Table of Contents

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

FORM 10-Q

(Mark One)

||X| | Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
|--- | ---------------------------------------------------------------------------------------

For the quarterly period ended June 30, 2005

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

| | For the transition period from _______________ to ______________
| | ----------------------------------------------------------------

Commission File Number:   
0-16594

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

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

| | 2003 Gandy Boulevard North,
        Suite 800, St. Petersburg, Florida 33702 | 
| | ---------------------------------------------------------------------------- | 
| |                                                                              | 
| | (Address of Principal Executive Offices)                                     | 

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

| |                                                                                            | 
| | ------------------------------------------------------------------------------------------ | 
| | N/A                                                                                        | 
| |                                                                                            | 
| | (Former Name, Former Address and Former Fiscal Year,
        if changed since last report) | 

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

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

As of July 27, 2005, the registrant had 5,911,502 shares of common stock, $.01 par
        value per share, issued and outstanding.

---

# MTS MEDICATION
TECHNOLOGIES, INC. AND SUBSIDIARIES

# Index

| |         | Page                                                                                                            | 
| | ------- | --------------------------------------------------------------------------------------------------------------- | 
|
|
|
| | Item 1. | Financial Statements                                                                                            | 
| |         |                                                                                                                 | 
| |         | Condensed
        Consolidated Balance Sheets - June 30, 2005 and March 31, 2005                                | 
|
| |         | Condensed
        Consolidated Statements of Earnings - Three Months Ended June 30, 2005 and 2004               | 
|
| |         | Condensed
        Consolidated Statements of Changes in Stockholders' Equity - Three Months Ended June 30, 2005 | 
|
| |         | Condensed
        Consolidated Statements of Cash Flows - Three Months Ended June 30, 2005 and 2004             | 
| |         |                                                                                                                 | 
| |         | Notes
        to Condensed Consolidated Financial Statements                                                    | 
|
| | Item 2. | Management's Discussion and
        Analysis of Financial Condition and Results of Operations                   | 
| |         |                                                                                                                 | 
| | Item 3. | Quantitative and
        Qualitative Disclosures About Market Risk                                              | 
| |         |                                                                                                                 | 
| | Item 4. | Controls and Procedures                                                                                         | 
|
| |         |                                                                                                                 | 
|
| |         |                                                                                                                 | 
| | Item 6. | Exhibits                                                                                                        | 
|
| |         | Signatures                                                                                                      | 
|
| |         | Certifications                                                                                                  | 

i.

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Table of Contents

# Item 1.  Financial
Statements

# PART 1 - FINANCIAL
INFORMATION

# MTS MEDICATION
TECHNOLOGIES, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In Thousands)

# ASSETS

|                            | June 30, 2005 |  | March 31, 2005
|--------------------------- | ------------- |  | --------------
|
|                            | (Unaudited)   |  |               
|
|Current Assets:             |               |  |               
|Cash                        |               |  | $             
|Accounts Receivable, Net    |               |  |               
|Inventories, Net            |               |  |               
|Prepaids and Other          |               |  |               
|Deferred Tax Benefits       |               |  |               
|
|Total Current Assets        |               |  |               
|
|Property and Equipment, Net |               |  |               
|Other Assets, Net           |               |  |               
|
|Total Assets                |               |  | $             
|

# LIABILITIES AND
STOCKHOLDERS' EQUITY

|Current Liabilities:                                        |  |  |   |        |   |  |   |        |  
|----------------------------------------------------------- |  |  | - | ------ | - |  | - | ------ | -
|Accounts Payable
        and Accrued Liabilities            |  |  | $ | 4,403  |   |  | $ | 4,021  |  
|Current Maturities
        of Long-Term Debt                |  |  |   | 470    |   |  |   | 431    |  
|Current Maturities
          of Related Party Note Payable  |  |  |   | 294    |   |  |   | 290    |  
|
|Total Current Liabilities                                   |  |  |   | 5,167  |   |  |   | 4,742  |  
|
|Long-Term Debt, Less Current Maturities                     |  |  |   | 4,461  |   |  |   | 5,492  |  
|Related Party Note Payable, Less Current
        Maturities |  |  |   | 666    |   |  |   | 742    |  
|Lease Incentive                                             |  |  |   | 342    |   |  |   | 350    |  
|
|Total Liabilities                                           |  |  |   | 10,636 |   |  |   | 11,326 |  
|
|Stockholders' Equity:                                       |  | 
|Preferred Stock                                             |  |  |   | 2      |   |  |   | 2      |  
|Common Stock                                                |  |  |   | 59     |   |  |   | 59     |  
|Capital In Excess
        of Par Value                      |  |  |   | 13,757 |   |  |   | 13,786 |  
|Accumulated Deficit                                         |  |  |   | (2,604 | ) |  |   | (2,931 | )
|Treasury Stock                                              |  |  |   | (328   | ) |  |   | (328   | )
|
|Total Stockholders' Equity                                  |  |  |   | 10,886 |   |  |   | 10,588 |  
|
|Total Liabilities and Stockholders' Equity                  |  |  | $ | 21,552 |   |  | $ | 21,914 |  
|

