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

FORM 10-K

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

| | For fiscal year ended MARCH 31, 2009
| | ------------------------------------

# 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:   
001-31578

| |                                                        | 
| | ------------------------------------------------------ | 
| | MTS MEDICATION TECHNOLOGIES, INC.                      | 
| |                                                        | 
| | (Exact Name of Registrant as Specified in Its Charter) | 

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

| |                                                            
| | -----------------------------------------------------------
| | 2003 Gandy Boulevard North,
        St. Petersburg, 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, $0.01 PAR VALUE

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

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

Indicate by check mark if the
Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.      
  Yes         No

Indicate by check mark if the
Registrant is not required to file reports pursuant to Section 13 of Section 15(d) of the
Act.     Yes         No

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.      Yes    
     No

Indicate by check mark whether the
 Registrant  has  submitted  electronically  and posted on its  corporate  Web site,  if
any,  every Interactive  Data File required to be submitted and posted  pursuant to Rule
405 of  Regulation  S-T (§229.405 of this chapter)  during the  preceding  12 months
(or for such  shorter  period  that the  Registrant  was  required  to submit and post
such  files).        
  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.

Indicate by check mark whether the
Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or
a smaller reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of
the Exchange Act. (Check One):

Large accelerated filer  
            
Accelerated filer               
Non-accelerated filer   
            
Smaller Reporting Company

Indicate by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Act).      
  Yes         No

Aggregate market value of voting common stock held by non-affiliates of the registrant
as September 30, 2008.     $32,500,000
Number of shares of common stock outstanding as of June 19, 2009 was 6,473,065.

# Documents Incorporated
by Reference

The information required by Part III
of this Annual Report on Form 10-K, to the extent not set forth herein, is incorporated
herein by reference from the Registrants definitive proxy statement relating to the
Annual Meeting of Shareholders to be held in 2009.

---

# MTS MEDICATION
TECHNOLOGIES, INC.

# INDEX

|                              |  | Page                                                                                                                 | 
|----------------------------- |  | -------------------------------------------------------------------------------------------------------------------- | 
|
|PART I                        |  |                                                                                                                      | 
|                              |  |                                                                                                                      | 
|Item 1.                       |  | Business                                                                                                             | 
|Item 1A.                      |  | Risk Factors                                                                                                         | 
|Item 1B.                      |  | Unresolved Staff Comments                                                                                            | 
|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,
        Related Stockholder Matters and Issuer Purchases of Equity Securities | 
|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                                                                                              | 
|Item 9B.                      |  | Other Information                                                                                                    | 
|                              |  |                                                                                                                      | 
|PART III                      |  |                                                                                                                      | 
|                              |  |                                                                                                                      | 
|Item 10.                      |  | Directors, Executive Officers and Corporate Governance                                                               | 
|Item 11.                      |  | Executive Compensation                                                                                               | 
|Item 12.                      |  | Security Ownership of Certain Beneficial
        Owners and Management and Related Stockholder Matters               | 
|Item 13.                      |  | Certain Relationships and Related Transactions
        and Director Independence                                     | 
|Item 14.                      |  | Principal Accounting Fees and Services                                                                               | 
|                              |  |                                                                                                                      | 
|PART IV                       |  |                                                                                                                      | 
|                              |  |                                                                                                                      | 
|Item 15.                      |  | Exhibits, Financial Statement Schedules                                                                              | 
|                              |  |                                                                                                                      | 
|Index to Financial Statements |  |                                                                                                                      | 
|                              |  |                                                                                                                      | 
|Signatures                    |  |                                                                                                                      | 
|                              |  |                                                                                                                      | 
|Exhibit Index                 |  |                                                                                                                      | 
|                              |  |                                                                                                                      | 
|Certifications                |  |                                                                                                                      | 

i.

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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 1A. Risk Factors;
Item 3. Legal Proceedings; Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations; Item 9A. Controls
and Procedures; 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 MTS refer to MTS Medication
Technologies, Inc. (MTS) 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. (MTSP) in the
United States, MTS Medication Technologies, Ltd. (MTS Limited) in the United
Kingdom, and MTS Medication Technologies GmbH (MTS GmbH) in Germany. MTS GmbH
is a wholly owned subsidiary of MTS Limited. MTS primarily manufactures and sells
consumable medication punch cards, packaging equipment and ancillary products throughout
the United States, Canada and Europe. Our customers are predominantly institutional
pharmacies that supply nursing homes, assisted living and correctional facilities with
prescription medications for their patients. MTS manufactures its proprietary consumable
punch cards and most of our packaging equipment in our own facilities. This manufacturing
process uses integrated equipment for manufacturing the consumable medication punch cards.
In addition, we utilize the services of outside contract manufacturers for some of our
packaging equipment. The consumable medication punch cards and packaging equipment are
designed to provide a cost effective method for pharmacies to dispense medications.
MTSs medication dispensing systems and products provide innovative methods for
dispensing medications in disposable packages. MTS Limited distributes products for MTS
primarily in the United Kingdom and also manufactures and sells prescription bags and
labels in the United Kingdom. MTS GmbH distributes products for MTS in Germany. We
currently serve more than 4,500 institutional pharmacies in the long-term care and
correctional facility markets, both domestically and internationally.

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

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Products

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

We
offer our customers a wide variety of equipment that includes machines that are used for
manual or semi-automated filling of punch cards, generally referred to as pre-pack
machines, and sophisticated automated machines (including software), such as our
OnDemand® system, which can be interfaced with the pharmacys inventory control
and filling systems.

The
retail price of MTSs pre-pack machines ranges from $1,100 to $150,000 depending upon
the degree of automation and options requested by a customer. We offer several types of
OnDemand machines ranging in price from $200,000 to $850,000. The punch cards typically
retail from approximately $155 to $300 per 1,000 cards and blisters, depending upon the
size, design and volume of cards ordered by a customer. MTS also sells prescription labels
and ancillary supplies designed to complement sales of consumable medication punch cards.

In
addition to the consumable products and packaging equipment, we also have developed two
products that allow for the storage of medication and assist in the administration of
medication in an institutional pharmacy or skilled nursing facility.

Research and Development

We
dedicate a certain amount of our resources to develop new products to provide innovative
ways for our customers to automate their pharmacy activities and assist them in becoming
more cost efficient. We expended approximately $792,000 and $331,000 on research and
development activities for each of the fiscal years ended March 31, 2009 and 2008,
respectively. In addition, we have developed new consumable products and automation that
we believe will introduce punch card products into markets that we currently do not
service including retail pharmacies and nutraceutical distribution. Several of the
packaging automation and medication administration products we have developed and
currently sell have a significant software component. When we sell this type of equipment,
we enter into a software license agreement with our customer.

Manufacturing Processes

MTS
has developed integrated punch card manufacturing equipment that completes the various
punch card manufacturing steps in a single-line, automated process. We believe that our
advanced automation gives us certain speed, cost and flexibility advantages over
conventional punch card manufacturers. MTS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 has several machines
capable of producing punch cards in this manner. In addition to the manufacturing of punch
cards, MTS 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, we provide, or rent, machines to customers in conjunction with an agreement to
purchase certain quantities of punch cards over a specified period.

MTS
uses automated fabrication equipment to produce its medication packaging equipment. We
design all essential components of the machines, and we utilize outsourced manufacturers
to supplement our manufacturing capacity.

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MTS
is dependent on a number of suppliers for the raw materials essential in the production of
its products. We believe that relations are good 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 believes it
is necessary to maintain an inventory of materials and finished punch cards 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

The
primary customers for MTSs proprietary packaging equipment and the related
consumable punch cards, labels and ancillary supplies are pharmacies that supply
prescription medication to nursing homes, assisted living facilities and correctional
facilities. 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.

MTSs
products are sold throughout the United States primarily through its sales organization
and some independent sales representatives. In addition, MTS Limited distributes products
in the United Kingdom and MTS GmbH distributes products in Germany. Sales to countries
outside the United States represented approximately 12.7% of our total revenue in fiscal
2009. Our largest customer in Europe is Lloyds Pharmacy, Ltd., which represents
approximately 5.5% of our European sales and approximately 1.2% of our overall sales. In
the fiscal year ended March 31, 2009, sales to our two largest institutional pharmacy
customers in the United States, Omnicare, Inc.® and PharMerica, Inc., represented
approximately 34.1% and 9.8%, respectively of our total net sales. In addition, we sell
our consumable products to drug wholesalers who in turn resell the products to pharmacies.
Sales to three major wholesalers, McKesson, Cardinal Health and Amerisource Bergen®,
represented approximately 10.5% of our net sales in the fiscal year ended March 31, 2009.
Some of the sales to the wholesalers are for the indirect benefit of Omnicare and
PharMerica.

Segments

Our
operations are conducted in three separate business segments. Our Consumables segment
represents the manufacturing and sale of all non-durable products such as, punch cards,
prescription bags and labels. Our Packaging Automation segment represents the manufacture
and sale of machines that our customers use to package medication into our punch cards.
Our Medication Administration Systems segment represents the manufacture and sale of
equipment that is used to store and assist in the administration of medication. We report
our results of operation on a consolidated basis, as well as by operating segment in our
Consolidated Financial Statements included in this report.

Competition

The
pharmacy customers of MTS supply prescribed medications to nursing homes, correctional
facilities and assisted living facilities, which are the primary market for MTSs
products. This market is highly competitive, and there are few barriers to entry. There
are several competitors that have developed machines that automate the packaging and
sealing of solid medications into punch cards and other forms of consumable products. We
believe that products developed by our competitors may not be 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 we
have. There is no assurance that we will be able to compete effectively with competitive
methods of dispensing medication, other punch card systems or other consumable products.

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Our
primary competitors in the United States are Drug Package, Inc., AutoMed® Technologies
and RX Systems, Inc. We believe that our automated proprietary packaging equipment
distinguishes MTS from its competitors less automated systems. Our automated
packaging machine with the highest throughput can fill and seal up to 600 consumable
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. Our primary competitors in Europe are Surgichem, Ltd. and Jones Packaging,
Ltd.

Proprietary Technology

There
are numerous patent applications and patent license agreements for products that we sell
and that we have developed. Our business, however, is not materially dependent upon our
owning, or obtaining, any single patent from the United States Patent and Trademark
Office.

We
can provide no assurance that we will obtain any additional patents with respect to our
medication dispensing or information systems and products or that any patent obtained, now
or in the future, will provide meaningful protection from competition.

Government Regulations

MTS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
our packaging materials 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 affected under the laws and
regulations described above or any new regulations that may be adopted by regulatory
agencies.

Geographic Information

The
individual subsidiaries comprising the Company operate predominantly in a single industry
as manufacturers of consumable medication punch cards, packaging equipment and ancillary
products. The Company has operations in the United States and subsidiaries in the United
Kingdom and Germany. In computing operating profit for foreign subsidiaries, allocations
of general corporate expenses have been made. In addition to our evaluation of our three
segments, management evaluates the Companys business performance on a geographic
basis based upon the country in which the sales originate.

Employees

None
of our employees is covered by a collective bargaining agreement. We consider our
relationship with our employees to be good. We employ 238 persons in the United States and
33 persons in Europe.

# ITEM 1A.   RISK FACTORS

You
should carefully consider the following risks and all of the other information set forth
in this prospectus before deciding to invest in shares of our common stock. The following
risks comprise all the material risks of which we are aware; however, these risks and
uncertainties may not be the only ones we face. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial may also adversely affect our
business or financial performance. If any of the events or developments described below
actually occurred, our business, financial condition or results of operation would likely
suffer. In that case, the trading price of our common stock would likely decline, and you
would lose all or part of your investment in our common stock.

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Risks Related to Our
Business

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

The
market for our products and 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 purchase 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.

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:

- the level and timing of customer orders and related customer acceptances, especially relating to our OnDemand systems;
- 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;
- the timing of expenditures in anticipation of increased sales and customer product delivery requirements; and
- adverse changes in general economic conditions.

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 need to improve our
disclosure controls and procedures and internal control over financial reporting to
comply with SEC reporting requirements

The
Public Company Accounting Oversight Board (PCAOB) defines a material weakness
as a single deficiency, or a combination of deficiencies, that results in more than a
remote likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected.

As
of March 31, 2009, we reported a control deficiency that constituted a material weakness
in internal control over preparation, review and presentation and disclosure of our
consolidated financial statements. Specifically, our control deficiencies included a lack
of effective controls over recording inventory transactions. This control deficiency, in
the aggregate, could result in a misstatement to accounts and disclosures that is material
to the annual or interim financial statements that would not be prevented or detected.

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These
material weaknesses will need to be addressed as part of the evaluation of our internal
controls over financial reporting pursuant to the Sarbanes-Oxley Act of 2002 and may
impair our ability to comply with Section 404 of the Sarbanes-Oxley Act of 2002.

While
we have taken the actions described under Item 9A. Controls and Procedures to
address the material weakness, additional measures may be necessary and these actions may
not be sufficient to address the issues identified by us or to ensure that our internal
controls over financial reporting are effective. If we are unable to correct existing or
future material weaknesses in internal controls over financial reporting in a timely
manner, we may not be able to record, process, summarize and report financial information
within the time periods specified in the rules and forms of the SEC. This failure could
harm our business and the market value of our securities and affect our ability to access
the capital markets. In addition, there could be a negative reaction in the financial
markets due to a loss of confidence in reliability of future financial statements and SEC
filings.

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

For
the fiscal year ended March 31, 2009, our 10 largest customers accounted for approximately
62% of our net sales, and our two largest customers accounted for approximately 44% of our
net sales. We are dependent upon the continued growth, viability and financial stability
of our customers whose industries have experienced consolidation and pricing and
regulatory pressures. We expect to continue to depend upon a relatively small number of
customers for a significant percentage of our net sales. Consolidation among our customers
may further reduce the number of customers that generate a significant percentage of our
net sales and expose 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, could have a material adverse effect on
our results of operations.

A substantial portion of our
revenue is from the sales of products and provision of services to customers outside of
the United States. Thus, we may be subject to certain risks related to international sales
and operations.

Sales
of products and the provision of services to customers outside the United States accounted
for approximately 13% of our consolidated revenue for the fiscal year ended March 31,
2009. We anticipate that international sales and services will continue to account for a
significant portion of our revenue in the foreseeable future. As a result, we may be
subject to certain risks, including risks associated with the application and imposition
of protective legislation and regulations relating to import or export or otherwise
resulting from trade or foreign policy and risks associated with exchange rate
fluctuations. Additional risks include potentially adverse tax consequences, tariffs,
quotas and other barriers, potential difficulties involving our strategic alliances and
managing foreign sales agents or representatives and potential difficulties in accounts
receivable collection.

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 our products. We cannot be assured 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. We also rely on third parties to manufacture some of our packaging
equipment. The failure of such suppliers or third parties to deliver such raw materials or
packaging equipment 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 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 a majority
of our products from a single facility, while also utilizing third parties to manufacture
some products.

We
manufacture most of the products we sell, but we also use third parties to manufacture
packaging equipment. As a result, any prolonged disruption in the operations of our
manufacturing facility or the facilities of third parties, whether due to technical or
labor difficulties, destruction of or damage to any facility or other reasons, would have
a material adverse effect on our business, financial condition and results of operations.
In this regard, our principal manufacturing facility is located in St. Petersburg, 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, results of operations and financial
condition could be materially adversely affected.

