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# UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-K

||X| | Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1930
|--- | ------------------------------------------------------------------------------------

| | For fiscal year ended March 31, 2004
| | ------------------------------------

# OR

|[ ] | Transition Report Pursuant to Section 13 or
        15(d) of the Securities Exchange Act of 1934
|--- | ------------------------------------------------------------------------------------------------

| | For transition period from ____________________ to
| | --------------------------------------------------

Commission File Number:   
0-16594

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

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

| |                                                        
| | -------------------------------------------------------
| | 12920 Automobile Boulevard,
        Clearwater, Florida
| |                                                        
| | (Address of Principal Executive Offices)               

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

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

| |                             
| | ----------------------------
| | Title of Each Class         
| |                             
| | COMMON STOCK, $.01 PAR VALUE

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

| |                  | 
| | ---------------- | 
| | NONE             | 
| |                  | 
| | (Title of Class) | 

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

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

Indicated  by  check  mark  whether  the
        Registrant  is an accelerated filer (as defined in Exchange Act Rule 12b-2).   [ ]
           Yes     |X|    No

Approximate aggregate market value of
voting Common Stock held by non-affiliates was $10,565,000 as of September 30, 2004.

The number of shares outstanding of
the Registrants Common Stock, $.01 par value, was 5,601,937 as of June 21, 2004

Documents Incorporated by
Reference

Parts of the Registrants
definitive proxy statement, which will be filed by the Registrant within 120 days after
the end of the Registrants 2003 fiscal year end, are incorporated by reference into
Part III of this Form.

---

# MEDICAL TECHNOLOGY SYSTEMS, INC.

# CLEARWATER, FLORIDA

# INDEX

|                              |  | Page                                                                                                | 
|----------------------------- |  | --------------------------------------------------------------------------------------------------- | 
|
|PART I                        |  |                                                                                                     | 
|Item 1.                       |  | Business                                                                                            | 
|Item 2.                       |  | Properties                                                                                          | 
|Item 3.                       |  | Legal Proceedings                                                                                   | 
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                 | 
|                              |  |                                                                                                     | 
|PART II                       |  |                                                                                                     | 
|Item 5.                       |  | Market for Registrant's Common Equity and
        Related Stockholder Matters                       | 
|Item 6.                       |  | Selected Financial Data                                                                             | 
|Item 7.                       |  | Management's Discussion and Analysis
        of Financial Condition and Results of Operations       | 
|Item 7A.                      |  | Quantitative and Qualitative Disclosure About Market Risk                                           | 
|Item 8.                       |  | Financial Statements and Supplementary Data                                                         | 
|Item 9.                       |  | Changes in and Disagreements With
        Accountants on Accounting and Financial Disclosure        | 
|Item 9A.                      |  | Controls and Procedures                                                                             | 
|                              |  |                                                                                                     | 
|PART III                      |  |                                                                                                     | 
|Item 10.                      |  | Directors and Executive Officers of the Registrant                                                  | 
|Item 11.                      |  | Executive Compensation                                                                              | 
|Item 12.                      |  | Security Ownership of Certain Beneficial
        Owners, Management and Related Stockholder Matters | 
|Item 13.                      |  | Certain Relationships and Related Transactions                                                      | 
|Item 14.                      |  | Principal Accountant Fees and Services                                                              | 
|                              |  |                                                                                                     | 
|PART IV                       |  |                                                                                                     | 
|Item 15.                      |  | Exhibits, Financial Statements, Schedules
        and Reports on Form 8-K                           | 
|                              |  |                                                                                                     | 
|Index to Financial Statements |  |                                                                                                     | 
|                              |  |                                                                                                     | 
|Signatures                    |  |                                                                                                     | 
|                              |  |                                                                                                     | 
|Certifications                |  |                                                                                                     | 

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# PART I

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

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

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

In
this 10-K, unless otherwise indicated, the terms we, us,
our, registrant and Med Tech refer to Medical
Technology Systems, Inc., and its subsidiaries.

# ITEM 1.    BUSINESS

Introduction

We
were incorporated in Delaware in March 1984. We are a holding company that operates
through our subsidiaries, MTS Packaging Systems, Inc. (MTS Packaging)
and MTS Packaging Systems International, Ltd. (MTSPI). MTS Packaging primarily
manufactures and sells disposable medication punch cards, packaging equipment and
ancillary products throughout the United States. Its customers are predominantly
pharmacies that supply nursing homes, assisted living and correctional facilities with
prescription medications for their patients. MTS Packaging manufactures its proprietary
disposable punch cards and packaging equipment in its own facilities. This manufacturing
process uses integrated machinery for manufacturing the disposable medication punch cards.
The disposable medication punch cards and packaging equipment are designed to provide a
cost effective method for pharmacies to dispense medications. MTS Packagings
medication dispensing systems and products provide innovative methods for dispensing
medications in disposable packages. MTSPI distributes products for MTS Packaging in the
United Kingdom. We currently serve more than 3,000 institutional pharmacies in the
long-term care and correctional facility markets, both domestically and internationally.

On April 1,  2004,  we  provided  our  landlord  with  notice  of  intent  to  terminate  the  lease of our
existing  office, manufacturing  and  warehouse  space in  Clearwater,  Florida on September  30, 2004.
Effective  October 1, 2004, we will occupy a new leased premises at 2003 Gandy Blvd., St Petersburg,  Florida.
The new facility will provide us with approximately  104,000 square feet of office and  production  space,
which is an increase  from the 79,600  square feet we currently  occupy.  The terms of the new lease allow us
several months to make the transition from our current  location  without  incurring any duplicative  occupancy
costs. We also have an option to lease an additional  28,000  square feet of contiguous space at any time,
during the term of the new lease, provided that we give the landlord 120 days advance notice.

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In
April 2004, we announced that we would begin to do business as MTS Medication Technologies
and seek the approval of our stockholders to formally change our name to MTS Medication
Technologies, Inc. We also intend to merge MTS Packaging Systems, Inc. into MTS Medication
Technologies, Inc. when our formal name change is approved by our stockholders.

In
May 2004, we entered into a co-marketing agreement with Cardinal Health, Inc.
(Cardinal) that provides Cardinal with exclusive rights to market certain of
our systems directly to specified customers that serve the long-term care and correctional
facilities markets. In addition, the co-marketing agreement provides Cardinal with the
right to market the complete line of our filling and sealing equipment, and our
OnDemand® system. The agreement will still allow us to sell disposable products to
existing and future customers through our current distribution channels.

Our
website is located at www.mts-mt.com. Information contained in our website is not a
part of this document or the documents incorporated by reference in this document.

Products

MTS
Packaging manufactures proprietary medication dispensing systems and related products for
use by medication prescription providers primarily servicing long-term care and
correctional facilities. These systems utilize disposable medication punch cards and
specialized machines that automatically or semi-automatically assemble, fill and seal
drugs into medication punch cards representing a weekly or monthly supply of a
patients medication.

During fiscal 2002, we introduced our newest product, the OnDemand system, which we believe is the
industrys first automated system capable of dispensing prescription medications into punch card compliance
packaging, improving accuracy and increasing productivity. We designed the OnDemand system
to interface with the pharmacy information systems to receive orders and fill a
patient-labeled medication compliance package on a just-in-time,
fully-automated basis. The current system has the capacity to hold up to 400 different
medications and dispense them into patient-specific labeled punch cards at a rate of up to
eight cards per minute, utilizing only two employees. We believe this technology promotes
a new industry standard for packaging and distributing medications through institutional
pharmacies to a wide range of end users including skilled nursing, assisted living and
correctional facilities.

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

The
retail price of MTS Packagings machinery ranges from $1,100 to $500,000 depending
upon the degree of automation and options requested by a customer. The punch cards
typically retail from approximately $155 to $225 per 1,000 cards and blisters, depending
upon the size, design and volume of cards ordered by a customer. MTS Packaging has placed
approximately 2,000 medication dispensing systems with pharmacy clientele since our
inception. MTS Packaging also sells prescription labels and ancillary supplies designed to
complement sales of disposable medication punch cards. MTS Packaging had approximately
$749,000 in unshipped orders as of June 20, 2004 compared to
approximately $869,000 as of June 20, 2003.

Research and Development

We
expended approximately $161,000, $172,000 and $87,000 on research and development
activities for each of the fiscal years ended March 31, 2004, 2003 and 2002, respectively.
In addition, we directed our product development efforts primarily towards the completion
of several versions of our OnDemand machine during this fiscal year. We capitalized
approximately $451,000 of product development during the fiscal year ended March 31, 2004.
The majority of these expenditures were made for the OnDemand machine project.

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Manufacturing Processes

MTS
Packaging has developed integrated punch card manufacturing equipment that will complete
the various punch card manufacturing steps in a single-line, automated process. We
believes that our advanced automation gives us certain speed, cost and flexibility
advantages over conventional punch card manufacturers. MTS Packagings equipment
produces finished cards on a single in-line Flexographic press. This process takes the
place of approximately five different processes using conventional offset printing
methods. MTS Packaging has several machines capable of producing punch cards in this
manner. In addition to the manufacturing of punch cards, MTS Packaging manufactures the
machines that are sold to its customers to fill punch cards with medication. The majority
of these machines are sold to customers; however, from time to time, customers are
provided or rented machines in conjunction with an agreement to purchase certain
quantities of punch cards over a specified period.

MTS
Packaging uses automated fabrication equipment to produce its medication packaging
machinery. All essential components of the machines are designed and manufactured by us
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. We believe that relations are adequate with our existing
vendors. However, there can be no assurance that such relations will be adequate in the
future or that shortages of any of these raw materials will not arise, causing production
delays. MTS Packaging believes it is necessary to maintain an inventory of materials and
finished products that allows for customer orders to be shipped within the industry
standard of two to three days. The inability to obtain raw materials on a timely basis and
on acceptable terms may have a material adverse effect on our future financial
performance.

Markets and Customers

MTS Packagings products are
sold primarily throughout the United States through its sales organization and independent
sales representatives. In addition, MTS Packaging Systems International distributes
product in the United Kingdom. MTS Packaging also participates in trade shows and training
seminars. Sales to countries outside the United States represent less than
10% of the total revenue in fiscal 2004.  Sales to our two largest customers represented
approximately 14% and 13%, respectively, of MTS Packagings revenue in the fiscal
year ended March 31, 2004.

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. These pharmacies serve from 50 to 45,000 nursing
home beds per location and many serve the sub-acute care, assisted living, correctional and
home health care markets as well.

Competition

The
pharmacy customers of MTS Packaging supply prescribed medications to nursing homes and
assisted living facilities, which are the primary market for MTS Packagings
products. This market is highly competitive. There are several competitors that have
developed machines that automate the packaging and sealing of solid medications into punch
cards. We believe that products developed by our competitors are not as efficient as our
systems because they are not as automated. Our 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 our
competitors have been in business longer and have substantially greater resources than us.
There is no assurance that we will be able to compete effectively with competitive methods
of dispensing medication or other punch card systems.

Our primary competitors for punch
card dispensing systems in the United States are Drug Package, Inc., AutoMed®
Technologies and RX Systems, Inc. We believe that our automated proprietary packaging
machinery distinguishes MTS Packaging from its competitors less automated systems.
Our automated packaging machine with the highest throughput can fill and seal up to 900
disposable medication cards per hour. We believe that our production rates for the
prepackaging of prescriptions and our just-in-time OnDemand system will meet
the needs of our customers who are consolidating and require higher productivity to meet
their growing market share.

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Proprietary Technology

In
June 2003, we purchased the rights to certain proprietary technology that had previously
been available through a license agreement with the Siegel Family Trust. The proprietary
technology is supported by certain patents, which expire at various times during calendar
years 2004 through 2008.

There
are numerous patent applications and patent license agreements for products that have been
sold and that have been in development within MTS Packaging. However, its business is not
materially dependent upon the issuing or its ownership of any one patent that has been
submitted to the United States Patent and Trademark Office.

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

Government Regulations

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

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

Employees

As
of June 20, 2004, we employed 170 persons full time. None of our employees are covered by
a collective bargaining agreement. We consider our relationship with our employees to be
good.

Risk Factors

You
should be aware that the risks and uncertainties described below are not the only ones
affecting us or that could affect us in the future. Any of the risks and uncertainties
described below could have a material adverse effect on our business, results of operation
and financial conditions, and could result in a partial or complete loss of your
investment.

We have many competitors
and expect new competitors to enter our market, which could adversely affect our ability
to increase revenue, maintain our margins or grow our market share.

The
market for our services is extremely competitive and the barriers to entry in our market
are relatively low. We cannot be sure that we will have the resources or expertise to
compete successfully in the future. Our competitors may be able to:

| |  | develop and expand their product and service offerings more quickly;
| | - | --------------------------------------------------------------------

| |  | adapt to new or emerging technologies and changing customer needs more quickly;
| | - | -------------------------------------------------------------------------------

| |  | negotiate more favorable purchases agreements with suppliers;
| | - | -------------------------------------------------------------

| |  | devote greater resources to the marketing and sale of their products; and
| | - | -------------------------------------------------------------------------

| |  | address customers service-related issues more effectively.
| | - | -----------------------------------------------------------

| | Some
of our competitors may also be able to provide customers with additional benefits at lower
overall costs or to reduce their charges aggressively in an effort to increase market
share. We cannot be sure that we will be able to match cost reductions by our competitors.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Our operating results may
fluctuate due to a number of factors, many of which are beyond our control.

Our annual
and quarterly operating results are affected by a number of factors, including:

| |  | adverse changes in general economic conditions;
| | - | -----------------------------------------------

| |  | the level and timing of customer orders;
| | - | ----------------------------------------

| |  | the composition of the costs of revenue between materials, labor and
          manufacturing overhead;
| | - | ------------------------------------------------------------------------------------------------------

| |  | our level of experience in manufacturing a particular product;
| | - | --------------------------------------------------------------

| |  | fluctuations in materials costs and availability of materials; and
| | - | ------------------------------------------------------------------

| |  | the timing of expenditures in anticipation of increased sales and
                        customer product delivery requirements.
| | - | ---------------------------------------------------------------------------------------------------------------------------------

The
volume and timing of orders placed by our customers vary due to variation in demand for
our products, new product introductions and consolidations among our customers. In the
past, changes in customer orders have had a significant effect on our results of
operations due to corresponding changes in the level of overhead absorption. Any one or a
combination of these factors could adversely affect our annual and quarterly results of
operations in the future.

We depend on a
limited number of customers for our sales revenue, therefore, a reduction in sales to
any one of our customers could cause a significant decline in our revenue.

For
the fiscal year ended March 31, 2004, our 10 largest customers accounted for approximately
62% of our net revenue and our two largest customers accounted for approximately 27% of
our net revenue. We are dependent upon the continued growth, viability and financial
stability of our customers whose industries have experienced consolidation, pricing and
regulatory pressures. We expect to continue to depend upon a relatively small number of
customers for a significant percentage of our net revenue. Consolidation among our
customers may further reduce the number of customers that generate a significant
percentage of our revenues and exposes us to increased risks relating to dependence on a
small number of customers. A significant reduction in sales to any of our customers or a
customer exerting significant pricing and margin pressures on us, would have a material
adverse effect on our results of operations.

We depend on a small
number of suppliers for the raw materials used in the production of our products.

We
rely on a limited number of suppliers for the raw materials that are essential in the
production of the products we produce. We cannot assure you that such suppliers will be
able to meet our future demand for raw materials, or that shortages of these raw materials
will not arise in the future. The failure of such suppliers to deliver such raw materials
on a timely basis could have a material adverse effect on our business, financial
condition and results of operations.

The markets for our
products are characterized by rapidly changing technology and evolving process
development.

The
continued success of our business will depend upon our ability to:

| |  | Hire, retain and expand our qualified engineering and technical personnel;
| | - | --------------------------------------------------------------------------

| |  | maintain technological leadership;
| | - | ----------------------------------

| |  | develop and market products that meet changing customer needs; and
| | - | ------------------------------------------------------------------

| |  | successfully anticipate or respond to technological changes in manufacturing
                processes on a cost-effective and timely basis.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------

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Although
we believe that our operations use the assembly and testing technologies, equipment and
processes that are currently required by our customers, we cannot be certain that we will
develop the capabilities required by our customers in the future. The emergence of new
technology industry standards or customer requirements may render our equipment, inventory
or processes obsolete or noncompetitive. In addition, we may have to acquire new assembly
and testing technologies and equipment to remain competitive. The acquisition and
implementation of new technologies and equipment may require significant expense or
capital investment, which could reduce our operating margins and our operating results.
Our failure to anticipate and adapt to our customers changing technological needs
and requirements could have an adverse effect on our business.

We manufacture
substantially all of our products from a single facility.

We
manufacture substantially of the products we sell. As a result, any prolonged disruption in the
operations of our manufacturing facility, whether due to technical or labor difficulties,
destruction of or damage to any facility or other reasons, could have a material adverse
effect on our business, financial condition and results of operations. In this regard, our
principal manufacturing facility is located in Clearwater, Florida and is thus exposed to
the risks of damage from certain weather conditions including, without limitation:
hurricanes, windstorms, and floods. If our facilities were to be out of production for an
extended period, our business, financial condition and results of operation would be
materially adversely affected.

We rely on short-term
contracts with most of our clients.

Long-term contracts are not a significant part of our business.  Accordingly, future results cannot be
reliably predicted by considering past trends or extrapolating past results.