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

1

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# MTS MEDICATION
TECHNOLOGIES, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF EARNINGS
(In Thousands; Except Earnings Per Share Amounts)(Unaudited)

|                                                           | Three Months Ended June 30,
|---------------------------------------------------------- | ---------------------------
|
|
|
|
|Net Sales                                                  |                            
|Costs and Expenses:                                        |                            
|Cost of Sales                                              |                            
|Selling,
        General and Administrative                |                            
|Depreciation
        and Amortization                      |                            
|
|Total Costs and Expenses                                   |                            
|Operating Profit                                           |                            
|Other Expenses                                             |                            
|Interest
        Expense                                   |                            
|Amortization
        of:                                   |                            
|Financing Costs                                            |                            
|Original Issue Discount                                    |                            
|
|Total Other Expenses                                       |                            
|
|Income (Loss) Before Taxes                                 |                            
|Income Tax Expense (Benefit)                               |                            
|
|Net Income (Loss) Before Preferred Stock
        Dividend  |                            
|Convertible Preferred Stock Dividends                      |                            
|
|Net Income (Loss) Available to Common
        Stockholders |                            
|
|Net Income (Loss) Per Basic Common Share                   |                            
|
|Net Income (Loss) Per Diluted Common Share                 |                            
|
|Weighted Average Shares - Basic                            |                            
|
|Weighted Average Shares Outstanding - Diluted              |                            
|

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

2

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# MTS MEDICATION
TECHNOLOGIES, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY THREE MONTHS ENDED JUNE 30, 2005(In Thousands)
            (Unaudited)

|                                         | Preferred Stock |       | Common Stock |   |   |  |           |  |   |    | 
|---------------------------------------- | --------------- | ----- | ------------ | - | - |  | --------- |  | - | -- | 
|
|
|
|
|
|Balance March 31, 2005                   |                 | 2,000 |              | $ | 2 |  | 5,894,502 |  | $ | 59 | 
|
|Stock Options Exercised                  |                 |       |              |   |   |  | 12,000    |  |   |    | 
|
|Stock Grant Issued                       |                 |       |              |   |   |  | 5,000     |  |   |    | 
|
|Convertible Preferred Stock Dividend     |                 |       |              |   |   |  |           |  |   |    | 
|
|Tax Benefit from Stock Options Exercised |                 |       |              |   |   |  |           |  |   |    | 
|
|Foreign Currency Translation Adjustment  |                 |       |              |   |   |  |           |  |   |    | 
|
|Net Income                               |                 |       |              |   |   |  |           |  |   |    | 
|
|Balance June 30, 2005                    |                 | 2,000 |              | $ | 2 |  | 5,911,502 |  | $ | 59 | 
|

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

3

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

|                                                                            | Three Months Ended June 30,
|--------------------------------------------------------------------------- | ---------------------------
|
|
|
|
|Operating Activities                                                        |                            
|Net Income (Loss)                                                           |                            
|
|Adjustments to
     Reconcile to Net Cash Provided by Operating Activities: |                            
|Depreciation and Amortization                                               |                            
|Amortization of Deferred Financing Costs                                    |                            
|Deferred Income Tax Expense                                                 |                            
|Amortization of Original Issue Discount                                     |                            
|Restricted Stock Grant Awarded                                              |                            
|Lease Incentive                                                             |                            
|(Increase) Decrease in:                                                     |                            
|Accounts Receivable                                                         |                            
|Inventories                                                                 |                            
|Prepaids and Other                                                          |                            
|Increase (Decrease) in:                                                     |                            
|Accounts Payable and Other Accrued Liabilities                              |                            
|
|Total Adjustments                                                           |                            
|
|Net Cash Provided by
        Operating Activities                           |                            
|
|Investing Activities                                                        |                            
|Expended for
        Property and Equipment                                 |                            
|Expended for Product
        Development                                    |                            
|Expended for Patents
        and Other Assets                               |                            
|
|Net Cash Used by
        Investing Activities                               |                            
|
|Financing Activities                                                        |                            
|Payments on Notes
        Payable and Long-Term Debt                        |                            
|Payments on
        Related Party Note Payable                              |                            
|Net (Pay Downs)
        Advances on Revolving Line of Credit                |                            
|Expended for Financing
        Costs                                        |                            
|Dividends on
        Convertible Preferred Stock                            |                            
|Exercise of Stock Options                                                   |                            
|Payments on
        Subordinated Notes                                      |                            
|Borrowing on Term Loans                                                     |                            
|Payments on Term Loans                                                      |                            
|
|Net Cash (Used) provided
        by Financing Activities                    |                            
|
|Effect of Exchange Rate
        Changes on Cash                             |                            
|
|Net (Decrease) in Cash                                                      |                            
|Cash at Beginning of Period                                                 |                            
|
|Cash at End of Period                                                       |                            
|

Supplemental Disclosure of Cash Flow
Information

June 30, 2005  Non-Cash Activities

Reclassified approximately $11,000
in machine rentals from Inventory to Property and Equipment. Reclassified approximately
$42,000 in software from Other Assets to Property and Equipment. Reclassified
approximately $8,000 in Equipment to Product Development.

