Table of Contents

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

FORM 10-K

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

| | For fiscal year ended MARCH 31, 2008
| | ------------------------------------

# OR

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

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

Commission File Number:   
001-31578

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

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

| |                                                            
| | -----------------------------------------------------------
| | 2003 Gandy Boulevard North,
        St. Petersburg, Florida
| |                                                            
| | (Address of Principal Executive Offices)                   

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

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

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

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

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

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

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

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

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

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

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

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

Aggregate market value of voting common stock held by non-affiliates of the registrant
as September 28, 2007.     $58,000,000
Number of shares of common stock outstanding as of June 27, 2008 was 6,449,005.

# Documents Incorporated
by Reference

The information required by Part III
of this Annual Report on Form 10-K, to the extent not set forth herein, is incorporated
herein by reference from the Registrants definitive proxy statement relating to the
Annual Meeting of Shareholders to be held in 2008.

---

# 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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Table of Contents

# PART I

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

You
should specifically consider the various factors identified in this 10-K, including the
matters set forth in Item 1. Business; Item 1A. Risk Factors;
Item 3. Legal Proceedings; Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations; Item 9A. Controls
and Procedures; and the Notes to Consolidated Financial Statements that could cause
actual results to differ materially from those indicated in any forward-looking
statements. Other factors that could contribute to or cause such differences include, but
are not limited to, unanticipated increases in operating costs, labor disputes, capital
requirements, increases in borrowing costs, product demand, pricing, market acceptance,
intellectual property rights and litigation, risks in product and technology development
and other risk factors detailed in our SEC filings.

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

In
this 10-K, unless otherwise indicated, the terms we, us,
our, registrant, 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, Ltd. (MTS Limited), BAF Printers, Ltd.
(BAF) and MTS Medication Technologies GmbH (MTS GmbH). BAF and MTS
GmbH are wholly owned subsidiaries of MTS Limited. MTS primarily manufactures and sells
consumable medication punch cards, packaging equipment and ancillary products throughout
the United States (the U.S.), Canada and Europe. Our customers are
predominantly institutional pharmacies that supply nursing homes, assisted living and
correctional facilities with prescription medications for their patients. MTS manufactures
its proprietary consumable punch cards and most of our packaging equipment in our own
facilities. This manufacturing process uses integrated equipment for manufacturing the
consumable medication punch cards. In addition, we utilize the services of outside
contract manufacturers for some of our packaging equipment. The consumable medication
punch cards and packaging equipment are designed to provide a cost effective method for
pharmacies to dispense medications. MTSs medication dispensing systems and products
provide innovative methods for dispensing medications in disposable packages. MTS Limited
distributes products for MTS primarily in the United Kingdom (the U.K.). BAF
manufactures and sells prescription bags and labels in the U.K. MTS GmbH distributes
products for MTS in Germany. We currently serve more than 4,500 institutional pharmacies
in the long-term care and correctional facility markets, both domestically and
internationally.

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

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Products

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

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, generally referred to as pre-pack
machines, and sophisticated automated machines (including software), such as our
OnDemand® system, which can be interfaced with the pharmacys inventory control
and filling systems.

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

Recent Developments

In
May 2007, we entered into an agreement to sell 24 OnDemand machines to our largest
customer over an 18 month period. As of June 27, 2008, we have delivered 13 machines, six
of which have been accepted by the customer. Delays in obtaining acceptance of the
machines have caused us to revise the delivery schedule, and we have incurred penalties
for late delivery of three machines to date. We currently expect that the customer will
begin to accept the remaining machines that have been delivered, and we will continue to
deliver the remaining machines according to the revised delivery schedule. We currently
expect to deliver the remaining eleven machines during our next fiscal year.

The
agreement requires our customer to make periodic cash deposits towards the purchase price
of the machines, which we maintain in a restricted cash bank account, and draw upon that
account to pay the vendors we use to make component parts for the machines as well as
assemble the machines. The agreement further provides that the machines must meet certain
performance criteria in order for the customer to accept the machines.

Research and Development

We
expended approximately $331,000 and $663,000 on research and development activities for each
of the fiscal years ended March 31, 2008 and 2007, respectively. In addition, we directed
our product development efforts, over each of the last two fiscal years, primarily towards
the completion of several new versions of our OnDemand machines and the development of
MedTimes, a medication dispensing system for use in nursing homes. We capitalized
approximately $595,000 and $511,000 of software development costs during the fiscal years
ended March 31, 2008 and 2007, respectively.

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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, we provide, or rent, machines to customers in conjunction with an agreement to
purchase certain quantities of punch cards over a specified period.

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

MTS
is dependent on a number of suppliers for the raw materials essential in the production of
its products. We believe that relations are good with our existing vendors. However, there
can be no assurance that such relations will be adequate in the future or that shortages
of any of these raw materials will not arise, causing production delays. MTS believes it
is necessary to maintain an inventory of materials and finished punch cards that allows
for customer orders to be shipped within the industry standard of two to three days. The
inability to obtain raw materials on a timely basis and on acceptable terms may have a
material adverse effect on our future financial performance.

Markets and Customers

The
primary customers for MTSs proprietary packaging equipment and the related
consumable punch cards, labels and ancillary supplies are pharmacies that supply
prescription medication to nursing homes, assisted living facilities and correctional
facilities. These pharmacies serve from 50 to 45,000 nursing home beds per location, and
many serve the sub-acute care, assisted living, correctional and home health care markets
as well.

MTSs
products are sold throughout the U.S. primarily through its sales organization and some
independent sales representatives. In addition, MTS Limited and BAF distribute products in
the U.K., and MTS GmbH distributes products in Germany. Sales to countries outside the
U.S. represented approximately 17% of our total revenue in fiscal 2008. Our largest
customer in Europe is Lloyds Pharmacy, Ltd., which represents approximately 7% of our
European sales and approximately 1% of our overall sales. In the fiscal year ended March
31, 2008, sales to our two largest institutional pharmacy customers, Omnicare, Inc.®
and PharMerica, Inc., represented approximately 32% 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 25% of our net sales in the fiscal year
ended March 31, 2008. Some of the sales to the wholesalers are for the indirect benefit of
Omnicare and PharMerica.

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 three geographic regions  the U.S., the U.K. and Germany  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 few barriers to entry. There
are several competitors that have developed machines that automate the packaging and
sealing of: (i) solid medications into punch cards; and (ii) other forms of consumable
products. We believe that products developed by our competitors may not be as efficient as
our systems because they are not as automated. Our method of dispensing medication
replaces more traditional dispensing methods, such as prescription vials. The principal
methods of competition in supplying medication-dispensing systems to prescription service
providers are product innovation, price, customization and product performance. Many of
our competitors have been in business longer and have substantially greater resources than
us. There is no assurance that we will be able to compete effectively with competitive
methods of dispensing medication, other punch card systems or other consumable products.

Our
primary competitors in the U.S. are Drug Package, Inc., AutoMed® Technologies and RX
Systems, Inc. We believe that our automated proprietary packaging equipment distinguishes
MTS from its competitors less automated systems. Our automated packaging machine
with the highest throughput can fill and seal up to 600 consumable medication cards per
hour. We believe that our production rates for the prepackaging of prescriptions and our
just-in-time OnDemand system will meet the needs of our customers who are
consolidating and require higher productivity to meet their growing market share. Our
primary competitors in Europe are Surgichem, Ltd. and Jones Packaging, Ltd.

Proprietary Technology

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 we sell
and that we have developed. Our business, however, is not materially dependent upon our
owning, or obtaining, any single patent from the U.S. Patent and Trademark Office.

We
cannot assure you that we will obtain any additional patents with respect to our
medication dispensing or information systems and products or that any patent obtained, now
or in the future, will provide meaningful protection from competition.

Government Regulations

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

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

Geographic Information

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

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Employees

None
of our employees are covered by a collective bargaining  agreement. We consider our
relationship  with our employees to be good. We employ 233 people in the U.S. and 34
people in Europe.

# ITEM 1A.    RISK FACTORS

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

Risks Related to Our
Business

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

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

- develop and expand their product and service offerings more quickly;
- adapt to new or emerging technologies and changing customer needs more quickly;
- negotiate more favorable purchase agreements with suppliers;
- devote greater resources to the marketing and sale of their products; and
- address customers' service-related issues more effectively.

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

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

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

- the level and timing of customer orders and related customer acceptances, especially relating to our OnDemand Systems;
- the composition of the costs of revenue between materials, labor and manufacturing overhead;
- our level of experience in manufacturing a particular product;
- fluctuations in materials costs and availability of materials; and
- the timing of expenditures in anticipation of increased sales and customer product delivery requirements; and
- adverse changes in general economic conditions.

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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, 2008, our 10 largest customers accounted for approximately
52% of our net sales, and our two largest customers accounted for approximately 32% of our
net sales. We are dependent upon the continued growth, viability and financial stability
of our customers whose industries have experienced consolidation and pricing and
regulatory pressures. We expect to continue to depend upon a relatively small number of
customers for a significant percentage of our net sales. Consolidation among our customers
may further reduce the number of customers that generate a significant percentage of our
net sales and 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.

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

Sales
of products and the provision of services to customers outside the U.S. accounted for
approximately 17% of our consolidated revenue for the fiscal year ended March 31, 2008. We
anticipate that international sales and services will continue to account for a
significant portion of our revenue in the foreseeable future. As a result, we may be
subject to certain risks, including risks associated with the application and imposition
of protective legislation and regulations relating to import or export or otherwise
resulting from trade or foreign policy and risks associated with exchange rate
fluctuations. Additional risks include potentially adverse tax consequences, tariffs,
quotas and other barriers, potential difficulties involving our strategic alliances and
managing foreign sales agents or representatives and potential difficulties in accounts
receivable collection.

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

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

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

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

- hire, retain and expand our qualified technical personnel;
- maintain technological leadership;
- develop and market products that meet changing customer needs; and
- successfully anticipate or respond to technological changes in manufacturing processes on a cost-effective and timely basis.

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

We manufacture a majority
of our products from a single facility, while also utilizing third parties to manufacture
some products.

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

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

Long-term
contracts are usually not a significant part of our business. Accordingly, future results
cannot be reliably predicted by considering past trends or extrapolating past results.
However, in May 2007, we entered into an agreement with Omnicare, our largest customer to
sell 24 OnDemand machines over an 18 month period.

Our
agreement with Omnicare contains terms that could result in penalties if certain events
occur. The restrictions and obligations in our agreement limit our flexibility in selling
certain products, which could have an adverse effect on our operations and growth and the
machines sold pursuant to that agreement are subject to certain acceptance criteria, which
may not be achieved.

