---

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, 2009
|- | ------------------------------------------------------------------------------------------------------------------------------------

or

| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
        from _______________ to _______________
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

Commission File Number:   001-31578

| |                                                        | 
| | ------------------------------------------------------ | 
| | MTS Medication Technologies, Inc.                      | 
| |                                                        | 
| | (Exact name of registrant as specified in its charter) | 

| | Delaware                                                       |  | 59-2740462                           | 
| | -------------------------------------------------------------- |  | ------------------------------------ | 
| |                                                                |  |                                      | 
| | (State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.) | 
| |                                                                |  |                                      | 

| | 2003 Gandy Boulevard North,
       St. Petersburg, Florida  33702 | 
| | ----------------------------------------------------------------- | 
| |                                                                   | 
| | (Address of principal executive offices)      
        (Zip Code) | 

| |                                                      | 
| | ---------------------------------------------------- | 
| | 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.   Yes    x
     No     ̈

Indicate
by check mark whether the  registrant  has  submitted  electronically  and posted on its
 corporate Web site, if any, every  Interactive  Data File  required to be submitted and
posted  pursuant to Rule 405 of  Regulation  S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to
submit and post such files.   Yes     ̈
     No     ̈

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

| | Large accelerated filer |  ̈                                                 | Accelerated filer         |  ̈
| | ----------------------- | ------------------------------------------------- | ------------------------- | -
| | Non-accelerated filer   |  ̈    (Do not check if smaller reporting company.) | Smaller reporting company | x

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

Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.

| | Class                                  |  | Outstanding at August 10, 2009 | 
| | -------------------------------------- |  | ------------------------------ | 
| |                                        |  |                                | 
| | Common Stock, $.01 par value per share |  | 6,473,065                      | 

---

# MTS MEDICATION TECHNOLOGIES,
INC. AND SUBSIDIARIES

# Index

| |                   | Page                                                                                                                                      | 
| | ----------------- | ----------------------------------------------------------------------------------------------------------------------------------------- | 
|
|
|
| | Item 1.           | Financial Statements                                                                                                                      | 
| |                   |                                                                                                                                           | 
| |                   | Consolidated
        Balance Sheets  June 30, 2009 and March 31, 2009 (Unaudited)                                                        | 
|
| |                   | Consolidated
        Statements of Operations  Three Months Ended June 30, 2009 and 2008 (Unaudited)                                     | 
|
| |                   | Consolidated
        Statement of Changes in Stockholders Equity and Comprehensive Income  Three Months Ended June 30, 2009 (Unaudited) | 
|
| |                   | Consolidated
        Statements of Cash Flows  Three Months Ended June 30, 2009 and 2008 (Unaudited)                                     | 
| |                   |                                                                                                                                           | 
| |                   | Notes to Consolidated Financial Statements (Unaudited)                                                                                    | 
|
| | 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 1.           | Legal Proceedings                                                                                                                         | 
| |                   |                                                                                                                                           | 
| | Item 1A.          | Risk Factors                                                                                                                              | 
| |                   |                                                                                                                                           | 
| | Item 2.           | Unregistered Sales of Equity Securities and Use of Proceeds                                                                               | 
| |                   |                                                                                                                                           | 
| | Item 3.           | Default Upon Senior Securities                                                                                                            | 
| |                   |                                                                                                                                           | 
| | Item 4.           | Submission of Matters to a Vote of Security Holders                                                                                       | 
| |                   |                                                                                                                                           | 
| | Item 5.           | Other Information                                                                                                                         | 
| |                   |                                                                                                                                           | 
| | Item 6.           | Exhibits                                                                                                                                  | 
|
| | Signatures        |                                                                                                                                           | 
|
| | Index to Exhibits |                                                                                                                                           | 
|
| | Certifications    |                                                                                                                                           | 

i.

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Table of Contents

# Forward Looking
Statement

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, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended (the Exchange Act). Additional written or oral
forward-looking statements may be made by us from time to time, in filings with the
Securities and Exchange Commission (the SEC) or otherwise. 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 the 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. The following important
factors, among others, could affect future results and events, causing those results and
events to differ materially from those expressed or implied in our forward-looking
statements:

|  |  |                                                                                                               
|- |  | --------------------------------------------------------------------------------------------------------------
|
|
| |  | fluctuations in foreign currency;                                                                             
| |  | our ability to compete in a very competitive market;                                                          
| |  | the limited number of customers that we depend on for our net sales;                                          
| |  | the additional risks inherent in our international operations;                                                
| |  | the small number of suppliers that we depend on for raw materials;                                            
| |  | our reliance on a single facility in which we manufacture a majority of our products;                         
| |  | our reliance on short-term contracts with most of our clients;                                                
| |  | intellectual property rights and litigation;                                                                  
| |  | risks in product and technology development;                                                                  
| |  | the potential adverse effect of governmental regulation on our business, as well as our customers businesses;
| |  | the changing U.S. healthcare environment; and                                                                 
| |  | other factors that we may not have currently identified or quantified.                                        

For
a further list and description of various risks, relevant factors and uncertainties that
could cause future results or events to differ materially from those expressed or implied
in our forward-looking statements, see Part I, Item 2. Managements Discussion
and Analysis of Financial Condition and Results of Operations, Part II, Item
1A. Risk Factors and Notes to Condensed Consolidated Financial 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.

---

Table of Contents

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

ASSETS

|                             | June 30, 2009 |  | March 31, 2009
|---------------------------- | ------------- |  | --------------
|
|
|Current Assets:              |               |  |               
|Cash                         |               |  | $             
|Restricted Cash              |               |  |               
|Accounts Receivable, Net     |               |  |               
|Inventories, Net             |               |  |               
|Prepaids and Other           |               |  |               
|Deferred Tax Asset           |               |  |               
|
|Total Current Assets         |               |  |               
|Property and Equipment, Net  |               |  |               
|
|Goodwill                     |               |  |               
|Other Intangible Assets, Net |               |  |               
|Other Assets, Net            |               |  |               
|
|Total Assets                 |               |  | $             
|

# LIABILITIES AND
STOCKHOLDERS' EQUITY

|Current Liabilities:                       |  |  |   |        |   |  |   |        |  
|------------------------------------------ |  |  | - | ------ | - |  | - | ------ | -
|Accounts Payable and Accrued Liabilities   |  |  | $ | 6,022  |   |  | $ | 6,170  |  
|Current Maturities of Long-Term Debt       |  |  |   | 9      |   |  |   | 19     |  
|Customer Deposits                          |  |  |   | 273    |   |  |   | 1,330  |  
|
|Total Current Liabilities                  |  |  |   | 6,304  |   |  |   | 7,519  |  
|
|Long-Term Debt, Less Current Maturities    |  |  |   | 8,666  |   |  |   | 8,196  |  
|Other Liabilities                          |  |  |   | 1,174  |   |  |   | 1,211  |  
|Deferred Tax Liability, Net                |  |  |   | 654    |   |  |   | 612    |  
|
|Total Liabilities                          |  |  |   | 16,798 |   |  |   | 17,538 |  
|
|Stockholders' Equity:                      |  | 
|Common Stock                               |  |  |   | 65     |   |  |   | 65     |  
|Capital In Excess of Par Value             |  |  |   | 10,622 |   |  |   | 10,500 |  
|Accumulated Other Comprehensive Loss       |  |  |   | (279   | ) |  |   | (674   | )
|Retained Earnings                          |  |  |   | 4,792  |   |  |   | 4,825  |  
|Treasury Stock                             |  |  |   | (328   | ) |  |   | (328   | )
|
|Total Stockholders' Equity                 |  |  |   | 14,872 |   |  |   | 14,388 |  
|
|Total Liabilities and Stockholders' Equity |  |  | $ | 31,670 |   |  | $ | 31,926 |  
|