We are dependent on the
proper functioning of our information systems in operating our business.

Our
information systems are protected through physical and software safeguards and we have
backup remote processing capabilities. They are still vulnerable, however, to hurricanes,
other storms, flood, fire, terrorist acts, earthquakes, power loss, telecommunications
failures, physical or software break-ins, computer viruses and similar events. If our
critical information systems fail or are otherwise unavailable, we would have to
accomplish these functions manually, which could temporarily impact our ability to
identify business opportunities quickly, to maintain billing and clinical records
reliably, and to bill for services efficiently. In addition, we depend on third party
vendors for certain functions whose future performance and reliability we can not
warranty.

Our success depends upon
retaining the services of our management team.

We
are highly dependent on our management team. We expect that our continued success will
largely depend upon the efforts and abilities of members of our management team. The loss
of the services of any of our key executives for any reason could have a material adverse
effect upon us. Our success also depends upon our ability to identify, develop, and retain
qualified management, professionals and technical operating staff. We expend significant
resources in recruiting and training our employees, and the pool of available applicants
for these positions is limited. The loss of the services of any key executives, or our
inability to continue to attract and retain qualified staff, could have a material adverse
effect on our business, results of operations and financial condition.

Adverse results in tax
audits could result in significant cash expenditures or exposure to unforeseen
liabilities.

We
are subject to periodic federal, state and local income tax audits for various tax years.
Although we attempt to comply with all taxing authority regulations, adverse findings or
assessments made by the taxing authorities as the result of an audit could materially
adversely affect us.

We are a holding
company and we depend on receiving distributions from our subsidiaries, and we could be
harmed if such distributions could not be made in the future.

We
are a holding company with essentially no operations of our own and conduct all of our
business through our subsidiaries. Our only significant asset is the outstanding capital
stock of our subsidiaries. We are wholly dependent on the cash flow of our subsidiaries
and dividends and distributions to us from our subsidiaries in order to service any
current and future indebtedness obligations we may have.

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We are prohibited from
paying dividends on our common stock.

We
have not paid any dividends on our common stock and do not anticipate declaring or paying
any dividends in the foreseeable future. The terms of our loan agreements prohibit us from
paying dividends on our common stock.

The issuance of
additional shares of our common stock as a result of the conversion or exercise of
currently outstanding derivative securities may cause our stock price to decline.

As of June 21, 2004, we had 5,601,937 shares of common stock outstanding as of
March 31, 2004. In addition, the following shares of our common stock are issuable upon
exercise or conversion of currently outstanding securities:

| |  | 999,000 shares of common stock are issuable upon exercise of
currently outstanding common stock purchase options having exercise prices ranging from
$0.48to $25.00;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 29,500 shares of common stock are issuable upon exercise of
currently outstanding common stock purchase warrants having exercise prices ranging from
$0.01 to $1.88; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 847,457 shares of common stock are issuable upon conversion of 2,000 shares of
Series A Convertible Preferred Stock (the Series A Preferred Stock).
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------

| | The
possibility of exercise or conversion of these securities and the inclusion of the
underlying shares of common stock in the issued and outstanding shares may adversely
affect the market price of our common stock.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

If we must make certain
payments of certain amounts to Eureka I, L.P., such payments could have a material effect
on our financial condition and could cause our stock price to decline.

The
terms of our Series A Preferred Stock issued to Eureka I, L.P., contain certain
anti-dilution provisions and a make-whole provision that obligates us to pay certain
amounts to the holder of the Series A Preferred Stock if such holder does not ultimately
receive an amount equal to the price per share of the common stock on the date they
exercise their right to purchase the common shares that underlie the Series A Preferred
Stock. In the event that we are required to make payments to the holders of the Series A
Preferred Stock, we may elect to issue additional preferred stock in lieu of a cash
payment. The make-whole provision and other provisions of the convertible preferred stock
agreement provide for a maximum of 12,500,000 shares that may be issued pursuant to those provisions.

We may be adversely
affected by governmental regulation of our business.

Our
business is subject to federal regulation concerning components of packaging materials
that are in contact with food and drugs. While we have had no material difficulty
complying with such regulations in the past, there can be no assurance that we will be
able to continue to obtain all necessary approvals or that the cost of compliance will not
prove to be material. Additionally, we cannot assure you that significant changes in such
regulations will not occur in the foreseeable future. Our inability to comply with the
current regulations and any future changes to such regulations could have a material
adverse effect on our business, results of operations and financial condition.

We face an inherent risk
of exposure to product liability claims in the event that the use of the products we
manufacture and sell results in personal injury.

We
face an inherent risk of exposure to product liability claims in the event that the use of
the products we manufacture and sell results in personal injury. Although we have not
experienced any losses due to product liability claims, we cannot assure you that we will
not experience such losses in the future. We maintain insurance against product liability
claims, but we cannot be certain that such coverage will be adequate to cover any
liabilities that we may incur, or that such insurance will continue to be available on
terms acceptable to us. A successful claim brought against us in excess of available
insurance coverage, or any claim that results in significant adverse publicity against us,
could harm our business.

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If we are unable to
protect our intellectual property rights, our business and prospects may be harmed.

Our
ability to compete effectively is dependent upon the proprietary nature of the designs,
processes, technologies and materials owned by, used by or licensed to us. Although we
attempt to protect our proprietary property, technologies and processes both in the United
States and in foreign countries through a combination of patent law, trade secrets and
non-disclosure agreements, these may be insufficient. In addition, because of the
differences in foreign patent and other laws concerning proprietary rights, our products
may not receive the same degree of protection in foreign countries as they would in the
United States.

Intellectual property
claims and litigation could subject us to significant liabilities for damages and
invalidation of our proprietary rights.

In
the future we may have to resort to litigation to protect our intellectual property rights
to protect our trade secrets or to develop the validity and scope of our proprietary
rights of others. Any litigation, regardless of its success, would be costly and require
significant time and attention of our key management and technical personnel. The
litigation could also force us to:

| |  | Stop or delay selling, incorporating or using products that incorporate the
  challenged intellectual property;
| | - | ---------------------------------------------------------------------------------------------------------------

| |  | Pay damages;
| | - | ------------

| |  | Enter into licensing or royalty agreements, which may be unavailable
under acceptable terms; and
| | - | ------------------------------------------------------------------------------------------------

| |  | Redesign products and services that incorporate infringing technology.
| | - | ----------------------------------------------------------------------

We
may face infringement claims from third parties in the future. The medical packaging
industry has seen frequent litigation over intellectual property rights, and we expect
that participants in the medical packaging industry will be increasingly subject to
infringement claims as the number of products, services, and competitors grow and
functionality of the products and services overlap. We cannot assure you that the steps
taken by us will be adequate to deter misappropriation of our proprietary rights or that
third parties will not independently develop substantially similar products, services and
technology. Furthermore, there can be no assurance that our products will not infringe
upon the intellectual property rights of third parties. We may not be able to avoid
infringement of third party intellectual property rights and may have to obtain a license,
defend an infringement action, or challenge the validity of the intellectual property
rights in court. Failure to obtain or maintain intellectual property rights in our
products, for any reason, could have a material adverse effect on us.

Our business will suffer
if we fail to comply with recent federal regulations and proposed rules of the SEC
relating to corporate governance reform.

As
a public company, we are subject to certain federal regulations and the rules and
regulations of the SEC. On July 30, 2002, President George W. Bush signed into law the
Sarbanes-Oxley Act of 2002, effecting tighter accounting, corporate fraud and securities
laws. To implement this legislation, the SEC is expected to adopt new rules pertaining to,
among other things, audit committee requirements and additional disclosure and reporting
requirements. Our reputation and financial results could be materially harmed by any
failure by us to comply with any current or future rules or regulations relating to the
Sarbanes-Oxley Act or to any other federal corporate reform measures.

Our stock price may be
volatile.

Our
common stock is traded on the American Stock Exchange under the symbol MPP. The
market price of our stock has fluctuated substantially in the past and could fluctuate
substantially in the future, based on a variety of factors, including our operating
results, changes in general conditions in the economy, the financial markets, or other
developments affecting us, our clients, or our competitors, some of which may be unrelated
to our performance. Those fluctuations and demand for our services may adversely affect
the price of our stock. It is possible that the stock price may decline to a level where we
lose our eligibility to remain listed on the American Stock Exchange.

8

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In
addition, the stock market, in general, has experienced volatility that has often been
unrelated to the operating performance of public companies. These broad market
fluctuations may adversely affect the market price of our common stock, regardless of our
operating results.

Among
other things, volatility in our stock price could mean that investors will not be able to
sell their shares at or above prices at which they are acquired. The volatility also could impair
our ability in the future to offer common stock as a source of additional capital.

Our stockholders do not
have cumulative voting rights.

The
holders of our capital stock do not have cumulative voting rights. Accordingly, the
holders of more than 50% of our outstanding shares entitled to vote for the election of
directors can elect all of our directors then being elected; the holders of the remaining
shares by themselves cannot elect any directors.

Provisions of our
certificate of incorporation and the applicable Delaware General Corporation law may make
it more difficult to complete a contested takeover of our Company.

Certain
provisions of our certificate of incorporation and the Delaware General Corporation Law
(the DGCL) could deter a change in our management or render more difficult an
attempt to obtain control of us, even if such a proposal is favored by a majority of our
stockholders. For example, we are subject to the provisions of the DGCL that prohibit a
public Delaware corporation from engaging in a broad range of business combinations with a
person who, together with affiliates and associates, owns 15% or more of the
corporations outstanding voting shares (an interested shareholder) for
three years after the person became an interested shareholder, unless the business
combination is approved in a prescribed manner. Finally, our certificate of incorporation
includes undesignated preferred stock, which may enable our Board of Directors to
discourage an attempt to obtain control of us by means of a tender offer, proxy contest,
merger or otherwise.

Terrorist attacks and other
acts of violence or war may affect any market on which our shares trade, the markets in
which we operate, our operations and our profitability.

Terrorist
acts or acts of war or armed conflict could negatively affect our operations in a number
of ways. Primarily, any of these acts could result in increased volatility in or damage to
the United States and worldwide financial markets and economy. They could also result in a
continuation of the current economic uncertainty in the United States and abroad. Acts of
terrorism or armed conflict, and the uncertainty caused by such conflicts, could cause an
overall reduction in sales of our products and the corresponding shipments of our
products. This would have a corresponding negative effect on our operations. Also,
terrorist activities similar to the type experienced on September 11, 2001 could result in
another halt of trading of securities on the American Stock Exchange, which could also
have an adverse affect on the trading price of our shares and overall market
capitalization.

# ITEM 2.    PROPERTIES

We
currently lease a 79,600 square foot plant consisting of office space and air-conditioned
manufacturing and warehousing space near the St. Petersburg/Clearwater International
Airport at 12920 Automobile Boulevard. Our corporate administrative offices and the
primary manufacturing facilities for MTS Packaging are at this location. On April 1, 2004,
we provided our landlord with notice of intent to terminate the lease on September 30,
2004 and vacate the premises. Effective October 1, 2004, we will occupy a new premises at
2003 Gandy Boulevard North, St. Petersburg, Florida. The lease for the new premises will
be for a term of 12 years. The premises consists of approximately 104,000 square feet, increasing to approximately
132,000 square feet, and the monthly lease payments begin at $35,000 plus tax in the first year and increase to
$63,000 plus tax in the final year. In addition, we are obligated to pay annual operating
expenses (i.e., insurance, property taxes and common area maintenance fees). We also have
an option to lease an additional 28,000 square feet of contiguous space at any time by
providing the landlord with 120 days notice. Also, we will be paid a move-in allowance of
$400,000 on the commencement date of the new lease. Our current monthly lease payments are
approximately $38,000 including tax. Both the current premises and the new premises are
generally suited for light manufacturing and/or distribution.

9

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MTS
Packaging also leases approximately 5,200 square feet at approximately $3,200 per month
for office and warehouse space at 21530 Drake Road, Cleveland, Ohio. The lease expires on
March 31, 2005.

MTS
Packaging Systems International, Ltd. rents office and warehouse space at Unit 6A/6B
Dalton Court, Blackburn Interchange, Lower Darwen, Blackburn, Lancashire, England. The
lease is for a term of one year, and the monthly lease payments are £1,642.

# ITEM 3.    LEGAL PROCEEDINGS

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

In
November 1998, Medical Technology Laboratories, Inc. (MTL), a subsidiary that
was sold in fiscal 2000, received a refund request in the amount of $1.8 million from
Medicare Program Safeguards (MPS). MTL disputed the refund request in its
response to MPS in December 1998. To date, MTL has not received any further correspondence
from MPS regarding this matter.

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

None.

10

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Table of Contents

# PART II

ITEM 5.    
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES

Price Range of Our
Securities

Our
common stock began trading on the American Stock Exchange (AMEX) on December
26, 2002. Under the symbol MPP, our common stock previously traded on the OTC
Bulletin Board (the OTCBB). The table below sets forth the range of high and
low sales prices and/or bid information for our common stock for the periods indicated, as
reported by the AMEX and OTCBB. OTCBB market quotations reflect inter-dealer prices,
without retail markup, markdown or commission and may not necessarily represent actual
transactions.

|2005 Fiscal
      Year |  | High |   | Low   | 
|---------------------- |  | ---- | - | ----- | 
|                       |  |      |   |       | 
|First
      Quarter    |  |      | $ | 14.95 | 
|                       |  |      |   |       | 
|
|                       |  |      |   |       | 
|                       |  |      |   |       | 
|First
      Quarter    |  |      | $ | 4.55  | 
|Second
      Quarter   |  |      | $ | 4.78  | 
|Third
      Quarter    |  |      | $ | 6.90  | 
|Fourth
      Quarter   |  |      | $ | 14.84 | 
|                       |  |      |   |       | 
|
|                       |  |      |   |       | 
|                       |  |      |   |       | 
|First
      Quarter    |  |      | $ | 3.05  | 
|Second
      Quarter   |  |      | $ | 2.90  | 
|Third
      Quarter    |  |      | $ | 2.47  | 
|Fourth
      Quarter   |  |      | $ | 3.55  | 

As
of June 21, 2004, there were approximately 2,500 holders of record
of our common stock and the closing price of our common stock report on AMEX was $6.05.

We
have not declared a dividend on our common stock and do not currently intend to declare a
dividend. Furthermore, we are restricted from paying dividends on our common stock
pursuant to the terms of our loan agreements. We intend to reinvest our future earnings,
if any, into the operations of our business.

In
June 2002, we issued 2,000 shares of the Series A Preferred Stock to Eureka I, L.P. for an
aggregate consideration of approximately $2,000,000. The Series A Preferred Stock is not a
publicly traded security. The purchase and sale was exempt pursuant to Rule 506 and
under Section 4(2) of the Securities Act of 1933, as a transaction by an issuer not
involving a public offering where the purchaser received or had access to adequate
information about the registrant. The purchase was made for cash. The holders of the
Series A Preferred Stock are entitled to receive quarterly dividends at the rate of 11%
per annum. The dividends are payable in cash or shares of Series A Preferred Stock at our
option and are cumulative. The Series A Preferred Stock is convertible into 847,457 shares
of our common stock at $2.36 per share. The terms of the Series A Preferred Stock contain
a make-whole provision that obligates us to pay certain amounts to the holders if they do
not ultimately receive an amount equal to the price per share of our common stock on the
date they elect to convert the Series A preferred stock into common stock. In addition,
the terms of the Series A Preferred Stock agreement contains certain antidilution
provisions.

11

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Equity Compensation Plan
Information

We
had 173,101 and 20,000 shares available for issuance
under our equity compensation plans as of April 1, 2003 and March 31, 2004, respectively.

During
Fiscal Year 2004, we did not experience any changes in the exercise price of our outstanding options, through
cancellation and reissuance or otherwise.

Purchases of EquitySecurities

We
did not repurchase any of our equity securities during fiscal 2004.

