SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q

(Mark One)


[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities  Exchange
Act of 1934

For the quarterly period ended September 30, 1998 or

[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934

For the transition period from _________________ to _________________

                              0-16594
Commission file number  __________________________________________________

                        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)

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

--------------------------------------------------------------------------------
              (Former Name, Former Address and Former Fiscal Year,
                          if Changed Since last Report)


     Indicate by check mark  whether the  registrant:  (1) has filed all reports
required to be filed by Section 13 0r 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant  was required to file such reports ) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ______


                     APPLICABLE ONLY TO ISSUERS INVOLVED IN
                        BANKRUPTCY PROCEEDINGS DURING THE
                              PRECEDING FIVE YEARS


     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. Yes X No ______



                                      10Q-1



<PAGE>
                                       i

                MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES

                                      Index
                                                                          Page

Part I - Financial Information


Item 1.  Financial Statements

         Consolidated Balance Sheets -
           September 30,1998 and March 31, 1998........................        1


         Consolidated Statements of Operations -
           Three months and six months ended September 30, 1998 and 1997..     2


         Consolidated Statements of Changes in Stockholders' Equity (Deficit) -
           Six months ended September 30, 1998.........................        3


         Consolidated Statements of Cash Flow -
           Six months ended September 30, 1998 and 1997................        4


         Notes to Consolidated Financial Statements....................    5 - 9


Item 2.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations.........................  10 - 14



Part II - Other Information


Item 6.  Exhibits and Reports on Form 8-K..............................       15


          Signature....................................................       15



<PAGE>
                                       1


                MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998


Item 1.  Financial Statements

                         PART I - FINANCIAL INFORMATION

                MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                 (In Thousands)

<TABLE>
<CAPTION>
ASSETS
                                                                             September,                  March 31,
                                                                                1998                       1998
                                                                          -----------------           ----------------
                                                                            (Unaudited)
<S>                                                                    <C>                         <C> 
Current Assets:
          Cash                                                         $               155         $              324
          Accounts Receivable, Net                                                   6,734                      5,277
          Inventories                                                                2,533                      2,481
          Prepaids and Other                                                           405                        206
                                                                       --------------------        -------------------
          Total Current Assets                                                       9,827                      8,288

Property and Equipment, Net                                                          2,821                      3,173

Other Assets, Net                                                                    4,124                      4,301
                                                                       --------------------        -------------------

Total Assets                                                           $            16,772         $           15,762
                                                                       ====================        ===================


                LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
          Current Maturities of Long-Term Debt                         $             1,262         $              625
          Accounts Payable-Trade and Accrued Liabilities                             6,034                      4,811
                                                                       --------------------        -------------------
          Total Current Liabilities                                                  7,296                      5,436

Liabilities Subject to Compromise                                                        0                        826

Long-Term Debt, Less Current Maturities                                             16,064                     15,613
                                                                       --------------------        -------------------
Total Liabilities                                                                   23,360                     21,875
                                                                       --------------------        -------------------

Stockholders' Equity (Deficit):
          Voting Preferred Stock                                                         1                          1
          Common Stock                                                                  62                         62
          Capital in Excess of Par Value                                             8,588                      8,588
          Retained Earnings (Deficit)                                              (14,908)                   (14,433)
          Less: Treasury Stock                                                        (331)                      (331)
                                                                       --------------------        -------------------
          Total Stockholders' Equity (Deficit)                                      (6,588)                    (6,113)
                                                                       --------------------        -------------------

Total Liabilities and Stockholders' Equity                             $            16,772         $           15,762
                                                                       ====================        ===================


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


</TABLE>


<PAGE>
                                       2


                MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                (In Thousands; Except Earnings Per Share Amounts)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                 Three Month Ended                     Six Months Ended
                                                                   September 30,                          September 30,
                                                              1998               1997              1998               1997
                                                          ------------       ------------      ------------       ------------
<S>                                                     <C>                 <C>               <C>               <C>
Revenue:

    Net Sales and Services                               $       8,381      $       5,611     $      15,426     $       10,758

Costs and Expenses:
    Cost of Sales and Services                                   4,615              2,917             8,710              5,802
    Selling, General and Administrative                          3,798              2,414             6,512              4,414
    Depreciation and Amortization                                  363                389               725                747
    Interest, Net                                                  306                283               616                556
                                                         --------------     --------------    --------------    ---------------

            Total Costs and Expenses                             9,082              6,003            16,563             11,519
                                                         --------------     --------------    --------------    ---------------

Loss Before Extraordinary Gain                                    (701)              (392)           (1,137)              (761)

Extraordinary Gain on Forgiveness of Debt                            0                  0               662                  0
                                                         --------------     --------------    --------------    ---------------
                                                            
Net Loss                                                 $        (701)     $        (392)    $        (475)    $         (761)
                                                         ==============     ==============    ==============    ===============