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

Long-term
contracts are usually not a significant part of our business. We make significant
decisions, including production schedules, materials procurement, personnel needs and
other resource requirements, based on our estimate of customer requirements. The
short-term nature of our customers commitments, their uncertainty about future
economic conditions, and the possibility of rapid changes in demand for their products
reduce our ability to accurately estimate the future requirements of those customers. In
addition, uncertainty about future economic conditions makes it difficult to forecast
operating results and make production planning decisions about future periods.

Customers
have previously cancelled their orders, changed production quantities, delayed production
and changed their sourcing strategy for a number of reasons, and may do one or more of
these in the future. Such changes, delays and cancellations may lead to a decline in our
production and our possession of excess inventory which we may not be able to sell to the
customer or a third party.

Our operating results
and/or financial condition may be adversely affected if we undertake acquisitions of
businesses that do not perform as we expect or that are difficult for us to integrate.

We
expect to continue to implement our growth strategy, in part, by acquiring companies. At
any particular time, we may be in various stages of assessment, discussion and negotiation
with regard to one or more potential acquisitions, not all of which will be consummated.
We make public disclosure of pending and completed acquisitions when appropriate and
required by applicable securities laws and regulations.

Acquisitions
involve numerous risks and uncertainties. If we complete one or more acquisitions, our
results of operations and financial condition may be adversely affected by a number of
factors, including: the failure of the acquired businesses to achieve the results we have
projected in either the near or long term; the assumption of unknown liabilities; the
difficulties of imposing adequate financial and operating controls on the acquired
companies and their management and the potential liabilities that might arise pending the
imposition of adequate controls; the difficulties in the integration of the operations,
technologies, services and products of the acquired companies; and the failure to achieve
the strategic objectives of these acquisitions.

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Our operating results
and/or financial condition may be adversely affected by foreign operations.

We
have acquired businesses in Europe in the past and expect to consider additional foreign
acquisitions in the future. Our existing foreign operations and any operations we may
acquire in the future carry risks in addition to the risks of acquisition, as described
above. At any particular time, foreign operations may encounter risks and uncertainties
regarding the governmental, political, economic, business and competitive environment
within the countries in which those operations are based. Additionally, foreign operations
expose us to foreign currency fluctuations that could impact our results of operations and
financial condition based on the movements of the applicable foreign currency exchange
rates in relation to the United States Dollar.

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.

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 be assured 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,
would adversely affect our business.

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 ourproprietary 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. 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.

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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 be assured 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 third-party intellectual
property rights in court. Failure to obtain or maintain intellectual property rights of
our products, for any reason, could have a material adverse effect on us.

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. However, they are still vulnerable 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 and to bill for services efficiently. In addition,
we depend on third party vendors for certain functions whose future performance and
reliability cannot be assured.

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 be assured that significant changes in such
regulations will not occur in the 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.

Our customers are subject to
governmental regulations and procedures and other legal requirements. A significant change
in, or noncompliance with, these regulations, procedures and requirements could have a
material adverse effect on our profitability.

The
retail drug store and pharmacy benefit services businesses are subject to numerous
federal, state and local regulations. Consequently, our customers are subject to the risk
of changes in various federal, state and local laws, which include, but are not limited
to:  federal, state and local registration and regulation of pharmacies; applicable
Medicare and Medicaid regulations; the Health Insurance Portability and Accountability
Act; regulations of the United States Food and Drug Administration, the United States
Federal Trade Commission, the Drug Enforcement Administration, and the Consumer Product
Safety Commission and state regulatory authorities, governing the sale, advertisement and
promotion of products they sell; anti-kickback laws; and federal and state laws governing
the practice of the profession of pharmacy. Changes in these regulations may require
extensive system and operating changes that may be difficult for our customers to
implement. Untimely compliance or noncompliance with applicable regulations by our
customers could result in the imposition of civil and criminal penalties that could
adversely affect the continued operation of their businesses and may substantially
increase the costs and burden of pharmaceutical distribution, which could decrease the
demand for our products and services.

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The changing United
States healthcare environment may negatively impact our revenue and income.

Our
products and services are intended to function within the structure of the healthcare
financing and reimbursement system currently existing in the United States. In recent
years, the healthcare industry has undergone significant changes in an effort to reduce
costs and government spending. These changes include an increased reliance on managed
care; cuts in Medicare funding affecting our healthcare provider customer base;
consolidation of competitors, suppliers and customers; and the development of large,
sophisticated purchasing groups. We expect the healthcare industry to continue to change
significantly in the future. Some of these potential changes, such as a reduction in
governmental support of healthcare services or adverse changes in legislation or
regulations governing prescription drug pricing, healthcare services or mandated benefits,
may cause healthcare industry participants to reduce the amount of our products and
services they purchase or the price they are willing to pay for our products and services.
Changes in pharmaceutical manufacturers pricing or distribution policies could also
significantly reduce our income.

Our credit facility has
restrictive terms and our failure to comply with any of these terms could put us in
default, which would have an adverse effect on our business and prospects.

Our
credit facility requires us to maintain specified financial ratios and comply with certain
restrictive covenants. Our ability to meet these financial ratios and satisfy these
restrictive covenants and tests may be affected by events beyond our control. A breach of
any of the restrictive covenants or our inability to comply with the required financial
ratios would result in a default under our credit facility or require us to dedicate a
substantial portion of our cash flow from operations to payments on our indebtedness. Our
credit facility is secured by all of our assets, and accordingly, in the event of default
the lender has the right to take possession of any such assets.

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.

MTS
is a holding company with no direct operations and we conduct all of our business through
our subsidiaries. Our principal assets are the equity interests we hold in our operating
subsidiaries. As a result, we are dependent on the cash flow of our subsidiaries and
dividends and distributions from our subsidiaries to generate the funds necessary to meet
our financial obligations, including the payment of any current and future indebtedness
obligations we may have.

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

We
are subject to periodic federal, state, local and foreign 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
adversely affect us including, without limitation, an ongoing audit by the Internal
Revenue Service of our federal income tax return for the fiscal year ended March 31, 2008.

Risks Related to
Ownership of Our Common Stock

We do not intend to pay
dividends on our common stock.

We
have not declared or paid any dividends on our common stock to date and we do not
anticipate declaring or paying any dividends on our common stock in the foreseeable
future. We intend to reinvest all future earnings in the growth of our business. Any
future determination relating to our dividend policy will be at the discretion of our
board of directors and will depend on our results of operations, financial condition,
capital requirements, business opportunities, contractual restrictions and other factors
deemed relevant. To the extent we do not pay dividends on our common stock, investors must
look solely to stock appreciation for a return on their investment in our common stock.

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The price of our common
stock price may be volatile.

Our
common stock is traded on the NASDAQ-Capital Market under the symbol MTSI. The
market price of our common 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 NASDAQ Capital Market.

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 were acquired. The volatility also
could impair our ability in the future to offer common stock as a source of additional
capital.

Our directors, officers
and their respective affiliates will continue to have substantial influence over our
affairs, which couldlimit your ability to influence key transactions, including a
change in control.

Our
directors, officers and their respective affiliates beneficially own in the aggregate
approximately 34% of our outstanding common stock. Consequently, these stockholders have
the ability to exert substantial influence over all matters requiring approval by our
stockholders. These stockholders may be able to influence the election and removal of
directors and any merger, consolidation or sale of all or substantially all of our assets,
as well as other matters. This concentration of ownership could have the effect of
delaying, deferring or preventing a change in control or impeding a merger, consolidation,
takeover or other business combination.

Our management includes
members of a single family.

Michael
P. Conroy serves as our Chief Financial Officer and his son, James M. Conroy, serves as
our Controller. Because of the family relationship among these members of our management,
certain employer/employee matters may not be conducted on a fully arms-length basis as
would be the case if the family relationship did not exist. However, independent directors
unrelated to the Conroy family comprise our Compensation Committee and Audit Committee and
we expect that compensation and other significant employer/employee issues, including
performance evaluations and compensation reviews, will be conducted on a fully arms-length
basis as would be the case if the family relationship did not exist.

Any future issuance of
our preferred stock could adversely affect holders of our common stock.

Our
board of directors has the authority to issue shares of preferred stock without any action
on the part of our stockholders. In addition, our board also has the power, without
stockholder approval, to set the terms of any such series of shares of preferred stock
that may be issued, including voting rights, dividend rights and preferences upon
liquidation or dissolution. If we issue preferred stock in the future that has preference
over our common stock with respect to the payment of dividends or upon our liquidation,
dissolution or winding up of our affairs, or if we issue preferred stock with voting
rights that dilute the voting power of our common stock, the rights of holders of our
common stock or the market price of our common stock could be adversely affected.

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

- As of March 31, 2009, we had 6,454,005 shares of common stock outstanding. In addition,
        the following shares of our common stock are issuable upon exercise of currently
        outstanding securities.
- 835,496 shares of common stock are issuable upon exercise of currently outstanding common
        stock purchase options having exercise prices ranging from $1.45 to $13.70.

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The
possibility of exercise 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.

Our certificate of
incorporation, amended and restated bylaws and Delaware law contain provisions that could
discourage acquisition bids or merger proposals, which may adversely affect the market
price of our common stock.

Certain
provisions of our certificate of incorporation, our amended and restated bylaws and
applicable Delaware General Corporation Law could deter a change in our management or
render more difficult an attempt to obtain control of our company, even if such a proposal
is favored by a majority of our stockholders. These provisions could discourage potential
takeover attempts and could adversely affect the market price of our common stock. For
example, Delaware law prohibits us from engaging in a broad range of business combinations
with any interested stockholder, meaning generally that a stockholder who
beneficially owns more than 15% of our common stock cannot acquire us for a period of
three years from the date this person became an interested stockholder, unless various
conditions are met, such as approval of the transaction by our board of directors.
Finally, our certificate of incorporation includes undesignated preferred stock, which may
enable our board to discourage an attempt to obtain control of us by means of a tender
offer, proxy contest, merger or otherwise.

Our business will suffer
if we fail to comply with federal regulations and 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. The SEC has also adopted 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 federal corporate reform
measures adopted by the SEC. In addition, we incur significant legal, accounting and other
compliance costs.

If securities or industry
analysts do not publish research or reports about us, our business or our market, or if
they change their recommendations regarding our stock adversely, our stock price and
trading volume could decline.

The
trading market for our common stock is influenced by the research and reports that
industry or securities analysts publish about us, our business or our market. If one or
more of the analysts who cover us change their recommendation regarding our stock
adversely, our stock price would likely decline. If one or more of these analysts cease
coverage of our company or fail to regularly publish reports on us, we could lose
viability in the financial markets, which in turn could cause our stock price or trading
volume to decline.

# ITEM 1B.    UNRESOLVED
STAFF COMMENTS

None.

# ITEM 2.   PROPERTIES

We
currently lease approximately 132,500 square feet consisting of office space and
air-conditioned manufacturing and warehousing space at 2003 Gandy Boulevard North, St.
Petersburg, Florida, 33702. The lease term expires on September 30, 2016. Our corporate
administrative offices and the primary manufacturing facilities for MTS are at this
location. The monthly lease payments are currently $65,271 plus tax, insurance, utilities
and CAM and increase to $80,000 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). The Company has applied the provisions of FASB Statement 13,
Accounting for Leases to account for the lease payments. Accordingly,
the total lease payments that will be made over the term of the lease are being recorded
as an expense on a pro-rata basis, adjusted for the consumer price index, over the term of
the lease as opposed to recording the amount of lease payments actually made. As a result,
the difference between the actual lease payments made and the amount of expense recorded
is carried as a liability on our balance sheet. The amount of this liability was $435,000
and $388,000 at March 31, 2009 and 2008, respectively.

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In
addition, we were paid $400,000 by our landlord when we executed our lease. This payment
was provided to us as an incentive to enter into the lease. We recorded this amount as a
long-term liability on our balance sheet and are amortizing the benefit of this amount to
offset rent expense over the term of the lease.

MTS
also leases approximately 5,200 square feet at approximately $3,900 per month for office
and warehouse space at 21530 Drake Road, Cleveland, Ohio. The lease is on a month-to-month
basis.

MTS
Limited currently leases approximately 1,600 square feet of office and warehouse space at
Unit 6A/6B Dalton Court, Blackburn Interchange, Lower Darwen, Blackburn, Lancashire,
England. The lease is for a term of three years, and the monthly lease payments are
approximately $3,200. The lease expires in May 2012 and is cancellable at any time with
six months notice.

We
entered into a premises lease with the previous owners of BAF Printers, Limited
(BAF), which was a company we acquired in 2006, for approximately 12,000
square feet of office and manufacturing space. The lease is on a month-to-month basis.
Monthly lease payments are approximately $5,200, and we are also obligated to pay annual
operating expenses (i.e., insurance, utilities and property taxes). The premises is in
Leeds, England.

MTS
GmbH currently leases approximately 300 square feet of office space in Darmstadt, Germany.
The lease is on a month-to-month basis and can be cancelled with a three-month notice. The
monthly lease payments are approximately $1,000.

# ITEM 3.   LEGAL PROCEEDINGS

We
are involved in certain claims and legal actions arising in the ordinary course of
business. There can be no assurance that these matters will be resolved on terms
acceptable to us. We believe the ultimate disposition of these matters will not have a
material adverse effect on our financial position, results of operations or liquidity.

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

None.

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# PART II

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

Price Range of Our
Securities

Since
July 15, 2008, our common stock has been trading on NASDAQ under the symbol
MTSI. Prior to July 15, 2008, our common stock traded on AMEX under the symbol
MPP. The table below sets forth the range of high and low sales prices for our
common stock for the periods indicated, as reported by NASDAQ and AMEX, as applicable.

|2009 Fiscal
      Year |  | High |   | Low  
|---------------------- |  | ---- | - | -----
|                       |  |      |   |      
|First Quarter          |  |      | $ | 12.27
|Second Quarter         |  |      | $ | 5.98 
|Third Quarter          |  |      | $ | 6.01 
|Fourth Quarter         |  |      | $ | 4.59 
|                       |  |      |   |      
|
|                       |  |      |   |      
|First Quarter          |  |      | $ | 13.44
|Second Quarter         |  |      | $ | 12.88
|Third Quarter          |  |      | $ | 14.25
|Fourth Quarter         |  |      | $ | 13.50
|                       |  |      |   |      

As
of June 15, 2009, there were approximately 1,900 holders of record of our common stock and
the closing price of our common stock reported on NASDAQ was $4.99.

We
have not declared a dividend on our common stock and do not currently intend to declare a
dividend. We intend to reinvest our future earnings, if any, into the operations of our
business.

Equity Compensation Plan
Information

The
following table sets forth certain information relating to our equity compensation plans
as of March 31, 2009.

|Equity Compensation Plan Information                              
|------------------------------------------------------------------
|
|
|
|
|
|
|
|Equity compensation plans
         approved by security holders   
|
|Stock Incentive Plan                                              
|
|Equity compensation plans not
        approved by security holders
|
|Total                                                             
|

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# ITEM 6.    SELECTED
FINANCIAL DATA

Not
applicable.

