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# 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 quarterly period ended June 30, 2004

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

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

Commission File Number:   
0-16594

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

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

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

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

| |                                                                                            | 
| | ------------------------------------------------------------------------------------------ | 
| |                                                                                            | 
| |                                                                                            | 
| | (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 August 11, 2004, the registrant had 5,601,937 shares of common stock, $.01 par
        value per share, issued and outstanding.

---

# MEDICAL TECHNOLOGY
SYSTEMS, INC. AND SUBSIDIARIESIndex

| |         | Page                                                                                                            | 
| | ------- | --------------------------------------------------------------------------------------------------------------- | 
|
|
|
| | Item 1. | Financial Statements                                                                                            | 
| |         |                                                                                                                 | 
| |         | Condensed Consolidated Balance
        Sheets - June 30, 2004 and March 31, 2004                                | 
|
| |         | Condensed Consolidated
        Statements of Earnings - Three Months Ended June 30, 2004 and 2003               | 
|
| |         | Condensed Consolidated Statements
        of Changes in Stockholders' Equity - Three Months Ended June 30, 2004 | 
|
| |         | Condensed Consolidated Statements
        of Cash Flows - Three Months Ended June 30, 2004 and 2003             | 
| |         |                                                                                                                 | 
| |         | 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 and Reports on Form 8-K                                                                                | 
|
| |         | Signatures                                                                                                      | 
|
| |         | Certifications                                                                                                  | 

i.

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# Item 1. Financial
Statements

# PART 1 
FINANCIAL INFORMATION

MEDICAL TECHNOLOGY
SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)

# ASSETS

|                            | June 30,    |  | March 31,
|--------------------------- | ----------- |  | ---------
|
|
|                            | (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:                                        |  | 
|Current
        Maturities of Long-Term Debt                |  | 
|Current
        Maturities of Related Party Note Payable    |  | 
|Accounts
        Payable and Accrued Liabilities            |  | 
|
|Total
        Current Liabilities                           |  | 
|Long-Term Debt, Less Current Maturities                     |  | 
|Related Party Note Payable, Less Current
        Maturities |  | 
|
|Total Liabilities                                           |  | 
|
|Stockholders' Equity:                                       |  | 
|Common Stock                                                |  | 
|Preferred Stock                                             |  | 
|Capital In
         Excess of Par Value                     |  | 
|Accumulated Deficit                                         |  | 
|Treasury Stock                                              |  | 
|
|Total Stockholders' Equity                                  |  | 
|
|Total Liabilities and Stockholders' Equity                  |  | 
|

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

1

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# MEDICAL TECHNOLOGY
SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS(In Thousands; Except
Earnings Per Share Amounts)

(Unaudited)

|                                                           | Three Months Ended June 30,
|---------------------------------------------------------- | ---------------------------
|
|
|
|Revenue:                                                   |                            
|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:                                           |                            
|Original Issue Discount                                    |                            
|Financing Costs                                            |                            
|
|Total Other Expenses                                       |                            
|(Loss) Income Before Income Taxes                          |                            
|Income Tax Expense (Benefit)                               |                            
|
|(Loss) Net Income                                          |                            
|Convertible Preferred Stock Dividends                      |                            
|
|Net (Loss) Income Available to
        Common Stockholders |                            
|
|Net (Loss) Income Per Common Share - Basic                 |                            
|
|Net (Loss) Income Per Common
        Share - Diluted       |                            
|

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

2

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# MEDICAL TECHNOLOGY
        SYSTEMS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
        THREE MONTHS ENDED JUNE 30, 2004(In Thousands)(Unaudited)

|                                     | Common Stock |           | Preferred Stock |   |    |  |       |  |   |   | 
|------------------------------------ | ------------ | --------- | --------------- | - | -- |  | ----- |  | - | - | 
|
|
|
|
|
|Balance March 31, 2004               |              | 4,863,120 |                 | $ | 49 |  | 2,000 |  | $ | 1 | 
|
|Stock Options and Warrants Exercised |              | 738,817   |                 |   | 2  |  |       |  |   |   | 
|
|Convertible Preferred Stock Dividend |              |           |                 |   |    |  |       |  |   |   | 
|
|Net (Loss)                           |              |           |                 |   |    |  |       |  |   |   | 
|
|Balance June 30, 2004                |              | 5,601,937 |                 | $ | 51 |  | 2,000 |  | $ | 1 | 
|

