<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                                   (MARK ONE)
                ANNUAL REPORT PURSUANT TO SECTION NO 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   [X] FOR THE FISCAL YEAR ENDED JUNE 30, 2002

                                       OR

            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
          [ ] FOR THE TRANSITION PERIOD FROM _________________________
                             TO ___________________

                         COMMISSION FILE NUMBER 0-27602

                              NCS HEALTHCARE, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                 DELAWARE                                  34-1816187
      (State or other jurisdiction of                   (I.R.S. Employer
      incorporation or organization)                   identification no.)

  3201 Enterprise Parkway, Beachwood, Ohio                   44122
  (Address of principal executive offices)                (Zip code)

       Registrant's telephone number, including area code: (216) 378-6800

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

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

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

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

      As of August 15, 2002, the registrant had 18,461,599 shares of Class A
Common Stock, par value $.01 per share, and 5,255,210 shares of Class B Common
Stock, par value $.01 per share, issued and outstanding. As of that date, the
aggregate market value of these shares, which together constitute all of the
voting stock of the registrant, held by non-affiliates was $46,191,958 (based
upon the closing price of $2.49 per share of Class A Common Stock on the Pink
Sheets Electronic Quotation Service on August 15, 2002). For purposes of this
calculation, the registrant deems the 355,016 shares of Class A Common Stock and
the 4,810,806 shares of Class B Common Stock held by all of its Directors and
executive officers to be the shares of Class A Common Stock and Class B Common
Stock held by affiliates.


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                       DOCUMENTS INCORPORATED BY REFERENCE

None.

Except as otherwise stated, the information contained in this Form 10-K is as of
June 30, 2002.



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                              NCS HEALTHCARE, INC.
                         2002 ANNUAL REPORT ON FORM 10-K

                                TABLE OF CONTENTS

                                     PART I

ITEM 1.   BUSINESS                                                            4
ITEM 2.   PROPERTIES                                                         14
ITEM 3.   LEGAL PROCEEDINGS                                                  14
ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                16
ITEM 4A.  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY                    16

                             PART II

ITEM 5.   MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
          STOCKHOLDER MATTERS                                                18
ITEM 6.   SELECTED FINANCIAL DATA                                            19
ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS                                              21
ITEM 7a.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK         33
ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                        33
ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE                                               56

                            PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY                    56
ITEM 11.  EXECUTIVE COMPENSATION                                             56
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT     60
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                     61

                             PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K   62


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PART I

ITEM 1. BUSINESS

GENERAL

      NCS HealthCare, Inc. (the "Company" or "NCS") is a leading independent
provider of pharmacy services to long-term care institutions including skilled
nursing facilities, assisted living facilities and other institutional health
care settings. The Company purchases, repackages and dispenses prescription and
non-prescription pharmaceuticals and provides customer facilities with related
management services, automated medical record keeping, drug therapy evaluation
and regulatory assistance. The Company also provides consultant pharmacist
services, including monitoring the control, distribution and administration of
drugs within the long-term care facility, assisting in compliance with
applicable state and federal regulations, therapeutic monitoring and drug
utilization review services. The Company also provides various ancillary health
care services to complement its core pharmacy services, including infusion
therapy, software services and other services. At June 30, 2002, the Company
provides pharmacy services to approximately 203,000 long-term care beds in 33
states. The Company is considered to operate principally in one business
segment.

      On July 28, 2002, the Company entered into a definitive merger agreement
with Genesis Health Ventures, Inc. (Genesis). If the proposed merger is
completed, each outstanding share of common stock of the Company will be
converted into the right to receive 0.1 of a share of Genesis common stock. At
the closing of the proposed merger, Genesis will repay in full the outstanding
debt of NCS, including $206 million of senior debt, and will redeem $102 million
of 5 3/4% convertible subordinated debentures, including accrued and unpaid
interest and any applicable redemption premiums. The completion of the proposed
merger is subject to regulatory approvals and other customary conditions,
including the approval of the holders of a majority of the outstanding voting
power of the Company's common stock.

      In connection with the merger agreement, on July 28, 2002, NCS and Genesis
entered into agreements (voting agreements) with certain stockholders of NCS
beneficially owning in the aggregate a majority of the outstanding voting power
of NCS Common Stock. In the voting agreements, such stockholders agreed (1) to
vote their shares of NCS Common Stock in favor of adoption and approval of the
merger agreement and against proposals for certain other transactions and (2)
not to transfer their shares of NCS Common Stock prior to the consummation of
the proposed merger.

      Genesis provides healthcare services to America's elderly through a
network of NeighborCare pharmacies and Genesis ElderCare skilled nursing and
assisted living facilities. The merger will consolidate the operations of the
Company and NeighborCare, Genesis' pharmacy subsidiary, creating the second
largest long-term care pharmacy provider in the United States.

      On August 8, 2002, Omnicare, Inc. (Omnicare) commenced a cash tender offer
to purchase all of the outstanding shares of Class A and Class B common stock of
NCS for $3.50 per share. The effect of the Omnicare tender offer on the proposed
merger between NCS and Genesis is not known at this time.


MARKET OVERVIEW

      Institutional pharmacies purchase, repackage and distribute
pharmaceuticals to residents of long-term care facilities such as skilled
nursing facilities, assisted living facilities and other institutional health
care settings. Unlike hospitals, most long-term care facilities do not have
on-site pharmacies but depend instead on outside sources to provide the
necessary products and services. In response to a changing regulatory
environment and other factors, the sophistication and breadth of services
required by long-term care facilities have increased dramatically in recent
years. Today, in addition to providing pharmaceuticals, institutional pharmacies
provide consultant pharmacy services including monitoring the control,
distribution and administration of drugs within the long-term care facility and
assisting in compliance with applicable state and federal regulations, as well
as therapeutic monitoring and drug utilization review services. With the average
long-term care facility patient taking seven to nine medications per day, high
quality, cost-efficient systems for dispensing and monitoring patient drug
regimens are critical. Providing these services places the institutional
pharmacy in a central role of influencing the effectiveness and cost of care.

      Based on data from industry sources, the Company estimates that the U.S.
market for pharmacy services (including consulting services and related
supplies) in long-term care and assisted living facilities will exceed $8.0
billion in fiscal 2003. The number of long-term care facility residents is
rising as a result of demographic trends. According to the Administration on
Aging, it is estimated that by the year 2030, the number of Americans who will
be 85 or older, the segment of the population that comprises the largest
percentage of residents at long-term care facilities, will triple. The number of
medications taken per day by long-term care facility residents is also
increasing due to (i) advances in medical technology which have resulted in the
availability of new drug therapy regimens (ii) the increased utilization of
recently introduced drug therapies and (iii) the generally higher acuity levels
of residents as a result of both payors' efforts to have care delivered in the
lowest cost setting and the generally older, and consequently sicker, population
of long-term care facility residents.


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      The institutional pharmacy market has undergone significant consolidation
over the last few years. Prior to the 1970's, pharmacy needs of long-term care
facilities were fulfilled by local retail pharmacies. Since then, the pharmacy
and information needs of long-term care facilities have grown substantially and
regulatory requirements and the reimbursement environment have become more
complex. Institutional pharmacy companies, both independent and captive (those
owned by an operator of long-term care facilities), have proven to be better
positioned to meet these changing market demands. As a result, over the past 25
years the proportion of the market served by retail pharmacies has steadily
declined, and institutional pharmacies have become the dominant providers of
pharmacy services to the long-term care market.

      There are several factors that drove the consolidation among providers of
long-term care pharmaceutical services. All of these factors relate to the
advantages that large institutional providers have over retail and small
institutional providers.

                  Scale Advantages. Larger pharmacies are able to (i) realize
         advantages associated with size, including purchasing power, service
         breadth, more sophisticated sales and marketing programs and formulary
         management capabilities, (ii) achieve efficiencies in administrative
         functions and (iii) access the capital resources necessary to invest in
         critical computer systems and automation.

                  Ability to Serve Multi-site Customers and Managed Care Payors.
         As a result of their ability to serve long-term care customers with
         several physical locations, larger pharmacies possess a significant
         competitive advantage over their smaller counterparts. Additionally,
         the Company believes that there are significant opportunities for
         full-service institutional pharmacies with a comprehensive range of
         services and regional coverage to provide a spectrum of health care
         products and services to managed care payors.

                  Regulatory Expertise and Systems Capabilities. Long-term care
         facilities are demanding more sophisticated and specialized services
         from pharmacy providers due, in part, to the implementation in 1990 of
         the Omnibus Budget Reconciliation Act of 1987 ("OBRA"). The OBRA
         regulations, which were designed to upgrade and standardize care in
         nursing facilities, mandated strict new standards relating to planning,
         monitoring and reporting on the progress of patient care to include,
         among other things, prescription drug therapy. More recently, the
         implementation of Medicare's Prospective Payment System (PPS) has
         required that long-term care facilities estimate the total cost of stay
         of a resident prior to admission. The facilities, in turn, rely on
         their ancillary providers, such as institutional pharmacy vendors, to
         help them manage the costs of care of their Medicare Part A covered
         residents. As a result, long-term care administrators increasingly seek
         experienced pharmacists and specialized providers with computerized
         information and documentation systems designed to monitor patient care
         and control the facilities' and payors' costs.

                  Changing Reimbursement Environment. The long-term care market
         has undergone significant change over the last three years as
         Medicare's new Prospective Payment System (PPS) has been implemented.
         This reimbursement change which was mandated by the Balanced Budget Act
         of 1997 pays nursing homes a flat rate for all services, a significant
         departure from the prior cost-based system. In order to assist
         long-term care customers with this new regulation, institutional
         pharmacy providers must be able to offer sophisticated PPS contracts
         that include cost-effective formularies.


BUSINESS STRATEGY

      The Company expects that the evolution of the institutional pharmacy
industry will follow the path taken by the retail pharmacy industry. Therefore,
it is anticipated that prescription margins will continue to face incremental
downward pressure over time. Institutional pharmacies that remain successful
will need strong internal revenue growth to leverage increased volume over its
existing cost base, the ability to leverage scale across all areas of purchasing
contracts, a low cost production structure and the ability to leverage size and
technology to establish pharmaceutical manufacturers as purchasers of clinical
data.

      Over 80% of the skilled nursing home patient population can be accessed
through the Company's 74 existing pharmacy sites. These sites served
approximately 203,000 long-term care beds at June 30, 2002 in 33 states.
Accordingly, NCS is positioned to pursue revenue growth opportunities through
its existing infrastructure. The Company has developed an efficient operating
structure and can significantly benefit by leveraging incremental volume through
existing operational sites. In addition, the Company's investment in common
information systems has established a platform to diversify its revenue stream
by assisting drug manufacturers in better understanding prescribing trends and
changes in the competitive landscape across the long-term care and assisted
living population.


SERVICES

      The Company primarily provides institutional pharmacy products and
services to long-term care facility residents. The Company also provides various
ancillary health care services to complement its core pharmacy service,
including infusion


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therapy, software services, and other services. For the year ended June 30,
2002, approximately 89% of the Company's revenues were derived from providing
pharmacy and consultant pharmacy services to long-term care facilities. An
additional 4% of revenues were derived from providing infusion therapy services
and the remaining 7% were primarily derived from providing various other
products and services, including hospital pharmacy management, software
services, oxygen and Medicare Part B services.

      Pharmacy Services. The Company's core business is providing pharmaceutical
dispensing services to residents of long-term care facilities and other
institutions. The Company purchases, repackages and dispenses prescription and
non-prescription medication in accordance with physician orders and delivers
such prescriptions at least daily to long-term care facilities to be
administered to residents by the nursing staffs of these facilities. The Company
typically serves facilities within a two-hour drive time of its distribution
facilities and provides 24-hour coverage 365 days per year. As of June 30, 2002,
the Company provided its services from 74 sites in 33 states.

      Upon receipt of a doctor's order, the information is entered into the
Company's management information system, which automatically reviews the order
for patient-specific allergies and potentially adverse interactions with other
medications the patient is receiving. Following this analysis, a report on each
order is produced for review by a Company pharmacist, who performs a prospective
drug utilization analysis of the order and, if appropriate, substitutes generic
drugs approved for equivalence by the U.S. Food and Drug Administration ("FDA").
In addition, subject to the prescribing physician's approval, the pharmacist may
make therapeutic substitutions based on guidelines established by the Company's
Therapeutic Formulary Committee.

      NCS provides pharmaceuticals to its clients through a unit dose
distribution system. The Company divides the pharmaceuticals received in bulk
form from its suppliers into unit dose packages for its customers. The unit dose
format is designed to reduce errors, improve control over the distribution of
pharmaceuticals and save nursing administration time relative to the bulk
systems traditionally used by retail pharmacies.

      As of June 30, 2002, 93% of the Company's pharmacy operating facilities
were converted to the Concord DX system, the Company's proprietary computer
system. The Company utilizes the Concord DX system to control its work flow and
improve operating efficiencies. In most cases, the Company uses its bar-coding
system where a bar code label is applied to each unit dose package. Through bar
coding, information relating to the contents and destination of each unit dose
package distributed can be automatically entered into the Concord DX system.
This bar code technology enables the Company to monitor pharmaceuticals
throughout the production and distribution process, thereby reducing errors,
improving pharmacy control and enhancing production efficiency.

      As an additional service, NCS furnishes its clients with information
captured by its computerized medical records and documentation system. This
system captures patient care information, which is used to create monthly
management and quality assurance reports. The Company believes that this system
of information management, combined with the unit dose delivery system, improves
the efficiency and controls in nursing administration and reduces the likelihood
of drug-related adverse consequences.

      Consultant Pharmacy Services. Federal and state regulations mandate that
long-term care facilities improve the quality of patient care by retaining
consultant pharmacist services to monitor and report on prescription drug
therapy. The OBRA legislation implemented in 1990 attempted to further upgrade
and standardize health care by mandating more stringent standards relating to
planning, monitoring and reporting on the progress of prescription drug therapy
as well as facility-wide drug usage. Noncompliance with these regulations may
result in monetary sanctions as well as the potential loss of the facility's
ability to participate in Medicare and Medicaid reimbursement programs.

      NCS provides consulting services that help clients comply with federal and
state regulations applicable to long-term care facilities. The Company's
services include: (i) reviewing each patient's drug regimen to assess the
appropriateness and efficacy of drug therapies, including a review of the
patient's medical records, monitoring drug interactions with other drugs or
food, monitoring lab results and recommending alternate therapies or
discontinuing unnecessary drugs; (ii) participating on the Pharmacy and
Therapeutics, Quality Assurance and other committees of the Company's clients;
(iii) inspecting medication carts and storage rooms; (iv) monitoring and
reporting at least quarterly on facility-wide drug usage and drug administration
systems and practices; (v) developing and maintaining the client's
pharmaceutical policy and procedure manuals; and (vi) assisting the long-term
care facility in complying with state and federal regulations as they pertain to
patient care.

      Additionally, NCS offers a specialized line of consulting services which
help long-term care facilities enhance care and reduce and contain costs as well
as comply with state and federal regulations. Under this service line, the
Company provides: (i) data required for OBRA and other regulatory purposes,
including reports on psychotropic drug usage (chemical restraints), antibiotic
usage (infection control) and other drug usage; (ii) plan of care programs that
assess each patient's state of health upon admission and monitor progress and
outcomes using data on drug usage as well as dietary, physical therapy and
social service inputs; (iii) counseling related to appropriate drug usage and
implementation of drug protocols; (iv) on-site continuing education seminars for
the long-term care facilities' staff on topics such as drug information relating
to clinical indications, adverse drug


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reactions, drug protocols and special geriatric considerations in drug therapy,
information and training on intravenous drug therapy and updates on OBRA and
other regulatory compliance issues; (v) mock regulatory reviews for nursing
staffs; and (vi) nurse consultant services and consulting for dietary, social
services and medical records.

      Infusion Therapy. Infusion therapy is the intravenous delivery of
medication. The Company's infusion therapy services include pain management,
hydration, antibiotic therapy and chemotherapy for long-term care residents and
home care patients. NCS prepares the product and delivers it to the long-term
care facility to be administered to the patient by the nursing staff. Since the
proper administration of infusion therapy requires a highly trained nursing
staff, the Company provides education and certification programs to its clients
in order to assure proper staff training and compliance with regulatory
requirements.

      Other. The Company provides long-term care facilities with assistance in
complying with regulations concerning healthy and sanitary environments. The
Company also assists its customers with various regulatory compliance matters
and products and services relating to Medicare Part B products, oxygen and other
miscellaneous services. Finally, NCS offers specialized educational services
that aid facilities in the training of their staff. These services include
surveys to prepare facilities for state reviews and training on appropriate
nursing techniques in infusion therapy, wound care management and restorative
nursing.


FORMULARY MANAGEMENT

      NCS employs formulary management techniques designed to assist physicians
in making the best clinical decision on the appropriate drug therapy for
patients at the lowest cost. Under the Company's formulary programs, NCS
pharmacists assist prescribing physicians in designating the use of particular
drugs from among therapeutic alternatives (including generic substitutions) and
in the use of more cost-effective delivery systems and dosage forms. The
formulary takes into account such factors as pharmacology, safety and toxicity,
efficacy, drug administration, quality of life and other considerations specific
to the elderly population of long-term care facilities.

      Successful implementation of formulary guidelines is dependent upon close
interaction between the pharmacist and the prescribing physician. NCS seeks to
attract and retain highly trained clinical pharmacists and encourages their
active participation in the caring for residents of long-term care facilities,
including consultation with the facilities' medical staff and other prescribing
physicians, to increase the likelihood that the most efficacious, safe and
cost-effective drug therapy is prescribed. The Company's formulary program is
directed by the NCS Pharmacy and Therapeutic Committee, which is comprised of
NCS clinical pharmacists, a registered nurse and a physician. The Company
believes that adherence to the NCS formulary guidelines provides the most cost
effective therapy to the resident and strengthens the Company's purchasing power
with pharmaceutical manufacturers.


MANAGEMENT INFORMATION SYSTEMS

      An integral part of NCS' operations is its proprietary management
information system called "Concord DX," which has extensive capabilities
designed to improve operating efficiencies and controls both internally and at
the customer level. In conjunction with the unit dose distribution system and
the use of a bar-coding label system on unit dose packages, Concord DX is able
to monitor pharmaceuticals within NCS throughout the production and distribution
process. At the customer level, Concord DX automatically screens prescription
orders received from physicians for patient-specific allergies and potentially
adverse reactions given other medications the patient may be receiving. Concord
DX is also used to create individual patient medical records and monthly
management and quality assurance reports for NCS' customers. To date, Concord DX
has been implemented in 93% of the Company's pharmacy operating facilities.

      In 1997, the Company acquired Rescot Systems Group, Inc. ("Rescot"). For
the past 13 years, Rescot has developed one of the premier institutional
pharmacy operating systems used for managing patient and pharmacy data. Rescot
has been instrumental in the design and implementation of Concord DX.

      In May 2001, NCS introduced iAstral(TM) which is a web-based internal
company portal. NCS users can access many functions through iAstral(TM)
including:

      REAL-TIME BUSINESS MONITORING allows Company personnel to view real-time
information related to pharmacy operations including: on-line rejected third
party claims, therapeutic interchange opportunities, gross margin opportunities,
prescriptions with missing billing information, and prescriptions connected to
delinquent accounts.

      HISTORICAL FINANCIAL INFORMATION allows Company personnel to view
financial information and operational metrics regarding customers including
gross and net sales, gross margin and historical rejected claim data.

      In addition to these internal capabilities, in May 2000, the Company
introduced its web-based eASTRAL (TM), which is designed to perform the
following functions: (1) improve a nursing home's ability to adapt and operate
in an environment of


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tightening margins and lower reimbursement levels under PPS, (2) enhance the
communication between nursing homes and NCS, and (3) improve a nursing home's
ability to conform to regulatory requirements. NCS' eASTRAL (TM) modules are as
follows:

      eMEDMANAGER allows on-line pre-fill edit reviews. These reviews provide
the nursing home formulary recommendations, alternative medications and
information on potential cost savings. With access to this type of critical
information they can make more informed clinical and financial decisions.

      PAYOR STATUS REPORTS have become critically important for nursing homes to
assist them in controlling their Medicare Part A costs. Through the use of
eASTRAL(TM), our customers can make adjustments to patient status through an
internet connection.

      ORDER STATUS REPORT provides information on the status of each patient's
medication orders, eliminating the need for the nursing staff to contact the
pharmacy for this information.

      NDC REPORT is available through the web. This report provides information
needed to complete Section U of the MDS for any long-term care patient.

      eBILL offers on-line invoice reviews. This is an important feature,
especially for regional or national nursing home chains that perform facility to
facility cost comparisons.

      DRUG FACT provides detailed information on any medication, including its
use, side effects, storage, precautions, interactions and instructions for use.

      REFILL ORDERS allows nursing homes to refill orders on-line.

      MEDICAL RECORDS PRINTING allows nursing homes to print medical records at
their facility.

         The Company believes that these capabilities distinguish NCS from
others in the institutional pharmacy industry. As nursing homes become more
sophisticated, their interest in and need for these capabilities will increase.
The Company believes it is uniquely positioned to fulfill those needs.


SALES AND MARKETING

      In marketing to prospective customers, NCS has organized the selling
efforts of each formerly independent location into a single sales force
consisting of Account Executives, Divisional Sales Managers, National Account
Managers and a Chief Development Officer (CDO). The National Account Managers,
along with the CDO, are responsible for selling to national chains and other
strategically significant accounts. The Account Executives report directly to
the Divisional Sales Managers and are trained in each of the Company's products
and services. Typically, they sell these services throughout their respective
geographic territories most of which consist of approximately 400 long-term care
facilities. These individuals are paid base salaries with commissions comprising
up to 75% of a successful salesperson's compensation. The Company believes that
long-term care facilities change institutional pharmacies fairly infrequently,
but when a change is made, it is generally the result of a competitor's ability
to offer better service or a broader array of products and services.
Additionally, in the PPS environment, price competition is becoming an
increasingly significant factor.

      The marketing function also reports to the CDO. This function is
responsible for the overall branding of the Company through trade advertising,
direct telemarketing, educational seminars, industry press releases, industry
trade shows and competitive information.


PURCHASING

      NCS purchases pharmaceuticals primarily through a national wholesale
distributor, with whom it has negotiated a prime vendor contract, and directly
from certain pharmaceutical manufacturers. The Company also is a member of
industry buying groups that contract with manufacturers for volume-based
discounted prices which are passed through to the Company by its wholesale
distributor. In addition, the Company has formed a group purchasing organization
with two other large pharmaceutical buyers in the long-term care and acute care
industries. The Company purchases the majority of its pharmaceuticals through
this organization. The organization utilizes the same wholesale distributor as
the Company. The Company has numerous sources of supply available to it and has
not experienced any difficulty in obtaining pharmaceuticals or other products
and supplies used in the conduct of its business.


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CUSTOMERS

      At June 30, 2002, NCS had contracts to provide services to more than
203,000 long-term care beds in 33 states. These contracts, as is typical in the
industry, are generally for a period of one year but can be terminated by either
party for any reason upon thirty days written notice. Over the past few years,
NCS has expanded its customer base to also include rural hospitals. As of June
30, 2002, no individual customer or market group represented more than 5% of the
total sales of the Company's institutional pharmacy business.


COMPETITION

      Competition among providers of pharmacy services to long-term care
facilities is intense. The Company believes that it is one of the four largest
national independent institutional pharmacies in the United States.
Institutional pharmacies compete principally on the basis of quality, cost
effectiveness and service level. In the geographic areas it serves, the Company
competes with local retail pharmacies, captive pharmacies and local, regional
and national institutional pharmacies. The Company competes with several other
companies with similar marketing strategies, some of which have greater
resources than the Company.


REIMBURSEMENT AND BILLING

      As is generally the case for long-term care facility services, NCS
receives payments through reimbursement from Medicaid and Medicare programs and
directly from individual residents (private pay), private third-party insurers
and long-term care facilities. For the fiscal year ended June 30, 2002, the
Company's payor mix was approximately 49% Medicaid, 20% long-term care
facilities (including amounts for which the long-term care facility receives
reimbursement under Medicare Part A), 14% private pay, 11% third-party
insurance, 1% Medicare and 5% other sources. Medicare and Medicaid are highly
regulated. The failure of NCS and/or its client institutions to comply with
applicable reimbursement regulations could adversely affect the Company's
business.

      Private Pay. For those residents who are not covered by
government-sponsored programs or private insurance, NCS generally bills the
patient or other responsible party on a monthly basis. Depending upon local
market practices, NCS may alternatively bill private residents through the
long-term care facility. Pricing for private pay residents is based on
prevailing regional market rates or "usual and customary" charges.

      Medicaid. The Medicaid program is a federal-state cooperative program
designed to enable states to provide medical assistance to aged, blind or
disabled individuals, or to members of families with dependent children whose
income and resources are insufficient to meet the costs of necessary medical
services. State participation in the Medicaid program is voluntary. To become
eligible to receive federal funds, a state must submit a Medicaid "state plan"
to the Secretary of Health and Human Services (HHS) for approval. The federal
Medicaid statute specifies a variety of requirements that the state plan must
meet, including requirements relating to eligibility, coverage of services,
payment and administration. For residents eligible for Medicaid, the Company
bills the individual state Medicaid program or, in certain circumstances state
designated managed care or other similar organizations. Medicaid programs are
funded jointly by the federal government and individual states and are
administered by the states. The reimbursement rates for pharmacy services under
Medicaid are determined on a state-by-state basis subject to review by the
Centers for Medicare and Medicaid Services (CMS) (formerly the Health Care
Finance Administration) and applicable federal law. Federal regulations and the
regulations of certain states establish "upper limits" for reimbursement for
certain prescription drugs under Medicaid. In most states pharmacy services are
priced at the lower of "usual and customary" charges or cost (which generally is
defined as a function of average wholesale price and may include a profit
percentage) plus a dispensing fee. Most states establish a fixed dispensing fee
that is adjusted to reflect associated costs on an annual or less frequent
basis.

      State Medicaid programs generally have long-established programs for
reimbursement which have been revised and refined over time and have not had a
material adverse effect on the pricing policies or receivables collection for
long-term care facility pharmacy services. Any future changes in such
reimbursement programs or in regulations relating thereto, such as reductions in
the allowable reimbursement levels or the timing of processing of payments,
could adversely affect the Company's business. The annual increase in the
federal share would vary from state to state based on a variety of factors. Such
provisions, if ultimately signed into law, could adversely affect the Company's
business. Additionally, any shift from Medicaid to state designated managed care
could adversely affect the Company's business due to historically lower
reimbursement rates for managed care.

      Medicare. The Medicare program is a federally funded and administered
health insurance program for individuals age 65 and over or for certain
individuals who are disabled. The Medicare program consists of two parts:
Medicare Part A, which covers, among other things, inpatient hospital, skilled
long-term care facility, home health care and certain other types of health care
services; and Medicare Part B, which covers physicians' services, outpatient
services and certain items and services


                                       9
<PAGE>


provided by medical suppliers. Medicare Part B also covers a limited number of
specifically designated prescription drugs. Services for residents of long-term
care facilities eligible for Part A coverage are billed directly to the
respective long-term care facility.

