MEDICAL TECHNOLOGY SYSTEMS INC /DE/, 10-K, 1997-07-02

MEDICAL TECHNOLOGY SYSTEMS INC /DE/
10-K, 1997-07-02
SURGICAL & MEDICAL INSTRUMENTS & APPARATUS

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<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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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, 1997
----------------------------

/ / 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
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

12920 Automobile Boulevard, Clearwater, Florida 34622
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(Address of Principal Executive Offices) (Zip Code)

(813) 576-6311
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(Registrant's Telephone Number, Including Area Code)

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

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

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

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

COMMON STOCK PURCHASE WARRANTS
------------------------------
(Title of Class)

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

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

Aggregate market value of voting Common Stock held by non-affiliates was
$3,200,000 as of June 25, 1997.

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 5,957,173 as of June 25, 1997.

Documents Incorporated by Reference

Parts of the Company's definitive proxy statement for the Annual Meeting of the
Company's stockholders to be held on September 10, 1997, are incorporated by
reference into Part III of this Form.

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

<PAGE> 2

MEDICAL TECHNOLOGY SYSTEMS, INC.

CLEARWATER, FLORIDA

INDEX

PAGE
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<S> <C> <C>
PART I

Item 1. Business.......................................................................... 1-10
2. Properties........................................................................ 10
3. Legal proceedings................................................................. 10-12
4. Submission of matters to a vote of security holders............................... 12

PART II

Item 5. Market for registrant's common equity and related
stockholder matters............................................................... 13-14
6. Selected financial data........................................................... 15
7. Management's discussion and analysis of financial
condition and results of operations............................................... 16-20
8. Financial statements and supplementary data....................................... 21
9. Changes in and disagreements with accountants on accounting
and financial disclosure.......................................................... 21

PART III

Item 10. Directors and executive officers of the Registrant................................ 22
11. Executive compensation............................................................ 22
12. Security ownership of certain beneficial
owners and management............................................................. 22
13. Certain relationships and related transactions.................................... 22

PART IV

Item 14. Exhibits, financial statements, schedules and reports on Form 8-K................. 23-24

INDEX TO FINANCIAL STATEMENTS............................................................................ 25

SIGNATURES............................................................................................... 51

</TABLE>

<PAGE> 3

PART I

This Annual Report on Form 10-K 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 cannot 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 this Annual Report,
particularly 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, 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 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., a Delaware corporation (the "Company"),
was incorporated in March 1984. The Company is a holding company operating
through a number of separate subsidiaries, including MTS Packaging Systems,
Inc., Medical Technology Laboratories, Inc., Performance Pharmacy Systems, Inc.,
Medication Management Systems, Inc., MTS Sales and Marketing, Inc. and
Medication Management Technologies, Inc. These subsidiaries provide a diverse
line of proprietary medication dispensing systems, laboratory services and
clinical information systems to the health care industry. The Company also had
ownership interests in Vangard Labs, Inc. and Glasgow Pharmaceutical Corporation
during fiscal 1997. Each of those subsidiaries, however, is being reported as a
discontinued operation.

MTS Packaging Systems, Inc. ("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 utilizes technologically advanced
integrated machinery for manufacturing the disposable medication punch cards.
The disposable medication punch cards and packaging equipment are designed to
provide a cost effective method for pharmacies to dispense medications. The
Company's medication dispensing systems and products provide innovative methods
for dispensing medications in disposable packages.

<PAGE> 4

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

The Company acquired a majority of the common stock of Performance
Pharmacy Systems, Inc. ("Performance Pharmacy") on November 9, 1992. Performance
Pharmacy develops and sells pharmaceutical software systems for hospitals and
nursing homes for in-house pharmacy use.

The Company formed Medication Management Systems, Inc. ("MMS") during
fiscal year 1995. MMS was formed to expand the hospital pharmacy management
software (the "Performance Pharmacy System"), which has been sold to
approximately 130 hospitals throughout the United States. MMS has further
developed its MedServ product line of computerized medication dispensing systems
to interface with the Performance Pharmacy System. The MedServ product line
consists of MedServ FS(TM) (inventory control of floor stocked items) and
MedServ EMAR(TM) (electronic medication administration record) for electronic
charting of patients scheduled medications. The Company believes it has
developed a comprehensive solution to enhanced documentation of medication use
within the hospital environment. The Company is not aware of any other products
that address this important health care need with the same level of system
integration.

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

A subsidiary of the Company, Medication Management Technologies, Inc.
("MMT"), which was formed in January 1994, entered into an Agreement and Plan of
Merger with Cygnet Laboratories, Inc. ("Cygnet") on April 24, 1997, which became
effective on June 20, 1997. Cygnet, which is located in Campbell, California,
develops, markets and supports an obstetrical information system that creates an
automated data collection environment for hospitals and other obstetric
facilities. Cygnet's principal product is used by health care providers to
collect, chart and archive patient related clinical information at the point of
care. Prior to the merger with Cygnet, MMT had no material business operations.
MMT will assume the liabilities of Cygnet as a result of the merger and Cygnet
will discharge its obligations to its sole secured creditor. MMT will continue
the existing royalty arrangement with this creditor. The royalty agreement is
dependent solely on future sales. MMT will assume substantial liabilities and
intends to negotiate with the remaining creditors of Cygnet with a view toward
restructuring these liabilities. There can be no assurance that MMT will be
successful in restructuring these liabilities. In the event that MMT is not able
to restructure these liabilities, it may seek protection under Chapter 11 of the
United States Bankruptcy Code.

The Company acquired all of the Common Stock of Vangard Labs, Inc.
("Vangard") on June 1, 1992. Vangard suspended operations in January 1996.
Vangard, now identified as a discontinued operation for financial reporting
purposes, previously packaged and sold oral solid unit-dose generic drugs to
hospital and nursing home institutional pharmacies effective March 31, 1997
(formal closing April 17, 1997). The Company sold certain assets of Vangard
Labs, Inc. on April 17, 1997 to an unrelated third party. The terms of the
agreement of sale provided for the payment to the Company of $3.1 million in
cash and the assumption of certain liabilities by the buyer. The $3.1 million
received by the Company was used to reduce debt. See "Item 3.
Legal Proceedings."

On November 3, 1993, the Company signed a joint venture agreement to
create Glasgow Pharmaceutical Corporation ("GPC") for the purpose of marketing
and selling pharmaceutical products to the long-term health care industry. GPC
is owned 50% by Vangard and 50% by Creighton Pharmaceuticals Corporation
("Creighton"), a wholly owned subsidiary of Sandoz Pharmaceuticals Corporation
("Sandoz"). The GPC joint venture was created to provide the Company with a
competitive price advantage in the acquisition cost of its pharmaceuticals as
well as

<PAGE> 5

provide additional product lines. The principal product of GPC was MedCard,
which was a medication punch card that could be prefilled with oral solid
generic and brand name drugs. Operations of GPC commenced in May 1994 and were
suspended in January 1996 along with the operations of Vangard. The Vangard
asset sale agreement did not include GPC. The Company has no immediate plans to
resume operations of GPC. GPC does not have any material assets or liabilities.

The principal executive offices and manufacturing facilities of the
Company are located at 12920 Automobile Boulevard, Clearwater, Florida 34622 and
the Company's telephone number is (813) 576-6311.

Segments

The Company maintains two business segments, medication dispensing systems
and clinical laboratory services. MTS Packaging, MMS and Performance Pharmacy
contribute to the revenues generated by the medication dispensing systems
business segment. MTL contributes to the clinical laboratory services business
segment revenues.

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

1997 1996 1995
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(In Thousands)
<S> <C> <C> <C>

Revenue:
Medication Dispensing Systems $ 13,134 $ 11,900 $ 11,252
Clinical Laboratory Services 6,113 5,152 3,578
----------- ------------- --------------
Total Revenue $ 19,247 $ 17,052 $ 14,830
=========== ============= ==============

Operating Profit (Loss):
Medication Dispensing Systems $ 2,040 $ (12,550) $ 3,269
Clinical Laboratory Services 136 (4,443) 307
----------- -------------- --------------
2,176 (16,993) 3,576
Corporate (2,161) (7,624) (5,692)
------------ -------------- --------------
Total Operating Profit (Loss) $ 15 $ (24,617) $ (2,116)
=========== ============== ==============

Depreciation and Amortization Expense:
Medication Dispensing Systems $ 684 $ 1,411 $ 616
Clinical Laboratory Services 250 579 183
----------- ------------- --------------
934 1,990 799
Corporate 447 692 261
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Total Depreciation and Amortization $ 1,381 $ 2,682 $ 1,060
=========== ============= ==============

Identifiable Assets:
Medication Dispensing Systems $ 6,944 $ 8,024 $ 18,009
Clinical Laboratory Services 2,560 2,551 5,887
----------- ------------- --------------
9,504 10,575 23,896
Corporate 3,039 4,094 8,602
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Total Identifiable Assets $ 12,543 $ 14,669 $ 32,498
=========== ============= ==============
</TABLE>

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<TABLE>
<S> <C> <C> <C>
Capital Expenditures:
Medication Dispensing Systems $ 215 $ 774 $ 2,244
Clinical Laboratory Services 67 2 600
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282 776 2,844
Corporate 25 21 159
----------- ------------- --------------
Total Capital Expenditures $ 307 $ 797 $ 3,003
=========== ============= ==============

Impairment of Long-Lived Assets:
Medication Dispensing Systems $ -0- $ 12,662 $ 3,471
Clinical Laboratory Services -0- 3,759 800
----------- -------------- --------------
Total Impairment of Long-Lived Assets $ -0- $ 16,421 $ 4,271
=========== ============== ==============
</TABLE>

Events Leading to the Chapter 11 Filing

During the second quarter of fiscal 1996, the Company recorded losses and
write-downs, which impacted its earnings. These adjustments included a $1.2
million charge relating to the obsolescence of an early version of the Company's
computerized medication dispensing product and an additional charge of
approximately $500,000 relating to the valuation of certain inventory and
project development costs.

During the third quarter of fiscal 1996, Creighton terminated its
relationship with the GPC joint venture. The revenues attributable to the joint
venture for the fiscal years ending March 31, 1995 and 1996 were $258,000 and
$1,127,000, respectively. The Company's interest in this joint venture has been
treated as a discontinued operation for financial reporting purposes. As a
result of the termination, the Company recorded a $4.6 million write-off of its
investment in GPC. In addition to the terminated joint venture expense, the
Company recorded a related valuation allowance in the amount of approximately
$505,000 on inventory carried in Vangard, which had been acquired for the joint
venture. As a direct result of the joint venture termination, the Company
re-evaluated its position in the medication packaging market. The Company
determined that the automated manufacturing equipment associated with the MTS
Packaging business should be more fully utilized in order to remain competitive.
The early retirement of portions of the older and less automated equipment
resulted in a $3.0 million charge against earnings.

As a result of these significant losses, the Company was in violation of
certain financial covenants in borrowing agreements with its principal lenders.
The Company was unable to reach an agreement with its lenders to amend or
restructure the debt. The extended negotiations with the Company's lenders
created substantial uncertainty which led to management's decision to file for
protection under Chapter 11 ("Chapter 11") of Title 11 of the United States
Bankruptcy Code in the Middle District of Florida, Tampa Division (the
"Bankruptcy Court") for certain of its subsidiaries.

During the fourth quarter of fiscal 1996, the Company filed voluntary
petitions for relief under Chapter 11 for four of its subsidiaries, MTS
Packaging, MTL, Vangard and MTS Sales (collectively, the "MTS debtors"). Trading
of the Company's common stock on The NASDAQ National Market ("NASDAQ") was
discontinued on February 8, 1996 for failure to meet the requirements for
continued inclusion in the NASDAQ. Since February 1996, the Company's stock has
traded on the NASD OTC Bulletin Board (the "Bulletin Board"). On September 4,
1996, the Bankruptcy Court approved a plan of reorganization (the "Plan of
Reorganization").

Because of the events described above, the Company's working capital and
borrowing capacity were extremely limited. The Company ultimately decided to
suspend most project development activities, incurring substantial write-offs of
the suspended project costs.

<PAGE> 7

Plans of Reorganization

Plans of reorganization for MTS Packaging and MTL were submitted to the
Bankruptcy Court on May 16, 1996. A plan of reorganization was submitted for
Vangard on July 15, 1996. The Bankruptcy Court approved all plans of
reorganization at a confirmation hearing on September 4, 1996.

Inherent in a successful plan of reorganization is a capital structure
that permits a debtor to generate sufficient cash flow to meet its restructured
obligations and fund its current obligations. The rights and ultimate payments
to prepetition creditors were substantially altered under the Plan of
Reorganization.

In connection with the filings of the MTS debtors, the Company entered
into a Bankruptcy Court approved agreement with its lenders to permit continued
use of cash collateral, primarily accounts receivables and inventories, to
conduct its business. The Bankruptcy Court protection provided by the filings
for the MTS debtors allowed the resumption of normal business operations, which
have continued after confirmation of the Plans of Reorganization.

Products/Services

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

The Company'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 Company's package.

The retail price of the Company's medication packaging machinery ranges
from $650 to $120,000 depending upon the degree of automation and options
requested by a customer. The Company's punch cards typically sell from $155 to
$225 per 1,000 cards, depending upon the size, design, quality and volume of
cards ordered by a customer. To date, the Company has placed approximately 970
medication dispensing systems with pharmacy clientele. MTS Packaging also sells
prescription labels and medication carts. These products and ancillary supplies
are designed to complement sales of disposable medication punch cards. MTS
Packaging had approximately $265,000 in unshipped orders as of June 30, 1997.

Through MMS, the Company offers a proprietary computer-based pharmacy
management system for hospitals called Performance Pharmacy System. The primary
emphasis of this system is to provide the hospital pharmacist with a
comprehensive collection of automated tools for completing day-to-day activities
in an efficient manner. The system performs important medication management
responsibilities and sophisticated drug therapy monitoring and documentation.
The system also provides hospital pharmacists with the ability to process
physicians' medication orders quickly and accurately. The organization of
screens, use of overlapping windows, in-process access to multiple files and
other user friendly techniques make the Performance Pharmacy System an
attractive and functional hospital pharmacy software system. Performance
Pharmacy System pricing starts at approximately $30,000, which includes
hardware, software, training and pre-loaded drug files. To date, approximately
130 Performance Pharmacy Software Systems have been installed with users. The
Company believes that the market for such systems is favorable. However, the
Company has reduced the carrying value of such assets due to the lack of
financing and other uncertainties that might preclude further development of the
system.

Also within MMS, the Company has developed the MedServ product line which
consists of MedServ FS (inventory control of floor stocked items) and MedServ
EMAR (electronic medication administration record) for electronic charting of
patients scheduled medications. MedServ has been specifically designed for use
in hospital and

<PAGE> 8

nursing home facilities. With its unique hardware and customized software
programs, the MedServ system's objective is to introduce controls and audit
trails to reduce the likelihood of medication errors while providing a more
efficient option to paperwork documentation within the hospital. This computer
based system automatically logs all activity and allows integration with
existing information systems. As nurses make rounds, MedServ can move with them
providing finger tip "touch screen" access to important patient and prescription
information. The benefits include accurate patient billing, reduced probability
of missed dosages and medication errors, and reduction of burdensome paperwork
documentation. Further benefits include improved drug accountability, curtailed
pilferage and better inventory control through "proof-of-use" management. It
also supports the clinical pharmacist's activities by identifying dosing
compliance.

Currently, the MedServ product has not been made widely available to the
health care industry. MedServ FS has been installed in 20 hospitals and the
pre-released version of MedServ EMAR system is in testing.

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

Research and Development

Research and development activities during the past three years have not
been significant and, therefore, have not been separately classified in the
financial statements. The Company has dedicated substantially all of its
resources to the development of products that have been determined to be
technologically feasible in an effort to realize a return on the investment made
as quickly as possible.

Product Development

The Company had a significant number of projects underway to develop new
products during fiscal year 1996. These projects were primarily being developed
within the medication dispensing system business segment. The most significant
projects were as follows:

Medication Management Systems, Inc.
MedServe EMAR
MTS Packaging Systems, Inc.
Approximately 12 new punch card packaging and dispensing systems

Manufacturing Processes

<PAGE> 9

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

During 1996, the Company disposed of all production equipment and tooling
it no longer was utilizing in its manufacturing processes because of its
conversion to automated equipment, which resulted in a charge of $8.3 million
against earnings. The Company uses automated fabrication equipment to produce
its medication packaging machinery. All essential components of the machines are
manufactured by the Company without reliance on outside vendors.

MTS Packaging is dependent on a number of suppliers for the raw materials
essential in the production of its products. The Company believes that relations
are adequate with its existing vendors. However, there can be no assurance that
such relations will be adequate in the future or that shortages of any of these
raw materials will not arise, causing production delays. The inability to obtain
raw materials on a timely basis and on acceptable terms may have an impact on
the future performance of the Company.

MMS integrates computer hardware into its MedServ product line and then
installs its proprietary software. All hardware is purchased from outside
vendors but is common to many suppliers. The Company believes its proprietary
software adds substantial value to the product, primarily because of the
Company's extensive knowledge of hospital pharmacy management practices derived
from the more than 130 installations of the Performance Pharmacy System.

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

Performance Pharmacy develops and sells software systems. It is not
dependent upon a supply of raw materials; however, the development and software
support services provided are dependent upon the subsidiary's ability to attract
and retain qualified personnel who are experienced in computer software matters.

As a result of the Company's financial condition, as well as the Chapter
11 filings of the MTS debtors, many of the suppliers of raw materials to the
Company's subsidiaries have required that purchases be made on a COD basis or
payment in advance. The Company's ability to obtain raw materials is, therefore,
dependent upon the amount of cash that the Company has available.

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.

MMS maintains an inventory of raw materials, which are assembled at the
time an order is received from customers. Systems are made to order;
accordingly, raw materials are ordered when needed. The Company believes this is
standard in the industry.

<PAGE> 10

The services provided by MTL and Performance Pharmacy do not require these
companies to maintain inventory.

Markets and Customers

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

The primary customers for MTS Packaging's proprietary packaging machinery
and the related disposable punch cards, labels and ancillary supplies are
pharmacies that supply prescription medication to nursing homes. Such pharmacies
serve from 250 to 20,000 nursing home beds per location and many serve the home
health care marketplace as well.

The Company has begun selling its MedServ product line, which is a
computerized medication dispensing system, to hospitals throughout the United
States. The Company believes this technology is attractive to hospitals because
it provides the opportunity for the hospital to reduce medication dispensing and
administration errors. Approximately 2,500 of the more than 6,000 acute care and
specialty care hospitals throughout the United States currently have
computerized medication dispensing systems. Most of those 2,500 hospitals
utilize floor stock systems for inventory control in primarily the emergency
room, operating room or in areas where narcotic floor stock was previously
stored. Thus, there is an opportunity within most of those 2,500 hospitals for
systems, such as the Company's MedServ EMAR, that can adequately administer a
patient's regularly scheduled medications. The floor stock systems that have
been installed are primarily justified by reducing inventory shortages and
decreasing "lost billings" rather than reducing or eliminating medication
errors. As of June 25, 1997, the Company had 20 MedServ hospital installations
within the U.S. The Company expects that pricing for MedServ products will range
from $25,000 to $800,000 for a hospital installation depending on the number of
beds and service level requirements. The Company believes that the market for
such systems currently is favorable.

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

Competition

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

The Company's primary competitors for medication dispensing systems are
Drug Package, Inc., PCI/Trans Aid, Inc. and RX Systems, Inc. The Company
believes that its automated proprietary packaging machinery distinguishes

<PAGE> 11

MTS Packaging from its competitors'. Manual systems are capable of only filling
and sealing 30-45 disposable medication punch cards per hour. The Company's new
automated packaging machinery can fill and seal up to 720 disposable medication
cards per hour. This is important because many of the Company's customers are
consolidating and require higher productivity to meet their growing market
share.

MMS faces intense competition within the hospital marketplace for both its
Performance Pharmacy management systems and its MedServ products. For pharmacy
management systems, competitors include dominant hospital information system
vendors such as HBO & Company, SMS Corporation, MEDITECH, Inc. and other major
corporations. Also included are pharmacy management systems providers such as
Cerner Corporation, Mediware Information Systems, Inc. and Health Care Services,
Inc. Among suppliers of automated dispensing systems to hospitals, the Company
will be competing with such major companies as Pyxis Corporation, a subsidiary
of Cardinal Health Inc., Baxter International, Inc., Diebold Incorporated and
others for its new MedServ product line. Although the Company believes it
provides superior technological systems, there can be no assurance that it will
be able to effectively compete with companies that have more financial resources
or established market distribution channels.

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

Proprietary Technology

The Siegel Family QTIP Trust (the "Trust") is the holder of certain
patents and other proprietary rights for the equipment and processes that MTS
Packaging uses and sells. The Trust is the assignee of all such proprietary and
patent rights used in the Company's business that were invented or developed by
Harold B. Siegel, the founder of the Company. The Trust and the Company are
parties to a license agreement whereby the Company is granted an exclusive and
perpetual license from the Trust to utilize 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 to expire in 2001 and continue
to expire 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 MMS;
however, its business is not materially dependent upon its ownership of any one
patent or group of patents.

There can be 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, or that may be issued in the future, will
ultimately provide meaningful protection from competition.

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

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 is in compliance with these regulations.

MTS Packaging's products are governed by federal regulations concerning
components of packaging materials which are in contact with food. The Company
has obtained assurances from its vendors that the packaging materials used by
the Company are in conformity with such regulations. However, there can be no
assurance that significant

<PAGE> 12

changes in the regulations applicable to MTS Packaging's products will not occur
in the foreseeable future. Any such changes could have a material adverse effect
on the Company.

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

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

Most clinical laboratory procedures are paid from laboratory fee schedules
issued by individual Medicare carriers or intermediaries. Laboratory services
are paid based upon a national fee schedule modified by local economic factors.
Medicare carriers pay laboratory claims on a reasonable fee basis. In the case
of laboratory tests, the recommended fee is the lesser of the fee schedule or
the national caps on the actual billed amounts. Most laboratory tests must be
billed on an assigned basis. This means that the provider must accept the
Medicare reimbursement as payment in full for a laboratory test. Medicare
patients are not billed for the additional amount. In addition, Florida has
adopted legislation that limits billing for laboratory services to 120% of the
allowable Medicare reimbursement.

It is impossible for the Company to predict the extent to which its
operations will be effected under the laws and regulations described above or
any new regulations which may be adopted by regulatory agencies.

Employees

As of June 25, 1997, the Company employed 225 persons full time. None of
the Company's employees are covered by a collective bargaining agreement.

ITEM 2. PROPERTIES

The Company leases a 62,000 square foot plant consisting of office space
and air-conditioned manufacturing and warehousing space near the Clearwater/St.
Petersburg International Airport at 12920 Automobile Boulevard. The Company's
corporate administrative and marketing offices, MMS and Performance Pharmacy and
the manufacturing facilities for MTS Packaging are located at this location. The
lease expires on April 15, 1999. The Company's current monthly lease payments
are approximately $21,000. The premises are generally suited for light
manufacturing and/or distribution. Currently the Company is operating at
two-thirds of actual manufacturing capacity.

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

The Company leases approximately 3,300 square feet of space for MTL
located in Pinellas County, Florida. This lease expires on April 1, 2002, with
monthly rents not in excess of $5,046.

ITEM 3. LEGAL PROCEEDINGS

The Company was not involved in any litigation which, in the opinion of
management, would have a material adverse effect on the Company's financial
position. As more fully described in the last paragraph of Note 15 to the

<PAGE> 13

consolidated financial statements, the Company is disputing a proposed
assessment by the State of Florida, Department of Revenue.

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

On September 4, 1996, the Plans of Reorganization for the MTS debtors were
confirmed by the Bankruptcy Court. As part of the Plans of Reorganization for
the MTS debtors, certain liabilities were compromised by creditors of the
Company as follows:

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

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

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

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

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

Plan Note I further provided that the net proceeds from the sale of
Vangard, would be paid to the Bank. In addition, certain other mandatory
prepayments of the stated principal amount were required upon the occurrence of
a capital transaction in which any of the Company's subsidiaries are sold, as
well as upon the receipt of any proceeds resulting from certain causes of action
commenced by the Company. Plan Note I also provided that the full stated
principal amount of approximately $28 million would be due and payable upon the
occurrence of specified major events of default.

Effective March 31, 1997, the stated principal amount of Plan Note I was
reduced to $15.0 million. Thereby, permanently removing any contingent amount
due including the additional $12 million principal amount, except for the
mandatory prepayments for any capital transactions. As a result of this
modification and the receipt of the proceeds of the sale of Vangard, the Company
realized during the fourth quarter and for the year an extraordinary gain of
approximately $8.2 million, after the mandatory payment from the Vangard sales
proceeds of approximately $3.1 million.

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

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

Unsecured Claims (Trade Creditors) - The holders of approximately $2.3
million of trade and other miscellaneous claims elected to receive payment of
their claims under one of the three options provided for in the Plans of
Reorganization.

<PAGE> 14

Unsecured Claims (Other) - In March 1995, the Company entered into an
agreement relating to the acquisition of certain clinical laboratory accounts
for MTL. The Company reached a compromise with the seller which reduced the
acquisition indebtedness to $500,000 from approximately $1.4 million.

The adjustment of unsecured claims, of the Plans of Reorganization have
been classified as an extraordinary gain in the Company's consolidated
statement of operations and statement of cash flow for the year ended March 31,
1997.

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

No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year ending March 31, 1997.

<PAGE> 15

PART II

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

Price Range of the Company's Securities

Prior to February 9, 1996, the Company's common stock traded on NASDAQ.
Trading of the Company's common stock on NASDAQ was discontinued on February 9,
1996 for failure to meet the requirements for continued inclusion on NASDAQ.
Since that time, the Company's Common Stock has traded 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 NASDAQ
quotation system for each quarter through the third quarter of fiscal year 1996
and by the Bulletin Board for the fourth quarter of 1996 and for each quarter of
fiscal year 1997. Over-the-counter market quotations reflect interdealer prices,
without retail markup, markdown or commission and may not necessarily represent
actual transactions.

<TABLE>
<CAPTION>
High Low
----------- ------------
<S> <C> <C>
1997 Fiscal Year
- ----------------
First Quarter $ 1 $ 1/4
Second Quarter 1 3/8 7/16
Third Quarter 1 1/16 9/16
Fourth Quarter 1 17/32

1996 Fiscal Year
- ----------------
First Quarter $ 9 1/8 $ 4 5/8
Second Quarter 6 1/16 4 5/8
Third Quarter 6 3/4
Fourth Quarter 1 3/16 3/16
</TABLE>

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

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

<C> <C> <C>
1997 Fiscal Year
- ----------------
First Quarter * *
Second Quarter * *
Third Quarter * *
Fourth Quarter * *

1996 Fiscal Year
- ----------------
First Quarter $ 3 $ 7/8
Second Quarter 1 1/2 11/16
Third Quarter 1 1/8 1/32
Fourth Quarter 1/32 1/32

</TABLE>

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

13
<PAGE> 16

As of June 24, 1997, there were approximately 4,000 holders of record of
the Company's common stock.

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

<PAGE> 17

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."