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

3

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# 

# MEDICAL TECHNOLOGY
SYSTEMS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)(Unaudited)

|                                                        | Three Months Ended June 30,
|------------------------------------------------------- | ---------------------------
|
|
|
|
|Operating Activities                                    |                            
|Net Income (Loss)                                       |                            
|
|Adjustments to Reconcile Net Income to Net Cash         |                            
|Provided by Operating Activities:                       |                            
|Amortization of Deferred Financing Costs                |                            
|Amortization of Original Issue Discount                 |                            
|Depreciation and Amortization                           |                            
|Income Tax Expense (Benefit)                            |                            
|(Increase) Decrease in:                                 |                            
|Accounts Receivable                                     |                            
|Inventories                                             |                            
|Prepaids and Other                                      |                            
|Increase (Decrease) in:                                 |                            
|Accounts Payable and Other Accrued Liabilities          |                            
|
|Total Adjustments                                       |                            
|
|Net Cash Provided
                by Operations         |                            
|
|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    |                            
|Advances
        (Paydowns) on Revolving Line of Credit |                            
|Payment of Subordinated Notes                           |                            
|Borrowing on Term Loans                                 |                            
|Exercise of Stock Options                               |                            
|Expended for Financing Costs                            |                            
|Dividends on Convertible Preferred Stock                |                            
|
|Net Cash Provided (Used) by Financing Activities        |                            
|
|Net (Decrease) in Cash                                  |                            
|Cash at Beginning of Period                             |                            
|
|Cash at End of Period                                   |                            
|

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

4

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# MEDICAL TECHNOLOGY
SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2004

# 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, 2004 are not necessarily indicative of the results that may be expected for the year
ended March 31, 2005. 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, 2004.

The
unaudited condensed consolidated financial statements include the accounts of the Company
and its subsidiaries, MTS Packaging Systems, Inc. (MTS Packaging) and MTS
Packaging Systems International, Ltd. (MTSPI). All other subsidiaries of the
Company did not have operations during the three-month period ended June 30, 2004 and
2003.

# NOTE B  INVENTORIES

The
components of inventory consist of the following:

|                                     | June 30, |   | March 31,
|------------------------------------ | -------- | - | ---------
|
|
|
|Raw Materials                        |          | $ | 2,126    
|Finished Goods and Work in Progress  |          |   | 2,223    
|Less:  Inventory Valuation Allowance |          |   | (174     
|
|                                     |          | $ | 4,175    
|

# 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 by
the weighted average number of shares of common stock outstanding for the period and any
warrants outstanding that are exercisable at a de minimus amount. Diluted earnings per
share is calculated by dividing net income by the weighted average number of shares of
common stock outstanding for the period, adjusted for the dilutive effect of common stock
equivalents, using the treasury stock method and the if converted
method as it relates to the convertible preferred stock outstanding.

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 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 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).

The
effect of outstanding options and warrants of approximately 790,000 shares and the effect
of 847,000 shares of common stock that would be issued upon the 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 customer's
location; (b) the user training; and (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. The Company recognizes the revenue associated
with the training when performed.

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

The
Company expenses product research and development costs as incurred. The Company incurred
approximately $56,000 and $33,000 during the three months ended June 30, 2004 and 2003,
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 $44,000 and
$115,000 of product development costs during the three months ended June 30, 2004 and
2003, 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 $90,000 and $91,000
for the three months ended June 30, 2004 and 2003, respectively.

At
June 30, 2004 and March 31, 2004, the Companys capitalized product development costs
included its new OnDemand product and versions thereof, which represented approximately
$1,720,000 (excluding accumulated amortization), for both periods, of the total
capitalized product development costs (see Note L).

# NOTE G  LONG-TERM
DEBT

|                                                                                                | June 30, |  | March 31,
|----------------------------------------------------------------------------------------------- | -------- |  | ---------
|
|                                                                                                |          |  |          
|
|
|Revolving line of credit due June 2007 plus interest
        payable monthly at between         |          |  |          
|the prime rate and 1% above the prime rate (4.25%  5.25% at June 30, 2004).                    |          |  | $        
|                                                                                                |          |  |          
|Bank term loan payable in
         graduated monthly installments of    $16,000  $52,000       |          |  |          
|plus interest at .50% above the prime rate (4.75% at June 30, 2004) through June 2007.          |          |  |          
|                                                                                                |          |  |          
|Note payable to related party (see Note M)
        payable in monthly                           |          |  |          
|installments of $28,785 including interest at 6.25% through July 2008.                          |          |  |          
|                                                                                                |          |  |          
|Subordinated Note - Face
        amount of $4,000,000, less unamortized original issue discount |          |  |          
|of $803,000, at March 31, 2004, due June 26, 2007 plus interest payable monthly at 14%.         |          |  |          
|                                                                                                |          |  |          
|Other Notes and Agreements                                                                      |          |  |          
|                                                                                                |          |  |          
|Total Long - Term Debt                                                                          |          |  |          
|                                                                                                |          |  |          
|Less Current Portion (including
        $309,000 and $272,000 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 $7.2 million borrowed and an additional $1.3 million available on the Companys
revolving line of credit at June 30, 2004 based upon eligible collateral and overadvance
capabilities provided for in the credit facility. In addition, the Company had $300,000
available on its capital equipment line of credit.