      Medicare Part B provides benefits covering, among other things, outpatient
treatment, physicians' services, durable medical equipment ("DME"), orthotics,
prosthetic devices and medical supplies. Products and services covered for
Medicare Part B eligible residents in the long-term care facility include, but
are not limited to, enteral feeding products, ostomy supplies, urological
products, orthotics, prosthetics, surgical dressings, tracheostomy care supplies
and a limited number of other medical supplies. All claims for DME, prosthetics,
orthotics, prosthetic devices, including enteral therapy and medical supplies
("DMEPOS") are submitted to and paid by four regional carriers known as Durable
Medical Equipment Regional Carriers ("DMERCs"). The DMERCs establish coverage
guidelines, allowable utilization frequencies and billing procedures for DMEPOS.
Payment is based on a fee schedule, which varies depending on the state in which
the patient receiving the items resides. Payments for Medicare Part B products
to eligible suppliers, which include long-term care facilities and suppliers
such as NCS, are made on a per-item basis directly to the supplier. In order to
receive Medicare Part B reimbursement payments, suppliers must meet certain
conditions set by the federal government. NCS, as an eligible supplier, either
bills Medicare directly for Part B covered products for each patient or,
alternatively, assists the long-term care facility in meeting Medicare Part B
eligibility requirements and prepares bills on behalf of the facility. Medicare
Part B also has an annual deductible as well as a co-payment obligation on
behalf of the patient, and the portion not covered by Medicare is billed
directly to the patient or appropriate secondary payor.

      Third-Party Insurance. Third-party insurance includes funding for
residents covered by private insurance plans, veterans' benefits, workers'
compensation and other programs. The resident's individual insurance plan is
billed immediately upon dispensing of the pharmacy services. Additionally, the
resident is billed monthly for a copay or deductible portion of the pharmacy
services. The Company is under contract directly with the various third party
insurance plans and the reimbursement rates are determined accordingly.

      Long-Term Care Facilities. In addition to occasional private patient
billings and those related to drugs for Medicare eligible residents, long-term
care facilities are billed directly for consulting services, certain
over-the-counter medications and bulk house supplies.


GOVERNMENT REGULATION

      Institutional pharmacies, as well as the long-term care facilities they
service, are subject to extensive federal, state and local laws and regulations.
These laws and regulations cover required qualifications, day-to-day operations,
reimbursement and the documentation of activities. NCS continuously monitors the
effects of regulatory activity on its operations.

      Licensure, Certification and Regulation. States generally require that
companies operating a pharmacy within that state be licensed by the state board
of pharmacy. The Company currently has pharmacy licenses in each of the states
in which it operates a pharmacy. In addition, the Company's pharmacies are
registered with the appropriate state and federal authorities pursuant to
statutes governing the regulation of controlled substances.

      Long-term care facilities are also separately required to be licensed in
the states in which they operate and, if serving Medicare or Medicaid patients,
must be certified to ensure compliance with applicable program participation
requirements. Long-term care facilities are also subject to the long-term care
facility reforms of OBRA, which impose strict compliance standards relating to
the quality of care for long-term care operations, including vastly increased
documentation and reporting requirements. In addition, pharmacists, nurses and
other health professionals who provide services on the Company's behalf are in
most cases required to obtain and maintain professional licenses and are subject
to state regulation regarding professional standards of conduct.

      Federal and State Laws Affecting the Repackaging, Labeling and Interstate
Shipping of Drugs. Federal and state laws impose certain repackaging, labeling
and package insert requirements on pharmacies that repackage drugs for
distribution beyond the regular practice of dispensing or selling drugs directly
to patients at retail. A drug repackager must register with the FDA. The Company
believes that it holds all required registrations and licenses and that its
repackaging operations are in compliance with applicable state and federal
requirements.

      Medicare and Medicaid. For an extensive period of time, the long-term care
facility pharmacy business has operated under regulatory and cost containment
pressures from state and federal legislation primarily affecting Medicaid and
Medicare.

      The Medicare program establishes certain requirements for participation of
providers and suppliers in the Medicare program. Pharmacies are not subject to
such certification requirements. Skilled long-term care facilities and suppliers
of DMEPOS, however, are subject to specified standards. Failure to comply with
these requirements and standards may adversely


                                       10
<PAGE>


affect an entity's ability to participate in the Medicare program and receive
reimbursement for services provided to Medicare beneficiaries. See
"Reimbursement and Billing."

      Federal law and regulations contain a variety of requirements relating to
the furnishing of prescription drugs under Medicaid. First, states are given
broad authority, subject to certain standards, to limit or to specify conditions
as to the coverage of particular drugs. Second, federal Medicaid law establishes
standards affecting pharmacy practice. These standards include general
requirements relating to patient counseling and drug utilization review and more
specific requirements for long-term care facilities relating to drug regimen
reviews for Medicaid patients in such facilities. Recent regulations clarify
that, under federal law, a pharmacy is not required to meet the general
standards for drugs dispensed to long-term care facility residents if the
long-term care facility complies with the drug regimen review requirements.
However, the regulations indicate that states may nevertheless require
pharmacies to comply with the general standards, regardless of whether the
long-term care facility satisfies the drug regimen review requirement, and the
states in which the Company operates currently require its pharmacies to comply
therewith. Third, federal regulations impose certain requirements relating to
reimbursement for prescription drugs furnished to Medicaid residents. See
"Reimbursement and Billing - Medicaid."

      In addition to requirements imposed by federal law, states have
substantial discretion to determine administrative, coverage, eligibility and
payment policies under their state Medicaid programs which may affect the
Company's operations. For example, some states have enacted "freedom of choice"
requirements which prohibit a long-term care facility from requiring its
residents to purchase pharmacy or other ancillary medical services or supplies
from particular providers that deal with the long-term care facility. Such
limitations may increase the competition that the Company faces in providing
services to long-term care facility patients.

      Medicare and Medicaid providers and suppliers are subject to inquiries or
audits to evaluate their compliance with requirements and standards set forth
under these programs. The Company believes that its billing procedures
materially comply with applicable state and federal requirements. However, there
can be no assurance that in the future such requirements will be interpreted in
a manner consistent with its interpretation and application.

      The Medicare and Medicaid programs are subject to statutory and regulatory
changes, retroactive and prospective rate adjustments, administrative rulings,
executive orders and freezes and government funding restrictions, all of which
may adversely affect the Company's business. There can be no assurance that
payments for services under the Medicare and Medicaid programs will continue to
be based on current methodologies or remain comparable to present levels. The
Company may be subject to rate reductions as a result of federal budgetary or
other legislation related to the Medicare and Medicaid programs. In addition,
various state Medicaid programs periodically experience budgetary shortfalls
which may result in Medicaid payment reductions and delays in payments.

         Healthcare Reform and Federal Budget Legislation. The Balanced Budget
Act of 1997 (BBA), enacted on August 5, 1997, mandated the implementation of a
prospective payment system (PPS) for skilled nursing facilities (SNFs) providing
care for Medicare Part A patients, effective for cost reporting periods
beginning on or after July 1, 1998.

         Under the new PPS, SNFs receive a single per diem payment for all
Medicare Part A covered SNF services. The new single, per diem federal rate was
phased in over a three-year period that began on July 1, 1998. Each Medicare
Part A covered patient is designated into one of 44 resource utilization group
(RUG), or case-mix categories, as defined by the Health Care Financing
Administration (HCFA). The per diem payment associated with each RUG category
encompasses all costs of furnishing covered skilled nursing services including
routine, ancillary and capital-related costs. PPS incorporates payment for
pharmacy within the nursing component (as a non-therapy ancillary) of the
federal per diem and adjusts costs by the nursing index.

         PPS represented a significant change in the way long term care
facilities were reimbursed for care of Medicare Part A patients. Prior to PPS,
long term care facilities were reimbursed the actual cost incurred related to
care for the medically complex Part A patients. The new PPS regulations now
reimburse only a predetermined rate for each Part A covered resident regardless
of the actual cost of care.

         On November 29, 1999, Congress enacted the Balanced Budget Refinement
Act of 1999 (BBRA) in response to concerns that the PPS rates did not adequately
reflect the high medication costs of high acuity patients. The BBRA temporarily
increases the federal per diem rates by 20% for 15 high acuity categories (RUGs)
under Extensive Services, Special Care, Clinically Complex and High and Medium
Rehab (effective October 1, 2000). In addition, it increases the per diem
payment by four percent for all acuity categories (calculated exclusive of the
20% RUG increase) for the years commencing October 1, 2000 and 2001. BBRA also
allows SNFs to elect transition to full federal PPS rates on or after December
15, 1999 instead of participating in the three-year transition period.

         On December 15, 2000, Congress enacted the Medicare, Medicaid and SCHIP
Benefits Improvement and Protection Act of 2000 (BIPA) to further mitigate the
effects of reimbursement cuts contained in the BBA. BIPA, effective April 2001,


                                       11
<PAGE>


further increases reimbursement by means of a 6.7% rate increase for certain
high-acuity rehabilitation patients and a 16.66% across the board increase in
the nursing component of the federal rate for all patients.

      Certain of the increases in Medicare reimbursement for SNFs provided under
the BBRA and BIPA will expire in October 2002 unless Congress enacts additional
legislation. If no additional legislation is enacted, the loss of revenues
associated with this occurrence could have an adverse effect on the financial
condition of the Company's SNF customers. While it is hoped that Congress will
act in a timely fashion, no assurances can be given as to whether Congress will
take action, the timing of any action or the form of any relief enacted.

      Moreover, for several years, the federal government has examined the
appropriateness of the "average wholesale price" ("AWP") as a basis for
reimbursement of outpatient prescription drugs under Part B of the Medicare
program and certain state Medicaid programs. AWP is an industry term that
typically is understood to represent a suggested resale price for wholesale
sales to pharmacies. The Company's revenues for drugs dispensed under Medicare
Part B are less than 0.5% of total revenues. Discounted AWP plus a dispensing
fee is also the basis for many state Medicaid programs' reimbursement of drugs
to pharmacy providers for Medicaid beneficiaries generally as well as under
certain private reimbursement programs. If government or private health
insurance programs discontinue or modify the use of AWP or otherwise implement
payment methods that reduce the reimbursement for pharmaceuticals, it could
adversely affect the Company's reimbursement.

      With respect to Medicaid, the BBA repealed the "Boren Amendment" federal
payment standard for Medicaid payments to nursing facilities effective October
1, 1997, giving states greater latitude in setting payment rates for such
facilities. The law also granted states greater flexibility to establish
Medicaid managed care programs without the need to obtain a federal waiver.
Although these waiver projects generally exempt institutional care, including
nursing facilities and institutional pharmacy services, no assurances can be
given that these programs ultimately will not change the reimbursement system
for long-term care, including pharmacy services, from fee-for-service to managed
care negotiated or capitated rates. The Company is unable to predict what
impact, if any, future changes in Medicaid payments to nursing facilities or
managed care systems might have on its operations.

      It is uncertain at this time what additional healthcare reform
initiatives, including an expanded Medicare prescription drug benefit, if any,
will be implemented, or whether there will be other changes in the
administration of governmental healthcare programs or interpretation of
governmental policies or other changes affecting the healthcare system. There
can be no assurance that future healthcare or budget legislation or other
changes will not have an adverse effect on our business.

      The Health Insurance Portability and Accountability Act of 1996 (HIPAA)
was enacted in August 1996. The goals of the legislation are 1) to promote the
simplification, standardization and security of the electronic submission of
healthcare information (electronic transactions and code sets rule), 2) to
protect the security and integrity of healthcare information (security rule) and
3) to protect the confidentiality of healthcare information (privacy rule). The
Company has assembled a multi-disciplinary task force to ensure that it has the
systems and procedures in place to comply with the HIPAA regulations in a timely
manner.

      Referral Restrictions. The Company is subject to federal and state laws
that govern financial and other arrangements between health care providers.
These laws include the federal anti-kickback statute, which prohibits, among
other things, knowingly and willfully soliciting, receiving, offering or paying
any remuneration directly or indirectly in return for or to induce the referral
of an individual to a person for the furnishing of any item or service for which
payment may be made in whole or in part under Medicare or Medicaid. Many states
have enacted similar statutes that are not necessarily limited to items and
services for which payment is made by Medicare or Medicaid. Other applicable
laws include the federal and state false claims acts. Violations of these laws
may result in fines, imprisonment and exclusion from the Medicare and Medicaid
programs or other state-funded programs. Federal and state court decisions
interpreting these statutes are limited, but have generally construed the
statutes broadly. Recent Federal legislation has increased the enforcement and
penalties for violation of these statutes.

      Federal regulations establish "Safe Harbors," which give immunity from
criminal or civil penalties to parties in good faith compliance. While the
failure to satisfy all the criteria for a specific Safe Harbor does not
necessarily mean that an arrangement violates the federal statute, the
arrangement is subject to review by the HHS Office of Inspector General (OIG),
which is charged with administering the federal anti-kickback statute. Beginning
January 1, 1997, the Secretary of Health and Human Services began issuing
written advisory opinions regarding the applicability of certain aspects of the
anti-kickback statute to specific arrangements or proposed arrangements.
Advisory opinions will be binding as to the Secretary and the party requesting
the opinion.

      The OIG has issued "Fraud Alerts" identifying certain questionable
arrangements and practices, which it believes, may implicate the federal
anti-kickback statute. The OIG has issued a Fraud Alert providing its views on
certain joint venture and contractual arrangements between health care
providers. The OIG has recently issued a Fraud Alert concerning prescription
drug marketing practices that could potentially violate the federal
anti-kickback statute. Pharmaceutical marketing activities may implicate the
federal anti-kickback statute because drugs are often reimbursed under the
Medicaid program. According to the


                                       12
<PAGE>


Fraud Alert, examples of practices that may implicate the statute include
certain arrangements under which remuneration is made to pharmacists to
recommend the use of a particular pharmaceutical product. In addition, a number
of states have recently undertaken enforcement actions against pharmaceutical
manufacturers involving pharmaceutical marketing programs, including programs
containing incentives to pharmacists to dispense one particular product rather
than another. These enforcement actions arise under state consumer protection
laws that generally prohibit false advertising, deceptive trade practices and
the like. Further, a number of the states involved in these enforcement actions
have requested that the FDA exercise greater regulatory oversight in the area of
pharmaceutical promotional activities by pharmacists. It is not possible to
determine whether the FDA will act in this regard or what effect, if any, FDA
involvement would have on the Company's operations.

      The Company believes its contract arrangements with other health care
providers, its pharmaceutical suppliers and its pharmacy practices are in
compliance with these laws. There can be no assurance that such laws will not,
however, be interpreted in the future in a manner inconsistent with the
Company's interpretation and application.

      Environmental Matters. In operating its facilities, NCS makes every effort
to comply with environmental laws. No major difficulties have been encountered
in effecting compliance. In addition, no material capital expenditures for
environmental control facilities are expected. While the Company cannot predict
the effect which any future legislation, regulations or interpretations may
have upon its operations, it does not anticipate any changes that would have a
material adverse impact on its operations.

      General. In the ordinary course of its business, the Company is subject to
inspections, audits, inquiries and similar actions by governmental authorities
responsible for enforcing the laws and regulations to which the Company is
subject.


EMPLOYEES

      As of June 30, 2002, the Company had approximately 2,500 full-time
employees. None of its employees are represented by a union. The Company
considers relations with its employees to be good.


                                       13
<PAGE>


ITEM 2. PROPERTIES

      The Company presently maintains its executive offices in approximately
27,500 square feet of space in Beachwood, Ohio pursuant to a lease expiring in
2005 with an unaffiliated third party. NCS currently considers this space to be
sufficient for its corporate headquarters operations.

      As of June 30, 2002, the Company leased or owned 86 properties in 33
states with a total square footage of 798,000 square feet ranging in size from
approximately 500 square feet to approximately 38,000 square feet. The terms of
the leases relating to these properties vary in length remaining, from one month
to fourteen years and, in some cases, include options to extend. For information
concerning the Company's rental obligations, see Note 5 (Operating Leases) of
the Notes to Consolidated Financial Statements, which is set forth at Item 8 of
this Annual Report on Form 10-K.


ITEM 3. LEGAL PROCEEDINGS

      In the ordinary course of its business, the Company is subject to
inspections, audits, inquiries and similar actions by governmental authorities
responsible for enforcing the laws and regulations to which the Company is
subject.

      On July 28, 2002, NCS, Genesis and Geneva Sub, Inc., a wholly owned
subsidiary of Genesis ("Sub") entered into a definitive Agreement and Plan of
Merger (the "Merger Agreement"), pursuant to which Sub will merge with and into
NCS (the "Proposed Merger"), with NCS surviving as a wholly owned subsidiary of
Genesis. If the Proposed Merger is completed, each outstanding share of common
stock of NCS, par value $0.01 per share ("NCS Common Stock"), other than the NCS
Common Stock held by NCS and other than dissenting shares, will be converted
into the right to receive 0.1 of a share of common stock of Genesis, par value
$0.02 per share. The completion of the Proposed Merger is subject to regulatory
approvals and other customary conditions, including the approval of the holders
of a majority of the outstanding voting power of NCS Common Stock.

      In connection with the Merger Agreement, on July 28, 2002, NCS and Genesis
entered into agreements (the "Voting Agreements") with certain stockholders of
NCS beneficially owning in the aggregate a majority of the outstanding voting
power of NCS Common Stock. In the Voting Agreements, such stockholders agreed
(1) to vote their shares of NCS Common Stock in favor of adoption and approval
of the Merger Agreement and against proposals for certain other transactions and
(2) not to transfer their shares of NCS Common Stock prior to the consummation
of the Proposed Merger.

      On August 8, 2002, Omnicare, Inc. (Omnicare) commenced a cash tender offer
to purchase all of the outstanding shares of Class A and Class B common stock of
NCS for $3.50 per share. The effect of the Omnicare tender offer on the proposed
merger between NCS and Genesis is not known at this time.

      Since the Company entered into the Merger Agreement, seven shareholder
lawsuits (six of which are purported class action lawsuits) were filed against
NCS and its directors in connection with the Proposed Merger with Genesis and,
in two cases, against Genesis and Sub (the "Stockholder Claims"). The
Stockholder Claims allege that the directors of NCS breached their fiduciary
duties, and certain other duties, to stockholders by entering into the Merger
Agreement and seek various relief, including an injunction against consummation
of the Proposed Merger, requiring separate class voting on approval of the
Proposed Merger by NCS Stockholders, rescinding the Proposed Merger if the same
is consummated prior to a final judgment on the Stockholder Claims, declaring
the Voting Agreements null and void and compensatory damages and costs. In
addition, the amended complaint filed by Omnicare alleges that the Voting
Agreements violate the NCS amended and restated certificate of incorporation and
therefore resulted in an automatic conversion of such stockholders' Class B
common shares into Class A common shares. No court dates have been set for these
matters. The Company believes that the allegations set forth in these lawsuits
are without merit and intends to contest them vigorously; however, the ultimate
outcome of these lawsuits cannot be predicted with certainty. These lawsuits
could adversely affect the Company's ability to consummate the Merger Agreement
with Genesis.

      The following lawsuits were each filed with the Court of Chancery in the
State of Delaware in and for New Castle County on the dates indicated:

      -     Dr. Dorrin Beirch and Robert M. Miles on behalf of themselves and
            all others similarly situated v. NCS HealthCare, Inc., Jon H.
            Outcalt, Kevin B. Shaw, Richard L. Osborne, and Boake A. Sells,
            filed on July 30, 2002.

      -     Anthony Noble v. NCS HealthCare, Inc., Richard L. Osborne, Jon H.
            Outcalt, Boake A. Sells, and Kevin B. Shaw, filed on August 1, 2002.

      -     Jeffery Treadway v. Jon H. Outcalt, Kevin B. Shaw, Boake A. Sells,
            Richard L. Osborne, and NCS HealthCare, Inc., filed on August 2,
            2002.


                                       14
<PAGE>


      -     Tillie Saltzman v. Jon H. Outcalt, Kevin B. Shaw, Boake A. Sells,
            Richard L. Osborne, and NCS HealthCare, Inc., filed on August 2,
            2002.

      -     Dolphin Limited Partnership, L.L.P. v. Jon H. Outcalt, Kevin B.
            Shaw, Boake A. Sells, Richard L. Osborne, Genesis Health Ventures,
            Inc., Genesis Sub, Inc. and NCS HealthCare, Inc., filed on August 7,
            2002.

      -     First Amended Complaint Omnicare, Inc. v. NCS HealthCare, Inc., Jon
            H. Outcalt, Kevin B. Shaw, Boake A. Sells, Richard L. Osborne,
            Genesis Health Ventures, Inc. and Genesis Sub, Inc., filed on August
            12, 2002 (original complaint filed on August 1, 2002).

     The following lawsuit was filed with the Court of Common Pleas for Cuyahoga
County, Ohio:

      -     Michael Petrovic on behalf of himself and all others similarly
            situated v. NCS HealthCare, Inc., Jon H. Outcalt, Kevin B. Shaw,
            Richard L. Osborne, and Boake A. Sells, filed on August 1, 2002.

     On August 20, 2002, the Company filed a complaint against Omnicare in the
United States District Court for the Northern District of Ohio, titled NCS
Healthcare, Inc. v. Omnicare, Inc., Case No. 1:02CV1635 (Maita, J.), and, on
August 21, 2002, the Company amended the complaint. The complaint, as amended,
alleges, among other things, that Omnicare's disclosure on Schedule TO, filed on
August 8, 2002 in connection with the associated tender offer, contains
materially false and misleading disclosures in violation of Section 14(e) of the
Securities Exchange Act of 1934.

     The Company's subsidiary, NCS HealthCare of Illinois, Inc. ("NCS Illinois")
and former owners of the Herrin, Illinois site, were named defendants in a civil
action filed under the federal civil False Claims Act in the United States
District Court for the Southern District of Illinois in the case captioned "The
United States of America, ex rel., Denis Crews, et al. v. Family Nursing Home
Services, Inc., et al." (Case No. 99-4020-GPM).  On February 20, 2002, the
United States of America filed a Notice of Election to Decline Intervention.
This Notice was filed in camera and under seal.  The complaint was then served
on NCS Illinois on July 12, 2002.  On July 29, 2002, the Company received a copy
of an Amended Complaint in the above-captioned matter in which the Company was
also named as a Defendant.






                                      15
<PAGE>


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

      None.


ITEM 4A. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY*

      The name, age and positions of each of the Company's Directors and
executive officers are as follows:

NAME                   AGE  POSITION
----                   ---  --------

Jon H. Outcalt         66   Chairman of the Board of Directors
Kevin B. Shaw          45   President, Chief Executive Officer and Director
William B. Byrum       58   Executive Vice President and Chief Operating Officer
Gerald D. Stethem      38   Senior Vice President and Chief Financial Officer
Mary Beth Levine       42   Senior Vice President and General Counsel
John P. DiMaggio       39   Senior Vice President
Michael J. Mascali     42   Senior Vice President
Thomas Bryant Mangum   51   Senior Vice President
Natalie R. Wenger      43   Senior Vice President
Richard L. Osborne     64   Director
Boake A. Sells         65   Director

*Included pursuant to Instruction 3 to Item 401(b) of Regulation S-K.

      Jon H. Outcalt, Chairman of the Board, is a founding principal of NCS and
has served as Chairman of the Board since 1986. He was a Senior Vice President
of Alliance Capital Management L.P., a global investment management company,
from 1975 to December 1995. Mr. Outcalt serves on the Board of Directors of
Myers Industries, Inc., a manufacturer of plastic and rubber parts for the
automotive and other industries, and Ohio Savings Financial Corporation, a
savings and loan holding company. He is a graduate of Trinity College (B.A.) and
the Wharton Graduate School of Business (M.B.A.).

      Kevin B. Shaw, President, Chief Executive Officer and a Director of the
Company, is a founding principal of NCS and has served as President and a
Director of the Company since 1986 and as Chief Executive Officer since December
1995. Prior to joining the Company, he was employed by McKinsey & Company and
Owens Corning Fiberglass. Mr. Shaw is a graduate of Harvard College (B.A.) and
Stanford Graduate School of Business (M.B.A.).

      William B. Byrum, Executive Vice President and Chief Operating Officer,
joined the Company in September 1995. From April 1993 to September 1995, Mr.
Byrum was President and Chief Executive Officer of Corinthian Healthcare
Systems, Inc., an institutional pharmacy, prior to its acquisition by the
Company. From 1991 to April 1993, he was Vice President of Development
(Acquisitions) for Hook-SupeRx, Inc. Prior to 1991, Mr. Byrum was Vice
President, Store Operations at the Hook Drug Division of Hook-SupeRx, Inc.,
serving in various management positions. Mr. Byrum is a graduate of Purdue
University with a B.S. in Pharmacy.

      Gerald D. Stethem, Senior Vice President and Chief Financial Officer,
joined NCS in November 1994 and served as Controller until February 1998, at
which time he was named Chief Financial Officer. He was previously with Ernst &
Young LLP, an auditing and accounting firm, where he served as a Manager in the
firm's Entrepreneurial Services Group. He is a graduate of Ohio State University
with a B.A. in Accounting.

      Mary Beth Levine, Senior Vice President and General Counsel, joined NCS in
July 1999 as Legal Counsel and served in that capacity until June 2000, at which
time she was named General Counsel. She was previously an associate with the
Cleveland, Ohio law firm of Benesch, Friedlander, Coplan & Aronoff, joining that
firm in 1987. She is a graduate of Northwestern University (B.A, M.A) and Case
Western University School of Law (J.D).

      John P. DiMaggio, Senior Vice President, joined the Company in December
1992 and served as Management Information Systems Director of the Company until
December 1994. Mr. DiMaggio served as Vice President of Information Systems of
the Company from December 1994 to November 1998, at which time he assumed his
current position as Senior Vice President of Information Systems. Mr. DiMaggio
has an M.B.A. in Finance from the Katz Graduate School of Business and a B.S.
Degree in Computer Science from the University of Pittsburgh.

      Michael J. Mascali, Senior Vice President, joined the Company in October
1995. Mr. Mascali was a Regional Vice President of Operations from October 1995
to February 1998. From February 1998 to January 1999, he was Senior Vice
President of Compliance and from January 1999 to May 1999 he was Senior Vice
President of Operations, at which time he


                                       16
<PAGE>


assumed his current position as Senior Vice President of Compliance. From May
1989 to October 1995, Mr. Mascali was a director of pharmacy for Synetic and
Pharmacy Corporation of America in Connecticut, a long term care pharmacy. Mr.
Mascali graduated from St. John's University with a B.S. in Pharmacy.