12

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# 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 Amount)
|                                                  |                                                 
|
|
|                                                  |                                                 
|Income Statement Data:                            |                                                 
|Net Sales                                         | $                                               
|Cost of Sales and Other Expenses                  |                                                 
|                                                  |                                                 
|Income from Continuing Operations                 |                                                 
|Before Income Taxes, Discontinued Operations      |                                                 
|and Extraordinary Gain                            |                                                 
|Income Tax Benefit (Expense)                      |                                                 
|(Loss) from Discontinued Operations               |                                                 
|Gain on Forgiveness of Debt of Discontinued       |                                                 
|Operations                                        |                                                 
|Gain on Disposal of Discontinued Operations       |                                                 
|Non-Cash Constructive Dividend Related to         |                                                 
|Beneficial Conversion Feature of Convertible      |                                                 
|Preferred Stock                                   |                                                 
|Convertible Preferred Stock Dividends             |                                                 
|                                                  |                                                 
|Net Income Available to Common Stockholders       | $                                               
|                                                  |                                                 
|Net Earnings (Loss) Per Basic and Diluted Common  |                                                 
|Share:  (Retroactively adjusted for the 1 for 2.5 |                                                 
|reverse stock split in December 2000):            |                                                 
|Net Earnings Per Basic Common Share               |                                                 
|From Continuing Operations                        | $                                               
|Income (Loss) from Discontinued Operations        |                                                 
|                                                  |                                                 
|Net Earnings Per Basic Common Share               | $                                               
|                                                  |                                                 
|Net Earnings Per Diluted Common Share             |                                                 
|From Continuing Operations                        | $                                               
|Income (Loss) from Discontinued Operations        |                                                 
|                                                  |                                                 
|Net Earnings Per Diluted Common Share             | $                                               
|                                                  |                                                 

|                               | AT MARCH 31   
|------------------------------ | --------------
|
|                               | (In Thousands)
|                               |               
|
|
|                               |               
|Balance Sheet Data:            |               
|Net Working Capital            | $             
|Assets                         |               
|Short-Term Debt                |               
|Long-Term Debt                 |               
|Stockholders' Equity (Deficit) |               

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The
information set forth below represents selected quarterly results of operations for each
of the quarters in fiscal years ended March 31, 2004 and 2003.

|                                            | Fiscal Year Ended March 31, 2004                 
|------------------------------------------- | -------------------------------------------------
|
|
|
|                                            | (In Thousands, Except Earnings Per Share Amounts)
|
|
|
|
|Income Statement Data:                      |                                                  
|Net Sales                                   |                                                  
|Gross Profit                                |                                                  
|Net Income Available to Common Stockholders |                                                  
|Net Earnings Per Basic Common Share         |                                                  
|                                            |                                                  
|Net Earnings Per Diluted Common Share       |                                                  
|                                            |                                                  

|                                            | Fiscal Year Ended March 31, 2003                 
|------------------------------------------- | -------------------------------------------------
|
|
|
|                                            | (In Thousands, Except Earnings Per Share Amounts)
|
|
|
|
|Income Statement Data:                      |                                                  
|Net Sales                                   |                                                  
|Gross Profit                                |                                                  
|Net Income Available to Common Stockholders |                                                  
|Net Earnings Per Basic Common Share         |                                                  
|                                            |                                                  
|Net Earnings Per Diluted Common Share       |                                                  
|                                            |                                                  

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

# OVERVIEW

We
experienced growth of 17% in net sales derived from our disposable punch card product
lines primarily due to: (1) increased penetration of independent pharmacies throughout the
country; and (2) the aging demographics of the United States population. Independent
pharmacies are those that are not affiliated with pharmacies that are national in scope,
but rather rely on the relationships they have with nursing homes and assisted living
facilities in a small geographic region. In addition, we sold six OnDemand machines
in fiscal 2004 compared to three machines in fiscal 2003.

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As
the population ages, the number of nursing home and assisted living facility residents
grows, which benefits our entire customer base. In addition, our revenue growth has been
enhanced by increased sales of the machines we manufacture and sell to our customers,
including our new OnDemand machine.

Although
competitive pricing issues related to the disposable punch card products arise from time
to time, we rely heavily on the relationships we build with customers, which are centered
around our complete medication packaging system that includes the machines, as well as the
disposables, in order to offset competitive pricing pressures.

Although
the cost of raw materials and the direct labor used to manufacture the disposable punch
cards has risen during fiscal year ended March 31, 2004, compared with the previous fiscal
year, we have been successful in maintaining the relationship between our selling prices
and direct costs by adjusting prices where appropriate and developing efficiencies by
adding new manufacturing equipment that better produces cards and blisters.

Overhead
costs incurred in manufacturing have risen approximately 19% in the fiscal year ended
March 31, 2004 to approximately $4.0 million from approximately $3.4 million in the same
period the prior fiscal year primarily due to costs added to properly supervise and
warranty the OnDemand product line. The Company expects this trend will continue for the
fiscal year ending in 2005 as the OnDemand product line generates more customer interest
and subsequent revenue.

Selling costs for the fiscal year
ended March 31, 2004 compared to the same period in the prior fiscal year increased
approximately 4% to $2.1 million from $2.0 million the prior year because the Company has
added to its sales and customer service support staff. However, marketing costs have
increased 65% over the same period in the prior fiscal year, from approximately $418,000
to approximately $691,000, as more resources are dedicated to improving product awareness
in existing markets, such as skilled nursing and new markets, such as assisted living.
Also, it has been necessary to add technical support personnel to assist in the
installation and user training of OnDemand machines. The Company expects that selling and
marketing costs, as well as OnDemand support costs, will continue to rise as it attempts
to reach new markets for its disposable products and additional OnDemand machine sales are
realized.

Administrative
costs have risen approximately 24% in the fiscal year ended March 31, 2004, compared to
the same period in the prior fiscal year from approximately $3.7 million to approximately
$4.6 million. The increase was primarily due to costs that have been added to support the
operations in the United Kingdom and personnel related expenses including employee benefit
costs in the United States. Currently we do not expect that our administrative costs will
rise at the same percentage rate in fiscal 2005 as they did in fiscal 2004.

# FISCAL YEAR 2004
COMPARED TO FISCAL YEAR 2003

# Results of Operation

Net Sales

Net
sales for the fiscal year ended March 31, 2004, increased 17.0% to $34.4 million from
$29.4 million the prior year. Net sales increased in fiscal 2004 primarily as a result of
an increase in disposable punch cards sold to existing and new customers in the United
States, an increase in disposable punch cards and machines sold in the United Kingdom and
the sale of OnDemand machines in the United States Selling prices for disposable
punch cards were stable during fiscal 2004.

We
expect that selling prices for disposable punch cards may decrease in the next fiscal year
depending on competitive factors. We believe that the number of punch cards sold will
increase in the next fiscal year as a result of the addition of new customers in the
United States and the United Kingdom, and a general increase in the number of nursing home
and assisted living facility residents served by our customers. Additional sales of
OnDemand machines in the next fiscal year are also expected to contribute to an
overall growth in net sales.

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Cost of Sales

Cost
of sales for the fiscal year ended March 31, 2004, increased 17.4% to $20.9 million from
$17.8 million the prior year. Cost of sales as a percentage of net sales increased to
60.8% from 60.5% for the prior year. The increase in cost of sales resulted primarily from
the costs associated with increased net sales. The increase in the cost of sales
percentage resulted primarily from the fact that OnDemand machine sales increased
over the prior year, and the product margin on OnDemand machines is less than the
product margin on disposable punch card products. In addition, overhead costs increased
primarily due to additional personnel and benefit costs associated with employees that
were added to support the increased production of disposable punch cards and the
production and support of the OnDemand machines.

During
the fiscal year ended March 31, 2004, we wrote off approximately $100,000 in obsolete
inventory primarily related to discontinued packaging equipment. In addition, the inventory valuation
allowance related to obsolete and slow moving inventory was increased by $12,000. We
will continue to evaluate our inventory valuation allowance and adjust it accordingly.

We currently expect that raw material
costs will increase in the next fiscal year and that direct labor costs should remain
stable. Overhead expenses may continue to rise. At this point in time, we expect that the
additional revenue associated with an increase in the volume of punch cards and machines
sold should contribute to maintaining overall cost of sales, as a percentage of sales, at
levels experienced during the fiscal year ended March 31, 2004.

Selling, General and Administrative Expenses (SG&A)

SG&A
expenses for the year ended March 31, 2004, increased 19.1% to $7.5 million compared to
$6.3 million the prior year. The increase resulted primarily from the costs associated
with additional personnel and benefit costs for employees that were added to support our
overall growth, costs associated with our United Kingdom operations and higher marketing
expenditures. In addition, we charged off approximately $100,000 in uncollectable accounts
receivable and increased our estimated bad debt reserve by $49,000. We regularly review
the adequacy of our bad debt reserve by specific customer account analysis as well a
review of historical trends.

We
expect SG&A expenses will increase during the next fiscal year. However, the
additional revenue associated with an increase in the volume of punch cards and machines
sold is expected to contribute to maintaining overall SG&A expenses, as a percentage
of sales, at levels experienced during the fiscal year ended March 31, 2004.

Depreciation and Amortization Expense

Depreciation
and amortization expense for the fiscal year ended March 31, 2004, increased 39.3% to
$1,342,000 compared to $964,000 the prior year. The increase resulted primarily from the
fact that we had a full year of amortization of the product development costs associated
with our OnDemand machine during the fiscal year ended March 31, 2004, and began to
amortize the cost of the patents acquired during the year ended March 31, 2004. In
addition, newly purchased assets used in the manufacturing process that were acquired in fiscal 2004 began
to be depreciated in fiscal 2004.

Interest Expense

Interest expense for the fiscal year
ended March 31, 2004 decreased 2.9% to $851,000 compared to $876,000 the prior year. The
decrease resulted from a reduction in outstanding debt resulting from the regular monthly
principal payments made in accordance with the terms of our loan agreements. We expect our
interest expense to decline during the next fiscal year due primarily to the prepayment in
full of our $4,000,000 subordinated note in June 2004, which had an interest
rate of 14%. The current interest rate payable on the funds borrowed to repay the subordinate note
is the prime rate plus 1% (currently 5%).

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Amortization of Financing Costs and Original Issue Discount

We
refinanced our long-term debt in June 2002 and incurred approximately $1,478,000 in
financing costs. The financing costs were allocated between components of the financing
that represented debt and equity. $1,110,000 of costs that were allocated to the debt
component of the financing began to be amortized over the term of the various loans and
notes during fiscal year 2003. Amortization expense related to the financing costs was
$364,000 and $271,000 for the fiscal years ended March 31, 2004 and 2003, respectively. In
addition, the relative value of certain warrants and imbedded features of the warrants,
which were issued in conjunction with the subordinated debt portion of the debt component,
were recorded as part of the stockholders equity and reduced the carrying amount of the
subordinated note as an original issue discount (OID). The OID of
approximately $1,240,000 began to be amortized using the effective interest method over
the term of the subordinated note during fiscal year 2003. Amortization expense related to
the OID was $248,000 and $189,000 for the fiscal years ended March 31, 2004 and 2003,
respectively. We expect our OID expense to decline during the next fiscal year due
primarily to the prepayment in full of our $4,000,000 subordinated note in June 2004.

Income Tax Expense

Income
tax expense for the fiscal year ended March 31, 2004, increased 5.9% to $1,190,000
compared to $1,124,000 the prior year. The increase resulted from higher pretax net income
in fiscal 2004 compared to the prior year.

Series A Preferred Stock Dividends

The
terms of the Series A Preferred Stock include the payment of quarterly dividends at the
rate of 11% per annum. The amount of preferred stock dividends that accrued during fiscal
2004 was $220,000. The dividends are payable in cash or shares of Series A Preferred Stock
at our option and are cumulative. All dividends accrued in the fiscal years ended March
31, 2004 and 2003 were paid in cash. In the fiscal year ended March 31, 2003, the accrued
dividends were $168,000. The increase in fiscal 2004 over 2003 resulted from the Series A
Preferred Stock having been outstanding for the entire year in fiscal 2004 compared to
nine months in fiscal 2003.

# FISCAL YEAR 2003
COMPARED TO FISCAL YEAR 2002

# Results of Operations

Net Sales

Net
sales for the fiscal year ended March 31, 2003, increased 18.6% to $29.4 million from
$24.8 million the prior year. Net sales increased in fiscal 2003 primarily as a result of
an increase in disposable punch cards sold to existing and new customers in the United
States, an increase in disposable punch cards and machines sold in the United Kingdom and
the sale of three OnDemand machines in the United States Selling prices for
disposable punch cards were stable during fiscal 2003.

Cost of Sales

Cost
of sales for the fiscal year ended March 31, 2003, increased 23.6% to $17.8 million from
$14.4 million the prior year. Cost of sales as a percentage of net sales increased to
60.5% from 58.2% for the prior year. The increase in cost of sales resulted primarily from
the costs associated with increased net sales. The increase in the cost of sales
percentage resulted from increased raw material costs, as well as increased overhead
expenses related to the manufacturing departments. Overhead increases were primarily due
to additional personnel and benefit costs associated with employees that were added to
support the increased production of disposable punch cards and the production and support
of the OnDemand machines.

During
the fiscal year ended March 31, 2003, we wrote off approximately $106,000 in obsolete
inventory primarily related to discontinued packaging equipment. In addition, we determined that our
estimate of the inventory valuation allowance, related to obsolescence and slow moving
inventory, should be increased by $143,000 primarily because during the fiscal year ended
March 31, 2003, several new packaging machines were introduced into the product line.

17

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Selling, General and Administrative Expenses (SG&A)

SG&A
expenses for the year ended March 31, 2003, increased 18.9% to $6.3 million compared to
$5.3 million the prior year. The increase resulted primarily from the costs associated
with additional personnel, training and benefit costs for employees that were added to
support our overall growth, costs associated with our United Kingdom operations and higher
research and development activities. In addition, during the previous fiscal year, we
reduced our estimated bad debt reserve by $180,000. Also, during fiscal 2003, we
determined that certain development projects were not going to be completed, and
therefore, wrote off approximately $115,000 in costs that had been previously capitalized.

Depreciation and Amortization Expense

Depreciation
and amortization expense for the fiscal year ended March 31, 2003, increased 4.1% to
$964,000 compared to $926,000 the prior year. The increase resulted primarily from the
fact that we began to amortize the product development costs associated with our
OnDemand machine during the fiscal year ended March 31, 2003.

Interest Expense

Interest
expense for the fiscal year ended March 31, 2003 decreased 4.7% to $876,000 compared to
$919,000 the prior year. The decrease resulted from a reduction in outstanding debt
resulting from the regular monthly principal payments made in accordance with the terms of
our loan agreements, as well as a reduction in total outstanding debt that resulted from
the June 2002 refinancing of our existing debt.

Amortization of Financing Costs and Original Issue Discount (OID)

We
refinanced our long-term debt in June 2002 and incurred certain costs totaling
approximately $1,478,000 during the fiscal year ended March 31, 2003 to complete the
financing. The financing costs were allocated between components of the financing that
represented debt and equity. $1,110,000 of costs that were allocated to the debt component
of the financing began to be amortized over the term of the various loans and notes during
fiscal year 2003. Amortization expense related to the financing costs was $271,000 for the
fiscal year ended March 31, 2003. In addition, the relative value of certain warrants and
imbedded features of the warrants, which were issued in conjunction with the subordinated
debt portion of the debt component, were recorded as part of the stockholders equity and
reduced the carrying amount of the subordinated note as an OID. The OID of approximately
$1,240,000 began to be amortized using the effective interest method over the term of the
subordinated note during fiscal year 2003. Amortization expense related to the OID was
$189,000 for the fiscal year ended March 31, 2003.

Income Tax Expense

Income
tax expense for the fiscal year ended March 31, 2003, decreased 8.9% to $1,124,000
compared to $1,234,000 the prior year. The decrease resulted from lower pretax net income
in fiscal 2003 compared to the prior year.

Non-Cash Constructive Dividend Related to Beneficial Conversion Feature of Series A Preferred Stock

The
equity component of the June 2002 refinancing was comprised, in part, by 2,000 shares of
Series A Preferred Stock, which were issued at $1,000 per share. The Series A Preferred
Stock is convertible into 847,457 shares of our common stock at $2.36 per share. On the
date the convertible preferred stock was issued, the fair market value of our common stock
was $2.77 per share. The difference between the fair market value of the shares and the
conversion price of the Series A Preferred Stock represented a constructive dividend to
the holders of the Series A Preferred Stock in the amount of $347,000.

18

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Series A Preferred Stock Dividends

The
terms of the Series A Preferred Stock include the payment of quarterly dividends at the
rate of 11% per annum. The amount of preferred stock dividends that accrued during fiscal
2003 was $168,000. The dividends are payable in cash or shares of Series A Preferred Stock
at our option and are cumulative. All dividends accrued in the fiscal year ended March 31,
2003 were paid in cash.

# LIQUIDITY AND CAPITAL
RESOURCES

Our
operations provided $2.6 million in the fiscal year ended March 31, 2004, compared to $3.2
million the prior year. The decrease in cash provided by operations resulted primarily
from an increase in accounts receivable and inventory. These increases resulted primarily
from increases in revenue.

Investing
activities used $2.0 million during the fiscal year ended March 31, 2004, compared to $1.7
million the prior year. The increase resulted primarily from the fact that we purchased a
new machine for manufacturing punch cards in fiscal 2004.

Financing
activities used $.9 million during the fiscal year ended March 31, 2004 compared to $1.5
million the prior year. The decrease in cash required for financing activities resulted
primarily from our receipt of approximately $500,000 during this fiscal year from the
proceeds of the exercise of employee stock options. In addition, we increased our
borrowings on our revolving line of credit during fiscal 2004.

We
had working capital of $9.3 million at March 31, 2004, compared to $4.5 at March 31, 2003.
The increase in working capital resulted primarily from an increase in earnings before
interest, taxes, depreciation and amortization, which was used primarily to support
increases in accounts receivable and inventory.

We
do not maintain significant cash balances because all available cash is used to pay down
our revolving line of credit. We view the excess availability on our line of credit as our
cash reserve. At March 31, 2004, we had approximately $1.1 million available on our
revolving line of credit.

In
June 2002, we repaid the entire amount, $11,310,000, of our bank term loan with the
proceeds of a new revolving line of credit, term loans, a subordinated note and the Series
A Preferred Stock. The revolving line of credit allowed for borrowings of up to $5,000,000
(the Revolving Line of Credit) based upon advance rates that are applied to
our eligible accounts receivable and inventory. Interest was payable on the Revolving Line
of Credit monthly based on the average unpaid balance at the prime rate plus 1.0%.

As
part of the June 2002 refinancing, we entered into certain term loans. One term loan in
the amount of $700,000 is repayable in equal monthly installments over a five year term,
plus interest at the prime rate plus 1.25%. The second term loan in the amount of
$2,000,000 was repayable in equal monthly installments over two years plus interest at the
prime rate plus 2.25% and included an excess cash flow payment provision. The second term
loan was entirely repaid in January 2004.