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

# OVERVIEW

We
believe our business continues to grow for several reasons. First, the aging global
population results in more medication being prescribed and increases the number of people
that reside in skilled nursing and assisted living facilities.  These increases cause
revenue to increase for our pharmacy customers, which in turn leads to increased orders
for our packaging supplies for medications and our fulfillment automation.  As our
customers grow, we grow with them.  Second, we have made strategic acquisitions in
Europe, which have added to the growth of our core products.  We believe Europe is a
receptive market for our packaging and automation systems, and we expect the European
market to continue to represent an expanding portion of our total consolidated
revenue.  We continue to look for potential acquisitions in Europe to further expand
in that market. Third, we have invested heavily in technology that has enhanced the
automation we sell.  As a result, we have experienced growth in sales of both
prepackaging equipment, as well as our highly advanced robotic OnDemand systems.

Our
operating margins have been impacted by our expansion into new markets and our
introduction of new products which has led to us hiring additional personnel and investing
in our infrastructure.  We believe that our increased investment in personnel and
infrastructure has helped to, and will continue to help to, set the stage for future
growth and take advantage of our opportunities.  We believe these investments will
enhance our chance of success in markets such as retail pharmacy, nutraceutical and our
traditional long term care market in the United States and Europe.  We believe that
our successful launch of our products into the retail pharmacy market, our introduction of
automation into the retail pharmacy medication delivery model and the continued acceptance
of our OnDemand system automation by our long term care market customers in the United
States and Europe will combine to significantly increase our revenue and, ultimately,
improve our operating margins.

We
believe that our packaging automation products help us ensure that our customers will
continue to purchase our consumable products, and therefore, provide us with a very
reliable recurring stream of profitable revenue. We remain committed to leverage that
consumable product revenue stream to achieve our long-term objectives of creating more
value for our shareholders.

The
information set forth below represents selected quarterly results of operations for each
of the quarters in fiscal years ended March 31, 2009 and 2008.

|                                    | Fiscal Year Ended March 31, 2009
|----------------------------------- | --------------------------------
|
|
|
|
|
|
|
|Income Statement Data:              |                                 
|Net Sales                           |                                 
|Gross Profit                        |                                 
|Gross Profit Percentage             |                                 
|Net Income                          |                                 
|Net Income Per Basic Common Share   |                                 
|
|Net Income Per Diluted Common Share |                                 
|

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|                                    | Fiscal Year Ended March 31, 2008                                      
|----------------------------------- | ----------------------------------------------------------------------
|
|
|
|
|
|                                    | (In Thousands, Except Percentages and Per Share Amounts)   (Unaudited)
|
|Income Statement Data:              |                                                                       
|Net Sales                           |                                                                       
|Gross Profit                        |                                                                       
|Gross Profit Percentage             |                                                                       
|Net Income                          |                                                                       
|Net Income Per Basic Common Share   |                                                                       
|
|Net Income Per Diluted Common Share |                                                                       
|

# FISCAL YEAR 2009
COMPARED TO FISCAL YEAR 2008

# Segment Results of
Operations

We
evaluate our business under three segments: (a) Consumables; (b) Packaging Automation; and
(c) Medication Administration Systems. The Consumables segment primarily consists of the
manufacturing and sale of punch cards and blisters and other consumable medication
packaging. The Packaging Automation segment consists of products that provide our
customers with the ability to package medication into our consumable products in an
efficient manner. This type of automation allows the packaging of medication in either a
pre-pack or an on-demand manner, which means that our pharmacy customers can elect to
package medications for inventory awaiting an order from their long-term care customers or
wait until the long-term care customers require the medication and package it at that
time. The Medication Administration Systems segment consists of automation products
designed to provide our customers with a system to administer medication to residents at
long-term care facilities. We currently sell one product, MedLocker® and have
developed another product, MedTimes®. These segments represent the manner in which we
now manage our operations. Prior to this change, we managed our business in one segment.

Segment Results of
Operations

Operating
profit (loss), as presented below is net sales less cost of sales and other operating
expenses that are directly identifiable to the respective segment or allocated on the
basis of sales or manpower. Operating profit is reconciled to income before taxes in Note
19 to the Consolidated Financial Statements included in the report.

Consumables

|                   | Years Ended March 31,             
|------------------ | ----------------------------------
|
|
|
|                   | (In Thousands, Except Percentages)
|
|Net Sales          |                                   
|Gross Profit       |                                   
|Gross Profit %     |                                   
|Operating Profit   |                                   
|Operating Profit % |                                   

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Net
sales as of March 31, 2009 increased approximately $3.5 million, or 7.0%, primarily due to
growth in sales to the United States long-term care market of approximately 8.7%. The
growth in the United States is primarily attributable to the increase in medications
dispensed in long-term care facilities that our customers service. Although net sales in
Europe increased by 18.8%, when expressed in the functional currency of the country in
which the sales are made, net sales increased 3.7% in terms of United States Dollars as a
result of exchange rate fluctuations between the United States Dollar and the British
Pound and the Euro.

Gross
profit percentage decreased in fiscal year 2009 primarily due to higher overhead costs
allocated to this segment, as well as lower gross profit associated with European
operations that resulted from the strengthening of the United States Dollar compared to
the British Pound and the Euro.

Operating
margins declined in fiscal year 2009 primarily due to (a) lower gross profit percentage;
(b) higher depreciation expense associated with assets related to this segment; (c) and
foreign currency fluctuations.

Packaging Automation

|                 | Years Ended March 31,             
|---------------- | ----------------------------------
|
|
|
|                 | (In Thousands, Except Percentages)
|
|Net Sales        |                                   
|Gross Profit     |                                   
|Gross Profit %   |                                   
|Operating Loss   |                                   
|Operating Loss % |                                   

Net
sales as of March 31, 2009 increased $14.5 million, or 203%, primarily because of the sale
of OnDemand machines under an agreement with our largest customer. We recorded $14.6
million in revenue associated with 23 machines that were installed and accepted by the
customer.

Our
operating loss during the year ended March 31, 2009 was lower than the prior fiscal year
and our gross profit percentage increased because we realized additional gross profit
dollars on the increased net sales, which offset a portion of the indirect costs
associated with this segment.

Medication Administration
Systems

|                 | Years Ended March 31,             
|---------------- | ----------------------------------
|
|
|
|                 | (In Thousands, Except Percentages)
|
|Net Sales        |                                   
|Gross Profit     |                                   
|Gross Profit %   |                                   
|Operating Loss   |                                   
|Operating Loss % |                                   

Net
sales as of March 31, 2009 increased due to increased sales of our MedLocker systems.

Our operating
loss for the year ended March 31, 2009 was higher than the prior fiscal year because we
have added personnel to develop the MedTimes product, and we have increased research and
development expenditures for this product.

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Consolidated
operating income (loss) represents operating income (loss) for the Consumables, Packaging
Automation and Medication Administration Systems segments less share-based compensation
expense and corporate asset depreciation expense.

# Consolidated Results of
Operations

Net Sales

Our consolidated
net sales increased 31.9% for the fiscal year ended on March 31, 2009 compared with the
prior year. The increase was primarily due to the installation of OnDemand machines that
we sold to our largest customer pursuant to a contract that we entered into with them in
May 2007. There were sixteen OnDemand Express II machines and eight OnDemand AccuFlex®
machines sold as part of that contract. During fiscal year 2009, we recorded approximately
$14.6 million in revenue that was associated with fifteen OnDemand Express II machines and
8 OnDemand AccuFlex machines. In addition, our consolidated net sales increased due to an
approximately 7.0% increase in the sale of our consumable products, primarily punch cards
and blisters. This increase resulted from sales to existing institutional pharmacy
customers who continue to grow as a result of a general increase in the amount of
medication dispensed to an increasing population of skilled nursing home and assisted
living facility residents, as well as sales to new customers that we have gained by way of
increased market penetration at the expense of our competition.

We
also experienced a growth in sales for our Medication Administration Systems segment as a
result of success we have had with our MedLocker product.

Our
net sales in Europe increased 18.8% in fiscal 2009 compared to the prior year when these
sales are expressed in the functional currencies of the country in which the product was
sold. However, because the United States Dollar strengthened during fiscal year 2009 in
relationship to the British Pound and the Euro, our net sales in Europe increased 3.7%
when expressed in United States Dollars.

Cost of Goods Sold/Gross
Profit

Our
consolidated gross profit decreased to 33.2% in fiscal year 2009 from 37.9% in the prior
year primarily because of the proportion of sales that were derived from OnDemand machines
in fiscal year 2009 compared to the prior year. The gross profit margin that we realize on
the sale of OnDemand machines is significantly lower than the gross profit margin on
consumable products. In addition, the gross profit margin that we realized in fiscal 2009
from the sale of consumable products in Europe was lower compared to the prior year
because of the change in the relative value between the United States Dollar, the British
Pound and the Euro. The majority of the consumable products that we sell in Europe is
manufactured in the United States and sold in the functional currency of the countries we
sell our products in. Also, although our consolidated gross profit dollars increased in
fiscal 2009 compared with the prior year, it did not increase in proportion to our net
sales due, in part, to an increase of approximately 16.8% in our manufacturing overhead.
The increase in manufacturing overhead resulted primarily from increased costs associated
with our Packaging Automation systems segment that related to additional personnel and
other resources required to install and service the OnDemand machines we sold in fiscal
year 2009.

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

Our
consolidated SG&A expenses increased 16.2% to $18.3 million in fiscal year 2009 from
$15.7 million in the prior year. The increase was primarily due to:

| | (a) | additional
technical and software support personnel added to manage the installed
base of OnDemand machines;
| | --- | ------------------------------------------------------------------------------------------------------------

| | (b) | higher
research and development expenditures;
| | --- | ---------------------------------------------

| | (c) | increased
franchise and other state and local taxes resulting from an increase in
the number of states in which we file tax returns; and
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------

| | (d) | foreign
currency transaction losses related to sales of products between United
States and foreign subsidiaries.
| | --- | ----------------------------------------------------------------------------------------------------------------

18

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Depreciation and
Amortization

Our
depreciation and amortization expense increased 5.8% to $2.9 million in fiscal year 2009
from $2.8 million in the prior year. The increase resulted primarily from increased
depreciation associated with capital expenditures made during the previous fiscal year.

Interest Expense

Interest
expense decreased 24.8% to $479,000 in fiscal year 2009 from $637,000 in the prior year
due to lower outstanding debt, as well as lower interest rates.

Income Tax Expense

Income
tax expense increased to $1.1 million in fiscal year 2009 from $0.7 million in the prior
year because of higher net income before tax.

Our
effective tax rate was 31.4% in fiscal year 2009 compared with 26.4% in the prior year.
Our effective tax rate increased primarily due to the fact that we recorded the benefit of
state tax net operating losses in the previous year and adjusted uncertain tax positions
in the previous year.

# LIQUIDITY AND CAPITAL
RESOURCES

During
the fiscal year ended March 31, 2009, we had net income of approximately $2.5 million
compared to $2.1 million in the prior year. Cash provided by operating activities was
approximately $5.6 million during the fiscal year ended March 31, 2009 compared to
approximately $859,000 for the prior fiscal year. The increase results primarily from the
fact that we were successful in gaining the acceptance of the OnDemand machines we sold to
our largest customer and installed in the prior fiscal year, and thereby, significantly
reducing our inventory of these machines and deposits we had outstanding with our
outsourced manufacturer of the machines.

Investing
activities used approximately $2.5 million during the fiscal year ended March 31, 2009
compared with $5.2 million during the prior fiscal year. The decrease results primarily
from the fact that in the prior year we spent approximately $2.0 million for a new punch
card press. The press increased our capacity to produce punch cards to meet our expected
needs through fiscal year 2010, and therefore, a similar expenditure was not required in
fiscal year 2009.

Financing
activities used approximately $3.6 million during the fiscal year ended March 31, 2009
compared with $4.7 million provided during the prior fiscal year. Our free cash flow
increased in fiscal year 2009 compared to the prior fiscal year because our capital
expenditures were less and our operating cash flow increased, and therefore, we used our free cash flow
to reduce our debt.

We
had working capital of $12.7 million at March 31, 2009, compared to $13.6 million at March
31, 2008. The decrease in working capital resulted primarily from the reduction in
inventory and deposits to outsourced manufacturers that we had funded primarily with our
revolving line of credit.

We
do not maintain significant cash balances because available cash is used to pay down our
revolving line of credit. Cash on hand of $493,000 and $662,000 at March 31, 2009 and
2008, respectively, is held in banks located in the United States, the United Kingdom and
Germany. We view the excess availability on our line of credit as our cash reserve. At
March 31, 2009, we had approximately $4.1 million available on our revolving line of
credit.

Our
revolving line of credit is collateralized by a first security interest in all of our
assets and contains provisions that require us to maintain certain financial covenants. We
were in compliance with all provisions of the loan agreements as of March 31, 2009. Our
credit facility was originated in November 2007 and expires in November 2010. Availability
on the revolving line of credit reduces by $335,000 each quarter through August 2010.

19

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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 systems. 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 anticipated working capital needs and capital
expenditures requirements for at least the next twelve months.

# OFF-BALANCE SHEET
ARRANGEMENTS

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

# 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 revenue and expenses for the respective period-ended for such
statements. The determination of estimates requires the use of judgment since future
events and their effect 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 the 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.

Revenue Recognition

We
recognize revenue on the sale of machines, other than OnDemand machines, and all
consumables when title and risk of loss to the products shipped has transferred to the
customer. We recognize revenue related to the sale of our 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; and (d)
maintenance. These separate deliverables are incidental to the functionality of the
machine. The vendor specific objective evidence (VSOE) of fair value of the deliverables
outlined in (b-d) 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-d). 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, we recognize the revenue associated
with the training. Revenue associated with annual maintenance contracts is recognized in
equal amounts over a twelve-month period.

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

Revenue
is reported net of rebates and discounts provided to customers. Rebates are generally
determined based upon pricing agreements that offer certain customers incentives to
purchase products from us. Discounts are provided from time to time primarily to
compensate customers for inconveniences caused by late shipments, defective product or
pricing errors.

20

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Accounts Receivable

Trade
accounts receivable are recorded based upon the invoiced amount, are generally not
interest bearing and are considered past due when full payment is not received by the
specified credit terms. We do not typically require collateral when granting credit;
however, customer credit worthiness is reviewed prior to granting credit. We normally
estimate the uncollectibility of our accounts receivable. We consider many factors when
making our estimates, including analyzing accounts receivable and historical bad debts,
customer concentrations, customer credit worthiness, current economic trends and changes
in our customer payment terms when evaluating the adequacy of the reserve for
uncollectible accounts. We review the status of our accounts monthly, assessing the
customers ability to pay. When a specific account is deemed uncollectible, the
account is written off against the reserve for uncollectible accounts. An additional
reserve of one percent of accounts receivable would require an increase in the allowance
for doubtful accounts and would result in additional expense of approximately $86,000.

Inventories

Inventories
are stated at the lower of cost or market. Cost is determined by the first-in, first-out
(FIFO) method. The elements of costs included in the valuation of inventory
are the direct costs associated with materials purchased, direct labor expended to
manufacture the inventory and an allocation of general overhead expenses incurred to
operate the manufacturing facilities. The 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 with this assessment. An
additional reserve of one percent of inventory would require an increase in the inventory
reserve accounts and would result in additional expense of approximately $100,000.

Self-Insurance Plan
Reserve

We
have a medical health benefit self-insurance plan, which covers substantially all of our
employees. During the fiscal year ended March 31, 2009, we were reinsured for claims that
exceed $100,000 per participant and an annual maximum aggregate limit of approximately
$1.3 million. Future claims may affect the reinsurance limits that may be available to us.

