<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 

     For fiscal year ended MARCH 31, 1998 

                                       OR

[ ] TRANSITION  REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE  ACT OF 1934

     For  transition period from to ___________ to ____________

                         Commission File Number 0-16594

                        MEDICAL TECHNOLOGY SYSTEMS, INC.
             (Exact Name of Registrant as Specified in Its Charter)

                    Delaware                                  59-2740462
                                                             ------------
         (State or Other Jurisdiction of                   (I.R.S. Employer
         Incorporation or Organization)                   Identification No.)

 12920 Automobile Boulevard, Clearwater, Florida               33762
                                                            -----------
    (Address of Principal Executive Offices)                 (Zip Code)

                                 (727) 576-6311
              (Registrant's Telephone Number, Including Area Code)

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

          Title of Each Class                     Name of Each Exchange on   
                                                  Which Registered   
         ---------------------                    -------------------------
                 NONE                                       NONE  

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

                          COMMON STOCK, PAR VALUE $.01
                                (Title of Class)

                         COMMON STOCK PURCHASE WARRANTS
                                (Title of Class)

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. [x]Yes [ ] 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. [x]Yes [ ] No

Aggregate  market  value of  voting  Common  Stock  held by  non-affiliates  was
$2,300,000 as of June 25, 1998.

Indicate  by check mark  whether  the  Registrant  has filed all  documents  and
reports  required  to be  filed by  Section  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court. [x]Yes [ ] No

The number of shares  outstanding  of the  Registrant's  Common Stock,  $.01 par
value, was 6,129,673 as of June 25, 1998.

Documents Incorporated by Reference

Parts of the Company's  definitive  proxy  statement  which will be filed by the
Company within 120 days after the end of the Company's 1998 fiscal year end, are
incorporated by reference into Part III of this Form.

Total number of pages, including cover page - 55 (excluding exhibits)


<PAGE>
                                       1
                                      

                        MEDICAL TECHNOLOGY SYSTEMS, INC.

                               CLEARWATER, FLORIDA

                                      INDEX


PART I                                                                   PAGE

Item   1.  Business...................................................   2-11

       2.  Properties.................................................     11

       3.  Legal Proceedings..........................................  11-13

       4.  Submission of Matters to a Vote of Security Holders........     13

PART II

Item   5.  Market for Registrant's Common Equity and Related Stockholder 
           Matters ....................................................... 14

       6.  Selected Financial Data........................................ 15

       7.  Management's Discussion and Analysis of Financial Condition 
           and Results of Operations...................................  16-21

       8.  Financial Statements and Supplementary Data.................     21

       9.    Changes In and Disagreements With Accountants On Accounting
             and Financial Disclosure..................................     21

PART III

Item   10.   Directors and Executive Officers of the Registrant........     22

       11.   Executive Compensation....................................     22

       12.   Security Ownership of Certain Beneficial Owners ..........     22

       13.   Certain Relationships and Related Transactions
             and Management............................................     22

PART IV

Item   14.  Exhibits, Financial Statements, Schedules and Reports
            on Form 8-K................................................  23-24


Index to Financial Statements..........................................     25

Signatures ............................................................     52


<PAGE>
                                       2

                                     PART I


     This Annual Report on Form 10-K (the "10-K")  contains  certain  statements
concerning  the future that are subject to risks and  uncertainties.  Additional
written or oral forward-looking  statements may be made by the Company from time
to time, in filings with the  Securities  and Exchange  Commission or otherwise.
Such   statements   include,   among  other   things,   information   concerning
possible-future results of operations,  capital expenditures, the elimination of
losses under certain programs,  financing needs or plans relating to products or
services of the  Company,  assessments  of  materiality,  predictions  of future
events,  and  the  effects  of  pending  and  possible  litigation,  as  well as
assumptions  relating  to the  foregoing,  and  those  accompanied  by the words
"anticipates,"   "estimates,"   "expects,"   "intends,"   "plans,"   or  similar
expressions. For those statements we claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995.

     You should  specifically  consider the various  factors  identified in this
10-K,  including  the  matters set forth in "Item 1.  Business",  "Item 3. Legal
Proceedings",  "Item  7.  Management's  Discussion  and  Analysis  of  Financial
Condition and Results of  Operations"  and the Notes to  Consolidated  Financial
Statements  that could  cause  actual  results to differ  materially  from those
indicated in any forward-looking statements. Other factors that could contribute
to or cause such  differences  include,  but are not limited  to,  unanticipated
increases in operating costs, labor disputes, capital requirements, increases in
borrowing  costs,  product  demand,  pricing,  market  acceptance,  intellectual
property rights and litigation,  risks in product and technology development and
other risk factors detailed in the Company's  Securities and Exchange Commission
filings.

     Readers are  cautioned not to place undue  reliance on any  forward-looking
statements  contained in this 10-K, which speak only as of the date hereof.  The
Company  undertakes  no  obligation  to  publicly  release  the  results  of any
revisions to these forward-looking statements that may be made to reflect events
or  circumstances  after  the  date  hereof  or to  reflect  the  occurrence  of
unexpected events.

ITEM 1.  BUSINESS

Introduction
------------

     Medical  Technology  Systems,   Inc.(TM),   a  Delaware   corporation  (the
"Company"),  was  incorporated  in March 1984. The Company is a holding  company
operating  through a number of separate  subsidiaries,  including  MTS Packaging
Systems,  Inc.(TM) ("MTS  Packaging"),  Medical  Technology  Laboratories,  Inc.
("MTL") and LifeServ  Technologies,  Inc.(TM)  ("LifeServ").  These subsidiaries
provide a diverse line of proprietary medication dispensing systems,  laboratory
services  and  clinical  information  systems to the health care  industry.  The
Company also owned Vangard Labs, Inc.  ("Vangard"),  a generic drug  repackaging
company, which was sold in fiscal 1997.

     MTS Packaging primarily  manufactures and sells disposable medication punch
cards,  packaging  equipment and allied ancillary products throughout the United
States. Its customers are predominantly pharmacies that supply nursing homes and
assisted living facilities with prescription medications for their patients. MTS
Packaging  manufactures  its  proprietary  disposable  punch cards and packaging
equipment in its own facilities. This manufacturing process uses technologically
advanced integrated machinery for manufacturing the disposable  medication punch
cards.  The  disposable  medication  punch  cards and  packaging  equipment  are
designed  to  provide  a  cost  effective  method  for  pharmacies  to  dispense
medications.  The Company's  medication  dispensing systems and products provide
innovative methods for dispensing medications in disposable packages.

     MTL was formed as a result of the acquisition and combination of Clearwater
Medical  Services and Clinical  Diagnostic  Centers during fiscal year 1992. MTL
conducts  analytical services for testing of blood, tissue and other body fluids
for hospitals,  physicians and other health care providers in Florida.  On March
17, 1995, MTL purchased the rights and interests in certain clinical  laboratory
services of Tampa Pathology Laboratory,  including the right, title and interest
in the customer  accounts  associated  with Tampa  Pathology  Laboratory and the
right to service and  continue  sales of clinical  laboratory  services to these
customers. The purchase agreement provided for a purchase price of approximately
$1.4 million. In connection with its  reorganization,  the Company negotiated to
reduce the purchase price to $500,000. See "Item 3. Legal Proceedings."


<PAGE>
                                      3


     On March 10, 1995, the Company  established  MTS Sales and Marketing,  Inc.
("MTS Sales"). This subsidiary was established to provide administrative support
and  sales  and  marketing  services  to the  other  subsidiaries.  MTS Sales is
currently an inactive subsidiary.

     On June 20, 1997, Medication Management Technologies,  Inc. ("MMT") entered
into  an  Agreement  and  Plan of  Merger  with  Cygnet  Laboratories,  Inc.,  a
California  corporation.  MMT subsequently  filed for relief under Chapter 11 of
the U.S.  Bankruptcy  code. See  "Reorganization  Under Chapter 11" and "Item 3.
Legal Proceedings."

     On February  24,  1998,  the  Company  formed  LifeServ  for the purpose of
holding  and  operating  the  Company's  health care  information  subsidiaries:
Performance Pharmacy Systems, Inc. ("PPS"),  Medication Management Systems, Inc.
("MMS"),  MMT, Cart-Ware,  Inc.  ("Cart-Ware") and Systems  Professionals,  Inc.
("SPI"). In April 1998, the Company entered into a stock subscription  agreement
with  LifeServ  whereby the Company  made a capital  contribution  of all of the
outstanding capital stock of those subsidiaries to LifeServ.

     In April 1998, LifeServ entered into an asset purchase agreement to acquire
the  assets of  Peritronics  Medical,  Inc.  ("Peritronics"),  a  subsidiary  of
Peritronics Medical, Ltd., a publicly held British Columbia, Canada corporation.
The  assets  are  primarily  composed  of  proprietary   software  products  and
customers.  The  Company  anticipates  that the  closing  of the asset  purchase
agreement will take place in August 1998.

Discontinued Operations
-----------------------

     The Company  acquired  all of the Common  Stock of Vangard on June 1, 1992.
Vangard suspended  operations in January 1996. Vangard  previously  packaged and
sold  oral  solid  unit-dose   generic  drugs  to  hospitals  and  nursing  home
institutional  pharmacies.  The Company sold certain assets of Vangard effective
March 31, 1997, to an unrelated third party.  The terms of the agreement of sale
provided  for the  payment  to the  Company  of  $3.1  million  in cash  and the
assumption of certain liabilities by the buyer. The $3.1 million received by the
Company was used to reduce debt. See "Item 3. Legal Proceedings".

     On November 3, 1993, the Company signed a joint venture agreement to create
Glasgow  Pharmaceutical  Corporation  ("GPC") for the purpose of  marketing  and
selling pharmaceutical products to the long-term care industry. GPC is owned 50%
by Vangard and 50% by  Creighton  Pharmaceuticals  Corporation,  a  wholly-owned
subsidiary  of Sandoz  Pharmaceuticals  Corporation.  The GPC joint  venture was
created to  provide  the  Company  with a  competitive  price  advantage  in the
acquisition cost of its  pharmaceuticals  as well as provide  additional product
lines.  The principal  product of GPC was MedCard,  which was a medication punch
card that could be  pre-filled  with oral solid  generic  and brand name  drugs.
Operations of GPC commenced in May 1994 and were suspended in January 1996 along
with the operations of Vangard. The Vangard asset sale agreement did not include
GPC. The Company has no immediate  plans to resume  operations  of GPC. GPC does
not have any material assets or liabilities.

     The principal executive offices and manufacturing facilities of the Company
are located at 12920  Automobile  Boulevard,  Clearwater,  Florida 33762 and the
Company's telephone number is (727) 576-6311.

Segments
--------

     The Company is composed of three operating segments:

     a.   Medication  packaging and  dispensing  systems:  MTS Packaging and MTS
          Sales are the only subsidiaries in this segment.

     b.   Health care information systems:  LifeServ and its subsidiaries,  MMS,
          PPS, MMT, Cart-Ware and SPI represent this segment.

     c.   Clinical  laboratory  services:  MTL is the  only  subsidiary  in this
          segment.

<PAGE>
                                      4

     The following is operating  information for these industry segments for the
years ended March 31:

<TABLE>
<CAPTION>
                                                                    1998                 1997                1996
                                                              ---------------      ---------------     ----------------
                                                                                    (In Thousands)
<S>                                                         <C>                   <C>                <C>  
Revenue:
    Reportable Segments
        Medication Packaging & Dispensing Systems             $     12,338         $     11,169        $      10,651
        Health Care Information Systems                              4,306                1,965                1,249
        Clinical Laboratory Services                                 7,428                6,113                5,152
                                                              ---------------      ---------------     ---------------
Total Consolidated Revenue                                    $     24,072         $     19,247        $      17,052
                                                              ================     ===============     ===============
Depreciation and Amortization:
    Reportable Segments
        Medication Packaging & Dispensing Systems             $        554         $        534        $         647
        Health Care Information Systems                                255                  150                  764
        Clinical Laboratory Services                                   258                  250                  579
                                                              ---------------      ---------------    ----------------
                                                                     1,067                  934                1,990
    Corporate                                                          406                  447                  692
                                                              ---------------      ---------------    ----------------
Total Consolidated Depreciation and Amortization              $      1,473         $      1,381        $       2,682
                                                              ===============      ===============    ================
Interest Expense:
    Reportable Segments
        Medication Packaging & Dispensing Systems             $          1         $          2        $           5
        Health Care Information Systems                                 13                   20                   16
        Clinical Laboratory Services                                    36                    5                   31
                                                              ----------------      --------------     ----------------
                                                                        50                   27                   52
    Unallocated Debts                                                1,059                  582                1,687
                                                              ----------------     ----------------    ----------------
Total Consolidated Interest Expense                           $      1,109         $        609        $       1,739
                                                              ================     ================    ================

Operating Profit (Loss):
    Reportable Segments
        Medication Packaging & Dispensing Systems             $      2,827         $      2,512        $     (6,752)
        Health Care Information Systems                             (1,214)                (472)             (5,798)
        Clinical Laboratory Services                                   460                  136              (4,443)
                                                              ---------------     ----------------     ----------------
                                                                     2,073                2,176             (16,993)
    Corporate and Interest                                          (3,197)              (2,161)             (7,624)
                                                             ----------------     ----------------     ----------------
Total Consolidated Operating Profit (Loss)                    $     (1,124)        $         15        $    (24,617)
                                                             ================     ================     ================
Identifiable Assets:
    Reportable Segments
        Medication Packaging & Dispensing Systems             $      5,944         $      6,006        $       7,557
        Health Care Information Systems                              3,871                  938                1,355
        Clinical Laboratory Services                                 3,509                2,560                2,551
                                                              ---------------      ----------------   ----------------
                                                                    13,324                9,504               11,463
    Corporate                                                        2,438                3,039                3,206
                                                              ---------------      ---------------    ----------------
Total Consolidated Identifiable Assets                        $     15,762         $     12,543        $      14,669
                                                              ===============      ===============    ================

Identifiable Liabilities:
    Reportable Segments
        Medication Packaging & Dispensing Systems             $      1,029         $        280        $       1,508
        Health Care Information Systems                              3,056                  382                  691
        Clinical Laboratory Services                                 1,175                  780                 1963
                                                              ---------------      ---------------     ----------------
                                                                     5,260                1,442                4,162
    Corporate                                                       16,615               16,517               29,053
                                                              ----------------     ----------------    ----------------
Total Consolidated Liabilities                                $     21,875         $     17,959        $      33,215
                                                              ================     ================    ================
Capital Expenditures:
    Reportable Segments
        Medication Packaging & Dispensing Systems             $        131         $        123        $         769
        Health Care Information Systems                                103                   92                    5
        Clinical Laboratory Services                                    62                   67                    2
                                                              ---------------      ---------------     ----------------
                                                                       296                  282                  776
    Corporate                                                           66                   25                   21
                                                              ---------------      ---------------     ----------------
Total Consolidated Capital Expenditures                       $        362         $        307        $         797
                                                              ================     ===============     ================
 Impairment of Long-Lived Assets:
    Reportable Segments
        Medication Packaging & Dispensing Systems             $          0         $          0        $       7,319
        Health Care Information Systems                                  0                    0                3,029
        Clinical Laboratory Services                                     0                    0                4,105
                                                              ---------------      ---------------     ----------------
                                                                         0                    0               14,453
    Corporate                                                            0                    0                1,968
                                                              ---------------      ---------------     ----------------
Total Consolidated Impairment of Long-Lived Assets            $          0         $          0        $      16,421
                                                              ================     ================    ================
</TABLE>


<PAGE>
                                       5

     Corporate   expenses  are  composed   primarily  of  personnel   costs  and
administrative  expenses,  which  are  incurred  on  behalf  of each  reportable
segment. The Company cannot accurately allocate these costs and expenses to each
reportable segment.

     Corporate  assets are composed  primarily of $678,000 of cash,  $477,000 of
equipment  used by  administrative  personnel  and $1.2  million  of  intangible
assets.

     Corporate  liabilities are composed of $1.4 million of short-term  accounts
payable and accrued liabilities and $15.2 million in long-term debt.

     The geographic sales of the Company are in the United States, and there are
no customers  that account for more than 10% of the  Company's  revenues for all
periods presented.

Products/Services
-----------------

     MTS Packaging  manufactures  proprietary  medication dispensing systems and
related products for use by medication  prescription  service  providers.  These
systems utilize disposable  medication punch cards and specialized machines that
automatically  or  semi-automatically   assemble,   fill  and  seal  drugs  into
medication punch cards representing a 30 day supply of a patient's medication.

     MTS Packaging's  machinery for dispensing medication in disposable packages
automatically places tablets or capsules (the amount of medication required by a
patient  during one month) into a blistered  punch card.  The use of these cards
and machines provides a cost effective customized package at competitive prices.
The punch card medication dispensing system can provide tamper evident packaging
for products dispensed in the package.

     The  retail  price of MTS  Packaging's  machinery  ranges  from  $1,100  to
$120,000  depending  upon the degree of  automation  and options  requested by a
customer. The punch cards typically retail from $155 to $225 per 1,000 cards and
blisters,  depending  upon the size,  design  and  volume of cards  ordered by a
customer.  To date,  MTS Packaging  has placed  approximately  1,660  medication
dispensing   systems  with  pharmacy   clientele.   MTS  Packaging   also  sells
prescription  labels and  ancillary  supplies  designed to  complement  sales of
disposable  medication punch cards. MTS Packaging had approximately  $530,000 in
unshipped orders as of June 25, 1998.

     LifeServ is a health care  information  technology  company  that  provides
solutions for medication  management and point of care electronic  documentation
for hospitals and other health care facilities  through its  subsidiaries,  MMS,
PPS, MMT, Cart-Ware and SPI. LifeServ's systems are used to collect, archive and
process  patient  demographics,  medication  data and  associated  patient  care
information. The systems are also designed to address the health care provider's
need to more  efficiently  manage  patient care by collecting  and  assimilating
"outcomes"  information  and  automating a  traditionally  manual paper process.

<PAGE>
                                      6

LifeServ has  approximately  248 customers and has recently further expanded its
product  offering and customer base, to  approximately  468  customers,  through
business  acquisitions.  LifeServ had approximately  $1,500,000 in contracts for
shipment  and  installation  of systems at March 31,  1998.  The  following  are
LifeServ's products:

     Performance(TM)  is a pharmacy  software  system for use in  hospitals  and
long-term care facilities. The primary emphasis of this system is to provide the
hospital  pharmacist  with a  comprehensive  collection  of automated  tools for
completing  day-to-day  activities in an efficient  manner.  The system performs
important medication management  responsibilities and sophisticated drug therapy
monitoring and documentation. The system also provides hospital pharmacists with
the ability to process physicians' medication orders quickly and accurately. The
organization  of  screens,  use of  overlapping  windows,  in-process  access to
multiple files and other user friendly techniques make the Performance system an
attractive and functional hospital pharmacy software system. Performance pricing
starts at approximately $30,000, which includes hardware, software, training and
pre-loaded  drug files.  To date,  more than 145  Performance  systems have been
installed.

