilities have adopted more expensive, alternative technologies. One
such  technology  is an  intravenous  ("IV") port that permits  medication to be
injected  directly  into an IV line without  requiring the use of a sharp needle
for  each  administration.  Another  is  use  of one  of a  variety  of  "safety
syringes".  These are generally disposable needle-syringes with a plastic sheath
mechanism  intended to cover the needle after use or with a needle that retracts
after use. While these technologies can help to reduce accidental  needlesticks,
they cannot eliminate the risk.

The Company's  long-term goal is to establish its needle-free  injection systems
as the  preferred  drug  delivery  method for all  medications  administered  by
intramuscular or subcutaneous injection. The Company focuses its current product
sales efforts for the Biojector 2000 system on: i) flu immunization  clinics and
providers;  ii)  healthcare  providers  in  states  such  as  California,  where
legislation  is in place  that  favors  alternatives  to  needle-syringes;  iii)
potentially  high volume,  national  accounts  that will use or  distribute  the
Company's products across a large region; and iv) the U.S. military. The Company
is also  focusing  efforts to sell the  B-2000 to  multiple  sclerosis  patients
through a distributor.

The  Company has  established  manufacturing  capability  for the Vitajet at its
manufacturing  facility in Portland,  Oregon, and plans to enter into agreements
with  distributors  to sell the  Vitajet to insulin  users.  The Company is also
exploring  various  strategies to sell the Vitajet directly to end-users at some
time in the future.

The Company is  actively  pursuing  strategic  partnering  relationships  with a
number of  pharmaceutical  and  biotechnology  companies under which the Company
plans to grant specified rights or licenses to some or all of its products.  The
strategy  anticipates that the rights or licenses will allow strategic  partners
to i) use the licensed  products for  specific  applications  or purposes or ii)
market the licensed  products in conjunction with certain of their products.  An
example of these strategic  partnerships is the collaborative research agreement
with GeneMedicine Inc. that involves combining GeneMedicine's technology and the
Company's  needle-free  injection  technology  with  the goal of  enhancing  the
delivery and activity of plasmid-based genetic vaccines.

A primary focus of the Company's research efforts is on clinical research in the
area of DNA-based vaccines and medications.  At the beginning of fiscal 1999, to
the best of the Company's knowledge,  its jet injection device was being used in
two  clinical  studies   relating  to  development  of  DNA-based   medications.
Currently, to the best of the Company's knowledge, its devices are being used in
more than fifteen DNA-related clinical research projects both within and outside
of the United States.  These research  projects are being conducted by companies
leading  the  development  of  DNA-based  medications  as well as by the leading
universities and


                                       4





governmental  institutions  conducting  research in this area. Included in these
studies  are a Phase I clinical  trial of a  DNA-based  lymphoma  vaccine  being
conducted  at Stanford  University  and a Phase I clinical  trial of a DNA-based
malaria  vaccine  being  conducted at the U.S.  Naval Medical  Research  Center.
Preliminary  data from clinical  studies with animals  indicates that the use of
the Biojector  technology  may result in better  performance  of some  DNA-based
medications  than can be achieved  through use of conventional  needle-syringes.
There can be no assurance that further clinical studies will prove  conclusively
that  the  Company's  technology  is  more  effective  in  delivering  DNA-based
medications  than alternative  delivery systems that are currently  available or
that may be developed in the future. See "Forward Looking Statements", "Research
and Product Development", and "Risk Factors - Uncertainty of Strategic Corporate
Licensing and Supply Agreements".


THE COMPANY

The Company's  needle-free  operations  are conducted by Bioject Inc., an Oregon
corporation,  which is a wholly owned subsidiary of Bioject Medical Technologies
Inc., an Oregon corporation.  The Company's blood glucose monitoring development
operations have been conducted by an 80.1% owned  subsidiary,  Marathon  Medical
Technologies Inc. ("Marathon Medical") (formerly Bioject JV Subsidiary Inc.), an
Oregon corporation.

Bioject Inc. commenced operations in 1985. Bioject Medical Technologies Inc. was
formed in December  1992 for the sole purpose of acquiring all the capital stock
of Bioject Medical  Systems Ltd., a company  organized under the laws of British
Columbia,   Canada,  in  a  stock-for-stock  exchange.  This  stock  acquisition
established the Company,  a U.S. domestic  corporation,  as the  publicly-traded
parent company of Bioject Inc. and Bioject Medical Systems Ltd.  Bioject Medical
Systems Ltd. was then terminated in fiscal 1997.  Marathon Medical was formed in
October  1997  in  connection  with  a  joint  venture   arrangement  with  Elan
Corporation,  plc ("Elan").  All references to the Company herein are to Bioject
Medical  Technologies  Inc. and its  subsidiaries,  unless the context  requires
otherwise. The Company's executive offices and operations are located at 7620 SW
Bridgeport  Road,  Portland,  Oregon 97224,  and its  telephone  number is (503)
639-7221.

"Biojector," "Bioject," "Vitajet" and "Medivax" are registered trademarks of the
Company.

DESCRIPTION OF THE COMPANY'S PRODUCTS

The Biojector 2000 system consists of two components: a hand-held,  reusable jet
injector;  and a sterile,  single-use,  disposable  plastic  syringe  capable of
delivering variable doses of medication up to 1 ml. The Biojector 2000 system is
a refinement of jet injection  technology that enables healthcare  professionals
to reliably  deliver  measured  variable  doses of medication  through the skin,
either intramuscularly or subcutaneously, without a needle.

The first component of the system,  the Biojector 2000, is a portable  hand-held
device which is approximately the size of a flashlight.  It is designed both for
ease  of use by  healthcare  professionals,  as  well  as to be  attractive  and
non-threatening  to  patients.  In 1993,  the  Biojector  2000 won the 1993 Gold
Industrial Design Excellence Award given by the Industrial  Designers Society of
America for its  aesthetically  pleasing and ergonomic design. In July 1994, the
Biojector  2000 also  received  the  Alliance of  Children's  Hospitals


                                       5




Seal of Approval.  The Biojector 2000 injector uses disposable CO2 cartridges as
a power source.  The CO2 cartridges,  which are purchased by the Company from an
outside   supplier,   give  an  average  of  ten  injections   before  requiring
replacement.  The CO2 gas provides consistent,  reliable pressure on the plunger
of the disposable  syringe,  thereby  propelling the medication into the tissue.
The CO2  propellant  does not come into  contact  with either the patient or the
medication.  The  Biojector  2000 is also  available  with a tank adapter  which
allows the device to be attached to a large  volume CO2 tank.  The tank  adapter
eliminates the need to change CO2  cartridges  after every ten injections and is
an attractive  option for  applications  where a large number of injections  are
given in a relatively short period of time.

The second component of the system, the Biojector single-use disposable syringe,
is  provided  in a  sterile,  peel-open  package  and  consists  of  a  plastic,
needle-free,  variable dose syringe,  a needle-free  syringe filling device (the
"Vial  Adapter"),  which  is used to fill  the  syringe  and a  safety  cap.  If
requested by a customer, the product can also be supplied with a needle which is
used as an alternative to the Vial Adapter for filling the syringe.  The body of
the syringe is transparent and has graduated markings to aid accurate filling by
healthcare workers.

There are five  different  Biojector  syringes,  each of which is intended for a
different  injection  depth or body type.  The  syringes  are  molded  using the
Company's  patented  manufacturing  process. A trained healthcare worker selects
the syringe appropriate for the intended type of injection.  One syringe size is
for  subcutaneous  injections,  while the others are designed for  intramuscular
injections,  depending on the patient's body characteristics and the location of
the injection.

Giving an injection  with a Biojector  2000 system is easy and  straightforward.
The  healthcare  worker  giving  the  injection  checks the CO2  pressure  on an
easy-to-read  gauge  at the rear of the  injector,  draws  medication  up into a
disposable  plastic  syringe using either a needle or the Vial Adapter,  inserts
the  syringe  into the  Biojector  2000,  presses  the  syringe  tip against the
appropriate  disinfected  surface on the  patient's  skin,  and then  presses an
actuator  thereby  injecting  the  medication.  A thin stream of  medication  is
expelled at high velocity through a precision molded,  small diameter orifice in
the syringe.  The  medication is injected at a velocity  sufficient to penetrate
the skin and force the medication into the tissue at the desired depth.

The Vitajet is also made-up of two  components,  a portable  injector unit and a
disposable  syringe.  It is smaller and lower in cost than other products in the
Company's  needle-free  offering.  The method of operation  and drug delivery is
similar to the Biojector,  except that the Vitajet is powered by a spring rather
than by CO2. It is designed for self-injection and was acquired to fill a gap in
the  Company's  product  line for a  low-cost,  home  use,  needle-free  device.
Vitajet's  current  regulatory  labeling  limits  its  use to the  injection  of
insulin.  The Company  believes  that the product has the  potential  to achieve
regulatory labeling for additional subcutaneous injections. See "Forward Looking
Statements" and "Risk Factors Government Regulation".

The current  suggested retail list price for the Biojector 2000 professional jet
injector is $995, and the suggested retail list price for Biojector  syringes is
$1.00 each. CO2  cartridges  are sold for a suggested  retail price of $0.50 per
cartridge and average ten injections  per  cartridge.  Discounts are offered for
volume  purchases.  The  current  suggested  retail  price  for  the  Vitajet  3


                                       6




needle-free  injector  is $399.  A three  month  supply  (13-count)  of  Vitajet
syringes is sold for a suggested retail price of $60.

The Company  has other  products in  development  which are  intended to address
other markets or to enhance the Biojector 2000 system. See "Research and Product
Development".


MARKETING AND COMPETITION

The traditional needle-syringe is currently the primary method for administering
intramuscular and subcutaneous injections.

During the last 20 years,  there  have been many  attempts  to develop  portable
one-shot jet  injection  hypodermic  devices.  Some  problems have arisen in the
attempts to develop such devices including:  (a) inadequate injection power, (b)
little or no control of pressure and depth of  penetration,  (c)  complexity  of
design, with related  difficulties in cost and performance,  (d) difficulties in
use,  including  filling and cleaning;  and (e) the necessity for  sterilization
between uses.

In recent years, several spring-driven needle-free injectors have been developed
and  marketed,  primarily for  injecting  insulin.  Current list prices for such
injectors  range  from  approximately  $400 to $600 per  injector.  The  Company
believes  that market  acceptance  of these  devices  has been  limited due to a
combination of the cost of the devices  coupled with the  difficulties  of their
use.

Also in recent years,  various versions of a "safety syringe" have been designed
and marketed.  Most versions of the safety syringe  generally involve a standard
or  modified  needle-syringe  with a  plastic  guard or sheath  surrounding  the
needle.  Such  covering  is  usually  retracted  or  removed in order to give an
injection.  The  intent  of  the  safety  syringe  is  to  reduce  or  eliminate
needlestick injuries. However, while the safety syringe is in use and before the
needle has been  covered,  a safety  syringe  still poses a risk of  needlestick
injury. Additionally,  some safety syringes require manipulation after injection
and  pose  the risk of  needlestick  injury  during  that  manipulation.  Safety
syringes are also often bulky and add to contaminated waste disposal costs.

Two U.K.  companies,  Powderject  Pharmaceuticals PLC and Weston Medical PLC are
developing  devices that will likely  compete with the  Company's  jet injection
products for certain  applications.  Neither of these companies has yet obtained
regulatory  clearance  to market jet  injection  products  that compete with the
Company's products.

In late fiscal 1998 and early fiscal 1999, the Company  dramatically reduced its
direct product sales force from one national and five district sales managers to
one national  sales  manager and a vice  president of business  development.  In
conjunction with this sales force  restructuring  the Company chose to focus its
sales and  marketing  efforts for the  Biojector  system in two  directions:  i)
direct sales and sales through  distributors to specifically  targeted  end-user
markets,  and ii) long-term  licensing and supply agreements with pharmaceutical
and biotechnology companies.

Direct sales efforts are specifically  targeting:  i) sales to existing markets,
specifically  flu  immunization  providers,  public  health  agencies and public
school systems; ii) sales in markets such as the State of California,  where the
Company  believes that  needle-syringe  safety  legislation  makes the Company's
products more price competitive; iii) potentially high volume, national accounts
that will use or distribute the Company's  products  across a large region;  and
iv) sales to the U.S.  military.  Sales through  distributors  are targeting the
home, self-injection market.


                                       7




The Company's second sales and marketing focus area targets  creating  licensing
and supply arrangements with leading pharmaceutical and biotechnology  companies
whose  products the  Biojector  technology  provides  either  increased  medical
efficacy or a higher degree of market acceptance.  Agreements under this type of
arrangement  would ordinarily  include some or all of the following  components:
i)licensing  revenues for full or partially  exclusive  access to the  Company's
products for a specific application or medical indication;  ii) development fees
if the Company is customizing one of its products for the customer or developing
a new product;  iii) milestone  payments  related to the customer's  progress in
developing products to be used in conjunction with the Company's  products;  and
iv)  product  revenues  from  sale of the  Company's  products  to the  customer
pursuant  to a supply  agreement.  Product  sales  through  this  channel  would
ordinarily be made to the pharmaceutical or biotechnology  company,  whose sales
force  would then sell that  company's  own  products  along with the  Company's
products to end users.

The Company's  current sales and  marketing  effort is limited  primarily to the
United States. Pursuing both of these marketing strategies,  the Company intends
to eventually expand into international markets.

To  implement  its direct sales and  marketing  efforts,  the Company  currently
employs a national sales manager, a staff of two full-time nurse trainers,  four
part-time nurse trainers and a product  manager.  Bioject's direct sales efforts
have resulted in the signing of public health  agreements for the state of North
Carolina,  the New York City Middle Schools,  and the health  departments in the
states of New Mexico, Oklahoma and Illinois. The Company has a national contract
with  the  Visiting  Nurses  Associations  of  America  to  promote  the use the
Biojector 2000 system in the association's flu immunization programs.

In August 1994,  Bioject  signed an agreement  with  Homecare  Management,  Inc.
("HMI"), that granted HMI exclusive rights to purchase the Biojector 2000 system
for use in the home healthcare market. Sales to HMI commenced in August 1994. In
return for HMI's  commitment to purchase a minimum of 8,000 Biojector units over
the ensuing two years,  the Company  granted  volume  pricing  discounts to HMI.
Throughout  the term of the  contract  the selling  price of  Biojectors  to HMI
exceeded  their  standard  cost.  During fiscal 1995 and 1996,  the Company sold
approximately  2,100  and  4,300  Biojectors  to HMI  for  total  sales  revenue
including  syringes  of $1.1  million and $2.2  million in each of those  years,
respectively.  HMI  purchased  the  devices  but  delayed  placing  most  of the
Biojectors with patients until they completed  negotiations with  pharmaceutical
companies for certain  pricing  concessions  on medication  that they planned to
administer with the Biojectors.  In January 1996, HMI requested that the Company
suspend  further  shipments  under the contract.  In February  1996, the Company
learned  from HMI's press  releases  that HMI  expected to default  under credit
obligations  and  take  significant   write-offs  for  accounts  receivable  and
inventories, planned operational consolidations, and would restate certain prior
period  financial  statements.  In fiscal 1997, the Company agreed to repurchase
certain of the Biojector  inventories  (including up to 6,000 devices) which HMI
had on hand  for a total  of  $660,000  including  $322,000  of  forgiveness  of
accounts  receivable  and payment of $338,000 in two  installments,  one-half of
which was paid in July 1996. The balance  remains  outstanding.  The Company was
under no obligation to repurchase  these  inventories.  The  repurchase was at a
substantial discount to the original selling price to HMI.

Selling to new  customers  in the  Company's  target  markets is often a lengthy
process.  A new customer is typically  adopting the Company's  products as a new


                                       8




technology.  Accordingly,  the  purchase  approval  process  usually  involves a
lengthy product  evaluation  process,  including testing and approval by several
individuals  or committees  within the  potential  customer's  organization  and
thorough cost-benefit analysis.

The medical equipment market is highly competitive, and competition is likely to
intensify. Many of the Company's existing and potential competitors have been in
business  longer  than the  Company and have  substantially  greater  technical,
financial, marketing, sales and customer support resources. The Company believes
the primary  competition for the Biojector 2000 system and other needle-free jet
injection systems it may develop is the traditional,  disposable needle- syringe
and  the  safety  syringe.   Leading  suppliers  of   needle-syringes   include:
Becton-Dickinson  & Co.,  Sherwood  Medical Co., a subsidiary  of American  Home
Products  Corp.,  and  Terumo  Corp.  of  Japan.  Manufacturers  of  traditional
needle-syringes   compete  primarily  on  price,  which  generally  ranges  from
approximately $0.07 to $0.15 per unit.  Manufacturers of safety syringes compete
on features,  quality and price. Safety syringes generally are priced in a range
of $0.20 to $0.50 per unit.  The average price per injection  with the B-2000 is
approximately $0.60.

The  Company  expects to compete  with  traditional  needle-syringes  and safety
syringes based on issues of healthcare worker safety,  ease of use, reduced cost
of  disposal,  patient  comfort,  and  reduced  cost  of  compliance  with  OSHA
regulations  and  other  legislation.  Except  in the  case  of  certain  safety
syringes,  the Company does not expect to compete with needle-syringes  based on
purchase cost alone.  However,  the Company  believes  that the  Biojector  2000
system will compete  effectively  based on overall cost when all indirect costs,
including disposal of syringes and testing,  treatment and workers' compensation
expense related to needlestick  injuries,  are considered.  See "Forward Looking
Statements" and "Risk Factors".

The Company is aware of other portable,  needle-free  injectors currently on the
market which are generally focused on subcutaneous  self-injection  applications
of 0.5 ml. or less. These compete primarily with the Vitajet. The Company is not
aware of any competing products with regulatory  approval that have features and
benefits  comparable to the Biojector 2000 system. The Biojector is suitable for
both  intramuscular  and  subcutaneous   injections  of  up  to  1  ml.  in  the
professional and home injection markets.  Manufacturers of  needle-syringes,  as
well as other  companies,  may develop new  products  that  compete  directly or
indirectly  with the  Company's  products.  There can be no  assurance  that the
Company will be able to compete successfully in this market. See "Risk Factors -
Competition,- "Dependence on One Technology". A variety of new technologies (for
example,  transdermal  patches) are being developed as alternatives to injection
for drug  delivery.  While the Company does not believe such  technologies  have
significantly affected the use of injection for drug delivery to date, there can
be no assurance that they will not do so in the future.


PATENTS AND PROPRIETARY RIGHTS

The Company believes that the technology  incorporated in its currently marketed
B-2000 and Vitajet devices and single-dose  disposable  plastic syringes as well
as the technology of products under  development give it significant  advantages
over both the  manufacturers of competing  needle-free jet injection systems and
over prospective  competitors  seeking to develop similar  systems.  The Company
attempts to protect  its  technology  through a


                                       9



combination  of trade  secrets,  confidentiality  agreements  and procedures and
patent prosecution.

The  Company  has three U.S.  patents  which  were  issued  with  respect to jet
injection  technology  and that were  incorporated  in earlier  versions  of the
Company's  jet  injection  systems  and which  expire from July 2007 to November
2008.

Seven  additional  U.S.  patents  have been issued  which  protect  developments
incorporated  in the  Biojector  2000 system.  Claims  included in these patents
include claims regarding the needle-free  injection  system's design,  method of
operation, certain aspects of the syringe design and the method of manufacturing
the syringe orifice.  The Company has also been granted a patent relating to the
a dual-size  drug vial access  device.  The Company has made  additional  patent
filings regarding pre-filled syringe technologies, adapters for drug vial access
and new  self-injector  devices under  development.  The Company generally files
patent  applications  in  Canada,  Europe  and  Japan at the times and under the
circumstances  that  it  deems  filing  to  be  appropriate  in  each  of  those
jurisdictions.  There can be no assurance  that any patents  applied for will be
granted or that patents held by the Company will be valid or sufficiently  broad
to  protect  the  Company's  technology  or  provide a  significant  competitive
advantage.  See "Risk  Factors".  The Company  also relies on trade  secrets and
proprietary know-how that it seeks to protect through confidentiality agreements
with its employees, consultants, suppliers and others. There can be no assurance
that these agreements will not be breached, that the Company would have adequate
remedies for any breach,  or that the Company's trade secrets will not otherwise
become known to or be developed  independently by competitors.  In addition, the
laws of foreign  countries may not protect the Company's  proprietary  rights to
its technology,  including patent rights,  to the same extent as the laws of the
United States.

The Company  believes that it has  independently  developed its  technology  and
attempts to assure that its products do not infringe the  proprietary  rights of
others.  However, if infringement of the proprietary rights of others is alleged
and proved,  there can be no assurance  that the Company could obtain  necessary
licenses  to that  technology  on terms and  conditions  that  would not have an
adverse  affect on the Company.  The Company is not aware of any asserted  claim
that the Biojector 2000,  Vitajet or any product under development  violates the
proprietary rights of any third party.

If a dispute  arises  concerning  the  Company's  technology,  the Company could
become  involved  in  litigation  that  might  involve  substantial  cost to the
Company. Such litigation might also divert substantial management attention away
from  Company  operations  and into  efforts to enforce the  Company's  patents,
protect its trade secrets or know-how or determine the scope of the  proprietary
rights of others. If a proceeding resulted in adverse findings the Company could
be subject to significant  liabilities to third parties.  The Company might also
be required to seek licenses from third parties in order to  manufacture or sell
its products.  The Company's  ability to manufacture and sell its products might
also  be  adversely  affected  by  other  unforeseen  factors  relating  to  the
proceeding or its outcome. See "Risk Factors".


GOVERNMENTAL REGULATION

The Company's  products and  manufacturing  operations  are subject to extensive
government  regulations,  both in the U.S. and abroad. In the U.S., the Food and


                                       10




Drug Administration  ("FDA") administers the Federal Food, Drug and Cosmetic Act
(the  "FD&C")  and  has  adopted  regulations  to  administer  that  Act.  These
regulations  include regulations that: i) govern the introduction of new medical
devices; ii)require observing certain standards and practices in the manufacture
and labeling of medical  devices;  and iii)require  medical device  companies to
maintain certain records and report device-related deaths, serious injuries, and
certain  malfunctions to the FDA.  Manufacturing  facilities and certain Company
records are also  subject to FDA  inspection.  The FDA has broad  discretion  to
enforce the FD&C and the related regulations.  Noncompliance with the Act or its
regulations  can  result in a variety  of  regulatory  steps  including  warning
letters,  product  detentions,  device  alerts or field  corrections,  mandatory
recalls, seizures, injunctive actions and civil or criminal penalties.

Unless exempted by regulation, the FD&C provides that medical devices may not be
commercially  distributed in the U.S.  unless they have been cleared or approved
by the FDA.  The FD&C  provides  two  basic  review  procedures  for  pre-market
clearance  or  approval  of medical  devices.  Certain  products  qualify  for a
submission  authorized  by Section  510(k) of the FD&C.  Under  Section  510(k),
manufacturer   provides   the  FDA  with  a  premarket   notification   ("510(k)
notification") of the manufacturer's  intent to begin marketing the product.  In
the 510(k)  notification,  the manufacturer must establish,  among other things,
that the  product  it plans to market is  substantially  equivalent  to  another
legally marketed product. To be substantially equivalent a proposed product must
have the same  intended use and be as safe and  effective as a legally  marketed
device. Further, it may not raise questions of safety and effectiveness that are
different from those  associated  with a legally  marketed  device.  Marketing a
medical  device may commence  when the FDA issues a letter  finding  substantial
equivalence  to  such a  legally  marketed  device.  The  FDA  may  require,  in
connection  with the 510(k)  submission,  that it be provided with animal and/or
human test results.

If a medical device does not qualify for the 510(k) procedure,  the manufacturer
must file a premarket  approval  ("PMA")  application.  A PMA must show that the
device is safe and  effective  and is generally a much more  complex  submission
than a 510(k)  notification.  A PMA typically  requires more  extensive  testing
before filing with the FDA and a longer FDA review process.

A 510(k)  notification  is required when a device is being  introduced  into the
market for the first  time.  A 510(k)  notification  is also  required  when the
manufacturer  makes a change or modification to an already  marketed device that
could significantly  affect the device's safety or effectiveness,  or when there
is a major change or  modification  in the intended use of the device.  When any
change or modification is made in a device or its intended use, the manufacturer
is  expected  to make the  initial  determination  as to  whether  the change or
modification  is of a kind that would require filing a new 510(k)  notification.
The  FDA's   regulations   provide   only   limited   guidance  in  making  this
determination.

In April 1987,  the Company  received  510(k)  marketing  clearance from the FDA
allowing the Company to market a hand-held CO2-powered jet injection system. The
Biojector  2000  system  incorporates  changes  from the  system  for  which the
Company's 1987 510(k) marketing  clearance was received and expands its intended
use. The Company  made the  determination  that these were not major  changes or
modifications in intended use or changes in the device that could  significantly
affect the safety or  effectiveness  of the  device.  Accordingly,  the  Company
concluded  that the 1987 510(k)  clearance  permitted  the Company to market the
Biojector 2000 system in the U.S. In June 1994, the Company


                                       11



received  clearance  from  the FDA  under  510(k)  to  market a  version  of its
Biojector  2000 system in a  configuration  targeted  at high  volume  injection
applications.  In October  1996,  the Company  received  510(k)  clearance for a
non-needle  disposable vial access device.  In March 1997, the Company  received
additional  510(k)  clearance for certain  enhancements  to its  Biojector  2000
system. The Company currently has applications pending before the FDA for 510(k)
clearance  of the B-2020 1.5 ml.  jet  injector.  The  Company  has  temporarily
withdrawn  its  previously   submitted   510(k)   application   for  the  B-4000
self-injector.  There  can be no  assurance  that the FDA will  concur  with the
Company's  determination that its products can be qualified by means of a 510(k)
submission. See "Risk Factors - Governmental Regulation".

The  Company  is  developing  pre-filled  Biojector  syringes  and plans to seek
arrangements with  pharmaceutical  and biotechnology  companies to package their
medications  in  pre-filled  Biojector  syringes.   See  "Research  and  Product
Development". Before pre-filled Biojector syringes may be distributed for use in
the U.S., the FDA may require tests to prove that the medication will retain its
chemical and pharmacological  properties if stored in the pre-filled syringe. It
is current FDA policy that such pre-filled  syringes are evaluated by the FDA as
drugs  rather than  medical  devices.  In order to market  pre-filled  syringes,
pharmaceutical  companies will be required to gain prior  clearance from the FDA
by means of a new or amended Drug Application ("NDA") or an Abbreviated New Drug
Application  ("ANDA"). An NDA is a complex submission required to establish that
a drug  will be safe and  effective  for its  intended  uses.  An ANDA is a less
detailed process which does not require,  among other things, that the applicant
provide  complete  reports of  preclinical  and  clinical  studies of safety and
efficacy  as are  required  for  NDAs.  Assuming  that  the  drugs  used  in the
pre-filled syringes have previously been approved by the FDA for injection,  the
Company believes that the FDA will likely require ANDAs, rather than NDAs, to be
submitted.  The  Company  believes  that  if a drug  intended  to be used in the
Company's  pre-filled syringe was already the subject of an approved NDA or ANDA
for  intramuscular  or  subcutaneous  injection,  then the main issue  affecting
clearance for use in the pre-filled  syringe would be the ability of the syringe
to store the drug, assure its stability until used and safely deliver the proper
dose. See "Forward Looking Statements" and "Risk Factors Government Regulation".