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

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

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

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

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

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

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

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

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

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

Our
ability to compete effectively is dependent upon the proprietary nature of the designs,
processes, technologies and materials owned by, used by or licensed to us. Although we
attempt to protect our proprietary property, technologies and processes both in the U.S.
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
U.S.

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. Any litigation, regardless of its success, would be costly and require significant
time and attention of our key management and technical personnel. The litigation could
also force us to:

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

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

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

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

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

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

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

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

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The changing U.S.
healthcare environment may negatively impact our revenue and income.

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

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

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

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

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

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

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

Risks Related to
Ownership of Our Common Stock

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

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

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The price of our common
stock price may be volatile.

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

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

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

Our management includes
members of a single family.

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

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

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

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

- As of March 31, 2008, we had 6,444,005 shares of common stock outstanding. In addition,
the following shares of our common stock are issuable upon exercise or conversion of
currently outstanding securities:

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- 625,250 shares of common stock are issuable upon exercise of currently outstanding common
                stock purchase options having exercise prices ranging from $1.45 to $13.70; 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.

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

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

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

As
a public company, we are subject to certain federal regulations and the rules and
regulations of the SEC. The SEC has also adopted rules pertaining to, among other things,
audit committee requirements and additional disclosure and reporting requirements. Our
reputation and financial results could be materially harmed by any failure by us to comply
with any current or future rules or regulations relating federal corporate reform measures
adopted by the SEC. In addition, we incur significant legal, accounting and other
compliance costs.

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

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

# ITEM 1B.    UNRESOLVED
STAFF COMMENTS

None.

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# ITEM 2.    PROPERTIES

We
currently lease approximately 132,500 square feet consisting of office space and
air-conditioned manufacturing and warehousing space at 2003 Gandy Boulevard North,
St. Petersburg, Florida. 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 $63,370 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 $388,000 and
$319,000 at March 31, 2008 and 2007, 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 $3,900 per month for office
and warehouse space at 21530 Drake Road, Cleveland, Ohio. The lease is on a month-to-month
basis

MTS
Limited currently leases approximately 1,600 square feet of office and warehouse space at
Unit 6A/6B Dalton Court, Blackburn Interchange, Lower Darwen, Blackburn, Lancashire,
England. The lease is for a term of three years, and the monthly lease payments are
approximately $3,600. The lease expires in May 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, expiring in February 2009. Monthly lease payments are approximately
$3,300, and we are also obligated to pay annual operating expenses (i.e., insurance,
utilities and property taxes).

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

# ITEM 3.     LEGAL PROCEEDINGS

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

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

None.

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# PART II

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

Price Range of Our
Securities

Our
common stock is trading on 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 AMEX.

|2008 Fiscal
      Year |  | High |   | Low  
|---------------------- |  | ---- | - | -----
|                       |  |      |   |      
|First
      Quarter    |  |      | $ | 13.44
|Second
      Quarter   |  |      | $ | 12.88
|Third
      Quarter    |  |      | $ | 14.17
|Fourth
      Quarter   |  |      | $ | 13.33
|                       |  |      |   |      
|
|                       |  |      |   |      
|First
      Quarter    |  |      | $ | 6.87 
|Second
      Quarter   |  |      | $ | 7.98 
|Third
      Quarter    |  |      | $ | 9.49 
|Fourth
      Quarter   |  |      | $ | 11.70

As
of June 27, 2008, there were approximately 1,900 holders of record of our common stock and
the closing price of our common stock reported on AMEX was $7.85.

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

Equity Compensation Plan
Information

The
following table sets forth certain information relating to our equity compensation plans
as of March 31, 2008.

|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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We
recorded compensation expense of $56,000 ($34,000 net of tax) and $31,000 ($19,000 net of
tax) in the fiscal years ended March 31, 2008 and March 31, 2007, respectively, that
related to restricted stock grants awarded to our chief operating officer. We also
recorded compensation expense of $69,000 ($42,000 net of tax) and $0 in fiscal years ended
March 31, 2008 and March 31, 2007, respectively, related to stock grants awarded to the
Board of Directors.

# ITEM 6.    SELECTED
FINANCIAL DATA

Not
applicable.

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

# OVERVIEW

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

Since
2001, our operations have consistently been profitable. Our operating margins, however,
have been impacted by our expansion into new markets and our introduction of new products
which has led to us hiring additional personnel and investing in our infrastructure. 
We believe that our increased investment in personnel and infrastructure has helped to,
and will continue to help to, set the stage for future growth and take advantage of our
opportunities.  We believe these investments will enhance our chance of success in
markets such as retail pharmacy, nutraceutical and our traditional long term care market
in the U.S. and Europe.  We believe that our successful launch of our products into
the retail pharmacy market, our introduction of automation into the retail pharmacy
medication delivery model and the continued acceptance of our OnDemand system automation
by our long term care market customers in the U.S. and Europe will combine to
significantly increase our revenue and, ultimately, improve our operating margins.

We
believe that our base of business in the long term care market provides us with a very
reliable recurring stream of profitable revenue and we remain committed to leverage that
base to achieve our long term objectives of increasing our revenues and creating more
value for our shareholders.

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The
information set forth below represents selected quarterly results of operations for each
of the quarters in fiscal years ended March 31, 2008 and 2007.

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

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

# FISCAL YEAR 2008
COMPARED TO FISCAL YEAR 2007

# Results of Operations

Net
sales for the fiscal year ended March 31, 2008 were $57.8 million compared with $51.1
million during the same period of the prior year. Net sales increased for consumable punch
cards and machines sold to new and existing customers by 9.4% overall primarily due to:
(1) increased penetration of independent pharmacies; (2) increased market demand due to
the aging of the U.S. population; (3) a continued increase in market demand for punch
cards; (4) increased international demand for both consumable punch cards and our
machines; and (5) increased sales to our largest customers. In addition, revenue
associated with the sale of OnDemand and MedLocker machines was $3.9 million during the
fiscal year ended March 31, 2008 compared with $3.5 million in the prior year. Revenue in
Europe increased 36.2% primarily due to revenue associated with MTS GmbH, our German
subsidiary, which was acquired in February 2007. Average selling prices for consumable
products were slightly higher during the fiscal year ended March 31, 2008 compared to the
prior fiscal year.

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Cost
of sales for the fiscal year ended March 31, 2008 was $35.9 million compared with $31.7
million during the prior year. Cost of sales as a percentage of sales was unchanged from
the prior fiscal year at 62.1%. The cost of sales as a percentage of sales remained the same as the prior year because
additional product margin that was realized on increased net sales was offset by higher
factory overhead costs, primarily associated with our automation products.

Selling,
general and administration expenses for the fiscal year ended March 31, 2008 increased
27.2% to $15.7 million from $12.5 million for the prior year. SG&A expense increased
primarily due to increased personnel and personnel related costs in both the U.S. and
U.K., administrative and selling costs associated with MTS GmbH in Germany and costs
related to our automation products and services.

Depreciation
and amortization expenses for fiscal years ended March 31, 2008 and 2007 were $2.8 and
$2.4 million, respectively. The increase resulted primarily from additional depreciation
expense related to capital equipment acquired during the 2008 fiscal year.

Interest
expense for the fiscal year ended March 31, 2008 increased 71.2% to $637,000 from $372,000
for the prior fiscal year. The increase resulted primarily from higher debt levels and was
partially offset by lower interest rates. In December 2007, we borrowed approximately $2.0
million for the purchase of a new punch card press, and in December 2006, we borrowed $6.5
million and used the proceeds to redeem 2,000 shares of our convertible preferred stock.

Income
tax expense was approximately $736,000 during the fiscal year ended March 31, 2008
compared with $1.6 million during the prior fiscal year. The decrease results from lower
net income before taxes and a lower effective tax rate. The effective tax rate during the
fiscal year ended March 31, 2008 was 26.4% compared with 39.3% during the prior fiscal
year. The decrease in the effective tax rate results primarily from the fact that
uncertain tax positions previously provided for are not expected to be payable because the
applicable statute of limitations regarding those positions have expired. As a result,
income tax expense was reduced by approximately $185,000 (6.6% of pretax income). In
addition we determined that we have unused net operating loss carryforward available in
the State of Florida, and therefore, we recorded an income tax benefit of approximately
$135,000, net of tax, during this fiscal year.

# LIQUIDITY AND CAPITAL
RESOURCES

During the
fiscal year ended March 31, 2008, we had net income of approximately $2.1 million. Cash
provided by operations was approximately $857,000 during the fiscal year ended March 31,
2008 compared to $4.5 million for the prior fiscal year. The decrease results primarily
from lower net income, increased inventory levels and deposits provided to an outsourced
manufacturer of our OnDemand machines in connection with a significant contract with our
largest customer.

Investing
activities used approximately $5.2 million during the fiscal year ended March 31, 2008
compared with $3.0 million during the prior fiscal year. The increase results primarily
from higher capital expenditures during this fiscal year including approximately $2.0
million for a new punch card press.

Financing
activities provided approximately $4.7 million during the fiscal year ended March 31, 2008
compared with $1.5 million used during the prior fiscal year. The increase results
primarily from increased borrowing under the Credit Facility to fund working capital needs
and purchase capital equipment.

In
May 2007, we entered into an agreement to provide sixteen OnDemand Express II and eight
AccuFlex® machines to our largest customer over an 18 month period.  The
agreement provides that the customer will make certain deposits that will ultimately be
applied towards the purchase price of the machines.  The agreement further provides
that the deposits will be held in a separate bank account and used exclusively for costs
associated with the manufacture of the machines.  As of March 31, 2008, the customer
has provided us with deposits of $4.0 million. We have used these cash deposits to pay for
deposits to an outsourced manufacturer, and to pay other costs and expenses related to the
manufacture and installation of the machines. We hold the remaining cash, which has been
recorded as restricted cash, in a separate bank account to be used to fund future
costs associated with the manufacture of the machines. We had $158,000 in our restricted
cash account at March 31, 2008.

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We
had working capital of $13.6 million at March 31, 2008, compared to $6.7 million at March
31, 2007. The increase in working capital resulted primarily from the increase in
inventory and deposits to outsourced manufacturers that we have funded primarily with our
revolving line of credit.

We
do not maintain significant cash balances because available cash is used to pay down our
revolving line of credit. Cash on hand of $662,000 and $292,000 at March 31, 2008 and
2007, respectively, is held in banks located in the U.S., U.K. and Germany. We view the
excess availability on our line of credit as our cash reserve. At March 31, 2008, we had
approximately $2.0 million available on our revolving line of credit.

Our
revolving line of credit and bank term loans are collateralized by a first security
interest in all of our assets. Our revolving line of credit and term loans contain
provisions that require us to maintain certain financial covenants. We were in compliance
with all provisions of the loan agreements as of March 31, 2008.