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

4

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# MTS MEDICATION
TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTSFOR THE THREE MONTHS
ENDED JUNE 30, 2005

# NOTE A  BASIS OF
PRESENTATION

The
accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of America
(US GAAP) for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the information and
notes required by US GAAP for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three-month period ended June
30, 2005 are not necessarily indicative of the results that may be expected for future
quarters in the year ended March 31, 2006. The unaudited condensed consolidated financial
statements should be read in conjunction with the consolidated financial statements and
notes thereto included in the Companys annual report on Form 10-K for the year ended
March 31, 2005.

The
unaudited condensed consolidated financial statements include the accounts of the Company
and its subsidiaries, MTS Packaging Systems, Inc. (MTSP) and MTS
Medication Technologies International, Ltd. (MTS Limited). All other
subsidiaries of the Company did not have operations during the three-month periods ended
June 30, 2005 and 2004.

# NOTE B  INVENTORIES

The
components of inventory consist of the following:

|                                     | June 30,       |  | March 31,
|------------------------------------ | -------------- |  | ---------
|
|
|                                     | (In Thousands)
|
|Raw Material                         |                |  | $        
|Finished Goods and Work In Progress  |                |  |          
|Less:  Inventory Valuation Allowance |                |  |          
|
|                                     |                |  | $        
|

# NOTE C  EARNINGS
PER SHARE

Earnings
per share are computed using the basic and diluted calculations on the face of the
statement of operations. Basic earnings per share are calculated by dividing net income
available to common stockholders 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
basic weighted average number of shares of common stock outstanding for the period,
adjusted for the dilutive effect of common stock equivalents, using the treasury
stock method and the if converted method as it relates to the
convertible preferred stock outstanding.

5

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

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

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

This
effect of outstanding options and warrants of approximately 790,000 shares and the effect
of approximately 847,000 shares of common stock that would be issued upon conversion of
the convertible preferred stock have not been included in the calculation of the loss per
common share for the three months ended June 30, 2004 because their effect would have been
anti-dilutive.

# NOTE D  STOCK
BASED COMPENSATION

The Company
follows only the disclosure provisions of SFAS No. 123, Accounting for
Stock-Based Compensation, as it relates to employment awards. It applies APB
Opinion No. 25, Accounting for Stock Issued to Employees, and SFAS No.
148, Accounting for Stock Based Compensation-Transition and Disclosure,and related interpretations in accounting for its plans and does not recognize
compensation expense based upon the fair value at the grant date for awards under these
plans. If the Company had followed the methodology prescribed by SFAS 123, the
Companys net income and earnings per share would be reduced to the pro forma amounts
indicated below:

6

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|                                                                                                            | Three Months Ended                      
|----------------------------------------------------------------------------------------------------------- | ----------------------------------------
|
|
|
|                                                                                                            | (In Thousands, Except Per Share Amounts)
|
|Net Income (Loss) to Common
        Shareholders as Reported                                                |                                         
|Less:                                                                                                       |                                         
|Stock Based Employee
        Compensation Cost Under the Fair Value Based Method, Net of Related Tax Effect |                                         
|
|Net Income (Loss) Pro Forma                                                                                 |                                         
|
|Net Income (Loss) Per Common Share, Basic as
        Reported                                               |                                         
|
|Net Income (Loss) Per Common Share,
        Basic Pro Forma                                                 |                                         
|
|Net Income (Loss) Per Share, Diluted as
        Reported                                                    |                                         
|
|Net Income (Loss) Per Share, Diluted
        Pro Forma                                                      |                                         
|
|For Basic Income (Loss) Per Share 
        Weighted Average Shares                                         |                                         
|
|For Diluted Income (Loss) Per Share 
        Weighted Average Shares                                       |                                         

# NOTE E  REVENUE
RECOGNITION

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

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

7

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# NOTE F  RESEARCH
AND DEVELOPMENT AND PRODUCT DEVELOPMENT COSTS

The
Company expenses product research and development costs as incurred. The Company incurred
approximately $53,000 and $56,000 during the three months ended June 30, 2005 and 2004,
respectively, for research and development costs.

All
costs incurred subsequent to the completion of research and development activities
associated with the products hardware components and the software components
achievement of technological feasibility are capitalized until the product is available
for general release to customers. The Company initially classifies the construction costs
of the first units produced for commercial use as product development costs prior to
transferring these costs to inventory. The Company capitalized approximately $166,000 and
$44,000 of product development costs during the three months ended June 30, 2005 and 2004,
respectively.

Product
development costs are generally amortized on a straight-line basis over a five (5) year
period. Amortization expense related to product development costs was approximately
$95,000 and $90,000 for the three months ended June 30, 2005 and 2004, respectively.

