Table of Contents

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

FORM 10-K

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

| | For fiscal year ended March 31, 2007
| | ------------------------------------

# 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 |  | (I.R.S. Employer    | 
| | Incorporation or Organization)  |  | Identification No.) | 

| |                                                                       
| | ----------------------------------------------------------------------
| | 2003 Gandy Boulevard North, Suite 800,
        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, $.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       [X]    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      [X]    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.   |X|   Yes
             [  ]    No

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

Indicate by check mark whether the
Registrant is a large accelerated  filer, an accelerated  filer, or a  non-accelerated  filer.  See
definition of  "accelerated  filer and large  accelerated  filer" in Rule 12b-2 of the Exchange Act.  (Check One):
   Large Accelerated Filer     [  ]        
Accelerated Filer     [  ]        
Non-Accelerated Filer     [X]

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

Aggregate market value of voting Common
Stock held by non-affiliates was approximately $35,000,000 as of September 29, 2006

The number of shares outstanding of
the Registrant's  Common Stock,  $.01 par value, was 6,274,905 as of June 28, 2007.

# Documents Incorporated
by Reference

Portions of
the Registrant's definitive Proxy Statement, to be filed in connection with the
Registrant's 2007 Annual Meeting of Stockholders, is incorporated by reference into Part
III, Items 10, 11, 12, 13 and 14 of this filing.

---

# 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 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, MTSP, MTS Limited and
Med Tech 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), MTS
Medication Technologies International, Ltd. (MTS Limited), BAF Printers,
Ltd. (BAF) and Consilio GmbH (Consilio). BAF and Consilio are
wholly owned subsidiaries of MTS International, 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 in the United Kingdom. BAF manufactures and sells
prescription bags and labels in the United Kingdom. Consilio 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.

Our
customers use MTSs equipment for dispensing medication in consumable packages by
automatically placing tablets or capsules (the amount of medication required by a patient
during one month) into a punch card. The use of these cards and machines provides a cost
effective customized package at competitive prices. The punch card medication dispensing
system can provide tamper evident packaging for products dispensed in the package, 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 and sophisticated automated machines, such
as our OnDemand® system, which can be interfaced with the pharmacys inventory
control and filling systems.

The
retail price of MTSs equipment ranges from $1,100 to $800,000 depending upon the
degree of automation and options requested by a customer. 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 has placed approximately 3,000
medication-dispensing systems with pharmacy clientele since our inception. MTS also sells
prescription labels and ancillary supplies designed to complement sales of consumable
medication punch cards.

Recent Developments

In
May 2007, we entered into a contract with our largest customer to provide two versions of
our OnDemand automated packaging system over an eighteen-month period. The value of the
contract is estimated to be approximately $13,000,000 - $14,000,000.

In
February 2007, we acquired Consilio, a distributor of consumable packages in Germany. The
acquisition was made to assist our plans to expand operations in Europe.

In
December 2006, we redeemed all of the outstanding shares of convertible preferred stock
for $6.5 million and satisfied all of our obligations under the convertible preferred
stock agreement that we entered into in June 2002.

In
November 2006, we announced that we had begun testing our newest product, MedTimes.
This product is designed to improve pharmacy inventory control and the management of
medication in nursing homes.

Research and Development

We
expended approximately $663,000, $432,000 and $139,000 on research and development
activities for each of the fiscal years ended March 31, 2007, 2006 and 2005, respectively.
In addition, we directed our product development efforts primarily towards the completion
of several new versions of our OnDemand machines and the development of MedTimes during
the fiscal year ended March 31, 2007. We capitalized approximately $511,000 of software
costs and related product development costs during the fiscal year ended March 31, 2007.
The majority of these expenditures were made for new versions of the OnDemand system and
MedTimes project.

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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, customers are provided or rented machines 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. All
essential components of the machines are designed and manufactured by us without reliance
on outside vendors.

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 products that allows for
customer orders to be shipped within the industry standard of two to three days. The
inability to obtain raw materials on a timely basis and on acceptable terms may have a
material adverse effect on our future financial performance.

Markets and Customers

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. 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 and BAF distribute
products in the United Kingdom. Sales to countries outside the United States represent
less than 15% of the total revenue in fiscal 2007. In the fiscal year ended March 31,
2007, sales to our two largest institutional pharmacy customers, Omnicare, Inc.® and
PharMerica, Inc., represented approximately 23% of the Companys 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 18% of our net sales in the fiscal year
ended March 31, 2007.

Financial Information
About Segments

While
the services provided, the manufacturing process, the class of customers and the order
fulfillment process is similar across manufacturing locations, we evaluate our business
performance on a geographic basis. Accordingly, our reportable operating segments consist
of two geographic regions  the United States and Europe  to reflect how we
manage our business.

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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 a few barriers to entry. There
are several competitors that have developed machines that automate the packaging and
sealing of solid medications into punch cards. We believe that products developed by our
competitors 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 us. There is no assurance
that we will be able to compete effectively with competitive methods of dispensing
medication or other punch card systems.

Our
primary competitors 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 900 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

In
June 2003, we purchased the rights to certain proprietary technology that had previously
been available through a license agreement with the Siegel Family Trust. Our CEO, Todd E.
Siegel, is the Trustee of the Siegel Family Trust. The proprietary technology is supported
by certain patents, which expire at various times through 2008.

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

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

Government Regulations

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

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

Geographic Information

The
geographic information set forth in Note 20 to the Consolidated Financial Statements,
Segment Information, is hereby incorporated by reference into this Part I,
Item 1.

Employees

None
of our employees are covered by a collective bargaining agreement. We consider our
relationship with our employees to be good. We employ 200 people in the United States and
36 people in Europe.

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ITEM 1A.    
RISK FACTORS

You
should be aware that the risks and uncertainties described below are not the only ones
affecting us or that could affect us in the future. Any of the risks and uncertainties
described below could have a material adverse effect on our business, results of
operations and financial condition.

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 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:

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

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

We depend on a limited number of
customers for our 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, 2007, our 10 largest customers accounted for approximately
52% of our net sales, and our two largest customers accounted for approximately 23% of our
net sales. In addition, the three major drug wholesalers represent 18% of our net sales.
We are dependent upon the continued growth, viability and financial stability of our
customers whose industries have experienced consolidation, pricing and regulatory
pressures. We expect to continue to depend upon a relatively small number of customers for
a significant percentage of our net sales. Consolidation among our customers may further
reduce the number of customers that generate a significant percentage of our net sales and
exposes us to increased risks relating to dependence on a small number of customers. A
significant reduction in sales to any of our customers or a customer exerting significant
pricing and margin pressures on us, could have a material adverse effect on our results of
operations.

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

We
rely on a limited number of suppliers for the raw materials that are essential in the
production of the products we produce. We cannot 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.

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, could have
a material adverse effect on our business, financial condition and results of operations.
In this regard, our principal manufacturing facility is located in 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 not a significant part of our business. Accordingly, future results cannot
be reliably predicted by considering past trends or extrapolating past results.

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

Our
information systems are protected through physical and software safeguards and we have
backup remote processing capabilities. 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.

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

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

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

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

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

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

We are prohibited from paying
dividends on our common stock.

We
have not paid any dividends on our common stock and do not anticipate declaring or paying
any dividends in the foreseeable future. The terms of our loan agreements prohibit us from
paying dividends on our common stock without the consent of our lenders.

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

As
of March 31, 2007, we had 6,243,605 shares of common stock outstanding. In addition, the
following shares of our common stock are issuable upon exercise or conversion of currently
outstanding securities:

- 763,250 shares of common stock are issuable upon exercise of currently outstanding common stock
purchase options having exercise prices ranging from $1.45 to $12.45; and
- 5,900 shares of common stock are issuable upon exercise of currently outstanding common stock
purchase warrants having an exercise price of $1.88.

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

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 you that significant changes in
such regulations will not occur in the foreseeable future. Our inability to comply with
the current regulations and any future changes to such regulations could have a material
adverse effect on our business, results of operations and financial condition.

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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,
could harm 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 our
proprietary rights.

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

- stop or delay selling, incorporating or using products that incorporate the challenged intellectual property;
- pay damages;
- enter into licensing or royalty agreements, which may be unavailable under acceptable terms; and
- redesign products and services that incorporate infringing technology.

We
may face infringement claims from third parties in the future. The medical packaging
industry has seen frequent litigation over intellectual property rights, and we expect
that participants in the medical packaging industry will be increasingly subject to
infringement claims as the number of products, services, and competitors grow and
functionality of the products and services overlap. We cannot 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 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.

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

As
a public company, we are subject to certain federal regulations and the rules and
regulations of the SEC, including without limitation, the Sarbanes-Oxley Act of 2002,
which effects tighter accounting, corporate fraud and securities laws. 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 the Sarbanes-Oxley Act or to any other federal corporate reform
measures adopted by the SEC.

8

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Our stock price may be volatile.

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

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

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

Our stockholders do not have
cumulative voting rights.

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

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

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

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

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

ITEM 1B.    
UNRESOLVED STAFF COMMENTS

Not
applicable.

9

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Table of Contents

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, Suite
800, St. Petersburg, Florida. The lease term is for 12 years ending September 30, 2016.
Our corporate administrative offices and the primary manufacturing facilities for MTS are
at this location. The monthly lease payments are currently $62,000 plus tax 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 $319,000 and $237,000 at March 31, 2007
and 2006, respectively.

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 $3,200 per month for office
and warehouse space at 21530 Drake Road, Cleveland, Ohio. The lease expires on March 31,
2008.

MTS
Medication Technologies International, Ltd. 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 $3,400. The lease expires on May 20, 2009 and
is cancellable at any time with six months notice.

When
we acquired BAF, we entered into a premises lease with the previous owners of BAF for
approximately 12,000 square feet of office and manufacturing space. The lease is for a
term of three years beginning on February 22, 2006, and the monthly lease payments are
approximately $4,500. In addition, we are obligated to pay annual operating expenses
(i.e., insurance, utilities and property taxes).

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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Table of Contents

PART II

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

Price Range of Our
Securities

Our
common stock is trading on the American Stock Exchange (AMEX) under the symbol
MPP. The table below sets forth the range of high and low sales prices and/or
bid information for our common stock for the periods indicated, as reported by the AMEX.

|2007 Fiscal
      Year |  | High |   | Low  
|---------------------- |  | ---- | - | -----
|                       |  |      |   |      
|First
      Quarter    |  |      | $ | 6.87 
|Second
      Quarter   |  |      | $ | 7.98 
|Third
      Quarter    |  |      | $ | 9.49 
|Fourth
      Quarter   |  |      | $ | 11.70
|                       |  |      |   |      
|
|                       |  |      |   |      
|                       |  |      |   |      
|First
      Quarter    |  |      | $ | 6.65 
|Second
      Quarter   |  |      | $ | 6.17 
|Third
      Quarter    |  |      | $ | 6.93 
|Fourth
      Quarter   |  |      | $ | 7.50 

As
of June 28, 2007, there were approximately 1,996 holders of record of our common stock
and the closing price of our common stock reported on the AMEX was $12.20.

We
have not declared a dividend on our common stock and do not currently intend to declare a
dividend. Furthermore, we are restricted from paying dividends on our common stock
pursuant to the terms of our loan agreements without the consent of our lenders. 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, 2007.

|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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Table of Contents

We
recorded compensation expense of $31,000 and $29,000 in the fiscal years ended March 31,
2007 and March 31, 2006, respectively, that related to restricted stock grants awarded to
its chief operating officer.

Purchases of Equity
Securities

In
December 2006, we entered into an agreement with an investor to redeem 2,000 shares of our
convertible preferred stock. The convertible preferred stock had been outstanding since
2002, paid a dividend of 11 percent, or $220,000 annually, and was convertible into
847,457 shares of common stock. We paid the investor approximately $6.5 million, or $7.65
per common share equivalent, as well as a $20,000 transaction fee, to fully redeem all of
the outstanding shares of convertible preferred stock held by the investor and completely
satisfy all of its obligations under the convertible preferred stock agreement.

We
recorded a constructive dividend of approximately $4.5 million, or $0.74 per diluted
common share, associated with the redemption which represents the amount by which the
payment to the investor exceeded the carrying value of the convertible preferred stock on
the date of redemption. The payment was funded with the proceeds of an overadvance term
loan provided by our secured lender.

|                                     |  |            |  |   |         |  |   | Approximate Dollar
|------------------------------------ |  | ---------- |  | - | ------- |  | - | ------------------
|
|
|
|
|December 1, 2006  December 31, 2006 |  | 847,456(1) |  | $ | 7.65(1) |  |  |                   
|January 1, 2007  January 31, 2007   |  |           |  |   |        |  |  |                   
|February 1, 2007  February 28, 2007 |  |           |  |   |        |  |  |                   
|March 1, 2007  March 31, 2007       |  |           |  |   |        |  |  |                   
|
|Total                                |  | 847,456    |  | $ | 7.65    |  |  |                   
|

---

(1)     We
purchased 2,000 shares of our convertible preferred stock that was convertible
into 847,457 shares of our common stock for $6.5 million, or $7.65 per common
share equivalent.

12

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Table of Contents

# ITEM 6.      SELECTED
FINANCIAL DATA

The
following tables set forth selected financial and operating data regarding the Company.
 This information should be read in conjunction with "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and the Company

|                                                                           | Years Ended March 31,                            
|-------------------------------------------------------------------------- | -------------------------------------------------
|
|
|
|                                                                           | (In Thousands; Except Earnings Per Share Amounts)
|Income Statement Data:                                                     |                                                  
|
|Net Sales                                                                  |                                                  
|
|Cost of Sales and Other Expenses                                           |                                                  
|
|Income Before Taxes                                                        |                                                  
|
|Income Tax Expense                                                         |                                                  
|
|Net Income                                                                 |                                                  
|
|Non-Cash Constructive Dividend Related to                                  |                                                  
|Beneficial Conversion Feature of Convertible Preferred Stock               |                                                  
|
|Convertible Preferred Stock Dividends                                      |                                                  
|
|Constructive Dividend Related to Redemption of Convertible Preferred Stock |                                                  
|
|Net (Loss) Income Available to Common Stockholders                         |                                                  
|
|Net (Loss) Income Per Basic Common Share                                   |                                                  
|
|Net (Loss) Income Per Diluted Common Share                                 |                                                  
|

|                     | At March 31,  
|-------------------- | --------------
|
|
|
|                     | (In Thousands)
|Balance Sheet Data:  |               
|
|Cash                 |               
|Net Working Capital  |               
|Assets               |               
|Debt                 |               
|Stockholders' Equity |               

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Table of Contents

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

# OVERVIEW

We
experienced growth of approximately 20% in net sales in fiscal year ended March 31, 2007.
Our revenue grew due to increased sales in the U.S. of our consumable punch card products
and increased sales of our prepackaging machines. We believe the revenue increase in our
consumable products is primarily the result of: (1) increased penetration of independent
pharmacies; (2) growth in market demands due to the aging demographics of the United
States population; (3) a continued shift toward punch card usage. Sales of our OnDemand
machines also increased in fiscal 2007 compared to the prior year. Independent pharmacies
are those that are not affiliated with pharmacies that are national in scope, but rather
rely on the relationships they have with nursing homes and assisted living facilities in a
small geographic or demographic region. In addition, our revenue in Europe increased 111%
over the prior year as a result of increased sales of consumable products in the UK to the
long-term care and domiciliary markets, as well as revenue associated with the operations
of BAF in the UK and Consilio in Germany.