     MedServ(R)  is a line of  automated  dispensing  cabinets  that control the
distribution,  administration  and  documentation of medications and supplies in
hospitals,  clinics, long-term care facilities,  out-patient surgery centers and
other  health  care  settings.  MedServ  functions  as a floor  stock  inventory
software  system that  provides  security by  restricting  access and  providing
tighter inventory controls in emergency rooms, operating rooms and nursing units
where floor stock  medications,  supplies and controlled  substances are stored.
MedServ's  self-contained  units consist of a color touch-screen monitor mounted
on a dispensing cabinet. The MedServ product has not previously been made widely
available to the health care industry.  MedServ pricing starts at  approximately
$30,000 for a one unit system and a file server.  MedServ is currently installed
in approximately 25 hospitals.

     E-mar(TM)   integrates   Performance  with  MedServ  to  provide  automated
dispensing and to electronically  produce  medication  orders,  drug interaction
assessment,  nurse charting and other administrative functions. E-mar can assist
in the reduction of medications  errors,  nursing labor,  and pharmacy labor and
provides an electronic  medication  administration  record.  E-mar also provides
two-way  communication  between the pharmacy system and the dispensing  cabinet.
The system allows orders to be entered  either at the pharmacy or the dispensing
cabinet  and  to  be   electronically   transmitted   to  the  "other  end"  for
verification.  Traditionally,  the nurse would have been  provided  with a paper
document called a medication  administration record (describing a patient's full
drug regimen) on which to manually  record the  medication  information as drugs
are administered.  E-mar permits the nurse to record  medications  administered,
plus patient  responses to medications  in a repository  that can be reviewed by
the  physician or  pharmacist  so that they can assess  outcomes  and  determine
appropriate  drug therapy.  E-mar has recently been released from testing and is
installed at three  hospitals  with several more under contract to be installed.
Pricing starts at approximately $46,500 which includes a redundant file server.

         Cygnet(R)  offers  a   fully-integrated   information  system  for  the
obstetrical  clinics  of  hospitals  and  doctors'  offices.  Cygnet  creates  a
paperless  environment for the complete perinatal  process.  The system archives
all data on optical disk collected  from fetal and  physiological  monitors,  as
well as all electronic documentation such as patient charting and nurses' notes.
Such  information can be easily retrieved for performing  outcomes  analysis and
for mandated  legal  documentation.  Eight  thousand,  eight-hour  births can be
archived on a single  optical  disk  recorded by Cygnet.  The Cygnet  product is
installed  in  approximately  75  hospitals  with  an  average  sales  price  of
approximately  $128,000.  Several of the obstetrical  clinics in these hospitals
are now  completely  paperless,  using  electronic  documentation  for perinatal
point-of-care rather than paper forms.

     The  Peritronics  software  product,  like Cygnet,  is also an  obstetrical
information  system.  LifeServ  currently  expects that future software releases
will allow customers of both  Peritronics and Cygnet to migrate their systems to
a common  version  without the loss of current data. The addition of Peritronics
will bring LifeServ total installed obstetrical systems to 295 customers.

     LifeServ  had  approximately  $1.5  million in  contracts  for shipment and
installation at March 31, 1998.

     MTL provides clinical laboratory testing services.  The analytical tests of
blood,  tissues  and  other  bodily  fluids  that it  provides  are  typical  of
diagnostic   laboratories  and  the  facilities  presently  have  no  particular
specialization  in any of its testing  procedures  and  services.  MTL  performs
in-house  over 95% of the  testing  routinely  ordered by  physicians  for their
patients, which typically includes chemistry,  hematology,  serology, urinalysis
and bacteriology.

<PAGE>
                                     7

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

     Research and  development  activities  during the past three years have not
been  significant  and,  therefore,  have not been separately  classified in the
financial  statements.  The Company has focused on the  development  of products
that it has been determined are technologically feasible.

Product Development
-------------------

     The Company had several  projects  underway to develop new products  during
its most recent fiscal year.

     a.   MTS Packaging is presently developing:

          -    Medication  dispensing  systems  that  more  fully  automate  its
               customers'   operation  and  increase  the  productivity  of  the
               pharmacy.

          -    A dispensing system for the packaging of unit dose medication for
               hospitals.

     b. LifeServ is presently developing:

          -    Emergency department software.

          -    Conversion of Performance to a Windows NT(R) platform.

          -    Single item dispensing hardware for MedServ.

Manufacturing Processes
-----------------------

     MTS Packaging has developed  integrated punch card manufacturing  equipment
that  will  accomplish  the  various  punch  card   manufacturing   steps  in  a
single-line,   automated  process.   The  Company  believes  that  its  advanced
automation  gives  it  certain  speed,  cost  and  flexibility  advantages  over
conventional  punch  card  manufacturers.  MTS  Packaging's  equipment  produces
finished  cards in one eight hour shift.  This process takes  approximately  one
week using conventional  methods. MTS Packaging's advanced automation provides a
substantial  reduction in time compared to conventional punch card manufacturing
systems. MTS Packaging has two machines capable of producing punch cards in this
manner.  In  addition  to  the  manufacturing  of  punch  cards,  MTS  Packaging
manufactures  machines  that are used by its  customers to fill punch cards with
medication. The majority of these machines are sold to customers;  however, from
time to time,  customers are provided or rented machines in conjunction  with an
agreement to purchase certain quantities of punch cards over a specified period.

     MTS  Packaging  uses  automated   fabrication   equipment  to  produce  its
medication  packaging  machinery.  All essential  components of the machines are
designed and manufactured by the Company without reliance on outside vendors.

     MTS  Packaging is dependent on a number of suppliers  for the raw materials
essential in the production of its products. The Company believes that relations
are adequate with its existing vendors.  However, there can be no assurance that
such  relations will be adequate in the future or that shortages of any of these
raw materials will not arise,  causing production delays. MTS Packaging believes
it is necessary to maintain an inventory of materials and finished products that
allows for customer  orders to be shipped within the industry  standard of 2 - 3
days.  The inability to obtain raw materials on a timely basis and on acceptable
terms may have a material adverse effect on the future financial  performance of
the Company.

     LifeServ assembles computer hardware for its MedServ and E-mar product line
and  then  installs  its  proprietary   software.   The  MedServ   cabinetry  is
manufactured  by outside vendors that are metal  fabricators  with experience in
the medical  business.  Although LifeServ is aware of several vendors that could
manufacture  the MedServ  product,  a change in vendors  could  create a void in
product  availability  while a new vendor  prepares to meet  LifeServ  inventory
needs.  LifeServ's  current vendor for the MedServ  cabinetry has three separate
locations  capable of  manufacturing  its  product in order to provide  adequate
backup if an event occurs that interrupts production flow. The unavailability of

<PAGE>
                                       8

MedServ  cabinetry  could have a material  adverse effect on future sales of the
MedServ and E-mar product line. All computer  hardware is purchased from outside
vendors but is common to many  suppliers.  The Company  believes its proprietary
software  adds  substantial  value  to the  product,  primarily  because  of the
Company's extensive knowledge of hospital pharmacy management  practices derived
from more than 145 installations of Performance.

     LifeServ's  Performance  and Cygnet  products  are  software  systems.  All
computer  hardware is  purchased  from  outside  vendors,  but is common to many
suppliers.  However,  the development and software support services provided for
all  LifeServ  software  products  are  dependent on  attracting  and  retaining
qualified  personnel  experienced in computer  software design and  development.
Computer programmers and other technical personnel are currently in high demand.
The availability of qualified  personnel could have a material adverse effect on
the future financial performance of the Company.

     MTL primarily relies upon  sophisticated  diagnostic  testing  equipment to
evaluate bodily fluid samples. MTL has upgraded its laboratory equipment through
the acquisition of automated  analyzers.  Each analyzer is capable of performing
36  different  tests on up to 160  patients  per hour.  The  testing  categories
performed  by  such  machinery  include  bacteriology,   chemistry,  hematology,
serology and urinalysis. MTL provides services and as a result, is not dependent
upon a supply of raw materials; however, MTL uses certain disposable supplies to
produce test  results.  MTL's  service  revenue is dependent  upon  referrals by
physicians.

     As a result of the Company's financial condition,  many of the suppliers of
raw materials and other goods and services to the  Company's  subsidiaries  have
required that  purchases be paid for in advance or on a COD basis.  As a result,
the  Company's  ability to obtain raw  materials and other goods and services is
substantially dependent upon the Company's cash flow.

Markets and Customers
---------------------

     MTS Packaging's  products are sold throughout the United States,  primarily
through  its sales  organization  and  independent  sales  representatives.  MTS
Packaging also participates in trade shows and training seminars.  MTS Packaging
presently has no customers that account for greater than 10% of its consolidated
sales.

     The primary customers for MTS Packaging's  proprietary  packaging machinery
and the related  disposable  punch  cards,  labels and  ancillary  supplies  are
pharmacies that supply prescription medication to nursing homes. Such pharmacies
serve  from 250 to 34,000  nursing  home beds per  location  and many  serve the
sub-acute, assisted living and the home health care markets as well.

     LifeServ has begun selling its MedServ and E-mar product lines, which are a
computerized  medication  management system, to hospitals  throughout the United
States.  The Company believes this technology is attractive to hospitals because
it provides the opportunity for the hospital to reduce medication dispensing and
administration errors. Approximately 3,000 of the more than 6,400 acute care and
specialty   care  hospitals   throughout   the  United  States   currently  have
computerized  medication  dispensing systems.  Most of those 3,000 hospitals use
floor stock  systems,  such as MedServ,  for inventory  control in primarily the
emergency  room,  operating  room or in areas  where  narcotic  floor  stock was
previously  stored.  Thus,  there is an  opportunity  within most of those 3,000
hospitals for systems, such as E-mar, that can adequately administer a patient's
regularly  scheduled  medications.  The  floor  stock  systems  that  have  been
installed are primarily justified by reducing inventory shortages and decreasing
"lost billings"  rather than reducing or eliminating  medication  errors.  As of
June 25, 1998, LifeServ had 25 MedServ and 3 E-mar installations within the U.S.
Pricing for MedServ and E-mar products range from $30,000 to over $1,000,000 for
a  hospital  installation  depending  on the  number of beds and  service  level
requirements.  The Company believes that the market for the LifeServ products is
currently favorable.

     The  markets  for other  health  care  facilities,  such as  nursing  home,
sub-acute care and assisted living facilities,  are relatively new. Although the
Company has no specific data for these  markets,  it believes that the extension
of the health care market from  hospitals into nursing  homes,  sub-acute  care,
assisted  living  facilities  and other  health  care  facilities  represents  a
potential  to expand the customer  base for  LifeServ's  products.  Although the
Company is optimistic that it will be able to generate  additional  revenue from
the growing assisted care facilities  market,  there is no assurance that it can
successfully penetrate such markets.


<PAGE>
                                       9

     MTL provides clinical laboratory testing services for physicians  primarily
in the west central  Florida  area.  MTL also  services  physicians in Key West.
Service is a key factor in retaining  and securing  referrals  from  physicians.
Several of the national  laboratories  that  compete with MTL have  consolidated
their operations outside the Tampa Bay area which has benefited MTL.

     Approximately  65% of the tests  performed by MTL are paid for by Medicare.
In January  1998,  Medicare  instituted a 4%  reduction  in their  reimbursement
rates. On April 1, 1998,  Medicare  instituted changes which required physicians
to provide more diagnosis information for the tests they order. The reduction in
reimbursement  rates and the additional  information which Medicare requires for
reimbursement  have  resulted in reduced gross margins for MTL as well as delays
in receiving payment for services  rendered.  There are no contracts between MTL
and the physicians  serviced,  accordingly at any time, the physician can change
laboratory services.

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

     The pharmacy  customers of MTS Packaging supply  prescribed  medications to
nursing homes, which are the primary market for MTS Packaging's  products.  This
market is highly  competitive.  There are  several  competitors  that  presently
market other systems using punch cards.  The Company believes it is the industry
leader in the  automation  of packaging  and sealing of solid  medications  into
punch cards.  The Company  believes  that  products  developed by the  Company's
competitors  are not as efficient as the Company's  systems because they are not
as  automated.  The  Company's  method of  dispensing  medication  replaces more
traditional  dispensing  methods,  such as  prescription  vials.  The  principal
methods  of  competition   in  supplying   medication   dispensing   systems  to
prescription service providers are product innovation,  price, customization and
product  performance.  Many of the Company's  competitors  have been in business
longer and have  substantially  greater resources than the Company.  There is no
assurance that the Company will be able to compete  effectively with competitive
methods of dispensing medication or other punch card systems.

     The Company's  primary  competitors for punch card  dispensing  systems are
Drug  Package,  Inc.,  PCI/Trans  Aid,  Inc.  and RX Systems,  Inc.  The Company
believes that its automated  proprietary  packaging machinery  distinguishes MTS
Packaging  from its  competitors'  manual  systems,  which are  capable  of only
filling and  sealing  30-45  disposable  medication  punch  cards per hour.  The
Company's  new  automated  packaging  machinery  can  fill  and  seal  up to 720
disposable  medication  cards per hour. The Company believes that its production
rates will meet the needs of its  customers  who are  consolidating  and require
higher productivity to meet their growing market share.

     LifeServ faces intense competition within the hospital  marketplace for its
products,  Performance,  MedServ,  E-mar and  Cygnet.  For  pharmacy  management
systems,  competitors include dominant hospital  information system vendors such
as HBO & Company, SMS Corporation,  MEDITECH, Inc. and other major corporations.
Also  included  are  pharmacy   management  systems  providers  such  as  Cerner
Corporation,  Mediware Information Systems, Inc. and Health Care Services,  Inc.
Among suppliers of automated  dispensing systems to hospitals,  the Company will
be competing  with such major  companies as Pyxis  Corporation,  a subsidiary of
Cardinal Health Inc.,  Baxter  International,  Inc.,  Diebold  Incorporated  and
others for its new MedServ product line. The Company  believes E-mar is defining
a new market  and the  Company is not aware of any  competitors  with  installed
systems  such as E-mar.  Although  the  Company  believes  it has been  first to
market,  many companies that have greater  financial  resources  could develop a
similar  product.  The obstetrical  information  market segment of the Company's
business  is  principally  divided  among  Watch  Child,  a division of Hill-Rom
Company, Inc., Marquette Medical Systems, Inc. and Cygnet.  Although the Company
believes it provides superior  technological systems, there is no assurance that
it  will be able  to  effectively  compete  with  companies  that  have  greater
financial resources or established market distribution channels.

     MTL conducts its business in a very  competitive  marketplace.  There are a
number of  clinical  laboratories  in the Tampa Bay area that  compete  with the
Company's  facility.  In addition,  hospitals are offering  their own diagnostic
clinical laboratory  services,  which places additional  competitive pressure on
the  Company.  Although the Company  believes  that MTL provides a high level of
service and quality.  There can be no assurance that  competitors,  governmental
regulators,  or reductions in Medicare reimbursement policies will not erode the
business prospects of MTL.

<PAGE>
                                       10

Proprietary Technology
----------------------

     The Siegel Family QTIP Trust (the "Trust") is the holder of certain patents
and other proprietary  rights for the equipment and processes that MTS Packaging
uses and sells.  The Trust is the  assignee of all such  proprietary  and patent
rights used in the Company's  business that were invented or developed by Harold
B. Siegel, the founder of the Company.  The Trust and the Company are parties to
a license  agreement  whereby the Company is granted an exclusive  and perpetual
license from the Trust to use the know-how and patent rights in the  manufacture
and sale of the  Company's  medication  dispensing  systems.  MTS  Packaging  is
heavily  dependent upon the continued use of the proprietary  rights  associated
with these patents.  The patents begin expiring in 2001 continuing through 2006.
The license agreements are co-extensive with the patents.

     There are numerous patent  applications  and patent license  agreements for
products  that  have been sold and that  have  been in  development  within  MTS
Packaging and LifeServ,  however,  their business' are not materially  dependent
upon the  issuing  or its  ownership  of any one  patent  applied  for or patent
license agreements.

     There is no  assurance  that any  additional  patents  will be granted with
respect to the  Company's  medication  dispensing  or  information  systems  and
products  or  that  any  patent  issued,  now or in  the  future,  will  provide
meaningful protection from competition.

     MTL does not  presently  use any  proprietary  technology.  The Company has
completed a program to upgrade to more  technologically  advanced  equipment for
the delivery of diagnostic information to its customers.

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

     Certain  subsidiaries of the Company are subject to various federal,  state
and local regulations with respect to their particular  businesses.  The Company
believes that it currently complies with these regulations.

     MTS  Packaging's  products are governed by federal  regulations  concerning
components of packaging materials that are in contact with food. The Company has
obtained  assurances  from its vendors that the packaging  materials used by MTS
Packaging  are  in  conformity  with  such  regulations.  However,  there  is no
assurance  that  significant  changes  in  the  regulations  applicable  to  MTS
Packaging's  products will not occur in the foreseeable future. Any such changes
could have a material adverse effect on the Company.

     The  operations  of LifeServ  are  subject to Food and Drug  Administration
(FDA)  Guidelines.  In accordance  with FDA  Guidelines,  the Cygnet  Product is
classified  as a Class II  medical  device and  requires  the filing of a 510(k)
application  with the FDA for approval and  compliance.  The 510(k)  application
serves as a pre-market  notification to the FDA of a company's intention to sell
a medical  device and seeks consent to do so. The Cygnet  product  received this
consent in December 1993. Any material  changes or  modifications to the present
Cygnet product will require the filing of an additional 510(k)  application.  On
September  10,  1996,  the FDA  issued a letter  of  compliance  for the  Cygnet
product.  The Company  believes that it will be able to maintain FDA  compliance
for its Cygnet product.

     The operations of MTL are subject to extensive  federal,  state,  and local
regulation.  Specifically, MTL is licensed by the State of Florida Department of
Health and  Rehabilitation  Services ("HRS") and is certified by the Health Care
Financing  Administration  ("HCFA"),  a federal governmental agency. The Company
believes MTL is currently operated in compliance with HRS and HCFA licensing and
certification requirements.

     The  operations of MTL are subject to Medicare  reimbursement  requirements
and  restrictions  imposed by the Social  Security Act as  administered by HCFA.
Recent  regulatory  changes  directly  affect the way  Medicare  reimburses  for
laboratory  services.  Medicare  only pays for  laboratory  services  if the lab
facility is certified under the Clinical Laboratory Improvement Act of 1988. The
Company's operation of MTL complies with this federal legislation.

     Most clinical laboratory  procedures are paid from laboratory fee schedules
issued by individual  Medicare carriers or intermediaries.  Laboratory  services
are paid based upon a national fee schedule  modified by local economic factors.
Medicare  carriers pay laboratory  claims on a reasonable fee basis. In the case
of laboratory  tests,  the  recommended fee is the lesser of the fee schedule or
the national caps on the actual billed amounts.  Most  laboratory  tests must be

<PAGE>
                                       11

billed on an  assigned  basis.  This means  that the  provider  must  accept the
Medicare  reimbursement  as  payment  in full for a  laboratory  test.  Medicare
patients are not billed for the  additional  amount.  In  addition,  Florida has
adopted  legislation that limits billing for laboratory  services to 120% of the
allowable  Medicare  reimbursement.  Recent  changes in  Medicare  reimbursement
policies have severely  impacted MTL's ability to receive  timely  reimbursement
for tests performed.  MTL is currently  evaluating these policies and attempting
to make the necessary  changes in its internal  information  systems in order to
improve its ability to adjust to these changes.

     The  Company  cannot  predict  the extent to which its  operations  will be
effected under the laws and  regulations  described above or any new regulations
that may be adopted by regulatory agencies.