The  FDA  also  regulates  the  Company's   quality  control  and  manufacturing
procedures.   It  requires  the  Company  and  its  contract   manufacturers  to
demonstrate  compliance  with  current  Good  Manufacturing   Practices  ("GMP")
Regulations.  These  regulations  require,  among  other  things,  that  (i) the
manufacturing  process must be regulated  and  controlled  by the use of written
procedures,   and  (ii)  the   ability  to  produce   devices   which  meet  the
manufacturer's  specifications  must be  validated  by  extensive  and  detailed
testing of every aspect of the  process.  GMPs also  require  investigating  any
deficiencies  in the  manufacturing  process  or in the  products  produced  and
detailed  record-keeping.  The FDA's  interpretation  and  enforcement  of these
requirements  has been  increasingly  strict  in recent  years  and will  likely
continue  to be at least as  strict  in the  future.  Failure  to  adhere to GMP
requirements  would cause the products  produced by the Company to be considered
in  violation  of the Act and subject to  enforcement  action.  The FDA monitors
compliance with these  requirements by requiring  manufacturers to register with
the FDA, and by subjecting  them to periodic FDA  inspections  of  manufacturing
facilities.  If the inspector  observes  conditions that might be violated,  the
manufacturer  must correct  those  conditions  or explain  them  satisfactorily.
Otherwise the  manufacturer  may face  potential  regulatory  action which might
include physical recall of the product from the marketplace.


                                       12




In August 1998,  the Company's  manufacturing  facility was inspected by the FDA
for  compliance  with Good  Manufacturing  Practices.  The  Company  received no
inspectional observations as a result of the inspection.

The FDA's Medical Device Reporting  Regulation requires that the Company provide
information  to the FDA if any death or  serious  injuries  alleged to have been
associated with the use of the Company's products occur. Any product malfunction
that  would  likely  cause or  contribute  to a death or  serious  injury if the
malfunction  were to occur must also be reported.  In addition,  FDA regulations
prohibit a device from being marketed for  unapproved or uncleared  indications.
If  the  FDA  believes  that  the  company  is  not  in  compliance  with  these
regulations,  it may institute proceedings to detain or seize products,  issue a
product recall,  seek injunctive  relief or assess civil and criminal  penalties
against the violating company.

The use and manufacture of the Company's  products are subject to OSHA and other
federal, state and local laws and regulations that relate to such matters as: i)
safe  working  conditions  for  healthcare  workers and Company  employees;  ii)
manufacturing practices; iii) environmental protection and disposal of hazardous
or  potentially  hazardous  substances;  and iv) the policies of  hospitals  and
clinics relating to complying with these laws and  regulations.  There can be no
assurance  that the Company will not be required to incur  significant  costs to
comply with these  laws,  regulations  or  policies in the future,  or that such
laws, regulations or policies will not increase the costs or restrictions on the
use of the Company's products or otherwise have a materially adverse effect upon
the Company's ability to do business. See "Risk Factors".

Laws and regulations regarding the manufacture,  sale and use of medical devices
are subject to change and depend heavily on administrative interpretation. There
can be no assurance that future changes in regulations or  interpretations  made
by the FDA,  OSHA or other  regulatory  bodies,  will not  adversely  affect the
Company.

Sales of medical  devices  outside of the United  States are  subject to foreign
regulatory requirements. The requirements for obtaining premarket clearance by a
foreign country may differ from those required for FDA clearance. Devices having
an  effective  510(k)  clearance  or PMA may be  exported  without  further  FDA
authorization.  FDA authorization is generally required in order to export other
medical devices.

In June 1998, the Company received  certification  from TUV Product Services for
the Company's  quality system,  which meets the  requirements of ISO 9001 and EN
46001. In June 1999, TUV Product Services  audited the Company's  quality system
and found that it still meets the  requirements  of ISO 9001. Also in June 1999,
the company was recommended for certification  from TUV Product Services for the
applicable  requirements of EC-Directive  93/42/EEC  Annex.  II.3 Medical Device
Directive.  This certification will allow the Company to label its products with
the CE Mark and  sell  them in the  European  Community.  See  "Risk  Factors  -
International Distribution".


RESEARCH AND PRODUCT DEVELOPMENT

Research and development  efforts are focused on enhancing the Company's current
product  offerings and on developing new  needle-free  injection  products.  The


                                       13




Company  uses  clinical,  magnetic  resonance  imaging  and  tissue  studies  to
determine the reliability and  performance of new and existing  products.  As of
March 31, 1999, the Company's research and product development staff,  including
clinical  and  regulatory  staff  members,  consisted of six  employees  and one
outside contractor.

In March 1994,  the Company  entered into an agreement with Schering AG, Germany
("Schering"),  to develop a self-injection  device for delivery of Betaseron (R)
to multiple  sclerosis  patients.  During  fiscal  years 1995  through  1997,the
Company  developed  prototype  devices  to  Schering  specifications  which were
accepted by  Schering.  During  fiscal 1997,  the Company  entered into a supply
agreement with Schering and commenced  activities to prepare for full production
of the self  injector.  Schering  loaned the Company a total of $1.6  million to
purchase  molds and tooling to produce the product.  In January  1997,  Schering
notified the Company that the contract with Schering  would be cancelled.  Under
the contract provisions,  Schering had the option to cancel the agreement if the
FDA required  extensive  clinical  studies  beyond an originally  planned safety
study.  Schering received a review letter from the FDA which would have required
Schering to conduct  additional  extensive clinical studies before the FDA would
grant clearance to use  non-traditional  delivery  mechanisms with its Betaseron
(R)  product.  In  accordance  with  its  contract  with the  Company,  Schering
converted  its $1.6 million note due from  Bioject  into  approximately  460,000
shares of Bioject  common  stock at a  conversion  price of $3.50 per share.  In
addition,  $106,000 of accrued interest was converted into approximately  27,000
shares of Bioject  common  stock at a conversion  price of $3.50 per share.  The
Company retained ownership of the molds and tooling.  The B-4000  self-injector,
which was developed as a result of the Schering agreement, had been submitted to
the FDA for regulatory  clearance  prior to marketing.  At the present time, the
Company has  temporarily  withdrawn  its FDA submittal on the B-4000 in order to
concentrate its regulatory  resources on gaining  clearance for the B-2020 . See
"Risk Factors - Governmental Regulation".

In  January  1995,  the  Company  signed  a  joint  development  agreement  with
Hoffman-La Roche ("Roche") to develop a proprietary drug delivery system for one
of  Roche's  products.  The  agreement  provided  for  Bioject  to  develop  and
manufacture  a Biojector jet injection  drug delivery  system  designed to Roche
specifications  and  anticipated  a supply  agreement  under which those devices
would be sold to Roche. In return,  Bioject  granted Roche  exclusive  worldwide
rights to distribute  the system and its  components  for use with certain Roche
products.   Hoffman-La  Roche  Inc.  is  the  United  States  affiliate  of  the
multinational group of companies headed by Roche Holding of Basel,  Switzerland,
one of the world's leading, research-intensive healthcare companies.

As of 1995 fiscal year end,  the  Company  had  commenced  design of a prototype
device and had agreed with Roche on product specifications.  During fiscal 1996,
the Company  developed  and  delivered  to Roche  preproduction  prototypes  for
testing and developed the clinical preproduction prototypes which were delivered
to Roche in April 1996. The device  developed for Roche is the B-2020,  a device
similar to the B-2000 in design and function, but which is capable of delivering
1.5 ml. of medication either  intramuscularly  or  subcutaneously.  As of fiscal
1997 year end, the Company and Roche were finalizing  their submission to obtain
regulatory clearance to market the product. The Company submitted the B-2020 for
regulatory clearance in May 1998.


                                       14




In February 1995, Roche paid a one-time licensing fee of $500,000. The agreement
also provided for specified product  development fees on an agreed upon schedule
of which  $400,000 was  recognized  in fiscal 1996,  $500,000 was  recognized in
fiscal 1997 and $500,000 was  recognized  in fiscal  1998.  In June 1999,  Roche
advised the  Company  that  because of a change in its  marketing  strategy  and
because of the additional time and cost required to obtain regulatory  clearance
to use the B-2020,  it does not intend to pursue  distributing the B-2020 and is
relinquishing its exclusive rights to the product. See "Management's  Discussion
and Analysis of Financial Condition and Results of Operations".

In March  1998,  the Company  acquired  the assets of Vitajet  Corporation  in a
stock-for-assets  exchange.  The Company paid 100,000 shares of its common stock
for certain molds, tooling, patent rights and customer lists, the value of which
totaled $134,400 at the date of acquisition. In addition to shares already paid,
the Company is obligated  to issue 60,000  shares of its common stock in each of
the three years subsequent to the acquisition if certain development  milestones
are met.  The  Company  issued  60,000  shares of common  stock in March 1999 in
payment for  milestones  met in the first  contract  year.  Up to an  additional
90,000  shares is also  payable  subject  to the  Company  realizing  specified,
aggregate levels of incremental revenue during the three years subsequent to the
Vitajet  acquisition as a result of sales of products acquired from or developed
by Vitajet. During fiscal 1999, the Company re-engineered certain aspects of the
Vitajet to improve the efficiency of its manufacture.

In July 1998, the Company entered into a collaborative  research  agreement with
GeneMedicine Inc. (now owned by Valentis Inc.) a developer of gene medicines and
genetic  vaccine  technologies  for  treatment or  prevention of a wide range of
diseases.  The collaboration  involves the continued refinement of the Biojector
2000 jet injection system coupled with GeneMedicine's unique gene-based delivery
platforms  to create a combined  product  that will  enhance  the  delivery  and
activity of  plasmid-based  genetic  vaccines.  The agreement  anticipates  that
combined products  developed as a result of the research  collaboration  will be
marketed to third party corporate partners for commercialization and sale rather
than being  commercialized or sold by either Bioject or GeneMedicine.  There can
be no  assurance  that the  collaborative  alliance  will  result in  marketable
products.  Further,  if  marketable  products  are  developed as a result of the
collaborative  alliance,  there can be no assurance  that the companies  will be
successful either at locating  appropriate third party corporate  partners or at
entering into the necessary  agreements with those partners to commercialize and
sell the products so developed.  See "Forward Looking Statements".  In addition,
if such products are developed, there can be no assurance that they will receive
the required regulatory clearances. See "Governmental Regulation".

A primary focus of the Company's research efforts is on clinical research in the
area of DNA-based  vaccines and  medications.  In April 1998, to the best of the
Company's  knowledge,  its jet  injection  device was being used in two clinical
studies  relating  to  development  of DNA - based  medications.  The  Company's
devices  are  currently  being used in more than  fifteen  DNA-related  clinical
research  projects both within and outside of the United States.  These research
projects are being  conducted by companies  leading the development of DNA-based
medications as well as by the leading universities and governmental institutions
conducting  research  in this  area.  Included  in these  studies  are a Phase I
clinical  trial of a DNA-based  lymphoma  vaccine  being  conducted  at Stanford
University  and a Phase I clinical  trial of a DNA-based  malaria  vaccine being
conducted at the U.S. Naval Medical Research Center. The Company participates


                                       15




in these  clinical  collaborations  under Research  Agreements  that provide the
clinical researchers access to both existing and developing Biojector technology
and to the  Company's  clinical  research  staff.  Under these  agreements,  the
Company is typically  granted access to the results of the study as they pertain
to the effectiveness of the Company's  products.  Preliminary data from clinical
studies with animals  indicates that the Biojector  technology may significantly
enhance the  performance of some  DNA-based  medications.  See "Forward  Looking
Statements".

Developing  DNA-based  preventative and therapeutic  treatments for a variety of
diseases is a very active and growing area of medical research. Researchers hope
to develop  DNA-based  treatments  for diseases  that have  previously  not been
treatable as well as DNA-based  alternatives to therapies  currently used in the
treatment  of other  diseases.  Most DNA  therapies  currently  being  developed
require injecting the medication either intramuscularly (into the muscle tissue)
or intradermally (just under the skin). The Biojector 2000 is currently the only
jet  injection  device  cleared  by the FDA for  intramuscular  injections.  The
Company is developing  an adapter for the Biojector  syringe to allow the device
to consistently  deliver  intradermal  injections.  Prototypes of the device are
being used in clinical studies to deliver intradermal  injections.  This adapter
has not been cleared by the FDA to be marketed for intradermal injections and is
not currently  submitted to the FDA to gain  clearance for those claims.  If the
Company's  jet  injection  technology  is proven to enhance the  performance  of
DNA-based  medications,  this  area of  medicine  could  present  a  significant
opportunity  for the  Company to license  its  products  to  pharmaceutical  and
biotechnology companies for use in conjunction with their DNA-based medications.
See  "Forward  Looking  Statements".  There  can be no  assurance  that  further
clinical studies will prove  conclusively that the Company's  technology is more
effective in delivering DNA-based  medications than alternative delivery systems
that are either  currently  available  or that may be  developed  in the future.
Further, there can be no assurance,  should the Company's technology prove to be
more effective in delivering  DNA-based  medications,  that regulatory clearance
will be  gained  to  deliver  any  DNA-based  medications  using  the  Company's
products.  Further,  should  intradermal  delivery of DNA-based  medications  be
critical to effective  delivery of those  compounds,  there is no assurance that
the Company will gain regulatory  clearance for intradermal  delivery  DNA-based
medications with its products. See "Risk Factors - Governmental  Regulation" and
"Risk  Factors  -  Uncertainty  of  Strategic  Corporate  Licensing  and  Supply
Agreements".

A  second  major  focus  of the  Company's  product  development  efforts  is on
developing a new generation of personal  injectors that are being designed to be
smaller,  disposable,  more lightweight and less costly to build than the B-4000
self-injector  and intended to  complement  the  marketing of the B-4000.  These
devices  will target the growing  market for  patients  administering  their own
injections   in  the  home.   The   Company  is  seeking   collaborations   with
pharmaceutical and biotechnology  companies that will help fund the cost of this
new generation of products. See "Forward Looking Statements".

The  Company  is  also  focusing  product   development  efforts  on  developing
pre-filled  syringes for use with its B-2000 product and with other  needle-free
injectors  presently  being  developed.   When  the  pre-filled   technology  is
perfected,  the Company intends to seek  arrangements  with  pharmaceutical  and
biotechnology companies under which those companies will sell their medications,
pre-packaged  in Biojector  pre-filled  syringes.  Purchasing  syringes  already
filled  with  medication   eliminates  the  filling  and  measuring   procedures
associated  with  traditional  injection  of  medications  and  with  injections
administered with the current Biojector syringe.  The Company also believes that
it will be able to


                                       16




manufacture  the  pre-filled  Biojector  syringes  at a lower cost than  current
Biojector  syringes.   See  "Forward  Looking  Statements".   Before  pre-filled
Biojector  syringes may be distributed for use in the U.S.,  pharmaceutical  and
biotechnology  companies  wishing to use these syringes must commit to packaging
and distributing  their products in the pre-filled  syringes and to the time and
financial resources necessary to gain regulatory clearance to package and market
their  products in this manner.  This process could be lengthy.  In addition the
companies  will have to establish  that their drugs will remain  chemically  and
pharmacologically  stable when  packaged  and stored in a  Biojector  pre-filled
syringe and that a drug that is packaged, stored and delivered in this manner is
safe  and  effective  for  its  intended  uses.  See  "Business  -  Governmental
Regulation". There can be no assurance that pharmaceutical or biotechnology will
be  willing  to commit  efforts  to  develop  pre-filled  packaging  and  pursue
regulatory  clearance  or that  regulatory  clearance  of  pre-filled  Biojector
syringes  will be obtained.  Further,  if such  companies  are willing to commit
efforts and resources to gaining regulatory  clearance to package and distribute
their drugs in Biojector  pre-filled  syringes,  there can be no assurance as to
the number of drugs that will prove chemically and pharmacologically stable in a
Biojector  pre-filled  syringe  or of the  number of drugs that will prove to be
safe and effective for their intended use when packaged, stored and delivered in
this manner.


MANUFACTURING

The Company  assembles the Biojector 2000, the Vitajet and related syringes from
components  purchased  from outside  suppliers.  During  fiscal  1998,  having a
sufficient  inventory of B-2000 devices on-hand as a result of the repurchase of
product  from HMI,  the Company  focused  manufacturing  efforts on refining the
manufacturing  processes and efficiencies of the syringe manufacturing line. See
"Marketing  and  Competition - Needle-Free  Injection  Business".  On account of
excess  inventories of both B-2000 devices and Biojector  syringes,  the Company
ceased manufacturing any material quantity of new products in July 1998. All but
four  employees  directly  involved  in  manufacturing  were  either laid off or
transferred  to other  functions  within the  Company.  The  Company  intends to
manufacture  Vitajet  devices and syringes in fiscal 2000. The Company  believes
that  inventory  on-hand of B-2000  devices and syringes  will,  in most product
categories,   be  sufficient  to  meet  product   demand  through  fiscal  2000.
Accordingly,  the Company does not plan to  manufacture  material  quantities of
B-2000 devices or syringes in fiscal 2000. If demand for the Company's  products
increases, the Company will need to attract and rehire a manufacturing workforce
and reestablish  relationships  with suppliers that can deliver large quantities
of components that meet the Company's quality standards in a timely and reliable
manner at acceptable  prices.  There can be no assurance that sufficient numbers
of qualified  manufacturing  employees will be available when needed to increase
production  to meet  either  foreseen  or  unforeseen  demand for the  Company's
products.  Further,  while the Company  believes  that it  continues to maintain
supplier  relationships that will provide sufficient supply of materials to meet
demands at full  manufacturing  capacity,  there can be no  assurance  that such
supplier  relationships will be sufficient to meet such demand in quantities and
at prices and quality levels required by the Company to operate  efficiently and
profitably.  See "Forward Looking  Statements"  and "Management  Discussion and
Analysis of Financial Conditions and Results of Operations".


                                       17




EMPLOYEES

As of March 31,  1999,  the Company  had thirty  full-time  employees,  with six
employees  engaged  in  research  and  product  development,  four in sales  and
marketing,  two in technical product support,  nine in  manufacturing,  seven in
administration and two developing the blood glucose monitor. The Company engages
a limited number of part-time  consultants  who assist with regulatory and sales
and marketing  activities.  As of March 31, 1999,  there was one  consultant and
four  per diem  nurses  on  contract  with the  Company.  None of the  Company's
employees are represented by a labor union.


PRODUCT LIABILITY

The  Company  believes  that  its  products  reliably  inject  medications  both
subcutaneously  and  intramuscularly   when  used  in  accordance  with  product
guidelines.  The Company's current insurance  policies provide coverage at least
equal to an  aggregate  limit of $11  million  with  respect to certain  product
liability  claims.  The Company has experienced  one product  liability claim to
date, and does not expect to incur significant liability pursuant to that claim.
There can be no assurance,  however, that the Company will not become subject to
more such claims,  that the Company's current insurance would cover such claims,
or that  insurance  will  continue to be available to the Company in the future.
The Company's business may be adversely affected by product liability claims.


RISK FACTORS

Investing in the  securities  of the Company  involves a high degree of risk. In
addition to the other  information in this annual report,  the following factors
should be considered  carefully in evaluating the Company and its business.  The
Company cautions the reader that this list of factors may not be exhaustive.

Uncertainty of Market  Acceptance.  The Company's  success will depend on market
acceptance of its  needle-free  injection drug delivery  systems,  the Biojector
2000 system and the Vitajet  system and on market  acceptance of other  products
under development. Currently, the dominant technology used for intramuscular and
subcutaneous injections is the hollow-needle syringe. Needle-syringes, while low
in cost, have  limitations,  particularly  relating to contaminated  needlestick
injuries.  Use of the Biojector 2000 system for  intramuscular  and subcutaneous
injections  eliminates the associated risk of these injuries;  however, the cost
per  injection  is  significantly  higher.  There can be no  assurance  that the
Biojector  2000,  the  Vitajet  system or any of the  Company's  products  under
development  will  compete   successfully  with   needle-syringes.   A  previous
needle-free  injection system manufactured by the Company did not achieve market
acceptance and is no longer being marketed. The Biojector 2000 was introduced in
January  1993.  To date,  the major portion of sales have been to HMI, and those
units were not placed in service. The Company repurchased most of those units at
a  substantial  discount  to the  original  selling  price after  canceling  its
agreement  with  HMI.  Failure  of the  Biojector  2000  system  to gain  market
acceptance  would  have a material  adverse  effect on the  Company's  financial
condition and results of operations.

Reduced  Sales Force.  In late fiscal 1998 and early  fiscal  1999,  the Company
dramatically  reduced its direct  product sales force from one national and five
district  sales  managers  to one  national  sales  manager  who is  focused  on
specifically   targeted   market   segments.   See  "Business  -  Marketing  and
Competition".  There is no  assurance  that this  reduced  sales force will have
sufficient  resources to adequately penetrate one or more of the targeted market


                                       18




segments.  Further,  if the sales force is successful in penetrating one or more
of the  targeted  market  segments,  there is no  assurance  that the  Company's
products  will be accepted in those  segments or that  product  acceptance  will
result  in  product  revenues  which,  together  with  revenues  from  corporate
licensing and supply  agreements,  will be sufficient for the Company to operate
profitably.

Uncertainty  of  Strategic  Corporate  Licensing  and Supply  Agreements.  A key
component  of the  Company's  sales  and  marketing  strategy  is to enter  into
licensing and supply arrangements with leading  pharmaceutical and biotechnology
companies  whose products the Company's  technology  provides  either  increased
medical  effectiveness or a higher degree of market acceptance.  Two examples of
these types of agreements are the agreement entered into with Hoffman-LaRoche in
January 1995 and the preliminary agreement entered into with Merck & Co. in July
1998.  In the case of the Roche  agreement,  the  parties  anticipated  that the
product  development  phase of the  agreement  would  develop  into a supply and
distribution  agreement  between  the  Company  and Roche.  In June 1999,  Roche
advised  the  Company  that  due to a  longer  and  more  costly  than  expected
regulatory  process  to gain  clearance  to use the B-2020 in  conjunction  with
Roche's products, Roche had changed it marketing strategy. In making that change
in marketing strategy, Roche was abandoning its exclusive distribution rights to
the B-2020 and would not be seeking a supply of the B-2020 from Bioject.  In the
case of the Merck & Co. agreement, the parties anticipated that the initial July
1998 agreement would lead to a long-term  licensing and supply agreement between
the two  companies.  In February  1999,  Merck & Co. advised the Company that it
would not  continue,  at the present  time,  to pursue  exclusive  license to or
supply of the  Company's  products.  Both  agreements  resulted  in  significant
short-term  revenue  to  the  Company.  Neither  agreement  developed  into  the
long-term  revenue  stream  anticipated  by the Company's  strategic  partnering
strategy.  There can be no  assurance  that the Company  will be  successful  in
entering into future licensing or supply agreements with major pharmaceutical or
biotechnology   companies.   Further  there  can  be  no  assurance  that  those
agreements,  if entered  into,  will result in  sustainable  long-term  revenues
which,  when combined with revenues from product  sales,  will be sufficient for
the Company to operate profitably.

An important component of the Company's corporate licensing and supply agreement
strategy is  specifically  targeted at entering  into  agreements of this nature
with pharmaceutical and biotechnology  companies  developing  DNA-based vaccines
and  medications.  The  component  of the  strategy  which  focuses on companies
developing  DNA-based  therapies arises in great part from preliminary data from
clinical  studies  with  animals  which  indicates  that  use of  the  Biojector
technology may result in better  performance of some DNA-based  medications than
can be achieved  through the use of  traditional  needle-syringes.  See "Forward
Looking  Statements".  There can be no assurance that further  clinical  studies
will prove  conclusively  that the  Company's  technology  is more  effective in
delivering  DNA-based  medications  than  alternative  delivery systems that are
either  currently  available or that may be  developed  in the future.  Further,
there can be no  assurance,  should the  Company's  technology  prove to be more
effective in delivering DNA-based medications, that regulatory clearance will be
gained to  deliver  any  DNA-based  medications  using the  Company's  products.
Further,  should  intradermal  delivery of DNA-based  medications be critical to
effective  delivery of those  compounds,  there is no assurance that the Company
will gain regulatory clearance for intradermal delivery of DNA-based medications
with  its  products.   See  "Research  and  Development'  and  "Risk  Factors  -
Governmental  Regulation".  In  addition,  there  can be no  assurance  that any
company will be  successful  in developing  one or more  DNA-based  therapies or
successful in bringing those therapies to market. Further, should any companies


                                       19




be successful  in developing  and  marketing  DNA-based  therapies,  there is no
assurance that the Company will be successful at entering into long-term license
or supply agreements with any such company.

Uncertainty of the Sale of the Blood Glucose Monitoring Technology. In May 1999,
rather  than  continue  to  fund  the  cost  of  its  development,  the  Company
entertained  a  preliminary  proposal  from a third party to  purchase  Marathon
Medical's blood glucose  monitoring  technology.  Pursuant to the proposal,  the
Company  intends to enter  into an  agreement  to sell the  license to the blood
glucose monitoring  technology,  along with certain fixed assets. The completion
of the  transaction  is subject  to  negotiation  and  execution  of  definitive
agreements and satisfaction of certain conditions,  so there can be no assurance
that the transaction  will be completed on the terms  anticipated by the Company
or at all. If the proposed transaction is not completed,  the Company intends to
pursue other means to dispose of the blood glucose monitoring technology. In the
event that the sale is not completed, there can be no assurance that the Company
will be able to find another buyer for the  technology on terms similar to those
of the  proposed  sale or on any  terms  at  all.  If the  proposed  sale is not
completed  and the Company is unable to very shortly  thereafter to find another
buyer for the  technology,  it is highly  unlikely  that the  Company  will have
sufficient  resources  to  continue  to fund  development  of the blood  glucose
monitoring  technology.  In that case,  Marathon  Medical or the Company will be
forced  either to  i)raise  significant  amounts of  additional  capital to fund
continued  development of the technology or ii) abandon development of the blood
glucose  monitoring  technology  altogether.  Raising  additional  capital  will
require the Company or Marathon Medical to issue debt or equity securities which
could  be  highly   dilutive  to  the  ownership   interests  of  the  Company's
shareholders. See "Risk Factors - Need for Additional Capital".

Uncertainty  of  Product  Development  Under  the  GeneMedicine  Agreement.  The
Company's  collaborative  research  agreement  with  GeneMedicine  involves  the
continued refinement of the Biojector 2000 needle-free  injection system coupled
with  GeneMedicine's  unique gene-based  delivery platforms to create a combined
product that will enhance the  delivery  and activity of  plasmid-based  genetic
vaccines. The agreement anticipates that combined products developed as a result
of the research collaboration will be marketed to third party corporate partners
for  commercialization  and sale  rather  than being  commercialized  or sold by
either Bioject or GeneMedicine.  See "Research and Product  Development".  There
can be no assurance  that the  collaborative  alliance will result in marketable
products. Further, should such marketable products be developed, there can be no
assurance that the companies will be successful  either at locating  appropriate
third party corporate partners or at entering into the necessary agreements with
those partners to commercialize or sell the products so developed.  See "Forward
Looking  Statements".  Additionally  there  can  be no  assurance,  should  such
products  be  developed,   that  such   products   would  receive  the  required
governmental clearance. See "Business Governmental Regulation".