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

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

# ESTIMATES AND CRITICAL
ACCOUNTING POLICIES

The
preparation of our consolidated financial statements in conformity with generally accepted
accounting principles in the U.S. requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the financial
statements and revenue and expenses for the respective period-ended for such statements.
The determination of estimates requires the use of judgment since future events and their
effect on our operations cannot be determined with absolute certainty. Actual results
typically differ from these estimates in some fashion, and at times, these variances may
be material to our financial statements. Our management continually evaluates its
estimates and assumptions, which are based on historical experience and other factors that
are believed to be reasonable under 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.

Revenue Recognition

We
recognize revenue on the sale of machines, other than OnDemand machines, and all
consumables when title and risk of loss to the products shipped has transferred to the
customer. We recognize revenue related to the sale of our OnDemand machines as prescribed
in SOP 97-2, Software Revenue Recognition, because the software component of the
OnDemand machine is significant and not incidental to the value and functionality of the
machine. In addition, the sale of an OnDemand machine represents an arrangement that
encompasses multiple deliverables and therefore each deliverable represents a separate
unit of accounting. The separate deliverables are comprised of (a) the OnDemand machine
installed at the customers location; (b) the user training; (c) certain component parts
that are sold separately, principally cassettes that hold medications; and (d)
maintenance. These separate deliverables are incidental to the functionality of the
machine. The vendor specific objective evidence (VSOE) of fair value of the deliverables
outlined in (b-d) has been determined based upon the value of these deliverables if they
were sold separately. The fair value of the deliverable outlined in (a) has been
determined using the residual method which equals the total selling price of the OnDemand
machine, including installation, training and cassettes, less the aggregate fair value of
(b-d). The terms of the sale arrangement for an OnDemand machine is typically FOB shipping
point, at which time title and risk of loss transfers to the customer, however, because
the installation of the machine is essential to the functionality of the machine the
recognition of any of the revenue associated with the machine is deferred until the
machine is installed. For those cassettes that are provided to the customer after the
OnDemand machine is installed, the revenue associated with those cassettes is recognized
upon their delivery. When the training is performed, we recognize the revenue associated
with the training. Revenue associated with annual maintenance contracts is recognized in
equal amounts over a twelve-month period.

18

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

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

Accounts Receivable

Trade
accounts receivable are recorded based upon the invoiced amount, are generally not
interest bearing and are considered past due when full payment is not received by the
specified credit terms. We do not typically require collateral when granting credit;
however, customer credit worthiness is reviewed prior to granting credit. We normally
estimate the uncollectibility of our accounts receivable. We consider many factors when
making our estimates, including analyzing accounts receivable and historical bad debts,
customer concentrations, customer credit worthiness, current economic trends and changes
in our customer payment terms when evaluating the adequacy of the reserve for
uncollectible accounts. We review the status of our accounts monthly, assessing the
customers ability to pay. When a specific account is deemed uncollectible, the
account is written off against the reserve for uncollectible accounts. An additional
reserve of one percent of accounts receivable would require an increase in the allowance
for doubtful accounts and would result in additional expense of approximately $82,000.

Inventories

Inventories
are stated at the lower of cost or market. Cost is determined by the first-in, first-out
(FIFO) method. The elements of costs included in the valuation of inventory
are the direct costs associated with materials purchased, direct labor expended to
manufacture the inventory and an allocation of general overhead expenses incurred to
operate the manufacturing facilities. The allowance for inventory obsolescence and slow
moving inventory is reviewed on a regular basis. We review various information related to
the age and turnover of specific inventory items to assist with this assessment. An additional
reserve of one percent of inventory would require an increase in the inventory reserve
accounts and would result in additional expense of approximately $145,000.

Self-Insurance Plan
Reserve

We
have a medical health benefit self-insurance plan, which covers substantially all of our
employees. During the fiscal year ended March 31, 2008, we were reinsured for claims that
exceed $100,000 per participant and an annual maximum aggregate limit of approximately
$1.2 million. Future claims may affect the reinsurance limits that may be available to us.

Income Taxes

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

19

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Effective
April 1, 2007, we adopted FIN No. 48, Accounting for Uncertainty in Income Taxes
(FIN 48).We reported the cumulative effect of $700,000 related to the
adoption of FIN 48 as a decrease to retained earnings at the beginning of fiscal 2008.

Goodwill and Other
Intangible Assets

We
follow SFAS No. 142, Goodwill and Other Intangible Assets, and accordingly do not
amortize goodwill, but will annually review it for impairment. We test goodwill for
impairment at least annually and whenever events occur or circumstances change that
indicate there may be impairment. These events or circumstances could include a
significant adverse change in the business climate, poor indicators of operating
performance or a sale or disposition of a significant portion of a reporting unit. Testing
goodwill for impairment requires us to determine the amount of goodwill associated with
reporting units, estimate fair values of those reporting units and determine their
carrying values. These processes are subjective and require significant estimates. These
estimates include judgments about future cash flows that are dependent on internal
forecasts, long-term growth rates, allocations of commonly shared assets and estimates of
the weighted-average cost of capital used to discount future cash flows. Changes in these
estimates and assumptions could materially affect the results of our reviews for
impairment of goodwill. Based on these tests, goodwill was not impaired in 2008 or 2007.

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

Valuation of Long-Lived
Assets and Certain Identifiable Intangibles

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 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 undiscounted future cash
flows is less than the carrying amount of the assets, an impairment loss is recognized
based on a discounted cash flow analysis

Product Development

All
costs incurred subsequent to the completion of research and development activities
associated with 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 three- to five-year period beginning on
the date the product is released for sale to customers. We review the viability and
recoverability of these costs on a regular basis.

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-vs.-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.

20

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Warranty

We
establish a reserve for warranty costs we may incur during the warranty period that is
provided for in the machine sales agreements with our customers. These estimates are
established using historical information on the nature, frequency and average cost of
claims. Actual experience could differ from the amounts estimated.

Recent Accounting
Pronouncements

In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS
No. 157), which defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles and expands disclosures about fair value
measurements. This statement does not require any new fair value measurements, but
provides guidance on how to measure fair value by providing a fair value hierarchy used to
classify the source of the information. SFAS No. 157 is effective for fiscal years
beginning after November 15, 2007, and all interim periods within those fiscal years. In
February 2008, the FASB released FASB Staff Position (FSP FAS 157-2  Effective Date
of FASB Statement No. 157), which delays the effective date of SFAS No. 157 for all
nonfinancial assets and nonfinancial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at least
annually), to fiscal years beginning after November 15, 2008 and interim periods within
those fiscal years. We do not believe the adoption of SFAS No. 157 will have a material
impact on the consolidated financial statements.

In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities  Including an amendment of FASB Statement No. 115
(SFAS No. 159). SFAS No. 159 provides reporting entities an option to
report selected financial assets and liabilities at fair value. SFAS No. 159 is effective
as of April 1, 2008. We do not expect the adoption of SFAS No. 159 to have a material
impact on our consolidated financial statements.

In
December 2007, FASB issued SFAS No. 141 (revised 2007), Business Combinations,
which replaces SFAS No. 141. The statement retains the purchase method of accounting for
acquisitions, but requires a number of changes, including changes in the way assets and
liabilities are recognized in the purchase accounting. It also changes the recognition of
assets acquired and liabilities assumed arising from contingencies, requires the
capitalization of in-process research and development at fair value, and requires the
expensing of acquisition-related costs as incurred. SFAS No. 141R is effective for
business combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. We are evaluating
the impact that this statement will have, if any, on our consolidated financial
statements.

In
December, 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements, an Amendment of ARB No. 51 (SFAS No. 160). Under the
provisions of SFAS No. 160, a noncontrolling interest in a subsidiary, or minor interest,
must be classified as equity and the amount of consolidated net income specifically
attributable to the minority interest must be clearly identified in the statement of
consolidated earnings. SFAS No. 160 also requires consistency in the manner of reporting
changes in the parents ownership interest and requires fair value measurement of any
noncontrolling interest retained in a deconsolidation. SFAS No. 160 will be effective for
fiscal years beginning on or after December 15, 2008. We are evaluating the impact that
this statement will have, if any, on our consolidated financial statements.

In
March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activitiesan Amendment of FASB Statements No. 133 (SFAS No. 161).
SFAS No. 161 requires enhanced disclosures about how and why an entity uses derivative
instruments, how derivative instruments and related hedged items are accounted for and
their effect on an entitys financial position, financial performance, and cash
flows. SFAS No. 161 is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008. We are evaluating the impact that this
statement will have, if any, on our consolidated financial statements.

21

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

Not
applicable.

# ITEM 8.     FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA

Our
consolidated financial statements, notes thereto and the report of Grant Thornton LLP, our
independent registered public 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
management, including the Chief Executive Officer and Chief Financial Officer, conducted
an evaluation of the effectiveness of our disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of the end of
the period covered by this report. Based upon that evaluation, the Chief Executive Officer
and the Chief Financial Officer concluded that such disclosure controls and procedures
were effective as of the end of the period covered by this report.

Changes in Internal
Control Over Financial Reporting

There
was no change in our internal control over financial reporting during the fiscal year
ended March 31, 2008 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.

# Managements Report
on Internal Control Over Financial Reporting

Our
management is responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities
Exchange Act of 1934). Under the supervision and with the participation of our management,
including the Chief Executive Officer and Chief Financial Officer, we conducted an
evaluation of the effectiveness of our internal control over financial reporting as of
March 31, 2008. Based on our evaluation, our management determined that our internal
control over financial reporting was effective as of March 31, 2008.

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

- pertain to the maintenance of records that, in a reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
- provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that our receipts and expenditures are being made only in accordance with
authorizations of our management and directors; and

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

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

Management
assessed the effectiveness of our internal control over financial reporting based on
criteria for effective internal control over financial reporting described in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission.

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

# ITEM 9B.     OTHER
INFORMATION

None.

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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 2008 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
2008 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 2008 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 2008 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
2008 fiscal year.

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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 54 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.
|--- | -----------------------------------------------------

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# MTS MEDICATION
TECHNOLOGIES, INC.

