UNITED STATES
                       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, 2001

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

For transition period from ______________ 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)

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

Aggregate  market  value of  voting  Common  Stock  held by  non-affiliates  was
$6,000,000 as of June 22, 2001.

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 4,150,948 as of June 22, 2001.

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 2001 fiscal year end, are
incorporated by reference into Part III of this Form.

Total number of pages, including cover page - 42 (excluding exhibits)


<PAGE>
                                       1



                        MEDICAL TECHNOLOGY SYSTEMS, INC.

                               CLEARWATER, FLORIDA

                                      INDEX


PART I                                                                     PAGE
                                                                            ----

Item 1.  Business........................................................... 2-5

     2.  Properties.........................................................   5

     3.  Legal Proceedings..................................................   5

     4.  Submission of Matters to a Vote of Security Holders................   6

PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters.7

     6.  Selected Financial Data............................................   8

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

     7A. Quantitative and Qualitative Disclosure about Market Risk..........  12

     8.  Financial Statements and Supplementary Data........................  12

     9.  Changes In and Disagreements With Accountants On Accounting and
            Financial Disclosure............................................  12

PART III

Item 10. Directors and Executive Officers of the Registrant.................  13

     11. Executive Compensation.............................................  13

     12. Security Ownership of Certain Beneficial Owners and Management.....  13

     13. Certain Relationships and Related Transactions.....................  13

PART IV

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

Index to Financial Statements................................................ 17

Signatures .................................................................. 40


<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
that historically operated 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").

     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  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.

     The Company  sold the assets of MTL and LifeServ in fiscal 2000 and treated
the operations of these subsidiaries as discontinued  operations in fiscal 1999,
2000 and 2001.

Segments
--------

     The  continuing  operations  of the Company are  composed of one  operating
segment,  Medication Packaging and Dispensing Systems. MTS Packaging is the only
subsidiary in this segment and is supported by corporate personnel and services.


<PAGE>
                                       3

Continuing Operations
---------------------

     Products
     --------

     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 weekly or monthly 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  approximately $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  1,865
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  $450,000 in
unshipped orders as of June 22, 2001.

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

     The Company  expended  approximately  $119,000 on research and  development
activities  during the fiscal  year ended  March 31,  2001.  During the  current
fiscal year, the Company  devoted the majority of its  development  resources to
products that have been determined to be technologically feasible.

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

     The Company is presently  directing its product development efforts towards
the following projects.

     o    OnDemand(TM) multi-dose, eight (8) station packaging machine

     o    Packaging system for hospital robotic system

     o    MTS-350 tabletop version

     o    Various disposable products for assisted living and home care

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

     MTS Packaging has developed  integrated punch card manufacturing  equipment
that will complete 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 on a single
in-line  Flexographic  press. This process takes the place of approximately five
different  processes using conventional  offset printing methods.  MTS Packaging
has three machines capable of producing punch cards in this manner.  In addition
to the  manufacturing  of punch cards,  MTS Packaging  manufactures the machines
that are sold to 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.


<PAGE>
                                       4


     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.  The Company's  ability to obtain raw materials and other goods and
services  is   substantially   dependent  upon  the  Company's  cash  flow  from
operations.

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

     MTS  Packaging's  products are sold primarily  throughout the United States
through  its sales  organization  and  independent  sales  representatives.  MTS
Packaging  also  participates  in trade shows and  training  seminars.  Sales to
countries  outside the U.S.  represent  less than ten percent (10%) of the total
revenue.  Ten  customers  comprise  approximately  sixty  percent  (60%)  of MTS
Packaging's annual revenue.

     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,  correctional  and the home health care markets as
well.

     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 have developed
machines that automate the 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.,  Artromic  International,  Inc.  and RX Systems,  Inc. The
Company   believes   that  its   automated   proprietary   packaging   machinery
distinguishes  MTS Packaging from its competitors' less automated  systems.  The
Company's  new  automated  packaging  machinery  can  fill  and  seal  over  900
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.

     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  assignor 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 2004 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, however, its business is 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.


<PAGE>
                                       5


     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 and drugs.  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  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.

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

     The Company sold two business  segments in fiscal 2000,  both of which were
treated as discontinued operations for financial statement purposes.

     LifeServ was a health care  information  technology  company that  provided
solutions for medication management and point-of-care  electronic  documentation
for hospitals and other health care facilities. The assets of LifeServ were sold
in  May  1999  in  exchange  for  the  assumption  of  certain   liabilities  of
approximately $5.0 million.

     MTL provided  clinical  laboratory  testing services  including  analytical
tests of blood tissues and other bodily fluids. The principal assets of MTL were
sold in  January  2000 in  exchange  for $1.0  million  and the  assumptions  of
approximately $400,000 in liabilities.

Employees
---------

     As of June 22, 2001,  the Company  employed 120 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 69,400  square foot plant  consisting of office space
and   air-conditioned   manufacturing   and  warehousing   space  near  the  St.
Petersburg/Clearwater  International Airport at 12920 Automobile Boulevard.  The
Company's  corporate   administrative  offices  and  the  primary  manufacturing
facilities  for  MTS  Packaging  Systems,  Inc.  ("MTS  Packaging")  are at this
location.  The lease  expires on June 30, 2005.  The Company's  current  monthly
lease payments are approximately  $28,000. The premises are generally suited for
light manufacturing and/or distribution.

     MTS  Packaging  leases  approximately  5,200  square feet at  approximately
$2,591 per month for office and warehouse space at 21530 Drake Road,  Cleveland,
Ohio. The lease expires on March 31, 2004.


ITEM 3. LEGAL PROCEEDINGS

     The Company is involved in certain claims and legal actions  arising in the
ordinary course of business.  There can be no assurances that these matters will
be resolved on terms  acceptable to the Company.  In the opinion of  management,
based upon advice of counsel and  consideration  of all facts  available at this
time,  the  ultimate  disposition  of these  matters are not  expected to have a
material  adverse  effect on the  financial  position,  results of operations or
liquidity of the Company.



<PAGE>
                                       6


     Certain  creditors of LifeServ,  a discontinued  operation,  have commenced
legal  action  against  the buyer of  LifeServ  seeking  payment of  liabilities
assumed by the buyer pursuant to the asset purchase agreement. Several creditors
have named LifeServ as a co-defendant  in the legal action.  The Company intends
to vigorously defend these actions and seek appropriate remedies from the buyer.

     In November 1998, MTL, a discontinued operation,  received a refund request
in the amount of $1.8 million from  Medicare  Program  Safeguards  ("MPS").  MTL
disputed the refund  request in its response to MPS in December  1998.  To date,
MTL has not received any further correspondence from MPS regarding this matter.


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

         None.



<PAGE>
                                       7



                                     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.  The amounts have been  retroactively  adjusted for the 1 for 2.5 reverse
stock split that occurred in December 2000.  Over-the-counter  market quotations
reflect inter-dealer prices,  without retail markup,  markdown or commission and
may not necessarily represent actual transactions.

<TABLE>
<CAPTION>
                       2001 Fiscal Year                        High                          Low
                   -----------------------              -----------------             ----------------
                     <S>                                <C>                          <C>

                     First Quarter                      $     1.58                    $     .78
                     Second Quarter                     $     1.73                    $    1.33
                     Third Quarter                      $     1.40                    $     .63
                     Fourth Quarter                     $     2.25                    $     .63


                      2000 Fiscal Year                         High                          Low
                   -----------------------              -----------------             ----------------

                     First Quarter                      $      .63                    $     .48
                     Second Quarter                     $      .50                    $     .33
                     Third Quarter                      $      .40                    $     .18
                     Fourth Quarter                     $     1.33                    $     .40
</TABLE>


     As of June 22, 2001,  there were  approximately  3,000 holders of record of
the Company's common stock.


<PAGE>
                                       8


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)
                                                           2001           2000            1999            1998            1997
                                                       ------------   -------------   -------------   -------------   -------------
<S>                                                    <C>            <C>             <C>             <C>             <C>
Income Statement Data:

Net Sales                                              $    20,153    $     16,981    $     15,073    $     12,337    $     11,169
Cost of Sales and Other Expenses                            18,102          15,767          14,740          12,707          10,818
                                                       ------------   -------------   -------------   -------------   -------------
Income (Loss) from Continuing Operations
    Before Income Taxes, Discontinued Operations
      and Extraordinary Gain                                 2,051           1,214             333            (370)            351
Income Tax Benefit (Expense)                                 5,570               0            (125)            270            (131)
(Loss) from Discontinued Operations                           (227)         (2,185)         (3,764)           (754)         (3,005)
Gain on Forgiveness of Debt of Discontinued
    Operations                                                   0           1,249             569               0           3,500
Gain (Loss) on Disposal of Discontinued Operations               0           2,221          (2,500)              0           2,200
Extraordinary Gain on Debt Forgiveness                           0               0               0               0          10,097
                                                       ------------   -------------   -------------   -------------   -------------
Net Income (Loss)                                      $     7,394    $      2,499    $     (5,487)   $       (854)   $     13,012
                                                       ============   =============   =============   =============   =============
Net Earnings (Loss) Per Basic and Diluted Common
    Share:  (Retroactively adjusted for the 1 for 2.5
      reverse stock split in December 2000)
Net Earnings (Loss) Per Basic Common Share:
From Continuing Operations                             $      2.45    $       0.47    $       0.08    $      (0.04)   $       0.10
Income (Loss) from Discontinued Operations                   (0.07)           0.50           (2.27)          (0.31)           1.17
Extraordinary Gain on Debt Forgiveness                        0.00            0.00            0.00            0.00            4.40
                                                       ------------   -------------   -------------   -------------   -------------
Net Earnings (Loss) Per Basic Common Share             $      2.38    $       0.97    $      (2.19)   $      (0.35)   $       5.67
                                                       ============   =============      ==========      ==========      ==========
Net Earnings (Loss) Per Diluted Common Share:
From Continuing Operations                             $      2.43    $       0.47    $       0.08    $      (0.04)   $       0.10
Income (Loss) from Discontinued Operations                   (0.07)           0.50           (2.27)          (0.31)           1.17
Extraordinary Gain on Debt Forgiveness                        0.00            0.00            0.00            0.00            4.40
                                                       ------------   -------------   -------------   -------------   -------------
Net Earnings (Loss) Per Diluted Common Share           $      2.36    $       0.97    $      (2.19)   $      (0.35)   $       5.67
                                                       ============   =============      ==========      ==========      ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                                     AT MARCH 31,
                                                       ----------------------------------------------------------------------------
                                                                                   (In Thousands)
                                                           2001           2000            1999            1998            1997
                                                       ------------   -------------   -------------   -------------   -------------
<S>                                                    <C>            <C>             <C>             <C>             <C>
Balance Sheet Data:

Net Working Capital                                    $     2,323    $      1,702    $      1,458    $      1,592    $      2,916
Assets                                                      14,791           7,866           8,511          11,532          11,380
Short-Term Debt                                                963           1,052             874             294             205
Long-Term Debt                                              11,887          13,111          14,915          14,892          15,161
Stockholders' Equity (Deficit)                              (1,598)         (9,037)        (11,600)         (6,113)         (5,416)

</TABLE>


<PAGE>
                                       9



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


Overview
--------

     During fiscal 2001,  the Company  continued to focus on its core  business,
MTS  Packaging  Systems,  Inc.  ("MTS  Packaging").  The  results of  continuing
operations are comprised  exclusively  of the  operations of MTS Packaging.  The
operations  of  discontinued  operations  were  confined to the  liquidation  of
certain  assets,   primarily   accounts   receivable,   of  Medical   Technology
Laboratories, Inc. ("MTL").