Income Taxes

Income
taxes are provided for under the liability method in accordance with SFAS 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 basis. 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. Management considers anticipated future taxable income,
the reversal of taxable temporary differences, and tax planning strategies in making the
determination. Deferred tax assets and liabilities are adjusted for the effects of changes
in tax laws and rates on the date of enactment. We also report interest and penalties
related to uncertain income tax positions as income taxes. (See Note 15.)

Goodwill and Other
Intangible Assets

We
follow SFAS No. 142, Goodwill and Other Intangible Assets, and accordingly do not
amortize goodwill, but will annually review it for impairment. We test goodwill for
impairment at least annually and whenever events occur or circumstances change that
indicate there may be impairment. These events or circumstances could include a
significant adverse change in the business climate, poor indicators of operating
performance or a sale or disposition of a significant portion of a reporting unit. Testing
goodwill for impairment requires us to determine the amount of goodwill associated with
reporting units, estimate fair values of those reporting units and determine their
carrying values. These processes are subjective and require significant estimates. These
estimates include judgments about future cash flows that are dependent on internal
forecasts, long-term growth rates, allocations of commonly shared assets and estimates of
the weighted-average cost of capital used to discount future cash flows. Changes in these
estimates and assumptions could materially affect the results of our reviews for
impairment of goodwill. Based on these tests, goodwill was not impaired in 2009 or 2008.

21

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Other
intangible assets acquired in acquisitions are amortized on a straight-line basis over a
period ranging from seven to fifteen years, the estimated useful lives of the assets.
Other intangible assets are tested for potential impairment whenever events or changes in
circumstances suggest that the carrying value of an asset may not be fully recoverable in
accordance with SFAS No. 144.

Recent Accounting
Pronouncements

In
May 2009, the FSAB issued SFAS No. 165, Subsequent Events (SFAS No.
165). SFAS No. 165 is intended to establish general standards of accounting for and
disclosure of events that occur after the balance sheet date, but before financial
statements are issued or are available to be issued. It requires the disclosure of the
date through which an entity has evaluated subsequent events and the basis for that
datethat is, whether that date represents the date the financial statements were
issued or were available to be issued. This disclosure should alert all users of financial
statements that an entity has not evaluated subsequent events after that date in the set
of financial statements being presented. SFAS No. 165 is effective for financial
statements issued for fiscal years and interim periods ending after June 15, 2009. The
Company is evaluating the impact that the adoption of SFAS No. 165 will have on its
consolidated financial statements.

In
March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of SFAS No. 133 (SFAS No.
161). SFAS No. 161 is intended to improve financial standards for derivative
instruments and hedging activities by requiring enhanced disclosures to enable investors
to better understand the effect these instruments and activities have on an entitys
financial position, financial performance and cash flows. Entities are required to provide
enhanced disclosures about: how and why an entity uses derivative instruments; how
derivative instruments and related hedged items are accounted for under SFAS No. 133
and its related interpretations; and how derivative instruments and related hedged items
affect an entitys financial position, financial performance and cash flows. SFAS
No. 161 is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008. The Company is evaluating the impact that
the adoption of SFAS No. 161 will have on the consolidated financial statements.

In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations (SFAS No. 141R). SFAS No. 141R significantly changes the
accounting for business combinations in a number of areas including the treatment of
contingent consideration, preacquisition contingencies, transaction costs, in-process
research and development and restructuring costs. In addition, under SFAS No. 141R,
changes in an acquired entitys deferred tax assets and uncertain tax positions after
the measurement period will impact income tax expense. SFAS No. 141R is effective for
fiscal years beginning after December 15, 2008. We will adopt SFAS No. 141R
beginning in the first quarter of fiscal year 2010, which will change the accounting
treatment for business combinations on a prospective basis.

In
February 2008, the FASB issued FASB Staff Position No. 157-1 (FSP
157-1) and FASB Staff Position No. 157-2 (FSP 157-2), which,
respectively, removed leasing transactions from the scope of SFAS No. 157 and
deferred for one year the effective date for SFAS No. 157 as it applies to certain
nonfinancial assets and liabilities. The deferral provided by FSP 157-2 applies to
such items as nonfinancial assets and liabilities initially measured at fair value in a
business combination (but not measured at fair value in subsequent periods) and
nonfinancial long-lived asset groups measured at fair value for an impairment
assessment.  The Company is evaluating the impact FSP 157-2 will have on its
nonfinancial assets and liabilities.

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

Not
applicable.

# ITEM 8.    FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA

Our
Consolidated Financial Statements, notes thereto and the report of Grant Thornton LLP, our
independent registered public accounting firm, are set forth on the pages indicated at
Item 15 and are incorporated into this item by reference.

22

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# 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

Our
Chief Executive Officer and Chief Financial Officer are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e)) of the Securities Exchange Act of 1934 (the Exchange Act) for MTS.
Accordingly, our Chief Executive Officer and Chief Financial Officer designed such
disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under their supervision, to ensure that material information relating to MTS,
including our consolidated subsidiaries, is made known to our Chief Executive Officer and
Chief Financial Officer by others within those entities. We regularly evaluate the
effectiveness of disclosure controls and procedures and report our conclusions about the
effectiveness of the disclosure controls quarterly on our Form 10-Q and annually on our
Form 10-K.

Our
management, including the Chief Executive Officer and Chief Financial Officer, conducted
an evaluation of the effectiveness of our disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered
by this report. Based upon that evaluation and as described below under
Managements Report on Internal Control Over Financial Reporting, the
Chief Executive Officer and the Chief Financial Officer have identified a weakness in our
internal control over financial reporting. Solely as a result of this material weakness,
the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure
controls and procedures were not effective as of the end of the period ended March 31,
2009, in ensuring that material information relating to the Company required to be
disclosed by the Company in reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in the
SECs rules and forms and that such information is accumulated and communicated to
management, including the Chief Executive Officer and the Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure. Notwithstanding the
material weakness described below, our management has concluded that the Consolidated
Financial Statements fairly state, in all material respects, our financial condition,
results of operations and cash flows for the periods presented in conformity with
generally accepted accounting principles.

Managements Report
on Internal Control Over Financial Reporting

Our
management is responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Under the
supervision and with the participation of our management, including our Chief Executive
Office and Chief Financial Officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting based on criteria for effective internal control
over financial reporting described in Internal ControlIntegrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission.

Our
internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles and includes those policies and procedures that:

| |  | pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of our assets;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------

| |  | provide
reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and
that our receipts and expenditures are being made only in accordance with authorizations
of our management and directors; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on the
financial statements.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Because
of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may
deteriorate.

Based
on the definition of material weakness in the Public Company Accounting
Oversight Boards Auditing Standard No. 5, we have concluded that we did not maintain
effective controls over recording inventory transactions. We determined that because
effective controls regarding recording inventory transactions were not in place, the
carrying value of our inventory could be misstated. This conclusion was disclosed to the
Audit Committee and to the independent registered public accountants at the time it was
identified.

Plan for Remediation of
Material Weakness

We
have realigned the responsibilities for overseeing the personnel who record inventory
transactions. These individuals will now be supervised by personnel in the accounting
department. In addition, new policies and procedures will be instituted and cycle counts
of individual inventory items will be made on a weekly basis.

Changes in Internal
Control Over Financial Reporting

Other
than expressly noted above in this Item 9A, there was no change in our internal control
over financial reporting during the fiscal year ended March 31, 2009 that has materially
affected, or is reasonably likely to materially affect, our internal control over
financial reporting.

This
annual report does not include an attestation report of our registered public accounting
firm regarding internal control over financial reporting. Managements report was not
subject to attestation by our registered public accounting firm pursuant to temporary
rules of the SEC that permit us to provide only managements report in this annual
report.

# ITEM 9B.   OTHER
INFORMATION

None.

24

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# PART III

# ITEM 10.    DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

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 2009 fiscal year.

# 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 2009 fiscal year.

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

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 2009 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, AND DIRECTOR INDEPENDENCE

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 2009 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 2009 fiscal year.

25

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Table of Contents

# PART IV

# ITEM 15.    EXHIBITS,
FINANCIAL STATEMENT SCHEDULES.

|(a) | The
following documents are filed as part of this report:
|--- | ---------------------------------------------------------

| | 1. | Financial Statements.   The consolidated financial statements, and related
          notes thereto, of MTS 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 28 of this report.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | 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 15(b) below.
| | -- | -----------------------------------

|(b) | List
of Exhibits.  The exhibits listed on the Exhibits Index set forth below are
filed as part of, or incorporated by reference into this report.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Financial
Statement Schedules.  See Item 15(a) above.
|--- | -----------------------------------------------------

26

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# MTS MEDICATION
TECHNOLOGIES, INC.

# INDEX TO FINANCIAL STATEMENTS

|                                                                                                                                        | Page |        
|--------------------------------------------------------------------------------------------------------------------------------------- | ---- | -------
|
|Report of Independent
        Registered Public Accounting Firm                                                                         |      | 28     
|                                                                                                                                        |      |        
|Consolidated Financial Statements                                                                                                       |      |        
|                                                                                                                                        |      |        
|Consolidated Balance Sheets as of March 31, 2009 and 2008                                                                               |      | 29     
|                                                                                                                                        |      |        
|Consolidated Statements of Income for the Years Ended March 31, 2009 and 2008                                                           |      | 30     
|                                                                                                                                        |      |        
|Consolidated Statements of Changes in Stockholders' Equity and Comprehensive Income
        for the Years Ended March 31, 2009 and 2008 |      | 31     
|                                                                                                                                        |      |        
|Consolidated Statements of Cash Flows for the Years Ended March 31, 2009 and 2008                                                       |      | 33     
|                                                                                                                                        |      |        
|Notes to Consolidated Financial Statements                                                                                              |      | 33 - 54
|                                                                                                                                        |      |        
|Exhibit 21.1 - Subsidiaries of MTS Medication Technologies, Inc.                                                                        |      | 58     
|                                                                                                                                        |      |        
|Exhibit 23.1 - Consent of Independent Registered Public Accounting Firm                                                                 |      | 59     

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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Table of Contents

# REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and
ShareholdersMTS Medication Technologies, Inc.

We have audited the  accompanying
 consolidated  balance  sheets of MTS Medication  Technologies,  Inc. (a Delaware
 corporation)  and  subsidiaries  as of March 31,  2009 and 2008,  and the  related
 consolidated statements of income,  changes in stockholders equity and comprehensive
 income,  and cash flows for the years then ended.  These financial  statements are the
 responsibility  of the Companys  management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted  our audits in
 accordance  with the  standards of the Public  Company  Accounting  Oversight Board
(United  States).  Those standards  require that we plan and perform the audit to obtain
 reasonable assurance  about whether the financial  statements are free of material
 misstatement.  The Company is not required  to have,  nor were we  engaged  to perform
an audit of their  internal  control  over  financial reporting.  Our audit included
 consideration of internal control over financial  reporting as a basis for designing
 audit  procedures  that  are  appropriate  in the  circumstances,  but not for the
 purpose  of expressing an opinion on the  effectiveness of the Companys  internal
 control over financial  reporting. Accordingly,  we express no such opinion.  An audit
also  includes  examining,  on a test basis,  evidence supporting the amounts and
disclosures in the financial  statements,  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 consolidated
 financial  statements referred to above present fairly, in all material respects,  the
financial  position of MTS Medication  Technologies,  Inc. and subsidiaries as of March
31, 2009 and 2008,  and the  results  of their  operations  and their  cash  flows for
the years then ended in conformity with accounting principles generally accepted in the
United States of America.

|                       |  | 
|---------------------- |  | 
|/s/ GRANT THORNTON LLP |  | 
|Tampa, Florida         |  | 
|June 17, 2009          |  | 

28

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# MTS MEDICATION
TECHNOLOGIES, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS MARCH 31, 2009 AND 2008
In Thousands)

ASSETS

|                             | 2009 |  | 2008
|---------------------------- | ---- |  | ----
|
|
|Current Assets:              |      |  |     
|Cash                         |      |  | $   
|Restricted Cash              |      |  |     
|Accounts Receivable, Net     |      |  |     
|Inventories, Net             |      |  |     
|Prepaids and Other           |      |  |     
|Deferred Tax Asset           |      |  |     
|
|Total Current Assets         |      |  |     
|
|Property and Equipment, Net  |      |  |     
|Goodwill                     |      |  |     
|Other Intangible Assets, Net |      |  |     
|Other Assets, Net            |      |  |     
|
|Total Assets                 |      |  | $   
|

# LIABILITIES AND
STOCKHOLDERS' EQUITY

|                                                 |  | 
|------------------------------------------------ |  | 
|
|
|Current Liabilities:                             |  | 
|Accounts Payable and Accrued Liabilities         |  | 
|Current Maturities of Long-Term Debt             |  | 
|Current Maturities of Related Party Note Payable |  | 
|Customer Deposits                                |  | 
|
|Total Current Liabilities                        |  | 
|
|Long-Term Debt, Less Current Maturities          |  | 
|Other Liabilities                                |  | 
|Deferred Tax Liability, Net                      |  | 
|
|Total Liabilities                                |  | 
|
|Commitments and Contingencies (Note 18)          |  | 
|
|Stockholders Equity:                            |  | 
|Common Stock                                     |  | 
|Capital In Excess of Par Value                   |  | 
|Accumulated Other Comprehensive (Loss) Income    |  | 
|Retained Earnings                                |  | 
|Treasury Stock                                   |  | 
|
|Total Stockholders' Equity                       |  | 
|
|Total Liabilities and Stockholders' Equity       |  | 
|

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

29

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# MTS MEDICATION
TECHNOLOGIES, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED MARCH 31, 2009 AND 2008(In Thousands; Except Earnings Per Share Amounts)

|                                    | 2009 |  | 2008
|----------------------------------- | ---- |  | ----
|
|
|Net Sales                           |      |  | $   
|
|Costs and Expenses:                 |      | 
|Cost of Sales                       |      |  |     
|Selling, General and Administrative |      |  |     
|Depreciation and Amortization       |      |  |     
|
|Total Costs and Expenses            |      |  |     
|
|Operating Income                    |      |  |     
|
|Other Expenses:                     |      | 
|Interest Expense                    |      |  |     
|
|Income Before Taxes                 |      |  |     
|
|Income Tax Expense                  |      |  |     
|
|Net Income                          |      |  | $   
|
|Net Income Per Basic Common Share   |      |  | $   
|
|Net Income Per Diluted Common Share |      |  | $   
|