The
Revolving Line of Credit and the term loan(s) are secured by our accounts receivable,
inventory, machinery and equipment and all of our other assets.

We
executed a subordinated note in the amount of $4,000,000 (the Subordinated
Note) as part of the June 2002 refinance, which was repayable over five years with
interest only, at 14%, payable monthly until the maturity of the Subordinated Note. The
Subordinated Note is secured by a second lien on all of our assets. In addition, the
Subordinated Note holders were issued 566,517 warrants to purchase shares of our common
stock exercisable for ten years at $.01 per share. In June 2004 we repaid the Subordinated
Note in full.

In
June 2002, we issued 2,000 shares of Series A Preferred Stock at $1,000 per share. The
holders of the Series A Preferred Stock are entitled to receive quarterly dividends at the
rate of 11% per annum. The dividends are payable in cash or shares of Series A Preferred
Stock, at our option, and are cumulative. The Series A Preferred Stock is convertible into
847,457 shares of our common stock at $2.36 per share.

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The
terms of the Series A Preferred Stock agreement contains certain anti-dilution provisions
and a make-whole provision that obligates us to pay certain amounts to the holders of the
Series A Preferred Stock if they do not ultimately receive an amount equal to the price
per share of the common stock on the date they exercise their right to convert the Series
A Preferred Stock into our common stock.

In
the event that we are required to make payments to the holders of the Series A Preferred
Stock, we may elect to issue additional shares of Series A Preferred Stock in lieu of a
cash payment. Although the make-whole provision and other provisions of the Series A
Preferred Stock agreement provide for a maximum of 12,500,000 shares that may be
issued pursuant to those provisions, based upon current conditions, we believe it is
unlikely that the maximum number of shares would be issued.

In
April 2004, the Subordinated Note holders exercised their rights to acquire the 566,517
shares of our common stock under the terms of the cashless exercise provisions of the
warrant agreement and sold the common stock. The terms of the warrant agreement contained
certain antidilution provisions. The warrant agreement also contained a make-whole
provision that obligated us to pay certain amounts to the holders of the warrants if they
did not ultimately receive an amount equal to the price per share of the common stock on
the date they exercise their right to purchase the common shares that underlie the
warrants. The warrant agreement also contained a provision that may have obligated us to
pay certain amounts to the holders of the warrants in the event there was a change in
control of our voting common stock, if we were sold, or if there was a public offering of
our common stock.

In
June 2004, we renewed and extended the Revolving Line of Credit (the New Revolving
Line of Credit). The New Revolving Line of Credit is for $8,500,000 and expires in
June 2007. In addition, we entered into a new secured equipment term loan agreement for
$1,200,000. We used the additional availability on the New Revolving Line of Credit and
our term loans to completely repay the $4,000,000 Subordinated Note. At the time of the
early repayment of the Subordinated Note, we incurred a prepayment penalty of $120,000.
All of our obligations under the warrant agreement were extinguished at the time the
investor sold the common stock and the subordinated debt was repaid.

The
New Revolving Line of Credit allows for borrowings based upon advance rates that are
applied to our eligible accounts receivable and inventory at the prime rate or London
InterBank Offering Rate (LIBOR) plus 2.25%, and requires that we maintain
$750,000 of excess availability at all times. The equipment secured loan is repayable over
a three-year period with interest at the prime rate plus 1% or LIBOR plus 2.75%. In
addition, a $3,000,000 overadvance was borrowed at the prime rate plus 1% or LIBOR plus
3.25%. The overadvance is repayable over a 15-month period.

The
New Revolving Line of Credit and the term loans each contain certain financial covenants
that, among other things, requires the maintenance of a minimum tangible net worth, and
debt service coverage ratios and limits the amount of capital expenditures and requires us
to obtain the lenders approval for certain matters. We were in compliance with all
provisions of the applicable revolving line of credit and the term loan agreements at
March 31, 2004 and May 31, 2004.

We
also have a $300,000 capital expenditure term loan available to fund future expenditures for capital
equipment.

Our
short-term and long-term liquidity is primarily dependent on our ability to generate cash
flow from operations. Inventory levels may change based upon our success in selling our
OnDemand machines. Increases in net sales may result in corresponding increases in
accounts receivable. Cash flow from operations and borrowing availability on the revolving
line of credit is anticipated to support an increase in accounts receivable and inventory.

We
believe that the cash generated from operations during the next fiscal year and our
available lines of credit will be sufficient to meet our capital expenditures, product
development, working capital needs and the principal payments required by our loan
agreements.

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# OFF-BALANCE SHEET
ARRANGEMENTS

In
accordance with the definition under the new SEC rules, the following qualify as
off-balance sheet arrangements:

| |  | any obligation under certain guarantee contracts;
| | - | -------------------------------------------------

| |  | a retained or contingent interest in assets transferred to an unconsolidated entity or
similar entity or similar arrangement that serves as credit, liquidity or market risk
support to that entity for such assets;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | any obligation,  including a contingent obligation,  under a contract that
would be accounted for as a derivative instruments; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------

| |  | any obligation, arising out of a variable interest in an unconsolidated entity that is
held by, and material to, the registrant, where such entity provides financing, liquidity,
market risk or credit risk support to the registrant, or engages in leasing, hedging or
research and development services with the registrant.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We
currently do not have any off-balance sheet arrangements as defined above.

# CONTRACTUAL OBLIGATIONS

Summarized
below are our obligations and commitments to make future payments under certain
contractual obligations as of March 31, 2004:

|                            |               
|--------------------------- | --------------
|
|
|
|                            | (In Thousands)
|
|Long-Term Debt              |               
|Capital Leases              |               
|Operating Leases            |               
|Purchaser Obligations       |               
|Other Long-Term Liabilities |               

# ESTIMATES AND CRITICAL ACCOUNTING
POLICIES

The
preparation of our consolidated financial statements in conformity with generally accepted
accounting principles in the United States requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the date of
the financial statements and revenues and expenses for the respective period-ended for
such statements. The determination of estimates requires the use of judgment since future
events and their affect on our operations cannot be determined with absolute certainty.
Actual results typically differ from these estimates in some fashion, and at times, these
variances may be material to our financial statements. Our management continually
evaluates its estimates and assumptions, which are based on historical experience and
other factors that are believed to be reasonable under these circumstances. These
estimates and our actual results are subject to the risk factors listed above under
Item 1. Business. Nevertheless, our management believes the following items
involve a higher degree of complexity and, judgment and therefore, has commented on these
items below.

21

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Valuation of Accounts
Receivable at March 31, 2004 and 2003, respectively

Our
allowance for doubtful accounts of $187,000 and $138,000 at March 31, 2004 and 2003,
respectively, is based on managements estimates of the credit-worthiness of our
customers, current economic conditions and historical information. In the opinion of
management, our allowance for doubtful accounts is believed to be an amount sufficient to
respond to normal business conditions. Historically, the levels of recorded bad debt
expense and write-offs have not been material to our financial statements. Should business
conditions deteriorate or any large customer default on its obligations to us, this
allowance may need to be significantly increased, which would have a negative impact upon
our operations.

Inventory Obsolescence
Valuation Allowance

Our
allowance for inventory obsolescence and slow moving inventory is reviewed on a regular
basis. We review various information related to the age and turnover of specific inventory
items to assist in our assessment. In the opinion of management, the valuation allowance
is believed to be sufficient to absorb the ultimate obsolescence of certain inventory as
they may occur. The inventory obsolescence valuation allowance was $195,000 and $183,000
at March 31, 2004 and 2003, respectively.

Self Insurance Plan
Reserve

We
established a reserve for unpaid medical claims of $101,000 and $86,000 at March 31, 2004
and 2003, respectively. Management reviews claims history information provided to it by
the third-party administrator of the self insured plan on a regular basis and believes
that the reserve is sufficient to respond to the claims that may be incurred by the
participants in the plan.

Deferred Tax Asset
Valuation Allowance

Our
deferred tax asset is comprised primarily of a tax loss carryforward. We believe that it
is more likely than not that the income tax benefits associated with the tax loss
carryforward will be realized in the future. Management bases its belief, in part, on the
historical profitability of our operations and its expectations that profitable operations
will continue in the future. Based upon these expectations regarding the realization of
the tax benefits, management has not established a valuation allowance for our deferred
tax asset.

Impairment Valuations

On
a quarterly basis, management assesses the composition of our assets and liabilities, as
well as the events that have occurred and the circumstances that have changed since the
most recent fair value determination. If events occur or circumstances change that would
more likely than not reduce the fair value of the related asset or liability below its
carrying amount, the related asset or liability would be tested for impairment.

We
evaluate the recoverability of our long-lived assets whenever circumstances indicate that
the carrying amount of an asset may not be recoverable. Factors considered include current
operating results, trends and anticipated undiscounted future cash flows. An impairment
loss is recognized to the extent the sum of discounted (using our incremental borrowing
rate) estimated future cash flows (over a period ranging from generally four to ten years)
expected to result from the use of the asset is less than the carrying value. Management
believes no impairment existed for any of the periods presented.

Product Development

All
costs incurred subsequent to the completion of research and development activities
associated with a products hardware components and the software components
achievement of technological feasibility are capitalized until the product is available
for general release to customers. Product development costs are generally amortized over a
five-year period beginning on the date the product is released for sale to customers. On a
quarterly basis, we review the viability and recoverability of these project costs.

22

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Estimated Liabilities

We
make a number of estimates in the ordinary course of business. Historically, past changes
to these estimates have not had a material impact on our financial condition. However,
circumstances could change, which would alter future financial information based upon a
change in estimated versus actual results.

We
are subject to various matters of litigation in the ordinary course of business. As the
outcome of any litigation is unknown, management estimates the potential amount of
liability, if any, in excess of any applicable insurance coverage, based on historical
experience and/or the best estimate of the matter at hand. Significant changes in
estimated amounts could occur. To date, we have not had to pay any legal settlements in
excess of existing insurance coverage.

Warranty

We
establish a reserve for warranty costs we may incur during the warranty period that is
provided for in the OnDemand machine sales agreements with our customers. Warranty
expense incurred during the period ended March 31, 2004, totaled $161,000.

# ITEM 7A.    QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We
do not have any material market risk sensitive financial instruments.

# ITEM 8.     FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA

Our consolidated
financial statements, notes thereto and the report of Grant Thornton LLP, our independent
auditors, are set forth on the pages indicated at Item 15 and are incorporated into this
item by reference.

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

None

# ITEM 9A.     CONTROLS AND
PROCEDURES

Evaluation of Disclosure
Controls and Procedures

Disclosure
controls and procedures are designed to ensure that information required to be disclosed
in the reports filed or submitted under the Securities Exchange Act of 1934 (the
Exchange Act) is recorded, processed, summarized and reported, within the time
periods specified in the SEC rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information required
to be disclosed in the reports filed under the Exchange Act is accumulated and
communicated to management, including the chief executive officer and chief financial
officer, as appropriate, to allow timely decisions regarding required disclosure. We
carried out an evaluation required by Rules 13a-15 and 15d-15 of the Exchange Act (the
Evaluation), under the supervision and with the participation of our
management, including our chief executive officer (CEO) and chief financial
officer (CFO), of the effectiveness of our disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15 and 15d-15).  Based upon and as of the
date of the Evaluation, our CEO and CFO concluded that our disclosure controls and
procedures are effective to ensure that information required to be disclosed in the
reports we file and submit under the Exchange Act is recorded, processed, summarized and
reported as and when required.

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Changes in Internal
Controls

There
has not been any change in our internal control over financial reporting identified in
connection with the Evaluation that occurred during the fiscal quarter ended March 31,
2004, that has materially affected, or is reasonably likely to materially affect, those
controls.

Limitations on the
Effectiveness of Controls

Our
management, including our CEO and CFO, does not expect that our disclosure controls and
internal controls will prevent all error and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control system must
reflect the fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within our organization have been detected. These inherent
limitations include the realities that judgments in decision-making can be faulty, and
that breakdowns can occur because of simple error or mistake. Additionally, controls can
be circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the control.

The
design of any system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions; over time, a control may
become inadequate because of changes in conditions, or the degree of compliance with the
policies or procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and not be
detected.

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# PART III

# ITEM 10.     DIRECTORS AND
EXECUTIVE OFFICERS OF THE REGISTRANT

The
information required by this item is incorporated herein by reference to the information
included in our definitive proxy statement, which will be filed by us within 120 days
after the end of our 2004 fiscal year.

Code of Ethics and
Business Conduct

Our
commitment to ethical business conduct is a fundamental shared value of our board of
directors, management and employees and critical to our success. On June 26, 2003, we
adopted a Code of Business Conduct and Ethics (the Code) applicable to all of
our employees, consultants, agents and representatives. The Code provides that our
representatives will uphold our ethical standards as vigorously as they pursue our
financial objectives, and that honesty and integrity will not be compromised by our
representatives anywhere at any time. A copy of the Code is posted on our web site
www.mts-mt.com, and is available, free of charge upon request by contacting Michael
P. Conroy, Chief Financial Officer, at michaelc@mts-mt.com.

We
intend to satisfy the disclosure requirement under Item 10 of Form 8-K regarding an
amendment to, or waiver from, a provision of this code of ethics, as it relates to our
CEO, CFO or controller by posting such information on our website, at the address
specified above. Information contained in our website, whether currently posted or posted
in the future, is not part of this document or the documents incorporated by reference in
this document.

# ITEM 11.     EXECUTIVE
COMPENSATION

The
information required by this item is incorporated herein by reference to the information
included in our definitive proxy statement, which will be filed within 120 days after the
end of our 2004 fiscal year.

# ITEM 12.     SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information
required by this item is incorporated herein by reference to the information included in
our definitive proxy statement, which will be filed within 120 days after the end of our
2004 fiscal year.

Information
regarding equity compensation plans required by this item is included in Item 5 of Part II
of this report and is incorporated into this item by reference.

# ITEM 13.     CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS

The
information required by this item is incorporated herein by reference to the information
included in our definitive proxy statement, which will be filed within 120 days after the
end of our 2004 fiscal year.

# ITEM 14.     PRINCIPAL
ACCOUNTANT FEES AND SERVICES

The
information required by this item is incorporated herein by reference to the information
included in our definitive proxy statement, which will be filed within 120 days after the
end of our 2004 fiscal year.

25

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# PART IV

# ITEM 15.    
       EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K

|    |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |    | The following documents are filed as part of this report:                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | 1. | Financial Statements.The consolidated financial statements, and related
notes thereto, of Med Tech with the independent auditors' report thereon are included in Part IV of this Report on the pages
indicated by the Index to Financial Statements and Schedule beginning on page 29 of this report.                                                                                                                                                                                                                
|    | 2. | Consolidated Financial Statement Schedule. The consolidated financial
statement schedule of Med Tech is included in Part IV of this report on the page indicated by the Index to Financial
Statements as beginning on page 53 of this report. The independent auditor's report as presented on page 52 of this
report applies to the consolidated financial statement schedule. This financial statement schedule should be read in conjunction
with the consolidated financial statements and related notes thereto.
|    |    | Schedules not listed in the Index to Financial Statements have been
        omitted because they are not applicable, not required, or the information required to be set forth therein is included in
        the consolidated financial statements or notes thereto.                                                                                                                                                                                                                                                
|    | 3. | For Exhibits, see Item 16(c) below.
        Each management contract or compensatory plan or arrangement required to be filed as an Exhibit
        hereto is listed in Exhibit Nos. 10.3, 10.4, 10.9 and 10.10 of Item 15(c) below.                                                                                                                                                                                                                                                                                 
|b.  |    | Reports on Form 8-K.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |    | On February 5, 2004, we filed a Current  Report on Form 8-K in which we disclosed  under Items 7 and 12 a press  release  regarding its
        financial results for the fiscal quarter ended December 31, 2003.                                                                                                                                                                                                                                                                                                    
|d.  |    | Financial Statement Schedules. See Item 15(a) above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

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MEDICAL TECHNOLOGY
SYSTEMS, INC.

INDEX TO FINANCIAL STATEMENTS

|                                                                                                                               | Page |        
|------------------------------------------------------------------------------------------------------------------------------ | ---- | -------
|
|REPORT OF INDEPENDENT
        CERTIFIED PUBLIC ACCOUNTANTS                                                                     |      | 28     
|                                                                                                                               |      |        
|CONSOLIDATED FINANCIAL STATEMENTS                                                                                              |      |        
|                                                                                                                               |      |        
|Consolidated Balance Sheets as of March 31, 2004 and 2003                                                                      |      | 29     
|                                                                                                                               |      |        
|Consolidated Statement of Earnings for the Years Ended March 31, 2004, 2003 and 2002                                           |      | 30     
|                                                                                                                               |      |        
|Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the Years
        Ended March 31, 2004, 2003 and 2002 |      | 31     
|                                                                                                                               |      |        
|Consolidated Statements of Cash Flows for the Years Ended March 31, 2004, 2003 and 2002                                        |      | 32     
|                                                                                                                               |      |        
|Notes to Consolidated Financial Statements                                                                                     |      | 33 - 51
|                                                                                                                               |      |        
|REPORT OF INDEPENDENT CERTIFIED
        PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE                                     |      | 52     
|                                                                                                                               |      |        
|FINANCIAL STATEMENT SCHEDULE                                                                                                   |      |        
|                                                                                                                               |      |        
|Schedule II - Valuation and Qualifying Accounts                                                                                |      | 53     

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.