Employees
---------

     As of June 25, 1998,  the Company  employed 275 persons full time.  None of
the Company's employees are covered by a collective  bargaining  agreement.  The
Company considers its relationship with employees to be good.


ITEM 2. PROPERTIES

     The Company  leases a 67,000  square foot plant  consisting of office space
and air-conditioned  manufacturing and warehousing space near the Clearwater/St.
Petersburg  International Airport at 12920 Automobile  Boulevard.  The Company's
corporate administrative offices,  LifeServ and the manufacturing facilities for
MTS Packaging  are at this  location.  The lease expires on April 15, 1999.  The
Company's current monthly lease payments are approximately $19,000. The premises
are generally suited for light manufacturing and/or distribution.  Currently the
Company is operating at two-thirds of actual manufacturing capacity.

     The Company leases  approximately 5,200 square feet at approximately $2,500
per month for office and warehouse space at 21530 Drake Road,  Cleveland,  Ohio.
The  lease  expires  on March 31,  1999.  This  space is used by the Ohio  Label
business  acquired  by the  Company in 1989.  This  business  is now part of MTS
Packaging.

     The Company leases approximately 3,300 square feet of space for MTL located
in Pinellas County,  Florida.  This lease expires on April 1, 2002, with monthly
rents of approximately $5,000.

     The Company subleases approximately 4,000 square feet for LifeServ
located in San Jose,  California.  The lease  expires on December  31, 2000 with
monthly rents of $4,400.


ITEM 3. LEGAL PROCEEDINGS

     The Company was not involved in any litigation that, in the opinion of
management,  would have a material  adverse  effect on the  Company's  financial
position,  results of operations or  liquidity.  As more fully  described in the
last paragraph of Note 15 to the consolidated financial statements,  the Company
is  disputing  a proposed  assessment  by the State of  Florida,  Department  of
Revenue.

Reorganization Under Chapter 11 and Subsequent Operations
---------------------------------------------------------

     On January 3, 1996, three of the Company's subsidiaries, MTS Packaging, MTL
and MTS Sales,  filed  voluntary  petitions  for relief under  Chapter 11 in the
Bankruptcy Court. On February 22, 1996,  Vangard filed a voluntary  petition for
relief under Chapter 11 in the same jurisdiction.  On July 10, 1997, MMT filed a
voluntary petition for relief under Chapter 11 in the same jurisdiction.

     On September 4, 1996, the Plans of  Reorganization  for MTS Packaging,  MTL
and Vangard were  confirmed by the Bankruptcy  Court.  The case of MTS Sales was
dismissed. On June 12, 1998, the Plan of Reorganization for MMT was confirmed by
the bankruptcy court.

<PAGE>
                                       12


     Certain  liabilities were compromised by creditors as part of the Plans for
Reorganization as follows:

     Secured  Claims:  (Bank) - Each of the companies that filed petitions under
Chapter 11 were  co-borrowers on bank notes,  lines of credit,  accrued interest
and other charges and expenses,  in the amount of  approximately  $28.0 million,
that were combined and restructured into two separate promissory notes.

     Plan Note I, in the stated principal amount of approximately $27.0 million,
provided for a portion of the principal  amount,  $15.0  million,  to be due and
payable as follows:

     a.   Interest  at the  rate  of  7.5%  for a  period  of two  years  ending
          September 1, 1998.

     b.   Installments  of  principal  and  interest at the rate of 7.5% payable
          monthly for a period of ten years ending  September 1, 2006.  At which
          time,  the then  outstanding  principal  amount is due and  payable in
          full.  The  monthly   installments   of  principal  and  interest  are
          calculated  based on the principal  amount  amortized in equal monthly
          payments over twenty years.

     Plan Note II, in the stated  principal  amount of  $1,000,000  provided for
payment  of  $750,000  on or about  the  date of  confirmation  of the  Plans of
Reorganization.  The Company made the payment of $750,000 on or about  September
5, 1996 and in accordance  with the terms of Plan Note II, the stated  principal
amount was deemed fully satisfied.

     Plan Note I further provided that the net proceeds from the sale of Vangard
would be paid to the Bank. In addition,  certain other mandatory  prepayments of
the stated  principal  amount were  required  upon the  occurrence  of a capital
transaction in which any of the Company's subsidiaries are sold, as well as upon
the receipt of any proceeds resulting from certain causes of action commenced by
the Company.  Plan Note I also provided that the full stated principal amount of
approximately  $28.0  million  would be due and payable upon the  occurrence  of
specified major events of default.

     Effective  March 31, 1997, the stated  principal  amount of Plan Note I was
reduced to $15.0 million.  Thereby,  permanently  removing any contingent amount
due including the  additional  $12.0 million  principal  amount,  except for the
mandatory  prepayments  for  any  capital  transactions.  As a  result  of  this
modification  and the receipt of proceeds from the sale of Vangard during fiscal
1997, the Company realized an extraordinary gain of approximately $10.3 million,
after the  mandatory  payment from the Vangard sales  proceeds of  approximately
$3.1 million.

     Plan Note I contains certain financial covenants including  prohibiting the
Company from exceeding a maximum  consolidated  intangible deficit,  maintaining
various  financial  ratios and limits  the  amount of capital  expenditures.  In
addition,  Plan Note I requires the bank's  approval of the payment of dividends
and the borrowing of any additional amounts from other parties.

     Other  Secured  Claims:  The holder of a secured note payable by MMT in the
amount of  approximately  $45,000  elected  to receive  payment  over a two-year
period with interest at 7%.

     Unsecured Claims - The holders of trade and miscellaneous claims elected to
receive payment of their claims under several options  provided for in the Plans
of Reorganization.

     The amount of secured and unsecured  liabilities  that were  compromised as
part of the plans of reorganization  have been classified as extraordinary  gain
in the Company's Consolidated Statement of Operations and Statement of Cash Flow
for the year ended  March 31,  1997  except for the MMT  unsecured  liabilities,
which were  compromised as part of the MMT Plan of  Reorganization  confirmed in
the first quarter of fiscal 1999.

Bank Matters
------------

     On December 5, 1997, the Company received a notification from its bank that
certain  events  of  default  had  occurred  under  Plan  Note I. As a result of
discussions  between the Company and the bank,  Plan Note I was amended on April
16, 1998 to provide for the following:

<PAGE>
                                       13

     a.   The formation of LifeServ as a subsidiary of the Company.

     b.   The inclusion of LifeServ as a co-borrower.

     c.   The consent of the bank for the  incurrence of  additional  debt and a
          private placement of equity by LifeServ.

     d.   Release of LifeServ  as a  co-borrower  in the event that  LifeServ is
          successful in obtaining equity capital.

     e.   Accelerated  repayment of  $1,000,000 of the stated  principal  amount
          beginning  November 1998 based upon 25% of excess cash flow  generated
          by the Company.

     f.   Waiver by the bank of any  events of default  which may have  occurred
          prior to April 16, 1998.

     g.   A limitation  in the amount of funding that the Company can provide to
          LifeServ.

     h.   Accelerated  repayments of the stated principal amount in the event of
          certain capital transactions  involving subsidiaries of the Company as
          well as recoveries from certain causes of action.

     i.   Additional  payments  above the stated  principal  amount in the event
          that capital  transactions result in proceeds to the Company in excess
          of certain  amounts  and  recoveries  from  certain  causes of action.
          Management believes that these additional  payments,  if any are made,
          will  be  offset  by  gains  recognized  on  these   transactions  and
          recoveries.

     On May 13, 1998, LifeServ obtained a $500,000 loan from an individual.  The
terms of the loan  provide  for  repayment  in full plus  interest at 10% on the
earliest of: the date LifeServ receives the proceeds of a sale of equity or July
31, 1998. In addition, LifeServ and the Company issued warrants to the lender to
purchase shares of their common stock as follows:

         LifeServ Warrants
         -----------------

         200,000 warrants  exercisable on the date of the loan through the tenth
         anniversary of their issuance at $1.00 per share.

         15,000  warrants  exercisable  on the maturity date of the loan, if the
         loan is not repaid on the maturity date,  through the tenth anniversary
         of their issuance at $1.00 per share.

          15,000  warrants  exercisable  on August 31, 1998,  if the loan is not
          repaid on August 31,  1998,  through  the tenth  anniversary  of their
          issuance at $1.00 per share.

          15,000 warrants  exercisable on September 30, 1998, if the loan is not
          repaid on September 30, 1998,  through the tenth  anniversary of their
          issuance at $1.00 per share.

         The Company Warrants
         --------------------

          25,000  warrants  exercisable  on October 30, 1998, if the loan is not
          repaid on October 30, 1998 through the tenth anniversary date of their
          issuance at $0.45 per share.


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

     The  information  required by this item is incorporated by reference to the
Form 10-Q filed by the Company on November 13, 1997.


<PAGE>
                                       14

                                     PART II


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

Price Range of the Company's Securities
---------------------------------------

     The Company's Common Stock trades on the over-the-counter market. The table
below sets  forth the range of high and low bid  information  for the  Company's
common  stock for the periods  indicated,  as reported by the NASD OTC  Bulletin
Board.  Over-the-counter  market quotations reflect inter-dealer prices, without
retail markup,  markdown or commission and may not necessarily  represent actual
transactions.

                                             High                     Low
                                       ----------------        -----------------

        1998 Fiscal Year
     ---------------------
         First Quarter                    $     .63                $      .44
         Second Quarter                   $     .53                $      .44
         Third Quarter                    $     .53                $      .22
         Fourth Quarter                   $     .44                $      .13

        1997 Fiscal Year
     ---------------------
         First Quarter                    $    1.00                 $      .25
         Second Quarter                   $    1.38                 $      .44
         Third Quarter                    $    1.06                 $      .56
         Fourth Quarter                   $    1.00                 $      .53

     The Company's warrants to purchase the Company's common stock are
traded through the National  Quotation  Bureau,  LLC. The table below sets forth
the range of high and low bid  information  for the  Company's  warrants for the
periods  indicated.  Over-the-counter  market  quotations  reflect  inter-dealer
prices,  without retail markup,  markdown or commission and may not  necessarily
represent actual transactions.

                                            High                     Low
                                      ----------------        -----------------
        1998 Fiscal Year
     ---------------------
         First Quarter                        *                       *
         Second Quarter                       *                       *
         Third Quarter                        *                       *
         Fourth Quarter                       *                       *

        1997 Fiscal Year
     ---------------------
         First Quarter                         *                      *
         Second Quarter                        *                      *
         Third Quarter                         *                      *
         Fourth Quarter                        *                      *

     *  Quotations  not  available.  The  last  reported  bid for the  Company's
     warrants occurred on January 4, 1996. At that time the bid price was 1/32.

     As of June 25, 1998, there were approximately 4,000 holders of record
of the Company's common stock.

     Historically,  the Company has not paid  dividends  on its common stock and
has no present intention of paying dividends in the foreseeable future.  Payment
of dividends are subject to the prior approval by the Company's  secured lender,
SouthTrust Bank.

<PAGE>
                                       15
 
ITEM 6.  SELECTED FINANCIAL DATA


     The  following  tables set forth  selected  financial  and  operating  data
regarding  the Company.  This  information  should be read in  conjunction  with
"MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS"  and the  Company's  Financial  Statements  and Notes  thereto.  See
"FINANCIAL STATEMENTS."

<TABLE>
<CAPTION>
                                                                                     YEARS ENDED MARCH 31,
                                                          --------------------------------------------------------------------------
                                                                 (In Thousands, Except Earnings Per Share Amounts)
                                                              1998           1997           1996            1995            1994
                                                          ------------   ------------   -------------   ------------   -------------
<S>                                                       <C>           <C>             <C>             <C>
Sales                                                     $    24,072    $    19,247    $     17,052    $    14,830    $     12,301
Cost of Sales and Other Expenses                               25,196         19,232          41,669         16,946           9,367
                                                          ------------   ------------   -------------   ------------   -------------
                                                         
  Before Cumulative Effect of Accounting Change                (1,124)            15         (24,617)        (2,116)          2,934
Income Tax (Benefit) Expense                                     (270)             0          (1,900)          (844)          1,078
Income (Loss) from Discontinued Operations                          0         (2,800)         (6,634)            16             762
Gain on Forgiveness of Debt of Discontinued
  Operations                                                        0          3,500               0              0               0
Estimated Gain (Loss) on Disposal of
   Discontinued Operations                                          0          2,200          (5,229)             0               0
Extraordinary Gain on Debt Forgiveness                              0         10,097               0              0               0
Cumulative Effect of Accounting Change
   for FASB No. 109                                                 0              0               0              0             543
                                                          ------------   ------------   -------------   ------------   -------------
Net Income (Loss)                                         $      (854)   $    13,012    $    (34,580)   $    (1,256)   $      3,161
                                                          ============   ============   =============   ============   =============
                                                          
Net Earnings (Loss) Per Basic and Diluted Share:
From Continuing Operations                                $     (0.14)   $      0.00    $      (5.60)   $     (0.32)   $       0.48
Income (Loss) from Discontinued Operations                       0.00           0.51           (2.92)          0.00            0.20
Cumulative Effect of Accounting Change
   for FASB No. 109                                              0.00           0.00            0.00           0.00            0.14
Extraordinary Gain on Debt Forgiveness                           0.00           1.76            0.00           0.00            0.00
                                                          ------------   ------------   -------------   ------------   -------------
Net Earnings (Loss) Per Basic and Diluted Share           $     (0.14)   $      2.27    $      (8.52)   $     (0.32)   $       0.82
                                                          ============   ============   =============   ============   =============
Average Common Shares Outstanding - Basic and Diluted           6,062          5,737           4,059          3,974           3,879
                                                          ============   ============   =============   ============   =============
</TABLE>


<TABLE>
<CAPTION>
                                                                                             AT MARCH 31,
                                                          --------------------------------------------------------------------------
                                                                                     (In Thousands)
Balance Sheet Data:                                           1998           1997            1996           1995             1994
                                                          ------------   ------------   -------------   ------------      ----------
<S>                                                       <C>            <C>            <C>             <C>               <C>    
Net Working Capital                                       $     2,852    $     3,989    $      5,406    $     5,410       $   1,695
Assets                                                         15,762         12,543          14,669         44,243          33,018
Short-Term Debt                                                   625            310             168          1,165             979
Long-Term Debt                                                 15,613         15,459             350         23,224          10,588
Stockholders' Equity (Deficit)                                 (6,113)        (5,416)        (18,546)        15,640          16,853
Liabilities Subject To Compromise                                 826              0          30,457              0               0

</TABLE>

<PAGE>
                                       16


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


Overview
--------

     During fiscal 1998, the Company  continued to focus on the expansion of its
core business as well as develop a  professional  management  team to direct and
implement  growth  strategies for its health care  information  businesses.  The
health care  information  businesses  have been  consolidated  under LifeServ to
provide  solutions  for  medication  management  and  point-of-care   electronic
documentation  for hospital and other  health care  facilities.  The Company has
determined  that  additional  capital will be required to assist LifeServ in its
growth  opportunities.  As a result,  the  Company  negotiated  an amended  loan
agreement with its bank which provides  LifeServ the opportunity to raise equity
capital to fund its growth and then to be released  from its  obligations  under
the  current  loan  agreement.  The  Company  has  retained  the  services of an
investment banking firm to assist in raising capital.

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

Fiscal Year 1998 Compared to Fiscal Year 1997

Revenue
-------

     Net sales for the fiscal year ended March 31, 1998 increased 25.1% to $24.1
million  from $19.2  million the prior fiscal  year.  Revenue for each  business
segment increased in fiscal 1998 compared to 1997 as follows.

<TABLE>
<CAPTION>
                                                         Fiscal 1998         Fiscal 1997          % Increase
                                                      ----------------   ------------------    ----------------
          <S>                                          <C>                 <C>                     <C>    
           Medication Packaging and Dispensing         $12.4 million       $11.2 Million             10.7%
           Health Care Information Systems              $4.3 Million        $2.0 Million            115.0%
           Clinical Laboratory Services                 $7.4 Million        $6.1 Million             21.3%

</TABLE>

     Revenue increased in the medication packaging and dispensing system segment
primarily due to a higher number of  disposable  medication  punch cards sold to
pharmacies  by MTS  Packaging,  resulting  from  concerted  sales and  marketing
efforts.  In  addition,  pharmacies  servicing  long-term  care  facilities  are
continuing to consolidate.  As a result,  many of MTS Packaging's  customers are
acquiring  other  pharmacies  and thereby,  raising their demand for  disposable
supplies.  Increases in the number of  installations  of  medication  dispensing
systems,  pharmacy  systems and sales of  obstetrical  information  systems that
LifeServ acquired during fiscal 1998 contributed to increases in revenue for the
health care information  system segment.  Revenue grew in the Company's clinical
laboratory  segment due to  increases  in the number of tests  performed,  which
resulted from a higher in the number of physicians serviced by the laboratory.

Cost of Sales and Services
--------------------------

     Cost of sales for the year ended  March 31, 1998  increased  22.4% to $13.2
million from $10.8  million in the prior year.  Cost of sales as a percentage of
sales decreased to 54.7% from 55.9%.  Cost of sales for each business segment as
a percentage of revenues in fiscal 1998 compared to 1997 was as follows:

<TABLE>
<CAPTION>
                                                              Fiscal 1998              Fiscal 1997
                                                            ----------------        ------------------
<S>                                                              <C>                      <C>    
Medication Packaging and Dispensing                              56.4%                    55.4%
Health Care Information Systems                                  38.0%                    50.8%
Clinical Laboratory Services                                     61.5%                    58.6%

</TABLE>

     The incremental profit margin realized from increased revenue in the health
care information segment contributed  significantly to the reduction in costs of
sales as a  percentage  of revenue.  The increase in revenue did not require the
addition of any material amount of fixed costs.

<PAGE>
                                       17

     Increases in raw material and labor costs were the primary  reasons for the
increase  in cost  of  sales  as a  percentage  of  revenue  for the  medication
packaging and dispensing segments. Competitive issues precluded the Company from
adjusting  the prices  charged to customers in order to offset these  increases.
Changes in Medicare  reimbursement  policies  resulted in decreases in the gross
margin realized by the clinical laboratory services segment.

Selling, General and Administrative Expenses ("SG&A")
-----------------------------------------------------

     SG&A  expenses  for the year ended March 31, 1998  increased  45.1% to $9.4
million  compared to $6.5 million the prior year.  SG&A  expenses  increased for
each business segment in fiscal 1998 compared to 1997 as follows:

<TABLE>
<CAPTION>
                                                          Fiscal 1998          Fiscal 1997          % Increase
                                                       -----------------   ------------------   -----------------
       <S>                                               <C>                  <C>                     <C>
       Medication Packaging & Dispensing Systems         $2.0 million         $1.9 Million              5.3%
       Health Care Information Systems                   $3.6 Million         $1.2 Million            200.0%
       Clinical Laboratory Services                      $2.1 Million         $2.1 Million              0.0%
       Corporate                                         $1.7 Million         $1.1 Million             54.6%

</TABLE>

     The increase  resulted  primarily  from  increases in personnel and selling
costs  associated with the increase in and  anticipation of revenue  realized by
each business segment.

Depreciation and Amortization
-----------------------------

     Depreciation  and  amortization  expense  increased 6.7% to $1.5 million in
fiscal  1998 from $1.4  million  the prior  year.  The  increase  resulted  from
depreciation and amortization of assets acquired during fiscal 1998.