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

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# MTS MEDICATION
TECHNOLOGIES, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
AND COMPREHENSIVE INCOMEYEARS ENDED MARCH 31, 2009 AND 2008(In Thousands; Except Shares)

|                                                   |  | Common Stock |  |   |    | Accumulated |   |        |  |   |      |   |  |  
|-------------------------------------------------- |  | ------------ |  | - | -- | ----------- | - | ------ |  | - | ---- | - |  | -
|
|
|
|
|
|Balance March 31, 2007                             |  | 6,243,665    |  | $ | 62 |             | $ | 8,736  |  | $ | 254  |   |  | $
|Tax Benefit of Stock Option Exercises              |  |              |  |   |    |             |   | 284    |  |   |      |   |  |  
|Exercise of Stock Options                          |  | 190,400      |  |   | 2  |             |   | 948    |  |   |      |   |  |  
|Stock Grants Issued                                |  | 10,000       |  |   |   |             |   | 125    |  |   |      |   |  |  
|Share-Based Compensation                           |  |              |  |   |    |             |   | 44     |  |   |      |   |  |  
|Cumulative Effect of Initial Application of FIN 49 |  |              |  |   |    |             |   |        |  |   |      |   |  |  
|Comprehensive Income:                              |  |              |  |   |    |             |   |        |  |   |      |   |  |  
|Net Income                                         |  |              |  |   |    |             |   |        |  |   |      |   |  |  
|Foreign Currency Translation Adjustment            |  |              |  |   |    |             |   |        |  |   | 120  |   |  |  
|Total Comprehensive Income                         |  |              |  |   |    |             |   |        |  |   |      |   |  |  
|
|Balance March 31, 2008                             |  | 6,444,065    |  | $ | 64 |             | $ | 10,137 |  | $ | 374  |   |  | $
|
|Tax Benefit of Stock Option Exercises              |  |              |  |   |    |             |   | 50     |  |   |      |   |  |  
|Exercise of Stock Options                          |  | 5,000        |  |   |   |             |   | 9      |  |   |      |   |  |  
|Stock Grants Issued                                |  | 5,000        |  |   | 1  |             |   | 57     |  |   |      |   |  |  
|Share-Based Compensation                           |  |              |  |   |    |             |   | 247    |  |   |      |   |  |  
|Comprehensive Income:                              |  |              |  |   |    |             |   |        |  |   |      |   |  |  
|Net Income                                         |  |              |  |   |    |             |   |        |  |   |      |   |  |  
|Interest Rate Swaps, Net of Tax of $90             |  |              |  |   |    |             |   |        |  |   | (146 | ) |  |  
|Foreign Currency Translation Adjustment            |  |              |  |   |    |             |   |        |  |   | (902 | ) |  |  
|
|Total Comprehensive Income                         |  |              |  |   |    |             |   |        |  |   |      |   |  |  
|
|Balance March 31, 2009                             |  | 6,454,065    |  | $ | 65 |             | $ | 10,500 |  | $ | (674 | ) |  | $
|

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

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# MTS MEDICATION
TECHNOLOGIES, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 2009 AND 2008(In Thousands)

|                                                              | 2009 |  | 2008
|------------------------------------------------------------- | ---- |  | ----
|
|
|Operating Activities                                          |      |  |     
|Net Income                                                    |      |  | $   
|Adjustments to Reconcile Net Income to Net Cash               |      |  |     
|Provided by Operating Activities:                             |      |  |     
|Depreciation and Amortization                                 |      |  |     
|Write-off of Deferred Financing Costs                         |      |  |     
|Tax Benefit of Options Exercised                              |      |  |     
|Deferred Income Taxes                                         |      |  |     
|Share-Based Compensation                                      |      |  |     
|Loss on Disposal of Equipment and Patents                     |      |  |     
|Changes in Assets and Liabilities                             |      |  |     
|Restricted Cash                                               |      |  |     
|Accounts Receivable, Net                                      |      |  |     
|Inventories, Net                                              |      |  |     
|Prepaids and Other                                            |      |  |     
|Accounts Payable and Other Accrued Liabilities                |      |  |     
|Customer Deposits                                             |      |  |     
|Other Long-Term Liabilities                                   |      |  |     
|
|Total Adjustments                                             |      |  |     
|
|Net Cash Provided by Operating Activities                     |      |  |     
|
|Investing Activities                                          |      |  |     
|Contingent Consideration Expended for Acquisition of Business |      |  |     
|Expended for Property and Equipment                           |      |  |     
|Expended for Product Development                              |      |  |     
|Expended for Patents and Other Assets                         |      |  |     
|
|Net Cash Used in Investing Activities                         |      |  |     
|
|Financing Activities                                          |      |  |     
|Payments on Notes Payable and Long-Term Debt                  |      |  |     
|Payments on Related Party Note Payable                        |      |  |     
|Paydowns on Revolving Line of Credit                          |      |  |     
|Advances on Revolving Line of Credit                          |      |  |     
|Expended for Financing Costs                                  |      |  |     
|Tax Benefit of Options Exercised                              |      |  |     
|Proceeds from Exercise of Stock Options and Warrants          |      |  |     
|
|Net Cash (Used in) Provided by Financing Activities           |      |  |     
|
|Effect of Exchange Rate Changes on Cash                       |      |  |     
|
|Net Change in Cash                                            |      |  |     
|Cash at Beginning of Period                                   |      |  |     
|
|Cash at End of Period                                         |      |  | $   
|

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

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# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

# NOTE 1  BACKGROUND
INFORMATION

MTS
Medication Technologies®, Inc., a Delaware corporation (the Company or
MTS), was incorporated in March 1984. MTS is a holding company that operates
through direct and indirect subsidiaries, MTS Packaging Systems, Inc.
(MTSP), MTS Medication Technologies, Ltd. (MTS Limited) and MTS
Medication Technologies GmbH (MTS GmbH). MTS GmbH is a wholly-owned subsidiary
of MTS Limited.

In
April 2008, BAF Printers, Ltd. (BAF) was merged into MTS Limited pursuant to a
statutory merger. Prior to this merger, BAF operated as a wholly-owned subsidiary of MTS
Limited. The merged companies now operate under the MTS Limited name.

MTSP
primarily manufactures and sells consumable medication punch cards, packaging equipment
and ancillary products throughout the United States (the U.S.), Canada and
Europe. Its customers are predominantly institutional pharmacies that supply nursing
homes, assisted living and correctional facilities with prescription medications for their
patients. MTSP manufactures its proprietary consumable punch cards and most of its
packaging equipment in its own facilities. This manufacturing process uses integrated
equipment for manufacturing the consumable medication punch cards. In addition, MTSP
utilizes the services of outside contract manufacturers for some of its packaging
equipment. The consumable medication punch cards and packaging equipment are designed to
provide a cost effective method for pharmacies to dispense medications. MTSPs
medication dispensing systems and products provide innovative methods for dispensing
medications in disposable packages. MTS Limited distributes products for MTSP primarily in
the United Kingdom (the UK) and manufactures and sells prescription bags and
labels in the UK. MTS GmbH distributes products for MTSP in Germany. The Company currently
serves more than 4,500 institutional pharmacies in the long-term care and correctional
markets, both domestically and internationally.

# NOTE 2  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES

Consolidation

The
consolidated financial statements include the accounts of the Company and its
subsidiaries, MTSP, MTS Limited, and MTS GmbH. All significant inter-company accounts and
transactions of a normal and recurring nature have been eliminated in consolidation.

Use of Estimates

The
preparation of financial statements in conformity with accounting principles generally
accepted in the U.S. 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. Actual results could differ materially from
those estimates.

Cash

The
Company considers all highly liquid instruments purchased with a maturity of three months
or less at the time of purchase to be cash equivalents. As of March 31, 2009 and 2008, the
Companys cash includes the U.S. Dollar equivalent of approximately $492,000 and
$468,000, respectively, maintained in banks primarily in the UK and Germany. There were no
cash equivalents for either period presented.

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Inventories

Inventories
are stated at the lower of cost or market, determined by the first-in, first-out
(FIFO) method. The elements of costs included in the valuation of inventory
are the direct costs associated with materials purchased, direct labor expended to
manufacture the inventory and an allocation of general overhead expenses incurred to
operate the manufacturing facilities. The allowance for inventory obsolescence and slow
moving inventory is reviewed on a monthly basis. The Company reviews various information
related to the age and turnover of specific inventory items to assist its assessment. As
of March 31, 2009 and 2008, the Company established an inventory valuation allowance of
approximately $612,000 and $616,000, respectively, to account for the estimated loss in
value of inventory due to obsolescence.

Warranty

The
Company establishes a reserve for warranty costs it may incur during the warranty period
that is provided as part of the machine sales agreements with its customers. The warranty
period is generally for a six-month period. The balance was approximately $15,000 and
$23,000 at March 31, 2009 and 2008, respectively. Warranty costs incurred during the years
ended March 31, 2009 and 2008 totaled approximately $69,000 and $12,000, respectively. The
reserve is an estimate based on historical trends, the number of machines under warranty,
the cost of replacement parts and the expected reliability of the Companys products.
Warranty costs are charged against the accrual when incurred.

Revenue Recognition

The
Company recognizes revenue on the sale of machines, other than OnDemand machines, and all
consumables when title and risk of loss to the products shipped has transferred to the
customer. 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; and (d) maintenance. These separate deliverables are incidental to the
functionality of the machine. The vendor specific objective evidence (VSOE) of fair value
of the deliverables outlined in (b-d) 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-d). 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 or in certain instances, acceptance
occurs. 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. Revenue associated with annual maintenance contracts is recognized in
equal amounts over a twelve-month period.

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.

Revenue
is reported net of rebates and discounts provided to customers and excludes sales tax.
Rebates are generally determined based upon pricing agreements that offer certain
customers incentives to purchase products from the Company. Discounts are provided from
time to time primarily to compensate customers for inconveniences caused by late
shipments, defective product or pricing errors. Rebates and discounts were $1.5 million
for each of the fiscal years 2009 and 2008, respectively. Rebates and discounts are
recorded at the time they are earned by the customer.

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There
were two customers whose sales accounted for approximately 44% and 24% of net sales for
fiscal years 2009 and 2008, respectively.

Accounts Receivable

Trade
accounts receivable are recorded based upon the invoiced amount, are generally not
interest bearing and are considered past due when full payment is not received by the
specified credit terms. The invoiced amounts generally include any taxes due to various
tax jurisdictions that the Company collects from the customer and remits to the
appropriate tax jurisdictions. The Company does not typically require collateral when
granting credit; however, customer credit worthiness is reviewed prior to granting credit.
The Company continually estimates the uncollectibility of its accounts receivable. The
Company considers many factors when making its estimates, including analyzing accounts
receivable aging 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. The Company reviews the
status of its accounts receivable monthly, assessing the customers ability to pay.
When a specific account is deemed uncollectible, the account is written off against the
reserve for doubtful 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 is recorded.
Depreciation of property and equipment is calculated using the straight-line method based
upon the assets estimated useful lives, which are generally three to seven years.
Leasehold improvements are amortized over the shorter of the life of the asset or the
remaining term of the lease. 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 $792,000 and $331,000 in research and development costs during the years
ended March 31, 2009 and 2008, respectively.

All
costs incurred subsequent to the completion of research and development activities
associated with the products software components achievement of technological
feasibility are capitalized until the product is available for general release to
customers. The Company capitalized approximately $140,000 and $595,000 of product
development costs during the years ended March 31, 2009 and 2008, respectively.

All
product development costs are generally amortized on a straight-line basis over a three
(3) year period, the estimated useful life of the related asset. Amortization expense
related to product development costs was approximately $324,000 and $570,000 for the years
ended March 31, 2009 and 2008, respectively.

Other Assets 
Patents

Other
assets, primarily patents, are carried at cost less accumulated amortization. The cost of
patents represents amounts paid to third parties, including legal costs associated with
successfully defending or obtaining the patents. Amortization is being calculated on a
straight-line basis over a three-year to seventeen-year period, the estimated useful life
of the related asset.

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Goodwill and Other
Intangible Assets

The
Company follows Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets, and accordingly does not amortize goodwill,
but will annually review it for impairment. No impairment of goodwill was identified
during the years ended March 31, 2009 and 2008. Other intangible assets acquired in
acquisitions are amortized on a straight-line basis over a period ranging from seven to
fifteen years, the estimated useful lives of the assets.

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 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
undiscounted future cash flows is less than the carrying amount of the assets, an
impairment loss may be recognized based on a discounted cash flow analysis. There were no
impairment losses during the years ended March 31, 2009 and 2008.

Earnings Per Share

Basic
earnings per share is calculated by dividing net income available to common shareholders
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.

Income Taxes

Income
taxes are provided for under the asset and liability method in accordance with SFAS No.
109, Accounting for Income Taxes (SFAS No. 109), 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 basis. 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. Management considers anticipated
future taxable income, the reversal of taxable temporary differences, and tax planning
strategies in making the determination. Deferred tax assets and liabilities are adjusted
for the effects of changes in tax laws and rates on the date of enactment.

The
Company applies the provisions of Financial Accounting Standards Board (FASB)
Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income
Taxesan Interpretation of FASB Statement No.109. FIN 48 provides guidance
regarding the recognition, measurement, presentation and disclosure in the financial
statements of tax positions taken or expected to be taken on tax returns, including the
decision whether to file or not to file in a particular jurisdiction. FSP FIN 48-1,
Definition of Settlement in FASB Interpretation No. 48,provides further guidance
on how a company should determine whether a tax position is effectively settled for the
purpose of recognizing previously unrecognized tax benefits.

Treasury Stock

The
Company records its treasury stock at cost.

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Share-Based Compensation

The
Company awards share-based compensation as an incentive for employees to contribute to the
Companys long-term success. Historically, the Company has issued options and
restricted stock. Share-based compensation is recognized based on the fair value of the
awards in accordance with SFAS No. 123 (revised 2004) Share Based Payment
SFAS No. 123R. Compensation expense is recognized over the requisite service
period on a straight-line basis.

The
following disclosures provide information regarding the Companys share-based
compensation awards, all of which are classified as equity awards in accordance with SFAS
No. 123R:

| | Restricted Stock Awards The Company grants restricted stock to certain executive employees
in exchange for services performed, which is based on the terms of their respective
employment agreements. The restricted shares issued are valued based on the value of the
Companys common stock on the date of grant. During the years ended March 31, 2009
and 2008, the Company issued 5,000 shares of restricted common stock to its Chief
Operating Officer as additional compensation under his employment agreement. The Company
recorded share-based compensation expense in the amount of approximately $57,000 ($35,000
net of tax) and $56,000 ($34,000 net of tax) during the years ended March 31, 2009 and
2008, respectively. In addition, during the year ended March 31, 2008, the Company issued
1,000 shares of restricted stock to each of the five Board of Directors as additional
compensation for their services and recorded share-based compensation expense of the
$69,000 ($42,000 net of tax).
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Stock Options  The Company grants stock options to employees that allow them to
purchase shares of the Companys common stock. Options are also granted to outside
members of the Board of Directors of the Company. The Company determines the fair value of
stock options at the date of grant using the Black-Scholes valuation model. Options
generally vest over a three-year period. Awards generally expire ten years after the date
of grant. The Company issues new shares upon the exercise of stock options and warrants.
The Company granted 221,246 options to employees and members of the Board of Directors
during the year ended March 31, 2009. The options had a fair value of approximately
$458,000.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As of March 31, 2009 the Company has unrecognized compensation cost of approximately $444,000
expected to be recognized over the next three years for share-based awards granted.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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.