Fiscal Year 2001 Compared to Fiscal Year 2000
---------------------------------------------

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

Net Sales
---------

     Net sales for the fiscal year ended March 31, 2001 increased 18.7% to $20.1
million from $17.0 million the prior fiscal year. Net Sales  increased in fiscal
2001  primarily  as a result of an  increase in the amount of  disposable  punch
cards sold to new and existing customers.  Selling prices remained stable during
the fiscal year ended March 31, 2001.  Although the Company's customers continue
to experience downward pressure on reimbursement  amounts,  the Company believes
that the cost  savings  that are  realized by its  customers  by  utilizing  its
medication  dispensing  systems  will allow it to continue  to maintain  selling
prices at competitive levels.

Cost of Sales
-------------

     Cost of sales for the year ended  March 31, 2001  increased  22.0% to $11.2
million  from $9.2 million in the prior year.  Cost of sales as a percentage  of
sales increased to 55.5% from 54.0%. The increase in cost of sales resulted from
the costs associated with the increased net sales. The increase in cost of sales
as a percentage of sales  resulted  primarily from increases in the direct costs
of raw  material  and labor.  Direct costs are expected to continue to increase.
The Company  attempts  to make  corresponding  adjustments  to the prices of its
products, however, there can be no assurance that competitive factors will allow
for adjustments in selling prices in the future.

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

     SG&A  expenses  for the year ended March 31, 2001  increased  14.6% to $5.0
million  compared  to $4.4  million the prior year.  Sales and  marketing  costs
increased in Fiscal 2001 to accommodate  increases in net sales generated by MTS
Packaging. In addition, the Company incurred increased costs associated with its
investor relations, shareholder communication and investment banking activities.

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

     Research and development  expenses  decreased 42.5% in the year ended March
31, 2001 to $119,000 from $207,000 the prior year. The Company  directed more of
its development  efforts to the completion of new products during the year ended
March 31, 2001  compared  to the prior year in which  development  efforts  were
directed towards the research of these new products.

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

     Depreciation and amortization  expense decreased 6.3% to $807,000 in fiscal
2001 from  $861,000  the prior year.  The  decrease  resulted  from older assets
becoming fully depreciated.

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

     Interest  expense  for the year ended  March 31,  2001  decreased  15.4% to
$981,000 from $1,159,000 the prior year. The decrease  resulted from a reduction
in long-term debt outstanding.


<PAGE>
                                       10


Income Tax
----------

     During previous years, the Company had provided a 100% valuation  allowance
on its net  deferred  tax  asset  as it was not  more  likely  than not that the
related  income tax benefit would be realized in the future.  During the quarter
ended December 31, 2000, the Company  removed its valuation  allowance,  thereby
recording an income tax benefit of  $5,719,000  as the Company now believes that
it is more likely than not that these  income tax  benefits  will be realized in
the future based in part on (1) the historical profitable operations of its core
business;   (2)  expectations  that  its  core  business  will  continue  to  be
profitable;  (3) growth opportunities  available for its core business;  and (4)
the length of time that the net operating  loss  carryforwards  are available to
offset future taxable income.  The income tax benefit is comprised  primarily of
net operating  loss  carryforwards  that are available to offset future  taxable
income. The carryforward  losses expire beginning in fiscal year 2011 and ending
in fiscal year 2020.

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

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

     The operations of discontinued  operations  during the year ended March 31,
2001 were  confined  to the  liquidation  of  certain  assets of MTL,  primarily
accounts receivable.  Since the date of sale, approximately $431,000 of accounts
receivable were collected. The proceeds of the collection of accounts receivable
were used to pay the ongoing cost of  collection  and to fund  settlements  with
creditors of MTL.  During fiscal 2001, the Company  determined  that the cost of
collecting the remaining  accounts  receivable  could equal or exceed the amount
collected,  and therefore,  discontinued its collection  efforts and reduced the
carrying value of the accounts receivable to $0.

     Certain  liabilities of MTL were compromised during fiscal 2001 as a result
of settlements reached with creditors.  In addition, the Company determined that
certain liabilities were not payable, and therefore,  reduced the carrying value
of them to 0.

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

Fiscal Year 2000 Compared to Fiscal Year 1999
---------------------------------------------

Net Sales
---------

     Net sales for the fiscal year ended March 31, 2000 increased 12.7% to $17.0
million from $15.1 million the prior fiscal year. Net Sales  increased in fiscal
2000  primarily  as a result of an  increase in the amount of  disposable  punch
cards sold to new and existing customers. In addition,  prices for machines sold
increased  approximately 10% and prices for disposables increased  approximately
2.5%.  The volume of disposable  cards is  anticipated  to continue to grow as a
result of reduced  medication  dispensing cycles. The reduced cycles implemented
by pharmacies has resulted from reductions in reimbursements introduced with the
Medicare  prospective payment system in July 1999. In addition,  the development
of new markets for the  Company's  disposable  products has  contributed  to the
increase in net sales.

Cost of Sales
-------------

     Cost of sales for the year  ended  March 31,  2000  increased  9.4% to $9.2
million  from $8.4 million in the prior year.  Cost of sales as a percentage  of
sales decreased to 54.0% from 55.6%. The increase in cost of sales resulted from
the costs associated with the increased net sales. The decrease in cost of sales
as a percentage of sales  resulted  primarily  from increased net sales that did
not require  increases in certain  fixed costs of  operations.  The decrease was
partially  offset by  increases  in the direct  costs of raw material and labor.
Direct costs are expected to continue to increase.  The Company attempts to make
corresponding  adjustments to the prices of its products,  however, there can be
no assurance  that  competitive  factors will allow for  adjustments  in selling
prices in the future.

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

     SG&A  expenses  for the year  ended  March 31,  2000  increased  1% to $4.4
million  compared  to $4.3  million  the  prior  year.  Although  reductions  in
corporate overhead costs resulting from the disposition of LifeServ and MTL were
realized in fiscal 2000,  sales and  marketing  costs  increased to  accommodate
increases in net sales generated by MTS Packaging.


<PAGE>
                                       11


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

     Depreciation and amortization  expense decreased 1.5% to $861,000 in fiscal
2000 from  $874,000  the prior year.  The  decrease  resulted  from older assets
becoming fully depreciated.

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

     Interest expense increased nominally in fiscal 2000.

Income Tax
----------

     Income tax expense has not been  recognized  in fiscal 2000 due to the fact
that the Company has approximately $12.4 million of carryforward losses that are
available to offset taxable income.

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

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

     The Company operated two businesses  during fiscal 2000 that were accounted
for as  discontinued  operations.  The  operations of LifeServ,  the Health Care
Information Systems segment,  resulted in a loss from discontinued operations of
$524,000 in fiscal 2000  compared to a loss of $3.7 million the prior year.  The
operations of MTL, the Clinical Laboratory Services segment,  resulted in a loss
from discontinued operations of $2,225,000 in fiscal 2000, $500,000 of which was
estimated and recorded in fiscal 1999,  compared to a loss of $164,000 the prior
year.  The  actual  loss  incurred  in fiscal  2000  exceeded  the loss that was
estimated  in fiscal 1999 due to the length of time that  elapsed  from the date
that a buyer  for the  business  was  identified  and the  date  the sale of the
business ultimately concluded.

Gain on Forgiveness of Debt of Discontinued Operations
------------------------------------------------------

     The Company  negotiated  several  settlements  with creditors of MTL during
fiscal  2000.  The  settlements  resulted  in a gain on  forgiveness  of debt of
discontinued operations of $1,249,000 in fiscal 2000.

     A plan of  reorganization  in the  Chapter 11  Bankruptcy  of a  subsidiary
included in the Company's Health Care  Information  Systems business segment was
approved in fiscal 1999. The plan of  reorganization  provided for reductions of
the amounts owed to both secured and unsecured  creditors.  The reduction,  less
certain expenses related to the reorganization,  of $569,000 has been recognized
as an extraordinary gain included within discontinued operations.

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

     The Company  sold the assets of LifeServ and MTL during  fiscal  2000.  The
sale of the LifeServ  assets  resulted in a gain of $1.8 million and the sale of
the MTL assets  resulted  in a gain of  $399,000.  In fiscal  1999,  the Company
estimated  that the  disposal of MTL would  result in a loss of $2.5 million and
recorded a charge in that amount.  At that time,  the Company was uncertain if a
buyer  would  be  identified  for  the  business  or if the  business  would  be
abandoned.  During the second  quarter of fiscal  2000,  the  Company  commenced
negotiations with a buyer and ultimately sold the business in the fourth quarter
of  fiscal  2000.  The  terms of the  ultimate  sale of the  business  were more
favorable  than the Company had  estimated in fiscal 1999 and resulted in a gain
on the disposal rather than a loss.

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

     The Company had net income of $7.4 million in fiscal 2001  compared to $2.5
million  the prior year.  Cash  provided  from  continuing  operations  was $3.4
million in fiscal 2001 compared to $1.8 million the prior year.

     Investing  activities of continuing  operations used $2.0 million in fiscal
2001 compared to $624,000 in fiscal 2000. The increase  resulted  primarily from
an  increase  in amounts  expended  for new  equipment  and  development  of new
products, primarily the OnDemand(TM) machine.