The
bank term loans also contain provisions that require the Company to maintain certain
financial ratios and minimum stockholders equity levels of $6.7 million at June 30,
2004. In addition, certain provisions limit the amount of capital expenditures that the
Company can make each year. The Company was in compliance with all provisions of the loan
agreements of June 30, 2004.

At
June 30, 2004, the Company also had a $300,000 line of credit available for purchases of
equipment at an interest rate of prime plus .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, 2004.

In
June 2004, the Company repaid $4,000,000, the entire outstanding balance of its
subordinated note, which was due in June 2007 with the proceeds of an additional term loan
and advances on its revolving line of credit. At the time of the repayment, the carrying
value of the note was $3,259,000. The remaining amount of $741,000 represented the balance
of the original issue discount (OID) associated with the warrants that were
issued to the holder of the note in June 2002. This OID was being amortized over the term
of the note (five years), however, when the note was completely repaid, the remaining
amount was amortized.

The
Company incurred a prepayment penalty of $120,000 when the note was repaid, and this
amount was recorded as additional interest expense.

# 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 
STOCKHOLDER EQUITY

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

9

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

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

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.

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.

10

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# NOTE J  FINANCING
COSTS

During
fiscal year 2003, the Company incurred approximately $1,458,000 of financing costs
including the value of the warrants issued to the Companys financial advisors
related to obtaining certain financing described in Notes G and I. 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, $1,090,000, have been
recorded as other assets and have been amortized over the repayment term of the various
loans and notes. The financing costs that were allocated to the equity proceeds, $368,000,
were recorded as a reduction of the equity proceeds. In June 2004, the Company completely
repaid the outstanding loans that were obtained in fiscal year 2003.  As a result, financing
costs in the amount of $420,000 that were allocated to these loans that remained on the date
the loans were completely repaid were completely amortized.  The loans were repaid with the
proceeds of a new term loan and advances on a revolving line of credit.  During the period
ended June 30, 2004, the Company incurred $95,000 of financing costs associated with the new
financing.  These costs have been recorded as other assets and will be amortized over the
three-year term of the new loans.

# NOTE K  OTHER
ASSETS

Other
assets consists of the following:

|                                       | Amortization |  |        |  |   |       
|-------------------------------------- | ------------ |  | ------ |  | - | ------
|
|
|
|
|
|Product
      Development (see Note F) |              |  | 5      |  | $ | 2,427 
|Less:  
      Accumulated Amortization |              |  |        |  |   | (963  
|                                       |              |  |        | 
|                                       |              |  |        |  | $ | 1,464 
|                                       |              |  |        | 
|
|Patents (see Note M)                   |              |  | 5 - 17 |  | $ | 2,385 
|Less:   Accumulated Amortization       |              |  |        |  |   | (1,093
|                                       |              |  |        | 
|                                       |              |  |        |  | $ | 1,292 
|                                       |              |  |        | 
|
|Financing
      Costs (see Note J)     |              |  | 3 - 5  |  | $ | 1,205 
|Less:  
      Accumulated Amortization |              |  |        |  |   | (1,111
|                                       |              |  |        | 
|                                       |              |  |        |  | $ | 94    
|                                       |              |  |        | 
|
|Other                                  |              |  | 5      |  | $ | 225   
|Less:  
      Accumulated Amortization |              |  |        |  |   | (144  
|                                       |              |  |        | 
|                                       |              |  |        |  | $ | 81    
|                                       |              |  |        | 
|Total
      Other Assets, Net          |              |  |        |  | $ | 2,931 
|                                       |              |  |        | 

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. 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 who appraised the value of the proprietary technology at
$1,132,000. As part of the agreement, the Trust agreed to terminate the license
agreement. The purchase price of the appraised amount of the proprietary technology and
$348,000 of accrued and unpaid royalties 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%. 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. The amortization expense
related to these patents for the three months ended June 30, 2004 and 2003 was
approximately $56,000, and there were no such expenses for the period ending June 30,
2003.