Our
gross margin declined slightly compared to the previous year due primarily to lower
margins realized on OnDemand machines. Our SG&A expenses increased by approximately
16% primarily as a result of new sales and marketing efforts, the addition of personnel to
accommodate the growth in our business and research and development expenses.

Our
interest expense increased in the fiscal year ended March 31, 2007 compared to the fiscal
year that ended March 31, 2006 because we added debt when we redeemed our convertible
preferred stock in December 2006.

The
information set forth below represents selected quarterly results of operations for each
of the quarters in fiscal years ended March 31, 2007 and 2006.

|                                                   | Fiscal Year Ended March 31, 2007        
|-------------------------------------------------- | ----------------------------------------
|
|
|
|
|
|                                                   | (In Thousands, Except Per Share Amounts)
|                                                   | (Unaudited)                             
|Income Statement Data:                             |                                         
|Net Sales                                          |                                         
|Gross Profit                                       |                                         
|Net Income (Loss) Available to Common Stockholders |                                         
|Net Income (Loss) Per Basic Common Share           |                                         
|
|Net Income (Loss) Per Diluted Common Share         |                                         
|

|                                            | Fiscal Year Ended March 31, 2006        
|------------------------------------------- | ----------------------------------------
|
|
|
|
|
|                                            | (In Thousands, Except Per Share Amounts)
|                                            | (Unaudited)                             
|Income Statement Data:                      |                                         
|Net Sales                                   |                                         
|Gross Profit                                |                                         
|Net Income Available to Common Stockholders |                                         
|Net Income Per Basic Common Share           |                                         
|
|Net Income Per Diluted Common Share         |                                         
|

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Table of Contents

# FISCAL YEAR 2007
COMPARED TO FISCAL YEAR 2006

# Results of Operations

Net Sales

Net
sales for the fiscal year ended March 31, 2007, increased 20.2% to $51.1 million from
$42.5 million in the prior year. Net sales increased in fiscal 2007 primarily as a result
of an increase in consumable punch cards sold to existing and new customers in the United
States, an increase in consumable punch cards sold in the United Kingdom and the sales of
prepackaging machines in the United States. In addition, we acquired BAF in February 2006,
therefore, net sales for the fiscal year ended March 31, 2007 included BAF for a full
year, as opposed to only two months in the fiscal year ended March 31, 2006. Also, sales
of OnDemand machines and MedLocker in the fiscal year ended March 31, 2007 increased
compared to the same period the prior year.

Cost of Sales

Cost
of sales for the fiscal year ended March 31, 2007, increased 20.7% to $31.7 million from
$26.3 million in the prior year. Cost of sales as a percentage of net sales increased to
62.1% from 61.9% in the prior year. The increase in the cost of sales percentage resulted
primarily from the fact that we experienced increases in our direct costs of materials and
labor used in the manufacturing of our consumable products and prepackaging machines and
higher factory overhead costs primarily associated with new personnel added in
maintenance, supervision and quality control. We were able to partially offset those
increases by raising our selling prices. In addition, the cost of sales associated with
our OnDemand machines, as a percentage of net sales associated with these machines, is
significantly higher than our consumable products and prepackaging machines. Consequently,
our overall costs of sales, as a percentage of our total net sales, increases as the
proportion of OnDemand machine sales to our total sales increases.

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

SG&A
expenses for the fiscal year ended March 31, 2007, increased 16.3% to $12.5 million
compared to $10.7 million in the prior year. The increase resulted primarily from the
costs associated with our United Kingdom operations, which included a full year of costs
incurred by BAF. In addition, selling costs associated with variable compensation
programs, (i.e., commissions) increased in fiscal 2007 due to higher net sales. Also, we
increased our marketing efforts by attending more tradeshows and created more sales
literature to support our sales personnel. Our administrative costs increased in fiscal
2007 due primarily to expenses related to support costs associated with our OnDemand
machine sales and research and development costs.

Depreciation and
Amortization Expense

Depreciation
and amortization expense for the fiscal year ended March 31, 2007 was $2.3 million
compared to $2.3 million in the prior year. These expenses remained the same compared to
the prior year because capital expenditures in fiscal year ended March 31, 2007 were
approximately the same as the amount of capital assets that became fully depreciated.

Interest Expense

Interest
expense for the fiscal year ended March 31, 2007 increased 15.5% to $372,000 compared to
$322,000 the prior year. The increase resulted primarily from interest on bank debt that
was added when we redeemed our convertible preferred stock in December 2006.

Income Tax Expense

Income
tax expense for the fiscal year ended March 31, 2007, increased 37.4% to $1,641,000
compared to $1,194,000 the prior year. The increase resulted from higher pretax net income
in fiscal 2007 compared to the prior year. Our effective tax rate in fiscal 2007 was 39.3%
compared to 42.0% in fiscal 2006. The decrease results primarily from the fact that in
fiscal 2006, we determined that we may be responsible for state and local income taxes in
the certain states for periods prior to fiscal 2006, and we recorded income tax expense
for those states for prior years, as well as the current year.

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Table of Contents

Series A Preferred Stock
Dividends

In
December 2006, we entered into an agreement with an investor to redeem 2,000 shares of its
convertible preferred stock. The convertible preferred stock had been outstanding since
2002, paid a dividend of 11 percent, or $220,000 annually, and was convertible into
847,457 shares of common stock. We paid the investor approximately $6.5 million, or $7.65
per common share equivalent, as well as a $20,000 transaction fee, to fully redeem all of
the outstanding shares of convertible preferred stock held by the investor and completely
satisfy all of its obligations under the convertible preferred stock agreement.

We
recorded a constructive dividend of approximately $4.5 million, or $0.74 per diluted
common share, associated with the redemption which represents the amount by which the
payment to the investor exceeded the carrying value of the convertible preferred stock on
the date of redemption. The payment was funded with the proceeds of an overadvance term
loan provided by our secured lender.

# FISCAL YEAR 2006
COMPARED TO FISCAL YEAR 2005

# Results of Operations

Net Sales

Net
sales for the fiscal year ended March 31, 2006, increased 5.7% to $42.5 million from $40.2
million in the prior year. Net sales increased in fiscal 2006 primarily as a result of an
increase in consumable punch cards sold to existing and new customers in the United
States, an increase in consumable punch cards and machines sold in the United Kingdom and
the sales of prepackaging machines in the United States. These increases were partially
offset by a decline in sales of our OnDemand systems.

Cost of Sales

Cost
of sales for the fiscal year ended March 31, 2006, increased 5.9% to $26.3 million from
$24.8 million in the prior year. Cost of sales as a percentage of net sales increased to
61.9% from 61.8% in the prior year. The increase in the cost of sales percentage resulted
primarily from the fact that we experienced increases in our direct costs of materials and
labor used in the manufacturing of our consumable products and prepackaging machines and
higher factory overhead costs primarily associated with new personnel added in
maintenance, supervision and quality control. We were able to partially offset those
increases by raising our selling prices. As a result, our product margin on these
products, as a percentage of net sales, remained fairly stable.

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

SG&A
expenses for the fiscal year ended March 31, 2006, increased 10.5% to $10.7 million
compared to $9.7 million in the prior year. The increase resulted primarily from the costs
associated with additional personnel and benefit costs for employees that were added to
support our overall growth and costs associated with our United Kingdom operations.

In
addition, selling costs associated with variable compensation programs, (i.e.,
commissions) increased in fiscal 2006 due to higher net sales. Also, we increased our
marketing efforts by attending more tradeshows and created more sales literature to
support our sales personnel. Our administrative costs increased in fiscal 2006 due
primarily to expenses related to insurance, auditing, tax services and securities law
compliance.

Depreciation and
Amortization Expense

Depreciation
and amortization expense for the fiscal year ended March 31, 2006, increased 20.1% to $2.3
million compared to $1.9 million in the prior year. The increase resulted primarily from
the fact that in our second quarter of fiscal 2006, we recorded a charge of $399,000
related to a physical inventory count that we performed of fixed assets after we moved to
our new facility.

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Interest Expense

Interest
expense for the fiscal year ended March 31, 2006 decreased 47.5% to $322,000 compared to
$613,000 the prior year. The decrease resulted primarily from lower debt levels in fiscal
2006 compared to fiscal 2005 and was partially offset by higher interest rates on variable
rate debt.

Original Issue Discount

Original
issue discount for the fiscal year ended March 31, 2006 decreased to $0 compared to
$1,303,000 in the prior year. This decrease resulted primarily from the fact that in the
previous year, we repaid a $4,000,000 subordinated note. At that time, the remaining
original issue discount ($741,000) and financing costs associated with that note
($420,000) were completely written off.

Other Income

We
had no other income in fiscal 2006. In fiscal 2005, we realized $400,000 of other income
when we determined that a liability associated with a former wholly owned subsidiary would
not be payable.

Income Tax Expense

Income
tax expense for the fiscal year ended March 31, 2006, increased 23.9% to $1,194,000
compared to $964,000 the prior year. The increase resulted from higher pretax net income
in fiscal 2006 compared to the prior year. Our effective tax rate in fiscal 2006 was 42.0%
compared to 42.7% in fiscal 2005. The decrease results primarily from the fact that in
fiscal 2005, we wrote off the original issue discount associated with the subordinated
debt, which we repaid. The remaining amount of original issue discount for tax purposes
was different than the amount we had recorded on our balance sheet. When we wrote off the
original issue discount, the deduction on our tax return was lower than the expense
recorded in our statement of earnings, and therefore, this permanent difference resulted
in a higher effective tax rate. In addition, our state and local income taxes increased in
2006 compared to fiscal 2005 when we established a reserve for potential obligations to
various states.

Series A Preferred Stock
Dividends

The
terms of our Series A Preferred Stock include the payment of quarterly dividends at the
rate of 11% per annum. The amount of preferred stock dividends that accrued during each of
the fiscal years 2006 and 2005 was $222,000 and $220,000, respectively. The dividends are
payable in cash or shares of Series A Preferred Stock at our option and are cumulative.
All dividends accrued in the fiscal years ended March 31, 2006 and 2005 were paid in cash.

# LIQUIDITY AND CAPITAL
RESOURCES

Our
operations provided $4.5 million in the fiscal year ended March 31, 2007, compared to $6.0
million the prior year. Although our EBITDA increased in fiscal 2007 compared to fiscal
2006, we used more cash to support our working capital needs primarily related to deposits
and advances we made to our outsourced manufacturing company that produces OnDemand
machines, as well as increases in our accounts receivable and inventory that results from
increased net sales.

Investing
activities used $3.0 million during the fiscal year ended March 31, 2007, compared to $2.9
million the prior year. The increase results primarily from the fact that we purchased
approximately $800,000 more in capital assets in fiscal 2007 compared to fiscal 2006,
however, we expended approximately $750,000 less on acquisitions of new companies in
fiscal 2007 compared to the prior year.

Financing
activities used $1.5 million during the fiscal year ended March 31, 2007 compared to $3.0
million the prior year. The decrease results from the fact that we used our revolving line
of credit facility during fiscal 2007 to fund our working capital needs, and as a result
made lower payments on it than the prior year.

17

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We
had working capital of $6.7 million at March 31, 2007, compared to $7.9 million at March
31, 2006. The decrease in working capital resulted primarily from the amount of our
long-term debt that is payable in the following fiscal year at the end of fiscal 2007
compared to the end of fiscal 2006 due to the normal amortization schedule of term loans,
as well as new bank debt added to fund the redemption of our convertible preferred stock
in December 2006.

We
do not maintain significant cash balances because available cash is used to pay down our
revolving line of credit. Cash on hand of $292,000 and $447,000 at March 31, 2007 and
2006, respectively, is held in banks located in the United Kingdom and Germany. We view
the excess availability on our line of credit as our cash reserve. At March 31, 2007, we
had approximately $3.4 million available on our revolving line of credit.

In
December 2006, we entered into an agreement with an investor to redeem 2,000 shares of its
convertible preferred stock. The convertible preferred stock had been outstanding since
2002, paid a dividend of 11 percent, or $220,000 annually, and was convertible into
847,457 shares of common stock. We paid the investor approximately $6.5 million, or $7.65
per common share equivalent, as well as a $20,000 transaction fee, to fully redeem all of
the outstanding shares of convertible preferred stock held by the investor and completely
satisfy all of its obligations under the convertible preferred stock agreement.

We
recorded a constructive dividend of approximately $4.5 million, or $0.74 per diluted
common share, associated with the redemption which represents the amount by which the
payment to the investor exceeded the carrying value of the convertible preferred stock on
the date of redemption. The payment was funded with the proceeds of an over-advance term
loan provided by our secured lender.

Our
revolving line of credit and bank term loans are collateralized by a first security
interest in all of our assets.

The
revolving line of credit allows for borrowings based upon advance rates that are applied
to our eligible accounts receivable and inventory at the prime rate, currently 8.25%, or
LIBOR plus 2.25%. The equipment secured loan is repayable over a three-year period with
interest at the prime rate plus 0.5% or LIBOR plus 2.75%.