YEARS ENDED MARCH 31,
-----------------------------------------------------------
(In Thousands, Except Earnings Per Share Amounts)
Income Statement Data: 1997 1996 1995 1994 1993
- ---------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sales................................................ $19,247 $ 17,052 $ 14,830 $ 12,301 $ 10,858
Cost of Sales and Other Expenses..................... $19,232 $ 41,669 $ 16,946 $ 9,367 $ 8,052
Income (Loss) from Continuing Operations
Before Cumulative Effect of Accounting Change....... $ 15 $ (22,717) $ (1,272) $ 1,856 $ 1,740
Income (Loss) from operations of Discontinued
Operations.......................................... (2,800) (6,634) 16 762 552
Gain on Forgiveness of Debt of Discontinued
Operations......................................... 3,500 -0- -0- -0- -0-
Estimated gain (Loss) on Disposal of Discontinued
Operations.......................................... 2,200 (5,229) -0- -0- -0-
Extraordinary Gain on Debt Forgiveness............... 10,097 -0- -0- -0- -0-
Cumulative Effect of Accounting
Change for FASB No. 109............................. -0- -0- -0- 543 -0-
------- --------- -------- ------- --------
Net Income (Loss).................................... $13,012 $ (34,580) $ (1,256) $ 3,161 $ 2,292
======= ========= ======== ======= ========
Primary Net Earnings (Loss) Per Share:
From Continuing Operations.......................... $ .00 $ (5.60) $ (.32) $ .48 $ .46
Income (Loss) from Discontinued Operations........... .51 (2.92) .00 .20 .15
Cumulative Effect of Accounting Change
For FASB No. 109.................................... .00 .00 .00 .14 .00
Extraordinary Gain on Debt Forgiveness............... 1.76 .00 .00 .00 .00
------- --------- -------- -------- --------
Net Earnings (Loss) Per Share $ 2.27 $ (8.52) $ (0.32) $ .82 $ .61
======= ========= ======== ======== ========
Average Common Shares 5,737 4,059 3,974 3,879 3,789
Outstanding

</TABLE>

AT MARCH 31,
-----------------------------------------------------------
(In Thousands)
Balance Sheet Data: 1997 1996 1995 1994 1993
- ------------------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Working Capital.................................. $ 3,989 $ 5,406 $ 5,410 $ 1,695 $ 1,899
Assets............................................... 12,543 14,669 44,243 33,018 25,527
Short-Term Debt...................................... 310 168 1,165 979 654
Long-Term Debt....................................... 15,459 350 23,224 10,588 7,227
Stockholders' Equity (Deficit)....................... (5,416) (18,546) 15,640 16,853 13,655
Liabilities Subject To Compromise.................... -0- 30,457 -0- -0- -0-
</TABLE>

<PAGE> 18

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

OVERVIEW

During fiscal year 1997, the Company returned its focus to its core
business. The Chapter 11 filings of the MTS debtors were concluded in the second
quarter of fiscal year 1997. The confirmation of the Plan of Reorganization was
done in connection with the successful negotiation of a ten-year agreement with
the Company's principal lender.

During fiscal year 1996, operating losses and limited working capital
necessitated a thorough review of all operations and an assessment of the
carrying value of all assets. Stringent measures were taken in the fourth
quarter to preserve the Company's assets and core businesses.

During the fourth quarter of fiscal 1996, the Company's principal
operating subsidiaries filed voluntary petitions under Chapter 11. The
Bankruptcy Court approved the Plan of Reorganization eight months later on
September 4, 1996. The Company's intent in such filings was a reorganization of
its underlying businesses, the restructuring of indebtedness with its principal
lenders and protection of the interests of its stockholders.

RESULTS OF OPERATIONS

FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996

Revenues

Net sales for the fiscal year ended March 31, 1997 increased 12.9% to
$19.2 million from $17.0 million the prior fiscal year. Revenues for the
medication dispensing system segment increased 10.4% and revenues for the
clinical laboratory services segment increased 18.7%. The increase in revenue
for the medication dispensing system segment resulted primarily from increases
in sales of disposable medication punch cards. The continued focus of marketing
efforts on wholesale distribution of disposables has contributed significantly
to the increase in revenue. In addition, the Company added several national
accounts, customers who are significant long-term care pharmacy providers. The
increase in revenues for the clinical laboratory segment resulted primarily from
the greater sales and marketing efforts, which have increased the number of
physicians serviced by the laboratory.

Cost of Sales and Services

Cost of sales for the year ended March 31, 1997 increased 1% to $10.7
million from $10.6 million in the prior year. Cost of sales as a percentage of
sales decreased to 55.9% from 62.5%. Cost of sales as a percentage of sales for
the medication dispensing segment decreased to 54.6% in fiscal 1997 compared to
62.0% in the prior year. The decrease resulted primarily from the incremental
gross margin contributed by increases in the sales of disposable punch cards.
Cost of sales for the clinical laboratory segment decreased to 58.5% in fiscal
1997 compared to 62.8% the prior year. The incremental profit margin realized
from increased revenues in the laboratory business contributed significantly to
the reduction of costs of services as a percentage of revenue. These services
did not require the addition of any material amount of fixed costs.

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

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

<PAGE> 19
Depreciation and Amortization

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

Interest Expense

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

Income Taxes

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

Gain on Disposal of Discontinued Operations

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

Extraordinary Gain on Forgiveness of Debt

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

RESTRUCTURING CHARGES

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

Loss from Discontinued Operations

The Company elected to treat Vangard as a discontinued operation due to
management's decision to dispose of the business. Vangard was managed by a
plan Trustee approved by the Bankruptcy Court (see Note 3 to the Consolidated
Financial Statements). The loss incurred by Vangard was $2.8 million in 1997
compared to a loss of $06.6 million in 1996.

Gain on Forgiveness of Debt of Discontinued Operation

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

Product Development

Throughout fiscal 1997, the Company has dedicated a limited amount of
resources to complete development of MedServ EMAR and approximately seven punch
card packaging and dispensing systems. The continued development of these
projects is dependent upon the Company's ability to generate sufficient cash
flow from operations. In order for the Company to maximize its market
opportunities for these projects, it may require capital which might not be
available to the Company on terms acceptable to the Company. The Company's
inability to continue development of these projects may have a material impact
on its ability to remain competitive and could have a material impact on its
future operation.

FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995

Revenues

Net sales for continuing operations for the fiscal year ending March 31,
1996 increased 15.0% to $17.1 million from $14.8 million in the prior fiscal
year. The increase was primarily attributable to a 44.0% increase in revenues
experienced by the clinical laboratory business segment which resulted from
improved sales and marketing efforts, as well as the acquisition of additional
accounts from Tampa Pathology Laboratory. The Company's medication dispensing
system business segment experienced a 5.8% increase in revenue primarily as a
result of the Company's decision to focus its sales and marketing efforts
through the wholesale distribution channel.

Cost of Sales and Services

Cost of sales for the fiscal year ending March 31, 1996, increased 37.5%
to $10.7 million from $7.8 million in the prior year. The increase was primarily
due to increased revenues experienced by both the clinical laboratory and
medication dispensing business segments. Cost of sales, as a percentage of
sales, increased from 52.3% in fiscal year 1995 to 62.5% in fiscal year 1996.
Cost of sales for the clinical laboratory segments increased to 62.8% in 1996
from 47.9% the prior year. The costs incurred by the clinical laboratory
relating to the testing of patient specimens which are performed by outside
contractors, as well as the operating costs of the patient service centers,
increased in fiscal year 1996. The clinical laboratory was not able to pass on
these additional costs to the insurance providers, primarily Medicare. In
addition, the cost of manufacturing punch cards and medication dispensing
systems increased due to increases in raw material and labor costs. The cost of
sales increased to 62.0% from 53.8% for this segment.

<PAGE> 20

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

SG&A expenses for the year ended March 31, 1996, increased to $8.5 million
from $2.4 million in the prior year. The increase in revenue experienced by the
clinical laboratory resulted in a significant increase in the number of patient
specimens processed. The increase in specimens required additional personnel to
process and bill for the services provided. In addition, the increased sales and
marketing efforts resulted in additional costs and expenses. The increase in
SG&A expenses for this business segment was approximately $1.1 million.

During the first and second quarters of fiscal year 1996, the Company
added administrative and sales personnel to accommodate anticipated growth in
its medication dispensing system business segment. The increase in SG&A expenses
for this business segment was approximately $3.2 million. Also, additions were
made in the staff and information systems of the holding company to improve the
administrative, accounting, and information support systems. The increase in
SG&A expenses for the holding company was $1.2 million. In addition, the Company
incurred one-time charges for severance and related employee separation costs of
approximately $600,000.

Product Development

The Company had a significant number of projects underway to develop new
products during fiscal year 1996 and 1995. These projects were primarily being
developed within the medication dispensing system business segment. The most
significant projects were as follows:

Medication Management Systems, Inc.
MedServe EMAR
MTS Packaging Systems, Inc.
Approximately 12 new punch card packaging and dispensing systems

Due to the uncertainties surrounding the Company's financial condition,
the filing of Chapter 11, the ultimate outcome of the plan of reorganization,
and its ability to attract and obtain qualified employees, the completion of
these projects is in doubt.

<PAGE> 21

Restructuring Charges

The Chapter 11 filings, together with the limitation on the Company's
financing alternatives, necessitated a comprehensive review of the Company's
operations. As a result of this review, during the fiscal year ended March 31,
1996, the Company recognized the following restructuring charges (In Thousands):

Loss on Early Retirement of Fixed Assets $ 8,329
Loss on Inventory Revaluation 1,510
--------
9,839
Chapter 11 Reorganization Charges:
Product Development and Software Costs 4,605
Goodwill Write-down 2,937
Terminated Joint Venture 550
Professional Fees 103
--------
8,195
--------

Total From Continuing Operations, including
$16,421 of impairment losses 18,034
--------

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

Total Restructuring Charges $ 23,263
========

Depreciation and Amortization

Depreciation and amortization expense increased by $1.6 million (153%) to
$2.7 million in 1996 as compared to $1.1 million in 1995. The increase resulted
from the fact that the Company reduced the estimated useful lives of its
property and equipment to reflect technological changes. Although the Company
believes that certain machinery and equipment utilized in its manufacturing
process are technologically advanced, depreciation rates are estimates and are
determined as accurately as possible based upon past experience and other
pertinent information. Due to the fact that the technology inherent in much of
the medication dispensing system equipment is changing rapidly, the Company
continually evaluates its estimates and adjusts them accordingly. These changes
resulted in additional depreciation expense in 1996 in the amount of $589,000.
In addition, depreciation and amortization increased due to the acquisition of
equipment and other assets in 1995. In accordance with the Company's policy,
these assets were depreciated or amortized for one-half year in 1995 and a full
year in 1996.

Loss from Discontinued Operations

The Company elected to treat Vangard as a discontinued operation because
of management's decision to dispose of the business. The loss incurred by
Vangard was $6.6 million 1996; there was no loss from discontinued operations in
1995.

Interest Expense

Interest expense for the fiscal year ending March 31, 1996 increased
21.6% to approximately $1.7 million from $1.4 million the prior year. This
increase primarily resulted from an increase in debt. The Company discontinued
accruing interest on its secured debt effective January 3, 1996 due to its
Chapter 11 filing. The amount of interest that was not accrued was $609,000,
had this amount been accrued, the total interest payments for 1996 would have
been $2.3 million.

<PAGE> 22

Income Taxes

The Company realized an income tax benefit of $1.9 million for the year
ended March 31, 1996, primarily as a result of the net operating loss compared
to an income tax benefit of approximately $844,000 million in 1995. A portion
of this loss has been carried back to recover taxes paid in previous years. In
addition, the unused portion of $17.8 million will be carried forward to offset
future taxable income. The Company recorded a valuation allowance in the amount
of approximately $6.9 million to offset entirely the deferred tax asset related
to the net operating loss carryforward.

Going Concern Uncertainty

Certain events and the Company's financial results and condition in 1996,
as described in Notes 1, 2, and 3 of the notes to the consolidated financial
statements and elsewhere in this Form 10-K, resulted in the Company's auditors,
including an explanatory paragraph in their auditors report dated June 20, 1996
on the 1996 financial statements as to a going concern uncertainty. During
1997, as explained herein, and in other sections of this Form 10-K, the
Company's operating and financial condition has improved. The Company
successfully emerged from bankruptcy, restructured its primary bank debt,
disposed of its discontinued operation, and improved the operation of its core
business. The auditors report dated June 24, 1997 on the 1997
financial statements does not include the discussion of a going concern
uncertainty.

LIQUIDITY AND CAPITAL RESOURCES

The Company had net income of $13.0 million in fiscal 1997 compared to a
net loss of $34.6 million the prior year. Cash provided from continuing
operations was $1.6 million in fiscal 1997 compared to cash used of $899,000 the
prior year. The increase in cash provided from continuing operations resulted
primarily from positive cash flow from operations, income tax refunds, and
reductions in accounts receivable and inventory.

Investing activities used $584,000 in fiscal 1997 compared to $2.9 million
in fiscal 1996. The decrease resulted from the fact that the Company
significantly reduced its capital equipment expenditures and product development
activities in 1997. The reduction was necessitated by the limited capital
resources available to the Company.

Financing activities used $1.3 million in fiscal 1997. The Company made
principal payments on long term debt of $1.4 million.

The Company had working capital of $4.0 million at March 31, 1997 and had
no source of additional working capital other than that which is generated from
operations.

Included in the Company's working capital is $250,000 which has been
placed in escrow with the Company's legal bankruptcy counsel to be utilized for
the first payment to unsecured creditors claims and other administrative costs
pursuant to the Plan of Reorganization.

In March 1996, the Company entered into a Severance Agreement with its
former Chief Financial Officer, Gerald Couture. As part of that agreement, the
Company acknowledged that it owed Mr. Couture past-due compensation in the
amount of $32,789. Pursuant to the Severance Agreement, the parties agreed that
the Company would deliver to Mr. Couture furniture valued at $4,886 in partial
settlement of the past-due compensation. Additionally, the Company paid Mr.
Couture $14,883 and applied $13,000 against amounts Mr. Couture owed to the
Company to fully satisfy the past due compensation obligation. The Company also
agreed to pay Mr. Couture severance compensation in the amount of $450,000,
payable in sum certain amounts though June 16, 1998. The Company, in its sole
discretion, has the option of paying such severance compensation in Common Stock
of the Company.

The Company's short-term and long-term liquidity is dependent on its
ability to generate cash flow from operations. Accounts receivable and inventory
levels are not expected to change significantly based upon the Company's current
level of operation. The Company believes that cash generated from operations
will be sufficient to meet its capital expenditure and working capital needs.

<PAGE> 23

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

On October 23, 1996, the Board of Directors of the Registrant approved the
engagement of Grant Thornton LLP ("Grant Thornton") as its independent auditors
for the fiscal year ended March 31, 1997 to replace Pender, Newkirk & Company
("Pender Newkirk") who were dismissed as auditors of the Registrant effective
October 23, 1996. The Company reported the change of auditors in a Form 8-K (the
"Form 8-K") filed with the Securities and Exchange Commission on October 28,
1996.

In connection with the audits of the Registrant's consolidated financial
statements for the fiscal years ended March 31, 1995 and 1996, and in the
subsequent interim period, there did not exist any disagreements between the
Registrant and Pender Newkirk on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure which,
if not resolved to the satisfaction of Pender Newkirk, would have caused Pender
Newkirk to have referred to the subject matter of disagreement in its report.

On June 20, 1996, Pender Newkirk issued its Independent Auditors' Report
relating to the Company's consolidated financial statements for the fiscal year
ended March 31, 1996. This report contained a paragraph indicating that certain
conditions raised substantial doubt as to the Company's ability to continue as a
going concern and that the Company's consolidated financial statements had been
prepared assuming that the Company would continue as a going concern.

Prior to the engagement of Grant Thornton, no member of that firm was
consulted by the Registrant (i) for the purpose of obtaining a written report or
oral advice with regard to the application of accounting principles to a
specified transaction of the Registrant, either completed or proposed, (ii)
regarding an inquiry as to the type of audit opinion that may be rendered on the
Registrant's financial statements or (iii) regarding any matter that was the
subject of a disagreement with Pender Newkirk or which constituted a reportable
event pursuant to Item 304(a)(1)(v) of Regulation S-K.

By letters dated October 25, 1996, copies of the Form 8-K were delivered
to Pender Newkirk and to Grant Thornton for their comment. Pender Newkirk's
response stating its agreement with the above facts was filed as an exhibit to
the Form 8-K.

<PAGE> 24

PART III

ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item is incorporated by reference to the
definitive proxy statement to be filed by the Company for the Annual Meeting of
Stockholders to be held on September 10, 1997.

ITEM 11: EXECUTIVE COMPENSATION

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

<PAGE> 25

PART IV

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

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

</TABLE>

<PAGE> 26

<TABLE>
<S> <C> <C>
(2)10.12 Acquisition and financial documents relating to Clearwater Diagnostic Center, Inc.
(3)10.13 Stock Purchase Agreement for Vangard Labs, Inc.
(4)10.14 Warrant Agreement between Ladenburg Thalman & Co. and the Company
(5)10.15 Loan and Security Agreement dated December 1, 1992 with Daiwa Bank, Limited
(6)10.16 Amended and Restated Loan and Security Agreement dated September 28, 1993 with
SouthTrust Bank of Alabama
(7)10.17 First Amendment to Amended and Restated Loan and Security
Agreement dated April 25, 1994 with SouthTrust Bank of
Alabama
(7)10.18 Addendum to Lease dated September 30, 1993 with Leslie A. Rubin for facilities located at
12920 and 12900 Automobile Boulevard, Clearwater, Florida
(7)10.19 Lease effective August 2, 1993 by and between C & C Park Building and Medical
Technology Systems, Inc. for property located at 21540 Drake Road, Strongville, Ohio
(7)10.20 Form of 1994 Stock Option Plan
(7)10.21 Form of Employment Agreement for Todd Siegel and Gerald Couture
(7)10.22 Form of Executive Stock Appreciation Rights and Non-Qualified Stock Option Agreement
(7)10.23 Form of Director's Stock Option Agreement
(7)10.24 Form of Directors' Consulting Agreement
(7)10.25 Form of Director/Officer Indemnification Agreement
(7)10.26 Joint Venture Agreement between MedVantage, Inc. and the Company dated
January 5, 1995
(7)10.27 Third Amendment to Amended and Restated Loan and Security Agreement effective March
28, 1995
(8)10.28 Form of Executive Director's Agreement for Gerald Couture
(9)10.29 Stock Option Plan dated March 4, 1997
(9)10.30 Stock Option Agreement with David Kazarian
(8)21. List of Subsidiaries
(9)23. Consent of Independent Certified Public Accountants
(9)27. Financial Data Schedule

* Incorporated herein by reference to same Exhibit(s), respectively, Registration Statement
No. 33-40678 filed with the Commission on May 17, 1991
** Incorporated herein by reference to same Exhibit(s), respectively, Registration Statement
(SEC File No. 33-17852)
*** Incorporated herein by reference to Form 8-K filed on November 18, 1988
**** Incorporated herein by reference to Form 8-K filed on November 16, 1989
(1) Incorporated herein by reference to Form 8-K for event dated November 8, 1991
(2) Incorporated herein by reference to Form 8-K for event dated November 14, 1991
(3) Incorporated herein by reference to Form 8-K for event dated May 27, 1991
(4) Incorporated herein by reference to Form S-3 filed April 16, 1993
(5) Incorporated herein by reference to Form 10-K for year ended March 31, 1993
(6) Incorporated herein by reference to Post Effective Amendment No. 1 to Form S-1 (File
No. 33-40678) dated October 14, 1993
(7) Incorporated herein by reference to Form 10-K for year ended March 31, 1995
(8) Incorporated herein by reference to Form 10-K for year ended March 31, 1996
(9) Filed herewith

</TABLE>

<PAGE> 27

MEDICAL TECHNOLOGY SYSTEMS, INC.

INDEX TO FINANCIAL STATEMENTS

Page
----

REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 26-27

CONSOLIDATED FINANCIAL STATEMENTS:

Consolidated Balance Sheets as of March 31, 1997 and 1996 28

Consolidated Statements of Operations for the years ended
March 31, 1997, 1996 and 1995 29

Consolidated Statement of Changes in Stockholders' Equity
(Deficit) for the years ended March 31, 1997, 1996 and 1995 30

Consolidated Statement of Cash Flows for the years ended
March 31, 1997, 1996 and 1995 31

Notes to Consolidated Financial Statements 32

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> 28

Report of Independent Certified Public Accountants

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

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

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 audit provides 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, 1997, and the
consolidated results of their operations and cash flows for the year then ended
in conformity with generally accepted accounting principles.

GRANT THORNTON LLP
Tampa, Florida
June 24, 1997

<PAGE> 29

Independent Auditors' Report

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

We have audited the accompanying consolidated balance sheet of Medical
Technology Systems, Inc. and Subsidiaries as of March 31, 1996 and the related
consolidated statements of operations, changes in stockholders' deficit and cash
flows for the years ended March 31, 1996 and 1995. These financial statements
are the responsibility of the management of the Company. Our responsibility is
to express an opinion on these consolidated financial statements based on our
audits.

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

In our opinion, the 1996 and 1995 consolidated 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, 1996, and the results of their operations and cash flows for the year
ended March 31, 1996 and 1995 in conformity with generally accepted accounting
principles.

The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company incurred
losses during the current year of approximately $34.6 million and its total
liabilities exceed its total assets by approximately $18.6 million as of March
31, 1996. The Company also had negative cash flows from operations during the
current year of approximately $.9 million and loans in the amount of
approximately $29 million are past due. In addition, the major operating
subsidiaries of the Company have filed for protection under Chapter 11 of the
U.S. Bankruptcy Code. These conditions raise substantial doubt as to the
Company's ability to continue as a going concern. These consolidated financial
statement do not include any adjustments that might result from the outcome of
these uncertainties.

Pender Newkirk & Company
Certified Public Accountants
Tampa, Florida
June 20, 1996

<PAGE> 30

MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND 1996
(In Thousands)

ASSETS 1997 1996
-------- --------
<S> <C> <C>
Current Assets:
Cash.............................................................. $ 616 $ 965
Accounts Receivable, Net.......................................... 3,041 3,260
Income Taxes Receivable........................................... -0- 880
Inventories....................................................... 2,260 2,445
Prepaids and Other................................................ 222 264
Other Receivables................................................. 350 -0-
-------- --------
Total Current Assets.............................................. 6,489 7,814

Property and Equipment, Net....................................... 4,004 4,917

Other Assets, net................................................. 2,050 1,938
-------- --------

Total Assets........................................................ $ 12,543 $ 14,669
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current Liabilities:
Current Maturities of Long-Term Debt.............................. $ 310 $ 168
Accounts Payable and Accrued Liabilities.......................... 2,190 2,240
--------- --------
Total Current Liabilities......................................... 2,500 2,408

Liabilities Subject to Compromise................................... -0- 30,457

Long-Term Debt, Less Current Maturities............................. 15,459 350
-------- --------
Total Liabilities................................................... 17,959 33,215
-------- --------

Stockholders' Equity (Deficit):
Voting Preferred Stock............................................ 1 1
Common Stock...................................................... 60 55
Capital In Excess of Par Value.................................... 8,433 8,320
Retained Earnings (Deficit)....................................... (13,579) (26,591)
Less: Treasury Stock............................................. (331) (331)
-------- --------
Total Stockholders' Equity (Deficit).............................. (5,416) (18,546)
-------- --------
Total Liabilities and Stockholders' Equity (Deficit)................ $ 12,543 14,669
======== ========

a) Liabilities Subject to Compromise consist of the following:
Secured Debt...................................................... $ -0- $ 28,158
Trade and Other Miscellaneous Claims.............................. $ -0- $ 2,299
-------- --------
$ -0- $ 30,457
======== ========
</TABLE>

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

<PAGE> 31

MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
(In Thousands; except Earnings Per Share Amounts)

1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenue:
Net Sales and Services.................................................. $ 19,247 $ 17,052 $ 14,830

Costs and Expenses:
Cost of Sales and Services.............................................. 10,762 10,665 7,756
Selling, General and Administrative..................................... 6,480 8,549 2,429
Loss on Early Retirement of Fixed Assets................................ -0- 8,329 -0-
Product Development and Software Costs.................................. -0- -0- 4,271
Loss on Inventory Revaluation........................................... -0- 1,510 -0-
Depreciation and Amortization........................................... 1,381 2,682 1,060
Interest, Net........................................................... 609 1,739 1,430
-------- --------- ---------

Total Costs and Expenses............................................ 19,232 33,474 16,946
-------- --------- ---------

Reorganization items:
Product Development and Software Costs.............................. -0- 4,605 -0-
Goodwill Write-down................................................. -0- 2,937 -0-
Terminated Joint Venture............................................ -0- 550 -0-
Professional Fees................................................... -0- 103 -0-
-------- --------- ---------
-0- 8,195 -0-
Income (Loss) from Continuing Operations Before
Income Taxes, Discontinued Operations and
Extraordinary Gain....................................................... 15 (24,617) (2,116)

Income Tax (Benefit) Expense.............................................. -0- (1,900) (844)
-------- --------- ---------

Income (Loss) from Continuing Operations Before
Discontinued Operations and Extraordinary Gain........................... 15 (22,717) (1,272)
Income (Loss) from operations of Discontinued Operations,
Net of Income Tax in 1996 and 1995 .................................... (2,800) (6,634) 16
Gain on Forgiveness of Debt of Discontinued Operations.................. 3,500 -0- -0-
Gain (Loss) on Disposal of Discontinued Operations,
Net of Income Tax in 1996 and 1995 .................................... 2,200 (5,229) -0-
Extraordinary Gain on Forgiveness of Debt............................... 10,097 -0- -0-
-------- --------- ---------

Net Income (Loss)................................................... $ 13,012 $ (34,580) $ (1,256)
======== ========= =========

Earnings (Loss) per Common Share:
Income (Loss) from Continuing Operations................................ $ .00 $ (5.60) $ (.32)
Income (Loss) from Discontinued Operations.............................. .51 (2.92) .00
Extraordinary Gain in Debt Forgiveness.................................. 1.76 .00 .00
-------- --------- ---------
Net Income (Loss) Per Common Share...................................... $ 2.27 $ (8.52) $ (.32)
======== ========= =========

Weighted average Common Shares outstanding.............................. 5,737 4,059 3,974
======== ========= =========
</TABLE>

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

<PAGE> 32

MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
(in Thousands Except Share Data)

COMMON STOCK
---------------------------------------------------------------------------------
Capital in Retained
Number $.01 Excess of Earnings Treasury
of Shares Par Value Par Value (Deficit) Stock Total
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>

Balance, March 31, 1994....... 4,008,332 $ 40 $ 7,898 $ 9,245 $ (331) $ 16,852
Stock Issued.................. 18,500 43 43
Net Loss For Year Ended
March 31, 1995 (1,256) (1,256)
--------- -------- -------- -------- --------- ---------
Balance, March 31, 1995....... 4,026,832 40 7,941 7,989 (331) 15,639
Stock Issued.................. 1,458,503 15 379 394
Net Loss for Year Ended
March 31, 1996............... (34,580) (34,580)
--------- -------- -------- -------- --------- ---------
Balance, March 31, 1996....... 5,485,335 55 8,320 (26,591) (331) (18,547)

Stock Issued.................. 471,838 5 113 118
Net Income for Year
Ended March 31, 1997......... 13,012 13,012
--------- -------- -------- -------- --------- ---------
Balance, March 31, 1997....... 5,957,173 $ 60 $ 8,433 $(13,579) $ (331) $ (5,417)
========= ======== ======== ======== ========= =========

</TABLE>

VOTING PREFERRED STOCK
---------------------------------------------------------------------------------
Number $.0001
of Shares Par Value
----------- -------------
<S> <C> <C> <C>
Balance, March 31, 1995 6,500,000 $ 1 $ 1
--------- ------------- -----------
Balance, March 31, 1996 6,500,000 $ 1 $ 1
--------- ------------- -----------
Balance, March 31, 1997 6,500,000 $ 1 $ 1
--------- ------------- -----------
Total Stockholders' $ (5,416)
-----------
(Deficit), March 31, 1997
</TABLE>

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

<PAGE> 33

MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
(In Thousands)
<TABLE>
<CAPTION>

1997 1996 1995
---- ---- ----
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net Income (Loss)................................................................. $ 15 $ (22,717) $ (1,272)
------- ---------- --------
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided (Used) by Operating Activities:
Depreciation and Amortization................................................... 1,381 2,682 1,060
Product Development and Software Cost........................................... -0- 4,605 4,271
Goodwill Write-down............................................................. -0- 2,937 -0-
Loss on Early Retirement of Fixed Assets........................................ -0- 8,329 -0-
Loss on Inventory Revaluation................................................... -0- 1,510 -0-

Write-off of Accounts Receivable and Other Assets............................... -0- 1,323 -0-
Stock Issued from Stock Compensation Plan....................................... 118 388 -0-
(Increase) Decrease in:
Accounts Receivable........................................................... 219 (458) (899)
Income Taxes Receivable....................................................... 880 (72) (808)
Inventories................................................................... 185 297 (1,542)
Prepaids and Other............................................................ 42 (100) (62)
Other Receivables............................................................. (350) -0- -0-

Increase (decrease) in:
Accounts Payable and Other Accrued Liabilities................................ (935) 1,724 761
Income Taxes Payable and Deferred Taxes....................................... -0- (1,347) (1,145)
------- ---------- --------
Total Adjustments................................................................ 1,540 21,818 1,636
-------- ----------- --------
Net Cash Provided (Used) by Continuing Operations................................. 1,555 (899) 364
------- ---------- --------
Net Cash (used) by Discontinued Operations.......................................... -0- (117) (3,304)
------- ---------- --------
INVESTING ACTIVITIES
Expended for Property and Equipment............................................... (307) (797) (3,003)
Expended for Software Development................................................. -0- (30) (201)
Expended for Product Development.................................................. (233) (484) (4,739)
Expended for Patents and Other Assets............................................. (44) (109) (1,127)
Expended for Acquisition......................................................... -0- (1,453) (682)
------- ---------- --------
Net Cash Used by Investing Activities............................................. (584) (2,873) (9,752)
------- ---------- --------
FINANCING ACTIVITIES
Payments on Notes Payable, Long-Term Debt......................................... (1,399) (947) (1,048)
Net Proceeds from Line of Credit.................................................. -0- 2,162 12,183
Issuance of Common Stock.......................................................... -0- 5 10
Proceeds from Borrowing on Notes Payable and Long-Term Debt....................... 79 3,021 1,687
------- ---------- --------
Net Cash Provided (Used) by Financing Activities.................................. (1,320) 4,241 12,832
------- ---------- --------
NET INCREASE (DECREASE) IN CASH..................................................... (349) 352 140
CASH AT BEGINNING OF PERIOD......................................................... 965 613 473
------- ---------- --------
CASH AT END OF PERIOD............................................................... $ 616 $ 965 $ 613
======= ========== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest............................................................ $ 609 $ 1,570 $ 1,409
======= =========== ========

CASH RECEIVED FROM INCOME TAX REFUNDS............................................... $ 880 $ -0- $ -0-
======= =========== ========

Non Cash Financing and Investing Activities. See Notes 1, 3, 10 and 19 for forgiveness of debt (extraordinary gain) on
Note 3 for gain on disposal of discontinued operations.