27

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REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
Medical Technology Systems, Inc. and SubsidiariesClearwater, Florida  33762

We have audited the
accompanying consolidated balance sheets of Medical Technology Systems, Inc. and
Subsidiaries as of March 31, 2004 and 2003 and the related consolidated statements of
earnings, changes in stockholders equity and cash flows for each of the three years
in the period ended March 31, 2004. These financial statements are the responsibility of
the Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the
financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Medical Technology Systems, Inc. and Subsidiaries as of
March 31, 2004 and 2003, and the consolidated results of operations and cash flows for
each of the three years in the period ended March 31, 2004 in conformity with accounting
principles generally accepted in the United States of America.

|                        |  | 
|----------------------- |  | 
|/s/ GRANT THRONTON, LLP |  | 
|Tampa, Florida          |  | 
|                        |  | 
|June 4, 2004            |  | 

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# MEDICAL TECHNOLOGY
SYSTEMS, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETSMARCH 31, 2004 AND 2003

(In Thousands)

# ASSETS

|                            | 2004 |   | 2003  
|--------------------------- | ---- | - | ------
|                            |      |   |       
|
|Current Assets:             |      |   |       
|Cash                        |      | $ | 59    
|Accounts Receivable, Net    |      |   | 6,712 
|Inventories, Net            |      |   | 4,032 
|Prepaids and Other          |      |   | 411   
|Deferred Tax Benefits       |      |   | 2,309 
|                            |      |   |       
|Total Current Assets        |      |   | 13,523
|
|Property and Equipment, Net |      |   | 3,888 
|Other Assets, Net           |      |   | 3,410 
|Deferred Tax Benefits       |      |   | 0     
|                            |      |   |       
|Total Assets                |      | $ | 20,821
|                            |      |   |       

# LIABILITIES AND STOCKHOLDERS' EQUITY

|                                                    |  |  
|--------------------------------------------------- |  | -
|
|
|Current Liabilities:                                |  |  
|Current Maturities of Long-Term Debt                |  | $
|Current Maturities of Related Party Note Payable    |  |  
|Accounts Payable and Accrued Liabilities            |  |  
|                                                    |  |  
|Total Current Liabilities                           |  |  
|
|Long-Term Debt, Less Current Maturities             |  |  
|Related Party Note Payable, Less Current Maturities |  |  
|                                                    |  |  
|Total Liabilities                                   |  |  
|                                                    |  |  
|Stockholders' Equity:                               |  |  
|Common Stock                                        |  |  
|Preferred Stock                                     |  |  
|Capital In Excess of Par Value                      |  |  
|Accumulated Deficit                                 |  |  
|Treasury Stock                                      |  |  
|                                                    |  |  
|Total Stockholders' Equity                          |  |  
|                                                    |  |  
|Total Liabilities and Stockholders' Equity          |  | $
|                                                    |  |  

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

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MEDICAL TECHNOLOGY
SYSTEMS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF EARNINGSYEARS ENDED MARCH 31, 2004, 2003 AND 2002
(In Thousands; Except Earnings Per Share Amounts)

|                                                     | 2004 |  | 2003 |        | 2002 |  
|---------------------------------------------------- | ---- |  | ---- | ------ | ---- | -
|
|
|Net Sales                                            |      |  | $    | 34,384 |      | $
|Costs and Expenses:                                  |      | 
|Cost of Sales                                        |      |  |      | 20,936 |      |  
|Selling, General and Administrative                  |      |  |      | 7,473  |      |  
|Depreciation and Amortization                        |      |  |      | 1,342  |      |  
|                                                     |      |  |      |        |      |  
|                                                     |      |  |     
|Total Costs and Expenses                             |      |  |      | 29,751 |      |  
|Operating Profit                                     |      |  |      | 4,633  |      |  
|                                                     |      |  |     
|Other Expenses                                       |      | 
|Interest Expense                                     |      |  |      | 851    |      |  
|Amortization of:                                     |      | 
|Financing Costs                                      |      |  |      | 364    |      |  
|Original Issue Discount                              |      |  |      | 248    |      |  
|                                                     |      |  |      |        |      |  
|Total Other Expenses                                 |      |  |      | 1,463  |      |  
|                                                     |      |  |      |        |      |  
|                                                     |      |  |     
|Income Before Taxes                                  |      |  |      | 3,170  |      |  
|Income Tax Expense                                   |      |  |      | 1,190  |      |  
|                                                     |      |  |      |        |      |  
|Net Income                                           |      |  |      | 1,980  |      |  
|Non-Cash Constructive Dividend Related to Beneficial |      | 
|Conversion Feature of Convertible Preferred Stock    |      |  |      | 0      |      |  
|Convertible Preferred Stock Dividends                |      |  |      | 220    |      |  
|                                                     |      |  |      |        |      |  
|Net Income Available to Common Stockholders          |      |  | $    | 1,760  |      | $
|                                                     |      |  |      |        |      |  
|Net Income Per Basic Common Share                    |      |  | $    | 0.35   |      | $
|                                                     |      |  |      |        |      |  
|Net Income Per Diluted Common Share                  |      |  | $    | 0.29   |      | $
|                                                     |      |  |      |        |      |  

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

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MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)YEARS ENDED MARCH 31, 2004,
2003 AND 2002  (In Thousands)

|                                         | Common Stock |           | Preferred Stock |   |    |  |       |  |   |   | 
|---------------------------------------- | ------------ | --------- | --------------- | - | -- |  | ----- |  | - | - | 
|
|
|
|
|
|Balance March 31, 2001                   |              | 4,217,028 |                 | $ | 42 |  | 0     |  | $ | 0 | 
|Issuance of Stock Options                |              |           |                 |   |    |  |       |  |   |   | 
|Stock Options and Warrants Exercised     |              | 64,133    |                 |   | 1  |  |       |  |   |   | 
|Stock Issued                             |              | 50,000    |                 |   |    |  |       |  |   |   | 
|Net Income                               |              |           |                 |   |    |  |       |  |   |   | 
|
|Balance March 31, 2002                   |              | 4,331,161 |                 |   | 43 |  | 0     |  |   | 0 | 
|Stock Options and Warrants Exercised     |              | 62,462    |                 |   | 1  |  |       |  |   |   | 
|Warrants Issued                          |              |           |                 |   |    |  |       |  |   |   | 
|Preferred Stock Issued                   |              |           |                 |   |    |  | 2000  |  |   | 1 | 
|Costs Related to Equity Issued           |              |           |                 |   |    |  |       |  |   |   | 
|Convertible Preferred Stock Dividend     |              |           |                 |   |    |  |       |  |   |   | 
|Non-Cash Constructive Dividend Related   |              |           |                 |   |    |  |       |  |   |   | 
|to Beneficial Conversion Feature         |              |           |                 |   |    |  |       |  |   |   | 
|of Convertible
        Preferred Stock   |              |           |                 |   |    |  |       |  |   |   | 
|Amortization of Non-Cash                 |              |           |                 |   |    |  |       |  |   |   | 
|Constructive Dividend Related to         |              |           |                 |   |    |  |       |  |   |   | 
|Beneficial Conversion Feature            |              |           |                 |   |    |  |       |  |   |   | 
|of Convertible Preferred Stock           |              |           |                 |   |    |  |       |  |   |   | 
|Net Income                               |              |           |                 |   |    |  |       |  |   |   | 
|
|Balance March 31, 2003                   |              | 4,393,623 |                 |   | 44 |  | 2,000 |  |   | 1 | 
|Stock Options and Warrants Exercised     |              | 469,497   |                 |   | 5  |  |       |  |   |   | 
|Tax Benefit from Stock Options Exercised |              |           |                 |   |    |  |       |  |   |   | 
|Convertible Preferred Stock Dividend     |              |           |                 |   |    |  |       |  |   |   | 
|Foreign Currency Translation Adjustment  |              |           |                 |   |    |  |       |  |   |   | 
|Net Income                               |              |           |                 |   |    |  |       |  |   |   | 
|
|Balance March 31, 2004                   |              | 4,863,120 |                 | $ | 49 |  | 2,000 |  | $ | 1 | 
|

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

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MEDICAL TECHNOLOGY SYSTEMS, INC.
AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWSYEARS ENDED MARCH 31, 2003, 2002 AND 2001
(In Thousands)

|Operating Activities                                                     |  |   |        |   | 
|------------------------------------------------------------------------ |  | - | ------ | - | 
|
|
|
|Net Income                                                               |  | $ | 1,980  |   | 
|
|Adjustments to Reconcile to Net Cash                                     |  |  
|Provided by Operating Activities:                                        |  |  
|Depreciation and Amortization                                            |  |   | 1,342  |   | 
|Amortization of Deferred Financing Costs                                 |  |   | 364    |   | 
|Deferred Income Tax Expense (Benefit)                                    |  |   | 1,148  |   | 
|Amortization of Original Issue Discount                                  |  |   | 248    |   | 
|Reserve for Obsolete Inventory                                           |  |   | 112    |   | 
|Development Costs Written Off                                            |  |   | 0      |   | 
|Issuance of Stock for Services                                           |  |   | 0      |   | 
|Deferred Compensation                                                    |  |   | 0      |   | 
|(Increase) Decrease in:                                                  |  |  
|Accounts Receivable                                                      |  |   | (1,956 | ) | 
|Inventories                                                              |  |   | (878   | ) | 
|Prepaids and Other                                                       |  |   | (335   | ) | 
|Increase (Decrease) in:                                                  |  |  
|Accounts Payable and Other Accrued Liabilities                           |  |   | 571    |   | 
|
|Total Adjustments                                                        |  |   | 616    |   | 
|
|Net Cash
        Provided by Operations                                  |  |   | 2,596  |   | 
|
|Investing Activities                                                     |  |  
|Expended
        for Property and Equipment                              |  |   | (1,469 | ) | 
|Expended for
        Product Development                                 |  |   | (451   | ) | 
|Expended for
        Patents and Other Assets                            |  |   | (89    | ) | 
|
|Net Cash Used
        by Investing Activities                            |  |   | (2,009 | ) | 
|
|Financing Activities                                                     |  |  
|Payments on
        Notes Payable and Long-Term Debt                     |  |   | (1,493 | ) | 
|Payments on
        Related Party Note Payable                           |  |   | (178   | ) | 
|Net
        Advances on Revolving Line of Credit                         |  |   | 456    |   | 
|Issuance of
        Convertible Preferred Stock                          |  |   | 0      |   | 
|Expended for Financing Costs                                             |  |   | 0      |   | 
|Dividends on
        Convertible Preferred Stock                         |  |   | (220   | ) | 
|Exercise of
        Stock Options                                        |  |   | 512    |   | 
|Proceeds from
        Borrowing on Subordinated Notes and Long-Term Debt |  |   | 0      |   | 
|
|Net Cash Used by
        Financing Activities                            |  |   | (923   | ) | 
|
|Net (Decrease) Increase in Cash                                          |  |   | (336   | ) | 
|Cash at Beginning of Period                                              |  |   | 395    |   | 
|
|Cash at End of Period                                                    |  | $ | 59     |   | 
|

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

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

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MEDICAL TECHNOLOGY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSMARCH 31, 2004,
2003 AND 2002

NOTE 1  BACKGROUND
INFORMATION

Medical
Technology Systems, Inc., a Delaware corporation (the Company), was
incorporated in March 1984. The Company is a holding company that operates through its
subsidiaries, MTS Packaging Systems, Inc. (MTS Packaging) and MTS
Packaging Systems International, Ltd. (MTSPI).

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

In
April 2004, the Company announced that it would begin to do business as MTS Medication
Technologies and seek the approval of its stockholders to formally change the name of the
Company to MTS Medication Technologies, Inc. The Company also intends to merge MTS
Packaging Systems, Inc. into MTS Medication Technologies, Inc. when the formal name change
is approved by the stockholders.

NOTE 2  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES

Consolidation

The
consolidated financial statements include the accounts of the Company and its
subsidiaries, MTS Packaging and MTSPI. All significant inter-company accounts and
transactions have been eliminated in consolidation.

Use of Estimates

The
preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period.

Cash

For
purposes of the statement of cash flows, the Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash equivalents. As
of March 31, 2004, the Companys cash and cash equivalents include the United States
dollar equivalent of approximately $59,000 maintained in a bank in the UK. There were no
cash equivalents for all periods presented.

Inventories

Inventories
are stated at the lower of cost or market. Cost is determined by the first-in, first-out
(FIFO) method. As of March 31, 2004 and 2003, the Company has established an
inventory valuation allowance of $195,000 and $183,000, respectively, to account for the
estimated loss in value of inventory due to obsolescence.

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Warranty

The
Company establishes a reserve for warranty costs it may incur during the warranty period
that is provided for in the OnDemand® machine sales agreements with its customers. The
warranty period is generally for a six-month period. Warranty costs incurred during the
period ended March 31, 2004 totaled $161,000.

Revenue Recognition

The
Company recognizes revenue on the sale of machines, other than OnDemand machines, and all
disposables when products are shipped and title transfers. The company recognizes revenue
related to the sale of its OnDemand Machines as prescribed in SOP 97-2 Software
Revenue Recognition because the software component of the OnDemand machine is
significant and not incidental to the value and functionality of the machine. In addition,
the sale of an OnDemand machine represents an arrangement that encompasses multiple
deliverables and therefore each deliverable represents a separate unit of accounting. The
separate deliverables are comprised of (a) the OnDemand Machine installed at the
customers location (b) the user training (c) certain component parts that are sold
separately, principally cassettes that hold medications. The vendor specific fair value of
the deliverables outlined in (b-c) has been determined based upon the value of these
deliverables if they were sold separately. The fair value of the deliverable outlined in
(a) has been determined using the residual method which equals the total selling price of
the OnDemand Machine, including installation, training and cassettes, less the aggregate
fair value of (b-c). The terms of the sale arrangement for an OnDemand Machine is
typically FOB shipping point, at which time title and risk of loss transfers to the
customer, however, because the installation of the machine is essential to the
functionality of the machine the recognition of any of the revenue associated with the
machine is deferred until the machine is installed. For those cassettes that are provided
to the customer after the OnDemand machine is installed, the revenue associated with
those cassettes is recognized upon their delivery. When the training is performed, the
company recognizes the revenue associated with the training. During the year the company
modified its sales arrangements for the sale of OnDemand machines to remove any
acceptance criteria that was previously contained in the sales contract. Prior to the
removal of the acceptance criteria the company did not recognize any revenue on the sale
of an OnDemand machine until the customer acknowledged that the machine had met the
acceptance criteria contained in the contract.

Revenue
includes certain amounts invoiced to customers for freight and handling charges. The
Company includes the actual cost of freight and handling incurred in cost of sales.

The
geographic sales of the Company are primarily in the United States. There were two
customers whose sales accounted for approximately 27%, 15% and 22% of net revenue for
2004, 2003 and 2002, respectively.

Allowance for Doubtful
Accounts

The
Company normally estimates the uncollectibility of its accounts receivable. The Company
considers many factors when making its estimates, including analyzing accounts receivable
and historical bad debts, customer concentrations, customer credit worthiness, current
economic trends and changes in its customer payment terms when evaluating the adequacy of
the reserve for uncollectible accounts. When a specific account is deemed uncollectible,
the account is written off against the reserve for uncollectible accounts.

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:

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

The
Company uses accelerated methods of depreciation for tax purposes.

Research and
Development and Product Development Costs

The
Company expenses research and development costs as incurred. The Company incurred
approximately $161,000, $172,000 and $87,000 in research and development costs during
fiscal 2004, 2003 and 2002, respectively.

All
costs incurred subsequent to the completion of research and development activities
associated with the products hardware components and the software components
achievement of technological feasibility is capitalized until the product is available for
general release to customers. The Company initially classifies the construction costs of
the first units produced for commercial use as product development costs prior to
transferring certain of these costs to inventory. The Company capitalized approximately
$451,000, $556,000 and $853,000 of product development costs during the years ended March
31, 2004, 2003 and 2002, respectively.

All
remaining product development costs are generally amortized on a straight-line basis over
a five (5) year period. Amortization expense related to product development costs was
$355,000, $303,000 and $79,000 for the years ended March 31, 2004, 2003 and 2002,
respectively.

In
addition, during the fourth quarter of fiscal 2003, the Company evaluated the status of
certain development products that were underway and determined that the recovery of the
costs of these projects was doubtful, and therefore, were written off. The amount of the
development costs written off during the years ended March 31, 2004 and 2003 was $0 and
$115,000, respectively.

At
March 31, 2004 and 2003, the Companys capitalized product development costs included
its new OnDemand product, which represented $1,720,000 and $1,428,000, respectively
of the total capitalized product development costs. During the year ended March 31, 2004,
the Company sold six (6) OnDemand machines.

Other Assets

Other
assets are carried at cost less accumulated amortization. Amortization is being calculated
on a straight-line basis over a three-year to seventeen-year period (see Note 6).

Valuation of Long-Lived
Assets and Certain Identifiable Intangibles

Long-lived
assets and certain identifiable intangibles that are held and used by the Company are
reviewed for impairment whenever events or changes in circumstance indicate that the
carrying amount of these assets may not be recoverable in accordance with Financial
Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets. In
performing the review for recoverability, the Company estimates the future cash flows
expected to result from the use of the assets and their eventual disposition. If the sum
of the expected future cash flows (undiscounted and without interest charges) is less than
the carrying amount of the assets, an impairment loss is recognized. Long-lived assets and
certain identifiable intangibles to be disposed of are to be reported at the lower of the
carrying amount or the fair value less cost to sell, except for assets that are related to
discontinued operations, which are reported at the lower of carrying value or net
realizable value. There were no impairment losses in 2004, 2003 and 2002.