Earnings (Loss) Per Basic and Diluted Common Share:

    Loss Before Extraordinary Gain                       $       (0.11)     $       (0.07)    $       (0.18)    $        (0.13)

    Extraordinary Gain On Debt Forgiveness                        0.00               0.00              0.10               0.00
                                                         --------------     --------------    --------------    ---------------
                                                                                                                    
 Net Loss Per Basic and Diluted Common Share             $       (0.11)     $       (0.07)    $       (0.08)    $        (0.13)
                                                         ==============     ==============    ==============    ===============

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

</TABLE>


<PAGE>
                                       3


                MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                       SIX MONTHS ENDED SEPTEMBER 30, 1998
                        (In Thousands Except Share Data)
                                   (Unaudited)

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

Net Loss for Six Months
   Ended September 30, 1998                                                                 (475)                             (475)
                                    -----------------------------------------------------------------------------------------------

Balance, September 30, 1998          6,129,673    $          62    $       8,588    $    (14,908)   $        (331)   $      (6,589)
                                    ===========   ==============   ==============   =============   ==============   ==============
                               
                                                                 VOTING PREFERRED STOCK
                                    -----------------------------------------------------------------------------------------------
                                      Number           $0001     
                                        of              Par
                                      Shares           Value
                                    -----------     ------------

Balance, March 31, 1998              6,500,000    $           1                                                      $           1
                                    -----------   --------------                                                     --------------

Balance, September 30, 1998          6,500,000    $           1                                                      $           1
                                    -----------   --------------                                                     --------------

Total Stockholders' (Deficit),
   September 30, 1998                                                                                                $      (6,588)

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

</TABLE>

<PAGE>
                                       4

 
                MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOW
                                 (In Thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                                        Six Months Ended
                                                                                          September 30,
                                                                                   1998                   1997    
                                                                               ------------           ------------
<S>                                                                            <C>                    <C>
Operating Activities:

Net Loss                                                                       $     (475)            $     (761)

Adjustments to Reconcile Net Income (Loss) to Net Cash
        Provided (Used) by Operating Activities:
    Depreciation and Amortization                                                     725                    747
    Extraordinary Gain on Debt Forgiveness                                           (662)                     0
    Legal Settlement                                                                  215                      0
    (Increase) Decrease in:
        Accounts Receivable                                                        (1,457)                  (205)
        Inventories                                                                   (52)                  (120)
        Prepaids and Other                                                           (199)                   351
        Loss On Early Retirement of Fixed Assets                                       22                      0
    Increase (Decrease) in:
        Accounts Payable and Other Accrued Liabilities                              1,572                    501
                                                                               ------------           ------------
Total Adjustments                                                                     164                  1,274
                                                                               ------------           ------------
Net Cash Provided (Used) by Operating Activities                                     (311)                   513
                                                                               ------------           ------------

Investing Activities
    Expended for Property and Equipment                                              (201)                  (197)
    Acquisition, Net of Cash Acquired                                                   0                   (195)
    Expended for Product Development                                                 (144)                  (198)
    Expended for Other Assets                                                         (44)                   (79)
                                                                               ------------           ------------
                                                                                    
    Net Cash Used by Investing Activities                                            (389)                  (669)
                                                                               ------------           ------------

Financing Activities
    Payments on Notes Payable, Long-Term Debt                                        (119)                  (216)
    Proceeds from Borrowing on Notes Payable and Long-Term Debt                       650                     51
    Issuance of Common Stock                                                            0                    150
                                                                               ------------           ------------
    Net cash Provided (Used) by Financing Activities                                  531                    (15)
                                                                               ------------           ------------

Net Decrease in Cash                                                                 (169)                  (171)

Cash at Beginning of Period                                                           324                    616
                                                                               ------------           ------------

Cash at End of Period                                                          $      155             $      445
                                                                               ============           ============

Supplemental Disclosure of Cash Flow Information:

    Cash Paid for Interest                                                     $      578             $      393
                                                                               ============           ============

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

</TABLE>


<PAGE>
                                       5


NOTE A - BASIS OF PRESENTATION

         The accompanying  unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted  accounting  principles
for interim  financial  information  and with the  instructions to Form 10-Q and
Article  10 of  Regulation  S-X.  Accordingly,  they do not  include  all of the
information and notes required by generally accepted  accounting  principles for
complete  financial  statements.  In the opinion of management,  all adjustments
(consisting  of  normal  recurring  accruals)  considered  necessary  for a fair
presentation  have been  included.  Operating  results for the six month  period
ended September 30, 1998 are not necessarily  indicative of the results that may
be  expected  for the  year  ended  March  31,  1999.  The  unaudited  condensed
consolidated  financial  statements  should  be read  in  conjunction  with  the
consolidated  financial  statements and notes thereto  included in the Company's
annual report on Form 10-K for the year ended March 31, 1998.