# NOTE M  LEASE
COMMITMENTS

The
Company currently leases a 79,600 square foot plant consisting of office, manufacturing
and warehousing space. On March 31, 2004, the Company provided its landlord with notice of
intent to terminate this lease on September 30, 2004. Effective October 1, 2004, the
Company will occupy the new premises. The lease for the new premises will be for a term of
twelve (12) years. The premises consists of approximately 132,000 square feet, and the
monthly lease payments begin at $35,000 plus tax in the first year and increases to
$63,000 plus tax in the final year. In addition, the Company is obligated to pay annual
operating expenses, i.e., insurance, taxes and common area maintenance fees. The Company
will be paid a move-in allowance, by the landlord, of $400,000 on the commencement date of
the lease. The move-in allowance will be amortized over the remaining term of the current
lease. In addition, the Company has accelerated the amortization of approximately $275,000
associated with the abandonment of leasehold improvements that were made to the current
premises over the remaining life of the current lease. Also, the Company expects to incur
approximately $300,000 in costs associated with the move to the new facility and expenses
associated with bringing the current premises into a condition acceptable to the landlord.
Although an estimate cannot be reasonably made, management does not believe these costs
will have a material impact on the financial statements. The moving expenses are expected
to be recorded in the second quarter of this fiscal year.

The
Company also leases approximately 5,200 square feet of office and warehouse space in
Cleveland, Ohio at $3,200 per month. The lease expires on March 31, 2005.

One
of the Companys subsidiaries, MTS Packaging Systems International, Ltd., rents
office and warehouse space in Lancashire, England at £1,642 per month, which as of
August 12, 2004, is equivalent to approximately $2,992. This lease is for a term of one
year.

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# MEDICAL TECHNOLOGY
SYSTEMS, INC. AND SUBSIDIARIESMANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONSFOR THE THREE MONTHS ENDED JUNE 30, 2004

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 Medical Technology Systems, 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 can 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.

# Operations

We
experienced growth in revenue of 43% in our first quarter of this year compared with the
prior year first quarter. Our revenue grew at this level because of increased sales of our
disposable products to new and existing customers and increased sales of our machines
including the OnDemand® machine. We believe that our revenue derived from our
disposable products is increasing because of: (1) increased penetration of independent
pharmacies throughout the country and (2) the aging demographics of the U.S. population.
As the population ages, the number of nursing home and assisted living facility residents
grows, which benefits our entire customer base and, in turn, us. Independent pharmacies
are those that are not affiliated with pharmacies that are national in scope, but rather
rely on the relationships they have with nursing homes and assisted living facilities in a
small geographic region.

Our
revenue derived from machine sales has increased primarily because sales of our four new
OnDemand machines were completed in our first quarter of this year.

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

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Our product margin, the difference between our selling prices and our direct costs of material and
labor, for disposable products increased during the three months ended June 30, 2004.  We believe
that this results primarily from the fact during the last quarter of fiscal 2004 we added new
production equipment that manufactures punch cards more efficiently, thereby reducing scrap and direct
labor costs.

Factory
overhead costs have risen approximately 42%, from approximately $855,000 to approximately
$1,214,000, in the three months ended June 30, 2004 compared to the same period in the
prior fiscal year primarily due to costs added to properly supervise and warranty the
OnDemand product line, as well as increased supplies and maintenance costs associated with
the production of disposable products.

Direct
selling costs increased to $720,000 for the three months ended June 30, 2004 compared to
$454,000 for the same period in the prior fiscal year because we added sales management
personnel and support staff. In addition, commissions and bonuses paid to sales personnel
have risen as net sales have increased. Marketing costs have increased over the same
period in the prior fiscal year, from approximately $144,000 to approximately $344,000
primarily due to our rebranding to improve product awareness in existing markets, such as
skilled nursing and new markets, such as assisted living. Also, it has been necessary to
add marketing and technical support personnel to assist in the launch, installation and
user training of OnDemand machines. We expect that selling and marketing costs, as well as
OnDemand support costs, may continue to rise as we attempt to reach new markets for our
disposable products and additional OnDemand machine sales prospects are identified.

Administrative
costs have risen approximately 39% in the first three months ended June 30, 2004 compared
to the same period in the prior fiscal year from approximately $861,000 million to
approximately $1.2 million. The increase is primarily due to costs that have been added to
support our operations, personnel related expenses including employee benefit costs and
increases in legal and accounting costs.