# INDEX TO FINANCIAL STATEMENTS

|                                                                                                                                        | Page |        
|--------------------------------------------------------------------------------------------------------------------------------------- | ---- | -------
|
|Report of Independent
        Registered Public Accounting Firm                                                                         |      | 27     
|                                                                                                                                        |      |        
|Consolidated Financial Statements                                                                                                       |      |        
|                                                                                                                                        |      |        
|Consolidated Balance Sheets as of March 31, 2008 and 2007                                                                               |      | 28     
|                                                                                                                                        |      |        
|Consolidated Statements of Operations for the Years Ended March 31, 2008 and 2007                                                       |      | 29     
|                                                                                                                                        |      |        
|Consolidated Statements of Changes in Stockholders' Equity and Comprehensive Income
        for the Years Ended March 31, 2008 and 2007 |      | 30     
|                                                                                                                                        |      |        
|Consolidated Statements of Cash Flows for the Years Ended March 31, 2008 and 2007                                                       |      | 31     
|                                                                                                                                        |      |        
|Notes to Consolidated Financial Statements                                                                                              |      | 32 - 52
|                                                                                                                                        |      |        
|Exhibit 23.1 - Consent of Independent Registered Public Accounting Firm                                                                 |      | 56     

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.

26

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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, 2008 and 2007, and the
related consolidated statements of operations, changes in stockholders equity and
comprehensive income, and cash flows for the years then ended. These financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. The Company is not required to have, nor were we engaged to perform
an audit of 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, 2008 and 2007, and the results of their operations and their
cash flows for the years then ended in conformity with accounting principles generally
accepted in the United States of America.

As
discussed in Note 2 to the consolidated financial statements, the Company adopted
Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in
Income Taxes  an Interpretation of FASB Statement No. 109, effective April 1, 2007.

|                       |  | 
|---------------------- |  | 
|/s/ GRANT THORNTON LLP |  | 
|Tampa, Florida         |  | 
|June 27, 2008          |  | 

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MTS MEDICATION
TECHNOLOGIES, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
MARCH 31, 2008 AND 2007(In Thousands)

ASSETS



|                             | 2008 |  | 2007
|---------------------------- | ---- |  | ----
|
|Current Assets:              |      |  |     
|Cash                         |      |  | $   
|Restricted Cash              |      |  |     
|Accounts Receivable, Net     |      |  |     
|Inventories, Net             |      |  |     
|Prepaids and Other           |      |  |     
|Deferred Tax Asset           |      |  |     
|
|Total Current Assets         |      |  |     
|
|Property and Equipment, Net  |      |  |     
|Goodwill                     |      |  |     
|Other Intangible Assets, Net |      |  |     
|Other Assets, Net            |      |  |     
|
|Total Assets                 |      |  | $   
|

# LIABILITIES AND
STOCKHOLDERS' EQUITY

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

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

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# MTS MEDICATION
TECHNOLOGIES, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 2008 AND 2007(In Thousands; Except Earnings
Per Share Amounts)

|                                                                           | 2008 |  | 2007
|-------------------------------------------------------------------------- | ---- |  | ----
|
|Net Sales                                                                  |      |  | $   
|Costs and Expenses:                                                        |      | 
|Cost of Sales                                                              |      |  |     
|Selling, General and Administrative                                        |      |  |     
|Depreciation and Amortization                                              |      |  |     
|
|Total Costs and Expenses                                                   |      |  |     
|
|Operating Income                                                           |      |  |     
|
|Other Expenses:                                                            |      | 
|Interest Expense                                                           |      |  |     
|
|Income Before Taxes                                                        |      |  |     
|
|Income Tax Expense                                                         |      |  |     
|
|Net Income                                                                 |      |  |     
|
|Convertible Preferred Stock Dividends                                      |      |  |     
|
|Constructive Dividend Related to Redemption of Convertible Preferred Stock |      |  |     
|
|Net Income (Loss) Available to Common Stockholders                         |      |  | $   
|
|Net Income (Loss) Per Basic Common Share                                   |      |  | $   
|
|Net Income (Loss) Per Diluted Common Share                                 |      |  | $   
|

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, 2008 AND 2007(In Thousands; Except Shares)

|                                                   | Preferred Stock |   | Common Stock |    | Capital |           | Accumulated |   | Retained |  |   |        |   |  |  
|-------------------------------------------------- | --------------- | - | ------------ | -- | ------- | --------- | ----------- | - | -------- |  | - | ------ | - |  | -
|
|
|
|
|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  |   |  | $
|
|Tax Benefit of Stock Option Exercises              |                 |   |              |    |         |           |             |   |          |  |   | 284    |   |  |  
|Exercise of Stock Options                          |                 |   |              |    |         | 190,400   |             |   | 2        |  |   | 948    |   |  |  
|Stock Grants Issued                                |                 |   |              |    |         | 10,000    |             |   |         |  |   | 125    |   |  |  
|Share-Based Compensation                           |                 |   |              |    |         |           |             |   |          |  |   | 44     |   |  |  
|Cumulative Effect of Initial Application of FIN 48 |                 |   |              |    |         |           |             |   |          |  |   |        |   |  |  
|Comprehensive Income:                              |                 |   |              |    |         |           |             |   |          |  |   |        |   |  |  
|Net Income                                         |                 |   |              |    |         |           |             |   |          |  |   |        |   |  |  
|Foreign Currency Translation Adjustment            |                 |   |              |    |         |           |             |   |          |  |   |        |   |  |  
|Total Comprehensive Income                         |                 |   |              |    |         |           |             |   |          |  |   |        |   |  |  
|
|Balance March 31, 2008                             |                |   | $            |   |         | 6,444,065 |             | $ | 64       |  | $ | 10,137 |   |  | $
|

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
YEARS ENDED MARCH 31, 2008 AND 2007(In Thousands)

|                                                            | 2008 |  | 2007
|----------------------------------------------------------- | ---- |  | ----
|
|Operating Activities                                        |      |  |     
|Net Income                                                  |      |  | $   
|Adjustments to Reconcile Net Income to Net Cash             |      | 
|Provided by Operating Activities:                           |      | 
|Depreciation and Amortization                               |      |  |     
|Tax Benefit of Options Exercised                            |      |  |     
|Deferred Income Taxes                                       |      |  |     
|Share-Based Compensation                                    |      |  |     
|Amortization of Lease Incentive                             |      |  |     
|Gain on Foreign Currency Transactions                       |      |  |     
|Loss on Disposal of Equipment                               |      |  |     
|Changes in Assets and Liabilities, Net of Acquisitions:     |      | 
|Restricted Cash                                             |      |  |     
|Accounts Receivable, Net                                    |      |  |     
|Inventories, Net                                            |      |  |     
|Prepaids and Other                                          |      |  |     
|Accounts Payable and Other Accrued Liabilities              |      |  |     
|Customer Deposits                                           |      |  |     
|
|Total Adjustments                                           |      |  |     
|
|Net Cash Provided by Operating Activities                   |      |  |     
|
|Investing Activities                                        |      | 
|Expended for Acquisition of Businesses Net of Cash Acquired |      |  |     
|Expended for Property and Equipment                         |      |  |     
|Expended for Product Development                            |      |  |     
|Expended for Patents and Other Assets                       |      |  |     
|Proceeds from Sale of Property and Equipment                |      |  |     
|
|Net Cash Used in Investing Activities                       |      |  |     
|
|Financing Activities                                        |      | 
|Payments on Notes Payable and Long-Term Debt                |      |  |     
|Payments on Related Party Note Payable                      |      |  |     
|Paydowns on Revolving Line of Credit                        |      |  |     
|Advances on Revolving Line of Credit                        |      |  |     
|Paydowns on New Credit Facility                             |      |  |     
|Advances on New Credit Facility                             |      |  |     
|Repayment of Previous Credit Facility                       |      |  |     
|Expended for Financing Costs                                |      |  |     
|Borrowing on Term Loans                                     |      |  |     
|Tax Benefit of Options Exercised                            |      |  |     
|Proceeds from Exercise of Stock Options                     |      |  |     
|Dividends on Convertible Preferred Stock                    |      |  |     
|Redemption of Preferred Stock                               |      |  |     
|
|Net Cash Provided by  (Used in)  Financing Activities       |      |  |     
|
|Effect of Exchange Rate Changes on Cash                     |      |  |     
|
|Net Increase (Decrease) in Cash                             |      |  |     
|Cash at Beginning of Period                                 |      |  |     
|
|Cash at End of Period                                       |      |  | $   
|

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

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# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

# NOTE 1  BACKGROUND
INFORMATION

MTS
Medication Technologies, Inc., a Delaware corporation (the Company or
MTS), was incorporated in March 1984. The Company is a holding company that
operates through its subsidiaries, MTS Packaging Systems, Inc. (MTSP)
and MTS Medication Technologies, Ltd. (MTS Limited). BAF Printers, Ltd.
(BAF) and MTS Medication Technologies GmbH (MTS GmbH) are wholly
owned subsidiaries of MTS Limited.

MTS
primarily manufactures and sells consumable medication punch cards, packaging equipment
and ancillary products throughout the U.S. 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
and its subsidiaries distribute products for MTSP in the U.K and Germany. In addition, BAF
manufactures and sells prescription bags and labels in the U.K.

# 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 MTS GmbH. 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 U.S. requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ materially from
those estimates.

Cash

The
Company considers all highly liquid debt instruments purchased with a maturity of three
months or less at the time of purchase to be cash equivalents. As of March 31, 2008 and
2007, the Companys cash includes the U.S. dollar equivalent of approximately
$468,000 and $291,000, respectively, maintained in banks primarily in the U.K. and
Germany. There were no cash equivalents for all periods presented.

Inventories

Inventories
are stated at the lower of cost or market, determined by the first-in, first-out
(FIFO) method. The elements of costs included in the valuation of inventory
are the direct costs associated with materials purchased, direct labor expended to
manufacture the inventory and an allocation of general overhead expenses incurred to
operate the manufacturing facilities. The allowance for inventory obsolescence and slow
moving inventory is reviewed on a 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, 2008 and 2007, the Company established an inventory valuation allowance of
approximately $616,000 and $340,000, 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 as part of the machine sales agreements with its customers. The warranty
period is generally for a six-month period. The balance was approximately $23,000 and
$81,000 at March 31, 2008 and 2007, respectively. Warranty and service costs incurred
during the years ended March 31, 2008 and 2007 totaled approximately $762,000 and
$416,000, 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 or in certain instances, acceptance
occurs. For those cassettes that are provided to the customer after the OnDemand machine
is installed, the revenue associated with those cassettes is recognized upon their
delivery. When the training is performed, the Company recognizes the revenue associated
with the training. Revenue associated with annual maintenance contracts is recognized in
equal amounts over a twelve-month period.

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

Revenue
is reported net of rebates and discounts provided to customers and excludes sales tax.
Rebates are generally determined based upon pricing agreements that offer certain
customers incentives to purchase products from the Company. Discounts are provided from
time to time primarily to compensate customers for inconveniences caused by late
shipments, defective product or pricing errors. Rebates and discounts were $1.1 million
for each of the fiscal years 2008 and 2007, respectively. Rebates and discounts are
recorded at the time they are earned by the customer.