History of Losses;  Uncertain  Profitability.  Since its formation in 1985,  the
Company has incurred significant annual operating losses and negative cash flow.
At March 31, 1999,  the Company had an accumulated  deficit of $58 million.  $43
million of the accumulated deficit relates to losses incurred in the needle-free
segment of the  Company's  operations.  $15 million of the  accumulated  deficit
relates to losses from the  Company's  operations  to develop the blood  glucose
monitoring  technology.  $12 million of the losses  related to the blood glucose
monitoring  technology  arose from the write-off,  after minority  interest,  in
fiscal 1998,  of  in-process  research and  development  acquired in  connection
licensing the blood glucose monitoring technology from Elan.  Historically,  the
Company's  revenues have been derived  primarily  from  licensing and technology
fees and from limited product sales. The product sales


                                       20




were  principally  sales to dealers in order to stock their  inventories  and to
HMI. More recently, the Company has sold its products to end-users, primarily to
public health  clinics for  vaccinations  and to nursing  organizations  for flu
immunizations. The Company has not attained profitability at these sales levels.
There can be no assurance that the Company will be able to generate  significant
revenues or achieve profitability. Because of these uncertainties, the Company's
independent  public accountants have qualified their opinion with respect to the
Company's ability to continue as a going concern.  See "Management's  Discussion
and Analysis of Financial Condition and Results of Operations".

Need for Additional  Financing.  To date, the Company's revenues from operations
have not been sufficient to meet its cash requirements.  As a result,  since its
inception  in 1985,  the Company has financed its  operations,  working  capital
needs and capital expenditures  primarily from private placements of securities,
exercises of stock options,  proceeds  received from its initial public offering
in 1986,  proceeds  received from a public  offering of Common Stock in November
1993, licensing and technology  revenues,  equity investments from Elan and more
recently  through  sales of products.  The Company plans to fund its future cash
requirements through revenues,  debt, sales of equity securities,  and its share
of the net proceeds,  if any, from the proposed sale of the license to the blood
glucose  monitoring  technology.  See "Risk Factors - Uncertainty of the Sale of
the  Blood  Glucose  Monitoring  Technology".  There  can be no  assurance  that
financing  sufficient to fund the Company's business activities will be obtained
on favorable terms or at all. Failure to obtain adequate  financing would have a
material adverse impact on the Company's  business.  If the proposed sale of the
blood glucose  monitoring  technology is not completed and another buyer for the
blood glucose  monitoring  technology is not found,  failure to obtain  adequate
financing  could also result in default on the  Company's or Marathon  Medical's
obligations  relating  to the  Elan  transactions,  including  loss of  Marathon
Medical's rights to the technology under the License,  dilution of the Company's
interest in Marathon Medical or the need to severely curtail or cease operations
of  Marathon  Medical  while the Company  seeks to dispose of the blood  glucose
monitoring technology.  In addition,  sale of the Company's equity securities on
unfavorable  terms to meet the  Company's  obligations  could result in material
dilution to the existing shareholders.

Effects of Convertible Preferred Stock. The Company's Common Stock is subject to
the rights and preferences of the Series A, B and C Convertible Preferred Stock,
which has a  liquidation  preference  of $14.8  million  plus accrued and unpaid
dividends.  The Series A and B Convertible  Preferred  Stock is  convertible  to
Common Stock at a conversion  price of $1.50 per share at any time. The Series C
Preferred Stock is convertible to Common Stock at a conversion  price of $0.6125
per  share at any  time.  At the end of seven  years,  unless  its is  converted
earlier by the holders or redeemed by the Company,  the shares Series A, B and C
Convertible   Preferred   Stock  and  accrued  but  unpaid   dividends   convert
automatically  into Common Stock at the conversion  price equal to the lesser of
$1.50  per share or 80% of the then  prevailing  market  price of Common  Stock.
Accordingly,  conversion  of Series A, B and C  Convertible  Preferred  Stock to
Common Stock could result in issuances of significant amounts of Common Stock at
prices lower than prevailing market prices at the time of conversion. Should the
Company issue Series D Convertible  Preferred  Stock or other similar  series of
Preferred Stock to Elan to enable the Company to fund capital  contributions  to
Marathon   Medical,   the  aggregate  amount  of  Preferred  Stock   liquidation
preferences  and Common Stock issuable upon  conversion of Preferred Stock would
increase.

Limited   Manufacturing   Experience.   The  Company   has  limited   experience
manufacturing its products in commercially  viable  quantities.  The Company has


                                       21




increased  its  production  capacity  for  the  Biojector  2000  system  through
automation  of,  and  changes  in,  production  methods.  The  current  cost per
injection  of the  Biojector  2000 system is  substantially  higher than that of
traditional  needle-syringes,  its principal  competition.  A key element of the
Company's  business strategy has been to reduce the overall  manufacturing  cost
through  automating  production and packaging.  This automation is substantially
complete.  There can be no assurance  that the Company  will  achieve  sales and
manufacturing  volumes  necessary to realize cost savings from volume production
at levels necessary to result in significant unit manufacturing cost reductions.
Failure to do so will continue to make  competing  with  needle-syringes  on the
basis of cost very difficult and will adversely  affect the Company's  financial
condition  and  results  of  operations.  While the  Company  believes  that its
experience  manufacturing the Biojector  enhances the probability of its success
in manufacturing the Vitajet,  the Company has limited experience  manufacturing
the Vitajet and as of March 31, 1999, has only recently  completed  installing a
manufacturing  line to produce the Vitajet.  There can be no assurance  that the
Company will be able to successfully manufacture the Vitajet at a unit cost that
will allow the product to be sold  profitably.  Failure to do so would adversely
affect  the  Company's  financial  condition  and  results  of  operation.   See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" and "Manufacturing".

Governmental Regulation. The Company's products and manufacturing operations are
subject to extensive  government  regulation in both the U.S. and abroad. In the
U.S., the development,  manufacture,  marketing and promotion of medical devices
are  regulated  by the Food and Drug  Administration  ("FDA")  under the Federal
Food, Drug, and Cosmetic Act ("FD&C").  In 1987, the Company received  clearance
from the FDA under Section 510(k) of the FD&C to market a hand-held  CO2-powered
needle-free injection system. The FD&C provides that new premarket notifications
under  Section  510(k) of the FD&C are  required to be filed  when,  among other
things,  there is a major change or modification in the intended use of a device
or  a  change  or  modification   to  a  legally   marketed  device  that  could
significantly  affect  its safety or  effectiveness.  A device  manufacturer  is
expected  to make the  initial  determination  as to  whether  the change to its
device or its intended use is of a kind that would  necessitate  the filing of a
new 510(k) notification. Although the Biojector 2000 system incorporates changes
from the  system  with  respect to which the  Company's  1987  510(k)  marketing
clearance  was  received  and expands its  intended  use,  the Company  made the
determination that these were not major changes or modifications in intended use
or  changes  in the  device  that  could  significantly  affect  the  safety  or
effectiveness of the device. Accordingly, the Company further concluded that the
1987 510(k) clearance  permitted the Company to market the Biojector 2000 system
in the U.S. In June 1994,  the  Company  received  clearance  from the FDA under
510(k) to market a  version  of its  Biojector  2000  system in a  configuration
targeted at high volume  injection  applications.  In October 1996,  the Company
received 510(k)  clearance for a needle-free  disposable vial access device.  In
March  1997,  the  Company  received  additional  510(k)  clearance  for certain
enhancements   to  its  Biojector  2000  system.   The  Company   currently  has
applications  pending before the FDA for 510(k)  clearance of the B-2020 1.5 ml.
jet  injector.  There  can be no  assurance  that the FDA will  concur  with the
Company's determination that its current and future products can be qualified by
means of a 510(k) submission.

Future changes to manufacturing procedures could require that the Company file a
new 510(k) notification. Also, future products, product enhancements or changes,
or changes in product use may require  clearance under Section  510(k),  or they
may require FDA premarket approval ("PMA") or other regulatory


                                       22




clearances. PMAs and regulatory clearances other than 510(k) clearance generally
involve more extensive  prefiling  testing than a 510(k)  clearance and a longer
FDA review process. Under current FDA policy,  applications involving pre-filled
syringes  would be evaluated by the FDA as drugs rather than devices,  requiring
FDA new drug  applications  ("NDAS") or ANDAs.  Depending on the  circumstances,
drug  regulation  can be much more  extensive  and time  consuming  than  device
regulation. See "Business - Governmental Regulation".

FDA  regulatory  processes  are time  consuming and  expensive.  There can be no
assurance that product applications  submitted by the Company will be cleared or
approved by the FDA. In addition, the Company's products must be manufactured in
compliance with Good Manufacturing Practices ("GMP") as specified in regulations
under the FDA Act. The FDA has broad  discretion  in enforcing  the FDA Act, and
noncompliance  with the Act  could  result in a variety  of  regulatory  actions
ranging  from  product  detentions,  device  alerts  or  field  corrections,  to
mandatory  recalls,   seizures,   injunctive  actions,  and  civil  or  criminal
penalties.

International Distribution.  Distribution of the Company's products in countries
other than the U.S. may be subject to  regulation  in those  countries.  In June
1998,  the Company  received  certification  from TUV Product  Services  for the
Company's quality system, which meets the requirements of ISO 9001 and EN 46001.
In June 1999,  TUV Product  Services  audited the Company's  quality  system and
found that it still meets the  requirements  of ISO 9001. Also in June 1999, the
company was  recommended  for  certification  from TUV Product  Services for the
applicable  requirements of EC-Directive  93/42/EEC  Annex.  II.3 Medical Device
Directive.  This certification will allow the Company to label its products with
the CE Mark and sell them in the European  Community.  Before this certification
is  granted,  the Company  must submit  certain  additional  information  to TUV
Product Services.  There can be no assurance that final Medical Device Directive
certification  will be received or that the  Company  will  continue to meet the
standards of ISO 9001. See "Governmental Regulations".

Uncertainty  in  Healthcare  Industry.  The  healthcare  industry  is subject to
changing  political,  economic  and  regulatory  influences  that may affect the
procurement practices and operations of healthcare  facilities.  During the past
several years, the healthcare industry has been subject to increased  government
regulation of reimbursement rates and capital expenditures.  Among other things,
third party payers are increasingly  attempting to contain or reduce  healthcare
costs by limiting  both  coverage  and levels of  reimbursement  for  healthcare
products and procedures.  Because the price of the Biojector 2000 system exceeds
the price of  needle-syringe,  cost  control  policies  of third  party  payers,
including  government  agencies,  may adversely affect acceptance and use of the
Biojector 2000 system.

Dependence  on  Third-Party  Relationships.  The Company is  dependent  on third
parties  for  distribution  of the  Biojector  2000  system  to  certain  market
segments,  for the manufacture of component  parts,  and for assistance with the
development and distribution of future application-specific systems.

The  Company's  current  manufacturing  processes  for the  Biojector  2000  jet
injector and disposable  syringes as well as manufacturing  processes to produce
the Vitajet consist primarily of assembling  component parts supplied by outside
suppliers.  Certain of these  components  are  currently  obtained  from  single
sources,  with some components requiring  significant  production lead times. In
the past,  the  Company  has  experienced  delays  in the  delivery  of  certain
components,  To date such delays have not had a material  adverse  effect on the


                                       23




Company's  operations.  There  can be no  assurance  that the  Company  will not
experience  delays in the future,  or that such delays would not have a material
adverse  effect on the Company's  financial  condition and result of operations.
See "Manufacturing".

In the past,  the  Company  has  entered  into  agreements  with  certain  major
pharmaceutical  or  biotechnology  companies for development and distribution of
needle-free injection systems and for use of the Company's needle-free injection
systems in conjunction with the pharmaceutical companies' products. In all cases
to date these  companies  have had the right to terminate  those  agreements  at
certain  phases as  defined  in the  agreements.  In  several  instances,  those
agreements have been terminated before yielding sustained long-term licensing or
product sales revenues.  Entering into agreements of this nature is an important
part of the Company's overall business strategy. There can be no assurance that,
in the future, the Company will be able to interest any major  pharmaceutical or
biotechnology companies in entering into such agreements.  If interested parties
are found,  there can be no  assurance  that the Company will be  successful  at
negotiating and entering into long-term licensing and supply agreements with the
interested  parties.  Further, if such agreements are entered into, there can be
no assurance that the companies'  interest and  participation  in the agreements
and projects  will  continue and result in  long-term,  sustainable  revenues as
contemplated by this aspect of the Company's overall business strategy.  Failure
to enter  into  future  licensing  and  product  supply  agreements  with  major
pharmaceutical or biotechnology companies and failure of those future agreements
to result in significant,  sustainable long-term revenues could adversely affect
the Company's financial condition.

Ability to Manage Growth. If the Company's products achieve market acceptance or
if it is  successful  in entering  into  product  supply  agreements  with major
pharmaceutical  or  biotechnology  companies,  the Company expects to experience
rapid growth.  Such growth would require expanded  customer service and support,
increased personnel  throughout the Company,  expanded operational and financial
systems,  and implementing new and expanded control procedures.  There can be no
assurance  that  the  Company  will  be  able to  attract  sufficient  qualified
personnel or successfully manage expanded operations. As the Company expands, it
may periodically  experience constraints that would adversely affect its ability
to  satisfy  customer  demand in a timely  fashion.  Failure  to  manage  growth
effectively could adversely affect the Company's financial condition and results
of operations.

Competition.  The medical equipment market is highly competitive and competition
is  likely  to  intensify.   The  Company's   products  compete  primarily  with
traditional  needle-syringes,  "safety syringes" and also with other alternative
drug  delivery  systems.  While the  Company  believes  its  products  provide a
superior drug delivery  method,  there can be no assurance that the Company will
be able to compete  successfully  with existing or newly developed drug delivery
products.  Many of the Company's  competitors have longer operating histories as
well as  substantially  greater  financial,  technical,  marketing  and customer
support  resources than the Company.  There can be no assurance that one or more
of these  competitors  will not develop an alternative drug delivery system that
competes  more  directly  with the  Company's  products,  or that the  Company's
products would be able to compete successfully with such a product.

Dependence on a Single Technology.  The Company's strategy has been to focus its
development and marketing efforts on its needle-free injection technology. Focus
on this single  technology leaves the Company  vulnerable to competing


                                       24




products and  alternative  drug delivery  systems.  The Company  perceives  that
healthcare   providers'   desire  to  minimize   the  use  of  the   traditional
needle-syringe  has  stimulated  development  of a variety of  alternative  drug
delivery  systems  such as  "safety  syringes,"  jet  injection  systems,  nasal
delivery   systems   and   transdermal   diffusion   "patches".   In   addition,
pharmaceutical  companies  frequently attempt to develop drugs for oral delivery
instead of injection. While the Company believes that for the foreseeable future
there  will  continue  be a  significant  need for  injections,  there can be no
assurance that alternative drug delivery methods will not be developed which are
preferable to injection. See "Forward Looking Statements".

Patents and  Proprietary  Rights.  The Company  relies on a combination of trade
secrets,  confidentiality  agreements and procedures, and patents to protect its
proprietary  technologies.  The Company has been  granted a number of patents in
the  United  States and  several  patents in other  countries  covering  certain
technology   embodied  in  its  current   jet   injection   system  and  certain
manufacturing processes.  Additional patent applications are pending in the U.S.
and  certain  foreign  countries.  There  can be no  assurance  that the  claims
contained in any patent  application will be allowed,  or that any patent or the
Company's  patents   collectively  will  provide  adequate  protection  for  the
Company's  products and  technology.  In the absence of patent  protection,  the
Company may be  vulnerable  to  competitors  who  attempt to copy the  Company's
products or gain access to its trade secrets and know-how. In addition, the laws
of foreign  countries may not protect the Company's  proprietary  rights to this
technology to the same extent as the laws of the U.S. The Company  believes that
it has  independently  developed its  technology and attempts to ensure that its
products do not infringe the proprietary  rights of others. The Company knows of
no such  infringement  claims.  However,  any such claims  could have a material
adverse affect on the Company's financial condition and results of operations.

Product Liability.  Producers of medical devices may face substantial  liability
for  damages in the event of product  failure  or if it is alleged  the  product
caused harm. The Company currently maintains product liability insurance and, to
date,  has  experienced  only  one  product  liability  claim.  There  can be no
assurance,  however,  that the  Company  will not be subject to a number of such
claims, that the Company's products liability insurance would cover such claims,
or that  adequate  insurance  will  continue to be  available  to the Company on
acceptable  terms in the  future.  The  Company's  business  could be  adversely
affected by product  liability  claims or by the cost of insuring  against  such
claims.

Dependence on Key Employees.  The Company's  success depends on the retention of
its executive officers and other key employees. Competition exists for qualified
personnel and the  Company's  success will depend,  in part,  on attracting  and
retaining such personnel. Failure in these efforts could have a material adverse
effect on the Company's business, financial condition or results of operations.

Shares  Eligible  For Future Sale.  In December  1996,  the Company  completed a
private placement of 3,434,493 units (each unit representing one share of common
stock and a warrant to purchase  one share of common  stock).  The Company  also
granted a warrant to its  placement  agent in the private  placement to purchase
156,000 shares of common stock.  The shares issued in the private  placement and
the underlying shares issuable upon exercise of the warrants were registered for
resale on a Form S-3 registration  statement. In June and July 1997, the Company
completed a private  placement of 2,906,977  units,  each unit consisting of one
share of Common  Stock and one  warrant  to  purchase


                                       25




one-half  share of Common Stock.  In May 1997, in return for services  provided,
the Company  granted a consultant a warrant to purchase  25,000 shares of Common
Stock.  The shares  issued in the private  placement and the  underlying  shares
issuable upon exercise of the warrants were  registered for resale on a Form S-3
registration  statement.  In connection  with the Elan  transactions  in October
1997,  Elan  purchased  2,727,273  shares of Common Stock and was granted a five
year warrant to purchase 1.75 million shares of common stock. In January,  1998,
the shares issued to Elan as well as the 487,390  shares issued to Schering (see
"Research  and Product  Development  -  Needle-free  Injection  Business")  were
registered for resale on a Form S-3 registration  statement.  In October,  1997,
the  Company  granted  warrants  to  purchase  350,000  shares  of  stock  to an
individual  in connection  with a his  guarantee of an equity  investment in the
Company. In February,  1998, the Company granted a management consulting company
which  introduced Elan to the Company,  a warrant to purchase  100,000 shares of
Common Stock.  In June 1998, the Company  granted  warrants to purchase  130,243
shares of stock to an individual in return for services to the Company. In April
1998,  the  warrants  issued in the June and July 1997  private  placement  were
exercised, in exchange for which the Company issued 147,850 new warrants. In May
1999, the Company issued  warrants to purchase  80,000 shares of common stock to
an  advisory  firm  in  exchange  for  financial  advisory  services.  Sales  of
substantial numbers of common stock in the public market, or the availability of
such shares for sale,  could  adversely  affect the market  price for the common
stock and make it more  difficult for the Company to raise funds through  equity
offerings in the future.

Possible Adverse Effects on Trading Market. The Company's Common Stock is quoted
on the NASDAQ  National  Market.  There are a number of continuing  requirements
that must be met in order for the Common Stock to remain  eligible for quotation
on the NASDAQ National Market or the NASDAQ SmallCap Market. The failure to meet
the  maintenance  criteria in the future  could  result in the  delisting of the
Company's  Common  Stock from  NASDAQ.  In such event,  trading,  if any, in the
Common   Stock  may  then   continue  to  be   conducted   in  the  non-  NASDAQ
over-the-counter  market. As a result, an investor may find it more difficult to
dispose  of or to  obtain  accurate  quotations  as to the  market  value of the
Company's  Common  Stock.  In addition,  if the Common Stock were  delisted from
trading on NASDAQ and the trading price of the Common Stock were less than $5.00
per share, trading in the Common Stock would also be subject to the requirements
of certain rules  promulgated  under the Exchange Act, which require  additional
disclosure by  broker-dealers  in connection  with any trades  involving a stock
defined as a penny stock. The additional  burdens imposed on broker-dealers  may
discourage  broker-dealers  from effecting  transactions in penny stocks,  which
could  reduce the  liquidity  of the shares of Common  Stock and thereby  have a
material  adverse effect on the trading market for the  securities.  On April 9,
1999,  the Company was advised by NASDAQ that it is out of  compliance  with the
NASDAQ rule that requires companies listed on the exchange to maintain a minimum
bid price of $1.00 for their stock. The Company is pursuing a variety of courses
of action to bring the bid price of its stock back into  compliance  with NASDAQ
requirements.  There can be no assurance  that the Company will be successful in
these efforts within the timeframes prescribed by NASDAQ or at all.


                                       26




Possible  Volatility of Stock Price.  The market for the Company's  Common Stock
and  for  the  securities  of  other  early-stage,  small  market-capitalization
companies has been highly  volatile in recent years.  The Company  believes that
factors  such as  quarter-to-quarter  fluctuations  in  financial  results,  new
product  introductions by the Company or its competition,  public announcements,
changing  regulatory  environments,  sales of Common  Stock by certain  existing
shareholders,  substantial  product  orders and  announcement  of  licensing  or
product supply agreements with major  pharmaceutical or biotechnology  companies
could  contribute to the volatility of the price of the Company's  Common Stock,
causing  it  to  fluctuate   dramatically.   General  economic  trends  such  as
recessionary  cycles and changing  interest rates may also adversely  affect the
market price of the Company's Common Stock.


Item 2.   PROPERTIES

The Company's principal offices are located in Portland, Oregon in approximately
23,000 square feet of leased office and manufacturing  space under a lease which
expires in  September  2002.  The  monthly  minimum  lease  obligation  for this
facility is approximately  $15,000. These facilities include the Company's sales
and administration offices and equipment, research and engineering facilities, a
clean room assembly  area,  assembly  line,  testing  facilities and a warehouse
area.

The Company  leases  additional  warehouse  space totaling  approximately  5,000
square feet for finished  goods storage and shipments to customers.  This lease,
which also expires in September  2002,  has minimum  monthly  lease  obligations
totaling $2,000.

The Company  believes its current  facilities  will be sufficient to support its
operations  for the next 3-5 fiscal years.  As the Company  requires  additional
space to accommodate growth in its sales and manufacturing activities, it is the
Company's  intention  to lease  additional  facilities  adjacent  to or near its
present operations.  The Company believes that, if necessary, it will be able to
obtain  facilities  at rates and under terms  comparable to those of the current
leases. See "Forward Looking Statements".

Item 3.   LEGAL PROCEEDINGS

The Company is named as co-defendant in a product liability suit alleging injury
and unspecified damages in excess of $50,000 to the plaintiff in connection with
an injection  administered  using the B-2000. The Company believes that the suit
is without  merit.  The Company's  insurer for product  liability has undertaken
defense of the claim on the Company's behalf.

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

None.

PART II

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

The  Company's  Common Stock is traded on the NASDAQ  National  Market under the
Symbol  "BJCT".  The  following  table sets forth the high and low closing  sale
prices of the Company's Common Stock on the NASDAQ National Market.


                                       27




                       High     Low
                      -----    -----
Fiscal year Ended March 31, 1997:

First Quarter          1.41    1.28
Second Quarter         1.03    0.97
Third Quarter          0.78    0.75
Fourth Quarter         0.78    0.63

Fiscal Year Ended March 31, 1998:

First Quarter           .94     .47
Second Quarter         1.03     .59
Third Quarter          1.57    1.19
Fourth Quarter         1.50    1.09

Fiscal Year Ended March 31, 1999:

First Quarter          2.09    1.34
Second Quarter         2.06    0.88
Third Quarter          1.72    1.06
Fourth Quarter         1.72     .56


The closing  sale price on June 25,  1999,  as  reported on the NASDAQ  National
Market, was $0.625 per share.

Item 6.   SELECTED CONSOLIDATED FINANCIAL DATA

FINANCIAL DATA

The statement of operations  and balance sheet data set forth below for the five
fiscal  years in the period  ended March 31,  1999,  have been  derived from the
consolidated  financial  statements  of the Company.  The selected  consolidated
financial data set forth below should be read in conjunction with  "Management's
Discussion and Analysis of Financial  Condition and Results of  Operations"  and
with the detailed  consolidated  financial statements and notes thereto included
elsewhere in this Report.


                                       28




       SUMMARY FINANCIAL INFORMATION
      (in thousands, except per share data)

                                              YEAR ENDED MARCH 31,
                                    1999     1998     1997      1996      1995
                                   ------   ------   ------    ------    ------
Statement of Operations Data:

Revenues                          $ 2,631 $  1,935 $  2,235  $  4,209  $  2,924
Operating expenses                  5,405    6,061    6,637     9,851     9,008

Net loss:
  Continuing operations            (4,064)  (4,518)  (4,296)   (5,431)   (5,656)
  Discontinued operations          (3,012) (12,112)      --        --        --
Net loss allocable
  to common shareholders           (7,076) (16,630)  (4,296)   (5,431)   (5,656)

Net loss per share:
  Continuing operations             (0.14)   (0.20)   (0.26)    (0.39)    (0.43)
  Discontinued operations           (0.11)   (0.52)      --        --        --
Net loss per share allocable
  to common shareholders            (.025)   (0.72)   (0.26)    (0.39)    (0.43)

Shares used in per
  share calculation                28,315   23,151   16,705    14,074    13,167



                                              YEAR ENDED MARCH 31,
                                    1999     1998     1997      1996      1995
                                   ------   ------   ------    ------    ------
Balance Sheet Data:

Working capital                   $ 3,038  $ 3,019  $ 2,858   $ 4,327   $ 6,404
Total assets                        8,591    6,978    7,088     7,519     9,498
Long-term debt                         --       --       --        --        --
Shareholders' equity                5,748    5,975    5,766     6,027     7,964


In fiscal 1998, the Company  acquired blood glucose  monitoring  technology from
Elan for an  up-front  licensing  fee of $15  million  which was  required to be
expensed  in the year  paid.  As a result,  the 1998 net loss from  discontinued
operations includes a $12 million, net of minority interest, one-time charge for
acquired in-process research and development.

In May 1999,  rather  than  continue  to fund the cost of its  development,  the
Company  entertained  a  preliminary  proposal  from a third  party to  purchase
Marathon  Medical's  blood  glucose  monitoring  technology.   Pursuant  to  the
proposal,  the Company intends to enter into an agreement to sell the license to
the blood  glucose  monitoring  technology,  along with  certain  fixed  assets.
Accordingly,   Marathon   Medical's   operation  is  reported  as  "Discontinued
Operations" in the accompanying financial statements. See Note 3 - "Discontinued
Operations".

The Company has declared no dividends during its history and has no intention of
declaring a dividend in the foreseeable future.