<PAGE>
                                       12


     Financing  activities of continuing  operations used $1.5 million in fiscal
2001 compared to $1.2 million the prior year.  The increase  resulted  primarily
from  increased  principal  payments made on the Company's  long-term  debt as a
result of monthly  amortization of its term loan and additional excess cash flow
payments made pursuant to the loan agreement.

     The Company had working capital of approximately  $2.3 million at March 31,
2001 and has 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 net sales may  result in  corresponding  increases  in
accounts  receivable.  Cash flow from  operations is  anticipated  to support an
increase in accounts receivable.

     The Company has several new product development  projects underway that are
expected to be funded by cash flow from operations. These projects are monitored
on a regular basis to attempt to ensure that the  anticipated  costs  associated
with them do not exceed the  Company's  ability to fund them from cash flow from
operations.

     The Company  believes that the cash  generated from  operations  during the
next fiscal year is expected  be  sufficient  to meet its capital  expenditures,
product  development,  working capital needs and the principal payments required
by its loan agreement.


ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     The Company  does not have any  material  market risk  sensitive  financial
instruments.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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


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

     NONE


<PAGE>
                                       13


                                    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 2001
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 2001
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 2001
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 2001
fiscal year.


<PAGE>
                                       14


                                     PART IV


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

<TABLE>
        <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.
              (c)     List of Exhibits
          2.1(10)     Agreement  and  Plan  of  Merger  between  Medication  Management  Technologies,  Inc.  and  Cygnet
                      Technologies, Inc. dated April 24, 1997
          2.2(11)     Sale Agreement Vangard Labs, Inc. and NCS Healthcare, Inc. dated April 17, 1997
          2.3(13)     Asset  Acquisition  Agreement  effective April 30, 1998 among the Company,  LifeServ  Technologies,
                      Peritronics Medical, Ltd. and 562577 B.C., Ltd.
            **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
            **4.2     Designation of Rights, Preferences and Limitations of Voting Preferred Stock
           **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
         10.16(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
         10.22(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
         10.27(7)     Third Amendment to Amended and Restated Loan and Security Agreement effective March 28, 1995
        10.29(10)     Stock Option Plan dated March 4, 1997
        10.31(13)     Stock Subscription Agreement, dated April 28, 1998,
                      between the Company and LifeServ Technologies, Inc.
        10.32(13)     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(13)     Form of Warrant dated May 13, 1998 between LifeServ and Ella Kedan
        10.34(13)     Form of Warrant dated May 13, 1998 between the Company and Ella Kedan
        10.35(13)     Form of Warrant dated May 13, 1998 between LifeServ and Ella Kedan
        10.39(13)     Amendment  to Second  Amended and  Restated  Loan and  Security  Agreement  between the Company and
                      SouthTrust Bank dated April 16, 1998
        10.40(14)     Asset Acquisition Agreement dated August 4, 1998 between Medical Technology Laboratories,  Inc. and
                      Community Clinical Laboratories, Inc.
        10.41(14)     Loan Agreement dated May 13, 1998,  between Stanley D. Estrin Irrevocable Trust dtd March 16, 1993,
                      Judith C. Estrin, Trustee and Medical Technology Systems, Inc.

</TABLE>


<PAGE>
                                       15

<TABLE>

        <S>           <C>
        10.42(14)     Form of Warrant  dated May 13,  1998,  between  Stanley D. Estrin  Irrevocable  Trust dtd March 16,
                      1993, Judith C. Estrin, Trustee and Medical Technology Systems, Inc.
        10.43(14)     Form of Warrant  dated May 13,  1998,  between  Stanley D. Estrin  Irrevocable  Trust dtd March 16,
                      1993, Judith C. Estrin, Trustee and Medical Technology Systems, Inc.
        10.44(14)     Loan Agreement dated August 7, 1998, between Sally Siegel and Medical Technology Systems, Inc.
        10.45(14)     Form of Warrant dated August 7, 1998, between Sally Siegel and Medical Technology Systems, Inc.
        10.46(14)     Form of Warrant dated August 7, 1998, between Sally Siegel and Medical Technology Systems, Inc.
        10.47(14)     Loan  Agreement  dated  August 18,  1998,  between  Todd and Shelia  Siegel and Medical  Technology
                      Systems, Inc.
        10.48(14)     Form of Warrant  dated  August 18,  1998,  between  Todd and Shelia  Siegel and Medical  Technology
                      Systems, Inc.
        10.49(14)     Form of Warrant  dated  August 18,  1998,  between  Todd and Shelia  Siegel and Medical  Technology
                      Systems, Inc.
        10.50(15)     Asset  Acquisition  Agreement  dated May 25, 1999  between  LifeServ  Technologies,  Inc.,  Medical
                      Technology Systems, Inc. and AIMCare, Inc.
        10.51(16)     Loan Agreement dated October 16, 1998, between Joan L. Fitterling,  as Trustee, or her successor in
                      Trust of the Joan L.  Fitterling  Revocable  Trust dated  August 15,  1995 and  Medical  Technology
                      Systems, Inc.
        10.52(16)     Form of Warrant dated October 16, 1998,  between Joan L. Fitterling,  as Trustee,  or her successor
                      in Trust of the Joan L.  Fitterling  Revocable  Trust dated August 15, 1995 and Medical  Technology
                      Systems, Inc.
        10.53(16)     Form of Warrant dated October 16, 1998,  between Joan L. Fitterling,  as Trustee,  or her successor
                      in Trust of the Joan L.  Fitterling  Revocable  Trust dated August 15, 1995 and Medical  Technology
                      Systems, Inc.
        10.53(16)     Form of Warrant dated October 16, 1998,  between Joan L. Fitterling,  as Trustee,  or her successor
                      in Trust of the Joan L.  Fitterling  Revocable  Trust dated August 15, 1995 and Medical  Technology
                      Systems, Inc.
        10.54(17)     Fourth Amendment to Warrant Agreement dated July 16, 1999
        10.55(18)     Management  Agreement between Medical Technology  Systems,  Inc., Medical Technology  Laboratories,
                      Inc. and Brittany Leigh, Inc. dated September 8, 1999
        10.56(19)     Asset Purchase  Agreement dated January 1, 2000 between Medical Technology  Systems,  Inc., Medical
                      Technology Laboratories, Inc. and Brittany Leigh, Inc.
        10.57(20)     Second Amendment to Second Amended and Restated Loan
                      and Security Agreement between the Company and SouthTrust
                      Bank dated July 6, 2000 and the Consent and Re-Affirmation
                      of Guaranty and Loan Documents dated July 6, 2000.
        10.58(21)     Expiration of Medical Technology Systems, Inc. common stock warrants dated July 17, 2000.
        10.59(22)     Form of Warrant dated  September 24, 1999 between Andrew G. Burch and Medical  Technology  Systems,
                      Inc.
        10.60(22)     Form of Warrant dated September 24, 1999 between IFM Venture Group and Medical Technology  Systems,
                      Inc.
        10.61(22)     Form of Warrant dated May 31, 2000 between National  Securities  Corporation and Medical Technology
                      Systems, Inc.
        10.62(23)     Employment  Agreement between Medical Technology  Systems,  Inc. and Todd E. Siegel dated September
                      1, 1999.
        10.63(23)     Amendment One to Executive  Stock  Appreciation  Rights and  Non-Qualified  Stock Option  Agreement
                      dated October 28, 2000 between Medical Technology Systems, Inc. and Todd E. Siegel.
        10.64(24)     Registration  Statement regarding the Medical Technology Systems, Inc. 1997 Stock Option Plan dated
                      February 27, 2001.
        10.64(25)     Form of Warrant dated March 1, 2001 between National Securities  Corporation and Medical Technology
                      Systems, Inc.
        10.65(25)     Employment Agreement between Medical Technology Systems,  Inc. and Michael P. Conroy dated March 2,
                      2001.
*                     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)
(10)                  Incorporated herein by reference to Form 10-K for the year ended March 31, 1997

</TABLE>


<PAGE>
                                       16


<TABLE>

<S>                   <C>

(11)                  Incorporated herein by reference to Form 8-K dated May 2, 1997
(12)                  Incorporated  herein by  reference  to Form 10-Q dated  February  13,  1998 for the  quarter  ended
                      December 31, 1997
(13)                  Incorporated herein by reference to Form 10-K for the year ended March 31, 1998
(14)                  Incorporated  herein by reference to Form 10Q filed November 12, 1998 for quarter ending  September
                      30, 1998
(15)                  Incorporated herein by reference to Form 8K filed on June 9, 1999 for event dated May 25, 1999
(16)                  Incorporated herein by reference to Form 10-K for year ended March 31, 1999
(17)                  Incorporated herein by reference to Form 8-K filed July 16, 1999
(18)                  Incorporated  herein by  reference  to Form 10-Q dated  November  12, 1999 for the  quarter  ending
                      September 30, 1999
(19)                  Incorporated herein by reference to Form 8-K filed January 18, 1999
(20)                  Incorporated herein by reference to Form 10-K for year ending March 31, 2000
(21)                  Incorporated herein by reference to Form 8-K filed July 17, 2000
(22)                  Incorporated  herein by reference to Form 10-Q filed November 7, 2000 for quarter ending  September
                      30, 2000
(23)                  Incorporated  herein by reference to Form 10-Q filed February 6, 2001 for quarter  ending  December
                      31, 2000
(24)                  Incorporated herein by reference to Form S-8 filed February 27, 2001.
(25)                  Filed herein

</TABLE>


<PAGE>
                                       17


                        MEDICAL TECHNOLOGY SYSTEMS, INC.

                          INDEX TO FINANCIAL STATEMENTS

                                                                            Page

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS........................    18


CONSOLIDATED FINANCIAL STATEMENTS

      Consolidated Balance Sheets as of March 31, 2001 and 2000...........    19

      Consolidated Statements of Operations for the years ended
        March 31, 2001, 2000 and 1999.....................................    20

      Consolidated Statement of Changes in Stockholders' Equity (Deficit)
        for the years ended March 31, 2001, 2000 and 1999.................    21

      Consolidated Statements of Cash Flows for the years ended
         March 31, 2001, 2000 and 1999....................................    22

      Notes to Consolidated Financial Statements.......................... 23-39


REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON FINANCIAL
         STATEMENT SCHEDULE...............................................    41


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>
                                       18



               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, 2001 and 2000 and the
related consolidated  statements of operations,  changes in stockholders' equity
(deficit)  and cash flows for each of the three years in the period  ended March
31, 2001.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

     We conducted our audits in accordance  with  auditing  standards  generally
accepted in the United States of America.  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, 2001 and 2000, and the
consolidated results of operations and cash flows for each of the three years in
the  period  ended  March 31,  2001 in  conformity  with  accounting  principles
generally accepted in the United States of America.