</TABLE>

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

<PAGE> 34

MEDICAL TECHNOLOGY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997, 1996 AND 1995

NOTE 1 - BACKGROUND INFORMATION

Medical Technology Systems, Inc. (the "Company") is a Delaware
corporation, incorporated in March of 1984. The Company is a holding company
operating through a number of separate subsidiaries providing products and
services to pharmacies that dispense prescription pharmaceuticals to nursing
homes, hospitals and other health care facilities. The Company's principal
businesses consist of the following product lines: (i) the core business of
manufacturing and selling proprietary medication dispensing systems which
include punch cards for use by pharmacies in dispensing prescription medicines;
the computerized pharmacy information and dispensing systems business which
consists of the Performance hospital pharmacy management software and the
MedServ(TM) computerized medication dispensing systems for hospitals and nursing
homes and (ii) the clinical laboratory service business of supplying diagnostic
testing services to the medical profession.

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

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

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

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

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

(e) A restructuring of the management of the Company.

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

NOTE 2 - RESTRUCTURING AND OTHER CHARGES

In December 1995, the Company initiated a cost reduction strategy that
focused upon reducing operating expenses and returning the Company to
profitability. This plan included the filing on January 3, 1996 of voluntary
petitions under Chapter 11 for three of the Company's subsidiaries: MTS
Packaging Systems, Inc., Medical Technology Laboratories, Inc. and MTS Sales and
Marketing, Inc. On February 22, 1996, the Company also filed a voluntary
petition under Chapter 11 for its generic drug repackaging subsidiary, Vangard
Labs, Inc.

<PAGE> 35

MEDICAL TECHNOLOGY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997, 1996 AND 1995

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

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

<TABLE>
<S> <C>
Loss on Early Retirement of Fixed Assets $ 8,329
Loss on Inventory Revaluation 1,510
--------
9,839
Chapter 11 Reorganization Charges:
Product Development and Software Costs 4,605
Goodwill Write-down 2,937
Terminated Joint Venture 550
Professional Fees 103
--------
8,195
--------
Total From Continuing Operations, including
$16,421 of impairment losses 18,034
--------
Loss on Disposal of Discontinued Operations 5,229
--------

Total Restructuring Charges $ 23,263
========
</TABLE>

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

NOTE 3 - DISCONTINUED OPERATIONS

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

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

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

<PAGE> 36

MEDICAL TECHNOLOGY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997, 1996 AND 1995

At fiscal year end, the investment in net assets of the discontinued
operations consisted of:

March 31, March 31,
1997 1996
------------- -----------
(In Thousands)
<S> <C> <C>
Current Assets.............................................. $ -0- $ 3,136
Current Liabilities......................................... -0- 4,387
Non-Current Assets.......................................... -0- 2,032
Non-Current Liabilities..................................... -0- 781
----------- --------
$ -0- $ -0-
=========== ========

</TABLE>

Net revenues of discontinued operations were $542,000, $5,968,000 and
$6,045,000 in fiscal years 1997, 1996 and 1995, respectively.

NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation

The consolidated financial statements include the accounts of Medical
Technology Systems, Inc. and its subsidiaries, MTS Packaging, Inc., Medical
Technology Laboratories, Inc., Performance Pharmacy Systems, Inc., Medication
Management Systems, Inc., MTS Sales & Marketing, Inc., and Systems
Professionals, Inc. All significant intercompany accounts and transactions
have been eliminated in consolidation. Certain minor reclassifications have
been made in the Company's prior years consolidated financial statements for
comparability to the current year's statements.

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

Vangard Labs, Inc., a wholly owned subsidiary of the Company, and Glasgow
Pharmaceutical Corporation, a 50% joint venture with Creighton Pharmaceuticals,
Inc., are treated as discontinued operations for all periods presented as set
forth in Note 3.

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> 37

MEDICAL TECHNOLOGY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997, 1996 AND 1995

Inventories

Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out ("FIFO") method.

Revenue Recognition

The Company recognizes revenue as follows: when products are shipped by
MTS Packaging Systems, Inc.; when medication dispensing systems are placed into
service by Medication Managements Systems, Inc.; when pharmacy management
systems are placed into service by Performance Pharmacy Systems, Inc; when
services are performed by Medical Technology Laboratories, Inc. The Company
recognizes revenues from the clinical laboratory services net of estimated
contractual adjustments resulting from the unpaid portion of the assigned
insurance billings and other third party payers, as services are performed.

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:

<TABLE>
<CAPTION>
Years
-----
<S> <C>
Property and Equipment........................... 3-7
Leasehold Improvements........................... 5
</TABLE>

The Company uses accelerated methods of depreciation for tax purposes.

Software and Product Development Cost

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

Goodwill

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

Other Assets

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

Earnings (Loss) Per Share

<PAGE> 38

MEDICAL TECHNOLOGY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997, 1996 AND 1995

Earnings (loss) per common share were computed using the weighted average
number of shares outstanding. Common stock equivalents (warrants and options)
were excluded from the calculation, as their effect would be antidilutive.

In February 1997, FASB issued Statement of Financial Accounting Standards
No. 128, "Earnings per Share" ("FAS No. 128"), which is effective for periods
ending after December 15, 1997. This statement establishes standards for
computing and presenting earnings per share data. Management is currently
assessing the impact of FAS No. 128 on the Company's presentation of earnings
per share data in future periods.

Research and Development

The Company expenses research and development costs as incurred. During
fiscal 1997, 1996 and 1995, the Company dedicated its resources to the
completion of product development projects and therefore did not incur any
material research and development costs.

Income Taxes

Effective April 1, 1993, the Company adopted FASB No. 109, "Accounting for
Income Taxes." Under FASB No. 109, income taxes are provided for under the
liability method, 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 Compensation

Prior to fiscal 1996, the Company accounted for its stock option plan 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 place of the underlying stock exceeded
the exercise price. Effective as of April 1, 1996, the Company adopted Statement
of Accounting Standards No. 123, Accounting for Stock-Based Compensation
(Statement 123), which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, Statement 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
net earnings per share disclosures for employee stock option grants made in 1996
and future years as if the fair-value-based method defined in Statement 123 has
been applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of Statement 123.

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

Effective fiscal year 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles to be held and used by an
entity be reviewed

<PAGE> 39

MEDICAL TECHNOLOGY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997, 1996 AND 1995

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

If an impairment loss condition exists, the loss is determined as the
difference between the assets' carrying value and: (1) for assets held and
used--the discounted (at an interest rate commensurate with the related risk)
estimated cash flows over the expected recovery period of the related investment
(asset) determined at the Company's business unit or product line level; (2) for
assets to be disposed of--the fair value for the asset(s) less the cost to sell.

Since the accounting methodology promulgated by SFAS No. 121 was similar
to that used prior to the Company's adoption of SFAS No.121, there was no
significant effect on the Company's financial statements upon SFAS No. 121's
adoption in 1996.

The Company recognized impairment losses of $16,421,000 in fiscal 1996 and
$4,271,000 in fiscal 1995. These losses related to the early retirement of
certain production equipment and tooling, product development projects which
were suspended and goodwill related to the acquisition of various businesses.

Discontinued Operations

The Commpany's generic drug repackaging business, Vangard has been
classified as a discontinued operation.

Bankruptcy Related Accounting Matters and Extraordinary Gain

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

Fair Value of Financial Instruments

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

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

<PAGE> 40

MEDICAL TECHNOLOGY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997, 1996 AND 1995

NOTE 5 - ACCOUNTS RECEIVABLE

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

Accounts Receivable consist of the following:

March 31, March 31,
1997 1996
------------- -------------
(In Thousands)
<S> <C> <C>
Accounts Receivable at Gross $ 4,081 $ 3,788
Less: Allowance for Doubtful Accounts
and Contractual Adjustments (1,040) (528)
-------------- --------------
$ 3,041 $ 3,260
============== ==============
</TABLE>

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

NOTE 6 - INVENTORIES

Inventories consist of the following:

March 31, March 31,
1997 1996
------------- --------------
(In Thousands)
<S> <C> <C>
Raw Material $ 588 $ 661
Finished Goods and Work in Process 1,672 1,784
-------------- --------------
$ 2,260 $ 2,445
============== ==============

</TABLE>

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

NOTE 7 - PROPERTY AND EQUIPMENT

Property and equipment consists of the following:
<TABLE>
<CAPTION>

March 31, March 31,
1997 1996
-------------- ------------
(In Thousands)
<S> <C> <C>
Property and Equipment $ 7,581 $ 7,273
Leasehold Improvements 806 806
------------- -------------
8,387 8,079

Less: Accumulated Depreciation and Amortization (4,383) (3,162)
------------- -------------
$ 4,004 $ 4,917
============= =============
</TABLE>

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

<PAGE> 41

MEDICAL TECHNOLOGY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997, 1996 AND 1995

NOTE 8 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities are comprised of the following:
<TABLE>
<CAPTION>
March 31, March 31,
1997 1996
--------- ---------
(In Thousands)
<S> <C> <C>
Accounts Payable/Trade $ 987 $ 1,116
Accrued Liabilities:
Salaries 301 198
Medical Claims 212 248
Interest 28 436
Legal 446 110
Other 216 132
------- --------
$ 2,190 $ 2,240
======= ========

</TABLE>

NOTE 9 - PRODUCT AND SOFTWARE DEVELOPMENT COSTS, GOODWILL AND OTHER ASSETS

Software development costs, goodwill and other assets consists of the
following:

<TABLE>
<CAPTION>
March 31, March 31,
1997 1996
------------ ------------
(In Thousands)
<S> <C> <C>
Goodwill.......................................................... $ 1,204 $ 1,204
Less: Accumulated Amortization................................. (307) (233)
----------- -----------
$ 897 $ 971
----------- -----------

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

MedServ(TM)Development and Related Software....................... $ 314 $ 212
Less: Accumulated Amortization................................. (85) (42)
----------- -----------
$ 229 $ 170
----------- -----------

Patents........................................................... $ 1,065 $ 1,065
Less: Accumulated Amortization................................. (349) (308)
----------- -----------
$ 730 $ 757
----------- -----------

Other........................................................... $ 93 $ 63
Less: Accumulated Amortization................................. (30) (23)
----------- -----------
$ 63 $ 40
----------- -----------

Total Other Assets, Net........................................... $ 2,050 $ 1,938
=========== ===========
</TABLE>

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

<PAGE> 42

MEDICAL TECHNOLOGY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997, 1996 AND 1995

NOTE 10 - LONG-TERM DEBT

Long-term debt consists of the following:

March March 31,
31, 1997 1996
---------- ------------
(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...................................... $ 15,000 $ -0-

Note payable; interest at bank prime plus 1/2%; or LIBOR rate plus 2 1/4%;
payable $93,000 per month plus interest, maturing
September, 1998, subject to compromise at March 31, 1996..................... -0- 10,398

Bank line of credit, interest at bank prime plus 1/2%, or LIBOR rate plus 2%;
interest payable monthly; principal maturing
September, 1996, subject to compromise at March 31, 1996..................... -0- 16,862

Seller Financing Under Tampa Pathology Acquisition Agreement, face value of
$487,628 discounted at 10%, with variable monthly
payments until satisfied, subject to compromise at March 31, 1996............ 273 871

Other Notes and Agreements; interest and principal payable monthly
and annual at various amounts through March 2000............................. 496 545
---------- --------
Total Long-Term Debt........................................................... 15,769 28,676
Less Current Portion........................................................... (310) (168)
Subject to Compromise.......................................................... -0- (28,158)
---------- --------
LONG-TERM DEBT DUE AFTER 1 YEAR................................................ $ 15,459 $ 350
========== ========
</TABLE>

The following is a schedule by year of the principal payments required on
these notes payable and long-term debts as of March 31, 1997:

<TABLE>
(In Thousands)
<S> <C>
1998. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 310
1999. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 347
2000. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 377
2001. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 377
2002. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 406
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . $13,952
</TABLE>

The above bank loans and line of credit are collateralized by the
Company's accounts receivables, inventory, equipment and intangibles.

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

<PAGE> 43

MEDICAL TECHNOLOGY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997, 1996 AND 1995

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

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

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

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

Plan Note I further provided that the net proceeds from the sale of
Vangard, would be paid to the Bank (see Note 3). In addition, certain other
mandatory prepayments of the stated principal amount were required upon the
occurrence of a capital transaction in which any of the Company's subsidiaries
are sold, as well as upon the receipt of any proceeds resulting from certain
causes of action commenced by the Company. Plan Note I also provided that the
full stated principal amount of approximately $28 million would be due and
payable upon the occurrence of specific major events of default.

Effective March 31, 1997, the stated principal amount of Plan Note I was
reduced to $15.0 million. Thereby, permanently removing any contingent amount
due including the additional $12 million principal amount, except for the
mandatory prepayments for any capital transactions. As a result of this
modification, and the receipt of the proceeds of the sale of Vangard, the
Company realized during the fourth quarter and for the year an extraordinary
gain of approximately $8.2 million, after the mandatory payment from the Vangard
sales proceeds of approximately $3.1 million.

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

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

NOTE 11 - LEASE COMMITMENTS

The following is a schedule by year of future minimum rental payments
required under operating leases that have an initial or remaining non-cancelable
lease term in excess of one year as of March 31, 1997.

<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
1998.....................................................$ 397

</TABLE>

<PAGE> 44

MEDICAL TECHNOLOGY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997, 1996 AND 1995

<TABLE>
<S> <C>
1999.......................................................$ 155
2000...................................................... $ 74
2001.......................................................$ 62
2002.......................................................$ 61

</TABLE>

Rent expense amounted to $733,000, $504,000, and $422,000, for the years
ended March 31, 1997, 1996 and 1995, respectively.

NOTE 12 - 401(K) PROFIT SHARING PLAN

During the year ended March 31, 1994, the Company established 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, 1997, 1996 and 1995, the
Company made no contributions to the Plan.

NOTE 13 - SELF INSURANCE PLAN

During the year ended March 31, 1993, the Company established a medical
health benefit self-insurance plan for substantially all of its employees. The
Company is reinsured for claims which exceed $30,000 per participant and has an
annual maximum aggregate limit of approximately $494,000.

NOTE 14 - RELATED PARTY TRANSACTIONS

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

Under the terms of the amended agreement, the Company is required to pay
to the Trust royalties of one percent of sales on licensed products. In
addition, the agreement states that there are no minimum royalty payments due
and the agreement would expire if the Company abandons or ceases to use the
technologies. Royalty payments were $76,000, $30,000, and $41,000 in the years
ended March 31, 1997, 1996, and 1995, respectively.

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

Siegel had outstanding indebtedness to the Company at March 31, 1997 and
March 31, 1996 of approximately $11,886 and $12,000 respectively. The Company
expects to collect the full balance of this indebtedness.

<PAGE> 45

MEDICAL TECHNOLOGY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997, 1996 AND 1995

NOTE 15 - TAXES

The components of related income taxes provided on continuing operations
were as follows:
<TABLE>
<CAPTION>
Years Ended March 31,
------------------------------------------------
1997 1996 1995
------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C>
Current Tax (Benefit) Due:
Federal $ 6 $ (635) $ (1,277)
State 1 -0- (208)
---------- ------------ ----------
7 (635) (1,485)
---------- ------------ ----------

Deferred Tax:
Federal $ (6) $ (1,132) $ 547
State (1) (133) 94
---------- ------------ ----------
(7) (1,265) 641
---------- ------------ ----------
$ -0- $ (1,900) $ (844)
========== ============ ==========

</TABLE>

Total income tax (benefit) expense for 1997, 1996 and 1995 from continuing
operations resulted in effective tax rates of 0.0%, 7.7% and 39.9%,
respectively. The reasons for the differences between these effective tax rates
and the U.S. statutory rate of 35.0% on the continuing operations are as
follows:

Years Ended March 31,
------------------------------------------
1997 1996 1995
------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C>
Tax (Benefit) Expense at U.S. statutory rate.......................... $ 6 $ (8,616) $ (741)
Valuation allowance for deferred tax asset............................ -0- 6,877 -0-
State and local income tax, net....................................... 1 (543) (75)
Difference between marginal and U.S. statutory rate................... -0- 246 21
Other (net)........................................................... (7) 136 (49)
------------ ------------ ------------
Income Tax (Benefit) Expense.......................................... $ -0- $ (1,900) $ (844)
============ ============ ============
</TABLE>

Income taxes receivable as of March 31, 1996 in the amount of $880,000
represent refunds of federal and state taxes previously paid.

During the year ended March 31, 1995, the Company had a tax net operating
loss of approximately $3.2 million. The Company elected to forgo carryback of
the loss so that the full amount of the net operating loss would be available to
offset future taxable income. This net operating loss carry forward will expire
in 2010 which included income from discontinued operations. For the year ended
March 31, 1996, the Company had a net operating loss of $21 million. A portion
of this loss carried back, and a receivable of $820,000 was recorded to reflect
the anticipated refund which

<PAGE> 46

MEDICAL TECHNOLOGY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997, 1996 AND 1995

was received in 1997. As discussed in Note 10, effective March 31, 1997, the
stated principal amount of Plan Note I was reduced by $8.2 million to $15.0
million. In addition, $1.8 million of the Company's prepetition debt of its
unsecured creditors was forgiven. Since the reduction of the indebtedness was
done as part of the Chapter 11 Bankruptcy of the Company's principal
subsidiaries, the amount is excluded from taxable income pursuant to IRC Section
108 through the reduction of the Company's net operating losses. At March 31,
1997, the Company had approximately $11 million of carryforward losses which
will expire in 2011 and be available to offset future taxable income.

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

Deferred taxes for continuing operations consist of the following:

March 31, March 31, March 31,
1997 1996 1995
------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C>
Deferred Tax Liabilities:

Depreciation/Amortization Gross Deferred Tax Liability............. $ 716 $ 379 $ 2,909
------- ------- --------

Deferred Tax Assets:

Depreciation/Amortization Temporary Difference..................... (670) (1,386) -0-

Allowance for Doubtful Accounts.................................... (146) (73) (73)

Inventory Valuation Allowance...................................... (319) (163) -0-

Tax Loss Carry Forward............................................. (4,168) (5,525) (1,459)

Reserves and Provisions............................................ (322) (109) -0-
------- -------- --------

Gross Deferred Tax Asset........................................... (5,625) (7,256) (1,532)
------- -------- --------

Net Deferred Tax (Asset) Liability.................................... (4,909) (6,877) 1,377

Less Valuation Allowance........................................... (4,909) (6,877) -0-
------- -------- --------

Deferred Income Taxes.............................................. $ -0- $ -0- $ 1,377
======= ======== ========

</TABLE>

The above 1996 balances reflect amounts reported on the Company's
originally filed income tax return which has been subsequently amended. The
above 1996 amounts were not revised to include the amended balances; however,
the amounts had been incorporated with the 1997 balances presented above.

The principal difference between the 1996 and 1997 deferred tax assets is
a result of the use of approximately $4 million of deferred tax assets relating
to net operating loss carryforwards.

At March 31, 1997, the Company had deferred tax assets available of
approximately $4.9 million. A tax benefit has not been recorded for these
assets as it is not yet more likely than not that these benefits will be
realized by reducing future taxable income.

The above is exclusive of the loss from discontinued operations totaling
$3.9 million which has not been deducted for tax purposes.

<PAGE> 47

MEDICAL TECHNOLOGY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997, 1996 AND 1995

The Internal Revenue Service has completed its examination of the
Company's consolidated federal income tax returns for the years ended March 31,
1993 and 1992. No deficiencies were proposed. No other income tax returns have
been examined by taxing authorities.

The Florida State Department of Revenue has examined the Company's sales
and use tax returns for the period January 1988 through December 1993. The State
Department of Revenue has proposed a suggested assessment of approximately
$1,230,000 including taxes, penalties and interest. The Company has requested a
hearing to determine the actual amount of tax, penalty and interest. The Company
believes the amount of tax owed, if any, is substantially less than the State
has proposed, and intends to vigorously defend its position. Managements
estimate may change in the near term, which change could be material to the
financial statements. However, a reserve for $100,000 has been made as of March
31, 1997 for costs associated with this matter. In addition, the State
Department of Revenue has proposed a suggested assessment of approximately
$130,000 for intangible taxes, penalties and interest for 1992. The company is
disputing this amount. The Department of Revenue is currently conducting an
audit of the Company's intangible tax returns for 1993 - 1995.

NOTE 16 - STOCKHOLDERS' EQUITY (DEFICIT)

Stockholders' Equity (Deficit) consists of the following:

March 31, March 31, March 31,
1997 1996 1995
------------- -------------- -------------
<S> <C> <C> <C>
Voting Preferred Stock:
Par value $.0001 per share
Authorized Shares............................................ 7,500,000 7,500,000 7,500,000
Issued Shares................................................ 6,500,000 6,500,000 6,500,000
Outstanding Shares........................................... 6,500,000 6,500,000 6,500,000

Common Stock:
Par value $.01 per share
Authorized Shares............................................ 25,000,000 25,000,000 25,000,000
Outstanding Shares........................................... 5,917,173 5,445,335 3,986,832
Issued Shares................................................ 5,957,173 5,485,335 4,026,832
</TABLE>

<PAGE> 48

MEDICAL TECHNOLOGY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997, 1996 AND 1995

COMMON STOCK

During fiscal 1997, the Company issued 275,000 shares of common stock to
business advisors and directors of the Company. These shares were valued based
upon the fair value of services rendered which approximated the fair market
value of common stock at the date of issue or $0.25 per share.

In addition, approximately 196,000 shares were issued to employees of the
Company and former employees, including 50,000 shares to the Company's CEO.
These shares were valued at $0.25 per share which was the approximate market
value at the time they were issued.

PREFERRED STOCK

The JADE Family Partnership ("Partnership") is currently the holder of
6,500,000 shares of Voting Preferred Stock. The Siegel Family QTIP Trust,
established pursuant to the terms of the Siegel Family Revocable Trust (the
"Trust"), which originally acquired the shares of Voting Preferred Stock in 1986
for the aggregate par value of the shares ($650.00), transferred the shares to
the Siegel Family Limited Partnership in 1993. The Siegel Family Limited
Partnership transferred the shares to the Partnership in 1994. The Company's CEO
is the trustee of the Trust, which is the managing general partner of the
Partnership, and accordingly, controls the shares held by the Partnership.

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

<PAGE> 49

MEDICAL TECHNOLOGY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997, 1996 AND 1995

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:

1997 1996
------------- -----------
<S> <C> <C>
Net income (loss) As reported $ 15 $ (22,717)
Pro forma (unaudited) $ (246) $ (22,921)

Earnings (loss) per Common Share As reported $ .00 $ (5.60)

Pro forma (unaudited) $ (.04) $ (5.65)
</TABLE>

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

STOCK OPTIONS

Activity related to options is as follows:

<TABLE>
<CAPTION>
NUMBER OF SHARES PRICE PER SHARE
-------------------- -----------------
<S> <C> <C>

Outstanding at March 31, 1994...................................... 220,700
Granted in Fiscal 1995:
Officers & Directors......................................... 99,000 $ 1.63
Employees.................................................... 13,226 $6.00 - $ 7.75
-------------------- -----------------

Outstanding at March 31, 1995...................................... 332,926
Granted in Fiscal 1996:
Officers & Directors......................................... 59,000 $ 1.63
Employees.................................................... 8,808 $6.00 - $10.00
-------------------- -----------------

Outstanding at March 31, 1996...................................... 400,734
Granted in Fiscal 1997:
Officers & Directors......................................... 145,000 $ 1.00
Employees.................................................... 471,878 $1.00 - $ 7.00
Options Expired.............................................. (1,323)
-------------------- -----------------

Outstanding at March 31, 1997...................................... 1,016,289 $1.00 - $10.00
==================== =================

</TABLE>

47
<PAGE> 50

<PAGE> 51
MEDICAL TECHNOLOGY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997, 1996 AND 1995

OUTSTANDING SHARES

Weighted Average
Remaining
Range of Number Contractual Life Weighted Average
Exercise Prices Outstanding (years) Exercise Price
- --------------- ----------- ----------------- ----------------
<C> <C> <C> <C>

$1.00 - $1.63 946,664 8.4 $1.17
$4.00 - $6.00 50,664 5.7 $4.72
$6.38 - $10.00 21,607 7.2 $8.63

EXERCISABLE SHARES

$1.00 - $1.63 355,250 $1.45
$4.00 - $6.00 43,583 $4.61
$6.38 - $10.00 16,768 $8.99

WARRANTS

</TABLE>

Activity related to warrants is as follows:

NUMBER OF SHARES PRICE PER SHARE
-------------------- -----------------
<S> <C> <C>

Outstanding at March 31, 1993................................ 1,320,000 $7.00
Granted in Fiscal 1994 through Fiscal 1997................... -0-
-------------------- -----------------
Outstanding at March 31, 1997................................ 1,320,000 $7.00
==================== =================

</TABLE>

All of the warrants outstanding at March 31, 1997 expire in July 1997. The
options outstanding at March 31, 1997 expire on various dates commencing in
April 1998 and ending in March 2006.

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

No dividends have ever been paid on either the Company's Common or
Preferred Stock.

<PAGE> 52

MEDICAL TECHNOLOGY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997, 1996 AND 1995

NOTE 17 - CONCENTRATION OF CREDIT RISK

The business of Medical Technology Laboratories, Inc. is primarily with
individuals located in the State of Florida, many of whom routinely assign to
the Company payment by their medical insurance providers. As of March 31, 1997,
Medical Technology Laboratories, Inc.'s patient accounts receivable from
individuals and commercial medical insurance providers was approximately
$748,800. As of March 31, 1997, Medical Technology Laboratories, Inc.'s accounts
receivable from Medicare and Medicaid was approximately $510,400.

NOTE 18 - SUBSEQUENT BUSINESS ACQUISITION

In April 1997, the Company, through its subsidiary Medication Management
Technologies, Inc. (MMT), entered into an agreement and Plan of Merger with
Cygnet Laboratories, Inc. (Cygnet), a California Company which distributes
obstetrical information systems. The merger was effective June 20, 1997. The
Plan of Merger provides for the Cygnet Shareholders to receive nominal cash
consideration in exchange for their Shares. MMT will assume all liabilities of
Cygnet as a result of the Merger.

NOTE 19 - INTERIM REPORTING AND FOURTH QUARTER ITEMS

The fourth quarter operating results includes three items that related to
the second and/or third quarters of fiscal 1997.

First, as discussed in Note 10, during the fourth quarter the Company
recognized an extraordinary gain of approximately $10.3 million as a result of
the elimination of certain contingencies associated with its bank debt which
had been restructured during the Company's bankruptcy proceedings. As a result
of the Company's further consideration at year end of the most appropriate
accounting for the restructuring of its bank's debt, interest of $650,000
($.11 per common share) was recorded during the for quarter of which $81,250,
$275,000 and $293,750 related to the second, third and fourth quarters,
respectively. The Company initially believed that the restructuring of the bank
debt should be recorded under the accounting rules pertaining to troubled debt
restructuring, which precluded the recognition of interest in these
circumstances; however, upon further review at year end by the Company, its
legal and accounting counsel, and its bank, the Company concluded that the
bankruptcy accounting rules described in Note 11 were more appropriate.