NOTE B - INVENTORIES

         The components of inventory consist of the following:
<TABLE>
<CAPTION>

                                                                   September 30,           March 31,
                                                                        1998                  1998
                                                                  -----------------     -----------------
                                                                              (In Thousands)
                 <S>                                              <C>                   <C>
                 Raw Materials                                    $          575        $          531
                 Finished Goods and Work in Progress                       2,227                 2,219
                 Less:  Inventory Valuation Allowance                       (269)                 (269)
                                                                  ================      ================
                                                                  $        2,533        $        2,481
                                                                  ================      ================
</TABLE>

     Inventories  are  stated  at the  lower of cost  (first-in,  first-out)  or
market.


NOTE C - EARNINGS PER SHARE

     Net income  (loss) per common  share is  computed  by  dividing  net income
(loss) by the  basic and  diluted  weighted  average  number of shares of common
stock outstanding.  For diluted weighted average shares outstanding, the Company
used the Treasury  stock method to calculate the common stock  equivalents  that
stock options would represent.  The effect of all options and warrants werre not
included in the calculation of net income (loss) per diluted common share as the
effect would have been anti-dilutive.


NOTE D - LONG-TERM DEBT

         Long-term debt consists of the following:

<TABLE>
<CAPTION>

                                                                                   September 30,       March 31,
                                                                                       1998               1998
                                                                                  --------------    ---------------
                                                                                          (In Thousands)
      <S>                                                                          <C>              <C>
      Plan Note I;  interest  only at 7.5%  payable  monthly  until  September 1,
          1998;  installments  of interest and  principal  monthly for ten years
          ending  September  1, 2006,  with a lump sum payment of  approximately
          $11.4 million on that date secured by all tangible
          and intangible assets of the Company.                                    $   15,000       $     15,000

</TABLE>


<PAGE>
                                       6


NOTE D - LONG-TERM DEBT (continued)

<TABLE>
<CAPTION>
                                                                                   September 30,       March 31,
                                                                                       1998               1998
                                                                                  --------------    ---------------
                                                                                            (In Thousands) 
      <S>                                                                          <C>              <C>
      Note  Payable;  interest  at 12% payable  $20,026 per month  including
          interest  maturing  September  1, 2002.  Secured by equipment at a
          customer site and the payments from a lease contract receivable.                608                688

      Demand note due October 31, 1998 plus interest at 10%.                              500                  0

      Seller Financing Under Tampa Pathology Acquisition  Agreement,  face value
          of $487,628 discounted at 10%, with variable monthly
          payments until satisfied.                                                       253                234

      Unsecured  Notes  Payable;  interest 12%,  payable  within 6 months of
          borrowing date.                                                                 150                  0

      Unsecured   Note   Payable;   interest  at  3%,   payable  in  monthly
          installments of $2,394 through September 2006.                                  215                  0

     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.                                   290                  0                  

      Other Notes and  Agreements;  interest and principal  payable monthly
          and annual at various amounts through March 2000.                               310                316
                                                                                  ------------      -------------
      Total Long -Term Debt                                                            17,326             16,238
      Less Current Portion                                                             (1,262)              (625)
                                                                                  ============      =============
      LONG-TERM DEBT DUE AFTER 1 YEAR                                              $   16,064       $     15,613
                                                                                  ============      =============

</TABLE>


     At September 30, 1998, the Company was in violation of certain covenants of
the loan agreement with its principal lenders. The Company requested a waiver of
any defaults  which may have  occurred  under the loan  agreement as a result of
these  violations.  The lenders have  acknowledged  the receipt of the Company's
request; however, to date no waivers have been provided.

     At October  31,  1998,  LifeServ  Technologies,  Inc.(TM)  ("LifeServ"),  a
subsidiary of the Company,  was in default for  non-payment  of its  obligations
pursuant  to a  $500,000  loan which  matured  on that date.  As a result of the
default,  the lender may exercise certain rights including,  but not limited to,
enforcement of its security  interest in the assets of LifeServ.  The Company is
currently  negotiating  revised  terms with the lenders;  however,  to date,  no
agreement has been reached with the lender.

     In August  1998,  the Company  borrowed  $150,000  from three  individuals,
including  $100,000  from the Chairman and C.E.O.  to support the  operations of
Medical Technology Laboratories, Inc. ("MTL"). The terms and conditions of these
obligations  provide for  repayment  within six months from the  borrowing  date
including interest payable at 12% per annum. In addition,  the notes provide the
lenders with  warrants to purchase  75,000 shares of common stock of the Company
at $.75 per share for a period of ten (10) years. In addition, in the event that
the  repayment of these amounts are not made on the maturity  dates,  the lender
may receive additional  warrants to purchase up to 13,500 shares of common stock
at $.75 per share for a period of ten (10) years.