Interest Expense
----------------

     Interest  expense  increased  82.1% to $1.1  million  in  fiscal  1998 from
$609,000 in the prior year. The increase  resulted  primarily from the fact that
prior to the confirmation of the Company's Plans of Reorganization during fiscal
1997,  interest  payments  were  suspended.  Interest was paid during the entire
fiscal 1998 period.
                                                                 
Income Taxes
------------

     The Company realized an income tax benefit in fiscal 1998 as a result of an
income tax refund related to the amendment of its 1992 income tax return.

Fiscal Year 1997 Compared to Fiscal Year 1996
---------------------------------------------

Revenue
-------

     Net sales for the fiscal year ended March 31, 1997 increased 12.9% to $19.2
million  from $17.0  million the prior fiscal  year.  Revenue for each  business
segment increased in fiscal year 1997 compared to 1996 as follows:

<TABLE>
<CAPTION>
                                                          Fiscal 1997          Fiscal 1996          % Increase
                                                      ------------------   ------------------   -----------------
      <S>                                               <C>                  <C>                      <C>    
      Medication Packaging & Dispensing Systems         $11.2 million        $10.7 Million              4.7%
      Health Care Information Systems                    $2.0 Million         $1.2 Million             66.7%
      Clinical Laboratory Services                       $6.1 Million         $5.2 Million             17.3%

</TABLE>


     The increase in revenue for the medication  packaging and dispensing system
segment  resulted  primarily  from higher sales of disposable  medication  punch
cards.  The continued  focus of marketing  efforts on wholesale  distribution of
disposables  has  contributed  significantly  to the  increase  in  revenue.  In
addition,   the  Company  added  several  national  account  customers  who  are
significant  long-term  care pharmacy  providers.  The growth in revenue for the

<PAGE>
                                       18

health  care  information   systems  segment  was  due  primarily  to  increased
installations of systems which resulted from greater customer  acceptance of the
products offered.  The increase in revenue for the clinical  laboratory  segment
resulted  primarily  from  concerted  sales and  marketing  efforts,  which have
increased the number of physicians serviced by the laboratory.

Cost of Sales and Services
--------------------------

     Cost of sales for the year ended  March 31,  1997  increased  1.0% to $10.8
million from $10.7  million in the prior year.  Cost of sales as a percentage of
sales decreased to 55.9% from 62.5%.  Cost of sales for each business segment as
a  percentage  of  revenue  in fiscal  1997  compared  to the prior  year was as
follows:

<TABLE>
<CAPTION>
                                                              Fiscal 1997              Fiscal 1996
                                                            ----------------        ------------------
           <S>                                                   <C>                       <C> 
           Medication Packaging and Dispensing                   55.4%                     61.9%
           Health Care Information Systems                       50.8%                     67.2%
           Clinical Laboratory Services                          58.6%                     62.8%
</TABLE>

     The decrease in Cost of sales as a percentage  of revenue for each business
segment resulted  primarily from the fact that although revenue for each segment
increased  certain  fixed  costs  included  in cost of  sales  did not  increase
correspondingly.  Although each business segment realized increased costs of raw
materials or supplies used in their respective  operations,  the costs were more
than offset by additional gross margin realized on increased revenue.

Selling, General and Administrative Expenses ("SG&A")
-----------------------------------------------------

     SG&A  expenses  for the year ended March 31, 1997  decreased  24.2% to $6.5
million compared to $8.5 million the prior year. The decrease resulted primarily
from reductions in corporate overhead expense of approximately $2.0 million. The
Company  implemented  cost reduction  measures during fiscal 1997 as part of its
overall  reorganization  efforts  including  reductions  in personnel  and other
overhead  expenses.  The reductions were partially  offset by increases in sales
and marketing  expenses  concomitant with an increase in revenue in the clinical
laboratory segment.

     SG&A expenses for each business  segment  increased  (decreased)  in fiscal
1997 compared to fiscal 1996 as follows:

<TABLE>
<CAPTION>
                                                         Fiscal 1997          Fiscal 1996          % Increase
                                                                                                   (Decrease)
                                                      -----------------    -----------------    ----------------
           <S>                                          <C>                 <C>                     <C>                 
           Medication Packaging and Dispensing          $1.9 million        $2.0 Million             (5.0%)
           Health Care Information Systems              $1.2 Million        $1.6 Million            (25.0%)
           Clinical Laboratory Services                 $2.1 Million        $1.6 Million             31.3%
           Corporate                                    $1.1 Million        $3.1 Million            (64.5%)
</TABLE>

Depreciation and Amortization
-----------------------------

     Depreciation  and amortization  expense  decreased 48.5% to $1.4 million in
fiscal 1997 from $2.7 million the prior year. The Company  reduced the estimated
useful  lives  of  its  property  and   equipment  in  fiscal  1996  to  reflect
technological changes, resulting in additional depreciation in 1996 of $589,000.
Furthermore,  during 1996,  the Company  reduced the  carrying  value of certain
long-lived  assets  which had been  impaired.  As a result of these  reductions,
depreciation and amortization expense was reduced in fiscal 1997 compared to the
prior year.


<PAGE>
                                       19

Interest Expense
----------------

     Interest  expense  decreased  65.0% to  $609,000  in fiscal  1997 from $1.7
million in the prior year. The decrease resulted primarily from the reduction in
indebtedness  which the Company  realized as a result of the  restructured  debt
with its secured  lenders,  and the suspension of interest  payments  during the
Chapter  11  proceedings.  Interest  expense  for  fiscal  1997  would have been
approximately  $1.1  million  higher if payments  had been  required  during the
Chapter 11 proceedings.

Income Taxes
------------

     In 1996, the Company  recognized an income tax benefit of $1.9 million from
the use of net  operating  loss  carrybacks.  In 1997,  no income tax expense or
benefit  was  recognized  as  taxes  on  income  from   continuing   operations,
discontinued operations and extraordinary items were offset by the net operating
loss carryforward. See Note 15 to the financial statements.

Gain on Disposal of Discontinued Operations
-------------------------------------------

     The Company completed the sale of certain assets of Vangard effective March
31, 1997.  The Company  received $3.1 million for the assets.  In addition,  the
buyer assumed  approximately  $700,000 in liabilities.  As a result of the sale,
the Company realized a gain of approximately $2.2 million.

Extraordinary Gain on Forgiveness of Debt
-----------------------------------------

     The Company's principal  subsidiaries emerged from Chapter 11 during fiscal
1997.  The  Company's  Plans of  Reorganization  provided for a reduction of the
amounts  owed to both  secured and  unsecured  creditors.  The  reduction,  less
certain  expenses  relating to the  reorganization,  has been  recognized  as an
extraordinary gain.

Restructuring Charges
---------------------

     The Company recognized significant restructuring charges in fiscal 1996. No
further restructuring charges were required in fiscal 1997.

Loss from Discontinued Operations
---------------------------------

     The Company  elected to treat  Vangard as a  discontinued  operation due to
management's decision to dispose of the business.  Vangard was managed by a plan
trustee  approved  by the  Bankruptcy  Court  (see  Note  3 to the  Consolidated
Financial  Statements).  The loss  incurred by Vangard was $2.8  million in 1997
compared to a loss of $6.6 million in 1996.

Gain on Forgiveness of Debt of Discontinued Operation
-----------------------------------------------------

     The Plan of  Reorganization  of Vangard  provided  for a  reduction  of the
amounts owed to unsecured  creditors.  In addition,  certain post petition loans
made to Vangard were forgiven by its bank. The reductions and the forgiveness of
debt  has  been  recognized  as a gain on  forgiveness  of debt of  discontinued
operations.

Year 2000 Compliance
--------------------

         The Company has reviewed its computer  information  systems to identify
any systems that could be affected by the "Year 2000" issue.  Year 2000 problems
typically arise from computer  programs using two characters rather than four to
define  the   applicable   year.   This  could  result  in  system   failure  or
miscalculations.  The Company is presently upgrading its software systems, which
include its application products and other  internally-developed  software,  and
its information  systems hardware used in connection with managing the Company's
operations  in order to ensure  they are Year 2000  compliant.  The  Company  is
currently assessing the cost of the year 2000 upgrades.


<PAGE>
                                       20

     The health care  information  system  products that the Company  offers for
sale through LifeServ have been tested for year 2000 compliance,  except for the
Performance  software  system which is currently  undergoing  an upgrade that is
expected to be completed in fiscal 1999.  The Company  believes  that all of its
products except Performance are year 2000 compliant.

     The Company has not assessed  fully the impact of the Year 2000  compliance
issue on the entities  with whom the Company  interacts,  such as  distributors,
suppliers,  manufacturers  and  customers.  The  Company  also has not  verified
whether its non-information systems equipment is Year 2000 compliant.


Liquidity and Capital Resources
-------------------------------

     The  Company  had a net loss of  $854,000  in fiscal  1998  compared to net
income of $13.0 million the prior year. Cash provided from continuing operations
was  $305,000 in fiscal  1998  compared  to $1.6  million  the prior year.  Cash
provided from continuing  operations  resulted primarily from positive cash flow
from operations and income tax refunds.

     Investing  activities used $1.1 million in fiscal 1998 compared to $584,000
in fiscal 1997.  The increase  resulted  from the fact that the Company  resumed
several development  projects during fiscal 1998 which had been suspended during
the prior year. In addition,  the Company elected to upgrade  certain  equipment
used in its manufacturing operation.

     Financing  activities provided $524,000 in fiscal 1998. The Company entered
into a sale and leaseback  transaction  with a financial  institution  in fiscal
1998 which provided funding for a long-term contract with one customer where the
Company is the lessor.  There are no assurances that the Company will be able to
obtain additional loans to fund similar arrangements.

     The Company had working capital of approximately  $2.8 million at March 31,
1998 and had no source of  additional  working  capital other than that which is
generated from operations.

     The Company's  short-term and long-term liquidity is primarily dependent on
its  ability to generate  cash flow from  operations.  Inventory  levels are not
expected  to change  significantly  based upon the  Company's  current  level of
operation.  Increases  in  revenue  have  generally  resulted  in  corresponding
increases  in  accounts  receivable.  Cash  flow  from  operations  may  not  be
sufficient to support a substantial increase in accounts receivable.

     Throughout fiscal 1998, the Company dedicated a limited amount of resources
to  complete  development  of E-mar,  which was  completed  in March  1998,  and
approximately seven punch card packaging and dispensing  systems.  The continued
development  of these  projects  is  dependent  upon the  Company's  ability  to
generate  sufficient  cash flow from  operations.  In order for the  Company  to
maximize its market opportunities for these projects,  it may require additional
capital.  There is no assurance that sufficient capital will be available to the
Company to complete its planned product development.  The Company's inability to
continue development of these projects may have a material impact on its ability
to remain competitive and could have a material impact on its future operation.

     On June 12, 1998, the Plan of  Reorganization  for MMT was confirmed by the
bankruptcy   court.  As  a  result,   the  Company  will  recognize  a  gain  of
approximately $600,000 in the first quarter of fiscal 1999.

     In April 1998, the Company  entered into an amended loan agreement with its
bank. The amended loan agreement provides,  among other things, that the Company
maintain  certain minimum working  capital  amounts,  prohibits the Company from
exceeding a maximum  consolidated  deficit of $6.5 million and limits the amount
of capital expenditures.

     The Company believes that cash generated from operations will be sufficient
to meet its capital  expenditures  and working  capital  needs.  The Company has
retained  the  services  of an  investment  banking  firm to assist  LifeServ in
raising capital,  however,  there are no assurances that additional capital will
be available.  The amended loan agreement referred to above, among other things,
limited to  $200,000  the  amount of working  capital  which the  Company  could
provide to its LifeServ subsidiary from its other  subsidiaries.  As a result of
this  limitation,  LifeServ  will rely solely on cash flow from  operations  and
additional debt and equity which they are permitted to obtain in accordance with
the amended loan agreement.  There are no assurances that LifeServ will generate
sufficient  cash flow from operations to fund its operations or be successful in
raising  equity  capital.  Management  believes that the results of operation of
LifeServ will not adversely effect the overall liquidity of the Company.

<PAGE>
                                       21


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The financial  statements required by this item are contained at the end of
this report.

     SFAS No. 130, Reporting Comprehensive Income, is effective for fiscal years
beginning after December 15, 1997. This Statements establishes standards for the
reporting and display of  comprehensive  income and its components in a full set
of general-purpose financial statements.  The new rule requires that the Company
(a) classify items of other comprehensive  income by their nature in a financial
statement and (b)display the accumulated balance of other  comprehensive  income
separately from retained  earnings and additional  paid-in capital in the equity
section of the balance sheet.  The Company plans to adopt SFAS No. 130 in fiscal
1999 and  expects  no  material  impact  to the  Company's  financial  statement
presentation.

     The American Institute of Certified Public Accounts has issued Statement of
Position (SOP) No. 97-2,  "Software Revenue  Recognition" which is effective for
fiscal years  beginning  after December 15, 1997. SOP 97-2  establishes  certain
criteria  which  must be  satisfied  prior to the  recognition  of  revenue  for
licensing,  selling, leasing or otherwise marketing computer software.  Although
the  Company  plans to adopt SOP 97-2 in  fiscal  1999,  management  has not yet
determined  the  potential  effect  that SOP  97-2  will  have on the  Company's
financial statements.

ITEM 9. CHANGES IN AND  DISAGREEMENT  WITH  ACCOUNTANTS  ON ACCOUNTING  AND
FINANCIAL DISCLOSURE

         NONE


<PAGE>
                                       22

                                    PART III

ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information  required by this item is incorporated  herein by reference
to the information  included in the Company's  definitive  proxy statement which
will be filed by the Company within 120 days after the end of the Company's 1998
fiscal year.

ITEM 11: EXECUTIVE COMPENSATION

     The information  required by this item is incorporated  herein by reference
to the information  included in the Company's  definitive  proxy statement which
will be filed by the Company within 120 days after the end of the Company's 1998
fiscal year.


ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information  required by this item is incorporated  herein by reference
to the information  included in the Company's  definitive  proxy statement which
will be filed by the Company within 120 days after the end of the Company's 1998
fiscal year.


ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information  required by this item is incorporated  herein by reference
to the information  included in the Company's  definitive  proxy statement which
will be filed by the Company within 120 days after the end of the Company's 1998
fiscal year.


<PAGE>
                                       23

                                     PART IV

<TABLE>

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

       <S>           <C>    

             (a)     The following documents are filed as part of this report:
       1. and 2.     The Financial  Statements and schedule  filed as part of this report are listed  separately in the
                     Index to Financial Statements beginning on page 24 of this report
              3.     For  Exhibits,   see  Item  14(c)  below.  Each  management
                     contract or compensatory plan or arrangement required to be
                     filed as an Exhibit hereto is listed in Exhibit Nos. 10.20,
                     10.21, 10.22, 10.23, 10.24 and 10.25 of Item 14(c) below.
             (b)     No  reports  on Form 8-K  have  been  filed by the  Company
                     during the last quarter of the year ended March 31, 1998
             (c)     List of Exhibits
          2.1(9)     Agreement  and  Plan of  Merger  between  Medication  Management  Technologies,  Inc.  and  Cygnet
                     Technologies, Inc. dated April 24, 1997
          2.2(9)     Sale Agreement Vangard Labs, Inc. and NCS Healthcare, Inc. dated April 17, 1997
          2.3(9)     Asset Acquisition  Agreement  effective April 30, 1998 among the Company,  LifeServ  Technologies,
                     Peritronics Medical, Ltd. and 562577 B.C., Ltd.
          2.4(9)     Medication Management Technologies, Inc. Plan of Reorganization
          2.5(9)     MTS Packaging Systems, Inc. Plan of Reorganization
          2.6(9)     Medical Technology Laboratories, Inc. Plan of Reorganization
          2.7(9)     MTS Sales and Marketing, Inc. Plan of Reorganization
          2.8(9)     Vangard Labs, Inc. Plan of Reorganization
           **3.1     Articles of Incorporation and Amendments thereto
         *3.1(a)     Amendment to Articles of  Incorporation  increasing  authorized  Common Stock to  25,000,000  from
                     15,000,000 shares
           **3.2     Bylaws of the Company
            *4.1     Form of Warrant from July 1992 Offering
        **4.1(a)     Form of Initial Offering Warrant from January 1988 Offering
           **4.2     Designation of Rights, Preferences and Limitations of Voting Preferred Stock
          **10.1     Business Lease between Leslie A. Rubin,  Limited,  as Lessor and the Company as Lessee dated March
                     1987
          **10.2     Siegel Family Revocable Trust Agreement
     10.2(a) (8)     Amendment and Restated Siegel Family Revocable Trust Agreement
     10.2(b) (8)     Siegel Family Limited Partnership Agreement
       **10.3(a)     Agreements  and  Assignments  of Patent  Rights  between  Harold B.  Siegel and the Siegel  Family
                     Revocable Trust
       **10.3(b)     License Agreement between the Company and the Siegel Family Revocable Trust
       **10.3(c)     Assignment of Trade Names,  Licenses,  and Accounts  Receivable from DRG Consultants,  Inc. to the Company
          **10.4     Agreement for Sale of Stock between  Lawrence E. Steinberg and the Company dated April 27, 1987 
          **10.5     Warrant  Agreement  between Lawrence  E.  Steinberg  and the Company dated April 27, 1987 
          **10.6     Warrant  Agreement between Overseas Group and the Company dated May 8, 1987 
          **10.7     Option Agreement between the Siegel Family Revocable Trust and Lawrence E. Steinberg dated December 18, 1987
         ***10.8     Pilot Project and Option Agreement between Sandoz and the Company
        ****10.9     Documents relating to the acquisition of the business of Ohio Label & Packaging Inc.dated November 3, 1989
          *10.10     Agreement  among  Company,   Trust  and  Harold  B.  Siegel  regarding   modification  to royalty
                     arrangements  and issuance of Common Stock and  retirement of preferred  stock dated  September 2, 1990
        10.11(1)     Acquisition  and  financing  documents  relating to Clearwater Medical  Services,  Inc.  
        10.12(2)     Acquisition and financial  documents relating to Clearwater Diagnostic Center, Inc.