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

OVERVIEW

Operating losses have resulted in an accumulated  deficit of  approximately  $58
million as of March 31, 1999. In fiscal 1996, the Company incurred significantly
increased  costs  associated  with the production and sale of the Biojector 2000
system,  including  sales  and  marketing  efforts,  manufacturing  ramp-up  and
inventory build-up.  In September 1997, the Company acquired rights to the blood
glucose  monitoring  technology from Elan for an initial payment of $15 million.
In fiscal  1998,  the $15  million up front  payment  was  expensed  as acquired
in-process  research and development,  net of minority interest  allocation.  In
March 1998, the


                                       29




Company  acquired  the rights to the Vitajet  self-injector,  along with certain
other assets, in a stock-for-assets  transaction with Vitajet  Corporation.  The
Company's  ability to  achieve  and  sustain  profitability  will  depend on: i)
customers   accepting  the  Biojector   2000  system;   ii)  forming   strategic
relationships with major pharmaceutical and biotechnology  companies that result
in   significant   license  and  product  supply   agreements;   iii)  realizing
volume-related  manufacturing  cost  efficiencies;  and iv) otherwise  attaining
revenues sufficient to support profitable operations.

In August  1994,  Bioject  signed an  agreement  with  Health  Management,  Inc.
("HMI"),  granting  HMI  exclusive  rights  to  purchase  Bioject's  Needle-Free
Injection  Management  System  (R),  the  Biojector  2000,  for use in the  home
healthcare market. In return for HMI's commitment to purchase a minimum of 8,000
Biojector  units over the ensuing two years,  the Company granted volume pricing
discounts  to HMI.  During  the  term of the  contract,  the  selling  price  of
Biojectors to HMI exceeded their standard cost. During fiscal 1996 and 1997, the
Company  sold  approximately  6,400  Biojectors  to HMI for total sales  revenue
including  syringes  of $3.3  million.  HMI did not place the great  majority of
these  Biojectors  with  patients,   pending  completion  of  negotiations  with
pharmaceutical  companies for certain  pricing  concessions for medication to be
administered  with the  Biojectors.  In January 1996 HMI requested  that Bioject
suspend shipments to HMI. In February 1996, the Company learned from HMI's press
releases  that  HMI  expected  to  default  on  its  debts,  anticipated  taking
significant write-offs relating to accounts receivable and inventories,  planned
operational  consolidations,  and would restate  certain prior period  financial
statements.  In fiscal 1997, although not obligated to do so, the Company agreed
to repurchase  certain of the HMI  inventories,  including up to 6,000 Biojector
units, for cash and forgiveness of accounts  receivable  totaling $660,000.  The
repurchase of these  inventories  was at a substantial  discount to the original
selling price to HMI.

In  March  1994,  the  Company  entered  into  an  agreement  with  Schering  AG
("Schering"),  Germany,  for the  development  of a  self-injection  device (the
"Self-Injector")  for delivery of Betaseron (R) to multiple sclerosis  patients.
During fiscal 1996, the Company delivered  preproduction  clinical prototypes to
Schering and worked on finalizing the production prototype design. During fiscal
1997, the Company entered into a supply agreement with Schering AG and commenced
activities related to full production of the self-injector.  Schering loaned the
Company a total of $1.6  million to  purchase  molds and  tooling to produce the
product.  In January 1997,  the Company  received  notice that its contract with
Schering AG would be cancelled.  Under  provisions of the contract,  Schering AG
had the option of canceling the agreement if the FDA required extensive clinical
studies beyond an originally planned safety study. Schering AG received a review
letter from the FDA which would have  required  Schering to conduct  additional,
material clinical studies in order to use  non-traditional  delivery  mechanisms
with its  Betaseron  (R)  product.  Under terms of the  contract,  Schering  was
required to convert its $1.6 million note due from Bioject plus accrued interest
into approximately  487,000 shares of Bioject common stock at a conversion price
of $3.50 per share.  In addition,  Schering was obligated to pay Bioject for the
cost of product ordered through the date of cancellation of the contract,  which
payment was made in June 1997.

In  January  1995,  the  Company  signed  a  joint  development  agreement  with
Hoffman-La  Roche  to  develop  proprietary  drug  delivery  systems  for  Roche
products.  The agreement  provided for Bioject to develop,  manufacture and sell
Biojector   needle-free  injection  drug  delivery  systems  designed  to  Roche


                                       30




specifications.  The B-2020 1.5 ml.  needle-free  injector  was  developed  as a
result of this agreement.  In return,  Bioject granted Roche exclusive worldwide
rights to  distribute  these systems and their  components  for use with certain
Roche  products.  Hoffman-LaRoche  Inc. is the United  States  affiliate  of the
multinational group of companies headed by Roche Holding of Basel,  Switzerland,
one of the world's leading  research-intensive  healthcare companies.  As of the
1995 fiscal year end, the Company had commenced design of a prototype device and
had agreed with Roche on product specifications. During fiscal 1996, the Company
developed  and  delivered  preproduction  prototypes  to Roche for  testing  and
developed the clinical preproduction prototypes which were delivered to Roche in
April 1996. At March 31, 1998, the Company and  Hoffman-LaRoche  were finalizing
their  submission  to obtain  regulatory  clearance to market the  product.  The
regulatory  submission was made in May 1998. In June 1999,  after the end of the
fiscal year,  Roche advised the Company that because of the additional  time and
cost required to gain regulatory clearance to use the B-2020 in conjunction with
the Roche drugs and because of an overall  change in its marketing  strategy for
the drugs in question,  it does not intend to pursue distributing the B-2020 and
is relinquishing its exclusive rights to the product.

In September 1997, the Company and Elan Corporation signed a licensing and joint
development  agreement  for the  development  and  commercialization  of certain
continuous blood glucose monitoring  technology  licensed from Elan. Under terms
of the agreement,  the Company borrowed  $12.015 million from  Elan(subsequently
converted  to Series A and B  convertible  preferred  stock)  and Elan  invested
$2.985 million in a new subsidiary of the Company, Marathon Medical Technologies
Inc. ("Marathon Medical") (formerly Bioject JV Subsidiary Inc.), created for the
purpose of  developing  the  technology.  Marathon  Medical,  owned 80.1% by the
Company and 19.9% by Elan,  paid Elan $15  million for rights to the  technology
and  was  committed  to pay an  additional  $15.5  million  to  Elan  as  future
milestones  were  achieved as well as  royalties on future sales of the product.
The new  subsidiary was to develop the blood glucose  monitoring  technology and
seek  regulatory  clearance  for the its sale.  In October  1997, as part of the
agreement,  Elan  acquired  2.7 million  shares of common stock and 1.75 million
warrants  to  purchase  the  Company's  common  stock at $2.50  per share for $3
million.  In  addition,  Elan agreed to  underwrite  the  Company's  contractual
obligation to fund  development  of the blood glucose  monitoring  technology by
purchasing  up to a total of $4 million of the  Company's  Series C  convertible
preferred  stock.  Elan also agreed to purchase up to a maximum of an additional
$1 million of Marathon  Medical's  stock.  As a separate part of the  agreement,
Elan also  committed to fund  development  of the Company's  pre-filled  syringe
technology through a grant of up to $500,000.

In March 1999, Elan subscribed to purchase $2.4 million of the Company's  Series
C preferred  stock and $597,000 of the stock in Marathon  Medical.  In May 1999,
after the end of the fiscal  year,  the Company  decided to seek a buyer for the
blood glucose monitoring technology rather than continue to fund the cost of its
development.  In May  1999,  rather  than  continue  to  fund  the  cost  of its
development,  the Company entertained a preliminary  proposal from a third party
to purchase Marathon Medical's blood glucose monitoring technology.  Pursuant to
the proposal, the Company intends to enter into an agreement to sell the license
to the blood  glucose  monitoring  technology,  along with certain fixed assets.
Accordingly,   Marathon   Medical's   operation  is  reported  as  "Discontinued
Operations" in the financial statements and other financial information included
as a part of this Report.  See "Risk  Factors -  Uncertainty  of the Sale of the
Blood Glucose Monitoring Technology", and "Consolidated Financial Statements and
Supplementary Data - Notes to Consolidated Financial Statements".


                                       31




In March 1998,  in a  transaction  with  Vitajet  Corporation,  the Company paid
100,000 shares of its common stock for certain molds, tooling, patent rights and
customer lists,  the value of which totaled $134,400 at the date of acquisition.
In addition to shares  already  paid,  the Company is  obligated to issue 60,000
shares of its common  stock each year in each of the three years  subsequent  to
the  acquisition if certain  development  milestones are met. The Company issued
60,000 shares in March 1999 in payment for  milestones met in the first contract
year. Up to an additional  90,000 shares are also payable subject to the Company
realizing  specified,  aggregate levels of incremental  revenue during the three
years  subsequent  to the Vitajet  acquisition  as a result of sales of products
acquired from or developed by Vitajet.

In July 1998, the Company  entered into an agreement with Merck & Co.  ("Merck")
which provided Merck limited-term rights to use the B-2000 needle-free injection
system with selected Merck vaccines. As part of the agreement,  the Company also
granted Merck  exclusive  rights to negotiate a long-term  license to the B-2000
for  certain  medical   indications.   The  Company  received  $1.5  million  in
non-refundable  fees under this  agreement in the year ended March 31, 1999.  In
February 1999, citing a refinement in its vaccine  development  strategy,  Merck
advised the Company that it would not  continue  discussions  to seek  long-term
license  rights to the  Company's  technology.  No  further  fees are due to the
Company under this agreement.

Also in July 1998, the Company entered into a collaborative  research  agreement
with  GeneMedicine  Inc. (now owned by Valentis  Inc.), a developer of DNA-based
medicines and genetic vaccine technologies for treatment or prevention of a wide
range of diseases.  This collaboration  involves the continued refinement of the
Biojector  2000 jet  injection  system  coupled with  GeneMedicine's  gene-based
delivery  platforms to create a combined product that is intended to enhance the
delivery  and  activity  of  plasmid-based   genetic  vaccines.   The  agreement
anticipates  that  combined  products  developed  as a  result  of the  research
collaboration   will  be  marketed  to  third  party   corporate   partners  for
commercialization  and sale rather than being  commercialized  or sold by either
Bioject  or  GeneMedicine.  See  "Forward  Looking  Statements",  "Research  and
Development - Needle-free Injection Business" and "Risk Factors - Uncertainty of
Product Development Under the GeneMedicine Agreement".

During fiscal 1996,  the Company  implemented  a plan to increase  manufacturing
capacity and refine production  methods to meet anticipated future demand and to
reduce product costs. During fiscal 1997, the Company's manufacturing activities
focused on retesting the devices repurchased from HMI to ensure their continuing
compliance with new product  standards and elective  upgrade of certain of these
units to current version configuration.  Also during fiscal 1997,  manufacturing
focused on finalizing  product  engineering  and on planning for,  designing and
installing  manufacturing  lines for the new self injector  device in advance of
the launch of that product. During fiscal 1998, having a sufficient inventory of
jet  injectors  on-hand as a result of the  repurchase  of product from HMI, the
Company focused its manufacturing  efforts on refining  manufacturing  processes
and  efficiencies of the disposable  syringe  manufacturing  line. On account of
excess  inventories of both B-2000 devices and Biojector  syringes,  the Company
ceased manufacturing any material quantity of new products in July 1998. All but
four  employees  directly  involved  in  manufacturing  were  either laid off or
transferred to other functions within the Company.  The Company will manufacture
Vitajet devices and syringes in fiscal 2000. The Company believes that inventory
on-hand of B-2000  devices and syringes  will,  in most product  categories,  be
sufficient to meet product demand through fiscal 2000. Accordingly,  the Company
does not plan to


                                       32





manufacture  material  quantities of B-2000  devices or syringes in fiscal 2000.
See  "Forward  Looking  Statements"  and "Risk  Factors - Limited  Manufacturing
Experience".

The Company's  revenues to date have not been sufficient to cover  manufacturing
and  operating  expenses.  However,  the Company  believes  that if its products
attain  significantly  greater  general market  acceptance and if the Company is
able to enter into large volume supply agreements with major  pharmaceutical and
biotechnology  companies,  the Company's  product  sales volume would  increase.
Significantly  higher  product sales volumes should allow the Company to realize
volume-related manufacturing cost efficiencies.  This, in turn, should result in
a reduced  costs of goods as a  percentage  of  sales,  which  could  eventually
allowing the Company to achieve positive gross profit. The Company believes that
positive gross profit from product sales, together with licensing and technology
revenues   from   agreements   entered  into  with  large   pharmaceutical   and
biotechnology   companies  would   eventually   allow  the  Company  to  operate
profitably. See "Forward Looking Statements".  The level of revenues required to
generate net income will be affected by a number of factors including the mix of
revenues between product sales and licensing and technology fees, pricing of the
Company's products,  its ability to attain volume-related and automation-related
manufacturing  efficiencies,  and  the  impact  of  inflation  on the  Company's
manufacturing  and other  operating  costs.  There can be no assurance  that the
Company will achieve  sufficient  cost reductions or sell its products at prices
or in volumes  sufficient to achieve  profitability  or offset  increases in its
costs should they occur. See "Risk Factors - Limited Manufacturing  Experience".
Further, there can be no assurance that, in the future, the Company will be able
to  interest  major  pharmaceutical  or  biotechnology   companies  in  entering
licensing or supply  agreements.  See "Risk Factors - Dependence on  Third-Party
Relationships".

Revenues  and  results of  operations  have  fluctuated  and can be  expected to
continue to  fluctuate  significantly  from  quarter to quarter and from year to
year.  Various  factors  may  affect  quarterly  and  yearly  operating  results
including:  (i) length of time to close  product  sales;  (ii)  customer  budget
cycles;  (iii)  implementing  cost reduction  measures;  (iv)  uncertainties and
changes  in  product  sales due to third  party  payer  policies  and  proposals
relating to healthcare cost containment; (v) timing and amount of payments under
licensing and technology development agreements;  and (vii)timing of new product
introductions by the Company and its competition.

In the future,  the Company may incur a non-cash charge to compensation  expense
in  connection  with the  issuance  of  100,000  shares of  Common  Stock to the
Company's  Chief  Executive  Officer  and 15,000  shares of common  stock to the
Company's Chief Financial Officer.  Under terms of their employment  agreements,
each will receive the shares of common stock when the Company first achieves two
consecutive  quarters  of positive  earnings  per share.  Upon  issuance of such
shares the Company  will record a non-cash  charge to  compensation  at the fair


                                       33




market value of the stock on the last day of the quarter in which the shares are
earned.

During the next fiscal year,  the Company  will target its direct sales  efforts
toward: i) sales to existing markets,  specifically flu immunization  providers,
public health agencies and public school  systems;  ii) sales in markets such as
the State of California,  where the Company believes that needle-syringe  safety
legislation makes the Company's products more price competitive;  and iii) sales
to  the  U.S.  military.  Sales  through  distributors  will  target  the  home,
self-injection  market. See "Forward Looking Statements",  "Business - Marketing
and Competition" and "Risk Factors".

The  Company  will also  focus  sales and  marketing  efforts on  entering  into
licensing and supply arrangements with leading  pharmaceutical and biotechnology
companies  whose products the Biojector  technology  provides  either  increased
medical efficacy or a higher degree of market acceptance.  Agreements under this
type of  arrangement  would  ordinarily  include  some  or all of the  following
components:  i)licensing  revenues for full or partially exclusive access to the
Company's  products  for a  specific  application  or  medical  indication;  ii)
development  fees if the  Company is  customizing  one of its  products  for the
customer or developing a new product;  iii)  milestone  payments  related to the
customer's  progress in developing  products to be used in conjunction  with the
Company's products; and iv) product revenues from sale of the Company's products
to  the  customer  pursuant  to  a  supply   agreement.   See  "Forward  Looking
Statements", "Business - Marketing and Competition" and "Risk Factors".

In fiscal 2000, the Company's  clinical research efforts will be aimed primarily
at  clinical  research  collaborations  in the area of  DNA-based  vaccines  and
medications. Product development efforts will focus primarily in three areas: i)
developing  self-injectors  targeted  for the  home  use  market,  both  through
pursuing  regulatory  approval of the B-4000 and through continuing to develop a
new  generation  of  smaller,  lightweight,   lower  cost  self-injectors;   ii)
developing   pre-filled  syringes  for  use  with  the  B-2000  and  with  other
needle-free injectors presently being developed; and iii) furthering development
of the intradermal adapter for the B-2000. See "Forward Looking Statements" and
"Business - Research and Development".

Also during the next fiscal year, the Company will commence the  manufacture and
sale of the Vitajet and  conserve  its fiscal  resources.  The Company  does not
expect to report net income from operations in fiscal 2000. See "Forward Looking
Statements" and "Risk Factors".


RESULTS OF OPERATIONS

Product  sales  increased  from $1.3  million in fiscal 1997 to $1.4  million in
fiscal 1998 and  decreased to $587,000 in fiscal 1999.  Product sales in each of
the three fiscal  years  consisted  primarily of sales to public  health and flu
immunization  clinics.  The sales decrease in fiscal 1999 was due to a reduction
in  fiscal  1999  flu  season  orders,  a  significant   portion  of  which  was
attributable  to certain  customers  using  inventory  acquired  but not used in
earlier periods to meet their current year flu season  requirements and also due
to a reduced direct sales force.  Also contributing to the product sales decline
in fiscal  1999 was certain  customers  misinterpreting  regulatory  labeling on
certain flu vaccines and choosing not to use jet injection with that flu vaccine
as a result of that labeling  misinterpretation.  The Company  believes that the


                                       34




label interpretation problem is resolved and will not reoccur in the fiscal 2000
flu season. See "Forward Looking Statements".

License and  technology  fees decreased from $966,000 in fiscal 1997 to $500,000
in fiscal 1998 and  increased to $2.0  million in fiscal  1999.  The fiscal 1997
fees consisted  principally of product  development  revenues for work performed
under the  Schering and  Hoffman-LaRoche  agreements.  The fiscal 1998  revenues
related  to  work on the  Hoffman-LaRoche  project.  The  fiscal  1999  revenues
consisted  primarily of development  revenues for work on the pre-filled syringe
technology  under the Elan  agreement and licensing fees received under the July
1998 agreement with Merck.

Manufacturing  expense is made up of the cost of products sold and manufacturing
overhead expense related to excess  manufacturing  capacity.  The total of these
costs  decreased from $1.9 million in fiscal 1997 to $1.7 million in fiscal 1998
and  increased  to $1.9 million in fiscal  1999.  The decrease in  manufacturing
expense  from  fiscal  1997 to fiscal 1998  reflects  reductions  in the cost of
materials  and labor for  injectors  and syringes as well as reductions in fixed
and variable  manufacturing  overhead  expense.  The  increase in  manufacturing
expense from fiscal 1998 to fiscal 1999 reflects:  i)reduced  inventory  buildup
resulting  in  less  manufacturing   overhead  being  absorbed;   ii)  increased
depreciation expense; and iii) a reduction in the carrying value of raw material
and finished  goods  inventories  to levels  estimated to be equal to one year's
supply  based upon sales  activity  for the years ended March 31, 1999 and 1998.
Manufacturing  overhead  totaled  $1.2  million,  $981,000,  and $1.0 million in
fiscal years 1997, 1998, and 1999,respectively.

Research and development  expense  decreased from $1.6 million in fiscal 1997 to
$884,000  in  fiscal  1998,  (exclusive  of  acquired  in-process  research  and
development) and increased to $979,000 in fiscal 1999.  Fiscal 1997 research and
development  expenditures were principally  related to final design and transfer
to  manufacturing  of the Schering device and to development  work on the B-2020
Hoffman-LaRoche  system. Fiscal 1998 expenditures related principally to further
development of the B-4000 Self Injector and to pursuing regulatory clearance for
the Vial Adapter.  The Company  expended  $979,000 in fiscal 1999 on needle-free
research  and  development,  related  principally  to:  i)  pursuing  regulatory
clearance for the B-2020; ii) pursuing clinical research in delivering DNA-based
medications;  iii)  developing  the low-cost self  injector;  and iv) developing
pre-filled Biojector syringes. See "Research & Development".

Selling,  general and  administrative  expense  increased  from $3.2  million in
fiscal 1997 to $3.4  million in fiscal  1998 and  decreased  to $2.5  million in
fiscal 1999. During that time period,  expenses related to sales,  marketing and
business  development  were $1.6  million for each of fiscal years 1997 and 1998
and  $868,000 for fiscal  1999.  The decline of $726,000 in sales and  marketing
expense in fiscal 1999 was  principally  due to reducing  the  Company's  direct
sales  force.   See  "Business  -  Marketing  and   Competition".   General  and
administrative  expense  increased  from $1.6  million  in  fiscal  1997 to $1.8
million in fiscal 1998. This increase was due principally to consulting fees and
an increase in travel expenses.  General and administrative  expenses for fiscal
1999 totaled $1.6 million, a decrease of $193,000 from fiscal 1998.

Interest  expense of $390,000 in fiscal 1998 relates to the $12.015 million debt
due to Elan for the period from October 15, 1997 through  March 2, 1998 when the
note and accrued  interest was  converted  to Series A and Series B  convertible
preferred stock.


                                       35




Other  income  consists of earnings on  available  cash  balances.  Other income
varied as a result of changes in cash  balances and interest  rates from year to
year.


LIQUIDITY AND CAPITAL RESOURCES

Since its inception in 1985,  the Company has financed its  operations,  working
capital  needs and capital  expenditures  primarily  from private  placements of
securities,  exercises  of stock  options,  proceeds  received  from its initial
public  offering in 1986,  proceeds  received  from a public  offering of Common
Stock in  November  1993,  proceeds  from  sale of  equity  securities  to Elan,
licensing and technology revenues,  and more recently through sales of products.
Net proceeds  received upon issuance of securities from inception  through March
31, 1999,  totaled  approximately  $59.8  million.  The Company has no long-term
debt.

Cash, cash equivalents and marketable  securities  totaled $1.9 million at March
31,  1998 and $1.3  million  at March  31,  1999.  The  decrease  resulted  from
operating  losses  and  capital   expenditures   which  were  partly  offset  by
approximately $3 million in net proceeds from the exercise of stock warrants and
stock options.

Inventories  decreased  from $1.9  million at March 31, 1998 to $1.3  million at
March 31,  1999,  primarily  due to a  reduction  in the  carrying  value of raw
material and finished goods  inventories to levels  estimated to be equal to one
year's supply based upon sales  activity for the years ended March 31, 1999, and
1998.

The Company has fixed commitments for facilities rent and equipment leases which
total approximately $226,000 for fiscal 2000.

The Company  purchased  capital equipment for use on the needle-free side of the
business  of  approximately  $110,000  and  $112,000  in  fiscal  1998 and 1999,
respectively.

The Company believes that its current cash position,  together with net proceeds
which may be received  from the proposed  sale of the blood  glucose  monitoring
technology, combined with revenues and other cash receipts will be sufficient to
fund the Company's operations through the first quarter of fiscal 2001. The sale
of the blood  glucose  monitoring  technology  is  subject  to  negotiation  and
execution of definitive  agreements and satisfaction of certain  conditions,  so
there can be no assurance  that the  transaction  will be completed on the terms
anticipated  by the  Company or at all. In  addition,  the Company is pursuing a
number of additional financing sources.  See "Forward Looking Statements".  Even
if the Company is successful in raising additional  financing,  unforeseen costs
and expenses or lower than  anticipated  cash  receipts  from  product  sales or
research and development  activities  could accelerate or increase the financing
requirements. The Company has been successful in raising additional financing in
the past and  believes  that  sufficient  funds will be available to fund future
operations. See "Forward Looking Statements". However, there can be no assurance
that the  Company's  efforts will be  successful,  and there can be no assurance
that such  financing  will be  available  on terms  which are not  significantly
dilutive to existing  shareholders.  Failure to obtain needed additional capital
on terms acceptable to the Company, or at all, would significantly  restrict the
Company's  operations and ability to continue product development and growth and
would have a material adverse affect the Company's business.  The Company has no
banking  line of credit or other  established  source of  borrowing.  Because of
these uncertainties, the Company's independent public accountants have qualified
their  opinion  with  respect to the  Company's  ability to  continue as a going
concern.  See "Risk Factors - Need for Additional  Financing and  Uncertainty of
the Sale of the Blood Glucose Monitoring Technology".


                                       36




YEAR 2000 ISSUES

The Company is in the process of assessing and implementing remedial action with
regards to its Year 2000 ("Y2K") issues. The assessment includes steps to review
and obtain vendor  certification of Y2K compliance of current  systems,  testing
system compliance and implementing corrective action where necessary. A Y2K team
composed of manager-level  members from Manufacturing,  Purchasing,  Information
Services and Finance is continuing to conduct the assessment.  Assessment of the
compliance  of all  critical  systems,  plans for remedial  action,  if any, and
estimates of the cost of such remedial action have been  completed.  The cost to
address the Company's  Y2K issues have been  estimated to be  insignificant  and
funds  expended are expected to be derived from normal  maintenance  and upgrade
operating budgets.

Products
The  Company's  products  do not  incorporate  either  application  or  embedded
software and are therefore not subject to Y2K issues.

Information Systems
The Company utilizes packaged  application software for all critical information
systems  functions  which  have  been  certified  by the  vendors  as being  Y2K
compliant.  This includes financial software,  operating and networking systems,
application  and data servers,  PC and  communications  hardware and core office
automation software. The company is in the process of testing the reliability of
the application software and expects this to be complete by mid August.

Manufacturing Systems
The Company has received  manufacturer  certification  of Y2K compliance for all
critical automated components used in manufacturing the Company's products.

Supplier Base
The Company has  implemented  a Y2K audit  program of suppliers  critical to the
Company's  operations.  These suppliers have certified Y2K compliance of systems
critical to maintaining a continuing source of supply to the Company.

Risk
The Company will be at risk from  external  infrastructure  failures  that could
arise  from  Y2K   failures,   including   failure  of   electrical   power  and
telecommunications.  Investigation and assessment of the risk of failure of such
infrastructure  is beyond the scope and  resources of the  Company.  The Company
intends to rely on vendor  certification  of Y2K compliance and does not plan to
audit vendor systems to test their compliance.  The Company will be at risk with
respect to vendors who certify  their systems as being Y2K compliant but who are
unable to deliver  potentially  critical supplies and services to the Company on
account of Y2K noncompliance.

Business  risks to the Company of not  successfully  identifying  Y2K issues and
undertaking  effective  remedial  action  include the inability to ship product,
delay or loss of revenue  and delay in  manufacturing  operations.  The  Company
believes  that  it has  successfully  identified  critical  Y2K  issues  and has
substantially  completed  required remedial action.  Other than risks created by
infrastructure  failures or by the Company's dealings with third parties,  where
the actions of such third parties are beyond the Company's control,  the Company
believes that it will have no material business risk from Y2K issues.  There can
be no  assurance  that  infrastructure  failures  will not  occur or that  third


                                       37




parties,  over which the Company has no control will successfully  address their
own Y2K issues.