At
June 30, 2005 and March 31, 2005, the Companys capitalized product development costs
included its new OnDemand product and versions thereof, which represented approximately
$1,928,000 (excluding accumulated amortization) and $1,843,000, respectively, of the total
capitalized product development costs (see Note K).

# NOTE G  LONG-TERM
DEBT

|                                                                                                                                            | June 30, 2005  |  | March 31, 2005
|------------------------------------------------------------------------------------------------------------------------------------------- | -------------- |  | --------------
|
|                                                                                                                                            | (In Thousands)
|
|Revolving line of credit due June 2007 plus
        interest payable monthly at 1% above the prime rate (6.25% at June 30, 2005)            |                |  | $             
|
|Bank term loan payable in graduated monthly installments
        of $16,000-$52,000 plus interest at 0.5% above                             |                |  |               
|the prime rate at June 30, 2005 through June 2007                                                                                           |                |  |               
|
|Note payable to related party (see Note L) payable in
        monthly installments of $28,785 including interest at 6.25% through July 2008 |                |  |               
|
|Other Notes and Agreements                                                                                                                  |                |  |               
|
|Total Long-Term Debt                                                                                                                        |                |  |               
|
|Less Current Portion (including approximately $294,000
        and $290,000, respectively, due to a related party)                          |                |  |               
|
|Long-Term Debt Due After One Year                                                                                                           |                |  | $             
|

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

8

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There
was approximately $3.7 million borrowed and an additional $2.9 million available on the
Companys revolving line of credit at June 30, 2005 based upon eligible collateral
and overadvance capabilities provided for in the credit facility.

The
revolving line of credit and bank term loans contain provisions that require the Company
to maintain certain financial covenants that, among other things, require the maintenance
of tangible net worth and debt service coverage ratios, limit the amount of capital
expenditures and require lender approval for certain matters. The Company was in
compliance with all provisions of the loan agreements as of June 30, 2005.

At
June 30, 2005, the Company also had a $300,000 line of credit available for purchases of
equipment at an interest rate of prime plus 0.75%. Advances on the line of credit are
repayable over a three-year term. There were no amounts outstanding on this line of credit
at June 30, 2005.

# NOTE H 
CONTINGENCIES

In
November 1998, MTL, a discontinued operation, received a refund request in the amount of
$1.8 million from Medicare Program Safeguards (MPS). MTL disputed the refund
request in its response to MPS in December 1998. To date, MTL has not received any further
correspondence from MPS regarding this matter.

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

# NOTE I 
STOCKHOLDERS EQUITY

In
June 2002, the Company issued 2,000 shares of convertible preferred stock at $1,000 per
share. The holders of the convertible preferred stock are entitled to receive quarterly
dividends at the rate of 11% per annum. The dividends are payable in cash or shares of
convertible preferred stock at the Companys option and are cumulative. Through the
period ended June 30, 2005, all dividends were paid in cash. Based on a conversion price
of $2.36 per share, the preferred stock is convertible into 847,457 shares of the
Companys common stock. On the date the convertible preferred stock was issued, the
fair market value of the Companys common stock was $2.77 per share based upon the
closing bid on the OTC Bulletin Board. The difference between the fair market value of the
shares and the conversion price of the convertible preferred stock represented a
constructive dividend to the holders of the preferred stock in the amount of $347,000. The
terms of the convertible preferred stock agreement contains certain anti-dilution
provisions and also contains a make-whole provision that obligates the Company to pay
certain amounts to the holder of the convertible preferred stock if they do not ultimately
receive an amount equal to the price per share of the common stock on the date they
exercise their right to convert the convertible preferred stock into common stock. The
Company followed the accounting prescribed in EITF 98-5 and EITF 00-27 for
the recording of the convertible preferred stock and the constructive dividend in fiscal
year 2003.

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

9

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

During
June 2005, the Company issued 5,000 common shares to its Chief Operating Officer as
compensation under his employment agreement.  The Company recorded compensation
expense in the amount of $29,250 during the three months ended June 30, 2005 based on the
fair value of the shares at the grant date.

# NOTE J  FINANCING
COSTS

The Company
incurred approximately $1,478,000 of financing costs during the fiscal year ended March
31, 2003, including the value of the warrants issued to the Companys financial
advisors related to obtaining certain financing in June 2002. The financing costs were
allocated between the components of the financing that represented debt and equity. The
financing costs that were allocated to the debt proceeds, $1,110,000, have been recorded
as other assets and will be amortized over the repayment term of the various loans and
notes. The financing costs that were allocated to the equity proceeds, $368,000, have been
recorded as a reduction of the equity proceeds. These financing costs were written off as
part of the June 2004 debt refinancing. We incurred $106,000 in new financing costs in
June 2004. Amortization expense related to the financing costs was $9,000 and $475,000 for
the three months ended June 30, 2005 and 2004, respectively.