</TABLE>

<PAGE>
                                       24
<TABLE>
<S>                  <C>
        10.13(3)     Stock Purchase Agreement for Vangard Labs, Inc.
        10.14(4)     Warrant Agreement between Ladenburg Thalman & Co. and the Company
        10.15(5)     Loan and Security Agreement dated December 1, 1992 with Daiwa Bank, Limited
        10.16(6)     Amended and Restated Loan and Security  Agreement dated September 28, 1993 with SouthTrust Bank of Alabama
        10.17(7)     First  Amendment to Amended and Restated Loan and Security Agreement dated April 25, 1994 with 
                     SouthTrust Bank of Alabama
        10.18(7)     Addendum to Lease dated  September 30, 1993 with Leslie A. Rubin for  facilities  located at 12920
                     and 12910 Automobile Boulevard, Clearwater, Florida
        10.19(7)     Lease  effective  August 2, 1993 by and  between C & C Park Building and Medical Technology Systems,  Inc. 
                     for property located at 21540 Drake Road, Strongsville, Ohio
        10.20(7)     Form of 1994 Stock Option Plan
        10.21(7)     Form of Employment Agreement for Todd Siegel and Gerald Couture
        10.22(7)     Form of Executive Stock  Appreciation  Rights and Non-Qualified Stock  Option  Agreement
        10.23(7)     Form  of  Director's  Stock  Option Agreement
        10.24(7)     Form of Directors' Consulting Agreement 
        10.25(7)     Form of  Director/Officer  Indemnification  Agreement  
        10.26(7)     Joint Venture Agreement between MedVantage, Inc. and the Company dated January 5, 1995
        10.27(7)     Third  Amendment  to Amended and  Restated  Loan and  Security Agreement effective March 28, 1995
        10.28(9)     Form of Executive Director's Agreement for Gerald  Couture 
        10.29(9)     Stock Option Plan dated March 4, 1997 
        10.30(9)     Stock Option Agreement with David Kazarian  
        10.31(9)     Stock Subscription  Agreement,  dated April 28, 1998,  between the Company and LifeServ Technologies, Inc.
        10.32(9)     Loan  Agreement  dated  May  13,  1998,  between  Ella  Kedan  and  LifeServ  Technologies,  Inc.,
                     Performance  Pharmacy Systems,  Inc.,  Cart-Ware Inc.,  Medication  Management  Systems,  Inc. and
                     Systems Professional, Inc. and related Promissory Note and Security Agreement.
        10.33(9)     Form of Warrant dated May 13, 1998 between LifeServ and Ella Kedan
        10.34(9)     Form of Warrant dated May 13, 1998 between the Company and Ella Kedan
        10.35(9)     Form of Warrant dated May 13, 1998 between LifeServ and Ella Kedan
        10.36(9)     LINC Capital, Inc. -  Sale and Leaseback Agreement dated February 23, 1998
        10.37(9)     Employment Agreement between LifeServ Technologies, Inc. and Michael T. Felix dated April 1, 1998
        10.38(9)     Employment  Agreement between Medical Technology  Systems,  Inc. and Michael P. Conroy dated March 1, 1998
        10.39(9)     Amendment to Second  Amended and Restated Loan and Security Agreement  between the Company  and  
                     SouthTrust Bank dated April 16, 1998
           21(8)     List of Subsidiaries
           23(9)     Consent of Independent Certified Public Accountants
           27(8)     Financial Data Schedule
*                    Incorporated  herein by reference to same  Exhibit(s),  respectively,  Registration  Statement No.
                     33-40678 filed with the Commission on May 17, 1991
**                   Incorporated  herein by reference to same Exhibit(s),  respectively,  Registration  Statement (SEC
                     File No. 33-17852)
***                  Incorporated herein by reference to Form 8-K filed on November 18, 1988
****                 Incorporated herein by reference to Form 8-K filed on November 16, 1989
(1)                  Incorporated herein by reference to Form 8-K for event dated November 8, 1991
(2)                  Incorporated herein by reference to Form 8-K for event dated November 14, 1991
(3)                  Incorporated herein by reference to Form 8-K for event dated May 27, 1991
(4)                  Incorporated herein by reference to Form S-3 filed April 16, 1993
(5)                  Incorporated herein by reference to Form 10-K for year ended March 31, 1993
(6)                  Incorporated  herein  by  reference  to Post  Effective  Amendment  No. 1 to  Form S-1  (File  No.
                     33-40678) dated October 14, 1993
(7)                  Incorporated herein by reference to Form 10-K for year ended March 31, 1995
(8)                  Incorporated herein by reference to Form 10-K for year ended March 31, 1996
(9)                  Filed herewith

</TABLE>

<PAGE>
                                       25


                        MEDICAL TECHNOLOGY SYSTEMS, INC.

                          INDEX TO FINANCIAL STATEMENTS

                                                                        Page


REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS..................... 26-27


CONSOLIDATED FINANCIAL STATEMENTS

  Consolidated Balance Sheets as of March 31, 1998 and 1997............    28

  Consolidated Statements of Operations for the years ended
     March 31, 1998, 1997 and 1996......................................   29

  Consolidated Statement of Changes in Stockholders' Equity (Deficit)
     for the years ended March 31, 1998, 1997 and 1996..................    30

  Consolidated Statement of Cash Flows for the years ended
         March 31, 1998, 1997 and 1996..................................    31

  Notes to Consolidated Financial Statements............................ 32-51



FINANCIAL STATEMENT SCHEDULE:


Schedule II - Valuation and Qualifying Accounts.........................   S-1


     All other  schedules  are omitted  since the  required  information  is not
present in amount  sufficient  to require  submission of the schedule or because
the  information  required  is included in the  financial  statements  and notes
thereto.

<PAGE>
                                       26

               Report of Independent Certified Public Accountants


Board of Directors
Medical Technology Systems, Inc. and Subsidiaries
Clearwater, Florida

     We have audited the  accompanying  consolidated  balance  sheets of Medical
Technology Systems, Inc. and Subsidiaries as of March 31, 1998 and 1997, and the
related consolidated  statements of operations,  changes in stockholders' equity
(deficit) and cash flows for the years then ended.  These  financial  statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion on these financial statements based on our audits.

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

     In our opinion,  the financial statements referred to above present fairly,
in all  material  respects,  the  consolidated  financial  position  of  Medical
Technology Systems, Inc. and Subsidiaries as of March 31, 1998 and 1997, and the
consolidated results of their operations and cash flows for the years then ended
in conformity with generally accepted accounting principles.


GRANT THORNTON LLP
Tampa, Florida
June 26, 1998

<PAGE>
                                       27


                          Independent Auditors' Report


Board of Directors
Medical Technology Systems, Inc. and Subsidiaries
Clearwater, Florida


     We have audited the  accompanying  consolidated  statements of  operations,
changes in  stockholders'  deficit  and cash flows for the year ended  March 31,
1996 of Medical  Technology  Systems,  Inc. and  Subsidiaries.  These  financial
statements  are  the  responsibility  of  the  management  of the  Company.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audit.

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

     In our opinion, the 1996 consolidated  statement of operations,  changes in
stockholders  deficit and cash flows  referred to above present  fairly,  in all
material  respects,  the results of their  operations  and cash flows of Medical
Technology Systems,  Inc. and Subsidiaries in conformity with generally accepted
accounting principles.

     The  accompanying  consolidated  financial  statements  have been  prepared
assuming that the Company will continue as a going concern. The Company incurred
losses  during the current  year of  approximately  $34.6  million and its total
liabilities  exceed its total assets by approximately  $18.6 million as of March
31, 1996.  The Company also had negative cash flows from  operations  during the
current year of  approximately  $.9 million.  In addition,  the major  operating
subsidiaries  of the Company have filed for  protection  under Chapter 11 of the
U.S.  Bankruptcy  Code.  These  conditions  raise  substantial  doubt  as to the
Company's ability to continue as a going concern.  These consolidated  financial
statement do not include any  adjustments  that might result from the outcome of
these uncertainties.



Pender Newkirk & Company
Certified Public Accountants
Tampa, Florida

June 20, 1996


<PAGE>
                                       28

<TABLE>

                MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             MARCH 31, 1998 AND 1997
                                 (In Thousands)

                                     ASSETS

<CAPTION>
                                                                                       1998                 1997
                                                                                  ---------------      ---------------
<S>                                                                               <C>                  <C>
Current Assets:
    Cash                                                                          $          324       $          616
    Accounts Receivable, Net                                                               5,277                3,041
    Inventories                                                                            2,481                2,260
    Prepaids and Other                                                                       206                  222
    Other Receivables                                                                          0                  350
                                                                                  ---------------      ---------------
    Total Current Assets                                                                   8,288                6,489

Property and Equipment, Net                                                                3,173                4,004

Other Assets, Net                                                                          4,301                2,050
                                                                                  ---------------      ---------------

Total Assets                                                                      $       15,762       $       12,543
                                                                                  ===============      ===============
</TABLE>


                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>

<S>                                                                               <C>                  <C>
Current Liabilities:
    Current Maturities of Long-Term Debt                                          $          625       $          310
    Accounts Payable and Accrued Liabilities                                               4,811                2,190
                                                                                  ---------------      ---------------
    Total Current Liabilities                                                              5,436                2,500

Liabilities Subject to Compromise                                                            826                    0
                                                                                     
Long-Term Debt, Less Current Maturities                                                   15,613               15,459
                                                                                  ---------------      ---------------
Total Liabilities                                                                         21,875               17,959
                                                                                  ---------------      ---------------
                                                                                     
Stockholders' Equity (Deficit):                                                      
    Voting Preferred Stock                                                                     1                    1
    Common Stock                                                                              62                   60
    Capital In Excess of Par Value                                                         8,588                8,433
    Retained Earnings (Deficit)                                                          (14,433)             (13,579)
    Less:  Treasury Stock                                                                   (331)                (331)
                                                                                  ---------------      ---------------
                                                                                  
    Total Stockholders' Equity (Deficit)                                                  (6,113)              (5,416)
                                                                                  ---------------      ---------------
                                                                                  
    Total Liabilities and Stockholders' Equity (Deficit)                          $       15,762       $       12,543
                                                                                  ===============      ===============
Liabilities Subject to Compromise consist of the following:
  Secured Debt                                                                    $           45       $            0
  Trade and Other Miscellaneous Claims                                                       781                    0
                                                                                  ---------------      ---------------
                                                                                  $          826       $            0
                                                                                  ===============      ===============
</TABLE>

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

<PAGE>
                                       29

<TABLE>
                MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    YEARS ENDED MARCH 31, 1998, 1997 AND 1996
                (In Thousands; except Earnings Per Share Amounts)
<CAPTION>
                                                                      1998                 1997              1996
                                                                -----------------    --------------    ---------------
<S>                                                             <C>                  <C>               <C>    
Revenue:
Net Sales and Services                                          $         24,072     $      19,247     $       17,052
                                                                    
Costs and Expenses:                                                 
      Cost of Sales and Services                                          13,167            10,762             10,665
      Selling, General and Administrative                                  9,401             6,480              8,549
      Loss on Early Retirement of Fixed Assets                                46                 0              8,329
      Loss on Inventory Revaluation                                            0                 0              1,510
      Depreciation and Amortization                                        1,473             1,381              2,682
      Interest, Net                                                        1,109               609              1,739
                                                                -----------------    --------------    ---------------
                                                                                                                                  
Total Costs and Expenses                                                  25,196            19,232             33,474
                                                                -----------------    --------------    ---------------
                                                                                                                                   
Reorganization items:                                               
          Product Development and Software Costs                               0                 0              4,605
          Goodwill Write-down                                                  0                 0              2,937
          Terminated Joint Venture                                             0                 0                550
          Professional Fees                                                    0                 0                103
                                                                -----------------    --------------    ---------------
                                                                                                                                   
Income (Loss) from Continuing Operations Before                     
  Income Taxes, Discontinued Operations and                         
  Extraordinary Gain                                                      (1,124)               15            (24,617)
                                                                    
Income Tax (Benefit) Expense                                                (270)                0             (1,900)
                                                                -----------------    --------------    ---------------
                                                                                                                                  
Income (Loss) from Continuing Operations Before                     
  Discontinued Operations and Extraordinary Gain                            (854)               15            (22,717)
                                                                    
 Income (Loss) from Operations of Discontinued Operations,          
   Net of Income Tax in 1997 and 1996                                          0            (2,800)            (6,634)
                                                                    
Gain on Forgiveness of Debt of Discontinued Operations                         0             3,500                  0
                                                                    
Gain (Loss) on Disposal of Discontinued Operations,                 
  Net of Income Tax in 1997 and 1996                                           0             2,200             (5,229)
                                                                    
Extraordinary Gain on Forgiveness of Debt                                      0            10,097                  0
                                                                -----------------    --------------    ---------------
                                                                                                                                  
Net Income (Loss)                                               $           (854)    $      13,012     $      (34,580)
                                                                =================    ===============   ===============
                                                                                                                                   
Earnings (Loss) per Basic and Diluted Common Share:                 
      Income (Loss) from Continuing Operations                  $          (0.14)    $        0.00     $        (5.60)
      Income (Loss) from Discontinued Operations                            0.00              0.51              (2.92)
      Extraordinary Gain in Debt Forgiveness                                0.00              1.76               0.00
                                                                -----------------    --------------    ---------------
                                                                 
Net Income (Loss) per Basic and Diluted Common Share            $          (0.14)    $        2.27     $        (8.52)
                                                                =================    ==============    ===============
                                                                                                                  
Weighted average Common Shares Outstanding - Basic and Diluted             6,062             5,737              4,059
                                                                =================    ==============    ===============
</TABLE>
                                                                    
The accompanying notes are an integral part of these financial statements.

<PAGE>
                                       30

<TABLE>

                MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                    YEARS ENDED MARCH 31, 1998, 1997 AND 1996
                        (In Thousands Except Share Data)

<CAPTION>
                                                                          COMMON STOCK
                                    -----------------------------------------------------------------------------------------------
                                      Number           $0.01          Capital in       Retained
                                        of              Par           Excess of        Earnings         Treasury
                                      Shares           Value          Par Value        (Deficit)          Stock           Total
                                    -----------      -----------      -----------     ------------     ------------     -----------
<S>                                  <C>             <C>             <C>              <C>              <C>              <C>
Balance, March 31, 1995              4,026,832       $       40       $    7,941      $     7,989      $      (331)     $   15,639

Stock Issued                         1,458,503               15              379                                               394

Net Loss for Year Ended
   March 31, 1996                                                                         (34,580)                         (34,580)
                                    -----------------------------------------------------------------------------------------------
Balance, March 31, 1996              5,485,335               55            8,320          (26,591)            (331)        (18,547)

Stock Issued                           471,838                5              113                                               118

Net Income for Year Ended
   March 31, 1997                                                                          13,012                           13,012
                                    -----------------------------------------------------------------------------------------------
Balance, March 31, 1997              5,957,173               60            8,433          (13,579)            (331)         (5,417)

Stock Issued                           172,500                2              155                                               157

Net Loss for Year Ended
   March 31, 1998                                                                            (854)                            (854)
                                    ----------------------------------------------------------------------------------------------- 
Balance, March 31, 1998              6,129,673     $         62    $       8,588    $     (14,433)   $        (331)   $     (6,114)
                                    ===========    =============   ==============   ==============   ==============   =============
</TABLE>

<TABLE>
<CAPTION>
                                                                   VOTING PREFERRED STOCK
                                    -----------------------------------------------------------------------------------------------
                                      Number           $0001.
                                        of               Par
                                      Shares            Value
                                    -----------      -----------
<S>                                  <C>          <C>                                                                 <C>
Balance, March 31, 1996              6,500,000     $          1                                                       $          1
                                    -----------    -------------                                                      -------------
Balance, March 31, 1997              6,500,000     $          1                                                       $          1
                                    -----------    -------------                                                      -------------
Balance, March 31, 1998              6,500,000     $          1                                                       $          1
                                    -----------    -------------                                                      -------------
Total Stockholders' (Deficit)
   March 31, 1998                                                                                                     $     (6,113)
                                                                                                                      =============
</TABLE>


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

<PAGE>
                                       31


<TABLE>

                MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                    YEARS ENDED MARCH 31, 1998, 1997 AND 1996
                                 (In Thousands)

<CAPTION>
                                                                                1998                1997               1996
                                                                           ---------------     --------------     ---------------
<S>                                                                        <C>                 <C>                <C>
Operating Activities
    Net Income (Loss) from Continuing Operations                           $         (854)     $          15      $      (22,717)
                                                                           ---------------     --------------     ---------------
    Adjustments to Reconcile Net Income (Loss) to Net Cash                    
         Provided (Used) by Operating Activities:                             
      Depreciation and Amortization                                                 1,473              1,381               2,682
      Product Development and Software Cost                                             0                  0               4,605
      Goodwill Write-down                                                               0                  0               2,937
      Loss on Early Retirement of Fixed Assets                                         46                  0               8,329
      Loss on Inventory Revaluation                                                     0                  0               1,510
      Write-off of Accounts Receivable and Other Assets                                 0                  0               1,323
      Stock Issued from Stock Compensation Plan                                         0                118                 388
      (Increase) Decrease in:
         Accounts Receivable                                                       (2,099)               219                (458)
         Income Taxes Receivable                                                        0                880                 (72)
         Inventories                                                                 (190)               185                 297
         Prepaids and Other                                                            92                 42                (100)
         Other Receivables                                                            350               (350)                  0
         Other Assets                                                                (712)                 0                   0
      Increase (Decrease) in:
         Accounts Payable and Other Accrued Liabilities                             2,199               (935)              1,724
         Income Taxes Payable and Deferred Taxes                                        0                  0              (1,347)
                                                                           ---------------     --------------     ---------------
    Total Adjustments                                                               1,159              1,540              21,818
                                                                           ---------------     --------------     ---------------
    Net Cash Provided (Used) by Continuing Operations                                 305              1,555                (899)
                                                                           ---------------     --------------     ---------------
    Net Cash (Used) by Discontinued Operations                                          0                  0                (117)
                                                                           ---------------     --------------     ---------------
Investing Activities                                                          
    Expended for Property and Equipment                                              (362)              (307)               (797)
    Expended for Software Development                                                   0                  0                 (30)
    Expended for Product Development                                                 (354)              (233)               (484)
    Expended for Patents and Other Assets                                             (48)               (44)               (109)
    Expended for Acquisition, Net of Cash Acquired                                   (357)                 0              (1,453)
                                                                           ---------------     --------------     ---------------
    Net Cash Used by Investing Activities                                          (1,121)              (584)             (2,873)
                                                                           ---------------     --------------     ---------------
Financing Activities                                                          
    Payments on Notes Payable, Long-Term Debt                                        (222)            (1,399)               (947)
    Net Proceeds from Line of Credit                                                    0                  0               2,162
    Issuance of Common Stock                                                            7                  0                   5
    Proceeds from Borrowing on Notes Payable and Long-Term Debt                       739                 79               3,021
                                                                           ---------------     --------------     ---------------
    Net Cash Provided (Used) by Financing Activities                                  524             (1,320)              4,241
                                                                           ---------------     --------------     ---------------
Net Increase (Decrease) in Cash                                                      (292)              (349)                352
Cash at Beginning of Period                                                           616                965                 613
                                                                           ---------------     --------------     ---------------
Cash at End of Period                                                      $          324      $         616      $          965
                                                                           ===============     ==============     ===============
Supplemental Disclosure of Cash Flow Information:                             
    Cash Paid for Interest                                                 $        1,100      $         609      $        1,570
                                                                           ===============     ==============     ===============
    Cash Received from Income Tax Refund                                   $          270      $         880      $            0
                                                                           ===============     ==============     ===============
</TABLE>
                                                                              
See Note 22 for  supplemental  disclosures  of non-cash  financing and investing
activities.