Item 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    TABLE OF CONTENTS TO FINANCIAL STATEMENTS

Report of Independent Public Accountants

Consolidated Balance Sheets at March 31, 1999 and 1998

Consolidated Statements of Operations for the years ended
 March 31, 1999, 1998 and 1997

Consolidated Statements of Shareholders' Equity for the years
 ended March 31, 1999, 1998 and 1997

Consolidated Statements of Cash Flows for the years ended
 March 31, 1999, 1998 and 1997

Notes to Consolidated Financial Statements

Supplementary Data (none required)



                                       38



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of Bioject Medical  Technologies Inc:
We have audited the accompanying  consolidated balance sheets of Bioject Medical
Technologies Inc. (an Oregon  corporation) and subsidiaries as of March 31, 1999
and 1998, and the related consolidated  statements of operations,  shareholders'
equity and cash flows for each of the three years in the period  ended March 31,
1999.  These  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial  position of Bioject Medical  Technologies
Inc. and  subsidiaries,  as of March 31, 1999 and 1998, and the results of their
operations  and their cash flows for each of the three years in the period ended
March 31, 1999, in conformity with generally accepted accounting principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
financial statements,  the Company has suffered recurring losses from operations
and, at March 31, 1999,  has an  accumulated  deficit of $58 million that raises
substantial  doubt about the Company's  ability to continue as a going  concern.

Management's  plan in regards to these matters is also  described in Note 1. The
financial  statements do not include any adjustments  relating to recoverability
and  classification  of asset  carrying  amounts  that might  result  should the
Company be unable to continue as a going concern.


/S/ ARTHUR ANDERSEN LLP

Portland, Oregon

May 7, 1999 (Except  with  respect to the matter  discussed in Note 3, for which
the date is May 25, 1999)





                                       39




               BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS

                                                            March 31,
                                                       1999           1998
                                                  ------------     ----------
                    ASSETS
CURRENT ASSETS:
   Cash and cash equivalents                      $1,274,311       $1,900,839
   Accounts receivable, net of allowance for
     doubtful accounts of $64,000 and $83,000,
     respectively                                    305,064          153,721
   Stock subscription receivable                   2,400,000               --
   Inventories                                     1,251,186        1,891,970
   Other current assets                               53,599           75,292
   Current assets of
     discontinued operations (Note 5)                597,000               --
                                                  ------------    -----------
       Total current assets                        5,881,160        4,021,822
                                                  ------------    -----------
PROPERTY AND EQUIPMENT, at cost:
   Machinery and equipment                         2,235,733        2,241,904
   Production molds                                2,051,697        1,945,267
   Furniture and fixtures                            170,436          158,477
   Leasehold improvements                             94,115           94,115
                                                  ------------    -----------
                                                   4,551,981        4,439,763
   Less - accumulated depreciation                (2,615,536)      (1,947,006)
                                                  ------------    -----------
                                                   1,936,445        2,492,757
OTHER ASSETS                                         535,092          463,031
NON-CURRENT ASSETS OF DISCONTINUED
   OPERATIONS                                        238,583               --

                                                ------------      -----------
                                                  $8,591,280       $6,977,610
                                                ============      ===========

  LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
   Accounts payable                               $  190,676       $  497,180
   Accrued payroll                                   135,445          218,424
   Other accrued liabilities                          54,388          277,122
   Deferred revenue                                       --           10,000
   Current liabilities of
     discontinued operations                       2,462,906               --
                                                ------------      -----------
 Total current liabilities                         2,843,415        1,002,726
                                                ------------      -----------
COMMITMENTS (Note 6)
SHAREHOLDERS' EQUITY:
Preferred stock, no par,  10,000,000 shares
     authorized;  issued and outstanding
     Series A Convertible-692,694 shares,
       $15 stated value                            9,163,025        7,826,157
     Series B Convertible -134,333 shares,
       $15 stated value                            1,566,762        1,491,289
     Series C Convertible -391,830 shares,
       No stated value                             2,400,000               --
   Common stock, no par, 100,000,000 shares
     authorized; issued and outstanding 29,011,236
     and 25,503,038 shares at March 31, 1999 and
     1998, respectively                           50,594,111       47,557,297
   Accumulated deficit                           (57,976,033)     (50,899,859)
                                                ------------      -----------
     Total shareholders' equity                    5,747,865        5,974,884
                                                ------------      -----------
                                                  $8,591,280       $6,977,610
                                                ============      ===========

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


                                       40



               BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS


                                              For the Year Ended March 31,
                                          1999           1998          1997
                                       ----------     ----------    ----------
REVENUES:
  Net sales of products                 $  587,131    $1,435,107    $1,269,882
  Licensing/technology fees              2,043,841       500,000       965,500
                                        ----------    ----------    ----------
                                         2,630,972     1,935,107     2,235,382
                                        ----------    ----------    ----------

OPERATING EXPENSES:
   Manufacturing                         1,915,729     1,749,064     1,862,922
   Research and development                978,683       883,632     1,596,708
   Selling, general and
     administrative                      2,510,485     3,428,321     3,177,228
                                        ----------    ----------    ----------
   Total operating expenses              5,404,897     6,061,017     6,636,858
                                        ----------    ----------    ----------
   Operating loss                       (2,773,925)   (4,125,910)   (4,401,476)

   Interest expense                             --      (390,411)           --
   Other income                            122,020       109,983       105,149
                                        ----------   -----------    ----------

LOSS BEFORE TAXES                       (2,651,905)   (4,406,338)   (4,296,327)
PROVISION FOR INCOME TAXES                      --            --            --
                                        ----------    ----------    ----------
LOSS FROM CONTINUING
  OPERATIONS BEFORE PREFERRED
  STOCK DIVIDEND                        (2,651,905)   (4,406,338)   (4,296,327)

PREFERRED STOCK DIVIDEND                (1,412,341)     (112,035)           --
                                        ----------    ----------    ----------
LOSS FROM CONTINUING OPERATIONS
  ALLOCABLE TO COMMON SHAREHOLDERS      (4,064,246)   (4,518,373)   (4,296,327)
                                        ----------    ----------    ----------
LOSS FROM DISCONTINUED OPERATIONS
  ALLOCABLE TO COMMON SHAREHOLDERS
  BEFORE MINORITY INTEREST (Note 8)     (3,608,928)  (15,096,294)           --

MINORITY INTEREST ALLOCATION               597,000     2,985,000            --
                                        ----------   -----------    ----------
LOSS FROM DISCONTINUED OPERATIONS
  ALLOCABLE TO COMMON SHAREOLDERS       (3,011,928)  (12,111,294)           --
                                        ----------   -----------    ----------
NET LOSS ALLOCABLE
TO COMMON SHAREHOLDERS                 $(7,076,174) $(16,629,667)  $(4,296,327)
                                        ==========   ===========    ==========
BASIC AND DILUTED NET LOSS PER
COMMON SHARE                           $     (0.25) $      (0.72)  $     (0.26)
                                        ==========   ===========    ==========

SHARES USED IN PER SHARE CALCULATION    28,315,239    23,151,135    16,705,274
                                        ==========   ===========    ==========

The  accompanying  notes are an integral  part of these  consolidated  financial
statements


                                       41


               BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY




                                                                              PREFERRED STOCK
                                                                              ---------------
                                                  Series A                       Series B                       Series C
                                                  --------                       --------                       --------
                                            Shares         Amount          Shares         Amount         Shares         Amount
                                            ------         ------          ------         ------         ------         ------

                                                                                                       
BALANCES, MARCH 31, 1996 ...........           --             --              --             --              --             --

Issuance of common stock in
 exchange for services .............           --             --              --             --              --             --

Issuance of common stock
 and warrants in a private
 placement in December 1996 ........           --             --              --             --              --             --

Issuance of stock to Schering AG
 in exchange for debt ..............           --             --              --             --              --             --

Net loss allocable to
 common shareholders ...............           --             --              --             --              --             --

BALANCES, MARCH 31, 1997 ...........           --             --              --             --              --             --

Issuance of common stock in
 exchange for services .............           --             --              --             --              --             --

Issuance of common stock
 and warrants in a private
 placement in June and
 July 1997 .........................           --             --              --             --              --             --

Issuance of common stock
 and warrants in a private
 placement in October 1997 .........           --             --              --             --              --             --

Issuance of common stock pursuant
 to stock option exercises .........           --             --              --             --              --             --

Issuance of common stock under
 401(k) matching plan ..............           --             --              --             --              --             --

Issuance of warrants in
 exchange for services .............           --             --              --             --              --             --

Issuance of common stock
 in acquisition of assets ..........           --             --              --             --              --             --

Issuance of preferred stock
 in exchange for debt, net
 of expenses .......................        692,694     10,220,411         134,333      1,985,000            --             --

Adjustment for inherent
 dividend ..........................           --       (2,500,000)           --         (500,000)           --             --

Preferred stock dividend ...........           --          105,746            --            6,289            --             --

Net loss allocable to
 common shareholders ...............           --             --              --             --              --             --

BALANCES, MARCH 31, 1998 ...........        692,694   $  7,826,157         134,333   $  1,491,289            --             --

Issuance of common stock pursuant
 to warrant exercises ..............           --             --              --             --              --             --

Issuance of common stock pursuant
 to stock option exercises .........           --             --              --             --              --             --

Issuance of warrants in
 exchange for services .............           --             --              --             --              --             --

Issuance of common stock
 in acquisition of assets ..........           --             --              --             --              --             --

Preferred stock dividend ...........           --        1,336,868            --           75,473            --             --

Issuance of preferred stock pursuant
 to joint venture agreement ........           --             --              --             --           391,830       2,400,000

Net loss allocable to
 common shareholders ...............           --             --              --             --              --             --


BALANCES, MARCH 31, 1999 ...........        692,694   $  9,163,025         134,333   $  1,566,762         391,830   $  2,400,000






                                              COMMON STOCK
                                              ------------
                                                                      Accumulated
                                          Shares          Amount         Deficit           Total
                                          ------          ------         -------           -----

                                                                            
BALANCES, MARCH 31, 1996 ...........     15,585,232     36,001,158     (29,973,865)      6,027,293

Issuance of common stock in
 exchange for services .............         33,298        159,350            --           159,350

Issuance of common stock
 and warrants in a private
 placement in December 1996 ........      3,434,493      2,163,000            --         2,163,000

Issuance of stock to Schering AG
 in exchange for debt ..............        487,390      1,712,228            --         1,712,228

Net loss allocable to
 common shareholders ...............           --       (4,296,327)     (4,296,327)

BALANCES, MARCH 31, 1997 ...........     19,540,413     40,035,736     (34,270,192)      5,765,544

Issuance of common stock in
 exchange for services .............         49,646         94,936            --            94,936

Issuance of common stock
 and warrants in a private
 placement in June and
 July 1997 .........................      2,906,977      1,225,000            --         1,225,000

Issuance of common stock
 and warrants in a private
 placement in October 1997 .........      2,727,273      2,800,000            --         2,800,000

Issuance of common stock pursuant
 to stock option exercises .........        136,098        154,869            --           154,869

Issuance of common stock under
 401(k) matching plan ..............         42,631         31,006            --            31,006

Issuance of warrants in
 exchange for services .............           --           81,350            --            81,350

Issuance of common stock
 in acquisition of assets ..........        100,000        134,400            --           134,400

Issuance of preferred stock
 in exchange for debt, net
 of expenses .......................           --             --              --        12,205,411

Adjustment for inherent
 dividend ..........................           --        3,000,000            --              --

Preferred stock dividend ...........           --             --              --           112,035

Net loss allocable to
 common shareholders ...............           --             --       (16,629,667)    (16,629,667)

BALANCES, MARCH 31, 1998 ...........     25,503,038   $ 47,557,297    $(50,899,859)   $  5,974,884

Issuance of common stock pursuant
 to warrant exercises ..............      3,090,061      2,642,221            --         2,642,221

Issuance of common stock pursuant
 to stock option exercises .........        358,137        326,711            --           326,711

Issuance of warrants in
 exchange for services .............           --           32,242            --            32,242

Issuance of common stock
 in acquisition of assets ..........         60,000         35,640            --            35,640

Preferred stock dividend ...........           --             --              --         1,412,341

Issuance of preferred stock pursuant
 to joint venture agreement ........           --             --              --         2,400,000

Net loss allocable to
 common shareholders ...............           --             --        (7,076,174)     (7,076,174)


BALANCES, MARCH 31, 1999 ...........     29,011,236   $ 50,594,111    $(57,976,033)   $  5,747,865



The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


                                       42




               BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                             For the Year Ended March 31,
                                          1999           1998         1997
                                      ------------   -----------   -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net loss allocable to
    common shareholders                $(7,076,174) $(16,629,667)  $(4,296,327)

 Adjustments to reconcile net loss to
 net cash used in operating activities
 from continuing operations:

    Net loss from discontinued
      operations                         3,011,928    12,111,294            --
    Depreciation and amortization          707,494       514,668       443,700
    Contributed capital for services        32,242       207,292       159,350
    Preferred stock dividends            1,412,341       112,035            --
    Interest paid on preferred stock            --       390,411            --

    Net changes in assets and liabilities:
     Accounts receivable                  (151,343)      158,135       113,003
     Inventories                           640,784      (455,514)     (450,511)
     Other current assets                   21,693       (30,070)          492
     Accounts payable                     (306,505)     (162,793)      109,799
     Accrued payroll                       (82,979)        5,294        54,905
     Other accrued liabilities            (222,734)       77,738       (17,540)
     Deferred revenue                      (10,000)     (240,000)     (316,000)
                                        ----------    ----------    ----------
Net cash used in operating activities
   of continuing operations             (2,023,253)   (3,941,177)   (4,199,129)
Net cash used in operating activities
   of discontinued operations           (1,102,875)      (96,294)           --
                                        ----------    ----------    ----------
Net cash used in operating activities   (3,126,128)   (4,037,471)           --
                                        ----------    ----------    ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Securities sold                              --            --       993,056
   Capital expenditures of
     continuing operations                 (76,578)     (110,387)   (1,617,052)
   Capital expenditures of
     discontinued operations              (281,729)  (15,000,000)           --
   Other assets                           (111,025)      (47,650)      (33,876)
                                        ----------    ----------    ----------
Net cash used in investing activities     (469,332)  (15,158,037)     (657,872)
                                         ---------    ----------    ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Cash proceeds from common stock       2,968,932     4,179,869     2,163,000
   Borrowing from long-term debt
     subsequently converted to common stock     --            --     1,712,228
   Issuance of preferred stock                  --    12,015,000            --
   Preferred stock issuance costs               --      (200,000)           --
   Minority interest capital
    contribution to discontinued
    operations                                  --     2,985,000            --
                                        ----------    ----------    ----------
   Net cash provided by financing
    activities                           2,968,932    18,979,869     3,875,228
                                        ----------    ----------    ----------
CASH AND CASH EQUIVALENTS:
   Net increase (decrease) in cash
     and cash equivalents                 (626,528)     (215,639)     (981,773)
   Cash and cash equivalents at
     beginning of year                   1,900,839     2,116,478     3,098,251
                                         ---------   ------------   ----------
     Cash and cash equivalents at
     end of year                        $1,274,311    $1,900,839    $2,116,478
                                        ==========    ==========    ==========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
   Cash paid for interest               $       --      $     --     $      --
   Cash paid for income taxes                   --            --            --
   Purchase of goodwill for stock               --       134,400            --
   Purchase of fixed assets for stock       35,640            --            --
   Stock subscription receivable         2,400,000            --            --
                                         ---------      --------     ---------
                                        $2,435,640      $134,400     $      --
                                        ==========      ========     =========

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                       43



               BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   THE COMPANY:

The consolidated  financial statements of Bioject Medical Technologies Inc. (the
"Company" or "Bioject"),  include the accounts of Bioject  Medical  Technologies
Inc. ("BMT"), an Oregon corporation, its wholly owned subsidiary,  Bioject Inc.,
an Oregon corporation  ("BI"), and its 80.1% owned subsidiary,  Marathon Medical
Technologies Inc. ("Marathon Medical") (formerly Bioject JV Subsidiary Inc.), an
Oregon  corporation.   All  significant  intercompany   transactions  have  been
eliminated.   Bioject  Inc.  commenced   operations  in  1985.  Bioject  Medical
Technologies  Inc. was formed in December  1992 for the purpose of acquiring all
of the capital stock of Bioject Medical Systems Ltd., a Company  organized under
the laws of British Columbia,  Canada, in a stock-for-stock exchange in order to
establish a U.S.  domestic  corporation as the publicly traded parent company of
Bioject Inc. and Bioject Medical  Systems Ltd.  Bioject Medical Systems Ltd. was
terminated  in fiscal  1997.  Marathon  Medical  was formed in  October  1997 in
connection with a joint venture arrangement with Elan Corporation, plc ("Elan").
Marathon Medical was formed to acquire,  develop and commercialize blood glucose
monitoring  technology acquired from Elan. All references to the Company include
Bioject  Medical  Technologies  Inc.  and its  subsidiaries,  unless the context
requires otherwise.

The  Company  commenced  operations  in 1985  for  the  purpose  of  developing,
manufacturing and distributing a new drug delivery system.  Since its formation,
the Company has been engaged principally in organizational,  financing, research
and development,  and marketing activities.  In the last quarter of fiscal 1993,
the Company launched U.S. distribution of its Biojector 2000 system primarily to
the hospital and large clinic market.  The Company's  products and manufacturing
operations are subject to extensive government regulation,  both in the U.S. and
abroad.  In the U.S., the development,  manufacture,  marketing and promotion of
medical devices is regulated by the Food and Drug  Administration  ("FDA") under
the Federal  Food,  Drug,  and Cosmetic Act (the "FD&C").  In 1987,  the Company
received 510(k) marketing  clearance from the FDA allowing the Company to market
a hand-held CO2-powered jet injection system. In June 1994, the Company received
clearance  from the FDA under  510(k) to market a version of its  Biojector  (r)
2000 system in a configuration  targeted at high volume injection  applications.
In  October  1996,  the  Company  received  510(k)  clearance  for a non  needle
disposable vial access device.  In March 1997, the Company  received  additional
510(k)  clearance  for certain  enhancements  to its Biojector  2000 system.  On
September 30, 1997, the Company entered into a joint venture agreement with Elan
to develop and commercialize certain blood glucose monitoring technology,  which
the   Company   licensed   from   Elan  (see   Note  2   regarding   "Accounting
Policies-Research and Development and Licensing/Technology Revenues"). The blood
glucose  monitoring  technology is also subject to government  regulation in the
U.S.  by the FDA and  abroad  by  various  agencies.  In May 1999,  rather  than
continue  to fund  the  cost  of its  development,  the  Company  entertained  a
preliminary  proposal from a third party to purchase  Marathon  Medical's  blood
glucose monitoring technology.  Pursuant to the proposal, the Company intends to
enter into an  agreement  to sell the  license to the blood  glucose  monitoring
technology,  along with certain fixed assets.  Accordingly,  Marathon  Medical's
operation is reported as "Discontinued Operations" in the accompanying financial
statements.


                                       44




Since its inception the Company has incurred  operating  losses and at March 31,
1999, has an accumulated  deficit of  approximately  $58 million.  The Company's
revenues to date have been derived  primarily from licensing and technology fees
for the jet injection technology and from limited product sales of the Biojector
2000 system and Biojector syringes.  The product sales were principally sales to
dealers to stock  their  inventories.  More  recently,  the Company has sold its
products to end-users,  primarily  public health clinics for vaccinations and to
nursing  organizations  for flu  immunization.  Future revenues will depend upon
acceptance  and use by  healthcare  providers  and on the  Company  successfully
entering  into  license  and supply  agreements  with major  pharmaceutical  and
biotechnology   companies.   Uncertainties   over   government   regulation  and
competition  in  the  healthcare   industry  may  impact   healthcare   provider
expenditures and third party payer reimbursements and, accordingly,  the Company
cannot predict what impact, if any,  subsequent  healthcare reforms and industry
trends  might  have on its  business.  In the  future  the  Company is likely to
require substantial  additional  financing.  Failure to obtain such financing on
favorable terms could adversely affect the Company's business.

To date, the Company's revenues have not been sufficient to cover  manufacturing
and  operating  expenses.  However,  the Company  believes  that if its products
attain  significantly  greater  general market  acceptance and if the Company is
able to enter into large volume supply agreements with major  pharmaceutical and
biotechnology  companies,  the  Company's  product  sales volume will  increase.
Significantly  higher  product  sales  volumes will allow the Company to realize
volume-related manufacturing cost efficiencies.  This, in turn, will result in a
reduced costs of goods as a percentage of sales, eventually allowing the Company
to achieve  positive  gross profit.  The Company  believes  that positive  gross
profit from product sales,  together with licensing and technology revenues from
agreements entered into with large  pharmaceutical  and biotechnology  companies
will eventually allow the Company to operate  profitably.  The level of revenues
required  to  generate  net  income  will be  affected  by a number  of  factors
including the mix of revenues between product sales and licensing and technology
fees, pricing of the Company's  products,  its ability to attain  volume-related
and automation-related  manufacturing efficiencies,  and the impact of inflation
on the  Company's  manufacturing  and  other  operating  costs.  There can be no
assurance that the Company will achieve  sufficient  cost reductions or sell its
products at prices or in volumes  sufficient to achieve  profitability or offset
increases in its costs should they occur.

The Company believes that its current cash position, together with estimated net
proceeds  which may be  received  from the  proposed  sale of the blood  glucose
monitoring  technology,  combined  with revenues and other cash receipts will be
sufficient to fund the Company's  operations through the first quarter of fiscal
2001.  In  addition,  the Company is pursuing a number of  additional  financing
sources.  Even if the Company is  successful  in raising  additional  financing,
unforeseen  costs and  expenses or lower than  anticipated  cash  receipts  from
product  sales or  research  and  development  activities  could  accelerate  or
increase the financing requirements.  The Company has been successful in raising
additional  financing in the past and  believes  that  sufficient  funds will be
available to fund future operations. However, there can be no assurance that the
Company's  efforts will be  successful,  and there can be no assurance that such
financing  will be  available on terms which are not  significantly  dilutive to
existing  shareholders.  Failure to obtain  needed  additional  capital on terms
acceptable to the Company, or at all, would significantly restrict the Company's
operations and ability to continue product development and growth and would have
a material adverse affect the Company's business.


                                       45




2.   ACCOUNTING POLICIES:

CASH EQUIVALENTS

The Company  considers cash equivalents to consist of short-term,  highly liquid
investments with an original maturity of less than three months.


INVENTORIES

Inventories  are stated at the lower of cost or market.  Cost is determined in a
manner which approximates the first-in,  first out (FIFO) method. Costs utilized
for inventory  valuation  purposes  include labor,  materials and  manufacturing
overhead. Net inventories consist of the following:


                               March 31,
                         1999             1998
                      ----------       ----------

Raw Materials         $  289,214       $  754,715
Work in Process               --            9,763
Finished Goods           961,972        1,127,492
                      ----------       ----------
                      $1,251,186       $1,891,970
                      ==========       ==========


PROPERTY AND EQUIPMENT

For financial statement purposes, depreciation expense on property and equipment
is computed on the straight-line method using the following lives:

 Furniture and Fixtures............................5 years
 Machinery and Equipment...........................7 years
 Computer Equipment................................3 years
 Production Molds..................................5 years

Leasehold  improvements  are  amortized  on the  straight-line  method  over the
shorter of the remaining term of the related lease or the estimated useful lives
of the assets.

Included in machinery and equipment and production molds are molds,  tooling and
production  fixtures  constructed  or  acquired  by the  Company  under a supply
agreement  with  Schering  AG for the  manufacture  and  sale  of a  needle-free
self-injection  system.  The  construction of these assets  commenced in May and
June 1996 and  continued  until  January  1997  when  they were  ready for their
intended use.  Schering  loaned the Company $1.6 million to fund  acquisition of
the  assets,  and  therefore,  in  accordance  with  SFAS 34,  the  Company  has
capitalized $106,000 of interest incurred on this debt.

OTHER ASSETS

Other assets include costs incurred for the  application  for patents,  totaling
$614,369 and  $503,344  March 31, 1999 and 1998,  respectively.  These costs are
amortized  on a  straight-line  basis  over 17 years.  Accumulated  amortization
totaled  $204,713  and  $174,713  at  March  31,  1999 and  1998,  respectively.
Amortization  expense for the years ended March 31, 1999,  1998 and 1997 totaled
$30,000 for each year.

Also  included  in other  assets is the cost of  assets  acquired  from  Vitajet
Corporation  in a stock for assets  exchange.  In March 1998,  the Company  paid
100,000 shares of its common stock for certain molds, tooling, patent rights and
customer lists,  the value of which totaled  $134,400 at the date of acquisition
and is being  amortized  over 15 years.  In addition to the shares already paid,
the Company is obligated  to issue 60,000  shares of its common stock each year,
in each of the three years subsequent to the acquisition, if certain development
milestones  are met. In March 1999,  the  Company  issued the second  payment of
60,000  shares of common stock  valued at $35,640.  Up to an  additional  90,000
shares is also payable  subject to the Company  realizing  specified,  aggregate
levels of incremental  revenue during the three years  subsequent to the Vitajet
acquisition  as a result of sales of  products  acquired  from or  developed  by
Vitajet.


                                       46




ACCOUNTING FOR LONG-LIVED ASSETS

In March 1995, the Financial  Accounting  Standards  Board issued  Statement No.
121,  "Accounting  for the  Impairment of Long-Lived  Assets and for  Long-Lived
Assets To Be Disposed  Of"(SFAS  121),  which requires the Company to review for
impairment  of  its  long-lived  assets  and  certain  identifiable  intangibles
whenever events or changes in circumstances indicate that the carrying amount of
an  asset  might  not be  recoverable.  The  Company  does not  believe  that an
adjustment to the carrying value of its long-lived assets is necessary, based on
its  strategic  plan.  However,  if the  Company  is unable to raise  additional
capital and continue as a going  concern,  certain  adjustments  to the carrying
value of the long-lived assets may be necessary.


REVENUE RECOGNITION FOR PRODUCT SALES

The Company records revenue from sales of its products upon shipment.  In fiscal
1999, 1998 and 1997, sales to one customer (different for each period presented)
accounted for 7%, 12% and 17%, respectively,  of net sales of products. At March
31, 1999,  1998 and 1997 accounts  receivable  from one customer  (different for
each period presented) accounted for 68%, 19%, and 62%,  respectively,  of total
accounts receivable. See Note 7 - "Related Party Transactions".


RESEARCH AND DEVELOPMENT AND LICENSING/TECHNOLOGY REVENUES

Licensing  fees are  recognized  as revenue when due and payable.  All licensing
revenue   recognized  is  non-refundable   and  imposes  no  future  performance
requirements or other obligations on the Company. Product development revenue is
recognized as qualifying  expenditures  are incurred.  Expenditures for research
and development are charged to expense as incurred.