The
revolving line of credit and term loans contain provisions that require us to maintain
certain financial covenants that, among other things, require the maintenance of minimum
tangible net worth and debt service coverage ratios, limit the amount of capital
expenditures and require lender approval for certain matters. We were in compliance with
all provisions of the loan agreements as of March 31, 2007.

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 increases in accounts receivable and
inventory.

We
believe that the cash generated from operations during the next fiscal year and our
available lines of credit will be sufficient to meet our working capital and capital
expenditure requirements.

# OFF-BALANCE SHEET
ARRANGEMENTS

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

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

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

18

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

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

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

# CONTRACTUAL OBLIGATIONS

Summarized
below are our obligations and commitments to make future payments under certain
contractual obligations as of March 31, 2007:

|                 |  |                |   | Less Than |  | 1 - 3 |       | 4 - 5 |   | More Than
|---------------- |  | -------------- | - | --------- |  | ----- | ----- | ----- | - | ---------
|
|
|                 |  | (In Thousands)
|
|Long-Term Debt   |  |                | $ | 8,066     |  | $     | 2,669 |       | $ | 5,397    
|Capital Leases   |  |                | $ | 210       |  | $     | 106   |       | $ | 104      
|Operating Leases |  |                | $ | 8,058     |  | $     | 1,012 |       | $ | 1,706    
|Interest         |  |                | $ | 897       |  | $     | 330   |       | $ | 567      

# 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 affect on our operations cannot be determined with absolute certainty.
Actual results typically differ from these estimates in some fashion, and at times, these
variances may be material to our financial statements. Our management continually
evaluates its estimates and assumptions, which are based on historical experience and
other factors that are believed to be reasonable under these circumstances. These
estimates and our actual results are subject to the risk factors listed above under
Item 1. Business. Nevertheless, our management believes the following items
involve a higher degree of complexity and, judgment and therefore, has commented on these
items below.

19

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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. 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.

Valuation of 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 its accounts receivable. We consider many factors when
making its estimates, including analyzing accounts receivable and historical bad debts,
customer concentrations, customer credit worthiness, current economic trends and changes
in its customer payment terms when evaluating the adequacy of the reserve for
uncollectible accounts. 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. As of March 31,
2007 and 2006, we have established an allowance for doubtful accounts of approximately
$149,000 and $236,000, respectively, to account for estimated uncollectible accounts.

Inventory Obsolescence
Valuation Allowance

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 in our assessment. As of March
31, 2007 and 2006, We have established an inventory valuation allowance of
approximately $340,000 and $192,000, respectively, to account for the estimated loss in
value of inventory due to obsolescence.

Self-Insurance Plan
Reserve

We
established a reserve for unpaid medical claims of approximately $95,000 and $90,000 at
March 31, 2007 and 2006, respectively. Management reviews claims history information
provided to it by the third-party administrator of the self insured plan on a regular
basis and believes that the reserve is sufficient to respond to the claims that may be
incurred by the participants in the plan.

20

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Deferred Tax Asset
Valuation Allowance

Our
deferred tax asset is comprised primarily of reserves and allowances. We believe that it
is more likely than not that the income tax benefits associated with these items will be
realized in the future, and based upon these expectations regarding the realization of the
tax benefits, management has not established a valuation allowance for our deferred tax
asset.

Impairment Valuations

Long-lived
assets and certain identifiable intangibles that are held and used by us are reviewed for
impairment whenever events or changes in circumstance indicate that the carrying amount of
these assets may not be recoverable in accordance with Financial Accounting Standards
Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. In
performing the review for recoverability, we estimate the future cash flows expected to
result from the use of the assets and their eventual disposition. If the sum of the
expected future cash flows is less than the carrying amount of the assets, an impairment
loss may be recognized based on a discounted cash flow analysis. We evaluate the
recoverability of goodwill annually and take into account events or circumstances that
warrant estimates of useful lives or indicate that an impairment exists. There were no
impairment losses in 2007, 2006 and 2005.

Product Development

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

Estimated Liabilities

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

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

Warranty

We
establish a reserve for warranty costs we may incur during the warranty period that is
provided for in the machine sales agreements (generally six months) with our
customers. Warranty and service costs incurred during the periods ended March 31, 2007,
2006 and 2005, totaled approximately $416,000, $310,000 and $224,000, respectively.

21

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Recent Accounting
Pronouncements

In
July 2006, FASB issued FASB Interpretation 48, Accounting for Uncertainty in Income
Taxes: an Interpretation of FAS No. 109. Interpretation 48, which
clarifies FAS No. 109, Accounting for Income Taxes, establishes the criterion
that an individual tax position has to meet for some or all of the benefits of that
position to be recognized in the Companys financial statements. On initial
application, Interpretation 48 will be applied to all tax positions for which the statute
of limitations remains open. Only tax positions that meet the more-likely-than-not
recognition threshold at the adoption date will be recognized or continue to be
recognized. The cumulative effect of applying Interpretation 48 will be reported as an
adjustment to retained earnings at the beginning of the period in which it is adopted.
Interpretation 48 is effective for fiscal years beginning after December 15, 2006,
and will be adopted by the Company on April 1, 2007. The Company is in the process of
finalizing its analysis and believes that the adoption of Interpretation 48 will result in
an adjustment to reduce retained earnings and increase liabilities by at least $400,000.

In
June 2006, the Emerging Issues Task Force reached a consensus on Issue No. 06-3
(EITF 06-3), Disclosure Requirements for Taxes Assessed by a
Governmental Authority on Revenue-Producing Transactions. The consensus allows
companies to choose between two acceptable alternatives based on their accounting policies
for transactions in which the company collects taxes on behalf of a governmental
authority, such as sales taxes. The guidance should be applied to financial reports
through retrospective application for all periods presented, if amounts are significant,
for interim and annual reporting beginning after February 1, 2007 and will be adopted
by the Company April 1, 2007. We do not expect the adoption of EITF 06-3 to have a
material effect on our consolidated financial statements.

In
September 2006, the FASB issued FAS No. 157, Fair Value Measurements. FAS
No. 157 defines fair value, establishes a framework for measuring fair value and
enhances disclosures about fair value measurements required under other accounting
pronouncements, but does not change existing guidance as to whether or not an instrument
is carried at fair value. FAS No. 157 is effective for fiscal years beginning after
November 15, 2007, the year beginning April 1, 2008 for the Company. The Company
is currently reviewing the provisions of FAS No. 157 to determine the impact on its
consolidated financial statements.

In
September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering the
Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements. SAB No. 108 provides guidance regarding the consideration of
the effects of prior year misstatements in quantifying current year misstatements for the
purpose of materiality assessments. The method established by SAB No. 108 requires
each of our financial statements and the related financial statement disclosures to be
considered when quantifying and assessing the materiality of the misstatement. The
provisions of SAB No. 108 apply to our financial position and results of operations
for the fiscal year ended March 31, 2007 and did not have a material impact on our
financial position or results of operations.

In
February 2007, the FASB issued FAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities which permits entities to choose to measure many
financial instruments and certain other items at fair value that are not currently
required to be measured at fair value. FAS No. 159 will be effective for the Company
on April 1, 2008. The Company is currently evaluating the impact of adopting FAS
No. 159 on its financial position, cash flows, and results of operations.

A
variety of proposed or otherwise potential accounting standards are currently under study
by standard-setting organizations and various regulatory agencies. Because of the
tentative and preliminary nature of these proposed standards, management has not
determined whether implementation of such proposed standards would be material to the
Companys consolidated financial statements.

22

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

The
Company is exposed to the impact of interest rate changes as borrowings under its Senior
Credit Agreement bears interest at variable interest rates. A 1% change in interest rates
up or down would have affected the Companys income statement on an annual basis by
approximately $78,000 at the variable-rate outstanding level of debt at March 31, 2007.

In
addition, the Company is exposed to foreign rate changes of the British Pound and Euro as
it impacts the net asset value of its subsidiaries located in the United Kingdom and
Germany. The Company believes that the exposure to foreign currency translation and
transaction gains or losses is minimal.

# ITEM 8.     FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA

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

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

None

# ITEM 9A.     CONTROLS AND
PROCEDURES

Evaluation of Disclosure
Controls and Procedures

Our
chief executive officer and chief financial officer are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) 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. Based upon the evaluation for the period ended March 31,
2007, our chief executive officer and chief financial officer concluded that our
disclosure controls and procedures were effective, as of the end of the period ended March
31, 2007 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. 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.

Changes in Internal
Controls

During
the fiscal year ended March 31, 2006, we determined that there were two material
weaknesses in the design or operation of internal controls over financial reporting.
During the fiscal year ended March 31, 2007, the Company instituted new policies and took
certain steps to remediate those weaknesses.

23

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There
has not been any significant change in our internal control over financial reporting
identified in connection with the evaluation that occurred during the fiscal year ended
March 31, 2007 other than described above, that has materially affected, or is reasonably likely to materially
affect, those controls.

Limitations on the
Effectiveness of Controls

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

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

# ITEM 9B.     OTHER
INFORMATION

Not
Applicable.

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 2007 fiscal year.

Code of Ethics and
Business Conduct

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

We
intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an
amendment to, or waiver from, a provision of this code of ethics, as it relates to our
CEO, CFO or controller by posting such information on our web site, at the address
specified above. Information contained in our web site, whether currently posted or posted
in the future, is not part of this document or the documents incorporated by reference in
this document.

# ITEM 11.     EXECUTIVE
COMPENSATION

The
information required by this item is incorporated herein by reference to the information
included in our definitive proxy statement, which will be filed within 120 days after the
end of our 2007 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 2007 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 2007 fiscal year.

# ITEM 14.     PRINCIPAL
ACCOUNTING 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 2007 fiscal year.

25

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# 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 55 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, 2007 and 2006                                                                                    |      | 29     
|                                                                                                                                             |      |        
|Consolidated Statements of Operations for the Years Ended March 31, 2007, 2006 and 2005                                                      |      | 30     
|                                                                                                                                             |      |        
|Consolidated Statement of Changes in Stockholders' Equity and Comprehensive Income
        for the Years Ended March 31, 2007, 2006 and 2005 |      | 31     
|                                                                                                                                             |      |        
|Consolidated Statements of Cash Flows for the Years Ended March 31, 2007, 2006 and 2005                                                      |      | 32     
|                                                                                                                                             |      |        
|Notes to Consolidated Financial Statements                                                                                                   |      | 33 - 55
|                                                                                                                                             |      |        
|Exhibit 23.1 - Consent of Independent Registered Public Accounting Firm                                                                      |      | 61     

All
other schedules are omitted since the required information is not present in amount
sufficient to require submission of the schedule or because the information required is
included in the financial statements and notes thereto.

27

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# REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and
Shareholders MTS 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, 2007 and 2006, and the
related consolidated statements of operations, changes in stockholders equity and
comprehensive income, and cash flows for each of the three years in the period ended March
31, 2007. 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 its 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, 2007 and 2006, and the results of their operations and their
cash flows for each of the three years in the period ended March 31, 2007 in conformity
with accounting principles generally accepted in the United States of America.

As
discussed in Note 2 to the consolidated financial statements, the Company adopted
Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based
Payment, effective April 1, 2006.

|                       |  | 
|---------------------- |  | 
|/s/ GRANT THORNTON LLP |  | 
|Tampa, Florida         |  | 
|June 28, 2007          |  | 

28

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# MTS MEDICATION
TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
MARCH 31, 2007 AND 2006(In Thousands)

# ASSETS

|                             | 2007 |  | 2006
|---------------------------- | ---- |  | ----
|
|
|Current Assets:              |      |  |     
|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            |  |  | $ | 7,024  |   |  | $ | 5,589  |  
|Current Maturities of Long-Term Debt                |  |  |   | 2,447  |   |  |   | 698    |  
|Current Maturities of Related Party Note Payable    |  |  |   | 328    |   |  |   | 308    |  
|
|Total Current Liabilities                           |  |  |   | 9,799  |   |  |   | 6,595  |  
|
|Long-Term Debt, Less Current Maturities             |  |  |   | 5,395  |   |  |   | 2,727  |  
|Related Party Note Payable, Less Current Maturities |  |  |   | 106    |   |  |   | 434    |  
|Other Liabilities                                   |  |  |   | 283    |   |  |   | 317    |  
|Deferred Tax Liability                              |  |  |   | 553    |   |  |   | 576    |  
|
|Total Liabilities                                   |  |  |   | 16,136 |   |  |   | 10,649 |  
|
|Stockholders' Equity:                               |  | 
|Preferred Stock                                     |  |  |   |       |   |  |   | 2      |  
|Common Stock                                        |  |  |   | 62     |   |  |   | 60     |  
|Capital In Excess of Par Value                      |  |  |   | 8,736  |   |  |   | 13,887 |  
|Accumulated Other Comprehensive Income              |  |  |   | 254    |   |  |   | 91     |  
|Retained Earnings (Accumulated Deficit)             |  |  |   | 989    |   |  |   | (1,279 | )
|Treasury Stock                                      |  |  |   | (328   | ) |  |   | (328   | )
|
|Total Stockholders' Equity                          |  |  |   | 9,713  |   |  |   | 12,433 |  
|
|Total Liabilities and Stockholders' Equity          |  |  | $ | 25,849 |   |  | $ | 23,082 |  
|

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

29

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# MTS MEDICATION
TECHNOLOGIES, INC. AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF
OPERATIONS YEARS ENDED MARCH 31, 2007, 2006 AND 2005(In Thousands; Except Earnings Per Share Amounts)

|                                                                           | 2007 |  | 2006 |        | 2005
|-------------------------------------------------------------------------- | ---- |  | ---- | ------ | ----
|
|
|Net Sales                                                                  |      |  | $    | 51,095 |     
|
|Costs and Expenses:                                                        |      | 
|Cost of Sales                                                              |      |  |      | 31,736 |     
|Selling, General and Administrative                                        |      |  |      | 12,461 |     
|Depreciation and Amortization                                              |      |  |      | 2,354  |     
|
|Total Costs and Expenses                                                   |      |  |      | 46,551 |     
|
|Operating Income                                                           |      |  |      | 4,544  |     
|
|Other Expenses (Income):                                                   |      | 
|Interest Expense                                                           |      |  |      | 372    |     
|Amortization of:                                                           |      | 
|Financing Costs                                                            |      |  |      |       |     
|Original Issue Discount                                                    |      |  |      |       |     
|Other Income                                                               |      |  |      |       |     
|
|Total Other Expenses                                                       |      |  |      | 372    |     
|
|Income Before Taxes                                                        |      |  |      | 4,172  |     
|
|Income Tax Expense                                                         |      |  |      | 1,641  |     
|
|Net Income                                                                 |      |  |      | 2,531  |     
|
|Convertible Preferred Stock Dividends                                      |      |  |      | 151    |     
|
|Constructive Dividend Related to Redemption of Convertible Preferred Stock |      |  |      | 4,504  |     
|
|Net (Loss) Income Available to Common Stockholders                         |      |  | $    | (2,124 | )   
|
|Net (Loss) Income Per Basic Common Share                                   |      |  | $    | (0.35  | )   
|
|Net (Loss) Income Per Diluted Common Share                                 |      |  | $    | (0.35  | )   
|