There
were two customers whose sales accounted for approximately 32% of net sales for fiscal
years 2008 and 2007, respectively.

Accounts Receivable

As
of March 31, 2008, accounts receivable includes approximately $126,000 due from insurance
companies for claims made pursuant to the reinsurance policies in effect for the
self-insurance medical health benefit plan.

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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
tax jurisdictions that the Company collects from the customer and remits to the
appropriate tax jurisdictions. The Company does not typically require collateral when
granting credit; however, customer credit worthiness is reviewed prior to granting credit.
The Company continually estimates the uncollectibility of its accounts receivable. The
Company considers many factors when making its estimates, including analyzing accounts
receivable 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, 2008 and 2007, the Company has established an allowance for
doubtful accounts of approximately $145,000 and $149,000, 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 $331,000 and $663,000 in research and development costs during the years
ended March 31, 2008 and 2007, 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 capitalized approximately $595,000 and
$511,000 of product development costs during the years ended March 31, 2008 and 2007,
respectively.

All
product development costs are generally amortized on a straight-line basis over a three
(3) to five (5) year period, the estimated useful life of the related asset. Amortization
expense related to product development costs was approximately $570,000 and $502,000 for
the years ended March 31, 2008 and 2007, 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.

Goodwill and Other
Intangible Assets

The
Company follows Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets, and accordingly does not amortize goodwill, but
will annually review it for impairment. No impairment of goodwill was identified during
2008 or 2007. Other intangible assets acquired in acquisitions are amortized on a
straight-line basis over a period ranging from seven to fifteen years, the estimated
useful lives of the assets.

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Valuation of Long-Lived
Assets and Certain Identifiable Intangibles

Long-lived
assets and certain identifiable intangibles that are held and used by the Company are
reviewed for impairment whenever events or changes in circumstance indicate that the
carrying amount of these assets may not be recoverable in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. In performing the
review for recoverability, the Company estimates the future cash flows expected to result
from the use of the assets and their eventual disposition. If the sum of the expected
undiscounted future cash flows is less than the carrying amount of the assets, an
impairment loss may be recognized based on a discounted cash flow analysis. There were no
impairment losses in 2008 and 2007.

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.

Income Taxes

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

The
Company adopted the provisions of Financial Accounting Standards Board (FASB)
Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxesan
Interpretation of FASB Statement No. 109, effective April 1, 2007. FIN 48 provides
guidance regarding the recognition, measurement, presentation and disclosure in the
financial statements of tax positions taken or expected to be taken on tax return,
including the decision whether to file or not to file in a particular jurisdiction. FSP FIN 48-1,
Definition of Settlement in FASB Interpretation No. 48,provides further guidance
on how a company should determine whether a tax position is effectively settled for the
purpose of recognizing previously unrecognized tax benefits. We adopted the provisions of
FIN 48 beginning in the first quarter of fiscal 2008.

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. Share-based compensation is recognized based on the fair value of the
awards in accordance with SFAS No. 123R (revised 2004) Share Based Payment (SFAS
No. 123R). Compensation expense is recognized over the relevant service period on a
straight-line basis.

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

| | Restricted
Stock Awards The Company grants restricted stock to certain executive employees
in exchange for services performed, which is based on the terms of their respective
employment agreements. The restricted shares issued are valued based on the value of the
Companys common stock on the date of grant. During the years ended March 31, 2008
and 2007, the Company issued 5,000 shares of restricted common stock to its Chief
Operating Officer as additional compensation under his employment agreement. In addition,
during the year ended March 31, 2008, the Company issued 5,000 shares of restricted stock
to the Board of Directors as additional compensation for their services. The Company
recorded share-based compensation expense in the amount of approximately $125,000 ($76,000
net of tax) during the year ended March 31, 2008 and approximately $31,000 ($19,000 net of
tax) during the year ended March 31, 2007 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 over a three-year period. Awards generally expire ten years after
the date of grant. The Company issues new shares upon the exercise of stock options and
warrants. The Company granted 69,000 options to employees during the year ended March 31,
2008.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has 5,900 warrants outstanding at an exercise price of $1.88 per share as of March
31, 2008, 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, 2008.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As
of March 31, 2008, the Company has unrecognized compensation cost of approximately
$252,000 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.

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 years ended March 31, 2008 and 2007 were
not significant to the consolidated results of operations.

Recent Accounting
Pronouncements

In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS
No. 157), which defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles and expands disclosures about fair value
measurements. This statement does not require any new fair value measurements, but
provides guidance on how to measure fair value by providing a fair value hierarchy used to
classify the source of the information. SFAS No. 157 is effective for fiscal years
beginning after November 15, 2007, and all interim periods within those fiscal years. In
February 2008, the FASB released FASB Staff Position (FSP FAS 157-2  Effective Date
of FASB Statement No. 157), which delays the effective date of SFAS No. 157 for all
nonfinancial assets and nonfinancial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at least
annually), to fiscal years beginning after November 15, 2008 and interim periods within
those fiscal years. We do not believe the adoption of SFAS No. 157 will have a material
impact on the consolidated financial statements.

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In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities  Including an amendment of FASB Statement No. 115
(SFAS No. 159).SFAS No. 159 provides reporting entities an option to
report selected financial assets and liabilities at fair value. SFAS No. 159 is effective
as of April 1, 2008. We do not expect the adoption of SFAS No. 159 to have a material
impact on our consolidated financial statements.

In
December 2007, FASB issued SFAS No. 141 (revised 2007), Business Combinations,
which replaces SFAS No. 141. The statement retains the purchase method of accounting for
acquisitions, but requires a number of changes, including changes in the way assets and
liabilities are recognized in the purchase accounting. It also changes the recognition of
assets acquired and liabilities assumed arising from contingencies, requires the
capitalization of in-process research and development at fair value, and requires the
expensing of acquisition-related costs as incurred. SFAS No. 141R is effective for
business combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. We are evaluating
the impact that this statement will have, if any, on our consolidated financial
statements.

In
December, 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements, an Amendment of ARB No. 51 (SFAS No. 160). Under the
provisions of SFAS No. 160, a noncontrolling interest in a subsidiary, or minority
interest, must be classified as equity and the amount of consolidated net income
specifically attributable to the minority interest must be clearly identified in the
statement of consolidated earnings. SFAS No. 160 also requires consistency in the manner
of reporting changes in the parents ownership interest and requires fair value
measurement of any noncontrolling interest retained in a deconsolidation. SFAS No. 160
will be effective for fiscal years beginning on or after December 15, 2008. We are
evaluating the impact that this statement will have, if any, on our consolidated financial
statements.

In
March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities-an Amendment of FASB Statement No.133(SFAS No. 161).
SFAS No. 161 requires enhanced disclosures about how and why an entity uses derivative
instruments, how derivative instruments and related hedged items are accounted for and
their effect on an entitys financial position, financial performance, and cash
flows. SFAS No. 161 is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008. We are evaluating the impact that this
statement will have, if any, on our consolidated financial statements.

# NOTE 3  RESTRICTED
CASH

In
May 2007, the Company entered into an agreement to provide sixteen OnDemand® Express
II and eight AccuFlex machines to its largest customer over an 18 month
period. The agreement provides that the customer will make certain deposits that
will ultimately be applied towards the purchase price of the machines.  The agreement
further provides that the deposits will be held in a separate bank account and used
exclusively for costs associated with the manufacture of the machines. As of March
31, 2008, the customer has provided the Company with deposits of approximately $4.0
million. The Company has used these cash deposits to pay for deposits to an outsourced
manufacturer, and to pay costs and expenses related to the manufacture and installation of
the machines. The Company holds the remaining cash in a separate bank account to be
used to fund future costs associated with the manufacture of the machines.

The
deposits received from the customer have been recorded as customer deposits because they
are fully refundable if the acceptance criteria for the delivered machines are not
met. The deposits the Company has provided to the outsourced manufacturer of the
machines will ultimately be applied towards the purchase of the machines from the
manufacturer and are only refundable to the extent that costs have not been incurred to
manufacture machines. These deposits are recorded as Prepaids and Other.

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The
agreement further provides that in the event the Company does not deliver the machines,
the customer will be entitled to a full refund of the deposit. In addition, the Company
may be responsible for financial penalties in the event the machines are not delivered
according to the delivery schedule contained in the agreement. As of March 31, 2008, the
Company delivered ten machines to the customer pursuant to the agreement and incurred
approximately $56,000 in penalties because three of the ten machines were not delivered
according to the delivery schedule.

In
December 2007, the Company and the customer agreed to suspend deliveries of additional
machines under the agreement and concentrate their efforts on installation, training and
the development of acceptance criteria to evaluate delivered machines. In March 2008,
shipments of additional machines resumed. Subsequent to March 31, 2008, the customer
acknowledged the acceptance of six machines upon the equipment meeting its performance
specification.

# NOTE 4  ACCOUNTS
RECEIVABLE

Accounts
receivable are shown net of an allowance for doubtful accounts of $145,000 and $149,000 at
March 31, 2008 and 2007, respectively. The changes in the allowance for doubtful accounts
are summarized as follows:

|                                                | March 31, 2008 |  | March 31, 2007
|----------------------------------------------- | -------------- |  | --------------
|
|                                                | (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, 2008 and 2007, three
customers comprised approximately 18% in each year of the total outstanding accounts
receivable, and one of those customers represented 10% and 8%, respectively of the total
outstanding accounts receivable.

# NOTE 5  INVENTORIES

Inventories
consist of the following:

|                                     | March 31, 2008 |  | March 31, 2007
|------------------------------------ | -------------- |  | --------------
|
|                                     | (In Thousands)
|Raw Material                         |                |  | $             
|Work in Process                      |                |  |               
|Finished Goods                       |                |  |               
|Less:  Inventory Valuation Allowance |                |  |               
|
|                                     |                |  | $             
|

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

|                           | March 31, 2008 |  | March 31, 2007
|-------------------------- | -------------- |  | --------------
|
|                           | (In Thousands)
|Beginning Balance          |                |  | $             
|Provision for Obsolescence |                |  |               
|Charge-Offs                |                |  |               
|
|Ending Balance             |                |  | $             
|

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

# NOTE 6  PROPERTY
AND EQUIPMENT

Property
and equipment consists of the following:

|                                                         | March 31, 2008 |  | March 31, 2007
|-------------------------------------------------------- | -------------- |  | --------------
|
|                                                         | (In Thousands)
|Machinery and Equipment                                  |                |  | $             
|Software and Computer Equipment                          |                |  |               
|Furniture and Fixtures                                   |                |  | $             
|Leasehold Improvements                                   |                |  |               
|
|                                                         |                |  |               
|Less:  Accumulated Depreciation
        and Amortization |                |  |               
|
|                                                         |                |  | $             
|

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

Depreciation
of property and equipment and amortization of leasehold improvements was approximately
$1,840,000 and $1,538,000 for fiscal years ending March 31, 2008 and 2007, respectively,
which is included in depreciation and amortization on the consolidated statement of
operations.