Second, during the Company's second quarter, an extraordinary gain of
$2.4 million was reported relating to the forgiveness of debt by the unsecured
prepetition creditors of the Company. Upon further review during the Company's
fourth quarter, it was determined that this amount should be reduced by
$340,000 ($.06 per common share).

Third, the gain of approximately $2.7 million ($.47 per common share)
recognized from the forgiveness of Vangard's prepetition unsecured creditors
included in the income from operation the discontinued operation (as described
in Note 3) related to the second quarter of 1997.

NOTE 20 - SEGMENT INFORMATION

The Company manufactures, markets and distributes medication dispensing
systems and supplies used by pharmacies in packaging medication in "punch cards"
for nursing homes and hospitals. The Company also supplies prescription labels
and forms to this same industry. During November 1991, through two acquisitions,
the Company entered the clinical laboratory service business, which primarily
provides its diagnostic testing services to the medical profession. The
medication dispensing system segment provides all products and services other
than laboratory services, which is included in the Company's second business
segment, clinical laboratory services.

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

1997 1996 1995
----------- ---------- ----------
(In Thousands)
<S> <C> <C> <C>
Revenue of each Segment:
Medication Dispensing Systems $ 13,134 $ 11,900 $ 11,252
Clinical Laboratory Services 6,113 5,152 3,578
----------- ---------- ----------

</TABLE>

<PAGE> 53

<TABLE>

<S> <C> <C> <C>
Total Revenue $ 19,247 $ 17,052 $ 14,830
=========== ============ =========

Operating Profit (Loss) of each Segment:
Medication Dispensing Systems $ 2,040 $ (12,550) $ 3,269
Clinical Laboratory Services 136 (4,443) 307
----------- ------------ ---------
2,176 (16,993) 3,576
Corporate
(2,161) (7,624) (5,692)
----------- ------------ ---------
Total Operating Profit (Loss) $ 15 $ (24,617) $ (2,116)
=========== ============ =========

Depreciation and Amortization Expense of
each Segment:
Medication Dispensing Systems $ 684 $ 1,411 $ 616
Clinical Laboratory Services 250 579 183
----------- ------------ ---------
934 1,990 799
Corporate 447 692 261
----------- ------------ ---------
Total Depreciation and Amortization $ 1,381 $ 2,682 $ 1,060
=========== ============ =========

Identifiable Assets of each Segment:
Medication Dispensing systems $ 6,944 $ 8,024 $ 18,009
Clinical Laboratory Services 2,560 2,551 5,887
----------- ------------ ---------
9,504 10,575 23,896
Corporate 3,039 4,094 8,602
----------- ------------ ---------
Total Assets $ 12,543 $ 14,669 $ 32,498
=========== ============ =========

Capital Expenditures of each Segment:
Medication Dispensing Systems $ 215 $ 774 $ 2,244
Clinical Laboratory Services 67 2 600
----------- ------------ ---------
282 776 2,844
Corporate 25 21 159
----------- ------------ ---------
Total Capital Expenditures $ 307 $ 797 $ 3,003
=========== ============ =========

Impairment of Long-Lived Assets:
Medication Dispensing Systems $ -0- $ 12,662 $ 3,471
Clinical Laboratory Services -0- 3,759 800
----------- ------------ ---------
Total Impairment of Long-Lived Assets $ -0- $ 16,421 $ 4,271
=========== ============ =========

</TABLE>

<PAGE> 54

SIGNATURES

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

MEDICAL TECHNOLOGY SYSTEMS, INC.

Dated: July 2, 1997 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> <C> <C>
/s/ Todd E. Siegel Chairman of the Board of Directors, President and July 2, 1997
- ------------------- Chief Executive Officer
Todd E. Siegel

/s/ David Kazarian Director July 2, 1997
- -------------------
David Kazarian

/s/ Michael P. Conroy Director, Chief Financial Officer and Vice President July 2, 1997
- ----------------------
Michael Conroy

/s/ John Stanton Director and Vice Chairman of the Board of July 2, 1997
- ------------------- Directors
John Stanton

/s/ Ronald Rhodes Principal Accounting Officer and Controller July 2, 1997
- -------------------
Ronald Rhodes

</TABLE>

<PAGE> 55
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 24, 1997, which is included in the Company's Annual Report on SEC
Form 10-K as of and for the year ended March 31, 1997, we have also audited
Schedule II for the year ended March 31, 1997. In our opinion, this schedule
presents fairly in all material respects, the information required to be set
forth therein.

GRANT THORNTON LLP

Tampa, Florida
June 24, 1997

52
<PAGE> 56
Independent Auditors' Report on
Supplementary Information

The accompanying information shown on Schedule II (Valuation and Qualifying
Accounts) for the years ended March 31, 1996 and 1995 is presented for purposes
of complying with the Securities and Exchange Commission rules and is not a
required part of the basic financial statements. Our audits of the basic
financial statements were made for the purpose of forming an opinion on those
statements taken as a whole. The accompanying financial information has been
subjected to the auditing procedures applied in the audits of the basic
financial statements.

In our opinion, the accompanying information included on Schedule II (Valuation
and Qualifying Accounts) for the years ended March 31, 1996 and 1995 is fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.

Certified Public Accountants
Tampa, Florida
June 20, 1996

<PAGE> 57
SCHEDULE II

MEDICAL TECHNOLOGY SYSTEMS, INC.

VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended March 31, 1995, 1996 and 1997

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

Year ended March 31, 1995 $ -0- $ -0- $ -0- $ -0-
Year ended March 31, 1996 $ -0- $ 6,877 $ -0- $ 6,877
Year ended March 31, 1997 $ 6,877 $ -0- $ 1,968 $ 4,909

Inventory Valuation Allowance:

Year ended March 31, 1995 $ -0- $ -0- $ -0- $ -0-
Year ended March 31, 1996 $ -0- $ 850 $ -0- $ 850
Year ended March 31, 1997 $ 850 $ 94 $ 864 $ 80

Self Insured Medical Claims Valuation Allowance:

Year ended March 31, 1995 $ 65 $ 271 $ 226 $ 110
Year ended March 31, 1996 $ 110 $ 853 $ 715 $ 248
Year ended March 31, 1997 $ 248 $ 726 $ 762 $ 212

Allowance for Doubtful Accounts:

Year ended March 31, 1995 $ 137 $ 30 $ -0- $ 167
Year ended March 31, 1996 $ 167 $ 906 $ 545 $ 528
Year ended March 31, 1997 $ 528 $ 693 $ 181 $ 1,040
</TABLE>

S-1

<PAGE> 1
EXHIBIT 2.1

AGREEMENT AND PLAN OF MERGER

This Agreement and Plan of Merger dated April 24, 1997, by and between
MEDICATION MANAGEMENT TECHNOLOGIES, INC., a Florida corporation with its
principal offices located at 12920 Automobile Boulevard, Clearwater, Florida
34622 ("Buyer") and CYGNET LABORATORIES, INC., a California corporation with its
principal offices located at 1686 Dell Avenue, Campbell, California 95008
("Seller"). THE LONG FAMILY TRUST, WILLIAM D. LONG, TRUSTEE ("Long"), the
principal shareholder in the Seller, personally joins in and executes this
Agreement for the purpose of making the warranties, representations, covenants,
indemnities and agreements set forth in Sections 3.1, 5, 6.1, 7.1.3 and 9.1
below.

RECITALS

WHEREAS, the parties desire that Seller be merged into Buyer (the
"Merger"), with Buyer being the surviving corporation, all as more particularly
set forth herein; and

WHEREAS the Merger shall be consummated pursuant to and in accordance
with the terms and conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the premises and the mutual
covenants set forth herein, the parties agree as follows:

SECTION 1. PLAN OF MERGER.

1.1 The Plan of Merger, Exhibit A, is incorporated herein by
reference.

SECTION 2. CLOSING.

Closing shall take place at 12920 Automobile Boulevard,
Clearwater, Florida 34622, at 1:00 p.m., on February 21, 1997 (the "Closing
Date"), or at another time, date, and/or place mutually agreed to by the
parties. Closing shall be consummated by the execution and acknowledgment by
Buyer and Seller of Articles of Merger in accordance with Fla. Stat. Chapter 607
and other applicable law. The Articles of Merger executed and acknowledged shall
be delivered for filing to the Department of State as promptly as possible after
the consummation of the Closing. The Articles of Merger shall specify the
effective date and time of the Merger.

SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLER AND LONG.

3.1 Seller and Long's Representations and Warranties. Seller
and Long jointly and severally represent and warrant to Buyer, except as set
forth on the Schedule of Exceptions

<PAGE> 2

attached hereto as Schedule 3.1, as follows:

3.1.1 Capital Structure. The capitalization of
Seller is set forth on Schedule 3.1.1, which sets forth the number of
authorized, issued, and outstanding shares of each class and series of capital
stock of Seller. All of the issued and outstanding capital stock of Seller has
been duly authorized and validly issued, and is fully paid and nonassessable,
and not subject to any restriction on transfer under the Articles of
Incorporation or Bylaws of Seller or any agreement to which Seller is a party or
has been given notice. There are no outstanding subscriptions, options,
warrants, convertible securities, rights, agreements, understandings, or
commitments of any kind relating to the subscription, issuance, repurchase or
purchase of capital stock or other securities of Seller, or obligating Seller to
issue or transfer any additional shares of its capital stock of any class or any
other securities, except as stated on Schedule 3.1.1.

3.1.2 Ownership of the Shares. The shares of common
and preferred stock of Seller which Seller delivers to Buyer at Closing for
cancellation, shall be duly endorsed in blank by the true owner thereof or
accompanied by stock powers duly executed by the true owners thereof. Moreover,
all such stock shall be free and clear of any interests, security interests,
claims, liens, pledges, options, penalties, charges, other encumbrances,
buy-sell agreements, or rights of any party whatsoever.

3.1.3 Organization and Good Standing. Seller is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of California, having all requisite corporate power and
authority to own its assets and carry on its business as presently conducted.

3.1.4 Authorization; Validity. The execution,
delivery, and performance of this Agreement by Seller has been duly and validly
authorized by all requisite corporate action. This Agreement has been duly and
validly executed and delivered by Seller, and is the legal, valid, and binding
obligation of Seller, enforceable in accordance with its terms, except as
limited by bankruptcy, insolvency, moratorium, reorganization, and other laws of
general application affecting the enforcement of creditors' rights and by the
availability of equitable remedies.

3.1.5 Consents, etc. To the knowledge of Seller, no
approval, consent, waiver, or authorization of or filing or registration with
any governmental authority or third party is required for the execution,
delivery, or performance by Seller of the transactions contemplated by this
Agreement.

3.1.6 Violations. To the knowledge of Seller, the
execution, delivery, or performance of this Agreement does not and will not (i)
with or without the giving of notice or the passage of time, or both, constitute
a default, result in a breach of, result in the termination of, result in the
acceleration of performance of, require any consent, approval, or waiver, or
result in the imposition of any lien or other encumbrance upon any property or
assets of Seller, under any agreement, lease, or other instrument to which
Seller is a party or by which any of the property or

<PAGE> 3

assets of Seller is bound; (ii) violate any permit, license, or approval
required by Seller to own its Assets and operate its business; (iii) violate any
law, statute, or regulation or any judgment, order, ruling, or other decision of
any governmental authority, court, or arbitrator; or (iv) violate any provision
of Seller's Articles of Incorporation or Bylaws.

3.1.7 Assets. Subject to the lien and encumbrance
in favor of the Long Family Trust as set forth in the Modification Agreement
between Seller and Long of even date herewith, as a result of the merger, Buyer
will be the sole and exclusive owner of all of the assets of Seller of every
kind, character and description, whether tangible, intangible, wherever located
(sometimes collectively referred to in this Agreement as the "Assets") used in
connection with the Business, including but not limited to the following:

(a) All furniture, fixtures, equipment,
computers, and leasehold improvements, including but not limited to those
described in Schedule 3.1.7(a);

(b) All of Seller's current assets,
including but not limited to maintenance contracts;

(c) All of Seller's right, title and
interest in and to equipment leases and other contract rights, together with all
options related thereto, if any;

(d) All of Seller's right, title and
interest in and to the lease (the "Lease") of Seller's business premises (the
"Leased Premises") located at 1686 Dell Avenue, Campbell, CA;

(e) All of Seller's right, title and
interest in and to the names "CYGNET LABORATORIES" and "CYGNET" and to any and
all other trade names, trademarks and their registrations, if any, used by
Seller in connection with the operation of the Business, including but not
limited to all trademarks and tradenames identified in Schedule 3.1.7(e);

(f) All of Seller's right, title and
interest in and to its customer list;

(g) All of Seller's goodwill generated
from the operation of its business;

(h) All know-how and other trade
secrets, together with all documentation thereof;

(i) All of Seller's books and records
relating to the operation of the Business;

<PAGE> 4

(j) All of Seller's accounts
receivable, including those accounts receivable which are listed on Schedule
3.1.7(j);

(k) All work-in progress of the Seller,
including all revenues generated thereon after the Closing
("Work-in-Progress"); and

(l) All of Seller's software programs,
source codes and trademark/copyright protection or filings related thereto,
including but not limited to Seller's software programs and source code for
Seller's Fetal Monitoring and Point-of-Care Documentation System ("the Source
Code"); and

(m) All of customer deposits or other
customer funds held by Seller, which are listed on Schedule 3.1.7(m).

3.1.8 Title to Assets. Seller has good and
marketable title to all the Assets, free and clear of any mortgages, liens,
restrictions, encumbrances, conditional sale or security agreements, or adverse
claims, except as set forth in Schedule 3.1.8. None of the Assets are subject to
any restriction which would prevent the conveyance thereof to Buyer or prevent
or materially adversely affect the use presently made thereof by Buyer.

3.1.9 Litigation. Except as set forth on
Schedule 3.1.9, there is no litigation or proceeding filed against and served
on Seller or, to Seller's knowledge, threatened, and to Seller's knowledge,
there exists no basis or grounds for any such suit, action, proceeding, claim or
investigation, which affects the consummation of this transaction or the title
or interest of Seller to or in any of the Assets or which would prevent or
materially affect the operation by Buyer of the Business.

3.1.10 Taxes. Seller has paid all state and
federal income taxes and the employees' share of all FICA and all other state
and federal withholding taxes.

3.1.11 Products Liability Insurance. To Seller's
knowledge, Seller has in force adequate products liability insurance of a scope
and amount normal for a business of its size and nature.

3.1.12 Leases of Personal Property. To Seller's
knowledge, all leases of personal property of Seller being acquired by Buyer are
in full force and effect and are enforceable in accordance with their terms.

3.1.13 Benefit Plan. Schedule 3.1.13 contains a
complete list of all benefit plans (both insured and uninsured, including
retirement plans and welfare plans) which Seller has maintained, contributed to
or sponsored relating to the Business. All of such plans have been maintained
and administered in accordance with their terms and all legal requirements. All
benefits under such plans accruing prior to the date of closing shall be fully
funded by Seller on or

<PAGE> 5

prior to the date of closing.

3.1.14 Software. To Seller's knowledge, Seller
has maintained the Source Code on a confidential basis. The Source Code is duly
owned by Seller and Seller has exclusive rights in the Source Code. Seller has
granted to no third parties any license or other rights in connection with the
Source Code, except non-exclusive, limited use licenses granted to customers in
the ordinary course of business. To Seller's knowledge, development and sale of
the Source Code by Buyer does not and will not infringe upon any copyright of
any third person. Seller further covenants and agrees to provide to Buyer all
information necessary to register the Source Code. The Source Code has been
developed by Seller and is unique.

3.1.15 Bulk Sale. Seller is not bound by any Bulk
Sale Act or similar provision which requires notice to its creditors of the
transactions contemplated herein.

3.1.16 No Brokers. No broker or other person or
legal entity is entitled to any commission or other form of fee or compensation
on account of the transactions contemplated by this Agreement.

3.1.17 Knowledge Definition. For purposes of this
Section 3, the term "to Seller's knowledge" shall mean to the actual knowledge
of William Brereton and William Long, without conducting any independent
investigation.

3.2 Survival of Representations and Warranties. Each of the
representations and warranties in Section 3.1 shall be deemed renewed and made
again by Seller at the Closing as if made as at that time, and shall survive the
closing until the expiration of all applicable statute of limitation periods.

SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER.

4.1 Buyer's Representations and Warranties. Buyer represents
and warrants to Seller as follows:

4.1.1 Capital Structure. The capitalization of
Buyer is set forth on Schedule 4.1.1, which sets forth the number of authorized,
issued, and outstanding shares of each class and series of capital stock of
Buyer. All of the issued and outstanding capital stock of Buyer has been duly
authorized and validly issued, and is fully paid and nonassessable, and not
subject to any restriction on transfer under the Articles of Incorporation or
Bylaws of Buyer or any agreement to which Buyer is a party or has been given
notice. There are no outstanding subscriptions, options, warrants, convertible
securities, rights, agreements, understandings, or commitments of any kind
relating to the subscription, issuance, repurchase, or purchase of capital stock
or other securities of Buyer, or obligating Buyer to issue or transfer any
additional shares of its capital stock of any class or any other securities,
except as stated on Schedule 4.1.1.

<PAGE> 6

4.1.2 No Brokers. No broker or other person or
legal entity is entitled to any commission or other form of fee or
compensation on account of the transactions contemplated by this Agreement.

4.1.3 Organization and Good Standing. Buyer is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Florida, having all requisite corporate power and authority
to own its assets and carry on its business as presently conducted.

4.1.4 Authorization; Validity. The execution,
delivery, and performance of this Agreement by Buyer has been duly and validly
authorized by all requisite corporate action. This Agreement has been duly and
validly executed and delivered by Buyer, and is the legal, valid, and binding
obligation of Buyer, enforceable in accordance with its terms, except as limited
by bankruptcy, insolvency, moratorium, reorganization, and other laws of general
application affecting the enforcement of creditors' rights and by the
availability of equitable remedies.

4.1.5 Consents, etc. Other than as set forth on
Schedule 4.1.5, no approval, consent, waiver, or authorization of or filing or
registration with any governmental authority or third party is required for the
execution, delivery, or performance by Buyer of the transactions contemplated by
this Agreement.

4.1.6 Violations. The execution, delivery, or
performance of this Agreement does not and will not (i) with or without the
giving of notice or the passage of time, or both, constitute a default, result
in a breach of, result in the termination of, result in the acceleration of
performance of, require any consent, approval, or waiver (other than those
identified on Schedule 4.1.5), or result in the imposition of any lien or other
encumbrance upon any property or assets of Buyer, under any agreement, lease, or
other instrument to which Buyer is a party or by which any of the property or
assets of Buyer is bound; (ii) violate any permit, license, or approval required
by Buyer to own its Assets and operate its business; (iii) violate any law,
statute, or regulation or any judgment, order, ruling, or other decision of any
governmental authority, court, or arbitrator; or (iv) violate any provision of
Buyer's Articles of Incorporation or Bylaws.

4.2 Survival of Representations and Warranties. Each of the
representations and warranties in Section 4.1 shall be deemed renewed and made
again by Buyer at the Closing as if made as at that time, and shall survive the
closing until the expiration of all applicable statute of limitation periods.

SECTION 5. COVENANTS OF SELLER AND LONG.

5.1 Except as may otherwise be consented to or approved in
writing by Buyer, Seller and Long jointly and severally covenant and agree that
from the date of this Agreement and until the Closing:

<PAGE> 7

5.1.1 Conduct Pending Closing. (i) The business of
Seller shall be conducted only in the ordinary course consistent with past
practices; and (ii) Seller shall not: (a) borrow any new or additional sum of
money; (b) declare or pay any dividends; (c) issue any new or additional stock;
(d) merge with any other entity; or (e) sell, transfer or convey any of Seller's
assets outside of the ordinary course of business.

5.1.2 Access to Records. Seller shall provide Buyer
and its representatives access to all records of Seller that they may reasonably
request and provide reasonable access to the properties of Seller.

5.1.3 Solicitation. Seller agrees that it will not
solicit, consider, or negotiate any offers to acquire the shares or assets of
Seller, or to provide any information or to make available any management
personnel to third parties for such purposes.

SECTION 6. CONSIDERATION.

6.1 Seller's Shareholders. Seller and Long represent and
warrant to Buyer that Schedule 6.1 is a complete and accurate list of all
persons or entities who own or hold any stock or equity interest in Seller
("Seller's Shareholders"), and the number of shares owned or held by each.

6.2 Consideration. In consideration of the Seller's
Shareholders' surrender of their respective stock in Seller, Buyer shall pay the
Seller's Shareholders the consideration which is set forth on Schedule 6.2.

SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER.

7.1 Conditions Precedent. Unless, at the Closing, each of the
following conditions is either satisfied or waived by Buyer in writing, Buyer
shall not be obligated to effect the transactions contemplated by this
Agreement.

7.1.1 Representations and Warranties. The
representations and warranties of Seller and Long in this Agreement are true and
correct at the date of this Agreement and shall be true and correct as of the
Closing as if each were made again at that time.

7.1.2 Performance of Covenants. Seller and Long
shall have performed and complied in all respects with the covenants and
agreements required by this Agreement.

7.1.3 Items to be Delivered at Closing. Seller and
Long shall have tendered for delivery to Buyer the following:

(i) Delivery of Shares for Cancellation. Stock certificates
representing all of the outstanding shares of Seller's common stock; and all
the outstanding shares

<PAGE> 8

of Seller's preferred stock Classes "A" and "C"; and all preferred stock Class
"B" held by Long, duly endorsed in blank or accompanied by duly executed stock
powers with all requisite transfer tax stamps attached, which shall be
subsequently cancelled.

(ii) Consents. Consents for each item listed
on Schedule 3.1.5.

(iii) Corporate Action. A certified copy of
the corporate action of Seller authorizing and approving this Agreement and the
transactions contemplated by it.

(iv) Certificate of Incumbency. A certificate
of incumbency duly executed by Seller's Secretary or Assistant Secretary.

(v) Articles of Merger. A duly executed
original of the Articles of Merger.

(vi) Legal Opinion. A written opinion of
Seller's Counsel, dated as of Closing, to the effect that:

(1) Seller is a corporation duly
organized, existing and in good standing under the laws of the State of
California. Seller has full corporate power and authority to enter into this
Agreement; to effectuate the Merger; and all corporate action required to be
taken by or on the part of Seller to enable Seller to carry out this Agreement
has been duly taken.

(2) Except as set forth in the
Schedule of Exceptions, they have no knowledge of any litigation, proceeding or
governmental investigation pending or threatened which affects the title or
interest of Seller to or in any of the Assets or which would prevent or
adversely affect the ownership, use or operation of the Seller's business by
Buyer.

(3) This Agreement and all
documents contemplated herein to be executed by Seller and delivered to Buyer at
the Closing have been duly and validly executed and delivered and are binding
upon Seller in accordance with their terms.

(4) Seller is under no duty to
comply with the California Bulk Sales Act or any similar provisions which
require notice to creditors of Seller with respect to the transactions
contemplated herein.

(vii) Certificates. Deliver all certificates
required by this Agreement with respect to representations, warranties,
covenants and conditions contained herein.

7.1.4 Proceedings and Instruments Satisfactory. All
proceedings, corporate or other, to be taken in connection with the transactions
contemplated by this Agreement, and all documents incident thereto, shall be
satisfactory in form and substance to

<PAGE> 9

Buyer and Buyer's counsel, whose approval shall not be unreasonably withheld.

7.1.5 Condition of Assets. None of the Assets have been
materially damaged by fire, vandalism or other casualty prior to Closing.

SECTION 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER.

8.1 Conditions Precedent. Unless, at the Closing, each of the
following conditions is either satisfied or waived by Seller in writing, Seller
shall not be obligated to effect the transactions contemplated by this
Agreement.

8.1.1 Representations and Warranties. The
representations and warranties of Buyer in this Agreement are true and correct
at the date of this Agreement and shall be true and correct as of the Closing as
if each were made again at that time.

8.1.2 Items to be Delivered at Closing. Buyer shall have
tendered for delivery to Seller the following:

(i) Consents. Consents for each item listed
on Schedule 4.1.5 of this Agreement.

(ii) Corporate Action. A certified copy of
the corporate action of Buyer authorizing and approving this Agreement and the
transactions contemplated by it.

(iii) Certificate of Incumbency. A certificate
of incumbency duly executed by Buyer's Secretary or Assistant Secretary.

(iv) Articles of Merger. A duly executed
original of the Articles of Merger.

(v) Legal Opinion. A written opinion of
Buyer's Counsel dated as Closing in form and substance satisfactory to Seller to
the effect that:

(1) Buyer is a corporation duly
organized, existing and in good standing under the laws of the State of Florida.
Buyer has full corporate power and authority to execute and deliver this
Agreement, and to otherwise perform as provided by this Agreement. All corporate
action required to be taken by or on the part of Buyer to enable it to carry out
this Agreement has been duly taken; and

(2) They have no knowledge of any
litigation, proceeding or governmental investigation pending or threatened which
affects Buyer or which should prevent or adversely affect Buyer's ownership, use
and operation of the Assets.

<PAGE> 10

(3) This Agreement and all
documents contemplated herein to be executed by Buyer and delivered to Seller at
the Closing have been duly and validly executed and delivered and are binding
upon Buyer in accordance with their terms.

(vi) the consideration payable to the
Seller's Shareholders, in accordance with Schedule 6.2;

(vii) Cygnet shall have duly executed and
delivered to Long the Modification Agreement and the New Note and the Amended
and Restated Security Agreement contemplated thereby, and filed UCC-1 forms with
respect thereto in the States of California and Florida.

SECTION 9. INDEMNIFICATION.

9.1 Indemnification by Seller and Long. Seller and Long shall
jointly and severally indemnify, defend and hold harmless Buyer against and in
respect of all damages, loss, cost or expense of Buyer resulting from any
misrepresentation, breach of warranty, or nonfulfillment of any agreement on the
part of the Seller under this Agreement; all claims, actions, suits,
proceedings, losses, obligations, liabilities, demands, assessments, judgments,
costs and expenses incident to any of the foregoing. Buyer's sole and exclusive
remedy for breaches of representations and warranties and for the obligations
set forth in this Section 9.1 as they relate to Long shall be the right of
offset against any payments due or to become due to Long pursuant to that
certain Modification Agreement between Seller and Long. Moreover, to the extent
any misrepresentation, breach of warranty or nonfulfillment of any agreement by
Seller relates to a liability of Seller which is, or is capable of being,
discharged in bankruptcy, then Buyer shall not offset any payments due Long.

9.2 Indemnification by Buyer.

9.2.1 Indemnity. Buyer shall indemnify and hold harmless
Seller, against and in respect of all damages, loss, cost or expenses of Seller
resulting from any misrepresentation, breach of warranty, or nonfulfillment of
any agreement on the part of the Buyer under this Agreement, or from any
misrepresentation in, or omission from, any certificate or other instrument
furnished or to be furnished by Buyer to Seller under this Agreement, including
but not limited to all claims, actions, suits, proceedings, losses, obligations,
liabilities, demands, assessments, judgments, costs and expenses incident to any
of the foregoing.

9.2.2 Officers and Directors. Buyer further agrees to
indemnify and hold harmless all persons who are officers and/or directors of
Seller on the Closing Date against any and all claims arising out of the Merger,
or the structure of the transaction between Seller and Buyer as a merger. This
indemnity shall not apply to any claims against Long for actions taken in his
capacity as a creditor of the Seller.

<PAGE> 11

9.3 Indemnification Procedure. Should any claim
covered by the foregoing indemnity be asserted against any person indemnified by
the foregoing indemnity (an "Indemnified Party"), the Indemnified Party shall
notify Buyer promptly and give it an opportunity to defend the same, and the
Indemnified Party shall extend cooperation to Buyer in connection with such
defense. In the event the Buyer fails to defend the same within a reasonable
time, the Indemnified Party shall be entitled to assume the defense thereof, and
Buyer shall be liable to repay the Indemnified Party for its expenses reasonably
incurred in connection with the defense, including reasonable attorney's fees
and settlement payments.