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

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# MTS MEDICATION
TECHNOLOGIES, INC. AND SUBSIDIARIES  CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
YEARS ENDED MARCH 31, 2007, 2006 AND 2005(In Thousands; Except Shares)

|                                        | Preferred Stock |   | Common Stock |    | Capital |           | Accumulated |   | Retained |  |   |        |   |  |  
|--------------------------------------- | --------------- | - | ------------ | -- | ------- | --------- | ----------- | - | -------- |  | - | ------ | - |  | -
|
|
|
|
|Balance March 31, 2004                  | 2,000           |   | $            | 2  |         | 4,863,180 |             | $ | 49       |  | $ | 12,345 |   |  | $
|Tax Benefit of Stock Option Exercises   |                 |   |              |    |         |           |             |   |          |  |   | 506    |   |  |  
|Exercise of Stock Options and Warrants  |                 |   |              |    |         | 923,100   |             |   | 9        |  |   | 642    |   |  |  
|Stock Grants Issued                     |                 |   |              |    |         | 50,000    |             |   | 1        |  |   | 351    |   |  |  
|Acceleration of Option Vesting          |                 |   |              |    |         |           |             |   |          |  |   | 10     |   |  |  
|Convertible Preferred Stock Dividends   |                 |   |              |    |         |           |             |   |          |  |   | (220   | ) |  |  
|Comprehensive Income:                   |                 |   |              |    |         |           |             |   |          |  |   |        |   |  |  
|Net Income                              |                 |   |              |    |         |           |             |   |          |  |   |        |   |  |  
|Foreign Currency Translation Adjustment |                 |   |              |    |         |           |             |   |          |  |   |        |   |  |  
|Total Comprehensive Income              |                 |   |              |    |         |           |             |   |          |  |   |        |   |  |  
|
|Balance March 31, 2005                  | 2,000           |   | $            | 2  |         | 5,836,280 |             | $ | 59       |  | $ | 13,634 |   |  | $
|
|Tax Benefit of Stock Option Exercises   |                 |   |              |    |         |           |             |   |          |  |   | 187    |   |  |  
|Exercise of Stock Options and Warrants  |                 |   |              |    |         | 175,785   |             |   | 1        |  |   | 259    |   |  |  
|Stock Grants Issued                     |                 |   |              |    |         | 5,000     |             |   |         |  |   | 29     |   |  |  
|Convertible Preferred Stock Dividends   |                 |   |              |    |         |           |             |   |          |  |   | (222   | ) |  |  
|Comprehensive Income:                   |                 |   |              |    |         |           |             |   |          |  |   |        |   |  |  
|Net Income                              |                 |   |              |    |         |           |             |   |          |  |   |        |   |  |  
|Foreign Currency Translation Adjustment |                 |   |              |    |         |           |             |   |          |  |   |        |   |  |  
|Total Comprehensive Income              |                 |   |              |    |         |           |             |   |          |  |   |        |   |  |  
|
|Balance March 31, 2006                  | 2,000           |   | $            | 2  |         | 6,017,065 |             | $ | 60       |  | $ | 13,887 |   |  | $
|
|Tax Benefit of Stock Option Exercises   |                 |   |              |    |         |           |             |   |          |  |   | 212    |   |  |  
|Exercise of Stock Options               |                 |   |              |    |         | 221,600   |             |   | 2        |  |   | 860    |   |  |  
|Stock Grants Issued                     |                 |   |              |    |         | 5,000     |             |   |         |  |   | 31     |   |  |  
|Share-Based Compensation                |                 |   |              |    |         |           |             |   |          |  |   | 115    |   |  |  
|Redemption of Preferred Stock           | (2,000          | ) |              | (2 | )       |           |             |   |          |  |   | (6,218 | ) |  |  
|Convertible Preferred Stock Dividends   |                 |   |              |    |         |           |             |   |          |  |   | (151   | ) |  |  
|Comprehensive Income:                   |                 |   |              |    |         |           |             |   |          |  |   |        |   |  |  
|Net Income                              |                 |   |              |    |         |           |             |   |          |  |   |        |   |  |  
|Foreign Currency Translation Adjustment |                 |   |              |    |         |           |             |   |          |  |   |        |   |  |  
|Total Comprehensive Income              |                 |   |              |    |         |           |             |   |          |  |   |        |   |  |  
|
|Balance March 31, 2007                  |                |   | $            |   |         | 6,243,665 |             | $ | 62       |  | $ | 8,736  |   |  | $
|

The accompanying
notes are an integral part of this financial statement.

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# MTS MEDICATION
TECHNOLOGIES, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS
OF CASH FLOWS(In Thousands)

|                                                                                  | 2007 |  | 2006 |         | 2005
|--------------------------------------------------------------------------------- | ---- |  | ---- | ------- | ----
|
|Operating Activities                                                              |      |  |      |         |     
|Net Income                                                                        |      |  | $    | 2,531   |     
|Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: |      | 
|Depreciation and Amortization                                                     |      |  |      | 2,354   |     
|Amortization of Deferred Financing Costs                                          |      |  |      |        |     
|Tax Benefit of Options Exercised                                                  |      |  |      | (212    | )   
|Deferred Income Taxes                                                             |      |  |      | 823     |     
|Amortization of Original Issue Discount                                           |      |  |      |        |     
|Product Development Costs Written Off                                             |      |  |      |        |     
|Restricted Stock Grant Awarded                                                    |      |  |      | 31      |     
|Acceleration of Option Vesting                                                    |      |  |      |        |     
|Share-Based Compensation                                                          |      |  |      | 115     |     
|Amortization of Lease Incentive                                                   |      |  |      | (33     | )   
|Lease Incentive Received                                                          |      |  |      |        |     
|Loss on Disposal of Equipment                                                     |      |  |      | 17      |     
|Changes in Assets and Liabilities, Net of Acquisitions:                           |      |  |      |         |     
|Accounts Receivable                                                               |      |  |      | (1,810  | )   
|Inventories                                                                       |      |  |      | (244    | )   
|Prepaids and Other                                                                |      |  |      | (558    | )   
|Accounts Payable and Other Accrued Liabilities                                    |      |  |      | 1,449   |     
|
|Total Adjustments                                                                 |      |  |      | 1,932   |     
|
|Net Cash Provided by Operating Activities                                         |      |  |      | 4,463   |     
|
|Investing Activities                                                              |      | 
|Expended for Acquisition of Businesses Net of Cash Acquired                       |      |  |      | (453    | )   
|Expended for Property and Equipment                                               |      |  |      | (1,831  | )   
|Expended for Product Development                                                  |      |  |      | (511    | )   
|Expended for Patents and Other Assets                                             |      |  |      | (167    | )   
|Proceeds from Sale of Property and Equipment                                      |      |  |      | 4       |     
|
|Net Cash Used by Investing Activities                                             |      |  |      | (2,958  | )   
|
|Financing Activities                                                              |      |  |      |         |     
|Payments on Notes Payable and Long-Term Debt                                      |      |  |      | (1,259  | )   
|Payments on Related Party Note Payable                                            |      |  |      | (308    | )   
|Paydowns on Revolving Line of Credit                                              |      |  |      | (46,781 | )   
|Advances on Revolving Line of Credit                                              |      |  |      | 46,027  |     
|Expended for Financing Costs                                                      |      |  |      | (30     | )   
|Payments on Subordinated Notes                                                    |      |  |      |        |     
|Borrowing on Term Loans                                                           |      |  |      | 6,400   |     
|Tax Benefit of Options Exercised                                                  |      |  |      | 212     |     
|Proceeds from Exercise of Stock Options                                           |      |  |      | 862     |     
|Dividends on Convertible Preferred Stock                                          |      |  |      | (151    | )   
|Redemption of Preferred Stock                                                     |      |  |      | (6,483  | )   
|
|Net Cash Used by Financing Activities                                             |      |  |      | (1,511  | )   
|
|Effect of Exchange Rate Changes on Cash                                           |      |  |      | (149    | )   
|
|Net (Decrease) Increase in Cash                                                   |      |  |      | (155    | )   
|Cash at Beginning of Period                                                       |      |  |      | 447     |     
|
|Cash at End of Period                                                             |      |  | $    | 292     |     
|

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. The Company is a holding company that
operates through its subsidiaries, MTS Packaging Systems, Inc. (MTSP),
MTS Medication Technologies International, Ltd. (MTS Limited), BAF
Printers, Ltd. (BAF) and Consilio, GmbH (Consilio).

MTS
primarily manufactures and sells consumable medication punch cards, packaging equipment
and ancillary products throughout the United States. Its customers are predominantly
pharmacies that supply nursing homes, assisted living and correctional facilities with
prescription medications for their patients. MTS manufactures its proprietary consumable
punch cards and packaging equipment in its own facilities and also uses third parties to
manufacture packaging equipment. This manufacturing process uses integrated equipment for
manufacturing the consumable medication punch cards. The consumable medication punch cards
and packaging equipment are designed to provide a cost effective method for pharmacies to
dispense medications. The Companys medication dispensing systems and products
provide innovative methods for dispensing medications in consumable packages. MTS Limited
distributes products for MTS in the United Kingdom. In February 2006, the Company acquired
BAF, a United Kingdom based manufacturer of bags and labels for pharmacies. In February
2007, the Company acquired Consilio, a distributor of consumable packages in Germany.

# NOTE 2  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES

Consolidation

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

Use of Estimates

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

Cash

For
purposes of the statement of cash flows, the Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less to be cash
equivalents. As of March 31, 2007 and 2006, the Companys cash includes the United
States dollar equivalent of approximately $292,000 and $447,000, respectively, maintained
in banks primarily in the United Kingdom. There were no cash equivalents for all periods
presented.

Inventories

Inventories
are stated at the lower of cost or market. Cost is determined by the first-in, first-out
(FIFO) method. 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. The Company reviews various information
related to the age and turnover of specific inventory items to assist its assessment. As
of March 31, 2007 and 2006, the Company established an inventory valuation allowance of
approximately $340,000 and $192,000, respectively, to account for the estimated loss in
value of inventory due to obsolescence.

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Warranty

The
Company establishes a reserve for warranty costs it may incur during the warranty period
that is provided for in the machine sales agreements with its customers. The
warranty period is generally for a six-month period. Warranty and service costs incurred
during the periods ended March 31, 2007, 2006 and 2005 totaled approximately $416,000,
$310,000 and $224,000, 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 and service 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. 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
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. 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 $1,522,000, $1,502,000 and $1,340,000 for
fiscal years 2007, 2006 and 2005, respectively. Rebates and discounts are recorded at the
time they are earned by the customer.

There
were two customers whose sales accounted for approximately 23%, 22% and 23% of net sales
for fiscal years 2007, 2006 and 2005, respectively.

Accounts Receivable

Accounts
receivable includes amounts due from insurance companies for claims made pursuant to the
reinsurance policies in effect for the self-insurance medical health benefit plan and
trade accounts receivable.

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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
states that the Company collects from the customer and remits to the appropriate state.
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 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 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. As of March 31,
2007 and 2006, the Company has established an allowance for doubtful accounts of
approximately $149,000 and $236,000, respectively, to account for estimated 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 $663,000, $432,000 and $139,000 in research and development costs during
fiscal years 2007, 2006 and 2005, respectively.

All
costs incurred subsequent to the completion of research and development activities
associated with the products hardware components and the software components
achievement of technological feasibility are capitalized until the product is available
for general release to customers. The Company initially classifies the construction costs
of the first units produced for commercial use as product development costs prior to
transferring certain of these costs to inventory. The Company capitalized approximately
$511,000, $546,000 and $606,000 of product development costs during the years ended March
31, 2007, 2006 and 2005, respectively.

All
remaining product development costs are generally amortized on a straight-line basis over
a five (5) year period, the estimated useful life of the related asset. Amortization
expense related to product development costs was approximately $502,000, $468,000 and
$362,000 for the years ended March 31, 2007, 2006 and 2005, respectively.

At
March 31, 2007 and 2006, the Companys capitalized product development costs,
includes its OnDemand system, which represents $2,648,000 and $2,601,000, respectively, of
the total gross capitalized product development costs. During the year ended March 31,
2007 and 2006, the Company sold eight (8) and four (4) OnDemand systems, 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 SFAS No. 142, Goodwill and Other Intangible Assets, and
accordingly will not amortize goodwill, but will annually review it for impairment. Other
intangible assets acquired in the BAF and Consilio 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 Financial
Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets. In
performing the review for recoverability, the Company estimates the future cash flows
expected to result from the use of the assets and their eventual disposition. If the sum
of the expected future cash flows 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 in 2007, 2006 and 2005.

Earnings Per Share

Basic
earnings per share are 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 and the if converted
method as it relates to the outstanding convertible preferred stock prior to redemption.

Income Taxes

Income
taxes are provided for under the liability method in accordance with FASB No. 109,
Accounting for Income Taxes, whereby deferred tax assets are recognized for
deductible temporary differences and operating loss and tax credit carryforwards and
deferred tax liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and liabilities and
their tax 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. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.

Treasury Stock

The
Company records its treasury stock at cost.

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. At March 31, 2007, the Company had 2,100,000 shares of common stock
authorized for awards of share-based compensation under its Stock Incentive Plan (the
Plan). As of March 31, 2007, options to purchase 763,250 shares were
outstanding and there were no options available for issuance under the Plan.