      Thomas Bryant Mangum, Senior Vice President, joined the Company in June
1998. From November 1996 to June 1998, Mr. Mangum was Senior Director of
Pharmacy for Tenet HealthCare System, an owner and manager of acute care
hospitals. From November 1995 to November 1996, he was Vice President of
Pharmacy services for Premier, Inc., a group purchasing organization for acute
care hospitals, where he had responsibility for pharmaceutical contract
negotiations. From 1990 to November 1995, Mr. Mangum was Associate Vice
President of Pharmacy and Nutrition Services for SunHealth, a group purchasing
organization for acute care hospitals. He is a graduate of University of North
Carolina Pharmacy School and currently serves on the Pharmacy School Board.

      Natalie R. Wenger, Senior Vice President, joined the Company in July 1996
as Vice President of Quality Assurance and served in that capacity until May
1997. She served as a Regional Vice President of Operations from May 1997 until
July 1999 and a Divisional Vice President of Operations from July 1999 until
July 2002 when she assumed her current position as Senior Vice President of
Operations. Prior to joining the company she was Vice President of Operations
and President of the Greenwood Pharmacy division of Thrift Drug. Ms. Wenger is a
graduate of Duquesne University with a B.S. Degree in Pharmacy.

      Richard L. Osborne, a Director of the Company since 1986, is currently
serving as the Professor for the Practice of Management at the Weatherhead
School of Management, Case Western Reserve University, Cleveland, Ohio. Mr.
Osborne serves on the Board of Directors of Myers Industries, Inc., a
manufacturer of plastic and rubber parts for the automotive and other
industries, New Horizons Worldwide, Inc., a provider of computer training
services, and Ohio Savings Financial Corporation, a savings and loan holding
company. He is a graduate of Bowling Green State University (B.S.) and Case
Western Reserve University (M.S.).

      Boake A. Sells, a Director of the Company since November 1993, has been a
self-employed private investor since June 1992. He was Chairman of the Board,
President and Chief Executive Officer of Revco D.S., Inc. from September 1987 to
June 1992, and was formerly President and Chief Operating Officer of Dayton
Hudson Corporation and President and Chief Operating Officer of Cole National
Corporation. Mr. Sells is a Director of Harrah's Entertainment, Inc., a leading
casino gaming company. He is a graduate of University of Iowa (B.A.) and Harvard
Graduate School of Business (M.B.A.).


                                       17
<PAGE>


PART II

ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

      The Class A Common Stock is traded on the Pink Sheets Electronic Quotation
Service under the symbol NCSS. Between December 8, 1999 and October 9, 2000, the
Company's Class A Common Stock was traded on the Nasdaq SmallCap Market. Prior
to December 8, 1999, the Company's Class A Common Stock was traded on the Nasdaq
National Market. The following table sets forth, for the two fiscal years ended
June 30, 2002, the high and low sale prices per share for the Class A Common
Stock, as reported on the Pink Sheets Electronic Quotation Service and the
Nasdaq SmallCap Market. These prices do not include retail markups, markdowns or
commissions.

                                                          HIGH       LOW
                                                          -----     -----
2001
First Quarter                                             $0.69      $0.25
Second Quarter                                             0.47       0.09
Third Quarter                                              0.50       0.16
Fourth Quarter                                             0.35       0.17

2002
First Quarter                                             $0.25      $0.16
Second Quarter                                             0.24       0.12
Third Quarter                                              0.19       0.07
Fourth Quarter                                             0.26       0.11

      On August 15, 2002, the last sale price of the Class A Common Stock as
reported by the Pink Sheets Electronic Quotation Service was $2.49 per share. As
of August 15, 2002, there were approximately 224 holders of record of the Class
A Common Stock, and approximately 21 holders of record of Class B Common Stock.
This figure does not include stockholders with shares held under beneficial
ownership in nominee name or within clearinghouse positions of brokerage firms
and banks.

      The Company has never declared or paid cash dividends on its Class A
Common Stock. The Company currently intends to retain any earnings for use in
its business and therefore does not anticipate paying any dividends in the
foreseeable future. Any determination to pay cash dividends in the future will
be at the discretion of the Board of Directors after taking into account various
factors, including the Company's financial condition, results of operations,
current and anticipated cash needs and plans for expansion. On August 3, 1999
the Company amended its line of credit agreement entering into several
restrictive covenants including a restriction on declaration and payment of cash
dividends to shareholders.

      There were no equity securities of the Company issued during the fourth
fiscal quarter that were not registered under the Securities Act of 1933, as
amended (the "Securities Act").

      The following table sets forth securities authorized for issuance under
equity compensation plans as of June 30, 2002. All applicable equity
compensation plans were previously approved by security holders.

                      EQUITY COMPENSATION PLAN INFORMATION

<TABLE>
<CAPTION>
                                                                                               NUMBER OF SECURITIES
                                      NUMBER OF SECURITIES TO  WEIGHTED AVERAGE EXERCISE     REMAINING AVAILABLE FOR
                                      BE ISSUED UPON EXERCISE    PRICE OF OUTSTANDING     FUTURE ISSUANCE UNDER EQUITY
           PLAN CATEGORY              OF OUTSTANDING OPTIONS            OPTIONS                 COMPENSATION PLANS
           -------------              ----------------------            -------                 ------------------
<S>                                          <C>                         <C>                        <C>
Equity compensation plans approved
    by security holders                      2,517,582                   $ 4.44                     1,476,943
                                             =========                   ======                     =========
</TABLE>



                                       18
<PAGE>


ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                           YEAR ENDED JUNE 30,
                                                                           -------------------
                                                        2002         2001            2000         1999         1998
                                                        ----         ----            ----         ----         ----
                                                                (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                  <C>          <C>             <C>          <C>          <C>
STATEMENT OF OPERATIONS DATA:
Revenues                                             $ 645,756    $ 626,328       $ 694,530    $ 717,825    $ 509,064
Cost of revenues                                       538,926      514,483         556,757      540,547      380,217
                                                     ---------    ---------       ---------    ---------    ---------
Gross profit                                           106,830      111,845         137,773      177,278      128,847
Selling general and administrative expenses (1),
     (3)                                                93,776      123,272         126,969      139,522       93,895
Special charge to increase allowance for doubtful
     accounts (2)                                            -            -          44,623       32,384            -
Nonrecurring charges (2)                                     -            -          51,136        8,115        8,862
                                                     ---------    ---------       ---------    ---------    ---------
Operating income (loss)                                 13,054      (11,427)        (84,955)      (2,743)      26,090
Interest expense, net                                  (25,195)     (31,713)        (26,243)     (18,301)      (5,745)
                                                     ---------    ---------       ---------    ---------    ---------
Income (loss) before income taxes and cumulative
     effect of accounting change                       (12,141)     (43,140)       (111,198)     (21,044)      20,345
Income tax (expense) benefit                              (300)        (370)         (3,326)       7,640       (9,014)
                                                     ---------    ---------       ---------    ---------    ---------
Income (loss) before cumulative effect of
accounting change                                      (12,441)     (43,510)       (114,524)     (13,404)      11,331
Cumulative effect of accounting change (1), (4)       (222,116)           -               -       (2,921)           -
                                                     ---------    ---------       ---------    ---------    ---------
Net income (loss)                                    $(234,557)   $ (43,510)      $(114,524)   $ (16,325)   $  11,331
                                                     =========    =========       =========    =========    =========
Net income (loss) per share - basic                  $   (9.89)   $   (1.85)      $   (5.31)   $   (0.81)   $    0.59
                                                     =========    =========       =========    =========    =========
Net income (loss) per share - diluted                $   (9.89)   $   (1.85)      $   (5.31)   $   (0.81)   $    0.58
                                                     =========    =========       =========    =========    =========
Net income (loss) per share before cumulative
     effect of accounting change - basic             $   (0.52)   $   (1.85)      $   (5.31)   $   (0.66)   $    0.59
                                                     =========    =========       =========    =========    =========

Net income (loss) per share before cumulative
     effect of accounting change - diluted           $   (0.52)   $   (1.85)      $   (5.31)   $   (0.66)   $    0.58
                                                     =========    =========       =========    =========    =========
Weighted average common shares outstanding - basic      23,717       23,535          21,551       20,200       19,100
                                                     =========    =========       =========    =========    =========

Weighted average common shares outstanding -            23,717       23,535          21,551       20,200       19,372
     diluted                                         =========    =========       =========    =========    =========


                                                                             AS OF JUNE 30,
                                                                             --------------
                                                       2002          2001          2000          1999         1998
                                                       ----          ----          ----          ----         ----
                                                                             (IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents                            $  42,539    $  39,464       $  16,387    $  29,424    $  21,186
Working capital                                       (223,430)    (216,529)        (93,865)     197,395      149,362
Total assets                                           277,793      513,971         546,663      699,499      623,790
Line of credit                                         206,130      206,130         206,130      214,700      147,800
Long-term debt, excluding current portion                  549          825           1,291        1,936        3,879
Convertible subordinated debentures                    102,361      102,107         102,000      100,000      102,753
Stockholders' equity (deficit)                        (108,062)     126,495         169,705      276,434      287,334
</TABLE>

(1)   Selling, general and administrative expenses for 1999 include $11,503 of
      pre-tax costs that would have been capitalized prior to the adoption of
      SOP 98-5, "Reporting on the Costs of Start-up Activities." The cumulative
      effect of accounting change represents start-up costs, net of tax, that
      were previously capitalized as of June 30, 1998. The fiscal year 2002
      cumulative effect of accounting change represents the implementation of
      SFAS No. 142 "Goodwill and Other Intangible Assets".

(2)   For 1998, represents a nonrecurring charge related to restructuring and
      other nonrecurring expenses in connection with the implementation and
      execution of strategic restructuring and consolidation initiatives of
      certain operations and other nonrecurring items. For 1999, represents a
      special charge to increase the allowance for doubtful accounts and other
      nonrecurring charges in association with the implementation and execution
      of strategic restructuring and consolidation initiatives of certain
      operations and other nonrecurring items. For 2000, represents a special
      charge to increase the allowance for doubtful accounts and nonrecurring,
      restructuring and other special charges associated with the continuing
      implementation and execution of strategic restructuring and consolidation
      activities, the planned disposition of certain non-core and/or
      non-strategic assets,


                                       19
<PAGE>


      impairment of certain assets and other nonrecurring items. See
      "Management's Discussion and Analysis of Financial Condition and Results
      of Operations."

(3)   Selling, general and administrative expenses for the year ended June 30,
      2001 include the following: 1) $10,043 of additional bad debt expense to
      fully reserve for remaining accounts receivable of non-core and
      non-strategic businesses exited by the Company, 2) $1,034 of restructuring
      and other related charges associated with the continuing implementation
      and execution of strategic restructuring and consolidation activities and
      3) $2,106 in fixed asset impairment charges recorded in accordance with
      Statement of Financial Accounting Standards No. 121, "Accounting for the
      Impairment of Long Lived Assets and for Long Lived Assets to be Disposed
      of," relating primarily to changes in asset values resulting from the
      impact of restructuring activities and changes in operational processes
      under restructured operations.

(4)   For 2002, the cumulative effect of accounting change represents the
      adoption of Statement of Financial Accounting Standards (SFAS) No. 142
      "Goodwill and Other Intangible Assets." The Company recorded a non-cash
      charge of $222,116 to reduce the carrying value of its goodwill in
      accordance with SFAS No. 142.


                                       20
<PAGE>


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


PROPOSED MERGER WITH GENESIS HEALTH VENTURES, INC.

      On July 28, 2002, the Company entered into a definitive merger agreement
with Genesis Health Ventures, Inc. (Genesis). If the proposed merger is
completed, each outstanding share of common stock of the Company will be
converted into the right to receive 0.1 of a share of Genesis common stock. At
the closing of the proposed merger, Genesis will repay in full the outstanding
debt of NCS, including $206 million of senior debt, and will redeem $102 million
of 5 3/4% convertible subordinated debentures, including accrued and unpaid
interest and any applicable redemption premiums. The completion of the proposed
merger is subject to regulatory approvals and other customary conditions,
including the approval of the holders of a majority of the outstanding voting
power of the Company's common stock.

      In connection with the merger agreement, on July 28, 2002, NCS and Genesis
entered into agreements (voting agreements) with certain stockholders of NCS
beneficially owning in the aggregate a majority of the outstanding voting power
of NCS Common Stock. In the voting agreements, such stockholders agreed (1) to
vote their shares of NCS Common Stock in favor of adoption and approval of the
merger agreement and against proposals for certain other transactions and (2)
not to transfer their shares of NCS Common Stock prior to the consummation of
the proposed merger.

      Genesis provides healthcare services to America's elderly through a
network of NeighborCare pharmacies and Genesis ElderCare skilled nursing and
assisted living facilities. The merger will consolidate the operations of the
Company and NeighborCare, Genesis' pharmacy subsidiary, creating the second
largest long-term care pharmacy provider in the United States.

      On August 8, 2002, Omnicare, Inc. (Omnicare) commenced a cash tender offer
to purchase all of the outstanding shares of Class A and Class B common stock of
NCS for $3.50 per share. The effect of the Omnicare tender offer on the proposed
merger between NCS and Genesis is not known at this time.


RESULTS OF OPERATIONS

      The following table sets forth, for the periods indicated, certain items
from the Company's Statements of Operations, expressed as a percentage of total
revenues.

<TABLE>
<CAPTION>
                                                                                 YEAR ENDED JUNE 30,
                                                                                 -------------------
                                                                            2002        2001       2000
                                                                            ----        ----       ----
<S>                                                                        <C>         <C>        <C>
Revenues                                                                    100.0%      100.0%     100.0%
Cost of revenues                                                             83.5        82.1       80.2
                                                                           -------     -------    ------
Gross margin                                                                 16.5        17.9       19.8
Selling, general and administrative expenses                                 14.5        19.7       18.3
Special charge to increase allowance for doubtful accounts                      -           -        6.4
Nonrecurring charges                                                            -           -        7.3
                                                                           -------     -------    -------
Operating income (loss)                                                       2.0        (1.8)     (12.2)
Interest expense, net                                                        (3.9)       (5.1)      (3.8)
                                                                           -------     -------    -------
Loss before income taxes and cumulative effect of accounting change          (1.9)       (6.9)     (16.0)
Income tax expense                                                                                  (0.5)
                                                                           -------     -------    -------
Loss before income taxes                                                     (1.9)       (6.9)     (16.5)
Cumulative effect of accounting change                                      (34.4)          -          -
                                                                           -------     -------    -------
Net loss                                                                    (36.3)%      (6.9)%    (16.5)%
                                                                           =======     =======    =======
</TABLE>


YEARS ENDED JUNE 30, 2002 AND 2001

      Net loss for the year ended June 30, 2002 was $234.6 million or $9.89 per
share compared to a net loss of $43.5 million or $1.85 per share for the year
ended June 30, 2001.


                                       21
<PAGE>


      Net loss for the year ended June 30, 2002, excluding the cumulative effect
of the adoption of Statement of Financial Accounting Standards (SFAS) No. 142
"Goodwill and Other Intangible Assets," was $12.4 million or $0.52 per share
compared to net loss, excluding bad debt expense for non-core businesses which
had been either sold or shut down (exited businesses), fixed asset impairment
charges and additional expenses related to restructuring activities, of $30.3
million or $1.29 per share for the year ended June 30, 2001.

      The Company elected early adoption of SFAS No. 142 effective July 1, 2001.
In accordance with SFAS No. 142, goodwill and other indefinite lived intangible
assets are no longer amortized. Under this non-amortization approach, SFAS No.
142 requires that goodwill and other indefinite lived intangible assets be
reviewed for impairment using a fair value based approach upon adoption and at
least annually thereafter. The Company recorded a non-cash charge of $222.1
million to reduce the carrying value of its goodwill as a result of the adoption
of SFAS No. 142. In accordance with the requirements of SFAS No. 142, the charge
has been recorded as a cumulative effect of accounting change in the Company's
consolidated statement of operations.

      The results for the year ended June 30, 2002 exclude goodwill amortization
in accordance with the Company's adoption of SFAS No. 142. In accordance with
SFAS No. 142, the results for the year ended June 30, 2001 are as originally
reported and include goodwill amortization. If SFAS No. 142 would have been
effective for the year ended June 30, 2001, net loss would have been $33.1
million and net loss per share would have been $1.41, excluding $10.4 million of
goodwill amortization.

      Revenues for the year ended June 30, 2002 increased $19.5 million or 3.1%
to $645.8 million from $626.3 million for the year ended June 30, 2001. The
increase in revenue from the prior fiscal year is primarily attributable to
pharmaceutical inflation over the last year and the increased utilization of
higher priced drugs.

      Cost of revenues for the year ended June 30, 2002 increased $24.4 million
or 4.7% to $538.9 million from $514.5 million for the year ended June 30, 2001.
Cost of revenues as a percentage of revenues increased to 83.5% for the year
ended June 30, 2002 from 82.1% for the year ended June 30, 2001. The decline in
gross margin as a percentage of revenues was primarily due to an unfavorable
change in product mix, the continued shift toward lower margin payer sources
such as Medicaid and third-party insurance plans, and lower Medicaid and third-
party insurance reimbursement levels. Medicaid and third-party insurance
revenues accounted for 60.1% of revenues for the year ended June 30, 2002 versus
57.4% for the year ended June 30, 2001. The Company expects these gross margin
trends to continue in fiscal 2003.

      Selling, general and administrative expenses for the year ended June 30,
2002 decreased $29.5 million or 23.9% to $93.8 million from $123.3 million for
the year ended June 30, 2001. Selling, general and administrative expenses as a
percentage of revenues decreased from 19.7% for the year ended June 30, 2001 to
14.5% for the year ended June 30, 2002.

      Selling, general and administrative expenses for the year ended June 30,
2001 included $13.2 million for bad debt expense for exited businesses, fixed
asset impairment charges and additional expenses related to restructuring
activities. The Company recorded $10.1 million of additional bad debt expense to
fully reserve for remaining accounts receivable of non-core and non-strategic
businesses exited prior to June 30, 2001. These businesses were ancillary to the
core pharmacy operations and as part of the restructuring activities were either
sold, if there was an available buyer, or shut down. Collection of these
receivables was much more difficult than anticipated. The Company recorded
additional expenses related to restructuring activities of approximately $1.0
million, primarily for lease terminations associated with the continuing
implementation and execution of strategic restructuring and consolidation
activities. The Company recorded a fixed asset impairment charge of $2.1 million
in accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to
be Disposed of" (SFAS No. 121). This charge relates primarily to changes in
asset values resulting from the impact of restructuring activities and changes
in operational processes under restructured operations.

      As discussed above, the Company adopted SFAS No. 142 effective July 1,
2001 and accordingly discontinued the amortization of goodwill. If SFAS No. 142
would have been effective for the year ended June 30, 2001, selling, general and
administrative expenses would have been $112.9 million.

      Excluding the impact of the adoption of SFAS No. 142 and bad debt expense
for exited businesses, fixed asset impairment charges and additional expenses
related to restructuring activities, selling, general and administrative
expenses for the year ended June 30, 2001 would have been $99.7 million or 15.9%
of sales compared to $93.8 million or 14.5% of sales for the year ended June 30,
2002. The decrease in expenses from the prior year is a result of efforts by the
Company to reduce operating and overhead costs and a decrease in bad debt
expense, partially offset by an increase in professional fees related to
restructuring activities. The decrease in bad debt expense is primarily a result
of improved collection trends and improved accounts receivable aging
characteristics. Days sales outstanding on net accounts receivable decreased to
48 days at June 30, 2002 from 55 days at June 30, 2001.

      Operating income for the year ended June 30, 2002, was $13.1 million or
2.0% of revenues compared to operating income, excluding the impact of the
adoption of SFAS No. 142 and bad debt expense for exited businesses, fixed asset
impairment charges and additional expenses related to restructuring activities,
of $12.2 million or 1.9% of revenues for the


                                       22
<PAGE>


year ended June 30, 2001. The increase is primarily a result of a decrease in
operating expenses, partially offset by an increase in cost of revenues as
discussed above. Improvement in operating performance in fiscal 2002 is also due
to a more stable operating environment for skilled nursing facility (SNF)
customers as they realized the benefits of higher statutory reimbursements rates
in conjunction with the implementation of the Balanced Budget Refinement Act of
1999 (BBRA) and the Medicare, Medicaid and SCHIP Benefits Improvement and
Protection Act of 2000 (BIPA). Certain of the increases in Medicare
reimbursement for SNFs provided under the BBRA and BIPA will expire in October
2002 unless Congress enacts additional legislation. If additional legislation is
not enacted, the loss of revenues associated with this occurrence could have a
negative impact on the financial condition of the Company's SNF customers.

      The Company had net interest expense of $25.2 million for the year ended
June 30, 2002, compared to net interest expense of $31.7 million for the year
ended June 30, 2001. The decrease is primarily attributable to a decrease in
interest rates during fiscal year 2002. As discussed below, the line of credit
agreement expired on May 31, 2002 and the Company is currently being charged a
default interest rate.


YEARS ENDED JUNE 30, 2001 AND 2000

      Net loss for the year ended June 30, 2001 was $43.5 million or $1.85 per
share compared to a net loss of $114.5 million or $5.31 per share for the year
ended June 30, 2000.

      Net loss for the year ended June 30, 2001, excluding bad debt expense for
non-core businesses which had been either sold or shut down (exited businesses),
fixed asset impairment charges and additional expenses related to restructuring
activities, was $30.3 million or $1.29 per share compared to net loss, excluding
nonrecurring, restructuring, other special charges and a non-cash charge related
to a valuation allowance recorded against the Company's net deferred tax assets,
of $9.5 million or $0.44 per share for the year ended June 30, 2000.

      Operating results of the Company in fiscal 2000 and 2001 were negatively
affected by the ongoing difficulty of the operating environment in the long-term
care industry. In particular, the long-term care industry was adversely effected
by the continued impact of the implementation of Medicare's Prospective Payment
System (PPS). The adverse impact of the implementation of PPS under the Balanced
Budget Act of 1997 for Medicare residents of skilled nursing facilities was
significantly greater than anticipated and resulted in a difficult operating
environment in the long-term care industry. PPS resulted in a substantial
reduction in reimbursement for skilled nursing facilities. Consequently, the
Company experienced revenue and margin pressure as a result of these
reimbursement changes. Resident acuity level also decreased as these facilities
attempted to avoid high acuity patients, negatively impacting the overall
utilization of drugs, particularly those with higher costs such as infusion
therapy.

      For the Company, operating processes for administering and executing PPS
related activities were significantly different than operating processes prior
to the implementation of PPS. Contracting processes, data gathering, and
operational dispensing processes for Medicare Part A residents all underwent
significant change resulting in higher costs and lower margins for the Company.
These costs were in addition to the impact of costs associated with customer
bankruptcies and their deteriorating financial condition. During the two years
ended June 30, 2001, the Company made considerable efforts in reducing overhead
and operating costs by accelerating efforts to consolidate and /or close
pharmacy and ancillary service locations, the shutdown or sale of certain
non-strategic and/or unprofitable operations, and continuing its employee
reduction plan. In addition, the Company continued to review the profitability
of its customer base and terminated uneconomic accounts and began applying
stricter standards in accepting new business.

      Revenues for the year ended June 30, 2001 decreased $68.2 million or
9.8% to $626.3 million from $694.5 million for the year ended June 30, 2000.
Approximately $46.9 million of the decrease in revenue from the prior fiscal
year is attributable to a decrease in revenue from the Company's allied and
ancillary services. This decrease is due to decisions by management to terminate
uneconomic accounts and the shutdown or sale of certain non-strategic or
unprofitable operations. Through June 30, 2001, the Company had disposed of
three ancillary operations that were not contributing to the overall financial
performance of the Company. The remaining $21.3 million of the decrease in
revenue is attributable to the Company's pharmacy operations and is related to
net bed loss during the year and revenue pressure associated with the continued
implementation of the PPS. Although the Company added new customers during
fiscal 2001 through its sales and marketing efforts, the number of beds served
by the Company declined due to competitive conditions and decisions by
management to terminate uneconomic accounts and accounts with unacceptable
credit risk.

      Cost of revenues for the year ended June 30, 2001 decreased $42.3 million
or 7.6% to $514.5 million from $556.8 million for the year ended June 30, 2000.
Cost of revenues as a percentage of revenues increased to 82.1% for the year
ended June 30, 2001 from 80.2% for the year ended June 30, 2000. Gross margins
for the year ended June 30, 2001 continued to be effected by the impact of the
PPS reimbursement system. Margin pressure resulted from continued Medicare Part
A pricing pressure, lower than anticipated gross margins on PPS related
contracts, reduced acuity levels and census at customer facilities, a continued
shift toward lower margin payer sources including Medicaid and insurance and
lower Medicaid and insurance reimbursement. This


                                       23
<PAGE>


includes the impact of the implementation of the Health Care Financing
Administration Federal Upper Limits (FUL's) which were implemented in December
2000 and reflected lower reimbursement from State Medicaid programs.

      Selling, general and administrative expenses for the year ended June 30,
2001 decreased $3.7 million or 2.9% to $123.3 million from $127.0 million for
the year ended June 30, 2000. Selling, general and administrative expenses as a
percentage of revenues increased from 18.3% for the year ended June 30, 2000 to
19.7% for the year ended June 30, 2001. Excluding bad debt expense for exited
businesses, fixed asset impairment charges and additional expenses related to
restructuring activities, selling, general and administrative expenses for the
year ended June 30, 2001 decreased $16.9 million or 13.3% to $110.1 million from
$127.0 million for the year ended June 30, 2000. Excluding bad debt expense for
exited businesses, fixed asset impairment charges and additional expenses
related to restructuring activities, selling, general and administrative
expenses as a percentage of revenues decreased from 18.3% for the year ended
June 30, 2000 to 17.6% for the year ended June 30, 2001. The decrease in
expenses from the year ended June 30, 2000 is a result of efforts by the Company
to reduce operating and overhead costs, including continuing the consolidation
and/or closing of pharmacy locations, the restructuring or sale of certain
non-core ancillary lines of business and continuing its employee reduction plan.
These decreases were partially offset by increases in bad debt expense for
continuing businesses and professional fees related to restructuring activities.

      Selling, general and administrative expenses for the year ended June 30,
2001 included $13.2 million for bad debt expense for exited businesses, fixed
asset impairment charges and additional expenses related to restructuring
activities. The Company recorded $10.0 million of additional bad debt expense to
fully reserve for remaining accounts receivable of non-core and non-strategic
businesses exited by the Company. These businesses were ancillary to the core
pharmacy operations and as part of the restructuring activities were either
sold, if there was an available buyer, or shut down. Collection efforts on these
receivables were much more difficult than anticipated. The Company recorded
additional expenses related to restructuring activities of approximately $1.1
million, primarily for lease terminations associated with the continuing
implementation and execution of strategic restructuring and consolidation
activities. At June 30, 2002, approximately $0.4 million is included in accrued
expenses related to these expenses. For the year ended June 30, 2001, the
Company recorded a fixed asset impairment charge of $2.1 million in accordance
with Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long Lived Assets and for Long Lived Assets to be Disposed of"
(SFAS No. 121). This charge relates primarily to changes in asset values
resulting from the impact of restructuring activities and changes in operational
processes under restructured operations.