     In October  1998,  the Company  borrowed  $200,000  from an  individual  to
support the  operations  of MTL.  The terms and  conditions  of this  obligation
include repayment within nine months from the borrowing date including  interest
at 12% per annum.  In addition,  the notes  provide the lenders with warrants to
purchase  100,000  shares of common stock of the company at $.75 per share for a
period of ten (10) years. In addition, in the event that repayment of the amount
due on the  maturity  date is not  made,  the  lenders  may  receive  additional
warrants to purchase up to 18,000  shares of common  stock at $.75 per share for
ten (10) years. 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  800,000  shares of  common  stock at $.05 per share for a period of ten (10)
years.


<PAGE>
                                       7


NOTE E - SEGMENT INFORMATION

     The  Company is a holding  company  operating  through a number of separate
subsidiaries.  The  operations  of these  subsidiaries  are  comprised  of three
business segments;  (1) the Medication  Packaging and Dispensing Systems segment
which manufactures and distributes equipment, systems and supplies to pharmacies
who service nursing homes and hospitals; (2) the Health Care Information Systems
segment  which  provides   software   systems  for  medication   management  and
point-of-care  electronic  documentation  for  hospitals  and other  health care
facilities;  and (3) the Clinical  Laboratory  Services  segment which  provides
diagnostic laboratory services to physicians.

     The following is operating  information for these business segments for the
six months ended September 30, 1998 and 1997:


<TABLE>
<CAPTION>
                                                              Three Months Ended               Six Months Ended
                                                        -----------------------------    -----------------------------
                                                                September 30,                    September 30,
                                                            1998             1997            1998             1997
                                                        ------------     ------------    ------------     ------------
<S>                                                     <C>              <C>             <C>              <C>
Revenue:
  Reportable Segments
     Medication Packaging and Dispensing Systems        $    3,464       $    3,124      $    6,965       $    6,041
     Health Care Information Systems                         1,528              938           3,253            1,339
     Clinical Laboratory Services                            3,389            1,549           5,208            3,378
                                                        -----------      -----------     -----------      -----------

Total Consolidated Revenue                              $    8,381       $    5,611      $   15,426       $   10,758
                                                        ===========      ===========     ===========      ===========

Depreciation and Amortization:
  Reportable Segments
     Medication Packaging and Dispensing Systems        $      157       $      136      $      317       $      272
     Health Care Information Systems                            64               74             136              117
     Clinical Laboratory Services                               51               61             103              122
     Corporate                                                  91              118             169              236
                                                        ===========      ===========     ===========      ===========
Total Consolidated Depreciation and Amortization        $      363       $      389      $      725       $      747
                                                        ===========      ===========     ===========      ===========

Interest Expense:
  Reportable Segments
     Medication Packaging and Dispensing Systems        $        0       $        0      $        0       $        0
     Health Care Information Systems                            21                7              44               11
     Clinical Laboratory Services                                1                4               2                6
                                                        -----------      -----------     -----------      -----------
                                                                22               11              46               17
  Unallocated Debts                                            284              272             570              539
                                                        ===========      ===========     ===========      ===========
Total Consolidated Interest Expense                     $      306       $      283      $      616       $      556
                                                        ===========      ===========     ===========      ===========

Operating Profit (Loss):
  Reportable Segments
     Medication Packaging and Dispensing Systems        $      750       $      836      $    1,613       $    1,458
     Health Care Information Systems                          (443)            (321)           (914)            (792)
     Clinical Laboratory Services                             (139)             (36)           (184)             245
     Corporate and Interest                                   (869)            (871)         (1,652)          (1,672)
                                                        ============     ============    ============     ============
Total Consolidated Operating Loss                       $     (701)      $     (392)     $   (1,137)      $     (761)
                                                        ============     ============    ============     ============

</TABLE>

<PAGE>
                                       8

<TABLE>
<CAPTION>
                                                           
                                                        
                                                                September 30,
                                                            1998             1997
                                                        ------------     ------------
<S>                                                     <C>              <C>     
Identifiable Assets:
  Reportable Segments
     Medication Packaging and Dispensing Systems        $    5,733       $    5,697
     Health Care Information Systems                         4,773            2,910
     Clinical Laboratory Services                            4,065            2,627
     Corporate                                               2,201            2,270
                                                        ===========      ===========
Total Consolidated Identifiable Assets                  $   16,772       $   13,504
                                                        ===========      ===========

Identifiable Liabilities:
  Reportable Segments
     Medication Packaging and Dispensing Systems        $      873       $      360
     Health Care Information Systems                         3,644            1,830
     Clinical Laboratory Services                            1,932              960
     Corporate                                              16,911           16,383
                                                        -----------      -----------
Total Consolidated Identifiable Liabilities             $   23,360       $   19,533
                                                        ===========      ===========