9.4 Survival of Indemnity. All provisions contained
herein relating to indemnity shall survive the Closing.

SECTION 10. NOTICES. Any notice, request, demand, or
communication required or permitted to be given by any provision of this
Agreement shall be deemed to have been delivered, given, and received for all
purposes if written and (i) if delivered personally, by facsimile, or by
courier or delivery service, at the time of such delivery; or (ii) if directed
by registered or certified United States mail, postage and charges prepaid,
addressed to the intended recipient, at the address specified below, two
business days after such delivery to the United States Postal Service.

If to Buyer:

MEDICATION MANAGEMENT TECHNOLOGIES, INC.
12920 Automobile Boulevard
Clearwater, Florida 34622
Attn.: Todd E. Siegel

with copy to:

Michael R. Carey, Esquire
Carey, O'Malley, Whitaker & Manson, P.A.
First Union Center, Suite 1190
100 South Ashley Drive
Post Office Box 499
Tampa, Florida 33601-0499

and

Domenic L. Massari, III, Esquire
Massari, Bell, Jacobs, Forlizzo & Neal
One Urban Center, Suite 695
4830 West Kennedy Boulevard
Tampa, Florida 33609

<PAGE> 12

If to Seller:

CYGNET LABORATORIES, INC.
1686 Dell Avenue
Campbell, California 95008

If to Long:

William D. Long
2188 Slaughterhouse Creek Road
Post Office Box 522
Glenbrook, Nevada 89913

Any party may change the address to which notices are to be mailed by giving
notice as provided herein to all other parties.

SECTION 11. MISCELLANEOUS.

11.1 Entire Agreement. This Agreement, the Exhibits, and the
Schedules, including the Plan of Merger and the Articles of Merger and their
exhibits and schedules, contain all of the terms and conditions agreed upon by
the parties with reference to the subject matter and supersede any and all
previous agreements, representations, and communications between the parties,
whether written or oral. This Agreement, including its Exhibits and Schedules,
may not be modified or changed except by written instrument signed by all of the
parties, or their respective successors or assigns.

11.2 Assignment. This Agreement shall not be assigned or
assignable by Seller or Buyer without the express written consent of the other
party. This Agreement shall inure to the benefit of and be binding upon the
parties and their respective successors and assigns.

11.3 Captions. All section, schedule, and exhibit headings are
inserted for the convenience of the parties and shall not be used in any way to
modify, limit, construe, or otherwise affect this Agreement.

11.4 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original and which together
shall constitute one and the same instrument.

11.5 Waiver. Each of the parties may, by written notice to the
other, (i) extend the time for the performance of any of the obligations or
other actions of the other party; (ii) waive any inaccuracies in the
representations or warranties of the other party contained in this

<PAGE> 13

Agreement or in any document delivered pursuant to this Agreement; (iii) waive
compliance with any of the covenants of the other party contained in this
Agreement; or (iv) waive, in whole or in part, performance of any of the
obligations of the other party. No action taken pursuant to this Agreement,
including, but not limited to, the consummation of the Closing or any knowledge
of or investigation by or on behalf of any party, shall be deemed to constitute
a waiver by the party taking such action, possessing such knowledge, or
performing such investigation or compliance with the representations,
warranties, covenants, and agreements contained herein. The waiver by any party
of a breach of any provision of this Agreement shall not operate or be construed
as a waiver of any subsequent or similar breach.

11.6 Controlling Law. This Agreement has been entered into
the State of Florida and shall be governed by and construed and enforced in
accordance with the laws of Florida.

11.7 Gender. Whenever in this Agreement the context so
requires, references to the masculine shall be deemed to include the feminine
and the neuter, references to the neuter shall be deemed to include the
masculine and the feminine, and references to the plural shall be deemed to
include the singular and the singular to include the plural.

11.8 Further Assurances. Each of the parties shall use all
reasonable efforts to bring about the transactions contemplated by this
Agreement as soon as practicable, including the execution and delivery of all
instruments, assignments, and assurances, and shall take or cause to be taken
such reasonable further or other actions necessary or desirable in order to
carry out the intent and purposes of this Agreement.

11.9 Attorneys' Fees. In the event a lawsuit is brought to
enforce or interpret any part of this Agreement or the rights or obligations of
any party to this Agreement, the prevailing party shall be entitled to recover
such party's costs of suit and reasonable attorney's fees, through all appeals.

11.10 References to Agreement. The words "hereof," "herein,"
"hereunder," and other similar compounds of the word "here" shall mean and refer
to the entire Agreement and not to any particular section, article, provision,
annex, exhibit, schedule, or paragraph unless so required by the context.

11.11 Schedules and Exhibits. Schedules and Exhibits to this
Agreement (and any references to any part or parts of them) shall, in each
instance, include the Schedules or Exhibits (as the case may be) attached hereto
as well as any amendments thereto (in each such case). All such Schedules and
Exhibits shall be deemed an integral part hereof, and are incorporated herein by
reference.

11.12 Venue; Jurisdiction. The venue for determination of any
disputes relating to the transactions contemplated by this Agreement shall be
Pinellas County, Florida. The parties consent to venue and jurisdiction in
Pinellas County, Florida, and waive all objections thereto.

<PAGE> 14

11.13 Severability. Each section, subsection, and lesser
section of this Agreement constitutes a separate and distinct undertaking,
covenant, and/or provision. In the event that any provision of this Agreement
shall finally be determined to be unlawful, such provision shall be deemed
severed from this Agreement, but every other provision of this Agreement shall
remain in full force and effect.

11.14 Rights in Third Parties. Except as otherwise
specifically provided, nothing expressed or implied in this Agreement is
intended, or shall be construed, to confer upon or give any person, firm, or
corporation, other than the parties and their respective stockholders or
shareholders, any rights or remedies under or by reason of this Agreement.

11.15 Expenses. Each party shall pay its own expenses in
connection with the negotiation and consummation of the transactions
contemplated by this Agreement.

11.16 Arbitration. Any dispute or controversy arising out of
with or relating to this Agreement, any document or instrument delivered
pursuant to or in connection with this Agreement, or any breach of this
Agreement or any such document or instrument shall be resolved by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association then prevailing. Such arbitration shall take place in Pinellas
County, Florida before an arbitrator chosen and in accordance with such rules.
Any decision rendered by the arbitrator shall be final and may be entered as a
judgment in the courts of the State of Florida. The cost associated with the
arbitration proceedings, including reasonable attorneys fees incurred therein,
shall be allocated by the arbitrator to the prevailing party or as they may
otherwise deem appropriate.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.

WITNESSES: MEDICATION MANAGEMENT TECHNOLOGIES,
INC., a Florida corporation

By:
- ------------------------- -----------------------------
President
- -------------------------

<PAGE> 15

CYGNET LABORATORIES, INC.,
a California corporation

By:
- ------------------------- ---------------------------
Director
- -------------------------

THE LONG FAMILY TRUST

By:
- ------------------------- -----------------------------
WILLIAM D. LONG, Trustee

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

<PAGE> 16

Schedule 3.1

Schedule of Exceptions

The following are exceptions to the representations and warranties of
Cygnet Laboratories, Inc. (the "Seller") and William D. Long ("Long") contained
in that certain Agreement and Plan of Merger dated April 24, 1997 (the
"Agreement") and should be considered to be incorporated into and an integral
part of the Agreement. Any information disclosed herein shall be deemed
disclosed and incorporated into any section under the Agreement to the extent
that such disclosure reasonably specifies the relevant facts necessary for a
reasonable determination that the exception expressed in such disclosure would
also apply to such other sections of the Agreement or is cross referenced. Any
terms defined in the Agreement shall have the same meaning when used in the
Schedule of Exceptions, unless the context otherwise requires.

1. Status of Financial Records

The most recent balance sheet and income statement dated 11/30/96, the
end of the fiscal year for Cygnet, do not accurately reflect the
financial condition of the company at that time. For instance, the
trade receivables of $469,253.19 are significantly inflated above the
actual figure which currently is less than two hundred thousand
dollars. No financial statements have been prepared since the end of
the fiscal year. Also, since no payables have been entered into the
accounting system since last November, the estimate for accounts
payable of $141,203.40 as of 2/15/97 was calculated by manual
tabulation of the invoice amounts. Medication Management Technologies
will be assuming all accounts payable as a consequence of this
transaction.

2. Royalty Dispute with Hassan and Rudain Arafeh

The Arafehs have named as an arbitrator an attorney in their law firm,
Siner, Steinbock, Hofmann & Pennypacker. They contend that
approximately $150,000 is due them under their interpretation of the
royalty agreement, while the position of Cygnet is that they have been
overpaid by several thousand dollars. The Arafehs also claim an
ownership interest in the Cygnet software. The royalty agreement and
other documentation related to the dispute have been provided to
Medical Technology Systems.

3. Customization Backlog

A significant backlog of undetermined magnitude exists with respect to
obligations to customers for the customization of their forms and
menus. This is due in large part to the recently ended practice of
allowing customers the customization of an unlimited number of forms
and menus. A couple of tools have been partially developed to make
Cygnet personnel more productive in performing this task, but this
development effort is not complete.

<PAGE> 17

4. FDA Record Status

While FDA mandated records and files were apparently maintained for the
DOS version of the Cygnet product, much work remains to be done with
respect to the Windows NT version of the product. Documentation
pertaining to the FDA certification of the product has been separately
forwarded.

5. November 15, 1996 Payroll Deficiencies

With the exception of the employees currently employed, only fifty
percent of the salaries were provided for the payroll due on November
15, 1996. Also, no pay was provided for accrued vacation or
compensatory time for either current or former employees. Expenses and
other obligations may not have been satisfied. In at least three cases,
less than fifty percent of the November 15, 1996, payroll was
satisfied.

6. Status of Customer Contracts

It is known that in some cases, sales and installations have occurred
without the execution of a contract. A recent example of this practice
is Mills Peninsula Hospital. The customer files at the Cygnet office in
Campbell can be reviewed to determine the status of contracts on a
customer by customer basis.

7. Customer Deposits and Unearned Warranty Income

While separate schedules have been prepared for the customer deposits
and the unearned portion of warranty income received during the past
year, no funds are on deposit reflecting these amounts. As a
consequence of the merger Medication Management Technologies will be
assuming these obligations.

8. Employee Confidentiality Agreements

A file of Employee Invention and Non-Disclosure agreements is
maintained at the Cygnet office. It is unclear as to whether this file
is complete, whether all employees signed these agreements, or whether
any procedure was in place to insure compliance with the terms of this
agreement. A similar document was utilized for contractors.

9. Stock Option Agreements

A blank form of the stock option agreement has been included as an
attachment. On file at the Cygnet office in Campbell are signed
originals of executed option agreements. However, this file may not be
complete or accurate. It is not known whether option agreements were
signed for all granted options. A copy of the blank option form has
been previously provided.

<PAGE> 18

10. Liability Insurance Refund

A refund in the amount of $9,558.00 is due Cygnet for overpayment of
product liability and other commercial insurance during the latter part
of 1996. We were advised in December of 1996 that a refund would be
made, but the amount had not been determined. Last week the exact
amount of the refund was communicated to the company. Since this refund
represents funds that would have been received by Cygnet either before
and after a bankruptcy filing if an asset sale had taken place, it
follows that it should be paid to he selling shareholders. Further,
unlike the receivables, no effort or work will be required on the part
of the acquiring entity to collect this amount. Therefore, upon receipt
of the refund, Medication Management Technologies will endorse the
check to Campeau and Thomas for deposit in their trust account for
payment of legal fees that have escalated as a consequence of the
change of the transaction from and asset acquisition to a merger.

11. Federal and State Withholding

Beginning with payroll on November 15, 1996, only the employee portion
of payroll taxes have been submitted. The employer portion was not paid
due to the plant to file for bankruptcy after disposition of selected
assets.

12. Sales Personnel Draws, Expenses, and Computers

It is likely that some sales personnel may owe the company money while
others may be owed money by the company. The status of unpaid salary,
draws, expenses and commissions has not been maintained. Also, it is
likely that most if not all of the former sales representatives still
have notebook computers belonging to the company.

13. Leased Office Space

Lease payments are due the landlord for the months of January and
February 1997, for the space occupied on third floor at 1686 Dell
Avenue. A copy of the lease agreement has been forward to Medical
Technology Systems. On January 3, 1997, a three day notice to pay rent
and to perform covenants or quit was delivered to the Cygnet office.
Subsequent to that date Medication Management Technologies has
indicated that a new lease was negotiated with the landlord as of
3/1/97 the Cygnet office was relocated to the first floor of the
building.

14. State of California Labor Commissioner Claims

At least five former Cygnet employees have filed claims with the
Department of Industrial Relations regarding non-payment of wages,
vacation pay, and business expenses. The company has not responded to
or disputed any of the claims. Employees who have submitted claims so
far include the following:

Alan Russ State Case # 12-27998-1-ES
Stephen K. Sorakubo State Case # 12-27998-2-ES

<PAGE> 19

Jim Dilk State Case # 12-27998-3-ES
Terry Moehnke State Case # 12-27998-4-ES
Mary Tappe State Case # 12-27998-5-ES

15. Option Agreement Execution

While the first option period fee of $17,000 for Medical Technology
Systems was paid in full, only $11,000 was paid for the second period.
While Cygnet honored the commitment not to negotiate with other
potential buyers, the additional $6,000 was not requested since it was
not needed for operational expenses during the second option period.
The pricing of the option fee was in part based on what the anticipated
operating costs would be for each two-week option period. Therefore, no
claim will be made for the balance of the option extension fee.

16. Garnishment Summons

Cygnet was recently notified of a series of garnishment summons being
served on the following hospitals in the state of Virginia:

Centra Health dba Virginia Baptist Hospital
Chesapeake General Hospital

These actions were taken on behalf of MedSearch Systems, Inc., as a
result of the arbitration settlement last December which was not
contested by Cygnet Laboratories.

17. Additional Compensation

A special arrangement had been made with John Frediani to provide him
with an additional $250 per month as compensation for the some of the
unusual demands of his job. It is paid as and expense reimbursement to
coincide with the end of the month payroll.

18. Reimbursement for Prince George's Hospital Center Nurses

A claim for reimbursement of automobile and lodging expenses incurred
during attendance of a training session at cygnet has been submitted
by three nurses at Prince George hospital. Jim Killin had verbally
approved this commitment in order to improve a situation involving the
use of the Cygnet product at the hospital. The amount of the claim is
$1,371.75, and the contact at the hospital is Aletha F. Harrison at
(301) 618-3279. The commitment was confirmed in writing by a memo from
Leilani A. Houlihan, Jim Killin's assistant, to Aletha Harrison on
November 1, 1996.

19. Delinquent Status of Equipment Leases

The lease on the Canon copier with IKON Capital is in arrears in the
amount of $1,661.50. The account number is 00000118065-57301, and the
lease expires on 6-28-97. The postage

<PAGE> 20

meter lease with NEOPOST is in arrears in the amount of $343.16. The
account number is 4215069, and the lease expires on 11-04-97.

20. Miscellaneous State Taxes

Communications are periodically received regarding the demand for,
refund of, or notice of eligibility for refund of various types of
taxes in other states. The amount involved is typically less than one
hundred dollars, and occasionally exceeds that amount. At this point in
time it is anticipated that the payment status of such taxes is that
only a few hundred dollars is outstanding, and that eventual refunds
will reduce that amount.

21. Demands by Hospitals for Source Code

At least two hospitals have requested in writing the source code for
the Cygnet product as a consequence of the letter send to all customers
in late November that discussed cash flow problems. The University of
Pennsylvania Medical Center Hospital and Alta Bates medical Center have
made such a request. No response was made to either hospital. The HUP
letter cited contract language obligating the company (Cygnet) to
notify UPMC 60 days prior to discontinuation of business or change in
ownership. Cygnet has not notified any customer of the imminent merger
transaction.

22. Incomplete and Missing Schedules and Exhibits

Some of the schedules and exhibits referenced in the merger document
are either not provided or are incomplete. Some of the material has
been previously provided under separate cover. Other items are
incomplete because the information is either not available or personnel
resources are not available to compile the necessary data on a timely
basis. All of the Exhibits and Schedules specified in the Modification
Agreement and the Agreement and Plan of Merger are either included in
closing documents or have been previously supplied except as annotated
in the following listing.

Modification Agreement

Exhibit A - the Notes ($1,713,000)
Exhibit B - Security Agreement and UCC-1 Financing Statement
Exhibit C - Accounts Receivable

<PAGE> 21

Agreement and Plan of Merger

Exhibit A - Plan of Merger
Schedule 3.1 - Schedule of Exceptions
Schedule 3.1.1 - Capitalization of Seller
Schedule 3.1.5 - Violations (not provided)
Schedule 3.1.7(a) - Furniture & Equipment
Schedule 3.1.7(d) - Leases of Business Premises
Schedule 3.1.7(j) - Accounts Receivable
Schedule 3.1.7(m) - Customer Deposits
Schedule 3.1.8 - Title to Assets Exceptions
Schedule 3.1.9 - Litigation
Schedule 3.1.13 - Benefit Plan (supplied as Insurance Plan and
401K Plan)
Schedule 6.1 - Seller's Shareholders

<PAGE> 22

SCHEDULE 3.1.1

Capitalization of Seller

The number of authorized, issued and outstanding shares of each class
and series of capital stock of Seller is as follows:

<TABLE>
<CAPTION>
COMMON STOCK:
-------------
<S> <C>
Number of issued and outstanding shares: 2,420,000
Number of Treasury Stock shares: 0
Number of authorized but unissued shares 7,580,000
---------
Total number of authorized shares: 0,000,000

SERIES "A" PREFERRED STOCK:

Number of issued and outstanding shares: 3,770,000
Number of Treasury Stock shares: 0
Number of authorized but unissued shares: 0
---------
Total number of authorized shares: 3,770,000

SERIES "B" PREFERRED STOCK:

Number of issued and outstanding shares: 757,804
Number of Treasury Stock shares: 0
Number of authorized but unissued shares: 242,196
---------
Total number of authorized shares: 1,000,000

SERIES "C" PREFERRED STOCK:

Number of issued and outstanding shares: 1,100,000
Number of Treasury Stock shares: 0
Number of authorized but unissued shares: 900,000
---------
Total number of authorized shares: 2,000,000
</TABLE>

<PAGE> 23

SCHEDULE 6.1

COMMON STOCK

<TABLE>
<CAPTION>
Shareholder No. of Shares
----------- -------------
<S> <C>
The Long Family Trust 1,500,000
W. Dennis McIntosh 920,000

PREFERRED STOCK - SERIES "A"

Shareholder No. of Shares
----------- -------------
The Long Family Trust 3,204,500
Centura Investments, Inc. 188,500
The Thomson Revocable Living Trust 188,500
Sean Long 75,400
The Brereton Family Trust 37,700
David B. Long 75,400

PREFERRED STOCK - SERIES "B"

Shareholder No. of Shares
----------- -------------
The Long Family Trust 484,666
Medical Marketing/CareMed, Inc. 59,735
Medical Marketing/CareMed, Inc. 101,357
Profit Sharing Retirement Trust
Alfred V. Reuter 20,000
David Atkinson 34,546
John Harker 7,500
Gladys McIntosh 50,000

PREFERRED STOCK - SERIES "C"

Shareholder No. of Shares
----------- -------------
The Long Family Trust 1,100,000
</TABLE>

<PAGE> 24

SCHEDULE 6.2

CONSIDERATION

COMMON STOCK

<TABLE>
<CAPTION>
Shareholder No. of Shares Consideration
- ----------- ------------- -------------
<S> <C> <C>
The Long Family Trust 1,500,000 $ 15.00
W. Dennis McIntosh 920,000 9.20

PREFERRED STOCK - SERIES "A"

Shareholder No. of Shares Consideration
- ----------- ------------- -------------
The Long Family Trust 3,204,500 $ 32.05
Centura Investments, Inc. 188,500 1.89
The Thomson Revocable Living Trust 188,500 1.89
Sean Long 75,400 .75
The Brereton Family Trust 37,700 .38
David B. Long 75,400 .75

PREFERRED STOCK - SERIES "B"

Shareholder No. of Shares Consideration
- ----------- ------------- -------------
The Long Family Trust 484,666 $ 4.84
Medical Marketing/CareMed, Inc. 59,735 .59
Medical Marketing/CareMed, Inc. 101,357 1.01
Profit Sharing Retirement Trust
Alfred V. Reuter 20,000 .20
David Atkinson 34,546 .34
John Harker 7,500 .08
Gladys McIntosh 50,000 .50

PREFERRED STOCK - SERIES "C"

Shareholder No. of Shares Consideration
- ----------- ------------- -------------
The Long Family Trust 1,100,000 $ 11.00
</TABLE>

<PAGE> 25

PLAN OF MERGER

Merger between Medication Management Technologies, Inc. (the
"Surviving Corp.") and Cygnet Laboratories, Inc. (the "Disappearing Corp."),
(collectively the "Constituent Corporations"). This Merger is being effected
pursuant to this Plan of Merger ("Plan") in accordance with ss. 607.1101, et
seq. of the Florida Business Corporation Act (the "Act").

1. Articles of Incorporation. The Articles of Incorporation of
Surviving Corp., as previously amended and in effect immediately prior to the
Effective Date of the Merger (the "Effective Date") shall, without any changes,
be the Articles of Incorporation of the Surviving Corp. from and after the
Effective Date until further amended as permitted by law.

2. Distribution to Shareholders of the Constituent Corporations. Upon
the Effective Date, each share of Disappearing Corp.'s common stock and
preferred stock Classes A, B and C that shall be issued and outstanding at that
time shall be exchanged for the cash consideration reflected on Exhibit 1
annexed hereto. All common stock and preferred stock Classes A, B and C of
Disappearing Corp. shall be cancelled. Any shareholders of Disappearing Corp.
who do not consent to the merger shall be given written notice of their
dissenter's rights in accordance with Section 1300 et seq. of the California
Corporations Code. Each share of Surviving Corp.'s stock that is issued and
outstanding on the Effective Date shall continue as outstanding shares of
Surviving Corp. Stock.

3. Effect of Merger. On the Effective Date, the separate existence of
Disappearing Corp. shall cease, and Surviving Corp. shall be fully vested in
Disappearing Corp.'s rights, privileges, immunities, powers, and franchises,
subject to its restrictions, liabilities, disabilities, and duties, all as more
particularly set forth in ss. 607.1106 of the Act.

4. Supplemental Action. If at any time after the Effective Date,
Surviving Corp. shall determine that any further conveyances, agreements,
documents, instruments, and assurances or any further action is necessary or
desirable to carry out the provisions of this Plan, the appropriate officers of
Surviving Corp. or Disappearing Corp., as the case may be, whether past or
remaining in office, shall execute and deliver, upon the request of Surviving
Corp., any and all proper conveyances, agreements, documents, instruments, and
assurances and perform all necessary or proper acts, to vest, perfect, confirm,
or record such title thereto in Surviving Corp., or to otherwise carry out the
provisions of this Plan.

5. Filing with the Florida Department of State and Effective Date.
Upon the Closing, as provided in the Agreement of Merger of which this Plan is a
party, Disappearing Corp. and Surviving Corp. shall cause their respective
President (or Vice President) to execute Articles of Merger in the form attached
hereto and upon such execution this Plan shall be deemed incorporated by
reference into the Articles of Merger as if fully set forth therein and shall
become an exhibit to such Articles of Merger. Thereupon, such Articles of Merger
shall be delivered for filing by Surviving Corp. to the Florida Department of
State. In accordance with ss. 607.1105 of the Act, the Articles of Merger shall
specify the "Effective Date."

6. Filing with the California Secretary of State. Also upon Closing, a
certified copy of

<PAGE> 26

the Articles of Merger shall be delivered for filing by Surviving Corp. to the
California Department of State pursuant to ss. 1108(d) of the California
Corporations Code.

7. Amendment and Waiver. Any of the terms or conditions of this Plan
may be waived at any time by the one of the Constituent Corporations which is,
or the shareholders of which are, entitled to the benefit thereof by action
taken by the Board of Directors of such party, or may be amended or modified in
whole or in part at any time prior to the vote of the shareholders of the
Constituent Corporations by an agreement in writing executed in the same manner
(but not necessarily by the same persons), or at any time thereafter as long as
such change is in accordance with ss. 607.1103 of the Act.

8. Termination. At any time before the Effective Date (whether before
or after filing of Articles of Merger), this Plan may be terminated and the
Merger abandoned by mutual consent of the Boards of Directors of both
Constituent Corporations, notwithstanding favorable action by the shareholders
of the respective Constituent Corporations.

<PAGE> 27

EXHIBIT 1 TO PLAN OF MERGER

COMMON STOCK

<TABLE>
<CAPTION>
Shareholder No. of Shares Consideration
- ----------- ------------- -------------
<S> <C> <C>
The Long Family Trust 1,500,000 $ 15.00
W. Dennis McIntosh 920,000 9.20

PREFERRED STOCK - SERIES "A"

PREFERRED STOCK - SERIES "B"

PREFERRED STOCK - SERIES "C"

Shareholder No. of Shares Consideration
- ----------- ------------- -------------
The Long Family Trust 1,100,000 $ 11.00
</TABLE>

<PAGE> 1
EXHIBIT 2.2

ASSET PURCHASE AGREEMENT

This Asset Purchase Agreement is entered into as of April
17th, 1997 ("Agreement"), by and among VANGARD LABS, INC., a Kentucky
corporation ("Seller"), NCS HEALTHCARE OF KENTUCKY, INC., an Ohio corporation
("Buyer"), NCS HEALTHCARE, INC., a Delaware corporation ("NCS"), VANGARD
PHARMACEUTICAL PACKAGING, INC., a Florida corporation and the sole shareholder
of Seller ("Shareholder"), MEDICAL TECHNOLOGY SYSTEMS, INC., a Delaware
corporation and parent corporation of Seller ("MTS"), and JULES J. STINE as
Plan Trustee under the First Amended and Restated Liquidating Plan of Vangard
Labs, Inc., under Chapter 11 of the United States Bankruptcy Code, ("Plan
Trustee").

Recitals:

A. Seller filed a voluntary petition for relief under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
Middle District of Florida, Tampa Division (the "Bankruptcy Court"), on
February 11, 1996, now pending as case number 96-02054 (the "Bankruptcy Case").

B. Seller is presently operating as Debtor in the
Bankruptcy Case.

C. Seller wishes to sell and transfer to Buyer, and
Buyer wishes to purchase from Seller, all of Seller's right, title and interest
in and to certain assets, properties and rights now owned or possessed by
Seller, upon the terms and subject to the conditions of this Agreement.

D. Shareholder owns 100% of the outstanding shares of
the capital stock of Seller.

E. MTS owns 100% of the outstanding shares of the
capital stock of Shareholder, is the ultimate parent of Seller, and is
obligated under the terms of the Plan (as defined below) to transfer certain
real property to Buyer in connection with Buyer's purchase of substantially all
the assets of Seller.

F. NCS owns 100% of the outstanding shares of the
capital stock of Buyer and will benefit from Buyer's purchase of the assets
from Seller.

In consideration of the mutual agreements and covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which the parties hereby acknowledge, the parties hereto agree
as follows:

1. Definitions. As used throughout this Agreement, the
following terms have the following meanings:

1.1 "Accounts Receivable" shall mean any right to
payment for goods sold or leased or for services rendered and all rights to
payment under a Contract.

1.2 "Affiliate" shall mean, with respect to any
Person, any other Person controlling, controlled by or under common control
with such Person. For purposes of this definition,
<PAGE> 2

"control" shall mean the power to direct, or cause the direction of, the
management or policies of any Person, whether through ownership of securities,
by contract or otherwise.

1.3 "Agreement" shall have the meaning set forth
in the preamble to this Agreement.

1.4 "Approvals" shall mean licenses, permits,
consents, authorizations, qualifications, orders or other approvals.

1.5 "Assignment of Contracts" shall mean the
Assignment of the Vangard Non-Competition Agreement and the Assignment of the
Vangard License Agreement, in form and substance acceptable to Buyer.

1.6 "Assignment of Trademarks" shall mean the
Assignment of Seller's intellectual property executed by Seller, in form and
substance acceptable to Buyer.

1.7 "Balance Sheet" shall mean the February 28,
1997 monthly balance sheet of Seller.

1.8 "Bankruptcy Case" shall have the meaning set
forth in the Recitals to this Agreement.

1.9 "Bankruptcy Code" shall mean the United
States Bankruptcy Code, as amended, 11 U.S.C. Sections 101, et seq.

1.10 "Bankruptcy Court" shall have the meaning set
forth in the Recitals to this Agreement.