GRANT THORNTON LLP
Tampa, Florida

June 20, 2001


<PAGE>
                                       19



                MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             MARCH 31, 2001 AND 2000
                                 (In Thousands)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                                         2001                 2000
                                                                                   ---------------      ---------------
<S>                                                                                <C>                   <C>
Current Assets:
     Cash                                                                          $           92       $          172
     Accounts Receivable, Net                                                               2,567                2,601
     Inventories                                                                            2,311                2,030
     Prepaids and Other                                                                       129                   86
     Deferred Tax Benefits                                                                  1,085                    0
                                                                                     -------------        -------------
     Total Current Assets                                                                   6,184                4,889

Property and Equipment, Net                                                                 2,350                1,904
Other Assets, Net                                                                           1,772                1,073
Deferred Tax Benefits                                                                       4,485                    0
                                                                                     -------------        -------------

Total Assets                                                                       $       14,791       $        7,866
                                                                                   ===============      ===============

                  LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current Liabilities:
     Current Maturities of Long-Term Debt                                          $          963       $        1,052
     Accounts Payable and Accrued Liabilities                                               2,898                2,135
                                                                                   ---------------      ---------------
     Total Current Liabilities                                                              3,861                3,187

Net Liabilities of Discontinued Operations                                                    641                  605
Long-Term Debt, Less Current Maturities                                                    11,887               13,111
                                                                                   ---------------      ---------------
Total Liabilities                                                                          16,389               16,903
                                                                                   ---------------      ---------------

Stockholders' Equity (Deficit):
     Voting Preferred Stock                                                                     0                    1
     Common Stock                                                                              42                   65
     Capital In Excess of Par Value                                                         8,715                8,646
     Accumulated Deficit                                                                  (10,027)             (17,421)
     Treasury Stock                                                                          (328)                (328)
                                                                                   ---------------      ---------------
     Total Stockholders' Equity (Deficit)                                                  (1,598)              (9,037)
                                                                                   ---------------      ---------------
     Total Liabilities and Stockholders' Equity (Deficit)                          $       14,791       $        7,866
                                                                                   ===============      ===============
</TABLE>

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


<PAGE>
                                       20



                MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    YEARS ENDED MARCH 31, 2001, 2000 AND 1999
                (In Thousands; Except Earnings Per Share Amounts)

<TABLE>
<CAPTION>
                                                                              2001              2000              1999
                                                                        ---------------   ---------------   --------------
<S>                                                                     <C>               <C>               <C>
Net Sales                                                               $       20,153    $       16,981    $      15,073

Costs and Expenses:
      Cost of Sales                                                             11,186             9,170            8,381
      Selling, General and Administrative                                        5,009             4,370            4,327
      Research and Development                                                     119               207                0
      Depreciation and Amortization                                                807               861              874
      Interest                                                                     981             1,159            1,158
                                                                        ---------------   ---------------   --------------

Total Costs and Expenses                                                        18,102            15,767           14,740
                                                                        ---------------   ---------------   --------------

Income from Continuing Operations Before
  Income Taxes, Discontinued Operations and
  Extraordinary Gain                                                             2,051             1,214              333

Income Tax Benefit (Expense)                                                     5,570                 0             (125)
                                                                        ---------------   ---------------   --------------

Income from Continuing Operations Before
  Discontinued Operations and Extraordinary Gain                                 7,621             1,214              208

Loss from Operations of Discontinued Operations, Net of Tax                       (227)           (2,185)          (3,764)

Gain on Forgiveness of Debt of Discontinued Operations                               0             1,249              569

Gain (Loss) on Disposal of Discontinued Operations                                   0             2,221           (2,500)
                                                                        ---------------   ---------------   --------------

Net Income (Loss)                                                       $        7,394    $        2,499    $      (5,487)
                                                                        ===============   ===============   ==============

Net Income (Loss) per Basic Common Share:
      Income from Continuing Operations                                 $         2.45    $         0.47    $        0.08
      Income (Loss) from Discontinued Operations                                 (0.07)             0.50            (2.27)
                                                                        ---------------   ---------------   --------------

Net Income (Loss) per Basic Common Share                                $         2.38    $         0.97    $       (2.19)
                                                                        ===============   ===============   ==============

Net Income (Loss) per Diluted Common Share:
      Income from Continuing Operations                                 $         2.43    $         0.47    $        0.08
      Income (Loss) from Discontinued Operations                                 (0.07)             0.50            (2.27)
                                                                        ---------------   ---------------   --------------

Net Income (Loss) per Diluted Common Share                              $         2.36    $         0.97    $       (2.19)
                                                                        ===============   ===============   ==============

</TABLE>


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


<PAGE>
                                       21



                MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                    YEARS ENDED MARCH 31, 2001, 2000 AND 1999
                        (In Thousands; Except Share Data)


<TABLE>
<CAPTION>
                                                                           COMMON STOCK
                                      --------------------------------------------------------------------------------------
                                        Number          0.01        Capital in     Retained        Treasury
                                          of            Par         Excess of      Earnings          Stock          Total
                                        Shares         Value        Par Value     (Deficit)
                                      -----------   -----------    -----------   ------------    ------------    -----------
<S>                                   <C>           <C>            <C>           <C>             <C>             <C>
Balance, March 31, 1998               6,129,673     $       62     $    8,588    $   (14,433)    $      (331)    $   (6,114)

Stock Cancellation                      (10,800)                           (3)                             3

Stock Issued                            287,318              2             (2)

Net (Loss) for Year Ended
   March 31, 1999                                                                     (5,487)                        (5,487)
                                    ------------------------------------------------------------------------------------------------

Balance, March 31, 1999               6,406,191     $       64     $    8,583    $   (19,920)    $      (328)    $  (11,601)

Stock Issued                            136,430              1             38                                            39

Debt Conversion                                                            25                                            25

Net Income for Year Ended
   March 31, 2000                                                                      2,499                          2,499
                                    ------------------------------------------------------------------------------------------------

Balance, March 31, 2000               6,542,621     $       65     $    8,646    $   (17,421)    $      (328)    $   (9,038)

Issuance of Stock Options                                                  45                                            45

Exchange of Preferred Stock           4,000,000             40            (39)                                            1
    for Common Stock

Reverse Stock Split                  (6,325,593)           (63)            63

Net Income for Year Ended
    March 31, 2001                                                                     7,394                          7,394
                                    ------------------------------------------------------------------------------------------------

Balance March 31, 2001                4,217,028     $       42     $     8,715   $   (10,027)    $      (328)    $   (1,598)
                                    =============  =============   ============= =============  ==============  =============


                                                                        VOTING PREFERRED STOCK
                                     --------------------------------------------------------------------------------------
                                        Number        $0001.
                                          of           Par
                                        Shares        Value
                                     -----------   -----------


Balance, March 31, 1999               6,500,000     $       1                                                    $        1
                                     ------------  -----------                                                  --------------

Balance, March 31, 2000               6,500,000     $       1                                                    $        1
                                     ------------  -----------                                                  --------------

Exchange of Preferred Stock
    for Common Stock                 (6,500,000)    $      (1)                                                   $       (1)
                                     ------------  -----------                                                  --------------

Balance, March 31, 2001                       0     $       0                                                    $        0
                                     ------------  -----------                                                  --------------

Total Stockholders' (Deficit)
   March 31, 2001                                                                                                $   (1,598)
                                                                                                                ==============

</TABLE>

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


<PAGE>
                                       22


                MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                    YEARS ENDED MARCH 31, 2001, 2000 AND 1999
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                                    2001              2000              1999
                                                                              --------------    --------------    --------------
<S>                                                                           <C>               <C>               <C>
Operating Activities
    Income from Continuing Operations                                         $       7,621     $       1,214     $         208
                                                                              --------------    --------------    --------------
    Adjustments to Reconcile to Net Cash
          Provided by Continuing Operations
       Issuance of Stock for Services                                                     0                24                 0
       Deferred Compensation                                                             45                 0                 0
       Depreciation and Amortization                                                    807               861               874
       Legal Settlements                                                                  0                 0               226
       Loss on Early Retirement of Fixed Assets                                           0                 0                21
       Deferred Income Tax Expense (Benefit)                                         (5,570)                0               125
       (Increase) Decrease in:
         Accounts Receivable                                                             34              (128)             (541)
         Inventories                                                                   (281)              (40)             (110)
         Prepaids and Other                                                             (43)              (17)               29
       Increase (Decrease) in:
         Accounts Payable and Other Accrued Liabilities                                 763              (108)              285
                                                                              --------------    --------------    --------------
    Total Adjustments                                                                (4,245)              592               909
                                                                              --------------    --------------    --------------
    Net Cash Provided by Continuing Operations                                        3,376             1,806             1,117
                                                                              --------------    --------------    --------------

Investing Activities
    Expended for Property and Equipment                                              (1,063)             (494)             (297)
    Expended for Product Development                                                   (798)             (112)             (159)
    Expended for Patents and Other Assets                                               (91)              (18)             (114)
    Expended for Acquisition, Net of Cash Acquired                                        0                 0               (95)
                                                                              --------------    --------------    --------------
    Net Cash (Used) by Investing Activities of Continuing Operations                 (1,952)             (624)             (665)
                                                                              --------------    --------------    --------------

Financing Activities
    Payments on Notes Payable and Long-Term Debt                                     (1,313)           (1,601)             (309)
    Advances from (to) Affiliates - Discontinued Operations                            (191)              386              (754)
    Proceeds from Borrowing on Notes Payable and Long-Term Debt                           0                 0               350
                                                                              --------------    --------------    --------------
    Net Cash (Used) by Financing Activities of Continuing Operations                 (1,504)           (1,215)             (713)
                                                                              --------------    --------------    --------------

Net Decrease in Cash - Continuing Operations                                            (80)              (33)             (261)
Cash at Beginning of Period - Continuing Operations                                     172               205               466
                                                                              --------------    --------------    --------------
Cash at End of Period - Continuing Operations                                 $          92     $         172     $         205
                                                                              ==============    ==============    ==============

</TABLE>

See Note 18 for supplemental disclosures of other cash flow information.