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

<PAGE>
                                       32

                        MEDICAL TECHNOLOGY SYSTEMS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          MARCH 31, 1998, 1997 AND 1996

NOTE 1 - BACKGROUND INFORMATION


     Medical Technology Systems, Inc. (the "Company") is a Delaware corporation,
incorporated  in March of 1984.  The  Company  is a  holding  company  operating
through  a  number  of  separate  subsidiaries   providing  a  diverse  line  of
proprietary  medication  dispensing  systems,  clinical  information systems and
laboratory  services  to the  health  care  industry.  The  Company's  principal
businesses consist of the following reportable  segments:  (i) the core business
of manufacturing and selling  proprietary  medication  dispensing  systems which
include punch cards for use by pharmacies in dispensing  prescription medicines;
(ii)  the  health  care   information   system   business   consisting   of  the
Performance(TM) pharmacy software, the MedServ and E-mar computerized medication
management  systems for hospitals and other health care facilities,  and Cygnet,
the fetal monitoring and archiving  information  systems for obstetrical clinics
of hospitals and doctors'  offices;  and (iii) the clinical  laboratory  service
business of  supplying  anatomical  diagnostic  testing  services to the medical
profession. (See Note 20)

     As a result of significant losses in the second and third quarter of fiscal
1996,  the  Company  was in  violation  of certain  financial  covenants  in the
borrowing agreements with its principal lenders. The Company was unable to reach
an agreement  with its lenders to amend or  restructure  the debt.  The extended
negotiations  with the Company's lenders created  substantial  uncertainty which
led to management's decision,  during the fourth quarter of fiscal 1996, to file
voluntary  petitions for relief under  Chapter 11 ("Chapter  11") of Title 11 of
the United  States  Bankruptcy  Code in the Middle  District of  Florida,  Tampa
Division  (the  "Bankruptcy  Court")  for  four of its  subsidiaries  (the  "MTS
debtors").  Plans of Reorganization for each of the MTS debtors were approved by
the  Bankruptcy  Court  on  September  4,  1996  (collectively,   the  "Plan  of
Reorganization"  ).  The  Plan of  Reorganization  provided  for  the  following
significant matters:

          a.   A reduction in the amount of the existing bank  indebtedness,  as
               well as a reduction in the interest rate on the indebtedness.

          b.   A restructuring of the repayment terms of the bank  indebtedness,
               which  provides for interest  payments only for a certain  period
               and principal payments over an extended period of time.

          c.   A reduction in the amount payable  pursuant to the acquisition of
               Tampa Pathology Laboratory, as well as modification of the method
               of calculating the repayment.

          d.   A  restructuring  of the  amounts  and  repayment  terms  for the
               unsecured creditors of the MTS debtors.

          e.   A restructuring of the management of the Company.

          f.   The disposition of one of its subsidiaries, Vangard Labs, Inc.

     On July 10, 1997, Medication Management Technologies,  Inc. ("MMT") filed a
voluntary  petition for relief under Chapter 11 of Title 11 of the United States
Bankruptcy Code in the Middle District of Florida,  Tampa Division.  On June 12,
1998, the Plan of Reorganization  for MMT was confirmed by the bankruptcy court.
The  Plan of  Reorganization  provided  for the  restructuring  of  amounts  and
repayment terms for secured and unsecured creditors.


NOTE 2 - RESTRUCTURING AND OTHER CHARGES

     In December  1995,  the Company  initiated a cost  reduction  strategy that
focused  upon  reducing   operating   expenses  and  returning  the  Company  to
profitability.  This plan  included  the filing on January 3, 1996 of  voluntary
petitions  under  Chapter  11 for  three  of  the  Company's  subsidiaries:  MTS

<PAGE>
                                       33

Packaging Systems, Inc. ("MTS Packaging"), Medical Technology Laboratories, Inc.
("MTL") and MTS Sales and Marketing,  Inc. ("MTS Sales").  On February 22, 1996,
the Company  also filed a voluntary  petition  under  Chapter 11 for its generic
drug repackaging subsidiary, Vangard Labs, Inc. ("Vangard")

     These  Chapter 11 filings,  together  with the  limitation on the Company's
financing  alternatives,   necessitated  a  comprehensive   examination  of  the
Company's business operations. Because of the numerous development projects that
the  Company  had  underway,  and  the  limited  opportunity  that  existed  for
completion  of these  projects,  it was  decided  by  management  that,  without
additional capital, virtually none of the existing development projects could be
successfully completed.

     The following  restructuring  charges were incurred  during the fiscal year
ended March 31, 1996 (in thousands):

<TABLE>

                        <S>                                                   <C>            
                        Loss on Early Retirement of Fixed Assets              $         8,329
                        Loss on Inventory Revaluation                                   1,510
                                                                              ----------------
                                                                                        9,839
                        Chapter 11 Reorganization Charges:
                        Product Development and Software Costs                          4,605
                        Goodwill Write-down                                             2,937
                        Terminated Joint Venture                                          550
                        Professional Fees                                                 103
                                                                              ----------------
                                                                                        8,195
                                                                              ----------------
                        Total From Continuing Operations, including                    18,034
                          $16,421 of impairment losses
                                                                              ----------------

                        Loss on Disposal of Discontinued Operations                     5,229
                                                                              ----------------

                        Total Restructuring Charges                           $        23,263

                                                                              ================
</TABLE>

     As  of  March  31,  1996  and  1997,  there  were  no  additional  reserves
established for these projects.  During 1998 there were no further restructuring
charges recorded.


NOTE 3 - DISCONTINUED OPERATIONS

     As part  of a  corporate  restructuring  strategy,  the  Company  plans  to
concentrate  its resources on its  medication  packaging and  dispensing  system
business  and the  health  care  information  system  products  which  have been
developed  and  are  presently  marketable.  Although  the  clinical  diagnostic
laboratory  business has been identified as a non-core business,  its operations
may be a potential  source of cash to support  repayment of debt  obligations of
the Company. The Company's generic drug repackaging  subsidiary,  Vangard, whose
production operations were curtailed on January 3, 1996 and subsequently filed a
voluntary  petition under Chapter 11 on February 22, 1996, was sold on April 17,
1997.  In  addition,  the  GPC  joint  venture  with  Creighton  Pharmaceuticals
Corporation,  a wholly owned  subsidiary  of Sandoz  Pharmaceuticals,  Inc.,  is
considered a discontinued  operation  primarily  because of its dependence  upon
Vangard production capabilities.  A pre-tax charge of approximately $5.2 million
for a loss on disposal of these  discontinued  operations was recorded in fiscal
year 1996 and is shown in the Consolidated  Statement of Operations as estimated
loss on disposal of discontinued operations.

<PAGE>
                                       34

     During 1997, Vangard was principally  managed by a plan trustee approved by
the  bankruptcy  court.  Vangard's  operations  were  minimal,  basically  at  a
maintenance  level only with revenue of $550,000.  Vangard's  costs and expenses
totaled $3.4 million,  creating a loss from  operations of $2.8 million,  before
the  effect  of the gain of $3.5  million  recognized  from the  forgiveness  of
Vangard's  pre-petition  unsecured  creditors ($2.7 million) debt as part of the
bankruptcy  proceedings and the gain on forgiveness of a post petition loan made
by Vangard's bank  ($800,000).  Vangard's 1997 operations were funded  primarily
from the  collection  of  accounts  receivable,  new bank debt of  $800,000  and
approximately $450,000 from the Company.

     In April 1997,  the Company  completed  the sale of Vangard to an unrelated
third  party which was  effective  on March 31,  1997.  In  accordance  with the
Company's Plan of Reorganization and its amended bank agreement, the proceeds of
the sale,  approximately  $3.1  million  were  utilized to reduce the  Company's
outstanding  obligation to its principal lender. In addition,  the buyer assumed
certain post  petition  obligations  of Vangard of $673,000.  As a result of the
sale, the Company recognized an extraordinary gain on the disposal of the assets
of Vangard of approximately $2.2 million net of income taxes.

     Net revenue of discontinued  operations were $0, $542,000 and $5,968,000 in
fiscal years 1998, 1997 and 1996 respectively.


NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation
-------------

     The consolidated  financial  statements include the accounts of the Company
and its  subsidiaries,  MTS  Packaging,  MTL  and  LifeServ  Technologies,  Inc.
("LifeServ").  LifeServ  was formed in February  1998 for the purpose of holding
the  Company's  health  care  information  subsidiaries:   Performance  Pharmacy
Systems, Inc. ("PPS"),  Medication Management Systems, Inc. ("MMS"),  Medication
Management Technologies, Inc. ("MMT"), Cart-Ware, Inc. ("Cart-Ware") and Systems
Professional,   Inc.  ("SPI").  All  significant   inter-company   accounts  and
transactions have been eliminated in consolidation.

     Vangard,   a  wholly  owned   subsidiary   of  the  Company,   and  Glasgow
Pharmaceutical  Corporation, a 50% joint venture with Creighton Pharmaceuticals,
Inc., are treated as  discontinued  operations for 1997 and 1996 as set forth in
Note 3. In April 1997, the Company completed the sale of Vangard.

Use of Estimates
----------------

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

Cash
----

     For purposes of the  statement  of cash flows,  the Company  considers  all
highly liquid debt instruments purchased with a maturity of three months or less
to be  cash  equivalents.  There  were  no  cash  equivalents  for  all  periods
presented.

<PAGE>
                                       35


Inventories
-----------

     Inventories  are stated at the lower of cost or market.  Cost is determined
by the first-in,  first-out ("FIFO" ) method. As of March 31, 1998 and 1997, the
Company has  established  an  inventory  valuation  allowance  of  $269,000  and
$80,000,  respectively,  to account for the estimated loss in value of inventory
due to  obsolescence.  The Company will  continue to evaluate the  inventory and
review the valuation allowance if deemed necessary.

Revenue Recognition
-------------------

     The Company  recognizes revenue when products are shipped by MTS Packaging.
MTL recognizes  revenue from the clinical  laboratory  services net of estimated
contractual  adjustments  resulting  from the  unpaid  portion  of the  assigned
insurance  billings and other third party  payers,  as services  are  performed.
LifeServ recognizes revenue when systems are placed in service.

     The American Institute of Certified Public Accounts has issued Statement of
Position (SOP) No. 97-2,  "Software Revenue  Recognition" which is effective for
fiscal years  beginning  after December 15, 1997. SOP 97-2  establishes  certain
criteria  which  must be  satisfied  prior to the  recognition  of  revenue  for
licensing,  selling, leasing or otherwise marketing computer software.  Although
the  Company  plans to adopt SOP 97-2 in  fiscal  1999,  management  has not yet
determined  the  potential  effect  that SOP  97-2  will  have on the  Company's
financial statements.

Property and Equipment
----------------------

     Property  and  equipment  are  recorded  at cost.  Additions  to and  major
improvements of property and equipment are  capitalized.  Maintenance and repair
expenditures  are charged to expense as incurred.  As property and  equipment is
sold or retired, the applicable cost and accumulated  depreciation is eliminated
from the accounts and any gain or loss recorded.  Depreciation  and amortization
are calculated using the  straight-line  method based upon the assets' estimated
useful lives as follows: Years

           Property and Equipment........................................  3-7
           Leasehold Improvements........................................    5

     The Company uses accelerated methods of depreciation for tax purposes.

Software and Product Development Cost
-------------------------------------

     All  costs  associated  with the  product  development  from  the  point of
technological   feasibility  to  its  general   distribution  to  customers  are
capitalized and, subsequently,  amortized. Annually, the Company re-examines its
amortization  policy relating to its software and product  development cost. The
Company has determined that a five-year period is appropriate.

Goodwill
--------

     Goodwill  represents  amounts paid in excess of fair market value of assets
acquired by the Company in the purchase of other  companies.  These  amounts are
amortized over a ten-year period. See the Accounting for Impairment Note below.

Other Assets
------------

     Other assets are carried at cost less  accumulated  amortization,  which is
being provided on a straight-line basis over a five to seventeen year period.

<PAGE>
                                       36

Earnings (Loss) Per Share
-------------------------

     The Company has adopted Statement of Financial Accounting Standards No. 128
(SFAS No. 128),  "Earnings  Per Share" as this  standard  became  effective  for
financial  statements  issued after  December 15, 1997.  SFAS No. 128 eliminates
primary and fully  dilutive net income per common  share and replaces  them with
basic and diluted net income per common  share.  Accordingly,  all income (loss)
per common share for the previous  periods have been  restated to conform to the
new standard.

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

     The Company  expenses  research and development  costs as incurred.  During
fiscal  1998,  1997  and  1996,  the  Company  dedicated  its  resources  to the
completion  of product  development  projects  and  therefore  did not incur any
material research and development costs.

Income Taxes
------------

     Income taxes are provided for under the liability method in accordance with
FASB No. 109,  "Accounting  for Income Taxes",  whereby  deferred tax assets are
recognized  for  deductible  temporary  differences  and operating  loss and tax
credit  carryforwards  and deferred tax  liabilities  are recognized for taxable
temporary  differences.  Temporary  differences are the differences  between the
reported  amounts of assets and  liabilities  and their tax bases.  Deferred tax
assets are reduced by a valuation  allowance when, in the opinion of management,
it is more likely than not that some  portion or all of the  deferred tax assets
will not be realized.  Deferred tax assets and  liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.

Treasury Stock
--------------

       The Company records its treasury stock at cost.

Stock Based Employee Compensation
---------------------------------

     The  Company  accounts  for its  stock  options  granted  to  employees  in
accordance  with the provisions of Accounting  Principles  Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees,  and related  interpretations.
As such,  compensation  expense  would be recorded  on the date of granting  the
stock options only if the current market price of the underlying  stock exceeded
the exercise  price.  As permitted by SFAS No. 123,  Accounting for  Stock-Based
Compensation,  the Company also provides certain pro forma disclosure provisions
of Statement 123 (See Note 16).

Accounting  for the  Impairment  of  Long-Lived  Assets and for  Long-Lived
---------------------------------------------------------------------------
Assets to be Disposed of
------------------------

     Long-lived assets and certain identifiable intangibles, including goodwill,
to be held and used by the Company are reviewed for impairment  whenever  events
or changes in  circumstances  indicate that the carrying  amount of these assets
may not be recoverable. In performing the review for recoverability, the Company
estimates  the future  cash flows  expected to result from the use of the assets
and their  eventual  disposition.  If the sum of the expected  future cash flows
(undiscounted  and without interest charges) is less than the carrying amount of
the assets,  an impairment  loss is  recognized.  Long-lived  assets and certain
identifiable  intangibles  to be  disposed of are to be reported at the lower of
the carrying amount or the fair value less cost to sale,  except for assets that
are  related  to  discontinued  operations  which are  reported  at the lower of
carrying value or net realizable value.

     The Company  recognized  impairment  losses of  $16,421,000 in fiscal 1996.
These losses related to the early retirement of certain production equipment and
tooling,  product development projects which were suspended and goodwill related
to the acquisition of various businesses.

<PAGE>
                                       37


Discontinued Operations
-----------------------

     The Company's generic drug repackaging business,  Vangard was classified as
a discontinued operation in fiscal year 1996 and disposed of in April 1997.

Bankruptcy Related Accounting Matters and Extraordinary Gain
------------------------------------------------------------

     The financial  statements and the notes thereto reflect various disclosures
principally  required  by AICPA SOP 90-7,  "Financial  Reporting  by Entities in
Reorganization  under the  Bankruptcy  Code".  Since the  voting  control of the
Company's stock remained the same as a result of the confirmation of the Plan of
Reorganization,  fresh  start  accounting  was  not  appropriate.  However,  the
liabilities compromised by the confirmed plans have been recorded at the present
values of the amounts to be paid.  The  forgiveness  of debt  resulting from the
compromise has been recognized as an extraordinary gain. See Notes 1, 3 and 10.

Fair Value of Financial Instruments
-----------------------------------

     The  carrying  amounts of cash  receivables,  accounts  payable and accrued
liabilities  approximates  fair value  because of the  short-term  nature of the
items.

     The carrying  amount of current and  long-term  portions of long-term  debt
approximates fair value since the interest rates approximate  current prevailing
market rates.

New Accounting Pronouncement Not Yet Adopted
--------------------------------------------

     SFAS No. 130, Reporting Comprehensive Income, is effective for fiscal years
beginning after December 15, 1997. This Statements establishes standards for the
reporting and display of  comprehensive  income and its components in a full set
of general-purpose financial statements.  The new rule requires that the Company
(a) classify items of other comprehensive  income by their nature in a financial
statement and (b)display the accumulated balance of other  comprehensive  income
separately from retained  earnings and additional  paid-in capital in the equity
section of the balance sheet.  The Company plans to adopt SFAS No. 130 in fiscal
1999 and  expects  no  material  impact  to the  Company's  financial  statement
presentation.


NOTE 5 - ACCOUNTS RECEIVABLE

     The Company  maintains an allowance for potential  losses on individual and
commercial accounts receivable.  Management considers the allowances provided to
be reasonable.

         Accounts Receivable consist of the following:

<TABLE>
<CAPTION>
                                                                       March 31,          March 31,
                                                                          1998              1997
                                                                    ---------------    --------------
                                                                              (In Thousands)
                    <S>                                             <C>               <C>

                    Accounts Receivable at Gross                    $      7,281       $     4,081
                    Less:  Allowance for Doubtful Accounts                  (830)             (388)
                               Contractual Adjustments                    (1,174)             (652)
                                                                    ---------------    --------------
                                                                    $      5,277       $     3,041
                                                                    ===============    ==============
</TABLE>

     Substantially  all of the  Company's  accounts  receivable  are  pledged as
collateral on bank notes.

<PAGE>
                                       38

NOTE 6 - INVENTORIES

         Inventories consist of the following:

<TABLE>
<CAPTION>
                                                                          March 31,         March 31,
                                                                            1998               1997
                                                                       --------------    ---------------
                                                                                 (In Thousands)
                    <S>                                                <C>               <C>

                    Raw Material                                       $     531         $      588
                    Finished Goods and Work in Process                     2,219              1,752
                    Less:  Inventory Valuation Allowance                    (269)               (80)
                                                                       --------------    --------------
                                                                       $   2,481         $    2,260
                                                                       ==============    ==============
</TABLE>

     Substantially all of the Company's inventories are pledged as collateral on
bank notes.

NOTE 7 - PROPERTY AND EQUIPMENT

     Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                                           March 31,         March 31,
                                                                             1998               1997
                                                                        --------------    ---------------
                                                                                  (In Thousands)
                   <S>                                                  <C>               <C>  
                   Property and Equipment                               $     7,777       $      7,581
                   Leasehold Improvements                                       833                806
                                                                        --------------    --------------
                                                                              8,610              8,387
                   Less: Accumulated Depreciation and Amortization           (5,437)            (4,383)
                                                                       --------------     --------------
                                                                        $     3,173       $      4,004
                                                                        =============     ==============
</TABLE>

     Substantially  all of the  Company's  property and equipment are pledged as
collateral on bank notes.  Depreciation  expense and  amortization  of leasehold
improvement  totals  approximately  $1,180,000,  $1,222,000  and  $1,308,000 for
fiscal years ending March 31, 1998, 1997 and 1996 respectively.