# NOTE 7  GOODWILL

The
changes in the carrying value of goodwill during the years ending March 31, 2008 and 2007
were as follows:

|                              | March 31, 2008 |  | March 31, 2007
|----------------------------- | -------------- |  | --------------
|
|                              | (In Thousands)
|Beginning Balance             |                |  | $             
|MTS GmbH Acquisition          |                |  |               
|Contingent Consideration Paid |                |  |               
|Foreign Currency Translation  |                |  |               
|
|Ending Balance                |                |  | $             
|

39

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# NOTE 8  OTHER
ASSETS AND OTHER INTANGIBLE ASSETS

Other
assets consist of the following:

|                                           | Amortization Period |        | March 31, |   | March 31,
|------------------------------------------ | ------------------- | ------ | --------- | - | ---------
|
|
|                                           | (In Thousands)     
|
|Product Development                        |                     | 3  5  |           | $ | 4,226    
|Less:  Accumulated
         Amortization   |                     |        |           |   | (2,774   
|
|                                           |                     |        |           | $ | 1,452    
|
|
|Patents                                    |                     | 5  17 |           | $ | 2,712    
|Less:  
        Accumulated Amortization   |                     |        |           |   | (2,093   
|
|                                           |                     |        |           | $ | 619      
|
|
|Financing Costs                            |                     | 3  5  |           | $ | 122      
|Less:  
          Accumulated Amortization |                     |        |           |   | (44      
|
|                                           |                     |        |           | $ | 78       
|
|
|Other                                      |                     |        |           | $ | 49       
|
|Total Other Assets, Net                    |                     |        |           | $ | 2,198    
|

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)
| | ------------------------------------------------------------------------ |  | --------------
| |                                                                          |  |               
| | 2009
        ........................................................... |  | $             
| | 2010
        ........................................................... |  | $             
| | 2011
      ...........................................................   |  | $             
| | 2012
       ...........................................................  |  | $             
| | 2013
       ...........................................................  |  | $             
| | Thereafter
       .................................................      |  | $             

Patent
amortization expense was approximately $261,000 and $258,000 for the years ended March 31,
2008 and 2007, respectively.

40

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Other
intangible assets consist of the following:

|                                         | Amortization Period |       | March 31, |   | March 31,
|---------------------------------------- | ------------------- | ----- | --------- | - | ---------
|
|
|                                         | (In Thousands)     
|
|Customer Relationship                    |                     | 15    |           | $ | 810      
|Less:  Accumulated
         Amortization |                     |       |           |   | (92      
|
|                                         |                     |       |           | $ | 718      
|
|
|Non-Compete                              |                     | 2  7 |           | $ | 117      
|Less:  
        Accumulated Amortization |                     |       |           |   | (52      
|
|                                         |                     |       |           | $ | 65       
|
|
|Total Other Intangible Assets, Net       |                     |       |           | $ | 783      
|

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

| |                                                                          |  | (In Thousands)
| | ------------------------------------------------------------------------ |  | --------------
| |                                                                          |  |               
| | 2009
        ........................................................... |  | $             
| | 2010
        ........................................................... |  | $             
| | 2011
      ...........................................................   |  | $             
| | 2012
       ...........................................................  |  | $             
| | 2013
       ...........................................................  |  | $             
| | Thereafter
       .................................................      |  | $             

Amortization
expense for other intangible assets was approximately $95,000 and $45,000 for the years
ended March 31, 2008 and 2007, respectively.

# NOTE 9  ACCOUNTS
PAYABLE AND ACCRUED LIABILITIES

Accounts
payable and accrued liabilities consist of the following:

|                                            | March 31, 2008 |  | March 31, 2007
|------------------------------------------- | -------------- |  | --------------
|
|                                            | (In Thousands)
|
|Accounts Payable                            |                |  | $             
|Accrued Liabilities:                        |                | 
|Salaries, Commissions and Employee Benefits |                |  |               
|Income, Franchise and Sales Taxes           |                |  |               
|Other                                       |                |  |               
|                                            |                |  |               
|                                            |                |  | $             
|                                            |                |  |               

Accounts
payable includes outstanding checks of approximately $378,000 and $1,095,000 as of March 31, 2008 and 2007, respectively.

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# NOTE 10  LONG-TERM
DEBT AND RELATED PARTY NOTE PAYABLE

Long-term debt
consists of the following:

|                                                                                                                                            | March 31, 2008 |  | March 31, 2007
|------------------------------------------------------------------------------------------------------------------------------------------- | -------------- |  | --------------
|
|                                                                                                                                            | (In Thousands)
|
|Reducing revolving line of credit due in November 2010
        with interest payable monthly at LIBOR plus 1.75% (4.45% at March 31, 2008). |                |  | $             
|
|Term Loan                                                                                                                                   |                |  |               
|
|Revolving Line of Credit                                                                                                                    |                |  |               
|
|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%.                             |                |  |               
|
|Total Long-Term Debt                                                                                                                        |                |  |               
|
|Less Current Portion (including $106,000 and $328,000, respectively due to a related party).                                                |                |  |               
|
|Long-Term Debt Due After One Year                                                                                                           |                |  | $             
|

On
December 19, 2007, the Company entered into a new loan agreement for a reducing revolving
credit facility (the Credit Facility) with a maximum borrowing limit of up to
$14,000,000. Availability under the Credit Facility will be permanently reduced by
$335,000 each January 31, April 30, July 31, and October 31, through maturity, commencing
January 31, 2008. An initial advance under the Credit Facility of approximately $9,750,000
was used to repay all amounts outstanding under the previous credit facility with another
secured lender.

The
Credit Facility will be available on a revolving basis during the period commencing on
December 19, 2007 and ending on November 30, 2010 and contains provisions that require the
Company to maintain certain financial ratios such as, Debt Service Coverage,
Funded Debt to EBITDA and Total Liabilities to Tangible Net Worth.
The Company was in compliance with all covenants as of March 31, 2008.

The
Credit Facility is collateralized by a first security interest in all of the assets of the
Company and a pledge of 100% of the shares of the domestic wholly owned subsidiaries, and
65% of the foreign wholly owned subsidiaries. There was approximately $11.7 million
borrowed and an additional $2 million available on the Companys reducing revolving
line of credit at March 31, 2008. As of June 27, 2008, there was approximately $11.6
million borrowed and $1.7 million available.

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, 2008:

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

Interest
expense for the years ended March 31, 2008 and 2007 amounted to approximately $637,000 and
$372,000, respectively, of which $19,000 and $38,000, respectively, represent related
party interest.

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# NOTE 11  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, 2008.

| |                                                                          |  | (In Thousands)
| | ------------------------------------------------------------------------ |  | --------------
| |                                                                          |  |               
| | 2009
        ........................................................... |  | $             
| | 2010
        ........................................................... |  | $             
| | 2011
      ...........................................................   |  | $             
| | 2012
       ...........................................................  |  | $             
| | 2013
        ........................................................... |  | $             
| | Thereafter
       .................................................      |  | $             

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 $388,000 and $319,000 at March 31, 2008 and 2007, respectively. Rent expense amounted
to approximately $1,479,000 and $1,258,000 for the years ended March 31, 2008 and 2007,
respectively.

The
Company received $400,000 from its landlord when its headquarters lease was executed. This
payment was provided as an incentive to enter into the lease. The amount is recorded as a
long-term liability on the balance sheet and is being amortized as a reduction of rent
expense over the term of the lease. The unamortized balance was $283,000 and $316,000 as
of March 31, 2008 and 2007, respectively. The amortization of the lease incentive was
$33,000 in both years.

# NOTE 12 
ACQUISITIONS

In
February 2007, the Company acquired all of the outstanding shares of MTS GmbH. 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 MTS GmbH 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:

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

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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 13  401(K)
PROFIT SHARING PLAN

The
Company has a 401(K) Profit Sharing Plan (the Plan). The Plan covers
substantially all of its employees. Contributions are at the employees discretion
and may be matched by the Company up to certain limits. For the years ended March 31, 2008
and 2007, the Company made matching contributions of approximately $64,000 and $40,000,
respectively, to the Plan.

# NOTE 14  SELF
INSURANCE PLAN

The
Company has a medical health benefit self-insurance plan, which covers substantially all
of its employees. During the year ended March 31, 2008, the Company was reinsured for
claims that exceed $100,000 per participant and an annual maximum aggregate limit of
approximately $1,232,000. Future claims experience may affect the reinsurance limits that
may be available to the Company in subsequent fiscal years. The Company has established a
reserve of approximately $75,000 and $95,000 at March 31, 2008 and 2007, respectively, for
all unpaid claims incurred and reported during fiscal year 2008 and an estimate of claims
incurred during fiscal year 2008 that have not been reported as of March 31, 2008. Self
insured medical claims costs incurred during the years ended March 31, 2008 and 2007
totaled approximately $1,140,000 and $885,000, respectively. During the year ended March
31, 2008, the Company incurred claims that exceeded the $100,000 limit per participant,
and as a result received $18,000 in reimbursements from the insurance carrier and expects
to receive an additional $126,000 during fiscal 2009, which is recorded in accounts
receivable in the accompanying consolidated balance sheets.

# NOTE 15  TAXES

The
components of income tax expense are as follows:

|               | 2008           |  | 2007
|-------------- | -------------- |  | ----
|
|               | (In Thousands)
|               |               
|Federal        |                |  |     
|Current        |                |  | $   
|Deferred       |                |  |     
|               |               
|State          |                | 
|Current        |                |  |     
|Deferred       |                |  |     
|               |               
|Foreign        |                | 
|Current        |                |  |     
|Deferred       |                |  |     
|
|Total Current  |                |  |     
|Total Deferred |                |  |     
|
|Total Taxes    |                |  | $   
|

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

|                                            | Years Ended March 31,
|------------------------------------------- | ---------------------
|
|
|
|
|Tax Expense at United States Statutory Rate |                      
|State Income Tax, Net                       |                      
|Provision for Tax Uncertainties             |                      
|Deferred Tax Asset for State NOL            |                      
|Foreign Earnings Taxed at Lower Rates       |                      
|Other Items                                 |                      
|
|Effective Tax Rate                          |                      
|

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

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

At
March 31, 2008, undistributed earnings of our foreign operations totaling
$1.1 million were considered to be permanently reinvested. Therefore, no deferred tax
liability has been recorded related to those earnings.