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On
April 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123
(revised 2004), Share-Based Payment (FAS No. 123R). Accordingly, the Company
is now recognizing share-based compensation expense for all awards granted to employees,
which is based on the fair value of the award on the date of grant. The Company adopted
FAS No. 123R under the modified prospective transition method and, consequently,
prior period results have not been restated. Under this transition method, in fiscal 2007,
the Companys reported share-based compensation expense includes expense related to
share-based compensation awards granted subsequent to April 1, 2006, which is based on the
grant date fair value estimated in accordance with the provisions of FAS No. 123R, as
well as any unrecognized compensation expense related to non-vested awards that were
outstanding as of the date of adoption. Prior to April 1, 2006, the Company applied APB
Opinion No. 25 Accounting for Stock Issued to Employees (APB
25) in accounting for its employee share-based compensation and applied FAS
No. 123 Accounting for Stock Issued to Employees (FAS No.
123) for disclosure purposes only. Under APB 25, the intrinsic value method was used
to account for share-based employee compensation plans and compensation expense was not
recorded for awards granted with no intrinsic value. The FAS No. 123 disclosures
include pro forma net earnings (loss) and earnings (loss) per share as if the fair
value-based method of accounting had been used. Determining the appropriate fair value
model and calculating the fair value of share-based compensation awards requires the input
of certain highly complex and subjective assumptions, including the expected life of the
share-based compensation awards, the Companys common stock price volatility, and the
rate of employee forfeitures. The assumptions used in calculating the fair value of
share-based compensation awards represent managements best estimates, but these
estimates involve inherent uncertainties and the application of judgment. As a result, if
factors change and the Company deems it necessary to use different assumptions,
share-based compensation expense could be materially different from what has been recorded
in the current period.

For
the year ended March 31, 2007, the Company recorded approximately $146,000 of pre-tax
share-based compensation expense under FAS No. 123R, in selling and administrative
expense in the Consolidated Statement of Earnings. This expense was offset by
approximately $47,000 of tax benefits for non-qualified sharebased compensation.

Stock Options and
Restricted Stock

The
following disclosures provide information regarding the Companys share-based
compensation awards, all of which are classified as equity awards in accordance with FAS
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, 2007,
2006 and 2005, 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 $31,000 ($19,000
net of tax) during the year ended March 31, 2007 and approximately $29,000 ($18,000 net
of tax) during the years ended March 31, 2006 and 2005 based on the fair value of the
shares at the date of grant.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Stock Options
and Warrants 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 immediately, however, the Company has granted options that vest over three
years. The Company granted 21,750 options to members of the Board of Directors during the
year ended March 31, 2007. 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
has 5,900 warrants outstanding at an exercise price of $1.88 per share as of March 31,
2007, which expire in 2009. These warrants were issued in 1998 and no new warrants have
been issued since that time. There has been no activity relating to the warrants during
the year ended March 31, 2007.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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During
the year ended March 31, 2007, the Company received approximately $862,000 in cash from
stock option exercises. A tax benefit of approximately $212,000 was recorded in the
statement of changes in stockholders equity. As of March 31, 2007, the Company has
unrecognized compensation cost of approximately $19,000 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.

Recent Accounting
Pronouncements

In
July 2006, FASB issued FASB Interpretation 48, Accounting for Uncertainty in Income
Taxes: an Interpretation of FAS No. 109. Interpretation 48, which
clarifies FAS No. 109, Accounting for Income Taxes, establishes the criterion
that an individual tax position has to meet for some or all of the benefits of that
position to be recognized in the Companys financial statements. On initial
application, Interpretation 48 will be applied to all tax positions for which the statute
of limitations remains open. Only tax positions that meet the more-likely-than-not
recognition threshold at the adoption date will be recognized or continue to be
recognized. The cumulative effect of applying Interpretation 48 will be reported as an
adjustment to retained earnings at the beginning of the period in which it is adopted.
Interpretation 48 is effective for fiscal years beginning after December 15, 2006,
and will be adopted by the Company on April 1, 2007. The Company is in the process of
finalizing its analysis and believes that the adoption of Interpretation 48 will result in
an adjustment to reduce retained earnings and increase liabilities by at least $400,000.

In
June 2006, the Emerging Issues Task Force reached a consensus on Issue No. 06-3
(EITF 06-3), Disclosure Requirements for Taxes Assessed by a
Governmental Authority on Revenue-Producing Transactions. The consensus allows
companies to choose between two acceptable alternatives based on their accounting policies
for transactions in which the company collects taxes on behalf of a governmental
authority, such as sales taxes. The guidance should be applied to financial reports
through retrospective application for all periods presented, if amounts are significant,
for interim and annual reporting beginning after February 1, 2007 and will be adopted
by the Company on April 1, 2007. We do not expect the adoption of EITF 06-3 to have a
material effect on our consolidated financial statements.

In
September 2006, the FASB issued FAS No. 157, Fair Value Measurements. FAS
No. 157 defines fair value, establishes a framework for measuring fair value and
enhances disclosures about fair value measurements required under other accounting
pronouncements, but does not change existing guidance as to whether or not an instrument
is carried at fair value. FAS No. 157 is effective for fiscal years beginning after
November 15, 2007, the year beginning April 1, 2008 for the Company. The Company
is currently reviewing the provisions of FAS No. 157 to determine the impact on its
consolidated financial statements.

In
September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering the
Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements. SAB No. 108 provides guidance regarding the consideration of
the effects of prior year misstatements in quantifying current year misstatements for the
purpose of materiality assessments. The method established by SAB No. 108 requires
each of our financial statements and the related financial statement disclosures to be
considered when quantifying and assessing the materiality of the misstatement. The
provisions of SAB No. 108 apply to our financial position and results of operations
for the fiscal year ended March 31, 2007 and did not have a material impact on our
financial position or results of operations.

In
February 2007, the FASB issued FAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities which permits entities to choose to measure many
financial instruments and certain other items at fair value that are not currently
required to be measured at fair value. FAS No. 159 will be effective for the Company
on April 1, 2008. The Company is currently evaluating the impact of adopting FAS
No. 159 on its financial position, cash flows, and results of operations.

38

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A
variety of proposed or otherwise potential accounting standards are currently under study
by standard-setting organizations and various regulatory agencies. Because of the
tentative and preliminary nature of these proposed standards, management has not
determined whether implementation of such proposed standards would be material to the
Companys consolidated financial statements.

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. Foreign currency gains for the year ended March 31, 2007 were
approximately $135,000. Foreign currency gains for the years ended March 31, 2006 and 2005
were not significant to the consolidated results of operations.

# NOTE 3  ACCOUNTS
RECEIVABLE

Accounts
receivable are shown net of an allowance for doubtful accounts of $149,000 and $236,000 at
March 31, 2007 and 2006, respectively. The changes in the allowance for doubtful accounts
are summarized as follows:

|                                                | March 31, 2007 |  | March 31, 2006
|----------------------------------------------- | -------------- |  | --------------
|
|                                                | (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, 2007 and 2006, three
customers comprised approximately 18% and 17%, respectively, of the total outstanding
accounts receivable, and one of those customers represented 8% for both years, of the
total outstanding accounts receivable.

# NOTE 4  INVENTORIES

Inventories
consist of the following:

|                                     | March 31, 2007 |  | March 31, 2006
|------------------------------------ | -------------- |  | --------------
|
|                                     | (In Thousands)
|Raw Material                         |                |  | $             
|Finished Goods and Work In Progress  |                |  |               
|Less:  Inventory Valuation Allowance |                |  |               
|
|                                     |                |  | $             
|

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

|                           | March 31, 2007 |  | March 31, 2006
|-------------------------- | -------------- |  | --------------
|
|                           | (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 5  PROPERTY
AND EQUIPMENT

Property
and equipment consists of the following:

|                                                        | March 31, 2007 |  | March 31, 2006
|------------------------------------------------------- | -------------- |  | --------------
|
|                                                        | (In Thousands)
|Property and Equipment                                  |                |  | $             
|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
$1,538,000, $1,565,000 and $1,242,000 for fiscal years ending March 31, 2007, 2006 and
2005, respectively.

The
Company performed a physical inventory of its property and equipment during the fiscal
year ending March 31, 2006, which resulted in $399,000 of additional depreciation expense.

40

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# NOTE 6  OTHER
ASSETS AND OTHER INTANGIBLE ASSETS

Other
assets consist of the following:

|                                           | Amortization Period |        | March 31, |   | March 31,
|------------------------------------------ | ------------------- | ------ | --------- | - | ---------
|
|
|                                           | (In Thousands)     
|
|Product Development                        |                     | 3  5  |           | $ | 3,760    
|Less:  Accumulated
         Amortization   |                     |        |           |   | (2,205   
|
|                                           |                     |        |           | $ | 1,555    
|
|
|Patents                                    |                     | 5  17 |           | $ | 2,639    
|Less:  
        Accumulated Amortization   |                     |        |           |   | (1,831   
|
|                                           |                     |        |           | $ | 808      
|
|
|Financing Costs                            |                     | 3  5  |           | $ | 162      
|Less:  
          Accumulated Amortization |                     |        |           |   | (120     
|
|                                           |                     |        |           | $ | 42       
|
|
|Other                                      |                     |        |           | $ | 102      
|
|Total Other Assets, Net                    |                     |        |           | $ | 2,507    
|

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

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

| |                                                                          |  | (In Thousands)
| | ------------------------------------------------------------------------ |  | --------------
| |                                                                          |  |               
| | 2008
        ........................................................... |  | $             
| | 2009
        ........................................................... |  | $             
| | 2010
        ........................................................... |  | $             
| | 2011
      ...........................................................   |  | $             
| | 2012
       ...........................................................  |  | $             
| | Thereafter
       .................................................      |  | $             

Patent
amortization expense was approximately $258,000, $260,000 and $288,000 for the fiscal
years ended March 31, 2007, 2006 and 2005, respectively.

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Other
intangible assets consist of the following:

|                                         | Amortization Period |       | March 31, |   | March 31,
|---------------------------------------- | ------------------- | ----- | --------- | - | ---------
|
|
|                                         | (In Thousands)     
|
|Customer Relationship                    |                     | 15    |           | $ | 751      
|Less:  Accumulated
         Amortization |                     |       |           |   | (37      
|
|                                         |                     |       |           | $ | 714      
|
|
|Non-Compete                              |                     | 2  7 |           | $ | 106      
|Less:  
        Accumulated Amortization |                     |       |           |   | (12      
|
|                                         |                     |       |           | $ | 94       
|
|
|Total Other Intangible Assets, Net       |                     |       |           | $ | 808      
|

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

| |                                                                          |  | (In Thousands)
| | ------------------------------------------------------------------------ |  | --------------
| |                                                                          |  |               
| | 2008
        ........................................................... |  | $             
| | 2009
        ........................................................... |  | $             
| | 2010
        ........................................................... |  | $             
| | 2011
      ...........................................................   |  | $             
| | 2012
       ...........................................................  |  | $             
| | Thereafter
       .................................................      |  | $             

Amortization expense for other intangible assets was approximately $45,000, $4,000 and $0
for the fiscal years ended March 31, 2007, 2006 and 2005, respectively.

# NOTE 7  ACCOUNTS
PAYABLE AND ACCRUED LIABILITIES

Accounts
payable and accrued liabilities consist of the following:

|                                            | March 31, 2007 |  | March 31, 2006
|------------------------------------------- | -------------- |  | --------------
|
|                                            | (In Thousands)
|
|Accounts Payable/Trade                      |                |  | $             
|Accrued Liabilities:                        |                | 
|Salaries, Commissions and Employee Benefits |                |  |               
|Income, Franchise and Sales Taxes           |                |  |               
|Other                                       |                |  |               
|                                            |                |  |               
|                                            |                |  | $             
|                                            |                |  |               

Accounts payable
trade includes outstanding checks of approximately $1,095,000 and
$618,000 as of March 31, 2007 and 2006, respectively.

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# NOTE 8  LONG-TERM
DEBT AND RELATED PARTY NOTE PAYABLE

Long-term
debt consists of the following:

|                                                                                                                                                                                                   | March 31,      |  | March 31,
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- |  | ---------
|
|
|                                                                                                                                                                                                   | (In Thousands)
|
|
|Term loan payable in monthly
installments of $178,000 through June 2009 and one final installment of $1,067,000 in July
2009 plus interest at 0.75% above the prime rate (9.0% at March 31, 2007). |                |  | $        
|
|Revolving line of credit due July
2009 plus interest payable monthly at the prime rate (8.25% at March 31, 2007).                                                                                  |                |  |          
|
|Term loan payable in graduated
monthly installments of $32,000  $52,000 plus interest at 0.50% above the prime rate
(8.75% at March 31, 2007) through July 2007.                                  |                |  |          
|
|Note payable to related party payable
in monthly installments of $28,785 including interest at 6.25% through July 2008.                                                                            |                |  |          
|
|Capital
leases expiring at various times through fiscal year 2010 at interest rates ranging from 6.29% to 9.5%.                                                                                    |                |  |          
|
|Other Notes and Agreements                                                                                                                                                                         |                |  |          
|
|Total Long-Term Debt                                                                                                                                                                               |                |  |          
|
|Less Current Portion (including $328,000
        and $308,000, respectively due to a related party).                                                                                               |                |  |          
|
|Long-Term Debt Due After One Year                                                                                                                                                                  |                |  | $        
|

The
note payable to a related party results from amounts due to the Siegel Family Trust
(Trust) pursuant to an asset purchase agreement between the Company and the
Trust that was entered into in 2003 to purchase rights to certain proprietary technology.

In
December 2006, the Company and its secured lender entered into an amendment to its loan
and security agreement. The amendment provided, among other things, for a $6.4 million
term loan. In addition, the amendment extended the maturity date of the revolving credit
note to July 2009 and reduced the maximum amount eligible to be borrowed from $8,500,000
to $5,000,000.

The
revolving line of credit and bank term loans are collateralized by a first security
interest in all of the assets of the Company. There was approximately $1.6 million
borrowed and an additional $3.4 million available on the Companys revolving line of
credit at March 31, 2007 based upon eligible collateral.

The
revolving line of credit and bank term loans contain provisions that require the Company
to maintain certain financial covenants that, among other things, require the maintenance
of tangible net worth, debt service coverage ratios and total debt to EBITDA ratios. In
addition, certain provisions limit the amount of annual capital expenditures and require
lender approval for certain matters. The Company was in compliance with all provisions of
the loan agreements as of March 31, 2007.