# NOTE K  OTHER
ASSETS

Other
assets consist of the following:

|                                           | Amortization Period |        | June 30, |   | March 31,
|------------------------------------------ | ------------------- | ------ | -------- | - | ---------
|
|
|                                           | (In Thousands)     
|
|Product Development (see Note F)           |                     | 3  5  |          | $ | 3,076    
|Less:  Accumulated
         Amortization   |                     |        |          |   | (1,330   
|
|                                           |                     |        |          | $ | 1,746    
|
|
|Patents (see Note L)                       |                     | 5  17 |          | $ | 2,423    
|Less:  
        Accumulated Amortization   |                     |        |          |   | (1,378   
|
|                                           |                     |        |          | $ | 1,045    
|
|
|Financing Costs (see Note J)               |                     | 3      |          | $ | 106      
|Less:  
          Accumulated Amortization |                     |        |          |   | (35      
|
|                                           |                     |        |          | $ | 71       
|
|
|Other                                      |                     | 5      |          | $ |         
|Less:  
          Accumulated Amortization |                     |        |          |   |         
|
|                                           |                     |        |          | $ |         
|
|Total Other Assets, Net                    |                     |        |          | $ | 2,862    
|

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

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# NOTE L  RELATED
PARTY TRANSACTIONS

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

# NOTE M  LEASE
COMMITMENTS

The Company currently leases 115,000
square feet consisting of office space and air-conditioned manufacturing and warehousing
space at 2003 Gandy Boulevard North, Suite 800, St. Petersburg, Florida. The lease
automatically expands to 132,500 square feet on October 1, 2006. 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
approximately $50,000 plus tax in the first six months and increase to approximately
$52,000 plus tax in the last six months of fiscal 2006. In addition, we are obligated to
pay annual operating expenses (i.e., insurance, property taxes and common area maintenance
fees). Due to the fact that the lease contains scheduled rent increases, the Company has
applied the provisions of FASB Statement 13, Accounting for Leases. As
a result, from October 1, 2004 through June 30, 2005, the Company has recorded lease
expense of approximately $170,000 in excess of cash paid under this lease.

Pursuant
to the terms of the lease, the Company was paid a lease incentive of $400,000, which will
be amortized to rental expense over the term of the lease. As of June 30, 2005, the lease
incentive has been recorded in the accompanying condensed consolidated balance sheet under
the caption lease incentive in the amount of approximately $342,000 with the
current portion of approximately $33,000 being included in the accounts payable and
accrued liabilities.

The
Company also leases approximately 5,200 square feet at approximately $3,200 per month for
office and warehouse space at 21530 Drake Road, Cleveland, Ohio. The lease expires on
March 31, 2006.

MTS
Medication Technologies International, Ltd. currently leases approximately 1,600 square
feet of office and warehouse space at Unit 6A/6B Dalton Court, Blackburn Interchange,
Lower Darwen, Blackburn, Lancashire, England. The lease is for a term of one year, and the
monthly lease payments are approximately $3,400. The lease expires on May 20, 2006.

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# NOTE N  RECENT
ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial
Accounting Standards Board (the FASB) issued Statement on Financial Accounting
Standard (SFAS) No. 123 (Revised 2004) Share-Based Payment
(No. 123R). SFAS No. 123R addresses all forms of share-based payment
(SBP) awards, including shares issued under employee stock purchase plans,
stock options, restricted stock and stock appreciation rights. SFAS No. 123R will require
the Company to expense SBP awards with compensation cost for SBP transactions measured at
fair value. The FASB originally stated a preference for a lattice model because it
believed that a lattice model more fully captures the unique characteristics of employee
stock options in the estimate of fair value, as compared to the Black-Scholes model which
the Company currently uses for its footnote disclosure. The FASB decided to remove its
explicit preference for a lattice model and not require a single valuation methodology.
SFAS No. 123R requires the Company to adopt the new accounting provisions either
prospectively or retrospectively beginning in the first quarter of fiscal 2007. The
Company has not yet determined either the method or the impact of applying the various
provisions of SFAS No. 123R.

In
November 2004, the FASB issued SFAS 151, Inventory Costs, an amendment of ARB No. 43,
which is effective for inventory costs incurred by the Company beginning fiscal year 2006.
The amendments made by SFAS 151 will improve financial reporting by clarifying that
abnormal amounts of idle facility expense, freight, handling costs, and wasted materials
(spoilage) should be recognized as current-period charges and by requiring the allocation
of fixed production overheads to inventory based on the normal capacity of the production
facilities. The Company does not believe that the adoption of SFAS 151 will have a
significant effect on its financial statements.

In
December 2004, FASB issued SFAS 153, Exchanges of Non-monetary Assets, an amendment of APB
Opinion No. 29. This Statement is effective for non-monetary asset exchanges occurring in
fiscal periods beginning after June 15, 2005. This Statement eliminates the exception to
fair value for exchanges of similar productive assets and replaces it with a general
exception for exchange transactions that do not have commercial substance  that is,
transactions that are not expected to result in significant changes in the cash flows of
the reporting entity. The Company does not believe that the adoption of Statement 153 will
have a significant effect on its financial statements.