      Operating income for the year ended June 30, 2001, excluding bad debt
expense for exited businesses, fixed asset impairment charges and additional
expenses related to restructuring activities, was $1.8 million or 1.9% of
revenues compared to operating income, excluding nonrecurring, restructuring and
special charges described below of $10.8 million or 1.6% of revenues for the
year ended June 30, 2000. The decrease is primarily a result of a decrease in
gross margins as described above and increases in bad debt expense for
continuing businesses and professional fees related to restructuring activities,
partially offset by a decrease in operating expenses as a result of efforts by
the Company to reduce operating and overhead costs, including continuing the
consolidation and/or closing of pharmacy locations, the restructuring or sale of
certain non-core ancillary lines of business and continuing its employee
reduction plan.

      During fiscal 2000, the Company recorded nonrecurring, restructuring and
special charges of $95.8 million. A special charge of $44.6 million was recorded
to increase the allowance for doubtful accounts, and nonrecurring, restructuring
and other special charges of $51.2 million were recorded in connection with the
implementation and execution of strategic restructuring and consolidation
initiatives of certain operations, the planned disposition of certain non-core
and/or non-strategic assets, impairment of certain assets and other nonrecurring
items.

      The special charge to increase the allowance for doubtful accounts
resulted from the continuing negative changes observed in industry and customer
trends during the year ended June 30, 2000, and a change in the method of
estimating the allowance necessary for accounts receivable. The financial
condition of the Company's primary customer base and general industry trends
continued to deteriorate throughout the year. Due to the negative trends that
the Company's customers were facing, management re-evaluated the method of
estimating the allowances necessary for these and other customers. The total
provision for doubtful accounts, including the amounts included in the special
charge, was $53.8 million for the year ended June 30, 2000.

     The Company continued its plan of restructuring to consolidate certain
pharmacy sites in order to improve operating efficiencies. As a result, the
Company consolidated thirteen additional pharmacy sites into either a new or
existing location. The Company also shutdown six locations associated with
certain ancillary services. During the year ended June 30, 2000, the Company
recorded nonrecurring charges of $9.7 million related to these site
consolidations and location shutdowns, inclusive of $1.1 million of additional
costs incurred on site consolidations previously announced.

      During the year ended June 30, 2000, the Company adopted a formal exit
plan to dispose of certain non-core and/or non-strategic assets. The Company
recorded nonrecurring charges of $30.7 million related to the planned
disposition of assets primarily consisting of impairment to goodwill and
property and equipment. Through June 30, 2002, the Company has disposed of four
ancillary service operations that were not contributing to the overall financial
performance of the Company. Total revenue and operating income of the related
business units was $59.3 million and $1.5 million, respectively, for the year
ended


                                       24
<PAGE>


June 30, 2000. The carrying amount of assets held for sale at June 30, 2000 was
$7.6 million. At June 30, 2002, the Company has no assets held for sale.

      The remaining $10.8 million of the nonrecurring charge primarily relates
to severance incurred during the year associated with the Company's expense
reduction initiatives, additional asset impairments, costs related to a
settlement with federal authorities regarding the investigation of the Company's
Indianapolis, Indiana facility and other nonrecurring expenses.

      During December 1999, the Company reached a settlement with the U.S.
Attorney's office in the Southern District of Indiana regarding the federal
investigation of the Company's facility in Indianapolis, Indiana. As a result,
the Company recorded the settlement amount as a nonrecurring charge. Under the
terms of the settlement, the Company paid $4.1 million to the U.S. Attorney's
office. The Company also agreed to maintain its current level of spending in
connection with its compliance systems and procedures for a period of three
years. If the Company does not comply with the terms of the accord, an
additional $1.5 million will be payable to the U.S. Attorney's office. See
"Certain Regulatory Investigations and Legal Proceedings".

      Employee severance costs included in the nonrecurring charges relate to
the termination of 472 employees. As of June 30, 2002, all terminations
associated with these restructuring activities have been completed.

      Details of the fiscal 2000 nonrecurring, restructuring and special charges
and related activity are as follows:

<TABLE>
<CAPTION>
                                                           Nonrecurring                Reserve               Reserve
           Description                 Cash/Non-cash           Charge      Activity   At 6/30/01  Activity  At 6/30/02
           -----------                 -------------       ------------    --------   ----------  --------  ----------
                                                           (In millions)
<S>                                     <C>                    <C>         <C>         <C>        <C>        <C>
Site Consolidations
     Severance/compensation related      Cash                   $ 1.3       $(1.3)      $  --      $  --      $  --
     Lease terminations                  Cash                     2.8        (2.1)         .7       (.5)         .2
     Asset impairments                   Non-cash                 4.4        (4.4)         --         --         --
     Other                               Cash                     1.2        (1.0)         .2       (.1)         .1

Special increase to allowance
     for doubtful accounts               Non-cash                44.6       (44.6)         --         --         --

Disposition of Assets
     Asset impairment                    Non-cash                30.2       (30.2)         --         --         --
     Other                               Cash                      .5         (.5)         --         --         --

Other
     Cash                                                         6.6        (6.5)         .1       (.1)         --
     Non-cash                                                     4.2        (4.2)         --         --         --
                                                               ------      ------      ------     ------     ------

Total                                                           $95.8      $(94.8)     $  1.0     $(0.7)     $  0.3
                                                               ======      ======      ======     ======     ======
</TABLE>

      The Company had net interest expense of $31.7 million for the year ended
June 30, 2001, compared to net interest expense of $26.2 million for the year
ended June 30, 2000. The increase is primarily attributable to an increase in
interest rates and other finance related charges during fiscal year 2001. As
discussed below, the line of credit agreement expired on May 31, 2002 and the
Company is currently being charged a default interest rate.


LIQUIDITY AND CAPITAL RESOURCES

      Net cash provided by operating activities was $10.8 million, $27.8
million, and $9.4 million in fiscal 2000, 2001 and 2002, respectively. The
decrease in net cash provided by operating activities in fiscal 2002 resulted
primarily from an increase in accounts payable in the prior year due to a
temporary modification of payment terms negotiated with a major Company
supplier. The increase in net cash provided by operating activities during
fiscal 2001 primarily resulted from a decrease in inventory as a result of the
Company's inventory reduction efforts, a slower growth rate in accounts
receivable and an increase in accounts payable due to the temporary modification
of payment terms negotiated with a major Company supplier discussed above.


                                       25
<PAGE>


      Net cash used in investing activities was $11.8 million, $4.1 million, and
$5.9 million in fiscal 2000, 2001 and 2002, respectfully.

      The Company made capital expenditures of $6.6 million, $3.4 million and
$5.5 million in fiscal 2000, 2001 and 2002, respectfully. Significant capital
expenditures made by the Company include capitalized software costs associated
with the Concord DX operating system, computer equipment, leasehold improvements
and medication carts.

      Net cash used in financing activities was $12.0 million, $0.7 million, and
$0.5 million in fiscal 2000, 2001 and 2002, respectfully. The decrease in fiscal
2001 is primarily attributable to the Company making net payments of $8.6
million on its line of credit in fiscal 2000 with no similar payments in fiscal
2001 and 2002.

      In August 1997, the Company issued $100 million of convertible
subordinated debentures due 2004. The debentures carry an interest rate of 5
3/4%. The debentures are obligations of the Company. The operations of the
Company are currently conducted principally through subsidiaries, which are
separate and distinct legal entities. The Company's ability to make payments of
principal and interest on the debentures will depend on its ability to receive
distributions of cash from its subsidiaries. Each of the Company's wholly owned
subsidiaries has guaranteed the Company's payment obligations under the
debentures, so long as such subsidiary is a member of an affiliated group
(within the meaning of Section 279(g) of the Internal Revenue Code of 1986, as
amended) which includes the Company. The satisfaction by the Company's
subsidiaries of their contractual guarantees, as well as the payment of
dividends and certain loans and advances to the Company by such subsidiaries,
may be subject to certain statutory or contractual restrictions, are contingent
upon the earnings of such subsidiaries and are subject to various business
considerations.

      The Company elected to not make the semi-annual $2.875 million interest
payments due February 15 and August 15, 2001 and February 15 and August 15, 2002
on the Company's 5 3/4% Convertible Subordinated Debentures due 2004
(Debentures). On April 6, 2001, the Company received a formal Notice of Default
and Acceleration and Demand for Payment from the Indenture Trustee. The
Indenture Trustee declared the entire principal and any accrued interest thereon
to be immediately due and payable and demanded immediate payment of such
amounts. If such payments are not made, the Indenture Trustee reserves the right
to pursue remedial measures in accordance with the Indenture, including, without
limitation, collection activities. As of June 30, 2002, the amount of principal
and accrued interest is $110.8 million. As a result of the above noted
Debentures being in default, an additional $2.4 million of convertible
subordinated debentures due 2004 are also in default. Until the defaults are
resolved, convertible subordinated debentures of $102.4 million and related
accrued interest of $10.9 million will be classified as a current liability.

      In June 1998, the Company entered into a four-year revolving credit
agreement (Credit Facility) which expired on May 31, 2002. On June 3, 2002, the
Company received correspondence from the senior lenders indicating that they
reserve the right to exercise all rights, powers and privileges provided for in
the credit agreement including the acceleration of the collection of the
Company's obligations and/or exercise other remedies under the credit agreement
including exercising their rights with respect to the pledged collateral. At the
current time, the senior lenders have not chosen to exercise and enforce the
rights and remedies available to them under the credit agreement. The Company
continues to operate under the terms of the Credit Facility.

      The Credit Facility, as amended, had an available commitment of $207
million, provided all Company assets as security, limited the availability of
the Credit Facility to use for working capital only, required Lender approval on
acquisitions, provided for interest at a variable rate and contained certain
debt covenants including an interest coverage ratio, minimum consolidated net
worth requirements and a restriction on declaration and payment of cash
dividends to shareholders. Prior to the expiration of the Credit Facility, the
Company had been in violation of certain financial covenants of the Credit
Facility. On April 21, 2000, the Company received a formal notice of default
from the senior lenders. As a result of the notice of default, the interest rate
on the Credit Facility (excluding facility fee) increased to the Prime Rate plus
2.25% (7.0% at June 30, 2002). The borrowings of $206.1 million under the Credit
Facility at June 30, 2002 are classified as a current liability. Failure to
obtain a favorable resolution to the expiration of the Credit Facility could
have a material adverse effect on the Company.

      During the past three years, the Company has implemented measures to
improve cash flows generated from operating activities, including reductions in
operating and overhead costs by continuing the consolidation and/or closing of
pharmacy locations, continuing its employee reduction plan, more aggressive
collection activity and inventory reduction efforts, and a temporary
modification of payment terms negotiated with a major Company supplier. In
addition, the Company continues to review the profitability of its customer base
and is terminating uneconomic accounts as well as applying stricter standards in
accepting new business. The Company expects to meet its financing needs for the
next twelve months through the use of cash generated from operations and its
cash balance of $42.5 million dollars at June 30, 2002. However, the
Company may require additional capital resources for internal working capital
needs and may need to incur additional indebtedness to meet these requirements.
Additional funds are currently not available under the Credit Facility as
described above and there can be no assurance that additional funds will be
available.

      During the past two years, the Company has been in ongoing discussions
with the Company's senior lenders and with an ad hoc committee of holders of the
5 3/4% Convertible Subordinated Debentures due 2004 regarding the defaults
discussed above and potential restructuring options. In addition, the Company
engaged financial advisors and legal counsel to assist in exploring


                                       26
<PAGE>


various capital restructuring and strategic alternatives with third parties.
These defaults, among other factors, raise substantial doubt about the Company's
ability to continue as a going concern.

      On July 28, 2002, the Company entered into a definitive merger agreement
with Genesis Health Ventures, Inc. (Genesis). If the proposed merger is
completed, each outstanding share of common stock of the Company will be
converted into the right to receive 0.1 of a share of Genesis common stock. At
the closing of the proposed merger, Genesis will repay in full the outstanding
debt of NCS, including the borrowings of $206.1 million under the Credit
Facility, and will redeem $102.4 million of 5 3/4% convertible subordinated
debentures, including any accrued and unpaid interest.

      The completion of the proposed merger is subject to regulatory approvals
and other customary conditions, including the approval of the holders of a
majority of the outstanding voting power of the Company's common stock. The
timing and ultimate outcome of the proposed merger or any future negotiations
with the Company's senior lenders and ad hoc committee of debenture holders is
uncertain and could have a material adverse effect on the Company. Given the
foregoing, no assurances can be given that the Company will be able to maintain
its current level of operations, or that its financial condition and prospects
will not be materially and adversely affected over the next twelve months.

      The Company's effective income tax expense (benefit) rates were, 3.0%,
0.9% and 2.5% for the years ended June 30, 2000, 2001 and 2002, respectively.
The effective tax rate differs from the federal statutory rate primarily as a
result of the recording of a full valuation allowance against the Company's net
deferred tax assets consisting primarily of net operating loss carryforwards.


CONTRACTUAL OBLIGATIONS

      As of June 30, 2002, the Company had the following contractual
obligations:

                             Payments Due by Period
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                              Less Than 1                                      5 Years and
                                                   Total          Year          1-2 Years       3-4 Years          After
                                                   -----          ----          ---------       ---------          -----
<S>                                             <C>            <C>              <C>             <C>              <C>
Revolving credit facility (1)                    $206,130       $206,130         $     -         $      -         $     -
Convertible subordinated debentures (2)           102,361        102,361               -                -               -
Other long-term debt                                  823            274             237              130             182
Non-cancelable operating leases                    22,919          7,114           9,463            4,876           1,466
                                                 --------       --------         -------         --------         -------
Total contractual cash obligations               $332,233       $315,879         $ 9,700         $  5,006         $ 1,648
                                                 ========       ========         =======         ========         =======
</TABLE>

(1)   The revolving credit facility expired on May 31, 2002. See above
      discussion and Note 2 to the Consolidated Financial Statements.

(2)   The Company is in default on the convertible subordinated debentures at
      June 30, 2002 and the debentures are therefore classified as a current
      liability. See above discussion and Note 8 to the Consolidated Financial
      Statements.


CRITICAL ACCOUNTING POLICIES

      In December 2001, the SEC issued Financial Reporting Release No. 60,
"Cautionary Advice Regarding Disclosure About Critical Accounting Policies" (FR
60), suggesting companies provide additional disclosure and commentary on those
accounting policies considered most critical. FR 60 considers an accounting
policy to be critical if it is important to the Company's financial condition
and results, and requires significant judgment and estimates on the part of
management in its application. The Company believes that the following
represents its critical accounting policies as contemplated by FR 60. For a
summary of all of the Company's significant accounting policies, including the
critical accounting policies discussed below, see Note 1 to the accompanying
consolidated financial statements.

Revenue Recognition:
      Revenue is recognized on a monthly basis for products or services provided
to customers during that month. The revenue cycle ends on the last day of the
month. As is generally the case for long-term care facility services, the
Company receives payments through reimbursement from Medicaid and Medicare
programs and directly from individual residents (private pay), private
third-party insurers and long-term care facilities. For the fiscal year ended
June 30, 2002, the Company's payor mix was approximately 49% Medicaid, 20%
long-term care facilities (including amounts for which the long-term care
facility receives reimbursement under Medicare Part A), 14% private pay, 11%
third-party insurance, 1% Medicare and 5% other sources. The Medicaid and
Medicare programs are highly regulated. The failure of NCS and/or its client
institutions to comply with applicable reimbursement regulations could adversely
affect the Company's business. The Company monitors its receivables from
Medicaid and other third-party payor programs and reports such revenues at the
net realizable amount expected to be received from third-party payors.

Contractual Allowances:
      An estimated contractual allowance is recorded against third-party sales
and accounts receivable (Medicaid and insurance). Accordingly, the net sales and
accounts receivable reported in the Company's financial statements are recorded
at the amount expected to be received from the third-party payor. Contractual
allowances are adjusted to actual as cash is


                                       27
<PAGE>


received and claims are reconciled. The Company evaluates the following criteria
in developing the estimated contractual allowance percentages each month:

      1)    Historical contractual allowance trends based on actual claims paid
            by third-party payors.
      2)    Review of contractual allowance information reflecting current
            contract terms.
      3)    Consideration and analysis of changes in customer base, product mix,
            payor mix, reimbursement levels or other issues that may impact
            contractual allowances.

Allowance for Doubtful Accounts:
      The Company's ability to collect outstanding receivables is critical to
its operating performance and cash flows. The allowance for doubtful accounts
is approximately 19.7% of the gross accounts receivable balance, net of
contractual allowances, as of June 30, 2002. The provision for doubtful
accounts was $53,825, $31,101, and $18,013 for the years ended June 30, 2000,
2001, and 2002, respectively.

      The Company utilizes the "Aging Method" to evaluate the adequacy of its
allowance for doubtful accounts. This method is based upon applying estimated
standard allowance requirement percentages to each accounts receivable aging
category for each payor. Company management developed the estimated standard
allowance requirement percentages by utilizing historical collection trends and
its understanding of the nature and collectibility of receivables in the various
aging categories. The standard allowance percentages were developed by payor
type as the accounts receivable from each payor type have unique
characteristics. The necessary balance sheet allowance for doubtful accounts is
calculated on a monthly basis utilizing the aging method described above. The
Company ensures that the actual balance in the allowance for doubtful accounts
is equal to or greater than the estimated amount calculated by the aging method.

Cost of Goods Sold:
      Physical inventories are performed on a quarterly basis at all sites. As
the Company does not utilize a perpetual inventory system, cost of goods sold is
estimated during non-inventory months and is adjusted to actual by recording the
results of the quarterly physical inventories. The Company evaluates the
following criteria in developing estimated cost of goods sold during
non-inventory months:

      1)    Historical cost of goods sold trends based on prior physical
            inventory results.
      2)    Review of cost of goods sold information reflecting current customer
            contract terms.
      3)    Consideration and analysis of changes in customer base, product mix,
            payor mix, State Medicaid and third-party insurance reimbursement
            levels or other issues that may impact cost of goods sold.

Accrued Health Insurance:
      The Company is self-insured for health insurance claims with a stop-loss
umbrella policy in place to limit the maximum potential liability for both
individual claims and total claims for a plan year. Health insurance claims are
paid as they are submitted to the plan administrator. The Company maintains an
accrual for claims that have been incurred but not yet reported (IBNR) to the
plan administrator and therefore have not been paid. The Company maintains an
IBNR reserve based on the historical claim lag period and current payment trends
of health insurance claims (generally 2 to 3 months).

      The Company records a monthly expense for the health insurance plan in its
financial statements. The initial monthly expense for a plan year is determined
at the beginning of the plan year by reviewing historical claims experience and
the range of liability for the plan year as determined by the plan
administrator. The initial monthly expense is adjusted each month as necessary
to ensure that an adequate IBNR reserve level is maintained.

Obligations Under Prime Wholesaler Agreement:
      The Company purchases the majority of its inventory through one primary
pharmaceutical supplier. In fiscal 2001, the Company negotiated a temporary
modification of payment terms with this supplier. In June 2002, the Company
entered into a letter of intent with this supplier and is continuing its
negotiations to achieve a permanent modification in payment terms. In addition,
the Company earns administrative fees and amounts from certain other contractual
arrangements under a prime wholesaler agreement with this supplier. The
administrative fees and amounts from other contractual arrangements are accrued
on a monthly basis based on purchasing data and knowledge of the terms of the
contractual arrangements. The actual amounts due under the contractual
arrangements are typically communicated to the Company on a quarterly or annual
basis based on the terms of the contractual arrangements. As a result of the
2001 temporary modification of payment terms, the supplier is withholding
certain contractual amounts due to the Company. Receivables from the supplier of
$5.9 million and $12.2 million at June 30, 2001 and 2002, respectively, have
been netted against accounts payable to the supplier for financial reporting
purposes. The Company believes that the receivables arising from these
contractual arrangements are collectible and is currently operating under the
letter of intent which provides for the Company to make monthly payments to the
supplier based on the net amount payable to the supplier.

Goodwill and Other Intangible Assets:
      In July 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards (SFAS) No. 141, "Business Combinations," and
No. 142, "Goodwill and Other Intangible Assets."

      SFAS No. 141 requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method is no longer permitted. SFAS No. 141 also includes
guidance on the initial


                                       28
<PAGE>


recognition and measurement of goodwill and other intangible assets acquired in
a business combination that is completed after June 30, 2001. The Company
adopted SFAS No. 141 on July 1, 2001.

      The Company elected early adoption of SFAS No. 142 as of July 1, 2001. In
accordance with SFAS No. 142, goodwill and other indefinite lived intangible
assets will no longer be amortized. Under this non-amortization approach, SFAS
No. 142 requires that goodwill and other indefinite lived intangible assets be
reviewed for impairment using a fair value based approach upon adoption and at
least annually thereafter.

        SFAS No. 142 provides a six-month transitional period from the effective
date of adoption for the Company to perform an assessment of whether there is an
indication that goodwill is impaired. To the extent that an indication of
impairment exists, the Company must perform a second test to measure the amount
of the impairment. For the purposes of SFAS No. 142, the Company is considered
to have one reporting unit. The Company determined its implied fair value
utilizing a market capitalization approach and compared the fair value of the
Company to its carrying value. This evaluation indicated that goodwill was
potentially impaired as of July 1, 2001. As a result, the Company was required
to complete the second step of the transitional impairment test to measure the
amount of the impairment. In calculating the impairment, the implied fair value
of goodwill was determined by calculating the fair value of all tangible and
intangible net assets through appraisals, external valuations, quoted market
prices and other valuation methods. The implied fair value of goodwill was
compared to the carrying value of goodwill to measure the amount of the
impairment. The Company recorded a non-cash charge of $222.1 million as of July
1, 2001 to reduce the carrying value of its goodwill as a result of the adoption
of SFAS No. 142. As of June 30, 2002, remaining goodwill was $80.5 million which
is subject to continuing review of impairment under a similar approach as
described above.

      The amount of the impairment primarily reflects the decline in the
Company's stock price and financial condition since the acquisitions were
consummated that generated the goodwill. The Company observed significant
negative industry and customer trends during the three years prior to the
valuation date of July 1, 2001, including a net loss of $16.3 million, $114.5
million and $43.5 million for the years ended June 30, 1999, 2000 and 2001,
respectively. These trends primarily related to increased bankruptcies and
significant financial difficulties experienced by the Company's skilled nursing
facility customers primarily as a result of the greater than expected adverse
impact with regard to implementation of the Medicare Prospective Payment System
(PPS) under the Balanced Budget Act of 1997.

      SFAS No. 142 also requires goodwill to be tested annually and between
annual tests if events occur or circumstances change that would more likely than
not reduce the fair value of a reporting unit below its carrying amount. The
Company has elected to perform its annual tests for indications of goodwill
impairment as of April 1 of each year. As of April 1, 2002, the Company's annual
assessment indicated that the remaining goodwill was not impaired.

      The methodology of accounting for goodwill under SFAS No. 142 differs from
the Company's previous policy, in accordance with accounting standards existing
at that time, of using undiscounted cash flows over the remaining amortization
period to determine if goodwill is recoverable.

      Intangible assets that will continue to be amortized under SFAS No. 142
consist primarily of non-compete covenants and debt issuance costs. Debt
issuance costs are included in other assets and are amortized using the
effective interest method over the life of the related debt.


RECENTLY ISSUED ACCOUNTING STANDARDS

      In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of" and amends APB Opinion No. 30, "Reporting Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business." This
statement develops one accounting model (based on the model in SFAS No. 121) for
long-lived assets that are disposed of by sale, as well as addresses the
principal implementation issues. SFAS No. 144 also expands the scope of
discontinued operations and changes the disclosure requirement for discontinued
operations. This statement is effective for fiscal years beginning after
December 15, 2001. The Company does not expect this standard to have a material
impact on the Company's consolidated financial position, results of operations
or cash flows.

      The FASB recently issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 addresses the recognition,
measurement, and reporting of costs that are associated with exit and disposal
activities, including costs related to terminating a contract that is not a
capital lease, costs to consolidate facilities or relocate employees, and
termination benefits provided to employees that are involuntarily terminated
under the terms of a one-time benefit arrangement that is not an ongoing benefit
arrangement or an individual deferred-compensation contract. SFAS 146 No.
supersedes Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to exit an
Activity (including Certain Costs Incurred in a Restructuring)" and requires
liabilities


                                       29
<PAGE>


associated with exit and disposal activities to be recognized when the liability
is incurred. SFAS No. 146 is effective for exit or disposal activities that are
initiated after December 31, 2002.


CERTAIN REGULATORY INVESTIGATIONS AND LEGAL PROCEEDINGS

      In the ordinary course of its business, the Company is subject to
inspections, audits, inquiries and similar actions by governmental authorities
responsible for enforcing the laws and regulations to which the Company is
subject.

      In January 1997, governmental authorities requested information from the
Company in connection with an audit and investigation of the circumstances
surrounding the apparent drug-related homicide of a non-management employee of
one of the Company's pharmacies. The information provided relates to the
Company's inventory and the possible theft of controlled substances from this
pharmacy. The review identified inadequacies in inventory record keeping and
control at this pharmacy. In a meeting with governmental authorities in August
1997, the Company discussed its findings and those of the government and
documented corrective measures taken by the Company. In September 1998, the
Company was notified by the United States Department of Justice, United States
Attorney for the Southern District of Indiana ("USA-Indiana") that the United
States Drug Enforcement Administration had referred this matter to the Office of
the USA-Indiana for possible legal action involving certain numerous alleged
violations of federal law. The USA-Indiana invited the Company to contact the
Office of the USA-Indiana in an effort to resolve the matter. The Company
subsequently contacted the Office of the USA-Indiana and discussions regarding a
possible settlement of this matter ensued.

      During December 1999, the Company and NCS HealthCare of Indiana, Inc. (NCS
Indiana), a wholly-owned subsidiary of the Company, reached a settlement with
the USA-Indiana regarding the previously disclosed federal investigation of the
Company's facility in Indianapolis, Indiana. Under the terms of the settlement,
the Company paid $4.1 million to the USA-Indiana. The Company also agreed to
maintain its current level of spending in connection with its compliance systems
and procedures for a period of three years. If the Company does not comply with
the terms of the accord, an additional $1.5 million will be payable to the
USA-Indiana.

      In January 1998, federal and state government authorities sought and
obtained various documents and records from a Herrin, Illinois pharmacy operated
by a wholly-owned subsidiary of the Company. The Company has cooperated fully
and continues to cooperate fully with the government's inquiry. In June 1999,
representatives of the Company met with attorneys with the Civil and Criminal
Divisions of the Office of the United States Department of Justice, United
States Attorney for the Southern District of Illinois ("USA-Illinois") regarding
the government's investigation. The USA-Illinois informed the Company that it
had information that allegedly substantiated numerous violations of federal law
at that facility. In May 2001, the Company reached a settlement with the
USA-Illinois regarding this investigation and recorded the settlement amount in
the fiscal 2001 consolidated financial statements.