1.11 "Benefit Plan" shall mean any employee
benefit plan or arrangement under which Seller has, or in the future could
have, directly, or indirectly through an Affiliate of Seller, any Liability
with respect to any current or former employee of Seller or any such Affiliate.

1.12 "Business Day" shall mean a day which is not
a federal, state or local holiday and on which banks generally are open in
Cleveland, Ohio for the conduct of business.

1.13 "Buyer" shall have the meaning set forth in
the preamble to this Agreement.

1.14 "Claims" shall have the meaning set forth in
Section 101(5) of the Bankruptcy Code.

1.15 "Closing" shall have the meaning set forth
in Section 8.

2
<PAGE> 3

1.16 "Closing Date" shall have the meaning set
forth in Section 8.

1.17 "Contemplated Transactions" shall mean the
transactions contemplated by this Agreement.

1.18 "Contracts" shall mean contracts, agreements,
indentures, notes, bonds, loans, instruments, leases, subleases, deeds of
trust, conditional sales contracts, mortgages, franchises, licenses,
commitments or other binding arrangements, express or implied, oral or written,
currently in effect.

1.19 "Debtor" shall mean Seller, Vangard Labs,
Inc., a Kentucky corporation.

1.20 "Facility Lease" shall mean the Lease, dated
August 1, 1993 by and between E. P. Vann and Daryl B. Vann as Lessors, and
Seller as Lessee, regarding the real property and facility located at 603 West
Main Street in Glasgow, Kentucky.

1.21 "Governmental Body" shall mean any court,
governmental or regulatory body or arbitrator of any state, local, federal or
foreign government.

1.22 "Law" shall mean any federal, state, local or
foreign law, statute, order, ordinance, regulation or other legal requirement.

1.23 "Liabilities" shall mean all liabilities of,
claims against, or obligations or responsibilities of, Seller whether currently
due, accrued, known, unknown, contingent or otherwise.

1.24 "Lien" shall have the meaning set forth in
Section 101(37) of the Bankruptcy Code.

1.25 "MTS" shall have the meaning set forth in the
preamble to this Agreement.

1.26 "MTS Deed" shall mean the good and sufficient
general warranty deed conveying fee simple marketable title to the MTS Real
Property to Buyer, free and clear of all Liens and Claims, except the Permitted
Liens.

1.27 "MTS Real Property" shall mean that certain
parcel of real property, located at 890 L. Rogers Wells Boulevard in Glasgow,
Kentucky owned in fee simple by MTS.

1.28 "Order" shall mean any order, judgment,
injunction, award, decree or writ of a Governmental Body.

3
<PAGE> 4

1.29 "Permitted Liens" shall mean (a) zoning and
other land use ordinances, and (b) any real estate taxes or assessments that
are a lien but not yet due and payable, pursuant to certain Commitments issued
by Chicago Title Insurance Company dated February 25, 1997 for the Vangard Real
Property and March 4, 1997 for the MTS Real Property.

1.30 "Person" shall mean any corporation,
partnership, firm, joint venture, individual, association, trust,
unincorporated organization or other entity.

1.31 "Petition Date" means February 21, 1996, the
date on which Seller filed a voluntary petition under the Bankruptcy Code.

1.32 "Plan" shall mean the First Amended and
Restated Liquidating Plan of Vangard Labs, Inc. under Chapter 11 of the United
States Bankruptcy Code, as confirmed by order entered September 4, 1996.

1.33 "Plan Trustee" shall have the meaning set
forth in the preamble to this Agreement.

1.34 "Post Petition Liabilities" shall mean those
Liabilities of Seller accruing and relating solely to the time period after the
Petition Date.

1.35 "Seller" shall have the meaning set forth in
the preamble to this Agreement.

1.36 "Shareholder" shall have the meaning set
forth in the preamble to this Agreement.

1.37 "Vangard Deed" shall mean the good and
sufficient general warranty deed conveying fee simple marketable title to the
Vangard Real Property to Buyer, free and clear of all Liens and Claims, except
the Permitted Liens.

1.38 "Vangard License Agreement" shall mean the
Vangard License Agreement, dated as of September 5, 1996, by and among Vangard
Labs, Inc., a Kentucky corporation, Medical Technology Systems, Inc., a
Delaware corporation, and The Siegel Family Revocable Trust (together with any
successor trust(s) heretofore or hereafter formed pursuant to trust documents
originally executed by Harold Siegel, including, without limitation, The Todd
Siegel Q-TIP Trust, The Mindy Jo Barth Q-TIP Trust, The Siegel Family Q-TIP
Trust, and The Siegel Family By-Pass Trust).

1.39 "Vangard Non-Competition Agreement" shall
mean the Non-Competition Agreement, dated as of September 5, 1996, by and among
Vangard Labs, Inc., a Kentucky corporation, Medical Technology Systems, Inc., a
Delaware corporation, Clearwater

4
<PAGE> 5

Medical Services, Inc., a Florida corporation, Medical Technology Laboratories,
Inc., a Florida corporation, MTS Packaging Systems, Inc., a Florida
corporation, Performance Pharmacy Systems, Inc., a Florida corporation, Vangard
Pharmaceutical Packaging, Inc., a Florida corporation, Cart-Ware, Inc., a
Florida corporation, Medication Management Systems, Inc., a Florida
corporation, Medication Management Technologies, Inc., a Florida corporation,
MTS Sales & Marketing, Inc., a Florida corporation, Systems Professionals,
Inc., a Florida corporation, Todd E. Siegel, The Siegel Family Revocable Trust
(together with any successor trust(s) heretofore or hereafter formed pursuant
to trust documents originally executed by Harold Siegel, including, without
limitation, The Todd Siegel Q-TIP Trust, The Mindy Jo Barth Q-TIP Trust, The
Siegel Family Q-TIP Trust and The Siegel Family By-Pass Trust, JADE Partners,
and The Siegel Family Partnership.

1.40 "Vangard Real Property" shall mean that
certain parcel of real property located at 101-107 Samson Street in Glasgow,
Kentucky owned in fee simple by Seller.

2. Purchase and Sale of Assets.

2.1 Purchased Assets. Subject to the terms and
conditions of this Agreement and pursuant to Section 363 of the Bankruptcy Code
(and Section 365 of the Bankruptcy Code with regard to the Facility Lease), at
the Closing, Seller, and MTS with regard to the MTS Real Property, hereby
sells, transfers, assigns and delivers to Buyer, free and clear of any and all
Liens and Claims, and Buyer hereby purchases and acquires from Seller, and MTS
with regard to the MTS Real Property, all right, title and interest of Seller,
and MTS with regard to the MTS Real Property, in and to all of the following
properties, assets, and rights owned, used, or acquired for use in connection
with Seller's business, whether tangible or intangible, and whether or not
recorded on Seller's books and records, as the same exist at the Closing
(collectively, the "Purchased Assets"):

(a) All of Seller's cash and cash items, notes and
accounts receivable (trade and other, except $54,684 of the account receivable
from Glasgow Pharmaceutical Corporation);

(b) All raw materials and raw material components used in
the Seller's packaging process and in the Seller's possession or otherwise
reflected on the Seller's books as of the Closing Date, including, without
limitation, any prepaid items;

(c) All inventories related to Seller's business,
including, without limitation, all finished goods and work-in-process
inventories;

(d) All equipment (including computer equipment), dies,
supplies, furniture, fixtures, leasehold improvements and other fixed or
tangible assets related to Seller's business;

(e) The Vangard Real Property conveyed to Buyer by the
Vangard Deed;

(f) The MTS Real Property conveyed to Buyer by the MTS
Deed;

5
<PAGE> 6

(g) The Facility Lease, so long as such lease is validly
assigned to Buyer pursuant to Section 365 of the Bankruptcy Code, the Vangard
License Agreement and the Vangard Non-Competition Agreement (collectively, the
"Assumed Contracts");

(h) All regulatory permits, licenses and other documents
of Seller, incident to the operation of its business, to the extent that the
same may be legally assigned;

(i) All software (including, without limitation, source
code and related documentation) know how, patents, trademarks, trade names,
trade dress and service marks, and the goodwill associated with the foregoing,
developments, inventions, and all other intellectual property owned by Seller
(the "Intellectual Property"), except the Intellectual Property subject of the
Vangard License Agreement;

(j) All of Sellers' rights or licenses to use software
(including, without limitation, source code and related documentation) know
how, patents, trademarks, trade names, trade dress, service marks,
developments, inventions and other intellectual property used in, or related
to, Seller's business or the Purchased Assets;

(k) All files, books, records, and data (written,
electronic, or in any other form), related to, or associated with, Seller's
business or the Purchased Assets;

(l) All rights in and to Seller's corporate name and all
variants thereof, and all rights to use of Seller's corporate name as a
trademark, tradename, trade dress or service mark;

(m) All other assets included in the Debtor's Estate (as
defined in Article I of the Plan), and all other assets currently used or
usable in connection with Seller's business, whether owned of record by Seller,
Shareholder, MTS or by any other entity affiliated with MTS, other than the
Retained Assets as provided in Section 2.3 hereof; and

Any and all causes of action associated with the
Purchased Assets described above, with the exception of those causes of action
provided in Section 2.3 hereof.

To the extent necessary for Buyer to acquire all right, title and
interest in and to the Purchased Assets, MTS and Shareholder, hereby (i)
consent to such sale, transfer, assignment and delivery to Buyer, (ii) agree to
execute and deliver any and all necessary documentation, either before or after
the Closing, to vest in Buyer all right, title and interest in and to the
Purchased Assets, and (iii) acknowledge that, except for the MTS Real Property,
Seller owns or has the right to use and transfer all of the Purchased Assets.

2.2 Conditions to Transfer. The parties agree
that (i) Seller shall not sell and Buyer shall not purchase the Retained Assets
of Seller described in Section 2.3 hereof, and

6
<PAGE> 7

(ii) Seller shall assign and Buyer shall assume only the Assumed Contracts. As
a condition precedent both to the assignment of the Assumed Contracts and to
Buyer's obligation to consummate the Contemplated Transactions on the terms
provided herein, Seller must (a) cure, at no cost to Buyer, all defaults under
Section 365 of the Bankruptcy Code on or before the Closing Date, (b) provide
notice to all appropriate parties in interest of the Contemplated Transactions,
and (c) obtain an Order of the Bankruptcy Court, in form acceptable to Buyer,
approving the assignment and assumption of the Assumed Contracts. In
confirmation of the foregoing sale, assignment and transfer, the parties shall
execute and deliver at the Closing, as appropriate, any and all documents
necessary to sell, assign and transfer to Buyer all right and title in and to
the Purchased Assets.

2.3 Retained Assets. Seller shall retain, and
Buyer shall not purchase (i) any rights of Seller arising under this Agreement,
(ii) Seller's corporate minute books, stock records, and tax returns or other
similar corporate books and records, and those records originals of which
Seller is required to maintain under applicable laws (provided, copies of the
same as they relate to Seller's business are included among the Purchased
Assets), (iii) any rights or obligations arising under that certain agreement,
dated November 5, 1993 by and among Seller, Medical Technology Systems, Inc.
and Creighton Products Corporation, (iv) all rights and obligations under any
and all Contracts of Seller, except for the Assumed Contracts, (v) the shares
of capital stock held by Seller in Glasgow Pharmaceutical Corporation, (vi)
avoidance actions of Seller or the Plan Trustee, and (vii) Seller's rights to
any tax refunds described in the Plan (collectively, the "Retained Assets").

3. Liabilities of Seller.

3.1 Payment for Certain Post-Petition
Liabilities. At the Closing, Buyer will pay, by wire transfer of immediately
available funds to an account designated by the Plan Trustee, an amount equal
to $673,000 for settlement by the Plan Trustee of any and all Post-Petition
Liabilities (the "Liability Payment"), except for the Chargebacks (defined
below).

3.2 Assumed Chargeback Liabilities. On the
Closing Date Buyer will assume responsibility for payment, as they become due,
of the following to the extent that they accrue and relate solely to the period
after the Petition Date: chargebacks, customer returns, Medicaid rebates, and
Admin fee rebates (collectively the "Chargebacks").

3.3 Assumed Contract Liabilities. On the Closing
Date, Buyer agrees to assume, and hereby assumes, only those liabilities of
Seller arising after the Petition Date under the Assumed Contracts to the
extent (a) such contract liabilities accrue and relate solely to the period
after the Closing, and (b) the corresponding benefits therefrom are validly
assigned to and received by Buyer pursuant to Section 365 of the Bankruptcy
Code, or otherwise.

3.4 Retained Liabilities. Notwithstanding
anything in this Agreement to the contrary, Buyer shall not assume or become
responsible for any liability or obligation of Seller of any nature whatsoever,
whether known or unknown, accrued, absolute, contingent or otherwise, or

7
<PAGE> 8

any claim against Seller, except to the extent specifically assumed by Buyer
pursuant to Section 3.

3.5 Proration of Expenses. The parties hereto
agree to prorate the expenses set forth on Schedule 3.5 as of the Closing Date,
and make the corresponding payment, as required by such proration.

4. Purchase Price. The aggregate purchase price (the
"Purchase Price") for the Purchased Assets shall be paid by Buyer delivering to
Seller, at the Closing by wire transfer in immediately available funds to an
account designated by the Plan Trustee, the sum of $3,200,000 less the $50,000
deposit previously delivered to the Plan Trustee by Buyer as an earnest money
deposit.

5. Representations and Warranties of Seller, Shareholder
and MTS. Seller, Shareholder and MTS hereby jointly and severally represent
and warrant to Buyer and NCS, as follows:

5.1 Organization, Authority and Capacity.

5.1.1 Seller is a corporation duly
incorporated and validly existing under the laws of the Commonwealth of
Kentucky, and has full corporate power and authority to own, lease and operate
its assets and properties and carry on its business as and where such assets
and properties are now owned or leased and as such business is presently being
conducted. Except for a 50% ownership interest in Glasgow Pharmaceutical
Corporation, Seller does not own, directly or indirectly, any equity ownership
interest in any corporation or other type of business organization or
association.

5.1.2 Shareholder is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Florida, and has full corporate power and authority to execute and deliver
this Agreement and all other documents required by this Agreement to be
executed and delivered in accordance with its and their terms.

5.1.3 MTS is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, and has full corporate power and authority to execute and deliver
this Agreement and all other documents required by this Agreement to be
executed and delivered in accordance with its and their terms.

5.1.4 Subject to and after giving effect
to the approval of the Bankruptcy Court (including satisfying any conditions
imposed by the Bankruptcy Court) and compliance with applicable requirements of
the Bankruptcy Code, Seller, Shareholder and MTS have full corporate power and
authority to execute and deliver this Agreement and all other documents
contemplated hereby and to perform fully its obligations hereunder and
thereunder in accordance with its and their terms, and such execution, delivery
and performance by them has been approved by all requisite corporate and
shareholder action. This Agreement and all other documents contemplated

8
<PAGE> 9

hereby has been duly executed and delivered by Seller, Shareholder and MTS and
constitutes the legal, valid and binding obligation of Seller, Shareholder and
MTS, enforceable against Seller, Shareholder and MTS in accordance with its
terms.

5.2 No Consents or Conflicts. Except for the
approval of the Bankruptcy Court, no consent of, or filing with, any
governmental authority or third party is required in connection with the
execution, delivery or performance of this Agreement or any of the other
agreements, instruments or documents to be delivered by or on behalf of Seller,
Shareholder or MTS in connection herewith. Subject to Bankruptcy Court
approval, neither the execution or delivery nor the performance of this
Agreement or any of the other agreements, instruments or documents to be
delivered by or on behalf of Seller, Shareholder or MTS in connection herewith
conflicts with, violates or results in any breach of: (i) any judgment, decree,
order, statute, rule or regulation applicable to Seller, Shareholder or MTS,
(ii) any instrument to which Seller, Shareholder or MTS is a party or by which
Seller or any of its assets is bound, or (iii) any provision of the Articles of
Incorporation or the By-Laws of Seller, Shareholder or MTS.

5.3 Notice Provided. All parties in interest of
the Contemplated Transactions have been provided notice of the Contemplated
Transactions and the sale of the assets of Seller free and clear of all Liens,
Claims and encumbrances pursuant to Sections 363 and 365 of the Bankruptcy
Code.

5.4 Title to Purchased Assets. Except for the
MTS Real Property which is owned by MTS, Seller owns all of the Purchased
Assets free and clear of all Liens, Claims, or other restrictions or
limitations of any kind whatsoever affecting the ability to use or transfer the
Purchased Assets. Except for the Permitted Liens, all Liens, Claims, or other
restrictions or limitations are fully released and canceled as of the Closing.

5.5 Ownership of Seller and Shareholder.
Shareholder owns, free and clear of all Liens and Claims, all of the issued and
outstanding capital stock of Seller. MTS owns, free and clear of all Liens and
Claims, all of the issued and outstanding capital stock of Shareholder.

5.6 Assets Owned. Except for the acquisition and
disposition of assets in the ordinary course of business consistent with
Seller's past practice, the Purchased Assets include all of the fixed assets
reflected on the Balance Sheet less the Retained Assets, and except for the
Retained Assets, comprise all of those assets which are used to operate
Seller's business in the ordinary course as presently conducted. Since the
date of the Balance Sheet, there has not been any damage to or disposition
(except for the sale of inventory in the ordinary course of business consistent
with past practice) or loss (whether or not covered by insurance) of any asset
of Seller.

5.7 Compliance with Laws. Seller is not in
violation of any Law, including, without limitation, any Law pertaining to
Medicare or Medicaid reimbursement (except as to payments to providers that may
have been modified by the Plan), environmental protection, infectious

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or biomedical waste, occupational health or safety, employee benefits, or
employment practices. Seller has all permits and licenses necessary to conduct
its business. All such permits and licenses are in full force and effect, and
no proceeding is pending or, to the knowledge of Seller, Shareholder or MTS,
threatened, to revoke or limit any of them.

5.8 No Litigation. Except as set forth on
Schedule 5.8, there is no claim, litigation, investigation or proceeding
pending or, to the knowledge of Seller, Shareholder or MTS, threatened against
Seller. There are no pending or, to the knowledge of Seller, Shareholder or
MTS, threatened controversies, grievances or claims by any employee or former
employee of Seller with respect to their employment, compensation, benefits or
working conditions.

5.9 Condition. To the knowledge of Seller, all
of the items of tangible property included among the Purchased Assets are in
good operating condition, normal wear and tear excepted, neither require nor
are reasonably expected to require any special or extraordinary expenditures to
remain in such condition beyond normal maintenance, and are capable of being
used for their intended purposes in the ordinary course of business consistent
with past practice.

5.10 Taxes. All tax returns, reports and
declarations (hereinafter collectively, "Tax Returns") required by any
governmental authority to be filed in connection with the properties, business,
income, expenses, net worth and franchises of Seller have been timely filed,
and such returns are correct and complete in all respects. All tax due in
connection with the properties, business, income, expenses, net worth and
franchises of Seller has been paid, other than tax which is not yet due or
which, if due, is not yet delinquent or is being contested in good faith, and
for which in all cases reserves have been established in the Balance Sheet
which are sufficient to cover the payment of all such tax. There are no tax
claims, audits or proceedings pending in connection with the properties,
business, income, expenses, net worth and franchises of Seller, and, to the
knowledge of Seller, there are no such threatened claims, audits or
proceedings.

5.11 Employee Benefits. All employee welfare
benefit plans as defined in Section 3(1) of the Employee Retirement Income
Security Act of 1974 ("ERISA") ("Welfare Plans"), employee pension benefit
plans as defined in Section 3(2) of ERISA ("Pension Plans"), and all other
employee benefit programs or arrangements of any type ("Other Plans"), written
or unwritten (collectively, the "Plans") maintained by Seller or to which
Seller contributes ("Seller's Plans") are listed on Schedule 5.11. In
addition, Schedule 5.11 separately sets forth any Plans which Seller, or any
affiliate or predecessor of Seller, maintained or contributed to within the six
years preceding the date hereof. Except as disclosed on Schedule 5.11:

5.11.1 The Seller's Plans comply, in all
material respects, with all applicable provisions of any laws, rules, or
regulations, including, without limitation, the Internal Revenue Code of 1986,
as amended (the "Code"), and ERISA, and have so complied during all prior
periods during which any such provisions were applicable. Without limiting the
foregoing, any Seller's Plan, and any related trust, intended to meet the
requirements for tax-favored treatment under

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the Code (including, without limitation, Sections 401 and 501 and Subchapter B
of the Chapter 1 of the Code) meets and for all prior periods has met, such
requirements in all material respects.

5.11.2 Seller and any other party
involved in the administration of any of the Seller's Plans (i) has complied in
all material respects with the provisions of ERISA, the Code and other laws,
rules and regulations applicable to such party, whether as an employer, plan
sponsor, plan administrator, or fiduciary of any of the Seller's Plans or
otherwise, (including without limitation the provisions of ERISA and the Code
concerning prohibited transactions), and (ii) has administered the Seller's
Plans in accordance with their terms. Seller has made all contributions
required of it by any law (including, without limitation, ERISA) or contract
under any of the Seller's Plans and no unfunded liability exists with respect
to any of the Seller's Plans.

5.11.3 Seller has no responsibility or
liability, contingent or otherwise, with respect to any Plans or any employee
benefits other than under the Seller's Plans listed on Schedule 5.11. Seller
has the right to amend or terminate, without the consent of any other person,
any Seller's Plan, except as prohibited by law and any applicable collective
bargaining agreement. Neither Seller, nor any affiliate or predecessor of
Seller, maintains or has ever maintained or been obligated to contribute to (i)
any defined benefit pension plan (as such term is defined in Section 3(35) of
ERISA), (ii) any multiemployer plan (as such term is defined in Section 3(37)
of ERISA), (iii) any severance plan or policy, or (iv) any arrangement
providing medical or other welfare benefits to retirees or other former
employees or their beneficiaries, except as required under part 6 of Subtitle B
of Title I of ERISA or Section 4980B(f) of the Code (hereinafter collectively
referred to as "COBRA").

5.11.4 There are no actions, suits or
claims pending (other than routine claims for benefits) or, to the knowledge of
Seller, any actions, suits, or claims (other than routine claims for benefits)
which could reasonably be expected to be asserted, against any of the Seller's
Plans, or the assets thereof, or against Seller or any other party with respect
to any of the Seller's Plans.

5.12 Conflicts. Except for the Vangard License
Agreement and the packaging business presently conducted by MTS or its
Affiliates, neither MTS nor its Affiliates, has any direct or indirect
interest in any business enterprise which does business with Seller or competes
with Seller in any manner.

5.13 Absence of Certain Business Practices.
Neither Seller nor any shareholder, director, officer, employee or agent of
Seller, nor any other person acting on its behalf, directly or indirectly, has
given or agreed to give any gift or similar benefit to any customer, supplier,
governmental employee or other person which (i) might subject Seller to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding, (ii) if not given in the past, might have had an adverse effect on
the assets, properties, business or operations of Seller, or (iii) if not
continued in the future, might adversely affect Seller's assets, operations or
its prospects or which

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<PAGE> 12

might subject Seller to suit or penalty in any private or governmental
litigation or proceeding.

5.14 Brokers and Finders. No broker, finder or
other person or entity acting in a similar capacity has participated on behalf
of Seller, Shareholder or MTS in bringing about the transactions contemplated
herein, rendered any services with respect hereto, or been in any way involved
herewith, except for Management Resources Group, which obligation owed to such
entity, if any, shall be determined by an Order of the Bankruptcy Court.

5.15 Intellectual Property. Seller has not
granted any rights in any of its Intellectual Property to any third party.

5.16 Contracts. The Assumed Contracts are in full
force and effect, Seller, Shareholder or MTS, to the extent that each is a
party, has performed all obligations required to be performed by it or them to
date, and there is no default of any kind or nature thereunder by Seller,
Shareholder or MTS, as the case may be, and Seller, Shareholder and MTS are not
aware of any default thereunder by any other party thereto, except defaults of
the type referred to in Section 365(b)(2) of the Bankruptcy Code. Seller is
able to assign the Assumed Contracts in accordance with Section 365(b) and (f)
of the Bankruptcy Code, or otherwise.

5.17 No Misrepresentations. No representation or
warranty specifically made by each of Seller, Shareholder or MTS in this
Agreement, the Schedules or Exhibits hereto, or any certificate or document
delivered to Buyer or NCS contains any untrue statement of a material fact or
omits to state a fact required to be stated therein or herein or necessary to
make the statements and facts contained therein or herein, in light of the
circumstances under which they are made, not false or misleading. Copies of
all documents delivered or made available to Buyer or NCS by Seller,
Shareholder or MTS were complete and accurate copies of such documents.

5.18 MTS Real Property.

5.18.1 Title. MTS has good and clear fee
simple and marketable title to the MTS Real Property evidenced in the
appropriate public records, free from all easements, rights-of-way, liens,
security interests, encumbrances and defects of any kind, except for the
Permitted Liens. All real estate taxes, assessments, water and sewer charges
and other municipal utility charges pertaining to the MTS Real Property, to the
extent due and owing, have been paid in full.

5.18.2 Zoning. The MTS Real Property is
presently zoned to permit the Seller's business and all other current uses of
the premises; said zoning is pursuant to statute or ordinance, not pursuant to
any variance or conditional permit granted with respect to the MTS Real
Property, and does not require any further approval nor any other action by any
party.

5.18.3 Assessments. To the knowledge of
MTS, all assessments now

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a lien are shown on the taxing authority's records, and no improvements (site
or area) have been installed, the cost of which is to be assessed against the
MTS Real Property in the future. MTS has not been notified of possible future
improvements by any public authority, any part of the cost of which would or
might be assessed against the MTS Real Property, or of any contemplated future
assessments of any kind. To the knowledge of MTS, all of the streets, roads
and avenues adjoining and/or adjacent to the MTS Real Property are publicly
owned and maintained without assessment or charge to MTS, and the MTS Real
Property has direct access to dedicated roads and/or streets.

5.18.4 Utilities. To the knowledge of MTS,
all utility services necessary for the operation of any business currently
conducted at the MTS Real Property, including water supply, storm and sanitary
sewer facilities, gas, electric and telephone facilities, reach the MTS Real
Property through adjoining public streets or, if they pass through adjoining
private land, do so in accordance with valid, permanent, non-terminable public
or private easements.

5.18.5 Liens/Condition of Premises. The
MTS Real Property is free from mechanic's liens or the possibility of the
rightful filing thereof. The buildings constructed on the MTS Real Property,
to the knowledge of MTS, contain no structural defects. The MTS Real Property
has not been damaged by fire or other casualty except for such damage which has
been fully repaired and restored prior to the date of this Agreement. To the
knowledge of MTS, all equipment, systems, and appliances located at or on the
MTS Real Property and owned by MTS are in good working order, including,
without limitation, heating, ventilation, plumbing, electrical and air
conditioning systems, and wiring, paving, and other amenities. To the
knowledge of MTS, the roof and the foundation of the buildings on the MTS Real
Property are water tight and free from leaks, seepages and moisture. MTS has
received no notice of taking, condemnation, betterment or assessment, actual or
proposed, with respect to any of the MTS Real Property, and no such taking,
condemnation, betterment or assessment has occurred. Buyer acknowledges that
it did not request MTS to take any specific actions with respect to the
representations made in this Section 5.18.5.

5.18.6 Permits. All applicable permits,
declarations, and other evidences of compliance from regulatory authorities
required to be maintained for the MTS Real Property, for the sale of the MTS
Real Property to Buyer, and for the operation and use of the MTS Real Property,
for the Seller's business including, without limitation, those regulating the
division of real property and environmental matters, have been obtained. All
warranties (which have not by their terms expired) in favor of MTS from
contractors having constructed said improvements are in full force and effect
and MTS has complied with the terms of the same. To the knowledge of MTS,
there are no defects in the improvements being a part of the MTS Real Property
or the materials or workmanship furnished in the construction thereof, and said
improvements were constructed in substantial conformity with the plans and
specifications of said improvements.

5.18.7 Real Property Taxes. All
federal, state and local tax returns (including tax returns concerning "gross
receipts") required to be filed with respect to the MTS Real Property have been
timely, duly and accurately completed and filed. All federal, state and local
taxes

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<PAGE> 14

arising in connection with the ownership and operation of the MTS Real Property
have been paid in full, and to the knowledge of MTS, no tax certiorari or audit
proceedings are currently pending with respect to the MTS Real Property. MTS
has received no notice of any increase in either the tax rate or property
assessment with respect to the MTS Real Property at the federal, state or local
level.