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

1

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Table of Contents

# MTS MEDICATION
TECHNOLOGIES, INC. AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF OPERATIONS
       (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 Income                              |                            
|
|Interest Expense                              |                            
|
|Income Before Taxes                           |                            
|
|Income Tax Expense                            |                            
|
|Net (Loss) Income                             |                            
|
|Net (Loss) Income Per Common Share - Basic    |                            
|
|Net Income Per Common Share - Diluted         |                            
|
|Weighted Average Shares Outstanding - Basic   |                            
|
|Weighted Average Shares Outstanding - Diluted |                            
|

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

2

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Table of Contents

# MTS MEDICATION TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME THREE
MONTHS ENDED JUNE 30, 2009 (In Thousands; Except Shares)(Unaudited)

|                                        |  | Common Stock |  |   |    | Accumulated |   |        |  |   |      |   |  |  
|--------------------------------------- |  | ------------ |  | - | -- | ----------- | - | ------ |  | - | ---- | - |  | -
|
|
|
|
|
|Balance March 31, 2009                  |  | 6,454,065    |  | $ | 65 |             | $ | 10,500 |  | $ | (674 | ) |  | $
|Stock Grants Issued                     |  | 19,000       |  |   |   |             |   | 67     |  |   |      |   |  |  
|Share-Based Compensation                |  |              |  |   |    |             |   | 55     |  |   |      |   |  |  
|Comprehensive Income:                   |  |              |  |   |    |             |   |        |  |   |      |   |  |  
|Net Loss                                |  |              |  |   |    |             |   |        |  |   |      |   |  |  
|Interest Rate Swaps, Net of Tax of $15  |  |              |  |   |    |             |   |        |  |   | 25   |   |  |  
|Foreign Currency Translation Adjustment |  |              |  |   |    |             |   |        |  |   | 370  |   |  |  
|
|Total Comprehensive Income              |  |              |  |   |    |             |   |        |  |   |      |   |  |  
|
|Balance June 30, 2009                   |  | 6,473,065    |  | $ | 65 |             | $ | 10,622 |  | $ | (279 | ) |  | $
|

3

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Table of Contents

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

|                                                                                                 | Three Months Ended June 30,
|------------------------------------------------------------------------------------------------ | ---------------------------
|
|
|
|
|Operating Activities                                                                             |                            
|Net (Loss) Income                                                                                |                            
|Adjustments to Reconcile Net (Loss)
        Income to Net Cash Provided By Operating Activities: |                            
|Depreciation and Amortization                                                                    |                            
|Write-off of deferred financing costs                                                            |                            
|Tax Benefit of Options Exercised                                                                 |                            
|Deferred Income Taxes                                                                            |                            
|Share-Based Compensation                                                                         |                            
|Changes In Operating Assets and Liabilities:                                                     |                            
|Restricted Cash                                                                                  |                            
|Accounts Receivable                                                                              |                            
|Inventories                                                                                      |                            
|Prepaids and Other                                                                               |                            
|Accounts Payable and Other Accrued Liabilities                                                   |                            
|Customer Deposits                                                                                |                            
|
|Total Adjustments                                                                                |                            
|
|Net Cash Provided By Operating Activities                                                        |                            
|
|Investing Activities                                                                             |                            
|Expended For Property and Equipment                                                              |                            
|Expended For Product Development                                                                 |                            
|Expended For Additional Consideration of Business Acquisition                                    |                            
|
|Net Cash Used By Investing Activities                                                            |                            
|
|Financing Activities                                                                             |                            
|Payments On Notes Payable and Term Loans                                                         |                            
|Payments On Related Party Note Payable                                                           |                            
|Paydowns on Revolving Line of Credit                                                             |                            
|Advances on Revolving Line of Credit                                                             |                            
|Tax Benefit of Options Exercised                                                                 |                            
|
|Net Cash Provided By Financing Activities                                                        |                            
|
|Effect of Exchange Rate Changes On Cash                                                          |                            
|
|Net Increase (Decrease) In Cash                                                                  |                            
|Cash at Beginning of Period                                                                      |                            
|
|Cash at End of Period                                                                            |                            
|
|Supplemental Disclosure of Cash Flow Information                                                 |                            
|Cash Paid for Interest                                                                           |                            
|Cash Paid for Taxes                                                                              |                            

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

4

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Table of Contents

# MTS MEDICATION
TECHNOLOGIES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2009 (Unaudited)

# NOTE 1  BASIS OF
PRESENTATION

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

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

The
accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the U.S. (U.S.
GAAP) for interim financial information and with the instructions to Form 10-Q and
Rule 10 of Regulation S-X. Accordingly, they do not include all of the information and
notes required by U.S. 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, 2009 are not necessarily indicative of the results that may be expected for
future quarters in the fiscal year ending March 31, 2010. The unaudited 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 fiscal year ended March 31, 2009.

# NOTE 2  RESTRICTED
CASH

In
May 2007, the Company entered into an agreement to provide sixteen OnDemand® Express
II and eight AccuFlex machines to its largest customer over an 18 month
period.  The agreement provides that the customer will make certain deposits that
will ultimately be applied towards the purchase price of the machines.  The agreement
further provides that the deposits will be held in a separate bank account and used
exclusively for costs associated with the manufacture of the machines.  The Company
has used these cash deposits to pay an outsourced manufacturer, and to pay costs and
expenses related to the manufacture and installation of the machines. The Company holds
the remaining cash in a separate bank account to be used to fund future costs
associated with the manufacture of the machines.  The unused balance was
approximately $37,000 and $79,000 as of June 30, 2009 and March 31, 2009, respectively.

5

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Table of Contents

# NOTE 3  INVENTORIES

The
components of inventory consist of the following:

|                                     | June 30, 2009  |  | March 31, 2009
|------------------------------------ | -------------- |  | --------------
|
|                                     | (In Thousands)
|Raw Material                         |                |  | $             
|Work in Process                      |                |  |               
|Finished Goods                       |                |  |               
|Less:  Inventory Valuation Allowance |                |  |               
|
|                                     |                |  | $             
|

# NOTE 4  EARNINGS
PER SHARE

Basic
earnings per share is calculated by dividing net income by the weighted average number of
shares of common stock outstanding for the period. 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.

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

|                                              | Three Months Ended June 30,             
|--------------------------------------------- | ----------------------------------------
|
|
|
|                                              | (In Thousands, Except Per Share Amounts)
|Numerator:                                    |                                         
|
|Net (Loss) Income                             |                                         
|
|Denominator:                                  |                                         
|
|Weighted Average Shares Outstanding - Basic   |                                         
|
|Add: Effect of Dilutive Warrants and Options  |                                         
|
|Weighted Average Shares Outstanding - Diluted |                                         
|
|Net Income Per Common Share -  Basic          |                                         
|
|Net Income Per Common Share - Diluted         |                                         
|

The
effect of 834,496 and 77,500 options were not included in the calculation of net income
per diluted common share for the three months ended June 30, 2009 and 2008, respectively,
as the effect would have been anti-dilutive.