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


<PAGE>
                                       23


                        MEDICAL TECHNOLOGY SYSTEMS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          MARCH 31, 2001 2000 AND 1999

NOTE 1 - BACKGROUND INFORMATION

     Medical  Technology  Systems,   Inc.(TM),   a  Delaware   corporation  (the
"Company"),  was  incorporated  in March 1984. The Company is a holding  company
that historically operated 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").

     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  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.

     The Company  sold the assets of MTL and LifeServ in fiscal 2000 and treated
the operations of these subsidiaries as discontinued  operations in fiscal 1999,
2000 and 2001.  Effective  March 31, 1999, the Company's  continuing  operations
were conducted through one business segment.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

     The consolidated  financial  statements include the accounts of the Company
and its  subsidiaries,  MTS  Packaging,  MTL  and  LifeServ.  MTL  and  LifeServ
represent discontinued operations, and accordingly, these discontinued segments'
net assets or net  liabilities  are shown as one amount under the captions  "Net
Liabilities  of  Discontinued  Operations".  The results of  operations of these
discontinued  segments  for  2001,  2000 and 1999 have  been  excluded  from the
components of "Income  (Loss) from  Continuing  Operations"  and shown under the
caption "Loss from Operations of  Discontinued  Operations" in the Statements of
Operations.  All significant  inter-company  accounts and transactions have been
eliminated in consolidation.

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

     The Company`s Health Care Information  Systems business  (LifeServ) and its
Clinical  Laboratory  Services  business  (MTL) are  classified as  discontinued
operations.  The assets of LifeServ  were sold in May 1999 and the assets of MTL
were sold in January 2000.  Certain accounts  receivable of MTL were retained by
MTL. The ongoing operations of MTL during 2001 were limited to the collection of
these accounts receivable.

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

     The  preparation  of financial  statements  in conformity  with  accounting
principles   generally  accepted  in  the  United  States  of  America  requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities,  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.

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>
                                       24


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, 2001 and 2000, the
Company has established an inventory  valuation  allowance of $40,000 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.

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.

Research and Development and  Product Development Costs
-------------------------------------------------------

     The Company  expenses  research  and  development  costs as  incurred.  The
Company incurred approximately $119,000 and $207,000 in research and development
costs during fiscal 2001 and fiscal 2000 respectively.

     All  costs   associated  with  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 product  development costs. The Company has
determined  that  a  five-year  period  is  appropriate.   Capitalized   product
development costs totaled approximately $798,000,  $112,000 and $159,000 for the
years ended March 31, 2001, 2000 and 1999, respectively.

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.

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

     Earnings per share are computed using the basic and diluted calculations on
the face of the statement of operations.  Basic earnings per share is calculated
by dividing net income (loss) by the weighted average number of shares of common
stock  outstanding for the period.  Diluted  earnings per share is calculated by
dividing  net income by the  weighted  average  number of shares of common stock
outstanding  for the period,  adjusted for the  dilutive  effect of common stock
equivalents,  using the  treasury  stock  method (see Note 16). All earnings per
share amounts have been  retroactively  adjusted for the 1 for 2.5 reverse stock
split.


<PAGE>
                                       25


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 15).

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 sell,  except for assets that
are  related to  discontinued  operations,  which are  reported  at the lower of
carrying value or net  realizable  value.  There were no impairment  losses from
continuing  operations  recognized in 2001,  2000 and 1999. In conjunction  with
discontinued  operations (see Note 3), there were valuation  adjustments made in
1999.

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

     The carrying  amounts of cash,  receivables,  accounts  payable and accrued
liabilities  approximate  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.

Recent Accounting Pronouncements
--------------------------------

     In  December  1999,  the SEC issued  Staff  Accounting  Bulletin  No.  101,
"Revenue  Recognition in Financial  Statements"  ("SAB 101"). SAB 101 summarizes
the SEC's views in applying  generally  accepted  accounting  principles  in the
United States of America to revenue recognition.  The adoption of SAB 101 had no
impact on the Company's operating results or financial position.


NOTE 3 - DISCONTINUED OPERATIONS

     During  fiscal  2000,  the Company  implemented  a strategy of focusing its
resources in its core business,  MTS  Packaging,  and divesting of the other two
business segments it historically operated.


<PAGE>
                                       26


     In May 1999, the Company sold LifeServ, its Health Care Information Systems
business segment. The Asset Acquisition Agreement provided,  among other things,
for  the  buyer  to  receive   substantially  all  the  assets  of  LifeServ  in
consideration  of the assumption of certain stated  liabilities of approximately
$5 million. Revenue from the operations of LifeServ during fiscal 2001, 2000 and
1999 were $0, $454,000 and $5.2 million respectively. The operations of LifeServ
during  fiscal 2000 resulted in a loss of  approximately  $524,000 and a gain on
disposal of $1.8 million.

     In January 2000, the Company sold the principal assets of MTL. MTL received
$1,000,000 for the assets that were comprised of equipment, goodwill and certain
accounts receivable.  In addition,  the buyer assumed approximately  $400,000 in
liabilities of MTL.  Revenue from the operations of MTL during fiscal 2001, 2000
and 1999 were $0, $7.9 million and $14.0 million respectively. The operations of
MTL during fiscal 2000  resulted in a loss of  $2,225,000 of which  $500,000 was
estimated  and  recorded  in fiscal  1999.  In  addition,  a gain on disposal of
$399,000  was  realized  in  fiscal  2000  and a gain  on  debt  forgiveness  of
$1,249,000  was  realized  as a result of  settlements  that were  reached  with
several  creditors  of MTL.  In fiscal  1999,  the  Company  estimated  that the
disposal of MTL would  result in a loss of  $2,500,000  and recorded a charge in
that  amount.  During the second  quarter  of fiscal  2000,  a buyer for MTL was
identified  and the business was sold during the fourth  quarter of fiscal 2000.
The length of time that elapsed  between the date that the buyer was  identified
and the  date the sale  concluded  resulted  in a loss  from  operations  of the
business in fiscal 2000 that was greater than the loss from  operations that was
estimated in fiscal 1999.  However,  the terms of the sale of the business  were
more favorable than the Company estimated in fiscal 1999.

     Certain  accounts  receivable  of MTL were not sold in  January  2000.  The
operations of MTL during  fiscal 2001 were  confined to the  collection of these
accounts receivable.  The Company estimated the realizable value of the accounts
receivable at the end of fiscal 2000 to be  $1,000,000.  Since the date of sale,
approximately  $431,000 of accounts  receivable were collected.  The proceeds of
the  collection  of accounts  receivable  were used to pay the  ongoing  cost of
collection and to fund  settlements  with creditors of MTL.  During fiscal 2001,
the  Company  determined  that the cost of  collecting  the  remaining  accounts
receivable  could  equal  or  exceed  the  amount   collected,   and  therefore,
discontinued  its  collection  efforts  and reduced  the  carrying  value of the
accounts receivable to $0.

     The carrying  value of the net assets of  discontinued  operations at March
31, 2001 and 2000 are comprised of the following.

<TABLE>
<CAPTION>
                                           LifeServ                     MTL                  Total Discontinued
                                                                                                 Operations
                                   ------------------------   ------------------------    ------------------------
                                      2001          2000         2001          2000          2001          2000
                                   ----------    ----------   -----------   ----------    ----------    ---------
<S>                                <C>           <C>           <C>          <C>           <C>           <C>
 Current Assets                    $     0       $     0       $     1      $ 1,078       $     1       $ 1,078
 Other Assets                            0             0             0            0             0             0
                                   ----------    ----------   -----------   ----------    ----------    ----------
Total Assets                       $     0       $     0       $     1      $ 1,078       $     1       $ 1,078
                                   ----------    ----------   -----------   ----------    ----------    ----------

 Current Liabilities               $     0       $     0       $   642      $ 1,509       $   642       $ 1,509
 Long-Term Liabilities                   0             0             0          174             0           174
                                   ----------    ----------   -----------   ----------    ----------    ----------
 Total Liabilities                 $     0       $     0       $   642      $ 1,683       $   642       $ 1,683
                                   ----------    ----------   -----------   ----------    ----------    ----------

 Net   Assets    (Liabilities)
 of    Discontinued Operations     $     0       $     0       $  (641)     $  (605)      $  (641)      $  (605)
                                   ==========    ==========    ==========   ==========    ===========   ==========

</TABLE>


     The  liabilities  of MTL at March 31, 2001 are comprised of trade  accounts
payable,  accrued state taxes and  approximately  $140,000 of other  liabilities
that have been guaranteed by the Company.

     Certain  liabilities of MTL were compromised during fiscal 2001 as a result
of settlements reached with creditors.  In addition, the Company determined that
certain liabilities were not payable, and therefore,  reduced the carrying value
of them to 0.


<PAGE>
                                       27


NOTE 4 - ACCOUNTS RECEIVABLE

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

         Accounts Receivable consist of the following:

<TABLE>
<CAPTION>
                                                                           March 31,         March 31,
                                                                             2001               2000
                                                                        --------------    ---------------
                                                                                  (In Thousands)
                 <S>                                                    <C>               <C>
                 Accounts Receivable                                    $    2,857        $      2,875
                 Less:  Allowance for Doubtful Accounts                       (290)               (274)
                                                                        -------------     --------------
                                                                        $    2,567        $      2,601
                                                                        =============     ==============
</TABLE>


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

     The  geographic  sales of the Company are  primarily in the United  States.
There were 2, 1 and 2 customer(s)  whose sales exceeded 10% of revenue for 2001,
2000 and 1999 respectively.


NOTE 5 - INVENTORIES

     Inventories consist of the following:

<TABLE>
<CAPTION>
                                                                           March 31,         March 31,
                                                                             2001               2000
                                                                        --------------    ---------------
                                                                                  (In Thousands)
                 <S>                                                    <C>               <C>
                 Raw Material                                           $     1,019       $        967
                 Finished Goods and Work in Process                           1,298              1,103
                 Less:  Inventory Valuation Allowance                          (40)               (40)
                                                                        -------------     --------------
                                                                        $     2,277       $      2,030
                                                                        =============     ==============
</TABLE>

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


NOTE 6 - PROPERTY AND EQUIPMENT

     Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                                           March 31,         March 31,
                                                                             2001               2000
                                                                        --------------    ---------------
                                                                                  (In Thousands)
                 <S>                                                    <C>               <C>
                 Property and Equipment                                 $     7,328       $      6,374
                 Leasehold Improvements                                         453                344
                                                                        -------------     --------------
                                                                              7,781              6,718
                 Less: Accumulated Depreciation and Amortization             (5,431)            (4,814)
                                                                        -------------
                                                                                          --------------
                                                                        $     2,350       $      1,904
                                                                        =============     ==============
</TABLE>


     Substantially  all of the  Company's  property and equipment are pledged as
collateral on bank notes.