      On June 7, 1999, a lawsuit was filed against the Company in the Superior
Court of Norfolk County, Massachusetts. Plaintiffs were certain selling
stockholders of the PharmaSource Group, Inc. ("PharmaSource"), which NCS
acquired on September 17, 1997. The complaint alleged breach of contract and
unfair business practices arising out of NCS' non-payment of certain amounts
allegedly payable under the terms of an earn-out provision included in the
acquisition agreement. On January 21, 2000, the Company reached a settlement of
this litigation. Under the terms of the settlement, the Company issued 1,750,000
Class A Common Shares and a $2 million convertible subordinated debenture
maturing on August 15, 2004. The note and accrued "payment-in-kind" interest
will be convertible into a maximum of 200,000 Class A Common Shares at a
conversion price of $8.00 per share.

      On July 28, 2002, NCS, Genesis and Geneva Sub, Inc., a wholly owned
subsidiary of Genesis ("Sub") entered into a definitive Agreement and Plan of
Merger (the "Merger Agreement"), pursuant to which Sub will merge with and into
NCS (the "Proposed Merger"), with NCS surviving as a wholly owned subsidiary of
Genesis. If the Proposed Merger is completed, each outstanding share of common
stock of NCS, par value $0.01 per share ("NCS Common Stock"), other than the NCS
Common Stock held by NCS and other than dissenting shares, will be converted
into the right to receive 0.1 of a share of common stock of Genesis, par value
$0.02 per share. The completion of the Proposed Merger is subject to regulatory
approvals and other customary conditions, including the approval of the holders
of a majority of the outstanding voting power of NCS Common Stock.

      In connection with the Merger Agreement, on July 28, 2002, NCS and Genesis
entered into agreements (the "Voting Agreements") with certain stockholders of
NCS beneficially owning in the aggregate a majority of the outstanding voting
power of NCS Common Stock. In the Voting Agreements, such stockholders agreed
(1) to vote their shares of NCS Common Stock in favor of adoption and approval
of the Merger Agreement and against proposals for certain other transactions and
(2) not to transfer their shares of NCS Common Stock prior to the consummation
of the Proposed Merger.


                                       30
<PAGE>


      On August 8, 2002, Omnicare, Inc. (Omnicare) commenced a cash tender offer
to purchase all of the outstanding shares of Class A and Class B common stock of
NCS for $3.50 per share. The effect of the Omnicare tender offer on the proposed
merger between NCS and Genesis is not known at this time.

      Since the Company entered into the Merger Agreement, seven shareholder
lawsuits (six of which are purported class action lawsuits) were filed against
NCS and its directors in connection with the Proposed Merger with Genesis and,
in two cases, against Genesis and Sub (the "Stockholder Claims"). The
Stockholder Claims allege that the directors of NCS breached their fiduciary
duties, and certain other duties, to stockholders by entering into the Merger
Agreement and seek various relief, including an injunction against consummation
of the Proposed Merger, requiring separate class voting on approval of the
Proposed Merger by NCS Stockholders, rescinding the Proposed Merger if the same
is consummated prior to a final judgment on the Stockholder Claims, declaring
the Voting Agreements null and void and compensatory damages and costs. In
addition, the amended complaint filed by Omnicare alleges that the Voting
Agreements violate the NCS amended and restated certificate of incorporation and
therefore resulted in an automatic conversion of such stockholders' Class B
common shares into Class A common shares. No court dates have been set for these
matters. The Company believes that the allegations set forth in these lawsuits
are without merit and intends to contest them vigorously; however, the ultimate
outcome of these lawsuits cannot be predicted with certainty. These lawsuits
could adversely affect the Company's ability to consummate the Merger Agreement
with Genesis.

      The following lawsuits were each filed with the Court of Chancery in the
State of Delaware in and for New Castle County on the dates indicated:

      -     Dr. Dorrin Beirch and Robert M. Miles on behalf of themselves and
            all others similarly situated v. NCS HealthCare, Inc., Jon H.
            Outcalt, Kevin B. Shaw, Richard L. Osborne, and Boake A. Sells,
            filed on July 30, 2002.

      -     Anthony Noble v. NCS HealthCare, Inc., Richard L. Osborne, Jon H.
            Outcalt, Boake A. Sells, and Kevin B. Shaw, filed on August 1, 2002.

      -     Jeffery Treadway v. Jon H. Outcalt, Kevin B. Shaw, Boake A. Sells,
            Richard L. Osborne, and NCS HealthCare, Inc., filed on August 2,
            2002.

      -     Tillie Saltzman v. Jon H. Outcalt, Kevin B. Shaw, Boake A. Sells,
            Richard L. Osborne, and NCS HealthCare, Inc., filed on August 2,
            2002.

      -     Dolphin Limited Partnership, L.L.P. v. Jon H. Outcalt, Kevin B.
            Shaw, Boake A. Sells, Richard L. Osborne, Genesis Health Ventures,
            Inc., Genesis Sub, Inc. and NCS HealthCare, Inc., filed on August 7,
            2002.

      -     First Amended Complaint Omnicare, Inc. v. NCS HealthCare, Inc., Jon
            H. Outcalt, Kevin B. Shaw, Boake A. Sells, Richard L. Osborne,
            Genesis Health Ventures, Inc. and Genesis Sub, Inc., filed on August
            12, 2002 (original complaint filed on August 1, 2002).

     The following lawsuit was filed with the Court of Common Pleas for Cuyahoga
County, Ohio:

      -     Michael Petrovic on behalf of himself and all others similarly
            situated v. NCS HealthCare, Inc., Jon H. Outcalt, Kevin B. Shaw,
            Richard L. Osborne, and Boake A. Sells, filed on August 1, 2002.

     On August 20, 2002, the Company filed a complaint against Omnicare in the
United States District Court for the Northern District of Ohio, titled NCS
Healthcare, Inc. v. Omnicare, Inc., Case No. 1:02CV1635 (Maita, J.), and, on
August 21, 2002, the Company amended the complaint. The complaint, as amended,
alleges, among other things, that Omnicare's disclosure on Schedule TO, filed on
August 8, 2002 in connection with the associated tender offer, contains
materially false and misleading disclosures in violation of Section 14(e) of the
Securities Exchange Act of 1934.

     The Company's subsidiary, NCS HealthCare of Illinois, Inc. ("NCS Illinois")
and former owners of the Herrin, Illinois site, were named defendants in a civil
action filed under the federal civil False Claims Act in the United States
District Court for the Southern District of Illinois in the case captioned "The
United States of America, ex rel., Denis Crews, et al. v. Family Nursing Home
Services, Inc., et al." (Case No. 99-4020-GPM).  On February 20, 2002, the
United States of America filed a Notice of Election to Decline Intervention.
This Notice was filed in camera and under seal.  The complaint was then served
on NCS Illinois on July 12, 2002.  On July 29, 2002, the Company received a copy
of an Amended Complaint in the above-captioned matter in which the Company was
also named as a Defendant.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

      Certain statements contained in or incorporated by reference into this
Annual Report on Form 10-K, including, but not limited to, those regarding the
Company's financial position, business strategy and other plans and objectives
for future operations and any other statements that are not historical facts
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other important factors that
could cause the actual results, performance or achievements of the Company, or
industry results, to differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements. Although
the Company believes that the expectations reflected in these forward-looking
statements are reasonable, there can be no assurance that the actual results or
developments anticipated by the Company will be realized or, even if
substantially realized, that they will have expected effects on its business or
operations. These forward-looking statements are made based on management's
expectations and beliefs concerning future events impacting the Company and are
subject to uncertainties and factors (including, but not limited to, those
specified below) which are difficult to predict and, in many instances, are
beyond the control of the Company. As a result, actual results of the Company
may differ materially from those expressed or implied by any such
forward-looking statements. These forward-looking statements may include, but
are not limited to, statements containing words such as "anticipate," "believe,"
"plan," "estimate," "expect," "intend," "may" and similar expressions. Among the
factors that could cause actual results to differ materially from the Company's
expectations include the


                                       31
<PAGE>


ability to consummate the proposed merger transaction with Genesis and/or obtain
the anticipated results and synergies from the proposed merger transaction with
Genesis and the increased uncertainty created by the integration of the two
businesses, the outcome of the Omnicare, Inc. tender offer and related
litigation, the continued impact of the Medicare Prospective Payment System,
discussions with the Company's senior lenders and the ad hoc committee of
debenture holders, overall economic, financial and business conditions, delays
in reimbursement by the government or other payors of the Company and its
customers, the overall financial condition of the Company's customers, the
ability of the Company to assess and react to the financial condition of
customers, the effect of new government regulation, access to capital and
financing, the demand for the Company's products and services, pricing and
competitive factors in the industry, changes in accounting rules and standards
continuation of various trends in the long-term care market (including the trend
toward consolidation), changes in reimbursement levels from State Medicaid
programs and third-party insurance plans, the credit worthiness of customers,
competition among providers of long-term care pharmacy services, negotiations
regarding payment terms and other contractual obligations with suppliers,
changes in regulatory requirements and Federal and State reimbursement levels,
reform of the health care delivery system, litigation matters and other factors
and risks and uncertainties described in the Company's SEC reports.




                                       32
<PAGE>


ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      The Company is exposed to certain market risks from transactions that are
entered into during the normal course of business. The Company has not entered
into derivative financial instruments for trading purposes. The Company's
primary market risk exposure relates to interest rate risk. The Company has
managed its interest rate risk by balancing its exposure between fixed and
variable rates while attempting to minimize its interest costs. The Company has
a balance of $206.1 million on its revolving credit facility at June 30, 2002,
which is subject to a variable rate of interest based on the Prime rate.
Assuming borrowings at June 30, 2002, a one-hundred basis point change in
interest rates would impact net interest expense by approximately $2.1 million
per year.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Consolidated Financial Statements
Report of Independent Auditors                                               34
Consolidated Balance Sheets at June 30, 2001 and 2002                        35
Consolidated Statements of Operations for each of the three years
   in the period ended June 30, 2002                                         37
Consolidated Statements of Stockholders' Equity (Deficit) for each of the
   three years in the period ended June 30, 2002                             38
Consolidated Statements of Cash Flows for each of the three years
   in the period ended June 30, 2002                                         39
Notes to Consolidated Financial Statements                                   40


                                       33
<PAGE>


                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
NCS HealthCare, Inc.

      We have audited the accompanying consolidated balance sheets of NCS
HealthCare, Inc. and subsidiaries as of June 30, 2001 and 2002, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for each of the three years in the period ended June 30, 2002. 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 auditing standards generally
accepted in the United States. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
NCS HealthCare, Inc. and subsidiaries at June 30, 2001 and 2002, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 2002, in conformity with accounting
principles generally accepted in the United States.

      The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As discussed in Note 1 to
the consolidated financial statements, the Company is in violation of certain
financial covenants under its revolving credit facility. As a result of the
covenant violations, the Company's lenders may accelerate the maturity of the
Company's obligations under the revolving credit facility. In addition, the
Company is in default on its 5 3/4% Convertible Subordinated Debentures due
2004. These factors raise substantial doubt about the Company's ability to
continue as a going concern. Management's plan in regard to this matter is also
described in Note 1. The consolidated financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts or classifications of liabilities that
may result from the outcome of this uncertainty.

      As discussed in Note 1 to the consolidated financial statements, effective
July 1, 2001, the Company changed its method of accounting for goodwill.


August 2, 2002                                                 Ernst & Young LLP
Cleveland, Ohio


                                       34
<PAGE>


                      NCS HEALTHCARE, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                    (IN THOUSANDS, EXCEPT SHARE INFORMATION)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                                                    June 30,
                                                                                                    --------
                                                                                               2002          2001
                                                                                               ----          ----
<S>                                                                                          <C>           <C>
CURRENT ASSETS
      Cash and cash equivalents                                                              $42,539       $39,464
      Trade accounts receivable, less allowance for doubtful accounts
           of $21,026 and $28,332 as of June 30, 2002 and 2001                                85,808        94,447
      Inventories                                                                             30,593        32,770
      Prepaid expenses and other current assets                                                2,863         3,301
                                                                                            --------      --------
                Total current assets                                                         161,803       169,982

PROPERTY, PLANT AND EQUIPMENT
      Land                                                                                       130           130
      Buildings                                                                                2,397         2,397
      Machinery, equipment and vehicles                                                       21,173        23,039
      Computer equipment and software                                                         34,863        34,817
      Furniture, fixtures and leasehold improvements                                          18,070        18,685
                                                                                            --------      --------
                                                                                              76,633        79,068
      Less accumulated depreciation and amortization                                          48,515        45,049
                                                                                            --------      --------
                                                                                              28,118        34,019
     Goodwill, net                                                                            80,487       301,907
     Other assets, net                                                                         7,385         8,063
                                                                                            --------      --------
TOTAL ASSETS                                                                                $277,793      $513,971
                                                                                            =========     ========
</TABLE>


                             See accompanying notes


                                       35
<PAGE>


                      NCS HEALTHCARE, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                    (IN THOUSANDS, EXCEPT SHARE INFORMATION)

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                                                                        JUNE 30,
                                                                                                        --------
                                                                                                  2002            2001
                                                                                                  ----            ----
<S>                                                                                             <C>             <C>
CURRENT LIABILITIES
      Line of credit in default                                                                 $ 206,130       $ 206,130
      Convertible subordinated debentures in default                                              102,361         102,107
      Trade accounts payable                                                                       45,336          56,349
      Accrued compensation and related expenses                                                     8,525           7,715
      Other accrued expenses                                                                       22,607          13,754
      Current portion of long-term debt                                                               274             456
                                                                                               -----------    -----------
                Total current liabilities                                                         385,233         386,511

      Long-term debt, excluding current portion                                                       549             825
      Other long-term liabilities                                                                      73             140

STOCKHOLDERS' EQUITY (DEFICIT)
      Preferred stock, $.01 par value per share; 1,000,000 shares
           authorized; none issued                                                                      -               -
      Common stock, $.01 par value per share:
           Class A -- 50,000,000 shares authorized; 18,461,599 and 18,421,845
             shares issued and outstanding at June 30, 2002 and 2001, respectively                    184             184
           Class B -- 20,000,000 shares authorized; 5,255,210 and 5,294,964
             shares issued and outstanding at June 30, 2002 and 2001, respectively                     53              53
      Paid-in capital                                                                             271,943         271,943
      Accumulated deficit                                                                        (380,242)       (145,685)
                                                                                               -----------    -----------
                                                                                                 (108,062)        126,495
                                                                                               -----------    -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                             $277,793        $513,971
                                                                                               ===========    ===========
</TABLE>


                             See accompanying notes


                                       36

<PAGE>
                      NCS HEALTHCARE, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                           YEAR ENDED JUNE 30,
                                                                                    2002           2001          2000
                                                                                    ----           ----          ----
<S>                                                                              <C>            <C>            <C>
Revenues                                                                         $  645,756     $ 626,328      $ 694,530
Cost of revenues                                                                    538,926       514,483        556,757
                                                                                  ---------     ---------     ----------
Gross profit                                                                        106,830       111,845        137,773
Selling, general and administrative expenses                                         93,776       123,272        126,969
Special charge to increase allowance for doubtful accounts                                -             -         44,623
Nonrecurring charges                                                                      -             -         51,136
                                                                                  ---------     ---------     ----------
Operating income (loss)                                                              13,054       (11,427)       (84,955)
Interest expense                                                                    (26,642)      (34,300)       (29,808)
Interest income                                                                       1,447         2,587          3,565
                                                                                  ---------     ---------     ----------
Loss before income taxes and cumulative effect of accounting change                 (12,141)      (43,140)      (111,198)
Income tax expense                                                                      300           370          3,326
                                                                                  ---------     ---------     ----------
Loss before cumulative effect of accounting change                                  (12,441)      (43,510)      (114,524)
Cumulative effect of accounting change                                             (222,116)            -              -
                                                                                  ---------     ---------     ----------
Net loss                                                                         $ (234,557)    $ (43,510)    $ (114,524)
                                                                                 ==========     =========     ==========

Loss per share data:
Net loss per common share before cumulative effect of accounting
     change - basic and diluted                                                   $   (0.52)    $   (1.85)    $    (5.31)
Cumulative effect of accounting change                                            $   (9.37)            -              -
                                                                                  ---------     ---------     ----------
Net loss per common share - basic and diluted                                     $   (9.89)    $   (1.85)    $    (5.31)
                                                                                 ==========     ==========    ==========

Weighted average number of common shares outstanding - basic and diluted             23,717        23,535         21,551
                                                                                 ==========     ==========    ==========
</TABLE>


                             See accompanying notes


                                       37
<PAGE>


                      NCS HEALTHCARE, INC. AND SUBSIDIARIES

            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                    (IN THOUSANDS, EXCEPT SHARE INFORMATION)

<TABLE>
<CAPTION>
                                                 CLASS A        CLASS B                      RETAINED     STOCKHOLDERS'
                                                  COMMON        COMMON        PAID-IN        EARNINGS         EQUITY
                                                  STOCK          STOCK        CAPITAL       (DEFICIT)       (DEFICIT)
                                                  -----          -----        -------       ---------       ---------
<S>                                              <C>            <C>          <C>             <C>            <C>
Balance at July 1, 1999                           $  143         $  60        $ 263,882       $ 12,349       $ 276,434
Issuance of 2,203,844 shares of Class A
     Common Stock for business combinations           22             -            6,811              -           6,833
Issuance of 497,153 shares of Class A Common
     Stock for profit sharing plan                     5             -              957              -             962
Conversion of 197,997 shares of Class B
     Common Stock to 197,997 shares of Class
     A Common Stock                                    2            (2)               -              -               -
Net loss                                               -             -                -       (114,524)       (114,524)
                                                  ------         -----          -------      ---------       ---------
Balance at June 30, 2000                             172            58          271,650       (102,175)        169,705
Issuance of 733,040 shares of Class A Common
     Stock for profit sharing plan                     7             -              293              -             300
Conversion of 512,319 shares of Class B
     Common Stock to 512,319 shares of Class
     A Common Stock                                    5            (5)               -              -               -
Net loss                                               -             -                -        (43,510)        (43,510)
                                                  ------         -----          -------      ---------       ---------
Balance at June 30, 2001                             184            53          271,943       (145,685)        126,495
                                                  ------         -----          -------      ---------       ---------
Conversion of 39,754 shares of Class B
     Common Stock to 39,754 shares of Class
     A Common Stock                                    -             -                -              -               -
Net loss                                               -             -                -       (234,557)       (234,557)
                                                  ------         -----          -------      ---------       ---------
Balance at June 30, 2002                          $  184         $  53         $271,943      $(380,242)      $(108,062)
                                                  ======         =====         ========      =========       =========
</TABLE>


                             See accompanying notes


                                       38
<PAGE>


                      NCS HEALTHCARE, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                      YEAR ENDED JUNE 30,
                                                                                2002         2001          2000
                                                                                ----         ----          ----
<S>                                                                          <C>           <C>          <C>
OPERATING ACTIVITIES
Net loss                                                                     $(234,557)    $(43,510)    $ (114,524)
Adjustments to reconcile net loss to net
      cash provided by operating activities:
           Cumulative effect of accounting change                              222,116            -              -
           Non-cash portion of fixed asset impairment charge                         -        2,106              -
           Non-cash portion of nonrecurring charges                                  -            -         38,555
           Depreciation and amortization                                        13,085       24,993         28,678
           Provision for doubtful accounts                                      18,013       31,101         53,825
           Deferred income taxes                                                     -            -          2,937
           Non-cash profit sharing expense                                           -          300            962
           Changes in assets and liabilities, net of effects of assets and
             liabilities acquired:
                Trade accounts receivable                                      (17,629)      (8,570)       (10,309)
                Inventories                                                      2,536        4,316         12,151
                Trade accounts payable                                          (4,647)      17,363         (5,204)
                Accrued expenses                                                 9,657         (295)       (11,251)
                Prepaid expenses and other                                         811           21         14,948
                                                                              --------     --------      ---------
Net cash provided by operating activities                                        9,385       27,825         10,768

INVESTING ACTIVITIES
Capital expenditures for property, plant and equipment                          (5,489)      (3,359)        (6,616)
Proceeds from sales of assets                                                      230          250            621
Purchases of businesses                                                         (1,371)           -              -
Other                                                                              778         (978)        (5,766)
                                                                              --------     --------      ---------
Net cash used in investing activities                                           (5,852)      (4,087)       (11,761)

FINANCING ACTIVITIES
Repayment of long-term debt                                                       (458)        (661)        (3,474)
Borrowings on line-of-credit                                                         -            -         91,300
Payments on line-of-credit                                                           -            -        (99,870)
                                                                              --------     --------      ---------
Net cash used in financing activities                                             (458)        (661)       (12,044)
                                                                              --------     --------      ---------
Net increase (decrease) in cash and cash equivalents                             3,075       23,077        (13,037)
Cash and cash equivalents at beginning of period                                39,464       16,387         29,424
                                                                              --------     --------      ---------
Cash and cash equivalents at end of period                                    $ 42,539     $ 39,464      $  16,387
                                                                              ========     ========      =========

Supplemental disclosure of cash flow information:
   Cash paid during the year for:
      Interest                                                                $ 21,176     $ 31,655      $  28,975
                                                                              ========     ========      =========
      Income taxes                                                            $    304     $    355      $     404
                                                                              ========     ========      =========
</TABLE>

                             See accompanying notes


                                       39
<PAGE>


                      NCS HEALTHCARE, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                FOR THE YEARS ENDED JUNE 30, 2000, 2001 AND 2002
                    (IN THOUSANDS, EXCEPT SHARE INFORMATION)


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

      NCS HealthCare, Inc. (the Company) operates in one primary business
segment providing a broad range of health care services primarily to long-term
care institutions including skilled nursing facilities, assisted living
facilities and other institutional health care settings. The Company purchases,
repackages and dispenses prescription and non-prescription pharmaceuticals and
provides client facilities with related management services, automated medical
record keeping, drug therapy evaluation, regulatory assistance and certain
ancillary health care services.

MANAGEMENT'S PLAN TO CONTINUE AS A GOING CONCERN

          The accompanying consolidated financial statements have been prepared
on a going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the ordinary course of business. As shown in the
accompanying consolidated financial statements, the Company has incurred net
losses of $43,510 and $234,557 for the years ended June 30, 2001 and 2002,
respectively. At June 30, 2002 the Company's working capital deficit was
$(223,430), primarily as a result of classifying $206,130 under the revolving
credit facility and $102,361 of convertible subordinated debentures as a current
liability. As discussed in Note 2, the revolving credit facility expired on May
31, 2002. As discussed in Note 8, as of June 30, 2002 the Company is in default
on $102,361 of its 5 3/4% convertible subordinated debentures. All borrowings
under the credit agreement and the convertible subordinated debentures have been
classified as a current liability. These factors, among others, raise
substantial doubt about the Company's ability to continue as a going concern.

      During the past three years the Company has implemented measures to
improve cash flows generated from operating activities, including reductions in
operating and overhead costs by continuing the consolidation and/or closing of
pharmacy locations, continuing its employee reduction plan, more aggressive
collection activity and inventory reduction efforts, and a temporary
modification of payment terms negotiated with a major Company supplier. In
addition, the Company continues to review the profitability of its customer base
and is terminating uneconomic accounts as well as applying stricter standards in
accepting new business.

      During the past two years, the Company has been in ongoing discussions
with the Company's senior lenders and with an ad hoc committee of holders of the
5 3/4% Convertible Subordinated Debentures due 2004 regarding the defaults and
potential restructuring options. In addition, the Company engaged financial
advisors and legal counsel to assist in exploring various capital restructuring
and strategic alternatives with third parties.

      On July 28, 2002, the Company entered into a definitive merger agreement
with Genesis Health Ventures, Inc. (Genesis). If the proposed merger is
completed, each outstanding share of common stock of the Company will be
converted into the right to receive 0.1 of a share of Genesis common stock. At
the closing of the proposed merger, Genesis will repay in full the outstanding
debt of NCS, including $206,130 of senior debt, and will redeem $102,361 of 5
3/4% convertible subordinated debentures, including accrued and unpaid interest
and any applicable redemption premiums. The completion of the proposed merger is
subject to regulatory approvals and other customary conditions, including the
approval of the holders of a majority of the outstanding voting power of the
Company's common stock.

      The timing and ultimate outcome of the proposed merger or any future
negotiations with the Company's senior lenders and ad hoc committee of debenture
holders is uncertain and could have a material adverse effect on the Company.
Given the foregoing, no assurances can be given that the Company will be able to
maintain its current level of operations, or that its financial condition and
prospects will not be materially and adversely affected over the next twelve
months. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

PRINCIPLES OF CONSOLIDATION

      The consolidated financial statements include the accounts of the Company
and its wholly owned and majority owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.


                                       40
<PAGE>


REVENUE RECOGNITION

      Revenue is recognized on a monthly basis for products or services provided
to customers during that month. The revenue cycle ends on the last day of the
month. As is generally the case for long-term care facility services, the
Company receives payments through reimbursement from Medicaid and Medicare
programs and directly from individual residents (private pay), private
third-party insurers and long-term care facilities. For the fiscal year ended
June 30, 2002, the Company's payor mix was approximately 49% Medicaid, 20%
long-term care facilities (including amounts for which the long-term care
facility receives reimbursement under Medicare Part A), 14% private pay, 11%
third-party insurance, 1% Medicare and 5% other sources. The Medicaid and
Medicare programs are highly regulated. The failure of NCS and/or its client
institutions to comply with applicable reimbursement regulations could adversely
affect the Company's business. The Company monitors its receivables from
Medicaid and other third-party payor programs and reports such revenues at the
net realizable amount expected to be received from third-party payors.

CASH EQUIVALENTS

      The Company considers all investments in highly liquid instruments with
original maturities of three months or less at the date purchased to be cash
equivalents. Investments in cash equivalents are carried at cost, which
approximates market value.

CONTRACTUAL ALLOWANCES

      An estimated contractual allowance is recorded against third-party sales
and accounts receivable (Medicaid and insurance). Accordingly, the net sales and
accounts receivable reported in the Company's financial statements are recorded
at the amount expected to be received from the third-party payor. Contractual
allowances are adjusted to actual as cash is received and claims are reconciled.
The Company evaluates the following criteria in developing the estimated
contractual allowance percentages each month:

-     Historical contractual allowance trends based on actual claims paid by
      third-party payors.
-     Review of contractual allowance information reflecting current contract
      terms.
-     Consideration and analysis of changes in customer base, product mix, payor
      mix, reimbursement levels or other issues that may impact contractual
      allowances.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

      The Company utilizes the "Aging Method" to evaluate the adequacy of its
allowance for doubtful accounts. This method is based upon applying estimated
standard allowance requirement percentages to each accounts receivable aging
category for each payor. Company management developed the estimated standard
allowance requirement percentages by utilizing historical collection trends and
its understanding of the nature and collectibility of receivables in the various
aging categories. The standard allowance percentages were developed by payor
type as the accounts receivable from each payor type have unique
characteristics. The necessary balance sheet allowance for doubtful accounts is
calculated on a monthly basis utilizing the aging method described above. The
Company ensures that the actual balance in the allowance for doubtful accounts
is equal to or greater than the estimated amount calculated by the aging method.