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At
March 31, 2007, the Company also had a $1,000,000 line of credit available for purchases
of equipment. Advances on the line of credit are repayable over a three-year term. There
were no amounts outstanding on this line of credit at March 31, 2007 or 2006.

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, 2007:

| |                                                                          |  | (In Thousands)
| | ------------------------------------------------------------------------ |  | --------------
| |                                                                          |  |               
| | 2008
        ........................................................... |  | $             
| | 2009
        ........................................................... |  | $             
| | 2010
        ........................................................... |  | $             

Interest
expense for the years ended March 31, 2007, 2006 and 2005 amounted to approximately
$372,000, $322,000 and $613,000, respectively, of which $38,000, $56,000 and $74,000,
respectively, represent related party interest.

# NOTE 9  LEASE
COMMITMENTS

The following
is a schedule by year of future minimum rental payments required under operating leases,
primarily facility leases that have an initial or remaining non-cancelable lease term in
excess of one year as of March 31, 2007.

| |                                                                          |  | (In Thousands)
| | ------------------------------------------------------------------------ |  | --------------
| |                                                                          |  |               
| | 2008
        ........................................................... |  | $             
| | 2009
        ........................................................... |  | $             
| | 2010
        ........................................................... |  | $             
| | 2011
      ...........................................................   |  | $             
| | 2012
       ...........................................................  |  | $             
| | Thereafter
       .................................................      |  | $             

The
Company currently leases approximately 132,500 square feet consisting of office space and
air-conditioned manufacturing and warehousing space at 2003 Gandy Boulevard North, Suite
800, St. Petersburg, Florida. The lease term is for 12 years ending September 30, 2016.
The Companys corporate administrative offices and the primary manufacturing
facilities for MTS are at this location. The monthly lease payments are currently $62,000
plus tax and increase to $80,000 plus tax in the final year. In addition, The Company is
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 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 $319,000 and $237,000 at March 31, 2007 and 2006, respectively.

In
addition, the Company was paid $400,000 by its landlord when the 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.

MTS
also leases approximately 5,200 square feet at approximately $3,200 per month for office
and warehouse space at 21530 Drake Road, Cleveland, Ohio. The lease expires on March 31,
2008.

MTS
Medication Technologies International, Ltd. 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 $3,400. The lease expires on May 20, 2009 and
is cancellable at any time with six months notice.

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As
part of the BAF acquisition, the Company entered into a premises lease with the previous
owners of BAF for approximately 12,000 square feet of office and manufacturing space. The
lease is for a term of three years beginning on February 22, 2006, and the monthly lease
payments are approximately $4,500. In addition, the Company is obligated to pay annual
operating expenses (i.e., insurance, utilities and property taxes).

Rent
expense amounted to approximately $1,258,000, $1,134,000 and $788,000 for the years ended
March 31, 2007, 2006 and 2005 respectively.

# NOTE 10 
ACQUISITIONS

In
February 2007, the Company acquired all of the outstanding shares of Consilio. The
acquisition was made to assist the Company with its plans to introduce its products into
Germany. The total purchase price of the acquisition was $733,000 and included $331,000 of
cash paid, $252,000 of assumed liabilities and $150,000 of transaction fees and expenses.

In
addition, the Company may pay an additional $390,000 over the next five (5) years if the
operations of Consilio meet certain financial performance objectives. The acquisition was
accounted for under the purchase method of accounting and accordingly, the amount paid at
closing was allocated based on the fair value of the assets acquired and liabilities
assumed. The amount of contingent consideration that may be payable has not been recorded
because of the uncertainty as to whether the amount will ultimately be paid. However, the Company
would record any future payment or accrual of contingent consideration as an adjustment to goodwill.

The
purchase price was allocated as follows:

|                       | 
|---------------------- | 
|Current Assets         | 
|Property and Equipment | 
|Goodwill               | 
|Customer Relationship  | 
|Non-Compete Agreement  | 
|Other                  | 
|                       | 
|                       | 
|                       | 

The
amount of the purchase price that was allocated to other intangible assets will be
amortized over a period of fifteen (15) years for the customer relationships and two (2)
years for the non-competition agreements. The amount of amortization expense that is
expected to be recorded in each of the next five (5) years is approximately $42,000
assuming a weighted average amortization period of 13 years. The goodwill is attributable to the general
reputation of the business and the collective experience of management and employees.  Any impairment
charges related to goodwill and any amortization of other intangibles will not be deductible for tax
purposes.

In
February 2006, the Company acquired all of the outstanding shares of BAF. The acquisition
was made to assist the Company with its plans to expand operations in the United Kingdom.
The total purchase price was $2,349,000 and included $1,034,000 of cash paid, $1,148,000
of assumed liabilities and $167,000 of transaction fees and expenses. The purchase price
was funded with the proceeds of an advance on the Companys revolving line of credit.
The acquisition was accounted for under the purchase method of accounting and accordingly,
the purchase price was allocated based on the fair value of the assets acquired and
liabilities assumed.

The
results of Consilio during the period February 6, 2007 to March 31, 2007 have been
included in the Companys consolidated statement of operations. The pro-forma results
of Consilio are not material for purpose of presentation in the footnotes.

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The
purchase price was allocated as follows:

|                       | 
|---------------------- | 
|Current Assets         | 
|Property and Equipment | 
|Goodwill               | 
|Customer Relationship  | 
|Non-Compete Agreement  | 
|Other                  | 
|                       | 
|                       | 
|                       | 

In
addition, the Company has placed $87,000 in escrow that will be paid to the sellers if
there are no claims against them related to any representations or warranties contained in
the purchase agreement. Also, if certain financial performance objectives are achieved in
the future, the sellers may be paid an additional $174,000 of contingent consideration.
The Company has recorded the escrow amount as a deposit and has not recorded the
contingent consideration because of the uncertainty as to whether the amount will
ultimately be paid. If either of the above payments are made to the sellers in the future,
the amounts will be recorded as goodwill.

The
results of BAF during the period February 22, 2006 to March 31, 2007 have been included in
the Companys Consolidated Statements of Operation.

The
amount of the purchase price that was allocated to other intangible assets will be
amortized over a period of seven (7) years for the non-compete agreements and fifteen (15)
years for the customer relationship intangible. The amount of amortization expense that is
expected to be recorded in each of the next five (5) years is approximately $35,000. The goodwill is attributable to the general
reputation of the business and the collective experience of management and employees.  Any impairment
charges related to goodwill and any amortization of other intangibles will not be deductible for tax
purposes.

# NOTE 11  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,
2007, 2006 and 2005, the Company made matching contributions of approximately $40,000,
$54,000 and $42,000, respectively, to the Plan.

# NOTE 12  SELF
INSURANCE PLAN

The Company
has a medical health benefit self-insurance plan, which covers substantially all of its
employees. During the year ended March 31, 2007, the Company was reinsured for claims that
exceed $100,000 per participant and an annual maximum aggregate limit of approximately
$943,000. Reinsurance limits for the fiscal year ending March 31, 2008 remained at
$100,000 per participant and increased to $1,039,000 in the aggregate. 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 $95,000
and $90,000 at March 31, 2007 and 2006, respectively, for all unpaid claims incurred and
reported during fiscal year 2007 and an estimate of claims incurred during fiscal year
2007 that have not been reported as of March 31, 2007. Self insured medical claims costs
incurred during the periods ended March 31, 2007, 2006 and 2005 totaled approximately
$885,000, $469,000 and $591,000, respectively. During the year ended March 31, 2007, the
Company incurred claims that exceeded the $100,000 limit per participant, and as a result
received $48,000 in reimbursements from the insurance carrier and expect to receive an
additional $101,000 during the subsequent fiscal year.

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# NOTE 13  TAXES

The
components of income tax expense is as follows:

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

Total
income tax expense for 2007, 2006 and 2005 resulted in effective tax rates of 39.3%, 42.0%
and 42.7%, respectively. The differences between these effective tax rates and the United
States statutory rate are as follows:

|                                            | Years Ended March 31,
|------------------------------------------- | ---------------------
|
|
|
|                                            | (In Thousands)       
|
|Tax Expense at United States Statutory Rate |                      
|State Income Tax, Net                       |                      
|Provision for State Tax Uncertainties       |                      
|Other Items                                 |                      
|
|                                            |                      
|

Although
the Company has operations in foreign countries, to date, there has been no material
taxable income attributable to those operations in the foreign countries.

Deferred
taxes consist of the following:

|                                       | March 31, 2007 |  | March 31, 2006
|-------------------------------------- | -------------- |  | --------------
|
|                                       | (In Thousands)
|
|Current:                               |                |  |               
|Deferred Tax Assets:                   |                | 
|Tax Loss Carryforward                  |                |  | $             
|Reserves and Provisions                |                |  |               
|Inventory Valuation Allowance          |                |  |               
|Allowance for Doubtful Accounts        |                |  |               
|
|Current Deferred Tax Assets, Net       |                |  |               
|
|Noncurrent:                            |                | 
|Deferred Tax Assets:                   |                |  |               
|Reserves and Provisions                |                |  |               
|
|Noncurrent Deferred Tax Asset          |                |  |               
|
|Deferred Tax Liability:                |                | 
|Depreciation / Amortization            |                |  |               
|
|Noncurrent Deferred Tax Liability      |                |  |               
|
|Noncurrent Deferred Tax Liability, Net |                |  |               
|
|Net Deferred Tax Liability             |                |  | $             
|

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# NOTE 14 
STOCKHOLDERS EQUITY

Stockholders
Equity consists of the following:

|                           | March 31, 2007 |        | March 31, 2006 |        | March 31, 2005
|-------------------------- | -------------- | ------ | -------------- | ------ | --------------
|
|
|Par Value $.001 Per Share: |                |        |                |        |               
|Authorized Shares          |                | 10,000 |                | 10,000 |               
|Issued Shares              |                |       |                | 2,000  |               
|Outstanding Shares         |                |       |                | 2,000  |               

|                          | March 31, 2007 |            | March 31, 2006 |            | March 31, 2005
|------------------------- | -------------- | ---------- | -------------- | ---------- | --------------
|
|
|Par Value $.01 Per Share: |                |            |                |            |               
|Authorized Shares         |                | 25,000,000 |                | 25,000,000 |               
|Outstanding Shares        |                | 6,243,605  |                | 6,017,005  |               
|Issued Shares             |                | 6,243,665  |                | 6,017,065  |               

# Series A Convertible
Participating Preferred Stock

In
December 2006, the Company entered into an agreement with an investor to redeem 2,000
shares of its convertible preferred stock. The convertible preferred stock had been
outstanding since 2002, paid a dividend of 11 percent, or $220,000 annually, and was
convertible into 847,457 shares of common stock. The Company paid the investor
approximately $6.5 million, or $7.65 per common share equivalent, as well as a $20,000
transaction fee, to fully redeem all of the outstanding shares of convertible preferred
stock held by the investor and completely satisfy all of its obligations under the
convertible preferred stock agreement.

The
Company recorded a constructive dividend of approximately $4.5 million, or $0.74 per
diluted common share, associated with the redemption which represents the amount by which
the payment to the investor exceeded the carrying value of the convertible preferred stock
on the date of redemption. The payment was funded with the proceeds of an overadvance term
loan provided by the Companys secured lender.

# Stock Options

MTS
Medication Technologies, Inc. Stock Incentive Plan (the Plan) provides for the
granting to employees of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code. A total of 2,100,000 shares of common stock are reserved for
issuance under the Plan. As of March 31, 2007, options to purchase 763,250 shares were
outstanding and there were no options available for issuance under the Plan.

Incentive
stock options generally contain terms that provide for vesting over a period of three
to five years and expire at the time the recipient ceases to be employed by the Company or
ten years, whichever occurs first, however, options granted in the fiscal year ended March
31, 2006 vested on the grant date.

In
connection with the exercise of options under the Companys Stock Incentive Plan,
during the fiscal years ended March 31, 2007 and 2006, tax benefits to the Company of
$212,000 and $187,000, respectively, were recorded as additional paid in capital.

48

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Activity
related to options is as follows:

Table of Contents

|                              |  |           |   |  | Weighted Average
|----------------------------- |  | --------- | - |  | ----------------
|
|
|
|
|                              |  |           |   |  |                 
|Outstanding at March 31, 2004 |  | 1,171,300 |   |  | $               
|Granted in Fiscal 2005:       |  |          
|Officers and Directors        |  | 275,000   |   |  | $               
|Employees                     |  | 160,000   |   |  | $               
|Options Exercised             |  | (356,583  | ) |  | $               
|Options Expired               |  | (156,917  | ) |  | $               
|
|Outstanding at March 31, 2005 |  | 1,092,800 |   |  | $               
|Granted in Fiscal 2006:       |  |          
|Officers and Directors        |  | 5,000     |   |  | $               
|Employees                     |  | 220,000   |   |  | $               
|Options Exercised             |  | (93,900   | ) |  | $               
|Options Expired               |  | (175,300  | ) |  | $               
|
|Outstanding at March 31, 2006 |  | 1,048,600 |   |  | $               
|Granted in Fiscal 2007:       |  |          
|Officers and Directors        |  | 21,750    |   |  |                 
|Employees                     |  | 7,500     |   |  | $               
|Options Exercised             |  | (221,600  | ) |  | $               
|Options Expired               |  | (93,000   | ) |  | $               
|
|Outstanding at March 31, 2007 |  | 763,250   |   |  | $               
|

Outstanding Options

|                |  |         |  | Weighted Average |  |      
|--------------- |  | ------- |  | ---------------- |  | -----
|
|
|
|$1.45 -   $2.30 |  | 238,500 |  | 4.0              |  | $1.55
|$2.50 -   $5.00 |  | 163,500 |  | 5.3              |  | $3.45
|$5.60 - $12.45  |  | 361,250 |  | 8.3              |  | $6.43

# Exercisable Shares

|                |  |         |  | Weighted Average |  |      
|--------------- |  | ------- |  | ---------------- |  | -----
|
|
|
|$1.45 -   $2.30 |  | 238,500 |  | 4.0              |  | $1.55
|$2.50 -   $5.00 |  | 131,500 |  | 5.1              |  | $3.32
|$5.60 - $12.45  |  | 356,250 |  | 8.3              |  | $6.41

49

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The
options outstanding at March 31, 2007 expire on various dates commencing in October 2005
and ending in March 2014.