The
Company adopted SFAS No. 157, Fair Value, effective April 1, 2008 for financial
assets and liabilities measured on a recurring basis. SFAS No. 157 applies to all
financial assets and financial liabilities that are being measured and reported on a fair
value basis. There was no impact for the adoption of SFAS No. 157 to the consolidated
financial statements. SFAS No. 157 establishes a framework for measuring fair value
and expands disclosure about fair value measurements. The statement requires fair value
measurements to be classified and disclosed in one of the following three categories:

| | Level 1: | Unadjusted quoted prices in active markets that are accessible at the measurement date
for identical, unrestricted assets or liabilities;
| | -------- | -----------------------------------------------------------------------------------------------------------------------------------------

| | Level 2: | Quoted prices in markets that are not active, or inputs which are observable, either
directly or indirectly, for substantially the full term of the asset or liability; or
| | -------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Level 3: | Prices or valuation techniques that require inputs that are both significant to the
fair value measurement and unobservable (i.e., supported by little or no market activity).
| | -------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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The
following table summarizes the valuation of the Companys financial instruments by
the above SFAS No. 157 categories as of March 31, 2009:

|                    |  |                |  | Quoted Market Prices |  | Significant Other |  | Significant
|------------------- |  | -------------- |  | -------------------- |  | ----------------- |  | -----------
|
|
|
|                    |  | (In Thousands)
|
|Interest Rate Swaps |  | $   (236)      |  |                     |  | $   (236)         |  |           

Interest
rate swaps are included in other liabilities. The Company utilizes interest rate swaps to
hedge fluctuations in variable interest rates associated with its long-term debt. These
derivatives are not exchange-traded and are over-the-counter customized derivative
transactions with highly rated bank counterparties. The Company estimates the fair value
of its derivatives using quotes determined by the swap counterparties.

Foreign Currency
Transactions and Translation

For
the Companys foreign subsidiaries that use a currency other than the U.S. Dollar as
their functional currency, assets and liabilities are translated at exchange rates in
effect at the balance sheet date, and revenue and expenses are translated at the average
exchange rate for the period. The effects of these translation adjustments are reported in
other comprehensive income. Gains and losses arising from transactions denominated in a
currency other than the functional currency of the entity involved are included in
operating income.

During
the year ended March 31, 2009, the Company recorded foreign currency losses of
approximately $343,000. The losses are reported in Selling, General and Administrative on
the consolidated statements of income. Foreign currency gains during the year ended March
31, 2008 were not material to the consolidated financial statements.

Recent Accounting
Pronouncements

In
May 2009, the FSAB issued SFAS No. 165, Subsequent Events (SFAS No.
165). SFAS No. 165 is intended to establish general standards of accounting for and
disclosure of events that occur after the balance sheet date, but before financial
statements are issued or are available to be issued. It requires the disclosure of the
date through which an entity has evaluated subsequent events and the basis for that
datethat is, whether that date represents the date the financial statements were
issued or were available to be issued. This disclosure should alert all users of financial
statements that an entity has not evaluated subsequent events after that date in the set
of financial statements being presented. SFAS No. 165 is effective for financial
statements issued for fiscal years and interim periods ending after June 15, 2009. The
Company is evaluating the impact that the adoption of SFAS No. 165 will have on its
consolidated financial statements.

In
March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of SFAS No. 133 (SFAS No.
161). SFAS No. 161 is intended to improve financial standards for derivative instruments
and hedging activities by requiring enhanced disclosures to enable investors to better
understand the effect these instruments and activities have on an entitys financial
position, financial performance and cash flows. Entities are required to provide enhanced
disclosures about: how and why an entity uses derivative instruments; how derivative
instruments and related hedged items are accounted for under SFAS No. 133 and its
related interpretations; and how derivative instruments and related hedged items affect an
entitys financial position, financial performance and cash flows. SFAS No. 161
is effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008. The Company is evaluating the impact that the
adoption of SFAS No. 161 will have on the consolidated financial statements.

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In
December 2007, the FASB issued SFAS No. 141(revised 2007), Business
Combinations (SFAS No. 141R). SFAS No. 141R significantly changes the
accounting for business combinations in a number of areas including the treatment of
contingent consideration, preacquisition contingencies, transaction costs, in-process
research and development and restructuring costs. In addition, under SFAS No. 141R,
changes in an acquired entitys deferred tax assets and uncertain tax positions after
the measurement period will impact income tax expense. SFAS No. 141R is effective for
fiscal years beginning after December 15, 2008. The Company will adopt SFAS
No. 141R beginning in the first quarter of fiscal year 2010, which will change the
accounting treatment for business combinations on a prospective basis.

In
February 2008, the FASB issued FASB Staff Position No. 157-1 (FSP
157-1) and FASB Staff Position No. 157-2 (FSP 157-2), which,
respectively, removed leasing transactions from the scope of SFAS No. 157 and
deferred for one year the effective date for SFAS No. 157 as it applies to certain
nonfinancial assets and liabilities. The deferral provided by FSP 157-2 applies to
such items as nonfinancial assets and liabilities initially measured at fair value in a
business combination (but not measured at fair value in subsequent periods) and
nonfinancial long-lived asset groups measured at fair value for an impairment
assessment.  The Company is evaluating the impact FSP 157-2 will have on its
nonfinancial assets and liabilities.

# NOTE 3  RESTRICTED
CASH

In
May 2007, the Company entered into an agreement to provide sixteen OnDemand® Express
II and eight AccuFlex machines to its largest customer over an 18 month
period.  The agreement provides that the customer will make certain deposits that
will ultimately be applied towards the purchase price of the machines.  The agreement
further provides that the deposits will be held in a separate bank account and used
exclusively for costs associated with the manufacture of the machines.  The Company
has used these cash deposits to pay an outsourced manufacturer, and to pay costs and
expenses related to the manufacture and installation of the machines. The Company holds
the remaining cash in a separate bank account to be used to fund future costs
associated with the manufacture of the machines.  The unused balance was
approximately $79,000 and $158,000 as of March 31, 2009 and 2008, respectively.

# NOTE 4  ACCOUNTS
RECEIVABLE

Accounts
receivable are shown net of an allowance for doubtful accounts of $165,000 and $145,000 at
March 31, 2009 and 2008, respectively. The changes in the allowance for doubtful accounts
are summarized as follows:

|                                                | March 31, 2009 |  | March 31, 2008
|----------------------------------------------- | -------------- |  | --------------
|
|                                                | (In Thousands)
|Beginning Balance                               |                |  | $             
|Provision for Doubtful Accounts and Charge-Offs |                |  |               
|
|Ending Balance                                  |                |  | $             
|

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

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,  2009
and 2008,  three  customers  comprised approximately 45% and 18%, respectively,  of the
total outstanding accounts receivable,  and one of those customers represented 25% and
10%, respectively of the total outstanding accounts receivable.

39

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# NOTE 5  INVENTORIES

Inventories
consist of the following:

|                                     | March 31, 2009 |  | March 31, 2008
|------------------------------------ | -------------- |  | --------------
|
|                                     | (In Thousands)
|Raw Material                         |                |  | $             
|Work in Process                      |                |  |               
|Finished Goods                       |                |  |               
|Less:  Inventory Valuation Allowance |                |  |               
|
|                                     |                |  | $             
|

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

|                           | March 31, 2009 |  | March 31, 2008
|-------------------------- | -------------- |  | --------------
|
|                           | (In Thousands)
|Beginning Balance          |                |  | $             
|Provision for Obsolescence |                |  |               
|Charge-Offs                |                |  |               
|
|Ending Balance             |                |  | $             
|

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

# NOTE 6  PROPERTY
AND EQUIPMENT

Property
and equipment consists of the following:

|                                                         | March 31, 2009 |  | March 31, 2008
|-------------------------------------------------------- | -------------- |  | --------------
|
|                                                         | (In Thousands)
|Machinery and Equipment                                  |                |  | $             
|Software and Computer Equipment                          |                |  |               
|Furniture and Fixtures                                   |                |  | $             
|Leasehold Improvements                                   |                |  |               
|
|                                                         |                |  |               
|Less:  Accumulated Depreciation
        and Amortization |                |  |               
|
|                                                         |                |  | $             
|

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

Depreciation
of property and equipment and amortization of leasehold improvements was approximately
$2.4 million and $2.8 million for fiscal years ending March 31, 2009 and 2008,
respectively, which is included in depreciation and amortization on the consolidated
statements of income.

40

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# NOTE 7  GOODWILL

The
changes in the carrying value of goodwill during the years ending March 31, 2009 and 2008
were as follows:

|                             | March 31, 2009 |  | March 31, 2008
|---------------------------- | -------------- |  | --------------
|
|                             | (In Thousands)
|Beginning Balance            |                |  | $             
|Contingent Consideration     |                |  |               
|Foreign Currency Translation |                |  |               
|
|Ending Balance               |                |  | $             
|

During the year ended March 31, 2009, the Company paid approximately $66,000 in additional consideration
for the acquisition of MTS GmbH and accrued approximately $290,000 in additional consideration, which
was paid subsequent to March 31, 2009. During the fiscal year ended March 31, 2008, the Company paid
approximately $300,000 in additional consideration for the acquisition of BAF and approximately $75,000
of additional consideration for the acquisition of MTS GmbH.

# NOTE 8  FINANCIAL
DERIVATIVES

In
April 2008, the Company entered into interest rate swap agreements for notional amounts of
$8 million. These swap agreements were entered into in order to fix variable interest
rates on the revolving long-term debt at an average rate of 4.6%. The swaps mature on
various dates through March 2011. The swap agreements were designated as cash flow hedges
upon meeting the criteria for effectiveness and are recorded at fair value in the
consolidated balance sheets. The Company calculates the effectiveness of the hedge on a
quarterly basis. There was no ineffectiveness during the year ended March 31, 2009. The
related gains or losses are recorded in stockholders equity as a component of other
comprehensive (loss) income.

# NOTE 9  OTHER
ASSETS AND OTHER INTANGIBLE ASSETS

Other
assets consist of the following:

|                                           | Amortization Period |        | March 31, |   | March 31,
|------------------------------------------ | ------------------- | ------ | --------- | - | ---------
|
|
|                                           | (In Thousands)     
|
|Product Development                        |                     | 3      |           | $ | 4,366    
|Less:  Accumulated
         Amortization   |                     |        |           |   | (3,098   
|
|                                           |                     |        |           | $ | 1,268    
|
|
|Patents                                    |                     | 5  17 |           | $ | 1,747    
|Less:  
        Accumulated Amortization   |                     |        |           |   | (1,263   
|
|                                           |                     |        |           | $ | 484      
|
|
|Financing Costs                            |                     | 3  5  |           | $ | 102      
|Less:  
          Accumulated Amortization |                     |        |           |   | (67      
|
|                                           |                     |        |           | $ | 35       
|
|
|Other                                      |                     |        |           | $ | 44       
|
|Total Other Assets, Net                    |                     |        |           | $ | 1,831    
|

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

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

|                 |  | (In Thousands)
|---------------- |  | --------------
|                 |  |               
|Fiscal Year 2010 |  | $             
|Fiscal Year 2011 |  | $             
|Fiscal Year 2012 |  | $             
|Fiscal Year 2013 |  | $             
|Fiscal Year 2014 |  | $             
|Thereafter       |  | $             

Patent
amortization expense was approximately $133,000 and $261,000 for the years ended March 31,
2009 and 2008, respectively.

Other
intangible assets consist of the following:

|                                         | Amortization Period |       | March 31, |   | March 31,
|---------------------------------------- | ------------------- | ----- | --------- | - | ---------
|
|
|                                         | (In Thousands)     
|
|Customer Relationship                    |                     | 15    |           | $ | 618      
|Less:  Accumulated
         Amortization |                     |       |           |   | (110     
|
|                                         |                     |       |           | $ | 508      
|
|
|Non-Compete                              |                     | 2  7 |           | $ | 90       
|Less:  
        Accumulated Amortization |                     |       |           |   | (67      
|
|                                         |                     |       |           | $ | 23       
|
|
|Total Other Intangible Assets, Net       |                     |       |           | $ | 531      
|

The
following is a schedule by year for the amortization of other intangible assets:

|                 |  | (In Thousands)
|---------------- |  | --------------
|                 |  |               
|Fiscal Year 2010 |  | $             
|Fiscal Year 2011 |  | $             
|Fiscal Year 2012 |  | $             
|Fiscal Year 2013 |  | $             
|Fiscal Year 2014 |  | $             
|Thereafter       |  | $             

Amortization
expense for other intangible assets was approximately $78,000 and $95,000 and for the
years ended March 31, 2009 and 2008, respectively.

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# NOTE 10  ACCOUNTS
PAYABLE AND ACCRUED LIABILITIES

Accounts
payable and accrued liabilities consist of the following:

|                                            | March 31, 2009 |  | March 31, 2008
|------------------------------------------- | -------------- |  | --------------
|
|                                            | (In Thousands)
|
|Accounts Payable                            |                |  | $             
|Accrued Liabilities:                        |                | 
|Salaries, Commissions and Employee Benefits |                |  |               
|Income, Franchise and Sales Taxes           |                |  |               
|Other                                       |                |  |               
|                                            |                |  |               
|                                            |                |  | $             
|                                            |                |  |               

Accounts payable
includes outstanding checks of approximately $150,000 and $378,000 as of March 31, 2009
and 2008, respectively.

# NOTE 11  LONG-TERM
DEBT AND RELATED PARTY NOTE PAYABLE

Long-term
debt consists of the following:

|                                                                                                                                                                                                           | March 31, 2009 |  | March 31, 2008
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- |  | --------------
|
|                                                                                                                                                                                                           | (In Thousands)
|
|Reducing revolving line of credit due in November 2010 with interest payable monthly at LIBOR plus 1.75%
(2.28% at March 31, 2009) for approximately $1.2 million and 4.6% for approximately $8.0 million. |                |  | $             
|
|Note payable to related party with interest at 6.25% repaid in July 2008.                                                                                                                                  |                |  |               
|
|Capital leases expiring at various times through fiscal year 2010 at
          interest rates ranging from 6.29% to 9.5%.                                                                                  |                |  |               
|
|Total Long-Term Debt                                                                                                                                                                                       |                |  |               
|
|Less Current Portion (including $0 and $106,000, respectively due to a related party).                                                                                                                     |                |  |               
|
|Long-Term Debt Due After One Year                                                                                                                                                                          |                |  | $             
|

The
Company has a reducing revolving credit facility (the Credit Facility) with a
maximum borrowing limit of up to $12.3 million at March 31, 2009. Availability under the
Credit Facility is permanently reduced by $335,000 each January 31, April 30, July 31 and
October 31 through maturity in 2010.

The
Credit Facility contains provisions that require the Company to maintain certain financial
ratios such as, Debt Service Coverage, Funded Debt to EBITDA and
Total Liabilities to Tangible Net Worth. The Company was in compliance with
all covenants as of March 31, 2009.

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The
Credit Facility is collateralized by a first security interest in all of the assets of the
Company and a pledge of 100% of the shares of its domestic wholly-owned subsidiaries, and
65% of its foreign wholly-owned subsidiaries. There was approximately $8.2 million
borrowed and an additional $4.1 million available under the Credit Facility at March 31,
2009.

The
following is a schedule by year of the regularly scheduled principal payments required on
the notes payable and long-term debts as of March 31, 2009:

|                 |  | (In Thousands)
|---------------- |  | --------------
|                 |  |               
|Fiscal Year 2010 |  | $             
|Fiscal Year 2011 |  | $             
|Thereafter       |  | $             

Interest
expense for the years ended March 31, 2009 and 2008 amounted to approximately $479,000 and
$637,000, respectively, of which $1,000 and $19,000, respectively, represent related party
interest.