Deferred
taxes consist of the following:

|                                       | March 31, 2008 |  | March 31, 2007
|-------------------------------------- | -------------- |  | --------------
|
|                                       | (In Thousands)
|Current:                               |                |  |               
|Deferred Tax Assets:                   |                | 
|Reserves and Provisions                |                |  |               
|Tax Loss Carryforward                  |                |  | $             
|Inventory Valuation Allowance          |                |  |               
|Allowance for Doubtful Accounts        |                |  |               
|
|Current Deferred Tax Assets, Net       |                |  |               
|
|Noncurrent:                            |                | 
|Deferred Tax Assets:                   |                |  |               
|Reserves and Provisions                |                |  |               
|Tax Loss Carryforward                  |                |  | $             
|
|Noncurrent Deferred Tax Asset          |                |  |               
|
|Deferred Tax Liability:                |                | 
|Depreciation/Amortization              |                |  |               
|
|Noncurrent Deferred Tax Liability      |                |  |               
|
|Noncurrent Deferred Tax Liability, Net |                |  |               
|
|Net Deferred Tax Liability             |                |  | $             
|

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

The
following table summarizes the activity related to only the unrecognized tax benefits from
April 1, 2007 to March 31, 2008:

The
following table summarizes the activity related to unrecognized tax benefits from April 1,
2007 to March 31, 2008:

|                                                              | Unrecognized Tax Benefits
|------------------------------------------------------------- | -------------------------
|
|                                                              | (In Thousands)           
|                                                              |                          
|Balance at April 1, 2007                                      |                          
|Additions based on tax positions related to current year      |                          
|Reductions based on lapse of applicable statue of limitations |                          
|Reductions based on settlements made                          |                          
|
|Balance at March 31, 2008                                     |                          
|

At
March 31, 2008, the Company accrued interest and penalties on unrecognized tax
benefits of $222,000, and the Company recognized $56,000 of interest and penalties
before any tax benefits, in its consolidated statements of operations during 2008. The
total of $584,000 in unrecognized tax benefits at March 31, 2008 would reduce income
tax expense and the effective tax rate if recognized. The Company continues to report
interest and penalties on tax deficiencies as income tax expense. It is reasonably
possible that audit resolutions and expiration of statutes of limitations could
potentially reduce unrecognized tax benefits by up to $202,000 during the next twelve
months.

The
Company filed a consolidated U.S. federal income tax return, as well as income tax returns
in various states and foreign jurisdictions. With few exceptions, the Company is no longer
subject to U.S. federal, state and local, or non-U.S., income tax examination by tax
authorities for years before fiscal 2002.

The
Company has a net operating loss carry forward with the State of Florida of approximately
$2,935,000 which will expire in fiscal year 2017. The company has recorded the tax benefit
of this NOL because it believes that the benefit will be realized in future
years based on its expectations regarding future profitability.

# NOTE 16 
STOCKHOLDERS EQUITY

Stockholders
Equity consists of the following:

|                           | March 31, 2008 |        | March 31, 2007
|-------------------------- | -------------- | ------ | --------------
|
|
|Par Value $.001 Per Share: |                |        |               
|Authorized Shares          |                | 10,000 |               
|Issued Shares              |                |       |               
|Outstanding Shares         |                |       |               

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|                          | March 31, 2008 |            | March 31, 2007
|------------------------- | -------------- | ---------- | --------------
|
|
|Par Value $.01 Per Share: |                |            |               
|Authorized Shares         |                | 25,000,000 |               
|Issued Shares             |                | 6,444,065  |               
|Outstanding Shares        |                | 6,444,005  |               

# Stock Options

The
current MTS Medication Technologies, Inc. Stock Incentive Plan (the Stock
Plan) provides for the granting to employees of restricted stock and incentive stock
options within the meaning of Section 422 of the Internal Revenue Code. A total of 600,000
shares of common stock are reserved for issuance under the Stock Plan. As of March 31,
2008, options to purchase 625,250 shares were outstanding under the Stock Plan and the
Companys previous stock incentive plan, and there were 526,000 options available for
issuance under the Stock Plan.

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

In
connection with the exercise of options under the Companys Stock Plan, during the
fiscal years ended March 31, 2008 and 2007, tax benefits to the Company of $284,000 and
$212,000, respectively, were recorded as additional paid in capital.

As
of March 31, 2008, the Company has unrecognized compensation cost of approximately
$252,000 expected to be recognized over the next three years for share-based awards
granted.

Activity
related to options is as follows:

|                              |  |           |   |  | Weighted Average
|----------------------------- |  | --------- | - |  | ----------------
|
|
|
|
|                              |  |           |   |  |                 
|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   |   |  | $               
|Granted in Fiscal 2008:       |  |          
|Officers and Directors        |  | 20,000    |   |  |                 
|Employees                     |  | 49,000    |   |  | $               
|Options Exercised             |  | (190,400  | ) |  | $               
|Options Expired               |  | (16,600   | ) |  | $               
|
|Outstanding at March 31, 2008 |  | 625,250   |   |  | $               
|

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# Outstanding Options

|                |  |         |  | Weighted Average |  |      
|--------------- |  | ------- |  | ---------------- |  | -----
|
|
|
|$1.45 -   $2.30 |  | 233,500 |  | 3.0              |  | $1.55
|$2.50 -   $4.47 |  | 69,500  |  | 5.0              |  | $3.79
|$5.60 - $13.70  |  | 322,250 |  | 7.8              |  | $7.95
|                |  |         |  |                  |  |      
|                |  | 625,250 |  |                  |  |      
|                |  |         |  |                  |  |      

# Exercisable Options

|                |  |         |  | Weighted Average |  |      
|--------------- |  | ------- |  | ---------------- |  | -----
|
|
|
|$1.45 -   $2.30 |  | 233,500 |  | 3.0              |  | $1.55
|$2.50 -   $4.47 |  | 29,500  |  | 4.2              |  | $2.87
|$5.60 - $13.70  |  | 249,917 |  | 7.3              |  | $6.41
|                |  |         |  |                  |  |      
|                |  | 512,917 |  |                  |  |      
|                |  |         |  |                  |  |      

The
options outstanding at March 31, 2008 expire on various dates commencing in March 2010 and
ending in February 2017.

At
March 31, 2008, exercisable options had aggregate intrinsic values of approximately
$4,194,000. At March 31, 2008, exercisable warrants had aggregate intrinsic values of
approximately $61,000. At March 31, 2008, outstanding options had aggregate intrinsic
values of approximately $4,424,000.

The
Company has 5,900 warrants outstanding at an exercise price of $1.88 per share as of March
31, 2008, 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, 2008.

Options
exercised during the year ended March 31, 2008, had intrinsic values of approximately
$1,366,000. The weighted average grant date fair value for options issued during the year
ended March 31, 2008 and 2007 was $4.07 and $4.36, respectively. The fair values were
estimated on the date of the grant using the Black-Scholes valuation model with the
following weighted-average assumptions:

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

---

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

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

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

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

# NOTE 17  EARNINGS
PER SHARE

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

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

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

The
effect of 69,000 and 8,500 options were not included in the calculation of net income per
diluted common share for fiscal years 2008 and 2007, respectively, as the effect would
have been anti-dilutive.

# NOTE 18 
COMMITMENTS AND CONTINGENCIES

The
Company has entered into certain agreements for the purchase of capital equipment,
materials used to manufacture its products for resale and the outsourced manufacturing of
products for resale as follows:

Capital
equipment expected to be placed in service during the fiscal year ending March 31, 2009.    $3,246,000 
        Outsourced manufacturing of products for resale during the fiscal year ending March 31, 2009.
      $3,816,000

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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.

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 19 
SUBSEQUENT EVENT

In
April 2008, the Company entered into interest rate swap agreements to effectively fix
variable interest rate on $8 million of floating rate debt over one to three year terms.
The swap agreements were designated as cash flow hedges and will be recorded at fair value
in the consolidated balance sheets and the related gains or losses are deferred in
stockholders equity as a component of other comprehensive income.

# NOTE 20  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 U.S. and subsidiaries in the U.K. and Germany.
In computing operating profit for foreign subsidiaries, allocations of general corporate
expenses have been made. Management evaluates the Companys business performance on a
geographic basis based upon the country in which the sales originate.

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)
|2008                            |               
|Sales to Unaffiliated Customers |                |  | $              | 48,185 |         | $ | 8,441       |  | $           
|Intercompany Sales              |                |  | $              | 2,897  |         | $ |            |  | $           
|Operating Income                |                |  | $              | 2,647  |         | $ | 688         |  | $           
|Identifiable Assets             |                |  | $              | 33,045 |         | $ | 4,830       |  | $           
|Depreciation and Amortization   |                |  | $              | 2,571  |         | $ | 157         |  | $           
|Capital Expenditures            |                |  | $              | 4,137  |         | $ | 58          |  | $           

50

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|                                | 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          |  | $           

Sales
in Canada have been included in the U.S. 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.

# NOTE 21  FOURTH
QUARTER ADJUSTMENTS

During the
fourth quarter, the Company recorded an accrual of approximately $290,000 for unused
vacation pay for all of its employees as of March 31, 2008. The Company has historically
had a vacation pay policy that does not allow employees to carryover unused vacation pay
past the anniversary date of their date of hire. Therefore, this policy, provides that an
employee can not be paid for more than fifty-two (52) weeks in any fiscal year. However,
employees that are terminated are entitled to receive the amount of vacation pay earned up
to the date of termination of employment. During the fiscal years ended on March 31, 2005
through March 31, 2007, the Company accrued vacation pay for only the estimated amount of
vacation pay for potential terminated employees as opposed to accruing for amounts earned
by all employees since the previous anniversary date. As a result of this accrual, payroll
expense for the fiscal year ended March 31, 2008 includes fifty-two (52) weeks of salaries
and the amount of accrued vacation pay of approximately $290,000, which includes
approximately $242,000 earned and unrecognized at March 31, 2007.

The
Company intends to change its vacation policy in fiscal 2009 to provide that all employees
must use, or lose, their respective vacation pay at the end of each fiscal year, rather
than on their respective anniversary dates of employment. As a result, the fiscal year
2009 payroll expense will include fifty-two (52) weeks of salaries for all employees, less
the amount of accrued vacation pay, which will no longer be applicable because of the
change in vacation policy.

During
the fourth quarter, the Company recorded a state tax benefit of approximately $135,000,
net of Federal tax, associated with an unused net operating loss carry-forward related to
its operations in the State of Florida. Although this state tax benefit was generated in
prior fiscal years, the Company discovered the fact that the tax benefit existed during a
review of its income tax provision for the fiscal year ended March 31, 2008.