At
March 31, 2007, exercisable options had aggregate intrinsic values of approximately
$5,038,000. At March 31, 2007, exercisable warrants had aggregate intrinsic values of
approximately $55,000. At March 31, 2007, outstanding options had aggregate intrinsic values of
approximately $5,284,000.

Options
exercised during the year ended March 31, 2007, had intrinsic values of approximately
$1,628,000. The Company granted 21,750 options to the members of the Board of Directors
during the year ended March 31, 2007. The weighted average grant date fair value for
options issued during the year ended March 31, 2007, 2006 and 2005 was $4.36, $3.65 and
$4.44, respectively. The weighted average grant date fair value of the Companys
options to which share-based compensation expense was recognized during the year ended
March 31, 2007 was $4.02. 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.
|--- | ------------------------------------------------------------------------------------------------------------------------

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Reported
net earnings for the years ended March 31, 2006 and 2005, adjusting for share-based
compensation that would have been recognized if FAS No. 123R had been followed, is as
follows:

|                                                                                                                                                      | Year Ended March 31,                    
|----------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------
|
|
|
|                                                                                                                                                      | (In Thousands; Except Per Share Amounts)
|
|Net Income Available to Common Stockholders as Reported                                                                                               |                                         
|
|Add:  Total share-based employee compensation programs
        recorded as expense, net of tax.                                                       |                                         
|Deduct:  Total share-based employee compensation
        expense determined under fair value-based method for all awards, net of related tax effects. |                                         
|
|Pro Forma Net Income (Loss)                                                                                                                           |                                         
|
|Net Income (Loss) per Common Share:                                                                                                                   |                                         
|Basic - as reported                                                                                                                                   |                                         
|Basic - pro forma                                                                                                                                     |                                         
|Diluted - as reported                                                                                                                                 |                                         
|Diluted - pro forma                                                                                                                                   |                                         
|
|Weighted Average Share Outstanding - Basic                                                                                                            |                                         
|Weighted Average Share Outstanding - Diluted                                                                                                          |                                         

# NOTE 15  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.

The
diluted net income per common share for the fiscal years ended March 31, 2007, 2006 and
2005 included the dilutive effect of 2,000 shares of convertible preferred stock which
assumes conversion of the preferred stock using the if converted method. Under
that method the convertible preferred shares are assumed to be converted to common shares
(weighted for the number of days assumed to be outstanding during the period) and
dividends associated with the preferred shares are added back to net income available to
common stockholders. For purposes of the if converted calculation, 571,112
shares of common stock was assumed to be converted for the twelve months ended March 31,
2007, and 847,457 shares of common stock was assumed to be converted for the twelve months
ended March 31, 2006 and 2005. Additionally, dividends of $150,944, $222,000 and $220,000
for the twelve months ended March 31, 2007, 2006 and 2005, respectively, were added back
to net income available to common stockholders for purposes of calculating diluted
earnings per share using this method.

51

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

|                                                                      | Year Ended March 31,                             
|--------------------------------------------------------------------- | -------------------------------------------------
|
|
|
|                                                                      | (In Thousands, Except Earnings Per Share Amounts)
|Numerator:                                                            |                                                  
|
|Net (Loss) Income Available to Common Stockholders                    |                                                  
|
|Denominator:                                                          |                                                  
|
|Add:                                                                  |                                                  
|
|Weighted Average Shares Outstanding - Basic                           |                                                  
|
|Effect of Dilutive Options and Warrants                               |                                                  
|
|Effect of Conversion of Convertible Preferred Stock into Common Stock |                                                  
|
|Weighted Average Shares Outstanding - Diluted                         |                                                  
|
|Net (Loss) Income Per Common Share - Basic                            |                                                  
|
|Net (Loss) Income Per Common Share - Diluted                          |                                                  
|

The
effect of 8,500, 254,500 and 9,800 options were not included in the calculation of net
income per diluted common share for fiscal years March 31, 2007, 2006 and 2005, respectively, as the
effect would have been anti-dilutive.

The
 effect of outstanding  options,  warrants and shares of common  stock  that  could be
issued  upon  conversion  of the  convertible  preferred  stock of approximately
1,001,000 shares have not been included in the  calculation  of the loss per common
share for the fiscal year ended 2007 because the effect would have been anti-dilutive.

# NOTE 16 
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 the outsourced manufacturing of
products for resale as follows:

|                                                                                                        |           
|------------------------------------------------------------------------------------------------------- | ----------
|Capital equipment expected to be placed in service during the fiscal year ending March 31, 2008.        | $2,122,000
|                                                                                                        |           
|Materials used for manufacture products for resale in the fiscal years ending March 31, 2008 and 2009.  | $1,524,000
|                                                                                                        |           
|Outsourced manufacturing of products for resale during the fiscal years ending March 31, 2008 and 2009. | $8,962,000

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 are not expected to have a material adverse effect on the financial position,
results of operations or liquidity of the Company.

52

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The
Company has entered into certain agreements, which require the Company to potentially make
certain payments to members of senior 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.

# NOTE 17  SUBSEQUENT
EVENT

In
May 2007, the Company entered into an agreement to sell its largest customer twenty-four
(24) OnDemand machines and also provide ongoing maintenance and support services for the
machines upon the completion of installation of the machines. The machines are expected to
be delivered to the customer over an eighteen-month period commencing in July 2007. The
revenue associated with the sale of the machines will be recognized at the time the
customer accepts each machine after it has been installed and operating according to the
performance specifications contained in the agreement. It is anticipated that the
acceptance of the twenty-four (24) machines will occur at various times during the
eighteen-month delivery period. The maintenance and support service agreements will begin
at the time each machine is accepted. The agreement also contains terms that could result
in rebates and/or penalties if certain events occur.

The
revenue associated with the sale of the machines will be
approximately $13,000,000 - $14,000,000 over the term of the agreement and that the recurring revenue
associated with the maintenance and support services will be approximately $992,000
annually once all twenty (24) machines are installed.

# NOTE 18  SEGMENT
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 and intercompany sales were recorded at
values that approximate fair value exchanges between unrelated parties. Management
evaluates the Companys business performance on a geographic basis based upon the
country in which the sales originates.

53

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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:

|                                | United States  |  | United Kingdom |        | Germany |   | Elimination |   | Consolidated
|------------------------------- | -------------- |  | -------------- | ------ | ------- | - | ----------- | - | ------------
|
|                                | (In Thousands)
|2007                            |                |  |                |        |         |   |             |   |             
|Sales to Unaffiliated Customers |                |  | $              | 44,028 |         | $ | 6,931       |   |             
|Intercompany Sales              |                |  | $              | 2,163  |         | $ |            |   |             
|Operating Income                |                |  | $              | 4,436  |         | $ | 90          |   |             
|Identifiable Assets             |                |  | $              | 20,598 |         | $ | 4,321       |   |             
|Depreciation and Amortization   |                |  | $              | 2,147  |         | $ | 200         |   |             
|Capital Expenditures            |                |  | $              | 1,773  |         | $ | 58          |   |             
|
|2006                            |                |  |                |        |        
|Sales to Unaffiliated Customers |                |  | $              | 38,886 |         | $ | 3,636       |   |             
|Intercompany Sales              |                |  | $              | 1,595  |         | $ |            |   |             
|Operating Income                |                |  | $              | 3,089  |         | $ | 58          |   |             
|Identifiable Assets             |                |  | $              | 18,895 |         | $ | 4,039       |   |             
|Depreciation and Amortization   |                |  | $              | 2,247  |         | $ | 49          |   |             
|Capital Expenditures            |                |  | $              | 1,047  |         | $ | 7           |   |             
|
|2005                            |                |  |                |        |        
|Sales to Unaffiliated Customers |                |  | $              | 37,743 |         | $ | 2,481       |   |             
|Intercompany Sales              |                |  | $              | 1,367  |         | $ |            |   |             
|Operating Income                |                |  | $              | 3,732  |         | $ | (87         | ) |             
|Identifiable Assets             |                |  | $              | 21,076 |         | $ | 1,598       |   |             
|Depreciation and Amortization   |                |  | $              | 1,864  |         | $ | 48          |   |             
|Capital Expenditures            |                |  | $              | 1,932  |         | $ | 20          |   |             

Sales
to Canada have been included in the United States because they are not material.

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

# NOTE 19 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

|                                                  | 2007           |   | 2006 |  | 2005
|------------------------------------------------- | -------------- | - | ---- |  | ----
|
|                                                  | (In Thousands)
|Supplemental Disclosure of Cash Flow Information:
|                                                 
|Cash Paid for Interest                            |                | $ | 364  |  | $   
|
|Cash Paid for Taxes                               |                | $ | 597  |  | $   
|

54

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Non-Cash Activities

During
the fiscal year ended March 31, 2007 and 2006, the Company reclassified the following:

|   |                | 2007 |                                                  | 2006
|-- | -------------- | ---- | ------------------------------------------------ | ----
|
|   | (In Thousands)
|
|1. |                |      | Machine rentals (to) from inventory to equipment |     
|2. |                |      | Product development costs to equipment           |     

55

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# SIGNATURES

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

|Dated:  June 29, 2007 |  |  | MTS MEDICATION TECHNOLOGIES, INC. | 
|--------------------- |  |  | --------------------------------- | 
|
|                      |  |  |                                   | 
|                      |  |  |                                   | 

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

|Signature                |  | Title                                                                             |  | Date          | 
|------------------------ |  | --------------------------------------------------------------------------------- |  | ------------- | 
|
|
|/s/ Todd E. Siegel       |  | Chairman of
        the Board of Directors, President and Chief Executive Officer |  | June 29, 2007 | 
|Todd E. Siegel           |  | (principal executive officer)                                                     |  |               | 
|
|/s/ Michael P. Conroy    |  | Chief Financial
        Officer and Vice President                                |  | June 29, 2007 | 
|Michael P. Conroy        |  | (principal financial officer)                                                     |  |               | 
|
|/s/ Michael D. Stevenson |  | Chief Operating
        Officer                                                   |  | June 29, 2007 | 
|Michael D. Stevenson     |  |                                                                                   |  |               | 
|
|/s/ Teresa Dunbar        |  | Principal Accounting
         Officer and Controller                              |  | June 29, 2007 | 
|Teresa Dunbar            |  |                                                                                   |  |               | 
|
|/s/ John Stanton         |  | Director and Vice
        Chairman of the Board of Directors                      |  | June 29, 2007 | 
|John Stanton             |  |                                                                                   |  |               | 
|
|/s/ Allen Braswell       |  | Director                                                                          |  | June 29, 2007 | 
|Allen Braswell           |  |                                                                                   |  |               | 
|
|/s/ Irv I. Cohen         |  | Director                                                                          |  | June 29, 2007 | 
|Irv I. Cohen             |  |                                                                                   |  |               | 
|
|/s/ David W. Kazarian    |  | Director                                                                          |  | June 29, 2007 | 
|David W. Kazarian        |  |                                                                                   |  |               | 

56

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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 Designation of Series A Preferred Stock. (4)                                                                                                                                                                                                                                                                                                                                                                                       
|3.5         |  | Bylaws. (5)                                                                                                                                                                                                                                                                                                                                                                                                                                       
|4.1         |  | Specimen Stock Certificate. (3)                                                                                                                                                                                                                                                                                                                                                                                                                   
|4.2         |  | See Exhibits 10.4-10.7; 10.10; 10.12-10.14; 10.18; and 10.23 for Instruments Defining the Rights of Security Holders.                                                                                                                                                                                                                                                                                                                             
|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. (6)                                                                                                                                                                                                                                                           
|10.2        |  | Form of Director/Officer Indemnification Agreement (6)                                                                                                                                                                                                                                                                                                                                                                                            
|10.3        |  | Stock Option Plan dated March 4, 1997 (7)                                                                                                                                                                                                                                                                                                                                                                                                         
|10.4        |  | Form of Warrant dated August 7, 1998,
        between Sally Siegel and Medical Technology Systems, Inc. (8)                                                                                                                                                                                                                                                                                                                                       
|10.5        |  | Form of Warrant dated August 7, 1998, between
        Sally Siegel and Medical Technology Systems, Inc.(8)                                                                                                                                                                                                                                                                                                                                        
|10.6        |  | Form of Warrant dated August 18, 1998,
        between Todd and Shelia Siegel and Medical Technology Systems, Inc. (8)                                                                                                                                                                                                                                                                                                                            
|10.7        |  | Form of Warrant dated August 18, 1998,
        between Todd and Shelia Siegel and Medical Technology Systems, Inc. (8)                                                                                                                                                                                                                                                                                                                            
|10.8        |  | Employment Agreement between Medical Technology Systems, Inc. and Todd E. Siegel dated July 1, 2003. (9)                                                                                                                                                                                                                                                                                                                                          
|10.9        |  | Subordination Agreement between Eureka I, L.P.,
        LaSalle Business Credit, Inc., Medical Technology Systems, Inc., MTS Packaging Systems, Inc.
        dated June 26, 2002. (4)                                                                                                                                                                                                                                                             
|10.10       |  | Securities Purchase Agreement between Eureka I, L.P. and Medical Technology Systems, Inc. dated June 26, 2002. (4)                                                                                                                                                                                                                                                                                                                                
|10.11       |  | Senior Subordinated Note between Eureka I, L.P. and Medical Technology Systems, Inc. dated June 26, 2002. (4)                                                                                                                                                                                                                                                                                                                                     
|10.12       |  | Registration Rights Agreement between Eureka I, L.P. and Medical Technology Systems, Inc. dated June 26, 2002. (4)                                                                                                                                                                                                                                                                                                                                
|10.13       |  | Tag-Along Agreement between Eureka I, L.P., Medical Technology Systems, Inc. and JADE Partners dated June 26, 2002. (4)                                                                                                                                                                                                                                                                                                                           
|10.14       |  | Tag-Along Agreement between Eureka I, L.P., Medical Technology Systems, Inc. and Todd E. Siegel dated June 26, 2002. (4)                                                                                                                                                                                                                                                                                                                          
|10.15       |  | Guarantor Security Agreement between Eureka I, L.P., MTS Packaging Systems, Inc., Medication Management Technology, Inc., Clearwater Medical Services, Inc., Medical Technology Laboratories, Inc., Medication Management Systems, Inc., Systems Professionals, Inc., Cart-Ware, Inc., Vangard Pharmaceutical Packaging, Inc., LifeServ Technologies, Inc., Performance Pharmacy Systems, Inc., and MTS Sales & Marketing dated June 26, 2002. (4)
|10.16       |  | Guaranty Agreement between Eureka I, L.P. Medical Technology Systems, Inc. dated June 26, 2002. (4)                                                                                                                                                                                                                                                                                                                                               
|10.17       |  | Securities Pledge Agreement between Eureka I, L.P., Medical Technology Systems, Inc. and LifeServ Technologies, Inc. dated June 26, 2002. (4)                                                                                                                                                                                                                                                                                                     
|10.18       |  | Security Agreement between Eureka I, L.P., Medical Technology Systems, Inc. date June 26, 2002. (4)                                                                                                                                                                                                                                                                                                                                               
|10.19       |  | Trademark Security Agreement between Eureka I, L.P. and Medical Technology Systems, Inc. dated June 26, 2002. (4)                                                                                                                                                                                                                                                                                                                                 
|10.20       |  | Trademark Security Agreement between
        Eureka I, L.P. and MTS Packaging Systems, Inc. dated June 26, 2002. (4)                                                                                                                                                                                                                                                                                                                              
|10.21       |  | Patent Security Agreement between Eureka I, L.P.
        and MTS Packaging Systems, Inc. dated June 26, 2002. (4)                                                                                                                                                                                                                                                                                                                                 
|10.22       |  | Patent Security Agreement between Eureka I, L.P.
        and Medical Technology Systems, Inc. dated June 26, 2002. (4)                                                                                                                                                                                                                                                                                                                            