Capital Expenditures:
  Reportable Segments
     Medication Packaging and Dispensing Systems        $       85       $       45
     Health Care Information Systems                            78               76
     Clinical Laboratory Services                               19               56
     Corporate                                                  19               20
                                                        -----------      -----------
Total Consolidated Capital Expenditures                 $      201       $      197
                                                        ===========      ===========
</TABLE>


NOTE F - BUSINESS ACQUISITIONS

     In April 1998, the Company through its subsidiary  LifeServ entered into an
agreement   to   purchase   certain   assets  of   Peritronics   Medical,   Inc.
("Peritronics"),  a California company which distributed obstetrical information
systems. The agreement provided for the Company to pay Peritronics  shareholders
$350,000  in cash,  250,000  shares of the  Company's  common  stock and  assume
certain liabilities in the amount of approximately $330,000. On August 12, 1998,
the terms of the  agreement  were  modified  to provide  for the  Company to pay
Peritronics' shareholders $410,000 in cash and assume certain liabilities in the
amount of $330,000. In addition,  the modification allows LifeServ to manage the
business of Peritronics until the closing. The purchase currently is anticipated
to close in December 1998;  however,  there are no assurances  that such closing
will occur.

     On August 4, 1998, the Company through its subsidiary, MTL, entered into an
agreement to purchase certain assets of Community  Clinical  Laboratories,  Inc.
("CCL"), a Clearwater, Florida company that provides clinical laboratory testing
services to patients referred by physicians.  The agreement  provides for MTL to
pay CCL a percentage of the payments received from clients serviced by MTL for a
period of five years or until a maximum of $2,500,000 is paid.  The purchase was
closed on  September  11,  1998;  however,  it is  subject  to  approval  by the
Company's  primary  lenders and as a result the purchase will not be recorded in
the Company's  consolidated financial statements until the approval is received.
The Company  has  requested  the  consent of its  lenders  and has entered  into
discussions  with the lenders to obtain their  approval;  however,  there are no
assurances that such approval will be obtained.


<PAGE>
                                       9



NOTE G - BANKRUPTCY MATTERS

     On June  12,  1998,  a Plan of  Reorganization  for  Medication  Management
Technologies,  Inc. was confirmed by the  bankruptcy  court.  As a result of the
confirmation  of the Plan,  the holders of trade and  miscellaneous  claims will
receive payment of 15% of their claims over a three-year  period.  The amount of
liabilities  that  were  compromised  as  part  of the  Plan  was  approximately
$662,000.  This  amount  has been  classified  as an  extraordinary  gain in the
Company's  consolidated  Statement of Operations and Statements of Cash Flow for
the six months ended September 30, 1998.

     On August 14,  1998,  the  Company  completed  a  settlement  agreement  in
litigation  which it had commenced in the Vangard Labs, Inc.  Chapter 11 case in
the U.S.  Bankruptcy  Court.  As part of the settlement,  the Company  recovered
$175,000 from the  defendant.  In addition,  pursuant to the Vangard Labs,  Inc.
Plan of  Reorganization,  the  Company  was  responsible  for the  payment  of a
promissory  note which it had guaranteed on behalf of Vangard Labs,  Inc. in the
amount of  approximately  $215,000.  The  Company  and the City of Glasgow  have
agreed to the repayment terms of this obligation (see Note D).


NOTE H -TAXES

     The  Florida  State  Department  of  Revenue  has  examined  the  Company's
Intangible  tax  returns  for the period  1987-1996  and  proposed  a  suggested
assessment  of  approximately  $380,000  for  intangible  taxes,  penalties  and
interest.  The Company  disputed the  assessment and in October 1998 agreed with
the Department of Revenue on a settlement  amount of $24,000 payable over a four
year period and the rate of $500 per month


<PAGE>
                                       10


     ITEM 2.  MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION AND
RESULTS OF OPERATIONS

     This Form 10-Q contains  forward-looking  statements  within the meaning of
that term in Section  27A of the  Securities  Act of 1933 and Section 21E of the
Securities  Exchange  Act of 1934.  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.  Statements  contained  herein
that are not historical  facts are  forward-looking  statements made pursuant to
the safe harbor  provisions  described  above.  Forward-looking  statements  may
include,  but are not limited to,  projections  of  revenues,  income or losses,
capital  expenditures,  plans for future  operations,  the elimination of losses
under certain  programs,  financing  needs or plans,  compliance  with financial
covenants  in loan  agreements,  plans for sale of assets or  businesses,  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. In addition, when used in this
discussion, the words "anticipates",  "estimates", "expects", "intends", "plans"
and  variations  thereof  and  similar  expressions  are  intended  to  identify
forward-looking statements.