6

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Table of Contents

# NOTE 5 
SHARE-BASED COMPENSATION

The
Company awards share-based compensation as an incentive for employees to contribute to the
Companys long-term success. Historically, the Company has issued options and
restricted stock under its Stock Incentive Plan (the Stock Plan). Share-based
compensation is recognized based on the fair value of the awards in accordance with SFAS
No. 123R (revised 2004) Share-Based Payment(SFAS No. 123R).
Compensation expense is recognized over the requisite service period on a straight-line
basis. As of June 30, 2009, options to purchase 834,496 shares were outstanding in the
aggregate under the Stock Plan and the Companys previous stock incentive plan, and
there were 312,754 options available for issuance under the Stock Plan.

| | Restricted
Stock Awards The Company grants restricted stock to certain executive employees
in exchange for services performed, which is based on the terms of their respective
employment agreements. The restricted shares issued are valued based on the value of the
Companys common stock on the date of grant. During the three months ended June 30,
2009, the Company issued 5,000 and 14,000 shares of restricted common stock to its Chief
Operating Officer and European Managing Director, respectively, as additional compensation
under their employment agreements. The Company recorded share-based compensation expense
in the amount of approximately $67,450 during the three months ended June 30, 2009 based
on the fair value of the shares at the date of grant. During the three months ended June
30, 2008, the Company issued 5,000 shares of restricted stock to its Chief Operating
Officer as additional compensation under his employment agreement. The Company recorded
share-based compensation expense in the amount of $57,000 during the three months ended
June 30, 2008, based on the fair value of the shares at the date of grant.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Stock
Options  The Company grants stock options to employees that allow them to
purchase shares of the Companys common stock. Options are also granted to outside
members of the Board of Directors of the Company. The Company determines the fair value of
stock options at the date of grant using the Black-Scholes valuation model. Options
generally vest immediately; however, the Company has historically granted options that
vest over three- to five-year periods. Awards generally expire 10 years after the date of
grant. The Company issues new shares upon the exercise of stock options. No options were
granted during the three months ended June 30, 2009 and 2008.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As
of June 30, 2009, the Company has unrecognized compensation cost of approximately $387,000
expected to be recognized over the next two years for share-based awards.

A
summary of the changes in stock options outstanding during the three months ended June 30,
2009 is as follows:

|                              |  |         |   |  | Weighted Average
|----------------------------- |  | ------- | - |  | ----------------
|
|
|
|
|Outstanding at March 31, 2009 |  | 835,496 |   |  | $               
|Options Exercised             |  |        |   |  |                 
|Options Expired               |  | (1,000  | ) |  |                 
|
|Outstanding at June 30, 2009  |  | 834,496 |   |  | $               
|

7

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Table of Contents

Outstanding Options

|                |  |         |  | Weighted Average |  |      
|--------------- |  | ------- |  | ---------------- |  | -----
|
|
|
|$1.45 -   $2.30 |  | 232,000 |  | 1.7              |  | $1.54
|$2.50 -   $4.47 |  | 79,500  |  | 4.4              |  | $3.82
|$5.60 - $13.70  |  | 522,996 |  | 7.5              |  | $7.10
|                |  |         |  |                  |  |      
|                |  | 834,496 |  |                  |  |      
|                |  |         |  |                  |  |      

# Exercisable Options

|                |  |         |  | Weighted Average |  |      
|--------------- |  | ------- |  | ---------------- |  | -----
|
|
|
|$1.45 -   $2.30 |  | 232,000 |  | 1.7              |  | $1.54
|$2.50 -   $4.47 |  | 69,500  |  | 3.7              |  | $3.79
|$5.60 - $12.45  |  | 271,093 |  | 6.3              |  | $7.00
|                |  |         |  |                  |  |      
|                |  | 572,593 |  |                  |  |      
|                |  |         |  |                  |  |      

The
options outstanding at June 30, 2009 expire on various dates through November 2018.

At
June 30, 2009, exercisable options had no aggregate intrinsic values.

# NOTE 6  LONG-TERM
DEBT

|                                                                                                                                                                                                                       | June 30, 2009  |  | March 31, 2009
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- |  | --------------
|
|                                                                                                                                                                                                                       | (In Thousands)
|
|Reducing revolving line of credit due in November 2010 with interest
        payable monthly at LIBOR plus 1.75%      (2.07% at June 30, 2009) for approximately $1.7 million and 4.7% for approximately $7.0 million. |                |  | $             
|
|Capital leases expiring at various times through fiscal year 2010 at
          interest rates ranging from 6.29% to 9.5%.                                                                                              |                |  |               
|
|Total Long-Term Debt                                                                                                                                                                                                   |                |  |               
|
|Less Current Portion                                                                                                                                                                                                   |                |  |               
|
|Long-Term Debt Due After One Year                                                                                                                                                                                      |                |  | $             
|

The
Company has a reducing revolving credit facility (the Credit Facility) with a
maximum borrowing limit of up to $12.0 million at June 30, 2009. Availability under the
Credit Facility is permanently reduced by $335,000 each January 31, April 30, July 31 and
October 31 through maturity in 2010.

8

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The
Credit Facility contains provisions that require the Company to maintain certain financial
ratios such as, Debt Service Coverage, Funded Debt to EBITDA and
Total Liabilities to Tangible Net Worth. The Company was in compliance with
all covenants as of June 30, 2009.

The
Credit Facility is collateralized by a first security interest in all of the assets of the
Company and a pledge of 100% of the shares of its domestic wholly-owned subsidiaries, and
65% of its foreign wholly-owned subsidiaries. There was approximately $8.7 million
borrowed and an additional $3.3 million available under the Credit Facility at June 30,
2009.

# NOTE 7  OTHER
ASSETS

Other
assets consist of the following:

|                                           | Amortization Period |        | June 30, |   | March 31,
|------------------------------------------ | ------------------- | ------ | -------- | - | ---------
|
|
|                                           | (In Thousands)     
|
|Product Development                        |                     | 3      |          | $ | 4,383    
|Less:  Accumulated
         Amortization   |                     |        |          |   | (3,211   
|
|                                           |                     |        |          | $ | 1,172    
|
|
|Patents                                    |                     | 5  17 |          | $ | 1,761    
|Less:  
        Accumulated Amortization   |                     |        |          |   | (1,272   
|
|                                           |                     |        |          | $ | 489      
|
|
|Financing Costs                            |                     | 3  5  |          | $ | 42       
|Less:  
          Accumulated Amortization |                     |        |          |   | (9       
|
|                                           |                     |        |          | $ | 33       
|
|
|Other                                      |                     |        |          | $ | 25       
|
|Total Other Assets, Net                    |                     |        |          | $ | 1,719    
|

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

# NOTE 8  RECENT
ACCOUNTING PRONOUNCEMENTS

In
June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles. This
standard replaces SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles, and establishes only two levels of U.S. generally accepted accounting
principles (GAAP), authoritative and nonauthoritative. The FASB Accounting
Standards Codification (the Codification) will become the source of
authoritative, nongovernmental GAAP, except for rules and interpretive releases of
the Securities and Exchange Commission (SEC), which are sources of
authoritative GAAP for SEC registrants. All other nongrandfathered, non-SEC accounting
literature not included in the Codification will become nonauthoritative. This standard is
effective for financial statements for interim or annual reporting periods ending after
September 15, 2009.  The Company will begin to use the new guidelines and
numbering system prescribed by the Codification when referring to GAAP in the second
quarter of fiscal 2010.  As the Codification was not intended to change or alter
existing GAAP, it will not have any impact on our consolidated financial statements.