57

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|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.23       |  | Warrant Agreement between Eureka I, L.P. and Medical Technology Systems, Inc. dated June 26, 2002. (4)                                                                                                                                                                                                                                                                                                                                                                                                         
|10.24       |  | Loan and Security Agreement between LaSalle Business Credit, Inc. as Agent, Standard Federal Bank National Association Inc. as Lender and Medical Technology Systems, Inc. and MTS Packaging Systems, Inc. dated June 26, 2002. (4)                                                                                                                                                                                                                                                                            
|10.25       |  | Term Note A between LaSalle Business Credit, Inc.
        as Agent, Standard Federal Bank National Association Inc. as Lender and Medical Technology Systems,
        Inc. and MTS Packaging Systems, Inc. dated June 26, 2002. (4)                                                                                                                                                                                                                                                                            
|10.26       |  | Term Note B between LaSalle Business Credit, Inc. as Agent, Standard Federal Bank National Association Inc. as Lender and Medical Technology Systems, Inc. and MTS Packaging Systems, Inc. dated June 26, 2002. (4)                                                                                                                                                                                                                                                                                            
|10.27       |  | Revolving Credit Note between LaSalle Business Credit, Inc. as Agent, Standard Federal Bank National Association Inc. as Lender and Medical Technology Systems, Inc. and MTS Packaging Systems, Inc. dated June 26, 2002 (4)                                                                                                                                                                                                                                                                                   
|10.28       |  | Capex Note between LaSalle Business Credit, Inc. as Agent, Standard Federal Bank National Association Inc. as Lender and Medical Technology Systems, Inc. and MTS Packaging Systems, Inc. dated June 26, 2002. (4)                                                                                                                                                                                                                                                                                             
|10.29       |  | Continuing Unconditional Guaranty between LaSalle Business Credit, Inc. as Agent, Standard Federal Bank National Association Inc. as Lender and Medical Technology Systems, Inc. and MTS Packaging Systems, Inc. dated June 26, 2002. (4)                                                                                                                                                                                                                                                                      
|10.30       |  | Securities Pledge Agreement between LaSalle Business Credit, Inc. as Agent, Standard Federal Bank National Association Inc. as Lender and Medical Technology Systems, Inc. and MTS Packaging Systems, Inc. dated June 26, 2002. (4)                                                                                                                                                                                                                                                                            
|10.31       |  | Guarantor Security Agreement between LaSalle Business Credit, Inc. as Agent, Standard Federal Bank National Association Inc. as Lender, Medication Management Technologies, Inc., Clearwater Medical Services, Inc., Medical Technology Laboratories, Inc., Medication Management Systems, Inc., Systems Professionals, Inc., Cart-Ware, Inc., Vangard Pharmaceutical Packaging, Inc. LifeServ Technologies, Inc., Performance Pharmacy Systems, Inc., and MTS Sales & Marketing, Inc. dated June 26, 2002. (4)
|10.32       |  | First Amendment to Loan and Security Agreement between LaSalle Business Credit, Inc. as Agent, Standard Federal Bank National Association Inc. as Lender and Medical Technology Systems, Inc. and MTS Packaging Systems, Inc. dated July 8, 2003. (10)                                                                                                                                                                                                                                                         
|10.33       |  | First Amendment to Securities Pledge Agreement between LaSalle Business Credit, Inc. as Agent, Standard Federal Bank National Association Inc. as Lender and Medical Technology Systems, Inc. and MTS Packaging Systems, Inc. dated July 8, 2003. (10)                                                                                                                                                                                                                                                         
|10.34       |  | Continuing Unconditional Guarantee between LaSalle Business Credit, Inc. as Agent, Standard Federal Bank National Association Inc. as Lender and MTS Packaging Systems International, Ltd. dated July 8, 2003. (10)                                                                                                                                                                                                                                                                                            
|10.35       |  | Industrial lease between Gateway Business Centre, Ltd. and Medical Technology Systems, Inc. dated April 13, 2004. (11)                                                                                                                                                                                                                                                                                                                                                                                         
|10.36       |  | Co-Marketing Agreement between Cardinal Health and Medical Technology Systems, Inc. dated May 13, 2004. (11)                                                                                                                                                                                                                                                                                                                                                                                                   
|10.37       |  | Second Amendment to Loan and Security Agreement between LaSalle Business Credit, Inc. as Agent, Standard Federal Bank National Association Inc. as Lender and Medical Technology Systems, Inc. and MTS Packaging Systems, Inc. dated June 18, 2004. (11)                                                                                                                                                                                                                                                       
|10.38       |  | Term Note C between LaSalle Business Credit, Inc. as Agent, Standard Federal Bank National Association Inc. as Lender and Medical Technology Systems, Inc. and MTS Packaging Systems, Inc. dated June 18, 2004. (11)                                                                                                                                                                                                                                                                                           
|10.39       |  | Revolving Credit Note between LaSalle Business Credit, Inc. as Agent, Standard Federal Bank National Association Inc. as Lender and Medical Technology Systems, Inc. and MTS Packaging Systems, Inc. dated June 18, 2004. (11)                                                                                                                                                                                                                                                                                 
|10.40       |  | Employment Agreement between MTS
        Medication Technologies, Inc. and Michael D. Stevenson dated April 1, 2004. (12)                                                                                                                                                                                                                                                                                                                                                                                      

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|Exhibit No. |  | Description                                                                                                                                                                                                                                            
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
|            |  |                                                                                                                                                                                                                                                        
|10.41       |  | Third Amendment to Loan and Security Agreement between LaSalle Business Credit, LLC, as Agent, LaSalle Bank Midwest National Associations, Lender, and MTS Medication Technologies, Inc. and MTS Packaging Systems, Inc. dated February 22, 2006. (13) 
|10.42       |  | Second Amendment to Securities Pledge Agreement between LaSalle Business Credit, LLC, as Agent, LaSalle Bank Midwest National Associations, Lender, and MTS Medication Technologies, Inc. and MTS Packaging Systems, Inc. dated February 22, 2006. (13)
|10.43       |  | Continued Unconditional Guarantee between LaSalle Business Credit, LLC, as Agent LaSalle Bank Midwest National Associations, Lender, and MTS Medication Technologies, Inc. and MTS Packaging Systems, Inc. dated February 22, 2006. (13)               
|10.44       |  | Share Purchase Agreement between BAF, Ltd. and MTS Medication Technologies, International, Ltd. dated February 22, 2006 (14)                                                                                                                           
|10.45       |  | Sub-Lease of the Property between BAF, Ltd. and MTS Medication Technologies, International, Ltd. dated February 22, 2006. (14)                                                                                                                         
|10.46       |  | Service Agreement between Angela Bond-Wallis and MTS Medication Technologies, International, Ltd. dated February 22, 2006. (14)                                                                                                                        
|10.47       |  | Service Agreement between David Woods and MTS Medication Technologies, International, Ltd. dated February 22, 2006. (14)                                                                                                                               
|10.49       |  | Stock Redemption Agreement with Eureka I, L.P. to redeem convertible preferred stock held by Eureka dated November 13, 2006. (15)                                                                                                                      
|10.50       |  | Sale and Purchase Agreement for and Assignment of all the Issued Share Capital of CDH Consilio GmbH between MTS Medication Technologies, Limited and Dr. Anton F. Hasse and Mrs. Silvia Hasse dated February 6. 2007. (16)                             
|10.51       |  | Service Agreement between CDH Consilio, GmbH and Dr. Anton F. Hasse dated February 6, 2006. (16)                                                                                                                                                       
|10.52       |  | Fifth Amendment to Loan and Security Agreement, dated January 31, 2007, between LaSalle Business Credit, LLC as agent for LaSalle Bank Midwest National Association and MTS Medication Technologies, Inc. and MTS Packaging Systems, Inc. (16)         
|10.53       |  | Third Amendment to Securities Pledge Agreement dated January 31, 2007, between LaSalle Business Credit, LLC as agent for LaSalle Bank Midwest National Association and MTS Medication Technologies, Inc. (16)                                          
|10.54       |  | Amendment, Ratification and Confirmation of Continuing Unconditional Guaranty dated January 31, 2007 between MTS Medication Technologies, Limited and LaSalle Business Credit, LLC as agent for LaSalle Bank Midwest National Association. (16)        
|10.55       |  | Employment Agreement between MTS Medication Technologies, Inc. and Michael P. Conroy dated February 9, 2007. (16)                                                                                                                                      
|21.1        |  | List of Subsidiaries. (*)                                                                                                                                                                                                                              
|23.1        |  | Consent of Grant Thornton LLP dated June 28, 20075. (*)                                                                                                                                                                                                
|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 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. (*)                                                        
|(1)         |  | Incorporated herein by reference to same Exhibit(s), respectively, Registration Statement on Form S-1 (SEC File No. 33-17852) filed October 9, 1987.                                                                                                   
|(2)         |  | Incorporated herein by reference to same Exhibit(s), respectively, Registration Statement on Form S-1 No. 33-40678 filed with the Commission on May 17, 1991.                                                                                          
|(3)         |  | Incorporated herein by reference to same
        Exhibit(s), respectively, Registration Statement on Form S-3 No 333-112212 filed with the
        Commission January 26, 2004.                                                                        

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|Exhibit No. |  | Description                                                                                                                 
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------
|
|            |  |                                                                                                                             
|(4)         |  | Incorporated herein by reference to Form 10-K (File No. 000-16594) for year ending March 31, 2002, filed July 1, 2002.      
|(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 year ending March 31, 1995, filed July 13, 1995.     
|(7)         |  | Incorporated herein by reference to the Registration Statement on Form S-8 (SEC File No. 333-56384) filed February 27, 2001.
|(8)         |  | Incorporated herein by reference to Form 10-Q filed November 12, 1998 for quarter ending September 30, 1998.                
|(9)         |  | Incorporated herein by reference to Form 10-Q filed August 15, 2003 for quarter ending June 30, 2003.                       
|(10)        |  | Incorporated herein by reference to Form 10-Q filed November 13, 2003 for quarter ending September 30, 2003.                
|(11)        |  | Incorporated herein by reference to Form 10-K filed June 29, 2004 for year ending March 31, 2004.                           
|(12)        |  | Incorporated herein by reference to Form 8-K filed September 10, 2004.                                                      
|(13)        |  | Incorporated herein by reference to Form 8-K filed February 22, 2006.                                                       
|(14)        |  | Incorporated herein by reference to Form 10-K filed July 6, 2006.                                                           
|(15)        |  | Incorporated herein by reference to Form 10-Q filed November 14, 2006.                                                      
|(16)        |  | Incorporated herein by reference to Form 10-Q filed February 14, 2007                                                       
|(*)         |  | Filed herein.                                                                                                               

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EXHIBIT 23.1

# CONSENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

We
have issued our report dated June 28, 2007, accompanying the consolidated financial
statements included in the Annual Report of MTS Medication Technologies, Inc. and
Subsidiaries on Form 10-K for the year ended March 31, 2007. We hereby consent to the
incorporation by reference of said report in the Registration Statements of MTS Medication
Technologies, Inc. and Subsidiaries on Form S-3 (File No. 333-112212, effective February
6, 2004) and on Form S-8 (File No. 333-56384, effective March 1, 2001).

|                       |  | 
|---------------------- |  | 
|/s/ GRANT THORNTON LLP |  | 
|Tampa, Florida         |  | 
|June 28, 2007          |  | 

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

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

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

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

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

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

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

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

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

|                      |  |  |  | 
|--------------------- |  |  |  | 
|Date:   June 29, 2007 |  |  |  | 
|                      |  |  |  | 
|                      |  |  |  | 

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EXHIBIT 31.2

I, Michael P. Conroy, certify that:

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

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

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

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

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

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

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

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

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

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

|                      |  |  |  | 
|--------------------- |  |  |  | 
|Date:   June 29, 2007 |  |  |  | 
|                      |  |  |  | 
|                      |  |  |  | 

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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 year
ended March 31, 2007 as filed with the Securities and Exchange Commission on the date
hereof (the Form 10-K), I, Todd E. Siegel, President and Chief Executive
Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to
§906 of the Sarbanes-Oxley Act of 2002, that:

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

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

|                                      | 
|------------------------------------- | 
|Dated:  June 29, 2007                 | 
|                                      | 
|/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 year
ended March 31, 2007 as filed with the Securities and Exchange Commission on the date
hereof (the Form 10-K), I, Michael P. Conroy, Vice President and Chief
Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted
pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

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

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

|                                           | 
|------------------------------------------ | 
|Dated:  
       June 29, 2007              | 
|                                           | 
|/s/Michael P. Conroy                       | 
|Michael P. Conroy                          | 
|Vice President and Chief Financial Officer | 
|                                           | 
|                                           | 

65

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