SCHERING  AG.  In March  1994,  the  Company  entered  into a joint  development
agreement  with  Schering  AG,  a  major  pharmaceutical  manufacturer,  for the
development   of   an   application-specific    self   injection   system   (the
"Self-Injector").  Under terms of the agreement, the Company received a $500,000
licensing fee in April 1994 and received partial funding of product  development
expenses on an agreed schedule.  In fiscal 1995, the Company received a total of
$1.1 million from Schering, consisting of $500,000 in licensing fees, which were
recognized  as revenue  during  fiscal  1995,  and  $600,000  of Phase I product
development  revenues,  $444,000 of which were  recognized  as revenue in fiscal
1995. In fiscal 1996, the Company received an additional $660,000 and a total of
$751,000 was recognized as revenue.  In fiscal 1997, the Company  received final
product  development  payments  totaling  $349,500  and  recognized  revenue  of
$414,500.  During fiscal 1997, the Company entered into a supply  agreement with
Schering and commenced  activities  related to preparing  for  production of the
Self Injector.  Schering  loaned the Company a total of $1.6 million to purchase
molds and tooling to produce the product.  In January 1997, the Company received
notice that its contract with Schering would be cancelled.  Under  provisions of
the  contract,  Schering  had the option of canceling  the  agreement if the FDA
required  extensive  clinical studies beyond an originally planned safety study.
Schering  received  a review  letter  from the FDA  which  would  have  required
Schering  to  conduct  additional  material  clinical  studies  in  order to use
non-traditional  delivery mechanisms with its Betaseron (R) product. Under terms
of the contract, Schering was required to convert its $1.6 million note due from
Bioject  into  approximately  460,000  shares  of  Bioject  common  stock  at  a
conversion  price of $3.50 per share. In addition,  $106,000 of accrued interest
was converted  into  approximately  27,000  shares of Bioject  common stock at a
conversion price of $3.50 per share. Additionally, Schering was obligated to pay


                                       47




Bioject for the cost of product  ordered through the date of cancellation of the
contract.

HOFFMAN-LA  ROCHE. In January 1995, the Company entered into a joint development
and exclusive licensing and distribution agreement with Hoffman-LaRoche, a major
pharmaceutical company. Under the terms of the agreement,  the Company agreed to
develop  the  B-2020,  a product  with  specific  application  to certain  Roche
products.  The Company  received a licensing  fee  totaling  $500,000  which was
recognized  as  revenue  in fiscal  1995.  The  Company  also  received  product
development  fees on an agreed  schedule.  In fiscal 1996, the Company  received
$900,000,  of which  $399,000 was  recognized  as revenue.  In fiscal 1997,  the
Company received $250,000 in product  development fees and recognized revenue of
$501,000.  In fiscal 1998, the Company received $250,000 in product  development
fees and  recognized  revenue of  $500,000.  In June 1999,  after the end of the
fiscal year,  Roche advised the Company that because of the additional  time and
cost required to gain regulatory clearance to use the B-2020 in conjunction with
the Roche  products and because of an overall  change in its marketing  strategy
for the  products in  question,  it does not intend to pursue  distributing  the
B-2020 and is relinquishing its exclusive rights to the product.

ELAN  CORPORATION.  On September 30, 1997,  the Company  signed a binding letter
agreement  (the  "Agreement")  with  Elan  Corporation,  plc the  goals of which
included  the  development  and   commercialization   of  Elan's  blood  glucose
monitoring  technology and a  collaborative  arrangement to further  develop the
Company's  jet injection  technology.  Among  various  terms,  all of which were
determined in arms-length negotiation, the Agreement provided for:

- - Elan investing $3 million in Bioject in exchange for approximately 2.7 million
  shares of common stock and a five year warrant to purchase 1.75 million shares
  of common stock at $2.50 per share.

- - Formation  of Marathon  Medical,  which is owned 80.1% by Bioject and 19.9% by
  Elan,  to further  develop  and  commercialize  the blood  glucose  monitoring
  technology.

- - Payment of a $15 million up front fee and future milestone  payments  totaling
  $15.5 million and royalties on net sales in exchange for North American rights
  to Elan's blood glucose monitoring technology.

- - The loan of $12.015 million to Bioject on a long-term  promissory note bearing
  interest at 9% per annum through  December 31, 1997 and 12% thereafter for the
  purpose of Bioject's investment in the new subsidiary's common stock.

- - The investment by Elan of $2.985 million in Marathon Medical's common stock.

- - The  commitment  by Elan to  further  develop  the  blood  glucose  monitoring
  technology until the earlier of human clinical trials,  March 31, 1998 or $2.5
  million is expended by Elan.

- - The submission to Bioject's shareholders of a proposal to approve the exchange
  of the long-term promissory note for $10 million plus accrued interest for the
  Company's Series A Convertible Preferred Stock and $2.015 million for Series B
  Convertible  Preferred  Stock,  with the Series A Convertible  Preferred Stock
  accruing dividends at the rate of 9% per annum (compounded  semi-annually) and
  the Series B Convertible Preferred Stock accruing no mandatory dividends.


                                       48




- - The submission to Bioject's shareholders of a proposal to approve the issuance
  of up to $4 million of Bioject's Series C Convertible  Preferred Stock to Elan
  to  provide  Bioject  with  funds  to  contribute  toward  Marathon  Medical's
  additional development funding needs.

- - The  agreement  by Elan to extend  the  license  on a  worldwide  basis if the
  shareholders  approved the exchange of the $12.015 million promissory note for
  convertible preferred stock.

- - The  agreement by Elan to provide a grant of $500,000  toward  development  of
  Bioject's jet injection technology in a pre-filled application.

Final closing  agreements were signed among the Company,  Elan and the Company's
new  subsidiary on October 15, 1997.  On that date the $3 million  investment in
the Company  was made by Elan and  approximately  2.7  million  shares of common
stock and a warrant  to  purchase  1.75  million  shares at $2.50 per share were
issued. Elan loaned Bioject $12.015 million which Bioject transferred to the new
subsidiary in exchange for 801,000 shares of the subsidiary's common stock. Elan
invested  $2.985 million in the new subsidiary in exchange for 199,000 shares of
the  subsidiary's  common stock.  The new subsidiary paid $15 million to Elan as
its initial payment on the licensing agreement.

On February 20, 1998,  the Company's  shareholders  approved the exchange of the
long-term  promissory  note plus  accrued  interest  for  Series A and  Series B
Convertible  Preferred  Stock and the  issuance to Elan of Series C  Convertible
Preferred  Stock or other similar  convertible  preferred stock to fund Marathon
Medical's  development work.  Accordingly,  on March 2, 1998, a total of 692,694
shares of Series A Convertible  Preferred  Stock and 134,333  shares of Series B
Convertible  Preferred  Stock were  issued to Elan and the  promissory  note was
cancelled.

As of September 30, 1997, the Company recorded an expense of $15 million related
to acquired  in-process  research  and  development  expenditures.  Such expense
related to the blood glucose monitoring  technology that had not yet established
technological feasibility and at that time had no alternate future uses.
Accounting rules required that such costs be charged to expense as incurred.

In May 1999,  rather  than  continue  to fund the cost of its  development,  the
Company  entertained  a  preliminary  proposal  from a third  party to  purchase
Marathon  Medical's  blood  glucose  monitoring  technology.   Pursuant  to  the
proposal,  the Company intends to enter into an agreement to sell the license to
the blood glucose  monitoring  technology,  along with certain fixed assets. See
Note 3 - "Discontinued Operations".

MERCK & CO. In July 1998, the Company entered into an agreement with Merck & Co.
which provided Merck limited-term rights to use the B-2000 needle-free injection
system with selected Merck vaccines. As part of the agreement,  the Company also
granted Merck  exclusive  rights to negotiate a long-term  license to the B-2000
for certain medical indications. The Company received $1.5 million in fees under
this  agreement in the year ended March 31,  1999.  In February  1999,  citing a
refinement in its vaccine development  strategy,  Merck advised the Company that
it would  not  continue  discussions  to seek  long-term  license  rights to the
Company's technology.


                                       49




INCOME TAXES

The Company  accounts for income taxes in accordance with Statement of Financial
Accounting  Standards No. 109, Accounting For Income Taxes (SFAS 109). Under the
liability method specified by SFAS 109,  deferred tax assets and liabilities are
determined based on the temporary  differences  between the financial  statement
and tax bases of assets and liabilities as measured by the enacted tax rates for
the years in which the taxes are  expected to be paid.  At March 31,  1999,  the
Company had total deferred tax assets of approximately $19.1 million, consisting
principally of available net operating loss carryforwards.  No benefit for these
operating losses has been reflected in the accompanying  financial statements as
they do not  satisfy  the  recognition  criteria  set forth in SFAS  109.  Total
deferred tax liabilities were insignificant as of March 31, 1999.

As of March 31, 1999, BMT has net operating loss  carryforwards of approximately
$3.5 million available to reduce future federal taxable income,  which expire in
2008 through 2019.  BI has net operating  loss  carryforwards  of  approximately
$42.8 million available to reduce future federal taxable income, which expire in
2001 through 2019.  Marathon  Medical has net operating  loss  carryforwards  of
approximately  $2.7 million  available to reduce future federal taxable income,
which  expire  in  2018  through  2019.   Approximately  $3.0  million  of  BI's
carryforwards  were generated as a result of deductions  related to exercises of
stock  options.  When  utilized,  this  portion  of BI's  carryforwards,  as tax
effected,  will be accounted  for as a direct  increase to  contributed  capital
rather  than as a reduction  of that  year's  provision  for income  taxes.  The
principal  differences between net operating loss carryforwards for tax purposes
and the accumulated deficit result from capitalization of certain start-up costs
and deductions related to the exercise of stock options for income tax purposes.


USE OF ESTIMATES

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


RECLASSIFICATIONS

Certain reclassifications have been made to the prior years' expenses to conform
to the current year's presentation.


COMPREHENSIVE INCOME REPORTING

In June 1997, the FASB issued  Statement of Financial  Accounting  Standards No.
130, "Reporting  Comprehensive  Income" ("SFAS 130"). This statement establishes
standards for reporting and displaying  comprehensive  income and its components
in a full set of general purpose financial statements. The objective of SFAS 130
is to report a measure of all changes in the equity of an enterprise that result
from   transactions   and  other  economic  events  of  the  period  other  than
transactions with owners.  The Company adopted SFAS 130 during the first quarter
of fiscal 1999.  Comprehensive  loss did not differ from currently  reported net
loss in the periods presented.


                                       50




DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

In June 1998, the FASB issued  Statement of Financial  Accounting  Standards No.
133,  "Accounting  for Derivative  Instruments  and Hedging  Activities"  ("SFAS
133").  SFAS  133  establishes   accounting  and  reporting  standards  for  all
derivative  instruments.  SFAS 133 is effective for fiscal years beginning after
June 15,  1999.  The  Company  does not have  any  derivative  instruments  and,
accordingly,  the  adoption  of SFAS 133 will have no  impact  on the  Company's
financial position or results of operations.


NET LOSS PER SHARE

Beginning  with fiscal 1998,  basic  earnings per shares ("EPS") and diluted EPS
are computed  using the methods  required by  Statement of Financial  Accounting
Standard No. 128, Earnings per Share ("SFAS 128").  Under SFAS 128, basic EPS is
calculated  using the weighted  average number of common shares  outstanding for
the period.  The computation of diluted  earnings per share includes the effects
of stock options,  warrants and convertible  preferred  stock, if such effect is
dilutive.   Prior  period  amounts  have  been  restated  to  conform  with  the
presentation  requirements of SFAS 128. For the periods  presented,  the Company
has been in a loss position  and,  accordingly  there is no  difference  between
basic EPS and diluted EPS since the common stock  equivalents  and the effect of
convertible   preferred   stock  under  the   "if-converted"   method  would  be
antidilutive.  All  earnings  per  share  amounts  in the  following  table  are
presented to conform to the SFAS 128 requirement:

                                             Year ended March 31,
                                      1999            1998            1997
                                  ------------    ------------    ------------
Loss from:
  Continuing operations           $(4,064,246)   $ (4,518,373)    $(4,296,327)
  Discontinued operations          (3,011,928)    (12,111,294)             --
Net loss allocable
  to common shareholders           (7,076,174)    (16,629,667)     (4,296,327)

Weighted  average number
of shares of common stock and
common stock equivalents
outstanding:
 Weighted average number of
 common shares outstanding
 for computing basic earnings
 per share                         28,315,239      23,151,135      16,705,274

 Dilutive effect of warrants
 and stock options after
 applications of the
 treasury stock method                 *                *               *
                                 ------------     ------------    ------------
 Weighted average number of
 common shares outstanding
 for computing diluted earnings
 per share                        28,315,239       23,151,135      16,705,274
                                 ============     ============    ============
 Net loss per share
  basic and diluted:
    Continuing operations          ($ 0.14)         ($ 0.20)        ($ 0.26)
    Discontinued operations        ($ 0.11)         ($ 0.52)             --
  Net loss per share allocable
    to common shareholders         ($ 0.25)         ($ 0.72)        ($ 0.26)
                                 ============     ============    ============

*The  following  common stock  equivalents  are excluded from earnings per share
calculations as their effect would have been antidilutive:

Year ended March 31,                      1999            1998            1997

 Warrants and stock options          8,508,601        11,578,490      7,962,146
 Convertible preferred stock        12,877,845         8,270,270             --
                                    ----------        ----------      ---------
                                    21,386,446        19,848,760      7,962,146
                                    ==========        ==========      =========


                                       51




3.   DISCONTINUED OPERATIONS

As  discussed in Note 2, in May 1999,  rather than  continue to fund the cost of
its  development,  the Company  entertained a preliminary  proposal from a third
party to  purchase  Marathon  Medical's  blood  glucose  monitoring  technology.
Pursuant to the proposal, the Company intends to enter into an agreement to sell
the license to the blood glucose monitoring technology, along with certain fixed
assets. Accordingly Marathon Medical's assets, liabilities, loss from operations
and cash  flows for the years  ended  March 31,  1999 and 1998 are  reported  as
Discontinued Operations in the accompanying financial statements.


4.   401(K) RETIREMENT BENEFIT PLAN:

The  Company  has a  401(k)  Retirement  Benefit  Plan  for its  employees.  All
employees,  subject to  certain  age and  length of  service  requirements,  are
eligible  to   participate.   The  plan  permits  certain   voluntary   employee
contributions  to be excluded from the employees'  current  taxable income under
provisions  of  the  Internal   Revenue  Code  Section  401(k)  and  regulations
thereunder.  Effective  January 1, 1996, the Company amended the plan to provide
for voluntary employer matches of employee  contributions up to 6% of salary and
for discretionary profit sharing  contributions to all employees.  Such employer
matches and  contributions  may be either in cash or Company  common stock.  For
calendar  1997,  1998 and 1999,  the  Company  agreed to match 37.5% of employee
contributions  up to 6% of salary with Company stock. In fiscal 1999,  1998, and
1997,  the  Company  recorded  an  expense of  $29,884,  $21,755,  and  $25,000,
respectively,  related to voluntary  employer matches under the 401(k) Plan. The
Board of Directors  has reserved up to 200,000  shares of common stock for these
voluntary  employer  matches of which 42,631  shares have been issued and 63,272
shares have been committed through March 31, 1999.


5.   SHAREHOLDERS' EQUITY:

PREFERRED STOCK

The Company has  authorized  10 million  shares of preferred  stock to be issued
from time to time with  such  designations  and  preferences  and other  special
rights and qualifications, limitations and restrictions thereon, as permitted by
law and as fixed  from time to time by  resolution  of the  Board of  Directors.
During fiscal 1998, as described in Note 2 regarding the Elan transactions,  the
Company  borrowed  $12.015  million from Elan for the purpose of investing  such
funds in Marathon  Medical.  On February 20, 1998,  the  Company's  shareholders
approved the  exchange of this debt,  plus  accrued  interest,  for Series A and
Series B convertible  preferred stock and approved the future issuance of Series
C  Convertible  Preferred  Stock.  At March 31, 1999,  the Company had preferred
stock authorized and outstanding as follows:

Series A  Convertible  Preferred  Stock.  Series A preferred  stock  accumulates
dividends  at 9% per annum,  compounded  semi-annually,  payable  in  additional
Series A Convertible  Preferred  Stock.  Each original share may be converted at
the holder's  election into 10 shares of common stock and may be redeemed at the
Company's election on the third,  fourth and fifth  anniversaries of issuance if
the trading  price of the  Company's  common  stock is greater  than or equal to
$2.25 per share.  The stock may be redeemed by paying the holder an amount equal
to the  original  issuance  price plus  accumulated  dividends  thereon.  If not
earlier  converted or  redeemed,  the  original  issuance  price of the Series A
Convertible  Stock plus  accumulated  dividends  thereon must be converted  into
common stock of the Company on October 15, 2004 at the lesser of $1.50 or 80% of
the  average of the  closing  prices of common  stock for the ten  trading  days
ending on  October  13,  2004.  The  Series A  Convertible  Preferred  Stock has
preference in liquidation to the common stock of the Company. A total of 692,694
shares with an original issuance value of $15.00 per share were issued.


                                       52




Series B Convertible  Preferred  Stock.  Series B preferred stock has all of the
rights and  preferences of the Series A Convertible  Preferred  Stock  including
optional conversion, optional redemption and mandatory conversion except that it
does not accrue a mandatory  dividend.  It  participates  in any dividends  paid
dividends pro rata with the common  shareholders.  A total of 134,333  shares of
Series B Convertible  Preferred Stock with an original  issuance value of $15.00
per share were issued.

Series C Convertible  Stock.  Series C preferred stock has all of the rights and
preferences  of the Series A  Convertible  Preferred  Stock  including  optional
conversion, optional redemption and mandatory conversion except that it does not
accrue a mandatory dividend. It participates in any dividends paid pro rata with
the common  shareholders.  Its issuance price is equal to ten times market value
at the time it is issued.  Its  conversion  price is equal to  one-tenth  of its
issuance price.  Proceeds are restricted for use in developing the blood glucose
monitoring  technology.  A total of  391,830  shares  of  Series  C  Convertible
Preferred  Stock  with an  original  issuance  value of $6.125  per  share  were
subscribed at March 31, 1999.

Inherent dividend. As described above, under certain conditions the Series A and
Series B Convertible  Preferred  Stock is  convertible  into common stock of the
Company at a price which  represents  a 20%  discount to its par value of $15.00
per share.  The value of this inherent  dividend has been recorded as a discount
to preferred  stock and an increase to common  stock  totaling $3 million and is
being accreted as additional  preferred stock dividends on a straight-line basis
from March 2, 1998, until mandatory conversion on October 15, 2004.

Stock Subscription  Receivable.  The Company had stock subscriptions  receivable
totaling  approximately  $3  million  at March 31,  1999.  A stock  subscription
receivable  for the  Company's  Series C  preferred  stock in the amount of $2.4
million is included  under the caption  "stock  subscription  receivable" in the
accompanying  consolidated balance sheet. A second stock subscription receivable
for the common  stock of Marathon  Medical in the amount of $597,000 is included
under  the  caption   "current  assets  of   discontinued   operations"  in  the
accompanying  consolidated balance sheet. Both stock subscriptions are from Elan
pursuant to the provisions of the 1997 securities  purchase  agreements  between
the Company and Elan. Both subscriptions were paid in April 1999. The use of the
proceeds of both the $2.4 million and $597,000  stock  subscriptions  receivable
are  restricted  to payment of  Marathon  Medical's  obligations  and  operating
expenses.


COMMON STOCK

Holders of common  stock are  entitled to one vote for each share of record held
on all  matters  to be voted on by  shareholders.  No shares  have  been  issued
subject to assessment,  and there are no preemptive or conversion  rights and no
provision  for  redemption,  purchase or  cancellation,  surrender or sinking or
purchase  funds.  Holders of common  stock are not  entitled to  cumulate  their
shares in the election of directors.  A total of 200,000  shares of common stock
have been  reserved  by the  Board of  Directors  for  issuance  to 401(k)  plan
participants  (see Note 4) of which  42,631  shares  have been issued and 63,272
shares are committed to be issued through March 31, 1999.


                                       53



STOCK OPTIONS

Options may be granted to  directors,  officers and  employees of the Company by
the Board of Directors under terms of the Bioject Medical Technologies Inc. 1992
Stock  Incentive  Plan  (the  "Plan"),  which  was  approved  by  the  Company's
shareholders  on November 20, 1992 and adopted by the Board  effective  December
17, 1992. Under the terms of the Plan,  eligible employees may receive statutory
and nonstatutory stock options,  stock bonuses and stock appreciation rights for
purchase  of shares of the  Company's  common  stock at prices  and  vesting  as
determined  by a committee  of the Board.  Except for  options  whose terms were
extended,  options  granted under a prior plan maintain  their  previous  option
price, vesting and expiration dates. As amended in fiscal 1999, a total of up to
4,500,000 shares of the Company's common stock, including options outstanding at
the date of initial  shareholder  approval of the Plan, may be granted under the
Plan. Options outstanding at March 31, 1999, expire through April 2007.

In October 1995, the Financial  Accounting  Standards Board issued Statement No.
123,  Accounting for Stock-Based  Compensation ("SFAS 123"), which establishes a
fair  value-based  method of accounting for stock-based  compensation  plans and
requires additional  disclosures for those companies that elect not to adopt the
new method of  accounting.  The  Company  has elected to continue to account for
stock  options  under  APB  Opinion  No.  25,  Accounting  for  Stock  Issued to
Employees.  However,  as prescribed  by SFAS 123 the Company has  computed,  for
proforma  disclosure  purposes,  the value of all options  granted during fiscal
1999,  1998 and 1997  using  the  Black-Scholes  option  pricing  model  and the
following weighted average assumptions:

                                   Year ended March 31,
                               1999        1998        1997
                             --------    --------    --------
Risk-free interest rate         6%           6%         6%
Expected dividend yield         0%           0%         0%
Expected life                  1.5 yrs.     1.5 yrs.   1.5 yrs.
Expected volatility             97%          78%        47%


The total value of options  granted  during fiscal 1999,  1998 and 1997 would be
amortized on a pro forma basis over the vesting  period of the options.  Options
generally vest equally over three years.  If the Company had accounted for these
plans in accordance with SFAS 123, the Company's net loss and net loss per share
would have  increased  as  reflected  in the  following  pro forma  amounts  (in
thousands of $):

                                          Year ended March 31,
                              1999               1998              1997
                           -----------        ----------        ----------
Net loss:
 As reported               $   (7,076)        $  (16,630)       $  (4,296)
 Pro forma                 $   (7,378)        $  (16,969)       $  (4,480)
Net loss per share:
 As reported               $    (0.25)        $    (0.72)       $   (0.26)
 Pro forma                 $    (0.26)        $    (0.73)       $   (0.27)

The above determination of proforma expense has been calculated  consistent with
SFAS 123 which does not take into  consideration  limitations on  exercisability
and transferability  imposed by the Company's Stock Incentive Plan. Further, the
valuation  model is heavily  weighted  to stock  price  volatility,  even with a
declining  stock price,  which tends to increase  calculated  value.  The actual
value, if any, and,  therefore,  imputed proforma expense will vary based on the
exercise date and the market price of the related common stock when sold.


                                       54



Stock option activity is summarized as follows:

                                   Exercise
                                    Shares          Price             Amount
                                  ----------     ------------      -----------

Balances - March 31, 1996         1,698,939        1.25-4.50         4,733,812
Options granted                     705,525        1.00-1.30           830,006
Options exercised                        --               --                --
Options canceled or expired        (472,906)       1.00-4.00          (809,880)
                                 ----------       ----------       -----------
Balances March 31, 1997           1,931,558        1.00-4.50         4,753,938
Options granted                   2,086,642        .625-1.25         1,506,818
Options exercised                  (136,098)        .75-1.31          (154,869)
Options canceled or expired      (1,567,179)       1.00-4.88        (4,179,757)
                                 ----------       ----------       -----------
Balances - March 31, 1998         2,314,923        .625-4.88         1,926,130
Options granted                     341,075        .72 -1.75           464,170
Options exercised                  (358,137)       .625-1.30          (326,711)
Options canceled or expired        (110,616)       .625-2.50          (122,280)
                                 ----------       ----------       -----------
Balances - March 31, 1999         2,187,245       $.625-2.50       $ 1,941,309

The  following  table  sets  forth as of March  31,  1999 the  number  of shares
outstanding,  exercise  price,  weighted  average  remaining  contractual  life,
weighted  average  exercise  price,  number of  exercisable  shares and weighted
average  exercise  price of  exercisable  options by groups of similar price and
grant date:


         OPTIONS OUTSTANDING                      OPTIONS EXERCISABLE


   Exercise    Outstanding  Weighted Average   Weighted  Exercisable   Weighted
    Price        shares       Remaining        Average     Options     Average
               at 3/31/99     Contractual      Exercise                Exercise
                              Life(Years)       Price                   Price
- ------------  -----------     -----------      --------   ---------    --------

$0.625 - 0.99   1,695,821         5.60           $0.71    1,260,259      $0.72
 1.00  - 1.25     266,474         5.72            1.03      193,575       1.04
 1.26  - 3.75     189,950         4.04            1.67       32,883       1.38
 3.76  - 4.09      35,000         1.64            4.09       35,000       4.09



                                       55



WARRANTS

Warrant activity is summarized as follows:

                                    Exercise
                                      Shares         Price       Amount
                                     ---------    ------------  ----------

Balances - March 31, 1996           2,440,095     1.97 - 2.00     4,875,906

Warrants issued in a private
 placement expiring Dec. 2001       3,590,493      .82 - 1.00     3,562,413
Warrants exercised                          -               -             -
Warrants canceled or expired                -               -             -
                                    ---------    ------------    ----------
Balances - March 31, 1997           6,030,588      .82 - 2.00     8,438,319

Warrants issued in a private
 placement expiring June 2002       1,478,488      .50 -  .71     1,044,476
Warrants issued in a private
 placement expiring Sep. 2002         450,000      .85 - 1.10       450,000
Warrants issued in a private
 placement expiring Oct. 2002       1,750,000            2.50     4,375,000
Warrants issued for services
  expiring September 2002             130,243            1.10       143,267
Warrants exercised                          -               -             -
Warrants canceled or expired         (575,752)           2.00    (1,151,505)
                                     ---------   ------------   -----------
Balances - March 31, 1998           9,263,567      .50 - 2.50    13,299,557

Warrants issued in 10% reload
  expiring March 2003                 147,850            1.35       199,302
Warrants exercised                 (3,090,061)     .50 - 1.00    (2,642,221)
                                    ---------    ------------   -----------
Balances - March 31, 1999           6,321,356      .50 - 1.35   $10,856,638
                                    =========    ============   ===========


Warrants  issued for services are  accounted  for in  accordance  with SFAS 123,
"Accounting for Stock-Based Compensation," and accordingly,  an expense totaling
$32,242 and $81,350 has been recorded in the financial  statements for the years
ended March 31, 1999 and 1998 respectively.  All other warrants have been issued
in connection with equity transactions.



                                       56




6.   COMMITMENTS:

Leases. BI has operating leases for its manufacturing,  sales and administrative
facilities  and  warehouse  facilities  with options to renew for an  additional
five-year term upon expiration.  BI also leases office equipment under operating
leases for periods up to five years. At March 31, 1999,  future minimum payments
under  noncancellable  operating  leases with terms in excess of one year are as
follows:

Year Ending March 31,   Facilities      Equipment
                        ----------      ---------

2000                      216,856          9,132
2001                      216,888          9,132
2002                      108,624          8,501

Thereafter                 95,424          3,565

Lease  expense  for the  years  ended  March  31,  1999,  1998 and 1997  totaled
$232,000, $255,000 and $283,000 respectively.