Although
our factory overhead, selling, marketing and administrative costs increased during the
first three months of this year compared with the prior year, we believe that these costs
will not increase significantly during the balance of this fiscal year from the levels
experienced in the first three months.

# Liquidity

Cash
flow from operations has been sufficient during the first three months ended June 30, 2004
to fund the necessary capital expenditures and product development projects that are
underway. The overall revolving line of credit limit and the borrowing base availability
limitations have been sufficient to support the increases in both accounts receivable and
inventory that have resulted from increased revenue. We do not carry significant cash
balances because our excess cash is used to reduce the balance on our revolver and thereby
providing additional borrowing availability. We view our borrowing availability as our
cash reserve.

# ESTIMATES AND CRITICAL
ACCOUNTING POLICIES

The
preparation of our unaudited condensed financial statements in conformity with US GAAP
requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the financial statements and revenues and
expenses for the respective period-ended for such statements. The determination of
estimates requires the use of judgment because 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. 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 this Item 2. Managements Discussion and
Analysis of Financial Condition and Results of Operations. Nevertheless, our
management believes the following items involve a higher degree of complexity and,
judgment and therefore, has commented on these items below.

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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 customer's
location; (b) the user training; and (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. The Company recognizes the revenue associated
with the training when performed.

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

Valuation of Accounts
Receivable at June 30, 2004

Our
allowance for doubtful accounts of $208,000 at June 30, 2004 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 $174,000 at June 30,
2004.

Self-Insurance Plan
Reserve

We
have established a reserve for unpaid medical claims of $80,000 at June 30, 2004.
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.

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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.

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 may we 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.

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# RESULTS OF OPERATIONS

Three Months Ended June
30, 2004 and 2003

Net
sales for the three months ended June 30, 2004 increased 43% to $10.0 million from $7.0
million during the same period in the prior fiscal year. Net sales increased primarily as
a result of an increase in the amount of disposable punch cards and machines sold to new
and existing customers. In addition, revenue associated with the sale of OnDemand machines
was $1.5 million during the three months ended June 30, 2004 compared to no revenue in the same
period in the prior year. Average selling prices for disposable products were stable
during the first quarter of fiscal 2005 compared to the same period in the prior fiscal
year. The volume of disposable cards and machines is currently anticipated to continue to
grow as a result of the addition of new customers in existing and new markets.

Cost
of sales for the three months ended June 30, 2004 increased 44% to $6.2 million from $4.2
million during the same period in the prior year. Cost of sales as a percentage of sales
increased to 62.1% from 60.0% during the same period in the prior fiscal year. Cost of
sales as a percentage of sales increased because the product cost of OnDemand machines as
a percentage of sales is higher than the product cost of disposable punch cards and four
OnDemand machines were sold in the first quarter this year compared with none in the first
quarter the prior year.

Selling,
general and administration expenses for the three months ended June 30, 2004 increased
37.5% to $2.2 million from $1.6 million in the prior year primarily due to increased
marketing expenses associated with our rebranding, increases in costs related to sales
personnel compensation plans that are tied to increased revenue and the costs associated
with senior management personnel that were added contributed to the increase. Also,
employee benefit costs increased in the first quarter of this year compared with the first
quarter of the previous year.

Depreciation
and amortization expenses for the three months ended June 30, 2004 increased 80.4% to
$498,000 from $276,000 during the same period in the prior fiscal year. The increase is
primarily a result of the fact that we began accelerating the amortization of leasehold
improvements made to our current facility as a result of terminating our lease in
anticipation of relocating in October 2004. In addition, we began to amortize the cost of
the proprietary technology acquired from a related party in the second quarter of the
prior fiscal year. There was no amortization expense associated with this proprietary
technology in the first quarter of the prior year.

Interest
expense for the three months ended June 30, 2004 increased 54.2% to $313,000 from $203,000
during the same period in the prior fiscal year. The increase results primarily from the
fact that we incurred a $120,000 prepayment penalty when our $4,000,000 subordinated note
was repaid in June 2004.

Amortization
of original issue discount and financing costs increased to $803,000 and $475,000
respectively in the first quarter of this year compared with $62,000 and $85,000,
respectively, in the first quarter of the prior year. The increase resulted from the fact
that we repaid 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 an income tax benefit of $90,000 during the three months ended June 30, 2004
compared to $206,000 income tax expense during the same period in the prior fiscal year.
This results from the fact that we incurred a net loss during the three-month period ended
June 30, 2004 compared to net income in the prior year. The decrease in the effective tax
rate for the period ended June 30, 2004 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.