     Forward-looking   statements   are   inherently   subject   to  risks   and
uncertainties,  some of which can be  predicted or  quantified  based on current
expectations.  Consequently,  future  events and  actual  results  could  differ
materially  from  those  set  forth  in,  contemplated  by,  or  underlying  the
forward-looking  statements  contained  herein.  Statements in Quarterly Report,
particularly  in "Item 2.  Management's  Discussion  and  Analysis of  Financial
Condition  and  Results  of  Operations"  and  Notes to  Condensed  Consolidated
Financial Statements,  describe factors,  among others, that could contribute to
or cause such differences.  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  herein,  which speak only as of the date
hereof.  The Company  undertakes no obligation to publicly release the result of
any revisions of 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.


RESULTS OF OPERATIONS

Three Months Ended September 30, 1998 and 1997
----------------------------------------------

     Net sales and  services  for the three  months  ended  September  30,  1998
increased  50.0% to $8.4 million  from $5.6  million  during the same period the
prior year.

         Net sales and services for each business segment increased as follows:


<TABLE>
<CAPTION>
                                                                                Three Month Ended
                                                             ------------------------------------------------------
                                                              September 30,       September 30,        % Increase
                                                                   1998               1997
                                                             ---------------    ----------------    ---------------
      <S>                                                      <C>                <C>                    <C>
      Medication Packaging and Dispensing Systems              $3.5 Million       $3.1 Million            12.9%
      Health Care Information Systems                          $1.5 Million       $0.9 Million            66.7%
      Clinical Laboratory Services                             $3.4 Million       $1.6 Million           112.5%

</TABLE>


<PAGE>
                                       11

     Net  sales in the  Medication  Packaging  and  Dispensing  Systems  segment
increased primarily as a result of a greater number of punch cards and packaging
machines sold to pharmacies.  MTS Packaging  Systems,  Inc.'s ("MTS  Packaging")
customer base  continues to consolidate  as a result of  acquisitions  which has
increased the number of pharmacies serviced by MTS Packaging. This consolidation
has had a favorable  impact on the volume of product MTS Packaging  sells to its
existing customers.

     Net sales and  services  in the Health  Care  Information  Systems  segment
increased  primarily due to an increase in the number of systems which were sold
and installed at hospitals.

     Net  services  in  the  Clinical   Laboratory  Services  segment  increased
primarily as a result of the increase in the number of  physician's  serviced in
conjunction  with the Asset  Acquisition  Agreement  that MTL entered  into with
Community Clinical Laboratories in August 1998.

     Cost of sales and services for the three  months ended  September  30, 1998
increased  58.2% to $4.6 million  from $2.9  million  during the same period the
prior year.  Cost of sales and  services as a percentage  of sales  increased to
54.8% from 51.8% during the same period the prior year.  The increase in cost of
sales  and  services  resulted  primarily  from the  increase  in sales for each
business  segment.  Cost of sales and services as a percentage of sales for each
business segment is outlined below:

<TABLE>
<CAPTION>
                                                                         Three Month Ended
                                                              --------------------------------------
                                                                September 30,      September 30, 1997
                                                                    1998
                                                              ----------------     -----------------
      <S>                                                           <C>                   <C>
      Medication Packaging and Dispensing Systems                   57.1%                 54.8%
      Health Care Information Systems                               40.0%                 33.3%
      Clinical Laboratory Services                                  58.8%                 56.3%

</TABLE>

     Cost of sales in the Medication  Packaging and Dispensing  Systems  segment
increased as a percentage of sales primarily as a result of price  reductions on
punch cards sold by MTS Packaging.  The price reductions have resulted, in part,
from the consolidation of pharmacies which has allowed  individual  customers to
take advantage of volume pricing discounts


     Cost of sales as a  percentage  of sales  in the  Health  Care  Information
segment  increased  primarily  as  a  result  of a  higher  portion  of  revenue
associated with hardware  components of systems sold. The profit margin realized
in hardware components is lower than the software components.

     Cost of  services  as a  percentage  of  sales in the  Clinical  Laboratory
segment  increased  primarily as a result of lower  expected  reimbursements  by
third party payers for test performed.

     Selling,  general and  administration  expenses  for the three months ended
September 30, 1998 increased  58.3% to $3.8 million from $2.4 million during the
same period the prior year. The increase resulted  primarily from an increase in
personnel costs in the Health Care Information and Clinical  Laboratory segments
which resulted from the addition of personnel to accommodate increased sales and
services.

     Selling,  general and  administrative  expenses for each  business  segment
increased as follows:

<TABLE>
<CAPTION>
                                                                            Three Month Ended
                                                          -------------------------------------------------------
                                                            September 30,       September 30,        % Increase
                                                                1998                1997
                                                          ----------------    ----------------    ---------------
      <S>                                                   <C>                  <C>                     <C>
      Medication Packaging and Dispensing Systems            $.5 Million         $.5 Million               0%
      Health Care Information Systems                       $1.2 Million         $.8 Million              50%
      Clinical Laboratory Services                          $1.6 Million         $.6 Million             167%
      Corporate                                              $.5 Million         $.5 Million               0%

</TABLE>


<PAGE>
                                       12


     Depreciation and amortization expenses for the three months ended September
30, 1998  decreased  6.7% to $363,000 from  $389,000  during the same period the
prior year. This decrease is a result of certain corporate assets becoming fully
depreciated.