9

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In
May 2009, the FSAB issued SFAS No. 165, Subsequent Events (SFAS No.
165). SFAS No. 165 is intended to establish general standards of accounting for and
disclosure of events that occur after the balance sheet date, but before financial
statements are issued or are available to be issued. It requires the disclosure of the
date through which an entity has evaluated subsequent events and the basis for that
datethat is, whether that date represents the date the financial statements were
issued or were available to be issued. This disclosure should alert all users of financial
statements that an entity has not evaluated subsequent events after that date in the set
of financial statements being presented. SFAS No. 165 is effective for financial
statements issued for fiscal years and interim periods ending after June 15, 2009. The
Company evaluated all subsequent events through August 10, 2009.

In
March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of SFAS No. 133 (SFAS No.
161). SFAS No. 161 is intended to improve financial standards for derivative
instruments and hedging activities by requiring enhanced disclosures to enable investors
to better understand the effect these instruments and activities have on an entitys
financial position, financial performance and cash flows. Entities are required to provide
enhanced disclosures about: how and why an entity uses derivative instruments; how
derivative instruments and related hedged items are accounted for under SFAS No. 133
and its related interpretations; and how derivative instruments and related hedged items
affect an entitys financial position, financial performance and cash flows. SFAS
No. 161 is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008. The Company adopted the provisions of
SFAS No. 133 on April 1, 2009 and included the additional disclosures in Note 11,
Derivative Instruments, which are provided on a prospective basis.

In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations (SFAS No. 141R). SFAS No. 141R significantly changes the
accounting for business combinations in a number of areas including the treatment of
contingent consideration, preacquisition contingencies, transaction costs, in-process
research and development and restructuring costs. In addition, under SFAS No. 141R,
changes in an acquired entitys deferred tax assets and uncertain tax positions after
the measurement period will impact income tax expense. SFAS No. 141R is effective for
fiscal years beginning after December 15, 2008. The Company adopted SFAS
No. 141R on April 1, 2009. The adoption of SFAS No. 141 had no material effect on the
Companys consolidated financial statements.

In
February 2008, the FASB issued FASB Staff Position No. 157-1 (FSP
157-1) and FASB Staff Position No. 157-2 (FSP 157-2), which,
respectively, removed leasing transactions from the scope of SFAS No. 157 and
deferred for one year the effective date for SFAS No. 157 Fair Value MeasurementsSFAS No 157)as it applies to certain nonfinancial assets and
liabilities. The deferral provided by FSP 157-2 applies to such items as nonfinancial
assets and liabilities initially measured at fair value in a business combination (but not
measured at fair value in subsequent periods) and nonfinancial long-lived asset groups
measured at fair value for an impairment assessment.  The Company adopted FSP 157-2
on April 1, 2009. The adoption of FSP 157-2 had no material effect on the Companys
consolidated financial statements.

# NOTE 9  SEGMENT
INFORMATION

The
Company evaluates its business under three segments: (a) Consumables; (b) Packaging
Automation; and (c) Medication Administration Systems. The Consumables Segment primarily
consists of the manufacturing of punch cards and blisters and other consumable medication
packaging. The Packaging Automation segment consists of products that provide customers
with the ability to package medication into the Companys consumable products in an
efficient manner. This type of automation allows the packaging of medication in either a
pre-pack or an on-demand manner. The Medication Administration Systems segment consists of
automation products designed to provide customers with a system to administer medication
to residents at long-term care facilities. These segments represent the manner in which
the Companys operations are managed.

10

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Below
are sales and operating income (loss) by segment for the three months ended June 30, 2009
and 2008 and a reconciliation of segment operating income to earnings before income taxes.
Operating income is net sales less cost of sales and other operating expenses, excluding
equity-based compensation expense and other corporate expenses. Cost of sales and other
operating expenses are directly identifiable to the respective segment or allocated on the
basis of sales or manpower.

|                                                 | Three Months Ended June 30,       
|------------------------------------------------ | ----------------------------------
|
|
|
|                                                 | (In Thousands, Except Percentages)
|Net Sales                                        |                                   
|Consumables                                      |                                   
|Packaging Automation                             |                                   
|Medication Administration Systems                |                                   
|
|Net Sales                                        |                                   
|
|Operating Income (Loss) and Operating Margins    |                                   
|Consumables                                      |                                   
|                                                 |                                   
|Packaging Automation                             |                                   
|                                                 |                                   
|Medication Administration Systems                |                                   
|                                                 |                                   
|Corporate Expenses Not Allowed to Other Segments |                                   
|
|Operating Income                                 |                                   
|
|Operating Margin                                 |                                   
|
|Deductions from Operating Income                 |                                   
|Interest Expense                                 |                                   
|Income Before Taxes                              |                                   
|

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Geographic Information

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

|                                              | Three Months Ended June 30,       
|--------------------------------------------- | ----------------------------------
|
|
|
|                                              | (In Thousands, Except Percentages)
|Net Sales                                     |                                   
|U.S.                                          |                                   
|Non-U.S.                                      |                                   
|
|Total Net Sales                               |                                   
|
|Operating (Loss) Income and Operating Margins |                                   
|U.S.                                          |                                   
|                                              |                                   
|Non-U.S.                                      |                                   
|                                              |                                   
|
|Total Operating Income                        |                                   
|
|Total Operating Margin                        |                                   
|

Total
assets classified by major geographic areas in which the company operates was a follows:

|          | As of June 30, 2009 |  | As of March 31, 2009
|--------- | ------------------- |  | --------------------
|
|          | (In Thousands)     
|Net Sales |                     |  |                     
|U.S.      |                     |  | $                   
|Non-U.S.  |                     |  |                     
|
|          |                     |  | $                   
|

# NOTE 10  FAIR
VALUE OF FINANCIAL INSTRUMENTS

The
Company adopted SFAS No. 157 effective April 1, 2008 for financial assets and
liabilities measured on a recurring basis. SFAS No. 157 applies to all financial
assets and financial liabilities that are being measured and reported on a fair value
basis. On April 1, 2009, the Company adopted FSP No. 157-2 for all non-financial assets
and liabilities accounted for at fair value on a non-recurring basis. There was no impact
for the adoption of SFAS No. 157 to the consolidated financial statements. SFAS No. 157
establishes a framework for measuring fair value and expands disclosure about fair value measurements.
 The statement requires fair value measurements to be classified and disclosed in one of the following three
categories:

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

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

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

The
following table summarizes the valuation of the Companys financial instruments by
the above SFAS No. 157 categories as of June 30, 2009:

|                    |  | June 30, 2009 
|------------------- |  | --------------
|
|
|
|
|
|                    |  | (In Thousands)
|
|Interest Rate Swaps |  | $   (196)     

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

Non-financial Items
Measured at Fair Value on a Nonrecurring Basis

Non-financial assets, such as
goodwill; intangible assets; and property, plant and equipment are measured at fair value
when there is an indicator of impairment and recorded at fair value only when impairment
is recognized. The Company performed impairment analyses in the fourth quarter of fiscal
year 2009. Based on the results of impairments tests, the Company determined no impairment
of goodwill; intangible assets; or property, plant and equipment existed.

# NOTE 11 
DERIVATIVE INSTRUMENTS

The
Company uses derivative instruments in the form of interest rate swaps to manage risks
related to interest rates. The interest rate swaps qualify for hedge accounting treatment
under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.

The
Company has two interest rate swap agreements for notional amounts of $2 million and $5
million, respectively. These swap agreements were entered into in order to fix variable
interest rates on the revolving long-term debt at an average rate of 4.7%. The swaps
mature in March 2010 and March 2011, respectively. The swap agreements were designated as
cash flow hedges upon meeting the criteria for effectiveness and are recorded at fair
value in the consolidated balance sheets and the Company calculates the effectiveness of
the hedge on a quarterly basis. There was no ineffectiveness during the three months
ending June 30, 2009. The related gains or losses are recorded in stockholders
equity as a component of accumulated other comprehensive income (loss).