NOTE 8 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

     Accounts payable and accrued liabilities are comprised of the following:

<TABLE>
<CAPTION>
                                                                          March 31,         March 31,
                                                                            1998               1997
                                                                       --------------    ---------------
                                                                                 (In Thousands)
                   <S>                                                <C>               <C>  
                   Accounts Payable/Trade                              $     2,505       $        987
                   Accrued Liabilities:
                       Salaries & Commissions                                  693                301
                        Medical Claims                                         184                212
                        Interest                                               128                 28
                        Legal                                                   68                346
                        State Taxes                                            564                168
                        Other                                                  669                148
                                                                      --------------     --------------
                                                                       $     4,811       $      2,190
                                                                      ==============     ==============
</TABLE>

<PAGE>
                                       39

NOTE 9 - OTHER ASSETS

         Other assets consists of the following:

<TABLE>
<CAPTION>
                                                                          March 31,         March 31,
                                                                            1998               1997
                                                                       --------------    ---------------
                                                                                 (In Thousands)
                   <S>                                                <C>                <C>   
                   Goodwill                                            $     2,405       $      1,204
                       Less:  Accumulated Amortization                        (455)              (307)
                                                                       --------------    --------------
                                                                       $     1,950       $        897
                                                                       --------------    --------------

                   Product Development                                 $       327       $        131
                       Less:  Accumulated Amortization                           0                  0
                                                                       --------------    --------------
                                                                       $       327       $        131
                                                                       --------------    --------------

                   MedServ Development and Related Software            $       462       $        314
                       Less:  Accumulated Amortization                        (130)               (85)
                                                                       --------------    --------------
                                                                       $       332       $        229
                                                                       --------------    --------------

                   Patents                                             $     1,109       $      1,079
                       Less:  Accumulated Amortization                        (423)              (349)
                                                                       --------------    --------------
                                                                       $       686       $        730
                                                                       --------------    ---------------

                   Lease Contract Receivable                           $       843       $          0
                   Other                                                       196                 93
                        Less:  Accumulated Amortization                        (33)               (30)
                                                                       ---------------   ---------------
                                                                       $     1,006       $         63
                                                                       ---------------   ---------------

                   Total Other Assets, Net                             $     4,301       $      2,050
                                                                       ===============   ===============
</TABLE>

     Substantially  all  of the  Company's  intangible  assets  are  pledged  as
collateral on bank notes.

     The Company entered into a direct  financing lease agreement of MedServ and
E-mar  systems with a customer  calling for lease  payments of $20,000 per month
for 5 years  beginning  April 1998. The value of the lease  payments  receivable
($843,000)  was  determined  based on an imputed  interest  rate of 6.4% and the
related systems serve as collateral against the receivable.

<PAGE>
                                       40


NOTE 10 - LONG-TERM DEBT

         Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                                   March 31,          March 31,
                                                                                     1998               1997
                                                                                ---------------    --------------
<S>                                                                             <C>                <C>
Plan Note I;  interest  only at 7.5%  payable  monthly  until  September 1,
     1998; installments  of  interest  and  principal  monthly  for  ten  
     September 1, 2006, with a lump sum payment of approximately $11.4 million 
     on years endingthat date secured by all tangible and intangible
     assets of the Company.                                                     $    15,000        $   15,000

Note  Payable;  interest  at 12%  payable  $20,026  per month  including
      interest  maturing  September  1, 2002.  Secured by  equipment  at a
      customer site and the payments from a lease contract receivable.                  688                 0

Seller Financing  Under Tampa  Pathology  Acquisition  Agreement,  
      face value of $487,628 discounted at 10%, with variable monthly 
      payments  until satisfied, subject to compromise at March 31, 1996.               234               273

Other Notes and Agreements; interest and principal payable monthly and
      annual at various amounts through March 2000.                                     316               496
                                                                                --------------     ---------------
Total Long -Term Debt                                                                16,238            15,769
Less Current Portion                                                                   (625)             (310)
                                                                                ---------------    ---------------
LONG-TERM DEBT DUE AFTER 1 YEAR                                                 $     15,613       $    15,459
                                                                                ===============    ===============
</TABLE>

     The following is a schedule by year of the principal  payments  required on
these notes payable and long-term debts as of March 31, 1998:

                                                             In Thousands)
        1999. . . .  . . . . . . . . . . . . . . . . . . . . . $     625
        2000. . . .  . . . . . . . . . . . . . . . . . . . . . $     593
        2001. . . .  . . . . . . . . . . . . . . . . . . . . . $     620
        2002. . . .  . . . . . . . . . . . . . . . . . . . . . $     561
        2003. . . .  . . . . . . . . . . . . . . . . . . . . . $     475
        Thereafter.  . . . . . . . . . . . . . . . . . . . .   $  13,364

     The above  notes  payable  are  collateralized  by the  Company's  accounts
receivables, inventory, equipment and intangibles.

     On September 4, 1996, the Plan of  Reorganization  for the MTS debtors were
confirmed by the bankruptcy court. As part of the Plan of Reorganization for the
MTS  debtors,  the notes  payable and bank line of credit were  restructured  as
follows:

     Bank notes payable, line of credit,  accrued interest and other charges and
expenses,  in the amount of  approximately  $28.0  million,  were  combined  and
restructured into two separate promissory notes.

     Plan Note I, in the stated principal amount of approximately $27.0 million,
provided for a portion of the principal  amount,  $15.0  million,  to be due and
payable as follows:

<PAGE>
                                       41


          a.   Interest at the rate of 7.5% for a period of two (2) years ending
               September 1, 1998.

          b.   Installments  of  principal  and  interest  at the  rate  of 7.5%
               payable  monthly for a period of ten years  ending  September  1,
               2006. At which time,  the then  outstanding  remaining  principal
               amount of the  $15,000,000  debt is due and payable in full.  The
               monthly  installments  of principal  and interest are  calculated
               based on the principal amount amortized in level monthly payments
               over twenty years.

     Plan Note II, in the stated  principal  amount of  $1,000,000  provided for
payment  of  $750,000  on or about  the  date of  confirmation  of the  Plans of
Reorganization.  The Company made the payment of $750,000 on or about  September
5, 1996 and in accordance  with the terms of Plan Note II, the stated  principal
amount was deemed fully satisfied.

     Plan  Note I  further  provided  that  the net  proceeds  from  the sale of
Vangard,  would be paid to the Bank  (see Note 3). In  addition,  certain  other
mandatory  prepayments  of the stated  principal  amount were  required upon the
occurrence of a capital  transaction in which any of the Company's  subsidiaries
are sold,  as well as upon the receipt of any  proceeds  resulting  from certain
causes of action  commenced by the Company.  Plan Note I also  provided that the
full stated  principal  amount of  approximately  $28.0 million would be due and
payable upon the occurrence of specific major events of default.

     Effective  March 31, 1997, the stated  principal  amount of Plan Note I was
reduced to $15.0 million.  Thereby,  permanently  removing any contingent amount
due,  including the additional $12.0 million  principal  amount,  except for the
mandatory  prepayments  for any  capital  transactions  in which  certain of the
Company's subsidiaries are sold or a portion of the ownership surrendered.  As a
result of this  modification and receipt of the proceeds of the sale of Vangard,
the Company realized during the fourth quarter and for the year an extraordinary
gain of approximately $8.2 million, after the mandatory payment from the Vangard
sales proceeds of approximately $3.1 million.

     The  remaining  portion of  extraordinary  gain  reported in the  Company's
statement of operation,  $1,800,000  relates to the forgiveness of the Company's
pre-petition debt by its unsecured creditors.

     On December 5, 1997, the Company received a notification from its bank that
certain  events  of  default  had  occurred  under  Plan  Note I. As a result of
discussions  between the Company and the bank,  Plan Note I was amended on April
16, 1998 to provide for the following:

     a.   The formation of LifeServ as a subsidiary of the Company.

     b.   The inclusion of LifeServ as a co-borrower.

     c.   The consent of the bank for the  incurrence of  additional  debt and a
          private placement of equity by LifeServ.

     d.   Release of LifeServ  as a  co-borrower  in the event that  LifeServ is
          successful in obtaining equity capital.

     e.   Accelerated  repayment of  $1,000,000 of the stated  principal  amount
          beginning  November 1998 based upon 25% of excess cash flow  generated
          by the Company.

     f.   Waiver by the bank of any  events of default  which may have  occurred
          prior to April 16, 1998.

     g.   A limitation in the amount of funding which the Company can provide to
          LifeServ.

<PAGE>
                                       42

     h.   Accelerated  repayments of the stated principal amount in the event of
          certain capital transactions  involving subsidiaries of the Company as
          well as recoveries from certain causes of action.

     i.   Additional  payments  above the stated  principal  amount in the event
          that capital  transactions result in proceeds to the Company in excess
          of certain  amounts  and  recoveries  from  certain  causes of action.
          Management believes that these additional  payments,  if any are made,
          will  be  offset  by  gains  recognized  on  these   transactions  and
          recoveries.

     Plan Note I contains certain financial covenants including  prohibiting the
Company  from  exceeding  a  maximum   consolidated  deficit  of  $6.5  million,
maintaining   various   financial  ratios  and  limits  the  amount  of  capital
expenditures.  In  addition,  Plan Note I  requires  the banks  approval  of the
payment of  dividends  and the  borrowing of any  additional  amounts from other
parties.

     On May 13, 1998, LifeServ obtained a $500,000 loan from an individual.  The
terms of the loan  provide  for  repayment  in full plus  interest at 10% on the
earliest of: the date LifeServ receives the proceeds of a sale of equity or July
31, 1998. In addition, LifeServ and the Company issued warrants to the lender to
purchase shares of their common stock as follows:

         LifeServ Warrants
         -----------------

         200,000 warrants  exercisable on the date of the loan through the tenth
         anniversary of their issuance at $1.00 per share.

         15,000  warrants  exercisable  on the maturity date of the loan, if the
         loan is not repaid on the maturity date,  through the tenth anniversary
         of their issuance at $1.00 per share.

         15,000  warrants  exercisable  on August 31,  1998,  if the loan is not
         repaid on August  31,  1998,  through  the tenth  anniversary  of their
         issuance at $1.00 per share.

          15,000 warrants  exercisable on September 30, 1998, if the loan is not
          repaid on September 30, 1998,  through the tenth  anniversary of their
          issuance at $1.00 per share.

         The Company Warrants
         --------------------

          25,000  exercisable  on October 30, 1998, if the loan is not repaid on
          October 30, 1998, through the tenth anniversary date of their issuance
          at $0.45 per share.


NOTE 11 - LEASE COMMITMENTS

     The  following  is a schedule  by year of future  minimum  rental  payments
required under operating leases that have an initial or remaining non-cancelable
lease term in excess of one year as of March 31, 1998.

                                                  (In Thousands)
           1999......................................  $  375
           2000......................................     126
           2001......................................     100
           2002......................................      61
           Thereafter................................       0

     Rent expense  amounted to $832,000,  $733,000 and  $504,000,  for the years
ended March 31, 1998, 1997 and 1996, respectively.

<PAGE>
                                       43


NOTE 12 - 401(K) PROFIT SHARING PLAN

     The Company has a 401(K) Profit Sharing Plan. The Plan covers substantially
all of its employees.  Contributions are at the employees  discretion and may be
matched by the Company up to certain limits. For the years ended March 31, 1998,
1997 and 1996, the Company made no contributions to the Plan.


NOTE 13 - SELF INSURANCE PLAN

     The Company has a Medical Health Benefit  Self-insurance  Plan which covers
substantially  all of its  employees.  The Company is reinsured for claims which
exceed  $30,000 per  participant  and has an annual maximum  aggregate  limit of
approximately $450,000.


NOTE 14 - RELATED PARTY TRANSACTIONS

     Todd E. Siegel  ("Siegel")  is the Trustee of the Siegel  Family QTIP Trust
(the  "Trust")  which is the general  partner in JADE  Partners,  a  significant
shareholder of the Company.  The Trust has entered into an exclusive  Technology
and Patent  Licensing  Agreement with the Company for certain  technologies  and
patents on machine and product designs.

     Under the terms of the amended agreement, the Company is required to pay to
the Trust royalties of one percent of sales on licensed  products.  In addition,
the  agreement  states that there are no minimum  royalty  payments  due and the
agreement   would  expire  if  the  Company   abandons  or  ceases  to  use  the
technologies.  Royalty  payments were $50,000,  $76,000 and $30,000 in the years
ended March 31, 1998, 1997, and 1996, respectively.

     Siegel, through his beneficial interest in the Trust, owns approximately 10
percent of the  outstanding  Common  Stock of the Company.  In addition,  Siegel
beneficially  owns  6,500,000  shares of voting  preferred  stock which have two
votes per share for all matters  submitted to the holders of the Common Stock of
the Company.

     Siegel had  outstanding  indebtedness  to the Company at March 31, 1998 and
March 31, 1997 of  approximately  $10,466 and  $11,886.  The Company  expects to
collect the full balance of this indebtedness.


NOTE 15 - TAXES

     The components of related  income taxes  provided on continuing  operations
were as follows:

                                         Years Ended March 31,
                            ------------------------------------------------
                                 1998              1997             1996
                            -------------     -------------    -------------
                                              (In Thousands)
Current Tax (Benefit):
    Federal                 $     (270)       $        6       $     (635)
    State                            0                 1                0
                            -------------     -------------   -------------
                                  (270)                7             (635)
                            -------------     -------------   -------------
Deferred Tax:
    Federal                 $        0        $       (6)      $   (1,132)
    State                            0                (1)            (133)
                           -------------    -------------     -------------
                                                      (7)          (1,265)
                            $     (270)       $        0       $   (1,900)
                           =============     ============     =============

<PAGE>
                                       44


     Total income tax (benefit)  expense for 1998, 1997 and 1996 from continuing
operations  resulted  in  effective  tax  rates  of  (24.0%),   0.0%  and  7.7%,
respectively.  The reasons for the differences between these effective tax rates
and the  U.S.  statutory  rate of  35.0%  on the  continuing  operations  are as
follows:

<TABLE>
<CAPTION>
                                                                               Years Ended March 31,
                                                                 ------------------------------------------------
                                                                      1998              1997             1996
                                                                 -------------     -------------    -------------
                                                                                  (In Thousands)
     <S>                                                         <C>               <C>              <C>
     Tax (Benefit) Expense at U.S. statutory rate                $     (382)       $        6       $   (8,616)
     State Income Tax, Net                                              (41)                1             (543)
     Current tax benefit not recognized                                 423                 0            6,877
     Effect of prior year carryback, not previously recognized         (270)                0                0
     Other, Net                                                           0                (7)             382
                                                                 -------------     -------------    ------------
                                                                 $     (270)       $        0       $   (1,900)
                                                                 =============     =============    =============
</TABLE>

     Deferred taxes and deferred tax asset  resulted from  differences in timing
of deductions recognized for tax and financial reporting purposes.

     Deferred taxes for continuing operations consist of the following:

<TABLE>
<CAPTION>
                                                                  March 31, 1998    March 31, 1997   March 31, 1996
                                                                  -------------     -------------    --------------
                                                                                    (In Thousands)
     <S>                                                          <C>               <C>              <C>
     Deferred Tax Liabilities:
         Depreciation/Amortization Gross Deferred Tax Liability   $        0        $      716       $       379
                                                                  -------------     -------------    -------------
     Deferred Tax Assets:
         Depreciation/Amortization Temporary Difference                 (997)             (670)           (1,386)
         Allowance for Doubtful Accounts                                (230)             (146)              (73)
         Inventory Valuation Allowance                                  (101)             (319)             (163)
         Tax Loss Carry Forward                                       (4,234)           (4,168)           (5,525)
         Reserves and Provisions                                        (327)             (322)             (109)
                                                                  -------------      -------------    -------------
        Gross Deferred Tax Asset                                      (5,889)           (5,625)           (7,256)
                                                                  -------------      -------------    -------------
     Net Deferred Tax (Asset) Liability                               (5,889)           (4,909)           (6,877)
         Less Valuation Allowance                                     (5,889)           (4,909)           (6,877)
                                                                  -------------      -------------    -------------
         Deferred Income Taxes                                    $        0        $        0       $         0
                                                                  =============     ==============   ==============
</TABLE>


<PAGE>
                                       45


     The Company is currently analyzing among other things, its income tax basis
of property and equipment and intangibles as to the effect of prior  impairments
and disposals.  Any revisions to the amounts reported herein will not effect the
reported tax deferred  income taxes,  net (balance sheet account) nor the income
tax (benefit) expense (statement of operations account).

     At March 31,  1998,  the  Company  had  deferred  tax assets  available  of
approximately $5.9 million. A tax benefit has not been recorded for these assets
as it is not yet more  likely than not that these  benefits  will be realized by
reducing future taxable income. At March 31, 1998, the Company had approximately
$11.0  million  of  carryforward  losses  which  will  expire  by 2012  that are
available to offset future taxable income.

     The Florida State  Department  of Revenue has examined the Company's  Sales
and Use Tax returns for the period January 1988 through December 1993. The State
Department  of Revenue and the Company  have  agreed on a  settlement  amount of
$294,000  including  taxes,  penalties and interest.  The  settlement  amount is
payable  over a period  of four to  eight  years  depending  on  certain  events
occurring  related to the Company's ability to raise capital.  In addition,  the
State Department of Revenue has proposed a suggested assessment of approximately
$380,000  for  intangible  taxes,  interest  and  penalties  for the period 1987
through 1996.  The Company is disputing  this amount.  A reserve of $310,000 has
been made as of March 31, 1998 for the  settlement  of the Sales and Use Tax and
the Intangible tax.


NOTE 16 - STOCKHOLDERS' EQUITY (DEFICIT)

         Stockholders' Equity (Deficit) consists of the following:


<TABLE>
<CAPTION>
                                                       March 31,             March 31,            March 31,
                                                         1998                  1997                  1996
                                                   ----------------      ----------------     -----------------
        <S>                                            <C>                  <C>                    <C>  
        Voting Preferred Stock:
            Par Value $.0001 Per Share
            Authorized Shares                          7,500,000             7,500,000             7,500,000
            Issued Shares                              6,500,000             6,500,000             6,500,000
            Outstanding Shares                         6,500,000             6,500,000             6,500,000

        Common Stock:
            Par Value $.0001 Per Share
            Authorized Shares                         25,000,000            25,000,000            25,000,000
            Outstanding Shares                         6,129,673             5,917,173             5,445,335
            Issued Shares                              6,129,673             5,975,173             5,485,335

</TABLE>


Common Stock

     During fiscal 1998,  the Company  issued  150,000 shares of common stock in
lieu of a debt payment to a former  employee of the  Company.  These shares were
valued based upon the value of the debt payment. In addition, 22,500 shares were
issued to  employees  for  services and were valued at $0.32 per share which was
the approximate market value at the time they were issued.

Preferred Stock

     The JADE Family  Partnership  ("Partnership")  is  currently  the holder of
6,500,000  shares of Voting  Preferred  Stock.  The Siegel  Family  QTIP  Trust,
established  pursuant  to the terms of the Siegel  Family  Revocable  Trust (the
"Trust"), which originally acquired the shares of Voting Preferred Stock in 1986
for the aggregate par value of the shares  ($650.00),  transferred the shares to
the  Siegel  Family  Limited  Partnership  in 1993.  The Siegel  Family  Limited

<PAGE>
                                       46

Partnership transferred the shares to the Partnership in 1994. The Company's CEO
is the  trustee  of the  Trust,  which is the  managing  general  partner of the
Partnership, and accordingly, controls the shares held by the Partnership.

     The Voting Preferred Stock has two votes per share on all matters submitted
to a vote of other holders of Common Stock. In addition to  preferential  voting
rights,  the Voting  Preferred Stock is entitled to receive upon  dissolution or
liquidation  of the  Company,  the first  $10,000  of  proceeds  distributed  to
stockholders of the Company upon such events.  Thereafter,  the Voting Preferred
Stock is entitled to no additional  amounts upon  dissolution  or liquidation of
the  Company.  The Voting  Preferred  Stock has no dividend  rights,  redemption
provisions,  sinking fund  provisions or  conversion,  or preemptive or exchange
rights.  The  Voting  Preferred  Stock  is  not  subject  to  further  calls  or
assessments by the Company.