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Earnings Per Share

Earnings
per share are computed using the basic and diluted calculations on the face of the
statement of operations. Basic earnings per share are calculated by dividing net income by
the weighted average number of shares of common stock outstanding for the period and any
warrants outstanding that are exercisable at a de minimus amount. Diluted earnings per
share is calculated by dividing net income by the weighted average number of shares of
common stock outstanding for the period, adjusted for the dilutive effect of common stock
equivalents, using the treasury stock method and the if converted
method as it relates to the convertible preferred stock outstanding (see Note 15).

Income Taxes

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

Treasury Stock

The
Company records its treasury stock at cost.

Stock-Based Employee
Compensation

The
Company follows only the disclosure provisions of SFAS 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 SFAS No. 148,
Accounting for Stock Based Compensation-Transition and Disclosure, 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. If the Company
had followed the methodology prescribed by SFAS 123, the Companys net income and
earnings per share would be reduced to the proforma amounts indicated below:

|                                                                                                    | 2004 |  | 2003 |       | 2002
|--------------------------------------------------------------------------------------------------- | ---- |  | ---- | ----- | ----
|
|
|Net Income Available to Common Shareholders as Reported                                             |      |  | $    | 1,760 |     
|
|Less:                                                                                               |      | 
|Stock Based Employee Compensation Cost Under the Fair Value Based Method, Net of Related Tax Effect |      |  |      | 519   |     
|                                                                                                    |      |  |      |       |     
|Net Income Proforma                                                                                 |      |  | $    | 1,241 |     
|                                                                                                    |      |  |      |       |     
|Net Income Per Common Share, Basic as Reported                                                      |      |  | $    | 0.35  |     
|Net Income Per Common Share, Basic Proforma                                                         |      |  | $    | 0.24  |     
|Net Income Per Share - Diluted as Reported                                                          |      |  | $    | 0.29  |     
|Net Income Per Share - Diluted Proforma                                                             |      |  | $    | 0.21  |     
|For Basic Income Per Share - Weighted Average Shares                                                |      |  |      | 5,081 |     
|For Diluted Income Per Share - Weighted Average Shares                                              |      |  |      | 6,910 |     

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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
2004, 2003 and 2002, respectively, no dividend yield for all years, expected volatility of
133, 127 and 148 percent; risk-free interest rates of 3.0, 3.0 and 3.7 percent, and
three-year expected lives for all years.

Fair Value of Financial
Instruments

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

The
carrying amount of current and long-term portions of long-term debt approximates fair
value since the interest rates approximate current prevailing market rates except for the
carrying value of the subordinated notes, which has a fair value of approximately
$4,549,000 and a carrying value of $3,197,000.

In
May 2003, SFAS 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity was issued. This statement
establishes standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liability and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an asset in
some circumstances). Many of those instruments were previously classified as equity. The
Company has reviewed the effect that SFAS 150 has on certain financial instruments issued
in June 2002 (see Notes 8 and 14) and has determined that these financial instruments are
properly classified in its financial statements as of March 31, 2004.

Recent Accounting
Pronouncements

The
financial Accounting Standards Board (FASB) issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, in January 2003 and amended the
Interpretation in December 2003. FIN 46 requires an investor with a majority of the
variable interests (primarily beneficiary) in a variable interest entity (VIE) to
consolidate the entity and also required majority and significant variable interest
investors to provide certain disclosures. A VIE is an entity in which the voting equity
investors do not have a controlling financial interest or the equity investment at risk is
insufficient to finance the entitys activities without receiving additional
subordinated financial support from the other parties. Development-stage entities that
have sufficient equity invested to finance the activities they are currently engaged in
and entities that are businesses, as defined in the Interpretation, are not considered
VIEs. The provisions of FIN 46 were effective immediately for all arrangements entered
into with new VIEs created after January 31, 2003, and the Company has elected to apply
the remaining provisions of the Interpretation for the period ending March 31, 2004. The
Companys review of it operation and business structure did not identify any VIEs
that would require consolidation or any significant exposure to VIEs that would require
disclosure.

NOTE 3  ACCOUNTS
RECEIVABLE

Accounts
Receivable is shown net of allowance for doubtful accounts of $187,000 and $138,000 at
March 31, 2004 and 2003, respectively. The changes in the allowance for doubtful accounts
are summarized as follows:

|                                | March 31, |   | March 31, |  
|------------------------------- | --------- | - | --------- | -
|
|
|
|
|Beginning Balance               |           | $ | 138       |  
|Provision for Doubtful Accounts |           |   | 152       |  
|Charge-Offs                     |           |   | (103      | )
|
|Ending Balance                  |           | $ | 187       |  
|

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

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Concentration
of Credit Risk  The Company extends credit to customers on terms of payment generally ranging
from net 30 to 60 days without collateral or other forms of security. The credit
worthiness of each customer is routinely assessed and credit is extended based upon a
review of various information that is available. At March 31, 2004, three customers
comprised approximately 31% of the total outstanding accounts receivable, and one of those
customers represented 13% of the total accounts receivable on that date.

NOTE 4  INVENTORIES

Inventories
consist of the following:

|                                          | March 31, |   | March 31, |  
|----------------------------------------- | --------- | - | --------- | -
|
|
|                                         
|
|Raw
      Material                        |           | $ | 1,762     |  
|Finished
      Goods and Work in Process  |           |   | 2,465     |  
|Less:
      Inventory Valuation Allowance |           |   | (195      | )
|
|                                          |           | $ | 4,032     |  
|

The changes
in the inventory valuation allowance are summarized as follows:

|                           | March 31, |   | March 31, |  
|-------------------------- | --------- | - | --------- | -
|
|
|
|
|Beginning Balance          |           | $ | 183       |  
|Provision for Obsolescence |           |   | 112       |  
|Charge-Offs                |           |   | (100      | )
|
|Ending Balance             |           | $ | 195       |  
|

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

NOTE 5  PROPERTY
AND EQUIPMENT

Property
and equipment consists of the following:

|                                                | March 31, |   | March 31, |  
|----------------------------------------------- | --------- | - | --------- | -
|
|
|                                               
|
|Property and Equipment                          |           | $ | 10,543    |  
|Leasehold Improvements                          |           |   | 816       |  
|
|                                                |           |   | 11,359    |  
|Less: Accumulated Depreciation and Amortization |           |   | (7,471    | )
|
|                                                |           | $ | 3,888     |  
|

All
of the Companys property and equipment are pledged as collateral on bank notes.

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Depreciation
of property and equipment and amortization of leasehold improvements was approximately
$767,000, $577,000 and $732,000 for fiscal years ending March 31, 2004, 2003 and 2002,
respectively.

NOTE 6  OTHER ASSETS

Other
assets consists of the following:

|                                       | Amortization |  |       |  |   |       
|-------------------------------------- | ------------ |  | ----- |  | - | ------
|
|
|
|
|
|Product
      Development (see Note 2) |              |  | 5     |  | $ | 2,383 
|Less:  
      Accumulated Amortization |              |  |       |  |   | (873  
|                                       |              |  |       | 
|                                       |              |  |       |  | $ | 1,510 
|                                       |              |  |       | 
|
|Patents                                |              |  | 17    |  | $ | 2,365 
|Less:  
      Accumulated Amortization |              |  |       |  |   | (1,026
|                                       |              |  |       | 
|                                       |              |  |       |  | $ | 1,339 
|                                       |              |  |       | 
|
|Financing
      Costs (see Note 8)     |              |  | 3 - 5 |  | $ | 1,110 
|Less:  
      Accumulated Amortization |              |  |       |  |   | (635  
|                                       |              |  |       | 
|                                       |              |  |       |  | $ | 475   
|                                       |              |  |       | 
|
|Other                                  |              |  | 5     |  | $ | 221   
|Less:  
      Accumulated Amortization |              |  |       |  |   | (135  
|                                       |              |  |       | 
|                                       |              |  |       |  | $ | 86    
|                                       |              |  |       | 
|Total
      Other Assets, Net          |              |  |       |  | $ | 3,410 
|                                       |              |  |       | 

All
of the Companys intangible assets are pledged as collateral on bank notes.

The following is a schedule by year for the amortization of patents:

|                                                                                   |  |   | (In Thousands) | 
|---------------------------------------------------------------------------------- |  | - | -------------- | 
|2005
        ..................................................................... |  | $ | 267            | 
|2006
        ..................................................................... |  | $ | 253            | 
|2007
        ..................................................................... |  | $ | 244            | 
|2008
        ..................................................................... |  | $ | 232            | 
|2009
        ..................................................................... |  | $ | 119            | 

39

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NOTE 7  ACCOUNTS
PAYABLE AND ACCRUED LIABILITIES

Accounts
payable and accrued liabilities are comprised of the following:

|                                            | March 31, |   | March 31, | 
|------------------------------------------- | --------- | - | --------- | 
|
|                                            |           |   |           | 
|
|
|Accounts Payable/Trade                      |           | $ | 1,850     | 
|Accrued Liabilities:                        |           |   |           | 
|Salaries, Commissions and Employee Benefits |           |   | 953       | 
|Deferred Revenue                            |           |   | 666       | 
|Medical Claims                              |           |   | 101       | 
|Taxes                                       |           |   | 90        | 
|Royalties                                   |           |   | 0         | 
|Other                                       |           |   | 41        | 
|                                            |           |   |           | 
|                                            |           | $ | 3,701     | 
|                                            |           |   |           | 

NOTE 8  LONG-TERM
DEBT

Long-term
debt consists of the following:

|                                                                                         | March 31, |  | March 31, |      
|---------------------------------------------------------------------------------------- | --------- |  | --------- | -----
|
|                                                                                         |           |  |           |      
|
|
|Revolving line of credit due June 2005 plus interest
        payable monthly at 1%       |           |  |           |      
|above the prime rate (5.0% at March 31, 2004).                                           |           |  | $         | 3,921
|                                                                                         |           |  |           |      
|Bank term loan payable in
         monthly installments of $83,333 plus interest at      |           |  |           |      
|2.25% above the prime rate (6.25% at March 31, 2004) repaid in the current year.         |           |  |           | 0    
|                                                                                         |           |  |           |      
|Bank term loan payable in monthly
        installments of $11,667 plus interest at 1.25% |           |  |           |      
|above the prime rate (5.25% at March 31, 2004) through June 2005.                        |           |  |           | 455  
|                                                                                         |           |  |           |      
|Note payable to related party (see Note 12) payable
        in monthly installments      |           |  |           |      
|of $28,785 including interest at 6.25% through July 2008.                                |           |  |           | 1,302
|                                                                                         |           |  |           |      
|Subordinated Note - Face
        amount of $4,000,000, less unamortized original issue   |           |  |           |      
|discount of $803,000, due June 26, 2007 plus interest payable monthly at 14%.            |           |  |           | 3,197
|                                                                                         |           |  |           |      
|Other Notes and Agreements                                                               |           |  |           | 321  
|                                                                                         |           |  |           |      
|Total Long - Term Debt                                                                   |           |  |           | 9,196
|Less Current Portion (including $272,000 due to a related party)                         |           |  |           | (516 
|                                                                                         |           |  |           |      
|Long Term Debt Due After One Year                                                        |           |  | $         | 8,680
|                                                                                         |           |  |           |      

40

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

In
June 2002, the Company repaid the entire amount, $11,310,000, of its bank term loan with
the proceeds of a new revolving line of credit, term loans, a subordinated note and
convertible preferred stock. The revolving line of credit allows for borrowing of up to
$5,000,000 based upon advance rates that are applied to the Companys eligible
accounts receivable and inventory. There was $1,079,000 available at March 31, 2004 on the
revolving line of credit based upon eligible accounts receivable and inventory. Interest
is payable monthly on the revolving line of credit based on the average unpaid balance at
the prime rate plus 1.0%.

One
term loan in the amount of $700,000 is repayable in equal monthly installments over a five
(5) year term, plus interest at the prime rate plus 1.25%. Another term loan in the amount
of $2,000,000 was repayable in equal monthly installments over two (2) years plus interest
at the prime rate plus 2.25% and included an excess cash flow payment provision. This
second term loan was completely repaid in January 2004.

The
subordinated note in the amount of $4,000,000 is repayable in five (5) years with interest
only, at 14%, payable monthly until the maturity of the note. The subordinated note is
secured by a second lien on all of the assets of the Company. In addition, the
subordinated note holders were issued 566,517 warrants to purchase common stock
exercisable for ten (10) years at $.01 per share. (Subject to certain antidilution
provisions.) (See note 14.) The relative value of the warrants, and certain imbedded
features of the warrants, were recorded as part of the stockholders equity and
reduced the carrying amount of the subordinated note as an original issue discount. The
original issue discount is being amortized over the five (5) year term of the subordinated
note. Amortization expense related to the original issue discount was $248,000 for the
year ended March 31, 2004. In April 2004, the note holders exercised their rights to
acquire 566,517 shares of common stock under the terms of the warrant agreements.

In
June 2004, the Company repaid the entire amount, $4,000,000, of its subordinated note with
the proceeds of an additional senior term loan and advances on its revolving line of
credit. Upon the repayment of the subordinated note, the Company incurred a prepayment
penalty of $120,000. In addition, the Company renewed and extended the expiration date of
its revolving credit facility with its senior lender to June 2007 and obtained a new $300,000
line of credit to fund future purchases of equipment. At the time the
subordinated note was repaid, the Company recorded a one-time non-cash expense to
extinguish the unamortized original issue discount of approximately $741,000 and wrote-off
the deferred financing costs of approximately $325,000 that were incurred when the
subordinated debt was acquired.

The
revolving line of credit and bank term loans are collateralized by a first security
interest in all of the assets of the Company.

The
bank term loans also contain provisions that require the Company to maintain certain
financial ratios and minimum stockholders equity levels of $5.9 million at March 31,
2004. In addition, certain provisions limit the amount of capital expenditures that the
Company can make each year. The Company was in compliance with all provisions of the loan
agreements of March 31, 2004.

The
following is a schedule by year of the regularly scheduled principal payments required on
these notes payable and long-term debts as of March 31, 2004:

|                                                                                   |  |   | (In Thousands) | 
|---------------------------------------------------------------------------------- |  | - | -------------- | 
|2005
        ..................................................................... |  | $ | 516            | 
|2006
        ..................................................................... |  | $ | 535            | 
|2007
        ..................................................................... |  | $ | 500            | 
|2008
        ..................................................................... |  | $ | 8,319          | 
|2009
        ..................................................................... |  | $ | 126            | 
|Thereafter
        ...........................................................     |  | $ | 0              | 

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Interest
expense for the years 2004, 2003 and 2002 amounted to $851,000, $876,000 and $919,000,
respectively.

At March 31, 2004,
 the Company also had a $1,000,000 line of credit available for purchases of equipment at an
interest rate of prime plus 1.25%. Advances on the line of credit may be made in $250,000
increments and are repayable over a five-year term. There were no amounts outstanding on
this line of credit at March 31, 2004.

NOTE 9  LEASE
COMMITMENTS

The
following is a schedule by year of future minimum rental payments required under operating
leases, primarily facility leases that have an initial or remaining non-cancelable lease
term in excess of one year as of March 31, 2004.

|                                                                                   |  |   | (In Thousands) | 
|---------------------------------------------------------------------------------- |  | - | -------------- | 
|2005
        ..................................................................... |  | $ | 233            | 
|2006
        ..................................................................... |  | $ | 3              | 
|2007
        ..................................................................... |  | $ | 3              | 
|2008
        ..................................................................... |  | $ | 3              | 
|Thereafter
        ...........................................................     |  | $ | 3              | 

The Company currently leases a 79,600 square foot plant consisting of office, manufacturing and warehousing
space.  On March 31, 2004, the Company provided its landlord with notice of intent to terminate the lease on
September 30, 2004 and vacate the premises.  Effective October 1, 2004, the Company will occupy the new
premises.  The lease for the new premises will be for a term of twelve (12) years.  The premises consists of
approximately 104,000 square feet, and the monthly lease payments begin at $35,000 plus tax in the first year and
increases to $63,000 plus tax in the final year.  In addition, the Company is obligated to pay annual operating
expenses, i.e., insurance, taxes and common area maintenance fees.  The Company also has an option to lease an
additional 28,000 square feet of contiguous space at any time by providing the landlord with one hundred twenty
(120) days notice.  Also, the Company will be paid a move-in allowance, by the landlord, of $400,000 on the
commencement date of the lease.  The move-in allowance will be amortized over the term of the lease.  In
addition, at that time, the Company will accelerate the amortization of approximately $275,000 associated with
the abandonment of leasehold improvements that were made to the current premises over the remaining life of the
current lease.  Also, the Company expects to incur approximately $300,000 in costs associated with the move to
the new facility and expenses associated with bringing the current premises into a condition acceptable to the
landlord.  Although an estimate cannot be reasonably made, management does not believe these costs will have a
material impact on the financial statements.  Both the accelerated amortization and the moving expenses are
expected to be recorded in the first and second quarters of the next fiscal year.