      Movement of the allowance for doubtful accounts is as follows:

                                                      Write-offs,
                     Balance at      Provision for       Net of       Balance at
                    Beginning of       Doubtful       Recoveries        End of
                       Period          Accounts        and Other        Period
                    ------------     -------------    -----------     ----------
Fiscal Year Ended
June 30,

       2002           $ 28,332         $ 18,013        $ (25,319)     $ 21,026

       2001           $ 53,926         $ 31,101        $ (56,695)     $ 28,332

       2000           $ 38,880         $ 53,825        $ (38,779)     $ 53,926


INVENTORIES AND COST OF GOODS SOLD

      Inventories for all business units consist primarily of purchased
pharmaceuticals and medical supplies and are stated at the lower of cost or
market. Cost is determined by using the last-in, first-out (LIFO) method for 4%
of the June 30, 2002 net inventory balance and by using the first-in, first-out
(FIFO) method for the remaining 96%. If the FIFO inventory valuation method had
been used exclusively, inventories would have been $636 and $512 higher at June
30, 2001 and 2002, respectively.


                                       41
<PAGE>


      Physical inventories are performed on a quarterly basis at all sites. As
the Company does not utilize a perpetual inventory system, cost of goods sold is
estimated during non-inventory months and is adjusted to actual by recording the
results of the quarterly physical inventories. The Company evaluates the
following criteria in developing estimated cost of goods sold during
non-inventory months:

      -     Historical cost of goods sold trends based on prior physical
            inventory results.
      -     Review of cost of goods sold information reflecting current customer
            contract terms.
      -     Consideration and analysis of changes in customer base, product mix,
            payor mix, State Medicaid and third-party insurance reimbursement
            levels or other issues that may impact cost of goods sold.

PROPERTY, PLANT AND EQUIPMENT

      Property, plant and equipment are stated at cost. Depreciation on
property, plant and equipment is computed using the straight-line method over
the estimated useful lives of the assets, which are as follows:

              Buildings                                             30 years
              Machinery, equipment and vehicles                 5 - 10 years
              Computer equipment and software                   3 -  5 years
              Furniture, fixtures and leasehold improvements    3 - 10 years

      Depreciation expense, including amortization of capital leased assets, was
$15,110, $11,979 and $11,191 for the years ended June 30, 2000, 2001 and 2002,
respectively.

     In February 2001, the Company recorded a fixed asset impairment charge of
$2,106 in accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to
be Disposed of" (SFAS No. 121). This charge relates primarily to changes in
asset values resulting from the impact of restructuring activities and changes
in operational processes under restructured operations.

GOODWILL, INTANGIBLES AND OTHER ASSETS

      In July 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards (SFAS) No. 141, "Business Combinations," and
No. 142, "Goodwill and Other Intangible Assets."

      SFAS No. 141 requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method is no longer permitted. SFAS No. 141 also includes
guidance on the initial recognition and measurement of goodwill and other
intangible assets acquired in a business combination that is completed after
June 30, 2001. The Company adopted SFAS No. 141 on July 1, 2001.

      The Company elected early adoption of SFAS No. 142 as of July 1, 2001. In
accordance with SFAS No. 142, goodwill and other indefinite lived intangible
assets will no longer be amortized. Under this non-amortization approach, SFAS
No. 142 requires that goodwill and other indefinite lived intangible assets be
reviewed for impairment using a fair value based approach upon adoption and at
least annually thereafter.

        SFAS No. 142 provides a six-month transitional period from the effective
date of adoption for the Company to perform an assessment of whether there is an
indication that goodwill is impaired. To the extent that an indication of
impairment exists, the Company must perform a second test to measure the amount
of the impairment. For the purposes of SFAS No. 142, the Company is considered
to have one reporting unit. The Company determined its implied fair value
utilizing a market capitalization approach and compared the fair value of the
Company to its carrying value. This evaluation indicated that goodwill was
potentially impaired as of July 1, 2001. As a result, the Company was required
to complete the second step of the transitional impairment test to measure the
amount of the impairment. In calculating the impairment, the implied fair value
of goodwill was determined by calculating the fair value of all tangible and
intangible net assets through appraisals, external valuations, quoted market
prices and other valuation methods. The implied fair value of goodwill was
compared to the carrying value of goodwill to measure the amount of the
impairment. The Company recorded a non-cash charge of $222,116 as of July 1,
2001 to reduce the carrying value of its goodwill as a result of the adoption of
SFAS No. 142. In accordance with the requirements of SFAS No. 142, the charge
has been recorded as a cumulative effect of accounting change in the Company's
consolidated statement of operations. Since a portion of the impaired goodwill
is not deductible for taxes or as a result of the full valuation allowance on
deferred taxes, no tax benefit was recorded in relation to the non-cash charge.
As of June 30, 2002, remaining goodwill was $80,487 which is subject to
continuing review of impairment under a similar approach as described above.

      The amount of the impairment primarily reflects the decline in the
Company's stock price and financial condition since the acquisitions were
consummated that generated the goodwill. The Company observed significant
negative industry and customer trends during the three years prior to the
valuation date of July 1, 2001, including a net loss of $16,325, $114,524 and
$43,510


                                       42
<PAGE>


for the years ended June 30, 1999, 2000 and 2001, respectively. These trends
primarily related to increased bankruptcies and significant financial
difficulties experienced by the Company's skilled nursing facility customers
primarily as a result of the greater than expected adverse impact with regard to
implementation of the Medicare Prospective Payment System (PPS) under the
Balanced Budget Act of 1997.

      SFAS No. 142 also requires goodwill to be tested annually and between
annual tests if events occur or circumstances change that would more likely than
not reduce the fair value of a reporting unit below its carrying amount. The
Company has elected to perform its annual tests for indications of goodwill
impairment as of April 1 of each year. As of April 1, 2002, the Company's annual
assessment indicated that the remaining goodwill was not impaired.

      The methodology of accounting for goodwill under SFAS No. 142 differs from
the Company's previous policy, in accordance with accounting standards existing
at that time, of using undiscounted cash flows over the remaining amortization
period to determine if goodwill is recoverable.

      Intangible assets that will continue to be amortized under SFAS No. 142
consist primarily of non-compete covenants and debt issuance costs. Debt
issuance costs are included in other assets and are amortized using the
effective interest method over the life of the related debt.

ACCRUED HEALTH INSURANCE

      The Company is self-insured for health insurance claims with a stop-loss
umbrella policy in place to limit the maximum potential liability for both
individual claims and total claims for a plan year. Health insurance claims are
paid as they are submitted to the plan administrator. The Company maintains an
accrual for claims that have been incurred but not yet reported (IBNR) to the
plan administrator and therefore have not been paid. The Company maintains an
IBNR reserve based on the historical claim lag period and current payment trends
of health insurance claims (generally 2 to 3 months).

      The Company records a monthly expense for the health insurance plan in its
financial statements. The initial monthly expense for a plan year is determined
at the beginning of the plan year by reviewing historical claims experience and
the estimated range of liability for the plan year as determined by the plan
administrator. The initial monthly expense is adjusted each month as necessary
to ensure that an adequate IBNR reserve level is maintained.

INCOME TAXES

      The Company follows Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." This accounting standard requires that the
liability method be used in accounting for income taxes. Under this accounting
method, deferred tax assets and liabilities are determined based on the
differences between the financial reporting basis and the tax basis of assets
and liabilities and are measured using the expected enacted tax rates and laws
that apply in the periods in which the deferred tax asset or liability is
expected to be realized or settled.

STOCK OPTIONS

      The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed in Note 9, the alternative fair value accounting provided under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," (SFAS No. 123)
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, when the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.

EARNINGS PER SHARE

      The Company follows Statement of Financial Accounting Standards No. 128,
"Earnings per Share." Under this accounting standard, basic earnings per share
are computed based on the weighted average number of shares of Class A and Class
B shares outstanding during the period. Diluted earnings per share include the
dilutive effect of stock options and subordinated convertible debentures.

FAIR VALUE OF FINANCIAL INSTRUMENTS

      The fair value of all financial instruments of the Company approximates
the amounts presented on the consolidated balance sheet.


                                       43
<PAGE>


RECENTLY ISSUED ACCOUNTING STANDARDS

      In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 supersedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of" and amends APB Opinion No. 30, "Reporting Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business" ("APB
30"). This statement develops one accounting model (based on the model in SFAS
No. 121) for long-lived assets that are disposed of by sale, as well as
addresses the principal implementation issues. SFAS No. 144 also expands the
scope of discontinued operations and changes the disclosure requirement for
discontinued operations. This statement is effective for fiscal years beginning
after December 15, 2001. Management does not expect this standard to have a
material impact on the Company's consolidated financial position, results of
operations or cash flows.

      The FASB recently issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 addresses the recognition,
measurement, and reporting of costs that are associated with exit and disposal
activities, including costs related to terminating a contract that is not a
capital lease, costs to consolidate facilities or relocate employees, and
termination benefits provided to employees that are involuntarily terminated
under the terms of a one-time benefit arrangement that is not an ongoing benefit
arrangement or an individual deferred-compensation contract. SFAS 146 No.
supersedes Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to exit an
Activity (including Certain Costs Incurred in a Restructuring)" and requires
liabilities associated with exit and disposal activities to be recognized when
the liability is incurred. SFAS No. 146 is effective for exit or disposal
activities that are initiated after December 31, 2002.

USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS

      The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results can differ from these estimates depending
upon certain risks and uncertainties.

MATERIAL RISKS AND UNCERTAINTIES

      Potential risks and uncertainties, many of which are beyond the control of
the Company include, but are not limited to, such factors as the Company's
ability to consummate the proposed merger transaction with Genesis, discussions
with the Company's senior lenders and the ad hoc committee of debenture holders,
overall economic, financial and business conditions, delays in reimbursement by
the government or other payors of the Company and its customers, the overall
financial condition of the Company's customers, the effect of new government
regulation, changes in reimbursement levels from State Medicaid programs and
third-party insurance plans, negotiations regarding payment terms and other
contractual obligations with suppliers, the outcome of litigation, access to
capital and financing, the demand for the Company's products and services,
pricing and competitive factors in the industry and changes in accounting rules
and standards.

      The Company purchases the majority of its inventory through one primary
pharmaceutical supplier representing a concentration of credit risk to the
Company. In fiscal 2001, the Company negotiated a temporary modification of
payment terms with this supplier. In June 2002, the Company entered into a
letter of intent with this supplier and is continuing its negotiations to
achieve a permanent modification in payment terms. In addition, the Company
earns administrative fees and amounts from certain other contractual
arrangements under a prime wholesaler agreement with this supplier. The
administrative fees and amounts from other contractual arrangements are accrued
on a monthly basis based on purchasing data and knowledge of the terms of the
contractual arrangements. The actual amounts due under the contractual
arrangements are typically communicated to the Company on a quarterly or annual
basis based on the terms of the contractual arrangements. As a result of the
2001 temporary modification of payment terms, the supplier is withholding
certain contractual amounts due to the Company. Receivables from the supplier of
$5,871 and $12,237 at June 30, 2001 and 2002, respectively, have been netted
against accounts payable to the supplier for financial reporting purposes. The
Company believes that the receivables arising from these contractual
arrangements are collectible and is currently operating under the letter of
intent which provides for the Company to make monthly payments to the supplier
based on the net amount payable to the supplier.


2.  LINE OF CREDIT

      In June 1998, the Company entered into a four-year revolving credit
agreement (Credit Facility) which expired on May 31, 2002. On June 3, 2002, the
Company received correspondence from the senior lenders indicating that they
reserve the right to exercise all rights, powers and privileges provided for in
the credit agreement including the acceleration of the collection of the
Company's obligations and/or exercise other remedies under the credit agreement
including exercising their rights with respect


                                       44
<PAGE>


to the pledged collateral. At the current time, the senior lenders have not
chosen to exercise and enforce the rights and remedies available to them under
the credit agreement. The Company continues to operate under the terms of the
Credit Facility.

      The Credit Facility, as amended, had an available commitment of $207
million, provided all Company assets as security, limited the availability of
the Credit Facility to use for working capital only, required Lender approval on
acquisitions, provided for interest at a variable rate and contained certain
debt covenants including an interest coverage ratio, minimum consolidated net
worth requirements and a restriction on declaration and payment of cash
dividends to shareholders. Prior to the expiration of the Credit Facility, the
Company had been in violation of certain financial covenants of the Credit
Facility. On April 21, 2000, the Company received a formal notice of default
from the senior lenders. As a result of the notice of default, the interest rate
on the Credit Facility (excluding facility fee) increased to the Prime Rate plus
2.25% (7.0% at June 30, 2002). The borrowings of $206,130 under the Credit
Facility at June 30, 2002 are classified as a current liability. Failure to
obtain a favorable resolution to the expiration of the Credit Facility could
have a material adverse effect on the Company.

      See additional discussion regarding the Credit Facility and the proposed
merger with Genesis in Note 1.


3. LONG-TERM DEBT

      Long-term debt consists of the following:

                                                                    JUNE 30,
                                                                    --------
                                                                2002       2001
                                                                ----       ----

2% note payable to Pennsylvania Industrial Development
      Authority due in monthly installments through June,
      2010, and secured through an interest in a building
      of the Company                                          $  393     $  425
Collateralized lease obligations with interest ranging
      from 7% to 16% due monthly through April, 2004             318        707
Other                                                            112        149
                                                                ----       ---
Total long-term debt                                             823      1,281
Less current portion                                             274        456
                                                              ------     ------
Long-term debt, excluding current portion                     $  549     $  825
                                                              ======     ======

      The aggregate maturities of the long-term debt for each of the five years
subsequent to June 30, 2002 are as follows:

FISCAL YEAR ENDING JUNE 30,                                       AMOUNT
---------------------------                                       ------

2003                                                             $   274
2004                                                                 170
2005                                                                  67
2006                                                                  70
2007                                                                  60
Thereafter                                                           182
                                                                 -------
                                                                 $   823
                                                                 =======


                                       45
<PAGE>

4. INCOME TAX EXPENSE

      Income tax expense (benefit), for each of the three years ended June 30,
2002, consists of:

<TABLE>
<CAPTION>
                                   2002                               2001                               2000
                                   ----                               ----                               ----
                      CURRENT    DEFERRED     TOTAL      CURRENT    DEFERRED     TOTAL      CURRENT    DEFERRED     TOTAL
                      -------    --------     -----      -------    --------     -----      -------    --------     -----
<S>                   <C>         <C>        <C>         <C>        <C>         <C>        <C>         <C>        <C>
Federal               $    -      $    -     $    -      $    -     $    -      $    -     $   (56)    $  2,505   $  2,449

State and local          300           -        300         370          -         370         445          432        877
                      ------      -------    ------      ------     -------     ------     -------     --------   --------
                      $  300      $    -     $  300      $  370     $    -      $  370     $    89     $  2,937   $  3,326
                      ======      =======    ======      ======     =======     ======     =======     ========   ========
</TABLE>


      Reconciliation of income taxes at the United States Federal statutory rate
to the effective income tax rate for the three years ended June 30, 2002 are as
follows:

<TABLE>
<CAPTION>
                                                                                     2002           2001          2000
                                                                                     ----           ----          ----
<S>                                                                               <C>             <C>            <C>
Income tax benefit at the United States statutory rate                            $ (79,647)      $(14,668)      $(37,807)
State and local income tax benefit                                                  (12,455)        (2,327)        (2,989)
Amortization/write-off of nondeductible intangible assets                            12,806            532            561
Increase in valuation allowance                                                      79,254         16,770         35,993
Nondeductible nonrecurring charges                                                        -              -          6,725
Other - net                                                                             342             63            843
                                                                                  ---------       --------       --------
Total provision for income tax expense                                                  300            370          3,326
Income tax benefit from cumulative effect of accounting change                            -              -              -
                                                                                  ---------       --------       --------
Net tax provision                                                                 $     300       $    370       $  3,326
                                                                                  =========       ========       ========
</TABLE>


      The tax effects of temporary differences that give rise to significant
portions of the net deferred tax assets are as follows:

                                                          JUNE 30,
                                                          --------
                                                   2002              2001
                                                   ----              ----

Deferred tax assets (liabilities):
      Allowance for doubtful accounts            $   8,550         $  11,082
      Accrued expenses and other                     5,369             4,825
      Loss carryforwards                            78,457            65,477
      Intangibles                                   40,867           (25,863)
      Depreciable assets and other                  (1,082)           (2,245)
      Valuation allowance                         (132,161)          (53,276)
                                                 ---------         ---------
Net deferred tax assets                          $       -         $       -

      The evaluation of the realizability of the Company's net deferred tax
assets in future periods is made based upon historical and projected operating
performance and other factors for generating future taxable income, such as
intent and ability to sell assets. At this time, the Company has concluded that
the realization of deferred tax assets is not deemed to be "more likely than
not" and, consequently, established a valuation allowance during the years ended
June 30, 2001 and 2002 equal to its net deferred tax asset.

      At June 30, 2002 the Company has net operating loss carryforwards of
$192.3 million for income tax purposes that expire in years 2010 through 2022.
U.S. tax laws limit the annual utilization of tax loss carryforwards of acquired
businesses.


                                       46
<PAGE>


5. OPERATING LEASES

      The Company is obligated under operating leases primarily for office
facilities and equipment. Future minimum lease payments under noncancelable
operating leases as of June 30, 2002 are as follows:

FISCAL YEAR ENDING JUNE 30,                                      AMOUNT
---------------------------                                      ------

2003                                                           $  7,114
2004                                                              5,639
2005                                                              3,824
2006                                                              2,843
2007                                                              2,033
Thereafter                                                        1,466
                                                                 ------
                                                               $ 22,919
                                                               ========


      Total rent expense under all operating leases for the years ended June 30,
2000, 2001 and 2002 was $9,762, $8,698, and $8,446 respectively.


6. PROFIT-SHARING PLAN

      The Company maintains a profit sharing plan with an Internal Revenue Code
Section 401(k) feature covering substantially all of its employees. Under the
terms of the plan, the Company will match up to 20% of the first 10% of eligible
employee compensation. Effective January 1, 1999, the Company amended the profit
sharing plan to provide for the Company match to be contributed as the Company's
common stock. Effective October 1, 2000 the Company amended the profit sharing
plan to return the Company match back to a cash contribution.

      The Company's aggregate contributions to the plan and related expense were
$962, $852 and $834 for the years ended June 30, 2000, 2001 and 2002,
respectively.


7. RELATED PARTY TRANSACTIONS

      The Company currently leases 11 of its facilities from entities affiliated
with former owners of certain businesses acquired, who are employees of the
Company. The buildings are used for operations of the Company. Rent expense of
$1,197, $888 and $890 was incurred under these leasing arrangements in the years
ended June 30, 2000, 2001 and 2002, respectively.


8. STOCKHOLDERS' EQUITY/CONVERTIBLE SUBORDINATED DEBENTURES

      Holders of Class A Common Stock and holders of Class B Common Stock are
entitled to one and ten votes, respectively, in corporate matters requiring
approval of the shareholders of the Company. No dividend may be declared or paid
on the Class B Common Stock unless a dividend of equal or greater amount is
declared or paid on the Class A Common Stock.

      On August 3, 1999 the Company amended its line of credit agreement
entering into several restrictive covenants including a restriction on the
declaration and payment of cash dividends to shareholders.

      On August 13, 1997, the Company issued $100,000 of convertible
subordinated debentures (1998 debentures) due 2004. Net proceeds to the Company
were approximately $97,250, net of underwriting discounts and expenses. The 1998
debentures carry an interest rate of 5 3/4% and are convertible into shares of
Class A Common Stock at any time prior to maturity at $32.70 per share. A
portion of the proceeds from the debenture offering was used to repay
approximately $21,000 of outstanding indebtedness under short-term borrowings.

      The debentures are obligations of the Company. The operations of the
Company are currently conducted principally through subsidiaries, which are
separate and distinct legal entities. Each of the Company's wholly owned
subsidiaries has unconditionally guaranteed, jointly and severally, the
Company's payment obligations under the 1998 debentures. Accordingly, summarized
financial information regarding the guarantor subsidiaries has not been
presented because management of the Company believes that such information would
not be meaningful to investors.

      The Company elected not to make the semi-annual $2,875 interest payments
due February 15, 2001, August 15, 2001, February 15, 2002 and August 15, 2002 on
the 1998 debentures. On April 6, 2001, the Company received a formal Notice of
Default and Acceleration and Demand for Payment from the Indenture Trustee. The
Indenture Trustee declared the entire


                                       47
<PAGE>


principal and any accrued interest thereon to be immediately due and payable and
demanded immediate payment of such amounts. If such payments are not made, the
Indenture Trustee reserves the right to pursue remedial measures in accordance
with the Indenture, including, without limitation, collection activities. As of
June 30, 2002, the amount of principal and accrued interest is $110,767.

      During fiscal 2000, in connection with an acquisition agreement, the
Company issued a $2,000 convertible subordinated debenture maturing on August
15, 2004. The note and accrued "payment-in-kind" interest will be convertible
into a maximum of 200,000 Class A Common Shares at a conversion price of $8.00
per share. During fiscal 2001 and 2002, $107 and $254 of accrued interest was
converted to principal, respectively. As a result of the 1998 debentures being
in default, these debentures are also in default at June 30, 2001 and 2002.

      Until the defaults on the debentures are resolved, convertible
subordinated debentures of $102,361 and the related accrued interest of $10,856
will be classified as a current liability. See additional discussion regarding
the convertible subordinated debentures and the proposed merger with Genesis in
Note 1.


9. STOCK OPTIONS

      During the period from 1987 through 1995, the Company granted stock
options to certain directors and key employees which provide for the purchase of
1,054,890 common shares in the aggregate, at exercise prices ranging from $0.71
to $6.19 per share, which represented fair market values on the dates the grants
were made.

      During fiscal 1995, the Company adopted an Employee Stock Purchase and
Option Plan that authorized 100,000 shares of Class A Common Stock for awards of
stock options to certain key employees. During fiscal 1995 and 1996 the Company
granted 11,520 and 7,458 options, respectively, at an exercise price of $6.19
and $7.33 per share, respectively, under the provisions of this plan. These
exercise prices represented fair market values on the dates the grants were
made.

      In January 1996, the Company adopted a Long Term Incentive Plan (the Plan)
to provide up to 700,000 shares of Class A Common Stock for awards of incentive
and nonqualified stock options to officers and key employees of the Company.
During fiscal 1996, the Company granted 56,500 nonqualified stock options and
27,540 incentive stock options, all at $16.50 per share. The nonqualified stock
options have a term of five years and became exercisable in thirds on February
1, 1998, 1999 and 2000. The incentive stock options have a term of six years and
became exercisable in fifths each year on February 1, 1997, 1998, 1999, 2000 and
2001. During fiscal 1997 and 1999 the Company granted 301,250 and 345,250
nonqualified stock options, respectively, at an exercise price of $20.00 and
$15.00 per share, respectively, the market values of the stock on the dates of
the grant. The fiscal 1997 nonqualified stock options have a term of five years
and became exercisable in thirds on April 1, 1999, 2000 and 2001. The fiscal
1999 nonqualified stock options have a term of five years and become exercisable
in thirds on November 1, 2000, 2001, and 2002. During fiscal 2001, the Company
granted 240,000 nonqualified stock options at an exercise price of $0.135, the
market value of the stock on the date of the grant. The options have a term of
five years and become exercisable in thirds on November 1, 2002, 2003 and 2004.

      In October 1998, the Company adopted the 1998 Performance Plan (the 1998
Performance Plan) to provide up to 1,200,000 shares of Class A Common Stock for
awards of incentive and nonqualified options to directors, officers, and key
employees of the Company. During fiscal 1999, the Company granted 85,000
nonqualified stock options at an exercise price of $18.50 per share, the market
value of the stock on the date of the grant. These nonqualified stock options
have a term of five years and become exercisable in thirds on January 1, 2001,
2002 and 2003. During fiscal 2000, the Company granted 494,250 and 290,500
nonqualified stock options at an exercise price of $4.25 and $1.47 per share
respectively, the market values of the stock on the date of the grants. The
494,250 nonqualified stock options have a term of five years and become
exercisable in thirds on August 1 2001, 2002 and 2003. The 290,500 nonqualified
stock options have a term of five years and became exercisable in halves on
January 28, 2001 and 2002. During fiscal 2001 the Company granted 460,000
nonqualified stock options at an exercise price of $0.135, the market value of
the stock on the date of the grant. The options have a term of five years and
become exercisable in thirds on November 1, 2002, 2003 and 2004.

      In November 2000, the Company adopted the 2000 Performance Plan (the 2000
Performance Plan) to provide up to 2,000,000 shares of Class A Common Stock for
awards of incentive and nonqualified options to directors, officers, and key
employees of the Company. During fiscal 2002, the Company granted 705,000
nonqualified stock options at an exercise price of $0.19 per share, the market
value of the stock on the date of the grant. These nonqualified stock options
have a term of five years and become exercisable in thirds on December 1, 2003,
2004 and 2005.

      Substantially all of the Company's outstanding stock options contain
provisions that provide for immediate vesting upon a change in control of
the Company.


                                       48
<PAGE>


      The Company's stock option activity and related information for the years
ended June 30 are summarized as follows:

<TABLE>
<CAPTION>
                                      2002                       2001                       2000
                                      ----                       ----                       ----
                                                  WEIGHTED                   WEIGHTED                  WEIGHTED
                                                  AVERAGE                    AVERAGE                   AVERAGE
                                                  EXERCISE                   EXERCISE                  EXERCISE
                                     OPTIONS       PRICE        OPTIONS       PRICE       OPTIONS       PRICE
                                     -------       -----        -------       -----       -------       -----
<S>                                 <C>            <C>         <C>            <C>           <C>         <C>
Outstanding at
  beginning of year                 1,954,798      $ 5.99      1,297,109      $ 9.14       846,694      $15.82
Granted                               705,000        0.19        700,000        0.14       784,750        3.22
Forfeited                            (142,216)       4.72        (42,311)       5.80      (334,335)      12.32
                                    ---------      ------      ---------      ------     ---------      ------
Outstanding at
  end of year                       2,517,582      $ 4.44      1,954,798      $ 5.99     1,297,109      $ 9.14
                                    =========      ======      =========      ======     =========      ======
Exercisable at
  end of year                         850,814                    537,828                   266,441
                                    =========                  =========                 =========
</TABLE>

      Information regarding stock options outstanding as of June 30, 2002 is
summarized as follows:


<TABLE>
<CAPTION>
[--------------------------------Options Outstanding--------------------------------]  [----------Options Exercisable----------]
                                    Weighted                              Weighted
                                     Average                              Average
                             Number                Weighted               Remaining             Number                Weighted
      Range of            Outstanding              Average               Contractual          Exercisable             Average
   Exercise Prices      At June 30, 2002        Exercise Price         Life (In Years)     At June 30, 2002        Exercise Price
  ----------------      ----------------        --------------         ---------------     ----------------        --------------
<S>                        <C>                   <C>                        <C>              <C>                     <C>
   $0.14  -  $0.14           627,000               $  0.14                    4.50                  --                  $   --
    0.19  -  $0.19           694,000                  0.19                    3.33                  --                      --
    1.47  -   1.47           236,750                  1.47                    2.58             236,750                    1.47
    4.25  -   6.19           481,358                  4.63                    2.23             223,682                    5.07
   15.00  -  16.50           228.274                 15.32                    1.81             168,516                   15.44
   18.50  -  20.00           250,200                 19.49                    3.74             221,866                   19.62
   ---------------           -------                 -----                    ----             -------                   -----

   $0.14  - $20.00         2,517,582               $  4.44                    3.28             850,814                  $ 9.92
   ===============         =========               =======                    ====             =======                  ======
</TABLE>


      Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted average
assumptions: risk-free interest rates of 6.00%; a dividend yield of 0.00%; a
volatility factor of the expected market price of the Company's Class A Common
Stock ranging from .482 to 1.964; and a weighted-average expected option life
ranging from 4 to 4.5 years. The weighted average fair value of options granted
during fiscal 2000, 2001 and 2002 was $1.97, $0.13 and $0.11 per share,
respectively.