13

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# Fair Values of
Derivative Instruments

|                                                                      | June 30, 2009 
|--------------------------------------------------------------------- | --------------
|
|
|
|                                                                      | (In Thousands)
|
|Assets                                                                |               
|Derivatives designated as hedging instruments under Statement 133     |               
|None                                                                  |               
|Derivatives not designed as hedging instruments under Statement 133   |               
|None                                                                  |               
|
|Liabilities                                                           |               
|Derivatives designated as hedging instruments under Statement 133     |               
|Interest rate contracts                                               |               
|Derivatives not designated as hedging instruments under Statement 133 |               
|None                                                                  |               
|
|Total Derivatives                                                     |               
|

The
following table summarizes the fair value of the interest rate contracts on the Condensed
Consolidated Statement of Financial Position for the three months ended June 30, 2009.

|              |  |       |  |                  |  |   |  | Location of Gain or |  | Amount of Gain or
|------------- |  | ----- |  | ---------------- |  | - |  | ------------------- |  | -----------------
|
|
|
|
|
|
|Interest Rate |  |       |  |                  |  |   |  |                     |  |                  
|Contracts     |  | $ 121 |  | Interest Expense |  |  |  | N/A                 |  | N/A              

# NOTE 12  AGREEMENT
AND PLAN OF MERGER

On
August 7, 2009, the Company entered into an Agreement and Plan of Merger (the Merger
Agreement) with MedPak Holdings, Inc., a Delaware corporation (Parent),
and MedPak Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of
Parent (Merger Sub). Parent is an affiliate of Excellere Partners, LLC, a
Denver, Colorado based private equity firm (Excellere Partners).

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Pursuant to the terms of the Merger Agreement, Merger Sub will merge with and into the
Company, with the Company as the surviving corporation of the merger (the
Merger). In the Merger, each share of common stock of the Company, other than
those shares held by the Company, any subsidiary of the Company, Parent or Merger Sub, and
other than those shares with respect to which appraisal rights are properly exercised,
will be converted into the right to receive $5.75 per share in cash (the Merger
Consideration). Prior to the effective time of the Merger, a portion of the shares
owned by certain of the Companys executive officers (the Rollover
Investors), including Todd E. Siegel, the Companys President and CEO, will be
contributed to Parent in exchange for a combination of preferred stock and voting common
stock of Parent. In addition, all outstanding options to acquire shares of Company common
stock will vest at the effective time of the Merger and holders of such options will
receive an amount in cash equal to the excess, if any, of the Merger Consideration over
the exercise price per share subject to the option for each share subject to the option.

Completion of the Merger is subject to customary closing conditions including (i) approval
by the Companys stockholders and (ii) no material adverse effect on the
Companys business or results of operations. The parties currently expect that the
Merger will be completed in the fourth quarter of this calendar year.

The
Merger Agreement contains certain termination rights for both Parent and the Company. If
the Company terminates the Merger Agreement prior to obtaining stockholder approval as a
result of the Special Committee or the Board of Directors concluding in good faith that in
light of a superior proposal, it would be inconsistent with the directors fiduciary
obligations to the Companys stockholders under applicable law to not withdraw or
change its recommendation that the Companys stockholders approve the Merger
Agreement and concurrently with such termination the Company enters into a definitive
agreement with respect to such superior proposal, the Company is required to pay to Parent
a termination fee of $1,174,200 (the Termination Fee) and reimburse Parent for
its fees and expenses incurred with respect to the transactions contemplated by the Merger
Agreement, up to a maximum of $750,000 (the Expense Payment).

If Parent terminates the Merger Agreement because: (i) the Companys Board of
Directors has withdrawn or modified, or publicly proposed to withdraw or modify, in a
manner adverse to Parent its recommendation with respect to the Merger Agreement; (ii) the
Companys Board of Directors or any committee thereof (a) does not reject any
takeover proposal within seven days of the making thereof or (b) does not publicly
reconfirm its recommendation that the Company stockholders approve the Merger within three
days after receipt of a written request from Parent that it do so; (iii) the Company fails
to include the Board of Directors recommendation to approve the Merger in its proxy
statement; (iv) the Board of Directors of the Company approves, endorses, or allows the
Company to enter into, or recommends to the Company stockholders a merger agreement,
letter of intent, acquisition agreement, or other similar agreement with respect to a
takeover proposal (other than a confidentiality agreement), (v) if the Company willfully
breaches or fails to perform any of its representations, warranties, covenants or
agreements set forth in the Merger Agreement (or if any such representations or warranties
fails to be true), which breach or failure (a) would give rise to the failure of a
condition to the Merger and (b) is incapable of being cured, or is not cured, after
written notice (a Breach), or (vi) the Company or the Companys Board of
Directors or any committee thereof shall have announced its intention to do any of the
items listed in clauses (i) through (iv) above, then the Company must pay the Termination
Fee and the Expense Payment to Parent.

If:
(i) the Merger Agreement is terminated (a) by Parent or the Company because the
effective time of the Merger has not occurred by December 31, 2009 or within the financing
cure period, if applicable, or (b) because stockholder approval was not obtained at the
special meeting; and (ii) the Company enters into a definitive agreement with respect
to, or consummates, a takeover proposal within six months (or 12 months in the case of a
takeover proposal that had been publicly announced, made known to the Company or made
directly to Company stockholders prior to the termination of the Merger Agreement) after
the date the Merger Agreement is terminated, the Company must pay the Termination Fee and
the Expense Payment to Parent. In the event that the circumstances described in clause
(i), but not clause (ii), above have occurred, then, except in the case of a Payment
Exception (as defined below) or if Parent is required to pay the Termination Fee to the
Company, the Company will pay the Expense Payment, but not the Termination Fee, to Parent.

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In
addition, if Parent terminates the Merger Agreement because: (i) the Company commits a
Breach that is not willful; (ii) any events or changes occurred that, individually or in
the aggregate, have had or could reasonably be expected to have a material adverse effect
on the Company; or (iii) the voting agreement entered into among Parent and certain of the
Companys stockholders in connection with the Merger is not valid, binding and
enforceable in accordance with its terms against the parties thereto, then the Company
will pay the Expense Payment, but not the Termination Fee, to Parent.

If
the Company terminates the Merger Agreement because Parent has: (i) failed to consummate
the Merger on or before the later of (a) December 31, 2009 or (b) if Parent is entitled to
attempt to amend, modify or replace its financing commitments, then after the 60 day
financing cure period; or (ii) committed a Breach, then Parent must pay the Termination
Fee to the Company. However, Parent shall have no obligation to pay the Termination Fee if
Parent fails to consummate the Merger or otherwise breaches or fails to perform any of its
representations, warranties, covenants or agreements set forth in the Merger Agreement as
a result of failing to obtain financing primarily because of any material instituted,
commenced, pending or threatened action, investigation, litigation or proceeding, provided
that Parent has used commercially reasonable efforts to obtain financing (a Payment
Exception).

Parent
has obtained commitments for the financing for the Merger, which are subject to customary
conditions.

In
connection with the execution of the Merger Agreement, Todd E. Siegel and other members of
the Companys senior management team, who currently own approximately 30% percent of
the Companys outstanding shares, have agreed to vote their shares in favor of the
Merger.

The
foregoing description of the Merger Agreement and the Merger is qualified in its entirety
by reference to the Merger Agreement which was attached as Exhibit 2.1 to the Form 8-K/A
filed by the Company with the SEC on August 11, 2009.