The
Company also leases approximately 5,200 square feet of office and warehouse space in
Cleveland, Ohio. The lease expires on March 31, 2005.

MTS
Packaging Systems International, Ltd. rents office and warehouse space in Lancashire,
England. The lease is for a term of one year.

Rent
expense amounted to $476,000, $439,000 and $393,000 for the years ended March 31, 2004,
2003 and 2002, respectively.

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NOTE 10  401(K)
PROFIT SHARING PLAN

The
Company has a 401(K) Profit Sharing Plan. The Plan covers substantially all of its
employees. Contributions are at the employees discretion and may be matched by the
Company up to certain limits. For the years ended March 31, 2004, 2003 and 2002, the
Company contributed $38,000, $43,000 and $30,000, respectively, to the plan.

NOTE 11  SELF
INSURANCE PLAN

The
Company has a Medical Health Benefit Self-insurance Plan, which covers substantially all
of its employees. During the year ended March 31, 2004, the Company was reinsured for
claims that exceed $50,000 per participant and an annual maximum aggregate limit of
approximately $580,000. Reinsurance limits for subsequent fiscal years may change. Future
claims experience may affect the reinsurance limits that may be available to the Company
in subsequent fiscal years. The Company has established a reserve of $101,000 and $84,000
at March 31, 2004 and 2003, respectively, for all unpaid claims incurred and reported
during fiscal year 2004 and an estimate of claims incurred during fiscal year 2004 that
have not been reported as of March 31, 2004.

NOTE 12  RELATED
PARTY TRANSACTIONS

On
July 28, 2003, the Company entered into an Asset Purchase Agreement with the Siegel Family
Trust (the Trust) to purchase the rights to certain proprietary technology
that had previously been available to the Company through a license agreement between the
Company and the Trust. The purchase price of the rights was $1,480,000. As part of the
agreement, the Trust agreed to forgive the royalties of $348,000, that were accrued and
unpaid on July 28, 2003, and terminated the license agreement. The purchase price will be
paid to the Trust in the form of a promissory note that is payable in sixty (60) monthly
payments of $28,785, beginning on August 1, 2003, including interest at the rate of 6.25%.
In order to assist the Company in determining the appropriate value of the rights to the
proprietary technology, the Board of Directors formed a special committee comprised of
three outside independent directors. The special committee engaged an independent third
party to conduct an appraisal of the value of the rights. The Company reduced the purchase
price of the rights by the amount of the unpaid royalties and recorded the resulting
amount as patents. The patents will be amortized over a five-year period, which represents
the remaining life of the patents related to these rights.

NOTE 13  TAXES

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

|                                                          | Years Ended March 31,
|--------------------------------------------------------- | ---------------------
|                                                          |                      
|
|                                                          |                      
|
|
|Current Income Taxes                                      |                      
|Deferred Income Taxes (Principally
        related to the |                      
|use of the tax loss
        carryforward)                 |                      
|                                                          |                      
|Income Tax Expense (Benefit)                              |                      
|                                                          |                      

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Total
income tax (benefit) expense for 2004, 2003 and 2002 resulted in effective tax rates of
37.5%, 37.8% and 38.5%, respectively. The reasons for the differences between these
effective tax rates and the United States statutory rate of 34.0%  35.0% are as follows:

|                                            | Years Ended March 31,
|------------------------------------------- | ---------------------
|                                            |                      
|
|                                            |                      
|
|
|Tax Expense at United States Statutory Rate |                      
|State Income Tax, Net                       |                      
|Other                                       |                      
|                                            |                      
|                                            |                      
|                                            |                      

Deferred taxes consist of the following:

|                                               | March 31, 2004 |   | March 31, 2003
|---------------------------------------------- | -------------- | - | --------------
|                                               |                |   |               
|
|Deferred Tax Assets:                           |                |   |               
|Tax Loss Carry Forward                         |                | $ | 2,077         
|Reserves and Provisions                        |                |   | 396           
|Inventory Valuation Allowance                  |                |   | 74            
|Allowance for Doubtful Accounts                |                |   | 71            
|Depreciation/Amortization Temporary Difference |                |   | (309          
|                                               |                |   |               
|Deferred Income Taxes                          |                | $ | 2,309         
|                                               |                |   |               

The
Company believes that it is more likely than not that these income tax benefits will be
realized in the future based in part on (1) the historical profitable operations of its
core business; (2) expectations that its core business will continue to be profitable; (3)
growth opportunities available for its core business; and (4) the length of time that the
net operating loss carryforwards are available to offset future taxable income. The income
tax benefit is comprised primarily of net operating loss carryforwards of approximately $5
million that are available to offset future taxable income. The carryforward losses expire
beginning in fiscal year 2011 and ending in fiscal year 2020.

The
Company anticipates that its net income, before taxes, will fully utilize the remaining
deferred tax asset. Accordingly, the entire defined tax asset has been classified as
current.

NOTE 14 
STOCKHOLDERS EQUITY (DEFICIT)

Stockholders
Equity consists of the following:

|                                                           | March 31, |        | March 31, |        | March 31, |  
|---------------------------------------------------------- | --------- | ------ | --------- | ------ | --------- | -
|
|
|Series A Convertible
        Participating Preferred Stock |           |        |           |        |           |  
|                                                           |           |        |           |        |           |  
|Par Value $.001 Per Share:                                 |           |        |           |        |           |  
|Authorized Shares                                          |           | 10,000 |           | 10,000 |           | 0
|Issued Shares                                              |           | 2,000  |           | 2,000  |           | 0
|Outstanding Shares                                         |           | 2,000  |           | 2,000  |           | 0
|                                                           |           |        |           |        |           |  

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|                          | March 31, |            | March 31, |            | March 31, |           
|------------------------- | --------- | ---------- | --------- | ---------- | --------- | ----------
|
|
|Common Stock              |           |            |           |            |           |           
|                          |           |            |           |            |           |           
|Par Value $.01 Per Share: |           |            |           |            |           |           
|Authorized Shares         |           | 25,000,000 |           | 25,000,000 |           | 25,000,000
|Outstanding Shares        |           | 4,863,120  |           | 4,393,623  |           | 4,312,281 
|Issued Shares             |           | 4,863,120  |           | 4,393,623  |           | 4,331,161 

Series A Convertible
Participating Preferred Stock

In
June 2002, the Company issued 2,000 shares of convertible preferred stock at $1,000 per
share. The holders of the convertible preferred stock are entitled to receive quarterly
dividends at the rate of 11% per annum. The dividends are payable in cash or shares of
convertible preferred stock at the Companys option and are cumulative. Through the
period ended March 31, 2004, all dividends were paid in cash. The preferred stock is
convertible into 847,457 shares of the Companys common stock at $2.36 per share. The
terms of the preferred stock contain a make-whole provision that obligates the Company to
pay certain amounts to the holders if they do not ultimately receive an amount equal to
the price per share of the common stock on the date they elect to convert the preferred
stock into common stock. On the date the convertible preferred stock was issued, the fair
market value of the Companys common stock was $2.77 per share based upon the closing
bid on the OTC Bulletin Board. The difference between the fair market value of the shares
and the conversion price of the convertible preferred stock represented a constructive
dividend to the holders of the preferred stock in the amount of $347,000. In addition, the
terms of the convertible preferred stock agreement contains certain antidilution
provisions and also contains a make-whole provision that obligates the Company to pay
certain amounts to the holder of the preferred stock if they do not ultimately receive an
amount equal to the price per share of the common stock on the date they exercise their
right to convert the preferred stock into common stock. The Company followed the
accounting prescribed in EITF 98-5 and EITF 00-27 for the recording of the convertible
preferred stock and the constructive dividend.

The
make-whole provision and certain antidilution provisions also represent a contingent
beneficial conversion feature of the convertible preferred stock. The effect of this
feature may result in the issuance of additional shares at some future date; however,
since the issuance of these shares is contingent on future events, the effect of this
feature will be recorded at the time the events occur. In addition, if the holder of the
preferred stock receives a certain multiple of its investment once the preferred shares
are converted to common stock and the common stock is sold, the make-whole provision is no
longer applicable.

In the event that the Company is required to make payments to the holders of the preferred stock, it may elect to
issue additional preferred stock in lieu of a cash payment.  Although the make-whole provision and other
provisions of the convertible preferred stock agreement provide for a maximum of 12,500,000 shares that may be
issued pursuant to those provisions, based upon current conditions, the Company believes it is unlikely that the
maximum number of shares would be issued.

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Stock Options

Activity
related to options is as follows:

|                              |  |           |   |  | Weighted Average
|----------------------------- |  | --------- | - |  | ----------------
|
|
|
|
|Outstanding at March 31, 2001 |  | 503,206   |   |  | $               
|Granted in Fiscal 2002:       |  |          
|Officers and Directors        |  | 591,000   |   |  | $               
|Employees                     |  | 376,500   |   |  | $               
|Options Exercised             |  | (9,000    | ) |  |                 
|Options Expired               |  | (11,900   | ) |  | $               
|
|Outstanding at March 31, 2002 |  | 1,449,806 |   |  | $               
|Granted in Fiscal 2003:       |  |          
|Officers and Directors        |  | 43,000    |   |  | $               
|Employees                     |  | 84,000    |   |  | $               
|Options Exercised             |  | (31,600   | ) |  | $               
|Options Expired               |  | (23,400   | ) |  | $               
|
|Outstanding at March 31, 2003 |  | 1,521,806 |   |  | $               
|Granted in Fiscal 2004:       |  |          
|Officers and Directors        |  | 89,000    |   |  | $               
|Employees                     |  | 43,333    |   |  | $               
|Options Exercised             |  | (404,791  | ) |  | $               
|Options Expired               |  | (78,048   | ) |  | $               
|
|Outstanding at March 31, 2004 |  | 1,171,300 |   |  | $               
|

Outstanding Shares

|                |  |         |  | Weighted Average |  |        | 
|--------------- |  | ------- |  | ---------------- |  | ------ | 
|
|
|
|
|$0.48 -   $2.35 |  | 702,500 |  | 6.96             |  | $1.61  | 
|2.50 -   $4.55  |  | 457,400 |  | 5.62             |  | $3.03  | 
|$12.45 - $15.95 |  | 11,400  |  | 8.09             |  | $13.05 | 

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Exercisable Shares

|Range of        |  | Number  |  | Weighted Average |  | Weighted Average | 
|--------------- |  | ------- |  | ---------------- |  | ---------------- | 
|
|
|
|
|$0.48 -   $2.35 |  | 494,333 |  | 6.91             |  | $1.62            | 
|2.50 -   $5.00  |  | 296,900 |  | 3.78             |  | $2.68            | 
|$12.45 - $15.95 |  | 2,400   |  | 1.00             |  | $15.32           | 

The options outstanding at March 31, 2004 expire on various dates commencing in December 2004 and
ending in March 2014.

The weighted average grant date fair value of options  granted during fiscal years 2004,  2003 and
2002 was $3.48,  $1.75 and $1.25, respectively.

Warrants

Activity related to warrants is as follows:

|                              | Number of Shares |          | Weighted Average | 
|----------------------------- | ---------------- | -------- | ---------------- | 
|
|                              |                  |          |                  | 
|
|Outstanding at March 31, 2001 |                  | 205,600  |                  | 
|Granted in Fiscal 2002        |                  | 0        |                  | 
|Warrants Exercised            |                  | (76,000  | )                | 
|Warrants Expired              |                  | 0        |                  | 
|                              |                  |          |                  | 
|Outstanding at March 31, 2002 |                  | 129,600  |                  | 
|Granted in Fiscal 2003        |                  | 691,517  |                  | 
|Warrants Exercised            |                  | (47,000  | )                | 
|Warrants Expired              |                  | 0        |                  | 
|                              |                  |          |                  | 
|Outstanding at March 31, 2003 |                  | 774,117  |                  | 
|Granted in Fiscal 2004        |                  | 0        |                  | 
|Warrants Exercised            |                  | (178,100 | )                | 
|Warrants Expired              |                  | 0        |                  | 
|                              |                  |          |                  | 
|Outstanding at March 31, 2004 |                  | 596,017  |                  | 
|                              |                  |          |                  | 

The
warrants expire on various dates commencing June 2007 and ending June 2012. All warrants
are 100% vested at March 31, 2004.

The
weighted average grant date fair value of warrants granted during fiscal years 2004, 2003
and 2002 was $0, $2.72 and $0.90, respectively.

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In
June 2002, the Company issued subordinated notes to an investor (see Note 8). As part of
the consideration for the notes, the investor received 566,517 warrants to purchase common
stock exercisable at $.01 per share for ten (10) years. The value of the warrants was
determined as of the date of issuance using the Black-Scholes options-pricing model. In
addition, an independent third party estimated the value of certain embedded features
contained in the warrant agreement and registration rights agreement between the Company
and the warrant holder (a make-whole and claw-back feature that
obligated the Company to pay additional amounts, in cash or additional shares at the
option of the Company, if certain events occurred in the future). Using the relative value
of the debt ($4,000,000), warrants ($1,564,000) and the warrants embedded features
($233,000), the Company recorded the value of the warrants and the warrants embedded
features as part of its stockholders equity, in accordance with EITF 00-19, and reduced
the carrying amount of the debt as an original issue discount. The original issue discount
is being be amortized over the five year term of the subordinated notes and will be
recorded as interest expense and a corresponding increase in the carrying value of the
subordinated notes. The Company determined the value of the warrants and the make-whole
and other provisions of the warrants and recorded this amount as a component of its
stockholders equity. This amount, $1,240,000 also represents the original issue
discount that is being amortized over the five-year term of the subordinated note.

In
April 2004, the investors exercised their rights to acquire 566,517 shares of common stock
under the terms of the warrant agreement and sold the
common stock. The terms of the warrant agreement contained certain antidilution
provisions. The warrant agreement also contained a make-whole provision that obligated the
Company to pay certain amounts to the holders of the warrants if they did not ultimately
receive an amount equal to the price per share of the common stock on the date they
exercise their right to purchase the common shares that underlie the warrants. The warrant
agreement also contained a provision that may have obligated the Company to pay certain
amounts to the holders of the warrants in the event there was a change in control of the
voting common stock of the Company, if there was a sale of the Company, or if there is a
public offering of the Companys common stock. All of the Companys obligations
under the warrant agreement, described above, were extinguished at the time the investor
sold the common stock, and the subordinated note was repaid (see Note 8).

In
June 2002, the Company also issued, to its financial advisors, 125,000 warrants to
purchase common stock as part of the fees related to the above referenced financing. The
warrants were fully exercisable for five (5) years at $1.50 per share. The value of these
warrants, $324,000, was determined as of the date of issuance using the Black-Scholes
options-pricing model. The Company allocated the value between the proceeds received from
the subordinated debt and the convertible preferred stock based upon their respective
amounts. The Company recorded the entire value of the warrants as additional paid in
capital. The portion of the value of the warrants that has been allocated to the
subordinated notes has been recorded as a long-term asset and will be amortized over the
five-year term of the subordinated notes as financing costs. The portion of the value of
the warrants that has been allocated to the convertible preferred stock was recorded as a
reduction in additional paid in capital. In February 2004, the financial advisors
exercised their rights to acquire 125,000 shares of common stock under the terms of the
warrant agreement.

Stock Appreciation Rights
and Other Stock Based Compensation

The
Company entered into a stock appreciation rights agreement (SAR) with its
Chief Executive Officer (CEO) in 1995. The agreement, which was for a term of
10 years, called for additional compensation payable annually equal to 3.25% of the total
of the incremental increase in the value of the Companys outstanding common stock.
The CEO may elect to receive shares of restricted stock, valued at 50%, in lieu of cash
compensation earned pursuant to the terms of the SAR. The CEO historically elected to
receive additional compensation in cash. Additional compensation expense for the years
ended March 31, 2003 and 2002 totaled $7,000 and $143,000, respectively based upon the
presumption that the CEO would continue to elect to receive the additional compensation in
cash instead of restricted stock. The Company and the CEO terminated the SAR during the
first part of fiscal 2004 and entered into another long-term incentive compensation
agreement that does not provide the CEO with the right to elect to receive compensation in
the form of common stock.

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The
terms of the previous employment agreement between the Company and its Chief Financial
Officer (CFO) provided the CFO with the right to elect to receive any portion
of his compensation in the form of common stock of the Company, valued at 60%, in lieu of
cash compensation. The CFO could make the election at the beginning of each fiscal
quarter. The CFO elected to receive 50,000 shares of common stock in lieu of $18,750 of
future compensation during fiscal 2002. During fiscal 2003, the CFO elected to receive all
compensation earned in the form of cash. On April 1, 2003, the Company and the CFO entered
into a new employment agreement that does not provide the CFO with the right to elect to
receive compensation in the form of common stock.

NOTE 15  EARNINGS
PER SHARE

Net
income per common share basic is computed by dividing net income available to
common stockholders by the basic weighted average number of shares of common
stock outstanding and any warrants outstanding that are exercisable at a de minimus amount.
For diluted weighted average shares outstanding, the Company used the
treasury stock method to calculate the Common Stock equivalents that the stock options
would represent.