      The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

      For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information for the three years ended June 30, 2002 is as follows (in
thousands except for earnings per share information):

                                             2002          2001          2000
                                             ----          ----          ----

Net loss - basic and diluted              $(235,293)     $(44,554)    $(115,577)
Earnings per share - basic and diluted        (9.92)        (1.89)        (5.36)



                                       49
<PAGE>

10. ACQUISITIONS

      As described in Note 1, the Company adopted SFAS No. 141 as of July 1,
2001. SFAS No. 141 requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001. The Company paid cash
of $1,371 for three immaterial acquisitions in fiscal 2002. These acquisitions
have been recorded using the purchase method of accounting and, accordingly,
results of their operations have been included in the Company's consolidated
financial statements since the effective date of the respective acquisitions.
There were no acquisitions during the fiscal years ended June 30, 2000 and 2001.

      Certain of the Company's acquisition agreements provided for contingent
purchase price arrangements under which the purchase price paid may be
subsequently increased upon the achievement of specific operating performance
targets during post acquisition periods. The additional purchase price, payable
in cash or Company stock is recorded, if earned, upon resolution of the
contingent factors. The Company issued 2,203,844 shares of Class A Common Stock
valued at $6,833 and a $2,000 convertible subordinated debenture maturing on
August 15, 2004 under contingent purchase price arrangements during fiscal 2000.
As of June 30, 2002, no material contingencies remain from the Company's
acquisition agreements.


11. SPECIAL AND NONRECURRING CHARGES

      During fiscal 2000, the Company recorded nonrecurring, restructuring and
special charges of $95,800. A special charge of $44,600 was recorded to increase
the allowance for doubtful accounts and nonrecurring, restructuring and other
special charges of $51,200 were recorded in connection with the implementation
and execution of strategic restructuring and consolidation initiatives of
certain operations, the planned disposition of certain non-core and/or
non-strategic assets, impairment of certain assets and other nonrecurring items.

      The special charge to increase the allowance for doubtful accounts
resulted from continuing negative changes observed in industry and customer
trends during the year ended June 30, 2000, and a change in the method of
estimating the allowance necessary for accounts receivable. The financial
condition of the Company's primary customer base and negative industry trends
continued to deteriorate throughout the year. Due to the negative trends that
the Company's customers were facing, management re-evaluated the method of
estimating the allowances necessary for these and other customers. The total
provision for doubtful accounts, including the amounts included in the special
charge, was $53,825 for the year ended June 30, 2000.

      The Company continued its plan of restructuring to consolidate certain
pharmacy sites in order to improve operating efficiencies. As a result, the
Company consolidated thirteen additional pharmacy sites into either a new or
existing location. The Company also shutdown six locations associated with
certain ancillary services. During the year ended June 30, 2000, the Company
recorded nonrecurring charges of $9,700 related to these site consolidations and
location shutdowns, inclusive of $1,100 of additional costs incurred on site
consolidations previously announced.

      During the year ended June 30, 2000, the Company adopted a formal exit
plan to dispose of certain non-core and/or non-strategic assets. The Company
recorded nonrecurring charges of $30,700 related to the planned disposition of
assets primarily consisting of impairment to goodwill and property and
equipment. Through June 30, 2002, the Company has disposed of four ancillary
service operations that were not contributing to the overall financial
performance of the Company. Total revenue and operating income of the related
business units was $59,300 and $1,500, respectively, for the year ended June 30,
2000.

      The remaining $10,800 of the nonrecurring charge primarily relates to
severance incurred during the year associated with the Company's expense
reduction initiatives, additional asset impairments, costs related to a
settlement with federal authorities regarding the investigation of the Company's
Indianapolis, Indiana facility and other nonrecurring expenses.

      During December 1999, the Company reached a settlement with the U.S.
Attorney's office in the Southern District of Indiana regarding the federal
investigation of the Company's facility in Indianapolis, Indiana. As a result,
the Company recorded the settlement amount as a nonrecurring charge. Under the
terms of the settlement, the Company paid $4,100 to the U.S. Attorney's office.
The Company also agreed to maintain its current level of spending in connection
with its compliance systems and procedures for a period of three years. If the
Company does not comply with the terms of the accord, an additional $1,500 will
be payable to the U.S. Attorney's office.

      Employee severance costs included in the nonrecurring charges relate to
the termination of 472 employees. As of June 30, 2002, all terminations
associated with these restructuring activities have been completed.


                                       50
<PAGE>


Details of the fiscal 2000 nonrecurring, restructuring and special charges and
related activity are as follows:

<TABLE>
<CAPTION>
                                                       Nonrecurring                   Reserve                  Reserve
   Description                       Cash/non-cash        Charge       Activity    At 6/30/01     Activity   At 6/30/02
   -----------                       -------------        ------       --------    ----------     --------   ----------
                                                      (in thousands)
<S>                                 <C>                      <C>        <C>             <C>        <C>            <C>
   Site Consolidations
        Severance/compensation       Cash                     $ 1,300    $(1,300)        $  --      $   --         $  --
        related
        Lease terminations           Cash                       2,800     (2,100)          700        (500)          200
        Asset impairments            Non-cash                   4,400     (4,400)           --          --            --
        Other                        Cash                       1,200     (1,000)          200        (100)          100

   Special increase to allowance
        for doubtful accounts        Non-cash                  44,600    (44,600)           --          --            --

   Disposition of Assets
        Asset impairment             Non-cash                  30,200    (30,200)           --          --            --
        Other                        Cash                         500       (500)           --          --            --

   Other
        Cash                                                    6,600     (6,500)          100        (100)           --
        Non-cash                                                4,200     (4,200)           --          --            --
                                                              -------   --------        ------     -------         -----

   Total                                                      $95,800   $(94,800)       $1,000     $  (700)        $ 300
                                                              =======   =========       ======     =========       =====
</TABLE>


                                       51
<PAGE>


12. EARNINGS PER SHARE

         The following table sets forth the computation of basic and diluted
earnings per share:

<TABLE>
<CAPTION>
                                                                                  2002            2001            2000
                                                                                  ----            ----            ----
<S>                                                                            <C>              <C>            <C>
Numerator:
Numerator for basic earnings per share - net loss                              $(234,557)       $(43,510)      $(114,524)
     Effect of dilutive securities:
        Convertible debentures                                                         -               -               -
                                                                               ---------        --------       ---------
        Numerator for diluted earnings per share                               $(234,557)       $(43,510)      $(114,524)
                                                                               ==========       =========      ==========

Denominator:
Denominator for basic earnings per share -
    weighted average common shares                                                23,717          23,535          21,551
Effect of dilutive securities:
    Stock options                                                                      -               -               -
    Convertible debentures                                                             -               -               -
                                                                               ---------        --------       ---------

Dilutive potential common shares                                                       -               -               -
                                                                               ---------        --------       ---------

    Denominator for diluted earnings per share                                    23,717          23,535          21,551
                                                                                ========        ========       =========

Basic earnings per share:
    Loss before cumulative effect of accounting change                          $ (0.52)        $ (1.85)       $   (5.31)
    Cumulative effect of accounting change                                        (9.37)              -               -
                                                                               ---------        --------       ---------
    Net loss per share                                                          $ (9.89)        $ (1.85)       $   (5.31)
                                                                                ========        ========       =========

Diluted earnings per share:
    Loss before cumulative effect of accounting change                          $ (0.52)        $ (1.85)       $   (5.31)
    Cumulative effect of accounting change                                        (9.37)               -               -
                                                                               ---------        --------       ---------
    Net loss per share                                                          $ (9.89)        $ (1.85)       $   (5.31)
                                                                                ========        ========       =========
</TABLE>


     At June 30, 2002, the Company has $102,361 of convertible subordinated
debentures outstanding that are convertible into 3,258,104 shares of Class A
Common Stock and 2,517,582 employee stock options that are potentially dilutive
that were not included in the computation of diluted earnings per share as their
effect would be antidilutive. At June 30, 2001, the Company has $102,107 of
convertible subordinated debentures outstanding that are convertible into
3,258,104 shares of Class A Common Stock and 1,954,798 employee stock options
that are potentially dilutive that were not included in the computation of
diluted earnings per share as their effect would be antidilutive.


                                       52
<PAGE>


13. GOODWILL AND INTANGIBLE ASSETS

     As described in Note 1, the Company adopted SFAS No. 142 as of July 1,
2001. In accordance with SFAS No. 142, the Company discontinued the amortization
of goodwill effective July 1, 2001. A reconciliation of previously reported net
loss and loss per share to the amounts adjusted for the exclusion of the
cumulative effect of accounting change and goodwill amortization, net of the
related income tax effect, follows:


<TABLE>
<CAPTION>
                                                                                       YEAR ENDED
                                                                                        JUNE 30,
                                                                             2002         2001          2000
                                                                             ----         ----          ----
<S>                                                                       <C>           <C>          <C>
    Net Loss:
    As reported                                                           $(234,557)    $(43,510)    $(114,524)
    Goodwill amortization                                                         -       10,396        10,865
    Cumulative effect of accounting change                                  222,116            -             -
                                                                          ---------     --------     ---------
    As adjusted                                                           $ (12,114)    $(33,114)    $(103,659)
                                                                          =========     ========     =========

    Basic and Diluted Loss Per Share:
    As reported                                                           $   (9.89)    $  (1.85)    $   (5.31)
    Goodwill amortization                                                         -         0.44          0.50
    Cumulative effect of accounting change                                     9.37            -             -
                                                                          ---------     --------     ---------
    As adjusted                                                           $   (0.52)    $  (1.41)    $   (4.81)
                                                                          ==========    ========     =========

</TABLE>

    Changes in the carrying amount of goodwill for fiscal 2002 are as follows:

    Balance at June 30, 2001                                        $  301,907
    Cumulative effect of accounting change                            (222,116)
    Other                                                                  696
                                                                    ----------
    Balance at June 30, 2002                                        $   80,487
                                                                    ==========

    Accumulated amortization of goodwill was $44,176 at June 30, 2001.

    The gross carrying amount and accumulated amortization of intangible assets
subject to amortization was $11,334 and $6,879, respectively, at June 30, 2001
and $10,128 and $7,934, respectively, at June 30, 2002. Intangible assets that
will continue to be amortized under SFAS No. 142 consist primarily of
non-compete covenants and deferred debenture issuance costs. Amortization
expense for the year ended June 30, 2002 was $1,894. The estimated amortization
expense for each of the five fiscal years subsequent to June 30, 2002 is as
follows:

    FISCAL YEAR ENDING JUNE 30,           AMOUNT
    ---------------------------           ------

    2003                                   $572
    2004                                    420
    2005                                    247
    2006                                    201
    2007                                     70


14. CONTINGENCIES

      In the ordinary course of its business, the Company is subject to
inspections, audits, inquiries and similar actions by governmental authorities
responsible for enforcing the laws and regulations to which the Company is
subject and is involved from time to time in litigation on various matters.


15. SUBSEQUENT EVENT (UNAUDITED)

      On July 28, 2002, NCS, Genesis and Geneva Sub, Inc., a wholly owned
subsidiary of Genesis ("Sub") entered into a definitive Agreement and Plan of
Merger (the "Merger Agreement"), pursuant to which Sub will merge with and into
NCS (the "Proposed Merger"), with NCS surviving as a wholly owned subsidiary of
Genesis. If the Proposed Merger is completed, each outstanding share of common
stock of NCS, par value $0.01 per share ("NCS Common Stock"), other than the NCS
Common Stock held by NCS and other than dissenting shares, will be converted
into the right to receive 0.1 of a share of


                                       53
<PAGE>


common stock of Genesis, par value $0.02 per share. The completion of the
Proposed Merger is subject to regulatory approvals and other customary
conditions, including the approval of the holders of a majority of the
outstanding voting power of NCS Common Stock.

      In connection with the Merger Agreement, on July 28, 2002, NCS and Genesis
entered into agreements (the "Voting Agreements") with certain stockholders of
NCS beneficially owning in the aggregate a majority of the outstanding voting
power of NCS Common Stock. In the Voting Agreements, such stockholders agreed
(1) to vote their shares of NCS Common Stock in favor of adoption and approval
of the Merger Agreement and against proposals for certain other transactions and
(2) not to transfer their shares of NCS Common Stock prior to the consummation
of the Proposed Merger.

      On August 8, 2002, Omnicare, Inc. (Omnicare) commenced a cash tender offer
to purchase all of the outstanding shares of Class A and Class B common stock of
NCS for $3.50 per share. The effect of the Omnicare tender offer on the proposed
merger between NCS and Genesis is not known at this time.

      Since the Company entered into the Merger Agreement, seven shareholder
lawsuits (six of which are purported class action lawsuits) were filed against
NCS and its directors in connection with the Proposed Merger with Genesis and,
in two cases, against Genesis and Sub (the "Stockholder Claims"). The
Stockholder Claims allege that the directors of NCS breached their fiduciary
duties, and certain other duties, to stockholders by entering into the Merger
Agreement and seek various relief, including an injunction against consummation
of the Proposed Merger, requiring separate class voting on approval of the
Proposed Merger by NCS Stockholders, rescinding the Proposed Merger if the same
is consummated prior to a final judgment on the Stockholder Claims, declaring
the Voting Agreements null and void and compensatory damages and costs. In
addition, the amended complaint filed by Omnicare alleges that the Voting
Agreements violate the NCS amended and restated certificate of incorporation and
therefore resulted in an automatic conversion of such stockholders' Class B
common shares into Class A common shares. No court dates have been set for these
matters. The Company believes that the allegations set forth in these lawsuits
are without merit and intends to contest them vigorously; however, the ultimate
outcome of these lawsuits cannot be predicted with certainty. These lawsuits
could adversely affect the Company's ability to consummate the Merger Agreement
with Genesis.

      On August 20, 2002, the Company filed a complaint against Omnicare in the
United States District Court for the Northern District of Ohio, titled NCS
Healthcare, Inc. v. Omnicare, Inc., Case No. 1:02CV1635 (Maita, J.), and, on
August 21, 2002, the Company amended the complaint. The complaint, as amended,
alleges, among other things, that Omnicare's disclosure on Schedule TO, filed on
August 8, 2002 in connection with the associated tender offer, contains
materially false and misleading disclosures in violation of Section 14(e) of the
Securities Exchange Act of 1934.






                                       54
<PAGE>


16. QUARTERLY DATA (UNAUDITED)

      Selected quarterly data for the years ended June 30, 2001 and 2002:

<TABLE>
<CAPTION>
                                                                     YEAR ENDED JUNE 30, 2001
                                                                     ------------------------
                                                FIRST       SECOND         THIRD           FOURTH
                                               QUARTER      QUARTER       QUARTER         QUARTER           TOTAL
                                               -------      -------       -------         -------           -----
<S>                                           <C>          <C>            <C>             <C>             <C>
Revenues                                      $159,022     $157,461       $154,890        $154,955        $626,328
Gross profit                                    28,037       28,673         27,676          27,459         111,845
Operating income (loss) (b)                      1,036        1,260        (12,800)           (923)        (11,427)
Net loss                                        (7,113)      (7,203)       (20,807)         (8,387)        (43,510)
Earnings per share - basic (a)                   (0.31)       (0.31)         (0.88)          (0.35)          (1.85)
Earnings per share - diluted (a)                 (0.31)       (0.31)         (0.88)          (0.35)          (1.85)



                                                                     YEAR ENDED JUNE 30, 2002
                                                                     ------------------------
                                                FIRST       SECOND         THIRD           FOURTH
                                               QUARTER      QUARTER       QUARTER         QUARTER           TOTAL
                                               -------      -------       -------         -------           -----
Revenues                                      $ 157,836    $161,708      $163,816       $ 162,396        $ 645,756
Gross profit                                     27,180      26,381        26,418          26,851          106,830
Operating income                                  1,848       1,292         4,842           5,072           13,054
Net loss as reported                             (5,179)     (5,239)       (1,323)           (700)         (12,441)
Cumulative effect of accounting change (c)     (222,116)         --            --              --         (222,116)
Net loss as restated                           (227,295)     (5,239)       (1,323)           (700)        (234,557)

Earnings per share as reported - basic (a)        (0.22)      (0.22)        (0.06)          (0.03)           (0.52)
Earnings per share as reported - diluted (a)      (0.22)      (0.22)        (0.06)          (0.03)           (0.52)
Earnings per share as restated - basic (a)        (9.58)      (0.22)        (0.06)          (0.03)           (9.89)
Earnings per share as restated - diluted (a)      (9.58)      (0.22)        (0.06)          (0.03)           (9.89)
</TABLE>


(a)  Earnings per share is calculated independently for each quarter and the sum
     of the quarters may not necessarily be equal to the full year earnings per
     share amount.
(b)  The operating loss for the year ended June 30, 2001 includes the following:
     1) $10,043 of additional bad debt expense to fully reserve for remaining
     accounts receivable of non-core and non-strategic businesses exited by the
     Company, 2) $1,034 of restructuring and other related charges associated
     with the continuing implementation and execution of strategic restructuring
     and consolidation activities and 3) $2,106 in fixed asset impairment
     charges recorded in accordance with Statement of Financial Accounting
     Standards No. 121, "Accounting for the Impairment of Long Lived Assets and
     for Long Lived Assets to be Disposed of," relating primarily to changes in
     asset values resulting from the impact of restructuring activities and
     changes in operational processes under restructured operations.
(c)  The cumulative effect of accounting change represents the early adoption of
     Statement of Financial Accounting Standards (SFAS) No. 142 "Goodwill and
     Other Intangible Assets." The Company recorded a non-cash charge of
     $222,116 as of July 1, 2001 to reduce the carrying value of its goodwill in
     accordance with SFAS No. 142. The net loss for the three months ended
     September 30, 2001 as originally reported did not include the cumulative
     effect of the adoption of SFAS No. 142. In accordance with SFAS No. 142,
     the Company had until June 30, 2002 to complete the final step of the
     transitional impairment test. The resulting impairment of the Company's
     goodwill was required to be recorded as of July 1, 2001.


                                       55
<PAGE>



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND  FINANCIAL
        DISCLOSURE

      None.


PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

      Information required by this item as to the Directors and executive
officers of the Company is included as Item 4A of Part I of this Annual Report
on Form 10-K as permitted by Instruction 3 to Item 401(b) of Regulation S-K.

      Section 16(a) of the Securities Exchange Act of 1934 (the Exchange Act)
requires the Company's Directors and certain of its officers and persons who own
more than 10% of a registered class of the Company's equity securities to file
reports of ownership and changes in ownership on Forms 3, 4 and 5 with the
Securities and Exchange Commission. Such persons are further required to furnish
the Company with copies of all such forms they file. Based solely on the
Company's review of the copies of such forms it has received, the Company
believes all Section 16(a) filing requirements were satisfied by the Company's
Directors and executive officers for the fiscal year ended June 30, 2002.


ITEM 11. EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION

      The table below sets forth certain information with respect to
compensation paid or accrued by the Company during the fiscal years ended June
30, 2002, 2001 and 2000, to the Company's (i) Chief Executive Officer, (ii) the
other four most highly compensated executive officers of the Company for the
fiscal year ended June 30, 2002 and (iii) any individual that would have been
one of the four most highly compensated executive officers but for the fact that
such individual was not serving as an executive officer of the Company at the
end of the fiscal year ended June 30, 2002 (collectively, the "Named Executive
Officers").

                          SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>                                                                                    LONG-TERM
                                                                                           COMPENSATION
                                                                                              AWARDS
                                                          ANNUAL COMPENSATION               ----------
                                                          -------------------               SECURITIES
                                        FISCAL                               OTHER ANNUAL   UNDERLYING      ALL OTHER
                                         YEAR       SALARY        BONUS      COMPENSATION    OPTIONS(1)    COMPENSATION
                                        ------   -----------  ------------  --------------  -----------    ------------
<S>                                     <C>       <C>           <C>          <C>            <C>          <C>
Jon H. Outcalt .....................    2002      $200,000      $    --      $204,000(2)       45,000     $    --
Chairman, Board of Directors........    2001       156,153           --      $119,000(2)       60,000          --
                                        2000       100,000           --            --          87,000          --
Kevin B. Shaw.......................    2002       196,500       25,000(3)         --          45,000       2,200(5)(9)
President & Chief Executive Officer.    2001       187,000       25,000(3)         --          40,000       2,100(5)(9)
                                        2000       187,000           --            --          52,000       2,100(5)(9)
William B. Byrum....................    2002       396,635      490,000(4)         --          45,000       2,200(5)(7)
Executive Vice President &..........    2001       225,000       45,000(3)         --          60,000       6,680(5)(7)
  Chief Operating Officer               2000       225,000           --            --          82,000       8,600(5)(7)
Thomas Bryant Mangum................    2002       210,000       20,000(3)         --          20,000         582(5)(9)
Senior Vice President ..............    2001       210,000       10,000(3)         --          20,000       2,100(5)(9)
                                        2000       210,000           --            --          30,000       2,000(5)(9)
Gerald D. Stethem...................    2002       197,115       65,000(8)         --          35,000       2,100(5)(10)
Senior Vice President &.............    2001       175,000       22,500(3)         --          35,000       2,100(5)(10)
  Chief Financial Officer               2000       172,465           --            --          47,000      26,908(5)(10)
Natalie R. Wenger...................    2002       149,538       85,000(8)         --          25,000       2,100(5)(9)
Senior Vice President                   2001       137,692       20,000(3)         --          30,000       1,892(5)(9)
                                        2000       134,231       22,150(6)         --          17,000       1,876(5)(9)
</TABLE>

(1)  Represents options to purchase shares of Class A Stock.

(2)  Represents consulting fees for services in connection with the Company's
     restructuring program.


                                       56
<PAGE>


(3)  Represents a retention bonus payable in one-half increments during fiscal
     years 2001 and 2002 in connection with a Retention Program adopted by the
     Board of Directors on November 29, 2000.

(4)  Represents a retention bonus, signing bonus and restructuring bonus payable
     in accordance with the terms of Mr. Byrum's Employment Agreement dated July
     1, 2001.

(5)  The Company currently matches each participating employee's contributions
     to the 401(k) Plan to the extent of 20% of the first 10% of the
     participant's salary deduction, up to the maximum allowable contributions
     under the Internal Revenue Code.

(6)  Represents a 2000 Fiscal Year Performance Bonus.

(7)  Represents, for the fiscal years ended June 30, 2002, June 30, 2001 and
     June 30, 2000 (i) $2,200 contributed by the Company to its 401(k) Plan on
     behalf of Mr. Byrum; (ii) $2,100 contributed by the Company to its 401(k)
     Plan on behalf of Mr. Byrum and a $4,580 taxable fringe benefit auto
     allowance; and (iii) $2,000 contributed by the Company to its 401(k) Plan
     on behalf of Mr. Byrum and a $6,600 taxable fringe benefit auto allowance,
     respectively.

(8)  Represents a retention bonus and a fiscal year performance bonus. The
     Retention Bonuses paid were: $45,000 to Mr. Stethem and $40,000 to Ms.
     Wenger. The 2002 Fiscal Year Performance Bonuses paid were: $20,000 to Mr.
     Stethem and $45,000 to Ms. Wenger.

(9)  Represents amounts contributed by NCS to its 401(k) Plan on behalf of the
     employee.

(10) Represents, for the fiscal years ended June 30, 2002, June 30, 2001 and
     June 30, 2000 (i) $2,200 contributed by the Company to its 401(k) Plan on
     behalf of Mr. Stethem; (ii) $2,100 contributed by the Company to its
     401(k) Plan on behalf of Mr. Stethem; and (iii) $2,100 contributed by the
     Company to its 401(k) Plan on behalf of Mr. Stethem and a $24,808 one-time
     payment made by the Company in connection with accrued, but unpaid
     vacation, respectively.


OPTION GRANTS

     Shown below is information on grants of stock options pursuant to the
Company's 2000 Performance Plan during the fiscal year ended June 30, 2002 to
the Named Executive Officers.

                                              OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                                        INDIVIDUAL GRANTS                          POTENTIAL REALIZABLE
                                                        -----------------                             VALUE AT ASSUMED
                                                  PERCENTAGE OF                                       ANNUAL RATES OF
                                     NUMBER OF    TOTAL OPTIONS                                         STOCK PRICE
                                    SECURITIES     GRANTED TO     EXERCISE OR                        APPRECIATION FOR
                                    UNDERLYING    EMPLOYEES IN    BASE PRICE     EXPIRATION            OPTION TERMS
NAME                                  OPTIONS      FISCAL YEAR    (PER SHARE)       DATE             5%            10%
----                                  -------      -----------    -----------       ----             --            ---
<S>                                   <C>              <C>           <C>          <C>            <C>           <C>
Jon H. Outcalt..................      45,000(1)        6.4%          $0.19        12/11/06         $2,362        $5,220
Chairman
Kevin B. Shaw...................      45,000(1)        6.4%          $0.19        12/11/06          2,362         5,220
President, Chief Executive Officer &
    Secretary
William B. Byrum................      45,000(1)        6.4%          $0.19        12/11/06          2,362         5,220
Executive Vice President &
    Chief Operating Officer
Thomas Bryant Mangum............      20,000(1)        2.8%          $0.19        12/11/06          1,050         2,320
Senior Vice President
Gerald D. Stethem...............      35,000(1)        5.0%          $0.19        12/11/06          1,837         4,060
Senior Vice President &
    Chief Financial Officer
Natalie R. Wenger...............      30,000(1)        4.3%          $0.19        12/11/06          1,575         3,480
Senior Vice President
</TABLE>


(1)  The option was granted on December 11, 2001 and becomes exercisable
     annually in one-third increments beginning on December 1, 2003.