5.18.8 Use. The MTS Real Property, and the
current uses, operation, maintenance and management thereof, are not in
violation of any restrictive covenant, agreement or permit applicable thereto,
or to the knowledge of MTS, of any building code, ordinance, statute,
regulation or requirement of any governmental authority having jurisdiction
thereof, and MTS has received no notices regarding any such violation.

5.18.9 Compliance with Laws. MTS is not in
default with respect to any law, administrative rule, regulation, judgment,
decision, order, writ, injunction, decree or demand of any court or any
governmental authority, and the consummation of the transactions contemplated
herein will not conflict with, or constitute a breach of or default under, any
of the foregoing or any agreement or instrument applicable to the MTS Real
Property. There is no litigation or claim pending or threatened against or
involving the MTS Real Property, and, to the knowledge of MTS, there are no
facts or circumstances which could give rise to any such claim or litigation.

5.18.10 Leases. The MTS Real Property is
subject to no leases or rights of occupancy, except with respect to Seller.
MTS has no contract for services or supplies, or otherwise relating to the
ownership, operation or management of the MTS Real Property, including (but not
limited to) labor, management, rubbish removal, exterminating, vending
machines, employment or elevator maintenance contracts.

5.19 Vangard Real Property.

5.19.1 Title. Seller has good and clear
fee simple and marketable title to the Vangard Real Property evidenced in the
appropriate public records, free from all easements, rights-of-way, liens,
security interests, encumbrances and defects of any kind, except for the
Permitted Liens. All real estate taxes, assessments, water and sewer charges
and other municipal utility charges pertaining to the Vangard Real Property, to
the extent due and owing, have been paid in full.

5.19.2 Zoning. The Vangard Real Property
is presently zoned to permit the Seller's business and all other current uses
of the premises; said zoning is pursuant to statute or ordinance, not pursuant
to any variance or conditional permit granted with respect to the Vangard Real
Property, and does not require any further approval nor any other action by any
party.

5.19.3 Assessments. To the knowledge of
Seller, all assessments now a lien are shown on the taxing authority's records,
and no improvements (site or area) have been installed, the cost of which is to
be assessed against the Vangard Real Property in the future. Seller

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<PAGE> 15

has not been notified of possible future improvements by any public authority,
any part of the cost of which would or might be assessed against the Vangard
Real Property, or of any contemplated future assessments of any kind. To the
knowledge of Seller, all of the streets, roads and avenues adjoining and/or
adjacent to the Vangard Real Property are publicly owned and maintained without
assessment or charge to Seller, and the Vangard Real Property has direct access
to dedicated roads and/or streets.

5.19.4 Utilities. To the knowledge of
Seller, all utility services necessary for the operation of any business
currently conducted at the Vangard Real Property, including water supply, storm
and sanitary sewer facilities, gas, electric and telephone facilities, reach
the Vangard Real Property through adjoining public streets or, if they pass
through adjoining private land, do so in accordance with valid, permanent,
non-terminable public or private easements.

5.19.5 Liens/Condition of Premises. The
Vangard Real Property is free from mechanic's liens or the possibility of the
rightful filing thereof. The buildings constructed on the Vangard Real
Property, to the knowledge of Seller, contain no structural defects. The
Vangard Real Property has not been damaged by fire or other casualty except for
such damage which has been fully repaired and restored prior to the date of
this Agreement. To the knowledge of Seller, all equipment, systems, and
appliances located at or on the Vangard Real Property and owned by Seller are
in good working order, including, without limitation, heating, ventilation,
plumbing, electrical and air conditioning systems, and wiring, paving, and
other amenities. To the knowledge of Seller, the roof and the foundation of
the buildings on the Vangard Real Property are water tight and free from leaks,
seepages and moisture. Seller has received no notice of taking, condemnation,
betterment or assessment, actual or proposed, with respect to any of the
Vangard Real Property, and no such taking, condemnation, betterment or
assessment has occurred. Buyer acknowledges that it did not request Seller to
take any specific actions with respect to the representations made in this
Section 5.19.5.

5.19.6 Permits. All applicable permits,
declarations, and other evidences of compliance from regulatory authorities
required to be maintained for the Vangard Real Property, for the sale of the
Vangard Real Property to Buyer, and for the operation and use of the Vangard
Real Property, for the Seller's business including, without limitation, those
regulating the division of real property and environmental matters, have been
obtained. All warranties (which have not by their terms expired) in favor of
Seller from contractors having constructed said improvements are in full force
and effect and Seller has complied with the terms of the same. To the
knowledge of Seller, there are no defects in the improvements being a part of
the Vangard Real Property or the materials or workmanship furnished in the
construction thereof, and said improvements were constructed in substantial
conformity with the plans and specifications of said improvements.

5.19.7 Real Property Taxes. All
federal, state and local tax returns (including tax returns concerning "gross
receipts") required to be filed with respect to the Vangard Real Property have
been timely, duly and accurately completed and filed. All federal, state and
local

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<PAGE> 16

taxes arising in connection with the ownership and operation of the Vangard
Real Property have been paid in full, and to the knowledge of Seller, no tax
certiorari or audit proceedings are currently pending with respect to the
Vangard Real Property. Seller has received no notice of any increase in either
the tax rate or property assessment with respect to the Vangard Real Property
at the federal, state or local level.

5.19.8 Use. The Vangard Real Property, and
the current uses, operation, maintenance and management thereof, are not in
violation of any restrictive covenant, agreement or permit applicable thereto,
or to the knowledge of Seller, of any building code, ordinance, statute,
regulation or requirement of any governmental authority having jurisdiction
thereof, and Seller has received no notices regarding any such violation.

5.19.9 Compliance with Laws. Seller is not
in default with respect to any law, administrative rule, regulation, judgment,
decision, order, writ, injunction, decree or demand of any court or any
governmental authority, and the consummation of the transactions contemplated
herein will not conflict with, or constitute a breach of or default under, any
of the foregoing or any agreement or instrument applicable to the Vangard Real
Property. There is no litigation or claim pending or threatened against or
involving the Vangard Real Property, and, to the knowledge of Seller, there are
no facts or circumstances which could give rise to any such claim or
litigation.

5.19.10 Leases. The Vangard Real Property
is subject to no leases or rights of occupancy. Seller has no contract for
services or supplies, or otherwise relating to the ownership, operation or
management of the Vangard Real Property, including (but not limited to) labor,
management, rubbish removal, exterminating, vending machines, employment or
elevator maintenance contracts.

5.20 Ownership of Assets. Except for the
Intellectual Property subject to the License Agreement being assigned hereunder
and the MTS Real Property being conveyed hereunder, MTS and its Affiliates
(other than Seller) do not own, have any interest in, or Claim against, any of
the assets used to operate Seller's business as presently conducted, or in any
of the assets located at the MTS Real Property, the Vangard Real Property, or
the property subject to the Facility Lease.

6. Representations and Warranties of Buyer and NCS.
Buyer and NCS jointly and severally represent and warrant to Seller,
Shareholder and MTS as follows:

6.1 Organization and Authority of Buyer and NCS.
Buyer is a corporation duly incorporated, validly existing and in good standing
under the laws of the State of Ohio, and has full corporate power and authority
to execute, deliver and perform this Agreement in accordance with its terms.
NCS is a corporation duly incorporated and validly existing under the laws of
the State of Delaware and has full corporate power and authority to execute,
deliver and perform this Agreement in accordance with its terms. Buyer is
qualified to do business in the Commonwealth of Kentucky.

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This Agreement and the transactions contemplated by this Agreement, have been
authorized by all necessary corporate action of Buyer and NCS. This Agreement
has been duly executed and delivered by Buyer and NCS and constitutes the
legal, valid and binding obligation of Buyer and NCS, enforceable against Buyer
and NCS in accordance with its terms.

6.2 No Consents or Conflicts. No consent of, or
filing with, any governmental authority or third party is required in
connection with the execution, delivery or performance of this Agreement by
Buyer and NCS. Neither the execution or delivery nor the performance of this
Agreement or any of the other agreements, instruments or documents to be
delivered by or on behalf of Buyer and NCS in connection herewith conflicts
with, violates or results in any breach of: (i) any judgment, decree, order,
statute, rule or regulation applicable to Buyer or NCS, (ii) any instrument to
which Buyer or NCS is a party or by which either is bound, or (iii) any
provision of the Articles of Incorporation or the By-Laws of Buyer or NCS.

6.3 Brokers and Finders. No broker, finder or
other person or entity acting in a similar capacity has participated on behalf
of Buyer or NCS in bringing about the transactions contemplated herein,
rendered any services with respect thereto or been in any way involved
therewith.

6.4 No Misrepresentation. No representation or
warranty made by Buyer or NCS in this Agreement, the Schedules or Exhibits
hereto, or any certificate or document delivered to Seller, Shareholder or MTS
contains any untrue statement of a material fact or omits to state a fact
required to be stated therein or herein or necessary to make the statements and
facts contained therein or herein, in light of the circumstances under which
they are made, not false or misleading. Copies of all documents delivered or
made available to Seller, Shareholder or MTS were complete and accurate copies
of such documents.

7. Survival of Representations and Warranties. The
representations, warranties and covenants contained in this Agreement or in any
document, certificate, instrument, Schedule or Exhibit delivered in connection
herewith, shall survive the Closing, regardless of any investigation made by
any party hereto at any time. As of the Closing Date, Buyer and NCS
acknowledge that their officers, who have been involved in the negotiation of
this Agreement, have no actual knowledge of any specific breach of the
representations or warranties made by Seller, Shareholder or MTS under this
Agreement.

8. Closing; Closing Date. The consummation of
Contemplated Transactions (the "Closing") will take place simultaneous with the
execution and delivery of this Agreement by all of the parties hereto as of the
date hereof (the "Closing Date"), at such place and time as the parties hereto
mutually agree.

8.1 Closing Deliveries of Seller. At the
Closing, Seller shall have delivered, or caused to be delivered, to Buyer the
following documents, duly executed by Seller, Shareholder

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or MTS, as appropriate, (a) the Assignment of Trademarks, (b) the MTS Deed, (c)
the Vangard Deed, (d) the Assignment of Contracts, (e) all documentation
necessary to effectuate a change of Seller's corporate name to permit Buyer to
use Seller's name (and all trade names or variants thereof) in the Commonwealth
of Kentucky and in all other states, if any, where Seller is conducting its
business, and (f) such other documents that Buyer may reasonably request in
order to consummate the Contemplated Transactions.

8.2 Closing Deliveries of Buyer. At the Closing,
Buyer shall have delivered, or caused to be delivered, to Seller the following
documents, duly executed by Buyer (a) the Assignment of Contracts, and (b) such
other documents that Seller may reasonably request in order to consummate the
Contemplated Transactions.

9. Confidentiality. All parties to this Agreement shall
at all times hold in strictest confidence the terms of this Agreement and any
and all non-public information concerning the products, services, business,
representatives, suppliers and customers of Seller, Buyer or any of its
affiliated companies.

10. Post-Closing Agreements / Further Assurances. The
parties hereto acknowledge and agree to the following:

10.1 That Buyer may not have all required
licenses, permits and other governmental authorizations to take title to all of
the Purchased Assets and to hereafter operate all aspects of Seller's business.
Seller agrees to cooperate with Buyer in timely obtaining such licenses,
permits and other governmental authorizations, and further agrees that Buyer
may operate Seller's business under the authority of any of Seller's licenses,
permits or other governmental authorizations of the type that Buyer has not yet
obtained, provided, that such operation does not violate applicable laws or
regulations, and that Buyer indemnifies and holds Seller harmless against any
and all liability, loss, damage or deficiency resulting from Seller's good
faith performance of these obligations.

10.2 To execute and deliver to any other party any
and all documents and instruments, and do and perform such acts, in addition to
those expressly provided for herein, as may be necessary or appropriate to
carry out or evidence the transactions contemplated by this Agreement, whether
before, at or after the Closing.

10.3 That the Closing is conditioned upon: (i)
Seller obtaining no less than $66,785 in cash to conduct its business until the
Closing Date at that level of operations described in the document listing the
"Minimum Recommended Expenditures from 3/22 through 4/4" prepared by Mr. Herb
DeBarba, and (ii) the Bankruptcy Court entry of an order approving (a) the sale
of the Purchased Assets free and clear of any and all Liens and Claims, and (b)
the Contemplated Transaction.

10.4 Seller covenants and agrees to forward to
Buyer, within five (5)

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business days of Seller's receipt of the same, any and all payments which
Seller may receive in respect of the accounts receivable or any payments which
relate or pertain to sales by Buyer after the Closing, which payments are
delivered to Seller or are otherwise received by Seller. In the event that
Buyer at any time receives checks payable to Seller for amounts owed to Buyer,
Buyer shall deliver such checks to Seller and Seller shall endorse such checks
to Buyer or remit to Buyer the amounts represented by such checks within five
(5) business days of Seller's receipt of same. In the event that Buyer at any
time receives checks for amounts owed to Seller, Buyer shall deliver such
checks to Seller or remit to Seller the amounts represented by such checks
within five (5) business days of Buyer's receipt of same.

10.5 Seller shall, within fourteen (14) days after
the Closing Date, provide such notices of continuation of health coverage as
are required to be provided to any of Seller's employees, former employees, or
the beneficiaries or dependents of such employees or former employees, under
COBRA, in such form as Seller and Buyer shall jointly prepare.

11. Assignment of Contracts, Rights, Etc.
Notwithstanding anything contained in this Agreement to the contrary, this
Agreement will not constitute an agreement to assign any contract or claim or
any right or benefit arising thereunder or resulting therefrom if an attempted
assignment thereof, without the consent of a third party thereto, would
constitute a breach thereof or in any way affect the rights of Buyer
thereunder. Seller, Shareholder and MTS shall use their best efforts to obtain
the consent of the other party to any of the foregoing to the assignment
thereof to Buyer in all cases that such consent is required for assignment or
transfer. If such consent is not obtained, Seller, Shareholder and MTS agree
to cooperate with Buyer in any reasonable arrangement designed to provide for
Buyer the benefits thereunder, including, but not limited to, having (a) Buyer
act as an agent for Seller, and (b) Seller enforce for the benefit of Buyer any
and all rights of Seller against the other party thereto arising out of the
cancellation by such other party or otherwise.

12. Indemnification.

12.1 Seller agrees to indemnify and hold Buyer
harmless from and against (i) any and all loss, damage, liability or deficiency
resulting from or arising out of any inaccuracy in or breach of any
representation, warranty, covenant, or obligation made or incurred by Seller
herein, (ii) any imposition or attempted imposition by a third party upon Buyer
of any liability or obligation of Seller which Buyer did not specifically agree
to assume pursuant to Section 3 hereof, (iii) any and all loss, damage,
liability or deficiency resulting from or arising out of the generation,
production, treatment, transportation, use, or storage before the Closing of,
or the presence of for whatever reason on the date hereof, at (a) the Seller's
facilities or the real property on which they are located, (b) the MTS Real
Property, or (c) the Vangard Real Property, of any substances which could
result in damage to the environment or danger to the health and safety of the
public, and (iv) any and all costs and expenses (including reasonable
attorneys' and accountants' fees) related to any of the foregoing.

19
<PAGE> 20

12.2 Shareholder agrees to indemnify and hold
Buyer harmless from and against (i) any and all loss, damage, liability or
deficiency resulting from or arising out of any inaccuracy in or breach of (a)
any covenant or obligation made or incurred by Shareholder herein, or (b) a
representation or warranty contained in Sections 5.1.2 (Organization,
Authority, Capacity), 5.1.4 (Organization, Authority, Capacity), 5.2 (No
Consents or Conflicts), 5.3 (Notice Provided), 5.5 (Ownership of Seller and
Shareholder), 5.11 (Employee Benefits), 5.12 (Conflicts), 5.16 (Contracts), and
5.20 (Ownership of Assets), and (ii) any and all costs and expenses (including
reasonable attorneys' and accountants' fees) related to any of the foregoing.

12.3 MTS agrees to indemnify and hold Buyer
harmless from and against (i) any and all loss, damage, liability or deficiency
resulting from or arising out of any inaccuracy in or breach of (a) any
covenant or obligation made or incurred by MTS herein, or (b) a representation
or warranty contained in Sections 5.1.3 (Organization, Authority, Capacity),
5.1.4 (Organization, Authority, Capacity), 5.2 (No Consents or Conflicts), 5.3
(Notice Provided), 5.5 (Ownership of Seller and Shareholder), 5.11 (Employee
Benefits), 5.12 (Conflicts), 5.16 (Contracts), 5.18 (MTS Real Property), and
5.20 (Ownership of Assets), (ii) any and all loss, damage, liability or
deficiency resulting from or arising out of the generation, production,
treatment, transportation, use, or storage before the Closing of, or the
presence of for whatever reason on the date hereof, at the MTS Real Property,
of any substances which could result in damage to the environment or danger to
the health and safety of the public, and (iii) any and all costs and expenses
(including reasonable attorneys' and accountants' fees) related to any of the
foregoing.

12.4 Buyer and NCS jointly and severally agree to
indemnify and hold Seller, Shareholder and MTS harmless from and against (i)
any and all loss, damage, liability or deficiency resulting from or arising out
of any inaccuracy in or breach of any representation, warranty, covenant, or
obligation made or incurred by Buyer or NCS herein, (ii) any imposition or
attempted imposition by a third party upon Seller, Shareholder or MTS of any
liability or obligation that Buyer specifically agreed to assume pursuant to
Section 3 hereof, and (iii) any and all costs and expenses (including
reasonable attorneys' and accountants' fees) related to any of the foregoing.

12.5 If any legal proceedings shall be instituted
or any claim is asserted by any third party in respect of which any party
hereto may be entitled to indemnity hereunder, the party asserting such right
to indemnity shall give the party from whom indemnity is sought written notice
thereof. A delay in giving notice shall only relieve the recipient of
liability to the extent the recipient suffers actual prejudice because of the
delay. The party from whom indemnity is sought shall have the right, at its
option and expense, to participate in the defense of such a proceeding or
claim, but not to control the defense, negotiation or settlement thereof, which
control shall at all times rest with the party asserting such right to
indemnity, unless the proceeding or claim involves only money damages and the
party from whom indemnity is sought:

(a) irrevocably acknowledges in writing complete
responsibility for and agrees to indemnify
the party asserting such right to indemnity,
and

20
<PAGE> 21

(b) furnishes satisfactory evidence of the
financial ability to indemnify the party
asserting such right to indemnity,

in which case the party from whom indemnity is sought may assume such control
through counsel of its choice and at its expense, but the party asserting such
right to indemnity shall continue to have the right to be represented, at its
own expense, by counsel of its choice in connection with the defense of such a
proceeding or claim. If the party from whom indemnity is sought does not
assume control of the defense of such a proceeding or claim, the entire defense
of the proceeding or claim by the party asserting such right to indemnity, any
settlement made by the party asserting such right to indemnity, and any
judgment entered in the proceeding or claim shall be deemed to have been
consented to by, and shall be binding on, the party from whom indemnity is
sought as fully as though it alone had assumed the defense thereof and a
judgment had been entered in the proceeding or claim in the amount of such
settlement or judgment, except that the right of the party from whom indemnity
is sought to contest the right of the other to indemnification under this
Agreement with respect to the proceeding or claim shall not be extinguished.
If the party from whom indemnity is sought does assume control of the defense
of such a proceeding or claim, it will not, without the prior written consent
of the party asserting such right to indemnity, settle the proceeding or claim
or consent to entry of any judgment relating thereto which does not include as
an unconditional term thereof the giving by the claimant to the party asserting
such right to indemnity a release from all liability in respect of the
proceeding or claim. The parties hereto agree to cooperate fully with each
other in connection with the defense, negotiation or settlement of any such
proceeding or claim.

13. Amendments; Binding Effect. The Agreement (including
each Schedule and Exhibit hereto) may not be amended or modified except by a
document in writing signed by all parties hereto. This Agreement and the
rights and obligations of each party hereunder shall be binding upon and shall
inure to the benefit of the respective successors and assigns of each of the
parties hereto.

14. Notices. Any notice or other communication given
hereunder shall be in writing and personally delivered, sent by United States
Registered or Certified Mail, or sent by a nationally recognized courier
service, addressed as follows:

If to Seller, Shareholder or Mr. Todd Siegel
MTS, to: 12920 Automobile Blvd.
Clearwater, Florida 34622

With a copy to: Massari & Bell
4830 West Kennedy Blvd., Suite 695
Tampa, Florida 33609-2574
Attn: Dominic Massari, Esq.

If to the Plan Trustee, to: Mr. Jules Joseph Stine

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<PAGE> 22

580 Conway Forest Drive, N.W.
Atlanta, GA 30327-3523

If to Buyer or NCS: NCS HealthCare, Inc.
(Attn: President)
3201 Enterprise Parkway, Suite 220
Beachwood, Ohio 44122

With a copy to: Calfee, Halter & Griswold LLP
1400 McDonald Investment Center
800 Superior Avenue
Cleveland, Ohio 44114-2688
Attention: Robert A. Ross, Esq.

Delivery of any notice shall be deemed made on the date of its actual
delivery if personally delivered, and on the date indicated in the return
receipt or courier's records as the date of its delivery or first attempted
delivery if sent by mail or courier. Any party may change its address for
notice by delivery of written notice thereof in the manner provided herein.

15. Miscellaneous. This Agreement together with each
Schedule and Exhibit hereto sets forth the exclusive statement of the agreement
among the parties concerning the subject matter hereof, and there are no
agreements or understandings between or among any of the parties hereto
concerning such subject matter other than as set forth herein. The headings to
the various provisions of this Agreement are for reference purposes only and
shall not be construed as affecting the meaning or interpretation of this
Agreement. This Agreement may be executed in multiple counterparts, each of
which shall be deemed and original, and all of which together shall constitute
one and the same document. This Agreement shall be governed by and construed
in accordance with the laws of the State of Ohio without regard to any conflict
of laws provisions.

16. NCS Guaranty. NCS hereby unconditionally guaranties
the payment and performance of any and all of Buyer's liabilities and
obligations hereunder and those under any other agreements or documents
delivered in connection with this Agreement. Seller, Shareholder, or MTS may
seek remedies directly from NCS without first exhausting their remedies against
Buyer.

IN WITNESS WHEREOF, the parties have executed this Asset
Purchase Agreement on the date first written above.

VANGARD LABS, INC.

By:
-----------------------------------
Todd E. Siegel, President

VANGARD PHARMACEUTICAL

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<PAGE> 23

PACKAGING, INC.

By:
----------------------------------
Todd E. Siegel, President

MEDICAL TECHNOLOGY SYSTEMS, INC.

By:
----------------------------------
Todd E. Siegel, President

JULES J. STINE AS PLAN TRUSTEE UNDER
THE FIRST AMENDED AND RESTATED
LIQUIDATING PLAN OF VANGARD LABS,
INC., UNDER CHAPTER 11 OF THE UNITED
STATES BANKRUPTCY CODE

--------------------------------------
Jules J. Stine, Plan Trustee

NCS HEALTHCARE OF KENTUCKY, INC.

By:
------------------------------------
Calvin Hunsicker, Vice President

NCS HEALTHCARE, INC.

By:
------------------------------------
Calvin Hunsicker, Vice President

<PAGE> 1
EXHIBIT 10.29

MEDICAL TECHNOLOGY SYSTEMS, INC.
1997 STOCK OPTION PLAN

1. PURPOSE. The purpose of this Medical Technology Systems. Inc.
1997 Stock Option Plan (the "Plan") is to further the interests of Medical
Technology Systems, Inc., a Florida corporation (the "Company"), its
subsidiaries and its shareholders by providing incentives in the form of grants
of stock options to key employees and other persons who contribute materially
to the success and profitability of the Company. The grants will recognize and
reward outstanding individual performances and contributions and will give such
persons a proprietary interest in the Company, thus enhancing their personal
interest in the Company's continued success and progress. This program will
also assist the Company and its subsidiaries in attracting and retaining key
persons.

2. DEFINITIONS. The following definitions shall apply to this
Plan:

(a) "BOARD" means the board of directors of the Company.

(b) "CHANGE OF CONTROL" occurs when (i) any person,
including a "group" as defined in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended, becomes the beneficial owner of forty percent or more
of the total number of shares entitled to vote in the election of directors of
the Board, (ii) the Company is merged into any other company or substantially
all of its assets are acquired by any other company, or (iii) three or more
directors nominated by the Board to serve as a director, each having agreed to
serve in such capacity, fail to be elected in a contested election of
directors.

(d) "COMMITTEE" means the Stock Option Committee
consisting solely of two or more nonemployee directors appointed by the Board.
In the event that the Board does not appoint a Stock Option Committee,
"Committee" means the Board.

(e) "COMMON STOCK" means the Common Stock, par value $.01
per share of the Company, or such other class of shares or securities as to
which the Plan may be applicable pursuant to Section 10 herein.

(f) "COMPANY" means Medical Technology Systems, Inc.

(g) "DATE OF GRANT" means the date on which the Option is
granted.

(h) "ELIGIBLE PERSON" means any person who performs or
has in the past performed services for the Company or any direct or indirect
partially or wholly owned subsidiary thereof, whether as a director, officer,
employee, consultant or other independent contractor, and any person who
performs services relating to the Company in his or her capacity as an employee
or independent contractor of a corporation or other entity that provides
services for the Company.

<PAGE> 2

(i) "EMPLOYEE" means any person employed on an hourly or
salaried basis by the Company or any parent or Subsidiary of the Company that
now exists or hereafter is organized or acquired by or acquires the Company.

(j) "FAIR MARKET VALUE" means the fair market value of
the Common Stock. If the Common Stock is not publicly traded on the date as of
which fair market value is being determined, the Board shall determine the fair
market value of the Shares, using such factors as the Board considers relevant,
such as the price at which recent sales have been made, the book value of the
Common Stock, and the Company's current and projected earnings. If the Common
Stock is publicly traded on the date as of which fair market value is being
determined, the fair market value is the average of the high bid and ask price
of the Common Stock as quoted on NASD OTC Bulletin Board on that date. If a
price quotation does not occur on the date as of which fair market value is
being determined, the next preceding date on which a price was quoted will
determine the fair market value.

(k) "INCENTIVE STOCK OPTION" means a stock option granted
pursuant to either this Plan or any other plan of the Company that satisfies
the requirements of Section 422 of the Code and that entitles the Recipient to
purchase stock of the Company or in a corporation that at the time of grant of
the option was a parent or subsidiary of the Company or a predecessor
corporation of any such corporation.

(l) "NONQUALIFIED STOCK OPTION" means a stock option
granted pursuant to the Plan that is not an Incentive Stock Option and that
entitles the Recipient to purchase stock of the Company or in a corporation
that at the time of grant of the option was a parent or subsidiary of the
Company or a predecessor corporation of any such corporation.

(m) "OPTION" means an Incentive Stock Option or a
Nonqualified Stock Option granted pursuant to the Plan.

(n) "OPTION AGREEMENT" means a written agreement entered
into between the Company and a Recipient which sets out the terms and
restrictions of an Option Award granted to the Recipient.

(o) "OPTION SHAREHOLDER" shall mean an Employee who has
exercised his or her Option.

(p) "OPTION SHARES" means Shares issued upon exercise of
an Option.

(q) "PLAN" means this Medical Technology Systems, Inc.
1997 Stock Incentive Plan.

(r) "RECIPIENT" means an individual who receives an
Option.

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<PAGE> 3

(s) "SHARE" means a share of the Common Stock, as
adjusted in accordance with Section 10 of the Plan.

(t) "SUBSIDIARY" means any corporation 50 percent or more
of the voting securities of which are owned directly or indirectly by the
Company at any time during the existence of this Plan.

3. ADMINISTRATION. This Plan will be administered by the
Committee. The Committee has the exclusive power to select the Recipients of
Options pursuant to this Plan, to establish the terms of the Options granted to
each Recipient, and to make all other determinations necessary or advisable
under the Plan. The Committee has the sole and absolute discretion to
determine whether the performance of an Eligible Person warrants an Option
under this Plan, and to determine the size and type of the Option. The
Committee has full and exclusive power to construe and interpret this Plan, to
prescribe, amend, and rescind rules and regulations relating to this Plan, and
to take all actions necessary or advisable for the Plan's administration. The
Committee, in the exercise of its powers, may correct any defect or supply any
omission, or reconcile any inconsistency in the Plan, or in any Agreement, in
the manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective. In exercising this power, the Committee may retain
counsel at the expense of the Company. The Committee shall also have the power
to determine the duration and purposes of leaves of absence which may be
granted to a Recipient without constituting a termination of the Recipient's
employment for purposes of the Plan. Any determinations made by the Committee
will be final and binding on all persons. A member of the Committee will not
be liable for performing any act or making any determination in good faith.