The
net earnings per common share diluted calculation for the fiscal years ended March 31,
2004 and 2003 included the dilutive effect of 2,000 shares of convertible preferred stock
which assumes conversion of the preferred stock using the if converted method.
Under that method the convertible preferred shares are assumed to be converted to common
shares (weighted for the number of days assumed to be outstanding during the period) and
dividends associated with the preferred shares are added back to net income available to
common stockholders. For purposes of the if converted calculation, 847,457
shares and 645,000 shares of common stock was assumed to be converted for the twelve
months ended March 31, 2004 and 2003 respectively. Additionally, dividends of $220,000 and
$168,000 for the twelve months ended March 31, 2004 and 2003 respectively, were added back
to net income available to common stockholders for purposes of calculating diluted
earnings per share using this method. The diluted earnings per share calculation for the
fiscal year ended March 31, 2003 was conformed to the calculation used for the fiscal year
ended March 31, 2004.

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

|                                              | Year Ended                                        |   | Year Ended |  | Year Ended |      
|--------------------------------------------- | ------------------------------------------------- | - | ---------- |  | ---------- | -----
|
|                                              |                                                   |   |            |  |            |      
|                                              | (In Thousands, Except Earnings Per Share Amounts)
|
|Numerator:                                    |                                                   |   |            |  |            |      
|Net Income Available to Common Stockholders   |                                                   | $ | 1,760      |  | $          | 1,333
|                                              |                                                   |   |            |  |            |      
|Denominator:                                  |                                                   |   |            |  |            |      
|Weighted Average Shares Outstanding - Basic   |                                                   |   | 5,081      |  |            | 4,793
|Add:  Effect of Dilutive Options and Warrants |                                                   |   | 982        |  |            | 455  
|Effect of Conversion of Convertible Preferred |                                                   |   |            |  |            |      
|Stock into Common Stock                       |                                                   |   | 847        |  |            | 645  
|                                              |                                                   |   |            |  |            |      
|Weighted Average Shares Outstanding - Diluted |                                                   |   | 6,910      |  |            | 5,893
|                                              |                                                   |   |            |  |            |      
|Net Income Per Common Share - Basic           |                                                   | $ | 0.35       |  | $          | 0.28 
|                                              |                                                   |   |            |  |            |      
|Net Income Per Common Share - Diluted         |                                                   | $ | 0.29       |  | $          | 0.26 
|                                              |                                                   |   |            |  |            |      

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The
effect of 11,400 and 1,127,000 options and warrants were not included in the calculation
of net income per diluted common share for 2004 and 2003, respectively, as the effect
would have been anti-dilutive. The effect of all options and warrants (see Note 14) for
2002 were not included in the calculation of income from continuing operations per diluted
common share as the effect would have been anti-dilutive.

The
basic earnings per share calculation for the years ended March 31, 2004 and 2003 includes
566,517 shares and 399,000 shares, respectively, that may be issued upon the exercise of
warrants exercisable at $.01 per share (see Note 14).

Certain
provisions of the convertible preferred stock issued in June 2002 may result in the
issuance of additional shares at some future date if certain events occur. Since these
events have not yet occurred, and therefore the number of additional shares is not known,
no additional shares have been included in the earnings per share calculation (see Note
14).

NOTE 16  FINANCING
COSTS

The
Company incurred approximately $1,478,000 of financing costs during the fiscal year ended
March 31, 2003, including the value of the warrants issued to the Companys financial
advisors related to obtaining certain financing described in Notes 8 and 14. The financing
costs were allocated between the components of the financing that represented debt and
equity. The financing costs that were allocated to the debt proceeds, $1,110,000, have
been recorded as another asset and will be amortized over the repayment term of the
various loans and notes. The financing costs that were allocated to the equity proceeds,
$368,000, have been recorded as a reduction of the equity proceeds. Amortization expense
related to the financing costs was $364,000 and $271,000 for the fiscal years ended March
31, 2004 and 2003, respectively.

NOTE 17  CONTINGENCIES

In
November 1998, Medical Technology Laboratories, Inc. (MTL), a subsidiary that
was sold in fiscal 2000 (see Note 20), received a refund request in the amount of $1.8
million from Medicare Program Safeguards (MPS). MTL disputed the refund
request in its response to MPS in December 1998. To date, MTL has not received any further
correspondence from MPS regarding this matter.

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

NOTE 18 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

|                                                          | 2004 |   | 2003 |  | 2002 |    
|--------------------------------------------------------- | ---- | - | ---- |  | ---- | ---
|                                                          |      |   |      |  |      |    
|Supplemental Disclosure
        of Cash Flow Information: |      |   |      |  |      |    
|                                                          |      |   |      |  |      |    
|Cash Paid for Interest                                    |      | $ | 851  |  | $    | 842
|                                                          |      |   |      |  |      |    
|                                                          |      |   |      |  |      |    
|Cash Paid for Taxes                                       |      | $ | 58   |  | $    | 0  
|                                                          |      |   |      |  |      |    

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2004  Non-Cash
Activities

During
the fiscal year ended March 31, 2004, the company:

| | 1. | Transferred approximately $93,000 in product development costs to inventory;
| | -- | ----------------------------------------------------------------------------

| | 2. | Purchased $199,000 in equipment and financed the purchase with a capital lease
               obligation; and
| | -- | -------------------------------------------------------------------------------------------------------------

| | 3. | Acquired proprietary technology in exchange for a note in the amount of
               $1,480,000 and extinguished a liability for accrued royalty payments of
               $348,000.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE

Board of DirectorsMedical
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 4, 2004, which is
included in the Companys Annual Report on SEC Form 10-K as of and for the year ended
March 31, 2004, we have also audited Schedule II for the years ended March 31, 2004, 2003
and 2002. In our opinion, this schedule presents fairly in all material respects, the
information required to be set forth herein.

|                               | 
|------------------------------ | 
|/s/GRANT
        THORNTON, LLP | 
|Tampa, Florida                 | 
|                               | 
|June 4, 2004                   | 

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SCHEDULE II

MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MARCH 31, 2002, 2003 AND 2004

|Column A                             |  | Column B |     | Column C |   | Column D |   | Column E
|------------------------------------ |  | -------- | --- | -------- | - | -------- | - | --------
|
|
|
|
|
|Inventory Valuation Allowance:       |  |          |     |          |   |          |   |         
|
|Year Ended March 31, 2002            |  | $        | 40  |          | $ | 0        |   |         
|Year Ended March 31, 2003            |  | $        | 40  |          | $ | 250      |   |         
|Year Ended March 31, 2004            |  | $        | 183 |          | $ | 112      |   |         
|
|Self Insured Medical Claims Reserve: |  |         
|
|Year Ended March 31, 2002            |  | $        | 107 |          | $ | 324      |   |         
|Year Ended March 31, 2003            |  | $        | 102 |          | $ | 285      |   |         
|Year Ended March 31, 2004            |  | $        | 86  |          | $ | 515      |   |         
|
|Allowance for Doubtful Accounts:     |  |         
|
|Year Ended March 31, 2002            |  | $        | 290 |          | $ | (180     | ) |         
|Year Ended March 31, 2003            |  | $        | 101 |          | $ | 50       |   |         
|Year Ended March 31, 2004            |  | $        | 138 |          | $ | 152      |   |         

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SIGNATURES

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

|Dated:  June 29, 2004 |  |  | Medical Technology Systems, Inc. | 
|--------------------- |  |  | -------------------------------- | 
|
|                      |  |  |                                  | 
|                      |  |  |                                  | 

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

|Signature                   |  | Title                                                          |  | Date          | 
|--------------------------- |  | -------------------------------------------------------------- |  | ------------- | 
|
|
|/s/Todd E. Siegel           |  | Chairman of
        the Board of Directors, President and      |  | June 29, 2004 | 
|Todd E. Siegel              |  | Chief Executive Officer
         (principal executive officer) |  |               | 
|                            |  |                                                                |  |               | 
|/s/Michael P. Conroy        |  | Director,
        Chief Financial Officer and Vice President   |  | June 29, 2004 | 
|Michael P. Conroy           |  | (principal financial officer)                                  |  |               | 
|                            |  |                                                                |  |               | 
|/s/Michael Stevenson        |  | Chief Operating
        Officer                                |  | June 29, 2004 | 
|Michael Stevenson           |  |                                                                |  |               | 
|                            |  |                                                                |  |               | 
|/s/Mark J.
        Connolly |  | Principal Accounting
         Officer and Controller           |  | June 29, 2004 | 
|Mark J. Connolly            |  |                                                                |  |               | 
|                            |  |                                                                |  |               | 
|/s/John Stanton             |  | Director and Vice
        Chairman of the Board of Directors   |  | June 29, 2004 | 
|John Stanton                |  |                                                                |  |               | 
|                            |  |                                                                |  |               | 
|/s/David W. Kazarian        |  | Director                                                       |  | June 29, 2004 | 
|David W. Kazarian           |  |                                                                |  |               | 
|                            |  |                                                                |  |               | 
|/s/Frank A. Newman          |  | Director                                                       |  | June 29, 2004 | 
|Frank A. Newman             |  |                                                                |  |               | 
|                            |  |                                                                |  |               | 

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EXHIBIT INDEX

|Exhibit No. |       | Description
|----------- | ----- | -----------
|
|
|            | 3.1   |            
|            | 3.2   |            
|            | 3.3   |            
|            | 3.4   |            
|            | 3.5   |            
|            | 4.1   |            
|            | 4.2   |            
|            | 10.1  |            
|            | 10.2  |            
|            | 10.3  |            
|            | 10.4  |            
|            | 10.5  |            
|            | 10.6  |            
|            | 10.7  |            
|            | 10.8  |            
|            | 10.9  |            
|            | 10.10 |            
|            | 10.11 |            
|            | 10.12 |            
|            | 10.13 |            
|            | 10.14 |            
|            | 10.15 |            
|            | 10.16 |            
|            | 10.17 |            
|            | 10.18 |            
|            | 10.19 |            
|            | 10.20 |            
|            | 10.21 |            
|            | 10.22 |            
|            | 10.23 |            

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|Exhibit No. |       | Description
|----------- | ----- | -----------
|
|            |       |            
|            | 10.24 |            
|            | 10.25 |            
|            | 10.26 |            
|            | 10.27 |            
|            | 10.28 |            
|            | 10.29 |            
|            | 10.30 |            
|            | 10.31 |            
|            | 10.32 |            
|            | 10.33 |            
|            | 10.34 |            
|            | 10.35 |            
|            | 10.36 |            
|            | 10.37 |            
|            | 10.38 |            
|            | 10.39 |            
|            | 10.40 |            
|            | 10.41 |            
|            | 23    |            
|            | 31.1  |            
|            | 31.2  |            

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|Exhibit No. |      | Description
|----------- | ---- | -----------
|
|            |      |            
|            | 32.1 |            
|            | 32.2 |            
|            |      |            
|(1)         |      |            
|(2)         |      |            
|(3)         |      |            
|(4)         |      |            
|(5)         |      |            
|(6)         |      |            
|(7)         |      |            
|(8)         |      |            
|(9)         |      |            
|(*)         |      |            

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EXHIBIT 23

Consent of Independent
Certified Public Accounts

We
have issued our reports dated June 4, 2004 accompanying the consolidated financial
statements and schedule included in the Annual Report of Medical Technology Systems, Inc.
on Form 10-K for the year ended March 31, 2004. We hereby consent to the incorporation by
reference of said reports in the Registration Statement of Medical Technology Systems,
Inc. on Forms S-8 (File No. 333-56384 effective March 1, 2001) and Form S-3 (File No.
333-112212, effective February 6, 2004).

|                               | 
|------------------------------ | 
|/s/GRANT
        THORNTON, LLP | 
|Tampa, Florida                 | 
|                               | 
|June 4, 2004                   | 

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# CERTIFICATIONS

EXHIBIT 31.1

I, Todd E. Siegel, certify that:

| | 1. | I have reviewed this annual report on Form 10-K of Medical Technology Systems,
               Inc.;
| | -- | ---------------------------------------------------------------------------------------------------

| | 2. | Based on my knowledge, this annual report does not contain any untrue statement
               of a material fact or omit to state a material fact necessary to make the
               statements made, in light of the circumstances under which such statements were
               made, not misleading with respect to the period covered by this annual report;
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Based on my knowledge, the financial statements, and other financial information
               included in this annual report, fairly present in all material respects the
               financial condition, results of operations and cash flows of the registrant as
               of, and for, the periods presented in this annual report;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | The registrants other certifying officer(s) and I are responsible for
               establishing and maintaining disclosure controls and procedures (as defined in
               Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) | Designed such disclosure controls and procedures, or caused such disclosure
               controls and procedures to be designed under our supervision, to ensure that
               material information relating to the registrant, including its consolidated
               subsidiaries, is made known to us by others within those entities, particularly
               during the period in which this annual report is being prepared;
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | Evaluated the effectiveness of the registrants disclosure controls and
               procedures presently in this annual report our conclusions about the
               effectiveness of the disclosure controls and procedures, as of the end of the
               period covered by this annual report based on such evaluation; and
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c) | Disclosed in this annual report any change in the registrants internal
               control over financial reporting that occurred during the registrants most
               recent fiscal quarter (the registrants fourth fiscal quarter in the case
               of an annual report) that has materially affected, or is reasonably likely to
               materially affect, the registrants internal control over financial reporting; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5. | The registrants other certifying officer(s) and I have disclosed, based on
               our most recent evaluation of internal control over financial reporting, to the
               registrants auditors and the audit committee of the registrants
               board of directors (or persons performing the equivalent function):
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) | All significant deficiencies and material weaknesses in the design or operation
               of internal controls over financial reporting which are reasonably likely to
               adversely affect the registrants ability to record, process, summarize and
               report financial information; and
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | Any fraud, whether or not material, that involves management or other employees
               who have a significant role in the registrants internal controls over
               financial reporting.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                      |  |  |  | 
|--------------------- |  |  |  | 
|Date:   June 29, 2004 |  |  |  | 
|                      |  |  |  | 
|                      |  |  |  | 

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EXHIBIT 31.2

I, Michael P. Conroy, certify that:

| | 1. | I have reviewed this annual report on Form 10-K of Medical Technology Systems,
               Inc.;
| | -- | ---------------------------------------------------------------------------------------------------

| | 2. | Based on my knowledge, this annual report does not contain any untrue statement
               of a material fact or omit to state a material fact necessary to make the
               statements made, in light of the circumstances under which such statements were
               made, not misleading with respect to the period covered by this annual report;
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Based on my knowledge, the financial statements, and other financial information
               included in this annual report, fairly present in all material respects the
               financial condition, results of operations and cash flows of the registrant as
               of, and for, the periods presented in this annual report;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | The registrants other certifying officer(s) and I are responsible for
               establishing and maintaining disclosure controls and procedures (as defined in
               Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) | Designed such disclosure controls and procedures, or caused such disclosure
               controls and procedures to be designed under our supervision, to ensure that
               material information relating to the registrant, including its consolidated
               subsidiaries, is made known to us by others within those entities, particularly
               during the period in which this annual report is being prepared;
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | Evaluated the effectiveness of the registrants disclosure controls and
               procedures presently in this annual report our conclusions about the
               effectiveness of the disclosure controls and procedures, as of the end of the
               period covered by this annual report based on such evaluation; and
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c) | Disclosed in this annual report any change in the registrants internal
               control over financial reporting that occurred during the registrants most
               recent fiscal quarter (the registrants fourth fiscal quarter in the case
               of an annual report) that has materially affected, or is reasonably likely to
               materially affect, the registrants internal control over financial
               reporting; and
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5. | The registrants other certifying officer(s) and I have disclosed, based on
               our most recent evaluation over internal controls of financial reporting, to the
               registrants auditors and the audit committee of the registrants
               board of directors (or persons performing the equivalent function):
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) | All significant deficiencies and material weaknesses in the design or operation
               of internal control over financial reporting which are reasonably likely to
               adversely affect the registrants ability to record, process, summarize and
               report financial information; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | Any fraud, whether or not material, that involves management or other employees
               who have a significant role in the registrants internal controls over
               financial reporting.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                      |  |  |  | 
|--------------------- |  |  |  | 
|Date:   June 29, 2004 |  |  |  | 
|                      |  |  |  | 
|                      |  |  |  | 

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Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C.
SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report
of Medical Technology Systems, Inc. (the Company) on Form 10-K for the year
ended March 31, 2004 as filed with the Securities and Exchange Commission on the date
hereof (the Form 10-K), I, Todd E. Siegel, President and Chief Executive
Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to
§906 of the Sarbanes-Oxley Act of 2002, that:

| | (1) | The Form 10-K fully complies with the requirements of Section 13(a) or 15(d) of
               the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | The information contained in the Form 10-K fairly presents, in all material
               respects, the financial condition and results of operations of the Company.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                      | 
|------------------------------------- | 
|Dated:  June 29, 2004                 | 
|                                      | 
|/s/Todd E. Siegel                     | 
|Todd E. Siegel                        | 
|President and Chief Executive Officer | 
|                                      | 
|                                      | 

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Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C.
SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report
of Medical Technology Systems, Inc. (the Company) on Form 10-K for the year
ended March 31, 2004 as filed with the Securities and Exchange Commission on the date
hereof (the Form 10-K), I, Michael P. Conroy, Vice President and Chief
Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted
pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

| | (1) | The Form 10-K fully complies with the requirements of Section 13(a) or 15(d) of
               the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | The information contained in the Form 10-K fairly presents, in all material
               respects, the financial condition and results of operations of the Company.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                           | 
|------------------------------------------ | 
|Dated:  June 29, 2004                      | 
|                                           | 
|/s/Michael P. Conroy                       | 
|Michael P. Conroy                          | 
|Vice President and Chief Financial Officer | 
|                                           | 
|                                           | 

62