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# MTS MEDICATION
TECHNOLOGIES, INC. AND SUBSIDIARIESMANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONSFOR THE THREE MONTHS ENDED JUNE 30, 2005

# ITEM 2.   MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

References
in this Form 10-Q to the Company, MTS, we,
our or us means MTS Medication Technologies, Inc., together with
its subsidiaries, except where the context otherwise indicates. This Form 10-Q contains
forward-looking statements within the meaning of that term in Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Additional
written or oral forward-looking statements may be made by us from time to time, in filings
with the Securities and Exchange Commission or otherwise. Statements contained herein that
are not historical facts are forward-looking statements made pursuant to the safe harbor
provisions described above. Forward-looking statements may include, but are not limited
to, projections of revenues, income or losses, capital expenditures, plans for future
operations, the elimination of losses under certain programs, financing needs or plans,
compliance with financial covenants in loan agreements, plans for sale of assets or
businesses, plans relating to 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. In addition, when used in this discussion, the
words anticipates, estimates, expects,
intends, believes, plans and variations thereof and
similar expressions are intended to identify forward-looking statements.

Forward-looking
statements are inherently subject to risks and uncertainties, some of which cannot be
predicted or quantified based on current expectations. Consequently, future events and
actual results could differ materially from those set forth in, contemplated by, or
underlying the forward-looking statements contained herein. Statements in Quarterly
Reports, particularly in Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations and Notes to Condensed Consolidated
Financial Statements, describe factors, among others, that could contribute to or cause
such differences. Other factors that could contribute to or cause such differences
include, but are not limited to, unanticipated increases in operating costs, labor
disputes, capital requirements, increases in borrowing costs, product demand, pricing,
market acceptance, intellectual property rights and litigation, risks in product and
technology development and other risk factors detailed in our Securities and Exchange
Commission filings. In particular any comments regarding possible default waivers related
to our loan agreement are forward-looking statements.

Readers
are cautioned not to place undue reliance on any forward-looking statements contained
herein, which speak only as of the date hereof. We undertake no obligation to publicly
release the result of any revisions of 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.

# Summary of Results

We
produced revenue of $9.5 million in the first quarter ended June 30, 2005 compared with
$10.0 million in the same period of the prior year. Revenue from sales of our disposable
products to existing and new customers increased 10% overall. We believe the revenue
increase in our disposable products is the result of: (1) increased penetration of
independent pharmacies; (2) growth in market demands due to the aging demographics of the
U.S. population; (3) a continued shift toward punch-card use; and (4) growth in
international markets. Our revenue for our OnDemand system declined, as we did not record any system sales
in the first quarter ended June 30, 2005 compared with four systems in the same period of
the prior year.

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The
following table sets forth, for the three-month periods indicated, certain key operating
results and other financial information (in thousands, except per share data).

|                                                   | Three Months Ended                      
|-------------------------------------------------- | ----------------------------------------
|
|
|
|                                                   | (In Thousands; Except Per Share Amounts)
|
|Net Revenue                                        |                                         
|Gross Profit                                       |                                         
|Operating Income                                   |                                         
|Net Income (Loss) Available to Common Stockholders |                                         
|Diluted Earnings (Loss) Per Share                  |                                         

# ESTIMATES AND CRITICAL
ACCOUNTING POLICIES

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

Revenue Recognition

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

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

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Valuation of Accounts
Receivable

Our
allowance for doubtful accounts of approximately $200,000 at June 30, 2005 is based on
managements estimates of the credit-worthiness of our customers, current economic
conditions and historical information. In the opinion of management, our allowance for
doubtful accounts is believed to be an amount sufficient to respond to normal business
conditions. Historically, the levels of recorded bad debt expense and write-offs have not
been material to our financial statements. Should business conditions deteriorate or any
large customer default on its obligations to us, this allowance may need to be
significantly increased, which would have a negative impact upon our operations.

Inventory Obsolescence
Valuation Allowance

Our
allowance for inventory obsolescence and slow moving inventory is reviewed on a monthly
basis. We review various information related to the age and turnover of specific inventory
items to assist in our assessment. In the opinion of management, the valuation allowance
is believed to be sufficient to absorb the ultimate obsolescence of certain inventory as
they may occur. The inventory obsolescence valuation allowance was approximately $230,000
at June 30, 2005.

Self-Insurance Plan
Reserve

We
have established a reserve for unpaid medical claims of approximately $49,000 at June 30,
2005. Management reviews claims history information provided to it by the third-party
administrator of the self insured plan on a regular basis and believes that the reserve is
sufficient to respond to the claims that may be incurred by the participants in the plan.

Deferred Tax Asset
Valuation Allowance

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

Impairment Valuations

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

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

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Product Development

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

Estimated Liabilities

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

Warranty

We
established a reserve for warranty costs that we may incur during the warranty period that
is provided for in the OnDemand machine sales agreements with our customers. To date,
warranty costs have not been material.