<PAGE>
                                       28


     Depreciation  of property  and  equipment  and  amortization  of  leasehold
improvements  total  approximately  $617,000,  $684,000  and $723,000 for fiscal
years ending March 31, 2001, 2000 and 1999 respectively.


NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

     Accounts payable and accrued liabilities are comprised of the following:

<TABLE>
<CAPTION>
                                                                          March 31,          March 31,
                                                                             2001               2000
                                                                       ---------------    ---------------
                                                                                 (In Thousands)
              <S>                                                      <C>                <C>
              Accounts Payable/Trade                                   $      1,580       $      1,178
              Accrued Liabilities:
                  Salaries, Commissions and Employee Benefits                   696                418
                   Medical Claims                                               107                 71
                   Interest                                                      83                 91
                   State Taxes                                                   50                 70
                   Royalties                                                    382                307
                                                                       --------------     --------------
                                                                       $      2,898       $      2,135
                                                                       ==============     ==============
</TABLE>


NOTE 8 - OTHER ASSETS

     Other assets consists of the following:

<TABLE>
<CAPTION>
                                                                          March 31,          March 31,
                                                                             2001               2000
                                                                       ---------------    ---------------
                                                                                 (In Thousands)
                 <S>                                                   <C>                <C>

                 Product Development                                   $      1,349       $        551
                     Less:  Accumulated Amortization                           (237)              (152)
                                                                       --------------     --------------
                                                                       $      1,112       $        399
                                                                       --------------     --------------

                 Patents                                               $      1,160       $      1,109
                     Less:  Accumulated Amortization                           (643)              (561)
                                                                       --------------     --------------
                                                                       $        517       $        548
                                                                       --------------     --------------

                 Other                                                          183                143
                      Less:  Accumulated Amortization                           (40)               (17)
                                                                       --------------     --------------
                                                                       $        143       $        126
                                                                       --------------     --------------

                 Total Other Assets, Net                               $      1,772       $      1,073
                                                                       ==============     ==============
</TABLE>

     Expenditures  for  product  development  in the fiscal year ended March 31,
2001  were  primarily   dedicated  to  the  development  of  the  Company's  new
OnDemand(TM) machine. The Company has expended approximately $530,000 to date on
the development of the OnDemand machine.

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


<PAGE>
                                       29



<PAGE>


NOTE 9 - LONG-TERM DEBT

         Long-term debt related to continuing operations consists of the
following:

<TABLE>
<CAPTION>
                                                                                      March 31,         March 31,
                                                                                         2001             2000
                                                                                    -------------    --------------
                                                                                             (In Thousands)
  <S>                                                                               <C>              <C>
  Bank Term Loan; payable in installments of interest at 7.5% and principal
    monthly for ten years ending September 1, 2006, with a lump sum payment of
    approximately $7.2 million on that date secured by all tangible and
    intangible assets of the Company.                                                $  12,406       $    13,376

  Unsecured Notes Payable plus interest at 18% through December 2000.                        0               150

  Unsecured Notes Payable due September 2001 plus interest at 13%.                          45               142

  Unsecured Note Payable plus interest at 3%, payable in monthly  installments
    of $2,394 through September 2006.                                                      146               169

  Unsecured Note Payable under settlement agreement with State of Florida
    Department of Revenue, payable in monthly installments of $2,500-$3,500
    over a period of four to eight years.                                                  219               260

   Other Notes and  Agreements;  interest and  principal  payable  monthly and
    annually at various amounts through March 2001.                                         34                66
                                                                                    ------------     -------------
  Total Long -Term Debt                                                                 12,850            14,163
  Less Current Portion                                                                    (963)           (1,052)
                                                                                    ------------     -------------
  LONG-TERM DEBT DUE AFTER 1 YEAR                                                    $  11,887       $    13,111
                                                                                    ============     =============
</TABLE>


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

     On July 6,  2000 the bank  and the  Company  agreed  to  certain  financial
covenant  modifications  and a  modification  to the  excess  cash flow  payment
formula  contained  in the  provisions  of the  loan  agreement.  The  financial
covenants  prohibit the Company from  exceeding a maximum  deficit net worth and
provide for limits on annual capital  expenditures and officers  compensation as
well as the maintenance of certain  financial  ratios.  In addition,  payment of
dividends is subject to the prior approval by the Company's secured lender.  The
Company is in compliance with all financial covenants at March 31, 2001.

     In October  1998,  the Company  borrowed  $200,000  from an  individual  to
support the  operations  of MTL.  The terms and  conditions  of this  obligation
included repayment on September 1, 1999 including interest at 12% per annum. The
notes  provide the lenders  with  warrants to purchase  47,000  shares of common
stock of the Company at $1.88 per share for a period of ten (10) years. The fair
value assigned to the warrants is insignificant.  The obligation matured without
repayment,  and the Company and the lender  agreed to a repayment  schedule with
monthly  installments  commencing  in October 1999 and ending in September  2001
including  interest  at 13%.  In the  event  that the  Company  defaults  on its
obligations  under the  promissory  note,  the  lender is  entitled  to  receive
warrants to purchase up to 320,000 and 7,200  shares of common stock at $.13 and
$1.88 per share, respectively,  for a period of ten (10) years. In addition, the
note is secured by 116,125  shares of the  Company's  common  stock owned by the
Chairman and C.E.O.


<PAGE>
                                       30



     The following is a schedule by year of the principal  payments  required on
these notes payable and long-term debts as of March 31, 2001:

                                 (In Thousands)
             2002......................................... $   963
             2003......................................... $   930
             2004......................................... $   992
             2005......................................... $ 1,066
             2006......................................... $ 1,144
             Thereafter................................... $ 7,755

     Interest  expense from  continuing  operations for the years 2001, 2000 and
1999 amounted to $981,000, $1,159,000 and $1,158,000 respectively.


NOTE 10 - 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, 2001.

                                 (In Thousands)
             2002......................................... $   417
             2003......................................... $   431
             2004......................................... $   441
             2005......................................... $   401
             2006......................................... $   101
             Thereafter................................... $     0

     Rent  expense  amounted to  $350,000,  $312,000  and $311,000 for the years
ended March 31, 2001, 2000 and 1999, respectively.


NOTE 11 - 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, 2001,
2000  and  1999,   the  Company   contributed   $16,000,   $19,000  and  $22,000
respectively, to the plan.


NOTE 12 - SELF INSURANCE PLAN

     The Company has a Medical Health Benefit  Self-insurance Plan, which covers
substantially  all of its  employees.  During the year ended March 31, 2001, the
Company was reinsured for claims that exceed $20,000 per  participant and has an
annual maximum aggregate limit of approximately $300,000. Reinsurance limits for
subsequent fiscal years may change based upon future claims.


NOTE 13 - 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.


<PAGE>
                                       31


     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,  $50,000 and $51,000 in the years
ended March 31, 2001, 2000 and 1999, respectively.  Accrued royalty payments due
as of March 31, 2001, 2000 and 1999 total  approximately  $382,000,  266,000 and
$175,000, respectively.

     Siegel,  through his beneficial  interest in the Trust, owns  approximately
forty percent (43%) of the outstanding Common Stock of the Company.

     During fiscal year 1999, the Company borrowed  $100,000 from Siegel to fund
the operations of MTL. The loan was repaid  according to its terms during fiscal
year 2001.


NOTE 14 - TAXES

     The components of income tax expense  (benefit) from continuing  operations
is as follows:

<TABLE>
<CAPTION>
                                                                             Years Ended March 31,
                                                              --------------------------------------------------
                                                                   2001              2000               1999
                                                              -------------     --------------     -------------
                                                                                (In Thousands)
         <S>                                                  <C>               <C>                <C>

         Current Income Taxes                                 $        0        $         0        $        0

         Deferred Income Taxes                                       632                  0               125

         Change in Deferred Tax Valuation Allowance               (6,202)                 0                 0
                                                              ------------      -------------      ------------

         Income Tax Expense (Benefit)                         $     5,570       $         0        $      125
                                                              ============      =============      ============
</TABLE>


     In 1999, income tax expense and benefit of equal and offsetting  amounts of
$125,000 were allocated to continuing and discontinued operations, respectively.


     Total income tax (benefit)  expense for 2001, 2000 and 1999 from continuing
operations  resulted  in  effective  tax  rates  of  (271.6%),   0%  and  37.5%,
respectively.  The reasons for the differences between these effective tax rates
and the U.S.  statutory rate of 34.0%-35.0% on the continuing  operations are as
follows:

<TABLE>
<CAPTION>
                                                                           Years Ended March 31,
                                                            ---------------------------------------------------
                                                                 2001               2000              1999
                                                            --------------    ---------------    --------------
                                                                               (In Thousands)
   <S>                                                      <C>                <C>               <C>
   Tax Expense at U.S. statutory rate                       $       697       $        413       $       117
   State Income Tax, Net                                             72                 42                 8
   Net Operating Loss Carryforward                                 (769)              (455)                0
   Net Deferred Tax Asset Recognized                             (5,570)                 0                 0
                                                            -------------     --------------     -------------
                                                            $    (5,570)      $          0       $       125
                                                            =============     ==============     =============
</TABLE>



<PAGE>
                                       32


     Deferred taxes for continuing operations consist of the following:

<TABLE>
<CAPTION>
                                                                           March 31, 2001         March 31, 2000
                                                                         -----------------      -----------------
                                                                                        (In Thousands)
      <S>                                                                <C>                    <C>
      Deferred Tax Assets:
        Depreciation/Amortization Temporary Difference                   $         (188)        $         (140)
        Allowance for Doubtful Accounts                                             108                  1,471
        Inventory Valuation Allowance                                                15                     15
        Tax Loss Carry Forward                                                    5,225                  4,638
        Reserves and Provisions                                                     410                    218
                                                                         ----------------       ----------------
        Gross Deferred Tax Asset                                                  5,570                  6,202
                                                                         ----------------       ----------------
        Less Valuation Allowance                                                      0                 (6,202)
                                                                         ----------------       ----------------
        Deferred Income Taxes                                            $        5,570         $            0
                                                                         ================       ================
</TABLE>


     The  Company's  deferred  tax asset at March 31, 2001 is broken down to its
current and long-term portions as follows:

                            Current               $     1,085,000
                            Long-Term                   4,485,000
                                                  ----------------
                                                   $    5,570,000
                                                  ================

     Deferred  tax  assets of  approximately  $1,368,000  previously  related to
discontinued  operations  pertaining to the allowance for doubtful accounts have
been reclassified to continuing  operations' deferred tax assets effective March
31, 2000.