7.  RELATED PARTY TRANSACTIONS:

On October 22, 1997, Robert Gonnelli was elected Chairman of Marathon  Medical's
Board of Directors. From October 1997 through April 1998 he received no fees for
such  services but will  participate  in any future  subsidiary  director  stock
incentive  plans.  From May 1, 1998,  through  September  30, 1998 Mr.  Gonnelli
served as interim  president  of  Marathon  Medical  and  received  compensation
totaling $15,000 per month.

In addition to his position on the Marathon  Medical,  Mr.  Gonnelli served as a
consultant  to the Company from October,  1997 through  October,  1998.  For his
consulting  services,  Mr.  Gonnelli was paid monthly  consulting fees of $8,500
through  April,  1998,  totaling  $8,500 and  $50,500  in fiscal  1999 and 1998,
respectively.  In fiscal  1998,  he was granted  350,000  five year  warrants to
purchase the Company's  stock in connection  with the private  equity  placement
completed with Elan  Corporation.  The Company also granted him 130,243 warrants
for investor relations and sales consulting services in fiscal 1999. The Company
has committed to issue up 30,342  warrants for his investor  relations and sales
consulting  services in fiscal 1999.  The fair market value for the services has
been expensed.

A  significant  portion of the  research and  development  expenses of the blood
glucose  monitoring  business  segment  are  incurred  by Elan and billed to the
Company under a contractual  arrangement between the two companies.  Included in
accounts   payable  and  other  accrued   liabilities  at  March  31,  1999,  is
approximately $2.4 million owed to Elan under this arrangement.

Included in accounts receivable at March 31, 1999, is $250,000 due from Elan for
fees relating to development of the Company's needle-free technology.


8. SUBSEQUENT EVENTS

See  subsequent  events  described  in Note 2 - "Research  and  Development  and
Licensing/Technology  Revenues - Hoffman  LaRoche" and in Note 3 - "Discontinued
Operations".


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

None.


                                       57




                                    PART III

The Company has omitted  from Part III the  information  that will appear in the
Company's  definitive  proxy statement for its annual meeting of shareholders to
be held on  September  16,  1999 (the  "Proxy  Statement"),  which will be filed
within  120  days  after  the  end of the  Company's  fiscal  year  pursuant  to
Regulation 14A.


Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The  information  required  by this Item is  incorporated  by  reference  to the
information  under  the  caption   "DIRECTORS  AND  EXECUTIVE  OFFICERS  OF  THE
REGISTRANT" in the Proxy Statement.


Item 11.  EXECUTIVE COMPENSATION

The  information  required  by this Item is  incorporated  by  reference  to the
information under the caption "EXECUTIVE COMPENSATION AND OTHER TRANSACTIONS" in
the Proxy Statement.


Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The  information  required  by this Item is  incorporated  by  reference  to the
information under the caption "SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL OWNERS
AND MANAGEMENT" in the Proxy Statement.


Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The  information  required  by this Item is  incorporated  by  reference  to the
information under the caption "CERTAIN  RELATIONSHIPS AND RELATED  TRANSACTIONS"
in the Proxy Statement.


                                     PART IV

Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The following documents are filed as a part of this report:

(1)  Consolidated   Financial   Statements  and  Report  of  Independent  Public
     Accountants are included under Item 8, in Part II.

(2)  Consolidated Financial Statement Schedules and Report of Independent Public
     Accountants on those schedules:

     None required

(3)  Exhibits:  The  following  exhibits  are filed as part of this  report.  An
     asterisk (*) beside the exhibit number indicates the subset of the exhibits
     containing  each  management  contract,  compensatory  plan, or arrangement
     required to be identified separately in this report.


                                       58




Exhibit
Number    Exhibit Description
- -------   -----------------------------------------------------------------

3.1       Articles  of  Incorporation  of  Bioject  Medical   Technologies  Inc.
          incorporated  by reference to the same exhibit number of the Company's
          Form 10-K for the year ended January 31, 1993.

3.1.1     Articles  of  Amendment  to  the  Articles  of  Incorporation  of  the
          Incorporation  of the Company  incorporated  by  reference to the Same
          exhibit number of the Company's Form 8-K filed March 6, 1998.

3.1.2     Articles  of  Amendment  to  the  Articles  of  Incorporation  of  the
          Incorporation  of the Company  dated  September  11,  1998,  and filed
          October 15, 1998, incorporated by reference to the Same exhibit number
          of the Company's Form 8-K filed April 20, 1999.

3.1.3     Articles  of  Amendment  to  the  Articles  of  Incorporation  of  the
          Incorporation of the Company dated March 18, 1999, and filed March 24,
          1999,  incorporated  by reference  to the Same  exhibit  number of the
          Company's Form 8-K filed April 20, 1999.

3.2       Amended and  Restated  By-laws of Bioject  Medical  Technologies  Inc.
          Incorporated  by reference to the same exhibit number of the Company's
          Form 10-Q for the quarter ended September 30, 1994.

4.3*      Bioject  Medical  Technologies  Inc.  1992 Stock  Incentive  Plan,  as
          amended  through April 3, 1997.  Incorporated by reference to the same
          exhibit  number of the Company's From 10-Q for the year ended December
          31, 1997.

10.4      Lease  Agreement   dated  March  21,  1989  between   Spieker-Hosford-
          Eddy-Souther  #174,  Limited  Partnership  and  Bioject  Inc.  for the
          Portland,  Oregon  facility  incorporated  by  reference  to the  same
          exhibit  number of Company's  Form 10-K for the year ended January 31,
          1989.

10.4.1    Amended Lease Agreement dated June 18, 1992 between  Bridgeport  Woods
          Investors  (successors  in interest to  Spieker-Hosford-Eddy-  Souther
          #174 Limited  Partnership)  and Bioject Inc. for the Portland,  Oregon
          facility  incorporated  by reference to the same exhibit number of the
          Company's Form 10-K for the year ended January 31, 1993.

10.4.2    Lease  Agreement  dated  September 10, 1996 between  Bridgeport  Woods
          Business  park and Bioject Inc.  for the  Portland,  Oregon  facility.
          Incorporated  by reference to the same exhibit number of the Company's
          Form 10-Q for the period ended September 30, 1996.

10.5      Lease Extension  Agreement dated October 4, 1994, between Earl J. Itel
          and Loris Itel Trust and Bioject Inc., for the 6000 sq. ft.  Tualatin,
          Oregon warehouse. Incorporated by reference to the same exhibit number
          of the Company's Form 10-Q/A for the period ended December 31, 1996.

10.7*     Executive  Employment Contract with Peggy J. Miller, dated January 18,
          1993  incorporated  by  reference  to the same  exhibit  number of the
          Company's Form 10-K for the year ended January 31, 1993.

10.8*     Executive Employment Contract with J. Michael Redmond,  dated February
          8, 1996.  Incorporated  by reference to the same exhibit number of the
          Company's Form 10-K for the year ended March 31, 1996.



                                       59



Exhibit
Number    Exhibit Description
- -------   -----------------------------------------------------------------

10.14     Common  Stock  Purchase  Agreement  between  Eli Lilly and Company and
          Bioject  Medical  Systems Ltd.  dated April 29, 1992  incorporated  by
          reference  to the same exhibit  number of Company's  Form 8, dated May
          28, 1992,  amending Company's Form 10-K for the year ended January 31,
          1992.

10.17     Development  and Licensing  Agreement  between Eli Lilly & Company and
          Bioject Inc.,  dated April 29, 1992  incorporated  by reference to the
          same  exhibit  number of  Company's  Form 8,  dated  October  9, 1992,
          amending  Company's  Form 10-Q for the quarter  ended April 30,  1992.
          Confidential  treatment  has been  granted  with  respect  to  certain
          portions of this exhibit  pursuant to an Application for  Confidential
          Treatment  filed  with the  Commission  under  Rule  24b-2  under  the
          Securities Exchange Act of 1934, as amended.

10.17.1   Amendment to Development and Licensing Agreement between Eli Lilly and
          Company  and  Bioject  Inc.,  effective  May 5, 1993  incorporated  by
          reference  to the same  exhibit  number of  Company's  Form  S-1,  No.
          33-68846,  dated  November 1, 1993.  Confidential  treatment  has been
          granted with respect to certain  portions of this exhibit  pursuant to
          an Application  for  Confidential  Treatment filed with the Commission
          under  Rule  406  under  the  Securities  Act  of  1933,  as  amended.
          Confidential  treatment  has been  granted  with  respect  to  certain
          portions of this exhibit  pursuant to an Application for  Confidential
          Treatment  filed  with the  Commission  under  Rule  24b-2  under  the
          Securities Exchange Act of 1934, as amended.

10.23     Development and Licensing Agreement between Schering, AG, Bioject Inc.
          and  Bioject   Medical   Technologies   Inc.   dated  March  28,  1994
          incorporated  by reference to the same exhibit number of the Company's
          Form 10-K for the year ended March 31,  1994.  Confidential  treatment
          has been  granted  with  respect to certain  portions of this  exhibit
          pursuant to an Application for  Confidential  Treatment filed with the
          Commission under Rule 24b-2 under the Securities exchange Act of 1934,
          as amended.

10.26     Heads of  Agreement  between  Hoffman-La  Roche Inc.  and Bioject Inc.
          dated January 10, 1995.  Confidential  treatment has been granted with
          respect to certain portions of this exhibit pursuant to an Application
          for Confidential  Treatment filed with the Commission under Rule 24b-2
          under the Securities Exchange Act of 1934 as amended.

10.27*    Employment  Agreement  with  James C.  O'Shea  dated  October  3, 1995
          incorporated  by reference to the same exhibit number of the Company's
          Form 10-Q for the quarter ended September 30, 1995.

10.28     Form of Amended and Restated  Registration  Rights  Agreement  between
          Bioject  Medical  Technologies  Inc. and the  participants in the 1995
          private  placement  incorporated  by  reference  to exhibit 4.2 of the
          Company's Registration Statement on Form S-3 (No. 33-80679).

10.29     Form of Amended and Restated Series "A" Common Stock Purchase  Warrant
          incorporated by reference to exhibit 4.3 of the Company's Registration
          Statement on Form S-3 (No. 33-80679).

10.30     Form of Series "B"  Common  Stock  Purchase  Warrant  incorporated  by
          reference to exhibit 4.4. of the Company's  Registration  Statement on
          Form S-3 (No. 33-80679).

10.31     Form of Amended and Restated Series "C" Common Stock Purchase  Warrant
          incorporated by reference to exhibit 4.5 of the Company's Registration
          Statement on Form S-3 (No. 33-80679).  Confidential treatment has been
          granted with respect to certain  portions of this exhibit  pursuant to
          an Application  for  Confidential  Treatment filed with the Commission
          under  Rule  24b-2  under  the  Securities  Exchange  Act of 1934,  as
          amended.


                                       60




Exhibit
Number    Exhibit Description
- -------   -----------------------------------------------------------------

10.32     Supply Agreement dated June 26, 1996 between Bioject Inc. and Schering
          Aktiengesellschaft.  Incorporated  by  reference  to the same  exhibit
          number of the Company's  Form 8-K/A dated June 26, 1996.  Confidential
          treatment  has been granted  with respect to certain  portions of this
          exhibit  pursuant to an Application for  Confidential  Treatment filed
          with the Commission under Rule 24b-2 under the Securities exchange Act
          of 1934, as amended.

10.32.1   Security  Agreement  dated June 26,  1996  between  Bioject  Inc.  and
          Schering  Aktiengesellschaft.  Incorporated  by  reference to the same
          exhibit  number of the  Company's  Form 10-Q for the period ended June
          30, 1996.

10.33     Form of Series "D" Common  Stock  Purchase  Warrant.  Incorporated  by
          reference to exhibit 4.6 of the Company's  form 8-K dated December 11,
          1996.

10.34     Form of Series "E" Common  Stock  Purchase  Warrant.  Incorporated  by
          reference to exhibit 4.7 of the Company's  Form 8-K dated December 11,
          1996.

10.35     Form  of  Registration   Rights  Agreement   between  Bioject  Medical
          Technologies Inc. and the participants in the 1996 private  placement.
          Incorporated  by  reference to exhibit 4.8 of the  Company's  Form 8-K
          dated December 11, 1996.

10.36     Form of Series "F" Common Stock Purchase Warrant.

10.37     Form of Series "G" Common Stock Purchase Warrant.

10.38     Form  of  Registration   Rights  Agreement   between  Bioject  Medical
          Technologies Inc. and the participants in the 1997 private  placement.
          Incorporated  by reference to the same exhibit number of the Company's
          Form 10-K for the year ended March 31, 1997.

10.39     Agreement between Elan Corporation,  plc, Elan International Services,
          Ltd. and Bioject Medical Technologies,  Inc. dated September 30, 1997.
          Incorporated  by reference to the same exhibit number of the Company's
          Form 8-K  filed  October  3,  1997.  Confidential  treatment  has been
          requested with respect to certain portions of this exhibit pursuant to
          an Application  for  Confidential  Treatment filed with the Commission
          under Rule  24b-2(b)  under the  Securities  Exchange Act of 1934,  as
          amended.

10.40     License  Agreement  between  Elan  Corporation,  plc  and  Bioject  JV
          Subsidiary  Inc. dated October 15, 1997.  Incorporated by reference to
          the same exhibit  number of the Company's Form 8-K/A filed January 22,
          1998.  Confidential treatment has been granted with respect to certain
          portions of this exhibit  pursuant to an application for  Confidential
          Treatment  filed with the  Commission  under Rule  24b-2(b)  under the
          Securities Exchange Act of 1934, as amended.

10.40.1   Amendment  to License  Agreement  between  Elan  Corporation,  plc and
          Bioject JV  Subsidiary  Inc.  dated October 15, 1997  incorporated  by
          reference to the same exhibit  number of the Company's  Form 8-K filed
          on November 3, 1997.

10.41     Securities  Purchase  Agreement between Elan  International  Services,
          Ltd. and Bioject Medical Technologies Inc. dated October 15, 1997.


                                       61




Exhibit
Number    Exhibit Description
- -------   -----------------------------------------------------------------

10.41.1   Amendment to Securities  Purchase Agreement between Elan International
          Services, Ltd. and Bioject Medical Technologies Inc. dated October 15,
          1997  incorporated  by  reference  to the same  exhibit  number of the
          Company's Form 8-K filed on November 3, 1997.

10.42     Bioject  Medical  Technologies  Inc.   Registration  Rights  Agreement
          between  Elan  International   Services,   Ltd.  and  Bioject  Medical
          Technologies Inc. dated October 15, 1997. Incorporated by reference to
          the same exhibit  number of the  Company's  Form 8-K filed October 31,
          1997.

10.43     Series K Warrant to Purchase  Shares of Common Stock dated October 15,
          1997.  Incorporated  by reference  to the same  exhibit  number of the
          Company's Form 8-K filed October 31, 1997.

10.44     Promissory Note dated October 15, 1997 in favor of Elan  International
          Services, Ltd. Incorporated by reference to the same exhibit number of
          the Company's Form 8-K filed on November 3, 1997.

10.45     Newco   Subscription   and   Stockholders   Agreement   between   Elan
          International  Services,  Ltd., Bioject Medical  Technologies Inc. and
          Bioject JV Subsidiary  Inc.  dated October 15, 1997.  Incorporated  by
          Reference to the same exhibit number of the Company's Form 8-K/A filed
          January 22, 1998.

10.45.1   Amendment to Newco  Subscription  and Stockholders  Agreement  between
          Elan International  Services,  Ltd., Bioject Medical Technologies Inc.
          and Bioject JV Subsidiary Inc. dated October 15, 1997  incorporated by
          reference to the same exhibit  number of the Company's  Form 8-K filed
          on November 3, 1997.

10.46     Bioject JV Subsidiary Inc.  Registration Rights Agreement between Elan
          International  Services,  Ltd. and Bioject JV  Subsidiary  Inc.  dated
          October 15, 1997. Incorporated by reference to the same exhibit number
          of the Company's Form 8-K filed November 3, 1997.

10.47     Form of Series "H" Common Stock Purchase Warrant.

10.48     Form of Series "I" Common Stock Purchase Warrant.

10.49     Form of Series "J" Common Stock Purchase Warrant.

10.50     Form of Series "L" Common Stock Purchase Warrant.

10.51     Form of Series "M" Common Stock Purchase Warrant.

10.52     Form of Series "N" Common Stock Purchase Warrant.

10.53     Asset Purchase  Agreement  among Bioject  Medical  Technologies,  Inc.
          Vitajet  Corporation  and Sergio Landau and Mara C. Landau dated March
          23, 1998.

10.54*    Executive  Employment  Agreement  dated April 17, 1998, between
          Bioject
          Medical Technologies Inc., Bioject Inc., and Michael A. Temple.

10.55*    Form of Termination Agreement between Bioject  Technologies,  Inc. and
          Peggy Miller.

10.56     Form of  Massachusetts  Biotechnology  Research  Park,  Three Biotech
          Park, Space Lease dated April 20, 1998.

10.57     Amendment to Massachusetts Biotechnology Research Park Space Lease.

10.58     Restated 1992 Stock Incentive Plan.


                                       62




Exhibit
Number    Exhibit Description
- -------   -----------------------------------------------------------------

10.59     Supply and Option  Agreement  between  Merck & Co.,  Inc.  and Bioject
          Medical Technologies Inc., effective as of June 8, 1998.  Confidential
          treatment has been requested with respect to certain  portions of this
          exhibit  pursuant to an Application for  Confidential  Treatment filed
          with the Commission under Rule 24b-2 under the Securities Exchange Act
          of 1934, as amended.

10.60     Collaborative  Alliance  Agreement  between  GeneMedicine,   Inc.  and
          Bioject,  Inc., made as of June 26, 1998.  Confidential  treatment has
          been  requested  with  respect to  certain  portions  of this  exhibit
          pursuant to an Application for  Confidential  Treatment filed with the
          Commission under Rule 24b-2 under the Securities Exchange Act of 1934,
          as amended.

10.61*    Employment Contract between Bioject JV Subsidiary Inc. and
          Bradley J. Enegren.

10.62*    Confidentiality/Inventions/Noncompetition Agreement between
          Bioject JV Subsidiary Inc. and Bradley J. Enegren

10.63     Form of Series "O" Common Stock Purchase Warrant.

21        List of Subsidiaries

23        Consent of Independent Public Accountants

27        Financial Data Schedule




                                       63



SIGNATURES

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

        BIOJECT MEDICAL TECHNOLOGIES INC.
        (Registrant)


        By: /S/ JAMES C. O'SHEA
        James C. O'Shea
        Chairman of the Board, President
        and Chief Executive Officer

Pursuant to the request of the Securities  Exchange Act of 1934, this report has
been signed below on behalf of the Registrant and in the capacities indicated on
the dates shown.

SIGNATURE                              TITLE

/S/ JAMES C. O'SHEA                    Chairman of the Board, President
James C. O'Shea                        and Chief Executive
Officer

/S/ MICHAEL A. TEMPLE                  Vice President, Chief Financial
Michael A. Temple                      Officer and Secretary/Treasurer

/s/ DAVID H. DE WEESE                  Director
David H. de Weese

/S/ GRACE K. FEY                       Director
Grace K. Fey

/S/ WILLIAM A. GOUVEIA                 Director
William A. Gouveia

/S/ ERIC T. HERFINDAL                  Director
Eric T. Herfindal

/S/ RICHARD PLESTINA                   Director
Richard Plestina

/S/ JOHN RUEDY, M.D.                   Director
John Ruedy, M.D.

/S/ MICHAEL SEMBER                     Director
Michael Sember



                                       64



                               INDEX TO EXHIBITS

Exhibit
Number    Exhibit Description
- -------   -----------------------------------------------------------------

3.1       Articles  of  Incorporation  of  Bioject  Medical   Technologies  Inc.
          incorporated  by reference to the same exhibit number of the Company's
          Form 10-K for the year ended January 31, 1993.

3.1.1     Articles  of  Amendment  to  the  Articles  of  Incorporation  of  the
          Incorporation  of the Company  incorporated  by  reference to the Same
          exhibit number of the Company's Form 8-K filed March 6, 1998.

3.1.2     Articles  of  Amendment  to  the  Articles  of  Incorporation  of  the
          Incorporation  of the  Company  dated  September  11,  1998 and  filed
          October 15, 1998, incorporated by reference to the Same exhibit number
          of the Company's Form 8-K filed April 20, 1999.

3.1.3     Articles  of  Amendment  to  the  Articles  of  Incorporation  of  the
          Incorporation of the Company dated March 18, 1999, and filed March 24,
          1999,  incorporated  by reference  to the Same  exhibit  number of the
          Company's Form 8-K filed April 20, 1999.

3.2       Amended and  Restated  By-laws of Bioject  Medical  Technologies  Inc.
          Incorporated  by reference to the same exhibit number of the Company's
          Form 10-Q for the quarter ended September 30, 1994.

4.3*      Bioject  Medical  Technologies  Inc.  1992 Stock  Incentive  Plan,  as
          amended  through April 3, 1997.  Incorporated by reference to the same
          exhibit  number of the Company's From 10-Q for the year ended December
          31, 1997.

10.4      Lease  Agreement   dated  March  21,  1989  between   Spieker-Hosford-
          Eddy-Souther  #174,  Limited  Partnership  and  Bioject  Inc.  for the
          Portland,  Oregon  facility  incorporated  by  reference  to the  same
          exhibit  number of Company's  Form 10-K for the year ended January 31,
          1989.

10.4.1    Amended Lease Agreement dated June 18, 1992 between  Bridgeport  Woods
          Investors  (successors  in interest to  Spieker-Hosford-Eddy-  Souther
          #174 Limited  Partnership)  and Bioject Inc. for the Portland,  Oregon
          facility  incorporated  by reference to the same exhibit number of the
          Company's Form 10-K for the year ended January 31, 1993.

10.4.2    Lease  Agreement  dated  September 10, 1996 between  Bridgeport  Woods
          Business  park and Bioject Inc.  for the  Portland,  Oregon  facility.
          Incorporated  by reference to the same exhibit number of the Company's
          Form 10-Q for the period ended September 30, 1996.

10.5      Lease Extension  Agreement dated October 4, 1994, between Earl J. Itel
          and Loris Itel Trust and Bioject Inc., for the 6000 sq. ft.  Tualatin,
          Oregon warehouse. Incorporated by reference to the same exhibit number
          of the Company's Form 10-Q/A for the period ended December 31, 1996.

10.7*     Executive  Employment Contract with Peggy J. Miller, dated January 18,
          1993  incorporated  by  reference  to the same  exhibit  number of the
          Company's Form 10-K for the year ended January 31, 1993.

10.8*     Executive Employment Contract with J. Michael Redmond,  dated February
          8, 1996.  Incorporated  by reference to the same exhibit number of the
          Company's Form 10-K for the year ended March 31, 1996.

10.14     Common  Stock  Purchase  Agreement  between  Eli Lilly and Company and
          Bioject  Medical  Systems Ltd.  dated April 29, 1992  incorporated  by
          reference  to the same exhibit  number of Company's  Form 8, dated May
          28, 1992,  amending Company's Form 10-K for the year ended January 31,
          1992.





Exhibit
Number    Exhibit Description
- -------   -----------------------------------------------------------------

10.17     Development  and Licensing  Agreement  between Eli Lilly & Company and
          Bioject Inc.,  dated April 29, 1992  incorporated  by reference to the
          same  exhibit  number of  Company's  Form 8,  dated  October  9, 1992,
          amending  Company's  Form 10-Q for the quarter  ended April 30,  1992.
          Confidential  treatment  has been  granted  with  respect  to  certain
          portions of this exhibit  pursuant to an Application for  Confidential
          Treatment  filed  with the  Commission  under  Rule  24b-2  under  the
          Securities Exchange Act of 1934, as amended.

10.17.1   Amendment to Development and Licensing Agreement between Eli Lilly and
          Company  and  Bioject  Inc.,  effective  May 5, 1993  incorporated  by
          reference  to the same  exhibit  number of  Company's  Form  S-1,  No.
          33-68846,  dated  November 1, 1993.  Confidential  treatment  has been
          granted with respect to certain  portions of this exhibit  pursuant to
          an Application  for  Confidential  Treatment filed with the Commission
          under  Rule  406  under  the  Securities  Act  of  1933,  as  amended.
          Confidential  treatment  has been  granted  with  respect  to  certain
          portions of this exhibit  pursuant to an Application for  Confidential
          Treatment  filed  with the  Commission  under  Rule  24b-2  under  the
          Securities Exchange Act of 1934, as amended.

10.23     Development and Licensing Agreement between Schering, AG, Bioject Inc.
          and  Bioject   Medical   Technologies   Inc.   dated  March  28,  1994
          incorporated  by reference to the same exhibit number of the Company's
          Form 10-K for the year ended March 31,  1994.  Confidential  treatment
          has been  granted  with  respect to certain  portions of this  exhibit
          pursuant to an Application for  Confidential  Treatment filed with the
          Commission under Rule 24b-2 under the Securities exchange Act of 1934,
          as amended.

10.26     Heads of  Agreement  between  Hoffman-La  Roche Inc.  and Bioject Inc.
          dated January 10, 1995.  Confidential  treatment has been granted with
          respect to certain portions of this exhibit pursuant to an Application
          for Confidential  Treatment filed with the Commission under Rule 24b-2
          under the Securities Exchange Act of 1934 as amended.

10.27*    Employment  Agreement  with  James C.  O'Shea  dated  October  3, 1995
          incorporated  by reference to the same exhibit number of the Company's
          Form 10-Q for the quarter ended September 30, 1995.

10.28     Form of Amended and Restated  Registration  Rights  Agreement  between
          Bioject  Medical  Technologies  Inc. and the  participants in the 1995
          private  placement  incorporated  by  reference  to exhibit 4.2 of the
          Company's Registration Statement on Form S-3 (No. 33-80679).

10.29     Form of Amended and Restated Series "A" Common Stock Purchase  Warrant
          incorporated by reference to exhibit 4.3 of the Company's Registration
          Statement on Form S-3 (No. 33-80679).

10.30     Form of Series "B"  Common  Stock  Purchase  Warrant  incorporated  by
          reference to exhibit 4.4. of the Company's  Registration  Statement on
          Form S-3 (No. 33-80679).

10.31     Form of Amended and Restated Series "C" Common Stock Purchase  Warrant
          incorporated by reference to exhibit 4.5 of the Company's Registration
          Statement on Form S-3 (No. 33-80679).  Confidential treatment has been
          granted with respect to certain  portions of this exhibit  pursuant to
          an Application  for  Confidential  Treatment filed with the Commission
          under  Rule  24b-2  under  the  Securities  Exchange  Act of 1934,  as
          amended.

10.32     Supply Agreement dated June 26, 1996 between Bioject Inc. and Schering
          Aktiengesellschaft.  Incorporated  by  reference  to the same  exhibit
          number of the Company's  Form 8-K/A dated June 26, 1996.  Confidential
          treatment  has been granted  with respect to certain  portions of this
          exhibit  pursuant to an Application for  Confidential  Treatment filed
          with the Commission under Rule 24b-2 under the Securities exchange Act
          of 1934, as amended.





Exhibit
Number    Exhibit Description
- -------   -----------------------------------------------------------------

10.32.1   Security  Agreement  dated June 26,  1996  between  Bioject  Inc.  and
          Schering  Aktiengesellschaft.  Incorporated  by  reference to the same
          exhibit  number of the  Company's  Form 10-Q for the period ended June
          30, 1996.