# RESULTS OF OPERATIONS

Three Months Ended June
30, 2005 and 2004

Net
sales for the three months ended June 30, 2005 was $9.5 million compared with $10.0
million during the same period in the prior year. Net sales increased for disposable punch
cards and machines sold to new and existing customers by 10% overall. In addition, revenue
associated with the sale of OnDemand machines was $0.2 million during the three months
ended June 30, 2005 compared with $1.5 million in the same period in the prior year.
Average selling prices for disposable products were slightly higher during the first
quarter of fiscal 2005 compared to the same period in the prior fiscal year.

Cost
of sales for the three months ended June 30, 2005 was $5.8 million compared with $6.2
million during the same period in the prior year. Cost of sales as a percentage of sales
decreased to 61.2% from 62.1% during the same period in the prior fiscal year. Cost of
sales as a percentage of sales decreased primarily because the product cost of OnDemand
machine as a percentage of sales is higher than the product cost of disposable punch cards,
and there were no OnDemand machines sold in the first quarter this year compared with four in the
first quarter the prior year.

Selling, general and administration
expenses for the three months ended June 30, 2005 increased 18.7% to $2.6 million from
$2.2 million in the prior year primarily due to increased staffing and personnel related
costs. The Company has been adding personnel to support their growth plans in new products
and new markets.

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Depreciation
and amortization expenses for the three months ended June 30, 2005 decreased 12.5% to
$436,000 from $498,000 during the same period in the prior fiscal year. The decrease
resulted primarily due to accelerating the amortization of leasehold improvements made to
our previous facility as a result of terminating our lease in anticipation of relocating
in October 2004 offset by increased depreciation and amortization of capital expenditures
made to the new facility.

Interest
expense for the three months ended June 30, 2005 decreased 71.3% to $90,000 from $313,000
during the same period in the prior fiscal year. The decrease results primarily from a
$120,000 prepayment penalty incurred when our $4,000,000 subordinated note was repaid in
June 2004 in conjunction with lower debt levels and lower interest rates as compared with
the same period of the prior year.

Amortization
of original issue discount and financing costs was $0 and $9,000, respectively, in the
first quarter of this year compared with $803,000 and $475,000, respectively, in the first
quarter of the prior year. The decrease resulted from the repayment of our $4,000,000
subordinated note in June 2004. At that time, the remaining original issue discount and
financing costs associated with that note was completely amortized.

We
realized income tax expense of $173,000 during the three months ended June 30, 2005
compared with a tax benefit of $90,000 during the same period in the prior fiscal year.
This results from the fact that we incurred a net profit during the three-month period
ended June 30, 2005 compared to net loss in the same period of the prior year. The
increase in the effective tax rate for the period ended June 30, 2005 compared with the
first quarter of the previous year resulted from the permanent difference between the
carrying value of the subordinate debt for book and tax purposes in the prior year.

# LIQUIDITY AND CAPITAL
RESOURCES

During
the three months ended June 30, 2005, we had a net income before preferred dividends of
$327,000 compared with a net loss of $446,000 during the same period in the prior fiscal
year. Cash provided by operations was $1.3 million during the three months ended June 30,
2005 compared with $183,000 provided during the same period in the prior fiscal year. We
had working capital of $8.7 million at June 30, 2005.

The
increase in cash provided by operating activities during the three months ended June 30,
2005 compared with the same period in the prior fiscal year was due to a decrease in
accounts receivable and the net income for the period.

Investing
activities used $363,000 during the three months ended June 30, 2005 compared with
$270,000 during the same period in the prior fiscal year. The increase results primarily
from an increase in expenditures for product development.

Financing
activities used $1.1 million during the three months ended June 30, 2005 compared with
$76,000 provided during the same period in the prior fiscal year. The change results
primarily from the pay down of the revolving line of credit and term loans.

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

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We
have new product development projects underway, principally new versions of our OnDemand
machine and our recently announced MedLocker system, that are expected to be funded
by cash flow from operations. These projects are monitored on a regular basis to attempt
to ensure that the anticipated costs associated with them do not exceed our ability to
fund them from cash flow from operations and other sources of capital.

There
was $3.7 million borrowed and an additional $2.9 million available on our revolving line
of credit at June 30, 2005 based upon eligible collateral and overadvance capabilities
provided for in the credit facility. In addition, we had $300,000 available on our capital
equipment line of credit.

The
revolving line of credit and term loans contain financial covenants that, among other
things, require us to maintain certain financial ratios, tangible net worth and limits the
amount of capital expenditures we can make. We were in compliance with all provisions of
the loan agreements at June 30, 2005.

We
believe that the cash generated from operations during this fiscal year, and amounts
available on our revolving line of credit, are expected to be sufficient to meet our
capital expenditures, product development, working capital needs and the principal
payments required by our term loan agreements.

# Item 3.  Quantitative and
Qualitative Disclosures About Market Risk

We
do not engage in trading market risk sensitive instruments or purchasing hedging
instruments or other than trading instruments that are likely to expose us to
significant market risk, whether interest rate, foreign currency exchange, commodity price
or equity price risk.