     Interest  expense for the three months ended  September 30, 1998  increased
8.1% to  $306,000  from  $283,000  during the same  period the prior  year.  The
increase  results from  additional  debt which the Company  incurred  during the
fourth  quarter  of the  previous  fiscal  year and during the first half of the
current fiscal year.

Six months Ended September 30, 1998 and 1997
--------------------------------------------

     Net  sales  and  services  for the six  months  ended  September  30,  1998
increased  42.6% to $15.4 million from $10.8 million  during the same period the
prior year.

     Net sales and services for each business segment increased as follows:

<TABLE>
<CAPTION>
                                                                               Six Month Ended
                                                         ----------------------------------------------------------
                                                           September 30,        September 30,          % Increase
                                                               1998                 1997
                                                         ----------------     ----------------      ---------------
      <S>                                                 <C>                  <C>                       <C>
      Medication Packaging and Dispensing Systems         $7.0 Million         $6.1 Million               14.8%
      Health Care Information Systems                     $3.2 Million         $1.3 Million              146.2%
      Clinical Laboratory Services                        $5.2 Million         $3.4 Million               52.9%

</TABLE>


     Net  sales in the  Medication  Packaging  and  Dispensing  Systems  segment
increased primarily as a result of a greater number of punch cards and packaging
machines  sold to  pharmacies.  MTS  Packaging  Systems,  Inc.'s  customer  base
continues to  consolidate  as a result of  acquisitions  which has increased the
number of pharmacies  serviced by MTS Packaging.  This  consolidation  has had a
favorable  impact on the volume of product MTS  Packaging  sells to its existing
customers.

     Net sales and  services  in the Health  Care  Information  Systems  segment
increased  primarily  due to an  increase  in the number of  systems  which were
installed  and an increase in the number of customers  which  LifeServ  services
with long-term maintenance contracts.

     Net services in the Clinical  Laboratory  Segment  increased as a result of
the increase in the number of physician's serviced in conjunction with the Asset
Acquisition Agreement that MTL entered into with Community Clinical Laboratories
in August 1998.

     Cost of sales and  services  for the six months  ended  September  30, 1998
increased  50.0% to $8.7 million  from $5.8  million  during the same period the
prior year.  Cost of sales and  services as a percentage  of sales  increased to
56.5% from 53.7% during the same period the prior year.  The increase in cost of
sales  and  services  resulted  primarily  from the  increase  in sales for each
business segment.

     Cost of sales and  services  as a  percentage  of sales  for each  business
segment is outlined below:

<TABLE>
<CAPTION>
                                                                          Six Month Ended
                                                              --------------------------------------
                                                                September 30,         September 30,
                                                                    1998                  1997
                                                              ----------------      ----------------
      <S>                                                           <C>                   <C>
      Medication Packaging and Dispensing Systems                   57.1%                 55.7%
      Health Care Information Systems                               46.9%                 46.2%
      Clinical Laboratory Services                                  61.5%                 52.9%

</TABLE>



<PAGE>
                                       13

      
     Cost of sales in the Medication  Packaging and Dispensing  Systems  segment
increased as a percentage of sales primarily as a result of price  reductions on
punch cards sold by MTS Packaging.  The price reductions have resulted, in part,
from the consolidation of pharmacies which has allowed  individual  customers to
take advantage of volume pricing discounts


     Cost of sales as a  percentage  of sales  in the  Health  Care  Information
segment  increased  primarily  as  a  result  of a  higher  portion  of  revenue
associated with hardware  components of systems sold. the profit margin realized
on hardware components is lower than the software components.

     Cost of  services  as a  percentage  of  sales in the  Clinical  Laboratory
segment increased  primarily as a result of lower  reimbursements by third party
payers for test performed.

     Selling,  general  and  administration  expenses  for the six months  ended
September 30, 1998 increased  47.7% to $6.5 million from $4.4 million during the
same period the prior year. The increase resulted  primarily from an increase in
personnel  costs in each business  segment  which  resulted from the addition of
personnel to accommodate increased sales and services.

     Selling,  general and  administrative  expenses for each  business  segment
increased as follows:

<TABLE>
<CAPTION>
                                                                                Six Month Ended
                                                          ----------------------------------------------------------
                                                            September 30,        September 30,          % Increase
                                                                1998                  1997
                                                          ----------------      ---------------      ---------------
      <S>                                                   <C>                  <C>                      <C>

      Medication Packaging and Dispensing Systems           $1.0 Million          $.9 Million             11.1%
      Health Care Information Systems                       $2.5 Million         $1.4 Million             78.6%
      Clinical Laboratory Services                          $2.1 Million         $1.2 Million             75.0%
      Corporate                                              $.9 Million          $.9 Million                0%

</TABLE>

     Depreciation and  amortization  expenses for the six months ended September
30, 1998  decreased  2.9% to $725,000 from  $747,000  during the same period the
prior year. The decrease is a result of certain  corporate assets becoming fully
depreciated.