Stock Options

     The  Company  has  adopted  only the  disclosure  provisions  of  Financial
Accounting  Standard No. 123,  "Accounting for Stock-Based  Compensation," as it
relates to employment  awards.  It applies APB Opinion No. 25,  "Accounting  for
Stock Issued to Employees,"  and related  interpretations  in accounting for its
plans and does not recognize  compensation  expense based upon the fair value at
the grant date for awards  under these  plans  consistent  with the  methodology
prescribed by SFAS 123, the Company's net income (loss) and earnings  (loss) per
share would be reduced to the proforma amounts indicated below:

<TABLE>
<CAPTION>
                                                                1998              1997             1996
                                                           -------------     -------------    --------------
<S>                                                        <C>               <C>              <C>
Net Income (Loss)                 As Reported              $    (854)        $       15       $    (22,717)
                                  ProForma (Unaudited)     $  (1,066)        $     (246)      $    (22,921)

Earnings (Loss) Per Common Share  As Reported              $    (.14)        $      .00       $      (5.60)
                                  ProForma (Unaudited)     $    (.18)        $     (.04)      $      (5.65)
</TABLE>

     The fair value of each option grant is estimated on the date of grant using
the  Binominal   options-pricing  model  with  the  following   weighted-average
assumptions  used for grants in 1998, 1997 and 1996,  respectively,  no dividend
yield for all years,  expected volatility of 131, 109 and 42 percent;  risk-free
interest  rates of 5.81,  6.44 and 6.25 percent,  and expected lives of 3.7, 5.4
and 6.8 years.  Because  of the  insignificant  effect on the pro forma  amounts
presented  above,  the Company has elected not to attempt to adjust  (lower) the
volatility factor used. Such adjustment would account for the various factors or
conditions  that probably  impacted the Company's  common stock prices and which
are possibly non-recurring.  Such an adjustment which would lower the volatility
factor used would reduce the calculated fair value of the options.

<PAGE>
                                       47

Activity related to options is as follows:

<TABLE>
<CAPTION>
                                                              Number of Shares             Price per Share
                                                            -------------------          ------------------
          <S>                                                       <C>                    <C>   
          Outstanding at March 31, 1995                              332,926
                Granted in Fiscal 1996:
                Officers & Directors                                  59,000                        $1.63
                Employees                                              8,808               $6.00 - $10.00
                                                            -------------------          ------------------

          Outstanding at March 31, 1996                              400,734
                Granted in Fiscal 1997:
                Officers & Directors                                 145,000                       $1.00
                Employees                                            471,878               $1.00 - $7.00
                Options Expired                                      (1,323)
                                                            -------------------          ------------------
                                                                   1,016,289
          Outstanding at March 31, 1997 Granted in Fiscal 1998:
                Officers and Directors                               152,000                       $1.00
                Employees                                            412,000                       $1.00
                Options Expired                                     (22,170)
                                                            -------------------          ------------------

          Outstanding at March 31, 1998                            1,558,119              $1.00 - $10.00
                                                            ===================          ==================
</TABLE>

Outstanding Shares

<TABLE>
<CAPTION>
                                                               Weighted Average
                Range of                   Number           Remaining Contractual       Weighted Average
             Exercise Prices            Outstanding                 Life                Exercise Price
                                                                   (Years)
          ---------------------      ------------------      ---------------------     -------------------
<S>          <C>                        <C>                          <C>                     <C>
             $1.00 - $1.63              1,499,049                    8.1                     $1.11
             $4.00 - $6.00                 40,250                    4.3                     $4.80
             $6.38 - $10.00                18,820                    6.2                     $8.79

Exercisable Shares

             $1.00 - $1.63               614,914                                             $1.26
             $4.00 - $6.00                40,250                                             $4.80
             $6.38 - $10.00               18,820                                             $8.79
</TABLE>

The options  outstanding at March 31, 1998 expire on various dates commencing in
March 2001 and ending in February 2008.

<PAGE>
                                       48

    Warrants

              Activity related to warrants is as follows:

<TABLE>
<CAPTION>
                                                                Number of Shares         Price Per Share
                                                              --------------------     -------------------
              <S>                                                  <C>                       <C>
              Outstanding at March 31, 1994                        1,320,000                 $7.00
              Granted in Fiscal 1995 through Fiscal 1998                   0
                                                              --------------------     -------------------
              Outstanding at March 31, 1998                        1,320,000                 $7.00
                                                              ====================     ===================
</TABLE>

     All of the warrants outstanding at March 31, 1998 expire in July 1999.

     During  fiscal year 1995,  the Company  entered  into a stock  appreciation
rights agreement with its Chief Executive Officer. The agreement, which is for a
term of 10 years,  calls for additional  compensation  payable annually equal to
3.25% of the total of the  incremental  increase  in the value of the  Company's
outstanding stock. Additional compensation payable for the years ended March 31,
1998 and 1997 totaled $0 and $53,000, respectively.


NOTE 17 - CONCENTRATION OF CREDIT RISK

     The business of MTL is primarily with  individuals  located in the State of
Florida,  many of whom routinely  assign to the Company payment by their medical
insurance  providers.  As of March 31, 1998, MTL's patient  accounts  receivable
from individuals and commercial  medical  insurance  providers was approximately
$1,563,000.  As of March 31, 1998,  MTL's accounts  receivable from Medicare and
Medicaid was approximately $2,553,000.


NOTE 18 - BUSINESS ACQUISITION

     On June 20, 1997,  the Company,  through its  subsidiary  MMT,  concluded a
merger with Cygnet  Laboratories,  Inc.  ("Cygnet"),  a California company which
distributes obstetrical information systems. The plan of merger provided for the
Cygnet  shareholders to receive nominal cash consideration in exchange for their
shares. MMT assumed all the liabilities of Cygnet as a result of the merger. The
business combination of MMT and Cygnet has been accounted for using the purchase
method.  Accordingly,  the difference between the cost of the assets acquired of
$526,000 and the liabilities assumed of $1,247,000 plus the acquisition costs of
$366,000 has been recorded as goodwill in the amount of $1,087,000.  The results
of operation  for Cygnet from the date of the merger  through June 30, 1997 were
not significant.  The proforma results, as if the business  combination occurred
April 1,  1996 and April 1,  1997,  has not been  presented  as the  results  of
operation are not significant.


NOTE 19 - SUBSEQUENT EVENT

     In April 1998, the Company,  through its subsidiary LifeServ  Technologies,
Inc.  entered  into an  agreement  to  purchase  certain  assets of  Peritronics
Medical,   Inc.   ("Peritronics"),   a  California   company  which  distributed
obstetrical  information  systems. The agreement provides for the Company to pay
the Peritronics  shareholders  $350,000 in cash, 250,000 shares of the Company's
common stock and assuming  certain  liabilities  in the amount of  approximately
$330,000. The purchase is anticipated to close in August 1998.

     This note  should also be read in  conjunction  with the other notes to the
financial statements for additional subsequent event transactions.

<PAGE>
                                       49


NOTE 20 - SEGMENT INFORMATION

     The Company  has  adopted  SFAS No. 131  "Disclosures  about  Segments of a
Business Enterprise" which supercedes the previous disclosure requirements.

<TABLE>
<CAPTION>
                                                                    1998                 1997                1996
                                                              ---------------      ---------------     ----------------        
                                                                                    (In Thousands)
<S>                                                           <C>                  <C>                 <C> 
Revenue:
    Reportable Segments
        Medication Packaging & Dispensing Systems             $     12,338         $     11,169        $      10,651
        Health Care Information Systems                              4,306                1,965                1,249
        Clinical Laboratory Services                                 7,428                6,113                5,152
                                                              ---------------      ---------------     ---------------
Total Consolidated Revenue                                    $     24,072         $     19,247        $      17,052
                                                              ================     ===============     ===============
Depreciation and Amortization:
    Reportable Segments
        Medication Packaging & Dispensing Systems             $        554         $        534        $         647
        Health Care Information Systems                                255                  150                  764
        Clinical Laboratory Services                                   258                  250                  579
                                                              ---------------      ---------------    ----------------
                                                                     1,067                  934                1,990
    Corporate                                                          406                  447                  692
                                                              ---------------      ---------------    ----------------
Total Consolidated Depreciation and Amortization              $      1,473         $      1,381        $       2,682
                                                              ===============      ===============    ================
Interest Expense:
    Reportable Segments
        Medication Packaging & Dispensing Systems             $          1         $          2        $           5
        Health Care Information Systems                                 13                   20                   16
        Clinical Laboratory Services                                    36                    5                   31
                                                              ----------------      --------------     ----------------
                                                                        50                   27                   52
    Unallocated Debts                                                1,059                  582                1,687
                                                              ----------------     ----------------    ----------------
Total Consolidated Interest Expense                           $      1,109         $        609        $       1,739
                                                              ================     ================    ================

Operating Profit (Loss):
    Reportable Segments
        Medication Packaging & Dispensing Systems             $      2,827         $      2,512        $     (6,752)
        Health Care Information Systems                             (1,214)                (472)             (5,798)
        Clinical Laboratory Services                                   460                  136              (4,443)
                                                              ---------------     ----------------     ----------------
                                                                     2,073                2,176             (16,993)
    Corporate and Interest                                          (3,197)              (2,161)             (7,624)
                                                             ----------------     ----------------     ----------------
Total Consolidated Operating Profit (Loss)                    $     (1,124)        $         15        $    (24,617)
                                                             ================     ================     ================
Identifiable Assets:
    Reportable Segments
        Medication Packaging & Dispensing Systems             $      5,944         $      6,006        $       7,557
        Health Care Information Systems                              3,871                  938                1,355
        Clinical Laboratory Services                                 3,509                2,560                2,551
                                                              ---------------      ----------------   ----------------
                                                                    13,324                9,504               11,463
    Corporate                                                        2,438                3,039                3,206
                                                              ---------------      ---------------    ----------------
Total Consolidated Identifiable Assets                        $     15,762         $     12,543        $      14,669
                                                              ===============      ===============    ================
Identifiable Liabilities:
    Reportable Segments
        Medication Packaging & Dispensing Systems             $      1,029         $        280        $       1,508
        Health Care Information Systems                              3,056                  382                  691
        Clinical Laboratory Services                                 1,175                  780                 1963
                                                              ---------------      ---------------     ----------------
                                                                     5,260                1,442                4,162
    Corporate                                                       16,615               16,517               29,053
                                                              ----------------     ----------------    ----------------
Total Consolidated Liabilities                                $     21,875         $     17,959        $      33,215

                                                              ================     ================    ================
Capital Expenditures:
    Reportable Segments
        Medication Packaging & Dispensing Systems             $        131         $        123        $         769
        Health Care Information Systems                                103                   92                    5
        Clinical Laboratory Services                                    62                   67                    2
                                                              ---------------      ---------------     ----------------
                                                                       296                  282                  776
    Corporate                                                           66                   25                   21
                                                              ---------------      ---------------     ----------------
Total Consolidated Capital Expenditures                       $        362         $        307        $         797
                                                              ================     ===============     ================
 Impairment of Long-Lived Assets:
    Reportable Segments
        Medication Packaging & Dispensing Systems             $          0         $          0        $       7,319
        Health Care Information Systems                                  0                    0                3,029
        Clinical Laboratory Services                                     0                    0                4,105
                                                              ---------------      ---------------     ----------------
                                                                         0                    0               14,453
    Corporate                                                            0                    0                1,968
                                                              ---------------      ---------------     ----------------
Total Consolidated Impairment of Long-Lived Assets            $          0         $          0        $      16,421
                                                              ================     ================    ================
</TABLE>


<PAGE>
                                       50


     Corporate   expenses  are  composed   primarily  of  personnel   costs  and
administrative  expenses,  which  are  incurred  on  behalf  of each  reportable
segment. The Company cannot accurately allocate these costs and expenses to each
reportable segment.

     Corporate  assets are composed  primarily of $678,000 of cash,  $477,000 of
equipment  used by  administrative  personnel  and $1.2  million  of  intangible
assets.

     Corporate  liabilities are composed of $1.4 million of short-term  accounts
payable and accrued liabilities and $15.2 million in long-term debt.

     The geographic sales of the Company are in the United States, and there are
no customers  that account for more than 10% of the  Company's  revenues for all
periods presented.


NOTE 21 - EARNINGS PER SHARE

     Net income  (loss) per common  share is  computed  by  dividing  net income
(loss) by the  basic and  diluted  weighted  average  number of shares of common
stock outstanding.  For diluted weighted average shares outstanding, the Company
used the treasury  stock method to calculate the Common Stock  equivalents  that
the stock options would represent.

<PAGE>
                                       51

<TABLE>
<CAPTION>
                                                               Year Ended          Year Ended          Year Ended
                                                             March 31, 1998      March 31, 1997      March 31, 1996
                                                             --------------     ---------------     ---------------
<S>                                                           <C>                 <C>                 <C>

Basic and Diluted

    Actual   weighted   average  shares   outstanding;
    weighted   average   shares  used  in  income  per
    calculation - basic and diluted                            6,062,000           5,737,000           4,059,000
                                                             ==============     ===============     ===============

</TABLE>


     The  following  table set forth the  computation  of  historical  basic and
diluted earnings (loss) per share:

<TABLE>
<CAPTION>
                                                                  1998                1997                1996
                                                            ---------------     ---------------     ---------------

<S>                                                         <C>                 <C>                 <C>
Numerator:
   Net Income (Loss)                                            (854,000)         13,012,000         (34,580,000)
                                                            ===============     ===============     ===============
Denominator:
    Denominator  for basic and  diluted  earnings  per
    share- weighted average shares outstanding                 6,062,000           5,737,000           4,059,000
                                                            ===============     ===============     ===============

Net Income (Loss) Per Common Share - Basic                  $      (0.14)       $       2.27        $      (8.52)
                                                            ===============     ===============     ===============
Net Income (Loss) per Common Share - Diluted                $      (0.14)       $       2.27        $       (8.52)
                                                            ===============     ===============     ===============
</TABLE>

     The effect of all options and warrants (see Note 16) for all years were not
included in the calculation of net income (loss) per diluted common share as the
effect would have been anti-dilutive.


NOTE 22  SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES

     See Notes 1,3,10, and 19 for fiscal 1997 forgiveness of debt (extraordinary
gain) and gain on disposal of discontinued operations.

     During  fiscal  1998,  the Company  purchased  Cygnet for a cash payment of
$357,000 (net of cash acquired) and assumption of liabilities of $1,247,000. The
assets acquired had a fair value of $517,000 (net of cash acquired).

     During fiscal 1998,  the Company  redeemed a minority  interest  share of a
subsidiary's  common  stock  resulting  in a $114,000  addition to goodwill  and
accrued expenses.

     During fiscal 1998, the Company reduced a debt obligation  $150,000 through
the issuance of common stock.

     During  fiscal 1998,  the Company  acquired a patent as  satisfaction  of a
receivable in the amount of $201,000.

<PAGE>
                                       52


                                                    SIGNATURES


       Pursuant  to the  requirements  of Section 13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this Form 10-K to be signed
on its behalf by the undersigned, thereunto duly authorized.


                                         MEDICAL TECHNOLOGY SYSTEMS, INC.



Dated: July 8, 1998                      By: /s Todd E. Siegel
                                         ---------------------------------------
                                         Todd E. Siegel, Chief Executive Officer


         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                               Date
------------------------    ----------------------                --------------


 /s Todd E. Siegel          Chairman of the Board of Directors,    July 8, 1998
 -----------------------    President and Chief Executive Officer
  Todd E. Siegel             

 /s David Kazarian          Director                               July 8, 1998
 David Kazarian

 /s Michael P.Conroy        Director, Chief Financial Officer      July 8, 1998
 -----------------------    and Vice President 
 Michael P. Conroy          

 /s John Stanton           Director and Vice Chairman of the       July 8, 1998
------------------------   Board of Directors 
 John Stanton

 /s David L. Presnell      Principal Accounting Officer            July 8, 1998
 -----------------------   and Controller    
 David L. Presnell


<PAGE>
                                       53


              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON
                          FINANCIAL STATEMENT SCHEDULE


Board of Directors
Medical Technology Systems, Inc.

     In connection with our audit of the  consolidated  financial  statements of
Medical  Technology  Systems,  Inc. and  Subsidiaries  referred to in our report
dated June 26, 1998,  which is included in the  Company's  Annual  Report on SEC
Form 10-K as of and for the year  ended  March 31,  1998,  we have also  audited
Schedule II for the years ended March 31, 1997 and 1998.  In our  opinion,  this
schedule presents fairly in all material respects,  the information  required to
be set forth herein.


GRANT THORNTON LLP
Tampa, Florida

June 26, 1998


<PAGE>
                                       54

                         Independent Auditors' Report on
                            Supplementary Information


     The accompany  information  shown on Schedule II (Valuation  and Qualifying
Accounts)  for the year  ended  March 31,  1996 is  presented  for  purposes  of
complying  with  the  Securities  and  Exchange  Commission  rules  and is not a
required  part of the  basic  financial  statements.  Our  audits  of the  basic
financial  statements  were made for the  purpose of forming an opinion on those
statements  taken as a whole. The  accompanying  financial  information has been
subjected  to the  auditing  procedures  applied  in  the  audits  of the  basic
financial statements.

     In our  opinion,  the  accompanying  information  included  on  Schedule II
(Valuation and Qualifying  Accounts) for the year ended March 31, 1996 is fairly
stated in all material  respects in relation to the basic  financial  statements
taken as a whole.


Pender Newkirk & Company
Certified Public Accountants
Tampa, Florida

June 20, 1996

<PAGE>
                                       55


                MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES

                        VALUATION AND QUALIFYING ACCOUNTS
                For the Years Ended March 31, 1996, 1997 and 1998

<TABLE>
<CAPTION>
                Column A                          Column B             Column C             Column D             Column E
-----------------------------------------      ---------------      ---------------      ---------------      ---------------
                                                  Balance at           Charged to            Accounts           Balance at
                                                 Beginning of          Costs and           Written Off,           End of
                                                     Year               Expenses               Net                 Year
                                               ---------------      ---------------      ---------------      ---------------
Deferred Tax Valuation Allowance:
<S>                                            <C>                  <C>                  <C>                  <C>    
Year Ended March 31, 1996                      $            0       $        6,877       $            0       $        6,877
Year Ended March 31, 1997                      $        6,877       $            0       $        1,968       $        4,909
Year Ended March 31, 1998                      $        4,909       $          980       $            0       $        5,889

Inventory Valuation Allowance:

Year Ended March 31, 1996                      $            0       $          850       $            0       $          850
Year Ended March 31, 1997                      $          850       $           94       $          864       $           80
Year Ended March 31, 1998                      $           80       $          189       $            0       $          269

Self Insured Medical Claims Valuation Allowance:

Year Ended March 31, 1996                      $          110       $          853       $          715       $          248
Year Ended March 31, 1997                      $          248       $          726       $          762       $          212
Year Ended March 31, 1998                      $          212       $          583       $          611       $          184

Allowance for Doubtful Accounts and Contractual Allowances:

Year Ended March 31, 1996                      $          167       $          906       $          545       $          528
Year Ended March 31, 1997                      $          528       $          693       $          181       $        1,040
Year Ended March 31, 1998                      $        1,040       $        1,463       $          499       $        2,004

</TABLE>