4. SHARES SUBJECT TO PLAN. Subject to the provisions of Section
10 of the Plan, the maximum aggregate number of Shares that may be subject to
Options under the Plan shall be 1,000,000. If an Option should expire or
become unexercisable for any reason without having been exercised, the
unpurchased Shares that were subject to such Option shall, unless the Plan has
then terminated, be available for other Options under the Plan.

5. ELIGIBILITY. Any Eligible Person that the Committee in its
sole discretion designates is eligible to receive an Option under this Plan.
The Committee's grant of an Option to a Recipient in any year does not require
the Committee to grant an Option such Recipient in any other year.
Furthermore, the Committee may grant different Options to different Recipients
and has full discretion to choose whether to grant Options to any Eligible
Person. The Committee may consider such factors as it deems pertinent in
selecting Recipients and in determining the types and sizes of their Options,
including, without limitation, (i) the financial condition of the Company or
its Subsidiaries; (ii) expected profits for the current or future years; (iii)
the contributions of a prospective Recipient to the profitability and success
of the Company or its Subsidiaries; and (iv) the adequacy of the prospective
Recipient's other compensation. Recipients may include persons to whom stock,
stock options, stock appreciation rights, or other benefits previously were
granted under this or another plan of the Company or any Subsidiary, whether or
not the previously granted benefits have been fully exercised or vested. A
Recipient's right, if any, to continue to serve the Company and

3
<PAGE> 4

its Subsidiaries as an officer, Employee, or otherwise will not be enlarged or
otherwise affected by his designation as a Recipient under this Plan, and such
designation will not in any way restrict the right of the Company or any
Subsidiary, as the case may be, to terminate at any time the employment or
affiliation of any participant.

6. OPTIONS. Each Option granted to a Recipient under the Plan
shall contain such provisions as the Committee at the Date of Grant shall deem
appropriate. Each Option granted to a Recipient will satisfy the following
requirements:

(a) WRITTEN AGREEMENT. Each Option granted to a
Recipient will be evidenced by an Option Agreement. The terms of the Option
Agreement need not be identical for different Recipients. The Option Agreement
shall include a description of the substance of each of the requirements in
this Section 6 with respect to that particular Option.

(b) NUMBER OF SHARES. Each Option Agreement shall
specify the number of Shares that may be purchased by exercise of the Option.

(c) EXERCISE PRICE. Except as provided in Section 6(l),
the exercise price of each Share subject to an Incentive Stock Option shall
equal the exercise price designated by the Committee on the Date of Grant, but
shall not be less than the Fair Market Value of the Share on the Incentive
Stock Option's Date of Grant. The exercise price of each Share subject to a
Nonqualified Stock Option shall equal the exercise price designated by the
Committee on the Date of Grant.

(d) DURATION OF OPTION. Except as provided in Section
6(l), an Incentive Stock Option granted to an Employee shall expire on the
tenth anniversary of its Date of Grant or, at such earlier date as is set by
the Committee in establishing the terms of the Incentive Stock Option at grant.
Except as provided in Section 6(l), a Nonqualified Stock Option granted to an
Employee shall expire on the tenth anniversary of its Date of Grant or, at such
earlier or later date as is set by the Committee in establishing the terms of
the Nonqualified Stock Option at grant. If the Recipient's employment with the
Company terminates before the expiration date of an Option granted to the
Recipient, the Option shall expire on the earlier of the date stated in this
subsection or the date stated in following subsections of this Section.
Furthermore, expiration of an Option may be accelerated under subsection (j)
below.

(e) VESTING OF OPTION. Each Option Agreement shall
specify the vesting schedule applicable to the Option. The Committee, in its
sole and absolute discretion, may accelerate the vesting of any Option at any
time.

(f) DEATH. In the case of the death of a Recipient, an
Incentive Stock Option granted to the Recipient shall expire on the one-year
anniversary of the Recipient's death, or if earlier, the date specified in
subsection (d) above. During the one-year period following the Recipient's
death, the Incentive Stock Option may be exercised to the extent it could have
been exercised at the time the Recipient died, subject to any adjustment under
Section 10 herein. In the case of the death

4
<PAGE> 5

of a Recipient, a Nonqualified Stock Option granted to the Recipient shall
expire on the one-year anniversary of the Recipient's death, or if earlier, the
date specified in subsection (d) above, unless the Committee sets an earlier or
later expiration date in establishing the terms of the Nonqualified Stock
Option at grant or a later expiration date subsequent to the Date of Grant but
prior to the one-year anniversary of the Recipient's death. During the period
beginning on the date of the Recipient's death and ending on the date the
Nonqualified Stock Option expires, the Nonqualified Stock Option may be
exercised to the extent it could have been exercised at the time the Recipient
died, subject to any adjustment under Section 10 herein.

(g) DISABILITY. In the case of the total and permanent
disability of a Recipient and a resulting termination of employment or
affiliation with the Company, an Incentive Stock Option granted to the
Recipient shall expire on the one-year anniversary of the Recipient's last day
of employment, or, if earlier, the date specified in subsection (d) above.
During the one-year period following the Recipient's termination of employment
or affiliation by reason of disability, the Incentive Stock Option may be
exercised as to the number of Shares for which it could have been exercised at
the time the Recipient became disabled, subject to any adjustments under
Section 10 herein. In the case of the total and permanent disability of a
Recipient and a resulting termination of employment or affiliation with the
Company, a Nonqualified Stock Option granted to the Recipient shall expire on
the one-year anniversary of the Recipient's last day of employment, or, if
earlier, the date specified in subsection (d) above, unless the Committee sets
an earlier or later expiration date in establishing the terms of the
Nonqualified Stock Option at grant or a later expiration date subsequent to the
Date of Grant but prior to the one-year anniversary of the Recipient's last day
of employment or affiliation with the Company. During the period beginning on
the date of the Recipient's termination of employment or affiliation by reason
of disability and ending on the date the Nonqualified Stock Option expires, the
Nonqualified Stock Option may be exercised as to the number of Shares for which
it could have been exercised at the time the Recipient became disabled, subject
to any adjustments under Section 10 herein.

(h) RETIREMENT. If the Recipient's employment with the
Company terminates by reason of normal retirement under the Company's normal
retirement policies, an Incentive Stock Option granted to the Recipient will
expire 90 days after the last day of employment, or, if earlier, on the date
specified in subsection (d) above. During the 90-day period following the
Recipient's normal retirement, the Incentive Stock Option may be exercised as
to the number of Shares for which it could have been exercised on the
retirement date, subject to any adjustment under Section 10 herein. If the
Recipient's employment with the Company terminates by reason of normal
retirement under the Company's normal retirement policies, a Nonqualified Stock
Option granted to the Recipient will expire 90 days after the last day of
employment, or, if earlier, on the date specified in subsection (d) above,
unless the Committee sets an earlier or later expiration date in establishing
the terms of the Nonqualified Stock Option at grant or a later expiration date
subsequent to the Date of Grant but prior to the end of the 90-day period
following the Recipient's normal retirement. During the period beginning on
the date of the Recipient's normal retirement and ending on the date the
Nonqualified Stock Option expires, the Nonqualified Stock Option may be
exercised as to the number

5
<PAGE> 6

of Shares for which it could have been exercised on the retirement date,
subject to any adjustment under Section 10 herein.

(i) TERMINATION OF SERVICE. If the Recipient ceases
employment or affiliation with the Company for any reason other than death,
disability, or retirement (as described above), an Option granted to the
Recipient shall lapse immediately following the last day that the Recipient is
employed by or affiliated with the Company. However, the Committee may, in its
sole discretion, either at grant of the Option or at the time the Recipient
terminates employment, delay the expiration date of the Option to a date after
termination of employment; provided, however, that the expiration date of an
Incentive Stock Option may not be delayed more than 90 days following the
termination of the Recipient's employment or affiliation with the Company.
During any such delay of the expiration date, the Option may be exercised only
for the number of Shares for which it could have been exercised on such
termination date, subject to any adjustment under Section 10 herein.
Notwithstanding any provisions set forth herein or in the Plan, if the
Recipient shall (i) commit any act of malfeasance or wrongdoing affecting the
Company or any parent or subsidiary, (ii) breach any covenant not to compete or
employment agreement with the Company or any parent or Subsidiary, or (iii)
engage in conduct that would warrant the Recipient's discharge for cause, any
unexercised part of the Option shall lapse immediately upon the earlier of the
occurrence of such event or the last day the Recipient is employed by the
Company.

(j) CHANGE OF CONTROL. If a Change of Control occurs,
the Board may vote to immediately terminate all Options outstanding under the
Plan as of the date of the Change of Control or may vote to accelerate the
expiration of the Options to the tenth day after the effective date of the
Change of Control. If the Board votes to immediately terminate the Options, it
shall make a cash payment to the Recipient equal to the difference between the
Exercise Price and the Fair Market Value of the Shares that would have been
subject to the terminated Option on the date of the Change of Control.

(k) CONDITIONS REQUIRED FOR EXERCISE. Options granted to
Recipients under the Plan shall be exercisable only to the extent they are
vested according to the terms of the Option Agreement. Furthermore, Options
granted to Employees under the Plan shall be exercisable only if the issuance
of Shares pursuant to the exercise would be in compliance with applicable
securities laws, as contemplated by Section 9 of the Plan. Each Agreement
shall specify any additional conditions required for the exercise of the
Option.

(l) TEN PERCENT SHAREHOLDERS. An Incentive Stock Option
granted to an individual who, on the Date of Grant, owns stock possessing more
than 10 percent of the total combined voting power of all classes of stock of
either the Company or any parent or Subsidiary, shall be granted at an exercise
price of 110 percent of Fair Market Value on the Date of Grant and shall be
exercisable only during the five-year period immediately following the Date of
Grant. In calculating stock ownership of any person, the attribution rules of
Code Section 424(d) and 318 will apply. Furthermore, in calculating stock
ownership, any stock that the individual may purchase under outstanding options
will not be considered.

6
<PAGE> 7

(m) MAXIMUM OPTION GRANTS. The aggregate Fair Market
Value, determined on the Date of Grant, of stock in the Company with respect to
which any Incentive Stock Options under the Plan and all other plans of the
Company or its Subsidiaries (within the meaning of Section 422(b) of the Code)
may become exercisable by any individual for the first time in any calendar
year shall not exceed $100,000.

(n) METHOD OF EXERCISE. An Option granted under this
Plan shall be deemed exercised when the person entitled to exercise the Option
(i) delivers written notice to the President of the Company (or his delegate,
in his absence) of the decision to exercise, (ii) concurrently tenders to the
Company full payment for the Shares to be purchased pursuant to the exercise,
and (iii) complies with such other reasonable requirements as the Committee
establishes pursuant to Section 9 of the Plan. Payment for Shares with respect
to which an Option is exercised may be made in cash, or by certified check or
wholly or partially in the form of Common Stock having a Fair Market Value
equal to the exercise price. No person will have the rights of a shareholder
with respect to Shares subject to an Option granted under this Plan until a
certificate or certificates for the Shares have been delivered to him. A
partial exercise of an Option will not affect the holder's right to exercise
the Option from time to time in accordance with this Plan as to the remaining
Shares subject to the Option.

(o) LOAN FROM COMPANY TO EXERCISE OPTION. The Committee
may, in its discretion and subject to the requirements of applicable law,
recommend to the Company that it lend the Recipient the funds needed by the
Recipient to exercise an Option. The Recipient shall make application to the
Company for the loan, completing the forms and providing the information
required by the Company. The loan shall be secured by such collateral as the
Company may require, subject to its underwriting requirements and the
requirements of applicable law. The Recipient shall execute a Promissory Note
and any other documents deemed necessary by the Committee.

(p) DESIGNATION OF BENEFICIARY. Each Recipient shall
designate, in the Option Agreement he executes, a beneficiary to receive
Options awarded hereunder in the event of his death prior to full exercise of
such Options; provided, that if no such beneficiary is designated or if the
beneficiary so designated does not survive the Recipient, the estate of such
Recipient shall be deemed to be his beneficiary. Recipients may, by written
notice to the Committee, change the beneficiary designated in any outstanding
Option Agreements.

(q) NONTRANSFERABILITY OF OPTION. An Option granted under
this Plan is not transferable except by will or the laws of descent and
distribution. During the lifetime of the Recipient, all rights of the Option
are exercisable only by the Recipient.

7. TAXES; COMPLIANCE WITH LAW; APPROVAL OF REGULATORY BODIES;
LEGENDS. The Company shall have the right to withhold from payments otherwise
due and owing to the Recipient (or his beneficiary) or to require the Recipient
(or his beneficiary) to remit to the Company in cash upon demand an amount
sufficient to satisfy any federal (including FICA and FUTA amounts), state,

7
<PAGE> 8

and/or local withholding tax requirements at the time the Recipient (or his
beneficiary) recognizes income for federal, state, and/or local tax purposes
with respect to any Option under this Plan.

Options can be granted, and Shares can be delivered under this Plan,
only in compliance with all applicable federal and state laws and regulations
and the rules of all stock exchanges on which the Company's stock is listed at
any time. An Option is exercisable only if either (a) a registration statement
pertaining to the Shares to be issued upon exercise of the Option has been
filed with and declared effective by the Securities and Exchange Commission and
remains effective on the date of exercise, or (b) an exemption from the
registration requirements of applicable securities laws is available. This
Plan does not require the Company, however, to file such a registration
statement or to assure the availability of such exemptions. Any certificate
issued to evidence Shares issued under the Plan may bear such legends and
statements, and shall be subject to such transfer restrictions, as the
Committee deems advisable to assure compliance with federal and state laws and
regulations and with the requirements of this Section. No Option may be
exercised, and Shares may not be issued under this Plan, until the Company has
obtained the consent or approval of every regulatory body, federal or state,
having jurisdiction over such matters as the Committee deems advisable.

Each person who acquires the right to exercise an Option may be
required by the Committee to furnish reasonable evidence of ownership of the
Option as a condition to his exercise of the Option. In addition, the
Committee may require such consents and releases of taxing authorities as the
Committee deems advisable.

With respect to persons subject to Section 16 of the Securities
Exchange Act of 1934 ("1934 Act"), transactions under this Plan are intended to
comply with all applicable conditions of Rule 16b-3 under the 1934 Act, as such
Rule may be amended from time to time, or its successor under the 1934 Act. To
the extent any provision of the Plan or action by the Plan administrators fails
to so comply, it shall be deemed null and void, to the extent permitted by law
and deemed advisable by the Plan administrators.

8. ADJUSTMENT UPON CHANGE OF SHARES. If a reorganization,
merger, consolidation, reclassification, recapitalization, combination or
exchange of shares, stock split, stock dividend, rights offering, or other
expansion or contraction of the Common Stock of the Company occurs, the number
and class of Shares for which Options are authorized to be granted under this
Plan, the number and class of Shares then subject to Options previously granted
to Employees under this Plan, and the price per Share payable upon exercise of
each Option outstanding under this Plan shall be equitably adjusted by the
Committee to reflect such changes. To the extent deemed equitable and
appropriate by the Board, subject to any required action by shareholders, in
any merger, consolidation, reorganization, liquidation or dissolution, any
Option granted under the Plan shall pertain to the securities and other
property to which a holder of the number of Shares of stock covered by the
Option would have been entitled to receive in connection with such event.

8
<PAGE> 9

9. LIABILITY OF THE COMPANY. The Company, its parent and any
Subsidiary that is in existence or hereafter comes into existence shall not be
liable to any person for any tax consequences incurred by a Recipient or other
person with respect to an Option.

10. AMENDMENT AND TERMINATION OF PLAN. The Board may alter,
amend, or terminate this Plan from time to time without approval of the
shareholders of the Company. The Board may, however, condition any amendment
on the approval of the shareholders of the Company if such approval is
necessary or advisable with respect to tax, securities or other applicable laws
to which the Company, the Plan, Recipients or Eligible Persons are subject.

Any amendment, whether with or without the approval of shareholders of
the Company, that alters the terms or provisions of an Option granted before
the amendment (unless the alteration is expressly permitted under this Plan)
will be effective only with the consent of the Recipient to whom the Option was
granted or the holder currently entitled to exercise it.

11. EXPENSES OF PLAN. The Company shall bear the expenses of
administering the Plan.

12. DURATION OF PLAN. Options may be granted under this Plan only
during the 10 years immediately following the effective date of this Plan.

13. APPLICABLE LAW. The validity, interpretation, and enforcement
of this Plan are governed in all respects by the laws of Florida and the United
States of America.

14. EFFECTIVE DATE. The effective date of this Plan shall be the
earlier of (i) the date on which the Board adopts the Plan or (ii) the date on
which the Shareholders approve the Plan. Adopted by the Board of Directors on
March 4, 1997.

Approved by the Shareholders on

____________________________________.

<PAGE> 1
EXHIBIT 10.30

MEDICAL TECHNOLOGY SYSTEMS, INC.
NONQUALIFIED STOCK OPTION AGREEMENT

This Nonqualified Stock Option Agreement (the "Agreement"), effective
as of October 28, 1996, is made by and between Medical Technology Systems,
Inc., a Florida corporation (the "Company"), and David Kazarian (the
"Recipient").

BACKGROUND

The Company has established the Medical Technology Systems, Inc. 1997
Stock Incentive Plan (the "Plan"). The Company wishes to grant to the
Recipient a Nonqualified Stock Option pursuant to the terms of the Plan.

NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties agree as follows:

1. GRANT OF OPTION. In consideration of service to the Company
and for other good and valuable consideration, the Company grants to the
Recipient a Nonqualified Stock Option to purchase 25,000 shares of the
Company's common stock in accordance with the terms and conditions of the Plan
and this Agreement (the "Option").

2. OPTION PRICE. The purchase price of the shares of stock
covered by the Option shall be $1.00 per share.

3. ADJUSTMENTS IN OPTION. In the event that the outstanding
shares of stock subject to the Option are changed into or exchanged for a
different number or kind of shares of the Company or other securities of the
Company by reason of merger, consolidation, recapitalization, reclassification,
stock split, stock dividend or combination of shares, the shares subject to the
Option and the price per share shall be equitably adjusted to reflect such
changes. Such adjustment in the Option shall be made without change in the
total price applicable to the unexercised portion of the Option (except for any
change in the aggregate price resulting from rounding-off of share quantities
or prices) and with any necessary corresponding adjustment in the Option price
per share. Any such adjustment made by the Committee shall be final and
binding upon the Recipient, the Company and all other interested persons.

4. PERSON ELIGIBLE TO EXERCISE OPTION. During the lifetime of
the Recipient, only the Recipient may exercise the Option or any portion
thereof. After the death of the Recipient, any exercisable portion of the
Option may, prior to the time when the Option becomes unexercisable under the
terms of the Plan, be exercised by the Recipient's personal representative or
by any other person empowered to do so under the Recipient's will, trust or
under then applicable laws of descent and distribution.

5. MANNER OF EXERCISE. The Option, or any portion thereof, may
be exercised only in accordance with the terms of the Plan and solely by
delivery to the Secretary of the Company of all of the following items prior to
the time when the Option or such portion becomes unexercisable under the terms
of the Plan:
<PAGE> 2

(a) Notice in writing signed by the Recipient or the
other person then entitled to exercise the Option or portion thereof, stating
that the Option or portion thereof is thereby exercised, such notice complying
with all applicable rules (if any) established by the Committee;

(b) Full payment (in cash or by cashiers' or certified
check) for the shares with respect to which the Option or portion thereof is
exercised;

(c) Full payment (in cash or by cashiers' or certified
check) upon demand of an amount sufficient to satisfy any federal (including
FICA and FUTA amounts), state, and/or local withholding tax requirements at the
time the Recipient or his beneficiary recognizes income for federal, state,
and/or local tax purposes as the result of the receipt of Shares pursuant to
the exercise of the Option or portion thereof;

(d) A bona fide written representation and agreement, in
a form satisfactory to the Committee, signed by the Recipient or other person
then entitled to exercise the Option or portion thereof, stating that the
shares of stock are being acquired for his own account, for investment and
without any present intention of distributing or reselling said shares or any
of them except as may be permitted under the Securities Act of 1933, as amended
(the "Act"), and then applicable rules and regulations thereunder, and that the
Recipient or other person then entitled to exercise such Option or portion will
indemnify the Company against and hold it free and harmless from any loss,
damage, expense or liability resulting to the Company if any sale or
distribution of the shares by such person is contrary to the representation and
agreement referred to above. The Committee may, in its absolute discretion,
take whatever additional actions it deems appropriate to ensure the observance
and performance of such representations and agreement and to effect compliance
with all federal and state securities laws or regulations. Without limiting
the generality of the foregoing, the Committee may require an opinion of
counsel acceptable to it to the effect that any subsequent transfer of shares
acquired on an Option exercise does not violate the Act and may issue
stop-transfer orders covering such shares. The written representations and
agreement referred to in the first sentence of this subsection (d), however,
shall not be required if the shares to be issued pursuant to such exercise have
been registered under the Act, and such registration is then effective in
respect of such shares; and

(e) In the event the Option or any portion thereof shall
be exercised pursuant to Section 4 of the Agreement by any person or persons
other than the Recipient, appropriate proof, satisfactory to the Committee, of
the right of such person or persons to exercise the Option.

6. CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES. The shares of
stock deliverable upon the exercise of the Option, or any portion thereof, may
be either previously authorized but unissued shares or issued shares which have
been reacquired by the Company. Such shares shall be fully paid and
nonassessable.

7. RIGHTS OF SHAREHOLDERS. The Recipient shall not be, nor have
any of the rights or privileges of, a shareholder of the Company in respect of
any shares purchasable upon the exercise of any part of the Option unless and
until certificates representing such shares shall have been issued by the
Company to the Recipient.

8. VESTING AND EXERCISABILITY. A Recipient's interest in the
Option shall vest according to the schedule described in this Section 8 and
shall be exercisable as to not more than the vested percentage of the shares
subject to the Option at any point in time. To the extent the Option is either

2
<PAGE> 3

unexercisable or unexercised, the unexercised portion shall accumulate until
the Option both becomes exercisable and is exercised, subject to the provisions
of Section 9 of the Agreement. The Option shall become vested according to the
following schedule:

Date Vested Percentage
---- -----------------

October 28, 1996 100%

Upon the occurrence of a Change of Control, the Option shall become 100 percent
vested as of the date of the Change of Control. The Committee, in its sole and
absolute discretion, may accelerate the vesting of the Option at any time.

9. DURATION OF OPTION. Except as specified below, the Option
shall expire on October 28, 2006. Notwithstanding the foregoing, the Option
may expire prior to October 28, 2006, in the following circumstances:

(a) In the case of the Recipient's death, the Option
shall expire on the one-year anniversary of the Recipient's death.

(b) If the Recipient's employment or affiliation with the
Company terminates as a result of his total and permanent disability, the
Option will expire on the one-year anniversary of the Recipient's last day of
employment.

(c) If the Recipient's employment or affiliation with the
Company terminates as a result of his retirement under the Company's normal
retirement policies, the Option will expire 90 days after the Recipient's last
day of employment.

(d) If the Recipient ceases employment or affiliation
with the Company for any reason other than death, disability or retirement (as
described in subsection 9(c) above), the Option shall expire immediately
following the last day that the Recipient is employed by or affiliated with the
Company.

(e) Notwithstanding any provisions set forth above in
this Section 9, if the Recipient shall (I) commit any act of malfeasance or
wrongdoing affecting the Company or its affiliates, (ii) breach any covenant
not to compete or employment agreement with the Company or any affiliate, or
(iii) engage in conduct that would warrant the Recipient's discharge for cause,
any unexercised part of the Option shall expire immediately upon the earlier of
the occurrence of such event or the last day the Recipient is employed by the
Company.

10. CHANGE OF CONTROL. Contingent upon the occurrence of a Change
of Control, the Board of Directors of the Company may, but is not required to,
take one or more of the following actions:

(a) terminate the Option effective upon the date of the
Change of Control and make a cash payment to the Recipient equal to the
difference between the exercise price of the Option and the fair market value
of the shares that would have been subject to the terminated Option on the date
of the Change of Control; or

3
<PAGE> 4

(b) accelerate the expiration of the Option to the tenth
day after the Change of Control.

11. ADMINISTRATION. The Committee shall have the power to
interpret this Agreement and to adopt such rules for the administration,
interpretation and application of the Agreement as are consistent herewith and
to interpret or revoke any such rules. All actions taken and all
interpretations and determinations made by the Committee in good faith shall be
final and binding upon the Recipient, the Company and all other interested
persons. No member of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to this
Agreement or any similar agreement to which the Company is a party.

12. OPTIONS NOT TRANSFERABLE. Neither the Option nor any interest
or right therein or part thereof shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition is voluntary or involuntary or by operation of law, by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy) and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 12
shall not prevent transfers by will or by the applicable laws of descent and
distribution.

13. SHARES TO BE RESERVED. The Company shall at all times during
the term of the Option reserve and keep available such number of shares of
stock as will be sufficient to satisfy the requirements of this Agreement.

14. NOTICES. Any notice to be given under the terms of this
Agreement to the Company shall be addressed to the Company in care of its
Secretary and any notice to be given to the Recipient shall be addressed to him
at the address given beneath his signature below. By a notice given pursuant
to this Section 14, either party may hereafter designate a different address
for notices to be given to him. Any notice which is required to be given to
the Recipient shall, if the Recipient is then deceased, be given to the
Recipient's personal representative if such representative has previously
informed the Company of his status and address by written notice under this
Section 14. Any notice shall have been deemed duly given when enclosed in a
properly sealed envelope addressed as aforesaid, deposited (with postage
prepaid) in a United States postal receptacle.

15. TITLES. Titles are provided herein for convenience only and
are not to serve as a basis for interpretation or construction of this
Agreement.

16. INCORPORATION OF PLAN BY REFERENCE. The Option is granted in
accordance with the terms and conditions of the Plan, the terms of which are
incorporated herein by reference, and the Agreement shall in all respects be
interpreted in accordance with the Plan. Any term used in the Agreement that
is not otherwise defined in the Agreement shall have the meaning assigned to it
by the Plan.

4
<PAGE> 5

IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties as of the date first written above.

MEDICAL TECHNOLOGY SYSTEMS, INC.

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

Title:
--------------------------------

I, the undersigned Recipient, accept the Option described herein and designate
__________________________________________ _________ as the beneficiary who
will receive the unexercised portion of the Option in the event of my death
prior to full exercise of the Option.

RECIPIENT

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

David Kazarian Print
--------------------------------------
Name

3193 Tech Drive Street
--------------------------------------
Address

St. Petersburg, FL 33716
--------------------------------------
City, State and Zip Code

<PAGE> 1
EXHIBIT 23

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We have issued our reports dated June 24, 1997 accompanying the consolidated
financial statements and schedule included in the Annual Report of Medical
Technology Systems, Inc. and Subsidiaries on Form 10-K for the year ended
March 31, 1997. We hereby consent to the incorporation by reference of said
reports in the Registration Statements of Medical Technology Systems, Inc. and
Subsidiaries on Form S-8 (File No. 333-01853 effective March 14, 1996).

GRANT THORNTON LLP

Tampa, Florida
June 24, 1997

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF MEDICAL TECHNOLOGY SYSTEMS INC. FOR THE
TWELVE MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 616
<SECURITIES> 0
<RECEIVABLES> 4,081
<ALLOWANCES> (1,040)
<INVENTORY> 2,260
<CURRENT-ASSETS> 6,489
<PP&E> 8,387
<DEPRECIATION> (4,383)
<TOTAL-ASSETS> 12,543
<CURRENT-LIABILITIES> 2,500
<BONDS> 0
0
1
<COMMON> 60
<OTHER-SE> 8,433
<TOTAL-LIABILITY-AND-EQUITY> 12,543
<SALES> 19,247
<TOTAL-REVENUES> 19,247
<CGS> 10,762
<TOTAL-COSTS> 19,232
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 609
<INCOME-PRETAX> 15
<INCOME-TAX> 0
<INCOME-CONTINUING> 15
<DISCONTINUED> 2,900
<EXTRAORDINARY> 10,097
<CHANGES> 0
<NET-INCOME> 13,012
<EPS-PRIMARY> 2.27
<EPS-DILUTED> 2.27

</TABLE>