10.33     Form of Series "D" Common  Stock  Purchase  Warrant.  Incorporated  by
          reference to exhibit 4.6 of the Company's  form 8-K dated December 11,
          1996.

10.34     Form of Series "E" Common  Stock  Purchase  Warrant.  Incorporated  by
          reference to exhibit 4.7 of the Company's  Form 8-K dated December 11,
          1996.

10.35     Form  of  Registration   Rights  Agreement   between  Bioject  Medical
          Technologies Inc. and the participants in the 1996 private  placement.
          Incorporated  by  reference to exhibit 4.8 of the  Company's  Form 8-K
          dated December 11, 1996.

10.36     Form of Series "F" Common Stock Purchase Warrant.

10.37     Form of Series "G" Common Stock Purchase Warrant.

10.38     Form  of  Registration   Rights  Agreement   between  Bioject  Medical
          Technologies Inc. and the participants in the 1997 private  placement.
          Incorporated  by reference to the same exhibit number of the Company's
          Form 10-K for the year ended March 31, 1997.

10.39     Agreement between Elan Corporation,  plc, Elan International Services,
          Ltd. and Bioject Medical Technologies,  Inc. dated September 30, 1997.
          Incorporated  by reference to the same exhibit number of the Company's
          Form 8-K  filed  October  3,  1997.  Confidential  treatment  has been
          requested with respect to certain portions of this exhibit pursuant to
          an Application  for  Confidential  Treatment filed with the Commission
          under Rule  24b-2(b)  under the  Securities  Exchange Act of 1934,  as
          amended.

10.40     License  Agreement  between  Elan  Corporation,  plc  and  Bioject  JV
          Subsidiary  Inc. dated October 15, 1997.  Incorporated by reference to
          the same exhibit  number of the Company's Form 8-K/A filed January 22,
          1998.  Confidential treatment has been granted with respect to certain
          portions of this exhibit  pursuant to an application for  Confidential
          Treatment  filed with the  Commission  under Rule  24b-2(b)  under the
          Securities Exchange Act of 1934, as amended.

10.40.1   Amendment  to License  Agreement  between  Elan  Corporation,  plc and
          Bioject JV  Subsidiary  Inc.  dated October 15, 1997  incorporated  by
          reference to the same exhibit  number of the Company's  Form 8-K filed
          on November 3, 1997.

10.41     Securities  Purchase  Agreement between Elan  International  Services,
          Ltd. and Bioject Medical Technologies Inc. dated October 15, 1997.

10.41.1   Amendment to Securities  Purchase Agreement between Elan International
          Services, Ltd. and Bioject Medical Technologies Inc. dated October 15,
          1997  incorporated  by  reference  to the same  exhibit  number of the
          Company's Form 8-K filed on November 3, 1997.

10.42     Bioject  Medical  Technologies  Inc.   Registration  Rights  Agreement
          between  Elan  International   Services,   Ltd.  and  Bioject  Medical
          Technologies Inc. dated October 15, 1997. Incorporated by reference to
          the same exhibit  number of the  Company's  Form 8-K filed October 31,
          1997.

10.43     Series K Warrant to Purchase  Shares of Common Stock dated October 15,
          1997.  Incorporated  by reference  to the same  exhibit  number of the
          Company's Form 8-K filed October 31, 1997.






Exhibit
Number    Exhibit Description
- -------   -----------------------------------------------------------------

10.44     Promissory Note dated October 15, 1997 in favor of Elan  International
          Services, Ltd. Incorporated by reference to the same exhibit number of
          the Company's Form 8-K filed on November 3, 1997.

10.45     Newco   Subscription   and   Stockholders   Agreement   between   Elan
          International  Services,  Ltd., Bioject Medical  Technologies Inc. and
          Bioject JV Subsidiary  Inc.  dated October 15, 1997.  Incorporated  by
          Reference to the same exhibit number of the Company's Form 8-K/A filed
          January 22, 1998.

10.45.1   Amendment to Newco  Subscription  and Stockholders  Agreement  between
          Elan International  Services,  Ltd., Bioject Medical Technologies Inc.
          and Bioject JV Subsidiary Inc. dated October 15, 1997  incorporated by
          reference to the same exhibit  number of the Company's  Form 8-K filed
          on November 3, 1997.

10.46     Bioject JV Subsidiary Inc.  Registration Rights Agreement between Elan
          International  Services,  Ltd. and Bioject JV  Subsidiary  Inc.  dated
          October 15, 1997. Incorporated by reference to the same exhibit number
          of the Company's Form 8-K filed November 3, 1997.

10.47     Form of Series "H" Common Stock Purchase Warrant.

10.48     Form of Series "I" Common Stock Purchase Warrant.

10.49     Form of Series "J" Common Stock Purchase Warrant.

10.50     Form of Series "L" Common Stock Purchase Warrant.

10.51     Form of Series "M" Common Stock Purchase Warrant.

10.52     Form of Series "N" Common Stock Purchase Warrant.

10.53     Asset Purchase  Agreement  among Bioject  Medical  Technologies,  Inc.
          Vitajet  Corporation  and Sergio Landau and Mara C. Landau dated March
          23, 1998.

10.54*    Executive  Employment  Agreement  dated April 17, 1998 between Bioject
          Medical Technologies Inc., Bioject Inc., and Michael A. Temple.

10.55*    Form of Termination Agreement between Bioject  Technologies,  Inc. and
          Peggy Miller.

10.56     Form of  Massachusetts  Biotechnology  Research  Park,  Three Biotech
          Park, Space Lease dated April 20, 1998.

10.57     Amendment to Massachusetts Biotechnology Research Park Space Lease.

10.58     Restated 1992 Stock Incentive Plan.

10.59     Supply and Option  Agreement  between  Merck & Co.,  Inc.  and Bioject
          Medical Technologies, Inc., effective as of June 8, 1998. Confidential
          treatment has been requested with respect to certain  portions of this
          exhibit  pursuant to an Application for  Confidential  Treatment filed
          with the Commission under Rule 24b-2 under the Securities Exchange Act
          of 1934, as amended.

10.60     Collaborative  Alliance  Agreement  between  GeneMedicine,   Inc.  and
          Bioject,  Inc., made as of June 26, 1998.  Confidential  treatment has
          been  requested  with  respect to  certain  portions  of this  exhibit
          pursuant to an Application for  Confidential  Treatment filed with the
          Commission under Rule 24b-2 under the Securities Exchange Act of 1934,
          as amended.

10.61*    Employment Contract between Bioject JV Subsidiary Inc. and
          Bradley J. Enegren.

10.62*    Confidentiality/Inventions/Noncompetition Agreement between
          Bioject JV Subsidiary Inc. and Bradley J. Enegren

10.63     Form of Series "O" Common Stock Purchase Warrant.

21        List of Subsidiaries

23        Consent of Independent Public Accountants

27        Financial Data Schedule

EX-10.63

                                                                   EXHIBIT 10.63


THIS WARRANT AND THE  SECURITIES  ISSUABLE  UPON  EXERCISE  HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
LAWS,  AND NO INTEREST  THEREIN  MAY BE SOLD,  DISTRIBUTED,  ASSIGNED,  OFFERED,
PLEDGED OR  OTHERWISE  TRANSFERRED  UNLESS  THERE IS AN  EFFECTIVE  REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE  STATE SECURITIES LAWS COVERING ANY SUCH
TRANSACTION OR SUCH TRANSACTION IS EXEMPT FROM THE REGISTRATION  REQUIREMENTS OF
SUCH ACT AND LAWS,  SUCH  COMPLIANCE,  AT THE OPTION OF THE  CORPORATION,  TO BE
EVIDENCED BY AN OPINION OF  WARRANTHOLDER'S  COUNSEL,  IN FORM ACCEPTABLE TO THE
CORPORATION, THAT NO VIOLATION OF SUCH REGISTRATION PROVISIONS WOULD RESULT FROM
ANY PROPOSED TRANSFER OR ASSIGNMENT.


                  SERIES "O" COMMON STOCK PURCHASE WARRANT

                     Bioject Medical Technologies Inc.


THIS CERTIFIES that for good and valuable  consideration  received,  Petkevich &
Partners LLC, a limited liability company,  or registered  assigns, is entitled,
upon the terms and subject to the conditions  hereinafter  set forth, to acquire
from  Bioject   Medical   Technologies   Inc.,   an  Oregon   corporation   (the
"Corporation") up to 80,000 fully paid and nonassessable shares of common stock,
without par value, of the Corporation  ("Warrant Stock") at a purchase price per
share (the "Exercise Price") of $0.625.

1. Term of Warrant

Subject to the terms and  conditions  set forth  herein,  this Warrant  shall be
exercisable,  in whole or from  time to time  part,  at any time on or after the
date hereof and at or prior to 11:59 p.m.,  Pacific  Standard  Time,  on May 10,
2004 (the "Expiration Time").

2. Exercise of Warrant

The  purchase  rights  represented  by  this  Warrant  are  exercisable  by  the
registered holder hereof, in whole or in part, at any time and from time to time
at or prior to the  Expiration  Time by the  surrender  of this  Warrant and the
Notice of  Exercise  form  attached  hereto  duly  executed to the office of the
Corporation at 7620 S.W. Bridgeport Road, Portland,  Oregon 97224 (or such other
office or agency of the  Corporation as it may designate by notice in writing to
the  registered  holder  hereof at the address of such holder  appearing  on the
books of the Corporation), and upon payment of the Exercise Price for the shares
thereby purchased (by cash or by check or bank draft payable to the order of the
Corporation or by  cancellation of indebtedness of the Corporation to the holder
hereof, if any, at the time of exercise in an amount equal to the purchase price
of the shares thereby purchased);  whereupon the holder of this Warrant shall be
entitled to receive  from the  Corporation  a stock  certificate  in proper form
representing the number of shares of Warrant Stock so purchased.

3. Issuance of Shares; No Fractional Shares of Scrip

Certificates  for shares  purchased  hereunder  shall be delivered to the holder
hereof by the Corporation's transfer agent at the Corporation's expense within a
reasonable  time after the date on which this Warrant shall have been  exercised
in accordance with the terms hereof.  Each  certificate so delivered shall be in
such  denominations  as may be  requested  by the  holder  hereof  and  shall be
registered in the name of such holder or, subject to applicable laws, other name
as shall be requested by such holder.  If, upon exercise of this Warrant,  fewer


                                       1




than all of the shares of Warrant Stock  evidenced by this Warrant are purchased
prior to the Expiration Time, one or more new warrants substantially in the form
of, and on the terms in, this Warrant will be issued for the remaining number of
shares of  Warrant  Stock not  purchased  upon  exercise  of this  Warrant.  The
Corporation  hereby  represents  and warrants  that all shares of Warrant  Stock
which may be issued upon the exercise of this Warrant will,  upon such exercise,
be duly and validly authorized and issued, fully paid and nonassessable and free
from all taxes, liens and charges in respect of the issuance thereof (other than
liens or charges  created by or imposed  upon the holder of the Warrant  Stock).
The  Corporation  agrees that the shares so issued  shall be and be deemed to be
issued to such  holder  as the  record  owner of such  shares as of the close of
business  on the date on which  this  Warrant  shall have been  surrendered  for
exercise in  accordance  with the terms hereof.  No  fractional  shares or scrip
representing  fractional  shares  shall  be  issued  upon the  exercise  of this
Warrant. With respect to any fraction of a share called for upon the exercise of
this Warrant,  an amount equal to such  fraction  multiplied by the then current
price at which each share may be  purchased  hereunder  shall be paid in cash to
the holder of this Warrant.

4. Charges, Taxes and Expenses

Issuance of  certificates  for shares of Warrant Stock upon the exercise of this
Warrant  shall be made  without  charge to the  holder  hereof  for any issue or
transfer  tax or other  incidental  expense in respect of the  issuance  of such
certificate,  all of which taxes and expenses shall be paid by the  Corporation,
and such certificates  shall be issued in the name of the holder of this Warrant
or in such  name or names as may be  directed  by the  holder  of this  Warrant;
provided,  however,  that in the event  certificates for shares of Warrant Stock
are to be issued in a name other  than the name of the  holder of this  Warrant,
this  Warrant  when  surrendered  for  exercise  shall  be  accompanied  by  the
Assignment Form attached hereto duly executed by the holder hereof.

5. No Rights as Shareholders

This  Warrant does not entitle the holder  hereof to any voting  rights or other
rights as a shareholder of the Corporation prior to the exercise hereof.

6. Registration Rights

This  Warrant is a Series "O"  Warrant  identified  in the  Registration  Rights
Agreement  dated as of May 10,  1999,  between the  Corporation  and the parties
listed on the signature pages thereto. A transferee of this Warrant may become a
"Holder" as defined in such agreement upon compliance  with the  requirements of
such agreement.

7. Exchange and Registry of Warrant

This Warrant is exchangeable, upon the surrender hereof by the registered holder
at the above-mentioned office or agency of the Corporation, for a new Warrant of
like tenor and dated as of such exchange.  The Corporation shall maintain at the
above-mentioned  office or agency a registry showing the name and address of the
registered holder of this Warrant. This Warrant may be surrendered for exchange,
transfer or exercise,  in accordance with its terms, at such office or agency of
the Corporation,  and the Corporation shall be entitled to rely in all respects,
prior to written notice to the contrary, upon such registry.

8. Loss, Theft, Destruction or Mutilation of Warrant

Upon receipt by the Corporation of evidence reasonably satisfactory to it of the
loss,  theft,  destruction  or mutilation of this Warrant,  and in case of loss,
theft or destruction of indemnity or security reasonably satisfactory to it, and
upon  reimbursement  to the  Corporation of all reasonable  expenses  incidental
thereto, and upon surrender and cancellation of this Warrant, if mutilated,  the
Corporation  will make and  deliver a new  Warrant of like tenor and dated as of
such cancellation, in lieu of this Warrant.

9. Saturdays, Sundays and Holidays

If the last or appointed  day for the taking of any action or the  expiration of
any right required or granted herein shall be a Saturday or a Sunday or shall be
a legal holiday, then such action may be taken or such right may be exercised on
the next succeeding day not a Saturday, Sunday or legal holiday.


                                       2



10. Merger, Sale of Assets, Etc.

If at any time the Corporation proposes to merge or consolidate with or into any
other  corporation,  effect  any  reorganization,  or  sell  or  convey  all  or
substantially  all of its assets to any other  entity,  then,  as a condition of
such reorganization,  consolidation, merger, sale or conveyance, the Corporation
or its successor,  as the case may be, shall enter into a supplemental agreement
to make lawful and adequate provision whereby the holder shall have the right to
receive,  upon exercise of the Warrant, the kind and amount of equity securities
which would have been received upon such reorganization,  consolidation, merger,
sale or  conveyance  by a holder of a number of shares of common  stock equal to
the number of shares issuable upon exercise of the Warrant  immediately prior to
such reorganization,  consolidation, merger, sale or conveyance. If the property
to  be  received  upon  such  reorganization,  consolidation,  merger,  sale  or
conveyance is not equity  securities,  the Corporation  shall give the holder of
this  Warrant  ten (10)  business  days  prior  written  notice of the  proposed
effective date of such  transaction,  and if this Warrant has not been exercised
by or on the effective date of such transaction, it shall terminate.

11. Subdivision, Combination, Reclassification, Conversion, Etc.

If  the   Corporation   at  any  time  shall,   by   subdivision,   combination,
reclassification  of securities or otherwise,  change the Warrant Stock into the
same or a different  number of securities of any class or classes,  this Warrant
shall  thereafter  entitle  the  holder  to  acquire  such  number  and  kind of
securities as would have been issuable in respect of the Warrant Stock (or other
securities  which  were  subject  to the  purchase  rights  under  this  Warrant
immediately prior to such subdivision,  combination,  reclassification  or other
change) as the result of such change if this Warrant had been  exercised in full
for cash immediately prior to such change. The Exercise Price hereunder shall be
adjusted if and to the extent  necessary to reflect such change.  If the Warrant
Stock or other  securities  issuable  upon  exercise  hereof are  subdivided  or
combined into a greater or smaller number of shares of such security, the number
of shares issuable hereunder shall be proportionately increased or decreased, as
the case may be, and the  Exercise  Price  shall be  proportionately  reduced or
increased,  as the case may be, in both cases  according  to the ratio which the
total number of shares of such security to be outstanding immediately after such
even  bears  to  the  total  number  of  shares  of  such  security  outstanding
immediately  prior to such event.  The Corporation  shall give the holder prompt
written notice of any change in the type of securities issuable  hereunder,  any
adjustment of the Exercise Price for the securities issuable hereunder,  and any
increase or decrease in the number of shares issuable hereunder.

12. Transferability; Compliance with Securities Laws

(a) This Warrant may not be  transferred or assigned in whole or in part without
compliance  with  all  applicable  federal  and  state  securities  laws  by the
transferor and transferee  (including the delivery of investment  representation
letters  and legal  opinions  reasonably  satisfactory  to the  Corporation,  if
requested  by  the  Corporation).   Subject  such  restrictions,  prior  to  the
Expiration  Time, this Warrant and all rights  hereunder are transferable by the
holder hereof,  in whole or in part, at the office or agency of the  Corporation
referred to in Section 1 hereof. Any such transfer shall be made in person or by
the holder's duly authorized  attorney,  upon surrender of this Warrant together
with the Assignment Form attached hereto properly endorsed.

(b) The Holder of this Warrant,  by acceptance  hereof,  acknowledges  that this
Warrant and the Warrant Stock  issuable upon exercise  hereof are being acquired
solely for the  holder's  own account and not as a nominee for any other  party,
and for  investment,  and that the  holder  will not  offer,  sell or  otherwise
dispose  of this  Warrant  or any  shares of  Warrant  Stock to be  issued  upon
exercise hereof except under  circumstances  that will not result in a violation
of the Securities Act of 1933, as amended,  or any state  securities  laws. Upon
exercise of this  Warrant,  the holder shall,  if requested by the  Corporation,
confirm in writing,  in a form satisfactory to the Corporation,  that the shares
of Warrant Stock so purchased are being acquired solely for holder's own account
and not as a nominee for any other party,  for  investment,  and not with a view
toward distribution or resale.


                                       3




(c) The  Warrant  Stock  has not  been  and will  not be  registered  under  the
Securities Act of 1933, as amended, and this Warrant may not be exercised except
by (i) the original  purchaser of this Warrant from the  Corporation  or (ii) an
"accredited  investor"  as defined in Rule 501(a)  under the  Securities  Act of
1933,  as amended.  Each  certificate  representing  the Warrant  Stock or other
securities  issued in respect of the Warrant  Stock upon any stock split,  stock
dividend,  recapitalization,  merger,  consolidation or similar event,  shall be
stamped or otherwise imprinted with a legend substantially in the following form
(in addition to any legend required under applicable securities laws):

THE SECURITIES  REPRESENTED  HEREBY HAVE NOT BEEN REGISTERED UNDER UNITED STATES
FEDERAL  OR STATE  SECURITIES  LAWS AND MAY NOT BE  OFFERED  FOR  SALE,  SOLD OR
OTHERWISE TRANSFERRED OR ASSIGNED FOR VALUE, DIRECTLY OR INDIRECTLY, NOR MAY THE
SECURITIES BE TRANSFERRED ON THE BOOKS OF THE CORPORATION,  WITHOUT REGISTRATION
OF  SUCH  SECURITIES  UNDER  ALL  APPLICABLE  UNITED  STATES  FEDERAL  OR  STATE
SECURITIES  LAWS OR COMPLIANCE  WITH AN  APPLICABLE  EXEMPTION  THEREFROM,  SUCH
COMPLIANCE,  AT THE OPTION OF THE CORPORATION,  TO BE EVIDENCED BY AN OPINION OF
SHAREHOLDER'S COUNSEL, IN FORM ACCEPTABLE TO THE CORPORATION,  THAT NO VIOLATION
OF SUCH  REGISTRATION  PROVISIONS  WOULD  RESULT FROM ANY  PROPOSED  TRANSFER OR
ASSIGNMENT.

13. Representations and Warranties

The Corporation hereby represents and warrants to the holder hereof that:

(a) during the period this Warrant is outstanding,  the Corporation will reserve
from its authorized and unissued  common stock a sufficient  number of shares to
provide for the issuance of Warrant Stock upon the exercise of this Warrant;

(b)  the  issuance  of this  Warrant  shall  constitute  full  authority  to the
Corporation's  officers  who  are  charged  with  the  duty of  executing  stock
certificates to execute and issue the necessary  certificates  for the shares of
Warrant Stock issuable upon exercise of this Warrant;

(c) the  Corporation  has all requisite legal and corporate power to execute and
deliver this Warrant,  to sell and issue the Warrant Stock  hereunder,  to issue
the common stock  issuable  upon  exercise of the Warrant Stock and to carry out
and perform its obligations under the terms of this Warrant;

(d) all  corporate  action on the part of the  Corporation,  its  directors  and
shareholders   necessary  for  the   authorization,   execution,   delivery  and
performance  of  this  Warrant  by the  Corporation,  the  authorization,  sale,
issuance and delivery of the Warrant Stock, the grant of registration  rights as
provided herein and the performance of the Corporation's  obligations  hereunder
has been taken;

(e) the Warrant  Stock,  when issued in compliance  with the  provisions of this
Warrant and the Corporation's  Articles of Incorporation (as they may be amended
from time to time (the  "Articles")),  will be  validly  issued,  fully paid and
nonassessable,  and free of all taxes, liens or encumbrances with respect to the
issue thereof,  and will be issued in compliance with all applicable federal and
state securities laws; and

(f) the  issuance  of the  Warrant  Stock will not be subject to any  preemptive
rights, rights of first refusal or similar rights.


                                       4



14. Corporation

The  Corporation  will  not,  by  amendment  of  its  Articles  or  through  any
reorganization,  recapitalization,  transfer of assets,  consolidation,  merger,
dissolution,  issue or sale of securities or any other action,  avoid or seek to
avoid  the  observance  or  performance  of any of the terms to be  observed  or
performed  hereunder  by the  Corporation,  but will at all times in good  faith
assist in the  carrying  out of all the  provisions  of this  Warrant and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the holder of the Warrant against impairment.

15. Governing Law

This Warrant shall be governed by and  construed in accordance  with the laws of
the State of Oregon.


IN WITNESS  WHEREOF,  the  Corporation has caused this Warrant to be executed by
its duly authorized officers.

Dated: May 10, 1999


BIOJECT MEDICAL TECHNOLOGIES INC.


By: ----------------------------

Name: Michael Temple
Title: Vice President, Chief Financial Officer & Secretary


                                  NOTICE OF EXERCISE

To: Bioject Medical Technologies Inc.

(1) The undersigned hereby elects to purchase -------- shares of common stock of
Bioject Medical Technologies Inc. pursuant to the terms of the attached Warrant,
and tenders  herewith  payment of the purchase price in full,  together with all
applicable transfer taxes, if any.

(2) In exercising this Warrant, the undersigned hereby confirms and acknowledges
that the  shares of common  stock to be issued  upon  exercise  hereof are being
acquired  solely for the account of the undersigned and not as a nominee for any
other party, and for investment,  and that the undersigned will not offer,  sell
or  otherwise   dispose  of  any  such  shares  of  common  stock  except  under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws.

(3) Please  issue a  certificate  or  certificates  representing  said shares of
common  stock  in the  name  of the  undersigned  or in  such  other  name as is
specified below:


                            ------------------------------
                                        (Name)

                            ------------------------------
                                       (Address)



                                       5




(3) The undersigned  represents that (a) he, she or it is the original purchaser
from the Corporation of the attached Warrant or an "accredited  investor" within
the meaning of Rule 501(a) under the  Securities Act of 1933, as amended and (b)
the aforesaid  shares of common stock are being  acquired for the account of the
undersigned  for  investment and not with a view to, or for resale in connection
with, the distribution thereof and that the undersigned has no present intention
of distributing or reselling such shares.

- --------------                       ----------------------------------
(Date)                                  (Signature)


                             ASSIGNMENT FORM

(To  assign  the  foregoing  Warrant,  execute  this  form and  supply  required
information. Do not use this form to purchase shares.)



FOR VALUE  RECEIVED,  the  undersigned  registered  owner of this Warrant hereby
sells,  assigns and transfers unto the Assignee named below all of the rights of
the undersigned  under the within Warrant,  with respect to the number of shares
of common stock of Bioject Medical Technologies Inc. set forth below:

Name of Assignee             Address               No. of Shares
- ----------------             -------               -------------



and does hereby irrevocably  constitute and appoint Attorney ---------------- to
make such transfer on the books of Bioject Medical Technologies Inc., maintained
for the purpose, with full power of substitution in the premises.

The  undersigned  also  represents  that,  by  assignment  hereof,  the Assignee
acknowledges  that  this  Warrant  and the  shares  of stock to be  issued  upon
exercise hereof are being acquired for investment and that the Assignee will not
offer,  sell or  otherwise  dispose of this Warrant or any shares of stock to be
issued upon exercise hereof except under  circumstances which will not result in
a violation of the Securities Act of 1933, as amended,  or any state  securities
laws. Further,  the Assignee shall, if requested by the Corporation,  confirm in
writing, in a form satisfactory to the Corporation,  that the shares of stock so
purchased  are  being  acquired  for  investment  and  not  with a  view  toward
distribution or resale.



                                    Dated:------------------------------

                                    Holder's Signature:-----------------

                                    Holder's Address:
                                    ------------------------------------

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


Guaranteed Signature:

NOTE: The signature to this  Assignment Form must correspond with the name as it
appears on the face of the Warrant,  without  alteration or  enlargement  or any
change whatever, and must be guaranteed by a bank or trust company.  Officers of
corporations  and those action in a fiduciary or other  representative  capacity
should file proper evidence of authority to assign the foregoing Warrant.


                                       6

EX-21

                                                                      Exhibit 21



               SUBSIDIARIES OF BIOJECT MEDICAL TECHNOLOGIES INC.



1.   Bioject Inc.

2.   Marathon Medical Technologies Inc.
    (80.1% owned)

EX-23

                                                                      Exhibit 23

                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS



As independent public accountants, we hereby consent to the incorporation of our
report dated May 7, 1999 included in this Form 10-K for the year ended March 31,
1999, into the Company's  previously filed Registration  Statements on Form S-3,
File  Nos.  333-80679,   333-18933,  333-30955,  333-39421  and  333-62889,  and
Registration Statements on Form S-8, File Nos. 333-94400,  333-56454,  333-42156
and 333-37017.


/s/ ARTHUR ANDERSEN LLP

Portland, Oregon
June 29, 1999

EX-27

 


<ARTICLE>                     5
<LEGEND>
THIS  SCHEDULE  CONTAINS  SUMMARY  FINANCIAL   INFORMATION  EXTRACTED  FROM  THE
CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED  STATEMENTS OF OPERATIONS FILED
AS PART OF THE ANNUAL  REPORT ON FORM 10-K AND IS  QUALIFIED  IN ITS ENTIRETY BY
REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-K.


                             
<PERIOD-TYPE>                   12-mos
<FISCAL-YEAR-END>                          MAR-31-1999
<PERIOD-START>                             APR-01-1998
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