# Item 4.  Controls and
Procedures

Evaluation of Disclosure
Controls and Procedures

We
carried out an evaluation required by Rules 13a-15 and 15d-15 under the Securities
Exchange Act of 1934 (the Evaluation), under the supervision and with the
participation of our management, including our Chief Executive Officer (CEO)
and Chief Financial Officer (CFO), of the effectiveness of our disclosure
controls and procedures as defined in Rules 13a-15 and 15d-15 promulgated under the
Securities Exchange Act of 1934 (Disclosure Controls). Although we believe
that our pre-existing Disclosure Controls were adequate to enable us to comply with our
disclosure obligations, as a result of such Evaluation, we implemented minor changes,
primarily to formalize, document and update the procedures already in place. Based on the
Evaluation, our CEO and CFO concluded that, subject to the limitations noted below, our
Disclosure Controls are effective in timely alerting them to material information required
to be in our periodic Securities and Exchange Commission reports.

Changes in Internal
Controls

There
has not been any change in our internal control over financial reporting identified in
connection with the Evaluation that occurred during the quarter ended June 30, 2005 that
has materially affected or is reasonably likely to materially affect, those controls.

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Limitations on the
Effectiveness of Controls

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

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

CEO and CFO
Certifications

Exhibits
31.1 and 31.2 are Certifications of the CEO and the CFO, respectively. The Certifications
are required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the
Section 302 Certifications). This Item of this report, which you are currently
reading, is the information concerning the Evaluation referred to in the Section 302
Certifications and this information should be read in conjunction with the Section 302
Certifications for a more complete understanding of the topics presented.

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# PART II  OTHER
INFORMATION

# Item 6.    Exhibits

| | 31.1 | Certification of the President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
| | ---- | ---------------------------------------------------------------------------------------------------------------------

| | 31.2 | Certification of the Vice President and Chief Financial  Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------

| | 32.1 | Certification of the President and Chief Executive Officer pursuant to 18 U.S.C. §.1350.
| | ---- | ----------------------------------------------------------------------------------------

| | 32.2 | Certification the Vice President and Chief Financial Officer pursuant to 18 U.S.C. §.1350.
| | ---- | ------------------------------------------------------------------------------------------

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# Signatures

Pursuant
to the requirements 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.

|                        | MTS MEDICATION TECHNOLOGIES, INC.
|----------------------- | ---------------------------------
|
|Date:   August 10, 2005 |                                  
|                        |                                  
|                        |                                  
|                        |                                  

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Exhibit 31.1

CERTIFICATION PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Todd E. Siegel, certify that:

1.       
          I have reviewed this quarterly report on Form 10-Q of MTS Medication
          Technologies, Inc.;

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

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

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

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

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

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

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:   August 10, 2005 |  | By: | /s/ Todd E. Siegel                    | 
|----------------------- |  | --- | ------------------------------------- | 
|                        |  |     |                                       | 
|                        |  |     | Todd E. Siegel                        | 
|                        |  |     | President and Chief Executive Officer | 

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Exhibit 31.2

CERTIFICATION PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael Branca,
certify that:

1.       
          I have reviewed this quarterly report on Form 10-Q of MTS Medication
          Technologies, Inc.;

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

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

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

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

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

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

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:   August 10, 2005 |  | By: | /s/ Michael Branca                         | 
|----------------------- |  | --- | ------------------------------------------ | 
|                        |  |     |                                            | 
|                        |  |     | Michael Branca                             | 
|                        |  |     | Vice President and Chief Financial Officer | 

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Exhibit 32.1

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

In
connection with the quarterly report of MTS Medication Technologies, Inc. (the
Company) on Form 10-Q for the quarterly period ended June 30, 2005, as
filed with the Securities and Exchange Commission on the date hereof (the Form
10-Q), I, Todd E. Siegel, President and Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:

(1)       
          The Form 10-Q 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-Q fairly presents, in all material
          respects, the financial condition and results of operations of the Company.

|                                      | 
|------------------------------------- | 
|Dated:
          August 10, 2005      | 
|                                      | 
|/s/Todd E. Siegel                     | 
|Todd E. Siegel                        | 
|President and Chief Executive Officer | 
|                                      | 
|                                      | 

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Table of Contents

Exhibit 32.2

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

In
connection with the quarterly report of MTS Medication Technologies, Inc. (the
Company) on Form 10-Q for the quarterly period ended June 30, 2005, as
filed with the Securities and Exchange Commission on the date hereof (the Form
10-Q), I, Michael Branca, Vice President and Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:

(1)    
          The Form 10-Q 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-Q fairly presents, in all material
          respects, the financial condition and results of operations of the Company.

|                                           | 
|------------------------------------------ | 
|Dated:
          August 10, 2005           | 
|                                           | 
|/s/Michael Branca                          | 
|Michael Branca                             | 
|Vice President and Chief Financial Officer | 
|                                           | 
|                                           | 

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