                                       57
<PAGE>


OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

         The following table provides certain information concerning the value
of securities underlying unexercised stock options held by each of the Named
Executive Officers during the fiscal year ended June 30, 2002. This table
assumes the conversion into Class A Stock of all shares of Class B Stock
issuable upon the exercise of certain options.

<TABLE>
<CAPTION>
                                                             NUMBER OF SECURITIES               VALUE OF UNEXERCISED
                              NUMBER OF                     UNDERLYING UNEXERCISED             IN-THE-MONEY OPTIONS AT
                               SHARES                       OPTIONS AT JUNE 30, 2002            JUNE 30, 2002(1)
                             ACQUIRED ON    VALUE           ------------------------            ----------------
NAME                          EXERCISE    REALIZED     EXERCISABLE      UNEXERCISABLE     EXERCISABLE        UNEXERCISABLE
----                          --------    --------     -----------      -------------     -----------        -------------
<S>                            <C>        <C>          <C>              <C>              <C>               <C>
Jon H. Outcalt ............       --      $    --        89,499          140,001          $       --        $     8,550
Kevin B. Shaw..............       --           --       101,999          125,001                  --              6,450
William B. Byrum...........       --           --        89,666          153,334                  --              8,550
Thomas Bryant Mangum.......       --           --        29,999           60,001                  --              3,100
Gerald D. Stethem..........       --           --        57,333           97,667                  --              5,425
Natalie R. Wenger..........       --           --        47,333           82,667                  --              4,650
</TABLE>

(1) Includes options granted on December 11, 2001 and October 25, 2000 with an
exercise price of $0.19 and $0.135, respectively.

COMPENSATION OF DIRECTORS

      The Company endeavors to maintain a mutuality of interest between its
Directors and the stockholders of the Company. Hence, it has required all of its
Directors to purchase Common Stock and has compensated its Directors, who are
not also key employees, by granting options to purchase shares of Class B Stock.
Directors who are not also key employees receive an annual Director fee in the
amount of $35,000. Mr. Outcalt, in his position as Chairman of the Board of
Directors, receives an annual salary of $200,000. Mr. Outcalt also receives a
monthly consulting fee of $17,000 for services in connection with the Company's
restructuring program. Upon completion of the restructuring, Mr. Outcalt and Mr.
Shaw will each receive a one-time payment of $200,000. Mr. Sells receives a
monthly consulting fee of $10,000 in addition to the Director fee.

EMPLOYMENT AGREEMENTS

      The Company is party to an employment agreement with William B. Byrum,
dated July 1, 2001, pursuant to which the Company employs Mr. Byrum as Executive
Vice President and Chief Operating Officer. This agreement replaces an earlier
agreement, dated September 1, 1995 and terminated on October 25, 2000, pursuant
to which the Company employed Mr. Byrum as Vice President - Corporate
Development. In June 1998, Mr. Byrum was promoted to the position of Senior Vice
President and in June 1999, Mr. Byrum was promoted to his current position of
Executive Vice President and Chief Operating Officer. The agreement provides for
a term of two years and an annual salary subject to increase at the discretion
of the Company. The agreement also provides for a bonus to be paid to Mr. Byrum.
In addition, the agreement contains certain non-compete, non-disclosure and
non-interference provisions applicable to Mr. Byrum. The Company has entered
into a salary continuation agreement with Mr. Byrum, the terms of which are more
fully described below.

      The Company is a party to a salary continuation agreement with each of Jon
H. Outcalt, Kevin B. Shaw, William B. Byrum, Thomas B. Mangum, Gerald D. Stethem
and Natalie R. Wenger (each an "Employee"). The agreements entered into with
Messrs. Mangum, Stethem and Wenger are dated July 20, 1999. The agreements with
Messrs. Outcalt and Shaw are dated September 29, 2000 and Mr. Byrum's agreement
is dated October 25, 2000. Under the terms of the salary continuation agreement,
if there is a change of control transaction involving the Company and/or
subsequent to a change of control transaction involving the Company the
Employee's employment is terminated by the Company other than for cause (as
defined in the agreement) or he terminates his employment for good reason (as
defined in the agreement), the Employee will be entitled to receive for a period
ending (A) two years for Messrs. Outcalt, Shaw, Byrum, Mangum and Stethem, and
(B) one year for Ms. Wenger, from the date of change of control transaction (i)
a base salary at an annual rate equal to the greater of (x) the highest monthly
base salary paid by the Company to the Employee during the 12 months preceding
the change of control transaction or (y) the highest monthly salary paid by the
Company to the Employee during the period from the date of the change of control
transaction to the date of the termination of the Employee's employment, and
(ii) health insurance, life insurance and retirement benefits that would have
been provided if the Employee had not been terminated, in accordance with the
most favorable plans or policies of the Company during the 90-day period
preceding the change of control transaction, or, if more favorable to the
Employee, as in effect at any time thereafter with respect to other key
employees. In July of 2001, the HR Committee authorized an amendment of the
Company's existing Salary Continuation Agreements to provide for salary
continuation from the date of termination of the employee rather than from the
date of the triggering event and adding insolvency as a triggering event (as
more fully described in the Salary Continuation Agreements). The Company has
entered into similar salary continuation agreements for six, twelve, eighteen
and twenty-four month terms with an additional twenty-nine key employees. In
addition, the Company has entered into an Indemnification Agreement with each of
Boake A. Sells, Richard L. Osborne, Jon


                                       58
<PAGE>


H. Outcalt, Kevin B. Shaw, William B. Byrum, Thomas B. Mangum, Gerald D. Stethem
and Natalie R. Wenger and fourteen additional key employees.

HUMAN RESOURCES COMMITTEE REPORT ON EXECUTIVE COMPENSATION

      The Company's executive compensation program is administered by the Human
Resources Committee (the "Committee") of the Board of Directors. The Committee
is comprised of Messrs. Osborne and Sells, neither of who is an officer or
employee of the Company.

      Compensation Philosophy:
      The Committee's philosophy regarding the compensation of the executive
officers is to (i) provide a competitive total compensation package in line with
the special circumstances the Company is facing that will allow the Company to
attract and retain qualified executives; (ii) provide executives with incentive
bonuses linked to Company and individual performance; and (iii) provide
executive officers with a significant equity stake in the Company through stock
options or other equity incentives.

      Section 162(m) of the Internal Revenue Code prohibits a deduction to any
publicly held corporation for compensation paid to a "covered employee" in any
year in excess of $1 million. A covered employee is generally one of the Named
Executive Officers. The Committee does not expect the deductibility of any
compensation paid to any of the Named Executive Officers in 2002 to be affected
by Section 162(m). However, the Committee may consider alternatives to its
existing compensation programs in the future to assure the deductibility of
executive compensation.

      Fiscal 2002 Compensation Decisions:
      Salaries. Salaries for all executive officers for fiscal 2002, other than
for Mr. Shaw, were established by the Committee based on recommendations by Mr.
Shaw.

      Bonuses. Generally, cash bonuses paid by the Company to its executive
officers are based on each executive's function, level of responsibility and/or
the terms of their employment agreements. To enhance the ability of the Company
to retain highly qualified employees during the implementation of a
restructuring plan, a Retention Program was adopted on November 29, 2000
providing for a bonus to each of the Company's executive officers during fiscal
2002 if they remain employed by the Company on the scheduled payment date.

      Stock Options. The Committee believes that the interests of executives
most responsible for the management and growth of the Company should be closely
aligned with the long-term interests of the Company's stockholders. As a
consequence, options to purchase an aggregate of 705,000 shares of Class A Stock
were granted to 41 employees of the Company and to Mr. Sells and Mr. Osborne on
December 11, 2001 based on the Board's recommendation on December 11, 2001. Of
the total stock options granted, the Company awarded options to purchase an
aggregate of 320,000 shares of Class A Stock to the Company's executive
officers. The stock options vest incrementally over time beginning two years
from the date of grant and expire five years from the date of grant. The
exercise price of each stock option is $0.19 per share, which was the closing
price of the Class A Stock on the date of grant.

      In determining the number of options awarded to individual executive
officers, the Committee generally establishes a level of award based on the
individual's position and level of responsibility.

      Compensation of the Chief Executive Officer:
      The compensation arrangement of Mr. Shaw, the President, Chief Executive
Officer and Secretary of the Company, is determined based on the Committee's
subjective assessment of his performance, measured by the Company's overall
financial performance and the Committee's assessment of his contributions to
achieving strategic objectives during the year. Mr. Shaw's salary was increased
in fiscal year 2002 to $200,000. The Board of Directors awarded Mr. Shaw a
retention bonus as a part of the Retention Program it adopted on November 29,
2000 and approved a one-time payment of $200,000 upon completion of the
restructuring (See Compensation of Directors Section).

                                 HUMAN RESOURCES COMMITTEE


                                 Richard L. Osborne, Chairman
                                 Boake A. Sells


                                       59
<PAGE>


PERFORMANCE GRAPH

      The following line graph compares the percentage in the cumulative total
stockholder return on the Class A Stock of the Company against the cumulative
total return of the Nasdaq Stock Market (U.S.) Index and the Nasdaq Health
Services Index for the period commencing June 30, 1997 and ended June 30, 2002.
The graph assumes an investment of $100 on June 30, 1997 in Class A Stock or the
applicable index, a reinvestment of dividends (no dividends were declared on the
Class A Stock during the period), and actual market value increases and
decreases of the Class A Stock relative to an initial investment of $100 in the
applicable index.

      The Company believes the information provided has only limited relevance
and is not necessarily indicative of future price performance.

                                    [GRAPH]


<TABLE>
<CAPTION>
-------------------------------- --------------- -------------- --------------- -------------- -------------- ---------------
Total Return Analysis               06/30/97       06/30/98        06/30/99       06/30/00       06/30/01        06/30/02
-------------------------------- --------------- -------------- --------------- -------------- -------------- ---------------
<S>                                 <C>             <C>            <C>             <C>            <C>             <C>
NCS HealthCare, Inc.                $ 100.00        $ 93.84        $  17.90       $   2.47       $   0.66        $   0.79
-------------------------------- --------------- -------------- --------------- -------------- -------------- ---------------
Nasdaq Health Services              $ 100.00        $ 97.40        $  92.54       $  71.95       $ 102.68        $ 102.68
-------------------------------- --------------- -------------- --------------- -------------- -------------- ---------------
Nasdaq Stock Market                 $ 100.00       $ 131.65        $ 189.58       $ 280.03       $ 152.60        $ 103.31
-------------------------------- --------------- -------------- --------------- -------------- -------------- ---------------
</TABLE>

Source: Carl Thompson Associates www.ctaonline.com (800) 959-9677. Data from
BRIDGE Information Systems, Inc.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following table sets forth certain information with respect to
beneficial ownership of the Common Stock as of June 30, 2002, unless otherwise
indicated, by (i) each person known by the Company to be the beneficial owner of
more than 5% of any class of Common Stock, (ii) each Director, (iii) each Named
Executive Officer and (iv) all Directors and executive officers as a group.

<TABLE>
<CAPTION>
                                                                CLASS A STOCK                    CLASS B STOCK
                                                            BENEFICIALLY OWNED                BENEFICIALLY OWNED(1)
                                                            ------------------                ---------------------
NAME                                                     NUMBER            PERCENT           NUMBER            PERCENT
----                                                     ------            -------           ------            -------
<S>                                                   <C>                    <C>          <C>                   <C>
Jon H. Outcalt(2).............................          303,229(3)             1.6          3,476,086(4)          66.1
Kevin B. Shaw(2)..............................          147,841(5)               *          1,141,133(6)          21.7
William B. Byrum..............................          157,085(7)               *                 --               --
Richard L. Osborne............................           66,662(8)               *            101,403              1.9
Boake A. Sells................................           37,593(9)               *             92,184              1.8
Gerald D. Stethem.............................           67,333(10)              *                 --               --
Thomas B. Mangum..............................           36,666(11)              *                 --               --
Natalie R. Wenger.............................           56,289(12)              *                 --               --
All Directors and executive officers as a group
    (12 persons)..............................        1,004,677(13)            5.4          4,810,806             91.5
</TABLE>

* Less than one percent.

(1)  Each share of Class B Stock carries ten votes per share and is convertible
     at any time into one share of Class A Stock on a one-for-one basis.

(2)  The beneficial owner's address is c/o NCS HealthCare, Inc., 3201
     Enterprise Parkway, Cleveland, Ohio 44122.

(3)  Includes (i) 32,063 shares of Class A Stock held by Mr. Outcalt's spouse,
     (ii) 170,000 shares of Class A Stock held by the custodian of an individual
     retirement account for the benefit of Mr. Outcalt, and (iii) options to
     purchase 101,166 shares of Class A Stock that are exercisable within
     60 days of June 30, 2002.

(4)  Owner of record is the Jon H. Outcalt Trust.


                                       60
<PAGE>


(5)  Includes (i) 4,575 shares of Class A Stock held by Mr. Shaw's spouse, and
     (ii) options to purchase 113,666 shares of Class A Stock that are
     exercisable within 60 days of June 30, 2002.

(6)  Includes 184,370 shares of Class B Stock owned of record by Mr. Shaw's
     spouse.

(7)  Includes (i) 280 shares of Class A Stock held by the trustee of an
     individual retirement account for the benefit of Mr. Byrum's spouse, and
     (ii) options to purchase 109,666 shares of Class A Stock that are
     exercisable within 60 days of June 30, 2002.

(8)  Includes options to purchase 17,500 shares of Class A Stock that are
     exercisable within 60 days of June 30, 2002.

(9)  Includes options to purchase 23,333 shares of Class A Stock that are
     exercisable within 60 days of June 30, 2002.

(10) Represents options to purchase shares of Class A Stock that are exercisable
     within 60 days of June 30, 2002.

(11) Represents options to purchase shares of Class A Stock that are exercisable
     within 60 days of June 30, 2002.

(12) Includes options to purchase 55,666 shares of Class A Stock that are
     exercisable within 60 days of June 30, 2002.

(13) Includes options to purchase 649,661 shares of Class A Stock that are
     exercisable within 60 days of June 30, 2002.

CHANGES IN CONTROL

      On July 28, 2002, NCS, Genesis and Geneva Sub, Inc., a wholly owned
subsidiary of Genesis ("Sub") entered into a definitive Agreement and Plan of
Merger (the "Merger Agreement"), pursuant to which Sub will merge with and into
NCS (the "Proposed Merger"), with NCS surviving as a wholly owned subsidiary of
Genesis. If the Proposed Merger is completed, each outstanding share of common
stock of NCS, par value $0.01 per share ("NCS Common Stock"), other than the NCS
Common Stock held by NCS and other than dissenting shares, will be converted
into the right to receive 0.1 of a share of common stock of Genesis, par value
$0.02 per share. The completion of the Proposed Merger is subject to regulatory
approvals and other customary conditions, including the approval of the holders
of a majority of the outstanding voting power of NCS Common Stock.

      In connection with the Merger Agreement, on July 28, 2002, NCS and Genesis
entered into agreements (the "Voting Agreements") with Jon H. Outcalt and Kevin
B. Shaw (stockholders). The stockholders beneficially own in the aggregate a
majority of the outstanding voting power of NCS Common Stock. In the Voting
Agreements, such stockholders agreed (1) to vote their shares of NCS Common
Stock in favor of adoption and approval of the Merger Agreement and against
proposals for certain other transactions and (2) not to transfer their shares of
NCS Common Stock prior to the consummation of the Proposed Merger.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None noted.


                                       61
<PAGE>


PART IV

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

(a)   Documents filed as part of this Form 10-K:

      1.   Financial Statements

                  The 2002 Consolidated Financial Statements of NCS HealthCare,
                  Inc. and subsidiaries are included in Part II, Item 8.

      2.   Financial Statement Schedules.

                  All financial statement schedules for the Company and its
                  subsidiaries have been included in the consolidated financial
                  statements or the related footnotes, or they are either
                  inapplicable or not required.

      3.   Exhibits

                  See the Index to Exhibits at page E-1 of this Form 10-K.

(b)   Reports on Form 8-K

                  No reports on Form 8-K were filed during the quarter ended
                  June 30, 2002.


                                       62
<PAGE>



                                   SIGNATURES

      PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

                               NCS HEALTHCARE, INC.

                               By:   /s/  JON H. OUTCALT
                               Jon H. Outcalt
                               Chairman of the Board of Directors

Date: August 22, 2002

      PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.

Signature Title

/s/ JON H. OUTCALT          Chairman of the Board of Directors
Jon H. Outcalt

/s/ KEVIN B. SHAW           President, Chief Executive Officer and Director
Kevin B. Shaw               (Principal Executive Officer)

/s/  WILLIAM B. BYRUM       Executive Vice President and Chief Operating Officer
William B. Byrum            (Principal Executive Officer)

/s/ GERALD D. STETHEM       Senior Vice President and Chief Financial Officer
Gerald D. Stethem           (Principal Financial Officer)

/s/ BOAKE A. SELLS
Boake A. Sells              Director

/s/ RICHARD L. OSBORNE
Richard L. Osborne          Director

Date: August 23, 2002


                                       63
<PAGE>


                                INDEX OF EXHIBITS

<TABLE>
<CAPTION>
                                    SEQUENTIAL
EXHIBIT NO.                         DESCRIPTION                                                                    PAGE
-----------                         -----------                                                                    ----
<S>               <C>                                                                                           <C>
2.1               Asset Purchase Agreement, dated as of July 31, 1996, by and
                  among the Company, NCS HealthCare of Oregon, Inc., IPAC
                  Pharmacy, Inc. and Prestige Care, Inc.                                                            (A)

2.2               Agreement of Merger, dated August 13, 1996, by and among the
                  Company, Northside Pharmacy, Inc., Willis V. Smith, The
                  Willis Vernon Smith Unitrust, dated as of August 8, 1996,
                  Charles Oliver and NCS HealthCare of Oklahoma, Inc.                                               (B)

2.3               Asset Purchase Agreement, dated August 13, 1996, by an among
                  NCS HealthCare of Oklahoma, Inc., an Oklahoma corporation,
                  Med-Equip Homecare Equipment Service, Inc., an Oklahoma
                  corporation, Gail Benjamin, Willis V. Smith and John Tarr                                         (B)

2.4               Asset Purchase Agreement, dated August 13, 1996, by and
                  among Thrifty Medical of Tulsa, L.L.C., an Oklahoma limited
                  liability company, Willis V. Smith, Charles Oliver and NCS
                  HealthCare of Oklahoma, Inc., an Oklahoma corporation                                             (B)

2.5               Stock Purchase Agreement, dated August 13, 1996, by and among
                  the Willis Vernon Smith Unitrust Dated August 8, 1996,
                  Charles Oliver, Willis V. Smith and the Registrant                                                (B)

2.6               Asset Purchase Agreement, dated December 29, 1997, by and
                  among the Company, NCS HealthCare of New York, Inc., Thrift Drug,
                  Inc., Fay's Incorporated and Eckerd Corporation                                                   (C)

2.7               Asset Purchase Agreement, dated April 10, 1998, among the
                  Company, NCS Acquisition Sub, Inc., Walgreens Advance Care,
                  Inc. and Walgreen Co. Incorporated and Eckerd Corporation                                         (D)

2.8               Agreement and Plan of Merger, dated as of July 28, 2002, by and among
                  Genesis Health Ventures, Inc., Geneva Sub, Inc. and NCS HealthCare, Inc.                          (L)

3.1               Amended and Restated Certificate of Incorporation of the
                  Company                                                                                           (E)

3.2               Amended By-Laws of the Company                                                                    (E)

4.1               Specimen certificate of the Company's Class A Common Stock                                        (E)

4.2               Specimen certificate of the Company's Class B Common Stock                                        (E)

4.3               Form of 5 3/4% Convertible Subordinated Debentures due 2004                                       (F)

4.4               Indenture, dated August 13, 1997, between the Company and National
                  City Bank, as Trustee                                                                             (F)

* 10.1            Deferred Compensation Agreement, dated as of January 1, 1994,
                  by and between Modern Pharmacy Consultants, Inc. and
                  Phyllis K. Wilson                                                                                 (E)

* 10.2            1996 Long Term Incentive Plan                                                                     (C)
</TABLE>


                                       E-1
<PAGE>


<TABLE>
<CAPTION>
                                    SEQUENTIAL
EXHIBIT NO.                         DESCRIPTION                                                                    PAGE
-----------                         -----------                                                                    ----
<S>               <C>                                                                                           <C>
* 10.3            Aberdeen Group, Inc. 1995 Amended and Restated Employee Stock
                  Purchase and Option Plan                                                                          (C)

* 10.4            Amended and Restated Stock Option Agreement, dated as of
                  December 3, 1993, by and between Aberdeen Group, Inc. and
                  Richard L. Osborne                                                                                (E)

* 10.5            Amended and Restated Stock Option Agreement, dated as of
                  December 29, 1994, by and between Aberdeen Group, Inc. and
                  Jeffrey R. Steinhilber                                                                            (E)

10.6              Lease Agreement, dated as of July 16, 1990, by and among
                  Crow-O'Brien-Woodhouse I Limited Partnership, Aberdeen Group,
                  Inc. and Van Cleef Properties, Inc.                                                               (E)

10.7              Lease Agreement, dated as of January 1, 1996, by and between
                  PR Realty and Nursing Center Services, Inc.                                                       (E)

10.8              Industrial Lease Agreement dated as of May 28, 1993 by and
                  between Industrial Developments International, Inc. and
                  Corinthian Pharmaceutical Systems, Inc.                                                           (E)

10.9              Lease Agreement, dated as of January 17, 1995, by and among
                  Calvin Hunsicker, Brenda Hunsicker and Aberdeen Group, Inc.                                       (E)

10.10             Form of Indemnity Agreement by and between the Company and
                  each of its Directors and Executive Officers                                                      (E)

*10.11            Employment and Noncompetition Agreement, dated as of
                  September 1, 1995, by and between Aberdeen Group, Inc. and
                  William B. Bryum                                                                                  (E)

10.12             Credit Agreement, dated as of June 1, 1998, among the Company,                                    (G)
                  the lending institutions named therein and KeyBank National
                  Association, as the Swing Line Lender, Letter of Credit Issuer
                  and Administrative Agent

10.13             Letter Agreement, dated June 1, 1998, between the Company                                         (G)
                  and KeyBank National Association regarding Capital Markets
                  Bridge Facility

10.14             Amendment No. 1, dated as of July 13, 1998, to the Credit                                         (G)
                  Agreement, dated as of June 1, 1998, among the Company, the
                  lending institutions named therein and KeyBank National
                  Association, as the Swing Line Lender, Letter of Credit Issuer
                  and Administrative Agent

10.15             Amendment No. 2, dated March 3, 1999, to the Credit Agreement dated                               (H)
                  as of June 1, 1998 among the Company and the Lenders named therein,
                  NBD Bank and National City Bank, as co-agents, and KeyBank National
                  Association , as a Lender, the Swing Line Lender, the Letter of Credit Issuer
                  and as Administrative Agent

10.16             Amendment No. 3, dated August 3, 1999, to the Credit Agreement dated                              (I)
                  as of June 1, 1998 among the Company and the Lenders named therein,
                  NBD Bank and National City Bank, as co-agents, and KeyBank National
                  Association , as a Lender, the Swing Line Lender, the Letter of Credit Issuer
                  and as Administrative Agent
</TABLE>


                                       E-2
<PAGE>


<TABLE>
<CAPTION>
                                    SEQUENTIAL
EXHIBIT NO.                         DESCRIPTION                                                                    PAGE
-----------                         -----------                                                                    ----
<S>               <C>                                                                                           <C>
10.17             Security Agreement, dated August 3, 1999, among the Company, its subsidiaries and                 (I)
                  KeyBank National Association

* 10.18           Separation Agreement, effective June 11, 1999, between Jeffrey R. Steinhilber and the             (I)
                  Company

* 10.19           Salary Continuation Agreement dated September 29, 2000 between the
                  Company and Jon H. Outcalt                                                                        (J)

* 10.20           Salary Continuation Agreement dated September 29, 2000 between the
                  Company and Kevin B. Shaw                                                                         (J)

* 10.21           Salary Continuation Agreement dated October 25, 2000 between the
                  Company and William B. Byrum.                                                                     (J)

* 10.22           Employment Agreement dated July 1, 2001 between the Company
                  and William B. Byrum                                                                              (K)

* 10.23           Amendment to Salary Continuation Agreement dated August 21, 2001
                  between the Company and Jon H. Outcalt                                                            (K)

* 10.24           Amendment to Salary Continuation Agreement dated August 21, 2001
                  between the Company and Kevin B. Shaw                                                             (K)

10.25             Voting Agreement, dated as of July 28, 2002, by and among Jon H.
                  Outcalt, NCS HealthCare, Inc. and Genesis Health Ventures, Inc.                                   (L)

10.26             Voting Agreement, dated as of July 28, 2002, by and among Kevin B.
                  Shaw, NCS HealthCare, Inc. and Genesis Health Ventures, Inc.                                      (L)


21.1              Subsidiaries of the Company

23.0              Consent of Independent Auditors
</TABLE>


*        Management contract or compensatory plan or arrangement

(A)      Incorporated herein by reference to the appropriate exhibit to the
         Company's Current Report in Form 8-K, dated August 1, 1996 (File No.
         0-027602).

(B)      Incorporated herein by reference to the appropriate exhibit to the
         Company's Current Report on Form 8-K, dated August 15, 1996 (File No.
         0- 027602).

(C)      Incorporated herein by reference to the appropriate exhibit to the
         Company's Current report on Form 8-K, dated January 30, 1998.

(D)      Incorporated herein by reference to the appropriate exhibit to the
         Company's Current report on Form 8-K, dated June 1, 1998.

(E)      Incorporated herein by reference to the appropriate exhibit to the
         Company's Registration Statement on Form S-1 declared effective on
         February 13, 1996 (Reg. No. 33-80455).

(F)      Incorporated herein by reference to the appropriate exhibit to the
         Company's Registration Statement on Form S-3, as amended (Reg. No.
         333-35551).

(G)      Incorporated herein by reference to the appropriate exhibit to the
         Company's Annual Report on Form 10-K for the year ended June 30, 1998.


                                       E-3
<PAGE>


(H)      Incorporated herein by reference to the appropriate exhibit to the
         Company's Quarterly Report on Form 10-Q for the quarterly period ended
         March 31, 1999.

(I)      Incorporated herein by reference to the appropriate exhibit to the
         Company's Annual Report on Form 10-K for the year ended June 30, 1999.

(J)      Incorporated herein by reference to the appropriate exhibit to the
         Company's Quarterly Report on Form 10-Q for the quarterly period ended
         September 30, 2000.

(K)      Incorporated herein by reference to the appropriate exhibit to the
         Company's Annual Report on Form 10-K for the year ended June 30, 2001.

(L)      Incorporated herein by reference to the appropriate exhibit to the
         Company's Current Report on Form 8-K dated July 28, 2002.


                                      E-4