# NOTE 12  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, 2009.

|                 |  | (In Thousands)
|---------------- |  | --------------
|                 |  |               
|Fiscal Year 2010 |  | $             
|Fiscal Year 2011 |  | $             
|Fiscal Year 2012 |  | $             
|Fiscal Year 2013 |  | $             
|Fiscal Year 2014 |  | $             
|Thereafter       |  | $             

The
Company has applied the provisions of SFAS No. 13, Accounting for Leases to account
for the lease payments. Accordingly, the total lease payments that will be made over the
term of the lease are being recorded as an expense on a pro-rata basis, adjusted for the
consumer price index, over the term of the lease as opposed to recording the amount of
lease payments actually made. As a result, the difference between the actual lease
payments made and the amount of expense recorded is carried as a liability on the
Companys balance sheet. The amount of this liability was $435,000 and $388,000 at
March 31, 2009 and 2008, respectively. Rent expense amounted to approximately $1,570,000
and $1,479,000 for the years ended March 31, 2009 and 2008, respectively.

The
Company received $400,000 from its landlord when its headquarters lease was executed. This
payment was provided as an incentive to enter into the lease. The amount is recorded as a
long-term liability on the balance sheet and is being amortized as a reduction of rent
expense over the term of the lease. The unamortized balance was $250,000 and $283,000 as
of March 31, 2009 and 2008, respectively. The amortization of the lease incentive was
$33,000 in both years.

# NOTE 13  401(K)
PROFIT SHARING PLAN

The
Company has a 401(K) Profit Sharing Plan (the 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, 2009
and 2008, the Company made matching contributions of approximately $55,000 and $64,000,
respectively, to the Plan.

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# NOTE 14  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, 2009, the Company was reinsured for
claims that exceed $100,000 per participant and an annual maximum aggregate limit of
approximately $1,345,000. 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 approximately $70,000 and $75,000 at March 31, 2009 and 2008, respectively, for
all unpaid claims incurred and reported during fiscal year 2009 and an estimate of claims
incurred during fiscal year 2009 that have not been reported as of March 31, 2009. Self
insured medical claims costs incurred during the years ended March 31, 2009 and 2008
totaled approximately $1,183,000 and $1,140,000, respectively. During the year ended March
31, 2009, the Company incurred claims that exceeded the $100,000 limit per participant,
and as a result received $196,000 in reimbursements from the insurance carrier and expects
to receive an additional $3,000 during fiscal 2010, which is recorded in accounts
receivable in the accompanying consolidated balance sheets.

# NOTE 15  TAXES

The
components of income tax expense are as follows:

|               | 2009           |  | 2008
|-------------- | -------------- |  | ----
|
|               | (In Thousands)
|               |               
|Federal        |                |  |     
|Current        |                |  | $   
|Deferred       |                |  |     
|               |               
|State          |                | 
|Current        |                |  |     
|Deferred       |                |  |     
|               |               
|Foreign        |                | 
|Current        |                |  |     
|Deferred       |                |  |     
|
|Total Current  |                |  |     
|Total Deferred |                |  |     
|
|Total Taxes    |                |  | $   
|

The differences
between the effective tax rates and the U.S. statutory rate are as follows:

|                                            | Years Ended March 31,
|------------------------------------------- | ---------------------
|
|
|
|
|Tax Expense at United States Statutory Rate |                      
|State Income Tax, Net                       |                      
|Benefit from Reduction of Tax Uncertainties |                      
|Deferred Tax Asset for State of Florida NOL |                      
|Foreign Earnings Taxed at Lower Rates       |                      
|IRS Section 199 Deduction                   |                      
|Shared-Based Compensation                   |                      
|Other Items                                 |                      
|
|Effective Tax Rate                          |                      
|

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Earnings
from operations before income tax expense by jurisdiction was a follows:

|                          | Years Ended March 31,
|------------------------- | ---------------------
|
|
|
|                          | (In Thousands)       
|
|United States             |                      
|Outside the United States |                      
|
|                          |                      
|

We
have not provided deferred taxes on undistributed earnings attributable to foreign
operations that have been considered to be reinvested indefinitely. These earnings relate
to ongoing operations and were $2.1 million at March 31, 2009. It is not practical to
determine the income tax liability that would be payable if such earnings were not
indefinitely reinvested.

Deferred
taxes consist of the following:

|                                       | March 31, 2009 |  | March 31, 2008
|-------------------------------------- | -------------- |  | --------------
|
|                                       | (In Thousands)
|Current:                               |                |  |               
|Deferred Tax Assets:                   |                | 
|Reserves and Provisions                |                |  |               
|Tax Loss Carryforward                  |                |  | $             
|Inventory Valuation Allowance          |                |  |               
|Allowance for Doubtful Accounts        |                |  |               
|
|Current Deferred Tax Assets            |                |  |               
|
|Noncurrent:                            |                | 
|Deferred Tax Assets:                   |                |  |               
|Reserves and Provisions                |                |  |               
|Fair Value of Interest Rate Swap       |                |  |               
|Tax Loss Carryforward                  |                |  | $             
|
|Noncurrent Deferred Tax Asset          |                |  |               
|
|Deferred Tax Liability:                |                | 
|Depreciation/Amortization              |                |  |               
|
|Noncurrent Deferred Tax Liability      |                |  |               
|
|Noncurrent Deferred Tax Liability, Net |                |  |               
|
|Net Deferred Tax (Liability) Asset     |                |  | $             
|

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The
Company adopted the provisions of FIN 48 as of April 1, 2007, which resulted in a
reduction of our retained earnings by $700,000. FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in the financial statements in accordance with SFAS
No. 109. This standard also provides that a tax benefit from an uncertain tax
position may be recognized when it is more likely than not that the position will be
sustained upon examination, including resolutions of any related appeals or litigation
processes, based on the technical merits. Management considers anticipated future taxable
income, the reversal of taxable temporary differences, and tax planning strategies in
making the determination. The amount recognized is measured as the largest amount of tax
benefit that is greater than 50 percent likely of being realized upon effective
settlements. This interpretation also provides guidance on measurement, de-recognition,
classification, interest and penalties, accounting in interim periods, disclosure and
transition. Unrecognized tax benefits, defined as the aggregate tax effect of differences
between tax return positions and the benefits recognized in our financial statements and
interest and penalties, amounted to approximately $324,000 and $584,000 at March 31, 2009
and 2008, respectively.

The
following table summarizes the activity related to only our unrecognized tax benefits.

|                                                                            | March 31, 2009 |  | March 31, 2008
|--------------------------------------------------------------------------- | -------------- |  | --------------
|
|                                                                            | (In Thousands)
|                                                                            |               
|Beginning Balance                                                           |                |  | $             
|Net (reductions) additions based on tax positions related to the prior year |                |  |               
|Net additions  based on tax positions related to current year               |                |  |               
|Reductions based on lapse of applicable statue of limitations               |                |  |               
|Reductions based on settlements made                                        |                |  |               
|
|Ending Balance                                                              |                |  | $             
|

At
March 31, 2009, the Company accrued interest and penalties on unrecognized tax
benefits of $139,000, and the Company recognized $39,000 of interest and penalties
before any tax benefits, in its consolidated statements of operations during 2009. The
total of $324,000 in unrecognized tax benefits at March 31, 2009 would reduce income
tax expense and the effective tax rate if recognized. The Company continues to report
interest and penalties on tax deficiencies as income tax expense. We do not expect any
material amounts to reverse during the next twelve months.

The
Company filed a consolidated U.S. federal income tax return, as well as income tax returns
in various states and foreign jurisdictions. The Companys U.S. Federal Income Tax
Return for the fiscal year ended March 31, 2008 is currently being audited by the Internal
Revenue Service. With few exceptions, the Company is no longer subject to U.S. federal,
state and local, or non-U.S., income tax examination by tax authorities for years before
fiscal 2006.

The
Company has a net operating loss carry forward with the State of Florida of approximately
$1.6 million, which will expire in fiscal year 2017. The company has recorded the tax
benefit of this NOL because it believes that the benefit will be realized in
future years based on its expectations regarding future profitability.

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# NOTE 16 
STOCKHOLDERS EQUITY

Stockholders
Equity consists of the following:

|                           | March 31, 2009 |        | March 31, 2008
|-------------------------- | -------------- | ------ | --------------
|
|
|Par Value $.001 Per Share: |                |        |               
|Authorized Shares          |                | 10,000 |               
|Issued Shares              |                |       |               
|Outstanding Shares         |                |       |               

|                          | March 31, 2009 |            | March 31, 2008
|------------------------- | -------------- | ---------- | --------------
|
|
|Par Value $.01 Per Share: |                |            |               
|Authorized Shares         |                | 25,000,000 |               
|Issued Shares             |                | 6,454,065  |               
|Outstanding Shares        |                | 6,454,005  |               

# Stock Options

The
current MTS Medication Technologies, Inc. Stock Incentive Plan (the Stock
Plan) provides for the granting to employees of restricted stock and incentive stock
options within the meaning of Section 422 of the Internal Revenue Code. A total of 600,000
shares of common stock are reserved for issuance under the Stock Plan. As of March 31,
2009, options to purchase 835,496 shares were outstanding under the Stock Plan and the
Companys previous stock incentive plan, and there were 312,754 options available for
issuance under the Stock Plan.

Incentive
stock options generally contain terms that provide for straight-line vesting over a
three-year period and expire at the time the recipient ceases to be employed by the
Company or ten years, whichever occurs first.

In
connection with the exercise of options under the Companys Stock Plan, during the
fiscal years ended March 31, 2009 and 2008, tax benefits to the Company of $50,000 and
$284,000, respectively, were recorded as additional paid in capital.

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Activity
related to options is as follows:

|                              |  |          |   |  | Weighted Average
|----------------------------- |  | -------- | - |  | ----------------
|
|
|
|
|                              |  |          |   |  |                 
|Outstanding at March 31, 2007 |  | 763,250  |   |  | $               
|Granted in Fiscal 2008:       |  |         
|Officers and Directors        |  | 20,000   |   |  |                 
|Employees                     |  | 49,000   |   |  | $               
|Options Exercised             |  | (190,400 | ) |  | $               
|Options Expired               |  | (16,600  | ) |  | $               
|
|Outstanding at March 31, 2008 |  | 625,250  |   |  | $               
|
|Granted in Fiscal 2009:       |  |         
|Officers and Directors        |  | 117,674  |   |  |                 
|Employees                     |  | 103,572  |   |  | $               
|Options Exercised             |  |         |   |  |                 
|Options Expired               |  | (11,000  | ) |  | $               
|
|Outstanding at March 31, 2009 |  | 835,496  |   |  | $               
|

# Outstanding Options

|                |  |         |  | Weighted Average |  |      
|--------------- |  | ------- |  | ---------------- |  | -----
|
|
|
|$1.45 -   $2.30 |  | 233,000 |  | 1.9              |  | $1.54
|$2.50 -   $4.47 |  | 79,500  |  | 4.7              |  | $3.82
|$5.60 - $13.70  |  | 522,996 |  | 7.8              |  | $7.10
|                |  |         |  |                  |  |      
|                |  | 835,496 |  |                  |  |      
|                |  |         |  |                  |  |      

# Exercisable Options

|                |  |         |  | Weighted Average |  |      
|--------------- |  | ------- |  | ---------------- |  | -----
|
|
|
|$1.45 -   $2.30 |  | 233,000 |  | 1.9              |  | $1.54
|$2.50 -   $4.47 |  | 69,500  |  | 4.0              |  | $3.79
|$5.60 - $13.70  |  | 271,093 |  | 6.5              |  | $7.00
|                |  |         |  |                  |  |      
|                |  | 573,593 |  |                  |  |      
|                |  |         |  |                  |  |      

The
options outstanding at March 31, 2009 expire on various dates commencing in March 2010 and
ending in November 2018.

At
March 31, 2009, exercisable options had no intrinsic value. At March 31, 2009, exercisable
warrants had aggregate intrinsic values of less than $1,000.

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During
the year ended March 31 2009, 5,000 warrants were exercised. The Company received
approximately $9,000 in cash from the exercise of these warrants.

The
Company has 300 warrants outstanding at an exercise price of $1.88 per share as of March
31, 2009, which expire in 2009. There were 600 warrants that expired during the year ended
March 31, 2009. These warrants were issued in 1998 and no new warrants have been issued
since that time.

There
were no options exercised during the year ended March 31, 2009. The weighted average grant
date fair values for options issued during the years ended March 31, 2009 and 2008 were
$2.07 and $4.07, respectively. The fair values were estimated on the date of the grant
using the Black-Scholes valuation model with the following weighted-average assumptions:

|                                    | Year Ended March 31,
|----------------------------------- | --------------------
|
|
|
|
|Expected Dividend Yield (1)         |                     
|Expected Stock Price Volatility (2) |                     
|Risk-Free Interest Rate (3)         |                     
|Expected Life in Years (4)          |                     

---

|(1) |  | The dividend yield assumption is based on the history and expectation of the
               Companys dividend payouts. The Company has not paid dividends on common
               stock in the past and is prohibited from paying dividends without the consent of
               its secured lender.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | The determination of expected stock price volatility for options granted was
               based on historical MTS common stock prices over a period commensurate with the
               expected life of the option.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | The risk-free interest rate is based on the yield of a U.S. treasury bond with a
               similar maturity as the expected life of the options.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | The expected life in years for options granted was based on the historical
               exercise patterns experienced by the Company.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------

# NOTE 17  EARNINGS
PER SHARE

Basic
income per common share 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.

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

|                                              | Year Ended March 31,                             
|--------------------------------------------- | -------------------------------------------------
|
|
|
|                                              | (In Thousands, Except Earnings Per Share Amounts)
|Numerator:                                    |                                                  
|
|Net Income                                    |                                                  
|
|Denominator:                                  |                                                  
|
|Add:                                          |                                                  
|
|Weighted Average Shares Outstanding - Basic   |                                                  
|
|Effect of Dilutive Options and Warrants       |                                                  
|
|Weighted Average Shares Outstanding - Diluted |                                                  
|
|Net Income Per Basic Common Share             |                                                  
|
|Net Income Per Diluted Common Share           |                                                  
|

The
effect of 137,000 and 69,000 options were not included in the calculation of net income
per diluted common share for fiscal years 2009 and 2008, respectively, as the effect would
have been anti-dilutive.

# NOTE 18 
COMMITMENTS AND CONTINGENCIES

The
Company has entered into certain agreements for the purchase of capital equipment,
materials used to manufacture its products for resale and research and development
expenditures.

Capital
equipment to be placed in service during the fiscal year ending March 31, 2010 is expected
to be approximately $2,500,000.

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

The
Company has entered into certain agreements, which require the Company to potentially make
certain payments to members of management in the event of a change in control of
the Company or upon termination of employment. Also, the Company has entered into
indemnification agreements with its directors and officers for certain events or
occurrences that happen by reason of the fact that the officer or director is, was or has
agreed to serve as an officer or director of the Company. The maximum potential amount of
future payments the Company could be required to make under these indemnification
agreements is unlimited; however, the Company has a director and officer liability
insurance policy that is considered adequate to cover its exposure.

51

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# NOTE 19  SEGMENT
INFORMATION

The Company evaluates its business under three segments: (a) Consumables; (b) Packaging
Automation; and (c) Medication Administration Systems. The Company has operations in the U.S., UK and
Germany. Management also evaluates the Companys business performance on a geographic basis based upon
the country in which the sales originate. In computing operating profit for foreign subsidiaries,
allocations of general corporate expenses have been made.