During
the three months ended June 30, 2009, the Company incurred approximately $421,000 in costs
associated with the Merger Agreement. These costs are not deductible for tax purposes and
as a result, our effective tax rate increased to 119.4% compared to 36.3% during the same
period last year.

16

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# MTS MEDICATION
TECHNOLOGIES, INC. AND SUBSIDIARIES MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONSFOR THE THREE MONTHS ENDED JUNE 30, 2009

Item 2.     Management's
Discussion and Analysis of Financial Condition and Results of Operations

# Overview

The
Company experienced a decline in net sales during the three months ended June 30, 2009
compared with the same period of the prior fiscal year. This decline results primarily
from the fact that in the three months ended June 30, 2008, the Company recognized revenue
for several OnDemand machines that were sold to our largest customer. The Company did not
sell any OnDemand machines to this customer during the three months ended June 30, 2009.

Net
sales in our Consumables segment grew approximately 4.2% in the U.S. long-term care market
during the three months ended June 30, 2009. Net sales of consumables in Europe grew
approximately 16.6% when measured in the functional currency of the country in which the
sales were made. However, as a result of fluctuations in foreign currency, our revenue
declined in Europe by approximately 6.6% for the three months ended June 30, 2009 when the
revenue is translated into U.S. dollars.

The
operating loss for our Packaging Automation segment increased during the three months
ended June 30, 2009 over the same period of the prior fiscal year primarily due to the
fact that in the prior fiscal year we had higher revenue and gross profit in this segment
related to a contract for OnDemand machines with our largest customer. In addition, during
the three months ended June 30, 2009, we incurred higher research and development costs
related to enhancements to products sold in our Packaging Automation segment.

Revenue
in our Medication Administration Systems segment is comprised solely of sales of
MedLocker® and service and support of existing MedLocker installations. The operations
of this segment have resulted in an operating loss of approximately $316,000 during the
three months ended June 30, 2009. We are optimistic that our MedTimes® product will be
released for sale shortly and begin to result in additional gross profit to reduce
operating losses for this segment in the future.

Our
consolidated operating income and net income declined during the three months ended June
30, 2009 compared to the same period of the prior fiscal year primarily due to the
following factors:

| | 1. | Sales
in Europe are made to customers in the functional currency of the country
in which the sale is made, but product that is sold in Europe is
manufactured in the U.S. and paid for in U.S. dollars. The U.S. dollar has
strengthened, and therefore, our gross profit margins have declined on
these sales compared to the same period of the previous year.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | Increased
costs associated with the Merger Agreement.
| | -- | -----------------------------------------------------

| | 3. | Increased
research and development costs associated with improvements to OnDemand
technologies.
| | -- | -----------------------------------------------------------------------------------------------

We
use many metrics to evaluate and monitor our business, including the following:

| | 1. | Revenue
growth, gross profit margins, operating income and net income by segment and by
geographic area;
| | -- | --------------------------------------------------------------------------------------------------------

| | 2. | Inventory
turnover;
| | -- | -------------------

| | 3. | Account
receivable collection days;
| | -- | -----------------------------------

| | 4. | Consolidated
net income and operating cash flow; and
| | -- | ----------------------------------------------------

| | 5. | Investing
activities.
| | -- | ---------------------

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Each
of these key metrics is more fully discussed in this Part I, Item 2,
Managements Discussion and Analysis of Financial Condition and Results of
Operations.

On
August 7, 2009, the Company entered into the Merger Agreement, which contemplates that all
outstanding shares of the Companys common stock, other than those held by MTS,
Parent, Merger Sub, those who properly exercise appraisal rights, and certain of our
directors and officers who will be contributing a portion of the shares of the
Companys common stock held by each of them to Parent for a combination of preferred
stock and voting common stock, will be purchased for $5.75 per share. The Merger Agreement
is subject to stockholder approval at a special meeting that will be convened to vote on
it and certain other conditions.

# RESULTS OF OPERATIONS

Three Months Ended June
30, 2009 and 2008

Net
sales for the three months ended June 30, 2009 decreased 10.4% to $17.4 million compared
with $19.4 million during the same period of the prior fiscal year. The decline primarily
relates to a decline in revenue from sales of OnDemand machines. During the three months
ended June 30, 2009, the Company recorded approximately $2.7 million in net sales
associated with the sale of three OnDemand machines compared to $5.1 million on sales of
nine OnDemand machines during the same period in the prior fiscal year. Net sales for
consumables increased approximately $329,000 during the three months ended June 30, 2009
compared to the same period the fiscal prior year. The increase was primarily related to
increased sales of punch cards to customers in the U.S.

Cost
of sales for the three months ended June 30, 2009 was $11.2 million compared with $13.3
million during the same period in the prior fiscal year. Cost of sales as a percentage of
sales decreased to 64.4% from 68.8% during the same period of the prior fiscal year. Cost
of sales as a percentage of sales decreased primarily because the proportion of revenue
associated with OnDemand machines, which have a higher cost of sales percentage than
consumables, was higher during the prior fiscal year.

Selling,
general and administration expenses for the three months ended June 30, 2009 increased
13.4% to $5.1 million from $4.5 million in the prior fiscal year primarily due to
approximately $421,000 in costs associated with the Merger Agreement, as well as an
increase of approximately $232,000 in research and development costs primarily associated
with development of new OnDemand machine technology.

Depreciation
and amortization expense for the three months ended June 30, 2009 decreased 1.0% to
$787,000 from $795,000 during the same period of the prior fiscal year. The decrease
resulted primarily from decreased amortization associated with capitalized product
development costs, which became fully amortized in March 2009.

Interest
expense for the three months ended June 30, 2009 decreased 28.6% to $90,000 from $126,000
during the same period of the prior fiscal year. The decrease results from a decrease in
interest rates and lower long-term debt outstanding.

Income
tax expense decreased 4.7% to $203,000 during the three months ended June 30, 2009
compared with $213,000 during the same period of the prior fiscal year. The decrease
results from the fact that our net income before taxes decreased. Our effective tax rate
increased to 119.4% from 36.3% due to the fact that $421,000 in costs incurred in the
first quarter of this fiscal year associated with the merger agreement are not deductible
for tax purposes.

18

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# Segments

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

# Segment Results of
Operations

Operating
income (loss), as presented below is net sales less cost of sales and other operating
expenses that are directly identifiable to the respective segment or allocated on the
basis of sales or manpower. Operating income is reconciled to earnings before income taxes
in Note 9 to the Consolidated Financial Statements included in the report.

# Consumables

|                 | Three Months Ended June 30,       
|---------------- | ----------------------------------
|
|
|
|                 | (In Thousands, Except Percentages)
|                 |                                   
|Net Sales        |                                   
|Operating Income |                                   
|Operating Margin |                                   

Net
sales in the three months ended June 30, 2009 increased approximately $329,000, or 2.5%
over the same period in the prior fiscal year, primarily due to growth in sales to the
U.S. long-term care market of approximately 4.2%. The growth in the U.S. is primarily
attributable to the increase in medications dispensed in long-term care facilities. Net
sales of consumable products in Europe increased 16.6% when expressed in the functional
currency of the country in which the sales are made, but decreased 6.6% in terms of the
U.S. Dollars as a result of the exchange rate fluctuations between the U.S. Dollar and the
British Pound and Euro.

Operating
margins increased in the three months ended June 30, 2009 over the same period in the
prior fiscal year primarily due to (a) lower freight costs; (b) decreases in raw material
costs primarily related to materials that have a high petroleum-based content; and (c)
decreased scrap rates and labor costs.