     During previous years, the Company had provided a 100% valuation  allowance
on its net  deferred  tax  asset  as it was not  more  likely  than not that the
related  income tax benefit would be realized in the future.  During the quarter
ended December 31, 2000, the Company  removed its valuation  allowance,  thereby
recording an income tax benefit of  $5,719,000  as the Company now believes that
it is more likely than not that these  income tax  benefits  will be realized in
the future based in part on (1) the historical profitable operations of its core
business;   (2)  expectations  that  its  core  business  will  continue  to  be
profitable;  (3) growth opportunities  available for its core business;  and (4)
the length of time that the net operating  loss  carryforwards  are available to
offset future taxable income.  The income tax benefit is comprised  primarily of
net operating  loss  carryforwards  that are available to offset future  taxable
income. The carryforward  losses expire beginning in fiscal year 2011 and ending
in fiscal year 2020.

     In order for the Company to fully utilize the benefits of its net operating
loss  carryforwards  in the future,  its average  annual taxable income would be
approximately  $280,000 through the fiscal year ending 2020. During fiscal years
2001 and 2002, the Company's  taxable income,  exclusive of net operating losses
and the effects of discontinued operations, was approximately $1,500,000.



<PAGE>
                                       33


NOTE 15 - STOCKHOLDERS' EQUITY (DEFICIT)

     Stockholders' Equity (Deficit) consists of the following:

<TABLE>
<CAPTION>
                                                       March 31,             March 31,            March 31,
                                                         2001                  2000                  1999
                                                   ----------------      ----------------     -----------------
      <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                                        0             6,500,000             6,500,000
          Outstanding Shares                                   0             6,500,000             6,500,000

      Common Stock (Retroactively adjusted for 1 for 2.5 reverse stock split):

          Par Value $.01 Per Share
          Authorized Shares                           25,000,000            25,000,000            25,000,000
          Outstanding Shares                           4,198,148             2,598,168             2,543,596
          Issued Shares                                4,217,028             2,617,048             2,562,475
</TABLE>



Common Stock

     During fiscal 2001, the Company exchanged  4,000,000 shares of common stock
for 6,500,000 shares of voting preferred stock and also effected a reverse stock
split of 1 share of common  stock  for 2.5  shares  of  common  stock  after the
exchange of common for preferred stock.

     During fiscal 2000,  the Company issued 20,000 shares of common stock to an
officer and director in lieu of cash compensation of $4,750 and 18,536 shares of
common stock to outside directors in lieu of cash compensation of $18,500 earned
for attendance at meetings of the Board of Directors.  In addition,  the Company
issued 16,000 shares of common stock to two individuals pursuant to an agreement
to redeem the minority  interest  held by these  individuals  in a subsidiary of
LifeServ.

Preferred Stock

     The JADE Family  Partnership  ("Partnership")  was 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 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 had 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 was 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 was entitled to no additional  amounts upon  dissolution or liquidation of
the  Company.  The Voting  Preferred  Stock had no dividend  rights,  redemption
provisions,  sinking  fund  provisions  or  conversion,  preemptive  or exchange
rights.  The  Voting  Preferred  Stock  was not  subject  to  further  calls  or
assessments by the Company.


<PAGE>
                                       34


     In December 2000, the Siegel Family Limited Partnership exchanged 6,500,000
shares of voting  preferred  stock for  4,000,000  shares of common stock of the
Company.  The exchange of preferred for common shares was approved by the common
shareholders of 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  (retroactively
adjusted for the 1 for 2.5 reverse stock split):


<TABLE>
<CAPTION>
                                                                       2001             2000            1999
                                                                   ------------     ------------    ------------
<S>                                                                <C>              <C>             <C>
Net Income (Loss)                        As Reported               $   7,394        $   2,499       $  (5,487)
                                         ProForma                  $   7,376        $   2,470       $  (5,589)

Earnings (Loss) Per Common Share         Basic As Reported         $    2.38        $    0.97       $  (2.19)
                                         Basic ProForma            $    2.37        $    0.96       $  (2.24)

Earnings (Loss) Per Common Share         Diluted As Reported       $    2.36        $    0.97       $  (2.19)
                                         Diluted ProForma          $    2.36        $    0.96       $  (2.24)
</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 2001,  2000 and 1999  respectively,  no dividend
yield for all years, expected volatility of 133, 130 and 148 percent;  risk-free
interest rates of 6.1, 6.3 and 5.10 percent,  and expected lives of 3.0, 3.0 and
4.0 years.

     Activity related to options is as follows (Retroactively adjusted for 1 for
2.5 reverse stock split):

<TABLE>
<CAPTION>
                                                                                            Weighted Average
                                                               Number of Shares                 Exercise
                                                                                             Price per Share
                                                             --------------------         --------------------
         <S>                                                 <C>                          <C>

         Outstanding at March 31, 1998                              623,248                      $3.28
               Granted in Fiscal 1998:
               Officers and Directors                                 8,800                      $1.88
               Employees                                             46,000                      $2.50
               Options Expired                                      (47,075)                     $4.43
                                                             --------------------         --------------------

         Outstanding at March 31, 1999                              630,973                      $3.13
               Granted in Fiscal 2000:
               Officers and Directors                                 4,800                      $2.50
               Employees                                                  0                         $0
               Options Expired                                     (199,266)                     $2.63
                                                             --------------------         --------------------

         Outstanding at March 31, 2000                              436,507                      $3.35
               Granted in Fiscal 2001:
               Officers and Directors                               120,000                      $1.88
               Employees                                                  0                          0
               Options Expired                                      (53,301)                     $2.84
                                                             --------------------         --------------------

         Outstanding at March 31, 2001                              503,206                      $3.05
                                                             ====================         ====================
</TABLE>



<PAGE>
                                       35


<TABLE>
<CAPTION>
Outstanding Shares

                                                                  Weighted Average
                Range of                     Number             Remaining Contractual       Weighted Average
             Exercise Prices              Outstanding                   Life                 Exercise Price
                                                                       (Years)
        ------------------------      -------------------      ----------------------     --------------------
<S>     <C>                           <C>                       <C>                       <C>
              $1.63 -   $2.50               396,458                     6.9                       $2.30
               $4.08 - $10.00                96,100                     2.6                       $4.42
              $15.00 - $25.00                10,648                     2.7                      $18.93

Exercisable Shares
                                                                  Weighted Average
                Range of                     Number             Remaining Contractual       Weighted Average
             Exercise Prices              Outstanding                   Life                 Exercise Price
                                                                       (Years)
        ------------------------      -------------------      ----------------------     --------------------

              $1.63 -   $2.50               316,458                     6.4                       $2.42
               $4.08 - $10.00                96,100                     2.6                       $4.42
              $15.00 - $25.00                10,648                     2.7                      $18.93
</TABLE>


     The  options  outstanding  at  March  31,  2001  expire  on  various  dates
commencing in September 2001 and ending in March 2011.

     The weighted  average  grant date fair value of options  during fiscal year
2001, 2000 and 1999 was $.52, $.33, and $.28 respectively.

     At March 31, 2000 and 1999, exercisable options totaled 367,766 and 466,839
at weighted average exercise prices of $3.51 and $3.32, respectively.


  Warrants

       Activity related to warrants is as follows (Retroactively adjusted for 1
       for 2.5 reverse stock split):

<TABLE>
<CAPTION>
                                                                      Number of Shares         Weighted Average
                                                                                                Price Per Share
                                                                    --------------------      ------------------
            <S>                                                     <C>                       <C>
            Outstanding at March 31, 1999                                  611,600                 $15.38
            Granted in Fiscal 2000                                          17,000                  $1.15
                                                                    --------------------      ------------------
            Outstanding at March 31, 2000                                  628,600                 $15.00

            Granted in Fiscal 2001                                         105,000                  $1.05
            Warrants Expired                                             (528,000)                 $17.52
                                                                    --------------------      ------------------
            Outstanding at March 31, 2001                                  205,600                  $1.37
                                                                    ====================      ==================
</TABLE>

     The  warrants  expire on various  dates  commencing  September  2001 ending
August 2009.



<PAGE>
                                       36


     The weighted  average grant date fair value of warrants  during fiscal year
2001 and 2000 was $.90 and $.10 respectively.

     Other
     -----

     During  fiscal year 2001,  the Company  entered  into a financial  advisory
agreement  with  National  Securities  Corporation  ("NSC").  The  terms  of the
agreement  provided for the  issuance of 105,000  warrants to NSC as part of the
compensation  for their  services.  The warrants are  exercisable  at an average
price of $1.00 and expire in 2006.  In addition,  NSC may receive an  additional
40,000  warrants  exercisable  at $.85 per share based upon the  achievement  of
certain objectives  regarding the listing of the Company on a stock exchange and
an additional  125,000  warrants  exercisable at $1.50 based upon the successful
completion of financing transactions.

     The Company  entered into a stock  appreciation  rights  agreement with its
Chief Executive Officer in 1995. 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  expense for the years ended March 31,  2001,  2000 and
1999 totaled $131,000, $27,000 and $0 respectively.


NOTE 16 - EARNINGS PER SHARE

     Income from continuing  operations per common share is computed by dividing
income from  continuing  operations  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.  The number of
shares  outstanding  have been  retroactively  adjusted  for the 1 share for 2.5
shares reverse stock split that occurred in December 2000.

     The following  table sets forth the  computation of income from  continuing
operations per basic and diluted common share:

<TABLE>
<CAPTION>
                                                          Year Ended March     Year Ended March     Year Ended March
                                                              31, 2001             31, 2000             31, 1999
                                                          ----------------     ----------------     ----------------
<S>                                                       <C>                  <C>                  <C>
Numerator:
   Income from Continuing Operations                      $   7,621,000        $   1,214,000        $     208,000
                                                          ===============      ===============      ===============

Denominator:
    Weighted average shares outstanding - Basic               3,112,000            2,579,000            2,493,000
    Add: Effect of dilutive warrants                             18,000                    0                    0
                                                          ----------------     ----------------     ----------------
    Weighted average shares outstanding - Diluted             3,130,000            2,579,000            2,493,000
                                                          ===============      ===============      ===============

Income from Continuing Operations Per Common Share
- Basic                                                   $        2.45        $         .47        $         .08
                                                          ===============      ===============      ===============

Income from Continuing Operations per Common Share
- Diluted                                                 $        2.43        $         .47        $         .08
                                                          ===============      ===============      ===============
</TABLE>


     The  effect of  239,806  options  and  warrants  were not  included  in the
calculation  of net income per diluted common share for 2001 as the effect would
have been  anti-dilutive.  The effect of all options and warrants  (see Note 15)
for 2000 and 1999 were not included in the calculation of income from continuing
operations per diluted common share as the effect would have been anti-dilutive.