Identifiable
assets of the foreign subsidiaries are those assets related to the operations of those
companies. United States assets consist of all other operating assets of the Company.
Segment information is as follows:

|                                                   | Years Ended March 31,             
|-------------------------------------------------- | ----------------------------------
|
|
|
|                                                   | (In Thousands, Except Percentages)
|
|Net Sales                                          |                                   
|Consumables                                        |                                   
|Packaging Automation                               |                                   
|Medication Administration Systems                  |                                   
|
|Net Sales                                          |                                   
|
|Operating Profit (Loss) and Operating Margins      |                                   
|Consumables                                        |                                   
|                                                   |                                   
|Packaging Automation                               |                                   
|                                                   |                                   
|Medication Administration Systems                  |                                   
|                                                   |                                   
|Corporate Expenses Not Allocated to Other Segments |                                   
|
|Operating Profit                                   |                                   
|Operating Margin                                   |                                   
|
|Deductions from Operating Income                   |                                   
|Interest Expense                                   |                                   
|
|Income Before Taxes                                |                                   
|

Total
assets classified by segment was as follows:

|                                  | March 31, 2009 |  | March 31, 2008
|--------------------------------- | -------------- |  | --------------
|
|                                  | (In Thousands)
|Consumables                       |                |  | $             
|Packaging Automation              |                |  |               
|Medication Administration Systems |                |  |               
|Corporate and Unallocated         |                |  |               
|
|Total Assets                      |                |  | $             
|

52

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Geographic Information

Net
sales and operating profit and margins classified by the major geographic areas in which
the Company operates was as follows:

|                                       | Years Ended March 31,             
|-------------------------------------- | ----------------------------------
|
|
|
|                                       | (In Thousands, Except Percentages)
|Net Sales                              |                                   
|U.S.                                   |                                   
|Non-U.S.                               |                                   
|
|Total Net Sales                        |                                   
|
|Operating Profit and Operating Margins |                                   
|U.S.                                   |                                   
|Non-U.S.                               |                                   
|
|Total Operating Profit                 |                                   
|
|Total Operating Margin                 |                                   
|

Total
assets classified by major geographic areas in which the Company operates was as follows:

|             | March 31, 2009 |  | March 31, 2008
|------------ | -------------- |  | --------------
|
|             | (In Thousands)
|             |                |  |               
|U.S.         |                |  | $             
|Non-U.S.     |                |  |               
|
|Total Assets |                |  | $             
|

Operating
income is total sales and other operating income less operating expenses. Segment
operating income does not include interest expense.

# NOTE 20  THIRD AND
FOURTH QUARTER ADJUSTMENTS

Inventory Adjustments

The
Company performed a partial physical inventory of items related to the Packaging
Automation and Medication Administration Systems segments at the end of the third quarter.
In addition, the Company performed a complete physical inventory of all inventory items at
the end of the fourth quarter. The Company determined that the quantities on hand,
according to its inventory records, did not agree with the quantities counted. The losses
were recorded in the periods in which they were identified. Approximately $260,000 was
recorded during the third quarter ended December 31, 2008, and $444,000 was recorded
during the fourth quarter ended March 31, 2009.

The
Company concluded that the physical inventory adjustments should be recorded in the
respective quarters in which they were determined due to the fact that it is not possible
to determine if these adjustments should have been made in prior periods.

53

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Manufacturers Rebate

The
Company entered into an agreement with a third-party manufacturer related to manufacturing
of OnDemand machines. The agreement provided that in the event the gross profit margin
earned by the manufacturer exceeded certain amounts, the manufacturer would provide the
Company with a rebate. During the second quarter, the manufacturer advised the Company
that it believed a rebate may have been earned and estimated the amount of the rebate
earned, at that point, to be approximately $100,000. The entire amount of the rebate
earned by the Company ultimately was determined to be $150,000. The Company recorded
$120,000 of the rebate in the third quarter and $30,000 of the rebate in the fourth
quarter.

# NOTE 21 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

|                                                  | 2009           |   | 2008
|------------------------------------------------- | -------------- | - | ----
|
|                                                  | (In Thousands)
|Supplemental Disclosure of Cash Flow Information:
|                                                 
|Cash Paid for Interest                            |                | $ | 494 
|Cash Paid for Taxes                               |                | $ | 428 
|

Non-Cash Activities

During
the fiscal year ended March 31, 2009 and 2008, the Company reclassified the following:

|   |                | 2009 |                                                  | 2008
|-- | -------------- | ---- | ------------------------------------------------ | ----
|
|   | (In Thousands)
|
|1. |                |      | Machine rentals from inventory to equipment      |     
|2. |                |      | Product development costs to inventory           |     
|3. |                |      | Accrued contingent consideration for aquisitions |     

54

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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 19, 2009 | MTS MEDICATION TECHNOLOGIES, INC.
| | --------------------- | ---------------------------------
| |                       |                                  
| |                       | By:                              
| |                       |                                  
| |                       |                                  

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 Chief Executive Officer |  | June 19, 2009 | 
|Todd E. Siegel            |  | (principal executive officer)                                                     |  |               | 
|
|/s/ Michael P. Conroy     |  | Chief Financial
        Officer, Vice President and Corporate Secretary           |  | June 19, 2009 | 
|Michael P. Conroy         |  | (principal financial officer)                                                     |  |               | 
|
|/s/ Michael D. Stevenson  |  | Chief Operating
        Officer                                                   |  | June 19, 2009 | 
|Michael D. Stevenson      |  |                                                                                   |  |               | 
|
|/s/ James M. Conroy       |  | Controller (principal accounting
         officer)                                |  | June 19, 2009 | 
|James M. Conroy           |  |                                                                                   |  |               | 
|
|/s/ John Stanton          |  | Director and Vice
        Chairman of the Board of Directors                      |  | June 19, 2009 | 
|John Stanton              |  |                                                                                   |  |               | 
|
|/s/ Allen S. Braswell     |  | Director                                                                          |  | June 19, 2009 | 
|Allen S. Braswell         |  |                                                                                   |  |               | 
|
|/s/ Irv I. Cohen          |  | Director                                                                          |  | June 19, 2009 | 
|Irv I. Cohen              |  |                                                                                   |  |               | 
|
|/s/ David W. Kazarian     |  | Director                                                                          |  | June 19, 2009 | 
|David W. Kazarian         |  |                                                                                   |  |               | 
|
|/s/ Chet Borgida          |  | Director                                                                          |  | June 19, 2009 | 
|Chet Borgida              |  |                                                                                   |  |               | 
|
|/s/ Edgardo A. Mercadante |  | Director                                                                          |  | June 19, 2009 | 
|Edgardo A. Mercadante     |  |                                                                                   |  |               | 

55

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# EXHIBIT INDEX

|Exhibit No. |  | Description                                                                                                                                                                                    
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
|3.1         |  | Certificate of Incorporation and Amendments thereto. (1)                                                                                                                                       
|3.2         |  | Certificate of Amendment of Certificate of Incorporation. (2)                                                                                                                                  
|3.3         |  | Certificate of Amendment of Certificate of Incorporation. (3)                                                                                                                                  
|3.4         |  | Certificate of Amendment of Certificate of Incorporation. (4)                                                                                                                                  
|3.5         |  | Bylaws. (5)                                                                                                                                                                                    
|4.1         |  | Specimen Stock Certificate. (3)                                                                                                                                                                
|4.2         |  | Certificate of Designation of Series A Preferred Stock. (6)                                                                                                                                    
|10.1        |  | Lease effective August 2, 1993 by and between C &C Park Building and
        Medical Technology Systems, Inc. for property located at 21540 Drake Road, Strongsville, Ohio.  (7)               
|10.2        |  | Form of Director/Officer Indemnification Agreement (7)                                                                                                                                         
|10.3        |  | Stock Option Plan dated March 4, 1997 (8).                                                                                                                                                     
|10.4        |  | Industrial lease between Gateway Business Centre, Ltd. and Medical Technology Systems, Inc.
        dated April 13, 2004. (9)                                                                  
|10.5        |  | Employment Agreement between MTS Medication Technologies, Inc. and Michael D. Stevenson dated April 1, 2004. (10)                                                                              
|10.6        |  | Sub-Lease of the Property between BAF, Ltd. and MTS Medication Technologies, Ltd. dated February 22, 2006. (11)                                                                                
|10.7        |  | Service Agreement between Angela Bond-Wallis and MTS Medication Technologies, Ltd. dated February 22, 2006. (11)                                                                               
|10.8        |  | Service Agreement between David Woods and MTS Medication Technologies, Ltd. dated February 22, 2006. (11)                                                                                      
|10.9        |  | Service Agreement between CDH Consilio, GmbH and Dr. Anton F. Hasse dated February 6, 2007. (12)                                                                                               
|10.1        |  | Employment Agreement between MTS Medication Technologies, Inc. and Michael P. Conroy dated February 9, 2007. (12)                                                                              
|10.11       |  | Agreement between Omnicare, Inc. and MTS dated May 7, 2007. (13)                                                                                                                               
|10.12       |  | MTS Medication Technologies Inc., 2007 Stock Incentive Plan (14)                                                                                                                               
|10.13       |  | Loan Agreement, dated December 19, 2007, between Wachovia Bank, National Association and MTS Medication Technologies, Inc. (15)                                                                
|10.14       |  | Promissory Note, dated December 19, 2007, between Wachovia Bank, National Association and MTS Medication Technologies, Inc. (15)                                                               
|10.15       |  | Security Agreement, dated December 19, 2007, between Wachovia Bank, National Association and MTS Medication Technologies, Inc. (15)                                                            
|10.16       |  | Service Agreement between Peter Williams and MTS Medication Technologies, Ltd. dated January 22, 2008. (16)                                                                                    
|10.17       |  | Employment Agreement between MTS Medication Technologies, Inc. and Todd E. Siegel, dated July 29, 2008. (17)                                                                                   
|21.1        |  | List of Subsidiaries. (*)                                                                                                                                                                      
|23.1        |  | Consent of Grant Thornton LLP dated June 16, 2009. (*)                                                                                                                                         
|31.1        |  | Certification by the Chief Executive Officer of MTS Medication Technologies, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (*)                                               
|31.2        |  | Certification by the Chief Financial Officer of MTS Medication Technologies, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (*)                                               
|32.1        |  | Certification by the Chief Executive Officer of MTS Medication Technologies, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (*)
|32.2        |  | Certification by the Chief Financial Officer of MTS Medication Technologies, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (*)

56

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|Exhibit No. |  | Description                                                                                                                                        
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
|
|(1)         |  | Incorporated herein by reference to same Exhibit(s), respectively, Registration Statement on Form S-1 (File No. 33-17852) filed October 9, 1987.   
|(2)         |  | Incorporated herein by reference to same Exhibit(s), respectively, Registration Statement on Form S-1 (File No. 33-40678) filed May 17, 1991.      
|(3)         |  | Incorporated herein by reference to same Exhibit(s), respectively, Registration Statement on Form S-3 (File No. 333-112212) filed January 26, 2004.
|(4)         |  | Incorporated by reference to the Registrants Post-Effective Amendment No. 1 on Form S-8 (File No. 333-56384) filed November 5, 2007.              
|(5)         |  | Incorporated herein by reference to Form 8-K filed June 15, 2007.                                                                                  
|(6)         |  | Incorporated herein by reference to Form 10-K (File No. 000-16594) for the year ending March 31, 2002.                                             
|(7)         |  | Incorporated herein by reference to Form 10-K (File No. 000-16594) for the year ending March 31, 1995.                                             
|(8)         |  | Incorporated herein by reference to the Registration Statement on Form S-8 (SEC File No. 333-56384) filed February 27, 2001.                       
|(9)         |  | Incorporated herein by reference to Form 10-K for the year ending March 31, 2004.                                                                  
|(10)        |  | Incorporated herein by reference to Form 8-K filed September 24, 2004.                                                                             
|(11)        |  | Incorporated herein by reference to Form 10-K for the year ending March 31, 2006.                                                                  
|(12)        |  | Incorporated herein by reference to Form 10-Q for the quarter ending December 31, 2006.                                                            
|(13)        |  | Incorporated herein by reference to Form 10-Q for the quarter ending June 30, 2007.                                                                
|(14)        |  | Incorporated herein by reference to the Proxy Statement (File No. 001-31578) filed August 13, 2007.                                                
|(15)        |  | Incorporated herein by reference to Form 8-K filed December 19, 2007.                                                                              
|(16)        |  | Incorporated herein by reference to Form 10-Q for the quarter ending December 31, 2007.                                                            
|(17)        |  | Incorporated herein by reference to Form 8-K filed August 6, 2008.                                                                                 
|(*)         |  | Filed herein.                                                                                                                                      

57

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EXHIBIT 21.1

# SUBSIDIARIES OF MTS
MEDICATION TECHNOLOGIES, INC.

|Name of Subsidiary                       | Jurisdiction of Organization
|---------------------------------------- | ----------------------------
|
|1.     MTS Packaging Systems, Inc.       | Florida                     
|2.     MTS Medication Technologies, Ltd. | United Kingdom              
|3.     MTS Medication Technologies GmbH  | Germany                     

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EXHIBIT 23.1

# CONSENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our report dated June
17, 2009, with respect to the consolidated financial statements, included in the Annual
Report of MTS Medication Technologies, Inc. on Form 10-K for the year ended March 31,
2009. We hereby consent to the incorporation by reference of said report in the
Registration Statements of MTS Medication Technologies, Inc. on Form S-3 (File
No. 333-112212, effective February 6, 2004) and Forms S-8 (File No. 333-56384,
effective November 5, 2007 and File No. 333-56384, effective March 1, 2001).

|                       |  | 
|---------------------- |  | 
|/s/ GRANT THORNTON LLP |  | 
|Tampa, Florida         |  | 
|June 17, 2009          |  | 

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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 MTS Medication Technologies,
Inc.;
| | -- | -------------------------------------------------------------------------------------

| | 2. | Based
on my knowledge, this 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
report;
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Based
on my knowledge, the financial statements, and other financial information
included in this 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 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)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) 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 report is being
prepared;
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | d) | Disclosed
in this 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 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 functions):
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 control over
financial reporting.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                      |  |  |  | 
|--------------------- |  |  |  | 
|Date:   June 19, 2009 |  |  |  | 
|                      |  |  |  | 
|                      |  |  |  | 

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# CERTIFICATIONS

EXHIBIT 31.2

I, Michael P. Conroy, certify that:

| | 1. | I
have reviewed this annual report on Form 10-K of MTS Medication Technologies,
Inc.;
| | -- | -------------------------------------------------------------------------------------

| | 2. | Based
on my knowledge, this 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
report;
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Based
on my knowledge, the financial statements, and other financial information
included in this 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 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)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) 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 report is being
prepared;
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | d) | Disclosed
in this 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 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 functions):
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 control over
financial reporting.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                      |  |  |  | 
|--------------------- |  |  |  | 
|Date:   June 19, 2009 |  |  |  | 
|                      |  |  |  | 
|                      |  |  |  | 

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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 MTS Medication Technologies, Inc. (the Company) on Form 10-K for the fiscal
year ended March 31, 2009 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 19, 2009                 | 
|                                      | 
|/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 MTS Medication Technologies, Inc. (the Company) on Form 10-K for the fiscal
year ended March 31, 2009 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 19, 2009              | 
|                                           | 
|/s/ Michael P. Conroy                      | 
|Michael P. Conroy                          | 
|Vice President and Chief Financial Officer | 
|                                           | 
|                                           | 

63

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