# Packaging Automation

|                 | Three Months Ended June 30,       
|---------------- | ----------------------------------
|
|
|
|                 | (In Thousands, Except Percentages)
|                 |                                   
|Net Sales        |                                   
|Operating Loss   |                                   
|Operating Margin |                                   

19

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Net
sales for the three months ended June 30, 2009 decreased $2.3 million, or 36.8%, from the
same period in the prior fiscal year due to a decline in OnDemand sales. During the three
months ended June 30, 2009, the Company recorded $2.7 million in revenue associated with
the sale of three OnDemand machines compared to $5.1 million in revenue on the sale of
nine OnDemand machined during the same period the prior fiscal year.

Our
operating margin during the three months ended June 30, 2009 decreased from the same
period in the prior fiscal year due to decreased net sales, as well as higher-than-normal
engineering and research and development costs incurred in the first quarter of this
fiscal year as a result of investments in the development of new products, including a
high-speed vision and infrared inspection system that will be used in conjunction with our
OnDemand Express II and CentraFill products.

# Medication
Administration Systems

|                 | Three Months Ended June 30,       
|---------------- | ----------------------------------
|
|
|
|                 | (In Thousands, Except Percentages)
|                 |                                   
|Net Sales        |                                   
|Operating Loss   |                                   
|Operating Margin |                                   

Net
sales in the first quarter decreased due to decreased sales of our MedLocker systems.

Our
operating loss for the three months ended June 30, 2009 decreased from the same period of
the prior fiscal year because there were less overhead costs allocated to this segment due
to lower revenue.

# LIQUIDITY AND CAPITAL
RESOURCES

During
the three  months  ended June 30,  2009,  we had a net loss of $33,000  compared  with
net income  of  $374,000  during  the same  period of the prior  fiscal  year.  Cash
 provided  by  operations decreased  to  $537,000  from  $1.08  million  during  the
 three  months  ended  June 30,  2009 and 2008, respectively,  primarily  due to lower
net income in the three months ended June 30, 2009  compared to the same period in the
prior fiscal year, as well as due to a decline in inventory  balances  during the prior
fiscal  year from the sale of nine  OnDemand  machines.  We had working  capital of $13.9
 million at June 30, 2009 compared to $13.8 million at June 30, 2008.

Investing
 activities  used  $656,000  during the three months ended June 30, 2009  compared with
$1.2 million  during the same period of the prior fiscal year.  The  decrease  resulted
 primarily  from a decrease in expenditures for manufacturing equipment used principally
in our Consumables segment.

Financing
 activities  provided  $457,000  during the three months  ended June 30, 2009  compared
with $0 used in the same period of the prior fiscal year.  The change  results  primarily
 from higher net advances under the Credit Facility, which were used to fund working
capital requirements.

Our
short-term and long-term liquidity is primarily dependent on our ability to generate cash
flow from operations. Inventory levels may change significantly as we complete the
manufacturing and installation of our OnDemand machines pursuant to the contract with our
largest customer. Increases in net sales may result in corresponding increases in accounts
receivable. Cash flow from operations and borrowing availability under the Credit Facility
is anticipated to support an increase in accounts receivable and inventory.

We
have new product development projects underway, principally related to our MedTimes
system, which 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.

20

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There
was $8.7 million borrowed and an additional $3.3 million available under our Credit
Facility at June 30, 2009.

The
Credit Facility contains financial covenants that, among other things, require us to
maintain certain financial ratios. We were in compliance with all provisions of the loan
agreements at June 30, 2009.

We
believe that the cash generated from operations during this fiscal year, and amounts
available under the Credit Facility will be sufficient to meet our capital expenditures,
product development, working capital needs and the principal payments required by our term
loan agreements.

# ESTIMATES AND CRITICAL
ACCOUNTING POLICIES

The
preparation of our Consolidated Financial Statements in conformity with U.S. 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 revenue and expenses for
the respective period ended for such statements. The determination of estimates requires
the use of judgment since future events and their effect on our operations cannot be
determined with absolute certainty. Actual results typically differ from these estimates
in some fashion, and at times, these variances may be material to our financial
statements. Our management continually evaluates its estimates and assumptions, which are
based on historical experience and other factors that are believed to be reasonable under
the circumstances. These estimates and our actual results are subject to the risk factors
listed under Part II, Item 1A. Risk Factors of the Form 10-Q for the fiscal
quarter ended June 30, 2009 and those listed under Item 1A. Risk Factors in
our Form 10-K for the fiscal year ended March 31, 2009. Nevertheless, our management
believes the following items involve a higher degree of complexity and judgment.

Revenue Recognition

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

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

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

21

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Accounts Receivable

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

Inventories

Inventories
are stated at the lower of cost or market. Cost is determined by the first-in, first-out
(FIFO) method. The elements of costs included in the valuation of inventory
are the direct costs associated with materials purchased, direct labor expended to
manufacture the inventory and an allocation of general overhead expenses incurred to
operate the manufacturing facilities. The allowance for inventory obsolescence and slow
moving inventory is reviewed on a regular basis. We review various information related to
the age and turnover of specific inventory items to assist with this assessment. An
additional reserve of one percent of inventory would require an increase in the inventory
reserve accounts and would result in additional expense of approximately $95,000.

Self-Insurance Plan
Reserve

We
have a medical health benefit self-insurance plan, which covers substantially all of our
employees. During the three months ended June 30, 2009, we were reinsured for claims that
exceed $100,000 per participant and an annual maximum aggregate limit of approximately
$1.6 million. Future claims may affect the reinsurance limits that may be available to us.

Income Taxes

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

Goodwill and Other
Intangible Assets

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

22

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

# Off-Balance Sheet
Arrangements

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

# Contractual Obligations

Not
Applicable.

# Item 3.     Quantitative and
Qualitative Disclosures About Market Risk

Not
Applicable.

# Item 4.     Controls and
Procedures

Evaluation of Disclosure
Controls and Procedures

We
maintain disclosure controls and procedures that are designed to ensure that information
required to be disclosed by us in the reports we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in the
SECs rules and forms, and that such information is accumulated and communicated
to our management, including our Chief Executive Officer (principal executive officer) and
Chief Financial Officer (principal financial officer), to allow timely decisions regarding
required disclosure. We have established a Disclosure Committee, consisting of certain
members of management, to assist in this evaluation. The Disclosure Committee meets on a
regular quarterly basis, and as needed.

Our management, including our Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act), at June
30, 2009. Based on that evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that, at June 30, 2009, our disclosure controls and procedures were not
effective in ensuring that material information relating to the Company required to be
disclosed by the Company in reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in the
SECs rules and forms and that such information is accumulated and communicated to
management, including the chief executive officer and the chief financial officer, as
appropriate, to allow timely decisions regarding required disclosure. Notwithstanding the
material weakness described below, our management has concluded that the Consolidated
Financial Statements fairly state, in all material respects, our financial condition,
results of operations and cash flows for the periods presented in conformity with
generally accepted accounting principles.

Based
on the definition of material weakness in the Public Company Accounting
Oversight Boards Auditing Standard No. 5, An Audit of Internal Control Over
Financial Reporting Performed in Conjunction With an Audit of Financial
Statements, we determined that because effective controls regarding recording
inventory transactions were not in place, the carrying value of our inventory could be
misstated, and the related cost of goods sold could also be misstated, and therefore, a
material weakness existed in our internal control over financial reporting and have
disclosed this to the audit committee and to the independent registered public
accountants.

23

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# Plan for Remediation of
Material Weakness

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

# Changes in Internal
Control Over Financial Reporting

There
has not been any significant change in our internal control over financial reporting
during the quarter ended June 30, 2009 other than those described above, that has
materially affected or is reasonably likely to materially affect our internal control over
financial reporting.