<PAGE>
                                       37



NOTE 17 - CONTINGENCIES

     The Company sold the assets of subsidiaries  LifeServ and MTL during fiscal
2000 (See Note 3). The buyers assumed certain  liabilities of these subsidiaries
including a certain long-term obligation of approximately  $520,000 payable to a
financial institution and secured by equipment at a customer site and a contract
receivable.  The  Company  was a  guarantor  of the  obligation  at the time the
obligation originated and continues as a guarantor.

     In November 1998, MTL, a discontinued operation,  received a refund request
in the amount of $1.8 million from  Medicare  Program  Safeguards  ("MPS").  MTL
disputed the refund  request in its response to MPS in December  1998.  To date,
MTL has not received any further correspondence from MPS regarding this matter.

     Certain creditors of LifeServ have commenced legal actions against LifeServ
seeking  payment of liabilities  assumed by the buyers of LifeServ.  The Company
intends to vigorously  defend these actions and seek  appropriate  remedies from
the buyers.

     The Company is involved in certain claims and legal actions  arising in the
ordinary course of business  including the matters referred to above.  There can
be no assurances that these matters will be resolved on terms  acceptable to the
Company.  In the  opinion  of  management,  based  upon  advice of  counsel  and
consideration  of all facts available at this time, the ultimate  disposition of
these  matters  are  not  expected  to have a  material  adverse  effect  on the
financial position, results of operations or liquidity of the Company.


NOTE 18 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                                                  2001          2000         1999
                                                                               ----------    ----------   ----------
<S>                                                                            <C>           <C>          <C>
Supplemental Disclosure of Cash flow Information

   Cash Paid for Interest                                                      $     989     $   1,159    $   1,153

   Cash Paid for Income Taxes                                                          0             0            0

Supplemental Cash Flow Information for Discontinued Operations

   Operating Activities:
     Net Cash Provided (Used) by Discontinued Operations                             230           400         (477)

   Investing Activities
   Net Cash Provided (Used) by Investing Activities of Discontinued
     Operations                                                                       0             90       (1,527)

Financing Activities:
   Net Cash Provided (Used) by Financing Activities of Discontinued
     Operations                                                                    (305)          (475)       2,207
                                                                               ----------    ----------   ----------
   Net Increase (Decrease) in Cash - Discontinued Operations                        (75)            15          203
   Cash at Beginning of Period - Discontinued Operations                             76             61         (142)
                                                                               ----------    ----------   ----------
   Cash at End of Period - Discontinued Operations                             $      1      $     76     $      61
                                                                               ==========    ==========   ==========
</TABLE>


     Other non-cash investing and financing activities are as follows:

<PAGE>
                                       38



Continuing Operations
---------------------

     During  fiscal  year  2000,  the  Company  recorded  a  prior  year  equity
transaction  that was deemed  insignificant  pertaining  to the  forgiveness  of
$25,000 of debt to a former  officer of the Company in exchange  for a reduction
in the exercise price of options  previously granted to him from $4.00 and $1.63
per option to $1.00 per option.  The new  exercise  price was  greater  than the
market  price of the  Company's  common  stock at that time.  In  addition,  the
Company  issued common stock in exchange for an accrued  liability  reduction of
$15,000 and transferred approximately $90,000 of other assets to fixed assets.

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

     During fiscal year 1999,  the Company  acquired  certain assets of CCL (See
Note 16) in exchange for a contingent  note valued at $1,058,000  and assumption
of a capital lease  obligations  valued at $151,000.  The assets  acquired had a
fair value of $1,209,000.

     See  Notes  1  and  3  for  fiscal  2000  and  1999   forgiveness  of  debt
(extraordinary gain) and gain on disposal of discontinued operations.


NOTE 19 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

     The information set forth below  represents  unaudited  selected  quarterly
financial data for the fiscal years ended March 31, 2001 and 2000.

<TABLE>
<CAPTION>
                                                                          FOR THE THREE MONTHS ENDED
                                                        -------------------------------------------------------------
                                                              (In Thousands, Except Earnings Per Share Amounts)

                                                          June 30,        September 30,   December 31,     March 31,
                                                            2000             2000             2000           2001
                                                        ------------     ------------    ------------    ------------
<S>                                                     <C>              <C>             <C>             <C>
Income Statement Data:

Net Sales                                               $     4,679      $     4,850     $     5,073     $     5,551
Gross Profit                                                  1,986            2,131           2,488           2,362
Income (Loss) from Continuing Operations
   Before Income Taxes and Discontinued Operations              374              467             652             558
Income Tax Benefit (Expense)                                      0                0           5,719           (149)
Income (Loss) from Discontinued Operations                       29              (7)           (212)            (37)
                                                        -------------    -------------   -------------   -------------
Net Income (Loss)                                       $       403      $       460     $     6,159     $       372
                                                        =============    =============   =============   =============

Net Earnings (Loss) Per Basic and Diluted Common
   Share:  (Retroactively adjusted for the 1 for 2.5
     reverse stock split in December 2000)
From Continuing Operations                              $      0.14      $      0.18     $      2.11     $      0.10
Income (Loss) from Discontinued Operations                     0.01             0.00          (0.07)          (0.01)
                                                        -------------    -------------   -------------   -------------
Net Earnings (Loss) Per Basic and Diluted Common
   Share                                                $      0.15      $      0.18     $      2.04     $      0.09
                                                        =============    =============   =============   =============
</TABLE>



<PAGE>
                                       39

<TABLE>
<CAPTION>
                                                                          FOR THE THREE MONTHS ENDED
                                                         -------------------------------------------------------------
                                                              (In Thousands, Except Earnings Per Share Amounts)

                                                          June 30,        September 30,   December 31,     March 31,
                                                            1999             1999             1999           2001
                                                         ------------     ------------    ------------    ------------
<S>                                                      <C>              <C>             <C>             <C>
Income Statement Data:

Net Sales                                                $    3,836       $    4,231      $    4,213      $    4,701
Gross Profit                                                  1,760            2,064           2,044           1,943
Income (Loss) from Continuing Operations
   Before Income Taxes and Discontinued Operations
     and Extraordinary Gain                                      51              362             322             479
(Loss) from Discontinued Operations                           (524)            (572)            (24)         (1,065)
Gain on Forgiveness of Debt of Discontinued
Operations                                                    1,822                0               0             399
                                                         -----------      -----------     -----------     -----------
Gain (Loss) on Disposal of Discontinued Operations       $    1,349       $    (210)      $      298      $    1,062
                                                         ===========      ===========     ===========     ===========
Net Income (Loss)
Net Earnings (Loss) Per Basic and Diluted Common
   Share:  (Retroactively adjusted for the 1 for 2.5
     reverse stock split in December 2000)
From Continuing Operations                               $     0.02       $     0.14      $     0.13      $     0.18
Income (Loss) from Discontinued Operations                     0.51           (0.22)          (0.01)            0.23
                                                         -----------      -----------     -----------     -----------
Net Earnings (Loss) Per Basic and Diluted Common
   Share                                                 $     0.53       $   (0.08)      $     0.12      $     0.41
                                                         ===========      ===========     ===========     ===========
</TABLE>


<PAGE>
                                       40


                                   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: June 28, 2001                     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,    June 28, 2001
 -----------------------    President and Chief Executive Officer
  Todd E. Siegel


 /s David W. Kazarian       Director                               June 28, 2001
 -----------------------
 David W. Kazarian


 /s Michael P. Conroy       Director, Chief Financial Officer      June 28, 2001
 -----------------------    and Vice President
 Michael P. Conroy


 /s John Stanton           Director and Vice Chairman of the       June 28, 2001
------------------------   Board of Directors
 John Stanton


 /s Mark J. Connolly       Principal Accounting Officer            June 28, 2001
-----------------------    and Controller
 Mark J. Connolly



<PAGE>
                                       41



              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 20, 2001,  which is included in the  Company's  Annual  Report on SEC
Form 10-K as of and for the year  ended  March 31,  2001,  we have also  audited
Schedule II for the years ended March 31, 2001,  2000 and 1999.  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 20, 2001


<PAGE>

                                                                    SCHEDULE II


                MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES

                        VALUATION AND QUALIFYING ACCOUNTS
                For the Years Ended March 31, 1999, 2000 AND 2001

<TABLE>
<CAPTION>
                Column A                           Column B             Column C             Column D             Column E
-----------------------------------------       --------------       --------------       --------------       --------------
                                                  Balance at           Charged to            Accounts            Balance at
                                                 Begining of           Costs and            Written Off,           End of
                                                     Year               Expenses                Net                 Year
                                                --------------       --------------       --------------       --------------
<S>                                             <C>                  <C>                  <C>                  <C>
(1) Deferred Tax Valuation Allowance:

Year Ended March 31, 1999                       $       5,889        $          84        $            0       $        5,805
Year Ended March 31, 2000                       $       5,805        $        (397)       $            0       $        6,202
Year Ended March 31, 2001                       $       6,202        $       6,202        $            0       $            0


(1) Inventory Valuation Allowance:

Year Ended March 31, 1999                       $           0        $         140        $            0       $          140
Year Ended March 31, 2000                       $         140        $         100        $            0       $           40
Year Ended March 31, 2001                       $          40        $           0        $            0       $           40


(1) Self Insured Medical Claims
        Valuation Allowance:

Year Ended March 31, 1999                       $         122        $         566        $          588       $          100
Year Ended March 31, 2000                       $         100        $         297        $          325       $           72
Year Ended March 31, 2001                       $          72        $         210        $          175       $          107


(1) Allowance for Doubtful Accounts
        and Contractual Allowances:

Year Ended March 31, 1999                       $         178        $          58        $           25       $          211
Year Ended March 31, 2000                       $         211        $          67        $            4       $          274
Year Ended March 31, 2001                       $         274        $         120        $          104       $          290


(1) Amounts reflect continuing operations only.

</TABLE>