The
Company has evaluated the effect that each of the above amounts may have had on the
financial results in periods prior to the year ended on March 31, 2008 and concluded that
any amounts that relate to those previous years were not material to its financial
statements in those prior years and has therefore recorded these amount in the fourth
quarter of the fiscal year ended on March 31, 2008.

51

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# NOTE 22 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

|                                                  | 2008           |   | 2007 
|------------------------------------------------- | -------------- | - | -----
|
|                                                  | (In Thousands)
|Supplemental Disclosure of Cash Flow Information:
|                                                 
|Cash Paid for Interest                            |                | $ | 690  
|Cash Paid for Taxes                               |                | $ | 1,249
|

Non-Cash Activities

During
the fiscal year ended March 31, 2008 and 2007, the Company reclassified the following:

|   |                | 2008 |                                             | 2007
|-- | -------------- | ---- | ------------------------------------------- | ----
|
|   | (In Thousands)
|
|1. |                |      | Machine rentals from inventory to equipment |     
|2. |                |      | Product development costs to inventory      |     

52

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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 30, 2008 |  |  | 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 30, 2008 | 
|Todd E. Siegel            |  | (principal executive officer)                                                     |  |               | 
|
|/s/ Michael P. Conroy     |  | Chief Financial
        Officer and Vice President and Corporate Secretary        |  | June 30, 2008 | 
|Michael P. Conroy         |  | (principal financial officer)                                                     |  |               | 
|
|/s/ Michael D. Stevenson  |  | Chief Operating
        Officer                                                   |  | June 30, 2008 | 
|Michael D. Stevenson      |  |                                                                                   |  |               | 
|
|/s/ James M. Conroy       |  | Controller (principal accounting
         officer)                                |  | June 30, 2008 | 
|James M. Conroy           |  |                                                                                   |  |               | 
|
|/s/ John Stanton          |  | Director and Vice
        Chairman of the Board of Directors                      |  | June 30, 2008 | 
|John Stanton              |  |                                                                                   |  |               | 
|
|/s/ Allen S. Braswell     |  | Director                                                                          |  | June 30, 2008 | 
|Allen S. Braswell         |  |                                                                                   |  |               | 
|
|/s/ Irv I. Cohen          |  | Director                                                                          |  | June 30, 2008 | 
|Irv I. Cohen              |  |                                                                                   |  |               | 
|
|/s/ David W. Kazarian     |  | Director                                                                          |  | June 30, 2008 | 
|David W. Kazarian         |  |                                                                                   |  |               | 
|
|/s/ Chet Borgida          |  | Director                                                                          |  | June 30, 2008 | 
|Chet Borgida              |  |                                                                                   |  |               | 
|
|/s/ Edgardo A. Mercadante |  | Director                                                                          |  | June 30, 2008 | 
|Edgardo A. Mercadante     |  |                                                                                   |  |               | 

53

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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         |  | Bylaws. (4)                                                                                                                                                                                                                                    
|4.1         |  | Specimen Stock Certificate. (3)                                                                                                                                                                                                                
|4.2         |  | Certificate of Designation of Series A Preferred Stock. (5)                                                                                                                                                                                    
|4.3         |  | See Exhibits 10.4-10.7 for additional 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        |  | Industrial lease between Gateway Business Centre, Ltd. and Medical Technology Systems, Inc. dated April 13, 2004. (10)                                                                                                                         
|10.10       |  | Co-Marketing Agreement between Cardinal Health and Medical Technology Systems, Inc. dated May 13, 2004. (10)                                                                                                                                   
|10.11       |  | Employment Agreement between MTS Medication Technologies, Inc. and Michael D. Stevenson dated April 1, 2004. (11)                                                                                                                              
|10.13       |  | Share Purchase Agreement between BAF, Ltd. and MTS Medication Technologies, Ltd. dated February 22, 2006. (12)                                                                                                                                 
|10.14       |  | Sub-Lease of the Property between BAF, Ltd. and MTS Medication Technologies, Ltd. dated February 22, 2006. (12)                                                                                                                                
|10.15       |  | Service Agreement between Angela Bond-Wallis and MTS Medication Technologies, Ltd. dated February 22, 2006. (12)                                                                                                                               
|10.16       |  | Service Agreement between David Woods and MTS Medication Technologies, Ltd. dated February 22, 2006. (12)                                                                                                                                      
|10.17       |  | Stock Redemption Agreement with Eureka I, L.P. to redeem convertible preferred stock held by Eureka dated November 13, 2006. (13)                                                                                                              
|10.18       |  | 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. (14) 
|10.19       |  | 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. (14)                                  
|10.20       |  | 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. (14)
|10.21       |  | 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. (14)                     
|10.22       |  | Service Agreement between CDH Consilio, GmbH and Dr. Anton F. Hasse dated February 6, 2007. (14)                                                                                                                                               
|10.23       |  | Employment Agreement between MTS Medication Technologies, Inc. and Michael P. Conroy dated February 9, 2007. (14)                                                                                                                              

54

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|Exhibit No. |  | Description                                                                                                                                                                                    
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
|10.24       |  | Agreement between Omnicare, Inc. and MTS dated May 7, 2007. (15)                                                                                                                               
|10.25       |  | MTS Medication Technologies Inc., 2007 Stock Incentive Plan (16)                                                                                                                               
|10.26       |  | Loan Agreement, dated December 19, 2007, between Wachovia Bank, National Association and MTS Medication Technologies, Inc. (17)                                                                
|10.27       |  | Promissory Note, dated December 19, 2007, between Wachovia Bank, National Association and MTS Medication Technologies, Inc. (17)                                                               
|10.28       |  | Security Agreement, dated December 19, 2007, between Wachovia Bank, National Association and MTS Medication Technologies, Inc. (17)                                                            
|10.29       |  | Service Agreement between Peter Williams and MTS Medication Technologies, Ltd. dated January 22, 2008. (18)                                                                                    
|21.1        |  | List of Subsidiaries. (*)                                                                                                                                                                      
|23.1        |  | Consent of Grant Thornton LLP dated June 27, 2008. (*)                                                                                                                                         
|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 (File No. 33-17852) filed October 9, 1987.                                               
|(2)         |  | Incorporated herein by reference to same Exhibit(s), respectively, Registration Statement on Form S-1 (File No. 33-40678) filed May 17, 1991.                                                  
|(3)         |  | Incorporated herein by reference to same Exhibit(s), respectively, Registration Statement on Form S-3 (File No. 333-112212) filed January 26, 2004.                                            
|(4)         |  | Incorporated herein by reference to Form 8-K filed June 15, 2007.                                                                                                                              
|(5)         |  | Incorporated herein by reference to Form 10-K (File No. 000-16594) for the year ending March 31, 2002.                                                                                         
|(6)         |  | Incorporated herein by reference to Form 10-K (File No. 000-16594) for the year ending March 31, 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 (File No. 000-16594) for the quarter ending September 30, 1998.                                                                                  
|(9)         |  | Incorporated herein by reference to Form 10-Q (File No. 001-31578) for the quarter ending June 30, 2003.                                                                                       
|(10)        |  | Incorporated herein by reference to Form 10-K for the year ending March 31, 2004.                                                                                                              
|(11)        |  | Incorporated herein by reference to Form 8-K filed September 24, 2004.                                                                                                                         
|(12)        |  | Incorporated herein by reference to Form 10-K for the year ending March 31, 2006.                                                                                                              
|(13)        |  | Incorporated herein by reference to Form 10-Q for the quarter ending September 30, 2006.                                                                                                       
|(14)        |  | Incorporated herein by reference to Form 10-Q for the quarter ending December 31, 2006.                                                                                                        
|(15)        |  | Incorporated herein by reference to Form 10-Q for the quarter ending June 30, 2007.                                                                                                            
|(16)        |  | Incorporated herein by reference to the Proxy Statement (File No. 001-31578) filed August 13, 2007.                                                                                            
|(17)        |  | Incorporated herein by reference to Form 8-K filed December 19, 2007.                                                                                                                          
|(18)        |  | Incorporated herein by reference to Form 10-Q for the quarter ending December 31, 2007.                                                                                                        
|(*)         |  | Filed herein.                                                                                                                                                                                  

55

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EXHIBIT 23.1

# CONSENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

We
have issued our report dated June 27, 2008, with respect to the consolidated financial
statements (which report expressed an unqualified opinion and contains an explanatory
paragraph relating to the Companys adoption of Financial Accounting Standards Board
Interpretation No. 48, Accounting for Uncertainty in Income Taxes  an
Interpretation of FASB Statement No. 109), included in the Annual Report of MTS
Medication Technologies, Inc. on Form 10-K for the year ended March 31, 2008. We hereby
consent to the incorporation by reference of said report in the Registration Statements of
MTS Medication Technologies, Inc. on Form S-3 (File No. 333-112212, effective
February 6, 2004) and Forms S-8 (File No. 333-56384, effective November 5, 2007 and File
No. 333-56384, effective March 1, 2001).

|                       |  | 
|---------------------- |  | 
|/s/ GRANT THORNTON LLP |  | 
|Tampa, Florida         |  | 
|June 27, 2008          |  | 

56

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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)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

| | c) |  | Evaluated
the effectiveness of the registrants disclosure controls and
procedures and presented in this 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
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | d) |  | 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 functions):
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

|                      |  |  |  | 
|--------------------- |  |  |  | 
|Date:   June 30, 2008 |  |  |  | 
|                      |  |  |  | 
|                      |  |  |  | 

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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)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

| | c) |  | Evaluated
the effectiveness of the registrants disclosure controls and
procedures and presented in this 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
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | d) |  | 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 functions):
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

|                      |  |  |  | 
|--------------------- |  |  |  | 
|Date:   June 30, 2008 |  |  |  | 
|                      |  |  |  | 
|                      |  |  |  | 

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EXHIBIT 32.1

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

In connection with the Annual Report
of MTS Medication Technologies, Inc. (the Company) on Form 10-K for the fiscal
year ended March 31, 2008 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 30, 2008                 | 
|                                      | 
|/s/ Todd E. Siegel                    | 
|Todd E. Siegel                        | 
|President and Chief Executive Officer | 
|                                      | 
|                                      | 

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EXHIBIT 32.2

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

In connection with the Annual Report
of MTS Medication Technologies, Inc. (the Company) on Form 10-K for the fiscal
year ended March 31, 2008 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 30, 2008              | 
|                                           | 
|/s/ Michael P. Conroy                      | 
|Michael P. Conroy                          | 
|Vice President and Chief Financial Officer | 
|                                           | 
|                                           |