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# LIQUIDITY AND CAPITAL
RESOURCES

During
the three months ended June 30, 2004, we had a net loss of $446,000 compared to net income
of $338,000 during the same period in the prior fiscal year. Cash provided by operations
was $183,000 during the three months ended June 30, 2004 compared to $488,000 provided
during the same period in the prior fiscal year. We had working capital of $10,373,000 at
June 30, 2004.

The decrease in cash provided by operating activities during the three months ended June 30, 2004
compared to the same period in the prior fiscal year was due to an increase in inventory primarily
related to  machine component parts, deposits provided to subcontract manufacturers of OnDemand
machines and an increase in accounts receivable that has resulted primarily from increased sales.

Investing
activities used $270,000 during the three months ended June 30, 2004 compared to $288,000
during the same period in the prior fiscal year. The decrease results primarily from a
decrease in expenditures for product development.

Financing
activities provided $76,000 during the three months ended June 30, 2004 compared to
$387,000 used during the same period in the prior fiscal year. The change results
primarily from the proceeds derived by the Company from the exercise of employee stock
options.

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.

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 $7.2 million borrowed and an additional $1.3 million available on our revolving line
of credit at June 30, 2004 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, term loans and subordinated notes each contain financial
covenants that, among other things, requires 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, 2004.

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

There
have been no material changes in our market risk during the three months ended June 30,
2004. Market risk information is contained under the caption Quantitative And
Qualitative Disclosures About Market Risk of our annual report on Form 10-K for
the fiscal year ended March 31, 2004 and is incorporated herein by reference.

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# Item 4. 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, including our internal 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, 2004 that
has materially affected or is reasonably likely to materially affect, those controls.

Limitations on the
Effectiveness of Controls

Our
management, including our CEO and CFO, does not expect that our Disclosure Controls and
internal controls will prevent all error and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control system must
reflect the fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. 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 and Reports
on Form 8-K

| | (a) | 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.ss.1350.
| | ---- | ------------------------------------------------------------------------------------------------

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

| | (b) | Reports on Form 8-K
| | --- | -------------------

| | (1) | On April 13, 2004, we filed a current report on Form 8-K providing revenue and
               earnings guidance for Fiscal 2005 and our expected move to a new location.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | On May 13, 2004, we filed a current report on Form 8-K reporting we had issued a
               press release announcing a co-marketing with Cardinal Health, Inc.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | On June 16, 2004, we filed a current report on Form 8-K reporting we had issued
               a press release regarding our financial results for the fiscal quarter ended
               March 31, 2004
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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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.

|                        | MEDICAL TECHNOLOGY SYSTEMS, INC.
|----------------------- | --------------------------------
|
|Date:   August 16, 2004 |                                 
|                        |                                 
|                        |                                 
|                        |                                 

|                        | 
|----------------------- | 
|Date:   August 16, 2004 | 
|                        | 
|                        | 
|                        | 

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Exhibit 31.1

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

I, Todd E. Siegel, certify that:

1.       
          I have reviewed this quarterly report on Form 10-Q of Medical Technology
          Systems, 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; 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:   August 16, 2004 |  |  |  | 
|                        |  |  |  | 
|                        |  |  |  | 

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Exhibit 31.2

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

I, Michael P. Conroy, certify that:

1.       
          I have reviewed this quarterly report on Form 10-Q of Medical Technology
          Systems, 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 16, 2004 |  |  |  | 
|                        |  |  |  | 
|                        |  |  |  | 

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Exhibit 32.1

CERTIFICATION PURSUANT
TO18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002

In
connection with the quarterly report of Medical Technology Systems, Inc. (the
Company) on Form 10-Q for the quarterly period ended June 30, 2004, 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 §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 16, 2004               | 
|                                      | 
|/s/Todd E. Siegel                     | 
|Todd E. Siegel                        | 
|President and Chief Executive Officer | 
|                                      | 
|                                      | 

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Exhibit 32.2

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

In
connection with the quarterly report of Medical Technology Systems, Inc. (the
Company) on Form 10-Q for the quarterly period ended June 30, 2004, as filed
with the Securities and Exchange Commission on the date hereof (the Form
10-Q), 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 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 16, 2004                    | 
|                                           | 
|/s/Michael P. Conroy                       | 
|Michael P. Conroy                          | 
|Vice President and Chief Financial Officer | 
|                                           | 
|                                           | 

25