     Interest  expense for the six months  ended  September  30, 1998  increased
10.8% to $616,000  from  $556,000  during the same  period the prior  year.  The
increase  results from  additional  debt which the Company  incurred  during the
fourth  quarter  of the  previous  fiscal  year and during the first half of the
current fiscal year.

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

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

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

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

<PAGE>
                                       14


LIQUIDITY AND CAPITAL RESOURCES

     During the first half of the current  fiscal year,  the Company  incurred a
net loss of $475,000  compared to a net loss of  $761,000  the prior year.  Cash
used by operating  activities was $311,000 during the six months ended September
30,  1998  compared to  $513,000  provided  in the prior  year.  The Company had
working capital of $2,531,000 at September 30, 1998.

     Cash was used by operating activities during the six months ended September
30, 1998 primarily due to net operating losses.

     Investing  activities  used  $389,000  during  six months  ended  September
30,1998  as  a  result  of  expenditures  for  capital   equipment  and  product
development.

     Financing   activities  provided  $531,000  during  the  six  months  ended
September 30, 1998. The Company borrowed  $500,000 from an individual to support
the operations of LifeServ.  This  promissory  note matured on October 31, 1998.
The Company does not currently have sufficient funds to repay the note, however,
discussions  with the lender  regarding  repayment of the note are  currently in
progress.  In addition,  the Company borrowed $150,000 from several individuals,
including  $100,000 from the Chairman and Chief Executive Officer to support the
operations of MTL. These amounts are repayable within six months.

     The Company believes that cash generated from the Medication  Packaging and
Dispensing  Systems  business  segment  will be  sufficient  to meet the working
capital and  capital  expenditure  needs of this  segment as well as service the
consolidated debt of the Company for the foreseeable future.

     LifeServ   relies  solely  on  cash  flow  generated  from  its  operation,
additional debt and equity which they are permitted to obtain in accordance with
the loan  agreement  with the  primary  lenders  of the  Company.  There  are no
assurances  that LifeServ will generate  sufficient cash flow from operations to
fund its  operations  or be  successful  in  obtaining  debt or  raising  equity
capital.  Management believes that the results of operation of LifeServ will not
adversely effect the overall liquidity of the Company.

     In August 1998, the Company,  through its subsidiary  MTL,  entered into an
agreement  with another  clinical  laboratory  to acquire  certain  assets.  The
acquisition has increased the amount of testing services performed by MTL and as
a result has required additional funds to support these activities.  To date the
Company has been  successful in obtaining  capital in the form of unsecured debt
to supplement  cash generated from  operations to meet the working capital needs
of MTL.  The  Company  anticipates  that  additional  capital may be required to
support the operations of MTL, however,  there are no assurances that additional
capital will be available.


<PAGE>
                                       15



PART II  -  OTHER INFORMATION


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

     The Annual Meeting of the Shareholders of the Company was held on September
29, 1998.  Messrs.  Todd E. Siegel,  David Kazarian,  Michael  Conroy,  and John
Stanton were  elected  directors of the Company for one year terms with at least
5,034,288  shares of Common Stock and 6,500,000 shares of Voting Preferred Stock
voting in favor,  no more than 81,627  shares of Common Stock and zero shares of
Voting  Preferred Stock voting  against,  and 144,942 shares of Common Stock and
zero shares of Voting Preferred Stock abstaining.

     Grant  Thornton LLP was  ratified as the  Company's  independent  certified
public  accountants  for fiscal year 1999 with 5,129,432  shares of Common Stock
and 6,500,000 shares of Voting Preferred Stock voting in favor, 70,245 shares of
Common  Stock and zero shares of Voting  Preferred  Stock  voting  against,  and
11,180  shares  of  Common  Stock and zero  shares  of  Voting  Preferred  Stock
abstaining.


Item 6.  Exhibits and Reports on Form 8-K

          A.   Exhibits

               27 -  Financial  data  schedule  as of  September  30, 1998 filed
          herewith (for SEC use only).


          B.   Reports on Form 8-K

               None
Signature

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
Registrant has duly caused this  Quarterly  Report to be signed on its behalf by
the undersigned,  thereunto duly authorized.


                                 MEDICAL TECHNOLOGY SYSTEMS, INC.

Date:  November 12, 1998         By:  /s/ Michael P. Conroy
       -----------------              ---------------------
                                      Michael P. Conroy
                                      Vice President & Chief Financial Officer