24

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# PART II  OTHER
INFORMATION

# Item 1.     Legal Proceedings

None.

# Item 1A.     Risk Factors

You
should carefully consider the Risk Factors section of our Annual Report on
Form 10-K filed with the SEC on June 22, 2009 in evaluating us and our business before
making an investment decision. The specific risk factors set forth below have been updated
to provide information as of March 31, 2009. There have been no other material changes
from the risk factors previously disclosed in our Form 10-K in response to Item 1A.
to Part I of Form 10-K. If any of the risks identified herein or in our Form 10-K, or any
other risks and uncertainties that we have not yet identified or that we currently believe
are not material, actually occur and are material, it could harm our business, financial
condition and results of operations. In such event, the trading price of our common stock
could decline and you may lose all or part of your investment.

We face a number of risks
associated with the proposed merger.

On
August 7, 2009, we entered into the Merger Agreement with Parent and Merger Sub. We are
subject to certain risks as a result of the Merger Agreement, including the following:

| |  | There
can be no assurance that our stockholders will approve the Merger Agreement or that all
of the other closing conditions will be satisfied;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------

| |  | If
the Merger is not completed, the share price of our common stock may decline, to the
extent that the current market price of our common stock reflects an assumption that the
Merger will be completed;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | We
must pay certain costs related to the Merger, including the fees and/or expenses of our legal,
accounting and financial advisors, even if the Merger is not completed;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | We
may be required to pay a termination fee of $1,174,200 and reimburse out-of-pocket
fees and expenses incurred with respect to the transactions contemplated by the Merger
Agreement, up to a maximum of $750,000, if the Merger Agreement is terminated under
certain circumstances set forth in the Merger Agreement;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Stockholder
lawsuits may be filed against us in connection with the Merger Agreement;
| | - | -------------------------------------------------------------------------------------

| |  | Our
management and employees' attention may be diverted from day-to-day operations which may
disrupt our business;
| | - | ------------------------------------------------------------------------------------------------------------------

| |  | Our
stockholders will receive $5.75 per share of our common stock in cash, despite any
possible favorable changes in the market value of our common stock;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Excellere
Partners may be unable to obtain the necessary debt financing arrangements set forth in
the commitment letter it received in connection with the Merger Agreement; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | If
we are unable to complete the Merger the investment community could have a negative
perception of us and our business.
| | - | -------------------------------------------------------------------------------------------------------------------------

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# Item 2.     Unregistered
Sales of Equity Securities and Use of Proceeds

None.

# Item 3.     Defaults Upon
Senior Securities

None.

# Item 4.     Submission of
Matters to a Vote of Security Holders

None.

# Item 5.     Other Information

None.

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Table of Contents

# Item 6.     Exhibits

|Exhibit Index |  | Description                                                                                                                                        
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
|
|3.1           |  | Certificate of Incorporation and Amendments thereto. (1)                                                                                           
|3.2           |  | Certificate of Amendment of Certificate of Incorporation. (2)                                                                                      
|3.3           |  | Certificate of Amendment of Certificate of Incorporation. (3)                                                                                      
|3.4           |  | Amended and Restated Bylaws (4)                                                                                                                    
|4.1           |  | Specimen Stock Certificate (3)                                                                                                                     
|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 of the Vice President and Chief Financial Officer pursuant to 18 U.S.C. §1350. (*)                                                   
|(*)           |  | Filed herein.                                                                                                                                      
|(1)           |  | Incorporated herein by reference to same Exhibit(s), respectively, Registration Statement on Form S-1 (File No. 33-17852) filed October 9, 1987.   
|(2)           |  | Incorporated herein by reference to same Exhibit(s), respectively, Registration Statement on Form S-1 (File No. 33-40678) filed May 17, 1991.      
|(3)           |  | Incorporated herein by reference to same Exhibit(s), respectively, Registration Statement on Form S-3 (File No. 333-112212) filed January 26, 2004.
|(4)           |  | Incorporated herein by reference to Form 8-K filed June 15, 2007.                                                                                  

27

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Table of Contents

# 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 14, 2009 |                                  
|                        |                                  
|                        |                                  
|                        |                                  

|Date:   August 14, 2009 |  | By: | /s/ Michael P. Conroy                      | 
|----------------------- |  | --- | ------------------------------------------ | 
|                        |  |     |                                            | 
|                        |  |     | Michael P. Conroy                          | 
|                        |  |     | Vice President and Chief Financial Officer | 

28

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Table of Contents

# Exhibit Index

|Exhibit Index |  | Description                                                                                                                                        
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
|
|3.1           |  | Certificate of Incorporation and Amendments thereto. (1)                                                                                           
|3.2           |  | Certificate of Amendment of Certificate of Incorporation. (2)                                                                                      
|3.3           |  | Certificate of Amendment of Certificate of Incorporation. (3)                                                                                      
|3.4           |  | Amended and Restated Bylaws (4)                                                                                                                    
|4.1           |  | Specimen Stock Certificate (3)                                                                                                                     
|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 of the Vice President and Chief Financial Officer pursuant to 18 U.S.C. §1350. (*)                                                   
|(*)           |  | Filed herein.                                                                                                                                      
|(1)           |  | Incorporated herein by reference to same Exhibit(s), respectively, Registration Statement on Form S-1 (File No. 33-17852) filed October 9, 1987.   
|(2)           |  | Incorporated herein by reference to same Exhibit(s), respectively, Registration Statement on Form S-1 (File No. 33-40678) filed May 17, 1991.      
|(3)           |  | Incorporated herein by reference to same Exhibit(s), respectively, Registration Statement on Form S-3 (File No. 333-112212) filed January 26, 2004.
|(4)           |  | Incorporated herein by reference to Form 8-K filed June 15, 2007.                                                                                  

29

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Table of Contents

# CERTIFICATIONS

EXHIBIT 31.1

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 and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

| | (d) | Disclosed
in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent
fiscal quarter (the registrants fourth fiscal quarter in the case of
an 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 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 14, 2009 |  | By: | /s/ Todd E. Siegel                    | 
|----------------------- |  | --- | ------------------------------------- | 
|                        |  |     |                                       | 
|                        |  |     | Todd E. Siegel                        | 
|                        |  |     | President and Chief Executive Officer | 

30

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EXHIBIT 31.2

I, Michael P. Conroy, 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 and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

| | (d) | Disclosed
in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent
fiscal quarter (the registrants fourth fiscal quarter in the case of
an 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 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 14, 2009 |  | By: | /s/ Michael P. Conroy                      | 
|----------------------- |  | --- | ------------------------------------------ | 
|                        |  |     |                                            | 
|                        |  |     | Michael P. Conroy                          | 
|                        |  |     | Vice President and Chief Financial Officer | 

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Table of Contents

EXHIBIT 32.1

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

In
connection with the quarterly report of MTS Medication Technologies, Inc. (the
Company) on Form 10-Q for the quarter ended June 30, 2008 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; 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 14, 2009      | 
|                                      | 
|/s/ Todd E. Siegel                    | 
|Todd E. Siegel                        | 
|President and Chief Executive Officer | 
|                                      | 
|                                      | 

32

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Table of Contents

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 MTS Medication Technologies, Inc. (the
Company) on Form 10-Q for the quarter ended June 30, 2008 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 § 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; 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 14, 2009           | 
|                                           | 
|/s/ Michael P. Conroy                      | 
|Michael P. Conroy                          | 
|Vice President and Chief Financial Officer | 
|                                           | 
|                                           | 

33

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